AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-05545
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARRIAGE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7261
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0423828
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1300 POST OAK BLVD.
SUITE 1500
HOUSTON, TEXAS 77056
(713) 556-7400
(Address including zip code and telephone number,
including area code, of registrant's principal executive offices)
MELVIN C. PAYNE
PRESIDENT
1300 POST OAK BLVD.
SUITE 1500
HOUSTON, TX 77056
(713) 556-7400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
T. MARK KELLY JOHN F. WOMBWELL
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER, 1001 FANNIN 4200 TEXAS COMMERCE TOWER, 600 TRAVIS
HOUSTON, TX 77002-6760 HOUSTON, TX 77002
(713) 758-2222 (713) 220-4200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
CARRIAGE SERVICES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------- -------------------------------------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution........................... Dilution
7. Selling Security Holders........... *
8. Plan of Distribution............... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered......................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Dividend Policy; Description
of Capital Stock
10. Interests of Named Experts and
Counsel............................ *
11. Information with Respect to the
Registrant......................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The Company;
Dividend Policy; Capitalization; Selected
Historical Consolidated Financial and Operating
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale; Available
Information; Index to Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................... *
</TABLE>
- ------------
* Not applicable.
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 18, 1996
PROSPECTUS
3,400,000 SHARES
C A R R I A G E
S E R V I C E S
CLASS A COMMON STOCK
------------------------
All 3,400,000 shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), offered hereby (the "Offering") are being sold by
Carriage Services, Inc. (the "Company"). The initial public offering price is
expected to be between $13.00 and $15.00 per share.
Prior to the Offering, there has been no public market for the Class A
Common Stock of the Company. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
The Company has two classes of Common Stock, the Class A Common Stock
offered hereby and Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common Stock").
The Class A Common Stock is entitled to one vote per share. The Class B Common
Stock is entitled to ten votes per share and is convertible on a share-for-share
basis into Class A Common Stock. Except with respect to votes per share and
conversion rights, the Class A Common Stock and the Class B Common Stock are
identical. Upon consummation of the Offering, holders of Class B Common Stock
will hold approximately 93% of the voting power of the outstanding shares of
Common Stock. See "Description of Capital Stock."
The Class A Common Stock has been approved for quotation, subject to
official notice of issuance, on the Nasdaq National Market under the symbol
"CRSV."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share..... $ $ $
- --------------------------------------------------------------------------------
Total(3)...... $ $ $
================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 510,000 shares of Class A Common Stock at the Price to Public,
less Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Class A Common Stock will be made in New York, New
York, on or about , 1996.
------------------------
MERRILL LYNCH & CO. THE CHICAGO CORPORATION
------------------------
The date of this Prospectus is , 1996.
<PAGE>
COMPANY LOCATIONS
As of July 15, 1996
[GRAPHIC OMITTED]
[Picture map of the United States showing Funeral Homes,
Cemeteries and Headquarters]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S CLASS
A COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES (A) THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED, (B) ALL OUTSTANDING SHARES OF THE COMPANY'S SERIES A, SERIES B AND
SERIES C PREFERRED STOCK ARE CONVERTED INTO SHARES OF CLASS B COMMON STOCK ON
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART AND (C) A ONE-FOR-TWO REVERSE STOCK SPLIT OF THE CLASS B COMMON STOCK. AS
USED IN THIS PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, THE TERMS
"CARRIAGE" AND THE "COMPANY" REFER TO CARRIAGE SERVICES, INC., ITS CONSOLIDATED
SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS.
THE COMPANY
GENERAL
Carriage Services, Inc. believes that it is the sixth largest provider of
death care services and products in the United States based on 1995 revenues.
The Company provides a complete range of funeral services and products to meet
families' needs, including consultation, removal and preparation of remains,
sale of caskets and related funeral merchandise, transportation services and the
use of funeral home facilities for visitation. The Company also offers cemetery
products and services, including rights to interment in cemetery sites,
interment services and related cemetery merchandise. As of June 30, 1996, the
Company operated 62 funeral homes and seven cemeteries in 13 states. Funeral
services constituted approximately 93% of revenues in 1995 and 92% in the first
half of 1996.
Since the Company's formation in 1991, management has undertaken a
disciplined approach to growth that has allowed the Company the necessary time
to integrate acquisitions, develop effective operating, administrative and
financial systems and controls, recruit an experienced operating management team
and promote a decentralized, entrepreneurial service culture. From 1992 through
1995, the Company acquired 42 funeral homes and four cemeteries for
consideration ranging from approximately $9 million to $14 million in each of
the four years. The Company believes that the infrastructure it has developed
over the past four years positioned the Company to pursue an accelerated growth
strategy beginning in late 1995. As a result, the Company has acquired 24
funeral homes and four cemeteries for consideration of $33.5 million through the
first six months of 1996 and an additional two funeral homes and one cemetery
for consideration of $7.8 million through July 15, 1996. In addition, as of July
15, 1996, the Company had letters of intent to acquire eight funeral homes and
one cemetery for consideration of $13.5 million.
DEATH CARE INDUSTRY
The death care industry has certain attractive fundamental characteristics,
including highly fragmented ownership, barriers to entry and stable, predictable
demand. There are an estimated 22,000 funeral homes and 9,600 commercial
cemeteries in the United States, and less than 20% of the 1995 United States
death care industry revenues are represented by the four largest publicly traded
domestic death care companies. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Death rates in the United States are
fairly predictable, which lends stability to the death care industry. The number
of deaths in the United States has increased at a compounded rate of
approximately 1% per year since 1980 and is expected to continue at that rate
through 2010. In the past several years, the industry has witnessed considerable
consolidation. Estate planning issues, increased governmental regulation and a
desire to address management succession concerns have led independent funeral
home owners to pursue opportunities to divest their businesses. Former owners
frequently remain associated with the funeral home in a managerial capacity
after the sale. Management believes consolidation in the industry will continue
to accelerate and that the Company is well positioned to be a major participant
in such consolidation.
BUSINESS STRATEGY
The Company's objective is to become the preferred succession planning
alternative for premier funeral homes throughout the United States while
continuing to promote a decentralized, entrepreneurial
service culture. Management believes that the Company's reputation and
collaborative operating style have allowed it to successfully pursue acquisition
opportunities. The Company also has been successful in implementing programs to
improve profitability at newly acquired properties.
Management believes the Company distinguishes itself from other national
death care providers through its decentralized management style and its
incentive-based compensation structure. The Company's management structure
affords local funeral directors autonomy in operating their businesses, while
the utilization of a proprietary personal computer-based system allows senior
management to "manage by exception." In this manner, the Company can obtain
current information on the performance of individual operations and institute
corrective action if necessary. The Company's compensation structure is designed
to maintain or create a sense of ownership by awarding local managers meaningful
cash bonuses and stock options for achieving or exceeding previously established
performance objectives.
The Company's strategy to enhance the profitability of acquired operations
includes improving merchandising and sales training, realizing volume purchase
discounts, centralizing certain financial, accounting, legal, administrative and
employee benefits functions, offering cross-marketing opportunities and
increasing preneed sales in selective markets. Management believes that
significant value can be created by bringing sound business principles to
family-owned businesses, a majority of which do not measure their financial
performance against any annually established parameters. The introduction of
management techniques focused on budgeting and financial performance has proven
to be effective in increasing the profitability of acquired properties.
The Company will continue to aggressively pursue the acquisition of premier
funeral homes that have a strong local market presence and that conduct from 100
to 600 funeral services per year, as well as funeral homes in close proximity to
the Company's existing properties. In addition, although the Company
traditionally has not focused on acquiring cemetery operations, the Company
intends to more aggressively pursue cemetery acquisitions in markets where the
Company operates, or plans to operate, funeral homes to take advantage of
cross-marketing opportunities.
THE OFFERING
Class A Common Stock offered......... 3,400,000 shares
Common Stock to be outstanding after
the Offering(1):
Class A Common Stock............ 3,400,000 shares
Class B Common Stock............ 4,501,476 shares
Total...................... 7,901,476 shares
Voting Rights........................ Each share of Class A Common Stock is
entitled to one vote per share on all
matters requiring stockholder approval,
and each share of Class B Common Stock is
entitled to ten votes per share. See
"Description of Capital Stock."
Conversion of Class B Common Stock... Each share of Class B Common Stock is
convertible at the holder's option into
one share of Class A Common Stock. In
addition, each share of Class B Common
Stock automatically converts into one
share of Class A Common Stock upon a sale
or transfer to anyone other than a
permitted transferee. In any event, each
share of Class B Common Stock will
automatically convert into one share of
Class A Common Stock on December 31,
2001. See "Description of Capital Stock."
Use of Proceeds...................... To repay outstanding indebtedness
incurred principally to fund
acquisitions. See "Use of Proceeds."
Class A Common Stock
Nasdaq National Market symbol...... "CRSV"
- ------------
(1) Excludes as of June 30, 1996, (i) 90,000 shares of Class B Common Stock
issuable upon exercise of options and (ii) 610,401 shares of Class B Common
Stock issuable upon conversion of 8,545,616 shares of the Company's
convertible redeemable Series D Preferred Stock, par value $.01 per share
(the "Series D Preferred Stock"). Also, does not include (i) 600,000 shares
of Class A Common Stock issuable upon the exercise of options to be granted
under the Company's stock option plans concurrently with the Offering, (ii)
453,929 shares of Class B Common Stock issuable upon conversion of 6,355,000
shares of Series D Preferred Stock issued in connection with acquisitions
completed subsequent to June 30, 1996 and (iii) 177,857 shares of Class B
Common Stock issuable upon conversion of 2,490,000 shares of Series D
Preferred Stock and an additional 53,333 shares of Class B Common Stock to
be issued in connection with pending acquisitions. The number of shares of
Class B Common Stock issuable upon conversion of the Series D Preferred
Stock assumes an initial public offering price of $14.00 per share; the
actual number of shares of Class B Common Stock issuable upon conversion of
the Series D Preferred Stock will be adjusted based upon the initial public
offering price of the Class A Common Stock. See "Management -- Incentive
Plans" and "Description of Capital Stock."
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents summary historical consolidated financial and
operating data as of the dates and for the periods indicated. The consolidated
financial data of the Company as of and for the four years ended December 31,
1995 and six months ended June 30, 1996 set forth below have been derived from
financial statements audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial data of the Company as of and for the
six months ended June 30, 1995 have been derived from unaudited financial
statements which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial data for such periods. The summary historical financial data
should be read in conjunction with the Consolidated Financial Statements of the
Company and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ --------------------
1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral.......................... $ 1,625 $ 10,651 $ 17,368 $ 22,661 $ 10,800 $ 15,648
Cemetery......................... 178 614 1,036 1,576 701 1,277
--------- --------- --------- --------- --------- ---------
Total net revenues.......... 1,803 11,265 18,404 24,237 11,501 16,925
Gross profit:
Funeral.......................... (88) 917 2,856 3,740 2,062 3,194
Cemetery......................... 113 143 158 250 110 195
--------- --------- --------- --------- --------- ---------
Total gross profit.......... 25 1,060 3,014 3,990 2,172 3,389
General and administrative
expenses......................... 490 985 1,266 2,106 832 1,155
--------- --------- --------- --------- --------- ---------
Operating income (loss)............ (465) 75 1,748 1,884 1,340 2,234
Interest expense, net.............. 295 1,745 2,671 3,684 1,648 2,644
--------- --------- --------- --------- --------- ---------
Loss before income taxes........... (760) (1,670) (923) (1,800) (308) (410)
Provision for income taxes......... -- (1) -- (1) 40 694 390 251
--------- --------- --------- --------- --------- ---------
Net loss........................... (760) (1,670) (963) (2,494) (698) (661)
Preferred stock dividends.......... -- -- -- -- -- 101
--------- --------- --------- --------- --------- ---------
Net loss attributable to common
stock.............................. $ (760) $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
========= ========= ========= ========= ========= =========
Loss per common share.............. $ (.30 (1) $ (.66 (1) $ (.28) $ (.66) $ (.20) $ (.17)
========= ========= ========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding...................... 2,543(1) 2,543(1) 3,406 3,781 3,543 4,512
========= ========= ========= ========= ========= =========
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period..... 14 25 34 41 39 62
Funeral services performed during
period........................... 389 2,265 3,529 4,414 2,127 3,004
Preneed funeral contracts sold..... 451 644 762 2,610 1,279 1,997
Backlog of preneed funeral
contracts........................ 2,576 5,170 6,855 8,676 7,769 23,758
Depreciation and amortization...... $ 261 $ 947 $ 1,476 $ 1,948 $ 907 $ 1,389
</TABLE>
AS OF
JUNE 30, 1996
AS OF -----------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(2)
------------- --------- -----------
BALANCE SHEET DATA:
Working capital.................... $ 6,472 $ 1,461 $ 6,124
Total assets....................... 61,746 94,037 93,695
Long-term debt, net of current
maturities....................... 42,057 60,277 21,672
Redeemable preferred stock......... -- 8,545 8,545
Stockholders' equity............... 9,151 8,650 51,576
- ------------
(1) Prior to January 1, 1994, the Company consisted of three entities whose
owners contributed their equity in these entities in exchange for 2,520,000
shares of common stock of the Company effective January 1, 1994.
Accordingly, shares of common stock shown outstanding for these periods
assume the exchange had taken place at the beginning of the periods
presented. In 1992 and 1993, the entities were subchapter S corporations,
and taxes were the direct responsibility of the owners. Thus, the tax
provisions reflected above for these periods are based on assumptions about
what tax provisions (benefits) would have been if the Company had been a
taxable entity. In the opinion of management, no pro forma tax provision
(benefit) was appropriate for these periods because the Company follows a
policy of fully reserving its net operating losses.
(2) As adjusted to reflect the application of the net proceeds of the Offering,
borrowings under a new credit facility, the write-off of $667,000 of
capitalized debt issuance costs related to indebtedness to be repaid with
the proceeds of the Offering and the incurrence of $325,000 of capitalized
debt issuance costs related to the new credit facility. The write-off of the
$667,000 capitalized debt issuance costs will be recorded as an expense in
the period in which the related indebtedness is repaid.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE CLASS A COMMON STOCK OFFERED HEREBY.
COMPETITION FOR ACQUISITIONS
The Company's operations have expanded principally through the acquisition
of established funeral homes and cemeteries. Acquisitions of funeral homes and
cemeteries in selected markets will continue to be an integral part of the
Company's business strategy. Competition in the acquisition market is intense,
and prices paid for funeral homes and cemeteries have increased substantially in
recent years. In addition, the four largest publicly held North American death
care companies, each of which has significantly greater financial and other
resources than the Company, are actively engaged in acquiring funeral homes and
cemeteries in a number of markets. Accordingly, no assurance can be given that
the Company will be successful in expanding its operations through acquisitions
or that funeral homes and cemeteries will be available at reasonable prices or
on reasonable terms. As of July 15, 1996, the Company had letters of intent for
the acquisition of eight funeral homes and one cemetery. These letters of intent
are non-binding, except for certain provisions relating to confidentiality and
restricting the seller from negotiating a sale with others. Accordingly, no
assurance can be given that such transactions will be successfully completed.
See "Business -- Death Care Industry," "-- Business Strategy" and "--
Competition."
ACQUISITION RISKS
The Company intends to grow primarily through the acquisition of additional
funeral homes and cemeteries. There can be no assurance that the Company will be
able to identify, acquire or profitably manage additional funeral homes and
cemeteries or successfully integrate acquired funeral homes and cemeteries, if
any, into the Company without substantial costs, delays or other operational or
financial problems. Further, acquisitions involve a number of special risks,
including possible adverse effects on the Company's operating results, diversion
of management's attention, failure to retain key acquired personnel and
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
NO HISTORY OF PROFITABILITY
The Company was formed in June 1991 and, consequently, has a limited
operating history. The Company also has grown dramatically in the past year
through the acquisition of a number of funeral homes and cemeteries. A
substantial portion of the funds utilized for such acquisitions has been
obtained through the incurrence of debt, and therefore, the Company has incurred
net losses in each of its five years of operations. There can be no assurance
that the Company will become profitable in the future. See "Selected Historical
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company has and will have substantial capital requirements for the
acquisition of funeral homes and cemeteries. Historically, the Company has
financed these requirements primarily with the proceeds from debt and the
issuance of preferred stock. While management believes the Company will have
sufficient capital available under its credit facility, from cash flow and from
proceeds from the Offering to fund acquisitions, if revenues or the Company's
borrowing base decrease as a result of operating difficulties or other reasons,
the Company may have limited ability to expend the capital necessary to
undertake or complete future acquisitions. There can be no assurance that
sufficient debt or equity financing or cash generated by operations will be
available to meet these requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
8
DEPENDENCE UPON KEY PERSONNEL
The Company depends to a large extent upon the abilities and continued
efforts of Melvin C. Payne, President and Chief Executive Officer, Mark W.
Duffey, Executive Vice President and Chief Financial Officer, and its other
senior management. The loss of the services of the key members of the Company's
senior management could have a material adverse effect on the Company's
continued ability to compete in the death care industry. The Company will enter
into employment agreements with its principal executive officers prior to the
Offering. The Company's future success will also depend upon its ability to
attract and retain skilled funeral home and cemetery management personnel. See
"Management."
CONTROL BY EXISTING STOCKHOLDERS
Following the Offering, the Company will have 3,400,000 shares of Class A
Common Stock outstanding and 4,501,476 shares of Class B Common Stock
outstanding. The Company's Amended and Restated Certificate of Incorporation
("Charter") provides that holders of Class A Common Stock shall have one vote
per share on all matters requiring stockholder approval and that holders of
Class B Common Stock shall have ten votes per share on all matters requiring
stockholder approval. Accordingly, following the Offering and assuming
conversion of the Series D Preferred Stock, holders of Class B Common Stock will
hold 94% of the voting power of the outstanding shares of Common Stock (93% if
the Underwriters' over-allotment option is exercised in full). These
stockholders will be in a position to exert substantial influence over the
outcome of most corporate actions requiring stockholder approval, including the
election of directors, the future issuance of Common Stock or other securities
of the Company, the declaration of any dividend payable on the Common Stock and
the approval of transactions involving a change in control of the Company. See
"Description of Capital Stock."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Charter and Amended and Restated Bylaws ("Bylaws") contain
certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including the voting
rights of the Class B Common Stock and provisions authorizing the issuance of
"blank check" preferred stock, providing for a Board of Directors with
staggered, three-year terms, requiring supermajority or class voting to effect
certain amendments to the Charter and Bylaws, limiting the persons who may call
special stockholders' meetings, limiting stockholder action by written consent
and establishing advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted upon at
stockholders' meetings. Certain of these provisions may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals. It is anticipated that certain holders of
Class B Common Stock will enter into a voting agreement restricting each
person's ability to sell their shares of capital stock of the Company to a
competitor and obligating such persons to vote against any proposal to merge,
consolidate or sell all or substantially all of the Company's assets to a
competitor. See "Description of Capital Stock -- Delaware Law and Certain
Charter Provisions."
TREND TOWARD CREMATION
There is an increasing trend in the United States toward cremation.
According to industry studies, cremations represented approximately 21% of the
burials performed in the United States in 1994, as compared with approximately
10% in 1980. Cremations represented approximately 3% of the Company's funeral
revenues for the year ended December 31, 1995. The Company believes that its low
cremation rate is primarily a result of cultural or religious traditions in the
markets the Company serves. The Company's cremation rate will increase if the
cremation rate in its current markets increases or if the Company enters new
markets where the cremation rate is higher. Compared to traditional funeral
services, cremations have historically generated similar gross profit
percentages but lower revenues. A substantial increase in the rate of cremations
performed by the Company could have a material adverse effect on the Company's
results of operations. See "Business -- Death Care Industry."
9
REGULATION
The Company's operations are subject to regulation, supervision and
licensing under numerous federal, state and local laws, ordinances and
regulations, including extensive regulations concerning trust funds, preneed
sales of funeral and cemetery products and services and various other aspects of
the Company's business. The impact of such regulations varies depending on the
location of the Company's funeral homes and cemeteries.
From time to time, states and other regulatory agencies have considered and
may enact additional legislation or regulations that could affect the death care
industry. For example, some states and regulatory agencies have considered or
are considering regulations that could require more liberal refund and
cancellation policies for preneed sales of products and services, prohibit
door-to-door or telephone solicitation of potential customers, increase trust
requirements and prohibit the common ownership of funeral homes and cemeteries
in the same market. If adopted in the states in which the Company operates,
these and other possible proposals could have a material adverse effect on the
Company's results of operations. See "Business -- Trust Funds" and "--
Regulation."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,400,000 shares of
Class A Common Stock outstanding and 4,501,476 shares of Class B Common Stock
outstanding. The 3,400,000 shares of Class A Common Stock will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), except for shares sold by persons
deemed to be "affiliates" of the Company or acting as "underwriters," as those
terms are defined in the Securities Act. All shares of Class B Common Stock will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act and will be eligible for resale subject to the volume, manner of sale,
holding period and other limitations of Rule 144. In addition, an aggregate of
310,000 shares of Class A Common Stock and 90,000 shares of Class B Common Stock
are reserved for issuance to employees and directors of the Company under the
Company's 1995 Stock Incentive Plan, 600,000 shares of Class A Common Stock are
reserved for issuance to employees under the Company's 1996 Stock Incentive Plan
and 200,000 shares of Class A Common Stock are reserved for issuance to outside
directors under the 1996 Nonemployee Directors Plan. Currently, 90,000 shares of
Class B Common Stock are issuable under existing options granted to employees
and directors. In addition, options exercisable for 600,000 shares of Class A
Common Stock will be granted to employees concurrently with the Offering under
the Company's stock option plans. See "Management -- Incentive Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
Pursuant to certain stock registration agreements, the Company may be
required, subject to certain conditions, to register under the Securities Act an
aggregate of up to 4,443,436 shares of Class A Common Stock issuable upon
conversion of the Class B Common Stock by the current stockholders. Such
stockholders have waived their registration rights under the stock registration
agreements arising in connection with the Offering. In addition, the holders of
Series D Preferred Stock have been granted certain registration rights if the
Company proposes to undertake a public offering. Such holders have waived their
registration rights in connection with the Offering.
The Company and the executive officers and directors and certain
stockholders of the Company have agreed not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock for a period of 180 days commencing on the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters, other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof and issuances of
capital stock by the Company in connection with acquisitions of funeral homes
and cemeteries, provided that such options shall not vest and become exercisable
and such shares issuable upon exercise of options or pursuant to acquisitions
shall not be transferable prior to the end of the 180-day period. See "Shares
Eligible for Future Sale" and "Underwriting."
10
NO PRIOR MARKET FOR CLASS A COMMON STOCK
Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance that an active market for the Class A
Common Stock will develop upon completion of the Offering or, if developed, that
such market will be sustained. The initial public offering price of the Class A
Common Stock will be determined through negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the market
prices of the Class A Common Stock after the Offering. Prices for the Class A
Common Stock after the Offering may be influenced by a number of factors,
including the liquidity of the market for the Class A Common Stock, investor
perceptions of the Company and the death care industry in general and general
economic and other conditions. Sales of substantial amounts of Class A Common
Stock in the public market subsequent to the Offering could adversely affect the
market price of the Class A Common Stock. For information relating to the
factors to be considered in determining the initial public offering price, see
"Underwriting."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
In addition to the benefits to be derived from the Company having publicly
traded securities following the Offering, certain existing stockholders of the
Company will benefit from the Offering in that the Company will use $8.3 million
of the net proceeds to repay borrowings from Mr. C. Byron Snyder, Chairman of
the Board of Directors and one of the Company's principal stockholders, and will
use $37.9 million of the net proceeds to repay borrowings from Provident
Services, Inc. In addition, the personal guarantees of Melvin C. Payne, Mark W.
Duffey and C. Byron Snyder, three of the Company's principal stockholders, on
certain indebtedness will be released. See "Use of Proceeds." The Company also
will enter into certain employment agreements and issue options under the
Company's stock option plans to the executive officers, directors and certain
key employees concurrently with the Offering. See "Management -- Employment
Agreements," "-- Compensation of Directors" and "-- Incentive Plans."
SUBSTANTIAL DILUTION
Investors in the Class A Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value per share of
$12.24 (assuming an initial public offering price of $14.00 per share). See
"Dilution."
DIVIDENDS
The Company intends to retain its cash for the continued development of its
business and currently does not intend to pay cash dividends on the Common Stock
in the foreseeable future. See "Dividend Policy."
11
THE COMPANY
Carriage Services, Inc. believes that it is the sixth largest provider of
death care services and products in the United States based on 1995 revenues.
The Company provides a complete range of funeral services and products to meet
families' needs, including consultation, removal and preparation of remains,
sale of caskets and related funeral merchandise, transportation services and the
use of funeral home facilities for visitation. The Company also offers cemetery
products and services, including rights to interment in cemetery sites,
interment services and related cemetery merchandise. As of June 30, 1996, the
Company operated 62 funeral homes and seven cemeteries in 13 states. Funeral
services constituted approximately 93% of revenues in 1995 and 92% in the first
half of 1996.
Since the Company's formation in 1991, management has undertaken a
disciplined approach to growth that has allowed the Company the necessary time
to integrate acquisitions, develop effective operating, administrative and
financial systems and controls, recruit an experienced operating management team
and promote a decentralized, entrepreneurial service culture. From 1992 through
1995, the Company acquired 42 funeral homes and four cemeteries for
consideration ranging from approximately $9 million to $14 million in each of
the four years. The Company believes that the infrastructure it has developed
over the past four years positioned the Company to pursue an accelerated growth
strategy beginning in late 1995. As a result, the Company has acquired 24
funeral homes and four cemeteries for consideration of $33.5 million through the
first six months of 1996 and an additional two funeral homes and one cemetery
for consideration of $7.8 million through July 15, 1996. In addition, as of July
15, 1996, the Company had letters of intent to acquire eight funeral homes and
one cemetery for consideration of $13.5 million.
The Company was incorporated in Delaware on December 29, 1993. The
Company's principal executive office is located at 1300 Post Oak Blvd., Suite
1500, Houston, Texas 77056, and its telephone number is (713) 556-7400.
12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby are estimated to be approximately $43.3 million
(approximately $49.9 million if the Underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $14.00 per
share, after deducting the estimated underwriting discount and offering
expenses. All of the net proceeds will be used to repay outstanding indebtedness
of the Company. The Company will use the net proceeds of the Offering and a
portion of the proceeds from a new bank credit facility to be entered into
concurrently with the Offering to repay borrowings from Mr. C. Byron Snyder,
Chairman of the Board of Directors and one of the Company's principal
stockholders (the "Snyder Notes"), borrowings from Provident Services, Inc.
("Provident") and borrowings from Texas Commerce Bank National Association
("TCB").
The Snyder Notes consist of subordinated notes bearing interest at a
predetermined rate plus 3% (a weighted average rate of 11.3% for the six months
ended June 30, 1996), subject to adjustment under certain conditions. Interest
on the notes is payable annually on December 31 in the form of cash or the
issuance of additional subordinated notes. As of June 30, 1996, a total of $8.3
million of principal and accrued interest was owed under such notes. The notes
mature in May 2001.
The indebtedness payable to Provident consists of notes, secured by deeds
of trust and security agreements covering certain real and personal property and
guaranteed by Messrs. Payne and Duffey. The notes bear interest at the prime
rate plus 1.5% per annum and the prime rate (a weighted average rate of 9.79%
for the six months ended June 30, 1996). As of June 30, 1996, a total of $37.9
million was outstanding under these notes. Such indebtedness is scheduled to
mature at various dates through 2001. The funds received from Provident were
used by the Company to fund the acquisition and improvement of funeral homes and
for working capital purposes.
The indebtedness payable to TCB consists of three notes secured by deeds of
trust and security agreements covering certain real and personal property. The
notes, on an aggregate basis, bore interest at a weighted average rate of 7.87%
for the six months ended June 30, 1996. As of June 30, 1996, a total of $16.7
million was outstanding under these notes. Such indebtedness is scheduled to
mature at various dates through 2003. The funds received from TCB were used by
the Company to fund acquisitions of and improvements to funeral homes.
The Company anticipates that it will enter into a new credit facility with
certain commercial lenders concurrently with the Offering. The Company has
obtained a commitment from NationsBank of Texas, N.A. ("NationsBank") and
Provident that provides for a $75 million revolving line of credit (the "Credit
Facility"). It is anticipated that a portion of the Credit Facility will provide
for both LIBOR and base rate interest options and the remainder of the Credit
Facility will bear interest at LIBOR plus 2%. The facility will be unsecured,
will have a term of three years and will be available to the Company to repay
existing outstanding indebtedness, to fund its working capital needs and to take
advantage of opportunities to acquire additional funeral homes and cemeteries as
they arise. It is anticipated that the Credit Facility will contain customary
restrictive covenants, including a restriction on the payment of dividends on
the Common Stock, and will require the Company to maintain certain financial
ratios, which may effectively limit the Company's borrowing capacity.
13
DIVIDEND POLICY
The Company has never paid a cash dividend on the Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying a cash dividend on the Common Stock
in the foreseeable future. In addition, the Company expects that the Credit
Facility will contain certain restrictions on the payment of dividends on the
Common Stock. Any future change in the Company's dividend policy will be made at
the discretion of the Company's Board of Directors in light of the financial
condition, capital requirements, earnings and prospects of the Company and any
restrictions under credit agreements, as well as other factors the Board of
Directors may deem relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Holders of shares of the Company's Series D Preferred Stock are
entitled to receive annual cash dividends of $.06 per share, $.0625 per share or
$.07 per share depending on the date such shares were issued. Such dividends are
payable quarterly. Through June 30, 1996, cash dividends of $100,941 on the
Series D Preferred Stock have been paid. See "Description of Capital Stock."
14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to reflect the sale of the shares of Class A Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. The table should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus.
AS OF JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
Current portion of long-term debt....... $ 5,015 $ 352
========= ==============
Long-term debt (excluding current portion):
Senior debt........................ $ 49,906 $ --
Subordinated notes................. 10,371 2,530
Credit Facility.................... -- 19,142
--------- --------------
Total long-term debt.......... 60,277 21,672
--------- --------------
Redeemable preferred stock(2)........... 8,545 8,545
--------- --------------
Stockholders' equity:
Preferred Stock, no stated par,
50,000,000 shares authorized;
16,045,000 shares issued and
outstanding; no shares issued or
outstanding, as adjusted.......... 162 --
Common Stock, par value $.01 per
share, 20,000,000 shares
authorized; 2,521,000 shares
issued and outstanding; 30,000,000
shares authorized; no shares
issued or outstanding, as
adjusted.......................... 25 --
Class A Common Stock, par value
$.01 per share, no shares
authorized, issued or outstanding;
15,000,000 shares authorized;
3,400,000 shares issued and
outstanding, as adjusted(3)....... -- 34
Class B Common Stock, par value
$.01 per share, no shares
authorized, issued or outstanding;
15,000,000 shares authorized,
4,501,476 shares issued and
outstanding, as adjusted(4)....... -- 45
Contributed capital................ 15,650 58,684
Treasury stock..................... (330) (330)
Accumulated deficit................ (6,857) (6,857)
--------- --------------
Total stockholders' equity.... 8,650 51,576
--------- --------------
Total capitalization..... $ 77,472 $ 81,793
========= ==============
- ------------
(1) As adjusted to reflect the application of the net proceeds of the Offering,
borrowings under the Credit Facility, the write-off of $667,000 of
capitalized debt issuance costs related to indebtedness to be repaid with
the proceeds of the Offering and the incurrence of $325,000 of capitalized
debt issuance costs related to the Credit Facility. The write-off of the
$667,000 capitalized debt issuance costs will be recorded as an expense in
the period in which the related indebtedness is repaid.
(2) The redeemable preferred stock (the Series D Preferred Stock) is convertible
at the holder's option into Class B Common Stock at the lesser of the
initial public offering price or the applicable initial conversion base
price (currently ranging from $15.00 to $18.00). On December 31, 2001, the
Company must redeem all shares of Series D Preferred Stock then outstanding
at a redemption price of $1.00 per share, together with all accrued and
unpaid dividends. See "Description of Capital Stock."
(3) Does not include 600,000 shares of Class A Common Stock issuable upon the
exercise of options under the Company's stock option plans to be granted
concurrently with the Offering. See "Management -- Incentive Plans."
(4) Excludes as of June 30, 1996, 90,000 shares of Class B Common Stock issuable
upon exercise of options and 610,401 shares of Class B Common Stock issuable
upon conversion of the 8,545,616 shares of the Series D Preferred Stock.
Also, does not include (i) 453,929 shares of Class B Common Stock issuable
upon conversion of 6,355,000 shares of Series D Preferred Stock issued in
connection with acquisitions completed subsequent to June 30, 1996 and (ii)
177,857 shares of Class B Common Stock issuable upon conversion of 2,490,000
shares of Series D Preferred Stock and an additional 53,333 shares of Class
B Common Stock to be issued in connection with pending acquisitions. The
number of shares of Class B Common Stock issuable upon conversion of the
Series D Preferred Stock assumes an initial public offering price of $14.00
per share; the actual number of shares of Class B Common Stock issuable upon
conversion of the Series D Preferred Stock will be adjusted based upon the
initial public offering price of the Class A Common Stock. See "Management
-- Incentive Plans" and "Description of Capital Stock."
15
DILUTION
The net tangible book deficit of the Company as of June 30, 1996 was
$28,877,000 or $6.42 per share of Common Stock. Net tangible book deficit per
share is determined by dividing total tangible assets less total liabilities of
the Company by the total number of outstanding shares of Common Stock (4,501,476
shares, which includes the assumed conversion of all outstanding shares of the
Company's Series A, Series B and Series C Preferred Stock into shares of Class B
Common Stock). After giving effect to the sale of the shares of Class A Common
Stock offered hereby (assuming an initial public offering price of $14.00 per
share) and the receipt of the estimated net proceeds of approximately
$43,268,000 (after deducting the estimated underwriting discount and estimated
expenses) and the write-off of capitalized debt issuance costs of $450,000, the
pro forma net tangible book value of the Company at June 30, 1996 would have
been $13,941,000 or $1.76 per share. This represents an immediate increase in
the net tangible book value of $8.18 per share to existing stockholders and an
immediate dilution (I.E., the difference between the initial public offering
price and the pro forma net tangible book value after the Offering) of $12.24 to
new investors. The following table illustrates such per share dilution:
Assumed public offering price per
share................................. $ 14.00
Historical net tangible book
deficit per share at June 30,
1996............................. $ (6.42)
Increase in net tangible book value
per share attributable to the
Offering......................... 8.18
Pro forma net tangible book value per
share after giving effect to the
Offering.............................. 1.76
---------
Dilution per share to new investors..... $ 12.24
=========
The following table sets forth, after giving effect to the Offering, the
number of shares of Common Stock purchased from the Company, the total
consideration paid therefor and the average price per share paid by existing
stockholders and by new investors:
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --- ------------- --- ------------
Existing stockholders... 4,501,476 57.0% $ 15,507,000 24.6% $ 3.44
New investors........... 3,400,000 43.0 47,600,000 75.4 14.00
---------- --- ------------- ---
Total.............. 7,901,476 100.0% $ 63,107,000 100.0%
========== ===== ============= =====
The foregoing tables assume no exercise of outstanding stock options and no
conversion of Series D Preferred Stock. As of June 30, 1996, 90,000 shares of
Class B Common Stock are issuable upon the exercise of stock options at an
average exercise price of $10.54 per share. See "Shares Eligible for Future
Sale."
16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and
operating data as of the dates and for the periods indicated. The consolidated
financial data of the Company as of and for the four years ended December 31,
1995 and the six months ended June 30, 1996 set forth below have been derived
from financial statements audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial data of the Company as of and for the
period from inception to December 31, 1991 and as of and for the six months
ended June 30, 1995 set forth below have been derived from unaudited financial
statements which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial data for such periods. The selected consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION TO YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral............................. $-- $ 1,625 $ 10,651 $ 17,368 $ 22,661 $ 10,800 $ 15,648
Cemetery............................ -- 178 614 1,036 1,576 701 1,277
------------- --------- --------- --------- --------- --------- ---------
Total net revenues................ -- 1,803 11,265 18,404 24,237 11,501 16,925
Gross profit:
Funeral............................. -- (88) 917 2,856 3,740 2,062 3,194
Cemetery............................ -- 113 143 158 250 110 195
------------- --------- --------- --------- --------- --------- ---------
Total gross profit................ -- 25 1,060 3,014 3,990 2,172 3,389
General and administrative expenses... 202 490 985 1,266 2,106 832 1,155
------------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............... (202) (465) 75 1,748 1,884 1,340 2,234
Interest expense, net................. 6 295 1,745 2,671 3,684 1,648 2,644
------------- --------- --------- --------- --------- --------- ---------
Loss before income taxes.............. (208) (760) (1,670) (923) (1,800) (308) (410)
Provision for income taxes............ -- (1) -- (1) -- (1) 40 694 390 251
------------- --------- --------- --------- --------- --------- ---------
Net loss.............................. (208) (760) (1,670) (963) (2,494) (698) (661)
Preferred stock dividends............. -- -- -- (1) -- -- -- 101
------------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stock............................... $(208)(1) $ (760 (1) $ (1,670 (1) $ (963) $ (2,494) $ (698) $ (762)
============= ========= ========= ========= ========= ========= =========
Loss per common share................. $(.08)(1) $ (.30 (1) $ (.66 (1) $ (.28) $ (.66) $ (.20) $ (.17)
============= ========= ========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares
outstanding......................... 2,543 2,543 2,543 3,406 3,781 3,543 4,512
============= ========= ========= ========= ========= ========= =========
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period........ -- 14 25 34 41 39 62
Funeral services performed during
period.............................. -- 389 2,265 3,529 4,414 2,127 3,004
Preneed funeral contracts sold........ -- 451 644 762 2,610 1,279 1,997
Backlog of preneed funeral
contracts........................... -- 2,576 5,170 6,855 8,676 7,769 23,758
Depreciation and amortization......... $ 2 $ 261 $ 947 $ 1,476 $ 1,948 $ 907 $ 1,389
BALANCE SHEET DATA:
Working capital....................... -$- $ 678 $ (142) $ 4,271 $ 6,472 $ 4,457 $ 1,461
Total assets.......................... 24 13,089 28,784 44,165 61,746 45,139 94,037
Long-term debt, net of current
maturities.......................... 220 12,656 26,270 32,622 42,057 34,408 60,277
Redeemable preferred stock............ -- -- -- -- -- -- 8,545
Stockholders' equity (deficit)........ (198) (958) (2,626) 3,429 9,151 3,262 8,650
</TABLE>
17
- ------------
(1) Prior to January 1, 1994, the Company consisted of three entities whose
owners contributed their equity in these entities in exchange for 2,520,000
shares of common stock of the Company effective January 1, 1994.
Accordingly, shares of common stock shown outstanding for these periods
assume the exchange had taken place at the beginning of the periods
presented. In 1992 and 1993, the entities were subchapter S corporations,
and taxes were the direct responsibility of the owners. Thus, the tax
provisions reflected above for these periods are based on assumptions about
what tax provisions (benefits) would have been if the Company were a taxable
entity. In the opinion of management, no pro forma tax provision (benefit)
was appropriate for these periods because the Company follows a policy of
fully reserving its net operating losses.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1991 in order to take advantage of the attractive
fundamentals and significant opportunities to consolidate the death care
industry. Although the Company provides services and products in both the
funeral home and cemetery businesses, the Company has historically focused on
acquiring funeral home businesses. From 1992 through 1995, the Company acquired
42 funeral homes and four cemeteries, for consideration ranging from
approximately $9 million to $14 million in each of the four years. The Company
intentionally took a disciplined, deliberate approach to acquisitions that
allowed management the time to integrate early acquisitions, to develop and
implement systems, including operational procedures, administrative policies,
financial systems and related controls, and to promote a decentralized service
culture. In order to strengthen and bring greater focus to the Company's
operations, the Company recruited Russell W. Allen, Executive Vice President of
Operations, in 1993. During the next two years, two additional operating
executives and related support staff were added. These three operating
executives bring more than sixty years of combined death care industry
experience to the management team.
The Company believes that management's focus on controlled growth while
implementing sophisticated operational, administrative systems and related
controls to effectively manage a highly decentralized management structure
positioned it to pursue an accelerated growth strategy beginning in late 1995.
Since the beginning of 1996, the Company has expanded its corporate development
activities, with Mark W. Duffey becoming responsible for corporate development
and overseeing two additional professionals with full-time responsibility for
identifying and evaluating acquisition candidates. Through the first six months
of 1996, the Company has acquired 24 funeral homes and four cemeteries for an
aggregate consideration of approximately $33.5 million. Two funeral homes and
one cemetery were acquired in July 1996 for approximately $7.8 million. These
acquisitions were funded through additional debt, issuance of 6,355,000 shares
of Series D Preferred Stock valued at $1.00 per share and available cash. In
addition, as of July 15, 1996, the Company had letters of intent to acquire
eight funeral homes and one cemetery for an aggregate consideration of
approximately $13.5 million. The Company believes that it will continue to see
attractive acquisition opportunities as further consolidation of the industry
occurs.
Upon acquisition, the operations team focuses on increasing historic
operating income by improving the merchandising approach, pricing structure and
marketing strategy of acquired businesses. These enhancements, complemented by
discounts from consolidated purchasing, generally result in improved margins
within the first 12 months.
In certain instances, a review of the marketing strategy of an acquired
business results in increased preneed funeral and cemetery sales efforts to
secure or gain future market share. Preneed funeral sales are effected by
deposits to a trust or purchases of third party insurance products. Since the
Company does not have access to these funds, the sale is not recorded until the
service is performed nor are the related assets and liabilities reflected on the
Company's consolidated balance sheet. The trust income earned and increases in
insurance benefits are also deferred until the service is performed in order to
offset possible inflation in cost to provide the service in the future. Unlike
preneed funeral sales, the Company has access to the funds related to preneed
cemetery sales. Therefore, preneed cemetery sales and the related estimated
costs are recorded at the time of sale. Trust fund requirements relate only to
the estimated costs of providing merchandise and service. Any income from the
merchandise and service trust funds is recorded as cemetery revenue in the
period earned. These earnings are an offset to any inflation in the cost of
providing the merchandise and services in the future. These estimated costs are
reviewed at least annually, and any significant increase in estimated costs are
recorded at that time. Due to the Company's small number of cemetery operations,
the impact of these trust earnings and any inflation in estimated costs have not
historically been significant.
19
FACTORS AFFECTING HISTORICAL FINANCIAL RESULTS
For 1992, 1993 and 1994, the Company's corporate infrastructure required
only modest additions to support its disciplined approach to acquisitions. As a
result, general and administrative expenses declined as a percentage of revenues
over these years. In anticipation of accelerating its acquisition activity, the
Company began in 1995 to significantly expand its corporate infrastructure to
support more rapid growth. As a result, general and administrative expenses in
1995 increased as a percentage of revenues over 1994. Although general and
administrative expenses will continue to increase as the Company grows, these
expenses are expected to increase at a lower rate relative to revenue, and thus,
general and administrative expenses as a percentage of revenues are expected to
decline.
Three separate transactions completed by the Company in September 1992,
November 1992 and July 1993 resulted in the acquisition of packages of two,
eight and eight funeral homes, respectively, for a total of 18 funeral homes.
Eight of these funeral homes were acquired from one of the large death care
companies that was divesting these properties to comply with a Federal Trade
Commission order. Since these properties were sold as packages, the Company's
acquisition criteria could not be applied on a location by location basis. While
the poor performance of certain properties was reflected in the purchase price,
certain of the funeral homes had been losing market share prior to the
acquisition or otherwise required significant operational improvements, thus
negatively impacting overall gross margin. As of June 30, 1996, the Company had
divested three of these funeral homes. The Company has also divested one
cemetery which was included in one of these packages.
As a result of the Company's increased recognition in the death care
industry as an established purchaser of funeral homes and cemeteries, the
Company has been in a better position to finance its acquisitions with debt and
equity thereby reducing the negotiated value of agreements not to compete. Since
the Company's agreements not to compete have, generally, been amortized over
four to ten years, whereas any excess purchase price allocated to names and
reputations is amortized over 40 years, any reduction in the non-competition
agreement payments (assuming the same purchase price) results in a reduction in
operating expense during the amortization period of the agreements not to
compete. Since mid-1995, the Company has experienced a reduction in the
operating expenses for amortization of agreements not to compete compared to
prior years.
The Company's future results of operations will depend in large part on the
Company's ability to continue to make acquisitions on attractive terms and to
successfully integrate and manage the acquired properties. See "Risk Factors --
Competition for Acquisitions" and " -- No History of Profitability."
RESULTS OF OPERATIONS
The following table sets forth certain income statement data for the
Company expressed as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues, net..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Total gross profit...................... 9.4 16.4 16.5 18.9 20.0
General and administrative expenses..... 8.7 6.9 8.7 7.2 6.8
Operating income........................ 0.7 9.5 7.8 11.7 13.2
Interest expense, net................... 15.5 14.5 15.2 14.3 15.6
Net loss................................ (14.8) (5.2) (10.3) (6.1) (3.9)
</TABLE>
20
The following table sets forth the number of funeral homes and cemeteries
owned and operated by the Company for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Funeral homes at beginning of period.... 14 25 34 41
Acquisitions............................ 11 9 8 24
Divestitures............................ 0 0 1 3
-- -- -- --
Funeral homes at end of period.......... 25 34 41 62
== == == ==
Cemeteries at beginning of period....... 2 2 3 3
Acquisitions............................ 1 1 0 4
Divestitures............................ 1 0 0 0
-- -- -- --
Cemeteries at end of period............. 2 3 3 7
== == == ==
</TABLE>
The following is a discussion of the Company's results of operations for
the six months ended June 30, 1995 and 1996 and the three years ended December
31, 1993, 1994 and 1995. For purposes of this discussion, funeral homes and
cemeteries owned and operated for the entirety of each period being compared are
referred to as "existing operations." Operations acquired or opened during
either period being compared are referred to as "acquired operations."
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The following table sets forth certain information regarding the net
revenues and gross profit of the Company from its operations during the six
months ended June 30, 1995 and 1996:
SIX MONTHS ENDED
JUNE 30, CHANGE
-------------------- --------------------
1995 1996 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations........... $ 10,849 $ 11,102 $ 253 2.3%
Acquired operations........... 652 5,823 5,171 *
--------- --------- ---------
Total net revenues....... $ 11,501 $ 16,925 $ 5,424 47.2%
========= ========= =========
Gross profit:
Existing operations........... $ 2,013 $ 2,231 $ 218 10.8%
Acquired operations........... 159 1,158 999 *
--------- --------- ---------
Total gross profit....... $ 2,172 $ 3,389 $ 1,217 56.0%
========= ========= =========
- ------------
* Not meaningful.
Total net revenues for the six months ended June 30, 1996 increased $5.4
million or 47.2% over the six months ended June 30, 1995. The higher net
revenues reflect an increase of $5.2 million in net revenues from acquired
operations and an increase in net revenues of $253,000 or 2.3% from existing
operations. The increase in net revenues for the existing operations was due to
a 4.4% increase in the average revenue per funeral service which was partially
offset by a decrease in net revenues attributable to fewer funeral services
being performed due primarily to the divestiture of three funeral homes. At June
30, 1996, the Company operated seven cemeteries, the net revenues and gross
profit of which were not significant.
Total gross profit for the six months ended June 30, 1996 increased $1.2
million or 56.0% over the first six months of 1995. The higher total gross
profit reflects an increase of $999,000 from acquired operations and an increase
of $218,000 or 10.8% from existing operations. The increase in gross profit for
the existing operations was due to the efficiencies gained by consolidation and
implementation of a new merchandising
21
strategy. Total gross margin increased from 18.9% for the six months ended June
30, 1995 to 20.0% for the six months ended June 30, 1996 due to the factors
mentioned above.
General and administrative expenses for the six months ended June 30, 1996
increased $323,000 over the first six months of 1995 due primarily to the
increased personnel expense necessary to support a higher rate of growth and
increased acquisition activity. However, general and administrative expenses as
a percentage of net revenues decreased from 7.2% for the first six months of
1995 to 6.8% for the comparable period of 1996 because revenues increased at a
higher rate, due to acquisitions, than general and administrative expenses.
Interest expense for the six months ended June 30, 1996 increased $996,000
over the first six months of 1995 principally due to increased borrowings for
acquisitions.
Although the Company experienced net operating losses before tax, the
Company's policy to fully reserve operating loss carryforwards created a tax
provision of $251,000 in the six months ended June 30, 1996 and $390,000 in the
six months ended June 30, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The following table sets forth certain information regarding the net
revenues and gross profit of the Company during the years ended December 31,
1994 and 1995:
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1994 1995 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations......... $ 16,593 $ 16,838 $ 245 1.5%
Acquired operations......... 1,811 7,399 5,588 *
--------- --------- ---------
Total net revenues..... $ 18,404 $ 24,237 $ 5,833 31.7%
========= ========= =========
Gross profit:
Existing operations......... $ 2,685 $ 2,792 $ 107 4.0%
Acquired operations......... 329 1,198 869 *
--------- --------- ---------
Total gross profit..... $ 3,014 $ 3,990 $ 976 32.4%
========= ========= =========
- ------------
* Not meaningful.
Total net revenues for the year ended December 31, 1995 increased $5.8
million or 31.7% over 1994. The higher net revenues were due primarily to an
increase of $5.6 million in net revenues from acquired operations. Net revenues
from existing operations increased $245,000 or 1.5% over 1994. The increase in
net revenues from existing operations resulted from a 4.3% increase in average
revenue per funeral service which was partially offset by a decrease in net
revenues due to fewer funeral services performed primarily as a result of the
divestiture of one funeral home and the planned divestiture of two additional
funeral homes. At December 31, 1995, the Company operated three cemeteries, the
net revenues and gross profit of which were not significant.
Total gross profit for the year ended December 31, 1995 increased $976,000
or 32.4% over 1994. The higher total gross profit reflects an increase of
$869,000 from acquired operations and an increase of $107,000 or 4.0% from
existing operations. The gross profit increase for the existing operations was
due to the efficiencies gained by consolidation and implementation of a new
merchandising strategy. Total gross margin remained relatively consistent.
General and administrative expense for the year ended December 31, 1995
increased $840,000 over 1994 and increased as a percentage of net revenues to
8.7% for 1995 from 6.9% for 1994. These increases resulted primarily from
increased personnel expense necessary to support a higher rate of growth and
increased acquisition activity.
Interest expense for the year ended December 31, 1995 increased $1.0
million over 1994, principally due to increased borrowings for acquisitions.
22
Although the Company experienced net operating losses before tax, the
Company's policy to fully reserve operating loss carryforwards created a tax
provision of $40,000 in 1994 and $694,000 in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The following table sets forth certain information regarding the net
revenues and gross profit of the Company during the years ended December 31,
1993 and 1994:
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1993 1994 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations.......... $ 7,383 $ 7,597 $ 214 2.9%
Acquired operations.......... 3,882 10,807 6,925 *
--------- --------- ---------
Total net revenues...... $ 11,265 $ 18,404 $ 7,139 63.4%
========= ========= =========
Gross profit:
Existing operations.......... $ 764 $ 1,085 $ 321 42.0%
Acquired operations.......... 296 1,929 1,633 *
--------- --------- ---------
Total gross profit...... $ 1,060 $ 3,014 $ 1,954 184.3%
========= ========= =========
- ------------
* Not meaningful.
Total net revenues for the year ended December 31, 1994 increased $7.1
million or 63.4% over 1993. The higher net revenues are primarily due to an
increase of $6.9 million in net revenues from acquired operations. Net revenues
from existing operations increased $214,000 or 2.9% over 1993. The increase in
net revenues from existing operations resulted from a 4.7% increase in average
revenue per funeral service which was partially offset by a slight decrease in
the number of funeral services performed. At December 31, 1994, the Company
operated three cemeteries, the net revenues and gross profit of which were not
significant.
Total gross profit for the year ended December 31, 1994 increased $2.0
million or 184.3% over 1993. The higher total gross profit reflects an increase
of $1.6 million from acquired operations and an increase of $321,000 or 42.0%
from existing operations. The gross profit increase for the existing operations
was due to the efficiencies gained by consolidation and implementation of a new
merchandising strategy. Total gross margin increased from 9.4% in 1993 to 16.4%
in 1994.
General and administrative expense for the year ended December 31, 1994
increased $281,000 over 1993. This increase resulted primarily from increased
personnel expense necessary to support a higher rate of growth and increased
acquisition activity. However, general and administrative expenses decreased as
a percentage of net revenues to 6.9% for 1994 from 8.7% for 1993, primarily due
to increased net revenues from acquisitions without significant additions to
corporate infrastructure.
Interest expense for the year ended December 31, 1994 increased $926,000
over 1993 principally due to increased borrowings for acquisitions.
Although the Company experienced net operating losses before tax, the
Company's policy to fully reserve operating loss carryforwards created a tax
provision of $40,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4.5 million at June 30, 1996,
representing a decrease of $3.1 million from December 31, 1995. For the six
months ended June 30, 1996, cash flow from operations decreased to $465,000 from
$804,000 for the six months ended June 30, 1995. Cash used in investing
activities produced a negative cash flow of $25.1 million for the six months
ended June 30, 1996 compared to a negative cash flow of $4.2 million in the
prior period, due primarily to cash used for acquisitions. In the first half of
1996, cash flow provided by financing activities amounted to approximately $21.6
million, primarily due to debt incurred of approximately $23.8 million.
Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of preferred stock. As of June 30, 1996, the Company has
issued 8,545,616 shares of Series D Preferred Stock which can be converted into
Class B Common Stock. The holders of Series D Preferred Stock are entitled to
23
receive annual cash dividends of $.06, $.0625 and $.07 per share depending upon
when such shares were issued. Commencing on the second anniversary of the
completion of the Offering, the Company may, at its option, redeem all or any
portion of the shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends. Such redemption is subject to the right of each holder of Series D
Preferred Stock to convert such holder's shares into shares of Class B Common
Stock. On December 31, 2001, the Company must redeem all shares of Series D
Preferred Stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends.
In connection with the Company's formation in June 1991, the Company's
Chairman, C. Byron Snyder, provided an initial capital commitment of $6 million,
funded in the form of subordinated notes for working capital and acquisitions.
The Snyder Notes bear interest at a predetermined rate plus 3%, subject to
adjustment in certain circumstances, and are payable annually in the form of
cash or additional subordinated notes. As of June 30, 1996, the aggregate amount
outstanding under the Snyder Notes was $7,841,000. The Company will use a
portion of the proceeds from the Offering to repay the Snyder Notes.
In addition, Provident has provided long-term acquisition financing to the
Company on a senior secured basis (the "Provident Loans"). The Provident Loans
are made pursuant to the Ninth Amended and Restated Loan Agreement, dated as of
August 31, 1994, as amended, and bear interest at prime plus 1.5%. As of June
30, 1996, approximately $37,860,000 was outstanding under the Provident Loans.
The Company plans to use a portion of the proceeds from the Offering to repay a
portion of the Provident Loans.
The Company also has in place three senior secured term loan arrangements
with Texas Commerce Bank National Association ("TCB") which bear interest at a
weighted average of 7.87% for the six months ended June 30, 1996 and are
indirectly guaranteed in whole or in part by Messrs. Payne, Duffey and Snyder.
As of June 30, 1996, approximately $16,709,000 was outstanding under these
notes. The Company plans to use a portion of the net proceeds from the Offering
to repay a portion of the TCB loans.
In connection with repayment of debt, a substantial portion of the
capitalized debt issuance costs ($667,000 at June 30, 1996) will be written off
in the period in which the debt is repaid.
The Company anticipates that it will enter into the Credit Facility
concurrently with the closing of the Offering. The Company has obtained a
commitment from NationsBank and Provident for a $75 million revolving line of
credit. A portion of the Credit Facility is expected to provide for both LIBOR
and base rate interest options and the remainder of the facility will bear
interest at LIBOR plus 2%. The facility will be unsecured, will have a term of
three years and will contain customary restrictive covenants, including a
restriction on the payment of dividends on the Common Stock, and will require
the Company to maintain certain financial ratios, which may effectively limit
the Company's borrowing capacity.
Two funeral homes and one cemetery were acquired in July 1996 for
approximately $7.8 million. These acquisitions were funded through additional
debt, issuance of 6,355,000 shares of Series D Preferred Stock valued at $1.00
per share and available cash.
As of July 15, 1996, the Company had effective non-binding letters of
intent for the acquisition of eight additional funeral homes and one additional
cemetery in Connecticut, Tennessee, Texas, Indiana and North Carolina for an
aggregate consideration of approximately $13.5 million, which will be funded
with cash flow from operations, borrowings under the Credit Facility and
potential issuances of equity securities. It is expected that such transactions,
if completed, would occur by the end of the third quarter of 1996.
Although the Company has no agreements or letters of intent to purchase
additional funeral homes or cemeteries other than as noted above, the Company
expects to continue to aggressively pursue additional acquisitions of funeral
homes and cemeteries following the completion of the Offering to take advantage
of the trend toward consolidation of funeral homes and cemeteries occurring in
the industry which will require significant levels of funding from various
sources. While the amount of expenditures for acquisitions in the future will
depend upon the specific transaction and opportunities as they are presented,
the Company has budgeted $26 million for acquisitions for the remainder of 1996
and $69 million for acquisitions for 1997. Management believes that cash flow
from operations, borrowings under the Credit Facility and potential issuances of
equity securities will be used to fund such acquisitions.
The Company currently expects to incur approximately $1.2 million for
capital expenditures in the remainder of 1996, primarily for upgrading funeral
home facilities. Management believes that cash flows
24
from operations and the borrowing capacity available under the Credit Facility
should be sufficient to meet its anticipated capital expenditures and other
operating requirements for the remainder of 1996 and in 1997. However, because
future cash flows and the availability of financing are subject to a number of
variables, such as the number and size of acquisitions made by the Company,
there can be no assurance that the Company's capital resources will be
sufficient to fund acquisitions. Additional debt and equity financings may be
required in connection with future acquisitions.
SEASONALITY
Although the death care business is relatively stable and fairly
predictable, the Company's business can be affected by seasonal fluctuations in
the death rate. Generally, death rates are higher during the winter months. In
addition, the quarterly results of the Company may fluctuate depending on the
magnitude and timing of acquisitions.
25
BUSINESS
THE COMPANY
Carriage Services, Inc. believes that it is the sixth largest provider of
death care services and products in the United States based on 1995 revenues.
The Company provides a complete range of funeral services and products to meet
families' needs, including consultation, removal and preparation of remains,
sale of caskets and related funeral merchandise, transportation services and the
use of funeral home facilities for visitation. The Company also offers cemetery
products and services, including rights to interment in cemetery sites,
interment services and related cemetery merchandise. As of June 30, 1996, the
Company operated 62 funeral homes and seven cemeteries in 13 states. Funeral
services constituted approximately 93% of revenues in 1995 and 92% in the first
half of 1996.
DEATH CARE INDUSTRY
Death care companies provide products and services to families in three
principal areas: (i) ceremony and tribute, generally in the form of a funeral or
memorial service, (ii) disposition of remains, either through burial or
cremation and (iii) memorialization, generally through monuments, markers or
inscriptions. The death care industry in the United States is characterized by
the following fundamental attributes:
HIGHLY FRAGMENTED OWNERSHIP. A significant majority of death care operators
consist of small, family-owned businesses that control one or several funeral
homes or cemeteries in a single community. Management estimates that there are
approximately 22,000 funeral homes and 9,600 commercial (as opposed to
religious, family, fraternal, military or municipal) cemeteries in the United
States. Less than 20% of the 1995 United States death care industry revenues are
represented by the four largest publicly traded death care companies.
BARRIERS TO ENTRY. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Heritage and tradition afford an
established funeral home or cemetery a local franchise and provides the
opportunity for repeat business. Other difficulties faced by entities desiring
to enter a market include local zoning restrictions, substantial capital
requirements, increasing regulatory burdens and scarcity of cemetery land in
certain urban areas. In addition, established firms' backlog of preneed,
prefunded funerals or presold cemetery and mausoleum spaces also makes it
difficult for new entrants to gain entry into the marketplace.
STABILITY. The death rates in the United States are fairly predictable,
thereby affording stability to the death care industry. Since 1980, the number
of deaths in the United States has increased at a compounded rate of
approximately 1% per year. According to a 1993 report prepared by the U.S.
Department of Commerce, Bureau of the Census, the number of deaths in the United
States is expected to increase by approximately 1% per year between 1996 and
2010. Because the industry is relatively stable, non-cyclical and fairly
predictable, business failures are uncommon. As a result, ownership of funeral
home and cemetery businesses generally have not experienced significant
turnover, and the aggregate number of funeral homes and cemeteries in the United
States has remained relatively constant.
INCREASED CONSOLIDATION. In the past several years, the industry has
experienced a trend toward consolidation of small death care operations with
large, primarily publicly owned death care providers that can benefit from
economies of scale, improved managerial control and more effective strategic
planning and greater financial resources. This trend appears to result
principally from increased regulation, a desire on the part of small, family
operated funeral businesses to address family succession and estate planning
issues, a desire for liquidity, and the increasing competitive threat posed by
the large death care providers. The active acquisition market for funeral homes
and cemeteries provides a source of potential liquidity that was not as readily
available to individual owners in the past. The consolidation trend has
accelerated in recent years as several large death care companies have expanded
their operations significantly through acquisitions.
CLUSTERED OR COMBINED OPERATIONS. The death care industry has also
witnessed a trend by firms to cluster their funeral home and cemetery
operations. Clusters refer to funeral homes and/or cemeteries which
26
are grouped together in a geographical region. Clusters provide a company with
the ability to generate cost savings through the sharing of personnel, vehicles
and other resources. Firms also are increasingly combining funeral home and
cemetery operations at a single site to allow cross-marketing opportunities and
for further cost reductions through shared resources. The ability to offer the
full range of products and services at one location or to cluster funeral home
and cemetery operations and cross-market the full range of death care services
has proven to be a competitive advantage which tends to increase the market
share and profitability of both the funeral home and cemetery.
PRENEED MARKETING. In addition to sales at the time of death or on an "at
need" basis, an increasing number of death care products and services are being
sold prior to the time of death or on a "preneed" basis by death care providers
who have developed sophisticated marketing staffs to actively promote such
products and services. At the same time, consumers are becoming more aware of
the benefits of advanced planning, such as the financial assurance and peace of
mind achieved by establishing in advance a fixed price and type of service, and
the elimination of the emotional strain of making death care plans at the time
of need. Effective marketing of preneed products and services assures a backlog
of future business.
CREMATION. In recent years, there has been steady, gradual growth in the
number of families in the United States that have chosen cremation as an
alternative to traditional methods of burial. According to industry studies,
cremations represented approximately 21% of the United States burial market in
1994, as compared to approximately 10% in 1980. Many parts of the Southern and
Midwestern United States and many non-metropolitan communities exhibit
materially lower rates of cremation as a result of religious and cultural
traditions. Cremation historically has been marketed as a less costly
alternative to interment. However, cremation is increasingly marketed as part of
a complete death care package that includes traditional funeral services and
memorialization.
BUSINESS STRATEGY
The Company's objective is to become the preferred succession planning
alternative for premier funeral homes throughout the United States while
continuing to promote a decentralized, entrepreneurial service culture.
Management believes that the Company's reputation and collaborative operating
style have allowed it to successfully pursue acquisition opportunities. The
Company also has been successful in implementing programs to increase
profitability at newly acquired properties.
OPERATING STRATEGY. Since its formation, the Company has focused on
becoming a succession planning alternative to the larger death care providers.
The Company believes that its decentralized operating style, which provides
autonomy and flexibility to local management, is attractive to owners of funeral
homes seeking to sell their operations. Management believes that its operating
style is also a key component in its ability to attract and retain quality
managers. While the Company's management style allows local operators
significant responsibility in the daily operating decisions, financial
parameters jointly established during the budgeting process are monitored by
senior management through the Company's management and accounting systems. This
personal computer based system, CSASE (the Carriage Services Assistance System),
was specifically designed by the Company for use in its operations and is linked
to most of the Company's funeral home locations. CSASE enables a location to
function on its own by maintaining accounts receivables and payables locally,
thereby reducing the costs related to maintaining this function centrally. The
information provided by CSASE to the Company's senior management also allows the
Company, on a timely basis, to access critical operating and financial data from
a site in order to analyze the performance of individual locations and institute
corrective action if necessary.
The Company also has established a compensation structure that is designed
to maintain and create a sense of ownership on the part of local managers. The
Company awards meaningful cash bonuses tied to achieving certain earnings
objectives at a location and issues stock options to local management for
exceptional performance. As a result, local management has the opportunity to
significantly increase their personal net worths through strong local and
corporate performance.
Management also believes that implementing its operating strategy on newly
acquired businesses can lead to enhanced profitability of acquired operations.
The Company has an extensive merchandising and
27
training program that is designed to educate local funeral home operators about
opportunities to improve marketing of products and services, to share sales
leads and other cross-marketing opportunities and to become familiar with and
adopt the Company's business objectives. The larger size of the Company as
compared to local operations also allows favorable pricing and terms to be
achieved from vendors through volume discounts on significant expenditures, such
as caskets, vaults, memorials and vehicles. In addition, while operational
functions and management autonomy are retained at the local level, centralizing
certain financial, accounting, legal, administrative and employee benefit
functions allows for more efficient and cost-effective operations. The Company
also institutes preneed sales programs in selected local markets to maintain or
increase market presence and assure a backlog of future business.
ACQUISITION STRATEGY. The Company believes that significant acquisition
opportunities currently exist in the death care industry that the Company
intends to aggressively pursue. In evaluating specific properties for
acquisition, the Company considers such factors as the property's location,
reputation, heritage, physical size, volume of business, profitability, name
recognition, aesthetics, potential for development or expansion, competitive
market position, pricing structure and quality of operating management. The
Company will continue to focus on acquiring premier funeral homes throughout the
United States that have a strong local presence and that conduct between 100 to
600 funeral services per year. In purchasing the premier location in a
particular market, management believes that the Company is able to attract the
most talented personnel, minimize downside risk of loss of volume to competitors
and provide opportunities for increased profitability when such operations are
coupled with the Company's management techniques. In addition, the Company
generally retains the former owners and other key personnel of acquired funeral
homes and provides them with significant operating responsibility to assure the
continuation of high quality services and the maintenance of the acquired firm's
reputation and heritage. In nearly all cases, acquired funeral homes continue
operations under the same trade names as those of the prior owners. In addition,
the Company views experienced management of certain acquired operations as
potential corporate management candidates. Management believes that this
potential for advancement within the Company combined with the Company's
decentralized operating structure and incentive-based compensation system makes
it a particularly attractive acquiror to some independent owners. The Company
also will continue to analyze the possibility of acquiring additional funeral
homes in present markets so that personnel and vehicles can be shared and profit
margins enhanced.
The Company follows a disciplined approach to acquisitions utilizing
specific operating and financial criteria. The Company develops pro forma
financial statements for acquisition targets reflecting estimates of revenue and
costs under the Company's ownership and then utilizes such information to
determine a purchase price which it believes is reasonable. The Company
anticipates that the consideration for future acquisitions will consist of a
combination of cash, long-term notes and equity. In addition, the Company often
assumes existing indebtedness of the acquired entities. The Company also will
typically enter into management, consulting and non-competition agreements with
former owners and key executive personnel of acquired businesses.
Although the Company traditionally has not focused on acquiring cemetery
operations, management intends to pursue cemetery acquisitions primarily in
markets where the Company operates or plans to operate funeral homes in order to
take advantage of cross-marketing opportunities.
While the Company focuses its efforts on identifying acquisition candidates
with the potential for a negotiated, non-competitive acquisition process, the
Company also competes for more broadly marketed acquisition opportunities. In
many cases, the Company has been successful in acquiring operations where it has
not been the highest bidder because of the Company's reputation, operating
strategy and corporate culture. Management believes that the issuance of equity
securities to fund certain funeral home acquisitions has been, and will continue
to be, attractive to select acquisition candidates.
28
The Company has successfully executed this acquisition strategy since its
inception, as demonstrated in the table set forth below.
FUNERAL
PERIOD CONSIDERATION HOMES(1) CEMETERIES(2)
- ------------------------------------ ------------- --------- -------------
(DOLLARS IN THOUSANDS)
1992................................ $11,832 14 2
1993................................ 13,843 11 1
1994................................ 9,153 9 1
1995................................ 12,191 8 0
Six months ended June 30, 1996(3)... 33,515 24 4
------------- -- -
$80,534 66 8
============= == =
- ------------
(1) The Company subsequently divested four of these funeral homes.
(2) The Company subsequently divested one of these cemeteries.
(3) Subsequent to June 30, 1996, the Company has acquired two funeral homes and
one cemetery for aggregate consideration of $7.8 million.
OPERATIONS
FUNERAL HOME OPERATIONS. The Company's funeral homes are located in Texas,
Ohio, Kentucky, Georgia, Tennessee, Illinois, Michigan, Florida, Kansas, South
Carolina, Washington, Idaho and Alabama. Funeral home revenues accounted for
approximately 93% of the Company's net revenues for the year ended December 31,
1995 and 92% in the six months ended June 30, 1996.
The Company's funeral home operations are managed by four experienced death
care industry professionals. Although certain financial management and policy
matters are centralized, local funeral home operators have substantial autonomy
in determining the manner in which their services and products are marketed and
delivered and their funeral homes are managed. The Company believes that this
strategy permits each local firm to maintain its unique style of operation and
to capitalize on its reputation and heritage, while the Company maintains
centralized supervisory controls and provides specialized services at the
corporate level.
The Company's funeral homes offer a complete range of services to meet
families' funeral needs, including consultation, the removal and preparation of
remains, the sale of caskets and related funeral merchandise, the use of funeral
home facilities for visitation and worship, and transportation services. Most of
the Company's funeral homes have a non-denominational chapel on the premises,
thereby permitting family visitation and religious services to take place at one
location, which reduces transportation costs to the Company and inconvenience to
the family.
CEMETERY OPERATIONS. The Company's seven cemeteries are located in Texas,
Kentucky, South Carolina, Florida and Idaho. Cemetery revenues accounted for
approximately 7% of the Company's net revenues for the year ended December 31,
1995 and 8% for the six months ended June 30, 1996. As of June 30, 1996, the
Company employed a staff of approximately 45 cemetery sales counselors for the
sale of interment rights and merchandise.
The Company's cemetery products and services include interment services,
the rights to interment in cemetery sites, including grave sites, crypts,
niches, and mausoleums, and related cemetery merchandise such as markers,
monuments, memorials and burial vaults. Cemetery operations generate revenues
through sales of interment rights, markers and memorials; fees for interment and
cremation services and marker and memorial installations; interest income from
installment sales contracts; and investment income from preneed cemetery
merchandise and perpetual care trusts.
PRENEED PROGRAMS. In addition to sales of funeral merchandise and services
and cemetery interment rights and merchandise at the time of need, the Company
also markets funeral and cemetery services and products on a preneed basis.
Preneed funeral or cemetery contracts enable families to establish in advance
29
the type of service to be performed, the products to be used and the cost of
such products and services in accordance with prices prevailing at the time the
agreement is signed rather than when the products and services are delivered.
Preneed contracts permit families to eliminate the emotional strain of making
death care plans at the time of need and enable the Company to establish a
portion of its future market share. Because of the significant market share of
most of the Company's funeral homes in their areas of operation, however, the
Company does not aggressively market preneed funeral contracts. Proceeds from
the sale of preneed funeral contracts are not recognized as revenues until the
time the funeral service is performed. The Company sold 2,610 preneed funeral
contracts in the year ended December 31, 1995 and 1,997 preneed funeral
contracts in the six months ended June 30, 1996. At June 30, 1996, the Company
had a backlog of 23,758 preneed funeral contracts to be delivered in the future.
Preneed funeral contracts are usually paid on an installment basis. The
performance of preneed funeral contracts is usually secured by placing the funds
collected in trust for the benefit of the customer or by the purchase of a life
insurance policy, the proceeds of which will pay for such services at the time
of need. Insurance policies intended to fund preneed funeral contracts cover the
original contract price and generally include built-in escalation clauses
designed to offset future inflationary cost increases.
In addition to preneed funeral contracts, the Company also offers
"preplanned" funeral arrangements whereby a client determines in advance
substantially all of the details of a funeral service without any financial
commitment or other obligation on the part of the client until the actual time
of need. Preplanned funeral arrangements permit families to avoid the emotional
strain of making death care plans at the time of need and enable a funeral home
to establish relationships with clients that frequently lead to at need sales.
Preneed cemetery sales are usually financed by the Company through
installment sale contracts, generally with terms of five years. Preneed sales of
cemetery interment rights and other related services and merchandise are
recorded as revenues when the contract is signed, with concurrent recognition of
related costs. The Company typically receives payment of at least 5% of the
sales price at the time the contract is signed. Allowances for customer
cancellations and refunds are accrued at the date of sale based upon historical
experience. Preneed cemetery sales represented approximately 42% of the
Company's net cemetery revenues for the year ended December 31, 1995 and
approximately 61% of the Company's net cemetery revenues for the six months
ended June 30, 1996.
PROPERTIES
At June 30, 1996, the Company operated 62 funeral homes and seven
cemeteries in 13 states. The Company owns the real estate and buildings of 44 of
its funeral homes and all of its cemeteries and leased facilities in connection
with 18 of its funeral homes. The seven cemeteries operated by the Company cover
a total of approximately 300 acres. The Company's inventory of unsold developed
lots totaled approximately 37,000 at June 30, 1996. In addition, approximately
140 acres, or approximately 47% of the total acreage, is available for future
development. The Company does not anticipate any shortage of available space in
any of its current cemeteries for the foreseeable future.
30
The following table sets forth certain information as of June 30, 1996
regarding the Company's funeral homes and cemeteries by state:
NUMBER OF
FUNERAL HOMES
------------------
STATE OWNED LEASED(1) CEMETERIES
- ------------------------------------- ----- --------- ----------
Texas................................ 8(2) 1 2
Ohio................................. 9 2 0
Kentucky............................. 6 4 1
Georgia.............................. 3 3 0
Tennessee............................ 3 1 0
Illinois............................. 0 4 0
Michigan............................. 1 2 0
Florida.............................. 2 1 1
Kansas............................... 2 0 0
South Carolina....................... 5 0 1
Washington........................... 2 0 0
Idaho................................ 2(3) 0 2
Alabama.............................. 1 0 0
-- -
-----
Total(4)........................ 44 18 7
===== == =
- ------------
(1) The leases with respect to these funeral homes have remaining terms ranging
from two to fifteen years, and the Company generally has a right of first
refusal on any proposed sale of the property where these funeral homes are
located.
(2) One of these funeral homes is located on property contiguous to and operated
in combination with a Company cemetery.
(3) These funeral homes are located on property contiguous to and operated in
combination with Company cemeteries.
(4) Subsequent to June 30, 1996, the Company has acquired two funeral homes in
Conneticut and one cemetery in Texas for aggregate consideration of $7.8
million.
The Company's corporate headquarters occupy approximately 11,000 square
feet of leased office space in Houston, Texas.
At June 30, 1996, the Company operated 238 vehicles, of which 172 were
owned and 66 were leased.
The specialized nature of the Company's business requires that its
facilities be well-maintained. Management believes that this standard is met.
COMPETITION
The acquisition environment in the death care industry is highly
competitive. The four major publicly held death care companies, Service
Corporation International ("SCI"), The Loewen Group, Inc., Stewart Enterprises,
Inc. and Equity Corporation International, are substantially larger than the
Company and have significantly greater financial and other resources than the
Company. In addition, a number of smaller companies are actively acquiring
funeral homes and cemeteries. Prices for funeral homes and cemeteries have
increased substantially in recent years, and, in some cases, competitors have
paid acquisition prices substantially in excess of the prices offered by the
Company. Accordingly, no assurance can be given that the Company will be
successful in expanding its operations through acquisitions or that funeral
homes and cemeteries will be available at reasonable prices or on reasonable
terms.
The Company's funeral home and cemetery operations generally face
competition in the markets that they serve. Market share for funeral homes and
cemeteries is largely a function of reputation and heritage, although
competitive pricing, professional service and attractive, well-maintained and
conveniently located facilities are also important. The sale of preneed funeral
services and cemetery property has increasingly been used by many companies as
an important marketing tool to build market share. Due to the importance of
reputation and heritage, market share increases are usually gained over a long
period of time.
31
TRUST FUNDS
GENERAL. The Company has established a variety of trusts in connection with
its funeral home and cemetery operations as required under applicable state law.
Such trusts include (i) preneed funeral trusts, (ii) preneed cemetery
merchandise and service trusts and (iii) perpetual care trusts. These trusts are
typically administered by independent financial institutions selected by the
Company. The Company also uses independent professional managers to advise the
Company on investment matters.
PRENEED FUNERAL TRUSTS. Preneed funeral sales are facilitated by deposits
to a trust or purchase of a third party insurance product. All preneed funeral
sales are deferred until the service is performed. The trust income earned and
any increase in insurance benefits are also deferred until the service is
performed in order to offset possible inflation in cost when providing the
service in the future. Although direct marketing costs and commissions incurred
for the sale of preneed funeral contracts are a current use of cash, such costs
are also deferred and amortized over 12 years, which approximates the expected
timing of the performance of the services related to the preneed funeral
contracts. Since the Company does not have access to the trust fund principal or
earnings, the related assets and liabilities are not reflected on the Company's
balance sheet. In most states, the Company is not permitted to withdraw
principal or investment income from such trusts until the funeral service is
performed. Some states, however, allow for the retention of a percentage
(generally 10%) of the receipts to offset any administrative and selling
expenses, which the Company defers until the service is provided. The aggregate
balance of the Company's preneed funeral contracts held in trust was
approximately $24.3 million as of June 30, 1996.
PRENEED CEMETERY MERCHANDISE AND SERVICE TRUSTS. The Company is generally
required under applicable state laws to deposit a specified amount (which varies
from state to state, generally 110% of wholesale cost) into a merchandise and
service trust fund for cemetery merchandise and services sold on a preneed
basis. The related trust fund income is recognized in current revenues as trust
earnings. These earnings are offset by any current period inflation costs
accrued related to the merchandise that has not yet been purchased. Liabilities
for undelivered cemetery merchandise and services, including accruals for
inflation increases, are reflected in the balance sheet net of the merchandise
and service trust balance. The Company is permitted to withdraw the trust
principal and the accrued income when the merchandise is purchased or service is
provided by the Company or when the contract is cancelled. The merchandise and
service trust fund balances, in the aggregate, were approximately $1.1 million
as of June 30, 1996.
PERPETUAL CARE TRUSTS. In certain states, regulations require a portion,
generally 10%, of the sale amount of cemetery property and memorials to be
placed in trust. These perpetual care trusts provide the funds necessary to
maintain cemetery property and memorials in perpetuity. The related trust fund
income is recognized in current revenues as trust earnings. While the Company is
entitled to withdraw the income from its perpetual care trust to provide for the
maintenance of the cemetery and memorials, they are not entitled to withdraw any
of the principal balance of the trust fund, and therefore, none of the principal
balances are reflected in the Company's balance sheet. The Company's perpetual
care trust balances were approximately $1.7 million as of June 30, 1996.
For additional information with respect to the Company's trusts, see Note 1
of the Consolidated Financial Statements located elsewhere in this Prospectus.
REGULATION
The Company's funeral home operations are subject to substantial regulation
by the Federal Trade Commission (the "FTC"). Certain regulations contain minimum
standards for funeral industry practices, require extensive price and other
affirmative disclosures to the customer at the time of sale and impose mandatory
itemization requirements for the sale of funeral products and services.
The Company is subject to the requirements of the federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the United States Environmental Protection Agency
community right-to-know regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and similar state statutes require the Company
to organize information about hazardous materials used or produced in its
operations. Certain of this information must
32
be provided to employees, state and local governmental authorities and local
citizens. The Company is also subject to the federal Americans with Disabilities
Act and similar laws which, among other things, may require that the Company
modify its facilities to comply with minimum accessibility requirements for
disabled persons.
The Company's operations, including its preneed sales and trust funds, are
also subject to extensive regulation, supervision and licensing under numerous
other federal, state and local laws and regulations. See "-- Trust Funds."
The Company believes that it is in substantial compliance with all such
laws and regulations. Federal and state legislatures and regulatory agencies
frequently propose new laws, rules and regulations some of which, if enacted,
could have a material adverse effect on the Company's operations and on the
death care industry in general. The Company cannot predict the outcome of any
proposed legislation or regulations or the effect that any such legislation or
regulations might have on the Company.
LEGAL MATTERS
The Company and certain of its subsidiaries are parties to a number of
legal proceedings that arise from time to time in the ordinary course of
business. While the outcome of these proceedings cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the Company.
The Company carries insurance with coverages and coverage limits that it
believes to be customary in the funeral home and cemetery industries. Although
there can be no assurance that such insurance will be sufficient to protect the
Company against all contingencies, management believes that its insurance
protection is reasonable in view of the nature and scope of the Company's
operations.
EMPLOYEES
As of June 30, 1996, the Company and its subsidiaries employed
approximately 300 full-time employees, 280 part-time employees and 100 preneed
sales counselors. All of the Company's funeral directors and embalmers possess
licenses required by applicable regulatory agencies. Management believes that
its relationship with its employees is good. No employees of the Company or its
subsidiaries are members of a collective bargaining unit.
33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company currently has a Board of Directors composed of four members.
Upon completion of the Offering, the Company will increase the size of the Board
of Directors to seven members and elect three additional directors. In
accordance with the Bylaws of the Company, the members of the Board of Directors
are divided into three classes and are elected for a term of office expiring at
the third succeeding annual stockholders' meeting following their election to
office or until a successor is duly elected and qualified. The Bylaws also
provide that such classes shall be as nearly equal in number as possible. The
terms of office of the Class I, Class II and Class III directors expire at the
annual meeting of stockholders in 1997, 1998 and 1999, respectively. The
officers of the Company are elected by and serve until their successors are
elected by the Board of Directors.
The following table sets forth the names, ages and titles of the current
directors and executive officers of the Company and, in the case of the
directors, the expiration of their respective terms.
<TABLE>
<CAPTION>
EXPIRATION OF
NAME AGE POSITION WITH THE COMPANY TERM AS DIRECTOR
- ---------------------------------------- --- -------------------------------------------- ----------------
<S> <C> <C>
Melvin C. Payne(1)...................... 53 President, Chief Executive Officer and 1997
Director
Mark W. Duffey(1)....................... 40 Executive Vice President, Chief Financial 1998
Officer and Director
Russell W. Allen........................ 49 Executive Vice President, Operations --
Mary-Lees Payne......................... 47 Vice President, Administration and --
Accounting
Reid A. Millard......................... 37 Vice President, Corporate Development --
C. Byron Snyder(1)...................... 47 Chairman of the Board of Directors 1997
Barry K. Fingerhut(1)(2)................ 50 Director 1998
Stuart W. Stedman(3)(4)................. 38 Director 1999
Robert D. Larrabee(2)(4)................ 60 Director 1997
Ronald A. Erickson(3)(4)................ 59 Director 1999
</TABLE>
- ------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) To be elected following completion of the Offering.
Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.
MELVIN C. PAYNE, one of the three management founders of the Company, has
been President, Chief Executive Officer and a director of the Company since its
inception. Prior to co-founding the Company, Mr. Payne was a co-founder in 1990
of Sovereign Capital Partners, Inc., an investment and management advisory firm
which specialized in restructuring, recapitalizing and acquiring or selling
financially troubled companies. From 1991 to 1993, Mr. Payne served as a
director and officer of Sovereign Holdings, Inc., RTO Enterprises Inc. and
various subsidiaries of RTO Enterprises Inc. Mr. Payne has 25 years of broad
investment, banking and operating management experience, including positions as
Executive Vice President and director of Wedge Group, Inc., an investment
holding company with multi-industry operations, and with Texas Commerce Bank and
Prudential Insurance Company. Mr. Payne serves on the Board of Trustees of WNL
Series Trust, a mutual fund affiliated with Western National Life Insurance
Company and on the Board of Managers of Sovereign Capital Partners, LC, a
private acquisition company.
MARK W. DUFFEY, one of the three management founders of the Company, has
been Executive Vice President and Chief Financial Officer since the inception of
the Company and in 1995 became a director. Prior to co-founding the Company, Mr.
Duffey was a co-founder of Sovereign Capital Partners, Inc. with
34
Mr. Payne. Mr. Duffey was previously Chief Operating Officer of a private
investment firm in Houston with interests in energy, real estate and public
securities. From 1991 to 1993, Mr. Duffey served as a director and officer of
Sovereign Holdings, Inc., RTO Enterprises Inc. and various subsidiaries of RTO
Enterprises Inc. Prior to 1989, he held various positions with Mellon Bank over
a ten-year period, both in Pittsburgh and in Houston. He serves on the Board of
Managers of Sovereign Capital Partners, LC.
RUSSELL W. ALLEN joined the Company in June 1993 as Executive Vice
President, Operations. Mr. Allen has over 32 years of operational experience in
the funeral home industry. Prior to joining the Company, he was affiliated with
Earthman Funeral Directors and Greenwood-Mount Olivet Funeral Homes and
Cemeteries of Fort Worth, Texas for one and 21 years, respectively, serving most
recently as Executive Vice President of operations with each company. Mr. Allen
recently completed a term of six years as Vice Chairman of the Texas Funeral
Service Commission and as Chairman of the Education and Legislation Committees.
He is also a member of the Texas Cemetery Association and has served on the
Legislative Committees with that organization.
MARY-LEES PAYNE provided consulting services to the Company during the
initial start-up period beginning in January 1992 and became Controller of the
Company in June 1993 and Vice President, Administration and Accounting in June
1995. From 1984 to 1989, she served as Vice President and Controller for three
start-up companies, two in the death care industry. Prior to 1984, Ms. Payne was
an audit manager in the international accounting firm of Ernst & Young. Ms.
Payne is a certified public accountant and is not related to Melvin C. Payne.
REID A. MILLARD, one of the three management founders, served as Executive
Vice President until November 1993. From November 1993 until June 1996, Mr.
Millard was active in various positions in operations and corporate development.
In June 1996, Mr. Millard became Vice President, Corporate Development of the
Company. Mr. Millard has 21 years of management experience in the funeral
service industry, including spending nine years at SCI, where he obtained a wide
range of experience in operations, marketing, merchandising, real estate,
preneed sales, general management and independent funeral home owner
relationships. He left SCI in 1990 to pursue various entrepreneurial activities,
including the ownership and operation of a funeral home in Jefferson City,
Missouri.
C. BYRON SNYDER has been Chairman of the Board of Directors of the Company
since its inception. Mr. Snyder is presently owner and President of Relco
Refrigeration Co., a distributor of refrigeration equipment, which he acquired
in 1992. Prior to co-founding the Company, Mr. Snyder was the owner and Chief
Executive Officer of Southwestern Graphics International, Inc., a diversified
holding company which owned Brandt & Lawson Printing Co., a Houston-based
general printing business, and Acco Waste Paper Company, an independent
recycling business. Brandt & Lawson Printing Co. was sold to Hart Graphics in
1989, and Acco Waste Paper Company was sold to Browning-Ferris Industries in
1991.
BARRY K. FINGERHUT has been a director of the Company since 1995. Since
1981, Mr. Fingerhut has been associated with, and now serves as President of,
GeoCapital, a registered investment adviser located in New York City which
focuses its investment advice and management on securities of small
capitalization companies. As of December 31, 1995, GeoCapital managed accounts
having a market value of approximately $1.8 billion. Mr. Fingerhut also has
co-founded several investment partnerships that invest primarily in undervalued
publicly traded companies and high growth companies engaged in the
communications, media or entertainment industries. Mr. Fingerhut presently is a
director of Millbrook Press, Inc., a publisher of children's non-fiction books,
and Glasser Legal Works, Inc., a niche publisher of legal texts, journals and
seminars. He previously served as a director of La Quinta Inns, Inc., a
nationwide lodging chain, and Lakeshore National Bank, Inc., which was acquired
by First Chicago Corp. in 1994.
STUART W. STEDMAN will become a director of the Company upon consummation
of the Offering. For the past ten years, Mr. Stedman has been President of
Wesley West Interests, Inc., a management company responsible for various family
holdings, including marketable securities, oil, gas and coal properties, ranch
lands and urban real estate. Mr. Stedman also serves as Manager of Strand
Energy, L.L.C., a private exploration and production company.
35
ROBERT D. LARRABEE will become a director of the Company upon consummation
of the Offering. Mr. Larrabee is the former owner of a group of four funeral
homes and two cemeteries in the states of Washington and Idaho that the Company
acquired in April 1996. He is the founder, president and director of Valley
Bank, Clarkston, Washington; founder, Chairman of the Board and President of
Purple Cross Insurance Company; and founder of Lewis-Clark Savings and Loan
Association. He also serves on the Board of Directors of Sterling Savings
Association and, until 1995, served on the Board of Directors of Laurentian
Capital Corporation.
RONALD A. ERICKSON will become a director of the Company upon consummation
of the Offering. Mr. Erickson is Chief Executive Officer of Holiday Companies,
Minneapolis, Minnesota, a family business consisting primarily of convenience
stores, supermarkets, sporting goods stores and wholesale food distribution. Mr.
Erickson serves on the Board of Directors of First Bank National Association.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the President
and Chief Executive Officer of the Company and each of the two other most highly
compensated executive officers of the Company for the year ended December 31,
1995. No other executive officer of the Company had salary and bonus which
exceeded $100,000 in 1995:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION IN THE --------------------- ALL OTHER
COMPANY SALARY BONUS COMPENSATION
- ------------------------------------- ---------- --------- ------------
Melvin C. Payne, President, Chief
Executive Officer and Director..... $ 175,000 -- --
Mark W. Duffey, Executive Vice
President, Chief Financial Officer
and Director....................... $ 150,000 -- --
Russell W. Allen, Executive Vice
President, Operations.............. $ 100,000 $ 20,000 $6,000(1)
- ------------
(1) Represents compensation for automobile allowance.
EMPLOYMENT AGREEMENTS
The Company intends to enter into separate employment agreements with each
of Melvin C. Payne, Mark W. Duffey and Russell W. Allen prior to the Offering.
The employment agreements with Mr. Payne and Mr. Duffey will have an initial
term of five years with an evergreen two year extension continuing after the
first three years of the employment agreements unless either the Company or the
employee gives 90 days notice of termination. The employment agreement with Mr.
Allen is for an initial term of five years. Pursuant to these agreements,
Messrs. Payne, Duffey and Allen will be entitled to receive a salary of not less
than $225,000, $185,000 and $145,000, respectively, and a bonus to be determined
on an annual basis by the Board of Directors. In addition, each agreement will
contain a covenant prohibiting the employee from competing with the Company
during the period they are receiving compensation under their agreements,
provided however, that, following termination of employment, the employee may
elect to forego certain severance payments which he may be entitled to under the
employment agreements and thereafter shall not be prohibited from competing with
the Company. In addition, the agreements will contain customary benefits and
perquisites.
COMPENSATION OF DIRECTORS
Following the Offering, it is anticipated that in lieu of cash compensation
each director of the Company who is not an officer or employee of the Company or
any of its subsidiaries (a "nonemployee director") will be entitled to options
as described below and will be reimbursed for expenses incurred in the attending
meetings of the Board of Directors and Committees thereof. The 1996 Nonemployee
Directors' Stock Option Plan (the "Nonemployee Directors' Plan") has been
adopted for the nonemployee directors. Under the Nonemployee Directors' Plan,
each individual who is a nonemployee director as of the date of the Offering or
who is elected to the Board of Directors on such date, will receive, as of such
date, a
36
nonqualified stock option (an "Initial Option") to purchase 15,000 shares (which
amount shall be increased to 25,000 if the nonemployee director also serves on
the Executive Committee as of such date) of Class A Common Stock at an exercise
price per share equal to the initial public offering price of $14.00 per share.
Further, each nonemployee director will receive, as of the date of each annual
meeting of the stockholders of the Company, a nonqualified stock option (an
"Annual Option") to purchase 6,000 shares of Class A Common Stock. Each Annual
Option will have an exercise price equal to the fair market value of the Class A
Common Stock on the date of grant. The exercise price under an option granted
pursuant to the Nonemployee Directors' Plan may be paid in cash, in shares of
Class A Common Stock (valued at fair market value at the date of exercise), or
by a combination of such means of payment. The number of shares covered by each
option and the exercise price per share will be proportionately adjusted in the
event of a stock split, reverse stock split, stock dividend, or similar capital
adjustment effected without receipt of consideration by the Company. The
aggregate number of shares of Class A Common Stock that may be issued pursuant
to the exercise of options granted under the Nonemployee Directors' Plan is
200,000 shares. Shares issuable pursuant to the Nonemployee Directors' Plan may
be authorized but unissued shares or reacquired shares, and the Company may
purchase shares required for this purpose.
Options granted under the Nonemployee Directors' Plan will have a maximum
term of ten years. Annual Options will vest immediately. An Initial Option will
vest with respect to one-third of the shares subject to such option in four
equal annual installments beginning on the first anniversary of the date of the
Offering. An Initial Option will vest immediately with respect to the remaining
two-thirds of the shares subject to such option if, within four years after the
date of the Offering, the average of the fair market value of the Class A Common
Stock over twenty consecutive trading days is greater than or equal to $29.00
which is based on a predetermined compound growth rate of the Class A Common
Stock price. "Fair market value" is defined as the average of the high and low
prices for the Class A Common Stock on the specified date as reported by the
Nasdaq National Market. If the stock price target described above is not timely
satisfied, then an Initial Option will vest with respect to the two-thirds of
the shares subject to such option in four equal annual installments beginning on
the fifth anniversary of the date of the Offering. All options granted under the
Nonemployee Directors' Plan will also become fully vested and exercisable in
full in the event that a nonemployee director's membership on the Board of
Directors terminates by reason of death or disability or upon the occurrence of
a "Change of Control" while a nonemployee director is a member of the Board of
Directors. The Nonemployee Directors' Plan provides that a Change of Control
occurs (i) if the Company is dissolved and liquidated, (ii) if the Company is
not the surviving entity in any merger, consolidation, or reorganization, (iii)
if the Company sells, leases or exchanges, or agrees to sell, lease, or
exchange, all or substantially all of its assets, (iv) if any person, entity or
group acquires or gains ownership or control of more than 50% of the outstanding
shares of the Company's voting stock (based upon voting power), or (v) if, after
a contested election of directors, the persons who were directors before such
election cease to constitute a majority of the Board of Directors. Upon
termination of a nonemployee director's membership on the Board of Directors,
the nonemployee director will have three months (12 months if such termination
is by reason of death or disability) to exercise his or her options, but only to
the extent such options are vested as of the date of such termination.
A nonemployee director will not recognize any taxable income at the time an
option is granted under the Nonemployee Directors' Plan. Ordinary income will be
recognized by a nonemployee director at the time of exercise in an amount equal
to the excess of the fair market value of the shares of Class A Common Stock on
the date of exercise over the option price for such shares. However, if other
shares of Class A Common Stock have been purchased by a nonemployee director
within six months of the exercise of an option, recognition of the income
attributable to such exercise may under certain circumstances be postponed for a
period of up to six months from the date of such purchase of such other shares
of Class A Common Stock due to liability to suit under Section 16(b) of the
Exchange Act. If applicable, one effect of any such postponement would be to
measure the amount of the nonemployee director's taxable income by reference to
the fair market value of such shares at the same time such liability to suit
under Section 16(b) of the Exchange Act no longer exists (rather than at the
earlier date of the exercise of the option). Upon the nonemployee director's
exercise of an option granted under the Nonemployee Directors' Plan, the Company
37
may claim a deduction for compensation paid at the same time and in the same
amount as ordinary income is recognized by the nonemployee director.
The Nonemployee Directors' Plan is not qualified under section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). The comments set
forth above are only a summary of certain of the Federal income tax consequences
relating to the Nonemployee Directors' Plan. No consideration has been given to
the effects of state, local or other tax laws on the Nonemployee Directors'
Plan, the Company or the award recipients.
Based upon current law and published interpretations, the Company does not
believe the Nonemployee Directors' Plan is subject to any of the provisions of
the Employee Retirement Income Security Act of 1974.
INCENTIVE PLANS
The Company has adopted two incentive compensation plans designed to align
the interests of the executives and employees with those of its stockholders.
1995 STOCK INCENTIVE PLAN. The Company has adopted the 1995 Stock Incentive
Plan (the "1995 Plan"). The maximum number of shares of Common Stock which may
be issued pursuant to the 1995 Plan, as amended, is 400,000. Awards under the
1995 Plan made prior to the date of the Offering will be satisfied in shares of
Class B Common Stock, and awards under the 1995 Plan made on or after the date
of the Offering will be satisfied in shares of Class A Common Stock. Under the
1995 Plan, the Company may grant incentive stock options intended to qualify
under Section 422 of the Code to eligible employees of the Company, and options
that are not qualified as incentive stock options (non-statutory stock options)
to any eligible individual. The exercise price will be determined by the
Compensation Committee and will not be less than the fair market value of the
Class A Common Stock on the date that the option is granted. The exercise price
may be paid in cash, in shares of Class A Common Stock (valued at fair market
value at the date of exercise) or by a combination of such means of payment as
may be determined by the Compensation Committee. The 1995 Plan provides that in
the event a holder pays all or a part of the exercise price of an incentive
stock option or a non-statutory stock option in shares of Class A Common Stock,
the Committee may grant a corresponding "reload option," which is not qualified
as an incentive stock option, for an equal number of shares of Class A Common
Stock. Reload options may be granted concurrently with the award of a stock
option or subsequent to the award of a stock option. Additionally, alternate
appreciation rights may be granted to eligible individuals in conjunction with
options. Alternate appreciation rights give the holder, among other things, the
right to a payment of Class A Common Stock in an amount equal to the difference
between the fair market value of the Class A Common Stock at the date of
exercise and the option exercise price. In conjunction with options and
alternate appreciation rights, "limited rights" may also be granted to eligible
individuals. Limited rights give the holder, among other things, the right to
cash in an amount equal to the difference between the fair market value of the
Class A Common Stock at the date of exercise and the option exercise price.
Limited rights are exercisable for a period of seven months following the date
of a "Change in Control." The 1995 Plan provides that a Change in Control occurs
(i) if the Company is dissolved and liquidated, (ii) if the Company is not the
surviving entity in any merger, consolidation, or reorganization, (iii) if the
Company sells, leases or exchanges, or agrees to sell, lease, or exchange, all
or substantially all of its assets, (iv) if any person, entity or group acquires
or gains ownership or control of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) if, after a contested
election of directors, the persons who were directors before such election cease
to constitute a majority of the Board of Directors. The 1995 Plan also provides
for the issuance of shares of Class A Common Stock which may be subject to
forfeiture under circumstances specified by the Compensation Committee at the
time of the award of such shares ("bonus stock"). Pursuant to a bonus stock
award, shares of Class A Common Stock will be issued to the individual at the
time the award is made without any payment to the Company (other than for any
payment amount determined by the Compensation Committee in its discretion), but
such shares may be, if so specified by the Compensation Committee, subject to
certain restrictions on the disposition thereof and certain obligations to
forfeit such shares to the Company, as determined in the discretion of the
Compensation Committee.
38
The 1995 Plan provides that the total number of shares covered by each
award will be proportionately adjusted in the event of a stock split, reverse
stock split, or other similar capital adjustment effected without the receipt of
consideration by the Company. Further, the total number of shares covered by the
plan, the exercise price per share under each option, and any other matters
deemed appropriate by the Compensation Committee, may be appropriately adjusted
in event of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares, or similar
transaction.
Directors, executive officers and other employees of the Company and its
subsidiary and affiliate corporations and former owners of funeral homes or
cemeteries that have been acquired by the Company are eligible to receive awards
under the 1995 Plan. The 1995 Plan is administered by the Compensation
Committee. Subject to the terms of the 1995 Plan, the Compensation Committee is
authorized to select the recipients of awards from among those eligible and to
establish the number of shares that may be issued under each award. Concurrently
with the Offering, the Company anticipates that options exercisable for 120,000
shares of Class A Common Stock will be issued to employees who are not executive
officers at an exercise price equal to the initial public offering price. Such
options will be subject to a four-year vesting period.
1996 STOCK OPTION PLAN. The Company has adopted the 1996 Stock Option Plan
(the "1996 Plan") and 600,000 shares of Class A Common Stock have been reserved
for issuance pursuant to such plan. Under the 1996 Plan, the Company may grant
both incentive stock options intended to qualify under Section 422 of the Code,
and options that are not qualified as incentive stock options. The exercise
price will be determined by the Compensation Committee and will be no less than
the fair market value of the Class A Common Stock on the date that the option is
granted. The exercise price may be paid in cash, in shares of Class A Common
Stock (valued at fair market value at the date of exercise) or by a combination
of such means of payment, as may be determined by the Compensation Committee.
The 1996 Plan provides that stock appreciation rights may be granted to
employees in conjunction with options. Stock appreciation rights give the
holder, among other things, the right to a payment in an amount equal to the
difference between the fair market value of the Class A Common Stock at the date
of exercise and the option exercise price. Such payment may be made, at the
election of the holder (subject to the consent or disapproval of the
Compensation Committee of any election to receive cash), in cash, in shares of
Class A Common Stock (valued at fair market value at the date of exercise), or
by a combination thereof.
The 1996 Plan provides that the total number of shares covered by such
plan, the number of shares covered by each option, and the exercise price per
share under each option will be proportionately adjusted in the event of a stock
split, reverse stock split, stock dividend, or similar capital adjustment
effected without receipt of consideration by the Company.
All employees of the Company and its subsidiary corporations (including an
employee who may also be a director of any such company) are eligible to receive
options under the 1996 Plan. The 1996 Plan is administered by the Compensation
Committee of the Board of Directors. Subject to the terms of the 1996 Plan, the
Compensation Committee is authorized to select the recipients of options from
among those eligible and to establish the number of shares that may be issued
under each option.
Concurrently with the Offering, the Compensation Committee intends to award
a non-statutory stock option under the 1996 Plan to each of the following
individuals with respect to the number of shares of Class A Common Stock
indicated: Melvin C. Payne -- 250,000 shares; Mark W. Duffey -- 150,000 shares;
Russell W. Allen -- 50,000 shares; and Reid A. Millard -- 30,000 shares. Each
such option will (i) have an exercise price per share equal to the initial
public offering price, (ii) have a maximum term of ten years, (iii) vest with
respect to one-third of the shares subject to such option in four equal annual
installments beginning on the first anniversary of the date of the Offering, and
(iv) vest immediately with respect to the remaining two-thirds of the shares
subject to such option if, within four years after the date of the Offering, the
average of the fair market value of the Class A Common Stock over twenty
consecutive trading days is greater than a predetermined compound growth rate of
the Class A Common Stock price. If the stock price target described in clause
(iv) of the preceding sentence is not satisfied, then each such option will vest
with respect to two-thirds of the shares subject to such option in four equal
annual installments beginning on the
39
fifth anniversary of the date of the Offering. All of such options will also
become fully vested and exercisable in full in the event the optionee's
employment with the Company terminates by reason of death or disability or upon
the occurrence of a "Corporate Change" while the optionee is employed by the
Company or a subsidiary corporation. The term "Corporate Change" has the same
meaning under the 1996 Plan as the term "Change of Control" has under the 1995
Plan. For purposes of determining whether the stock price target described above
is satisfied, the fair market value of a share of Class A Common Stock is
defined as the average of the high and low sales prices for such stock on a
specified date as reported by the Nasdaq National Market.
FEDERAL INCOME TAX ASPECTS OF THE 1995 PLAN AND THE 1996 PLAN. As a general
rule, no federal income tax is imposed on the optionee upon the grant of a
compensatory non-statutory stock option such as those under the 1995 Plan and
the 1996 Plan (whether or not including a stock appreciation right, an alternate
appreciation right or a limited right) and the Company is not entitled to a tax
deduction by reason of such grant. Generally, upon the exercise of a
non-statutory stock option that has been granted as compensation for services,
the optionee will be treated as receiving compensation taxable as ordinary
income in the year of exercise in an amount equal to the excess of the fair
market value of the shares on the date of exercise over the option price paid
for such shares. In the case of the exercise of a stock appreciation right, an
alternate appreciation right, or a limited right, which has been granted as
compensation for services, the optionee will be treated as receiving
compensation taxable as ordinary income in the year of exercise in an amount
equal to the cash received plus the fair market value of the shares distributed
to the optionee. Upon the exercise of a non-statutory stock option, a stock
appreciation right, an alternate appreciation right, or a limited right, which
has been granted as compensation for services and subject to the application of
Section 162(m) of the Code as discussed below, the Company may claim a deduction
for compensation paid at the same time and in the same amount as compensation
income is recognized to the optionee assuming any federal income tax withholding
requirements are satisfied. Upon a subsequent disposition of the shares received
upon exercise of such award, any appreciation after the date of exercise should
qualify as capital gain. If such shares received upon the exercise of an option,
a stock appreciation right, or an alternate appreciation right are transferred
to the optionee subject to certain restrictions, then the taxable income
realized by the optionee, unless the optionee elects otherwise, and the
Company's tax deduction (assuming any federal income tax withholding
requirements are satisfied) should be deferred and should be measured at the
fair market value of the shares at the time the restrictions lapse. The
restrictions imposed on officers, directors and 10% shareholders by Section
16(b) of the Exchange Act is such a restriction during the period prescribed
thereby if other shares have been purchased by such an individual within six
months of the exercise of a non-statutory stock option, a stock appreciation
right, or an alternate appreciation right.
The incentive stock options under the 1995 Plan and the 1996 Plan are
intended to constitute "incentive stock options" within the meaning of Section
422 of the Code. Incentive stock options are subject to special federal income
tax treatment. No federal income tax is imposed on the optionee upon the grant
or the exercise of an incentive stock option if the optionee does not dispose of
shares acquired pursuant to the exercise within the two-year period beginning on
the date the option was granted or within the one-year period beginning on the
date the option was exercised (collectively, the "holding period"). In such
event, the Company would not be entitled to any deduction for federal income tax
purposes in connection with the grant or exercise of the option or the
disposition of the shares so acquired. With respect to an incentive stock
option, the difference between the fair market value of the stock on the date of
exercise and the exercise price must be included in the optionee's alternative
minimum taxable income. However, if the optionee exercises an incentive stock
option and disposes of the shares received in the same year and the amount
realized is less than the fair market value of the shares on the date of
exercise, the amount included in alternative minimum taxable income will not
exceed the amount realized over the adjusted basis of the shares.
Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, any appreciation of the shares above the
exercise price constitutes capital gain. If an optionee disposes of shares
acquired pursuant to his or her exercise of an incentive stock option prior to
the end of
40
the holding period, the optionee will be treated as having received, at the time
of disposition, compensation taxable as ordinary income. In such event, and
subject to the application of Section 162(m) of the Code as discussed below, the
Company may claim a deduction for compensation paid at the same time and in the
same amount as compensation is treated as received by the optionee. The amount
treated as compensation is the excess of the fair market value of the shares at
the time of exercise (or in the case of a sale on which a loss would be
recognized, the amount realized on the sale if less) over the exercise price;
any amount realized in excess of the fair market value of the shares at the time
of exercise would be treated as short-term or long-term capital gain, depending
on the holding period of the shares.
An individual who has been granted bonus stock under the 1995 Plan as
compensation for services will not realize taxable income at the time of grant,
and the Company will not be entitled to a deduction at that time, assuming that
there are restrictions on the stock which constitute a substantial risk of
forfeiture for federal income tax purposes. Upon expiration of any such
forfeiture restrictions (i.e., as shares become vested), a holder who has
received such bonus stock as compensation for services will realize ordinary
income in an amount equal to the excess of the fair market value of the shares
at such time over the amount, if any, paid for such shares, and, subject to the
application of Section 162(m) of the Code as discussed below, the Company will
be entitled to a corresponding deduction. Any dividends paid to such holder in
respect of bonus stock during the period that the forfeiture restrictions apply
will also be compensation to such holder and deductible as such by the Company.
Notwithstanding the foregoing, the recipient of bonus stock that is granted as
compensation for services may elect to be taxed at the time of grant of the
bonus stock based upon the fair market value of the shares on the date of the
award, in which case (a) subject to Section 162(m) of the Code, the Company will
be entitled to a deduction at the same time and in the same amount, (b)
dividends paid to the recipient during the period the forfeiture restrictions
apply will be taxable as dividends and will not be deductible by the Company,
and (c) there will be no further federal income tax consequences when the
forfeiture restrictions lapse.
Section 162(m) of the Code precludes a public corporation from taking a
deduction in a taxable year for compensation in excess of $1 million paid to its
chief executive officer or any of its four other highest-paid officers. However,
compensation that qualifies under Section 162(m) of the Code as
"performance-based" is specifically exempt from the deduction limit. Further,
the regulations issued under Section 162(m) of the Code provide a special
transitional rule for privately held corporations that become publicly held
pursuant to an initial public offering. Pursuant to this transitional rule, the
Code Section 162(m) deduction limit will not apply to any remuneration paid
pursuant to a plan that existed during the period in which the corporation was
not publicly held, to the extent that the prospectus accompanying the initial
public offering disclosed information concerning such plan that satisfied all
applicable securities laws then in effect. This transitional rule may be relied
upon until the earliest of (i) the expiration of the plan, (ii) the material
modification of the plan, (iii) the issuance of all employer stock or other
compensation under the plan, or (iv) the first meeting of stockholders at which
directors are to be elected that occurs after the close of the third calendar
year following the calendar year in which the initial public offering occurred.
The transitional rule will apply to any compensation received pursuant to an
award under the 1995 Plan or the 1996 Plan that is made prior to the earliest of
the dates specified in the preceding sentence. Upon expiration of the
transitional relief, compensation relating to awards thereafter granted under
the 1995 Plan or the 1996 Plan would be subject to the deduction limitations of
Code Section 162(m). However, the Company currently anticipates that it will
amend the 1995 Plan and the 1996 Plan and seek stockholder approval of the
amended plans prior to the expiration of the transitional relief so that the
compensation paid under such plans (other than perhaps bonus stock awarded under
the 1995 Plan) can qualify under Code Section 162(m) as "performance-based."
Neither the 1995 Plan nor the 1996 Plan is qualified under section 401(a)
of the Code.
The comments set forth in the above paragraphs are only a summary of
certain of the Federal income tax consequences relating to the 1995 Plan and the
1996 Plan. No consideration has been given to the effects of state, local, or
other tax laws on the 1995 Plan, the 1996 Plan, the Company or the award
recipients.
41
Based upon current law and published interpretations, the Company does not
believe the 1995 Plan or the 1996 Plan is subject to any of the provisions of
the Employee Retirement Income Security Act of 1974.
CERTAIN TRANSACTIONS
In connection with the Company's formation in June 1991, C. Byron Snyder,
Chairman of the Board of Directors, provided an initial capital commitment of $6
million. The Snyder Notes bear interest at a predetermined rate plus 3%, subject
to adjustment in certain circumstances, payable annually in the form of cash or
additional subordinated notes. On January 1, 1995, the Company issued additional
notes to Mr. Snyder totalling $648,215 which represents the interest accrued on
the Snyder Notes during the year ended December 31, 1994. On January 1, 1996,
the Company issued additional notes to Mr. Snyder totalling $825,118 which
represents the interest accrued on the Snyder Notes during the year ended
December 31, 1995. A portion of the proceeds of the Offering will be used to
repay such loans.
The Company has an agreement with ACCO Collection Company ("ACCO"), which
is owned by Mr. Snyder, under which the Company may transfer responsibility for
collection of past due accounts receivable to ACCO in return for a percentage of
the collections received. To date, fees totalling $1,200 have been made to ACCO
by the Company.
The Company pays Mr. Snyder a $25,000 annual fee in return for certain
services provided to the Company. Mr. Snyder is the Chairman of the Board of the
Company and is active in determining the strategic direction of the Company as
well as being involved in reviewing major acquisitions. In addition, the Company
pays Mr. Snyder $40,000 per year as consideration for Mr. Snyder's indirect
guarantee of a portion of the Company's loan from TCB. Mr. Snyder's guarantee
will be released upon repayment of the loan in connection with the Offering.
Robert D. Larrabee, a director of the Company and former owner of certain
properties recently acquired by the Company, is a party to an arrangement with
the Company whereby Mr. Larrabee may receive annual cash bonuses if acquisition
candidates which he develops and which are subsequently acquired by the Company
attain cash flow in excess of certain cash flow targets over a ten-year period.
Pursuant to the arrangement, Mr. Larrabee may elect to sell back to the Company
his share of excess cash flow during the last three-year period at a
predetermined cash flow multiple. To date no payments have been made by the
Company under this arrangement.
The Company in July 1996 loaned Russell W. Allen $316,714 to fund the
consideration payable with respect to the exercise of Mr. Allen's right to
purchase shares of Class B Common Stock of the Company and to pay certain
federal income tax liability associated with respect to such exercise. The loan
matures on June 30, 1999, bears interest at 7% per year payable annually on or
before March 31 of each year and is secured by 50% of the Class B Common Stock
purchased by Mr. Allen.
42
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of July 15, 1996 as adjusted
to reflect the sale of the Class A Common Stock offered hereby, with respect to
the beneficial ownership of Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of outstanding Common Stock, by each
director and executive officer of the Company and by all directors and executive
officers of the Company as a group. Each person named has sole voting and
investment power with respect to the shares indicated except as otherwise stated
in the notes to the table.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
SHARES OF CLASS A AND B VOTING CONTROL
CLASS B COMMON STOCK AFTER
COMMON STOCK OWNED AFTER OFFERING OFFERING
------------ -------------------- --------------
<S> <C> <C> <C>
C. Byron Snyder(1)...................... 1,296,311 16.4% 26.8%
Melvin C. Payne(2)...................... 629,770 8.0 13.0
Barry K. Fingerhut(3)................... 519,542 6.5 10.6
Mark W. Duffey.......................... 313,625 4.0 6.5
Reid A. Millard......................... 201,600 2.6 4.2
Stuart W. Stedman....................... 110,223 1.4 2.3
Ronald A. Erickson...................... 44,015 * *
Robert D. Larrabee...................... -- -- --
Russell W. Allen........................ 63,000 * 1.3
Mary-Lees Payne......................... 25,200 * *
All directors and executive officers as
a group (10 persons, including the
directors and executive officers
named above).......................... 3,203,286 40.3 65.7
</TABLE>
- ------------
* less than 1%
(1) Includes 367,550 shares owned by 1996 Snyder Family Partnership, Ltd., 9,005
shares owned by the C. Byron Snyder 1996 Trust and 9,005 shares owned by the
Martha Ann Snyder 1996 Trust.
(2) Includes 119,161 shares owned by 1996 Payne Family Partnership, Ltd., 2,919
shares owned by the Melvin C. Payne 1996 Trust and 2,919 shares owned by the
Karen P. Payne 1996 Trust.
(3) Includes holdings of Applewood Associates, L.P. and related affiliates and
shares held jointly with Michael J. Marocco and 522,500 shares of Series D
Preferred Stock which are convertible into 37,321 shares of Class B Common
Stock based upon an assumed initial public offering price of $14.00 per
share.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of common stock and 50,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock"). The Common Stock is divided into two classes: Class A
Common Stock and Class B Common Stock. The Class A Common Stock and the Class B
Common Stock are collectively referred to as "Common Stock."
COMMON STOCK
As of June 30, 1996, 2,521,000 shares of Common Stock were outstanding and
held of record by 17 persons. Upon completion of the Offering, 3,400,000 shares
of Class A Common Stock will be outstanding. In addition, 4,501,476 shares of
Class B Common Stock will be outstanding after giving effect to the mandatory
conversion of all outstanding shares of Preferred Stock (other than the Series D
Preferred Stock) into 1,980,475 shares of Class B Common Stock. This total
excludes 90,000 shares of Class B Common Stock issuable upon exercise of
outstanding options at June 30, 1996.
The holders of Class A Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of Common stockholders. The holders of
Class B Common Stock are entitled to ten votes for each share held on all
matters submitted to a vote of Common stockholders. The Common Stock
43
does not have cumulative voting rights, which means that the holders of a
majority of the voting power of shares of Common Stock outstanding can elect all
the directors and the holders of the remaining shares will not be able to elect
any directors. Each share of Common Stock is entitled to participate equally in
dividends, if, as and when declared by the Company's Board of Directors, and in
the distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The Company has never
paid cash dividends on its Common Stock. The shares of Common Stock have no
preemptive rights, redemption rights, or sinking fund provisions. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby upon issuance and sale will be, duly authorized, validly issued, fully
paid and nonassessable.
It is anticipated that certain holders of Class B Common Stock will enter
into a voting agreement (the "Voting Agreement"). The parties to the Voting
Agreement will include Messrs. Payne, Duffey, Fingerhut, Millard, Snyder and
Stedman and certain other stockholders. Pursuant to the Voting Agreement, each
stockholder who is a party will agree not to sell his shares of Common Stock to
a Competitor of the Company and not to vote in favor of any merger,
consolidation or other similar business combination with a Competitor of the
Company. The term "Competitor" is defined to mean any person or entity who is
engaged in the funeral service, cemetery, crematory or related lines of business
that, at the time of any proposed Disposition (or at any time within the
12-month period preceding the date of the proposed Disposition), has any
operations within a 50-mile radius of any locations of the Company or an entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, the Company, and includes any
other person or entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with any
such person or entity.
Each share of Class B Common Stock is convertible at any time, at the
option of the registered holder thereof, into one share of Class A Common Stock.
In addition, each share of Class B Common Stock automatically converts into one
share of Class A Common Stock upon a sale or transfer to anyone other than a
permitted transferee. In any event, any outstanding shares of Class B Common
Stock will be automatically converted into shares of Class A Common Stock on
December 31, 2001.
PREFERRED STOCK
As of June 30, 1996, the Company's outstanding Preferred Stock consisted of
7,000,000 shares of Series A Preferred Stock, 545,000 shares of Series B
Preferred Stock, 8,500,000 shares of Series C Preferred Stock and 8,545,616
shares of Series D Preferred Stock. Upon effectiveness of the Registration
Statement, all outstanding shares of Preferred Stock (other than the Series D
Preferred Stock) will have been automatically converted into shares of Class B
Common Stock.
The Company is authorized to issue 50,000,000 shares of Preferred Stock.
The Company's Board of Directors may establish, without stockholder approval,
one or more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations that the Board of Directors may designate.
The Company believes that this power to issue Preferred Stock will provide
flexibility in connection with possible corporate transactions. The issuance of
Preferred Stock, however, could adversely affect the voting power of holders of
Common Stock and restrict their rights to receive payments upon liquidation of
the Company. It could also have the effect of delaying, deferring or preventing
a change in control of the Company.
SERIES D PREFERRED STOCK
Through June 30, 1996, the Company has issued 8,545,616 shares of Series D
Preferred Stock in six different transactions. The Company issued 6,355,000
shares of Series D Preferred Stock in connection with the acquisition of two
funeral homes and one cemetery which were acquired in July 1996. These shares
will remain outstanding following the Offering. The following description is a
summary of the Certificate of Amendment to the Certificate of Designation for
the Series D Preferred Stock, and it is qualified in its entirety by reference
to that document.
44
DIVIDENDS. The Series D Preferred Stock ranks, with respect to dividend
rights and distribution of assets on liquidation, senior and prior to Common
Stock and junior to, or on parity with, as the case may be, any other stock of
the Company designated as senior to, or on parity with, as the case may be,
Series D Preferred Stock. Holders of Series D Preferred Stock are entitled to
receive cumulative annual cash dividends ranging from $.06 to $.07 per share
payable quarterly, depending upon when such shares were issued. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of Series D Preferred Stock then outstanding will be entitled to
receive an amount of cash per share equal to $1.00, together with all accrued
and unpaid dividends, after any distribution is made on any senior securities
and before any distribution is made on any junior securities, including Common
Stock. As long as any shares of Series D Preferred Stock are outstanding, the
Company may not pay a dividend (other than stock dividends in Common Stock) or
other distribution on or repurchase Common Stock, directly or indirectly, unless
all past due cumulative dividends on the Series D Preferred Stock have been
paid. The terms of Series D Preferred Stock may be amended with the consent of
the holders of a majority of the outstanding shares of Series D Preferred Stock.
REDEMPTION. The Series D Preferred Stock is mandatorily redeemable by the
Company on December 31, 2001 (subject to conversion rights at any time on or
prior to November 30, 2001) at a redemption price of $1.00 per share plus all
accrued and unpaid dividends to the date of redemption. The Series D Preferred
Stock is redeemable, in whole or in part, at the option of the Company at any
time during the period commencing on the second anniversary of the consummation
of the Offering and ending on December 31, 2001 (subject to conversion rights up
to 15 days prior to the redemption date) at a redemption price of $1.00 per
share plus accrued and unpaid dividends to the date of redemption. Partial
redemptions must be pro rata.
CONVERSION. The Series D is convertible at any time into Class B Common
Stock at an initial conversion base price ranging from $15.00 to $18.00 per
share, subject to adjustment for certain antidilutive events. For the first six
months following consummation of the Offering, the conversion price will be the
lesser of the initial conversion price or the initial price of the Class A
Common Stock to the public in the Offering. Thereafter, the conversion price
increases every six months by $.50 until the last day of the eighteenth month
following the consummation of the Offering, whereupon the conversion price is
the average market price for the ten days preceding the date of delivery of
notice of conversion on the principal securities market on which the Class A
Common Stock is then traded. Assuming an initial public offering of $14.00, a
total of 1,064,330 shares of Class B Common Stock would be issuable upon the
conversion of the 14,900,616 shares of Series D Preferred Stock.
The conversion price at which Series D Preferred Stock is converted prior
to the eighteen month anniversary of the consummation of the Offering is subject
to reduction for certain dilutive issuances and to adjustments for stock
dividends, splits and combinations.
VOTING RIGHTS. The Series D Preferred Stock has general voting rights on
all issues submitted to stockholders. The number of votes to which each share of
Series D Preferred Stock is entitled is a fraction of a vote determined by (i)
dividing $1.00 by the then effective conversion price per share and (ii)
dividing the resulting fraction by 20. The Series D Preferred Stock is entitled,
as a separate class, to vote upon (or consent to) any amendment to the
Certificate of Incorporation, bylaws or Certificate of Designations which would
adversely effect the rights or powers of the Series D Preferred Stock. The
requisite vote for approval is a majority of the shares of Series D Preferred
Stock outstanding.
REGISTRATION RIGHTS. Until December 31, 2005 or, as to any holder of Series
D Preferred Stock, upon (a) the consent of the holder, (b) the date such holder
owns less than the equivalent of 10,000 shares of fully diluted Class A Common
Stock or Class B Common Stock, or (c) the date on which such holder is able to
dispose of all shares of Class B Common Stock issuable upon conversion of the
Series D Preferred Stock in one three month period under Rule 144, the holders
of Series D Preferred Stock have piggyback registration rights on any offering
by the Company of Common Stock to the public for cash except (i) shares issuable
upon the exercise of employee or director stock options, or (ii) shares issued
in mergers wherein the Company is the surviving corporation. The Company is
required to give holders of Series D Preferred Stock at least 30 days prior
written notice of the filing of a registration statement, including the
estimated price
45
range of the offering. The holders of the Series D Preferred Stock have waived
their registration rights with respect to a Registration Statement filed by the
Company with respect to the Offering.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (a)
before that person became an interested stockholder, the Company's Board of
Directors approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (c) following the transaction in which that person became an
interested stockholder, the business combination is approved by the Company's
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.
The Company's Board of Directors is divided into three classes. The
directors of each class are elected for three-year terms, with the terms of the
three classes staggered so that directors from a single class are elected at
each annual meeting of stockholders. Stockholders may remove a director only for
cause upon the vote of holders of at least 80% of voting power of the
outstanding shares of Common Stock. In general, the Board of Directors, not the
stockholders, has the right to appoint persons to fill vacancies on the Board of
Directors.
The Certificate of Incorporation provides that special meetings of holders
of Common Stock may be called only by the Company's Board of Directors and that
only business proposed by the Board of Directors may be considered at special
meetings of holders of Common Stock.
The Certificate of Incorporation provides that the only business (including
election of directors) that may be considered at an annual meeting of holders of
Common Stock, in addition to business proposed (or persons nominated to be
directors) by the directors of the Company, is business proposed (or persons
nominated to be directors) by holders of Common Stock who comply with the notice
and disclosure requirements set forth in the Certificate of Incorporation. In
general, the Certificate of Incorporation requires that a stockholder give the
Company notice of proposed business or nominations no later than 60 days before
the annual meeting of holders of Common Stock (meaning the date on which the
meeting is first scheduled and not postponements or adjournments thereof) or (if
later) ten days after the first public notice of the annual meeting is sent to
holders of Common Stock. In general, the notice must also contain information
about the stockholder proposing the business or nomination, the stockholder's
interest in the business, and (with respect to nominations for director)
information about the nominee of the nature ordinarily required to be disclosed
in public proxy solicitation statements. The stockholder also must submit a
notarized letter from each of the stockholder's nominees stating the nominee's
acceptance of the nomination and indicating the nominee's intention to serve as
director if elected.
46
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws requires a greater
percentage. The Certificate of Incorporation provides that approval by the
holders of at least 66.7% of the voting power of the outstanding voting stock of
the Company is required to amend the provisions of the Certificate of
Incorporation previously discussed and certain other provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,400,000 shares of
Class A Common Stock and 4,501,476 shares of Class B Common Stock outstanding.
The 3,400,000 shares of Class A Common Stock offered hereby will be freely
tradable without restriction or further registration under the Securities Act,
except for shares sold by persons deemed to be "affiliates" of the Company or
acting as "underwriters," as those terms are defined in the Securities Act. The
4,501,476 shares of Class B Common Stock will be "restricted securities" within
the meaning of Rule 144 under the Securities Act and will be eligible for resale
subject to the volume, manner of sale, holding period and other limitations of
Rule 144. The remaining "restricted" shares will become eligible for resale
pursuant to Rule 144 from time to time thereafter.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least two years, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock which does not exceed the greater of one percent of the number of then
outstanding shares or the average weekly reported trading volume during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain notice requirements and to the availability of current public
information about the Company and must be made in unsolicited brokers'
transactions or to a market maker. A person (or persons whose shares are
aggregated) who is not an "affiliate" of the Company under the Securities Act
during the three months preceding a sale and who has beneficially owned such
shares for at least three years is entitled to sell such shares under Rule 144
without regard to the volume, notice, information and manner of sale provisions
of such Rule.
An aggregate of 310,000 shares of Class A Common Stock and 90,000 shares of
Class B Common Stock are reserved for issuance to employees and directors of the
Company pursuant to the 1995 Stock Incentive Plan, 600,000 shares of Class A
Common Stock are reserved for issuance to employees and directors of the Company
pursuant to the 1996 Stock Incentive Plan and 200,000 shares of Class A Common
Stock are reserved for issuance to outside directors under the 1996 Nonemployee
Directors Plan. Currently, 90,000 shares of Class B Common Stock are issuable
under existing options granted to employees and directors. In addition, options
exercisable for 600,000 shares of Class A Common Stock will be granted to
employees concurrently with the Offering pursuant to the Company's stock option
plans. After the Offering, the Company intends to file a registration statement
on Form S-8 to register the shares of Common Stock issuable upon exercise of
options to be granted pursuant to the 1995 and 1996 Stock Incentive Plans.
Accordingly, shares issued upon exercise of such options will be freely
tradeable, except for any shares held by an "affiliate" of the Company.
Pursuant to stock registration agreements, the Company may be required,
subject to certain conditions, to register under the Securities Act an aggregate
of up to 4,443,436 shares of Class A Common Stock issuable upon conversion of
the Class B Common Stock by the current common stockholders. Such stockholders
have waived their registration rights under the stock registration agreements
arising in connection with the Offering.
47
In addition, the holders of Series D Preferred Stock have been granted
certain "piggy-back" registration rights if the Company proposes to undertake a
public offering. Such holders of Series D Preferred Stock have waived their
registration rights in connection with the Offering.
The Company and the executive officers and directors and certain
stockholders of the Company have agreed not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock for a period of 180 days commencing on the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters, other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof, and issuances of
capital stock by the Company in connection with acquisitions of funeral homes
and cemeteries, provided that such options shall not become exercisable and such
shares issuable upon exercise of options or pursuant to acquisitions shall not
be transferable prior to the end of the 180-day period.
Prior to the Offering, there has been no market for the Class A Common
Stock. No predictions can be made of the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
significant amounts of Class A Common Stock could adversely affect the
prevailing market price of Class A Common Stock, as well as impair the ability
of the Company to raise capital through the issuance of additional equity
securities.
48
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and The Chicago Corporation are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company the number of shares of Class A Common Stock set forth
below opposite their respective names. The Underwriters are committed to
purchase all of such shares if any are purchased. Under certain circumstances,
the commitments of non-defaulting Underwriters may be increased as set forth in
the Purchase Agreement.
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------- -----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............
The Chicago Corporation..............
-----------
Total.................. 3,400,000
===========
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Class A Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The Company has granted the Underwriters an option, exercisable by the
Representatives, to purchase up to 510,000 additional shares of Class A Common
Stock at the initial public offering price, less the underwriting discount. Such
option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the
Representatives exercise such option, each of the Underwriters will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of the option shares that the number of shares to be purchased
initially by that Underwriter bears to the total number of shares to be
purchased initially by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance that an active market for the Class A
Common Stock will develop upon completion of the Offering or, if developed, that
such market will be sustained. The initial public offering price of the Class A
Common Stock will be determined through negotiations between the Company and the
representatives of the Underwriters, and may bear no relationship to the market
prices of the Class A Common Stock after this offering. Prices for the Class A
Common Stock after this offering may be influenced by a number of factors,
including the depth and liquidity of the market for the Class A Common Stock,
investor perceptions of the Company and the death care industry in general, and
general economic and other conditions.
At the request of the Company, the Underwriters have reserved 340,000
shares of Class A Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and other persons with whom
the Company has relationships. The number of shares of Class A Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved
49
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
The Chicago Corporation acted as placement agent for the private placement
of $8.5 million of the Company's Series C Preferred Stock, completed in
September 1995, for which The Chicago Corporation received a customary fee.
The Company and the executive officers and directors and certain
stockholders of the Company have agreed not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock for a period of 180 days commencing on the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters, other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof issuances of
capital stock by the Company in connection with acquisitions of funeral homes
and cemeteries, provided that such options shall not become exercisable and such
shares issuable upon exercise of options or pursuant to acquisitions shall not
be transferable prior to the end of the 180-day period.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Vinson & Elkins L.L.P., Houston,
Texas. Certain legal matters relating to the Class A Common Stock offered hereby
will be passed upon for the Underwriters by Andrews & Kurth L.L.P., Houston,
Texas.
EXPERTS
The consolidated financial statements and the financial statements for CFS
1996 Group, Kubach-Smith Funeral Home, Inc., Lusk Funeral Home, Inc., West End
Funeral Home, Inc., James E. Drake Funeral Home, Inc., Dwayne R. Spence Funeral
Home, Inc. and Merchant Funeral Home Group included in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto and
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements for Hennessy Funeral Home, Inc. included in this
Prospectus and Registration Statement have been audited by Kee & Associates,
Inc., independent public accountants, as indicated in their report with respect
thereto and included herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements for Vail Holt Memorial Funeral Home, Inc. included
in this Prospectus and Registration Statement have been audited by McCauley,
Nicolas & Company, LLC, independent public accountants, as indicated in their
report with respect thereto and included herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements for Forest Lawn of Chesnee, Inc., included in this
Prospectus and Registration Statement have been audited by Michael S. Upton,
CPA, P.A., independent public accountant, as indicated in his report with
respect thereto and included herein in reliance upon the authority of said
individual as an expert in giving said report.
The financial statements for Bailey Funeral Home, Inc., O'Brien Funeral
Home, Inc., and C. Funk & Son Funeral Home, Inc. included in this Prospectus and
Registration Statement have been audited by Gitlin, Campise, Pascoe & Blum,
independent public accountants, as indicated in their reports with respect
thereto and included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements for Lytle-Gans-Andrew Funeral Home included in
this Prospectus and Registration Statement have been audited by Scott,
Callicotte & Co., independent public accountants, as indicated in their report
with respect thereto and included herein in reliance upon the authority of said
firm as experts in giving said report.
50
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Commission a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offer and sale of
Class A Common Stock pursuant to this Prospectus. This Prospectus, filed as a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement or the exhibits and schedules thereto in
accordance with the rules and regulations of the Commission and reference is
hereby made to such omitted information. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are summaries of the terms of such
contracts, agreements or documents and are not necessarily complete. Reference
is made to each such exhibit for a more complete description of the matters
involved and such statements shall be deemed qualified in their entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed with the Commission may be inspected, without charge, and copies may be
obtained at prescribed rates, at the public reference facility maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621-2511. For further information
pertaining to the Class A Common Stock offered by this Prospectus and the
Company, reference is made to the Registration Statement.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
51
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
CARRIAGE SERVICES, INC. -- CONSOLIDATED
FINANCIAL STATEMENTS:
Report of Independent Public
Accountants....................... F-2
Consolidated Balance Sheets as of
December 31, 1994 and 1995 and
June 30, 1996..................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and the Six Months Ended June 30,
1995 and 1996..................... F-4
Consolidated Statements of Changes
in Stockholders' Equity for the
Years Ended December 31, 1993,
1994 and 1995 and the Six Months
Ended June 30, 1996............... F-5
Consolidated Statements of Cash
Flows for the Years Ended December
31, 1993, 1994 and 1995 and the
Six Months Ended June 30, 1995 and
1996.............................. F-6
Notes to Consolidated Financial
Statements........................ F-7
CARRIAGE SERVICES, INC. -- UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL
STATEMENTS:
Unaudited Pro Forma Consolidated
Balance Sheet as of June 30,
1996.............................. F-22
Unaudited Pro Forma Consolidated
Statements of Operations for the
Year Ended December 31, 1995 and
the Six Months Ended June 30,
1996.............................. F-23
Notes to the Unaudited Pro Forma
Consolidated Financial
Statements........................ F-24
CFS 1996 GROUP:
Report of Independent Public
Accountants....................... F-28
Statements of Operations for the
Period from January 1, 1996 to
April 29, 1996, the Years Ended
December 31, 1995 and December 31,
1994, and the Three Months Ended
December 31, 1993................. F-29
Statements of Cash Flows for the
Period from January 1, 1996 to
April 29, 1996, the Years Ended
December 31, 1995 and December 31,
1994, and the Three Months Ended
December 31, 1993................. F-30
Statements of Stockholder's Equity
for the Period from January 1,
1996 to April 29, 1996, the Years
Ended December 31, 1995 and
December 31, 1994, and the Three
Months Ended December 31, 1993.... F-31
Notes to Financial Statements...... F-32
KUBACH-SMITH FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-34
Statement of Operations for the
Period from October 1, 1993 to
September 6, 1994................. F-35
Statement of Cash Flows for the
Period from October 1, 1993 to
September 6, 1994................. F-36
Statement of Shareholders' Equity
for the Period from October 1,
1993 to September 6, 1994......... F-37
Notes to Financial Statements...... F-38
LUSK FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-40
Statements of Operations for the
Years Ended December 31, 1995 and
December 31, 1994 and the Three
Months Ended December 31, 1993.... F-41
Statements of Cash Flows for the
Years Ended December 31, 1995 and
December 31, 1994 and the Three
Months Ended December 31, 1993.... F-42
Statements of Shareholders' Deficit
for the Years Ended December 31,
1995 and December 31, 1994 and the
Three Months Ended December 31,
1993.............................. F-43
Notes to Financial Statements...... F-44
F-1
WEST END FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-47
Statements of Operations for the
Period from January 1, 1995 to May
10, 1995, the Year Ended December
31, 1994, and the Three Months
Ended December 31, 1993........... F-48
Statements of Cash Flows for the
Period from January 1, 1995 to May
10, 1995, the Year Ended December
31, 1994, and the Three Months
Ended December 31, 1993........... F-49
Statements of Shareholders' Equity
for the Period from January 1,
1995 to May 10, 1995, the Year
Ended December 31, 1994, and the
Three Months Ended December 31,
1993.............................. F-50
Notes to Financial Statements...... F-51
HENNESSY FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-53
Statements of Operations for the
Years Ended December 31, 1993,
December 31, 1994, December 31,
1995 and the Ten Weeks Ended March
8, 1996........................... F-54
Statements of Cash Flows for the
Period from December 1, 1995 to
February 29, 1996, and the Years
Ended November 30, 1995 and
November 30, 1994................. F-55
Notes to Financial Statements...... F-56
JAMES E. DRAKE FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-59
Statements of Operations for the
Period from December 1, 1995 to
February 29, 1996, and the Years
Ended November 30, 1995 and
November 30, 1994................. F-60
Statements of Cash Flows for the
Period from December 1, 1995 to
February 29, 1996, and the Years
Ended November 30, 1995 and
November 30, 1994................. F-61
Statements of Stockholders' Equity
for the Period from December 1,
1995 to February 29, 1996, and the
Years Ended November 30, 1995 and
November 30, 1994................. F-62
Notes to Financial Statements...... F-63
DWAYNE R. SPENCE FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-65
Statements of Operations for the
Period from January 1, 1996 to
March 29, 1996, the Years Ended
December 31, 1995 and December 31,
1994, and the Three Months Ended
December 31, 1993................. F-66
Statements of Cash Flows for the
Period from January 1, 1996 to
March 29, 1996, the Years Ended
December 31, 1995 and December 31,
1994, and the Three Months Ended
December 31, 1993................. F-67
Statements of Shareholder's Equity
for the Period from January 1,
1996 to March 29, 1996, the Years
Ended December 31, 1995 and
December 31, 1994, and the Three
Months Ended December 31, 1993.... F-68
Notes to Financial Statements...... F-69
MERCHANT FUNERAL HOME GROUP:
Report of Independent Public
Accountants....................... F-72
Statements of Operations for the
Period from July 1, 1995 to April
1, 1996, and the Years Ended June
30, 1995 and June 30, 1994........ F-73
Statements of Cash Flows for the
Period from July 1, 1995 to April
1, 1996, and the Years Ended June
30, 1995 and June 30, 1994........ F-74
Statements of Shareholders' Equity
for the Period from July 1, 1995
to April 1, 1996, and the Years
Ended June 30, 1995 and June 30,
1994.............................. F-75
Notes to Financial Statements...... F-76
F-1(a)
VAIL HOLT MEMORIAL FUNERAL HOME, INC.:
Independent Auditors' Report....... F-79
Balance Sheets as of June 30, 1996
and December 31, 1995, 1994, and
1993.............................. F-80
Statement of Income for the
Six-Month Period Ended June 30,
1996 and the Years
Ended December 31, 1995, 1994,
and 1993.......................... F-81
Statement of Retained Earnings for
the Six-Month Period Ended June
30, 1996 and the Years Ended
December 31, 1995, 1994, and 1993. F-82
Statement of Cash Flows for the
Six-Month Period Ended June 30,
1996 and the
Years Ended December 31, 1995,
1994, and 1993.................... F-83
Notes to Financial Statements...... F-85
FOREST LAWN OF CHESNEE, INC.:
Report of Independent Public
Accountant........................ F-88
Statements of Operations for the
Ten Months Ended June 26, 1996 and
the Year Ended August 31, 1995.... F-89
Statements of Cash Flows for the
Ten Months Ended June 26, 1996 and
the Year Ended August 31, 1995.... F-90
Statements of Changes in
Stockholders' Equity for the Ten
Months Ended
June 26, 1996 and the Year Ended
August 31, 1995................... F-91
Notes to the Financial Statements.. F-92
BAILEY FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-94
Balance Sheets as of December 31,
1993, 1994, 1995 and June 30,
1996.............................. F-95
Statements of Income for the Years
Ended December 31, 1993, 1994,
1995 and the Six Months Ended
June 30, 1996..................... F-96
Statements of Retained Earnings for
the Years Ended December 31, 1993,
1994, 1995 and the Six Months Ended
June 30, 1996..................... F-97
Statements of Cash Flows for Years
Ended December 31, 1993, 1994,
1995 and the Six Months Ended
June 30, 1996..................... F-98
Notes to Financial Statements...... F-99
O'BRIEN FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-102
Balance Sheets as of December 31,
1993, 1994, 1995 and June 30,
1996.............................. F-103
Statements of Income for the Years
Ended December 31, 1993, 1994,
1995 and the Six Months Ended
June 30, 1996..................... F-104
Statements of Retained Earnings for
the Years Ended December 31, 1993,
1994, 1995
and the Six Months Ended June 30,
1996.............................. F-105
Statements of Cash Flows for Years
Ended December 31, 1993, 1994,
1995
and the Six Months Ended June 30,
1996.............................. F-106
Notes to Financial Statements...... F-107
C. FUNK & SON FUNERAL HOME, INC.:
Report of Independent Public
Accountants....................... F-110
Balance Sheets as of September 30,
1994, 1995 and June 30, 1996...... F-111
Statements of Operations for the
Years Ended September 30, 1994,
1995
and the Nine Months Ended June
30, 1996.......................... F-112
Statements of Stockholders' Equity
for the Years Ended September 30,
1994,
1995 and the Nine Months Ended
June 30, 1996..................... F-113
Statements of Cash Flows for the
Years Ended September 30, 1994,
1995
and the Nine Months Ended June
30, 1996.......................... F-114
Notes to Financial Statements...... F-115
F-1(b)
LYTLE-GANS-ANDREW FUNERAL HOME:
Report of Independent Public
Accountants....................... F-119
Balance Sheets as of June 30, 1996
and August 31, 1995 and 1994...... F-120
Income Statements for the Ten
Months From September 1, 1995 to
June 30, 1996
and for the Years Ended August
31, 1995 and August 31, 1994...... F-121
Statements of Changes in Capital
for Ten Months From September 1,
1995 to
June 30, 1996 and for the Years
Ended August 31, 1995 and August
31, 1994.......................... F-122
Statements of Cash Flows for the
Ten Months From September 1,
1995 to June 30, 1996
and for the Years Ended August
31, 1995 and August 31, 1994...... F-123
Notes to Financial Statements...... F-124
F-1(c)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Carriage Services, Inc.:
We have audited the accompanying consolidated balance sheets of Carriage
Services, Inc., (formerly Carriage Funeral Services, Inc. -- a Delaware
corporation) and subsidiaries (the Company) as of December 31, 1994 and 1995 and
June 30, 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the three years in the period ended
December 31, 1995 and the six months in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carriage
Services, Inc., and subsidiaries as of December 31, 1994, and 1995 and June 30,
1996, and the consolidated results of their operations and their cash flows for
the three years in the period ended December 31, 1995 and the six months in the
period ended June 30, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 18, 1996
F-2
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 836 $ 7,573 $ 4,490
--------- --------- --------
Accounts receivable --
Trade, net of allowance for
doubtful accounts of
$205 in 1994, $305 in
1995 and $360 in 1996... 2,168 2,637 3,748
Other...................... 447 505 198
--------- --------- --------
2,615 3,142 3,946
Marketable securities, available
for sale...................... 4,357 864 1
Inventories and other current
assets........................ 2,026 2,106 3,158
--------- --------- --------
Total current
assets............. 9,834 13,685 11,595
--------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, at
cost:
Land............................ 3,594 4,416 7,316
Buildings and improvements...... 10,851 14,200 25,529
Furniture and equipment......... 3,994 5,365 7,273
--------- --------- --------
18,439 23,981 40,118
Less -- accumulated
depreciation.................. (1,329) (2,311) (2,994)
--------- --------- --------
17,110 21,670 37,124
CEMETERY PROPERTY, at cost........... 526 496 2,384
NAMES AND REPUTATIONS, net of
accumulated amortization of $480 in
1994, $959 in 1995 and $1,316 in
1996............................... 13,555 22,559 37,527
DEFERRED CHARGES AND OTHER NONCURRENT
ASSETS............................. 3,140 3,336 5,407
--------- --------- --------
$ 44,165 $ 61,746 $ 94,037
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 997 $ 1,041 $ 1,236
Accrued liabilities............. 2,179 2,957 3,539
Current portion of long-term
debt and obligations under
capital leases................ 2,387 3,215 5,359
--------- --------- --------
Total current
liabilities........ 5,563 7,213 10,134
PRENEED LIABILITIES, net............. 433 709 2,817
LONG-TERM DEBT, net of current
portion............................ 32,622 42,057 60,277
OBLIGATIONS UNDER CAPITAL LEASES, net
of current portion................. 671 716 732
DEFERRED INCOME TAXES................ 1,447 1,900 2,882
--------- --------- --------
Total liabilities..... 40,736 52,595 76,842
--------- --------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK........... -- -- 8,545
STOCKHOLDERS' EQUITY:
Preferred stock................. 72 157 162
Common stock.................... 25 25 25
Treasury stock.................. -- -- (330)
Contributed capital............. 6,992 15,100 15,650
Unrealized loss on securities
available for sale............ (59) (36) --
Retained deficit................ (3,601) (6,095) (6,857)
--------- --------- --------
Total stockholders'
equity............. 3,429 9,151 8,650
--------- --------- --------
$ 44,165 $ 61,746 $ 94,037
========= ========= ========
The accompanying notes are an integral part of these financial statements.
F-3
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED DECEMBER MONTHS ENDED
31, JUNE 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net........................ $ 11,265 $ 18,404 $ 24,237 $11,501 $ 16,925
Costs and expenses................... 10,205 15,390 20,247 9,329 13,536
--------- --------- --------- ----------- ---------
Gross profit.................... 1,060 3,014 3,990 2,172 3,389
General and administrative
expenses........................... 985 1,266 2,106 832 1,155
--------- --------- --------- ----------- ---------
Operating income................ 75 1,748 1,884 1,340 2,234
Interest expense, net................ 1,745 2,671 3,684 1,648 2,644
--------- --------- --------- ----------- ---------
(Loss) before income taxes...... (1,670) (923) (1,800) (308) (410)
Provision for income taxes........... -- 40 694 390 251
--------- --------- --------- ----------- ---------
Net (loss)...................... (1,670) (963) (2,494) (698) (661)
Preferred stock dividend
requirements....................... -- -- -- -- 101
--------- --------- --------- ----------- ---------
Net (loss) attributable to
common stockholders........... $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
========= ========= ========= =========== =========
Loss per share:
(Loss) per common and common
equivalent share.............. $ (.66) $ (.28) $ (.66) $ (.20) $ (.17)
========= ========= ========= =========== =========
Weighted average number of
common and common equivalent
shares outstanding............ 2,543 3,406 3,781 3,543 4,512
========= ========= ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED NET
NUMBER PREFERRED NUMBER COMMON TREASURY CAPITAL UNREALIZED RETAINED
OF SHARES STOCK OF SHARES STOCK STOCK (DEFICIT) GAIN (LOSS) DEFICIT
--------- --------- --------- ------ -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1992......... -- $ -- 2,409 $ 24 $-- $ (14) $-- $ (968)
Net loss -- 1993..................... -- -- -- -- -- -- -- (1,670)
Issuance of common stock............. -- -- 111 1 -- 1 -- --
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- December 31, 1993......... -- -- 2,520 25 -- (13) -- (2,638)
Net loss -- 1994..................... -- -- -- -- -- -- -- (963)
Issuance of preferred stock.......... 7,160 72 -- -- -- 7,005 -- --
Unrealized net loss -- available for
sale securities.................... -- -- -- -- -- -- (59) --
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- December 31, 1994......... 7,160 72 2,520 25 -- 6,992 (59) (3,601)
Unrealized net gain -- available for
sale securities.................... -- -- -- -- -- -- 23 --
Issuance of preferred stock.......... 8,500 85 -- -- -- 8,108 -- --
Net loss -- 1995..................... -- -- -- -- -- -- -- (2,494)
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- December 31, 1995......... 15,660 157 2,520 25 -- 15,100 (36) (6,095)
Net loss -- six months ended June 30,
1996............................... -- -- -- -- -- -- -- (661)
Issuance of preferred stock.......... 555 5 -- -- -- 540 -- --
Unrealized net gain -- available for
sale securities.................... -- -- -- -- -- -- 36 --
Purchase of treasury stock........... -- -- -- -- (330) -- -- --
Exercise of stock options............ -- -- 1 -- -- 10 -- --
Preferred dividends.................. -- -- -- -- -- -- -- (101)
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- June 30, 1996............. 16,215 $ 162 2,521 $ 25 $ (330) $15,650 $ 0 $ (6,857)
========= ========= ========= ====== ======== =========== =========== ========
</TABLE>
TOTAL
---------
Balance -- December 31, 1992......... $ (958)
Net loss -- 1993..................... (1,670)
Issuance of common stock............. 2
---------
Balance -- December 31, 1993......... (2,626)
Net loss -- 1994..................... (963)
Issuance of preferred stock.......... 7,077
Unrealized net loss -- available for
sale securities.................... (59)
---------
Balance -- December 31, 1994......... 3,429
Unrealized net gain -- available for
sale securities.................... 23
Issuance of preferred stock.......... 8,193
Net loss -- 1995..................... (2,494)
---------
Balance -- December 31, 1995......... 9,151
Net loss -- six months ended June 30,
1996............................... (661)
Issuance of preferred stock.......... 545
Unrealized net gain -- available for
sale securities.................... 36
Purchase of treasury stock........... (330)
Exercise of stock options............ 10
Preferred dividends.................. (101)
---------
Balance -- June 30, 1996............. $ 8,650
=========
The accompanying notes are an integral part of these financial statements.
F-5
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)......................... $ (1,670) $ (963) $ (2,494) $ (698) $ (661)
Adjustments to reconcile net (loss)
to net cash provided by
operating activities --
Depreciation and amortization... 947 1,476 1,948 907 1,389
Deferred income taxes........... -- 43 449 157 74
Changes in assets and
liabilities net of effects
from acquisitions:
Decrease (increase) in
accounts receivable........ (298) (198) (637) 265 (113)
Decrease (increase) in
inventories and other
current assets............. (206) (91) 115 164 (370)
(Increase) decrease in other
deferred charges........... -- -- (144) 44 (242)
Increase (decrease) in
accounts payable........... 951 (214) 45 (475) 163
Increase in accrued
liabilities................ 873 1,028 1,671 400 180
Increase (decrease) in preneed
liabilities................ (1) (4) 44 40 45
---------- ---------- ---------- ----------- ----------
Net cash provided by
operating activities.... 596 1,077 997 804 465
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired........................ (13,843) (9,073) (12,191) (5,960) (24,415)
Dispositions of businesses formerly
owned........................... -- -- -- -- 397
Purchase of marketable securities
available for sale.............. -- (4,417) (1,795) -- --
Disposal of marketable securities
available for sale.............. -- -- 5,312 3,052 900
Purchase of property, plant and
equipment....................... (717) (1,179) (3,019) (1,257) (2,004)
---------- ---------- ---------- ----------- ----------
Net cash (used in)
investing activities.... (14,560) (14,669) (11,693) (4,165) (25,122)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 12,750 7,781 11,563 6,234 23,772
Payments on long-term debt,
obligations under capital
leases.......................... (911) (1,705) (2,273) (1,180) (1,575)
Proceeds from subordinated notes... 2,561 390 -- -- --
Proceeds from sale of preferred
stock........................... -- 6,992 8,192 -- --
Payment of preferred stock
dividends....................... -- -- -- -- (101)
Exercise of stock options.......... -- -- -- -- 10
Purchase of treasury stock......... -- -- -- -- (330)
Payment of deferred debt charges... (166) (45) (49) (45) (202)
---------- ---------- ---------- ----------- ----------
Net cash provided by
financing activities.... 14,234 13,413 17,433 5,009 21,574
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 270 (179) 6,737 1,648 (3,083)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 745 1,015 836 836 7,573
---------- ---------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 1,015 $ 836 $ 7,573 $ 2,484 $ 4,490
========== ========== ========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid through issuance of
new debt........................ $ 275 $ 231 $ 644 $ 648 $ 825
========== ========== ========== =========== ==========
Retirement of debt through issuance
of preferred stock.............. $ -- $ -- $ 500 $-- $ --
========== ========== ========== =========== ==========
Cash interest paid................. $ 1,187 $ 2,038 $ 3,127 $ 1,611 $ 2,399
========== ========== ========== =========== ==========
Issuance of preferred stock for
acquisitions.................... $ -- $ 80 $ -- $-- $ 9,100
========== ========== ========== =========== ==========
Retirement of debt through disposition of business.. $ -- $ -- $ -- $-- $ 2,642
========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Carriage Services, Inc. (the Company -- formerly Carriage Funeral Services,
Inc.), was organized under the laws of the State of Delaware on December 29,
1993. The Company owns and operates funeral homes and cemeteries throughout the
United States. The Company provides professional services related to funerals
and interments at its funeral homes and cemeteries. Prearranged funerals and
preneed cemetery property are marketed in the geographic markets served by the
Company's locations.
REORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Effective January 1, 1994, the shareholders of three affiliated companies
which had common ownership and management exchanged their stock for Common Stock
of the Company. In this transaction, the assets and liabilities of the
affiliated companies were recorded at historical cost in a manner similar to a
pooling-of-interests. Accordingly, for financial reporting purposes, the
consolidated financial statements of the Company reflect the predecessor
entities as if the reorganization had taken place prior to the first period
presented. Thus, the shares of the predecessor are treated as outstanding for
prior years at the equivalent number of Company shares of Common Stock
subsequently recorded at January 1, 1994. The financial statements include the
consolidated financial statements of Carriage Services, Inc. and its
subsidiaries. In consolidation, all significant intercompany balances and
transactions are eliminated. The consolidated financial statements have been
restated as of the earliest period presented to reflect a one for two reverse
stock split as further discussed in Note 10.
INTERIM FINANCIAL STATEMENTS
The unaudited interim condensed financial statements for June 30, 1995 have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation of interim results
of operations (consisting only of normal recurring accruals and adjustments)
have been made to the interim financial statements. Results of operations for
the six-month periods ended June 30, 1995 and June 30, 1996 are not necessarily
indicative of results of operations for the respective full year.
FUNERAL AND CEMETERY OPERATIONS
The Company records the sale of funeral merchandise and services upon
performance. The Company records the sale of the right of cemetery interment or
mausoleum entombment and related merchandise at the time of sale. The cost for
cemetery merchandise and services sold but not yet provided is accrued as an
expense at the same time the cemetery revenue is recognized. Allowances for
customer cancellations, refunds and bad debts are provided at the date of sale
based on the historical experience of the Company. Accounts receivable -- trade,
net consists of approximately $2,106,000, $2,546,000, and $3,623,000 of funeral
receivables and approximately $62,000, $91,000, and $125,000 of current cemetery
receivables at December 31, 1994, and 1995, and June 30, 1996, respectively.
Noncurrent cemetery receivables, those payable after one year, are included in
Deferred Charges and Other Noncurrent Assets on the Consolidated Balance Sheets
(see Note 3).
Cemetery revenues are less than 7% of the consolidated revenues of the
Company and, accordingly, the Company only operates in one business segment.
F-7
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRENEED FUNERAL ARRANGEMENTS
Preneed funeral sales are effected by deposits to a trust or purchase of a
third-party insurance product. Since the Company does not have access to these
funds, the sale is not recorded until the service is performed, nor generally,
are the related assets and liabilities reflected on the Consolidated Balance
Sheets. The trust income earned and the increases in insurance benefits on the
insurance products are also deferred until the service is performed in order to
offset inflation in cost to provide the service in the future. The preneed
funeral trust assets were approximately $11,045,000, $14,934,000 and $24,258,000
at December 31, 1994, and 1995 and June 30, 1996, respectively, which in the
opinion of management, exceed the future obligations under such arrangements.
The following summary reflects the composition of the assets held in trust
to satisfy the Company's future obligations under prearranged funeral
arrangements.
<TABLE>
<CAPTION>
UNREALIZED
HISTORICAL HOLDING
COST BASIS GAIN (LOSS) FAIR VALUE
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
As of December 31, 1994 --
Cash and cash equivalents............. $ 7,427 $-- $ 7,427
Fixed income investment contracts..... 989 -- 989
Mutual funds, corporate bonds and
stocks............................. 2,690 (61) 2,629
---------- ----------- ----------
Total............................ $ 11,106 $ (61) $ 11,045
As of December 31, 1995 --
Cash and cash equivalents............. $ 10,275 $-- $ 10,275
Fixed income investment contracts..... 1,396 -- 1,396
Mutual funds, corporate bonds and
stocks............................. 3,206 57 3,263
---------- ----------- ----------
Total............................ $ 14,877 $ 57 $ 14,934
As of June 30, 1996 --
Cash and cash equivalents............. $ 15,212 $-- $ 15,212
Fixed income investment contracts..... 2,343 -- 2,343
Mutual funds, corporate bonds and
stocks............................. 6,698 5 6,703
---------- ----------- ----------
Total............................ $ 24,253 $ 5 $ 24,258
</TABLE>
The mutual funds, corporate bonds and stocks held in trust are classified
as available for sale.
CEMETERY MERCHANDISE AND SERVICE TRUST
The Company is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust fund for cemetery
merchandise and services contracts sold on a preneed basis. The principal and
accumulated earnings of the trust may be withdrawn by the Company upon maturity
(generally, death of the purchaser) or cancellation of the contracts. Trust fund
investment income is recognized in current revenues as trust earnings accrue,
net of current period inflation costs recognized related to the merchandise that
has not yet been purchased. Merchandise and service trust fund balances, in the
aggregate, were approximately $48,000, $60,000 and $1,118,000 at December 31,
1994, and 1995 and June 30, 1996, respectively, and are included in Preneed
Liabilities, net on the accompanying Consolidated Balance Sheets.
PERPETUAL AND MEMORIAL CARE TRUST
In accordance with respective state laws, the Company is generally required
to deposit a specified amount into perpetual and memorial care trust funds for
each interment/entombment right and memorial
F-8
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sold. Income from the trust funds is used to provide care and maintenance for
the cemeteries and mausoleums and is periodically distributed to the Company and
recognized as revenue. The perpetual and memorial care trust assets were
approximately $555,000, $599,000 and $1,695,000 at December 31, 1994, and 1995
and June 30, 1996, respectively, which, in the opinion of management, will cover
future obligations under such arrangements. The Company does not have the right
to withdraw any of the principal balances of these funds and, accordingly, these
trust fund balances are not reflected in the accompanying Consolidated Balance
Sheets.
DEFERRED OBTAINING COSTS
Deferred obtaining costs consist of sales commissions and other direct
marketing costs applicable to preneed funeral sales, net of insurance
commissions received. These costs are deferred and amortized over 12 years which
approximates the expected timing of the performance of the services related to
the preneed funeral contracts. These amounts were not significant prior to 1995.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, and the Company's investment
securities are classified as available for sale securities. These securities are
stated at cost adjusted for market value fluctuations. Unrealized gains and
losses created by changes in the market values of these securities are
recognized as an adjustment to and are reported as a separate component of
Stockholders' Equity, net of tax. The specific identification method is used in
determining realized gains and losses from the sale of securities. At December
31, 1994 and 1995 and June 30, 1996, the Company had gross unrealized gains of
approximately $9,000, $4,000 and $0 and gross unrealized losses of approximately
$68,000, $40,000 and $0, respectively. The Company does not use derivative
financial instruments or participate in hedging activities.
INVENTORY
Inventory is stated at the lower of its cost basis (fair value at date of
acquisition) or net realizable value.
NAMES AND REPUTATIONS
The excess of the purchase price over the fair value of net tangible and
identifiable intangible assets acquired, as determined by management in
transactions accounted for as purchases, is included in the consolidated
financial statements as Names and Reputations. Such amounts are being amortized
over 40 years. Many of the Company's acquired funeral homes have provided high
quality service to families for generations. The resulting loyalty often
represents a substantial portion of the value of a funeral business. The Company
reviews the carrying value of Names and Reputations at least quarterly on a
location-by-location basis to determine if facts and circumstances exist which
would suggest that the intangible asset may be impaired or that the amortization
period needs to be modified. If indicators are present which indicate impairment
is probable, the Company will prepare a projection of the undiscounted cash
flows of the location and determine if the intangible assets are recoverable
based on these undiscounted cash flows. If impairment is indicated, then an
adjustment will be made to reduce the carrying amount of the intangible assets
to their fair value. The Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," as of January 1, 1996, and the adoption did not have a material
impact on the Company's consolidated financial position or results of
operations.
F-9
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment are stated at cost at the time of
acquisition. The costs of ordinary maintenance and repairs are charged to
operations, while renewals and replacements are capitalized. Depreciation of
Property, Plant and Equipment is computed based on the straight-line method over
the estimated useful lives of the assets as follows:
YEARS
--------
Buildings and improvements........... 40
Furniture and fixtures............... 10
Machinery and equipment.............. 5 to 10
Automobiles.......................... 5
INCOME TAXES
The Company files a consolidated federal income tax return. The Company
provides deferred taxes for temporary differences between the tax basis and
financial reporting basis of assets and liabilities.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of common and common equivalent shares outstanding during each
period, as calculated pursuant to various SEC pronouncements. (See Note 9).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with current year presentation.
2. ACQUISITIONS:
During the first six months of 1996, the Company acquired substantially all
of the assets and certain liabilities of 24 funeral homes and four cemeteries
through the purchase of stock and assets. In 1995, the Company acquired
substantially all of the assets and certain liabilities of eight funeral homes
through the purchase of stock and assets. In 1994, the Company also acquired
substantially all of the assets and certain liabilities of nine funeral homes
and one cemetery through the purchase of stock. These transactions have been
accounted for utilizing the purchase method of accounting, and the results of
operations are included in the accompanying consolidated financial statements
from the dates of acquisition.
Relatively few liabilities were assumed in connection with these
acquisitions. Costs were allocated to the net assets acquired based on
management's estimate of the fair value of the acquired assets and liabilities
at the date of acquisition. Many of the Company's acquired funeral homes have
provided high quality service to families for generations. The resulting loyalty
often represents a substantial portion of the value of a funeral business. As a
result, the excess of the consideration paid over the fair value of net tangible
and identifiable intangible assets is allocated to Names and Reputations. Future
adjustments to the allocation of the purchase price may be made during the 12
months following the date of acquisition due to the resolution of uncertainties
existing at the acquisition date, which include obtaining additional information
regarding asset and liability valuations. There were no material purchase price
allocation adjustments made during 1994, 1995 or the first six months of 1996.
F-10
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table is a summary of the above acquisitions made during the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996:
1994 1995 1996
----------- ----------- -----------
Number acquired:
Funeral homes................... 9 8 24
Cemeteries...................... 1 -- 4
The effect of the above acquisitions on the Consolidated Balance Sheets at
December 31, 1994 and 1995 and June 30, 1996 was as follows:
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Current Assets....................... $ 645 $ 291 $ 2,857
Cemetery Property.................... 253 -- 1,927
Property, Plant and Equipment........ 4,516 2,727 15,104
Deferred Charges and Other Noncurrent
Assets............................. 809 210 500
Names and Reputations................ 3,502 9,349 17,344
Current Liabilities.................. (435) (67) (1,293)
Debt................................. (137) (87) --
Other Liabilities.................... -- (232) (2,924)
--------- --------- ---------
9,153 12,191 33,515
Preferred Stock issued............... (80) -- (9,100)
--------- --------- ---------
Cash used for acquisitions...... $ 9,073 $ 12,191 $ 24,415
========= ========= =========
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired during the year ended
December 31, 1994 and 1995 as if such acquisitions had taken place at the
beginning of 1994, and for the businesses acquired during the six months ended
June 30, 1996 as if such acquisitions had taken place at the beginning of 1995.
Appropriate adjustments have been made to reflect the accounting basis used in
recording these acquisitions. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that would have resulted had the combinations been in effect on the
dates indicated, that have resulted since the date of acquisition or that may
result in the future.
FOR THE YEARS ENDED
DECEMBER 31,
-------------------- FOR THE SIX MONTHS
1994 1995 ENDED JUNE 30, 1996
--------- --------- -------------------
(UNAUDITED AND IN THOUSANDS)
Revenues, net...................... $ 26,341 $ 39,761 $20,952
Net (loss) before income taxes..... (1,716) (3,033) (1,357)
Net (loss) attributable to common
stockholders..................... (1,094) (3,753) (1,652)
(Loss) per common and common
equivalent share................. (.32) (.99) (.37)
F-11
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEFERRED CHARGES AND OTHER NONCURRENT ASSETS:
Deferred Charges and Other Noncurrent Assets at December 31, 1994 and 1995
and June 30, 1996, were as follows:
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Agreements not to compete, net of
accumulated amortization of $790,
$1,198 and $1,448, respectively.... $ 2,449 $ 2,269 $ 2,599
Deferred debt expense, net of
accumulated amortization of $192,
$337 and $435, respectively........ 439 492 667
Noncurrent cemetery receivables...... 252 443 1,784
Deferred obtaining costs............. -- 132 357
--------- --------- ---------
$ 3,140 $ 3,336 $ 5,407
========= ========= =========
The Company has entered into prepaid agreements not to compete with former
owners of businesses acquired that are being amortized over the term of the
agreements, ranging from four to 10 years. Deferred debt expense is being
amortized over the term of the related debt, generally five years. Noncurrent
cemetery receivables result from the multi-year payment terms in the underlying
contracts. These cemetery receivables are recorded net of allowances for
customer cancellations, refunds and bad debts.
F-12
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
The Company's long-term debt and subordinated notes at December 31, 1994
and 1995 and June 30, 1996, consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, secured by deed of trust and security agreements covering certain
real property, due in monthly installments ranging from $3,542 to $18,750,
plus interest at prime plus 1.75%; prime plus 1.50% after April 20, 1994
(9.75% as of June 30, 1996) through
January 1999 ................................................................. $ 13,799 $ 13,038 $ 12,658
Notes payable, secured by deed of
trust and security agreements covering certain real property, due in monthly
installments of $52,000, plus interest at 7.31%; through July 1998 at which
time the interest rate fluctuates based upon the greater of prime plus .50%,
the base certificate of deposit rate plus 1.50% or the federal funds rate plus
1% until maturity in July
2000 ......................................................................... 8,466 7,842 7,530
Note payable, secured by deed of
trust and security agreements covering certain real property, principal due in
quarterly installments of $18,750 and interest due in monthly installments at
a rate of the lesser of prime plus 1%, the base certificate of deposit rate
plus 1.50% or the federal funds rate plus 1% (9.25% as of June 30, 1996)
until maturity in October 1999 ............................................... -- 476 679
Notes payable, secured by deed of
trust and security agreements covering certain real property, due in monthly
installments ranging from $3,125 to $15,208, plus interest at prime plus 1.50%
(9.75% as of June 30, 1996) through
December 2000 ................................................................ 5,269 14,960 24,381
Note payable, secured by deed of
trust and security agreements covering certain real property, due in monthly
installments of $47,222, plus interest at prime (8.25% at June 30, 1996)
through March 31, 1998, at which time the Company must enter into a swap
agreement to effectively convert the note to a fixed rate loan until maturity
at
March 31, 2003 ............................................................... -- -- 8,500
Subordinated notes payable to
stockholder, with interest at a predetermined rate plus 3% which is subject to
adjustment under certain conditions (11.25% as of June 30, 1996). Interest is
payable in the form of cash if certain conditions are met, otherwise interest
is paid in the form of additional subordinated notes issued annually; these
principal and interest notes
are payable in May 2001 ...................................................... 6,371 7,016 7,841
Other .......................................................................... 893 1,542 3,703
Less -- Current portion ........................................................ (2,176) (2,817) (5,015)
-------- -------- --------
$ 32,622 $ 42,057 $ 60,277
======== ======== ========
</TABLE>
No principal payments on the subordinated debt may be made until the notes
payable are paid. The notes payable are generally guaranteed by certain
principal stockholders of the Company and secured by the Common Stock of the
Company, property, plant and equipment, accounts receivable, inventory and
intangibles. A major stockholder received a $40,000 fee for a guarantee for each
of the years ended December 31, 1994 and 1995. At June 30, 1996, $20,000 has
been accrued related to this fee. The guaranteed amount as of June 30, 1996, was
$2,000,000. The debt agreements contain provisions regarding minimum net worth
and cash flow to debt service ratios, and restrictions regarding other
borrowings,
F-13
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payment of dividends, capital expenditures and acquisitions. The aggregate
maturities of notes payable for the six-month period ended December 31, 1996 and
for the subsequent five years, are approximately $2,064,000, $9,631,000,
$8,586,000, $7,638,000, $14,699,000 and $16,159,000, respectively and $6,515,000
thereafter. The Company has a $400,000 line of credit which matures in May 1997;
$350,000 was outstanding under such line of credit at June 30, 1996.
Upon the completion of the initial public offering, the Company intends to
retire a substantial portion of the existing debt with the net proceeds
therefrom. Accordingly, a significant portion of the then existing deferred debt
expense related to the existing debt will be written off in the accounting
period in which the debt is retired. In addition, to the extent that the net
proceeds of the initial public offering are less than the then existing debt
balances, the Company intends to retire the remaining debt with funds to be
drawn from a new revolving credit facility, a commitment for which has been
received by the Company. If the debt had been retired through the application of
the net proceeds of the Offering and borrowings from the new revolving credit
facility as of June 30, 1996, the write off of deferred debt expense would have
been $667,000.
5. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain office facilities, vehicles and equipment under
operating leases for one to ten years. Certain of these leases provide for an
annual adjustment to rent for operating expenses in excess of a prescribed
amount or increases due to inflation, as well as options to purchase the assets
at fair market value. Rent expense was approximately $442,000, $734,000,
$951,000, and $413,000 for the years ended December 31, 1993, 1994 and 1995, and
the six-month period ended June 30, 1996, respectively. Assets acquired under
capital leases are included in Property, Plant and Equipment on the accompanying
Consolidated Balance Sheets.
Minimum payments over the lease periods will be as follows:
MINIMUM LEASE
PAYMENTS
----------------------
OPERATING CAPITAL
LEASES LEASES
---------- ---------
Years ended December 31,
1996............................ $ 446 $ 218
1997............................ 902 411
1998............................ 857 289
1999............................ 796 163
2000............................ 580 68
Thereafter...................... 2,382 114
---------- ---------
Total minimum lease payments......... $5,963 1,263
==========
Less: amount representing interest... 187
---------
Long-term obligations under capital
leases............................. $ 1,076
=========
AGREEMENTS AND EMPLOYEE BENEFITS
The Company has entered into various employment and agreements not to
compete with key employees and former owners of businesses acquired. These
agreements are generally for one to ten years and provide for future payments
annually, quarterly or monthly. The aggregate payments due under these
agreements for the six-month period ended December 31, 1996 and for the
subsequent five years, are approximately $608,000, $1,068,000, $1,053,000,
$1,014,000, $765,000 and $691,000, respectively and
F-14
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,095,000 thereafter. In conformity with industry practice, these agreements
are not included in the accompanying Consolidated Balance Sheets.
The Company sponsors one defined contribution plan for the benefit of its
employees. The expense for this plan has not been significant for the periods
presented. In addition, the Company does not offer any other post-retirement or
post-employment benefits.
LITIGATION
The Company is, from time to time, subject to routine litigation incidental
to its business. Management believes that the results of any litigation or other
pending legal proceedings will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
6. INCOME TAXES:
Prior to January 1, 1994, the Company was an S corporation, was not subject
to federal income taxes, and instead, the owners were taxed on the Company's
income in a manner similar to partnerships. On January 1, 1994, the Company
became a C corporation and adopted Statement of Financial Accounting Standards
No. 109. Accordingly, a charge to income taxes in 1994 of approximately $57,000
was made to establish deferred taxes payable. The Company did not pay any
federal taxes in 1993, 1994 or 1995 or during the six-months ended June 30,
1996. The provision (benefit) for income taxes for the years ended December 31,
1994 and 1995, and for the six-month period ended June 30, 1996 consisted of:
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Current:
U. S. Federal................... $ -- $ -- $ --
State........................... 10 35 85
--------- --------- ---------
Total current provision.... 10 35 85
--------- --------- ---------
Deferred:
U. S. Federal................... (35) 585 149
State........................... 8 74 17
--------- --------- ---------
Total deferred (benefit)
provision............... (27) 659 166
--------- --------- ---------
Provision resulting from
change in tax status.... 57 -- --
--------- --------- ---------
Total income tax
provision............... $ 40 $ 694 $ 251
========= ========= =========
A reconciliation of taxes at the Federal statutory rate of 34% to those
reflected in the Consolidated Statements of Operations for the years ended
December 31, 1994 and 1995, and for the six-month period ended June 30, 1996 is
as follows:
1994 1995 1996
--------- --------- ---------
Federal statutory rate............... (34.0)% (34.0)% (34.0)%
Effect of state income taxes......... (2.6) (6.0) (2.4)
Effect of nondeductible expenses..... 6.2 3.9 16.3
Effect of valuation allowance........ 30.3 74.7 81.3
Effect of change in tax status....... 4.4 -- --
--------- --------- ---------
4.3% 38.6% 61.2%
========= ========= =========
F-15
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994, and
1995 and June 30, 1996, were as follows:
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss
carryforwards................. $ 314 $ 1,536 $ 1,991
Book/tax differences relating to
reserves...................... 80 117 131
Accrued liabilities and other... 168 130 55
Amortization of non-compete
agreements.................... 178 292 391
Accrued interest not currently
deductible.................... 427 190 190
--------- --------- ---------
1,167 2,265 2,758
Valuation allowance.................. (303) (1,517) (1,990)
--------- --------- ---------
Total deferred tax
assets.................. $ 864 $ 748 $ 768
========= ========= =========
Deferred tax liability:
Amortization and depreciation... (1,721) (2,229) (3,315)
--------- --------- ---------
Total deferred tax
liabilities............. (1,721) (2,229) (3,315)
========= ========= =========
Net deferred tax liability........... (857) (1,481) (2,547)
========= ========= =========
Current net deferred asset........... 590 419 335
Long-term net deferred liability..... (1,447) (1,900) (2,882)
--------- --------- ---------
$ (857) $ (1,481) $ (2,547)
========= ========= =========
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets for which realization is uncertain. At June 30,
1996, the Company has approximately $4,424,000 of federal Net Operating Losses
(NOL) carryforwards which will expire between 2009 and 2011, if not utilized,
and $7,019,000 of state NOL carryforwards which will expire between the years
2000 and 2011, if not utilized. As a result of the initial public offering (see
Note 10), there may be a limitation placed on the Company's utilization of its
NOL's by Section 382 of the Internal Revenue Code. The Company will review the
valuation allowance at the end of each quarter and will make adjustments if it
is determined that it is more likely than not that the NOL's will be realized.
7. STOCKHOLDERS' EQUITY:
COMMON STOCK
The Company has 20,000,000 authorized shares of Common Stock with a par
value of $.01 per share of which approximately 2.52 millon shares were issued
and outstanding at December 31, 1994, and 1995, and June 30, 1996. A voting
agreement exists between certain stockholders where such parties agreed to,
among other things, vote their respective shares of Common Stock in an agreed
upon manner. Subsequent to June 30, 1996, the Company amended and restated its
certificate of incorporation to authorize a total of 30,000,000 shares of Common
Stock.
PREFERRED STOCK
As of June 30, 1996 the Company was authorized to issue up to 40,000,000
shares of preferred stock, issuable in series from time to time established by
the Board of Directors. Subsequent to June 30, 1996, the Company amended and
restated its certificate of incorporation to authorize a total of 50,000,000
shares of Preferred Stock. The Company has 7,000,000 authorized shares of Series
A Preferred Stock with a par value
F-16
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $.01 per share, all of which were issued and outstanding as of December 31,
1994, and 1995 and June 30, 1996. These shares can be converted into shares of
Common Stock at a conversion price of $7.143 per share. The Company also has
2,500,000 authorized shares of Series B Preferred Stock with a par value of $.01
of which 160,000 shares were issued and outstanding as of December 31, 1994 and
1995 and 715,000 shares were issued and 545,000 were outstanding as of June 30,
1996. Subsequent to June 30, 1996, the Company amended and restated its
certificate of incorporation to authorize a total of 1,000,000 shares of Series
B Preferred Stock. These shares can be converted into Common Stock at various
conversion prices from $8.00 to $11.00 per share. As of December 31, 1995 and
June 30, 1996, the Company has 8,500,000 authorized shares of Series C Preferred
Stock with a par value of $.01 of which all 8,500,000 were issued and
outstanding. These shares can be converted into shares of Common Stock at a
conversion price of $9.00 per share. The Preferred Stocks (Series A, B and C)
can be converted into shares of Common Stock at the option of the holder at any
time and will automatically convert at the effective date of the Registration
Statement for the initial public offering (See Note 10), or a sale of the
Company.
TREASURY STOCK
In the six-month period ended June 30, 1996, the Company purchased 170,000
shares of Series B Preferred Stock for total consideration of $330,000.
STOCK OPTION PLAN
The Company has a 1995 Stock Incentive Plan (the Plan) which was adopted by
the Board of Directors. The Company accounts for these plans under APB Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost for these plans been determined consistent with Statement of Financial
Accounting Standards No. 123, the Company's net loss and loss per share would
have been the following pro forma amounts:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net (loss) attributable to common
stockholders: As reported............. $ (2,494) $ (762)
Pro forma............... (2,721) (865)
(Loss) per share attributable to
common stockholders: As reported............. (.66) (.17)
Pro forma............... (.72) (.19)
</TABLE>
The Plan provides for the issuance of up to 500,000 shares of the Company's
Common Stock, subject to 1% annual increases beginning January 1, 1997, in
connection with the exercise of stock options granted under such Plan to
officers and key employees. The Plan is administered by a stock option committee
appointed by the Board of Directors. The Plan allows for options to be granted
as non-qualified options, incentive stock options, reload options, alternative
appreciation rights and stock bonus options. As of June 30, 1996, only
non-qualified options and incentive stock options have been issued. The options
are granted with an exercise price equal to the then fair market value of the
Company's Common Stock as determined by the Board of Directors. The
non-qualified and incentive stock options are immediately exercisable and expire
ten years from the date of grant unless a shorter period is provided by the
stock option committee.
F-17
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Plan at December 31, 1995 and at June 30,
1996 and changes during the year and six months then ended is presented in the
table and narrative below:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------------
SHARES WTD AVG SHARES WTD AVG
(000) EX PRICE (000) EX PRICE
------- -------- ------- --------
Outstanding at beginning of period.. -- $-- 50 $ 9.80
Granted............................. 50 9.80 41 10.94
Exercised........................... -- -- (1) 10.00
Cancelled........................... -- -- -- --
Outstanding at end of period........ 50 9.80 90 10.54
Exercisable at end of period........ 50 9.80 90 10.54
Weighted average fair value of
options granted................... $4.57 $ 4.94
All of the options outstanding at June 30, 1996 have exercise prices
between $8.00 and $12.00, with a weighted average exercise price of $10.54 and a
weighted average remaining contractual life of 9.34 years. All of these options
are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and the six months ended June 30, 1996,
respectively: risk-free interest rates of 6.27% and 6.02%; expected dividend
yields of zero percent and zero percent; expected lives of ten years and ten
years; expected volatility of zero percent and zero percent.
Pursuant to a 1993 agreement, the Company intends to repurchase
approximately 212,940 shares of Common Stock from an executive officer of the
Company at $1.20 per share. Options to purchase these 212,940 shares were
granted in 1993 to several members of the management team, who have no other
stock ownership in the Company, at $1.20 per share which the Board of Directors
believes was the fair market value of the Company's Common Stock at the date of
grant.
OTHER
The Company has also entered into a consulting arrangement with a
stockholder of the Company, requiring quarterly payments of $6,250.
8. REDEEMABLE PREFERRED STOCK:
The Company has 10,000,000 authorized shares of Series D Preferred Stock
with a par value of $.01 per share, of which approximately 8,545,000 shares were
issued and outstanding at June 30, 1996. Subsequent to June 30, 1996, the
Company amended and restated its certificate of incorporation to authorize a
total of 20,000,000 shares of Series D Preferred Stock. These shares can be
converted into Common Stock at the lesser of the initial public offering price
of the Class A Common Stock or the applicable conversion price (currently
ranging from $15.00 to $18.00 per share). The holders of Series D Preferred
Stock are entitled to receive preferential dividends at an annual rate ranging
from $0.06 to $0.07 per share, payable quarterly. Dividends are payable
quarterly as long as the stock is outstanding. The Series D Preferred Stock is
redeemable, in whole or in part, at the option of the Company, at any time
during the period commencing with the second anniversary of the Company's
initial public offering and ending December 31, 2001. On December 31, 2001 the
Company must redeem all shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends.
Concurrent with every issuance of Series D Preferred Stock, an irrevocable
standby letter of credit, issued by a financial institution and guaranteed by
the Company, was given to the holder (or a designated beneficiary) and can be
drawn upon if certain events occur, such as: the Company has failed to pay
F-18
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividends, the Company has failed to redeem the shares on the designated
mandatory redemption date or a liquidation, dissolution or winding up of affairs
of the Company occurs. As of June 30, 1996, letters of credit of approximately
$8,800,000 were outstanding relative to Series D Preferred Stock. This stock is
classified as Redeemable Preferred Stock on the Consolidated Balance Sheets of
the Company.
9. LOSS PER SHARE:
Loss per share is calculated based on the weighted average number of common
and common equivalent shares outstanding during the period using guidance
provided by the SEC for companies contemplating an initial public offering. Loss
per share has been presented as if the reverse stock split had occurred at the
beginning of the earliest period presented (see Note 10). Loss per common and
common equivalent share for the years ended December 31, 1993, 1994 and 1995 and
for the six month periods ending June 30, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net (loss)........................... $ (1,670) $ (963) $ (2,494) $ (698) $ (661)
Preferred stock dividend
requirements....................... -- -- -- -- 101
--------- --------- --------- ----------- ---------
Net (loss) attributable to Common
stockholders....................... $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
========= ========= ========= =========== =========
Common shares outstanding(a)......... 2,520 2,520 2,520 2,520 2,520
Common equivalent shares:
Stock options, treasury stock
method(b)..................... 23 23 23 23 23
Assumed conversion of preferred
stock(c)...................... -- 863 1,238 1,000 1,969
--------- --------- --------- ----------- ---------
Total weighted average common and
common equivalent shares
outstanding........................ 2,543 3,406 3,781 3,543 4,512
========= ========= ========= =========== =========
(Loss) per common and common
equivalent share................... $ (.66) $ (.28) $ (.66) $ (.20) $ (.17)
========= ========= ========= =========== =========
</TABLE>
- ------------
(a) Effective January 1, 1994, the shareholders of three affiliated
companies which had common ownership and management exchanged their stock in
those companies for Common Stock of the Company. In this transaction, the assets
and liabilities were recorded at historical cost in a manner similar to a
pooling-of-interests. Accordingly, loss per share has been presented as if the
Common Stock has been outstanding for all periods presented at the conversion
rate utilized at January 1, 1994.
(b) In accordance with the SEC's Staff Accounting Bulletin No. 83, the loss
per share has been presented assuming that all stock options granted by the
Company within one year of the Company's initial public offering have been
outstanding for all periods presented. The effect of such stock options has been
calculated using the "treasury stock" method, assuming an estimated initial
public offering price of $14 per share and has been included in the calculation
of common equivalent shares outstanding despite the fact that the effect of the
assumed exercise of such options is anti-dilutive.
(c) Pursuant to the terms of their respective agreements, the Company's
Series A, B and C Preferred Stocks automatically convert to Common Stock upon
the Company's initial public offering. Therefore, in accordance with the SEC's
position relative to securities with these conversion characteristics, the
effect of such conversions has been reflected from the respective dates of
issuance of the preferred stocks in common equivalent shares outstanding,
despite the fact that the effect of the assumed conversion is anti-dilutive.
F-19
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EVENTS SUBSEQUENT TO JUNE 30, 1996:
ACQUISITIONS
Two funeral homes and one cemetery were acquired in July 1996 for
approximately $7.8 million. These acquisitions were funded through additional
debt, issuance of 6,355,000 shares of Series D Preferred Stock, valued at $1.00
per share, and available cash. These acquisitions have been accounted for by the
purchase method, and the results of operations will be included in the
accompanying consolidated financial statements from the dates of acquisition.
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired through July 18, 1996, as
if such acquisitions had taken place at the beginning of each of the respective
periods presented. Appropriate adjustments have been made to reflect the
accounting basis used in recording these acquisitions. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have resulted had the
combinations been in effect on the date indicated, that have resulted since the
date of acquisition or that may result in the future.
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
(UNAUDITED AND IN THOUSANDS)
Revenues............................. $ 26,680 $ 18,252
Net (loss) before income taxes....... (2,028) (537)
Net (loss) attributable to common
stockholders....................... (3,009) (936)
(Loss) per common and common
equivalent share................... (.80) (.21)
INITIAL PUBLIC OFFERING
The Company has filed a registration statement with the SEC on Form S-1 for
an initial public offering of shares of its Class A Common Stock and expects the
transaction to be completed in 1996. In connection with the initial public
offering, the Company plans to perform a recapitalization of its Common Stock
into two classes of Common Stock (Class A and Class B), provide separate voting
rights to each class and convert existing Common Stock to Class B Common Stock.
The holders of Class A Common Stock will be entitled to one vote for each share
held on all matters submitted to a vote of common stockholders. The holders of
Class B Common Stock will be entitled to ten votes for each share held on all
matters submitted to a vote of common stockholders. Additionally under their
respective terms, the Series A, B and C Preferred Stocks automatically convert
into Class B Common Stock on the effective date of the Registration Statement.
Series D Preferred Stock will remain outstanding after the initial public
offering. This recapitalization has not been reflected in the accompanying
Consolidated Financial Statements since it has not occurred.
REVERSE STOCK SPLIT
On July 18, 1996, the Company's Board of Directors and stockholders
approved an amendment to the Company's Certificate of Incorporation which
authorized a one for two reverse stock split. The Consolidated Financial
Statements have been restated as if the reverse stock split had occurred at the
beginning of the earliest period presented. For each two shares of Class B
Common Stock at $.01 par, the stockholder received one share of Class B Common
Stock at $.01 par. The number of shares held by each Series A, B and C Preferred
stockholder remained the same; however, the conversion prices for Class B Common
Stock on those preferred shares doubled in conjunction with the above-mentioned
reverse stock split. In addition, the exercise prices on outstanding stock
options also doubled related to this reverse stock split, and the number of
shares of Class B Common Stock coverd by such options decreased by 50%.
F-20
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma consolidated
statements of operations for the Company for the year ended December 31, 1995
and the six months ended June 30, 1996, and the unaudited pro forma balance
sheet of the Company as of June 30, 1996 after giving effect to transactions
related to the sale of Common Stock offered hereby (the "Offering") and the
application of the net proceeds therefrom and the following assumptions: (i) the
conversion of the Company's Series A, B and C Preferred Stock into their common
share equivalents (ii) stock options issued within one year of the initial
public offering were exercised and (iii) the Company's revolving credit facility
as if it were put in place in connection with the initial public offering (the
"Offering Adjustments"). The unaudited pro forma financial statements present a
column as a subtotal which reflects the effects of the Offering Adjustments. In
addition, the unaudited pro forma financial statements also give effect to the
acquisitions made from the period beginning January 1, 1995 through June 30,
1996 plus the acquisition of two funeral homes and one cemetery completed in
July 1996 and the acquisition of five funeral homes deemed probable at the time
of this filing (the "Acquisition"). The pro forma total columns in the unaudited
pro forma consolidated financial statements include the effects of the Offering
Adjustments and the Acquisitions. The unaudited pro forma consolidated
statements of operations assume that these transactions occurred as of January
1, 1995 and the unaudited pro forma consolidated balance sheet assumes that the
transactions occurred as of June 30, 1996. The Acquisition adjustments assume
that the debt and preferred stock used to effect these business combinations
were outstanding as of January 1, 1995.
The unaudited pro forma consolidated statements of operations do not assume
any additional profitability resulting from the application of the Company's
revenue enhancement measures or cost reduction programs to the historical
results of the acquired businesses, nor do they assume increases in corporate
general and administrative expenses which may have resulted from the Company
managing the acquired businesses for the year ended December 31, 1995, and the
six months ended June 30, 1996.
The following unaudited pro forma consolidated financial statements should
be read in conjunction with the Consolidated Financial Statements of the Company
and the related notes thereto included elsewhere herein. Such pro forma
information is based on historical data with respect to the Company and the
acquired businesses. The pro forma information is not necessarily indicative of
the results that might have occurred had such transactions actually taken place
at the beginning of the period specified and is not intended to be a projection
of future results. The pro forma information presented herein is provided to
comply with the requirements of the SEC. The information reflects historical
operations of each acquired entity, as adjusted to reflect certain adjustments,
primarily relating to (i) eliminations of depreciation and amortization recorded
by the acquired entities prior to the date of acquisition, (ii) eliminations of
interest expense recorded by the acquired entities prior to the date of
acquisition, (iii) the reclassification of general and administrative expenses
and net other (income) expense, (iv) depreciation of property, plant and
equipment and amortization of non-compete agreements and names and reputations
in connection with the acquisitions and (v) interest expense and amortization of
deferred loan costs related to debt incurred to fund such acquisitions. The pro
forma information does not reflect any adjustments to reflect the manner in
which the acquired entities are being or will be operated under the control of
the Company. The Company expects that operating results for the acquired
entities will improve due to the Company's focused merchandising approach,
pricing structure and marketing strategy. These enhancements, complemented by
discounts from consolidated purchasing, generally result in improved margins in
the first 12 months.
F-21
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
------------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ADJUSTMENTS SUBTOTAL ACQUISITIONS TOTAL
------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 4,490 $ -- $ 4,490 $ (1,671)(D) $ 2,819
Accounts receivable, net........... 3,946 -- 3,946 429(D) 4,375
Marketable securities, available
for sale......................... 1 -- 1 -- 1
Inventories and other current
assets........................... 3,158 -- 3,158 220(D) 3,378
------------ ----------- -------- ------------ --------
Total current assets.......... 11,595 -- 11,595 (1,022) 10,573
------------ ----------- -------- ------------ --------
PROPERTY, PLANT AND EQUIPMENT, net...... 37,124 -- 37,124 4,975(D) 42,099
CEMETERY PROPERTY, at cost.............. 2,384 -- 2,384 250(D) 2,634
NAMES AND REPUTATIONS, net.............. 37,527 -- 37,527 11,938(D) 49,465
DEFERRED CHARGES AND OTHER
NONCURRENT ASSETS..................... 5,407 (434)(A) 4,973 212(D) 5,185
------------ ----------- -------- ------------ --------
$ 94,037 $ (434) $ 93,603 $ 16,353 $109,956
============ =========== ======== ============ ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 1,236 $ -- $ 1,236 $ 84(D) $ 1,320
Accrued liabilities................ 3,539 -- 3,539 138(D) 3,677
Current portion of long-term
obligations...................... 5,359 (5,375)(B) (16) 360(D) 344
------------ ----------- -------- ------------ --------
Total current liabilities..... 10,134 (5,375) 4,759 582 5,341
------------ ----------- -------- ------------ --------
PRENEED LIABILITIES, net................ 2,817 -- 2,817 -- 2,817
LONG-TERM DEBT, net of current
portion............................... 60,277 (62,792)(B) (2,515) 6,373(D) 3,858
CREDIT FACILITY......................... -- 24,899(B) 24,899 -- 24,899
OBLIGATIONS UNDER CAPITAL LEASE......... 732 -- 732 -- 732
DEFERRED INCOME TAXES................... 2,882 -- 2,882 128(D) 3,010
------------ ----------- -------- ------------ --------
Total liabilities............. 76,842 (43,268) 33,574 7,083 40,657
COMMITMENT AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 8,545 -- 8,545 9,020(D) 17,565
STOCKHOLDERS' EQUITY:
Preferred stock.................... 162 (162)(C) -- -- --
Common stock:
Common stock.................. 25 (25)(C) -- -- --
Class A....................... -- 34(B) 34 -- 34
Class B....................... -- 45(C) 45 -- 45
Treasury stock..................... (330) -- (330) -- (330)
Contributed capital................ 15,650 42,942(A)(B)(C) 58,592 250(D) 58,842
Retained deficit................... (6,857) -- (6,857) -- (6,857)
------------ ----------- -------- ------------ --------
Total stockholders' equity.... 8,650 42,834 51,484 250 51,734
------------ ----------- -------- ------------ --------
$ 94,037 $ (434) $ 93,603 $ 16,353 $109,956
============ =========== ======== ============ ========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-22
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------
PRO FORMA (UNAUDITED)
--------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ADJUSTMENTS SUBTOTAL ACQUISITIONS TOTAL
------------ ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues, net........................ $ 24,237 $ -- $ 24,237 $20,873(DD) $45,110
Costs and expenses................... 20,247 -- 20,247 20,091(DD)(EE) 40,338
------------ ------------ --------- --------------- ---------
Gross Profit.................... 3,990 -- 3,990 782 4,772
General and administrative
expenses........................... 2,106 -- 2,106 -- 2,106
------------ ------------ --------- --------------- ---------
Operating income................ 1,884 -- 1,884 782 2,666
Interest expense, net................ 3,684 (4,892)(AA) (1,208) 2,961(FF) 1,753
------------ ------------ --------- --------------- ---------
Income (loss) before income
taxes......................... (1,800) 4,892 3,092 (2,179) 913
Provision (benefit) for income
taxes.............................. 694 512(BB) 1,206(BB) (850)(DD)(HH) 356
------------ ------------ --------- --------------- ---------
Net income (loss)............... (2,494) 4,380 1,886 (1,329) 557
Preferred stock dividend
requirements....................... -- -- -- 1,075(GG) 1,075
------------ ------------ --------- --------------- ---------
Net income (loss) attributable
to common stock............... $ (2,494) $ 4,380 $ 1,886 $(2,404) $ (518)
============ ============ ========= =============== =========
Earnings (loss) per common share..... $ (.07)(CC)
=========
Weighted average of common and common
equivalent shares outstanding...... 7,945(CC)
=========
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------------
PRO FORMA (UNAUDITED)
--------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ADJUSTMENTS SUBTOTAL ACQUISITIONS TOTAL
------------ ------------ --------- --------------- ---------
Revenues, net........................ $ 16,925 $ -- $ 16,925 $ 6,826(DD) $ 23,751
Costs and expenses................... 13,536 -- 13,536 7,471(DD)(EE) 21,007
------------ ------------ --------- --------------- ---------
Gross Profit.................... 3,389 -- 3,389 (645) 2,744
General and administrative
expenses........................... 1,155 -- 1,155 -- 1,155
------------ ------------ --------- --------------- ---------
Operating income................ 2,234 -- 2,234 (645) 1,589
Interest expense, net................ 2,644 (2,444)(AA) 200 722(FF) 922
------------ ------------ --------- --------------- ---------
Income (loss) before income
taxes......................... (410) 2,444 2,034 (1,367) 667
Provision (benefit) for income
taxes.............................. 251 542(BB) 793(BB) (533)(DD)(HH) 260
------------ ------------ --------- --------------- ---------
Net income (loss)............... (661) 1,902 1,241 (834) 407
Preferred stock dividend
requirements....................... 101 -- 101 437(GG) 538
------------ ------------ --------- --------------- ---------
Net income (loss) attributable
to common stock............... $ (762) $ 1,902 $ 1,140 $(1,271) $ (131)
============ ============ ========= =============== =========
Earnings (loss) per common share..... $ (.02)(CC)
=========
Weighted average of common and common
equivalent shares outstanding...... 7,945(CC)
=========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
F-23
CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The accompanying unaudited pro forma consolidated balance sheet as of June
30, 1996 gives effect to the Offering Adjustments and the Acquisitions. The
estimated fair market values reflected below are based on preliminary estimates
and assumptions and are subject to revision as more information becomes
available. In management's opinion, the preliminary allocation is not expected
to be materially different from the final allocation.
(A) Reflects the write-off of $667,000 of capitalized debt issuance costs
related to certain of the Company's pre-existing outstanding debt and $92,000 of
capitalized debt issuance costs related to the acquisitions subsequent to June
30, 1996 and those deemed probable at the time of this filing which is expected
to be retired with the application of the net proceeds of the Offering. In
addition, reflects the capitalization of approximately $325,000 incurred in
connection with the credit facility.
(B) Reflects the issuance of 3,400,000 shares of the Company's Class A
Common Stock, par value $0.01 per share, at an estimated price of $14 per share,
in the Offering, resulting in an increase of $34,000 to Class A Common Stock and
$43,234,000 contributed capital. The assumed initial public offering is
estimated to yield proceeds to the Company of approximately $47,600,000.
Associated transaction costs are expected to be approximately $4,332,000. Also
reflects the application of the net proceeds of the offering and proceeds
borrowed under a recently negotiated revolving credit facility of $24,899,000 to
retire $5,375,000 of current debt and $62,792,000 of long-term debt related to
certain of the Company's lenders.
(C) Reflects the conversion of the Company's Series A, B, and C Preferred
Stock into Common Stock concurrent with the Offering. Upon the closing of the
Offering, $162,000 of preferred stock is converted at the specified conversion
prices into the Company's Class B Common Stock, which would represent an
increase of $20,000 to Class B Common Stock and $142,000 to contributed capital.
This adjustment has no profit and loss impact, but it does increase the number
of shares of Common Stock outstanding in the earnings per share calculation.
Also reflects the conversion of the 25,000 of currently outstanding Common Stock
into Class B Common Stock.
(D) Reflects the Company's acquisitions which occurred subsequent to June
30, 1996 as if such acquisitions had occurred on June 30, 1996. The unaudited
pro forma consolidated financial statements include acquisitions of seven
funeral homes and one cemetery expected to be made during this period, which
were planned to be funded by (i) $1,671,000 in cash, (ii) $6,733,000 in debt and
(iii) 250,000 shares of the Company's Series B Preferred Stock valued at
$250,000 and (iv) 9,020,000 shares of the Company's Series D Preferred Stock
valued at $9,020,000. In conjunction with each of these acquisitions, the key
employees and former owners of the acquired businesses have entered into
employment and non-compete agreements with the Company. The estimated fair
market value of the assets and liabilities of these acquisitions are as follows:
DESCRIPTION AMOUNT
- ---------------------------------------- --------------
(IN THOUSANDS)
Net assets acquired:
Accounts receivable, net........... $ 429
Inventories and other current
assets............................ 220
Property, plant and equipment,
net............................... 4,975
Cemetery property, at cost......... 250
Names and reputations, net......... 11,938
Deferred charges and other non
current assets.................... 212
Accrued liabilities................ (222)
Deferred income taxes.............. (128)
--------------
$ 17,674
==============
F-24
CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DESCRIPTION AMOUNT
- ---------------------------------------- --------------
(IN THOUSANDS)
Consideration paid:
Cash............................... (1,671)
Series B Preferred Stock........... (250)
Series D Redeemable Preferred
Stock............................. (9,020)
Long-term debt issued to fund cash
for acquisition................... (6,733)
--------------
$(17,674)
==============
In connection with the allocation of the purchase price to identifiable
intangible assets, the Company considered the nature of each business it
acquired, non-compete agreements which key employees and former owners entered
into in connection with the acquisitions, and the economic value attributable to
community loyalty of the businesses acquired. Relative to the non-compete
agreements, management considered the term of the respective agreements. The
purchase price allocated to these agreements is amortized on a straight line
basis over the lives of the respective agreements.
In its consideration of the value attributable to the names and reputations
of acquired businesses, management reviewed the unique position of each acquired
business within its respective market. Further, management considered the fact
that death care businesses have often been in existence for an extended period
of time, and in most cases have developed a local heritage and tradition that
act as a formidable barrier for those wishing to enter an existing market. The
resulting loyalty has historically represented a substantial portion of the
value of the acquired business. In almost all cases the names and principal
facilities of the acquired businesses are left in place. Although the acquired
businesses generally have the ability to extend their existence indefinitely,
the Company believes that the names and reputations asset is being appropriately
amortized on a straight line basis over a 40 year period. This is consistent
with the lives used by the Company's publicly held competitors within the death
care industry.
The Company reviews the carrying value of names and reputations and other
assets at least quarterly on a location-by-location basis to determine if facts
and circumstances exist which would suggest that this intangible asset may be
impaired or that the amortization period needs to be modified. If indicators are
present which indicate impairment is probable, the Company will prepare a
projection of the undiscounted cash flows of the location and determine if the
intangible assets are recoverable based on these undiscounted cash flows. If
impairment is indicated, then an adjustment will be made to reduce the carrying
amount of the intangible assets to their fair value.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
The accompanying unaudited pro forma consolidated statements of operations
for the year ended December 31, 1995 and six months ended June 30, 1996 give
effect to the Offering Adjustments and the Acquisitions.
(i) Notes (AA) - (CC) represent the Offering Adjustments
(AA) Reflects the elimination of $6,873,000 and $3,372,000 of interest
expense for the year ending December 31, 1995 and six months ending June 30,
1996, respectively, related to the application of the estimated net proceeds of
the Offering to retire a portion of the $5,375,000 and $62,792,000 of current
and non-current long-term debt and reflects the addition of $1,875,000 and
$850,000 of interest expense for the year ending December 31, 1995 and six
months ending June 30, 1996, respectively, from a $24,899,000 draw-down on the
Company's recently negotiated credit facility to be used to retire the remaining
existing long-term debt and long-term debt that was or will be used related to
acquisitions subsequent to June 30, 1996 and deemed probable at the time of this
filing. Reflects the net elimination of $129,000 for the year ending December
31, 1995 and $65,000 for the six months ending June 30, 1996 of amortization
expense
F-25
CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to deferred financing costs. Also reflects elimination of a guarantee
fee relating to existing debt that will be retired amounting to $40,000 and
$20,000 for the year ending December 31, 1995 and six months ending June 30,
1996, respectively, and the addition of an agent fee and unused commitment fee
of $50,000 and $225,000, respectively, for the year ending December 31, 1995 and
$50,000 and $113,000, respectively, for the six months ending June 30, 1996. All
of the above-mentioned adjustments assume that the net proceeds of the Offering
and the draw on the credit facility were used to retire debt on January 1, 1995.
(BB) Reflects the provision of federal and state income taxes of $1,908,000
for the year ending December 31, 1995 and $953,000 for the six months ending
June 30, 1996 at an effective rate of 39% on pro forma adjustments consistent
with management's assumption that this rate would be indicative of the Company's
tax position assuming the acquisitions and the Offering were completed as of the
beginning of the respective period. In its assumption of the effective tax rate,
management has not considered the utilization of net operating losses which the
Company has generated since inception. It has been the Company's policy to fully
reserve its net operating losses. The adjustment also reflects a tax benefit of
$1,396,000 for the year ending December 31, 1995 and $411,000 for the six months
ending June 30, 1996, in order to derive an effective rate of 39% for federal
and state taxes that the Company would have incurred on a pro forma basis.
(CC) Earnings (loss) per share are computed based on the weighted average
number of common and common equivalent shares outstanding for the respective
period. Weighted average common and common equivalent shares are calculated as
more fully discussed in Note 9 of the Company's Consolidated Financial
Statements. In summary, pursuant to SEC directives relative to companies
contemplating an initial public offering, all stock options issued within one
year of an initial public offering will be considered outstanding for all
periods presented. In addition, the Company's Series A, B and C Preferred Stock
are considered as common equivalent shares, since their respective dates of
issuance, as they convert to Common Stock concurrent with the initial public
offering.
(ii) Notes (DD) - (HH) represent adjustments made relating to the
acquisitions which took place from January 1, 1995 to June 30, 1996 and any
probable acquisitions subsequent to June 30, 1996 as if they occurred January 1,
1995.
(DD) Reflects the combined results of operations, prior to acquisition, of
the businesses acquired by the Company, in transactions accounted for as
purchases, subsequent to January 1, 1995, as if the businesses had been acquired
as of the beginning of the respective period.
YEAR ENDED SIX MONTHS ENDED
DESCRIPTION DECEMBER 31, 1995 JUNE 30, 1996
- -------------------------------------- -------------------- ----------------
(IN THOUSANDS)
Revenues, net......................... $ 20,873 $6,826
Costs and expenses.................... 17,885 6,800
Provision (benefit) for income taxes.. 757 (30)
The unaudited pro forma consolidated statements of operations do not assume
any additional profitability resulting from the application of the Company's
revenue enhancement or cost containment programs to the results of the acquired
businesses, nor do they include any assumed increases in corporate general and
administrative expenses which may have resulted from the Company managing the
acquired businesses. The historical general and administrative expenses of the
acquired businesses have been included in costs and expenses consistent with the
Company's methodology of including expenses directly related to the operation of
funeral homes, cemeteries and crematories in costs and expenses.
F-26
CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EE) Reflects adjustments for increased depreciation and amortization
expense relative to the Company's new basis in the net assets of businesses
acquired after January 1, 1995 as if such acquisitions had taken place as of
January 1, 1995. Pro forma depreciation expense has been recorded based on the
Company's estimate of the useful lives of the acquired assets, using the
Company's depreciation methods and the Company's basis in such assets which is
established at acquisition. Pro forma costs and amortization have been recorded
using the contract lives to reflect the costs related to non-compete agreements
and a 40 year life to amortize of names and reputations associated with such
acquisitions.
YEAR ENDED SIX MONTHS ENDED
DESCRIPTION DECEMBER 31, 1995 JUNE 30, 1996
- ------------------------------------- -------------------- ----------------
(IN THOUSANDS)
Additional depreciation.............. $ 774 $ 230
Additional costs and amortization.... 1,432 441
-------- ------
Total depreciation and amortization
adjustment......................... $2,206 $ 671
======== ======
This adjustment is reflected in costs and expenses for the applicable
periods.
(FF) Reflects additional interest expense of $2,961,000 for the year ended
December 31, 1995, and $722,000 for the six months ended June 30, 1996, which
would have been incurred by the Company assuming the acquisitions made by the
Company subsequent to January 1, 1995, had been made as of the beginning of
January 1, 1995.
(GG) Reflects the pro forma dividend payable on the Company's Series D
Redeemable Preferred Stock actually issued in connection with certain of its
acquisitions consummated subsequent to January 1, 1996 as if the related stock
issuance had occurred on January 1, 1995. A total of 17,566,000 shares of Series
D Redeemable Preferred Stock have been utilized to fund acquisitions subsequent
to January 1, 1995 and those shares, which would have yielded a pro forma cash
dividend of $1,075,000 for the year ending December 31, 1995, and $437,000 for
the six months ending June 30, 1996, have been utilized to fund acquisitions
subsequent to January 1, 1995. The Series D Redeemable Preferred Stock is not a
common stock equivalent.
(HH) Tax provisions in the pro forma consolidated financial statements have
been made to reflect normal effective provisions (benefits) for these events as
if the effective rate will be 39%. Similarly, management has not considered the
use of any available net operating loss carryforwards in these unaudited pro
forma consolidated statements of operations. This adjustment reflects a tax
benefit of $1,607,000 for the year ending December 31, 1995, and $503,000 for
the six months ending June 30, 1996, in order to derive an effective rate of
39%, for federal and state taxes that the Company would have incurred on pro
forma basis. Such pro forma adjustments have been made to give effect to the tax
benefit at an effective tax rate of 39%, which the Company's management believes
would be indicative of the Company's tax position assuming the acquisitions were
made as of the beginning of the respective period.
F-27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Carriage Services, Inc.:
We have audited the accompanying statements of operations of CFS 1996 Group (see
Note 1) and the related statements of cash flows and stockholder's equity for
the period from January 1, 1996 to April 29, 1996, the years ended December 31,
1995, and December 31, 1994, and the three months ended December 31, 1993. These
financial statements are the responsibility of CFS 1996 Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2, the accompanying financial statements are intended to
present the results of operations, cash flows and stockholder's equity as if CFS
1996 Group was a stand-alone entity; however, as discussed in Note 2, CFS 1996
Group has extensive transactions with Service Corporation International, its
parent, and is allocated certain costs from Service Corporation International.
Because of this relationship, the terms of some or all of the transactions and
allocations between Service Corporation International and CFS 1996 Group
included in the accompanying financial statements are not necessarily indicative
of that which would have resulted if CFS 1996 Group had been a stand-alone
entity.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of CFS 1996 Group and its cash
flows for the period from January 1, 1996 to April 29, 1996, the years ended
December 31, 1995, and December 31, 1994, and the three months ended December
31, 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-28
CFS 1996 GROUP
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES ................................. $ 1,010,145 $ 4,614,590 $ 4,637,823 $ 1,710,806
COSTS AND EXPENSES ....................... 784,902 3,436,619 3,598,562 1,620,944
----------- ----------- ----------- -----------
GROSS PROFIT ........................ 225,243 1,177,971 1,039,261 89,862
GENERAL AND ADMINISTRATIVE EXPENSES ...... 182,030 775,861 570,207 317,698
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) ............. 43,213 402,110 469,054 (227,836)
OTHER (INCOME) EXPENSE ................... (40,726) (4,308) (187,048) 164,584
INTEREST (INCOME) EXPENSE ................ 16,195 49,439 (1,575) 785
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX ALLOCATION 67,744 356,979 657,677 (393,205)
INCOME TAX ALLOCATION (NOTE 2) ........... 27,504 143,506 247,287 (153,350)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................ $ 40,240 $ 213,473 $ 410,390 $ (239,855)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
CFS 1996 GROUP
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1994 1995 1996
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ 40,240 $ 213,473 $ 410,390 $(239,855)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization ............................. 24,004 103,701 122,800 48,125
Increase in accounts receivable ........................... (55,975) (226,229) (118,838) (119,831)
(Increase) decrease in inventories and other current assets 2,052,805 (1,110,152) (269,049) 47,605
Increase (decrease) in accounts payable ................... (9,429) 1,475 20,498 (437)
Increase (decrease) in accrued liabilities ................ (573,769) (387,869) (1,061,582) 655,786
----------- ----------- ----------- ---------
Net cash provided by (used in) operating activities 1,477,876 (1,405,601) (895,781) 391,393
----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ....................... (30,906) (149,633) (58,590) (49,739)
----------- ----------- ----------- ---------
Net cash used in investing activities ............. (30,906) (149,633) (58,590) (49,739)
----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ........................... (1,426,519) 1,788,501 730,308 (263,077)
----------- ----------- ----------- ---------
Net cash provided by (used in) financing activities (1,426,519) 1,788,501 730,308 (263,077)
----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............... 20,451 233,267 (224,063) 78,577
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 24,352 44,803 278,070 54,007
----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 44,803 $ 278,070 $ 54,007 $ 132,584
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
CFS 1996 GROUP
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
Balance, October 1, 1993 ............................... $ 2,651,401
Net Income ............................................. 40,240
---------
Balance, December 31, 1993 ............................. 2,691,641
Net Income ............................................. 213,473
---------
Balance, December 31, 1994 ............................. 2,905,114
Net Income ............................................. 410,390
---------
Balance, December 31, 1995 ............................. 3,315,504
Net loss ............................................... (239,855)
---------
Balance, April 29, 1996 ................................ $ 3,075,649
===========
The accompanying notes are an integral part of these financial statements.
F-31
CFS 1996 GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
1. ORGANIZATION/NATURE OF OPERATIONS
Effective April 29, 1996, CFS Funeral Services, Inc. (Carriage) purchased four
funeral homes and two cemeteries located in Texas and Florida from Service
Corporation International (the Parent) for aggregate consideration in excess of
the recorded amounts of the net assets of the homes and cemeteries. The four
funeral homes and two cemeteries purchased by Carriage in this transaction are,
hereinafter, collectively referred to as "CFS 1996 Group." CFS 1996 Group
performs personal and professional services related to funerals at its funeral
homes. Preneed funerals are marketed in the geographic markets served by CFS
1996 Group's funeral service locations.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared from the separate
records of CFS 1996 Group. Certain expenses of a general and administrative
nature, either directly attributable to CFS 1996 Group, or allocations of actual
expenses incurred by the Parent for the benefit of CFS 1996 Group, have been
included in the accompanying statements of operations. Such allocated costs
include, among others, legal, payroll, employee benefits, insurance and
professional services. In addition, CFS 1996 Group is charged interest expense
for amounts payable to the Parent. Management of CFS 1996 Group believes that
such expenses have been allocated on a reasonable basis.
REVENUES
CFS 1996 Group recognizes revenue upon performance of funeral services and sale
of related funeral merchandise. CFS 1996 Group records revenue related to the
right of interment or mausoleum entombment and related merchandise at the time
of sale.
PRENEED FUNERAL TRUST
CFS 1996 Group is generally required by state laws to deposit amounts in a trust
fund related to preneed funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to CFS 1996 Group only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.
CEMETERY MERCHANDISE AND SERVICE TRUST
CFS 1996 Group is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust for cemetery merchandise
and services sold on a preneed basis. The principal and accumulated earnings of
the trust may only be withdrawn upon maturity (generally, death of purchaser) or
cancellation of the contracts. Trust fund income is recognized in current
revenues as trust earnings accrue, net of current period inflation costs
recognized related to the merchandise that has not yet been purchased.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, CFS 1996 Group considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
F-32
INVENTORIES
Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $185,170,
$283,797, $233,591 and $54,891 for the period from January 1, 1996 to April 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, respectively. Dispositions are removed at cost
less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
----- -------------
Building and Improvements .................. 25-40 Straight line
Furniture and fixtures ..................... 5-7 Straight line
Other ...................................... 3-7 Straight line
INCOME TAXES
CFS 1996 Group does not file separate federal and state income tax returns since
all income taxes related to CFS 1996 Group are included in the consolidated
federal and state income tax returns of the Parent. The income tax allocations
included in the accompanying statements of operations reflect an estimate of the
income taxes which would have been attributed to CFS 1996 Group had it been a
separate entity. The income tax allocations approximate the Parent's effective
tax rate, or an estimate thereof, for the periods presented and were 39%, 37.6%,
40.2% and 40.6%, respectively.
NAMES AND REPUTATIONS
The excess of the purchase price paid by the Parent over the net assets of CFS
1996 Group is included in CFS 1996 Group's balance sheet as names and
reputations. Names and reputations are amortized on a straight line basis over
40 years. Amortization of names and reputations totaled approximately $4,000,
$12,000, $12,000 and $3,000 for the period from January 1, 1996 to April 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. OPERATING LEASES
CFS 1996 Group has entered into certain operating leases for facilities and
equipment used in its business. For the period from January 1, 1996 to April 29,
1996, the years ended December 31, 1995 and December 31, 1994 and the three
months ended December 31, 1993, lease expense approximated $37,000, $112,000,
$93,000 and $17,000, respectively.
F-33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Kubach-Smith Funeral Home, Inc.:
We have audited the accompanying statement of operations of Kubach-Smith Funeral
Home, Inc. and the related statements of shareholders' equity and cash flows for
the period from October 1, 1993, to September 6, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Kubach-Smith Funeral Home,
Inc., and its cash flows for the period from October 1, 1993, to September 6,
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-34
KUBACH-SMITH FUNERAL HOME, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994
REVENUES ................................................. $ 1,295,231
COSTS AND EXPENSES ....................................... 1,193,684
---------
GROSS PROFIT .................................... 101,547
GENERAL AND ADMINISTRATIVE EXPENSES ...................... 205,193
---------
OPERATING LOSS ...................................... (103,646)
OTHER INCOME ............................................. 10,083
INTEREST EXPENSE ......................................... 29,952
---------
LOSS BEFORE INCOME TAXES ................................. (123,515)
INCOME TAX BENEFIT ....................................... 21,336
---------
NET LOSS ................................................. $ (102,179)
The accompanying notes are an integral part of these financial statements.
F-35
KUBACH-SMITH FUNERAL HOME, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $(102,179)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization ............................... 47,620
Decrease in accounts receivable ............................. 76,724
Decrease in prepaid assets .................................. 12,378
Decrease in inventories and other current assets ........... 25,028
Increase in accounts payable ................................ 34,510
Increase in accrued liabilities ............................. 22,613
---------
Net cash provided by operating activities 116,694
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................... (46,051)
---------
Net cash used in investing activities ... (46,051)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ........................................ (32,934)
Net cash used in financing activities ... (32,934)
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 37,709
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 4,547
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 42,256
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ..................................................... $ 29,952
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
KUBACH-SMITH FUNERAL HOME, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994
Balance, October 1, 1993 ................................ $ 152,225
Net loss ................................................ (102,179)
---------
Balance, September 6, 1994 .............................. $ 50,046
=========
The accompanying notes are an integral part of these financial statements.
F-37
KUBACH-SMITH FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994
1. ORGANIZATION/NATURE OF OPERATIONS
Kubach-Smith Funeral Home, Inc. (the Company), a taxable corporation, was
incorporated in Ohio in 1969. The Company owns and operates four funeral homes
in Ohio. The Company performs personal and professional services related to
funerals. Prearranged funerals are marketed in the markets served by the
Company's funeral service locations.
Effective September 6, 1994, all of the Company's capital stock was sold to
Carriage Funeral Services of Ohio, Inc. for aggregate consideration in excess of
the recorded amounts of the Company's net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUES
The Company recognizes revenues upon performance of funeral services and sale of
related funeral merchandise.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract, and interest
earned on such funds is deferred until performance of the specified service.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are recorded at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $40,422 for
the period from October 1, 1993 to September 6, 1994. Dispositions are removed
at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
----- ------------------------
Leasehold Improvements .............. 20-25 Straight line
Furniture and fixtures .............. 5-7 Double-declining balance
Other ............................... 5 Double-declining balance
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes".
Under SFAS No. 109, the Company
F-38
determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INCOME TAXES
The only significant temporary difference between the Company's financial
statement and tax bases of accounting results from a net operating loss
generated by the Company during the period from October 1, 1993 to September 6,
1994, which management believes will be realized. The income tax benefit for the
period consisted of:
CURRENT DEFERRED TOTAL
-------- -------- --------
U.S. federal ............. $ (8,312) $ (8,532) $(16,844)
State .................... (2,217) (2,275) (4,492)
-------- -------- --------
$(10,529) $(10,807) $(21,336)
======== ======== ========
The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it would become subject to a higher U.S. federal marginal tax
rate. The differences in the income taxes recorded by the Company and the amount
determined by applying the U.S. federal statutory rate to loss before income
taxes of the Company for the period from October 1, 1993 to September 6, 1994
are summarized as follows:
U.S. federal income statutory rate ..................................... (15%)
Effect of state income taxes ........................................... (4%)
Effect of non-deductible expenses ...................................... 2%
---
(17%)
===
4. RELATED-PARTY TRANSACTIONS
The Company has a five year lease with a shareholder on certain facilities, with
options to renew for an additional five years. For the period October 1, 1993 to
September 6, 1994, lease expense totaled approximately $79,970. In addition,
interest expense for the period from October 1, 1993 to September 6, 1994,
included approximately $17,000 of interest expense related to a note payable to
a shareholder.
F-39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Lusk Funeral Home, Inc.:
We have audited the accompanying statements of operations of Lusk Funeral Home,
Inc. and the related statements of cash flows and shareholder's deficit for the
years ended December 31, 1995, and December 31, 1994 and the three months ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Lusk Funeral Home, Inc., and
its cash flows for the years ended December 31, 1995, and December 31, 1994 and
the three months ended December 31, 1993, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-40
LUSK FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, AND
DECEMBER 31, 1994 AND THE THREE MONTHS ENDED DECEMBER 31,1993
1993 1994 1995
-------- -------- ---------
REVENUES ................................ $ 93,009 $452,390 $ 603,394
COSTS AND EXPENSES ...................... 90,386 355,235 499,403
-------- -------- ---------
GROSS PROFIT ....................... 2,623 97,155 103,991
GENERAL AND ADMINISTRATIVE EXPENSES ..... 10,503 46,351 87,521
-------- -------- ---------
OPERATING INCOME (LOSS) ............ (7,880) 50,804 16,470
OTHER INCOME ............................ 3,339 12,240 11,481
INTEREST EXPENSE ........................ 9,132 35,864 39,460
-------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ....... (13,673) 27,180 (11,509)
INCOME TAX (BENEFIT) PROVISION .......... (2,038) 5,464 (1,369)
-------- -------- ---------
NET INCOME (LOSS) ....................... $(11,635) $ 21,716 $ (10,140)
======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-41
LUSK FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, AND
DECEMBER 31, 1994 AND THE THREE MONTHS ENDED DECEMBER 31,1993
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $(11,635) $ 21,716 $(10,140)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization ............................... 7,633 38,231 27,944
(Increase) decrease in accounts receivable .................. (10,157) (31,977) 17,766
(Increase) decrease in inventories and other current assets . 19,171 5,108 (7,371)
Increase (decrease) in accounts payable ..................... 21,843 (6,649) (5,184)
Increase (decrease) in accrued liabilities .................. (3,628) 14,214 37,915
-------- -------- --------
Net cash provided by operating activities 23,227 40,643 60,930
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................... (21,651) (5,768) (11,341)
-------- -------- --------
Net cash used in investing activities ... (21,651) (5,768) (11,341)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ........................................ (3,662) (21,483) (24,195)
-------- -------- --------
Net cash used in financing activities .. (3,662) (21,483) (24,195)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. (2,086) 13,392 25,394
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 17,410 15,324 28,716
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 15,324 $ 28,716 $ 54,110
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ..................................................... $ 9,132 $ 35,864 $ 39,460
======== ======== ========
Taxes paid ........................................................ $ 3,000 $ 4,200 $ 8,500
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
LUSK FUNERAL HOME, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
Balance, October 1, 1993 ................................ $(147,410)
Net Loss ................................................ (11,635)
---------
Balance, December 31, 1993 .............................. (159,045)
Net Income .............................................. 21,716
---------
Balance, December 31, 1994 .............................. (137,329)
Net Loss ................................................ (10,140)
---------
Balance, December 31, 1995 .............................. $(147,469)
=========
The accompanying notes are an integral part of these financial statements.
F-43
LUSK FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
1. ORGANIZATION/NATURE OF OPERATIONS
Lusk Funeral Home, Inc. (the Company), a taxable corporation, was organized
under the laws of the State of Kentucky on September 29, 1976. The Company owns
and operates two funeral homes in Kentucky. The Company performs personal and
professional services related to funerals at its funeral homes. Prearranged
funerals are marketed in the markets served by the Company's funeral service
locations.
Effective January 4, 1996, all of the Company's stock was sold to Carriage
Funeral Holdings, Inc. for aggregate consideration in excess of the recorded
amounts of the Company's net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company recognizes revenue upon performance of funeral services and sale of
related funeral merchandise.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract, and interest
earned on such funds is deferred until performance of the specified service.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $10,836,
$5,923 and $2,336 for the years ended December 31, 1995, and December 31,1994
and the three months ended December 31, 1993 respectively. Dispositions are
removed at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
Building and Improvements .............. 25 Straight line
Furniture and fixtures ................. 5 Double-declining balance
Other .................................. 3 Straight line
F-44
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), " Accounting for Income
Taxes". Under SFAS No. 109, the Company determines deferred tax assets and
liabilities based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INCOME TAXES
The only significant temporary difference between the Company's financial
statement and tax bases of accounting is related to a net operating loss (NOL)
generated in the three months ended December 31, 1993; that NOL was utilized in
the year ended December 31, 1994. The income tax provision (benefit) for income
taxes for the years ended December 31, 1995, and December 31, 1994 and the three
months ended December 31, 1993 consisted of:
1993 1994 1995
------- ------ -------
Current:
U.S. federal ................................ $ -- $2,705 $(1,081)
State ....................................... -- 721 (288)
------- ------ -------
Total current provision (benefit) ............ $ -- $3,426 $(1,369)
------- ------ -------
Deferred:
U.S. federal .......................... $(1,609) $1,609 $ --
State ................................ (429) 429 --
------- ------ -------
Total deferred provision (benefit) ...... $(2,038) $2,038 $ --
------- ------ -------
Total income tax provision (benefit) .... $(2,038) $5,464 $(1,369)
======= ====== =======
The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it would become subject to a higher U.S. federal marginal tax
rate. The differences between the income taxes recorded by the Company and the
income taxes provided for by applying the federal statutory rate to the
Company's pre-tax income for the years ended December 31, 1995, and 1994 and the
three months ended December 31, 1993, are summarized as follows:
1993 1994 1995
------- ----- ------
U.S. federal statutory rate .................. (15%) 15% (15%)
Effect of state income taxes ................. (4) 4 (4)
Effect of non-deductible expenses ............ 4 1 7
---- ---- ----
Total income tax provision (benefit) ............ (15%) 20% (12%)
==== ==== ====
4. EMPLOYEE BENEFIT PLAN
Effective January 1, 1993, the Company began participation in an employee
benefit plan, the Lusk-McFarland Funeral Home, Inc. Profit Sharing Plan (the
"Plan"), which covers substantially all full time
F-45
employees having at least one year of service, subject to certain minimum age
requirements. Total employee/employer contributions may not exceed the lesser of
$30,000 or 25% of eligible compensation per year, subject to limitations imposed
by the Internal Revenue Code. In its sole discretion, the Company can make
contributions to the Plan. Expenses related to the Plan were $24,542, $9,012 and
$0 for the years ended December 31, 1995, and December 31,1994 and the three
months ended December 31, 1993, respectively.
5. RELATED-PARTY TRANSACTIONS
The Company recorded $23,980, $24,696 and $6,174 of interest expense related to
debt owed by the Company to the shareholder for the years ended December 31,
1995, and 1994 and the three months ended December 31, 1993.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into operating leases for certain equipment utilized in
its business. For the years ended December 31, 1995, and December 31, 1994 and
the three months ended December 31, 1993, lease expense totaled $10,692,
$12,151, and $0, respectively.
F-46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
West End Funeral Home, Inc.:
We have audited the accompanying statements of operations of West End Funeral
Home, Inc. and the related statements of shareholders' equity and cash flows for
the period from January 1, 1995 to May 10, 1995, the year ended December 31,
1994, and the three months ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of West End Funeral Home, Inc.,
and its cash flows for the period from January 1, 1995 to May 10, 1995, the year
ended December 31, 1994, and the three months ended December 31, 1993, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-47
WEST END FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
1993 1994 1995
-------- ---------- ----------
REVENUES ............................... $518,947 $2,265,923 $1,016,164
COSTS AND EXPENSES ..................... 420,390 1,757,797 746,623
-------- ---------- ----------
GROSS PROFIT ...................... 98,557 508,126 269,541
GENERAL AND ADMINISTRATIVE EXPENSES .... 75,062 233,556 172,318
-------- ---------- ----------
OPERATING INCOME .................. 23,495 274,570 97,223
OTHER INCOME ........................... 13,862 66,321 34,935
INTEREST EXPENSE ....................... 7,023 26,678 10,319
-------- ---------- ----------
NET INCOME ............................. $ 30,334 $ 314,213 $ 121,839
======== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-48
WEST END FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 30,334 $ 314,213 $ 121,839
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization ............................... 20,417 91,378 54,611
(Increase) decrease in accounts receivable .................. 23,148 (21,009) 168,344
(Increase) decrease in other current assets ................ 9,339 4,917 (16,436)
Increase (decrease) in accounts payable ..................... 13,542 32,404 (52,523)
Decrease in deferred and other liabilities ................ (6,567) (36,325) (8,971)
Increase (decrease) in accrued liabilities .................. (24,837) 9,634 (22,433)
--------- --------- ---------
Net cash provided by operating activities 65,376 395,212 244,431
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................... (5,780) (290,249) (53,274)
--------- --------- ---------
Net cash used in investing activities ... (5,780) (290,249) (53,274)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ............................. (14,998) 12,353 (67,256)
Shareholder distribution .......................................... (2,454) (140,296) (102,786)
--------- --------- ---------
Net cash used in financing activities ... (17,452) (127,943) (170,042)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 42,144 (22,980) 21,115
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 308,480 350,624 327,644
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 350,624 $ 327,644 $ 348,759
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ..................................................... $ 7,023 $ 26,678 $ 10,319
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
WEST END FUNERAL HOME, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
Balance, October 1, 1993 ................................ $ 397,198
Shareholder distribution ................................ (2,454)
Net Income .............................................. 30,334
---------
Balance, December 31, 1993 .............................. 425,078
Shareholder distribution ................................ (140,296)
Net Income .............................................. 314,213
---------
Balance, December 31, 1994 .............................. 598,995
Shareholder distribution ................................ (102,786)
Net Income .............................................. 121,839
---------
Balance, May 10, 1995 ................................... $ 618,048
=========
The accompanying notes are an integral part of these financial statements.
F-50
WEST END FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31,1993
1. ORGANIZATION /NATURE OF OPERATIONS
West End Funeral Home, Inc. (the Company), a corporation qualified under
Subchapter S of the Internal Revenue Code, was organized under the laws of the
state of Illinois. The Company owns and operates four funeral homes in Chicago,
Illinois and the surrounding area. The Company performs personal and
professional services related to funerals at its funeral homes. Prearranged
funerals are marketed in the markets served by the Company's funeral service
locations.
Effective May 10, 1995, substantially all of the Company's assets were sold to
Carriage Funeral Holdings, Inc. for aggregate consideration in excess of the
recorded amounts of the Company's net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company recognizes revenue upon performance of funeral services and sale of
related funeral merchandise.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract, and interest
earned on such funds is deferred until performance of the specified service.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $4,148,
$29,836 and $4,486 for the period from January 1, 1995 to May 10, 1995, the year
ended December 31, 1994, and the three months ended December 31, 1993,
respectively. Dispositions are removed at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
----- ------------------------
Leasehold Improvements ............... 10 Double-Declining Balance
Furniture and fixtures ............... 5 Double-Declining Balance
Other ................................ 3-5 Double-Declining Balance
F-51
INCOME TAXES
The Company is organized under subchapter S of the Internal Revenue Code.
Federal and state income taxes for subchapter S corporations are the direct
responsibility of the Company's shareholders. Accordingly, no provision for
income taxes has been reflected in the accompanying financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. OPERATING LEASES
The Company leases certain facilities from a shareholder. For the period from
January 1, 1995 to May 10, 1995, the year ended December 31, 1994, and the three
months ended December 31, 1993, lease expense to this shareholder totaled
approximately $84,382, $178,517 and $34,341, respectively.
4. EMPLOYEE BENEFIT PLAN
Effective March 28, 1970, as amended and restated effective January 1, 1989, the
Company began participation in an employee benefit plan, the West End Funeral
Home, Inc. Profit Sharing Plan (the Plan), which covers substantially all full
time employees having at least one year of service. In its sole discretion, the
Company can make contributions to the Plan. Expenses related to the Plan were
$0, $20,000 and $2,345 for the period from January 1, 1995, to May 10, 1995, the
year ended December 31, 1994, and the three months ended December 31, 1993,
respectively.
F-52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Hennessy Funeral Home, Inc.
Akron, OH
We have audited the accompanying statements of income, retained earnings, and
cash flows for the years ended December 31, 1993, December 31, 1994, December
31, 1995 and the ten weeks ended March 8, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to the above present fairly,
in all material respects, the results of operations and cash flows for Hennessy
Funeral Home, Inc. for the years ended December 31, 1993, December 31, 1994,
December 31, 1995 and the ten weeks ended March 8, 1996 in conformity with
generally accepted accounting principles.
KEE & ASSOCIATES, INC.
May 31, 1996
F-53
HENNESSY FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994,
DECEMBER 31,1995 AND THE TEN WEEKS ENDED MARCH 8, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES .......................... $976,167 $1,001,932 $1,242,716 $ 221,670
-------- ---------- ---------- ---------
COSTS AND EXPENSES: ............... 429,210 429,716 509,087 113,296
-------- ---------- ---------- ---------
GROSS PROFIT ................. 546,957 572,216 733,629 108,374
GENERAL AND ADMINISTRATIVE EXPENSES 508,033 533,282 602,414 114,056
-------- ---------- ---------- ---------
OPERATING PROFIT (LOSS) ...... 38,924 38,934 131,215 (5,682)
INTEREST EXPENSE .................. 18,244 3,646 1,002 356
-------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 20,680 35,288 130,213 (6,038)
INCOME TAXES ...................... 7,949 10,248 43,215 813
-------- ---------- ---------- ---------
NET INCOME (LOSS) ................. $ 12,731 $ 25,040 $ 86,998 $ (6,851)
======== ========== ========== =========
RETAINED EARNINGS
BEGINNING RETAINED EARNINGS ....... $604,303 $ 617,034 $ 642,074 $ 729,072
NET INCOME (LOSS) ................. 12,731 25,040 86,998 (6,851)
-------- ---------- ---------- ---------
ENDING RETAINED EARNINGS .......... $617,034 $ 642,074 $ 729,072 $ 722,221
======== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
HENNESSY FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994,
DECEMBER 31,1995 AND THE TEN WEEKS ENDED MARCH 8, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ 12,731 $ 25,040 $ 86,998 $ (6,851)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization ...................................... 66,560 59,389 56,524 18,654
(Increase) decrease in accounts receivable ......................... 48,979 (21,993) (29,910) (11,686)
(Increase) decrease in inventories and other current assets ......... (1,098) (6,937) (7,045) 3,026
Increase (decrease) in accounts payable ............................ 9,058 (10,708) 57,200 (65,633)
Increase (decrease) in accrued liabilities ......................... 4,160 (7,350) 55,749 (42,169)
--------- -------- --------- ---------
Net cash provided by operating activities ...... 140,390 37,441 219,516 (104,659)
--------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable from officer ............................ 8,246 -- -- 0
Purchase of property, plant and equipment ................................ (35,721) (11,454) (109,201) 0
--------- -------- --------- ---------
Net cash used in investing activities .......... (27,475) (11,454) (109,201) 0
--------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings from shareholder .................................. 0 0 20,315 0
Additional long-term borrowings ......................................... 16,035 0 0 0
Payments on long-term debt ............................................... (85,268) (45,402) 0 0
--------- -------- --------- ---------
Net cash used by financing activities ......... (69,233) (45,402) 20,315 0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................ 43,682 (19,415) 130,630 (104,659)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 37,772 81,454 62,039 192,669
--------- -------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 81,454 $ 62,039 $ 192,669 $ 88,010
========= ======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................ $ 18,244 $ 3,646 0 $ 356
========= ======== ========= =========
Taxes paid ............................................................... $ 15,980 $ 4,634 $ 7,581 $ 1,697
========= ======== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company sold an automobile to it's majority shareholder at book value. In
conjuction with the sale the following asset was acquired and liability was
retired:
Note receivable shareholder ................................................. $ 0 $ 0 $ 0 $ 39,022
========= ======== ========= =========
Note payable shareholder, including accrued interest ........................ $ 0 $ 0 $ 0 $ 21,673
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
HENNESSY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31,1993, DECEMBER 31, 1994,
AND DECEMBER 31, 1995 AND FOR THE TEN WEEKS ENDED MARCH 8, 1996
1. ORGANIZATION/NATURE OF OPERATIONS
Hennessy Funeral Home, Inc. (the Company), was organized under the laws of the
State of Ohio on October 11, 1973. The Company owns and operates 2 funeral homes
in Ohio. The Company performs personal and professional services related to
funerals at its funeral homes. Prearranged funerals are marketed in the
geographic markets served by the Company's funeral service locations.
Effective March 8, 1996, all of the Company's stock was sold to Carriage Funeral
Holdings, Inc. for aggregate consideration of $2,791,370.74.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUES
The Company records the sale of funeral merchandise and services upon
performance.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORY
The effect of changes in inventories is included in merchandise costs at the
lower of its cost basis (as determined by the specific identification method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Furniture, leasehold improvements and equipment are capitalized at cost.
Expenditures for major additions and improvements are capitalized while
replacements, maintenance and repairs which do not improve or extend the life of
the related assets are charged to operations as incurred. Maintenance and
repairs amounted to $27,413, $27,414, $33,311, and $7,107, for the years ended
December 31, 1993 and December 31,1994, December 31, 1995 and for the ten weeks
ended March 8, 1996 respectively. Dispositions are removed at cost less
accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
Leasehold Improvements .............. 7 - 15 years Straight-line
Furniture and fixtures .............. 5 - 10 years Straight-line
Other ............................... 5 years Straight-line
F-56
Depreciation expense for the years ended December 31, 1993, December 31, 1994,
December 31, 1995, and the ten weeks ended March 8, 1996 were as follows:
1993 ................................................. $65,360
1994 ................................................. 58,189
1995 ................................................. 55,324
1996 ................................................. 18,431
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), " Accounting for Income
Taxes". Under SFAS No. 109, the Company determines deferred tax assets and
liabilities based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INCOME TAXES:
There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. In addition, the Company's effective tax
rate materially approximates the applicable statutory rate.
Income taxes expensed for the year ended December 31, 1993, December 31, 1994,
and December 31, 1995 and for the ten weeks ended March 8, 1996 consisted of:
1993 1994 1995 1996
------- ------- ------- ----
Current:
U.S. federal ........... $ 3,100 $ 6,418 $32,233 $ 0
State .................. 4,849 3,830 10,982 813
------- ------- ------- ----
$ 7,949 $10,248 $43,215 $813
------- ------- ------- ----
4. RELATED PARTY TRANSACTIONS
The Company leases two funeral homes and adjoining parking areas from its'
shareholders. The terms of these leases are contained in note 5.
The Company also accrued interest at 9% on a note payable to its' majority
shareholder. The $20,314.75 note was dated May 18, 1995. Interest expensed on
this note for the year ending December 31, 1995 was $1,002 and for the ten weeks
ended March 8, 1996 was $356. The note was retired on March 8, 1996.
5. LEASES
The company leases the Akron and Tallmadge funeral homes under operating leases
from its' shareholders.
The Akron funeral home and adjoining parking lots are leased from the Company's
majority shareholder and other family members. The lease is a ten year lease
with options to renew the lease for two additional five year periods. Rent is
payable in monthly installments of $2,754.
F-57
Additional parking space is leased from the majority shareholder under a 5 year
lease dated September 1, 1991. Rent was payable in monthly installments of $785.
This lease included a 5 year option to renew, however as a result of the merger
with Carriage Funeral Services, Inc. (see note 7) a new 10 year lease with 3
five year options to renew was signed with the surviving corporation on March 8,
1996. Monthly rental beginning March 8, 1996 is $943.50.
The Tallmadge funeral home was leased from the Company's shareholders. The lease
dated September 1, 1991 included a 5 year option to renew. Rent was payable in
monthly installments of $3,850. The Tallmadge funeral home was sold by the
shareholders to the surviving corporation as part of the merger with Carriage
Funeral Services, Inc.
Rental expense to the shareholders under the terms of the above leases for the
years ending December 31, 1993, December 31, 1994 and December 31, 1995 and for
the ten weeks ending March 8, 1996 were as follows:
1993 1994 1995 1996
------- ------- ------- -------
Akron funeral home $31,600 $34,400 $33,000 $7,000
Akron lots 8,940 8,940 8,940 2,085
Tallmadge funeral home 46,119 46,119 46,119 8,711
------- ------- ------- -------
$86,659 $89,459 $88,059 $17,796
------- ------- ------- -------
Future minimum rental payments applicable to the lease arrangements at March 8,
1996 are as follows:
AKRON FUNERAL HOME AKRON LOTS TALLMADGE
December 31, 1996 ............. $24,786 $ 6,605 $0
December 31, 1997 ............. 33,048 11,322 0
December 31, 1998 ............. 33,048 11,322 0
December 31, 1999 ............. 33,048 11,322 0
December 31, 2000 ............. 33,048 11,322 0
Thereafter .................... 22,032 61,327 0
6. DEFINED CONTRIBUTION PENSION PLAN
The Company provides a Simplified Employee Pension (SEP) defined contribution
plan for its employees. The Company determines its share of the contribution to
the plan annually. The Company's contribution to the plan for the years ending
December 31, 1993, December 31, 1994 and December 31, 1995 and for the ten weeks
ended March 8, 1996 were as follows:
1993 ................................................. $34,862
1994 ................................................. 26,986
1995 ................................................. 43,814
1996 ................................................. 8,576
7. SUBSEQUENT EVENTS
At the close of business on March 8, 1996, the Company merged with Carriage
Funeral Services, Inc. Under terms of the agreement, the Company's shareholders
received approximately 82% of the proceeds in Series D voting preferred stock
with a dividend rate of 6.25% per annum. As structured, the transaction is
intended to qualify as a reverse triangular merger under Internal Revenue Code
Section 368(a)(1)(A) and 368 (a)(2)(E), and appears to meet the requirements for
a tax-free reorganization. Additionally, the surviving corporation acquired the
funeral home located in Tallmadge, Ohio from the Company's shareholders. Also,
the agreement contains covenants not to compete and employment contracts with
the shareholders.
F-58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
James E. Drake Funeral Home, Inc.:
We have audited the accompanying statements of operations of James E. Drake
Funeral Home, Inc. and the related statements of cash flows and stockholders'
equity for the period from December 1, 1995, to February 29, 1996, and the years
ended November 30, 1995 and November 30, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of James E. Drake Funeral Home,
Inc., and its cash flows for the period from December 1, 1995, to February 29,
1996, and the years ended November 30, 1995 and November 30, 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-59
JAMES E. DRAKE FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
1994 1995 1996
-------- -------- ---------
REVENUES ................................. $635,070 $698,665 $ 129,304
COSTS AND EXPENSES ....................... 517,039 582,688 128,245
-------- -------- ---------
GROSS PROFIT ........................ 118,031 115,977 1,059
GENERAL AND ADMINISTRATIVE EXPENSES ...... 24,583 30,476 3,706
-------- -------- ---------
OPERATING INCOME (LOSS) ............. 93,448 85,501 (2,647)
OTHER INCOME ............................. 250 2,117 29,466
INTEREST EXPENSE ......................... 51,446 47,651 12,174
-------- -------- ---------
INCOME BEFORE INCOME TAXES ............... 42,252 39,967 14,645
INCOME TAX PROVISION ..................... 13,464 12,598 4,064
-------- -------- ---------
NET INCOME ............................... $ 28,788 $ 27,369 $ 10,581
======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-60
JAMES E. DRAKE FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 28,788 $ 27,369 $ 10,581
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization .............................. 111,303 103,231 12,812
Gain on disposition of asset ............................... -- -- (27,852)
(Increase) decrease in accounts receivable ................. (47,577) 18,536 31,855
(Increase) decrease in inventories ......................... (997) (20,059) 2,334
Decrease in other assets ................................... 45,335 26,415 9,339
Increase (decrease) in accounts payable .................... 24,226 (12,953) (14,952)
Increase (decrease) in accrued liabilities ................. 36,822 4,940 (5,681)
--------- --------- ---------
Net cash provided by operating activities 197,900 147,479 18,436
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition (purchase) of property, plant and equipment .......... (142,472) 9,240 58,073
--------- --------- ---------
Net cash provided by (used in) investing activities ... (142,472) 9,240 58,073
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ............................ (75,191) 47,432 (73,216)
Dividends paid .................................................. -- (24,000) --
Treasury shares purchased ....................................... -- -- (120,000)
--------- --------- ---------
Net cash provided by (used in) financing activities ... (75,191) 23,432 (193,216)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ (19,763) 180,151 (116,707)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................... 75,250 55,487 235,638
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 55,487 $ 235,638 $ 118,931
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid .................................................... $ 51,446 $ 47,651 $ 12,174
========= ========= =========
Taxes paid ....................................................... $ 13,000 $ 13,000 $ 4,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
JAMES E. DRAKE FUNERAL HOME, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
Balance, December 1, 1993 ................................. $ 211,755
Net Income ................................................ 28,788
---------
Balance, November 30, 1994 ................................ 240,543
Dividends paid ............................................ (24,000)
Net Income ................................................ 27,369
---------
Balance, November 30, 1995 ................................ 243,912
Treasury shares purchased, at cost ........................ (120,000)
Net Income ................................................ 10,581
---------
Balance, February 29, 1996 ................................ $ 134,493
=========
The accompanying notes are an integral part of these financial statements.
F-62
JAMES E. DRAKE FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
1. ORGANIZATION/NATURE OF OPERATIONS
James E. Drake Funeral Home, Inc. (the Company), a taxable corporation, was
organized under the laws of the State of Kentucky on December 22, 1981. The
Company owns and operates two funeral homes in Kentucky. The Company performs
personal and professional services related to funerals at its funeral homes.
Prearranged funerals are marketed in the markets served by the Company's funeral
service locations.
Effective March 1, 1996, all of the Company's stock was sold to Carriage Funeral
Holdings, Inc. for aggregate consideration in excess of the recorded amounts of
the Company's net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company recognizes revenue upon performance of funeral services and sale of
related funeral merchandise.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $1,243,
$13,525 and $10,188 for the period from December 1, 1995 to February 29, 1996,
and the years ended November 30, 1995 and November 30, 1994, respectively.
Dispositions are removed at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
Building and improvements ........... 10-25 Straight line
Furniture and fixtures .............. 5-7 Double-Declining Balance
Other ............................... 3-5 Double-Declining Balance
F-63
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), " Accounting for Income Taxes."
Under SFAS No. 109, the Company determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INCOME TAXES
There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. The income tax provision for the period
from December 1, 1995 to February 29, 1996, and the years ended November 30,
1995 and November 30, 1994, consisted of:
1994 1995 1996
--------- --------- --------
Current:
U.S. federal ......................... $10,974 $10,199 $3,198
State ................................ 2,490 2,399 866
------- ------- ------
Total income tax provision ............ $13,464 $12,598 $4,064
------- ------- ------
The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it becomes subject to a higher U.S. federal marginal tax rate.
The differences in the income taxes recorded by the Company and the income taxes
provided for by applying the federal statutory rate to the Company's pre-tax
income for the period from December 1, 1995 to February 29, 1996, and the years
ended November 30, 1995 and November 30, 1994, are summarized as follows:
1994 1995 1996
---- ---- ----
U.S. federal statutory rate ............................. 15% 15% 15%
Effect of graduated U.S. federal rate ................... 4 3 --
Effect of state income taxes ............................ 4 4 4
Effect of non-deductible depreciation and amortization .. 9 10 9
---- ---- ----
Total income tax provision ................................. 32% 32% 28%
==== ==== ====
4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into operating leases for certain facilities and
equipment utilized in its business. For the period from December 1, 1995 to
February 29, 1996, and the years ended November 30, 1995 and November 30, 1994,
lease expense totaled $2,014, $9,480 and $8,146, respectively.
LEGAL MATTERS
In the normal course of its operations, the Company has become involved in a
legal dispute. In this case, the Company has been named as one of several
defendants in a suit in which the plaintiff alleges, among other things,
defamation. The Company believes it has meritorious defenses in this case and
believes that a decision adverse to the Company in this dispute would not have a
material effect on the results of operations of the Company.
F-64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Dwayne R. Spence Funeral Home, Inc.:
We have audited the accompanying statements of operations of Dwayne R. Spence
Funeral Home, Inc. and the related statements of shareholder's equity and cash
flows for the period from January 1, 1996 to March 29, 1996, the years ended
December 31, 1995 and December 31, 1994, and the three months ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Dwayne R. Spence Funeral
Home, Inc., and its cash flows for the period from January 1, 1996 to March 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-65
DWAYNE R. SPENCE FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31,1993
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES .......................... $309,814 $ 1,167,952 $ 1,141,311 $ 313,941
COSTS AND EXPENSES ................ 265,182 1,069,009 1,031,445 363,288
-------- ----------- ----------- ---------
GROSS PROFIT (LOSS) .... 44,632 98,943 109,866 (49,347)
GENERAL AND ADMINISTRATIVE EXPENSES 8,105 33,414 31,525 7,126
-------- ----------- ----------- ---------
OPERATING INCOME (LOSS) 36,527 65,529 78,341 (56,473)
OTHER (INCOME) EXPENSE ............ 6,575 (8,382) (9,373) (92)
INTEREST EXPENSE .................. 349 7,705 11,590 157
-------- ----------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . 29,603 66,206 76,124 (56,538)
INCOME TAX PROVISION (BENEFIT) .... 5,624 14,199 17,075 (10,742)
-------- ----------- ----------- ---------
NET INCOME (LOSS) ................. $ 23,979 $ 52,007 $ 59,049 $ (45,796)
======== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
DWAYNE R. SPENCE FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 23,979 $ 52,007 $ 59,049 $ (45,796)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization .................................. 17,631 73,594 73,200 13,343
(Increase) decrease in accounts receivable ..................... (62,494) 7,770 95,910 6,538
(Increase) decrease in inventories and other current assets ... 21,751 5,099 (32,371) (10,126)
Increase (decrease) in accounts payable ........................ 13,570 (3,014) 35,062 (2,756)
Increase (decrease) in accrued liabilities ..................... 33,025 26,296 (98,971) 31,644
-------- --------- --------- ---------
Net cash provided by (used in) operating activities .. 47,462 161,752 131,879 (7,153)
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase of) proceeds from disposition of property, plant and
equipment ................................................... 7,881 (108,458) (26,314) (2,359)
--------- --------- ---------
Net cash provided by (used in) investing activities .. 7,881 (108,458) (26,314) (2,359)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ................................ (69,371) 38,411 (54,149) 26,076
-------- --------- --------- ---------
Net cash provided by (used in) financing activities .. (69,371) 38,411 (54,149) 26,076
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... (14,028) 91,705 51,416 16,564
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 47,719 33,691 125,396 176,812
-------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 33,691 $ 125,396 $ 176,812 $ 193,376
======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ........................................................ $ 349 $ 7,705 $ 11,590 $ 157
======== ========= ========= =========
Taxes paid ........................................................... $ 4,500 $ 20,000 $ 9,000 $ 2,250
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
DWAYNE R. SPENCE FUNERAL HOME, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
Balance, October 1, 1993 ................................ $ 424,513
Net Income .............................................. 23,979
---------
Balance, December 31, 1993 .............................. 448,492
Net Income .............................................. 52,007
---------
Balance, December 31,1994 ............................... 500,499
Net Income .............................................. 59,049
---------
Balance, December 31, 1995 .............................. 559,548
Net Loss ................................................ (45,796)
---------
Balance, March 29, 1996 ................................. $ 513,752
=========
The accompanying notes are an integral part of these financial statements.
F-68
DWAYNE R. SPENCE FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
1. ORGANIZATION /NATURE OF OPERATIONS
Dwayne R. Spence Funeral Home, Inc. (the Company), a taxable corporation, was
organized in 1977 in the state of Ohio. The Company owns and operates two
funeral homes in Ohio. The Company performs personal and professional services
related to funerals at its funeral homes. Prearranged funerals are marketed in
the markets served by the Company's funeral service locations.
Effective March 29, 1996, all of the Company's capital stock was sold to
Carriage Funeral Holdings, Inc. for aggregate consideration in excess of the
recorded amounts of the Company's net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company recognizes revenue upon performance of funeral services and sale of
related merchandise.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract, and interest
earned on such funds is deferred until performance of the specified service.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $12,593,
$33,098, $36,370 and $8,197 for the period from January 1, 1996 to March 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, respectively. Dispositions are removed at cost
less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
----- ------------------------
Buildings and improvements .......... 10-25 Straight line
Furniture and fixtures .............. 5-7 Double-declining balance
Other ............................... 3-7 Double-declining balance
F-69
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, the Company determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. OPERATING LEASES
The Company has entered into operating leases for certain facilities used in its
business. For the period from January 1, 1996 to March 29, 1996, the years ended
December 31, 1995 and December 31, 1994, and the three months ended December 31,
1993, lease expense totaled approximately $35,250, $139,975, $136,430 and
$33,045, respectively. In addition, the Company leases certain equipment from a
shareholder. For the period from January 1, 1996 to March 29, 1996, the years
ended December 31, 1995 and 1994, and the three months ended December 31, 1993,
expense related to this lease totaled $12,827, $29,560, $25,821 and $186,
respectively.
4. INCOME TAXES
There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. The provision (benefit) for income taxes
for the period from January 1, 1996 to March 29, 1996, the years ended December
31, 1995 and December 31, 1994, and the three months ended December 31, 1993
consisted of:
1993 1994 1995 1996
------ ------- ------- --------
Current:
U.S. federal ........................ $4,440 $11,551 $14,031 $ (8,481)
State ............................... 1,184 2,648 3,044 (2,261)
------ ------- ------- --------
Total current provision (benefit) ... $5,624 $14,199 $17,075 $(10,742)
====== ======= ======= ========
The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it becomes subject to a higher U.S. federal marginal tax rate.
The differences between the income taxes recorded by the Company and the income
taxes provided by applying the U.S. federal statutory rate of 15% to the
Company's pre-tax income for the period from January 1, 1996 to March 29, 1996,
the years ended December 31, 1995 and December 31, 1994, and the three months
ended December 31, 1993 are summarized below:
1993 1994 1995 1996
---- ---- ---- ----
U.S. federal statutory rate ...................... 15% 15% 15% (15%)
Effect of graduated federal statutory rate ....... -- 2 3 --
Effect of state income taxes ..................... 4 4 4 (4)
---- ---- ---- ----
Total income tax provision (benefit) ............. 19% 21% 22% (19%)
==== ==== ==== ====
F-70
5. EMPLOYEE BENEFIT PLAN
Effective January 1, 1995, the Company participates in an employee benefit plan,
the Dwayne R. Spence Funeral Home, Inc. 401K Pension Plan, which covers
substantially all full-time employees, subject to certain minimum age and length
of service requirements. In its sole discretion, the Company can make
contributions to the plan. This plan replaced a plan in which the Company
participated prior to January 1, 1995. For the period from January 1, 1996 to
March 29, 1996, the years ended December 31, 1995 and 1994, and the three months
ended December 31, 1993, the employee benefit plan expense totaled $ 0, $18,941,
$67,532 and $40,715, respectively.
F-71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merchant Funeral Home Group:
We have audited the accompanying statements of operations of Merchant Funeral
Home Group and the related statements of shareholders' equity and cash flows for
the period from July 1, 1995 to April 1, 1996, and the years ended June 30, 1995
and June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Merchant Funeral Home Group,
and its cash flows for the period from July 1, 1995 to April 1, 1996, and the
years ended June 30, 1995 and June 30, 1994, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
F-72
MERCHANT FUNERAL HOME GROUP
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994
1994 1995 1996
---------- ---------- -----------
REVENUES .............................. $1,068,304 $1,289,444 $ 1,041,222
COSTS AND EXPENSES .................... 944,882 1,111,945 864,936
---------- ---------- -----------
GROSS PROFIT ..................... 123,422 177,499 176,286
GENERAL AND ADMINISTRATIVE EXPENSES ... 66,453 105,355 127,357
---------- ---------- -----------
OPERATING MARGIN ................. 56,969 72,144 48,929
OTHER (INCOME) EXPENSE ................ 22,859 13,623 (16,582)
INTEREST EXPENSE ...................... 7,680 19,828 7,885
---------- ---------- -----------
INCOME BEFORE INCOME TAXES ............ 26,430 38,693 57,626
INCOME TAX PROVISION .................. 5,174 7,512 11,943
---------- ---------- -----------
NET INCOME ............................ $ 21,256 $ 31,181 $ 45,683
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-73
MERCHANT FUNERAL HOME GROUP
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 21,256 $ 31,181 $ 45,683
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization ............................. 46,658 54,901 38,502
(Increase) decrease in accounts receivable ................ 12,412 (30,675) 14,054
(Increase) decrease in inventories and other current assets (139,623) 10,258 143,949
Increase (decrease) in accounts payable ................... (46,646) (9,467) 2,709
Increase (decrease) in deferred and other liabilities ..... 32,207 2,684 (40)
Increase (decrease) in accrued liabilities ................ 15,858 (24,156) (23,660)
--------- -------- ---------
Net cash provided by (used in) operating activities .. (57,878) 34,726 221,197
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ....................... (102,548) (23,876) (1,647)
--------- -------- ---------
Net cash used in investing activities ................ (102,548) (23,876) (1,647)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ........................... 223,841 3,523 (138,293)
Dividends ....................................................... -- -- (40,104)
--------- -------- ---------
Net cash provided by (used in) financing activities .. 223,841 3,523 (178,397)
--------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 63,415 14,373 41,153
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 8,436 71,851 86,224
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 71,851 $ 86,224 $ 127,377
========= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................... $ 7,680 $ 19,828 $ 7,885
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
MERCHANT FUNERAL HOME GROUP
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994
Balance, October 1, 1993 ................................ $ 142,620
Net income .............................................. 21,256
---------
Balance, June 30, 1994 .................................. 163,876
Net Income .............................................. 31,181
---------
Balance, June 30, 1995 .................................. 195,057
Dividends paid .......................................... (40,104)
Net income .............................................. 45,683
---------
Balance, April 1, 1996 .................................. $ 200,636
=========
The accompanying notes are an integral part of these financial statements.
F-75
MERCHANT FUNERAL HOME GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994
1. ORGANIZATION/NATURE OF OPERATIONS
Merchant Funeral Home Group (the Company) is comprised of three taxable
corporations which own and operate four funeral homes and two cemeteries in
Washington and Idaho. The Company performs personal and professional services
related to funerals and burials at its various locations. Prearranged funerals
are marketed in the geographic markets served by the Company's funeral service
locations.
Effective April 1, 1996, all of the Company's stock was sold to Carriage Funeral
Services, Inc. for aggregate consideration in excess of the recorded amounts of
the Company's net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company recognizes revenue upon performance of funeral and interment or
entombment services and sale of related funeral merchandise.
PRENEED FUNERAL TRUST
The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.
CEMETERY MERCHANDISE AND SERVICE TRUST
The Company is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust for cemetery merchandise
and services sold on a preneed basis. The principal and accumulated earnings of
the trust may only be withdrawn upon maturity (generally, death of purchaser) or
cancellation of the contracts. Trust fund income is recognized in current
revenues as trust earnings accrue, net of current period inflation costs
recognized related to the merchandise that has not yet been purchased.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $30,351,
$45,726 and $38,516 for the period from July 1, 1995 to April 1, 1996, and the
years ended June 30, 1995 and June 30, 1994, respectively. Dispositions are
removed at cost less accumulated depreciation.
F-76
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
----- ------------------------
Building and improvements ........... 10-25 Straight line
Furniture and fixtures .............. 5-7 Double-Declining Balance
Other ............................... 3-5 Double-Declining Balance
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, the Company determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. INCOME TAXES
There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. The income tax provision for the period
from July 1, 1995 to April 1, 1996, and the years ended June 30, 1995 and June
30, 1994 consisted of:
1994 1995 1996
------ ----- -------
Current:
U.S. federal ........................ $4,085 5,933 $ 9,606
State ............................... 1,089 1,579 2,337
------ ----- -------
Total current provision .............. $5,174 7,512 $11,943
------ ----- -------
The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it would become subject to a higher U.S. federal marginal tax
rate. The differences in the income taxes recorded by the Company and the income
taxes provided for by applying the U.S. federal statutory rate of 15% to the
Company's pre-tax income for the period from July 1, 1995 to April 1, 1996, and
the years ended June 30, 1995 and June 30, 1994 are summarized as follows:
1993 1994 1995
---- ---- ----
U.S. federal statutory rate ......................... 15% 15% 15%
Effect of state income taxes ........................ 4 4 4
Effect of non-deductible expenses and other ......... 1 -- 2
---- ---- ----
Total income tax provision .................. 20% 19% 21%
==== ==== ====
Cash taxes paid for the period from July 1, 1995 to April 1, 1996, and the years
ended June 30, 1995 and June 30, 1994 were approximately $14,000, $18,000 and
$14,000, respectively.
F-77
4. OPERATING LEASES
The Company has entered into operating leases for certain facilities and
equipment utilized in its business. For the period from July 1, 1995 to April 1,
1996, and the years ended June 30, 1995 and June 30, 1994, lease expense totaled
$102,364, $129,748 and $125,554, respectively. The Company paid approximately
$18,000, $24,000 and $18,000 of facility lease expense for the period from July
1, 1995 to April 1, 1996, and the years ended June 30, 1995 and June 30, 1994,
respectively, to a shareholder.
5. EMPLOYEE BENEFIT PLAN
Effective July 1, 1993, the Company began participation in an employee benefit
plan, the Merchant Funeral Home, Inc. Profit Sharing Plan, which covers
substantially all of the Company's full-time employees, subject to certain
minimum age and length of service requirements. In its sole discretion, the
Company can make contributions to the plan. Expenses related to the plan were
$0, $0 and $24,973 for the period from July 1, 1995 to April 1, 1996, and the
years ended June 30, 1995 and June 30, 1994, respectively.
F-78
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholder of
Vail Holt Memorial Funeral Home, Inc.
Madison, Indiana
We have audited the balance sheets of Vail Holt Memorial Funeral Home, Inc.
as of June 30, 1996, and December 31, 1995, 1994, and 1993, and the related
statements of income, retained earnings, and cash flows for the six-month period
and years then ended, respectively. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vail Holt Memorial Funeral
Home, Inc. as of June 30, 1996, and December 31, 1995, 1994, and 1993 and the
results of operations and its cash flows for the six-month period and years then
ended, respectively, in conformity with generally accepted accounting
principles.
McCAULEY, NICOLAS & COMPANY, LLC
Certified Public Accountants
New Albany, Indiana
July 8, 1996
F-79
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash (Note 1)................... $ 22,100 $ 13,437 $ 2,805 $ 22,688
Accounts receivable, net (Note
3)............................ 118,598 133,573 167,726 79,610
Inventory (Note 1).............. 22,283 22,600 17,934 12,561
------------ ------------ ------------ ------------
Total current assets....... 162,981 169,610 188,465 114,859
------------ ------------ ------------ ------------
Property and Equipment (Notes 1 and 5):
Leasehold improvements.......... 103,476 99,397 97,147 97,147
Equipment and fixtures.......... 171,953 158,706 146,506 136,070
Vehicles........................ 131,185 131,185 100,309 100,309
------------ ------------ ------------ ------------
406,614 389,288 343,962 333,526
Less accumulated depreciation... (296,395) (283,640) (260,266) (241,660)
------------ ------------ ------------ ------------
Net property and
equipment............... 110,219 105,648 83,696 91,866
------------ ------------ ------------ ------------
Other Assets:
Deposit......................... 2,025 2,025 -- --
------------ ------------ ------------ ------------
TOTAL ASSETS............... $ 275,225 $ 277,283 $ 272,161 $ 206,725
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term
debt (Note 5)................. $ 7,854 $ 6,654 $ 1,782 $ 11,920
Accounts payable................ 18,090 19,186 36,966 41,365
Advance from stockholder........ -- -- -- 3,175
Accrued liabilities (Note 4).... 5,385 4,838 6,393 9,958
------------ ------------ ------------ ------------
Total current
liabilities............. 31,329 30,678 45,141 66,418
------------ ------------ ------------ ------------
Long-term Liabilities:
Noncurrent portion of long-term
debt (Note 5)................. 15,292 15,100 -- 1,782
------------ ------------ ------------ ------------
Total long-term
liabilities............. 15,292 15,100 -- 1,782
------------ ------------ ------------ ------------
TOTAL LIABILITIES.......... 46,621 45,778 45,141 68,200
------------ ------------ ------------ ------------
Stockholders' Equity:
Common stock without par value,
1,000 shares authorized; 100
shares issued and
outstanding................... 4,442 4,442 4,442 4,442
Additional paid-in capital...... 5,404 5,404 5,404 5,404
Retained earnings............... 218,758 221,659 217,174 128,679
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS'
EQUITY.................. 228,604 231,505 227,020 138,525
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.... $ 275,225 $ 277,283 $ 272,161 $ 206,725
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-80
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues -- Funeral services, net.... $463,214 $ 794,587 $ 772,233 $ 647,342
---------- ---------- ---------- ----------
Cost of Sales:
Purchases....................... 77,171 152,581 99,778 142,611
Other funeral expenses.......... 4,818 7,968 10,840 12,028
---------- ---------- ---------- ----------
Total cost of sales........ 81,989 160,549 110,618 154,639
---------- ---------- ---------- ----------
Gross profit............... 381,225 634,038 661,615 492,703
---------- ---------- ---------- ----------
Operating Expenses:
Compensation.................... 121,185 241,255 224,011 204,653
Payroll taxes................... 12,506 19,647 18,503 16,427
Rent (Note 7)................... 35,168 70,046 71,674 40,435
Depreciation (Note 1)........... 12,755 23,373 18,606 19,053
Insurance....................... 10,474 17,496 17,858 15,190
Operating leases (Note 7)....... 24,233 52,334 28,230 20,206
Contract labor.................. 3,920 9,626 9,052 4,020
Automobile expenses............. 12,243 16,259 13,796 11,677
Advertising..................... 1,772 6,046 11,277 13,322
Provision for bad debts......... 25,932 39,898 57,922 19,090
Repairs and maintenance......... 5,856 12,806 11,957 18,128
Utilities and telephone......... 9,858 17,018 12,623 11,016
Legal and professional fees..... 9,542 14,527 6,899 5,601
Office and postage.............. 4,405 11,685 4,546 4,712
Taxes and licenses.............. 4,885 1,443 4,008 2,436
Miscellaneous................... 9,874 7,236 9,880 15,398
---------- ---------- ---------- ----------
Operating expenses......... 304,608 560,695 520,842 421,364
---------- ---------- ---------- ----------
Income from operations..... 76,617 73,343 140,773 71,339
Other Income (Expense):
Interest income................. 39 78 2,685 218
Gain on sale of asset........... -- 8,442 -- --
Interest expense................ (1,117) (1,228) -- (2,368)
---------- ---------- ---------- ----------
Net income (Note 6)........ $ 75,539 $ 80,635 $ 143,458 $ 69,189
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-81
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balances, beginning of period........... $221,659 $ 217,174 $ 128,679 $ 88,182
Net income for the period............... 75,539 80,635 143,458 69,189
Distribution paid....................... (78,440) (76,150) (54,963) (28,692)
---------- ---------- ---------- ----------
Balances, end of period................. $218,758 $ 221,659 $ 217,174 $ 128,679
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-82
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------
1996 1995 1994 1993
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers....... $ 452,257 $ 788,842 $ 626,195 $ 631,736
Cash paid to suppliers and
employees........................ (348,142) (681,974) (568,269) (550,764)
Interest paid...................... (1,117) (1,228) -- (2,368)
Interest received.................. 39 78 2,685 218
---------- ------------ ------------ ------------
Net cash provided by operating
activities................. 103,037 105,718 60,611 78,822
---------- ------------ ------------ ------------
Cash flows from investing activities:
Purchase of equipment.............. (17,326) (61,883) (10,436) (28,581)
Proceeds from disposal of
equipment........................ -- 25,000 -- --
Proceeds from note receivable...... -- -- -- 14,925
---------- ------------ ------------ ------------
Net cash used by investing
activities................. (17,326) (36,883) (10,436) (13,656)
---------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of note
payable.......................... 4,849 41,452 -- --
Principal payments on note
payable.......................... (3,457) (21,480) (11,920) (8,587)
Deposit on operating leases........ -- (2,025) -- --
Payments to stockholder............ -- -- (3,175) (3,712)
Distributions to stockholder....... (78,440) (76,150) (54,963) (28,692)
---------- ------------ ------------ ------------
Net cash used by financing
activities................. (77,048) (58,203) (70,058) (40,991)
---------- ------------ ------------ ------------
Net increase (decrease) in cash......... 8,663 10,632 (19,883) 24,175
Cash at beginning of period............. 13,437 2,805 22,688 (1,487)
---------- ------------ ------------ ------------
Cash at end of period................... $ 22,100 $ 13,437 $ 2,805 $ 22,688
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-83
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------
1996 1995 1994 1993
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 75,539 $ 80,635 $ 143,458 $ 69,189
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Provision for losses on
uncollectible trade
receivables................ 25,932 39,898 57,922 19,090
Depreciation.................. 12,755 23,373 18,606 19,053
Gain on sale of assets........ -- (8,442) -- --
Change in assets and liabilities:
(Increase) in accounts
receivable................. (10,957) (5,745) (146,038) (17,348)
(Increase) decrease in
inventory.................. 317 (4,666) (5,373) (1,461)
(Decrease) in accounts
payable.................... (1,096) (17,780) (4,399) (14,325)
Increase (decrease) in accrued
liabilities................ 547 (1,555) (3,565) 4,624
---------- ---------- ------------ ----------
Net cash provided by
operating
activities............ $103,037 $ 105,718 $ 60,611 $ 78,822
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Vail Holt Memorial
Funeral Home, Inc. (the Company) is presented to assist in understanding the
Company's financial statements. The financial statements and notes are
representations of the Company's management, who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
NATURE OF OPERATIONS:
Vail Holt Memorial Funeral Home, Inc. is a privately-held corporation with
funeral homes located in Hanover and Madison, Indiana. The Company provides a
variety of services associated with funeral arrangements.
STATEMENT OF CASH FLOWS:
The Company maintains one checking account, regular passbook savings
account, and petty cash fund which it classifies as cash for purposes of the
statement of cash flows.
INVENTORIES:
Inventories consisting of caskets, vaults, and funeral supplies are valued
at the lower of cost (generally determined on a first-in, first-out basis) or
market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred; renewals or betterments are capitalized. Gain or
loss on retirement or disposition of assets is credited or charged to
operations, and the respective costs and accumulated depreciation are eliminated
from the accounts.
Depreciation is provided as follows: depreciation of property and equipment
is provided on the basis of estimated useful lives of the assets using the
straight-line and declining-balance methods. The estimated useful lives are 5 to
7 years for equipment and fixtures, 5 years for vehicles, and 7 to 39 years for
leasehold improvements.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities (and
disclosure of contingent assets and liabilities, if any) at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash, receivables, payables, and short-term and
long-term debt obligations approximates their fair market values.
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- trade............ $276,148 $ 265,191 $ 259,446 $ 113,408
Less: allowance for uncollectible
accounts.............................. 157,550 131,618 91,720 33,798
-------- ---------- ---------- ----------
Net accounts receivable -- trade........ $118,598 $ 133,573 $ 167,726 $ 79,610
======== ========== ========== ==========
</TABLE>
F-85
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED LIABILITIES:
Accrued liabilities at the end of each respective period consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accrued payroll tax withholdings........ $ 3,068 $ 2,639 $ 1,828 $ 6,431
Accrued sales tax....................... 2,039 2,085 4,521 2,567
Other................................... 278 114 44 960
-------- ---------- ---------- ----------
Total................................... $ 5,385 $ 4,838 $ 6,393 $ 9,958
======== ========== ========== ==========
</TABLE>
5. LONG-TERM DEBT:
Long-term debt at June 30, 1996, December 31, 1995, 1994, and 1993 consists
of the following:
DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994 1993
------- ------- ------- -------
8.5% note payable to Madison Bank and Trust Company, payable $687 monthly,
including interest, through December, 1998, secured by a vehicle with a cost
of $30,876
and a book value of $25,365 .......... $18,497 $21,754 $ -- $ --
20.896% note payable to Excel Financial Co., payable $149 monthly, including
interest, through March, 2000, secured by equipment with a cost of $4,849 and
a book value of $4,572 ............... 4,649 -- -- --
12% note payable to Madison First Federal Saving and Loan Association, payable
$606 monthly, including interest, secured by
deposit account ...................... -- -- 1,782 8,398
10.944% note payable to Madison Bank
and Trust Company, payable $617
monthly, including interest,
secured by a
van .................................. -- -- -- 5,304
------- ------- ------- -------
23,146 21,754 1,782 13,702
Less current portion ................... 7,854 6,654 1,782 11,920
------- ------- ------- -------
Noncurrent portion of long-term
debt ................................... $15,292 $15,100 $ -- $ 1,782
======= ======= ======= =======
The following are the maturities of long-term debt:
June 30, 1997........................ $ 7,854
June 30, 1998........................ $ 8,677
June 30, 1999........................ $ 5,377
June 30, 2000........................ $ 1,238
6. INCOME TAXES:
The Company, with the consent of its stockholder, has elected under the
Internal Revenue Code to be treated as an S corporation. In lieu of corporation
income taxes, the stockholder of an S corporation is taxed on his proportionate
share of the Company's taxable income. The State of Indiana also recognizes the
S corporation. Accordingly, there is no provision for federal or state income
taxes for the six months ended June 30, 1996, and the years ended December 31,
1995, 1994, and 1993.
F-86
VAIL HOLT MEMORIAL FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS AND LEASE COMMITMENTS:
The Company leases vehicles from unrelated parties under operating leases
with two-year terms. These payments are recorded under operating leases in the
financial statements. The following is a schedule of the future minimum rentals
under these leases at June 30, 1996:
June 30, 1997........................... $ 31,223
June 30, 1998........................... $ 7,476
Additionally, the Company leases its operating facilities at both its
Hanover, Indiana and Madison, Indiana, locations from the stockholder of the
Company. The leases are on a month-to-month basis. The total rent expense
associated with these facility leases is $35,168, $70,046, $71,674, and $40,435
for the periods June 30, 1996 and December 31, 1995, 1994, and 1993,
respectively. In addition, the Company pays all utilities, taxes, insurance, and
normal maintenance required for the buildings and property.
8. BUSINESS COMBINATION:
On December 31, 1993, the Company purchased substantially all of the
operating assets and assumed certain liabilities of Vail Holt Lincoln Funeral
Home, Inc. for $15,000 cash payment. The acquisition has been accounted for as a
purchase transaction, and the cash paid was allocated to equipment assets at
estimated fair value. There was no goodwill recorded as part of this
transaction. The Statement of Income for the six month period ending June 30,
1996, and the years ended December 31, 1995 and 1994, include the operating
results of the acquired operations.
The pro forma net income results for the year ended December 31, 1993, had
the purchase occurred on January 1, 1993, would have resulted in the following
income statement presentation:
Gross revenue........................ $ 804,417
Cost of sales........................ 182,833
----------
Gross profit.................... 621,584
Operating expenses................... 515,862
----------
Income from operations.......... 105,722
Other income, net.................... 8,445
----------
Net income...................... $ 114,167
==========
9. ADDITIONAL INFORMATION:
The Company and the sole stockholder are contemplating the future sale of
substantially all the operating assets of the Company to an unrelated party
under an Asset Purchase Agreement. However, as of the date of this report, no
formal agreements had been executed.
F-87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors of
Forest Lawn of Chesnee, Inc.
I have audited the accompanying statements of operations of Forest Lawn of
Chesnee and the related statements of cash flows and stockholders' equity for
the ten months ended June 26, 1996, and the year ended August 31, 1995. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of Forest Lawn of Chesnee,
Inc., and its cash flows for the ten months ended June 26, 1996, and the year
ended August 31, 1995, in conformity with generally accepted accounting
principles.
MICHAEL S. UPTON, CPA, P.A.
July 3, 1996
F-88
FOREST LAWN OF CHESNEE, INC.
STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995
1996 1995
------------ ------------
REVENUES................................ $ 1,217,406 $ 1,477,801
COST AND EXPENSES
Merchandise costs.................. 394,562 422,772
Salaries and wages................. 238,877 305,496
Depreciation and amortization...... 100,155 141,973
Facilities and grounds............. 66,702 84,329
Transportation costs............... 11,052 15,874
Other.............................. 75,242 75,998
Bad Debt Expense................... 114,673 26,796
------------ ------------
1,001,263 1,073,238
PROMOTIONAL EXPENSE..................... 34,293 51,867
GENERAL AND ADMINISTRATIVE EXPENSES..... 161,382 156,795
------------ ------------
OPERATING MARGIN........................ 20,468 195,901
OTHER INCOME............................ 5,375 12,605
INTEREST EXPENSE........................ 73,707 81,517
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES....... (47,864) 126,989
INCOME TAXES............................ 28,447 35,945
------------ ------------
NET INCOME.............................. $ (76,311) $ 91,044
============ ============
The accompanying notes are an integral part of these financial statements.
F-89
FOREST LAWN OF CHESNEE, INC.
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995
1996 1995
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................. $ (76,311) $ 91,043
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and
amortization................. 100,155 141,973
(Increase) decrease in
accounts receivable.......... 51,991 (60,244)
(Increase) decrease in
inventories and other current
assets....................... 41,264 (14,044)
Increase (decrease) in
accounts payable............. 40,080 (8,265)
Increase (decrease) in accrued
liabilities.................. (26,983) 26,118
---------- ------------
Net cash provided by operating
activities......................... 130,196 176,581
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........... (36,228) (499,449)
---------- ------------
Net cash used in investing
activities......................... (36,228) (499,449)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt......... (128,119) (118,734)
Loan proceeds...................... 393,055
Dividends paid..................... (37,901) --
---------- ------------
Net cash used by financing
activities......................... (166,020) 274,321
---------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (72,052) (48,547)
CASH AND EQUIVALENTS AT BEGINNING OF
PERIOD............................. 72,052 120,599
---------- ------------
CASH AND EQUIVALENTS AT END OF
PERIOD............................. $ -- $ 72,052
========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid................. $ 68,431 $ 81,517
---------- ------------
Taxes paid.................... $ 23,776 $ 5,000
---------- ------------
Non-cash Dividends (Note 1)... $ 333,646 $ --
---------- ------------
The accompanying notes are an integral part of these financial statements.
F-90
FOREST LAWN OF CHESNEE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995
Balance September 1, 1994............... $ 619,791
Net Income (Loss)....................... 91,044
------------
Balance August 31, 1995................. 710,835
Net Income (Loss)....................... (76,311)
Dividends (Note 1)...................... (371,547)
------------
Balance June 26, 1996................... $ 262,977
============
The accompanying notes are an integral part of these financial statements.
F-91
FOREST LAWN OF CHESNEE, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995
1. ORGANIZATIONS/NATURE OF OPERATIONS:
Forest Lawn of Chesnee, Inc. was organized under the laws of the State of
South Carolina on September 14, 1970. The Company owns and operates three
funeral homes in South Carolina. The Company performs personal and professional
services related to funerals at its funeral homes. Prearranged funerals are
marketed in the geographic market served by the Company's funeral service
locations.
Effective June 26, 1996, all of the Company's stock was sold to Carriage
Funeral Holdings, Inc. for aggregate consideration of $2,970,000. Certain
non-operating assets and specific liabilities were distributed to the
stockholders as a result of the negotiations of the stock sale. These
distributions, in cash and property, totaled $371,547.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUES
The Company records the sale of funeral merchandise and services upon
performance.
TRUST FUNDS
The Company is generally required by state laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amount paid by the purchaser of the prearranged funeral
contract, and accumulated interest earned, are available to the Company only in
the event of the death of the purchaser and are refundable to the purchaser
under certain state laws that provide for the return of all of the amounts
collected under the purchaser's option to cancel the prearranged funeral
contract. No funeral revenue is recognized on the funds collected from the
purchaser of the prearranged funeral contract and interest earned on such funds
is reported to and taxed to the purchaser of the prearranged funeral contract
annually.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORY
The effect of changes in inventories is included in merchandise costs at
the lower of its cost basis (as determined by the First-in, first-out method) or
market.
PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment are capitalized at cost. Expenditures for
major additions and improvements are capitalized while replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $33,622
and $26,503 for the ten months period ended June 26, 1996 and the year ended
August 31, 1995, respectively.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
----- -------------
Buildings and improvements.............. 40 Straight-line
Furniture and fixtures.................. 5-7 200% DB
Other................................... 5-15 200% DB
F-92
FOREST LAWN OF CHESNEE, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". Under SFAS No. 109, the Company determines deferred tax assets and
liabilities based on the estimated future tax effects of differences between
financial statement and tax basis of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INCOME TAXES:
There are no significant differences between the Company's financial
statements and tax bases of accounting at August 31, 1996. In June, 1996,
non-cash distributions to stockholders, referred to in Note 1, included
appreciated assets on which the corporation must recognize taxable income of
$150,000. In addition, the Company's effective tax rate materially approximates
the applicable statutory rate.
The provision for income taxes for the period ended June 26, 1996 and the
year ended August 31, 1995, consisted of:
1996 1995
--------- ---------
Current:
U.S. Federal....................... $ 23,075 $ 29,957
State.............................. 5,372 5,988
--------- ---------
$ 28,447 $ 35,945
========= =========
F-93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Bailey Funeral Home, Inc.
Plainville, Connecticut
We have audited the accompanying balance sheets of BAILEY FUNERAL HOME,
INC. (an S Corporation), as of December 31, 1993, 1994, 1995 and June 30, 1996,
and the related statements of income, retained earnings and cash flows for the
years ended December 31, 1993, 1994 and 1995 and the six months ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BAILEY FUNERAL HOME, INC.,
as of December 31, 1993, 1994, 1995 and June 30, 1996, and the results of
operations and its cash flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996, in conformity with generally
accepted accounting principles.
GITLIN, CAMPISE, PASCOE & BLUM
West Hartford, Connecticut
July 3, 1996
F-94
BAILEY FUNERAL HOME, INC.
BALANCE SHEETS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................. $ 118,787 $ 93,221 $ 56,114 $ 146,151
Accounts receivable, net of allowance
for doubtful accounts of $10,000 in
1993, $11,000 in 1994, $12,500 in
1995 and $15,000 in 1996........... 144,507 160,683 165,016 157,604
Note receivable -- related party...... -- -- -- 10,000
Inventories and other current
assets............................. 26,047 13,332 20,928 4,000
---------- ---------- ------------ ------------
Total current assets............. 289,341 267,236 242,058 317,755
---------- ---------- ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Leasehold improvements................ 20,695 27,432 33,516 33,516
Furniture and equipment............... 24,583 27,225 35,956 37,345
Vehicles.............................. 68,250 98,336 119,852 101,852
---------- ---------- ------------ ------------
113,528 152,993 189,324 172,713
Less: accumulated depreciation........ (80,628) (94,175) (129,869) (123,375)
---------- ---------- ------------ ------------
32,900 58,818 59,455 49,338
---------- ---------- ------------ ------------
OTHER NONCURRENT ASSETS:
Intangible assets, net................ 126,065 102,750 79,750 68,250
---------- ---------- ------------ ------------
TOTAL ASSETS............................ $ 448,306 $ 428,804 $ 381,263 $ 435,343
========== ========== ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 11,940 $ 11,711 $ 8,269 $ 23,330
Accrued liabilities................... 15,101 19,556 10,912 61,520
Current portion of accrued payments
for agreement not to compete....... 17,678 19,025 20,474 21,100
Current portion of long-term debt..... 32,417 7,568 5,764 5,248
Deferred taxes........................ 9,877 10,806 11,555 3,828
---------- ---------- ------------ ------------
Total current liabilities........ 87,013 68,666 56,974 115,026
STOCKHOLDER'S LOAN...................... 62,044 67,102 48,700 10,687
ACCRUED PAYMENTS FOR AGREEMENTS NOT TO
COMPETE, net of current portion....... 142,997 123,972 103,498 94,524
LONG-TERM DEBT, net of current
portion............................... 1,158 7,822 2,058 --
---------- ---------- ------------ ------------
Total liabilities................ 293,212 267,562 211,230 220,237
---------- ---------- ------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 500
shares authorized, 10 shares issued
and outstanding.................... 1,000 1,000 1,000 1,000
Retained earnings..................... 154,094 160,242 169,033 214,106
---------- ---------- ------------ ------------
Total stockholder's equity....... 155,094 161,242 170,033 215,106
---------- ---------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY................................ $ 448,306 $ 428,804 $ 381,263 $ 435,343
========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
BAILEY FUNERAL HOME, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES............................. $ 642,161 $ 658,509 $ 786,699 $ 450,164
COSTS AND EXPENSES................... 504,528 506,964 635,897 333,882
---------- ---------- ---------- ----------
GROSS PROFIT......................... 137,633 151,545 150,802 116,282
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 71,238 82,836 81,905 47,443
---------- ---------- ---------- ----------
OPERATING INCOME..................... 66,395 68,709 68,897 68,839
OTHER (INCOME) EXPENSES:
Interest income................. (3,860) (3,756) (4,003) (3,130)
Covenant not to compete......... 23,000 23,000 23,000 11,500
Gain on sale of vehicle......... -- -- -- (4,028)
Interest expense................ 15,044 17,466 13,179 4,040
---------- ---------- ---------- ----------
Net other (income) expenses..... 34,184 36,710 32,176 8,382
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........... 32,211 31,999 36,721 60,457
PROVISION FOR INCOME TAXES........... 3,140 4,916 4,870 6,853
---------- ---------- ---------- ----------
NET INCOME........................... $ 29,071 $ 27,083 $ 31,851 $ 53,604
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
BAILEY FUNERAL HOME, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
1993 1994 1995 1996
--------- --------- --------- ---------
BEGINNING BALANCE, JANUARY 1 $ 143,158 $ 154,094 $ 160,242 $ 169,033
NET INCOME ................. 29,071 27,083 31,851 53,604
DISTRIBUTIONS TO STOCKHOLDER (18,135) (20,935) (23,060) (8,531)
--------- --------- --------- ---------
ENDING BALANCE ............. $ 154,094 $ 160,242 $ 169,033 $ 214,106
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-97
BAILEY FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 29,071 $ 27,083 $ 31,851 $ 53,604
Adjustments to reconcile net income
to net cash:
Depreciation and amortization... 19,576 24,033 35,695 10,534
Covenant not to
compete -- amortization....... 23,000 23,000 23,000 11,500
Gain on sale of vehicle......... -- -- -- (4,028)
Deferred taxes.................. (697) 929 749 (7,727)
Changes in operating assets and
liabilities:
Accounts receivable........... 752 (16,176) (4,333) 7,412
Note receivable--related
party...................... -- -- -- (10,000)
Inventories and other current
assets..................... (5,600) 12,710 (7,596) 16,928
Accounts payable.............. (2,345) (229) (3,442) 15,061
Accrued liabilities........... 473 4,455 (8,644) 50,608
---------- ---------- ---------- ----------
Net cash provided by operating
activities...................... 64,230 75,805 67,280 143,892
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of vehicle...... -- -- -- 5,000
Capital expenditures............... (2,715) (49,631) (36,331) (1,389)
---------- ---------- ---------- ----------
Net cash provided by investing
activities...................... (2,715) (49,631) (36,331) 3,611
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on agreement not to
compete......................... (17,743) (17,678) (19,025) (8,348)
Proceeds from loans................ -- 19,000 -- --
Principal payments on debt......... (4,633) (37,185) (7,569) (2,574)
Stockholder loans, net............. 64,258 5,058 (18,402) (38,013)
Distributions to stockholder....... (18,135) (20,935) (23,060) (8,531)
---------- ---------- ---------- ----------
Net cash provided by financing
activities...................... 23,747 (51,740) (68,056) (57,466)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 85,262 (25,566) (37,107) 90,037
CASH AT BEGINNING OF PERIOD.......... 33,525 118,787 93,221 56,114
---------- ---------- ---------- ----------
CASH AT END OF PERIOD................ $ 118,787 $ 93,221 $ 56,114 $ 146,151
========== ========== ========== ==========
Supplemental disclosure of cash flow information:
Cash interest paid................. $ 15,044 $ 17,466 $ 13,179 $ 4,040
Income taxes paid.................. 3,500 5,000 5,000 1,205
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
BAILEY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Bailey Funeral Home, Inc. (the Company), was organized under the laws of
Connecticut on February 15, 1989. The Company owns and operates a funeral home
in Plainville, Connecticut. The Company performs personal and professional
services related to funerals at its funeral home. Prearranged funerals are
marketed in the geographic markets served by the Company's funeral service
location.
REVENUES
The Company recognizes revenue upon performance of funeral services and
sale of related merchandise.
TRUST FUNDS
The Company is generally required by State laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of death of the
purchaser and are refundable to the purchaser under certain State laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the prearranged funeral
contract and is deferred until performance of the specific service. The
prearranged funeral trust assets were approximately $790,000 at June 30, 1996,
which in the opinion of management exceed the future obligations under such
arrangements.
INVENTORY
Inventory is stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost at the time of acquisition.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives.
INTANGIBLE ASSETS
Intangible assets consist of organization costs, goodwill and a covenant
not to compete agreement. These costs are being amortized on a straight-line
basis over 5 to 10 years.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the stockholder
is liable for individual Federal income taxes on his respective share of the
Company's taxable income. Therefore, no provision or liability for Federal
income taxes has been included in the financial statements.
Deferred income taxes are provided for temporary differences between State
income tax basis and financial reporting basis of asset and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
F-99
BAILEY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 NON-COMPETE AGREEMENT
The Company entered into a non-compete agreement with the former owner of
the business. The non-compete agreement is being amortized over the 10 year term
of the agreement. In conjunction with the non-compete agreement the Company
assumed liabilities as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accrued payments of monthly
installments of $2,410 including
interest at 7.4% over 144 months.
The note is personally guaranteed
by the stockholder and all the shares
of stock in the Corporation........... $ 160,675 $ 142,997 $ 123,972 $ 115,624
Less current portion of accrued
payments.............................. 17,678 19,025 20,474 21,100
---------- ---------- ---------- ----------
Net long-term portion of payments....... $ 142,997 $ 123,972 $ 103,498 $ 94,524
========== ========== ========== ==========
</TABLE>
Future accrued payments for agreement not to compete are as follows:
Period ended 06/30/97................... $ 21,100
Period ended 06/30/98................... 22,718
Period ended 06/30/99................... 24,448
Period ended 06/30/00................... 26,310
Period ended 06/30/01................... 21,048
----------
Total................................... $ 115,624
==========
NOTE 3 LONG-TERM DEBT
The Company's long-term debt consisted of the following:
1993 1994 1995 1996
------- ------- ------- -------
Vehicle installment note -- payable
in monthly installments of $386
including interest at 8.0% over 36
months ............................... $ 5,792 $ 1,158 $ -- $ --
Note payable to related
party -- payable in monthly
installments of $448, including
interest at 9.25% amortized over
120 months, personally guaranteed
by the shareholder of the Company ....
The note was paid in full in
1994 ................................. 27,783 -- -- --
Vehicle installment note--payable in
monthly installments of $557,
including interest at 7.5% over 36
months ............................... -- 14,232 7,822 5,248
------- ------- ------- -------
Total long-term debt ................... 33,575 15,390 7,822 5,248
Less current portion ................... 32,417 7,568 5,764 5,248
------- ------- ------- -------
Net long-term debt ..................... $ 1,158 $ 7,822 $ 2,058 $ --
======= ======= ======= =======
NOTE 4 RELATED PARTY TRANSACTIONS
The Company rents the facilities used in its business from a related
party/stockholder on a month-to-month basis. For the years ended December 31,
1993, 1994, 1995 and the six months ended June 30, 1996, rent expense totaled
$31,514, $46,332, $67,721 and $36,000, respectively.
The stockholder's loan consists of non-interest bearing loans and
miscellaneous advances to the Company during the year. There is no formal
repayment schedule.
The Company had an outstanding loan, with a brother of the stockholder, in
the amount of $27,783 payable over 12 years as of December 31, 1993. The note
was paid in full in 1994 (see Note 3).
F-100
BAILEY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a non-interest bearing note receivable from a related
party. There is no formal repayment schedule.
NOTE 5 INCOME TAXES
The income tax provision relates to income taxes due in the State of
Connecticut which does not recognize the Company's "S" corporation status.
The net deferred tax liability as presented in the accompanying balance
sheets consists of temporary differences between tax and book basis reporting.
The Company is on the modified cash basis for tax reporting purposes and the
accrual basis for financial reporting purposes. The deferred tax liability
balance is primarily the result of temporary differences in accounts receivable,
prepaid expenses, accounts payable and accrued expenses for state tax purposes.
The components of the income tax provision for the periods ended are as
follows:
1993 1994 1995 1996
-------- -------- -------- --------
Federal .......... $ -- $ -- $ -- $ --
State ............ 3,140 4,916 4,870 6,853
-------- -------- -------- --------
$ 3,140 $ 4,916 $ 4,870 $ 6,853
======== ======== ======== ========
Current .......... $ 3,837 $ 3,987 $ 4,121 $ 14,580
Deferred ......... (697) 929 749 (7,727)
-------- -------- -------- --------
$ 3,140 $ 4,916 $ 4,870 $ 6,853
======== ======== ======== ========
NOTE 6 CONCENTRATIONS OF CREDIT RISK
The Company's cash account balances maintained at a financial banking
institution may exceed the Federally insured $100,000 during the year.
Management monitors regularly the financial condition of the banking institution
along with its balances in cash and tries to keep the potential risk at a
minimum.
The Company performs services within its facility located in Connecticut.
The Company extends credit to customers located within the surrounding areas.
F-101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
O'Brien Funeral Home, Inc.
Forestville, Connecticut
We have audited the accompanying balance sheets of O'BRIEN FUNERAL HOME,
INC., as of December 31, 1993, 1994, 1995 and June 30, 1996, and the related
statements of income, retained earnings and cash flows for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of O'BRIEN FUNERAL HOME, INC.,
as of December 31, 1993, 1994, 1995 and June 30, 1996, and the results of
operations and its cash flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996, in conformity with generally
accepted accounting principles.
GITLIN, CAMPISE, PASCOE & BLUM
West Hartford, Connecticut
July 3, 1996
F-102
O'BRIEN FUNERAL HOME, INC.
BALANCE SHEETS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash............................... $ 38,842 $ 135,792 $ 67,476 $ 153,609
Accounts receivable, net of
allowance for doubtful accounts
of $5,650, $6,000, $7,200 and
$7,600, respectively............. 109,775 115,460 137,357 143,374
Inventories........................ 36,614 38,136 52,894 9,321
---------- ---------- ---------- ----------
Total current assets.......... 185,231 289,388 257,727 306,304
---------- ---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land............................... 2,167 2,167 2,167 2,167
Building and improvements.......... 300,312 358,924 416,965 416,965
Furniture and equipment............ 84,064 92,209 86,293 89,742
Vehicles........................... 179,954 147,715 174,135 174,135
---------- ---------- ---------- ----------
566,497 601,015 679,560 683,009
Less: accumulated depreciation..... 249,541 281,633 303,497 327,497
---------- ---------- ---------- ----------
316,956 319,382 376,063 355,512
---------- ---------- ---------- ----------
OTHER NONCURRENT ASSETS:
Intangible assets, net............. 28,000 26,000 24,000 23,000
---------- ---------- ---------- ----------
TOTAL ASSETS............................ $ 530,187 $ 634,770 $ 657,790 $ 684,816
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 23,841 $ 64,018 $ 70,156 $ 23,487
Accrued liabilities................ 12,444 8,585 9,806 57,934
Deferred taxes..................... 18,000 22,000 28,300 30,000
Current portion of long-term
debt............................. 40,372 44,291 45,882 22,244
---------- ---------- ---------- ----------
Total current liabilities..... 94,657 138,894 154,144 133,665
---------- ---------- ---------- ----------
LONG-TERM DEBT, net of current
portion............................... 37,628 77,709 50,618 39,165
---------- ---------- ---------- ----------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value, 5,000
shares authorized,
3,000 shares issued and
outstanding...................... 30,000 30,000 30,000 30,000
Retained earnings.................. 428,229 448,494 483,355 542,313
---------- ---------- ---------- ----------
458,229 478,494 513,355 572,313
Less: 727 shares treasury stock, at
cost............................. 60,327 60,327 60,327 60,327
---------- ---------- ---------- ----------
Total stockholder's equity.... 397,902 418,167 453,028 511,986
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY................................ $ 530,187 $ 634,770 $ 657,790 $ 684,816
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
O'BRIEN FUNERAL HOME, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES............................. $ 884,487 $ 998,506 $ 1,110,056 $ 648,062
COSTS AND EXPENSES................... 780,264 896,939 964,444 521,131
---------- ---------- ------------ ----------
GROSS PROFIT......................... 104,223 101,567 145,612 126,931
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 65,688 69,977 97,640 36,477
---------- ---------- ------------ ----------
OPERATING INCOME..................... 38,535 31,590 47,972 90,454
---------- ---------- ------------ ----------
OTHER (INCOME) EXPENSES:
Interest income................. (4,601) (4,392) (5,591) (1,275)
---------- ---------- ------------ ----------
Interest expense................ 5,966 6,139 11,091 2,211
---------- ---------- ------------ ----------
Net other (income) expenses..... 1,365 1,747 5,500 936
---------- ---------- ------------ ----------
INCOME BEFORE INCOME TAXES........... 37,170 29,843 42,472 89,518
PROVISION FOR INCOME TAXES........... 10,549 6,078 7,611 30,560
---------- ---------- ------------ ----------
NET INCOME........................... $ 26,621 $ 23,765 $ 34,861 $ 58,958
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
O'BRIEN FUNERAL HOME, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BEGINNING BALANCE, JANUARY 1......... $ 421,608 $ 428,229 $ 448,494 $ 483,355
NET INCOME........................... 26,621 23,765 34,861 58,958
DIVIDENDS DECLARED AND PAID.......... (20,000) (3,500) -- --
---------- ---------- ---------- ----------
ENDING BALANCE....................... $ 428,229 $ 448,494 $ 483,355 $ 542,313
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
O'BRIEN FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 26,621 $ 23,765 $ 34,861 $ 58,958
Adjustments to reconcile net income
to net cash:
Depreciation and amortization... 49,813 48,370 60,605 25,000
Deferred taxes.................. 4,000 4,000 6,300 1,700
Changes in operating assets and
liabilities:
Accounts receivable........... (11,241) (5,685) (21,897) (6,017)
Inventories................... (3,138) (1,522) (14,758) 43,573
Accounts payable.............. (33,621) 40,177 6,138 (46,669)
Accrued liabilities........... (3,740) (3,859) 1,221 48,128
---------- ---------- ---------- ----------
Net cash provided by operating
activities...................... 28,694 105,246 72,470 124,673
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (75,349) (66,777) (115,286) (3,449)
Proceeds from sale of auto......... -- 17,981 -- --
---------- ---------- ---------- ----------
Net cash provided by investing
activities...................... (75,349) (48,796) (115,286) (3,449)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans................ 48,000 90,000 18,791 --
Principal payments on debt......... (34,050) (46,000) (44,291) (35,091)
Dividend paid...................... (20,000) (3,500) -- --
---------- ---------- ---------- ----------
Net cash provided by financing
activities...................... (6,050) 40,500 (25,500) (35,091)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... (52,705) 96,950 (68,316) 86,133
CASH AT BEGINNING OF PERIOD.......... 91,547 38,842 135,792 67,476
---------- ---------- ---------- ----------
CASH AT ENDING OF PERIOD............. $ 38,842 $ 135,792 $ 67,476 $ 153,609
========== ========== ========== ==========
Supplemental disclosures of cash flow
information
Cash paid during the year was as follows:
Interest...................... $ 5,966 $ 6,139 $ 11,091 $ 1,811
Income taxes.................. 3,186 7,427 1,984 1,260
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
O'BRIEN FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
O'Brien Funeral Home, Inc. (the Company), was organized under the laws of
Connecticut on January 3, 1948. The Company owns and operates two funeral homes
in Connecticut. The Company performs personal and professional services related
to funerals at its funeral home. Prearranged funerals are marketed in the
geographic markets served by the Company's funeral service location.
REVENUES
The Company recognizes revenue upon performance of funeral services and
sale of related merchandise.
TRUST FUNDS
The Company is generally required by State laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of death of the
purchaser and are refundable to the purchaser under certain State laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the prearranged funeral
contract and is deferred until performance of the specific service. The
prearranged funeral trust assets were approximately $1,570,400 at June 30, 1996,
which in the opinion of management exceed the future obligations under such
arrangements.
INVENTORY
Inventory is stated at the lower of cost (as determined by the specific
identification method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost at the time of acquisition.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives. When the items become fully depreciated, they are
removed from the records.
INTANGIBLE ASSETS
The intangible assets consist of goodwill. These costs are being amortized
on a straight-line basis over 15 years.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting (FAS) No. 109, "Accounting for Income Taxes," which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for Federal and State income tax reporting purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
F-107
O'BRIEN FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 LONG-TERM DEBT
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995 1996
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Installment note -- payable in
monthly installments of $1,000 plus
interest at 7.5%. ................. $ 30,000
Installment note -- payable in
monthly installments of $1,949,
plus interest at 10.69%. .......... $ 90,000
Installment note--payable in monthly
installments of $2,191, including
interest at 7.87%. Secured by all
assets of the Company and
guaranteed by the stockholder. .... $ 70,000 $ 61,409
Vehicle installment note -- payable
in monthly installments of $656,
including interest at 10.0%. ...... 15,400
Installment note -- payable in
monthly installments of $1,495,
including interest at 7.5% over 36
months. ........................... 48,000 32,000 11,100 --
--------- ---------- --------- ---------
Total long-term debt................. 78,000 122,000 96,500 61,409
Less current portion................. 40,372 44,291 45,882 22,244
--------- ---------- --------- ---------
Net long-term debt................... $ 37,628 $ 77,709 $ 50,618 $ 39,165
========= ========== ========= =========
</TABLE>
NOTE 3 RELATED PARTY TRANSACTIONS
The Company rents one facility used in its business on a month-to-month
basis from a related party. For the years ended December 31, 1993, 1994, 1995
and the six months ended June 30, 1996, rent expense totaled approximately
$36,000, $36,000, $43,000 and $24,000, respectively.
On December 21, 1995, the Company signed a formal lease for three years
with minimum annual rent to be paid as follows:
1996.................................... $ 48,000
1997.................................... 54,000
1998.................................... 60,000
The Company has a renewal option for three additional 3-year periods with
the following minimum annual rent:
1999 to 2001............................ $ 63,000
2002 to 2004............................ 66,150
2005 to 2007............................ 69,458
In addition, the Company has agreed to pay its proportionate share of real
estate taxes, fire insurance, repairs and maintenance and utilities.
NOTE 4 CONCENTRATIONS OF CREDIT RISK
The Company's cash account balances maintained at financial banking
institutions may exceed the Federally insured $100,000 during the year.
Management monitors regularly the financial condition of the banking
institutions along with their balances in cash and tries to keep the potential
risk at a minimum.
The Company performs services within its facilities located in Connecticut.
The Company extends credit to customers located within the surrounding areas.
F-108
O'BRIEN FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 INCOME TAXES
The net deferred tax liability in the accompanying balance sheets consists
of temporary differences between tax and book basis reporting. The Company is on
the modified cash basis for tax reporting purposes and the accrual basis for
financial reporting purposes. The deferred tax liability balance is primarily
the result of temporary differences in accounts receivable, accounts payable and
accrued expenses for tax purposes.
<TABLE>
<CAPTION>
1993 1994 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal................................. $ 6,081 $ 2,300 $ 3,775 $ 21,000
State................................... 4,468 3,778 3,836 9,560
--------- --------- --------- ---------
$ 10,549 $ 6,078 $ 7,611 $ 30,560
========= ========= ========= =========
Current................................. $ 6,549 $ 2,078 $ 1,311 $ 28,860
Deferred................................ 4,000 4,000 6,300 1,700
--------- --------- --------- ---------
$ 10,549 $ 6,078 $ 7,611 $ 30,560
========= ========= ========= =========
</TABLE>
NOTE 6 PENSION PLAN
The Company has a defined contribution pension plan which is paid by the
Company. No employee contributions are allowed. The Company will contribute to
the plan an amount equal to 10% of the earnings of each employee who has
completed two years of employment and at least 500 hours of service during that
year. The amounts contributed were $15,982 in 1993, $23,170 in 1994, $25,870 in
1995 and $13,570 in 1996.
NOTE 7 SUBSEQUENT EVENT
On July 3, 1996, all of the Company's stock was sold to Carriage Funeral
Services of Connecticut, Inc., a subsidiary of Carriage Funeral Holdings, Inc.,
for aggregate consideration in excess of the recorded amounts of the Company's
net assets.
F-109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
C. Funk & Son Funeral Home, Inc.
Bristol, Connecticut
We have audited the accompanying balance sheets of C. FUNK & SON FUNERAL
HOME, INC., as of September 30, 1994, 1995 and June 30, 1996, and the related
statements of operations, stockholders' equity and cash flows for the years
ended September 30, 1994, 1995 and the nine months ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C. FUNK & SON FUNERAL HOME,
INC., as of September 30, 1994, 1995 and June 30, 1996, and the results of
operations and its cash flows for the years ended September 30, 1994, 1995 and
the nine months ended June 30, 1996, in conformity with generally accepted
accounting principles.
GITLIN, CAMPISE, PASCOE & BLUM
West Hartford, Connecticut
July 3, 1996
F-110
C. FUNK & SON FUNERAL HOME, INC.
BALANCE SHEETS
SEPTEMBER 30, 1994, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 93,120 $ 176,360 $ 9,050
Accounts receivable, net of
allowance of $15,000 in 1994, and
$20,000 in 1995 and 1996......... 68,750 67,740 77,810
Inventories........................ 33,370 40,690 14,390
Equity securities, trading......... 51,840 60,910 --
Deferred taxes..................... 4,200 5,500 5,500
Prepaid expenses................... 14,900 -- 11,725
------------ ------------ ------------
Total current assets.......... 266,180 351,200 118,475
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings................. 802,400 845,590 848,560
Vehicles........................... 218,420 228,270 268,290
Furniture and equipment............ 165,690 175,790 179,760
------------ ------------ ------------
1,186,510 1,249,650 1,296,610
Less: accumulated depreciation..... (395,330) (465,750) (518,970)
------------ ------------ ------------
791,180 783,900 777,640
------------ ------------ ------------
OTHER NONCURRENT ASSETS:
Intangible assets, net............. 6,000 5,000 4,000
Deferred taxes..................... -- -- 24,600
Cash value life insurance policy... 16,300 26,500 --
Officer loan....................... 103,930 110,170 115,340
------------ ------------ ------------
Total other assets............ 126,230 141,670 143,940
------------ ------------ ------------
TOTAL ASSETS............................ $ 1,183,590 $ 1,276,770 $ 1,040,055
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 30,750 $ 37,940 $ 37,400
Accrued liabilities................ 23,920 62,620 18,520
Deferred taxes..................... 3,100 5,000 --
Current portion of long-term debt
and obligations under capital
leases........................... 50,070 55,670 --
------------ ------------ ------------
Total current liabilities..... 107,840 161,230 55,920
------------ ------------ ------------
LONG-TERM DEBT AND OBLIGATIONS UNDER
CAPITAL LEASES, net of current
portion............................... 102,560 46,900 --
------------ ------------ ------------
DEFERRED TAXES.......................... 86,300 92,000 94,700
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 100
shares authorized, 100 issued and
outstanding...................... 37,220 37,220 37,220
Additional paid-in capital......... 15,000 15,000
Retained earnings.................. 854,670 924,420 837,215
Treasury stock..................... (5,000) -- --
------------ ------------ ------------
Total stockholders' equity.... 886,890 976,640 889,435
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 1,183,590 $ 1,276,770 $ 1,040,055
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-111
C. FUNK & SON FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996
1994 1995 1996
------------ ------------ ------------
REVENUES............................. $ 1,229,040 $ 1,325,360 $ 1,018,410
COSTS AND EXPENSES................... 1,043,050 1,095,650 951,160
------------ ------------ ------------
GROSS PROFIT......................... 185,990 229,710 67,250
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 177,030 167,720 209,845
------------ ------------ ------------
OPERATING INCOME (LOSS).............. 8,960 61,990 (142,595)
------------ ------------ ------------
OTHER (INCOME) EXPENSES:
Interest and dividend income.... (14,560) (10,150) (8,780)
Rental income................... (18,510) (22,870) (13,600)
Realized gain on trading
securities.................... -- -- (6,110)
Unrealized gain on trading
securities.................... (11,240) (6,700) --
(Gain) loss on sale of fixed
assets........................ (29,080) 2,250 --
------------ ------------ ------------
Total other (income) expenses... (73,390) (37,470) (28,490)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES.... 82,350 99,460 (114,105)
------------ ------------ ------------
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 27,540 29,710 (26,900)
------------ ------------ ------------
NET INCOME (LOSS).................... $ 54,810 $ 69,750 $ (87,205)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-112
C. FUNK & SON FUNERAL HOME, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996
1994 1995 1996
---------- ---------- ----------
BEGINNING BALANCE, OCTOBER 1......... $ 824,780 $ 886,890 $ 976,640
NET INCOME (LOSS).................... 54,810 69,750 (87,205)
DIVIDENDS DECLARED AND PAID.......... (2,700) -- --
SALE OF TREASURY STOCK............... 10,000 20,000 --
---------- ---------- ----------
ENDING BALANCE....................... $ 886,890 $ 976,640 $ 889,435
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-113
C. FUNK & SON FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996
1994 1995 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING EXPENSES:
Net income (loss)..................... $ 54,810 $ 69,750 $ (87,205)
Adjustments to reconcile net income to
net cash:
Depreciation and amortization...... 60,760 73,370 54,220
Deferred taxes..................... 25,000 6,300 (26,900)
Gain (loss) on sales of fixed
assets........................... (29,080) 2,250 --
Purchase of marketable securities,
trading.......................... (600) (2,370) (2,420)
Sale of trading securities......... -- -- 69,440
Realized gain on trading
securities....................... -- -- (6,110)
Unrealized gain on trading
securities....................... (11,240) (6,700) --
Changes in operating assets and
liabilities:
Accounts receivable.............. 14,150 1,010 (10,070)
Inventories...................... (3,540) (7,320) 26,300
Prepaid expenses................. 2,730 14,900 (11,725)
Accounts payable................. 5,130 7,190 (540)
Accrued liabilities.............. 1,070 38,700 (44,100)
---------- ---------- ----------
Net cash provided by operating
activities....................... 119,190 197,080 (39,110)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment.......................... (225,380) (75,340) (46,960)
Sale of property, plant and
equipment.......................... 77,270 8,000 --
Cash surrender value life insurance,
net................................ (5,900) (10,200) 26,500
---------- ---------- ----------
Net cash provided by investing
activities......................... (154,010) (77,540) (20,460)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt --
obligations under capital leases... 64,870 -- --
Payments on long-term debt,
obligations under capital leases... (47,000) (50,060) (102,570)
Proceeds from treasury stock.......... 10,000 20,000 --
Payment of dividends.................. (2,700) -- --
Payment to stockholders............... (4,530) (6,240) (5,170)
---------- ---------- ----------
Net cash provided by financing
activities......................... 20,640 (36,300) (107,740)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH......... (14,180) 83,240 (167,310)
CASH AT BEGINNING OF PERIOD............. 107,300 93,120 176,360
---------- ---------- ----------
CASH AT ENDING OF PERIOD................ $ 93,120 $ 176,360 $ 9,050
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash interest paid.................... $ 11,330 $ 13,590 $ 7,500
Income taxes paid..................... 15,810 8,510 35,135
The accompanying notes are an integral part of these financial statements.
F-114
C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995 AND JUNE 30, 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
C. Funk & Son Funeral Home, Inc. (the Company), was organized under the
laws of Connecticut on September 25, 1946. The Company owns and operates a
funeral home in Bristol, Connecticut. The Company performs personal and
professional services related to funerals at its funeral home. Prearranged
funerals are marketed in the geographic markets served by the Company's funeral
service location.
REVENUES
The Company recognizes revenue upon performance of funeral services and
sale of related merchandise.
TRUST FUNDS
The Company is generally required by State laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of death of the
purchaser and are refundable to the purchaser under certain State laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the prearranged funeral
contract and is deferred until performance of the specific service. The
prearranged funeral trust assets were approximately $2,150,000, $2,470,000 and
$2,920,000 at September 30, 1994, 1995 and June 30, 1996, respectively, which in
the opinion of management exceed the future obligations under such arrangements.
INVENTORY
Inventory is stated at the lower of cost (as determined by the specific
identification method) or net realized value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost at the time of acquisition.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives of 5 to 40 years. Depreciation expense for the years
ended September 30, 1994, 1995 and for the period ended June 30, 1996, was
$49,760, $72,370 and $53,220, respectively.
INTANGIBLE ASSETS
Intangible assets consist of purchased trade names. These costs are being
amortized on a straight-line basis over 5 to 10 years.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (FAS) No. 109, "Accounting for Income Taxes,"
which requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for Federal and State income tax reporting purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-115
C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
EQUITY SECURITIES
The Company accounts for equity securities in accordance with Statement of
Financial Accounting Standards No. 115 and the Company's investment securities
are classified as trading securities. These securities are stated at cost
adjusted for market value fluctuations. Unrealized gains and losses created by
changes in the market values of these securities are recognized as an adjustment
to and are reported as a separate component of net income.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In March of 1995, Financial Accounting Standard Board issued FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement requires write-down to fair value when
long-lived assets to be held and used are impaired. The statement also requires
long-lived assets to be disposed of to be carried at the lower of cost or fair
value less estimated selling costs and does not allow such assets to be
depreciated. The Company has not elected to adopt this statement earlier than
required; however, the impact upon adoption is not expected to be material.
NOTE 2 EQUITY SECURITIES
Equity securities at September 30, 1994, 1995 and June 30, 1996, were as
follows:
GROSS
AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
--------- ---------- ---------
Trading: (Financial)
1994............................ $40,600 $ 11,240 $ 51,840
1995............................ 42,970 17,940 60,910
1996............................ -- -- --
NOTE 3 CONCENTRATIONS OF CREDIT RISK
The Company performs services within its facility located in Bristol,
Connecticut. The Company extends credit to customers located within the
surrounding areas.
The Company's cash account balances maintained at financial banking
institutions may exceed the Federally insured $100,000 during the year.
Management monitors regularly the financial condition of the banking institution
along with their balances in cash and tries to keep the potential risk at a
minimum.
NOTE 4 INCOME TAXES
The provision for corporate income taxes consists of the following:
1994 1995 1996
--------- --------- ----------
Federal income tax................... $ 19,170 $ 18,670 $ (14,560)
State income tax..................... 8,370 11,040 (12,340)
--------- --------- ----------
Total provision (benefit) for
income taxes.................... $ 27,540 $ 29,710 $ (26,900)
========= ========= ==========
Current portion...................... $ 2,540 $ 23,410 $ --
Deferred portion..................... 25,000 6,300 (26,900)
--------- --------- ----------
$ 27,540 $ 29,710 $ (26,900)
========= ========= ==========
F-116
C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from timing differences between the
recognition of certain income and expense items for income tax reporting and
financial reporting purposes. Deferred income tax assets (liability) result
from:
1994 1995 1996
--------- --------- ----------
Deferred Tax Asset
Net operating loss.............. $ -- $ -- $ 24,600
Allowance for bad debts......... 4,200 5,500 5,500
--------- --------- ----------
Total...................... $ 4,200 $ 5,500 $ 30,100
========= ========= ==========
Deferred Tax Liabilities
Unrealized gain on trading
securities...................... $ 3,100 $ 5,000 $ --
Excess tax depreciation......... 86,300 92,000 94,700
--------- --------- ----------
Total...................... $ 89,400 $ 97,000 $ 94,700
========= ========= ==========
NOTE 5 CAPITAL LEASE OBLIGATIONS
The Company had entered into a long-term capital lease agreement to acquire
vehicles for $163,400. Capitalized future minimum lease payments associated with
the vehicles are included in the Company's vehicle costs in the accompanying
balance sheet. The future minimum lease payments under the capital lease were as
follows:
1994 1995 1996
--------- --------- ----------
Current portion...................... $ 20,510 $ 23,130 $ --
Long-term portion.................... 33,490 10,360 --
--------- --------- ----------
Total........................... $ 54,000 $ 33,490 $ --
========= ========= ==========
NOTE 6 LONG-TERM DEBT
The Company's long-term debt at September 30, 1994, 1995 and June 30, 1996,
consisted of the following:
1994 1995 1996
--------- --------- ----------
Note payable, secured by certain real property, due in monthly installments of
$1,500 and $1,000, including interest at prime plus
1.5%............................... $ 83,100 $ 60,030 $ --
Note payable, secured by certain real
property, due in monthly
installments of $645, including
interest at 10.0%.................. 15,530 9,050 --
Less: current portion................ (29,560) (32,540) --
--------- --------- ----------
Total long-term debt................. $ 69,070 $ 36,540 $ --
========= ========= ==========
NOTE 7 TREASURY STOCK
During 1994, the Company sold ten treasury shares for $10,000, crediting
treasury stock for its cost of $10,000. During 1995, the Company sold ten
treasury shares for $20,000, crediting treasury stock for its cost of $5,000 and
paid-in capital for $15,000.
NOTE 8 PENSION PLAN
The Company has a defined contribution pension plan that covers all
employees meeting minimum age and length of service requirements. The Company
may fund contributions up to the statutory maximum
F-117
C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
established by ERISA. Contributions to this plan in the years ended September
30, 1994, 1995, and the period ended June 30, 1996, was $30,000, $50,000 and
$45,600, respectively.
NOTE 9 RENTAL INCOME
The Company owns and rents garages, parking spaces and apartments to
individuals on a monthly basis.
NOTE 10 RELATED PARTY TRANSACTIONS
The Company has a loan receivable from a stockholder/officer at September
30, 1994, 1995, and June 30, 1996, of $103,930, $110,170 and $115,340,
respectively. The loan has no formal repayment terms and accrues interest at
prime rate.
NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
CASH, TRADE RECEIVABLES AND TRADE PAYABLES
The carrying amounts approximates fair value because of the short maturity
of those instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the current rates offered to the Company for debt of
the same remaining maturities. The fair value of long-term debt on September 30,
1994 and 1995, were $98,630 and $69,080, respectively.
EQUITY SECURITIES
The fair values are based on quoted market prices. The fair value of equity
securities on September 30, 1994 and 1995, were $51,840 and $60,910,
respectively.
OFFICER LOAN
Because of the lack of comparable borrowing and investing rates, it is not
practicable to estimate the fair value of the stockholder loan.
NOTE 12 SUBSEQUENT EVENT
On July 3, 1996, all of the Company's stock was sold to Carriage Funeral
Services of Connecticut, Inc., a subsidiary of Carriage Funeral Holdings, Inc.,
for aggregate consideration in excess of the recorded amounts of the Company's
net assets.
F-118
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Spence Schnaitter, Executor
Lytle-Gans-Andrew Funeral Home
423 West Main St.
Madison, IN 47250
We have audited the accompanying balance sheets of Lytle-Gans-Andrew
Funeral Home, an estate, as of June 30, 1996, August 31, 1995, and August 31,
1994, and the related statements of income, changes in capital, and cash flows
for the ten month period from September 1, 1995 to June 30, 1996 and the years
ended August 31, 1995 and August 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lytle-Gans-Andrew Funeral
Home, as of June 30, 1996, August 31, 1995, and August 31, 1994, and the results
of its operations and its cash flows for the ten month period from September 1,
1995 to June 30, 1996 and the years ended August 31, 1995 and August 31, 1994 in
conformity with generally accepted accounting principles.
Scott, Callicotte & Co.
July 3, 1996
F-119
LYTLE-GANS-ANDREW FUNERAL HOME
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 AUGUST 31, 1995 AUGUST 31, 1994
------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents......... $ 7,291 $ 7,359 $ 9,644
Accounts Receivable............. 57,639 56,129 83,059
Inventory....................... 12,003 12,272 7,530
Notes Receivable................ 38,022 17,289 5,762
------------- --------------- ---------------
Total Current Assets....... 114,955 93,049 105,995
Fixed Assets
Land............................ 30,000 30,000 30,000
Building........................ 200,000 200,000 200,000
Furniture and Equipment......... 51,050 48,856 48,856
------------- --------------- ---------------
281,050 278,856 278,856
Less: Accumulated
Depreciation.................. (60,297) (49,163) (35,224)
------------- --------------- ---------------
Net Fixed Assets................ 220,753 229,693 243,632
------------- --------------- ---------------
TOTAL ASSETS......................... $ 335,708 $ 322,742 $ 349,627
============= =============== ===============
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable................ $ 7,216 $ 14,923 $ 14,229
Accrued & Withheld Taxes........ 7,611 8,458 9,410
Notes Payable................... 0 0 8,305
Current Portion of Long-term Debt.... 7,053 9,560 6,216
------------- --------------- ---------------
Total Current
Liabilities............. 21,880 32,941 38,160
Long-term Liabilities
Long-term Debt, Net of
Current....................... 50,144 56,130 62,503
------------- --------------- ---------------
Total Liabilities.......... 72,024 89,071 100,663
CAPITAL
Capital, Ruth Lytle Estate...... 263,684 233,671 248,964
------------- --------------- ---------------
TOTAL LIABILITIES AND CAPITAL........ $ 335,708 $ 322,742 $ 349,627
============= =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
LYTLE-GANS-ANDREW FUNERAL HOME
INCOME STATEMENTS
FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
1996 1995 1994
---------- ---------- ----------
Revenues
Sales and Services.............. $ 338,795 $ 408,141 $ 532,095
Cost and Expenses
Merchandise Costs............... 48,297 111,509 113,051
Salaries and Wages.............. 162,439 167,207 159,513
Depreciation.................... 11,134 13,939 18,333
Facilities and Grounds.......... 14,803 18,533 19,162
Transportation Costs............ 4,191 5,079 4,686
Other........................... 29,756 36,989 69,770
---------- ---------- ----------
Total...................... 270,620 353,256 384,515
Promotional Expense.................. 5,600 11,039 13,772
General and Administrative........... 16,909 30,622 27,035
---------- ---------- ----------
Operating Margin..................... 45,666 13,224 106,773
Interest Expense..................... 4,382 6,174 8,134
Other Income......................... 2,729 8,682 5,449
---------- ---------- ----------
Net Income........................... $ 44,013 $ 15,732 $ 104,088
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-121
LYTLE-GANS-ANDREW FUNERAL HOME
STATEMENTS OF CHANGES IN CAPITAL
INCOME STATEMENTS FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
Balance, September 1, 1993.............. $ 186,965
Net Income.............................. 104,088
Distribution to Estate.................. (46,300)
Capital Contributed..................... 4,211
----------
Balance, August 31, 1994................ 248,964
Net Income.............................. 15,732
Distribution to Estate.................. (31,025)
----------
Balance, August 31, 1995................ 233,671
Net Income.............................. 44,013
Distribution to Estate.................. (14,000)
----------
Balance, June 30, 1996.................. $ 263,684
==========
The accompanying notes are an integral part of these financial statements.
F-122
LYTLE-GANS-ANDREW FUNERAL HOME
STATEMENTS OF CASH FLOWS
INCOME STATEMENTS FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
1996 1995 1994
---------- ---------- ----------
Cash Flows From Operating Activities
Net Income............................ $ 44,013 $ 15,732 $ 104,088
Adjustments to reconcile net income to
net cash provided
by (used in) operating activities:
Depreciation....................... 11,134 13,939 18,333
(Increase) Decrease in Accounts
Receivable....................... (1,510) 26,930 (67,928)
(Increase) Decrease in Inventories
and Other Current
Assets........................... (20,464) (16,269) (5,459)
Increase (Decrease) in Accounts
Payable.......................... (7,707) 694 3,624
Increase (Decrease) in Accrued
Liabilities...................... (847) (952) (2,235)
---------- ---------- ----------
Net Cash Provided by Operating
Activities................. 24,619 40,074 50,423
Cash Flows From Investing Activities:
Purchase of Equipment................. (2,194) 0 0
---------- ---------- ----------
Net Cash Used in Investing
Activities................. (2,194) 0 0
Cash Flows from Financing Activities:
Proceeds (Payments) on Debt........... (8,493) (11,334) (14,546)
Capital Contributed................... 0 0 4,211
Distributions to Estate............... (14,000) (31,025) (46,300)
---------- ---------- ----------
Net Cash Used in Financing
Activities................. (22,493) (42,359) (56,635)
Net Increase (Decrease) in Cash and Cash
Equivalents........................... (68) (2,285) (6,212)
Cash and Cash Equivalents at Beginning
of Period............................. 7,359 9,644 15,856
---------- ---------- ----------
Cash and Cash Equivalents at End of
Period................................ $ 7,291 $ 7,359 $ 9,644
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-123
LYTLE-GANS-ANDREW FUNERAL HOME
NOTES TO FINANCIAL STATEMENTS
FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION/NATURE OF OPERATIONS
Lytle-Gans-Andrew Funeral Home (the Company), is owned by the Ruth Lytle
Estate. The Company owns and operates a funeral home in Indiana. The Company
performs personal and professional services related to funerals at its funeral
home. Prearranged funerals are marketed in the markets served by the Company's
funeral service location.
The Company has reached an agreement in principle to sell all of its assets
to Carriage Funeral Holdings, Inc. for aggregate consideration in excess of the
recorded amounts of the Company's net assets.
FUNERAL REVENUES
The Company records the sale of funeral merchandise and services upon
performance.
TRUST FUNDS
The company is generally required by state laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of the death of
the purchaser and are refundable to the purchaser under certain state laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the purchaser of the
prearranged funeral contract and interest earned on such funds is deferred until
performance of the specific service. The Company does not have the right to
withdraw any of the funds and, accordingly, these trust fund balances are not
reflected in the accompanying financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
INVENTORY
Inventory is stated at the lower of its cost basis (fair value at date of
acquisition) or net realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at fair value at the time of Ruth
Lytle's death. Depreciation of property, plant and equipment is computed based
on the straight-line method over estimated useful lives of the assets. The costs
of ordinary maintenance and repairs are charged to operations while renewals and
replacements are capitalized.
INCOME TAXES
Income from the Company is combined with the income and expenses of the
estate from other sources and reported in the estate's federal and state income
tax returns. The Company is not a taxpaying entity for purposes of federal and
state income taxes, and thus no income taxes have been recorded in the
statements. The estate customarily makes estimated tax payments toward its
income tax liability from the Company bank account. These payments are treated
as withdrawals of capital.
F-124
LYTLE-GANS-ANDREW FUNERAL HOME
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTS RECEIVABLE
The Company uses the direct write off method to account for bad debts which
is not materially different from Generally Accepted Accounting Principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. LONG-TERM DEBT
The Company's long-term debt at June 30, 1996, August 31, 1995 and 1994
consisted of the following:
6/30/96 8/31/95 8/31/94
------- ------- -------
Note payable, secured by deed of trust
and security agreements covering certain
real property, due in monthly installments
of $988 with interest at 8.375% variable
rate interest, matures October 2002. $57,197 $65,690 $68,719
Less Current Portion: (7,053) (9,560) (6,216)
------- ------- -------
Long-term Portion.................... $50,144 $56,130 $62,503
Maturities of Long-term Debt for the years ended June 30 are as follows:
1997 1998 1999 2000 2001 THEREAFTER
-------- --------- --------- --------- --------- ----------
$7,053 $ 7,705 $ 8,417 $ 9,195 $ 10,046 $ 14,781
F-125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering are estimated to be as follows:
Securities and Exchange Commission registration fee ........ $ 19,828
NASD filing fee ............................................ 6,250
Nasdaq listing fee ......................................... 22,500
Legal fees and expenses .................................... 350,000
Accounting fees and expenses ............................... 350,000
Blue Sky fees and expenses (including legal fees) .......... 25,000
Printing expenses .......................................... 100,000
Transfer Agent fees ........................................ 25,000
Miscellaneous .............................................. 101,422
----------
TOTAL ................................................. $1,000,000
==========
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation
or other enterprise, against reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding, if such director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Company is required by Section 145 to indemnify any
person against reasonable expenses (including attorneys' fees) actually incurred
by him in connection with an action, suit or proceeding in which he is a party
because he is or was a director, officer, employee or agent of the Company or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation or other enterprise, if he has been successful, on
the merits or otherwise, in the defense of the action, suit or proceeding.
Section 145 also allows a corporation to purchase and maintain insurance on
behalf of any such person against any liability asserted against him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145. In addition, Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise.
Article 10 of the Company's Amended and Restated Certificate of
Incorporation (the "Charter") provides that the Company shall indemnify and hold
harmless any person who was, is, or is threatened to be made a party to a
proceeding by reason of the fact that he or she (i) is or was a director or
officer of the Company or (ii) while a director or officer of the Company, is or
was serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the DGCL. The right to indemnification under
Article 10 of the Charter is a contract right which includes, with respect to
directors and officers,
II-1
the right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its disposition.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The shares of Common Stock which have been sold by the Company in the
following transactions will be converted into shares of Class B Common Stock.
On December 31, 1993, the Company entered into agreements with four
employees which granted such employees rights to purchase an aggregate of
106,470 shares of Common Stock at $2.40 per share. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions. On July 9, 1996, the four employees of the Company exercised their
rights to purchase such shares.
On January 1, 1994, the Company sold an aggregate of 2,520,000 shares of
Common Stock to C. Byron Snyder, Melvin C. Payne, Mark W. Duffey and Reid A.
Millard in exchange for shares of capital stock of three entities. The Company
relied on an exemption under Section 4(2) of the Securities Act in effecting
these transactions.
On October 12, 1994, the Company sold one share of Common Stock for $8.00
to a former owner of an acquired funeral home. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting this
transaction.
On December 31, 1994, the Company sold one share of Common Stock in
exchange for one share of the capital stock of a subsidiary. The Company relied
on an exemption under Section 4(2) of the Securities Act in effecting this
transaction.
From January 18, 1994 to February 28, 1994, the Company sold in a private
placement an aggregate of 7,000,000 shares of Series A Preferred Stock. The
Company acted as its own placement agent. Such shares were purchased for $1.00
per share. The Company relied on an exemption under Section 4(2) of the
Securities Act in effecting this placement.
From October 28, 1994 to May 29, 1996, the Company sold an aggregate of
715,000 shares of Series B Preferred Stock, valued at $1.00 per share, to the
former owners of acquired funeral homes. Consideration for such shares consisted
of ownership interests in funeral home businesses and contract rights. The
Company relied on an exemption under Section 4(2) of the Securities Act in
effecting these transactions.
On September 25, 1995, the Company sold in a private placement an aggregate
of 8,500,000 shares of Series C Preferred Stock. The Chicago Corporation acted
as placement agent in connection with this Offering. Such shares were purchased
for $1.00 per share. The Company relied on an exemption under Section 4(2) of
the Securities Act in effecting the placement.
From March 8, 1996 to July 10, 1996, the Company sold an aggregate of
14,900,616 shares of Series D Preferred Stock, valued at $1.00 per share, to the
former owners of acquired funeral homes. Consideration for such shares consisted
of ownership interests in funeral home businesses. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.
On May 28, 1996, an employee exercised options to purchase 2,000 shares of
Common Stock pursuant to the Company's 1995 Stock Incentive Plan at an exercise
price of $10.00 per share. The Company relied on an exemption under Section 4(2)
of the Securities Act in effecting this transaction.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
*1.1 -- Form of Purchase Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of the
Company
*3.2 -- Amended and Restated Bylaws of the Company
*4.1 -- Specimen Class A Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*10.1 -- 1995 Stock Incentive Plan, as amended
*10.2 -- 1996 Stock Incentive Plan
*10.3 -- 1996 Nonemployee Directors' Stock Option Plan
II-2
*10.4 -- Asset Purchase Agreement dated March 20, 1992 among Carriage
Funeral Services, Inc., Lane Funeral Home, Inc., Lane
Funeral Home, Inc., Wallis & Son Funeral Homes, Inc., The
Sentinel Group, Inc. and SCI Funeral Services of Georgia,
Inc.; amended by Amendment to Asset Purchase Agreement dated
November 23, 1992
*10.5 -- Asset Purchase Agreement dated December 9, 1992 among CFS
Funeral Services, Inc., Lane Funeral Home, Inc., Lane
Funeral Home, Inc. and Sentinel Group, Inc.
*10.6 -- Asset Purchase Agreement dated November 30, 1992
among CFS Funeral Services, Inc., Wallis & Son Funeral
Homes, Inc., Ward's Funeral Home, Inc., Sentinel Group, Inc.
and SCI Georgia Funeral Services, Inc.
*10.7 -- Stock and Real Property Purchase Agreement dated
September 6, 1994 among Carriage Funeral Services of Ohio,
Inc., Kubach-Smith Funeral Home, Inc., James B. and Louise
Smith, and Lee K. Smith and Nancy Smith-Gelvin
*10.8 -- Asset Purchase Agreement dated May 10, 1995 among
Carriage Funeral Holdings, Inc., West End Funeral Home,
Inc., and James C. Hirsch and Cynthia Hirsch
*10.9 -- Agreement and Plan of Merger dated March 8, 1996 among
Carriage Funeral Services, Inc., Hennessy-Bagnoli Funeral
Home, Inc., Hennessy Funeral Home, Inc., Terrance P.
Hennessy and Lawrence Bagnoli
*10.10 -- Real Property Purchase Agreement dated the Closing Date
among Hennessy-Bagnoli Funeral Home, Inc., Hennessy and
Patricia Hennessy, and Bagnoli and Brenda Bagnoli
*10.11 -- Stock Purchase Agreement dated January 4, 1996 among
Carriage Funeral Holdings, Inc., The Lusk Funeral Home,
Incorporated and Gerald T. McFarland, Jr.
*10.12 -- Stock Purchase Agreement dated February 29, 1996 among
Carriage Funeral Holdings, Inc., James E. Drake Funeral
Home, Inc., and James E. Drake and Patricia A. Drake
*10.13 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and SCI Texas Funeral Services, Inc.
*10.14 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and SCI Funeral Services of Florida,
Inc.
*10.15 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and Fort Myers Memorial Gardens, Inc.
*10.16 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and SCI Funeral Services of Florida,
Inc.
*10.17 -- Stock and Real Property Purchase Agreement dated March
29, 1996 among Carriage Funeral Holdings, Inc., Dwayne R.
Spence Funeral Home, Inc., Dwayne R. Spence, Patricia Spence
and James H. Sheridan
*10.18 -- Merger Agreement dated March 22, 1996 among Carriage
Funeral Services, Inc., Carriage Funeral Services of Idaho,
Inc., Merchant Funeral Home, Inc., Coeur d'Alene Memorial
Gardens, Inc., Lewis Clark Memorial Park, Inc., Robert D.
Larrabee, I. Renee Larrabee and Larrabee Land Company, Inc.
*10.19 -- Real Property Purchase Agreement dated March 22, 1996
among Carriage Funeral Services of Idaho, Inc., Robert D.
Larrabee, I. Renee Larrabee, Larrabee Land Company, Inc. and
Larrabee Investments, L.L.C.
*10.20 -- Merger Agreement dated July 3, 1996 among Carriage
Services, Inc., CSI Funeral Services of Connecticut, Inc.,
C. Funk & Son Funeral Home, Incorporated and Ronald F.
Duhaime, Emilie P. Duhaime and Christopher J. Duhaime
*10.21 -- Merger Agreement dated July 3, 1996 among Carriage
Services, Inc., CFS Funeral Services of Connecticut, Inc.,
O'Brien Funeral Home, Incorporated and Thomas P. O'Brien
*10.22 -- Merger Agreement dated June 26, 1996 among Carriage
Services, Inc., Carriage Funeral Services of South Carolina,
Inc., Forest Lawn of Chesnee Inc. and shareholders
**10.23 -- Employment Agreement with Melvin C. Payne
**10.24 -- Employment Agreement with Mark W. Duffey
**10.25 -- Employment Agreement with Russell W. Allen
21.1 -- Subsidiaries of the Company
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Kee & Associates, Inc.
*23.3 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
23.4 -- Consent of Stuart W. Stedman, as about to be named a
director of the Company
II-3
23.5 -- Consent of Robert D. Larrabee, as about to be named a
director of the Company
23.6 -- Consent of Ronald A. Erickson, as about to be named a
director of the Company
*23.7 -- Consent of McCauley, Nicolas & Company, LLC
*23.8 -- Consent of Michael S. Upton, CPA, P.A.
*23.9 -- Consent of Gitlin, Campise, Pascoe & Blum
*23.10 -- Consent of Scott, Callicotte & Co.
24.1 -- Powers of Attorney (included on the signature page to
this Registration Statement)
27.1 -- Financial Data Schedule
- ------------
* Filed herewith.
** To be filed by amendment.
All other exhibits have been previously filed.
II-4
(b) Consolidated Financial Statement Schedules
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF HOUSTON, STATE OF TEXAS, ON THE 18TH DAY OF JULY, 1996.
CARRIAGE SERVICES, INC.
By /s/ MELVIN C. PAYNE
MELVIN C. PAYNE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ --------------------------------------------- ---------------
<S> <C> <C>
/s/MELVIN C. PAYNE President, Chief Executive Officer, Director July 18, 1996
MELVIN C. PAYNE
* Executive Vice President, Chief Financial July 18, 1996
MARK W. DUFFEY Officer, Director (Principal Financial
Officer)
* Vice President, Administration and Accounting July 18, 1996
MARY-LEES PAYNE (Principal Accounting Officer)
* Chairman of the Board of Directors July 18, 1996
C. BYRON SNYDER
* Director July 18, 1996
BARRY K. FINGERHUT
*By: /s/MELVIN C. PAYNE
MELVIN C. PAYNE
ATTORNEY-IN-FACT
</TABLE>
II-6
EXHIBIT 1.1
CARRIAGE SERVICES, INC.
(a Delaware corporation)
3,400,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: , 1996
-1-
TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
(i) Compliance with Registration Requirements.............
(ii) Independent Accountants...............................
(iii) Financial Statements..................................
(iv) No Material Adverse Change in Business................
(v) Good Standing of the Company..........................
(vi) Good Standing of Subsidiaries.........................
(vii) Capitalization........................................
(viii) Authorization of Agreement............................
(ix) Authorization and Description of Securities...........
(x) Absence of Defaults and Conflicts.....................
(xi) Absence of Labor Dispute..............................
(xii) Absence of Proceedings................................
(xiii) Accuracy of Exhibits..................................
(xiv) Possession of Intellectual Property...................
(xv) Absence of Further Requirements.......................
(xvi) Possession of Licenses and Permits....................
(xvii) Title to Property.....................................
(xviii)Compliance with Florida Statute.......................
(xix) Investment Company Act................................
(xx) Environmental Laws....................................
(xxi) Registration Rights...................................
(b) OFFICER'S CERTIFICATES.......................................
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING................
------------------------------------------
(a) INITIAL SECURITIES...........................................
(b) OPTION SECURITIES............................................
(c) PAYMENT......................................................
(d) DENOMINATIONS; REGISTRATION..................................
SECTION 3. COVENANTS OF THE COMPANY.....................................
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS.................................................
(b) FILING OF AMENDMENTS.........................................
(c) DELIVERY OF REGISTRATION STATEMENTS..........................
(d) DELIVERY OF PROSPECTUSES.....................................
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS....................
(f) BLUE SKY QUALIFICATIONS......................................
(g) RULE 158.....................................................
(h) USE OF PROCEEDS..............................................
(i) LISTING......................................................
(j) RESTRICTION ON SALE OF SECURITIES............................
(k) REPORTING REQUIREMENTS.......................................
-i-
SECTION 4. Payment of Expenses..........................................
(a) EXPENSES.....................................................
(b) TERMINATION OF AGREEMENT.....................................
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS......................
(a) EFFECTIVENESS OF REGISTRATION STATEMENT......................
(b) OPINION OF VINSON & ELKINS L.L.P.............................
(c) OPINION OF SNELL & SMITH P.C.
(d) OPINION OF COUNSEL FOR UNDERWRITERS..........................
(e) OFFICERS' CERTIFICATE........................................
(f) ACCOUNTANT'S COMFORT LETTER..................................
(g) BRING-DOWN COMFORT LETTER....................................
(h) APPROVAL OF LISTING..........................................
(i) NO OBJECTION.................................................
(j) LOCK-UP AGREEMENTS...........................................
(k) CONDITIONS TO PURCHASE OF OPTION SECURITIES .................
(l) ADDITIONAL DOCUMENTS.........................................
(m) TERMINATION OF AGREEMENT.....................................
SECTION 6. INDEMNIFICATION..............................................
(a) INDEMNIFICATION OF UNDERWRITERS..............................
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS...........
(c) ACTIONS AGAINST PARTIES; NOTIFICATION........................
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE...........
SECTION 7. CONTRIBUTION.................................................
SECTION 8 REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY.....................................................
SECTION 9 TERMINATION OF AGREEMENT.....................................
(a) TERMINATION; GENERAL.........................................
(b) LIABILITIES..................................................
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS...................
SECTION 11. NOTICES......................................................
SECTION 12. PARTIES ....................................................
SECTION 13. GOVERNING LAW AND TIME.......................................
SECTION 14. EFFECT OF HEADINGS...........................................
-ii-
CARRIAGE SERVICES, INC.
(a Delaware corporation)
3,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
, 1996
MERRILL LYNCH & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
THE CHICAGO CORPORATION
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Carriage Services, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), The Chicago Corporation and each of the
other Underwriters named in Schedule A hereto (collectively, the "Underwriters",
which term shall also includes any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom Merrill Lynch and The Chicago
Corporation are acting as representatives (in such capacity, the
"Representatives"), with respect to the issue and sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
grant by the Company to the Underwriters, acting severally and not jointly, of
the option described in Section 2(b) hereof to purchase all or any part of
510,000 additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 3,400,000 shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the 510,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities".
-1-
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to 340,000 shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company at the public offering
price, as part of the distribution of the Securities by the Underwriters,
subject to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. and all
other applicable laws, rules and regulations. To the extent that such Reserved
Securities are not orally confirmed for purchase by such eligible employees and
persons having business relationships with the Company by the end of the first
business day after either (a) the later of the date on which the Registration
Statement (as defined below) has become effective or (b) if the Company has
elected to rely on Rule 430A, the date of this Agreement, will be offered to the
public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S- 1 (No. 333-05545) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto, if any, at the
time it became effective and including the Rule 430A Information and the Rule
434 Information, as applicable, is herein called the "Registration Statement."
Any registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration Statement,"
and after such filing the term "Registration Statement" shall include the Rule
462(b) Registration Statement. The final prospectus in the form first furnished
to the Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus"
shall refer to the preliminary prospectus dated _________, 1996 together with
the Term Sheet and all references in this Agreement to the date of the
Prospectus shall mean the date of the
-2-
Term Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto, at the time the Prospectus or any
such amendment or supplement was issued and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery ), included
or will include an untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434 and the Prospectus shall not be
"materially different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement
or Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the
Representatives expressly for use in the Registration Statement or
Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to
-3-
Rule 424 under the 1933 Act Regulations, complied when so filed in all
material respects with the 1933 Act Regulations and, if applicable, each
preliminary prospectus and the Prospectus delivered to the Underwriters
for use in connection with this offering was substantially identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly
in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement. The pro
forma financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements and
have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been
no material adverse change or any material adverse development or any
prospective development, relating to the condition, financial or
otherwise, or in the earnings, business affairs of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its
capital stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware
-4-
and has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement; and
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect.
(vi) GOOD STANDING OF SUBSIDIARIES. Each of Carriage Funeral
Holdings, Inc., CFS Funeral Services, Inc., Carriage Holding Company,
Inc., Carriage Funeral Services of Michigan, Inc., Carriage Funeral
Services of Ohio, Inc., CFS Funeral Services of Ohio, Inc., The Lusk
Funeral Home, Incorporated, James E. Drake Funeral Home, Inc.,
HennessyBagnoli Funeral Home, Inc., Carriage Funeral Services of Idaho,
Inc., Dwayne R. Spence Funeral Home, Inc., Carriage Funeral Services of
Kentucky, Inc., Ceballos-Diaz Funeral Home, Inc., Palms Memorial Park,
Inc., Carriage Funeral Services of Texas, Inc., Carriage Funeral
Services of Connecticut, Inc., Carriage Funeral Services of South
Carolina, Inc., CFS Funeral Services of Connecticut, Inc., CSI Funeral
Services of Connecticut, Inc. (each a "Subsidiary" and, collectively,
the "Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement, all
of the issued and outstanding capital stock of each such Subsidiary has
been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The only subsidiaries of the Company are the subsidiaries listed on
Exhibit 21 to the Registration Statement.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
-5-
(viii) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and non-assessable;
the Common Stock conforms to all statements relating thereto contained
in the Prospectus and such description conforms to the rights set forth
in the instruments defining the same; no holder of the Securities will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor
any of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its Subsidiaries is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Company with
its obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute
a breach of, or default or Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Subsidiary pursuant
to, the Agreements and Instruments (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
Subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
Subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any Subsidiary.
(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge
of the Company, is imminent, and
-6-
the Company is not aware of any existing or imminent labor disturbance
by the employees of any of its or any Subsidiary's principal suppliers,
manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
(xii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement or the performance by the Company of its
obligations hereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
(xiii) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or under state securities laws.
(xv) POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess such Governmental Licenses would not,
singly or in the aggregate, result in a Material Adverse Effect; the
Company and its Subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the
-7-
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvi) TITLE TO PROPERTY. The Company and its Subsidiaries have
good and indefeasible title to all real property owned by the Company
and its Subsidiaries and good title to all other properties owned by
them, in each case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Prospectus or (b) do not, singly
or in the aggregate, materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property
by the Company or any of its Subsidiaries; and all of the leases and
subleases material to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or any of its
Subsidiaries holds properties described in the Prospectus, arc in full
force and effect, and neither the Company nor any Subsidiary has any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any Subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such Subsidiary to the continued possession
of the leased or subleased premises under any such lease or sublease.
(xvii) COMPLIANCE WITH FLORIDA STATUTE. The Company has complied
with, or is exempt from, and is and will be in compliance with or will
be exempt from, the provisions of that certain Florida act relating to
disclosure of doing business with Cuba, codified as Section 517.075 of
the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xviii)INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xix) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in
a Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental
-8-
Laws"), (B) the Company and its Subsidiaries have all permits,
authorizations and approvals required under any applicable Environmental
Laws and are each in compliance with their requirements, except where
the failure to obtain such permits, authorizations or approvals or to be
in compliance therewith would not, singly or in the aggregate, have a
Material Adverse Effect, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or any of its Subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its Subsidiaries relating to Hazardous Materials
or any Environmental Laws.
(xx) REGISTRATION RIGHTS. There are no persons with registration
rights or other similar rights to have any securities registered
pursuant to the Registration Statement which have not been waived in
writing.
(xxi) LISTING OF COMMON STOCK. The Common Stock has been approved
for quotation on the Nasdaq National Market, subject to official notice
of issuance.
(xxii) TAXES. All tax returns required to be filed by the Company
have been timely filed and such returns are true, complete and correct
in all material respects. All taxes due or claimed to be due from the
Company that are due and payable have been paid, other than those (i)
being contested in good faith and for which an adequate reserve or
accrual has been established in accordance with GAAP or (ii) those
currently payable without penalty or interest for which an adequate
reserve or accrual has been established in accordance with GAAP or
extensions duly paid. Except as described in the Prospectus, the Company
does not know of (A) any actual or proposed material additional tax
assessments or (B) any probable basis for the imposition of any material
additional tax assessments for any fiscal period against the Company.
(xxiii)INSURANCE COVERAGE. The Company and each Subsidiary
maintains insurance, which is in full force and effect, of the types and
in the amounts customary in the funeral home and cemetery business.
Neither the Company nor any Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from insurers at a
cost that would not have a Material Adverse Effect.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company or any Subsidiaries delivered to the Representative(s) or to counsel for
the Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
-9-
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 510,000 shares of Common Stock
at the price per share set forth in Schedule B, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Company setting
forth the number of Option Securities as to which the several Underwriters are
then exercising the option and the time and date of payment and delivery for
such Option Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Andrews
& Kurth L.L.P., 4200 Texas Commerce Tower, Houston, Texas 77002, or at such
other place as shall be agreed upon by the Representatives and the Company, at
9:00 A.M. (Central time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed
-10-
upon by the Representatives and the Company, on each Date of Delivery as
specified in the notice from the Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in the City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement, shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
-11-
(b) FILING OF AMENDMENTS. The Company will give the
Representatives notice of its intention to file or prepare any amendment
to the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectus will furnish the Representatives with
copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use any
such document to which the Representatives or counsel for the
Underwriters shall reasonably object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and reports of accountants, and will also
deliver to the Representatives, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be substantially identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request.
If applicable, the Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be substantially identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit
the completion of the distribution of the Securities as contemplated in
this Agreement and in the Prospectus. If at any time when a prospectus
is required by the 1933 Act to be delivered in connection with sales of
the Securities, any event shall occur or condition shall exist as a
result of which it is necessary, in the opinion of counsel for the
Underwriters or for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not
contain any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein in the
light of the circumstances existing at the time it is delivered to a
purchaser, not misleading or if it shall be necessary, in the opinion of
such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act
-12-
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may
be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements,
and the Company will furnish to the Underwriters such number of copies
of such amendment or supplement as the Underwriters may reasonably
request.
(f) BLUE SKY QUALIFICATIONS. The Company will use all reasonable
efforts, in cooperation with the Underwriters, to qualify the Securities
for offering and sale under the applicable securities laws of such
states and other jurisdictions as the Representatives may designate and
to maintain such qualifications in effect for as long as required for
distribution of the Securities; provided, however, that the Company
shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation or as a dealer in securities in
any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for as long as required for distribution of
the Securities.
(g) RULE 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(i) LISTING. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market
and will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which
are reported by the Nasdaq National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 180
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
Purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall
-13-
not apply to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof
and referred to in the Prospectus, (C) any shares of Common Stock issued
or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus or
(D) any shares of Common Stock or any securities convertible or
exchangeable into Common Stock issued as payment of any part of the
purchase price for funeral homes or cemeteries (or businesses or capital
stock of businesses that operate funeral homes or cemeteries) which are
acquired by the Company (provided, however, that such shares shall be
subject to restrictions that will prohibit the transfer thereof until
after the expiration of the 180-day lock-up period described in the
preceding sentence).
(k) REPORTING REQUIREMENTS. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission thereunder.
(l) FORM SR. The Company will file with the Commission such
reports on Form SR as may be required pursuant to Rule 463 of the 1933
Act Regulations.
(m) RESTRICTIONS ON RESERVED SECURTIES. The Company hereby agrees
that it will ensure that the Reserved Securities sold to employees and
others having a business relationship with the Company will be
restricted as required by the NASD and the NASD rules, from sale,
transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration
Statement. The Underwriters will notify the Company as to which persons
will need to be so restricted. At the request of the Underwriters, the
Company will direct the transfer agent to place a stop transfer
restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any
securities that are subject to a resale restriction, the Company agrees
to reimburse the Underwriters for any reasonable expenses including
without limitation, legal expenses they incur directly in connection
with such release.
SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities. (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities
-14-
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident to
the review by the National Association of Securities Dealers, Inc. (the "NASD")
of the terms of the sale of the Securities, (x) the fees and expenses incurred
in connection with the inclusion of the Securities in the Nasdaq National
Market, (xi) all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, in connection with matters
related to the Reserved Securities which are designated by the Company for sale
to employees and others having a business relationship with the Company and
(xii) stamp duties or other similar taxes or duties, if any, incurred by the
Underwriters in connection with the offer and sale of the Reserved Securities.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section I hereof or
in certificates of any officer of the Company or any Subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective under the 1933 Act and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) of the 1933 Act Regulations
(or a post-effective amendment providing such information shall have
been filed and declared effective in accordance with the requirements of
Rule 430A) or, if the Company has elected to rely upon Rule 434 of the
1933 Act Regulations, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).
(b) OPINION OF VINSON & ELKINS L.L.P. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Vinson & Elkins L.L.P., counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the
other Underwriters
-15-
to the effect set forth in Exhibit A hereto and to such further effect
as counsel to the Underwriters may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the
State of Delaware), upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(c) OPINION OF SNELL & SMITH P.C. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Snell & Smith P.C., counsel for the Company, in form
and substance satisfactory to counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit B hereto and to such
further effect as counsel to the Underwriters may reasonably request. In
giving such opinion such counsel may rely, as to all matters governed by
the laws of jurisdictions other than the federal law of the United
States and the General Corporation Law of the State of Delaware), upon
the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its Subsidiaries and
certificates of public officials.
(d) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Andrews & Kurth L.L.P. counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the
other Underwriters with respect to the matters set forth in clauses (i),
(ii), (v), (vi) (solely as to preemptive or other similar rights arising
by operation of law or under the charter or by-laws of the Company),
(viii) through (x), inclusive, (xiv) (solely as to the information in
the Prospectus under "Description of Capital Stock-Common Stock") and
the last paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the
State of Delaware), upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(e) OFFICERS' CERTIFICATE. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, and the Representatives shall have received a
certificate of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company, dated as
of Closing Time, to
-16-
the effect that (i) there has been no such material adverse change, (ii)
the representations and warranties in Section 1 (a) hereof are true and
correct with the same force and effect as though expressly made at and
as of Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at
or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or to
their knowledge are contemplated by the Commission.
(f) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of
this Agreement, the Representatives shall have received from Arthur
Andersen LLP a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) BRING-DOWN COMFORT LETTER. At Closing Time, the
Representatives shall have received from Arthur Andersen LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (f) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(h) APPROVAL OF LISTING. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(i) NO OBJECTION. The NASD shall not have raised any objection
with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(j) LOCK-UP AGREEMENTS. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the
form of Exhibit C hereto signed by the persons listed on Schedule D
hereto.
(k) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any
Subsidiary of the Company hereunder shall be true and correct as of each
Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the
-17-
Closing Time pursuant to Section 5(e) hereof remains true and
correct as of such Date of Delivery.
(ii) OPINIONS OF COUNSEL FOR COMPANY. The favorable opinion of
Vinson & Elkins L.L.P. and Snell & Smith P.C., counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinions required by Section 5(b) and
(c) hereof.
(iii) OPINION OF COUNSEL FOR UNDERWRITERS. The favorable opinion
of Andrews & Kurth L.L.P., counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(d) hereof.
(iv) BRING-DOWN COMFORT LETTER. A letter from Arthur Andersen
LLP, in form and substance satisfactory to the Representatives
and dated such Date of Delivery, substantially in the same form
and substance as the letter furnished to the Representatives
pursuant to Section 5(g) hereof, except that the "specified date"
in the letter furnished pursuant to this paragraph shall be a
date not more than five days prior to such Date of Delivery.
(l) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(m) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities, on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the Representatives
by notice to the Company at any time at or prior to Closing Time or such
Date of Delivery, as the case may be, and such termination shall be
without liability of any party to any other party except as provided in
Section 4 and except that Sections 6 and 7 shall survive any such
termination and remain in full force and effect.
-18-
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of the failure of eligible
employees and persons having business relationships with the Company to
pay for and accept delivery of Reserved Securities which were subject to
a properly confirmed agreement to purchase;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i), (ii) or (iii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided further,
however, that this indemnity agreement, as to any preliminary
-19-
prospectus, shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any loss, claim, damage, liability
or expense arising from the sale of the Securities to any person by such
Underwriter if such Underwriter failed to send or give a copy of the Prospectus,
as the same may be supplemented or amended, to such person within the time
required by the 1933 Act, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact in such preliminary
prospectus was corrected in the Prospectus (as so supplemented or amended).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information deemed to be a part thereof, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
-20-
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(iii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. Notwithstanding the immediately preceding sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for reasonable fees and expenses of counsel,
an indemnifying party shall not be liable for any settlement of the nature
contemplated by Section 6(a)(iii) effected without its consent if such
indemnifying party, prior to the date of settlement, (i) reimburses such
indemnified party in accordance with such request to the extent such
indemnifying party considers such request to be reasonable and (ii) provides
written notice in reasonable detail to the indemnified party of the reasons such
indemnifying party considers the unpaid balance as unreasonable.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any failure of the nature referred to in Section 6(a)(ii) hereof, which resulted
in such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters, in
each case as set forth on the cover of the Prospectus, or, if Rule 434 is used,
the corresponding location on the Term Sheet, bear to the aggregate initial
public offering price of the Securities as set forth on such cover.
-21-
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any failure of the nature referred to in Section
6(a)(ii) hereof.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
-22-
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political. financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
6 and 7 shall survive such termination and remain in full force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of
-23-
Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section 10 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of ; and notices to
the Company shall be directed to it at 1300 Post Oak Blvd., Suite 1500, Houston,
Texas 77056, attention of Melvin C. Payne.
SECTION 12. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN SPECIFIED TIMES OF
DAY REFER TO NEW YORK CITY TIME.
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience on)v and shall not affect the
construction hereof.
-24-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
CARRIAGE SERVICES, INC.
By:
Melvin C. Payne
President
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
THE CHICAGO CORPORATION
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ________________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
-25-
SCHEDULE A
NUMBER OF
INITIAL
NAME OF UNDERWRITER SECURITIES
------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
The Chicago Corporation............................
Total ........................................... 3,400,000
=========
Sch A-1
SCHEDULE B
Carriage Services, Inc.
3,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $__________.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $_________, being an amount equal to the initial
public offering price set forth above less $__________ per share; provided that
the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities.
Sch B-1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CARRIAGE SERVICES, INC.
(Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware)
Carriage Services, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The name of the Corporation is Carriage Services, Inc. and the name
under which the Corporation was originally incorporated was Carriage Funeral
Services, Inc. The date of filing of the Corporation's original Certificate of
Incorporation was December 29, 1993.
2. This Amended and Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") restates and integrates and further amends the
Certificate of Incorporation of the Corporation.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read in full as set forth herein and in
Exhibits A, B, C and D hereto containing the Amended and Restated Certificates
of Designation, Preferences, Rights and Limitations of the Corporation's Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock, respectively:
ARTICLE I.
The name of the Corporation is Carriage Services, Inc.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any and
all lawful acts and activity for which corporations may be organized under the
General Corporation Law of Delaware. The Corporation will have perpetual
existence.
1
ARTICLE IV.
The total number of shares of stock that the Corporation shall have
authority to issue is, 80,000,000 shares of capital stock, consisting of (i)
50,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"); (ii)15,000,000 shares of Class A Common Stock, par value $.01 per share
("Class A Common Stock"); and (iii) 15,000,000 shares of Class B Common Stock,
par value $.01 per share ("Class B Common Stock"; the Class A Common Stock and
the Class B Common Stock are collectively referred to as "Common Stock").
Effective upon filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, 1996, each
issued and outstanding share of previously authorized common stock of the
Corporation ("Old Common Stock") shall represent one validly issued, fully paid
and non-assessable share of Class B Common Stock. Each certificate which
theretofore represented shares of Old Common Stock shall thereafter represent
that number of shares of Class B Common Stock; PROVIDED, HOWEVER, that each
person holding of record a stock certificate or certificates which represented
shares of Old Common Stock shall receive, upon surrender of such certificate or
certificates, a new certificate or certificates evidencing and representing the
number of shares of Class B Common Stock to which such person is entitled.
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Common Stock and the Preferred Stock are as
follows:
1. Provisions Relating to the Common Stock.
(a) DIVIDENDS. Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any class or series thereof, each
share of Common Stock shall entitle the holder of record thereof to receive
dividends out of funds legally available therefor, when, as and if declared by
the board of directors of the Corporation with respect to any of such class of
stock. No dividend shall be declared or paid in respect of any Common Stock
unless the holders of both the Class A Common Stock and the Class B Common Stock
receive the same per share dividend, payable in the same amount and type of
consideration, as if such classes constituted a single class, except that if any
dividend is declared that is payable in shares of Class A Common Stock or Class
B Common Stock, such dividend shall be declared and paid at the same rate per
share with respect to the Class A Common Stock and the Class B Common Stock, and
the dividend payable on shares of Class A Common Stock shall be payable only in
shares of Class A Common Stock and the dividend payable on shares of Class B
Common Stock shall be payable only in shares of Class B Common Stock.
(b) LIQUIDATION RIGHTS. The holders of Common Stock shall be entitled to
participate in the net assets of the Corporation remaining after any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, and after payment or provision for the payment
of the debts and liabilities of the Corporation and payment of the liquidation
preference of any shares of capital stock of the Corporation having such a
preference, distributing such proceeds pro-rata among the holders of Common
Stock. The holders of the Class A Common Stock and the Class B Common Stock
shall participate in such assets as if such classes constituted a single class
2
of stock. A dissolution, liquidation or winding-up of the Corporation, as such
terms are used in this paragraph (b), shall not be deemed to be occasioned by or
to include any consolidation or merger of the Corporation with or into any other
corporation or corporations or other entity or a sale, lease, exchange, or
conveyance of all or a part of the assets of the Corporation.
(c) VOTING RIGHTS.
(i) Except as may otherwise be expressly required by the General
Corporation Law of Delaware, the holders of shares of Class A Common Stock and
the holders of shares of Class B Common Stock shall vote together as a single
class, provided, however, that with respect to each matter properly brought
before the shareholders for their consideration and vote, each share of Class A
Common Stock shall entitle the registered holder thereof to one vote on all
matters brought before the common stockholders of the Corporation for a vote and
each share of Class B Common Stock shall entitle the registered holder thereof
to ten votes on all matters brought before the common stockholders of the
Corporation for a vote.
(ii) In the case of each share of Class B Common Stock held of
record by a bank, voting trustee, broker, dealer, clearing agency, or any
nominee thereof, or by any other nominee of the beneficial owner of such share,
the registered holder of such share will be entitled, notwithstanding the
foregoing limitation, to cast ten votes with respect to such share if such
holder shall establish to the satisfaction of the Corporation that such share
has been beneficially owned continuously from the date of issuance by the
original beneficial owner (whose name and address must be specified to the
Corporation), or by a Permitted Transferee (as defined in paragraph 1(e) of
Article IV hereof) of such original beneficial owner. Any such registered holder
who wishes to cast ten votes per share shall file with the transfer agent for
the Class B Common Stock a certificate, on a form that will be mailed to such
holder by such transfer agent on request, certifying as to the information
specified in the preceding sentence and specifying the date on which such holder
desires to exercise voting rights (the "Voting Date"). Any such certificate
shall be deemed filed only if received by the transfer agent not less than ten
nor more than 30 days prior the Voting Date. If such certificate shall not
establish to the satisfaction of the Corporation that the registered holder is
entitled to cast ten votes per share, then, within five business days after the
receipt thereof by the transfer agent, the Corporation shall mail to the person
filing such certificate a notice that describes the deficiency and, unless the
Corporation determines that such person shall have a reasonable opportunity to
cure such deficiency prior to the Voting Date, notifies such person that such
person shall be entitled to only one vote per share on the Voting Date.
(d) CONVERSION BY REGISTERED HOLDER.
(i) Each share of Class B Common Stock shall be convertible at any
time, at the option of the registered holder thereof, into one fully paid and
nonassessable share of Class A Common Stock of the Corporation.
(ii) No fractional shares of Class A Common Stock shall be issued
upon such conversion, but in lieu thereof the Corporation shall pay to the
holder an amount in cash equal to the fair market value of such fractional
share.
3
(iii) To convert shares of Class B Common Stock under this paragraph
1(d), the registered holder thereof shall surrender the certificate or
certificates representing such shares, duly endorsed to the Corporation or in
blank (which endorsement shall correspond exactly with the name or names of the
registered holder or holders set forth on the face of the certificates and on
the stock transfer records of the Corporation), at the office of the transfer
agent for the shares of Class B Common Stock (which may be either the
Corporation or any third party retained by it for such purpose), and shall give
written notice to the transfer agent and the Corporation that such holder elects
to convert all or part of the shares represented thereby, stating therein the
names or names (with the address or addresses) in which the certificate or
certificates for shares of Class A Common Stock are to be issued.
(iv) If the registered holder fully complies with paragraph (iii),
the Corporation shall, as soon as practicable thereafter, instruct the transfer
agent to deliver to such holder, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Class A Common Stock to
which such holder shall be entitled, rounded to the nearest whole number of
shares, and a check for any amount payable hereunder in lieu of a fractional
share, along with a certificate representing any shares of Class B Common Stock
that the holder has not elected to convert hereunder but which constituted part
of the shares of Class B Common Stock represented by the certificate or
certificates surrendered.
(v) Shares of Class B Common Stock shall be deemed to have been
converted as of the close of business on the date of the due surrender of the
certificates representing the shares to be converted as provided above, and the
person or persons entitled to receive the shares of Class A Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Class A Common Stock at such time.
(vi) If the Corporation shall in any manner split or subdivide the
outstanding shares of Class A Common Stock or Class B Common Stock, the
outstanding shares of the other such class of Common Stock shall be split or
subdivided in the same manner, proportionately and on the same basis per share.
(vii) When shares of Class B Common Stock have been converted
pursuant to this paragraph (d), they shall be irrevocably canceled and not
reissued.
(e) AUTOMATIC CONVERSION. Any shares of Class B Common Stock outstanding
on December 31, 2001, without further action of the holder thereof, shall be
automatically converted into shares of Class A Common Stock and certificates
formerly representing outstanding shares of Class B Common Stock shall thereupon
and thereafter represent the like number of shares of Class A Common Stock.
(f) TRANSFERS OF CLASS B COMMON STOCK. No person holding any share of
Class B Common Stock shall transfer, and the Corporation shall not register (nor
permit the transfer agent for the Class B Common Stock to register) the transfer
of, any shares of Class B Common Stock or any interest therein, whether by sale,
assignment, gift, bequest, pledge, hypothecation, encumbrance, or any other
disposition, except to a "Permitted Transferee" of such person (as defined below
in this paragraph). If a holder of shares of Class B Common Stock transfers any
such shares to any person
4
or entity other than a "Permitted Transferee," such transfer, without any
further action of the parties or the Corporation, shall automatically and
irrevocably convert such shares into an equal number of shares of Class A Common
Stock from the date of such transfer. The term "Permitted Transferee" shall mean
only:
(i) the spouse and any lineal descendant (including adopted
children) of any person duly holding shares of Class A Common Stock (a
"Qualified Holder"), and any spouse of any such lineal descendant (all
such spouses and lineal descendants being hereinafter referred to as
"Family Members");
(ii) the trustee of a trust for the sole benefit of a Qualified
Holder or Family Members;
(iii) a partnership made up exclusively of Qualified Holders or
Family Members or a corporation or limited liability company wholly owned
by Qualified Holders or Family Members, provided, however, that as of the
date that such partnership, corporation or company no longer comprised of
or owned exclusively by Qualified Holders or Family Members, such
partnership, corporation or company will no longer be a Permitted
Transferee and any Class B Common Stock held by it shall automatically and
irrevocably be converted into Class A Common Stock without any further
action of the parties or the Corporation; or
(iv) the executor, administrator or personal representative of the
estate of a qualified holder or of any Family Member, or the guardian or
conservator of a Qualified Holder or any Family Member who has been
adjudged disabled by a court of competent jurisdiction.
2. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of each class or series to have any designations
and powers, preferences, and rights, and qualifications, limitations, and
restrictions thereof as are stated and expressed in this Article IV and in the
resolution or resolutions providing for the issue of such class or series
adopted by the board of directors of the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the board of
directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to state by the resolution or
resolutions from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the class or series is to have voting rights,
special, or limited, or is to be without voting rights, and whether or not such
class or series is to be entitled to vote as a separate class either alone or
together with the holders of one or more other classes or series of stock;
(ii) the number of shares to constitute the class or series and the
designations thereof;
5
(iii) the preferences and relative, participating, optional, or
other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be subject
to the operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and, if such retirement or sinking
fund or funds are to be established, the periodic amount thereof, and the terms
and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock
of the Corporation, or other property, the conditions upon which and the times
when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(viii)whether or not the shares of any class or series, at the
option of the Corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for the shares of any
other class or classes or of any other series of the same or any other class or
classes of stock, securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or rates at which such
conversion or exchange may be made, with such adjustments, if any, as shall be
stated and expressed or provided for in such resolution or resolutions; and
(ix) any other special rights and protective provisions with respect
to any class or series as may to the board of directors of the Corporation seem
advisable.
(c) The shares of each class or series of the Preferred Stock may vary
from the shares of any other class or series thereof in any or all of the
foregoing respects and in any other manner. The board of directors of the
Corporation may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The board of directors of the Corporation may decrease
the number of shares of the Preferred Stock designated for any existing class or
series by a resolution subtracting from such class or series authorized and
unissued shares of the Preferred Stock designated for such existing class or
series, and the shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
6
3. General.
(a) Subject to the foregoing provisions of this Restated Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (not less than the par
value thereof) as may be fixed by the board of directors of the Corporation,
which is expressly authorized to fix the same in its absolute discretion subject
to the foregoing conditions. Shares so issued for which the consideration shall
have been paid or delivered to the Corporation shall be deemed fully paid stock
and shall not be liable to any further call or assessment thereon, and the
holders of such shares shall not be liable for any further payments in respect
of such shares.
(b) The Corporation shall have authority to create and issue rights and
options entitling their holders to purchase shares of the Corporation's capital
stock of any class or series or other securities of the Corporation, and such
rights and options shall be evidenced by instrument(s) approved by the board of
directors of the Corporation. The board of directors of the Corporation shall be
empowered to set the exercise price, duration, times for exercise, and other
terms of such rights or options; PROVIDED, HOWEVER, that the consideration to be
received for any shares of capital stock subject thereto shall not be less than
the par value thereof.
ARTICLE V.
The number, classification, and terms of the board of directors of the
Corporation and the procedures to elect directors, to remove directors, and to
fill vacancies in the board of directors shall be as follows:
(a) The number of directors that shall constitute the whole board of
directors shall from time to time be fixed exclusively by the board of directors
by a resolution adopted by a majority of the whole board of directors serving at
the time of that vote. In no event shall the number of directors that constitute
the whole board of directors be fewer than three. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Directors of the Corporation need not be elected by written ballot
unless the by-laws of the Corporation otherwise provide.
(b) The board of directors of the Corporation shall be divided into three
classes designated Class I, Class II, and Class III, respectively, all as nearly
equal in number as possible, with each director then in office receiving the
classification that at least a majority of the board of directors designates.
The initial term of office of directors of Class I shall expire at the annual
meeting of stockholders of the Corporation in 1997, of Class II shall expire at
the annual meeting of stockholders of the Corporation in 1998, and of Class III
shall expire at the annual meeting of stockholders of the Corporation in 1999,
and in all cases as to each director until his successor is elected and
qualified or until his earlier death, resignation or removal. At each annual
meeting of stockholders beginning with the annual meeting of stockholders in
1997, each director elected to succeed a director whose term is then expiring
shall hold his office until the third annual meeting of stockholders after his
election and until his successor is elected and qualified or until his earlier
death, resignation or removal. If the number of directors that constitutes the
whole board of directors is changed as permitted by this Article V, the majority
of the whole board of directors that adopts
7
the change shall also fix and determine the number of directors comprising each
class; provided, however, that any increase or decrease in the number of
directors shall be apportioned among the classes as equally as possible.
(c) Vacancies in the board of directors resulting from death, resignation,
retirement, disqualification, removal from office, or other cause and
newly-created directorships resulting from any increase in the authorized number
of directors may be filled by no less than a majority vote of the remaining
directors then in office, though less than a quorum, who are designated to
represent the same class or classes of stockholders that the vacant position,
when filled, is to represent or by the sole remaining director (but not by the
stockholders except as required by law), and each director so chosen shall
receive the classification of the vacant directorship to which he has been
appointed or, if it is a newly-created directorship, shall receive the
classification that at least a majority of the board of directors designates and
shall hold office until the first meeting of stockholders held after his
election for the purpose of electing directors of that classification and until
his successor is elected and qualified or until his earlier death, resignation,
or removal from office.
(d) A director of any class of directors of the Corporation may be removed
before the expiration date of that director's term of office, only for cause, by
an affirmative vote of the holders of not less than eighty percent (80%) of the
votes of the outstanding shares of the class or classes or series of stock then
entitled to be voted at an election of directors of that class or series, voting
together as a single class, cast at the annual meeting of stockholders or at any
special meeting of stockholders called by a majority of the whole board of
directors for this purpose.
(e) Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law or by
this Restated Certificate of Incorporation, the affirmative vote of the holders
of not less than eighty percent (80%) of the votes of the outstanding shares of
the Corporation then entitled to be voted in an election of directors, voting
together as a single class, shall be required to amend or repeal, or to adopt
any provision inconsistent with, this Article V.
ARTICLE VI.
All of the power of the Corporation, insofar as it may be lawfully vested
by this Restated Certificate of Incorporation in the board of directors, is
hereby conferred upon the board of directors of the Corporation. In furtherance
of and not in limitation of that power or the powers conferred by law, (1) a
majority of directors then in office (or such higher percentage as may be
specified in the by-laws with respect to any provision thereof) shall have the
power to adopt, amend, and repeal the by-laws of the Corporation; (2) the
stockholders of the Corporation shall have no power to appoint or remove
directors as members of committees of the board of directors, nor to abrogate
the power of the board of directors to establish any such committees or the
power of any such committee to exercise the powers and authority of the board of
directors; (3) the stockholders of the Corporation shall have no power to elect
or remove officers of the Corporation nor to abrogate the power of the board of
directors to elect and remove officers of the Corporation; and (4)
notwithstanding any other provision of this Restated Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or no
vote, but in addition to any affirmative vote of the holders of any particular
8
class or series of the capital stock of the Corporation required by law or by
this Restated Certificate of Incorporation, the by-laws of the Corporation shall
not be adopted, altered, amended or repealed by the stockholders of the
Corporation except in accordance with the provisions of the by-laws and by the
vote of the holders of not less than a majority of the outstanding shares of
stock then entitled to vote upon the election of directors, voting together as a
single class, or such higher vote as is set forth in the by-laws. In the event
of a direct conflict between the by-laws of the Corporation and this Restated
Certificate of Incorporation, the provisions of this Restated Certificate of
Incorporation shall be controlling. Notwithstanding any other provisions of this
Restated Certificate of Incorporation or any provision of law that might
otherwise permit a lesser or no vote, but in addition to any affirmative vote of
the holders of any particular class or series of the capital stock of the
Corporation required by law or by this Restated Certificate of Incorporation,
the affirmative vote of the holders of not less than eighty percent (80%) of the
votes of the shares of the Corporation then entitled to be voted in an election
of directors, voting together as a single class, shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article VI.
ARTICLE VII.
Any action required or permitted to be taken by the stockholders of the
Corporation may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
ARTICLE VIII.
Special meetings of the stockholders of the Corporation, and any proposals
to be considered at such meetings, may be called and proposed exclusively by the
board of directors, pursuant to a resolution approved by a majority of the
members of the board of directors at the time in office, and no stockholder of
the Corporation shall require the board of directors to call a special meeting
of common stockholders or to propose business at a special meeting of
stockholders. Except as otherwise required by law or regulation, no business
proposed by a stockholder to be considered at an annual meeting of the
stockholders (including the nomination of any person to be elected as a director
of the Corporation) shall be considered by the stockholders at that meeting
unless, no later than sixty (60) days before the annual meeting of stockholders
or (if later) ten days after the first public notice of that meeting is sent to
stockholders, the Corporation receives from the stockholder proposing that
business a written notice that sets forth (1) the nature of the proposed
business with reasonable particularity, including the exact text of any proposal
to be presented for adoption, and the reasons for conducting that business at
the annual meeting; (2) with respect to each such stockholder, that
stockholder's name and address (as they appear on the records of the
Corporation), business address and telephone number, residence address and
telephone number, and the number of shares of each class of stock of the
Corporation beneficially owned by that stockholder; (3) any interest of the
stockholder in the proposed business; (4) the name or names of each person
nominated by the stockholder to be elected or re-elected as a director, if any;
and (5) with respect to each nominee, that nominee's name, business address and
telephone number, and residence address and telephone number, the number of
shares, if any, of each class of stock of the Corporation owned directly and
beneficially by that nominee, and all information relating to that nominee that
is required
9
to be disclosed in solicitations of proxies for elections of directors, or is
otherwise required, pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (or any provision of law subsequently
replacing Regulation 14A), together with a duly acknowledged letter signed by
the nominee stating his or her acceptance of the nomination by that stockholder,
stating his or her intention to serve as director if elected, and consenting to
being named as a nominee for director in any proxy statement relating to such
election. The person presiding at the annual meeting shall determine whether
business (including the nomination of any person as a director) has been
properly brought before the meeting and, if the facts so warrant, shall not
permit any business (or voting with respect to any particular nominee) to be
transacted that has not been properly brought before the meeting.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law or by
this Restated Certificate of Incorporation, the affirmative vote of the holders
of not less than eighty percent (80%) of the shares of the Corporation then
entitled to be voted in an election of directors, voting together as a single
class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article VIII.
ARTICLE IX.
No contract or transaction between the Corporation and one or more of its
directors, officers, or stockholders or between the Corporation and any person
(as used herein "person" means any corporation, partnership, association, firm,
trust, joint venture, political subdivision, or instrumentality) or other
organization in which one or more of its directors, officers, or stockholders
are directors, officers, or stockholders, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the board or any
committee thereof which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or the committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by majority vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the board of directors, a committee
thereof, or the stockholders. Interested directors may be counted in determining
the presence of a quorum at a meeting of the board of directors or of a
committee which authorizes the contract or transaction.
ARTICLE X
The Corporation shall indemnify and hold harmless any person who was, is,
or is threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partner ship, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
X is in effect. Any repeal or amendment of this Article X shall be prospective
only and shall not limit the rights of any such director or officer or the
obligations of the Corporation with respect to any claim arising from or related
to the services of such director or officer in any of the foregoing capacities
prior to any such repeal or amendment to this Article X. Such right shall
include the right to be paid by the Corporation expenses incurred in defending
any such proceeding in advance of its final disposition to the maximum extent
permitted under the Delaware General Corporation Law, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the expenses of prosecuting such claim. It shall be a
defense to any such action that such indemnification or advancement of costs of
defense are not permitted under the Delaware General Corporation Law, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors, independent legal counsel,
or stockholders) to have made its determination prior to the commencement of
such action that in demnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or
stockholders) that such indemnification or advancement is not permissible shall
be a defense to the action or create a presumption that such indemnification or
advancement is not permissible. In the event of the death of any person having a
right of indemnification under the foregoing provisions, such right shall inure
to the benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
ARTICLE XI
Elections of directors need not be by written ballot unless the by-laws of
the Corporation shall so provide.
10
ARTICLE XII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article XI by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation arising
from an act or omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the Corporation is not
personally liable as set forth in the foregoing provisions of this Article XI, a
director shall not be liable to the Corporation or its stockholders to such
further extent as permitted by any law hereafter enacted, including, without
limitation, any subsequent amendment to the Delaware General Corporation Law.
4. This Amended and Restated Certificate of Incorporation was duly adopted
by vote of the stockholders in accordance with Sections 228, 242 and 245 of the
General Corporation Law of the state of Delaware.
11
IN WITNESS WHEREOF, said Carriage Services, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by Melvin C. Payne, its
President, this 2d day of July, 1996.
Carriage Services, Inc.
By: \s\ MELVIN C. PAYNE
Melvin C. Payne, President
12
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
CARRIAGE SERVICES, INC.
A Delaware Corporation
TABLE OF CONTENTS
PAGE
ARTICLE ONE: OFFICES........................................................1
1.1 REGISTERED OFFICE AND AGENT......................................1
1.2 OTHER OFFICES....................................................1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS.......................................1
2.1 ANNUAL MEETING...................................................1
2.2 SPECIAL MEETING..................................................1
2.3 PLACE OF MEETINGS................................................2
2.4 NOTICE...........................................................2
2.5 VOTING LIST......................................................2
2.6 QUORUM...........................................................2
2.7 REQUIRED VOTE; WITHDRAWAL OF QUORUM..............................3
2.8 METHOD OF VOTING; PROXIES........................................3
2.9 RECORD DATE......................................................3
2.10 CONDUCT OF MEETING...............................................4
2.11 INSPECTORS.......................................................4
2.12 NOMINATIONS FOR ELECTION AS A DIRECTOR...........................4
ARTICLE THREE: DIRECTORS....................................................5
3.1 MANAGEMENT.......................................................5
3.2 NUMBER; QUALIFICATION; ELECTION; TERM............................5
3.3 CHANGE IN NUMBER.................................................5
3.4 REMOVAL..........................................................6
3.5 VACANCIES........................................................6
3.6 MEETINGS OF DIRECTORS............................................6
3.7 FIRST MEETING....................................................6
3.8 ELECTION OF OFFICERS.............................................6
3.9 REGULAR MEETINGS.................................................6
3.10 SPECIAL MEETINGS.................................................6
3.11 NOTICE...........................................................6
3.12 QUORUM; MAJORITY VOTE............................................7
3.13 PROCEDURE........................................................7
3.14 PRESUMPTION OF ASSENT............................................7
3.15 COMPENSATION.....................................................7
ARTICLE FOUR: COMMITTEES....................................................7
4.1 DESIGNATION......................................................7
4.2 NUMBER; QUALIFICATION; TERM......................................8
4.3 AUTHORITY........................................................8
4.4 COMMITTEE CHANGES................................................8
i
4.5 ALTERNATE MEMBERS OF COMMITTEES..................................8
4.6 REGULAR MEETINGS.................................................8
4.7 SPECIAL MEETINGS.................................................8
4.8 QUORUM; MAJORITY VOTE............................................8
4.9 MINUTES..........................................................9
4.10 COMPENSATION.....................................................9
4.11 RESPONSIBILITY...................................................9
ARTICLE FIVE: NOTICE........................................................9
5.1 METHOD...........................................................9
5.2 WAIVER...........................................................9
ARTICLE SIX: OFFICERS......................................................10
6.1 NUMBER; TITLES; TERM OF OFFICE..................................10
6.2 REMOVAL.........................................................10
6.3 VACANCIES.......................................................10
6.4 AUTHORITY.......................................................10
6.5 COMPENSATION....................................................10
6.6 CHAIRMAN OF THE BOARD...........................................10
6.7 CHIEF EXECUTIVE OFFICER.........................................10
6.8 PRESIDENT.......................................................11
6.9 VICE PRESIDENTS.................................................11
6.10 TREASURER.......................................................11
6.11 ASSISTANT TREASURERS............................................11
6.12 SECRETARY.......................................................11
6.13 ASSISTANT SECRETARIES...........................................12
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS...............................12
7.1 CERTIFICATES FOR SHARES.........................................12
7.2 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES...................12
7.3 TRANSFER OF SHARES..............................................12
7.4 REGISTERED STOCKHOLDERS.........................................13
7.5 REGULATIONS.....................................................13
7.6 LEGENDS.........................................................13
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS....................................13
8.1 DIVIDENDS.......................................................13
8.2 RESERVES........................................................13
8.3 BOOKS AND RECORDS...............................................13
8.4 FISCAL YEAR.....................................................13
8.5 SEAL. ..........................................................13
8.6 RESIGNATIONS....................................................14
8.7 SECURITIES OF OTHER CORPORATION.................................14
8.8 TELEPHONE MEETINGS..............................................14
8.9 ACTION WITHOUT A MEETING........................................14
8.10 INVALID PROVISIONS..............................................14
ii
8.11 MORTGAGES, ETC..................................................14
8.12 HEADINGS........................................................15
8.13 REFERENCES......................................................15
8.14 AMENDMENTS......................................................15
iii
AMENDED AND RESTATED BY-LAWS
OF
CARRIAGE SERVICES, INC.
A Delaware Corporation
PREAMBLE
These Amended and Restated By-Laws (the "by-laws") are subject to, and
governed by, the General Corporation Law of the State of Delaware (the "Delaware
General Corporation Law") and the certificate of incorporation of Carriage
Services, Inc., a Delaware corporation (the "Corporation"). In the event of a
direct conflict between the provisions of these by-laws and the mandatory
provisions of the Delaware General Corporation Law or the provisions of the
certificate of incorporation of the Corporation, such provisions of the Delaware
General Corporation Law or the certificate of incorporation of the Corporation,
as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 REGISTERED OFFICE AND AGENT. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETING. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may properly be brought before the meeting.
2.2 SPECIAL MEETING. A special meeting of the stockholders of the
Corporation, and any proposals to be considered at such meetings, may be called
and proposed exclusively by the board of directors, pursuant to a resolution
approved by a majority of the members of the board of directors at the time in
office, and no stockholder of the Corporation shall require the board of
directors to call a special meeting of stockholders or to propose business at a
special meeting of stockholders. A special meeting shall be held on such date
and at such time as shall be designated by the person(s) calling the meeting and
stated in the notice of the meeting or in a duly executed waiver of notice of
such meeting. Only such business shall be transacted at a special meeting as may
be stated or indicated in the notice of such meeting or in a duly executed
waiver of notice of such meeting.
1
2.3 PLACE OF MEETINGS. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 NOTICE. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, to each stockholder of record entitled to vote at such meeting. If such
notice is to be sent by mail, it shall be directed to such stockholder at his
address as it appears on the records of the Corporation, unless he shall have
filed with the Secretary of the Corporation a written request that notices to
him be mailed to some other address, in which case it shall be directed to him
at such other address. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy.
2.5 VOTING LIST. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares registered in the name of each stockholder. For a period of ten days
prior to such meeting, such list shall be kept on file at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of meeting or a duly executed waiver of notice of such meeting or, if not
so specified, at the place where the meeting is to be held and shall be open to
examination by any stockholder during ordinary business hours. Such list shall
be produced at such meeting and kept at the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
2.6 QUORUM. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, shall constitute a quorum at
any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum
2
shall be present, in person or by proxy, any business may be transacted which
may have been transacted at the original meeting had a quorum been present;
provided that, if the adjournment is for more than 30 days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
2.7 REQUIRED VOTE; WITHDRAWAL OF QUORUM. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation, or these by-laws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 METHOD OF VOTING; PROXIES. At any meeting of stockholders, every
stockholder having the right to vote may vote either in person or by a proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Each such proxy shall be filed with the Secretary or an
Assistant Secretary of the Corporation before or at the time of the meeting. No
proxy shall be valid after three years from the date of its execution, unless
otherwise provided in the proxy. If no date is stated in a proxy, such proxy
shall be presumed to have been executed on the date of the meeting at which it
is to be voted. Each proxy shall be revocable unless expressly provided therein
to be irrevocable and coupled with an interest sufficient in law to support an
irrevocable power or unless otherwise made irrevocable by law.
2.9 RECORD DATE. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, for any such determination of stockholders, such date
in any case to be not more than 60 days and not less than ten days prior to such
meeting. If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
3
2.10 CONDUCT OF MEETING. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the absence
or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these by-laws or by a person appointed by the meeting.
2.11 INSPECTORS. The board of directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request, or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
2.12 NOMINATIONS FOR ELECTION AS A DIRECTOR. Only persons who are
nominated in accordance with the procedures set forth in these bylaws and
qualify for nomination pursuant to Section 3.2 shall be eligible for election by
stockholders as, and to serve as, directors. Nominations of persons for election
to the Board of Directors of the Corporation may be made at a meeting of
stockholders (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 2.12, who shall be entitled to
vote for the election of directors at the meeting and who complies with the
notice procedures set forth in this Section 2.12. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) with respect to an
election to be held at the annual meeting of the stockholders of the
Corporation, not less than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Corporation, and
(ii) with respect to an election to be held at a special meeting of stockholders
of the Corporation for the election of directors not later than the close of
business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed to stockholders of the Corporation as provided
in Section 2.4 or public disclosure of the date of the special meeting was made,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (x) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934,
4
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serve as a director if elected), and (y) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of voting stock of the Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. In the event that a person
is validly designated as a nominee to the Board of Directors in accordance with
the procedures set forth in this Section 2.12 and shall thereafter become unable
or unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee. Other than directors chosen pursuant to the
provisions of Section 3.5, no person shall be eligible to serve as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section 2.12. The presiding officer of the meeting of stockholders shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section 2.12, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this Section
2.12.
ARTICLE THREE: DIRECTORS
3.1 MANAGEMENT. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these by-laws, the board
of directors may exercise all the powers of the Corporation.
3.2 NUMBER; QUALIFICATION; ELECTION; TERM. The number of directors which
shall constitute the entire board of directors shall be not less than three nor
more than twelve. Within the limits above specified, the number of directors
which shall constitute the entire board of directors shall be determined by
resolution adopted by a majority of the members of the board of directors.
Except as otherwise required by law or the certificate of incorporation of the
Corporation, the directors shall be elected at an annual meeting of stockholders
at which a quorum is present. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy and entitled to
vote on the election of directors. Each director so chosen shall hold office
until his term expires as provided in the certificate of incorporation and until
his successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. None of the directors need be a stockholder
of the Corporation or a resident of the State of Delaware. Each director must
have attained the age of majority.
3.3 CHANGE IN NUMBER. No decrease in the number of directors constituting
the entire board of directors shall have the effect of shortening the term of
any incumbent director.
5
3.4 REMOVAL. Except as otherwise provided in the certificate of
incorporation of the Corporation, at any meeting of stockholders called
expressly for that purpose, any director or the entire board of directors may be
removed only for cause and only by a vote of the holders of at least eighty
percent (80%) of the shares then entitled to vote on the election of directors;
3.5 VACANCIES. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director, and each director so chosen shall hold office until his term
expires as provided in the certificate of incorporation and until his successor
is elected and qualified or, if earlier, until his death, resignation, or
removal from office. If there are no directors in office, an election of
directors may be held in the manner provided by statute. Except as otherwise
provided in the certificate of incorporation, when one or more directors shall
resign from the board of directors, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each director
so chosen shall hold office as provided in these by-laws with respect to the
filling of other vacancies.
3.6 MEETINGS OF DIRECTORS. The directors may hold their meetings and may
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of any such meeting or duly executed waiver of notice
of any such meeting.
3.7 FIRST MEETING. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 ELECTION OF OFFICERS. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.9 REGULAR MEETINGS. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.10 SPECIAL MEETINGS. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board, the President, or any
director.
6
3.11 NOTICE. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
3.12 QUORUM; MAJORITY VOTE. At all meetings of the board of directors, one
third (1/3) of the directors fixed in the manner provided in these by-laws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or these by-laws, the act
of a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these by-laws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.13 PROCEDURE. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of the
Corporation shall act as the secretary of each meeting of the board of directors
unless the board of directors appoints another person to act as secretary of the
meeting. The board of directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.
3.14 PRESUMPTION OF ASSENT. A director of the Corporation who is present
at a meeting of the board of directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.15 COMPENSATION. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
7
ARTICLE FOUR: COMMITTEES
4.1 DESIGNATION. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 NUMBER; QUALIFICATION; TERM. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.
4.3 AUTHORITY. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these by-laws.
4.4 COMMITTEE CHANGES. The board of directors shall have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 ALTERNATE MEMBERS OF COMMITTEES. The board of directors may designate
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 REGULAR MEETINGS. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 SPECIAL MEETINGS. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 QUORUM; MAJORITY VOTE. At meetings of any committee, a majority of the
number of members designated by the board of directors shall constitute a quorum
for the transaction of business. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any
8
meeting at which a quorum is in attendance shall be the act of a committee,
unless the act of a greater number is required by law, the certificate of
incorporation of the Corporation, these by-laws or the resolutions creating the
committee.
4.9 MINUTES. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 COMPENSATION. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 RESPONSIBILITY. The designation of any committee and the delegation
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE FIVE: NOTICE
5.1 METHOD. Whenever by statute, the certificate of incorporation of the
Corporation, or these by-laws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books (or
in the case of a stockholder, the stock transfer records of the Corporation), or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given upon the time when
the same is deposited in the United States; provided that, with respect to any
notice given to a director by mail, the Corporation shall telefax or send by
overnight courier a copy of such notice (the "Concurrent Mail Notice"), on the
same day that such notice is deposited in the mail, to a fax number or street
address previously provided by a director in writing to the Corporation; and
provided further, however, that failure of a director to receive the Concurrent
Mail Notice shall not affect the validity of the notice given by mail. Any
notice required or permitted to be given by overnight courier service shall be
deemed to be delivered and given upon the time delivered to such service with
all charges prepaid and addressed as aforesaid; provided that, with respect to
any notice given to a director by overnight courier service, the Corporation
shall telefax a copy of such notice (the "Concurrent Courier Notice"), on the
same day that such notice is deposited with the courier service, to a fax number
previously provided by a director in writing to the Corporation; and provided
further, however, that failure of a director to receive the Concurrent Courier
Notice shall not affect the validity of the notice given by overnight courier
service. Any notice required or permitted to be given by telegram, telex, or
telefax shall be deemed to be delivered and given upon the time transmitted as
aforesaid.
9
5.2 WAIVER. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these by-laws, a waiver
thereof in writing signed by the person or person entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 NUMBER; TITLES; TERM OF OFFICE. The officers of the Corporation shall
be a President, a Secretary, and such other officers as the board of directors
may from time to time elect or appoint, including, without limitation, a
Chairman of the Board, Chief Executive Officer, one or more Vice Presidents
(with each Vice President to have such descriptive title, if any, as the board
of directors shall determine), and a Treasurer. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified, until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided. Any two or more offices may be held by the same person.
None of the officers need be a stockholder or a director of the Corporation or a
resident of the state of Delaware.
6.2 REMOVAL. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 VACANCIES. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal or otherwise) may be filled by the board of
directors.
6.4 AUTHORITY. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these by-laws or as may
be determined by resolution of the board of directors not inconsistent with
these by-laws.
6.5 COMPENSATION. The compensation, if any, of officers and agents shall
be fixed from time to time by the board of directors; provided, however, that
the board of directors may delegate the power to determine the compensation of
any officer and agent (other than the officer to whom such power is delegated)
to a committee of the Board of Directors, the Chairman of the Board or the
President.
6.6 CHAIRMAN OF THE BOARD. The Chairman of the Board shall have such
powers and duties as may be reasonably prescribed by the board of directors.
Such officer shall preside, if present, at all meetings of the stockholders and
of the board of directors. Such officer may sign all certificates for shares of
stock of the Corporation.
10
6.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
general supervision of the affairs of the Corporation and shall have general and
active control of all its business. He shall preside, in the absence of the
Chairman of the Board, at all meetings of stockholders. He shall see that all
orders and resolutions of the Board of Directors and the stockholders are
carried into effect. He shall have general executive charge, management, and
control of the properties and operations of the Corporation in the ordinary
course of its business, with all such powers with respect to such properties and
operations as may be reasonably incident to such responsibility, and shall have
such powers and authority usually appertaining to the chief executive officer of
a corporation, except as otherwise provided in these by-laws.
6.8 PRESIDENT. The President shall have such powers and duties as may be
assigned to him by the Chief Executive Officer. If the board of directors has
not elected a Chief Executive Officer or in the absence or inability to act of
the Chief Executive Officer, the President shall exercise all of the powers and
discharge all of the duties of the Chief Executive Officer. As between the
Corporation and third parties, any action taken by the President in the
performance of the duties of the Chief Executive Officer shall be conclusive
evidence that there is no Chief Executive Officer or that the Chief Executive
Officer is absent or unable to act.
6.9 VICE PRESIDENTS. Each Vice President shall have such powers and duties
as may be assigned to him by the board of directors, the Chief Executive Officer
or the President, and (in order of their seniority as determined by the board of
directors or, in the absence of such determination, as determined by the length
of time they have held the office of Vice President) shall exercise the powers
of the President during that officer's absence or inability to act. As between
the Corporation and third parties, any action taken by a Vice President in the
performance of the duties of the President shall be conclusive evidence of the
absence or inability to act of the President at the time such action was taken.
6.10 TREASURER. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chief Executive Officer or the
President.
6.11 ASSISTANT TREASURERS. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him by the board of directors, the Chief
Executive Officer or the President. The Assistant Treasurers (in the order of
their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer during
that officer's absence or inability to act.
6.12 SECRETARY. Except as otherwise provided in these by-laws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board, the Chief Executive Officer or the President, in the name of the
Corporation, all contracts of the Corporation and affix the seal of the
Corporation thereto. He may sign with the Chairman of the Board, the Chief
Executive Officer or the President all
11
certificates for shares of stock of the Corporation, and he shall have charge of
the certificate books, transfer books, and stock papers as the board of
directors may direct, all of which shall at all reasonable times be open to
inspection by any director upon application at the office of the Corporation
during business hours. He shall in general perform all duties incident to the
office of the Secretary, subject to the control of the board of directors, the
Chief Executive Officer, and the President.
6.13 ASSISTANT SECRETARIES. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the Chief
Executive Officer or the President. The Assistant Secretaries (in the order of
their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Secretary) shall exercise the powers of the Secretary during
that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 CERTIFICATES FOR SHARES. Certificate for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if her were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.
7.2 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. The board of directors
may direct a new certificate or certificates to be issued in place of a
certificate or certificates theretofore issued by the Corporation and alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates representing shares to be lost
or destroyed. When authorizing such issue of a new certificate or certificates
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond with a surety or
sureties satisfactory to the Corporation in such sum as it may direct as
indemnity against any claim, or expense resulting from a claim, that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost or destroyed.
7.3 TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized
12
attorneys or legal representatives. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, the Corporation or its transfer agent shall issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
7.4 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 REGULATIONS. The board of directors shall have the power and authority
to make all such rules and regulations as they may deem expedient concerning the
issue, transfer, and registration or the replacement of certificates for shares
of stock of the Corporation.
7.6 LEGENDS. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 DIVIDENDS. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 RESERVES. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 BOOKS AND RECORDS. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the board
of directors and the selection of the fiscal year is not expressly deferred by
the board of directors, the fiscal year shall be the calendar year.
13
8.5 SEAL. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.
8.6 RESIGNATIONS. Any director, committee member, or officer may resign by
so stating at any meeting of the board of directors or by giving written notice
to the board of directors, the Chairman of the Board, the President, or the
Secretary. Such resignation shall take effect at the time specified therein or,
if no time is specified therein, immediately upon its receipt. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
8.7 SECURITIES OF OTHER CORPORATION. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy, or
consent with respect to any such securities.
8.8 TELEPHONE MEETINGS. Stockholders (acting for themselves or through a
proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 ACTION WITHOUT A MEETING. Unless otherwise restricted by the
certificate of incorporation of the Corporation or by these by-laws, any action
required or permitted to be taken at a meeting of the stockholders of the
Corporation, the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by the number of stockholders
required by law or the certificate of incorporation of the Corporation, all the
directors or all the committee members, as the case may be, entitled to vote
with respect to the subject matter thereof, and such consent shall have the same
force and effect as a vote of such stockholders, directors or committee members,
as the case may be, and may be stated as such in any certificate or document
filed with the Secretary of State of the State of Delaware or in any certificate
delivered to any person. Such consent or consents shall be filed with the
minutes of proceedings of the stockholders, board or committee, as the case may
be.
8.10 INVALID PROVISIONS. If any part of these by-laws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 MORTGAGES, ETC. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized officer
or officers, the
14
attestation to such execution by the Secretary of the Corporation shall not be
necessary to constitute such deed, deed of trust, mortgage, or other instrument
a valid and binding obligation against the Corporation unless the resolutions,
if any, of the board of directors authorizing such execution expressly state
that such attestation is necessary.
8.12 HEADINGS. The headings used in these by-laws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 REFERENCES. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
8.14 AMENDMENTS. These by-laws may be altered, amended, or repealed or new
by-laws may be adopted by the board of directors, or by the affirmative vote of
the holders of not less than two-thirds of the shares of the Corporation then
entitled to be voted in an election of directors, voting together as a single
class.
The undersigned, the Secretary of the Corporation, hereby certifies that
the foregoing by-laws were adopted by unanimous consent by the directors of the
Corporation as of July 2, 1996.
\s\ MARK W. DUFFEY
Mark W. Duffey, Secretary
15
EXHIBIT 4.1
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
NUMBER C A R R I A G E SHARES
SERVICES
THIS CERTIFICATE IS CUSIP 143905-10-7
TRANSFERABLE IN SEE REVERSE FOR CERTAIN
NEW YORK, NEW YORK DEFINITIONS
CARRIAGE SERVICES, INC.
CLASS A COMMON STOCK
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A
COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
Carriage Services, Inc. transferable on the books of the Corporation by the
holder hereof in person or by a duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Countersigned and Registered:
_____________________________
Transfer Agent and Registrar
Dated:
By
President Secretary Authorized Signature
CARRIAGE SERVICES, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof which
the Corporation is authorized to issue and the qualifications, limitations or
restrictions of such preferences and/or rights. Any such request should be
addressed to the Corporation at its principal place of business or to the
Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT -......Custodian......
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to
survivorship and not as tenants Minors Act
in common .....................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP OR POSTAL
CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Class A Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated, _______________________
X ______________________________
NOTICE: THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVE-
RY PARTICULAR, WITHOUT ALTER-
ATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
x ______________________________
ALL GUARANTEES MUST BE MADE BY
A FINANCIAL INSTITUTION (SUCH
AS A BANK OR BROKER) WHICH IS A
PARTICIPANT IN THE SECURITIES
TRANSFER AGENTS MEDALLION
PROGRAM ("STAMP"), THE NEW YORK
STOCK EXCHANGE, INC. MEDALLION
SIGNATURE PROGRAM ("MSP"), OR
THE STOCK EXCHANGES MEDALLION
PROGRAM ("SEMP") AND MUST NOT
BE DATED. GUARANTEES BY A
NOTARY PUBLIC ARE NOT
ACCEPTABLE.
EXHIBIT 5.1
[Vinson & Elkins L.L.P. Letterhead]
July 16, 1996
Carriage Services, Inc.
1300 Post Oak Blvd.
Suite 1500
Houston, Texas 77056
Gentlemen:
We are acting as counsel for Carriage Services, Inc., a Delaware
corporation (the "Company"), in connection with the proposed offer and sale by
the Company to the Underwriters (the "Underwriters"), pursuant to the prospectus
forming a part of a Registration Statement on Form S-1, File No. 333-05545,
originally filed with the Securities and Exchange Commission (the "S.E.C.") on
June 7, 1996 (such Registration Statement, as amended at the effective date
thereof being referred to herein as the "Registration Statement"), of an
aggregate of 3,400,000 shares of Class A Common Stock, par value $.01 per share
("Common Stock"), of the Company, together with a maximum of 510,000 shares of
Common Stock which may be sold to the Underwriters pursuant to the
over-allotment option provided in the Purchase Agreement and such additional
shares of Common Stock, representing up to 20% of the maximum aggregate offering
price set forth in the Registration Statement, which may be sold to the
Underwriters and which would be registered with the S.E.C. pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), (collectively, said shares of Common Stock are referred to herein as the
"Shares"). Capitalized terms used but not defined herein have the meanings set
forth in the Registration Statement.
We are rendering this opinion as of the time the Registration Statement
becomes effective in accordance with Section 8(a) of the Securities Act.
In connection with the opinion expressed herein, we have examined, among
other things, the Amended and Restated Certificate of Incorporation and the
Amended and Restated Bylaws of the Company, the records of corporate proceedings
that have occurred prior to the date hereof with respect to such offering, the
Registration Statement and the form of Purchase Agreement to be executed among
the Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and The Chicago
Corporation, as Representatives of the several Underwriters. We have also
reviewed such questions of law as we have deemed necessary or appropriate.
Based upon the foregoing, we are of the opinion that the Shares proposed
to be sold by the Company to the Underwriters have been validly authorized for
issuance and, upon the issuance and delivery thereof in accordance with the
provisions of the Purchase Agreement (assuming that it is executed in the form
reviewed by us), and as set forth in the Registration Statement, will be validly
issued, fully paid and nonassessable.
This opinion is limited in all respects to the General Corporation Law of
the State of Delaware.
We hereby consent to the statements with respect to us under the heading
"Legal Matters" in the prospectus forming a part of the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement
and the incorporation by reference of this opinion and consent in a registration
statement filed to register additional shares of Common Stock pursuant to Rule
462(b) promulgated under the Securities Act, but we don not thereby admit that
were are within the class of persons whose consent is required under the
provisions of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission issued thereunder.
Very truly yours,
\s\ VINSON & ELKINS L.L.P.
EXHIBIT 10.1
================================================================================
CARRIAGE FUNERAL SERVICES, INC.
1995 STOCK INCENTIVE PLAN
JULY 1, 1995
================================================================================
TABLE OF CONTENTS
PAGE
----
ARTICLE I. GENERAL........................................................ 1
Section 1.1. PURPOSE................................................ 1
Section 1.2. ADMINISTRATION......................................... 1
Section 1.3. ELIGIBILITY FOR PARTICIPATION.......................... 1
Section 1.4. TYPES OF AWARDS UNDER PLAN............................. 2
Section 1.5. AGGREGATE LIMITATION ON AWARDS......................... 2
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN........................ 3
ARTICLE II. STOCK OPTIONS................................................. 3
Section 2.1. AWARD OF STOCK OPTIONS................................. 3
Section 2.2. STOCK OPTION AGREEMENTS................................ 3
Section 2.3. STOCK OPTION PRICE..................................... 3
Section 2.4. TERM AND EXERCISE...................................... 3
Section 2.5. MANNER OF PAYMENT...................................... 3
Section 2.6. DELIVERY OF SHARES..................................... 4
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT
OF OPTIONEE.......................................... 4
Section 2.8. TAX ELECTION........................................... 4
Section 2.9. EFFECT OF EXERCISE..................................... 4
ARTICLE III. INCENTIVE STOCK OPTIONS ..................................... 5
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS....................... 5
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS...................... 5
Section 3.3. INCENTIVE STOCK OPTION PRICE........................... 5
Section 3.4. TERM AND EXERCISE...................................... 5
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT......... 5
Section 3.6. DEATH OF OPTIONEE...................................... 5
Section 3.7. RETIREMENT OR DISABILITY............................... 5
Section 3.8. TERMINATION FOR OTHER REASONS.......................... 6
Section 3.9. APPLICABILITY OF STOCK OPTIONS SECTIONS................ 6
ARTICLE IV. RELOAD OPTIONS ............................................... 6
Section 4.1. AUTHORIZATION OF RELOAD OPTIONS........................ 6
Section 4.2. RELOAD OPTION AMENDMENT................................ 6
Section 4.3. RELOAD OPTION PRICE.................................... 6
Section 4.4. TERM AND EXERCISE...................................... 6
Section 4.5. TERMINATION OF EMPLOYMENT.............................. 6
Section 4.6. APPLICABILITY OF STOCK OPTIONS SECTIONS................ 7
ARTICLE V. ALTERNATE APPRECIATION RIGHTS ................................. 7
Section 5.1. AWARD OF ALTERNATE APPRECIATION RIGHTS................. 7
Section 5.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT................ 7
Section 5.3. EXERCISE............................................... 7
Section 5.4. AMOUNT OF PAYMENT...................................... 7
Section 5.5. FORM OF PAYMENT........................................ 7
Section 5.6. EFFECT OF EXERCISE..................................... 7
Section 5.7. TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH
OR DISABILITY........................................ 7
-i-
ARTICLE VI. LIMITED RIGHTS ............................................... 8
Section 6.1. AWARD OF LIMITED RIGHTS................................ 8
Section 6.2. LIMITED RIGHTS AGREEMENT............................... 8
Section 6.3. EXERCISE PERIOD........................................ 8
Section 6.4. AMOUNT OF PAYMENT...................................... 8
Section 6.5. FORM OF PAYMENT........................................ 8
Section 6.6. EFFECT OF EXERCISE..................................... 9
Section 6.7. RETIREMENT OR DISABILITY............................... 9
Section 6.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS..... 9
Section 6.9. TERMINATION RELATED TO A CHANGE IN CONTROL............. 9
ARTICLE VII. BONUS STOCK AWARDS........................................... 9
Section 7.1. AWARD OF BONUS STOCK................................... 9
Section 7.2. STOCK BONUS AGREEMENTS................................. 9
Section 7.3. TRANSFER RESTRICTION................................... 9
ARTICLE VIII. MISCELLANEOUS .............................................. 9
Section 8.1. GENERAL RESTRICTION.................................... 9
Section 8.2. NON-ASSIGNABILITY..................................... 10
Section 8.3. WITHHOLDING TAXES..................................... 10
Section 8.4. RIGHT TO TERMINATE EMPLOYMENT.......................... 10
Section 8.5. NON-UNIFORM DETERMINATIONS............................. 10
Section 8.6. RIGHTS AS A SHAREHOLDER................................ 10
Section 8.7. DEFINITIONS............................................ 10
Section 8.8. LEAVES OF ABSENCE...................................... 11
Section 8.9. NEWLY ELIGIBLE EMPLOYEES............................... 11
Section 8.10. ADJUSTMENTS............................................ 11
Section 8.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE............. 11
Section 8.12. AMENDMENT OF THIS PLAN................................. 12
-ii-
CARRIAGE FUNERAL SERVICES, INC.
1995 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
Section 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the management of
Carriage Funeral Services, Inc., a Delaware corporation (the "Company"), and its
subsidiaries and affiliates (the Company, together with its subsidiaries and
affiliates, being hereafter collectively referred to as "Carriage") with the
shareholders of the Company to generate an increased incentive to contribute to
the Company's future success and prosperity, thus enhancing the value of the
Company for the benefit of its shareholders; (2) provide management with a
proprietary ownership interest in the Company commensurate with Carriage's
performance, as reflected in increased shareholder value; (3) maintain
competitive compensation levels thereby attracting and retaining highly
competent and talented directors and employees; and (4) provide an incentive to
management for continuous employment with Carriage.
Section 1.2. ADMINISTRATION.
(a) This Plan shall be administered by a Committee of disinterested
persons appointed by the Board of Directors of the Company (the
"Committee"), as constituted from time to time. The Committee shall
consist of at least one member of the Board of Directors. During the
one-year prior to commencement of service on the Committee, the Committee
members will not have participated in, and while serving and for one year
after serving on the Committee, such members shall not be eligible for
selection as, persons to whom stock may be allocated or to whom stock
options or stock appreciation rights may be granted under this Plan or any
other discretionary plan of the Company under which participants are
entitled to acquire stock, stock options, or stock appreciation rights of
the Company other than the automatic grant of nondiscretionary awards as
provided in Article VII.
(b) The Committee shall have the authority, in its sole discretion
and from time to time to:
(i) designate the employees or classes of employees of
Carriage and other persons who are eligible to participate in this
Plan;
(ii) grant awards ("Awards") provided in this Plan in such
form and amount as the Committee shall determine;
(iii) impose such limitations, restrictions, and conditions,
not inconsistent with this Plan, upon any such Award as the
Committee shall deem appropriate; and
(iv) interpret this Plan and any agreement, instrument, or
other document executed in connection with this Plan; adopt, amend,
and rescind rules and regulations relating to this Plan; and make
all other determinations and take all other action necessary or
advisable for the implementation and administration of this Plan.
(c) Decisions and determinations of the Committee on all matters
relating to this Plan shall be in its sole discretion and shall be final,
conclusive, and binding upon all persons, including the Company, any
participant, any shareholder of the Company, and any employee of Carriage.
A majority of the members of the Committee may determine its actions and
fix the time and place of its meetings. No member of the Committee shall
be liable for any action taken or decision made in good faith relating to
this Plan or any Award thereunder.
Section 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in this Plan
("Participants") shall be selected by the Committee from the directors,
executive officers and other employees of Carriage who are responsible for or
contribute to the management, growth, success and, profitability of Carriage,
and from persons (not otherwise
-1-
specified above) who are former owners of funeral homes or cemeteries that have
been acquired by Carriage. In making this selection and in determining the form
and amount of Awards, the Committee shall consider any factors deemed relevant,
including the individual's functions, responsibilities, value of services to
Carriage, and past and potential contributions to Carriage's profitability and
growth.
Section 1.4. TYPES OF AWARDS UNDER PLAN. Awards under this Plan may be in
the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Reload Options, as described in Article IV;
(iv) Alternate Appreciation Rights, as described in Article V;
(v) Limited Rights, as described in Article VI; and/or
(vi) Stock Bonus Awards,as described in Article VII.
Awards under this Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award ("Award Agreement"), in form and
substance satisfactory to the Committee, and not inconsistent with this Plan.
Section 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under this Plan shall be
authorized and unissued or treasury shares of Common Stock $.01 par value,
of the Company ("Common Stock"). The maximum number of shares of Common
Stock which may be issued under this Plan shall be 500,000, which number
shall be increased on January 1 of each calendar year, commencing on
January 1, 1997 and continuing each calendar year thereafter for the
duration of this Plan, by an amount equal to one percent (1%) of the
number of shares of Common Stock outstanding on December 31 of the
preceding calendar year. The number of shares which may be issued under
this Plan and as to which options may be granted shall be subject to
adjustment as provided in Section 8.11.
(b) For purposes of calculating the maximum number of shares of
Common Stock that may be issued under this Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
cash is used as full payment for shares issued upon exercise of a
Stock Option, Incentive Stock Option, or Reload Option;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an
exercise of Alternate Appreciation Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
shares of Common Stock or another Award under this Plan are used or
withheld as full or partial payment for shares issued upon exercise
of a Stock Option, Incentive Stock Option, or Reload Option.
-2-
(c) In addition to shares of Common Stock actually issued pursuant
to the exercise of Stock Options, Incentive Stock Options, Reload Options,
or Alternate Appreciation Rights, there shall be deemed to have been
issued a number of shares equal to the number of shares of Common Stock in
respect of which Limited Rights (as described in Article VI) shall have
been exercised.
(d) Shares tendered by a participant or withheld as payment for
shares issued upon exercise of a Stock Option, Incentive Stock Option, or
Reload Option shall be available for issuance under this Plan. Any shares
of Common Stock subject to a Stock Option, Incentive Stock Option, or
Reload Option that for any reason is terminated unexercised or expires
shall again be available for issuance under this Plan, but shares subject
to a Stock Option, Incentive Stock Option, or Reload Option that are not
issued as a result of the exercise of Limited Rights shall not again be
available for issuance under this Plan.
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN.
(a) This Plan shall become effective on the date approved by the
holders of a majority of the shares of Common Stock pursuant to one or
more written consents or at an annual or special meeting of shareholders
of the Company, in either event within twelve (12) months after this Plan
is adopted by its Board of Directors.
(b) No Awards shall be made under this Plan after the tenth
anniversary of the effective date of this Plan; provided, however, that
this Plan and all Awards made under this Plan prior to such date shall
remain in effect until such Awards have been satisfied or terminated in
accordance with this Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. AWARD OF STOCK OPTIONS. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in this Plan one or
more options to purchase the number of shares of Common Stock ("Stock Options")
allotted by the Committee. The date a Stock Option is granted shall mean the
date selected by the Committee as of which the Committee allots a specific
number of shares to a participant pursuant to this Plan.
Section 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall be
evidenced by a written Award Agreement, executed by the Company and the holder
of a Stock Option (the "Optionee"), stating the number of shares of Common Stock
subject to the Stock Option evidenced thereby, and in such form as the Committee
may from time to time determine.
Section 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be an amount
selected by the Committee and shall not be less than 100% of the fair market
value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. TERM AND EXERCISE. A Stock Option shall not be exercisable
prior to six months from the date of its grant and unless a shorter period is
provided by the Committee or by another Section of this Plan, may be exercised
during a period of ten years from the date of grant thereof (the "Option Term").
No Stock Option shall be exercisable after the expiration of its Option Term.
Section 2.5. MANNER OF PAYMENT. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the Optionee shall pay to the Company,
in full, the option price for such shares with cash, or with previously owned
Common Stock, or at the discretion of the Committee, in whole or in part with,
the surrender of another Award under this Plan, the withholding of shares of
Common Stock
-3-
issuable upon exercise of such Stock Option, other property, or any combination
thereof (each based on the fair market value of such Common Stock, Award or
other property on the date the Stock Option is exercised as determined by the
Committee).
Section 2.6. DELIVERY OF SHARES. As soon as practicable after receipt of
payment, the Company shall deliver to the Optionee a certificate or certificates
for such shares of Common Stock. The Optionee shall become a shareholder of the
Company with respect to Common Stock represented by share certificates so issued
and as such shall be fully entitled to receive dividends, to vote and to
exercise all other rights of a shareholder.
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF OPTIONEE.
Unless otherwise provided in an Award Agreement or otherwise agreed to by the
Committee:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
effective term of the Stock Option and one year after the Optionee's
death. The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but
only to the extent of any rights exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the
Committee), the Optionee may, within up to a maximum of 36 months from the
date of termination (or such shorter period of time as may be determined
by the Committee in any instance, as reflected in each Optionee's Award
Agreement), exercise any Stock Options to the extent such options are
exercisable during such 36-month period.
(c) Except as provided in Subsections (a) and (b) of this Section
2.7, or except as otherwise determined by the Committee, all Stock Options
shall terminate three months after the date of the termination of the
Optionee's employment (or such shorter period of time as may be determined
by the Committee in any instance, as reflected in each Optionee's Award
Agreement).
Section 2.8. TAX ELECTION. Provided that the Company is a "reporting
company" under the Securities Exchange Act of 1934, as amended, at the time of
exercise of a Stock Option, recipients of Stock Options who are directors or
executive officers of the Company or who own more than 10% of the Common Stock
of the Company ("Section 16(a) Option Holders") at the time of exercise of a
Stock Option may elect, in lieu of paying to the Company an amount required to
be withheld under applicable tax laws in connection with the exercise of a Stock
Option in whole or in part, to have the Company withhold shares of Common Stock
having a fair market value equal to the amount required to be withheld. Such
election may not be made prior to six months following the grant of the Stock
Option, except in the event of a Section 16(a) Option Holder's death or
disability. The election may be made at the time the Stock Option is exercised
by notifying the Company of the election, specifying the amount of such
withholding and the date on which the number of shares to be withheld is to be
determined ("Tax Date"), which shall be either (i) the date the Stock Option is
exercised or (ii) a date six months after the Stock Option was granted, if
later. The number of shares of Common Stock to be withheld to satisfy the tax
obligation shall be the amount of such tax liability divided by the fair market
value of the Common Stock on the Tax Date (or if not a business day, on the next
closest business day). If the Tax Date is not the exercise date, the Company may
issue the full number of shares of Common Stock to which the Section 16(a)
Option Holder is entitled, and such option holder shall be obligated to tender
to the Company on the Tax Date a number of such shares necessary to satisfy the
withholding obligation. Certificates representing such shares of Common Stock
shall bear a legend describing such Section 16(a) Option Holders obligation
hereunder.
Section 2.9. EFFECT OF EXERCISE. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, that is equal to the number of shares of Common Stock
-4-
purchased pursuant to said option unless otherwise agreed by the Committee in an
Award Agreement or otherwise.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from
time to time and subject to the provisions of this Plan and such other terms and
conditions as the Committee may prescribe, grant to any participant in this Plan
one or more "incentive stock options" (intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Incentive Stock Options") to purchase the number of shares of Common
Stock allotted by the Committee. The date an Incentive Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of shares to a participant pursuant to this Plan.
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Committee may from time to time
determine.
Section 3.3. INCENTIVE STOCK OPTION PRICE. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
at least 100% of the fair market value of a share of Common Stock on the date
the Incentive Stock Option is granted; provided, however, the option price per
share of Common Stock deliverable upon the exercise of an Incentive Stock Option
granted to any owner of 10% or more of the total combined voting power of all
classes of stock of the Company and its subsidiaries shall be at least 110% of
the fair market value of a share of Common Stock on the date the Incentive Stock
Option is granted.
Section 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant and, unless a shorter
period is provided by the Committee or another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
"Option Term"). No Incentive Stock Option shall be exercisable after the
expiration of its Option Term.
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The aggregate
fair market value (determined on the date the option is granted) of Common Stock
subject to an Incentive Stock Option granted to an Optionee by the Committee in
any calendar year shall not exceed $100,000.
Section 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
option term of the Incentive Stock Option and one year after the
Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death,
but only to the extent of any Incentive Stock Options exercisable on the
date of death.
Section 3.7. RETIREMENT OR DISABILITY. Upon the termination of the
Optionee's employment by reason of permanent disability or retirement (as each
is determined by the Committee), the Optionee may, within 36 months from the
date of such termination of employment (or such shorter period of time as may be
determined by the Committee in any instance, as reflected in each Optionee's
Award Agreement), exercise any Incentive Stock Options to the extent such
Incentive Stock Options were exercisable at the date of such termination of
employment.
-5-
Notwithstanding the foregoing, the tax treatment available pursuant to Section
422 of the Code upon the exercise of an Incentive Stock Option will not be
available to an Optionee who exercises any Incentive Stock Options more than (i)
12 months after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of employment due
to retirement.
Section 3.8. TERMINATION FOR OTHER REASONS. Except as provided in Sections
3.6 and 3.7 or except as otherwise determined by the Committee, all Incentive
Stock Options shall terminate three months after the date of the termination of
the Optionee's employment (or such shorter period of time as may be determined
by the Committee in any instance, as reflected in each Optionee's Award
Agreement).
Section 3.9. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5, Manner
of Payment; 2.6, Delivery of Shares; 2.8, Tax Elections and 2.9, Effect of
Exercise, applicable to Stock Options, shall apply equally to Incentive Stock
Options. Such Sections are incorporated by reference in this Article III as
though fully set forth herein.
ARTICLE IV. RELOAD OPTIONS
Section 4.1. AUTHORIZATION OF RELOAD OPTIONS. Concurrently with or
subsequent to the award of Stock Options and/or the award of Incentive Stock
Options to any participant in this Plan, the Committee may authorize reload
options ("Reload Options") to purchase shares of Common Stock. The number of
Reload Options shall equal (i) the number of shares of Common Stock used to pay
the exercise price of the underlying Stock Options or Incentive Stock Options
and (ii) to the extent authorized by the Committee, the number of shares of
Common Stock withheld by the Company in payment of the exercise price underlying
the Stock Option or Incentive Stock Option or used to satisfy any tax
withholding requirement incident to the exercise of the underlying Stock Options
or Incentive Stock Options. The grant of a Reload Option will become effective
upon the exercise of underlying Stock Options, Incentive Stock Options, or
Reload Options through the use of shares of Common Stock held by the Optionee or
the withholding of shares by the Company in payment of the exercise price of the
underlying Stock Option or Incentive Stock Option held by the Optionee.
Notwithstanding the fact that the underlying option may be an Incentive Stock
Option, a Reload Option is not intended to qualify as an "incentive stock
option" under Section 422 of the Code.
Section 4.2. RELOAD OPTION AMENDMENT. Each Award Agreement shall state
whether the Committee has authorized Reload Options with respect to the Stock
Options and/or Incentive Stock Options covered by such Agreement. Upon the
exercise of an underlying Stock Option, Incentive Stock Option, or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Award Agreement in such form as the Committee shall approve.
Section 4.3. RELOAD OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Reload Option shall be the fair market
value of a share of Common Stock on the date the grant of the Reload Option
becomes effective.
Section 4.4. TERM AND EXERCISE. Each Reload Option is fully exercisable
six months from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the underlying Stock Option
and/or Incentive Stock Option.
Section 4.5. TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee in an Award Agreement or otherwise, no additional Reload Options shall
be granted to Optionees when Stock Options, Incentive Stock Options, and/or
Reload Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
Section 4.6. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5, Manner
of Payment; 2.6 Delivery of Shares; 2.7, Death, Retirement and Termination of
Employment of Optionee; 2.8, Tax Elections; and 2.9, Effect of
-6-
Exercise, applicable to Stock Options, shall apply equally to Reload Options.
Such Sections are incorporated by reference in this Article IV as though fully
set forth herein.
ARTICLE V. ALTERNATE APPRECIATION RIGHTS
Section 5.1. AWARD OF ALTERNATE APPRECIATION RIGHTS. Concurrently with or
subsequent to the award of any Stock Option, Incentive Stock Option, or Reload
Option to purchase one or more shares of Common Stock, the Committee may,
subject to the provisions of this Plan and such other terms and conditions as
the Committee may prescribe, award to the Optionee with respect to each share of
Common Stock covered by an Option, a related alternate appreciation right
permitting the Optionee to be paid the appreciation on the Option in lieu of
exercising the Option ("Alternate Appreciation Right").
Section 5.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT. Alternate
Appreciation Rights shall be evidenced by written Award Agreements in such form
as the Committee may from time to time determine.
Section 5.3. EXERCISE. An Optionee who has been granted Alternate
Appreciation Rights may, from time to time, in lieu of the exercise of an equal
number of Options, elect to exercise one or more Alternate Appreciation Rights
and thereby become entitled to receive from the Company payment in Common Stock
of the number of shares determined pursuant to Sections 5.4 and 5.5. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Options related thereto are exercisable, as provided
in this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
Section 5.4. AMOUNT OF PAYMENT. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Alternate Appreciation Right shall
be equal to 100% of the amount, if any, by which the fair market value of a
share of Common Stock on the exercise date exceeds the option price per share on
the Option related to such Alternate Appreciation Right. A Section 16(a) Option
Holder may elect to withhold shares of Common Stock issued under this Section to
pay taxes as described in Section 2.8.
Section 5.5. FORM OF PAYMENT. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section 5.4
by the fair market value of a share of Common Stock on the exercise date of such
Alternate Appreciation Rights. As soon as practicable after exercise, the
Company shall deliver to the Optionee a certificate or certificates for such
shares of Common Stock.
Section 5.6. EFFECT OF EXERCISE. Unless otherwise provided in an Award
Agreement or agreed to by the Committee, the exercise of any Alternate
Appreciation Rights shall cancel an equal number of Stock Options, Incentive
Stock Options, Reload Options, and Limited Rights, if any, related to said
Alternate Appreciation Rights.
Section 5.7. TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH OR DISABILITY.
Unless otherwise provided in an Award Agreement or agreed to by the Committee:
(a) Upon termination of the Optionee's employment (including
employment as a director of the Company after an Optionee terminates
employment as an officer or key employee of the Company) by reason of
permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within six months from the date of such
termination (or such shorter period of time as may be determined by the
Committee in any instance, as reflected in each Optionee's Award
Agreement), exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such period.
(b) Except as provided in Section 5.7(a), all Alternate Appreciation
Rights shall terminate three months after the date of the termination of
the Optionee's employment or upon the death of the Optionee.
-7-
ARTICLE VI. LIMITED RIGHTS
Section 6.1. AWARD OF LIMITED RIGHTS. Concurrently with or subsequent to
the award of any Stock Option, Incentive Stock Option, Reload Option, or
Alternate Appreciation Right, the Committee may, subject to the provisions of
this Plan and such other terms and conditions as the Committee may prescribe,
award to the Optionee with respect to each share of Common Stock covered by an
Option, a related limited right permitting the Optionee, during a specified
limited time period, to be paid the appreciation on the option in lieu of
exercising the option ("Limited Right").
Section 6.2. LIMITED RIGHTS AGREEMENT. Limited Rights granted under this
Plan shall be evidenced by written Award Agreements in such form as the
Committee may from time to time determine.
Section 6.3. EXERCISE PERIOD. Limited Rights are exercisable in full for a
period of seven months following the date of a Change in Control of the Company
(the "Exercise Period"); provided, however, that Limited Rights may not be
exercised under any circumstances until the expiration of the six-month period
following the date of grant.
As used in this Plan, a "Change in Control" shall be deemed to have
occurred if:
(a) individuals who were directors of the Company immediately prior
to a Control Transaction shall cease, within one year of such Control
Transaction, to constitute a majority of the Board of Directors of the
Company (or of the Board of Directors of any successor to the Company or
to all or substantially all of its assets), or
(b) any entity, person, or Group other than the Company or the
current directors or executive officers of the Company acquires shares of
the Company in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning beneficially 51% or
more of the outstanding shares.
As used herein, "Control Transaction" shall be (i) any tender offer for or
acquisition of capital stock of the Company, (ii) any merger, consolidation, or
sale of all or substantially all of the assets of the Company which has been
approved by the shareholders, (iii) any contested election of directors of the
Company, or (iv) any combination of the foregoing which results in a change in
voting power sufficient to elect a majority of the Board of Directors of the
Company. As used herein, "Group" shall mean persons who act in concert as
described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of
1934, as amended.
Section 6.4. AMOUNT OF PAYMENT. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Limited Right shall be equal to 100%
of the amount, if any, which is equal to the difference between the option price
per share of Common Stock covered by the related option and the Market Price of
a share of such Common Stock. "Market Price" is defined to be the greater of (i)
the highest price per share of the Company's Common Stock paid in connection
with any Change in Control and (ii) the fair market value per share of the
Company's Common Stock determined in accordance with Section 8.7(c).
Section 6.5. FORM OF PAYMENT. Payment of the amount to which an Optionee
is entitled upon the exercise of Limited Rights, as determined pursuant to
Section 6.4, shall be made solely in cash.
Section 6.6. EFFECT OF EXERCISE. If Limited Rights are exercised, the
Stock Options, Incentive Stock Options, Reload Options, and Alternate
Appreciation Rights, if any, related to such Limited Rights shall cease to be
exercisable to the extent of the number of shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of the Stock
Options, Incentive Stock Options, Reload Options, and Alternate Appreciation
Rights, if any, related to such Limited Rights, the Limited Rights granted with
respect thereto terminate to the extent of the number of shares as to which the
related options and Alternate Appreciation Rights were exercised or terminated.
-8-
Section 6.7. RETIREMENT OR DISABILITY. Upon termination of the Optionee's
employment (including employment as a director of the Company after an Optionee
terminates employment as an officer or key employee of the Company) by reason of
permanent disability or retirement (as each is determined by the Committee), the
Optionee may, within six months from the date of termination, exercise any
Limited Right to the extent such Limited Right is exercisable during such
six-month period.
Section 6.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except as
provided in Sections 6.7 and 6.9, or except as otherwise determined by the
Committee, all Limited Rights granted under this Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the Optionee.
Section 6.9. TERMINATION RELATED TO A CHANGE IN CONTROL. The requirement
that an Optionee be terminated by reason of retirement or permanent disability
or be employed by Carriage at the time of exercise pursuant to Sections 6.7 and
6.8 respectively, is waived during the Exercise Period as to an Optionee who (i)
was employed by Carriage at the time of the Change in Control and (ii) is
subsequently terminated by Carriage other than for just cause or who voluntarily
terminates if such termination was the result of a good faith determination by
the Optionee that as a result of the Change in Control he is unable to
effectively discharge his present duties or the duties of the position which he
occupied just prior to the Change in Control. As used herein "just cause" shall
mean willful misconduct or dishonesty or conviction of or failure to contest
prosecution for a felony, persistent failure or refusal to attend to duties or
follow Company policy, or excessive absenteeism unrelated to illness.
ARTICLE VII. BONUS STOCK AWARDS
Section 7.1. AWARD OF BONUS STOCK. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in this Plan shares of
Common Stock ("Stock Bonus").
Section 7.2. STOCK BONUS AGREEMENTS. The grant of a Stock Bonus shall be
evidenced by a written Award Agreement, executed by the Company and the
recipient of a Stock Bonus, in such form as the Committee may from time to time
determine, providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
Section 7.3. TRANSFER RESTRICTION. Any Award Agreement providing for the
issuance of Bonus Stock to any person who, at the time of grant, is a person
described in Section 16(a) under the Securities Exchange Act of 1934 shall
provide that such Common Stock cannot be resold for a period of six months
following the grant of such Bonus Stock.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. GENERAL RESTRICTION. Each Award under this Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration, or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the grantee of an Award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with, the granting of such Award or the issue or purchase
of shares of Common Stock thereunder, such Award may not be consummated in whole
or in part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
Section 8.2. NON-ASSIGNABILITY. No Award under this Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
-9-
Section 8.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under this Plan, the
Company shall have the right to require the grantee to remit to the Company an
amount sufficient to satisfy any Federal, state, and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such shares of the
Company net of the number of shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall be
valued on the date the withholding obligation is incurred.
Section 8.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
agreement entered into pursuant to this Plan shall confer upon any participant
the right to continue in the employment of Carriage or affect any right which
Carriage may have to terminate the employment of such participant.
Section 8.5. NON-UNIFORM DETERMINATIONS. The Committee's determinations
under this Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under this Plan, whether or not such persons are
similarly situated.
Section 8.6. RIGHTS AS A SHAREHOLDER. The recipient of any Award under
this Plan shall have no rights as a shareholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him or her.
Section 8.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Subsidiary" means any corporation of which, at the time more
than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by the Company or any
subsidiary thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with the Company.
(c) "Fair market value" as of any date and in respect or any share
of Common Stock means (i) until such time as the Common Stock is traded on
a national securities exchange or over-the-counter and reported on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), then the price per share determined in good faith by the
Committee, taking into consideration all factors it deems relevant,
including liquidity, priority, minority interest discount, and the price
per share at which other securities of the Company have been issued; (ii)
if the Common Stock is traded on a national securities exchange, then the
closing price on such date or on the next business day, if such date is
not a business day, of a share of Common Stock reflected in the
consolidated trading tables of THE WALL STREET JOURNAL or any other
publication selected by the Committee; or (iii) if the Common Stock is
traded over-the-counter and reported on NASDAQ, then the average of the
high and low sales prices on such trading day as reported in such
publication or, if not so published, then as reported by NASDAQ, and if
the Common Stock is not in the NASDAQ National Market System on such
trading day, then the representative bid and asked prices at the end of
such trading day in such market as reported by NASDAQ. In no event shall
the fair market value of any share of Common Stock be less than its par
value.
(d) "Option" means Stock Option, Incentive Stock Option, or Reload
Option.
(e) "Option price" means the purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option, Incentive Stock
Option, or Reload Option.
Section 8.8. LEAVES OF ABSENCE. The Committee shall be entitled to make
such rules, regulations, and determinations as it deems appropriate under this
Plan in respect of any leave of absence taken by the recipient of any
-10-
Award. Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of this Plan and (ii)
the impact, if any, of any such leave of absence on Awards under this Plan
theretofore made to any recipient who takes such leave of absence.
Section 8.9. NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to
make such rules, regulations, determinations and awards as it deems appropriate
in respect of any employee who becomes eligible to participate in this Plan or
any portion thereof after the commencement of an award or incentive period.
Section 8.10. ADJUSTMENTS. In any event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may appropriately adjust the number of shares of Common Stock that
may be issued under this Plan, the number of shares of Common Stock subject to
Options theretofore granted under this Plan, and any and all other matters
deemed appropriate by the Committee.
Section 8.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options, Alternate Appreciation
Rights, or Limited Rights shall not affect in any way the right or power
of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or
otherwise.
(b) If, while there are outstanding Options, the Company shall
effect a subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then (a)
in the event of an increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to Options hereunder shall
be proportionately increased; and (b) in the event of a decrease in the
number of such shares outstanding the number of shares then available for
Option hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, which transaction alters
the outstanding capital structure of the Company, then each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by shareholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other securities
to which such holder would have been entitled to receive pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to
such merger or consolidation, such holder had been the holder of record of
a number of shares of the Company equal to the number of shares as to
which such Option had been exercisable.
(d) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company is not
the surviving corporation, or if the Company sells or otherwise disposes
of substantially all of its assets to another corporation or other entity
while unexercised Options remain outstanding, then the Committee may
direct that any of the following shall occur:
(i) If the successor entity is willing to assume the
obligation to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of assets, as
the case may be, each holder of an outstanding Option shall be
entitled to receive, upon the exercise of such
-11-
Option and payment of the option price, in lieu of shares of Common
Stock, such shares of stock or other securities as the holder of
such Option would have been entitled to receive had such Option been
exercised immediately prior to the consummation of such merger,
consolidation or sale, and any related Alternate Appreciation Right
and Limited Right associated with such Option shall apply as nearly
as practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets.
(ii) The Committee may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect to
such Option and any related Alternate Appreciation Right or Limited
Option such that such Option and related Alternate Appreciation
Right and Limited Right shall become exercisable prior to the record
or effective date of such merger, consolidation or sale of assets.
(iii) The Committee may cancel all outstanding Options and
Alternate Appreciation Rights (but not Limited Rights) as of the
effective date of any such merger, consolidation, or sale of assets
provided that prior notice of such cancellation shall be given to
each holder of an Option at least 30 days prior to the effective
date of such merger, consolidation, or sale of assets, and each
holder of an Option shall have the right to exercise such Option and
any related Alternate Appreciation Right in full during a period of
not less than 30 days prior to the effective date of such merger,
consolidation, or sale of assets. No action taken by the Committee
under this subsection shall have the effect of terminating, and
nothing in this subsection shall permit the Committee to terminate,
any Limited Right held by an Optionee.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
then subject to outstanding Options.
Section 8.12. AMENDMENT OF THIS PLAN.
(a) The Committee may, without further action by the shareholders
and without receiving further consideration from the participants, amend
this Plan or condition or modify Awards under this Plan in response to
changes in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend this Plan in any respect, except that without shareholder
approval the Committee may not (i) increase the maximum number of shares
of Common Stock which may be issued under this Plan (other than increases
pursuant to Section 8.11), (ii) extend the period during which any Award
may be granted or exercised, or (iii) extend the term of this Plan. The
termination or any modification or amendment of this Plan, except as
provided in subsection (a), shall not, without the consent of a
participant, affect his or her rights under an Award previously granted to
him or her.
(c) Notwithstanding Sections 8.12(a) and (b), the provisions of
Article VII of this Plan may not be amended more than once every six
months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, or the rules thereunder.
-12-
FIRST AMENDMENT TO
CARRIAGE FUNERAL SERVICES, INC.
1995 STOCK INCENTIVE PLAN
WHEREAS, CARRIAGE SERVICES, INC. (the "Company"), as successor to Carriage
Funeral Services, Inc., has heretofore adopted the CARRIAGE FUNERAL SERVICES,
INC. 1995 STOCK INCENTIVE PLAN (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows:
1. Effective as of ________________, 1996, (a) the term "Company" as used
in the Plan shall mean Carriage Services, Inc., a Delaware corporation, and (b)
the name of the Plan shall be changed to the "Carriage Services, Inc. 1995 Stock
Incentive Plan."
2. Subject to the provisions of paragraph 7 hereof, Section 1.2(a) of the
Plan shall be deleted and the following shall be substituted therefor:
"(a) This Plan shall be administered by a committee (the
'Committee') of, and appointed by, the Board of Directors of the Company,
and the Committee shall be constituted so as to permit this Plan to comply
with Rule 16b-3, as currently in effect or as hereinafter modified or
amended, promulgated under the Securities Exchange Act of 1934, as
amended."
3. Subject to the provisions of paragraph 7 hereof, Section 1.5(a) of the
Plan shall be deleted and the following shall be substituted therefor:
"(a) Shares of stock which may be issued under this Plan shall be
authorized and unissued or treasury shares of either (i) Class A Common
Stock, $.01 par value, of the Company ('Class A Common Stock') or (ii)
Class B Common Stock, $.01 par value, of the Company ('Class B Common
Stock'). As used herein, the term 'Common Stock' shall mean both Class A
Common Stock and Class B Common Stock. The maximum number of shares of
Common Stock that may be issued under this Plan shall be 400,000. The
number of shares that may be issued under this Plan and as to which
options may be granted shall be subject to adjustment as provided in
Sections 8.10 and 8.11. Notwithstanding any provision in this Plan to the
contrary, (1) Awards under this Plan that were granted prior to the date
of the initial public offering of shares of Class A Common Stock shall be
satisfied in shares of Class B Common Stock and (2) Awards under this Plan
that are granted on or after the date of the initial public offering of
shares of Class A Common Stock shall be satisfied in shares of Class A
Common Stock. Further, upon the exercise of an Award, any exercise payment
which is made in shares of Common Stock in accordance with Section 2.5
hereof shall be made (A) only in shares of Class B Common Stock if such
Award is to be satisfied in Class B Common Stock or (B) only in shares of
Class A Common Stock if such Award is to be satisfied in shares of Class A
Common Stock."
4. Subject to the provisions of paragraph 7 hereof, Section 3.5 of the
Plan shall be deleted and the following shall be substituted therefor:
"Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. To the
extent that the aggregate fair market value (determined at the time the
respective Incentive Stock Option is granted) of stock with respect to
which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year under all incentive stock option plans
of the Company and its parent and subsidiary corporations exceeds
$100,000, such excess Incentive Stock Options shall be treated as options
which do not constitute Incentive Stock Options. The Committee shall
determine, in accordance with applicable provisions of the Code, Treasury
Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Optionee of such
determination as soon as practicable after such determination."
5. Subject to the provisions of paragraph 7 hereof, the second and third
paragraphs of Section 6.3 of the Plan shall be deleted and the following shall
be substituted therefor:
"As used in this Plan, a 'Change in Control' shall be deemed to have
occurred if (a) the Company shall not be the surviving entity in any
merger, consolidation or other reorganization (or survives only as a
subsidiary of an entity), (b) the Company sells, leases or exchanges, or
agrees to sell, lease or exchange, all or substantially all of its assets
to any other person or entity, (c) the Company is to be dissolved and
liquidated, (d) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
acquires or gains ownership or control (including, without limitation,
power to vote) of more than 50% of the outstanding shares of the Company's
voting stock (based upon voting power), or (e) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Company's Board of Directors."
6. The reference to "Section 8.11" in Section 8.12(b) of the Plan shall be
deleted and a reference to "Sections 8.10 and 8.11" shall be substituted
therefor.
7. The amendments to the Plan set forth in paragraphs 2, 3, 4, 5, and 6
hereof shall be effective as of ______________, 1996, provided that such
amendments are approved by the stockholders of the Company on or before
_______________, 1996.
8. As amended hereby, the Plan is specifically ratified and reaffirmed.
-2-
CARRIAGE SERVICES, INC.
1996 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The CARRIAGE SERVICES, INC. 1996 STOCK OPTION PLAN (the "Plan") is
intended to provide a means whereby certain employees of CARRIAGE SERVICES,
INC., a Delaware corporation (the "Company"), and its subsidiaries may develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Accordingly, the Company may
grant to certain employees ("Optionees") the option ("Option") to purchase
shares of the Class A common stock of the Company ("Stock"), as hereinafter set
forth. Options granted under the Plan may be either incentive stock options,
within the meaning of section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), ("Incentive Stock Options") or options which do not
constitute Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of, and
appointed by, the Board of Directors of the Company (the "Board"), and the
Committee shall be constituted so as to permit the Plan to comply with Rule
16b-3, as currently in effect or as hereinafter modified or amended ("Rule
16b-3"), promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"). The Committee shall have sole authority to select the Optionees
from among those individuals eligible hereunder and to establish the number of
shares which may be issued under each Option. In selecting the Optionees from
among individuals eligible hereunder and in establishing the number of shares
that may be issued under each Option, the Committee may take into account the
nature of the services rendered by such individuals, their present and potential
contributions to the Company's success and such other factors as the Committee
in its discretion shall deem relevant. The Committee is authorized to interpret
the Plan and may from time to time adopt such rules and regulations, consistent
with the provisions of the Plan, as it may deem advisable to carry out the Plan.
All decisions made by the Committee in selecting the Optionees, in establishing
the number of shares which may be issued under each Option and in construing the
provisions of the Plan shall be final.
III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms and
conditions as may be
-1-
approved by the Committee. The terms and conditions of the respective Option
Agreements need not be identical. Specifically, an Option Agreement may provide
for the surrender of the right to purchase shares under the Option in return for
a payment in cash or shares of Stock or a combination of cash and shares of
Stock equal in value to the excess of the fair market value of the shares with
respect to which the right to purchase is surrendered over the option price
therefor ("Stock Appreciation Rights"), on such terms and conditions as the
Committee in its sole discretion may prescribe; provided, that, except as
provided in Subparagraph VIII(c) hereof, the Committee shall retain final
authority (i) to determine whether an Optionee shall be permitted, or (ii) to
approve an election by an Optionee, to receive cash in full or partial
settlement of Stock Appreciation Rights. Moreover, an Option Agreement may
provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such option price.
(b) For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock (i) reported by the National Market System of NASDAQ on that
date or (ii) if the Stock is listed on a national stock exchange, reported on
the stock exchange composite tape on that date; or, in either case, if no prices
are reported on that date, on the last preceding date on which such prices of
the Stock are so reported. If the Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low or closing bid and asked prices of Stock on the most
recent date on which Stock was publicly traded. In the event Stock is not
publicly traded at the time a determination of its value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate. Notwithstanding the foregoing,
the fair market value of a share of Stock on the date of an initial public
offering of Stock shall be the offering price under such initial public
offering.
(c) Each Option and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder, and shall be exercisable during the Optionee's lifetime only
by the Optionee or the Optionee's guardian or legal representative.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are employees (including
officers and directors who are also employees) of the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code) of the Company at
the time the Option is granted. Options may be granted to the same individual on
more than one occasion. No Incentive Stock Option shall be granted to an
individual if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the
-2-
Code, unless (i) at the time such Option is granted the option price is at least
110% of the fair market value of the Stock subject to the Option and (ii) such
Option by its terms is not exercisable after the expiration of five years from
the date of grant. To the extent that the aggregate fair market value
(determined at the time the respective Incentive Stock Option is granted) of
stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year under all incentive stock
option plans of the Company and its parent and subsidiary corporations exceeds
$100,000, such excess Incentive Stock Options shall be treated as Options which
do not constitute Incentive Stock Options. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of an Optionee's Incentive Stock
Options will not constitute Incentive Stock Options because of such limitation
and shall notify the Optionee of such determination as soon as practicable after
such determination.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 600,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan to the extent permitted under
Rule 16b-3. The aggregate number of shares which may be issued under the Plan
shall be subject to adjustment in the same manner as provided in Paragraph VIII
hereof with respect to shares of Stock subject to Options then outstanding.
Exercise of an Option in any manner, including an exercise involving a Stock
Appreciation Right, shall result in a decrease in the number of shares of Stock
which may thereafter be available, both for purposes of the Plan and for sale to
any one individual, by the number of shares as to which the Option is exercised.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of any Option which does not constitute
an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined
by the Committee, but such purchase price shall not be less than the fair market
value of Stock subject to the Option on the date the Option is granted.
-3-
VII. TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided the Plan is approved by the stockholders of the Company within twelve
months thereafter. Notwithstanding any provision in this Plan or in any Option
Agreement, no Option shall be exercisable prior to such stockholder approval.
Except with respect to Options then outstanding, if not sooner terminated under
the provisions of Paragraph IX, the Plan shall terminate upon and no further
Options shall be granted after the expiration of ten years from the date of its
adoption by the Board.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases or
exchanges, or agrees to sell, lease or exchange, all or substantially all of its
assets to any other person or entity, (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a
-4-
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event is referred to herein as a "Corporate Change"), no later than (a) ten
days after the approval by the stockholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets or dissolution
or such election of directors or (b) thirty days after a change of control of
the type described in Clause (iv), the Committee, acting in its sole discretion
without the consent or approval of any Optionee, shall act to effect one or more
of the following alternatives, which may vary among individual Optionees and
which may vary among Options held by any individual Optionee: (1) accelerate the
time at which Options then outstanding may be exercised so that such Options may
be exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Optionees thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Optionees of some or all of the outstanding Options held by such Optionees
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Corporate Change, specified by
the Committee, in which event the Committee shall thereupon cancel such Options
and the Company shall pay to each Optionee an amount of cash per share equal to
the excess, if any, of the amount calculated in Subparagraph (d) below (the
"Change of Control Value") of the shares subject to such Option over the
exercise price(s) under such Options for such shares, (3) make such adjustments
to Options then outstanding as the Committee deems appropriate to reflect such
Corporate Change (provided, however, that the Committee may determine in its
sole discretion that no adjustment is necessary to Options then outstanding) or
(4) provide that the number and class of shares of Stock covered by an Option
theretofore granted shall be adjusted so that such Option shall thereafter cover
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution, the Optionee had been the holder of record of
the number of shares of Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to
stockholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be the
date of cancellation and surrender of such Options. In the event that the
consideration offered to stockholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above consists of
anything other than cash, the Committee shall determine the fair cash equivalent
of the portion of the consideration offered which is other than cash.
-5-
(e) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required stockholder action.
(f) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that no change in any Option theretofore granted may be
made which would impair the rights of the Optionee without the consent of such
Optionee; and provided, further, that (i) the Board may not make any alteration
or amendment which would decrease any authority granted to the Committee
hereunder in contravention of Rule 16b-3 and (ii) the Board may not make any
alteration or amendment which would materially increase the benefits accruing to
participants under the Plan, increase the aggregate number of shares which may
be issued pursuant to the provisions of the Plan, change the class of
individuals eligible to receive Options under the Plan or extend the term of the
Plan, without the approval of the stockholders of the Company.
X. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
(b) It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of the 1934 Act meet all of the requirements of
Rule 16b-3. If any provision of the Plan or any such Option would disqualify the
Plan or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3.
-6-
CARRIAGE SERVICES, INC.
1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The CARRIAGE SERVICES, INC. 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
(the "Plan") is intended to promote the interests of CARRIAGE SERVICES, INC., a
Delaware corporation (the "Company"), and its stockholders by helping to award
and retain highly-qualified independent directors, and allowing them to develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company. Accordingly, the Company shall grant to
directors of the Company who are not employees of the Company or any of its
subsidiaries ("Nonemployee Directors") the option ("Option") to purchase shares
of the Class A common stock of the Company ("Stock"), as hereinafter set forth.
Options granted under the Plan shall be options which do not constitute
incentive stock options, within the meaning of section 422(b) of the Internal
Revenue Code of 1986, as amended.
II. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement in the form attached
to the Plan.
III. ELIGIBILITY OF OPTIONEE; OPTION AWARDS
A. Options may be granted only to individuals who are Nonemployee
Directors of the Company.
B. As of the date of an initial public offering of Stock, each Nonemployee
Director then in office or elected to the Board of Directors of the Company (the
"Board") on such date shall receive, without the exercise of the discretion of
any person or persons, an Option exercisable for (i) 15,000 shares of Stock if
such Nonemployee Director does not also serve on the Company's Executive
Committee as of such date or (ii) 25,000 shares of Stock if such Nonemployee
Director does also serve on the Company's Executive Committee as of such date.
C. As of the date of the annual meeting of the stockholders of the Company
in each year that the Plan is in effect as provided in Paragraph VI hereof, each
Nonemployee Director then in office or elected to the Board on such date shall
receive, without the exercise of the discretion of any person or persons, an
Option exercisable for 6,000 shares of Stock (subject to adjustment in the same
manner as provided in Paragraph VII hereof with respect to shares of Stock
subject to Options then outstanding).
D. If, as of any date that the Plan is in effect, there are not sufficient
shares of Stock available under the Plan to allow for the grant to each
Nonemployee Director of an Option for the number of shares provided herein, each
Nonemployee Director shall receive an Option for his or
-1-
her pro-rata share of the total number of shares of Stock then available under
the Plan. All Options granted under the Plan shall be at the Option price set
forth in Paragraph V hereof and shall be subject to adjustment as provided in
Paragraph VII hereof.
IV. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 200,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan. Exercise of an Option shall
result in a decrease in the number of shares of Stock which may thereafter be
available, both for purposes of the Plan and for sale to any one individual, by
the number of shares as to which the Option is exercised.
V. OPTION PRICE
The purchase price of Stock issued under each Option described in
Paragraph IIIB hereof shall be the initial public offering price of the Stock.
The purchase price of Stock issued under each Option described in Paragraph IIIC
hereof shall be the fair market value of Stock subject to the Option as of the
date the Option is granted. For all purposes under the Plan, the fair market
value of a share of Stock on a particular date shall be equal to the mean of the
high and low sales prices of the Stock (i) reported by the National Market
System of NASDAQ on that date or (ii) if the Stock is listed on a national stock
exchange, reported on the stock exchange composite tape on that date; or, in
either case, if no prices are reported on that date, on the last preceding date
on which such prices of the Stock are so reported. If the Stock is traded over
the counter at the time a determination of its fair market value is required to
be made hereunder, its fair market value shall be deemed to be equal to the
average between the reported high and low or closing bid and asked prices of
Stock on the most recent date on which Stock was publicly traded. In the event
Stock is not publicly traded at the time a determination of its value is
required to be made hereunder, the determination of its fair market value shall
be made by the Board in such manner as it deems appropriate.
VI. TERM OF PLAN
The Plan shall be effective on the date the Plan is approved by the
stockholders of the Company. Except with respect to Options then outstanding, if
not sooner terminated under the provisions of Paragraph VIII, the Plan shall
terminate upon and no further Options shall be granted after the expiration of
ten years from the date the Plan is approved by the stockholders of the Company.
-2-
VII. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
B. The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
C. If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the optionee had been the holder of record of the number of
shares of Stock then covered by such Option.
D. Any adjustment provided for in Subparagraphs B or C above shall be
subject to any required stockholder action.
E. Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
VIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that no change in any Option theretofore granted may be
made which would impair the rights of the optionee without the
-3-
consent of such optionee; and provided, further, that the Board may not make any
alteration or amendment which would materially increase the benefits accruing to
participants under the Plan, increase the aggregate number of shares which may
be issued pursuant to the provisions of the Plan, change the class of
individuals eligible to receive Options under the Plan or extend the term of the
Plan, without the approval of the stockholders of the Company.
IX. SECURITIES LAWS
A. The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
B. It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), meet all of the requirements of Rule 16b-3, as currently in
effect or as hereinafter modified or amended ("Rule 16b-3"), promulgated under
the 1934 Act. If any provision of the Plan or any such Option would disqualify
the Plan or such Option under, or would otherwise not comply with, Rule 16b-3,
such provision or Option shall be construed or deemed amended to conform to Rule
16b-3.
-4-
EXHIBIT 10.4
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of March 20, 1992, among CARRIAGE FUNERAL
SERVICES, INC., a Delaware corporation (the "Purchaser"), WALLIS & SON FUNERAL
HOMES, INC., a Georgia corporation ("Wallis"), LANE FUNERAL HOME, INC., a
Delaware corporation ("LaneDelaware"), LANE FUNERAL HOME, INC., a Tennessee
corporation ("Lane-Tennessee") (Wallis, Lane-Delaware and Lane-Tennessee being
sometimes referred to herein singly as a "Company" and collectively as the
"Companies"), SCI FUNERAL SERVICES OF GEORGIA, INC., a Delaware corporation
("SCI-Georgia"), and SENTINEL GROUP, INC., a Delaware corporation ("Sentinel")
(SCI-Georgia and Sentinel being sometimes hereafter referred to singly as
"Shareholder" and collectively as the "Shareholders");
W I T N E S S E T H:
WHEREAS, Wallis owns and operates the Wallis & Son Funeral Home in
La Fayette, Georgia (the "Wallis Home"), LaneDelaware owns and operates the
Erwin-Petitt Funeral Home in Summerville, Georgia (the "Erwin Home"), and
Lane-Tennessee owns and operates the Williamson & Sons Funeral Home in
Soddy-Daisy, Tennessee (the "Williamson Home") (the Erwin Home, the Wallis Home
and the Williamson Home being sometimes collectively referred to herein as the
"Homes"); and
WHEREAS, SCI-Georgia owns all of the issued and outstand-
ing capital stock of Wallis, and Sentinel owns all of the issued
and outstanding capital stock of Lane-Delaware and Lane-Tennessee;
and
WHEREAS, the parties desire that the Purchaser acquire substantially
all of the assets, rights and properties of the Homes from the Companies, all on
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. TRANSFER OF ASSETS. Subject to the provisions of this
Agreement, the Companies agree to sell and the Purchaser agrees to
purchase, at the Closing referred to in Section 2.1, all of the
properties, assets, rights and business of the Homes described
below, as they shall exist at the time of the Closing (collectively,
the "Assets"), excluding those described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of caskets, accessories, monuments and
other goods and inventories;
(iii) machinery, equipment, motor vehicles (including
vehicles currently leased by one or more of the Companies, to
be purchased by them prior to Closing and resold to the
Purchaser hereunder), furniture, fixtures, supplies, tools and
other fixed assets and property, plant and equipment,
including those described on Schedule 3.7;
(iv) the leasehold interests under the leases described
on Schedule 1.5;
(v) all cash balances in bank accounts and certificates
of deposit, but only if such cash balances or certificates of
deposit are either (i) committed fund obligations under
preneed contracts, or (ii) proceeds from sales of inventory or
collections of accounts receivable described on the listing to
be delivered to the Purchaser pursuant to Section 7.10;
(vi) the rights of the Company under pre-need contracts
and the other agreements, leases and commitments described on
Schedule 1.5;
(vii) all rights to the names "Erwin-Petitt Funeral
Home," "Wallis & Sons Funeral Home" and "Williamson & Sons
Funeral Home" and all derivatives thereof;
(viii) all permits, licenses, books, records, brochures
and literature, rights in unemployment compensation,
industrial accident and other similar funds, and prepaid
items; and
(ix) all other assets, rights and properties owned or
held by the Companies at the time of Closing and used in the
operation of, or in connection with, the business of the Homes
or located thereon, excluding those described in Section 1.2.
- 2 -
At the Closing, the Company shall convey to the Purchaser the Assets
free and clear of any and all liens, security inter ests, pledges,
encumbrances, or title restrictions of any kind (collectively,
"Liens").
1.2. RETAINED ASSETS. Notwithstanding the foregoing, the
following properties, assets, rights and interests (the "Retained
Assets") are hereby excluded from the purchase and sale contemplated
hereby and are therefore not included in the Assets:
(i) all cash on hand or on deposit, including bank
account balances, certificates of deposit and marketable
securities, excluding, however, account balances and
certificates of deposit described in Section 1.1(v);
(ii) the corporate records, minutes of proceedings,
stock records and corporate seal of the Companies, and any
shares of the Companies' capital stock held in their treasury;
(iii) the Companies' share of any prepaid federal income
taxes and any rights to or claims for federal income tax
refunds; and
(iv) all assets, rights and properties of funeral homes
owned and operated by the Companies, other than the Homes.
1.3. PURCHASE PRICE. The purchase price for the Assets shall
be $2,036,589, all of which shall be paid in cash at Closing by wire
transfer to such account as the Shareholders shall designate prior
to Closing.
1.4. PURCHASE PRICE ALLOCATION. At or before the Closing, and
as a condition thereto, the Purchaser, the Companies and the
Shareholders shall agree in writing to an allocation of the purchase
price for the Assets, and the Purchaser and the Shareholders agree
to use such allocation for all tax, accounting and other reporting
purposes (including any information furnished under Section 1060 of
the Internal Revenue Code of 1986, as amended).
1.5. ASSUMPTION OF LIABILITIES. The Purchaser, upon the sale
and purchase of the Assets, shall, subject to Section 1.6. below,
assume and agree to pay or discharge only the following liabilities
and obligations of the Companies (collectively, the "Assumed
Liabilities"):
- 3 -
(i) liabilities under the preneed contracts described in
Section 3.9; and
(ii) obligations arising after Closing under the
agreements and leases and commitments described on Schedule
1.5 hereto (the "Assumed Contracts").
The assumption by the Purchaser of the Assumed Liabilities
shall not enlarge any rights or remedies of any third parties under
any contracts or arrangements with the Companies. Nothing herein
shall prevent the Purchaser from contesting in good faith any of the
Assumed Liabilities. At Closing, the Purchaser shall deliver to the
Shareholders an instrument (which may be combined with one or more
contract assignments), dated the Closing Date and reasonably
satisfactory in form and substance to the Shareholders, pursuant to
which the Purchaser will assume the Assumed Liabilities.
1.6. LIMITATIONS ON ASSUMPTION. Notwithstanding Section 1.5.
above, the Purchaser will not assume and does not agree to pay or
discharge any obligations or liabilities of the Companies not
specifically included in the Assumed Liabilities and, in particular,
Purchaser shall not assume or agree to pay or discharge any of the
following:
(i) any notes or accounts payable of any kind,
regardless of whether entered into in the ordinary course of
business;
(ii) any federal, state or local tax of any type,
whether arising by reason of the sale of the Assets or by
operation of the Companies prior to the Closing Date;
(iii) any losses, costs, damages or expense based upon
or arising from any claims, litigation, legal proceedings or
other actions against the Companies based upon any set of
facts occurring prior to the Closing;
(iv) the liabilities and obligations under any
warranties to customers with respect to goods or products sold
or services provided by the Companies prior to Closing;
(v) all personal injury, product liability claims,
claims of environmental damage, claims of
- 4 -
hazards to health, strict liability, toxic torts, enforcement
proceedings, cleanup orders and other similar actions or
claims instituted by private parties or governmental agencies,
with respect to the conduct of the business and operations of
the Companies prior to Closing; or
(vi) any other liability or obligation not specifically
included within the Assumed Liabilities.
1.7. CERTAIN PRORATIONS. All normal and customarily proratable
items, including without limitation, real estate and personal
property taxes, rents under leases and utility bills, and payments
under the Assumed Contracts shall be prorated as of the Closing
Date, the Companies being charged and credited for all of same up to
such date and the Purchaser being charged and credited for all of
same on and after such date. Utility services will be transferred to
the Purchaser's name on the Closing Date. If the actual amounts to
be prorated are not known as of the Closing Date, the prorations
shall be made on the basis of the best evidence then available, and
thereafter, within thirty (30) days after actual figures are
received, a cash settlement will be made between the Companies and
the Purchaser.
1.8. INSTRUMENTS OF TRANSFER. At the Closing, the Companies
shall deliver to the Purchaser such instruments of transfer,
assignment and conveyance, including (without limitation) bills of
sale, contract assignments and assignments of motor vehicle
registrations, transferring title to the Assets to the Purchaser as
may reasonably be requested by the Purchaser. Such instruments shall
be reasonably satisfactory in form and substance to the Purchaser
and shall vest in the Purchaser good and marketable title to all the
Assets, free and clear of all Liens.
1.9. DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS. At the
Closing, the Companies will deliver to the Purchaser all of the
Assumed Contracts, with such assignments thereof and consents to
assignment as the Purchaser shall deem necessary to assure the
Purchaser of their full benefit. Simultaneously with such
deliveries, the Companies shall take all requisite steps to put the
Purchaser in actual possession and operating control of the Assets
and all of the Companies' business records, books and other data. In
addition, at the Closing, the Share-
- 5 -
holders, the Companies and the Purchaser shall coordinate with one
another in taking all necessary or appropriate action to cause the
transfer of the trust funds referred to in Section 3.9 including,
without limitation, the obtaining of governmental and third party
consents and, if necessary, the substitution of a successor trustee
by the Purchaser or a designee of the Purchaser.
1.10. FURTHER ASSURANCES. The Shareholders and the Companies
shall from time to time after the Closing, without further
consideration, execute and deliver such instruments of transfer,
conveyance and assignment (in addition to those delivered pursuant
to Section 1.8), and shall take such other action, as the Purchaser
may reasonably request to more effectively transfer, convey and
assign to and vest in the Purchaser, and to put the Purchaser in
actual possession and control of, each of the Assets.
2. THE CLOSING. The Closing shall occur at the offices of Butler &
Binion, 1000 Louisiana, Suite 1600, Houston, Texas, at 9:00 a.m. on the
tenth business day following the Purchaser's receipt of the approval
referred to in Section 7.9, or at such other date, time or place as may be
mutually agreed upon by the parties, but in no event later than August 31,
1992. The date and time of the Closing is herein called the "Closing
Date", and shall be deemed to have occurred as of the commencement of
business on the Closing Date. All action to be taken at the Closing as
hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered
to have been taken, delivered or made simultaneously, and no such action
or delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE
SHAREHOLDERS. The Companies and the Shareholders jointly and severally
represent and warrant to and agree with the Purchaser that:
3.1. ORGANIZATION AND EXISTENCE. Each Company and each
Shareholder is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation, and
has all requisite corporate power to enter into and perform its
obligations under this Agreement.
3.2. OWNERSHIP OF THE COMPANIES. All of the issued and
outstanding shares of capital stock of Wallis
- 6 -
are owned of record and beneficially by SCI-Georgia, and all of the
issued and outstanding shares of capital stock of Lane-Delaware and
Lane-Tennessee are owned of record and beneficially by Sentinel.
3.3. CERTAIN FINANCIAL INFORMATION. During the twelve months
ended December 31, 1991, the Wallis Home, the Erwin Home and the
Williamson Home had gross revenues (less discounts) of at least
$345,506, $515,757 and $741,670, respectively, and performed at
least 90, 108 and 188 adult funeral services, respectively. Attached
hereto as Schedule 3.3 is a listing of the accounts receivable and
inventory of each Home as of December 31, 1991, and (as shown on
such Schedule) the total inventories (determined at cost) and
accounts receivable (face value net of reasonable reserves) of each
Home at such date are as set forth below:
ACCOUNTS
INVENTORIES RECEIVABLES
----------- -----------
Wallis Home $ 9,168 $ 78,369
Erwin Home $ 18,709 $ 88,605
Williamson Home $ 35,257 $ 158,784
3.4. TITLE TO AND STATUS OF PROPERTIES. The Companies are in
actual possession and control of all properties owned or leased by
them which are required in the conduct of their business, and have
good and marketable title to all of the Assets to be sold and
conveyed to the Purchaser under this Agreement, free and clear of
any and all Liens.
3.5. REAL PROPERTY. The Shareholders have provided to the
Purchaser a copy of the most recently available title policies,
title commitments, surveys and environmental assessment reports on
the real property leased to the Companies under the leases described
on Schedule 1.5 (hereafter referred to collectively as the "Real
Property"). There is not pending or, to each Shareholder's
knowledge, threatened any proceeding for the taking or condemnation
of the Real Property or any portion thereof. Since June 22, 1973 (in
the case of the Wallis Home) or since August 30, 1991 (in the case
of the Erwin Home and the Williamson Home), no toxic or hazardous
wastes (as defined by the U.S. Environmental Protection Agency, or
any similar state or local agency) or hazardous substances (as
defined under the Comprehensive Environment Response, Compensation
and Liability Act of
- 7 -
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation) have
been generated, stored, dumped, located or released onto or from any
portion of the Real Property, except for substances, such as
formaldehyde, that are used in the operation of the Real Property as
a funeral home or otherwise in the ordinary course of business and
have been properly used, stored and disposed of in accordance with
applicable legal requirements, and except for any of the foregoing
which would not, individually or in the aggregate, have a material
adverse impact on the financial condition, operations, properties or
prospects of any of the Homes. The Real Property is not now subject
to any reclamation, remediation or reporting requirements of any
federal, state, local or other governmental body or agency having
jurisdiction over the Real Property. To each Shareholder's
knowledge, none of the Real Property contains any underground
storage tanks or PCBs.
3.6. ABSENCE OF CHANGES OR EVENTS. Since December 31, 1991,
there has not been:
(i) any material adverse change in the financial
condition, operations, properties or prospects of any Home;
(ii) any material damage, destruction or losses against
any of the Homes or any waiver any rights of material value to
any of the Homes;
(iii) any claim or liability for any material damages
for any actual or alleged negligence or other tort or breach
of contract against or affecting any of the Homes; or
(iv) any transaction or event entered into or affecting
any of the Homes other than in the ordinary course of the
business.
3.7. FIXED ASSETS. Schedule 3.7 hereto lists all motor
vehicles, equipment, fixtures and other major fixed assets owned by
the Companies which are used in the operation of, or in connection
with, the business of the Homes or located thereon. All such Assets
are, taken as a whole, in operating condition and repair, ordinary
wear and tear excepted.
- 8 -
3.8. CONTRACTS AND COMMITMENTS. Each Assumed Contract is valid
and in full force and effect and none of the Companies, nor, to each
Shareholder's knowledge, any of the other parties thereto, are in
default thereunder.
3.9. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. On or before March
31, 1992, the Companies will deliver to the Purchaser a Schedule
listing, as of December 31, 1991, (i) all preneed contracts of each
Home unfulfilled as of the date thereof, including contracts for the
sale of funeral merchandise and services, and (ii) all trust
accounts relating to the Homes, indicating the location of each and
the balance thereof. In addition, on or before three business days
prior to Closing, the Companies shall deliver to the Purchaser a
Schedule listing the information described in such clauses (i) and
(ii) as the date thereof. All funds received by each Company for the
Homes under preneed contracts entered into after August 30, 1991
have been deposited in the appropriate accounts and administered and
reported in accordance with the terms thereof and as required by
applicable laws and regulations. To each Shareholder's knowledge,
the market value of the preneed accounts, trusts or other deposits
is equal to or greater than the preneed liability related to such
accounts. The services provided by each Company since August 30,
1991 have been rendered in a professional and competent manner
consistent with prevailing professional standards, practices and
customs.
3.10. INTANGIBLE RIGHTS. Neither Shareholder has received, at
any time (in the case of the Wallis Home) or since August 30, 1991
(in the case of the Erwin Home and the Williamson Home), notice that
any Company is charged with infringement of any patent, trademark,
trade secret, license or other similar proprietary rights of any
other person in respect of the operation of the business of the
Homes or the use or ownership of the Assets.
3.11. LICENSES, PERMITS, ETC. To each Shareholder's knowledge,
each Company possesses all licenses, franchises, permits,
certificates, consents, rights and privileges necessary or
appropriate to the conduct of each Home's operations, except for any
such license, franchise, permit, certificate, consent, right or
privilege the absence of which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of any Home or any of
the Assets.
- 9 -
3.12. LITIGATION. Other than the proceedings pending before
the Federal Trade Commission which are the subject of the agreed
consent orders referred to in Section 7.9, there are no claims,
actions, suits, proceedings or investigations pending or, to each
Shareholder's knowledge, threatened against or affecting any Company
(with respect to the operation of the Homes) or any of the Assets,
at law or in equity or before or by any court or federal, state,
municipal or other governmental department, commission, board,
agency or instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of any Home or any of
the Assets. No Company is subject to any continuing court or
administrative order, writ, injunction or decree issued by any court
or foreign, federal, state, municipal or other governmental
department, commission, board, agency or instrumentality, in respect
of the operation of the Homes or the use or ownership of the Assets.
3.13. COMPLIANCE WITH LAWS. Each Company has been operated, at
all times (in the case of the Wallis Home) and since August 30, 1991
(in the case of the Erwin Home and the Williamson Home), in
compliance with all federal, state, municipal and other statutes,
rules, ordinances and regulations applicable to the Homes, the
operation thereof and the Assets to be sold and conveyed to the
Purchaser hereunder, except for any such noncompliance which would
not, individually or in the aggregate, have a material adverse
effect on the financial condition, business, operations or prospects
of any Home or any of the Assets.
3.14. FINDERS. Neither any Shareholder nor any Company (nor
Service Corporation International) is a party to or in any way
obligated under any contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any
broker's or finder's fee in connection with the origin, negotiation,
execution or performance of this Agreement.
3.15. AUTHORITY. The execution, delivery and performance of
this Agreement by the Shareholders and the Companies have been duly
authorized by their respective Boards of Directors. This Agreement
is legally binding and enforceable against each Shareholder and each
Company in accordance with its terms. Neither the execution,
- 10 -
delivery nor performance of this Agreement by either Shareholder or
any Company will result in a violation or breach of, nor constitute
a default or accelerate the performance required under, the
respective Certificate or Articles of Incorporation or bylaws of
such Shareholder or such Company or any indenture, mortgage, deed of
trust or other contract or agreement to which it is a party or by
which it or its properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
3.16. FULL DISCLOSURE. The representations and warranties made
by the Companies and the Shareholders hereunder or in any Schedules
or certificates furnished to the Purchaser pursuant hereto, do not
and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to and agrees with the Companies and the
Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has all requisite
corporate power to enter into and perform its obligations under this
Agreement.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery and
performance of this Agreement by the Purchaser has been duly
authorized by its Board of Directors. This Agreement is valid and
binding upon the Purchaser and enforceable against the Purchaser in
accordance with its terms. Neither the execution, delivery or
performance by the Purchaser of this Agreement will conflict with or
result in a violation or breach of any term or provision of, nor
constitute a default under, the Certificate of Incorporation or
bylaws of the Purchaser or under any indenture, mortgage, deed of
trust or other contract or agreement to which it is a party or by
which it or its property is bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body. At or prior to Closing, the Purchaser will have
made all necessary applications and obtained all necessary licenses
and permits, if any, which, together with the transfer of the
Companies'
- 11 -
licenses and permits described in Section 1.1(viii), will be
required in order to enable the Purchaser to acquire the Assets
hereunder and consummate the Closing.
4.3. FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are not
outstanding claims against it, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution
or performance of this Agreement.
4.4. FULL DISCLOSURE. The representations and warranties made
by the Purchaser hereunder, or in any certificates furnished to the
Shareholders pursuant hereto or thereto, do not and will not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated herein or therein or necessary to make
the representations or warranties herein or therein, in light of the
circumstances in which they are made, not misleading.
5. COVENANTS OF THE COMPANIES AND THE SHAREHOLDERS PENDING CLOSING.
The Companies and the Shareholders jointly and severally covenant and
agree with the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of each Home will be operated only in
the ordinary course, and, in particular, without the prior written
consent of the Purchaser, neither Shareholder nor any of the
Companies will cause or permit any of the following actions to
occur:
(i) cancel or permit any insurance applicable to the
Assets or any Home to lapse or terminate, unless renewed or
replaced by like coverage;
(ii) commit any act or permit the occurrence of any
event or the existence of any condition of the type described
in clause (iv) of Section 3.6; in addition, if any of the
other events described in Section 3.6 occurs, the Shareholders
will promptly notify the Purchaser of the existence and nature
of such event;
(iii) alter, amend, cancel or modify in any respect any
of the Assumed Contracts or the standard form of, and terms
and conditions applicable to, preneed contracts;
- 12 -
(iv) sell or otherwise dispose of any of the fixed
assets described on Schedule 3.7; or
(v) hire, fire, reassign or make any other change in key
personnel of any Home.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Shareholders
will give and cause the Companies to give to the Purchaser and its
counsel, accountants and other representatives, full and free access
to all of the properties, books, contracts, commitments and records
of the Homes so that the Purchaser may have full opportunity to make
such investigation as it shall desire to make of the business,
affairs and properties of the Homes.
5.3. CONSENTS AND APPROVALS. The Shareholders will use their
best efforts to obtain the necessary consents and approvals of other
persons which may be required to be obtained on their part and on
the part of the Companies to consummate the transactions
contemplated by this Agreement, including the approval of the
Federal Trade Commission described in Section 7.9.
5.4. NO SHOP. For so long as this Agreement remains in effect,
the Shareholders and the Companies agree that neither they nor
Service Corporation International shall enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals
or expressions of interest, or otherwise hold any discussions with
any potential buyers, investment bankers or finders, with respect to
the possible sale or other disposition of all or any substantial
portion of the assets and business of any Home or any other sale of
any Company (whether by merger, consolidation, sale or stock or
otherwise), other than with the Purchaser; provided, however, that
any such merger, consolidation or sale of stock may occur with
either Shareholder or one or more of their wholly owned
subsidiaries, provided that the successor entity joins in the
execution of this Agreement to expressly acknowledge the assumption
of the obligations hereunder of the applicable Company.
5.5 FINANCIAL REPORTING. On or before the 20th day after the
end of each month prior to Closing, the Companies shall deliver to
the Purchaser an Operating Statement for each Home as of the end of
such month, each such Statement to set forth at least the gross
revenues, operating expenses and operating income after deduction
for operating expenses.
- 13 -
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Shareholders and the Companies that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use its best
efforts to obtain the necessary consents and approvals of other
persons which may be required to be obtained on its part to
consummate the transactions contemplated in this Agreement. In
addition, the Purchaser agrees to furnish information regarding
itself as may be reasonably required in connection with obtaining
the approval of the Federal Trade Commission described in Section
7.9.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to each Company from any representative,
officer, director or employee of such Company, including their
accountants or legal counsel, or from any books or records of any of
them, in connection with the transactions contemplated by this
Agreement. If the transactions contemplated hereby are not
consummated, neither the Purchaser nor its representatives shall use
such data or information or disclose the same to others, except as
such data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to be
disclosed. If this Agreement is terminated for any reason, all
written data and information obtained by the Purchaser from the
Companies or the Shareholders or their representatives in connection
with the transactions contemplated by this Agreement shall be
returned to the Shareholder.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of
the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any error, misstatement or
omission in the representations and warranties made by the Companies
and the Shareholders in Section 3 hereof; the representations and
warranties made by the Companies and the Shareholders herein shall
be deemed to have been made again at and as of the time of Closing
and shall then be true and correct; the Companies and the
Shareholders shall have performed and complied with all agreements
and conditions
- 14 -
required by this Agreement to be performed or complied with by them
at or prior to the Closing; and the Purchaser shall have received a
certificate, signed by an executive officer of the Companies and the
Shareholders, to the effect of the foregoing provisions of this
Section 7.1.
7.2. OPINION OF COUNSEL. The Shareholders shall have caused to
be delivered to the Purchaser an opinion of counsel for the
Shareholders and the Companies, to the effect that:
(i) each Shareholder and each Company is a corporation
duly organized, validly existing and in good standing under
the laws of its state of incorporation, and has all requisite
corporate power to enter into and perform its obligations
under this Agreement;
(ii) the execution, delivery and performance of this
Agreement by each Shareholder and each Company have been duly
authorized by its respective Board of Directors;
(iii) this Agreement is valid and binding upon each
Shareholder and each Company and enforceable against them in
accordance with its terms;
(iv) neither the execution, delivery or performance by
either Shareholder of this Agreement will conflict with or
result in a violation or breach of any term or provision of,
nor constitute a default under, the Certificate of
Incorporation or bylaws of such Shareholder or under any
material loan or credit agreement, indenture, mortgage, deed
of trust or other contract or agreement known to such counsel
and to which such Shareholder is a party or by which it or its
property is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court, administrative
agency or governmental body; and
(v) other than the FTC approval requirement described in
Section 7.9, no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery of this
Agreement by either Shareholder or any Company
- 15 -
or the performance of their obligations hereunder, except for
any consents which have already been obtained.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Shareholders and the Companies and
certificates of public officials, copies of which shall be provided
to the Purchaser at Closing. Any opinion as to the enforceability of
any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors
rights and by principles of equity. Such opinion may be limited to
federal law and the internal laws of the State of Texas.
7.3. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to a substantial portion of the
physical assets and properties of any Home (regardless of whether
such loss or damage was insured), the effect of which would have a
material adverse effect on the condition, business, operations or
prospects of such Home.
7.4. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall have been approved by counsel for the
Purchaser, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments
and documents as they shall have reasonably requested.
7.5. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review of the
financial information and books and records of each Company, and
shall have discovered no change in the business, assets, operations,
financial condition or prospects of any Company which could, in the
sole determination of the Purchaser, have an adverse effect on the
value to the Purchaser of the business, assets, financial condition
or prospects of the Homes and the Assets being purchased.
7.6. ENVIRONMENTAL REPORT. The Purchaser shall have conducted,
at its expense, a Phase I (and, if deemed necessary by Purchaser, a
Phase II) environmental audit of each Home and the Real Property by
an environmental consulting firm selected by Purchaser, and the
results of
- 16 -
such report (together with any remedial action, if any, taken by the
Companies in response thereto) shall be satisfactory to Purchaser in
its sole discretion.
7.7. FINANCING COMMITMENT. The Purchaser shall have received,
from Provident Services, Inc. or another financial institution
acceptable to it, a written commitment, containing such terms and
conditions and otherwise in form and substance acceptable to the
Purchaser, providing for the extension of financing in order to
provide the portion of the consideration for the Assets not
furnished by the Purchaser or obtained by the Purchaser from other
sources, and such commitment shall have been funded in such amount
contemporaneously with the Closing.
7.8. FORMER OWNER CONTRACTS. Each of the other parties to the
lease agreements, employment agreements and non-competition
agreements described on Schedule 1.5 shall have consented to the
assignment thereof by the respective Companies to the Purchaser, and
each of such lease agreements, employment agreements and
non-competition agreements shall have been extended, amended and
otherwise modified, or new agreements entered into, in a manner and
in form and content mutually acceptable to the Purchaser and each of
such other parties.
7.9. FTC AND OTHER APPROVALS. The Purchaser shall have
received written notice of the approval of the Purchaser and the
transactions described herein by the Federal Trade Commission (the
"FTC") under the FTC's consent decrees with Service Corporation
International (as proposed and reported in 50 Fed.Reg. 37,359 (Aug.
6, 1991)) and with Sentinel (as proposed and reported in 50 Fed.Reg.
37,357 (Aug. 6, 1991)). In addition, the Shareholders shall have
obtained all other consents and approvals of other persons and
governmental authorities to the transactions contemplated in this
Agreement.
7.10. MINIMUM WORKING CAPITAL. Each of the total accounts
receivable and total inventories (determined in the manner described
in Section 3.3) included within the Assets at Closing shall be at
least in the amount thereof for the Homes (taken as a whole) at
December 31, 1991 as set forth in Section 3.3, and the Shareholders
shall have delivered to the Purchaser the written certification of
the Shareholders to that effect, together with a listing of the
accounts receivable and inventory of the Homes in substantially the
same format as attached as Schedule 3.3
- 17 -
<PAGE>
hereto, dated as no more than three business days
preceding Closing.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND THE SHAREHOLDERS.
The obligations of the Companies and the Shareholders under this Agreement
shall be subject to the following conditions, any of which may be
expressly waived by the Shareholders in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Shareholders shall not have discovered any material error,
misstatement or omission in the representations and warranties made
by the Purchaser in Section 4 hereof; the representations and
warranties made by the Purchaser herein shall be deemed to have been
made again at and as of the time of Closing and shall then be true
and correct; the Purchaser shall have performed and complied with
all agreements and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing; and the
Shareholders shall have received a certificate, signed by an
executive officer of the Purchaser, to the effect of the foregoing
provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Shareholders an opinion of
Butler & Binion, a registered limited liability partner
ship, counsel for the Purchaser, to the effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power to
enter into and perform its obligations under this Agreement;
(ii) the execution, delivery and performance
of this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Purchaser and enforceable against the Pur-
chaser in accordance with its terms;
(iv) neither the execution, delivery or per-
formance by the Purchaser of this Agreement will conflict with
or result in a violation or breach of any term or provision
of, nor constitute a default under, the Certificate of
Incorporation or bylaws of the Purchaser or under any loan or
credit agree-
- 18 -
<PAGE>
ment, indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which Purchaser is a
party or by which it or its property is bound, or violate any
order, writ, injunction or decree known to such counsel and of
any court, administrative agency or governmental body; and
(v) other than the approval requirement described in
Section 7.9, no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery of this
Agreement by the Purchaser or the performance of its
obligations hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to the Shareholder and
the Companies at Closing. Any opinion as to the enforceability of
any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors
rights and by principles of equity. Such opinion may be limited to
federal law, the internal laws of the State of Texas and the General
Corporation Law of the State of Delaware.
8.3. CONSENTS AND APPROVALS. The consents and approvals
referred to in Section 7.9, including the approval of the FTC, shall
have been obtained.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule hereto shall be deemed representations and
warranties of the party executing or delivering the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or pursuant
hereto or any Schedule hereto or in connection with the
transactions contemplated hereby and thereby shall not
terminate, but shall survive the Closing and continue in
- 19 -
<PAGE>
effect thereafter for a period of two (2) years following the
Closing, at which time they shall terminate (except as to claims
which are then pending by written notice delivered prior to the
expiration of such two-year period).
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS AND THE COMPANIES.
The Shareholders and the Companies jointly and severally agree to
indemnify and hold harmless the Purchaser and its successors and
assigns from and against any and all losses, damages, liabilities,
obligations, costs or expenses (any one such item being herein
called a "Loss" and all such items being herein collectively called
"Losses") which are caused by or arise out of (i) any breach or
default in the performance by either Shareholder or any Company of
any covenant or agreement of the Shareholders and the Companies
contained in this Agreement, (ii) any breach of warranty or
inaccurate or erroneous representation made by either Shareholder or
any Company herein, in any Schedule delivered to the Purchaser
pursuant hereto or in any certificate or other instrument delivered
by or on behalf of any such Shareholder or any such Company pursuant
hereto, (iii) any claim made against the Purchaser in respect of any
liabilities or obligations of any Company (whether absolute or
contingent) other than the Assumed Liabilities, and (iv) any and all
actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the
foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Shareholders and the Companies
and their successors and assigns from and against any Losses which
are caused by or arise out of (i) any breach or default in the
performance by the Purchaser of any covenant or agreement of the
Purchaser contained in this Agreement, (ii) any breach of warranty
or inaccurate or erroneous representation made by the Purchaser
herein or in any certificate or other instrument delivered by or on
behalf of the Purchaser pursuant hereto, (iii) any claim made
against either Shareholder or any Company in respect of the Assumed
Liabilities, (iv) any and all actions suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
- 20 -
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against an indemnified party hereunder that, if successful, might
result in a claim for indemnification against an indemnifying party
hereunder, the indemnifying party shall be given prompt written
notice thereof and shall have the right (i) to participate in the
defense thereof and be represented, at its own expense, by advisory
counsel selected by it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts in
connection therewith. Notwithstanding the foregoing, if within ten
business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall
be fully indemnified for by the indemnifying party as provided
herein, then the indemnifying party shall have the right to control
the defense of such claim, provided that the indemnified party shall
have the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected by it,
and (ii) to approve any settlement if the indemnified party's
interests are, or would be, affected thereby.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Shareholders and
the Companies agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual consent of the Shareholders and the
Purchaser;
(b) the Purchaser if a material default shall be made by
either Shareholder or any Company in the observance or in the
due and timely performance by any of their covenants herein
contained, or if there shall have been a breach or
misrepresentation by either Shareholder or any Company of any
of their warranties and representations herein contained, or
if the conditions of this Agreement to be complied with or
performed by either Shareholder or any Company at or before
the
- 21 -
Closing shall not have been complied with or performed at the
time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly
waived by the Purchaser in writing;
(c) the Shareholders if a material default shall be made
by the Purchaser in the observance or in the due and timely
performance by the Purchaser of any of the covenants of the
Purchaser herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser of any
of its warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not
have been complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Sellers in writing;
(d) the Shareholders, if on or before April 30, 1992 the
Purchaser shall have failed to deliver to the Shareholders
written notice to the effect that (i) the condition in Section
7.5 has been satisfied or waived by the Purchaser, (ii) the
Purchaser has entered into the extensions, amendments,
modifications or new agreements referred to in Section 7.8,
all of which shall be conditioned on the occurrence of the
Closing hereunder, or that such condition has otherwise been
waived by the Purchaser, and (iii) the Purchaser shall have
received the commitment referred to in Section 7.7, which
shall be subject to the occurrence of the Closing hereunder
and such other conditions as are typical to such commitments,
or that such condition has otherwise been waived by the
Purchaser; or
(e) the Shareholders or the Purchaser, if for any
reason the Closing shall have failed to occur on or before
August 31, 1992.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a), (d) or (e) of Section 11.2, then no
party shall have any liability to any other party hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided
- 22 -
the terminating party has not breached any representation or
warranty or failed to comply with any of its covenants in this
Agreement, and (ii) such termination shall not prejudice the rights
and remedies of the terminating party against any other party which
has breached any of its representations, warranties or covenants
herein prior to such termination.
12. MISCELLANEOUS.
12.1. EXPENSES. Whether or not the Closing occurs, the parties
shall each pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein.
12.2. BULK SALES LAWS. The transactions contemplated by this
Agreement shall be consummated without compliance with the bulk
sales laws of any state. If by reason of any applicable bulk sales
law any claims are asserted by creditors of any Company, such claims
shall be the responsibility of the Purchaser in the case of claims
arising under any of the Assumed Liabilities, or the responsibility
of the Companies and the Shareholders in the case of claims arising
under any other liabilities of any Company.
12.3. TAXES. Any sales or transfer taxes which may be payable
in connection with the sale of the Assets under this Agreement shall
be paid by the Companies.
12.4. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given if personally delivered or mailed, first class,
registered or certified mail, postage prepaid, as follows:
(i) if to the Companies or
the Shareholders to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
- 23 -
with a copy to:
Legal Department
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(ii) if to the Purchaser, to:
Carriage Funeral Services, Inc.
2000 Post Oak Blvd.
Suite 2180
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Butler & Binion, L.L.P.
1000 Louisiana
Suite 1600
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by either
party to the other party hereto.
12.5. ASSIGNMENT. This Agreement may not be assigned by either
party hereto without the consent of the other party, provided,
however, that following the Closing the Purchaser may assign its
rights hereunder without the consent of the Shareholders or the
Companies to a successor-in-interest to the Purchaser (whether by
merger, sale of assets or otherwise).
12.6. SUCCESSORS BOUND. Subject to the provisions of Section
12.5, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns,
heirs and personal representatives.
12.7. NAME CHANGES. On or before 30 days following Closing,
the Shareholders shall cause Wallis either to be merged into
affiliated corporation or dissolved, or shall cause the corporate
charter of Wallis to be amended, in any case so that the corporate
name of neither Wallis nor any such affiliate shall be "Wallis and
Son" or any derivative thereof (except that "Wallis-Stewart Funeral
Home Inc." shall be permitted). In addition, within such
- 24 -
30-day period, the Shareholders shall cause all assumed name or
similar certificates for the names described in Section 1.1(vii) to
be withdrawn, canceled or terminated.
12.8. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this
Agreement.
12.9. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by both parties hereto.
12.10. ENTIRE AGREEMENT. This Agreement and the Schedules,
certificates and other documents referred to herein constitute the
entire agreement of the parties hereto, and supersede all prior
understandings with respect to the subject matter hereof and
thereof.
12.11. GOVERNING LAW. This agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Texas.
12.12. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
in Houston, Texas as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL SERVICES, INC.,
a Delaware corporation
By /s/ MELVIN C. PAYNE
MELVIN C. PAYNE, President
- 25 -
THE COMPANIES:
WALLIS & SONS FUNERAL HOMES, INC.,
a Georgia corporation
By /s/ JANET L. RILEY
JANET L. RILEY, Vice President
LANE FUNERAL HOME, INC.,
a Delaware corporation
By /s/ JANET L. RILEY
JANET L. RILEY, Vice President
LANE FUNERAL HOME, INC.,
a Tennessee corporation
By /s/ JANET L. RILEY
JANET L. RILEY, Vice President
THE SHAREHOLDERS:
SCI FUNERAL SERVICES
OF GEORGIA, INC., a Delaware
corporation
By /s/ VICTOR M. EVANS
Name: VICTOR M. EVANS
Title: PRESIDENT
- 26 -
SENTINEL GROUP, INC.,
a Delaware corporation
By /s/ JANET L. RILEY
JANET L. RILEY, Vice President
- 27 -
SCHEDULE DESCRIPTION
- -------- -----------
1.5 Assumed Contracts
3.3 Accounts Receivable and Inventory
3.7 Fixed Assets
Exhibit 10.5
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of November 30, 1992, among CFS
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), WALLIS & SON
FUNERAL HOMES, INC., a Georgia corporation ("Wallis"), and WARD'S FUNERAL HOME,
INC., a Delaware corpration ("Ward's") (Wallis and Ward's are together hereafter
referred to as the "Companies"), and SCI GEORGIA FUNERAL SERVICES, INC., a
Delaware corporation ("SCI-Georgia"), and SENTINEL GROUP, INC., a Delaware
corporation ("Sentinel"), (SCI-Georgia and Sentinel are together hereinafter
referred to as the "Shareholders");
WITNESSETH:
WHEREAS, Wallis owns and operates the Sipple's Mortuary, a
funeral home located in Savannah, Georgia (the "Sipples Home"), and Ward's owns
and operates the two Ward's Funeral Homes located in Gainesville and Cleveland,
Georgia (the "Ward's Homes") (the Sipples Home and the Ward's Homes being
referred to hereafter collectively as the "Homes"); and
WHEREAS, SCI-Georgia owns all of the issued and outstanding
capital stock of Wallis, and Sentinel owns all of the issued and outstanding
capital stock of Ward's; and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of the assets, rights and properties of the Homes from the
Companies, all on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. TRANSFER OF ASSETS. Subject to the provisions of
this Agreement, the Companies agree to sell and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
all of the properties, assets, rights and business of the
Homes described below, as they shall exist at the time of the
Closing (collectively, the "Assets"), excluding those
described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of caskets, accessories,
monuments and other goods and inventories;
- 1 -
(iii) the five motor vehicles described on
Schedule 3.7, and the other machinery, equipment,
furniture, fixtures, supplies, crematories, tools and
other fixed assets and property, plant and equipment,
including those described on Schedule 3.7;
(iv) as to the Sipples Home, the leasehold
interests under the lease described on Schedule 1.4
and, as to the Ward's Homes, fee simple title to the
owned real property described on Schedule 3.5;
(v) all cash balances in bank accounts and
certificates of deposit, but only if such cash
balances or certificates of deposit are committed
fund obligations under preneed contracts;
(vi) the rights of the Companies under pre-need
contracts and the other agreements, leases and
commitments described on Schedule 1.4;
(vii) all rights owned or held by the Companies
to the names "Sipple's Mortuary", "Ward's Funeral
Home" and all derivatives thereof;
(viii) all transferrable permits and licenses,
and all books, records, brochures and literature,
rights in unemployment compensation, industrial
accident and other similar funds, and prepaid items;
and
(ix) all other assets, rights and properties
owned or held by the Companies at the time of Closing
and used in the operation of, or in connection with,
the business of the Homes or located thereon,
excluding those described in Section 1.2.
At the Closing, the Companies shall convey to the Purchaser
the Assets free and clear of any and all liens, security
interests, pledges, encumbrances, or title restrictions of any
kind (collectively, "Liens"), other than Liens against real
property described on Schedule 3.5 approved by the Purchaser
(the "Permitted Encumbrances").
1.2. RETAINED ASSETS. Notwithstanding the foregoing,
the following properties, assets, rights and interests (the
"Retained Assets") are hereby excluded
- 2 -
from the purchase and sale contemplated hereby and are
therefore not included in the Assets:
(i) all cash on hand or on deposit, including
bank account balances, certificates of deposit and
marketable securities, excluding, however, account
balances and certificates of deposit described in
Section 1.1(v);
(ii) intercompany accounts and notes receivable
owed to either Company by the Shareholders or any of
their affiliates which do not arise out of the sale
of goods or services of such Company;
(iii) the corporate records, minutes of
proceedings, stock records and corporate seal of
either Company, and any shares of either Company's
capital stock held in its treasury;
(iv) either Company's share of any prepaid
federal or state income taxes and any rights to or
claims for federal or state income tax refunds; and
(v) all assets, rights and properties of funeral
homes owned and operated by the Companies, other than
the Homes.
1.3. PURCHASE PRICE. The purchase price for the
Assets shall be $2,300,000, all of which shall be paid in cash
at Closing by wire transfer to such account as the
Shareholders shall designate prior to Closing.
1.4. ASSUMPTION OF LIABILITIES. The Purchaser, upon
the sale and purchase of the Assets, shall, subject to Section
1.5. below, assume and agree to pay or discharge only the
following liabilities and obligations of the Companies
(collectively, the "Assumed Liabilities"):
(i) liabilities under the preneed contracts
described in Section 3.9, under preneed contracts
entered into in the ordinary course of business
between the date of such schedule and the Closing
Date, and under at-need contracts for services to be
performed following Closing, provided that the entire
amount of consideration payable by the customers
under at-need contracts is payable following Closing
or an appropriate adjustment to such effect shall be
made at Closing between the Companies and the
Purchaser; and
- 3 -
(ii) obligations arising after Closing under the
agreements and leases and commitments described on
Schedule 1.4 hereto (the "Assumed Contracts").
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements with the
Company. Nothing herein shall prevent the Purchaser from
contesting in good faith any of the Assumed Liabilities. At
Closing, the Purchaser shall deliver to the Companies an
instrument (which may be combined with one or more contract
assignments), dated the Closing Date and reasonably
satisfactory in form and substance to the Companies, pursuant
to which the Purchaser will assume the Assumed Liabilities.
1.5. LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4. above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Companies not specifically included in the Assumed
Liabilities and, in particular, Purchaser shall not assume or
agree to pay or discharge any of the following:
(i) any notes or accounts payable of any kind,
regardless of whether entered into in the ordinary
course of business;
(ii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Homes prior to the
Closing Date;
(iii) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against either
Company based upon any set of facts occurring prior
to the Closing;
(iv) the liabilities and obligations under any
warranties to customers with respect to goods or
products sold or services provided by the Companies
prior to Closing;
(v) all personal injury, product liability
claims, claims of environmental damage, claims of
hazards to health, strict liability, toxic torts,
enforcement proceedings, cleanup orders and other
similar actions or claims instituted by private
parties or governmental agencies, with respect to
- 4 -
the conduct of the business and operations of the
Companies prior to Closing; or
(vi) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6. CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, and payments under the Assumed Contracts shall be
prorated as of the Closing Date, the Companies being charged
and credited for all of same up to such date and the Purchaser
being charged and credited for all of same on and after such
date. Utility services will be transferred to the Purchaser's
name on or as soon as possible after the Closing Date. If the
actual amounts to be prorated are not known as of the Closing
Date, the prorations shall be made on the basis of the best
evidence then available, and thereafter, within thirty (30)
days after actual figures are received, a cash settlement will
be made between the Companies and the Purchaser.
1.7. INSTRUMENTS OF TRANSFER. At the Closing, each
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale, contract assignments and
assignments of motor vehicle registrations, transferring title
to the Assets to the Purchaser as may reasonably be requested
by the Purchaser. Such instruments shall be reasonably
satisfactory in form and substance to the Purchaser and shall
vest in the Purchaser good and indefeasible title to all the
Assets, free and clear of all Liens other than the Permitted
Encumbrances.
1.8. DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS.
At the Closing, each Company will deliver to the Purchaser all
of the Assumed Contracts, with such assignments thereof and
(to the extent required within the period contemplated in
Section 7.8) consents to assignment as the Purchaser shall
deem necessary to assure the Purchaser of their full benefit.
Simultaneously with such deliveries, each Company shall take
all requisite steps to put the Purchaser in actual possession
and operating control of the Assets and all of such Company's
on-site business records, books and other data. In addition,
at the Closing, the Shareholders, the Companies and the
Purchaser shall coordinate with one another in taking all
necessary or appropriate action to
- 5 -
cause the transfer of the trust funds referred to in Section
3.9 including, without limitation, the obtaining of
governmental and third party consents and, if necessary, the
substitution of a successor trustee by the Purchaser or a
designee of the Purchaser.
1.9. FURTHER ASSURANCES. The Shareholders and the
Companies shall from time to time after the Closing, without
further consideration, execute and deliver such instruments of
transfer, conveyance and assignment (in addition to those
delivered pursuant to Section 1.7), and shall take such other
action, as the Purchaser may reasonably request to more
effectively transfer, convey and assign to and vest in the
Purchaser, and to put the Purchaser in actual possession and
control of, each of the Assets.
2. THE CLOSING. The Closing shall occur at the offices of
Butler & Binion, L.L.P., 1000 Louisiana, Suite 1600, Houston, Texas, at
9:00 a.m. on the tenth business day following the Purchaser's receipt
of notice of the approval referred to in Section 7.9, or at such other
date, time or place as may be mutually agreed upon by the parties, but
in no event later than December 31, 1992. The date and time of the
Closing is herein called the "Closing Date", and shall be deemed to
have occurred as of the commencement of business on the Closing Date.
All action to be taken at the Closing as hereinafter set forth, and all
documents and instruments executed and delivered, and all payments made
with respect thereto, shall be considered to have been taken, delivered
or made simultaneously, and no such action or delivery or payment shall
be considered as complete until all action incident to the Closing has
been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE
SHAREHOLDERS. The Companies and the Shareholders jointly and severally
represent and warrant to and agree with the Purchaser that:
3.1. ORGANIZATION AND EXISTENCE. The Companies and
the Shareholders are each a corporation duly organized,
validly existing and in good standing under the laws of the
state of its incorporation, and each has all requisite
corporate power to enter into and perform its obligations
under this Agreement.
3.2. OWNERSHIP OF THE COMPANIES. All of the issued
and outstanding shares of capital stock of Wallis are owned of
record and beneficially by SCI-Georgia, and all of the issued
and outstanding shares of capital stock
- 6 -
of Ward's are owned of record and beneficially by Sentinel.
3.3. CERTAIN FINANCIAL INFORMATION. During the twelve
months ended December 31, 1991, the Sipples Home had gross
revenues (less discounts) of at least $1,023,984.00, and
during the four months ended December 31, 1991, the Ward's
Homes had gross revenues (less discounts) of at least
$351,625.00; and during such periods, the Sipples Home
performed at least 299 adult funeral services, and the Ward's
Homes performed at least 63 adult funeral services. During the
six months ended June 30, 1992, the Sipples Home had gross
revenues (less discounts) of at least $493,639.00 and the
Ward's Homes had gross revenues (less discounts) of at least
$484,271.00; and during such period, the Sipples Home
performed at least 141 adult funeral services and the Ward's
Homes performed at least 125 adult funeral services. Attached
hereto as Schedule 3.3 is a listing of the accounts receivable
and inventory of each Home as of September 30, 1992, and (as
shown on such Schedule) the total inventories (determined at
cost) and accounts receivable (at face value) of the Homes at
such date are as set forth below:
Accounts
Inventories Receivable
----------- ----------
Sipples Home $38,750 $209,190
Ward's Homes $57,493 $158,740
3.4. TITLE TO AND STATUS OF PROPERTIES. Each Company
is in actual possession and control of all properties owned or
leased by it which are presently used in the conduct of the
business of the Homes, and has good and indefeasible title to
all of the Assets to be sold and conveyed to the Purchaser
under this Agreement, free and clear of any and all Liens
other than the Permitted Encumbrances.
3.5. REAL PROPERTY. Schedule 3.5 hereto sets forth a
description of each parcel of real property leased by Wallis
for operation in the Sipples Home and owned by Ward's for use
in the Ward's Homes (hereafter referred to collectively as the
"Real Property"). Schedule 3.5 also describes all Liens of any
kind against the Real Property on which the Ward's Homes are
situated; there are no Liens against Wallis' leasehold
interest in the Real Property on which the Sipples Home is
situated.
- 7 -
There is not pending or, to the Shareholders' knowledge,
threatened any proceeding for the taking or condemnation of
the Real Property or any portion thereof. Since December 30,
1986, (in the case of the Sipples home) or August 30, 1991,
(in the case of the Ward's Homes), no toxic or hazardous
wastes (as defined by the U.S. Environmental Protection
Agency, or any similar state or local agency) or hazardous
substances (as defined under the Comprehensive Environment
Response, Compensation and Liability Act of 1980, as amended,
or the Resource Conservation and Recovery Act, as amended, or
any similar state or local statute or regulation) have been
generated, stored, dumped or released onto or from any portion
of the Real Property, except for substances, such as
formaldehyde, that are used in the operation of the Real
Property as funeral homes or otherwise in the ordinary course
of business and have been properly used, stored and disposed
of in accordance with applicable legal requirements, and
except for any of the foregoing which would not, individually
or in the aggregate, have a material adverse impact on the
financial condition, operations, properties or prospects of
the Homes. To the knowledge of the Companies and the
Shareholders, the Real Property is not now subject to any
reclamation, remediation or reporting requirements of any
federal, state, local or other governmental body or agency
having jurisdiction over the Real Property. To the knowledge
of the Companies and the Shareholders, none of the Real
Property contains any underground storage tanks or PCBs.
3.6. ABSENCE OF CHANGES OR EVENTS. Since June 30,
1992, there has not been:
(i) any material adverse change in the
financial condition, operations, properties or
prospects of any Home;
(ii) any material damage, destruction or losses
against any Home or any waiver of any rights of
material value to any Home;
(iii) any claim or liability for any material
damages for any actual or alleged negligence or other
tort or breach of contract against or affecting any
Home; or
(iv) any transaction or event entered into or
affecting any Home other than in the ordinary course
of the business.
- 8 -
3.7. FIXED ASSETS. Schedule 3.7 hereto lists all
material items of motor vehicles, equipment, fixtures and
other major fixed assets owned by the Companies which are used
in the operation of, or in connection with, the business of
the Homes or located thereon. All such Assets are, taken as a
whole, in operating condition and reasonable repair, ordinary
wear and tear excepted.
3.8. CONTRACTS AND COMMITMENTS. Each Assumed Contract
is valid and in full force and effect and neither the
Companies, nor, to the knowledge of the Companies and the
Shareholders, any of the other parties thereto, are in default
thereunder.
3.9. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.9 attached hereto lists, as of October 20, 1992 (in the case
of the Sipples Home) and October 31, 1992 (in the case of the
Ward's Homes), or later if otherwise indicated on such
schedule, (i) all preneed contracts of each Home unfulfilled
as of the date thereof, including contracts for the sale of
funeral merchandise and services, and (ii) all trust accounts
relating to each Home, indicating the location of each and the
balance thereof. In addition, on or before three business days
prior to Closing, the Companies shall deliver to the Purchaser
a Schedule listing the information described in such clauses
(i) and (ii) as the date thereof. All funds received by the
Companies for the Homes under preneed contracts entered into
after December 30, 1986 (in the case of the Sipples Home) or
August 30, 1991 (in the case of the Ward's Homes) have been
deposited in the appropriate accounts and administered and
reported in accordance with the terms thereof and as required
by applicable laws and regulations. As to all preneed accounts
set forth on Schedule 3.9, either (i) such accounts are
covered by written contracts signed or approved by the
customer, (ii) the direct costs to be incurred by the
Purchaser in providing the services and merchandise called for
by any unwritten agreements will not exceed trusted principal
and interest receivable with respect thereto or (iii) the
obligations of the Companies thereunder are no more than to
apply as a credit the amount of trust balances, including
interest, for any particular account against the price for
performing the service and providing products on an at-need
basis. The services provided by the Companies at the Homes
since December 30, 1986 (in the case of the Sipples Home) or
August 30, 1991 (in the case of the Ward's Homes) have been
rendered in a professional and competent manner consistent
with prevailing professional standards, practices and customs.
- 9 -
3.10. INTANGIBLE RIGHTS. Neither Company has
received, at any time, notice that it is charged with
infringement of any patent, trademark, trade secret, license
or other similar proprietary rights of any other person in
respect of the operation of the business of any of the Homes
or the use or ownership of the Assets.
3.11. LICENSES, PERMITS, ETC. To the knowledge of the
Companies and the Shareholders, each Company possesses all
licenses, franchises, permits, certificates, consents, rights
and privileges necessary or appropriate to the conduct of the
operations of the Homes, including (without limitation) all
permits necessary for compliance with all applicable
environmental laws, except for any such license, franchise,
permit, certificate, consent, right or privilege the absence
of which would not, individually or in the aggregate, have a
material adverse effect on the financial condition, business,
operations or prospects of any of the Homes or any substantial
portion of the Assets.
3.12. LITIGATION. Other than the proceedings pending
before the Federal Trade Commission which are the subject of
the agreed consent order referred to in Section 7.9, there are
no claims, actions, suits, proceedings or investigations
pending or, to the Shareholders' knowledge, threatened against
or affecting either Company (with respect to the operation of
any of the Homes) or any of the Assets, at law or in equity or
before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or
in the aggregate, have a material adverse effect on the
financial condition, business, operations or prospects of any
Home or any substantial portion of the Assets. Neither Company
is subject to any continuing court or administrative order,
writ, injunction or decree issued by any court or foreign,
federal, state, municipal or other governmental department,
commission, board, agency or instrumentality, in respect of
the operation of any Home or the use or ownership of the
Assets.
3.13. COMPLIANCE WITH LAWS. The Companies have
operated each Home at all times since December 30, 1986 (in
the case of the Sipples Home) or August 30, 1991 (in the case
of the Ward's Homes) in compliance with all federal, state,
municipal and other statutes, rules, ordinances and
regulations applicable to the Homes, the operation thereof and
the Assets to be sold and conveyed
- 10 -
to the Purchaser hereunder, except for any such noncompliance
which would not, individually or in the aggregate, have a
material adverse effect on the financial condition, business,
operations or prospects of any Home or any substantial portion
of the Assets.
3.14. FINDERS. Neither Shareholder nor either Company
(nor Service Corporation International) is a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against any of them, for the
payment of any broker's or finder's fee in connection with the
origin, negotiation, execution or performance of this
Agreement.
3.15. AUTHORITY. The execution, delivery and
performance of this Agreement by the Shareholders and the
Companies have been duly authorized by their respective Boards
of Directors. This Agreement is legally binding and
enforceable against each Shareholder and each Company in
accordance with its terms. Neither the execution, delivery nor
performance of this Agreement by either Shareholder or either
Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required
under, the respective Certificate or Articles of Incorporation
or bylaws of either Shareholder or either Company or any
indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental
body.
3.16. FULL DISCLOSURE. The representations and
warranties made by the Companies and the Shareholders
hereunder or in any Schedules or certificates furnished to the
Purchaser pursuant hereto, do not and will not contain any
untrue statement of a material fact or, to the knowledge of
the Companies and the Shareholders, omit to state a material
fact required to be stated herein or therein or necessary to
make the representations or warranties herein or therein, in
light of the circumstances in which they are made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Companies and
the Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and
- 11 -
perform its obligations under this Agreement. The Purchaser is
duly qualified as a foreign corporation in the State of
Georgia.
4.2. AUTHORITY OF THE PURCHASER. The execution,
delivery and performance of this Agreement by the Purchaser
has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon the Purchaser and
enforceable against the Purchaser in accordance with its
terms. Neither the execution, delivery or performance by the
Purchaser of this Agreement will conflict with or result in a
violation or breach of any term or provision of, nor
constitute a default under, the Certificate of Incorporation
or bylaws of the Purchaser or under any indenture, mortgage,
deed of trust or other contract or agreement to which it is a
party or by which it or its property is bound, or violate any
order, writ, injunction or decree of any court, administrative
agency or governmental body. At or prior to Closing, the
Purchaser will have made all necessary applications and
obtained all necessary licenses and permits, if any, which,
together with the transfer of the Companies' transferrable
licenses and permits described in Section 1.1(viii), will be
required in order to enable the Purchaser to acquire the
Assets hereunder and consummate the Closing.
4.3. FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4. FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Shareholders or the Companies
pursuant hereto or thereto, do not and will not contain any
untrue statement of a material fact or, to the Purchaser's
knowledge, omit to state a material fact required to be stated
herein or therein or necessary to make the representations or
warranties herein or therein, in light of the circumstances in
which they are made, not misleading.
5. COVENANTS OF THE COMPANIES AND THE SHAREHOLDERS PENDING
CLOSING. The Companies and the Shareholders jointly and severally
covenant and agree with the Purchaser that:
- 12 -
5.1. CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of each Home will
be operated only in the ordinary course, and, in particular,
without the prior written consent of the Purchaser, neither
Shareholder nor either Company will cause or permit any of the
following actions to occur:
(i) cancel or permit any insurance applicable
to the Assets or any Home to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) commit any act or permit the occurrence of
any event or the existence of any condition of the
type described in clause (iv) of Section 3.6; in
addition, if any of the other events described in
Section 3.6 occurs, the Shareholders will promptly
notify the Purchaser of the existence and nature of
such event;
(iii) alter, amend, cancel or modify in any
respect any of the Assumed Contracts or the standard
form of, and terms and conditions applicable to,
preneed contracts;
(iv) sell or otherwise dispose of any of the
fixed assets described on Schedule 3.7; or
(v) hire, fire, reassign or make any other
change in key personnel of any Home.
5.2. ACCESS TO INFORMATION. Prior to Closing, the
Shareholders will give and cause each Company to give to the
Purchaser and its counsel, accountants and other
representatives, full and free access to all of the on-site
properties, books, contracts, commitments and records of each
Home so that the Purchaser may have full opportunity to make
such investigation as it shall desire to make of the business,
affairs and properties of the Homes, provided such
investigation is conducted so as not to unreasonably interfere
with the normal day-to-day operations of any Home.
5.3. CONSENTS AND APPROVALS. The Shareholders will
use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on their part and on the part of the Companies to
consummate the transactions contemplated by this Agreement,
including the approval of the Federal Trade Commission
described in Section 7.9.
- 13 -
5.4. NO SHOP. For so long as this Agreement remains
in effect, the Shareholders and the Companies agree that
neither they nor Service Corporation International shall enter
into any agreements or commitments, or initiate, solicit or
encourage any offers, proposals or expressions of interest, or
otherwise hold any discussions with any potential buyers,
investment bankers or finders, with respect to the possible
sale or other disposition of all or any substantial portion of
the assets and business of any Home or any other sale of
either Company (whether by merger, consolidation, sale or
stock or otherwise), other than with the Purchaser; provided,
however, that any such merger, consolidation or sale of stock
may occur with either Shareholder or one or more direct or
indirect wholly owned subsidiaries of Service Corporation
International, provided that the successor entity joins in the
execution of this Agreement to expressly acknowledge the
assumption of the obligations hereunder of the applicable
Company.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Shareholders and the Companies that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement. In addition, the Purchaser
agrees to furnish information regarding itself as may be
reasonably required in connection with obtaining the approval
of the Federal Trade Commission described in Section 7.9.
6.2. CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Companies
from any representative, officer, director or employee of the
Companies, including their accountants or legal counsel, or
from any books or records of it, in connection with the
transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither
the Purchaser nor its representatives shall use such data or
information or disclose the same to others, except as such
data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to
be disclosed. If this Agreement is terminated for any reason,
all written data and information obtained by the Purchaser
from the Companies or the Shareholders or their
- 14 -
representatives in connection with the transactions
contemplated by this Agreement shall be returned to the
Shareholders.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing;
provided, however, that the conditions described in Sections 7.5
through 7.8 shall be deemed satisfied or waived by the Purchaser if it
shall not have raised any objections as to any of such conditions
within the 25-day period referred to therein (other than the funding of
the commitment referred to in Section 7.7, which is unaffected by such
25-day period):
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any error,
misstatement or omission in the representations and warranties
made by the Companies and the Shareholders in Section 3
hereof; the representations and warranties made by the
Companies and the Shareholders herein shall be deemed to have
been made again at and as of the time of Closing and shall
then be true and correct; the Companies and the Shareholders
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the
Purchaser shall have received a certificate, signed by an
executive officer of the Companies and the Shareholders, to
the effect of the foregoing provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Shareholders shall have
caused to be delivered to the Purchaser an opinion of counsel
for the Shareholders and the Companies, to the effect that:
(i) each Shareholder and each Company are
corporations duly organized, validly existing and in
good standing under the laws of their respective
states of incorporation and have all requisite
corporate power to enter into and perform their
respective obligations under this Agreement;
(ii) the execution, delivery and performance of
this Agreement by the Shareholders and the Companies
have been duly authorized by their respective Board
of Directors;
- 15 -
(iii) this Agreement is valid and binding upon
each Shareholder and each Company and enforceable
against them in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Shareholders and the Companies of
this Agreement will conflict with or result in a
violation or breach of any term or provision of, nor
constitute a default under, the Articles or
Certificate of Incorporation or bylaws of either
Shareholder or either Company or under any material
loan or credit agreement, indenture, mortgage, deed
of trust or other contract or agreement known to such
counsel and to which either Shareholder or either
Company is a party or by which it or its property is
bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority
or regulatory body, federal, state or local, is
necessary or required in connection with the
execution and delivery of this Agreement by the
Shareholders or the Companies or the performance of
their respective obligations hereunder, except for
any consents which have already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Shareholders and the
Companies and certificates of public officials, copies of
which shall be provided to the Purchaser at Closing. Any
opinion as to the enforceability of any document may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors rights and by
principles of equity. Such opinion may be limited to federal
law and the internal laws of the State of Texas.
7.3. NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to a substantial
portion of the physical assets and properties of the any of
the Homes (regardless of whether such loss or damage was
insured), the effect of which would have a material adverse
effect on the condition, business, operations or prospects of
any such Home.
7.4. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
- 16 -
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.5. PRE-ACQUISITION REVIEW. On or before twenty-five
(25) days after the date of this Agreement, the Purchaser and
its representatives shall have completed a pre-acquisition
review of the financial information and books and records of
the Homes, and shall have discovered no change in the
business, assets, operations, financial condition or prospects
of any Home which could, in the sole determination of the
Purchaser, have an adverse effect on the value to the
Purchaser of the business, assets, financial condition or
prospects of any such Home and the Assets being purchased.
7.6. ENVIRONMENTAL REPORT. On or before 25 days after
the date of this Agreement, the Purchaser shall have
conducted, at its expense, a Phase I (and, if deemed necessary
by Purchaser, a Phase II) environmental audit of the Homes and
the Real Property by an environmental consulting firm selected
by Purchaser, and the results of such report (together with
any remedial action, if any, taken by the Companies in
response thereto) shall be satisfactory to Purchaser in its
sole discretion.
7.7. FINANCING COMMITMENT. On or before 25 days after
the date of this Agreement, the Purchaser shall have received,
from Texas Commerce Bank National Association or another
financial institution acceptable to it, a written commitment,
containing such terms and conditions and otherwise in form and
substance acceptable to the Purchaser, providing for the
extension of financing in order to provide the portion of the
consideration for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources. It shall be a
further condition to Closing, unaffected by such 25-day
period, that such commitment shall have been funded in such
amount contemporaneously with the Closing, provided that the
Purchaser agrees to perform its obligations under such
commitment.
7.8. FORMER OWNER CONTRACTS. On or before 25 days
after the date of this Agreement, each of the other parties to
the lease agreements, employment agreements and
non-competition agreements described on Schedule 1.4 shall
have consented to the assignment thereof by the
- 17 -
Companies to the Purchaser, and each of such lease agreements,
employment agreements and non-competition agreements shall
have been extended, amended and otherwise modified, or new
agreements entered into, in a manner and in form and content
mutually acceptable to the Purchaser and each of such other
parties.
7.9. FTC AND OTHER APPROVALS. The Purchaser shall
have received written notice of the approval of the Purchaser
and the transactions described herein by the Federal Trade
Commission (the "FTC") under the FTC's consent decrees with
Service Corporation International (as proposed and reported in
50 Fed.Reg. 37,359 (Aug. 6, 1991)) and with Sentinel (as
proposed and reported in 50 Fed.Reg. 37,357 (Aug. 6, 1991)).
In addition, the Shareholders shall have obtained all other
necessary or appropriate consents and approvals of other
persons and governmental authorities to the transactions
contemplated in this Agreement.
7.10. TITLE INSURANCE. The Purchaser shall have
received an Owner's Policy of Title Insurance (at the
Shareholders' expense) for the Real Property on which the
Ward's Homes are situated, and a Leasehold Policy of Title
Insurance (at the Purchaser's expense) for the Real Property
on which the Sipples Home is situated, each in an amount
mutually determined by the parties. Each such policy shall be
issued by a title company with offices in each County in which
the Real Property is located and reasonably acceptable to the
Purchaser (each hereafter referred to as a "Title Company"),
insuring that Purchaser is the owner or sole lessee of each
parcel of the Real Property subject only to the Permitted
Encumbrances, and the standard printed exceptions included in
a standard form Owner or Leasehold Policy of Title Insurance
in effect in the applicable jurisdiction; provided, however,
that such policy shall be limited to restrictions that are
Permitted Encumbrances, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the exception for rights of
parties in possession shall be deleted, and the standard
exception for taxes shall be limited to the year in which the
Closing occurs, and subsequent years and subsequent
assessments for prior years due to change in land usage or
ownership.
7.11. SURVEY. The Purchaser shall have received, at
the Shareholders' expense (in the case of the Real Property on
which the Ward's Homes are located) and at the Purchaser's
expense (in the case of the Real Property
- 18 -
on which the Sipples Home is located), a survey prepared by a
licensed surveyor approved by Purchaser and acceptable to each
Title Company, with respect to each parcel of Real Property,
which survey shall be sufficient for each Title Company to
delete the survey exception contained in the policies of title
insurance referred to in Section 7.10, save and except for the
phrase "shortages in area", and otherwise be in form and
content reasonably acceptable to Purchaser and its lender.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND THE
SHAREHOLDERS. The obligations of the Companies and the Shareholders
under this Agreement shall be subject to the following conditions, any
of which may be expressly waived by the Shareholders in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Shareholders shall not have discovered any
material error, misstatement or omission in the
representations and warranties made by the Purchaser in
Section 4 hereof; the representations and warranties made by
the Purchaser herein shall be deemed to have been made again
at and as of the time of Closing and shall then be true and
correct; the Purchaser shall have performed and complied with
all agreements and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing;
and the Shareholders shall have received a certificate, signed
by an executive officer of the Purchaser, to the effect of the
foregoing provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Shareholders and the Companies
an opinion of Butler & Binion, L.L.P., counsel for the
Purchaser, to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement; and the
Purchaser is duly qualified as a foreign corporation
in the State of Georgia;
(ii) the execution, delivery and performance of
this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
- 19 -
(iii) this Agreement is valid and binding upon
the Purchaser and enforceable against the Purchaser
in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract
or agreement known to such counsel and to which
Purchaser is a party or by which it or its property
is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority
or regulatory body, federal, state or local, is
necessary or required in connection with the
execution and delivery of this Agreement by the
Purchaser or the performance of its obligations
hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to the Shareholders and the Companies at Closing. Any
opinion as to the enforceability of any document may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors rights and by
principles of equity. Such opinion may be limited to federal
law, the internal laws of the State of Texas and the General
Corporation Law of the State of Delaware.
8.3. CONSENTS AND APPROVALS. The consents and
approvals referred to in Section 7.9, including the approval
of the FTC, shall have been obtained.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained
in this Agreement or any Schedule hereto shall be deemed
representations and warranties of the party executing or
delivering the same.
- 20 -
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or in any
Schedule hereto shall not terminate, but shall survive the
Closing and continue in effect thereafter for a period of two
(2) years following the Closing, at which time they shall
terminate (except as to claims which are then pending by
written notice delivered prior to the expiration of such
two-year period).
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS AND THE
COMPANIES. The Shareholders and the Companies jointly and
severally agree to indemnify and hold harmless the Purchaser
and its successors and assigns from and against any and all
losses, damages, liabilities, obligations, costs or expenses
(any one such item being herein called a "Loss" and all such
items being herein collectively called "Losses") which are
caused by or arise out of (i) any breach or default in the
performance by either Shareholder or either Company of any
covenant or agreement of the Shareholders and the Companies
contained in this Agreement, (ii) any breach of warranty or
inaccurate or erroneous representation made by either
Shareholder or either Company herein, in any Schedule
delivered to the Purchaser pursuant hereto or in any
certificate or other instrument delivered by or on behalf of
such Shareholder or such Company pursuant hereto, (iii) any
claim made against the Purchaser in respect of any liabilities
or obligations of either Company (whether absolute or
contingent) other than the Assumed Liabilities, and (iv) any
and all actions, suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser
agrees to indemnify and hold harmless the Shareholders and the
Companies and their successors and assigns from and against
any Losses which are caused by or arise out of (i) any breach
or default in the performance by the Purchaser of any covenant
or agreement of the Purchaser contained in this Agreement,
(ii) any breach of warranty or inaccurate or erroneous
representation made by the Purchaser herein or in any
certificate or other instrument delivered by or on behalf of
the Purchaser pursuant hereto, (iii) any claim made against
either Shareholder or either Company in respect of the Assumed
Liabilities or based on any set of facts arising after
- 21 -
the Closing and related to the operation of the Homes, (iv)
any and all actions suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in the defense thereof and
be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts
in connection therewith. Notwithstanding the foregoing, if
within ten business days after delivery of the indemnified
party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between
such parties, such claims shall be fully indemnified for by
the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have
the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected
by it, and (ii) to approve any settlement if the indemnified
party's interests are, or would be, affected thereby.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The
Shareholders and the Companies agree to use their best efforts
to bring about the satisfaction of the conditions specified in
Section 7 hereof and the Purchaser agrees to use its best
efforts to bring about the satisfaction of the conditions
specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual consent of the Shareholders and
the Purchaser;
(b) the Purchaser if a material default shall
be made by either Shareholder or either Company in
the observance or in the due and timely performance
by any of their covenants herein contained, or if
there shall have been a material breach or
misrepresentation by either Shareholder
- 22 -
or either Company of any of their warranties and
representations herein contained, or if the
conditions of this Agreement to be complied with or
performed by either Shareholder or either Company at
or before the Closing shall not have been complied
with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Purchaser in writing;
(c) the Shareholders if a material default
shall be made by the Purchaser in the observance or
in the due and timely performance by the Purchaser of
any of the covenants of the Purchaser herein
contained, or if there shall have been a material
breach or misrepresentation by the Purchaser of any
of its warranties and representations herein
contained, or if the conditions of this Agreement to
be complied with or performed by the Purchaser at or
before the Closing shall not have been complied with
or performed at the time required for such compliance
or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Shareholders in writing; or
(d) the Shareholders or the Purchaser, if for
any reason the Closing shall have failed to occur on
or before December 31, 1992.
11.3. LIABILITY UPON TERMINATION. If this Agreement
is terminated under paragraph (a) or (d) of Section 11.2, then
no party shall have any liability to any other party
hereunder. If this Agreement is terminated under paragraph (b)
or (c) of Section 11.2, then (i) the party so terminating this
Agreement shall not have any liability to any other party
hereto, provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination. For purposes of the foregoing, the "terminating
party" shall include the Companies if the terminating parties
are the Shareholders.
12. MISCELLANEOUS.
12.1. EXPENSES. Whether or not the Closing occurs,
the parties shall each pay their own expenses in connec-
- 23 -
tion with the negotiation, preparation and carrying out of
this Agreement and the consummation of the transactions
contemplated herein.
12.2. BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of either Company, such claims shall be the responsibility of
the Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Companies
and the Shareholders in the case of claims arising under any
other liabilities of the Companies.
12.3. TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Companies.
12.4. NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given if personally delivered or
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i) if to either Company or either Shareholder
to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
with a copy to:
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(ii) if to the Purchaser, to:
CFS Funeral Services, Inc.
Three Riverway
Suite 1375
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
- 24 -
with a copy to:
Butler & Binion, L.L.P.
1000 Louisiana
Suite 1600
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by
either party to the other party hereto.
12.5. ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the consent of all of the other
parties, provided, however, that following the Closing the
Purchaser may assign its rights hereunder without the consent
of the Shareholders or the Companies to a
successor-in-interest to the Purchaser (whether by merger,
sale of assets or otherwise), provided that the Purchaser
shall not thereby be relieved of its obligations hereunder.
12.6. SUCCESSORS BOUND. Subject to the provisions of
Section 12.5, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors, assigns, heirs and personal representatives.
12.7. CHANGE OF NAMES. Promptly following the Closing
(but in no event later than 30 days thereafter) Sentinel and
Ward's shall cause the Certificate of Articles of
Incorporation of Ward's to be amended so as to change its name
to one wholly dissimilar to "Ward's Funeral Home, Inc." In
addition, promptly following the closing of the purchase by
the Purchaser of the assets and properties of the Wallis & Son
Funeral Home in LaFayette, Georgia under a separate Asset
Purchase Agreement (but in no event later than 30 days
thereafter), Wallis and SCI-Georgia shall cause the
Certificate of Articles of Incorporation of Wallis to be
amended so as to change its name to one wholly dissimilar to
"Wallis & Son Funeral Home, Inc." In each case, the
Shareholders will furnish the Purchaser with written evidence
of each such amendment.
12.8. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
- 25 -
12.9. AMENDMENT. This Agreement may be amended only
by an instrument in writing executed by both parties hereto.
12.10. ENTIRE AGREEMENT. This Agreement and the
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject
matter hereof and thereof.
12.11. GOVERNING LAW. This agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Texas.
12.12. COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which shall constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered in Houston, Texas as of the date first above written.
THE PURCHASER:
CFS FUNERAL SERVICES, INC.
By /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE COMPANIES:
WALLIS & SON FUNERAL HOMES, INC.
By /s/ RAY A. GIPSON
Ray A. Gipson,
Vice President
WARD'S FUNERAL HOME, INC.
By /s/ RAY A. GIPSON
Ray A. Gipson,
Vice President
THE SHAREHOLDERS:
SCI GEORGIA FUNERAL SERVICES, INC.
By /s/ RAY A. GIPSON
Ray A. Gipson,
Vice President
SENTINEL GROUP, INC.
By /s/ RAY A. GIPSON
Ray A. Gipson,
Vice President
- 27 -
SCHEDULE DESCRIPTION
- -------- -----------
1.4 Assumed Contracts
3.3 Accounts Receivable and Inventory
3.5 Real Property
3.7 Fixed Assets
3.9 Preneed Contracts and Trust Accounts
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of December 9, 1992, among CFS
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), LANE FUNERAL
HOME, INC., a Tennessee corporation ("Lane-Tennessee"), and LANE FUNERAL HOME,
INC., a Delaware corporation "Lane-Delaware") (Lane-Tennessee and Lane-Delaware
are together hereafter referred to as the "Companies"), and SENTINEL GROUP,
INC., a Delaware corporation (the "Shareholder");
WITNESSETH:
WHEREAS, Lane-Tennessee owns and operates the R. J. Coulter
Chapel, a funeral home located in Chattanooga, Tennessee (the "Coulter Home"),
and Lane-Delaware owns and operates the South Crest Chapel, a funeral home
located in Rossville, Georgia (the "South Crest Home") (the Coulter Home and the
South Crest Home being referred to hereafter collectively as the "Homes"); and
WHEREAS, the Shareholder owns all of the issued and
outstanding capital stock of each Company; and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of the assets, rights and properties of the Homes from the
Companies, all on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. TRANSFER OF ASSETS. Subject to the provisions of
this Agreement, the Companies agree to sell and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
all of the properties, assets, rights and business of the
Homes described below, as they shall exist at the time of the
Closing (collectively, the "Assets"), excluding those
described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of caskets, accessories,
monuments and other goods and inventories;
(iii) the 15 motor vehicles described on
Schedule 3.7, and the other machinery, equipment,
furniture, fixtures, supplies, tools and other
- 1 -
fixed assets and property, plant and equipment,
including those described on Schedule 3.7;
(iv) fee simple title to the real property
and improvements described on Schedule 3.5;
(v) all cash balances in bank accounts and
certificates of deposit, but only if such cash
balances or certificates of deposit are committed
fund obligations under preneed contracts;
(vi) the rights of the Companies under
pre-need contracts and the other agreements, leases
and commitments described on Schedule 1.4;
(vii) all rights owned or held by the
Companies to the names "Coulter Chapel", "South Crest
Chapel", "Lane Funeral Home" and all derivatives
thereof, and all goodwill associated with the
foregoing;
(viii) all transferrable permits and
licenses, and all books, records, brochures and
literature, rights in unemployment compensation,
industrial accident and other similar funds, and
prepaid items;
(ix) all rights of the Companies under the
environment site assessment reports prepared for the
Homes by Atlantic Geoscience, Inc. (without, however,
releasing Atlantic Geoscience, Inc. from the
Companies' reliance on such reports); and
(x) all other assets, rights and properties
owned or held by the Companies at the time of Closing
and used in the operation of, or in connection with,
the business of the Homes or located thereon,
excluding those described in Section 1.2.
At the Closing, the Companies shall convey to the Purchaser
the Assets free and clear of any and all liens, security
interests, pledges, encumbrances, or title restrictions of any
kind (collectively, "Liens"), other than Liens against real
property described on Schedule 3.5 approved by the Purchaser
(the "Permitted Encumbrances").
1.2. RETAINED ASSETS. Notwithstanding the foregoing,
the following properties, assets, rights and interests (the
"Retained Assets") are hereby excluded from the purchase and
sale contemplated hereby and are therefore not included in the
Assets:
- 2 -
(i) all cash on hand or on deposit,
including bank account balances, certificates of
deposit and marketable securities, excluding,
however, account balances and certificates of deposit
described in Section 1.1(v);
(ii) intercompany accounts and notes
receivable owed to either Company by the Shareholder
or any of its affiliates which do not arise out of
the sale of goods or services of such Company;
(iii) the corporate records, minutes of
proceedings, stock records and corporate seals of the
Companies, and any shares of either Company's capital
stock held in its treasury;
(iv) either Company's share of any prepaid
federal or state income taxes and any rights to or
claims for federal or state income tax refunds; and
(v) all assets, rights and properties of
funeral homes owned and operated by the Companies,
other than the Homes.
1.3. PURCHASE PRICE. The purchase price for the
Assets shall be $6,000,000, all of which shall be paid in cash
at Closing by wire transfer to such account as the Shareholder
shall designate prior to Closing.
1.4. ASSUMPTION OF LIABILITIES. The Purchaser, upon
the sale and purchase of the Assets, shall, subject to Section
1.5. below, assume and agree to pay or discharge only the
following liabilities and obligations of the Companies
(collectively, the "Assumed Liabilities"):
(i) liabilities under the preneed contracts
described in Section 3.9, under preneed contracts
entered into in the ordinary course of business
between the date of such schedule and the Closing
Date, and under at-need contracts for services to be
performed following Closing, provided that the entire
amount of consideration payable by the customers
under at-need contracts is payable following Closing
or an appropriate adjustment to such effect shall be
made at Closing between the Companies and the
Purchaser; and
- 3 -
(ii) obligations arising after Closing under
the agreements and leases and commitments described
on Schedule 1.4 hereto (the "Assumed Contracts").
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements with the
Companies. Nothing herein shall prevent the Purchaser from
contesting in good faith any of the Assumed Liabilities. At
Closing, the Purchaser shall deliver to the Companies an
instrument (which may be combined with one or more contract
assignments), dated the Closing Date and reasonably
satisfactory in form and substance to the Companies, pursuant
to which the Purchaser will assume the Assumed Liabilities.
1.5. LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4. above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Companies not specifically included in the Assumed
Liabilities and, in particular, Purchaser shall not assume or
agree to pay or discharge any of the following:
(i) any notes or accounts payable of any
kind, regardless of whether entered into in the
ordinary course of business;
(ii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Homes prior to the
Closing Date;
(iii) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against either
Company based upon any set of facts occurring prior
to the Closing;
(iv) the liabilities and obligations under
any warranties to customers with respect to goods or
products sold or services provided by the Companies
prior to Closing;
(v) all personal injury, product liability
claims, claims of environmental damage, claims of
hazards to health, strict liability, toxic torts,
enforcement proceedings, cleanup orders and other
similar actions or claims instituted by private
parties or governmental agencies, with respect to the
conduct of the business and operations of the
Companies prior to Closing; or
- 4 -
(vi) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6. CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, and payments under the Assumed Contracts shall be
prorated as of the Closing Date, the Companies being charged
and credited for all of same up to and on such date and the
Purchaser being charged and credited for all of same after
such date. Utility services will be transferred to the
Purchaser's name on or as soon as possible after the Closing
Date. If the actual amounts to be prorated are not known as of
the Closing Date, the prorations shall be made on the basis of
the best evidence then available, and thereafter, within
thirty (30) days after actual figures are received, a cash
settlement will be made between the Companies and the
Purchaser.
1.7. INSTRUMENTS OF TRANSFER. At the Closing, each
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale, contract assignments and
assignments of motor vehicle registrations, transferring title
to the Assets to the Purchaser as may reasonably be requested
by the Purchaser. Such instruments shall be reasonably
satisfactory in form and substance to the Purchaser and shall
vest in the Purchaser good and indefeasible title to all the
Assets, free and clear of all Liens other than the Permitted
Encumbrances.
1.8. DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS.
At the Closing, each Company will deliver to the Purchaser all
of the Assumed Contracts, with such assignments thereof and
(to the extent required within the period contemplated in
Section 7.8, with respect to the Assumed Contracts referred to
therein) consents to assignment as the Purchaser shall deem
necessary to assure the Purchaser of their full benefit.
Simultaneously with such deliveries, each Company shall take
all requisite steps to put the Purchaser in actual possession
and operating control of the Assets and all of such Company's
on-site business records, books and other data. In addition,
at the Closing, the Shareholder, the Companies and the
Purchaser shall coordinate with one another in taking all
necessary or appropriate action to cause the transfer of the
trust funds referred to in Section 3.9 including, without
limitation, the obtaining of governmental and third party
consents and, if necessary, the substitution of a successor
trustee by the Purchaser or a designee of the Purchaser.
- 5 -
1.9. FURTHER ASSURANCES. The Shareholder and the
Companies shall from time to time after the Closing, without
further consideration, execute and deliver such instruments of
transfer, conveyance and assignment (in addition to those
delivered pursuant to Section 1.7), and shall take such other
action, as the Purchaser may reasonably request to more
effectively transfer, convey and assign to and vest in the
Purchaser, and to put the Purchaser in actual possession and
control of, each of the Assets.
2. THE CLOSING. The Closing shall occur at the offices of
Butler & Binion, L.L.P., 1000 Louisiana, Suite 1600, Houston, Texas, at
9:00 a.m. on the tenth business day following the Purchaser's receipt
of notice of the approval referred to in Section 7.9, or at such other
date, time or place as may be mutually agreed upon by the parties, but
in no event later than February 28, 1993. The date and time of the
Closing is herein called the "Closing Date", and shall be deemed to
have occurred as of the close of business on the Closing Date. All
action to be taken at the Closing as hereinafter set forth, and all
documents and instruments executed and delivered, and all payments made
with respect thereto, shall be considered to have been taken, delivered
or made simultaneously, and no such action or delivery or payment shall
be considered as complete until all action incident to the Closing has
been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE
SHAREHOLDER. The Companies and the Shareholder jointly and severally
represent and warrant to and agree with the Purchaser that:
3.1. ORGANIZATION AND EXISTENCE. The Companies and
the Shareholder are each a corporation duly organized, validly
existing and in good standing under the laws of the state of
its incorporation, and each has all requisite corporate power
to enter into and perform its obligations under this
Agreement.
- 6 -
3.2. OWNERSHIP OF THE COMPANIES. All of the issued
and outstanding shares of capital stock of each Company are
owned of record and beneficially by the Shareholder.
3.3. CERTAIN FINANCIAL INFORMATION. During the four
months beginning September 1, 1991 and ended December 31,
1991, the Coulter Home had gross revenues (less discounts) of
at least $302,966 and the South Crest Home had gross revenues
(less discounts) of at least $772,642; and during such period,
the Coulter Home performed at least 71 adult funeral services
and the South Crest Home performed at least 147 adult funeral
services. During the ten months ended October 31, 1992, the
Coulter Home had gross revenues (less discounts) of at least
$769,839 and the South Crest Home had gross revenues (less
discounts) of at least $1,966,858; and during such period, the
Coulter Home performed at least 203 adult funeral services and
the South Crest Home performed at least 484 adult funeral
services. Attached hereto as Schedule 3.3 is a listing of the
accounts receivable and inventory of each Home as of October
31, 1992, and (as shown on such Schedule) the total
inventories (determined at cost) and accounts receivable (at
face value) of the Homes at such date are as set forth below:
ACCOUNTS
Inventories Receivable
Coulter Home $13,152 $126,686
South Crest Home $79,860 $459,456
3.4. TITLE TO AND STATUS OF PROPERTIES. Each Company
is in actual possession and control of all properties owned or
leased by it which are presently used in the conduct of the
business of the Homes, and has good and indefeasible title to
all of the Assets to be sold and conveyed to the Purchaser
under this Agreement, free and clear of any and all Liens
other than the Permitted Encumbrances.
3.5. REAL PROPERTY. Schedule 3.5 hereto sets forth a
description of each parcel of real property owned by the
Companies and used in the operation of the Homes
- 7 -
(hereafter referred to collectively as the "Real Property").
Schedule 3.5 also described all Liens of any kind against the
Real Property. There is not pending or, to the Shareholder's
knowledge, threatened any proceeding for the taking or
condemnation of the Real Property or any portion thereof.
Since August 30, 1991, no toxic or hazardous wastes (as
defined by the U.S. Environmental Protection Agency, or any
similar state or local agency) or hazardous substances (as
defined under the Comprehensive Environment Response,
Compensation and Liability Act of 1980, as amended, or the
Resource Conservation and Recovery Act, as amended, or any
similar state or local statute or regulation) have been
generated, stored, dumped or released onto or from any portion
of the Real Property, except for substances, such as
formaldehyde, that are used in the operation of the Real
Property as funeral homes or otherwise in the ordinary course
of business and have been properly used, stored and disposed
of in accordance with applicable legal requirements, and
except for any of the foregoing which would not, individually
or in the aggregate, have a material adverse impact on the
financial condition, operations, properties or prospects of
the Homes. To the knowledge of the Companies and the
Shareholder, the Real Property is not now subject to any
reclamation, remediation or reporting requirements of any
federal, state, local or other governmental body or agency
having jurisdiction over the Real Property. To the knowledge
of officers of the Companies and the Shareholder, none of the
Real Property contains any underground storage tanks or PCBs,
except to the extent described in the environmental reports
referred to in Section 1.1(ix).
3.6. ABSENCE OF CHANGES OR EVENTS. Since September
30, 1992, there has not been:
(i) any material adverse change in the
financial condition, operations, properties or
prospects of either Home;
(ii) any material damage, destruction or
losses against any Home or any waiver of any rights
of material value to either Home;
(iii) any claim or liability for any
material damages for any actual or alleged negligence
or other tort or breach of contract against or
affecting either Home; or
- 8 -
(iv) any transaction or event entered into
or affecting either Home other than in the ordinary
course of the business.
3.7. FIXED ASSETS. Schedule 3.7 hereto lists all
material items of motor vehicles, equipment, fixtures and
other major fixed assets owned by the Companies which are used
in the operation of, or in connection with, the business of
the Homes or located thereon. All such Assets are, taken as a
whole, in operating condition and reasonable repair, ordinary
wear and tear excepted.
3.8. CONTRACTS AND COMMITMENTS. Each Assumed Contract
is valid and in full force and effect and neither the
Companies, nor, to the knowledge of the Companies and the
Shareholder, any of the other parties thereto, are in default
thereunder.
3.9. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.9 attached hereto lists, as of June 30, 1992 (except as
otherwise noted therein), (i) all preneed contracts of each
Home unfulfilled as of the date thereof, including contracts
for the sale of funeral merchandise and services, and (ii) all
trust accounts relating to each Home, indicating the location
of each and the balance thereof. In addition, on or before
three business days prior to Closing, the Companies shall
deliver to the Purchaser a Schedule listing the information
described in such clauses (i) and (ii) as the date thereof.
All funds received by the Companies for the Homes under
preneed contracts entered into after August 30, 1991 have been
deposited in the appropriate accounts and administered and
reported in accordance with the terms thereof and as required
by applicable laws and regulations. As to all preneed accounts
set forth on Schedule 3.9, either (i) such accounts are
covered by written contracts signed or approved by the
customer, (ii) the direct costs to be incurred by the
Purchaser in providing the services and merchandise called for
by any unwritten agreements will not exceed trusted principal
and interest receivable with respect thereto or (iii) the
obligations of the Companies thereunder are no more than to
apply as a credit the amount of trust balances, including
interest, for any particular account against the price for
performing the service and providing products on an at-need
basis. The services provided by the Companies at the Homes
since August 30, 1991 have been rendered in a professional and
competent manner consistent with prevailing professional
standards, practices and customs.
- 9 -
3.10. INTANGIBLE RIGHTS. Neither Company has
received, at any time, notice that it is charged with
infringement of any patent, trademark, trade secret, license
or other similar proprietary rights of any other person in
respect of the operation of the business of the Homes or the
use or ownership of the Assets.
3.11. LICENSES, PERMITS, ETC. To the knowledge of the
Companies and the Shareholder, each Company possesses all
licenses, franchises, permits, certificates, consents, rights
and privileges necessary or appropriate to the conduct of the
operations of the Homes, including (without limitation) all
permits necessary for compliance with all applicable
environmental laws, except for any such license, franchise,
permit, certificate, consent, right or privilege the absence
of which would not, individually or in the aggregate, have a
material adverse effect on the financial condition, business,
operations or prospects of either of the Homes or any
substantial portion of the Assets.
3.12. LITIGATION. Other than the proceedings pending
before the Federal Trade Commission which are the subject of
the agreed consent order referred to in Section 7.9, there are
no claims, actions, suits, proceedings or investigations
pending or, to the Shareholder's knowledge, threatened against
or affecting either Company (with respect to the operation of
either of the Homes) or any of the Assets, at law or in equity
or before or by any court or federal, state, municipal or
other governmental department, commission, board, agency or
instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or
in the aggregate, have a material adverse effect on the
financial condition, business, operations or prospects of
either Home or any substantial portion of the Assets. Neither
Company is subject to any continuing court or administrative
order, writ, injunction or decree issued by any court or
foreign, federal, state, municipal or other governmental
department, commission, board, agency or instrumentality, in
respect of the operation of either Home or the use or
ownership of the Assets.
3.13. COMPLIANCE WITH LAWS. The Companies have
operated each Home at all times since August 30, 1991 in
compliance with all federal, state, municipal and other
statutes, rules, ordinances and regulations applicable to the
Homes, the operation thereof and the Assets to be sold and
conveyed to the Purchaser hereunder, except for any such
noncompliance which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of either Home or
any substantial portion of the Assets.
- 10 -
3.14. FINDERS. Neither the Shareholder nor the
Companies (nor Service Corporation International) is a party
to or in any way obligated under any contract or other
agreement, and there are no outstanding claims against any of
them, for the payment of any broker's or finder's fee in
connection with the origin, negotiation, execution or
performance of this Agreement.
3.15. AUTHORITY. The execution, delivery and
performance of this Agreement by the Shareholder and the
Companies have been duly authorized by their respective Boards
of Directors. This Agreement is legally binding and
enforceable against the Shareholder and each Company in
accordance with its terms. Neither the execution, delivery nor
performance of this Agreement by the Shareholder or either
Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required
under, the respective Certificate or Articles of Incorporation
or bylaws of the Shareholder or either Company or any
indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental
body.
3.16. FULL DISCLOSURE. The representations and
warranties made by the Companies and the Shareholder hereunder
or in any Schedules or certificates furnished to the Purchaser
pursuant hereto, do not and will not contain any untrue
statement of a material fact or, to the knowledge of the
Companies and the Shareholder, omit to state a material fact
required to be stated herein or therein or necessary to make
the representations or warranties herein or therein, in light
of the circumstances in which they are made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Companies and
the Shareholder that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement. The Purchaser is duly
qualified as a foreign corporation in the States of Georgia
and Tennessee.
- 11 -
4.2. AUTHORITY OF THE PURCHASER. The execution,
delivery and performance of this Agreement by the Purchaser
has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon the Purchaser and
enforceable against the Purchaser in accordance with its
terms. Neither the execution, delivery or performance by the
Purchaser of this Agreement will conflict with or result in a
violation or breach of any term or provision of, nor
constitute a default under, the Certificate of Incorporation
or bylaws of the Purchaser or under any indenture, mortgage,
deed of trust or other contract or agreement to which it is a
party or by which it or its property is bound, or violate any
order, writ, injunction or decree of any court, administrative
agency or governmental body. At or prior to Closing, the
Purchaser will have made all necessary applications and
obtained all necessary licenses and permits, if any, which,
together with the transfer of the Company's transferrable
licenses and permits described in Section 1.1(viii), will be
required in order to enable the Purchaser to acquire the
Assets hereunder and consummate the Closing.
4.3. FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4. FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Shareholder or the Companies
pursuant hereto or thereto, do not and will not contain any
untrue statement of a material fact or, to the Purchaser's
knowledge, omit to state a material fact required to be stated
herein or therein or necessary to make the representations or
warranties herein or therein, in light of the circumstances in
which they are made, not misleading.
5. COVENANTS OF THE COMPANIES AND THE SHAREHOLDER PENDING
CLOSING. The Companies and the Shareholder jointly and severally
covenant and agree with the Purchaser that:
- 12 -
5.1. CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of each Home will
be operated only in the ordinary course, and, in particular,
without the prior written consent of the Purchaser, neither
the Shareholder nor either Company will cause or permit any of
the following actions to occur:
(i) cancel or permit any insurance
applicable to the Assets or either Home to lapse or
terminate, unless renewed or replaced by like
coverage;
(ii) commit any act or permit the occurrence
of any event or the existence of any condition of the
type described in clause (iv) of Section 3.6; in
addition, if any of the other events described in
Section 3.6 occurs, the Shareholder will promptly
notify the Purchaser of the existence and nature of
such event;
(iii) alter, amend, cancel or modify in any
respect any of the Assumed Contracts or the standard
form of, and terms and conditions applicable to,
preneed contracts;
(iv) sell or otherwise dispose of any of the
fixed assets described on Schedule 3.7; or
(v) hire, fire, reassign or make any other
change in key personnel of either Home.
5.2. ACCESS TO INFORMATION. Prior to Closing, the
Shareholder will give and cause each Company to give to the
Purchaser and its counsel, accountants and other
representatives, full and free access to all of the on-site
properties, books, contracts, commitments and records of each
Home so that the Purchaser may have full opportunity to make
such investigation as it shall desire to make of the business,
affairs and properties of the Homes, provided such
investigation is conducted so as not to unreasonably interfere
with the normal day-to-day operations of the Homes.
5.3. CONSENTS AND APPROVALS. The Shareholder will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part and on the part of the Companies to
consummate the transactions contemplated by this Agree-ment,
including the approval of the Federal Trade Commission
described in Section 7.9.
- 13 -
5.4. NO SHOP. For so long as this Agreement remains
in effect, the Shareholder and the Companies agree that
neither they nor Service Corporation International shall enter
into any agreements or commitments, or initiate, solicit or
encourage any offers, proposals or expressions of interest, or
otherwise hold any discussions with any potential buyers,
investment bankers or finders, with respect to the possible
sale or other disposition of all or any substantial portion of
the assets and business of either Home or any other sale of
either Company (whether by merger, consolidation, sale or
stock or otherwise), other than with the Purchaser; provided,
however, that any such merger, consolidation or sale of stock
may occur with the Shareholder or one or more direct or
indirect wholly owned subsidiaries of Service Corporation
International, provided that the successor entity joins in the
execution of this Agreement to expressly acknowledge the
assumption of the obligations hereunder of the applicable
Company.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Shareholder and the Companies that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement. In addition, the Purchaser
agrees to furnish information regarding itself as may be
reasonably required in connection with obtaining the approval
of the Federal Trade Commission described in Section 7.9.
6.2. CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Companies
from any representative, officer, director or employee of the
Companies, including their accountants or legal counsel, or
from any books or records of them, in connection with the
transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither
the Purchaser nor its representatives shall use such data or
information or disclose the same to others, except as such
data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to
be disclosed. If this Agreement is terminated for any reason,
all written data and information obtained by the Purchaser
from the Companies or the Shareholder or their representatives
in connection with the transactions contemplated by this
Agreement shall be returned to the Shareholder.
- 14 -
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing;
provided, however, that the conditions described in Sections 7.5
through 7.8 shall be deemed satisfied or waived by the Purchaser if it
shall not have raised any objections as to any of such conditions
within the 25-day period referred to therein (other than the funding of
the commitment referred to in Section 7.7, which is unaffected by such
25-day period):
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any error,
misstatement or omission in the representations and warranties
made by the Companies and the Shareholder in Section 3 hereof;
the representations and warranties made by the Companies and
the Shareholder herein shall be deemed to have been made again
at and as of the time of Closing and shall then be true and
correct; the Companies and the Shareholder shall have
performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by an executive officer of the
Companies and the Shareholder, to the effect of the foregoing
provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Shareholder shall have
caused to be delivered to the Purchaser an opinion of counsel
for the Shareholder and the Companies, to the effect that:
(i) the Shareholder and each Company are
corporations duly organized, validly existing and in
good standing under the laws of their respective
states of incorporation and have all requisite
corporate power to enter into and perform their
respective obligations under this Agreement;
(ii) the execution, delivery and performance
of this Agreement by the Shareholder and the
Companies have been duly authorized by their
respective Board of Directors;
- 15 -
(iii) this Agreement is valid and binding
upon the Shareholder and each Company and enforceable
against them in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Shareholder and the Companies of
this Agreement will conflict with or result in a
violation or breach of any term or provision of, nor
constitute a default under, the Articles or
Certificate of Incorporation or bylaws of the
Shareholder or either Company or under any material
loan or credit agreement, indenture, mortgage, deed
of trust or other contract or agreement known to such
counsel and to which the Shareholder or either
Company is a party or by which it or its property is
bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of
or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Shareholder or the Companies or the performance of
their respective obligations hereunder, except for
any consents which have already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Shareholder and the
Companies and certificates of public officials, copies of
which shall be provided to the Purchaser at Closing. Any
opinion as to the enforceability of any document may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors rights and by
principles of equity. Such opinion may be limited to federal
law and the internal laws of the State of Texas.
7.3. NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to a substantial
portion of the physical assets and properties of either of the
Homes (regardless of whether such loss or damage was insured),
the effect of which would have a material adverse effect on
the condition, business, operations or prospects of either
such Home.
- 16 -
7.4. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.5. PRE-ACQUISITION REVIEW. On or before twenty-five
(25) days after the date of this Agreement, the Purchaser and
its representatives shall have completed a pre-acquisition
review of the financial information and books and records of
the Homes, and shall have discovered no change in the
business, assets, operations, financial condition or prospects
of either Home which could, in the sole determination of the
Purchaser, have an adverse effect on the value to the
Purchaser of the business, assets, financial condition or
prospects of either such Home and the Assets being purchased.
7.6. ENVIRONMENTAL REPORT. On or before 25 days after
the date of this Agreement, the Purchaser shall have
conducted, at its expense, a Phase I (and, if deemed necessary
by Purchaser, a Phase II) environmental audit of the Homes and
the Real Property by an environmental consulting firm selected
by Purchaser, and the results of such report (together with
any remedial action, if any, taken by the Companies in
response thereto) shall be satisfactory to Purchaser in its
sole discretion.
7.7. FINANCING COMMITMENT. On or before 25 days after
the date of this Agreement, the Purchaser shall have received,
from Texas Commerce Bank National Association or another
financial institution acceptable to it, a written commitment,
containing such terms and conditions and otherwise in form and
substance acceptable to the Purchaser, providing for the
extension of financing in order to provide the portion of the
consideration for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources. It shall be a
further condition to Closing, unaffected by such 25-day
period, that such commitment shall have been funded in such
amount contemporaneously with the Closing, provided that the
Purchaser agrees to perform its obligations under such
commitment.
- 17 -
7.8. FORMER OWNER CONTRACTS. On or before 25 days
after the date of this Agreement, each of the other parties to
the lease agreements, employment agreements and
non-competition agreements described on Schedule 1.4 shall
have consented to the assignment thereof by the Companies to
the Purchaser, and each of such lease agreements, employment
agreements and non-competition agreements shall have been
extended, amended and otherwise modified, or new agreements
entered into, in a manner and in form and content mutually
acceptable to the Purchaser and each of such other parties.
7.9. FTC AND OTHER APPROVALS. The Purchaser shall
have received written notice of the approval of the Purchaser
and the transactions described herein by the Federal Trade
Commission (the "FTC") under the FTC's consent decree with the
Shareholder (as proposed and reported in 50 Fed.Reg. 37,357
(Aug. 6, 1991)). In addition, the Shareholder shall have
obtained all other necessary or appropriate consents and
approvals of other persons and governmental authorities to the
transactions contemplated in this Agreement.
7.10. TITLE INSURANCE. The Purchaser shall have
received an Owner's Policy of Title Insurance (at the
Shareholder's expense) for each parcel of Real Property in an
amount mutually determined by the parties. Each such policy
shall be issued by a title company with offices in each County
in which the Real Property is located and reasonably
acceptable to the Purchaser (each hereafter referred to as a
"Title Company"), insuring that Purchaser is the owner of each
parcel of the Real Property subject only to the Permitted
Encumbrances, and the standard printed exceptions included in
a standard form Owner Policy of Title Insurance in effect in
the applicable jurisdiction; provided, however, that such
policy shall be limited to restrictions that are Permitted
Encumbrances, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the exception for rights of
parties in possession shall be deleted, and the standard
exception for taxes shall be limited to the year in which the
Closing occurs, and subsequent years and subsequent
assessments for prior years due to change in land usage or
ownership.
7.11. SURVEY. The Purchaser shall have received, at
the Shareholder's expense, a survey prepared by a licensed
surveyor approved by Purchaser and acceptable to each Title
Company, with respect to each parcel of Real Property, which
survey shall be sufficient for each Title Company to delete
the survey exception contained in the owner policy of title
insurance referred to in Section 7.10, save and except for the
phrase "shortages in area", and otherwise be in form and
content reasonably acceptable to Purchaser and its lender.
- 18 -
8. CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND THE
SHAREHOLDER. The obligations of the Companies and the Shareholder under
this Agreement shall be subject to the following conditions, any of
which may be expressly waived by the Shareholder in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Shareholder shall not have discovered any
material error, misstatement or omission in the
representations and warranties made by the Purchaser in
Section 4 hereof; the representations and warranties made by
the Purchaser herein shall be deemed to have been made again
at and as of the time of Closing and shall then be true and
correct; the Purchaser shall have performed and complied with
all agreements and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing;
and the Shareholder shall have received a certificate, signed
by an executive officer of the Purchaser, to the effect of the
foregoing provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Shareholder and the Companies an
opinion of Butler & Binion, L.L.P., counsel for the Purchaser,
to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement; and the
Purchaser is duly qualified as a foreign corporation
in the States of Georgia and Tennessee;
(ii) the execution, delivery and performance
of this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Purchaser and enforceable against the
Purchaser in accordance with its terms;
- 19 -
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract
or agreement known to such counsel and to which
Purchaser is a party or by which it or its property
is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of
or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Purchaser or the performance of its obligations
hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to the Shareholder and the Company at Closing. Any
opinion as to the enforceability of any document may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors rights and by
principles of equity. Such opinion may be limited to federal
law, the internal laws of the State of Texas and the General
Corporation Law of the State of Delaware.
8.3. CONSENTS AND APPROVALS. The consents and
approvals referred to in Section 7.9, including the approval
of the FTC, shall have been obtained.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained
in this Agreement or any Schedule hereto shall be deemed
representations and warranties of the party executing or
delivering the same.
- 20 -
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or in any
Schedule hereto shall not terminate, but shall survive the
Closing and continue in effect thereafter for a period of two
(2) years following the Closing, at which time they shall
terminate (except as to claims which are then pending by
written notice delivered prior to the expiration of such
two-year period).
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDER AND THE
COMPANIES. The Shareholder and the Companies jointly and
severally agree to indemnify and hold harmless the Purchaser
and its successors and assigns from and against any and all
losses, damages, liabilities, obligations, costs or expenses
(any one such item being herein called a "Loss" and all such
items being herein collectively called "Losses") which are
caused by or arise out of (i) any breach or default in the
performance by the Shareholder or either Company of any
covenant or agreement of the Shareholder and the Companies
contained in this Agreement, (ii) any breach of warranty or
inaccurate or erroneous representation made by the Shareholder
or either Company herein, in any Schedule delivered to the
Purchaser pursuant hereto or in any certificate or other
instrument delivered by or on behalf of the Shareholder or
such Company pursuant hereto, (iii) any claim made against the
Purchaser in respect of any liabilities or obligations of
either Company (whether absolute or contingent) other than the
Assumed Liabilities, and (iv) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal fees) incident to any of the
foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser
agrees to indemnify and hold harmless the Shareholder and the
Companies and their successors and assigns from and against
any Losses which are caused by or arise out of (i) any breach
or default in the performance by the Purchaser of any covenant
or agreement of the Purchaser contained in this Agreement,
(ii) any breach of warranty or inaccurate or erroneous
representation made by the Purchaser herein or in any
certificate or other instrument delivered by or on behalf of
the Purchaser pursuant hereto, (iii) any claim made against
the Shareholder or either Company in respect of the Assumed
Liabilities or based on any set of facts arising after the
Closing and related to the operation of the Homes, and (iv)
any and all actions suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
- 21 -
10.3. THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in the defense thereof and
be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts
in connection therewith. Notwithstanding the foregoing, if
within ten business days after delivery of the indemnified
party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between
such parties, such claims shall be fully indemnified for by
the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have
the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected
by it, and (ii) to approve any settlement if the indemnified
party's interests are, or would be, affected thereby.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The
Shareholder and the Companies agree to use their best efforts
to bring about the satisfaction of the conditions specified in
Section 7 hereof and the Purchaser agrees to use its best
efforts to bring about the satisfaction of the conditions
specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual consent of the Shareholder
and the Purchaser;
(b) the Purchaser if a material default
shall be made by the Shareholder or either Company in
the observance or in the due and timely performance
by any of their covenants herein contained, or if
there shall have been a material breach or
misrepresentation by the Shareholder or either
Company of any of their warranties and
representations herein contained, or if the
conditions of this Agreement to be complied with or
performed by the Shareholder or either Company at or
before the Closing shall not have been complied with
or performed at the time required for such compliance
or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Purchaser in writing;
- 22 -
(c) the Shareholder if a material default
shall be made by the Purchaser in the observance or
in the due and timely performance by the Purchaser of
any of the covenants of the Purchaser herein
contained, or if there shall have been a material
breach or misrepresentation by the Purchaser of any
of its warranties and representations herein
contained, or if the conditions of this Agreement to
be complied with or performed by the Purchaser at or
before the Closing shall not have been complied with
or performed at the time required for such compliance
or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Shareholder in writing; or
(d) the Shareholder or the Purchaser, if for
any reason the Closing shall have failed to occur on
or before February 28, 1993.
11.3. LIABILITY UPON TERMINATION. If this Agreement
is terminated under paragraph (a) or (d) of Section 11.2, then
no party shall have any liability to any other party
hereunder. If this Agreement is terminated under paragraph (b)
or (c) of Section 11.2, then (i) the party so terminating this
Agreement shall not have any liability to any other party
hereto, provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination. For purposes of the foregoing, the terminating
party shall include the Companies if the terminating party is
the Shareholder.
- 23 -
12. MISCELLANEOUS.
12.1. EXPENSES. Whether or not the Closing occurs,
the parties shall each pay their own expenses in connection
with the negotiation, preparation and carrying out of this
Agreement and the consummation of the transactions
contemplated herein.
12.2. BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of either Company, such claims shall be the responsibility of
the Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Companies
and the Shareholder in the case of claims arising under any
other liabilities of the Companies.
12.3. TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Companies.
12.4. NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given if personally delivered or
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i) if to either Company or the Shareholder to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
with a copy to:
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
- 24 -
(ii) if to the Purchaser, to:
CFS Funeral Services, Inc.
Three Riverway
Suite 1375
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Butler & Binion, L.L.P.
1000 Louisiana
Suite 1600
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by
either party to the other party hereto.
12.5. ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the consent of all other parties
hereto, provided, however, that following the Closing the
Purchaser may assign its rights hereunder without the consent
of the Shareholder or the Companies to a successor-in-interest
to the Purchaser (whether by merger, sale of assets or
otherwise), provided that the Purchaser shall not thereby be
relieved of its obligations hereunder.
12.6. SUCCESSORS BOUND. Subject to the provisions of
Section 12.5, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns.
12.7. CHANGE OF NAME. Promptly following the Closing
(but in no event later than 30 days thereafter), the
Shareholder and the Companies shall cause the respective
Certificate or Articles of Incorporation of each Company to be
amended so as to change its name to one wholly dissimilar to
"Lane Funeral Home, Inc." and will furnish the Purchaser with
written evidence of each such amendment.
12.8. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
- 25 -
12.9. AMENDMENT. This Agreement may be amended only
by an instrument in writing executed by both parties hereto.
12.10. ENTIRE AGREEMENT. This Agreement and the
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject
matter hereof and thereof.
12.11. GOVERNING LAW. This agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Texas.
12.12. COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which shall constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered in Houston, Texas as of the date first above written.
THE PURCHASER:
CFS FUNERAL SERVICES, INC.,
a Delaware corporation
By MELVIN C. PAYNE
MELVIN C. PAYNE, President
THE COMPANIES:
LANE FUNERAL HOME, INC.,
a Tennessee corporation
By RAY A. GIPSON
RAY A. GIPSON, Vice President
LANE FUNERAL HOME, INC.,
a Delaware corporation
By RAY A. GIPSON
RAY A. GIPSON, Vice President
THE SHAREHOLDER:
SENTINEL GROUP, INC.,
a Delaware corporation
By RAY A. GIPSON
RAY A. GIPSON, Vice President
<PAGE>
SCHEDULE DESCRIPTION
1.4 Assumed Contracts
3.3 Accounts Receivable and Inventory
3.5 Real Property
3.7 Fixed Assets
3.9 Preneed Contracts and Trust Accounts
Exhibit 10.7
STOCK AND REAL PROPERTY PURCHASE AGREEMENT
THIS AGREEMENT, dated as of September 6, 1994, among CARRIAGE
FUNERAL SERVICES OF OHIO, INC., an Ohio corporation (the "Purchaser"),
KUBACH-SMITH FUNERAL HOME, INC., an Ohio corporation (the "Company"), and JAMES
B. SMITH, LOUISE SMITH, residents of Huron County, Ohio, and LEE K. SMITH and
NANCY SMITH-GELVIN, residents of Erie County, Ohio (collectively, the
"Shareholders");
WITNESSETH:
WHEREAS, the Company owns and operates the Kubach-Smith
Funeral Home and the Heaston-Gerber-Smith Funeral Home in Norwalk, Ohio, the
Rawle-Kubach-Smith Funeral Home in Milan, Ohio and the Gerber-Smith Funeral Home
in Wakeman, Ohio (collectively, the "Homes"); and
WHEREAS, the authorized capital stock of the Company consists
of 500 shares of Common Stock, no par value ("Common Stock"), of which 320
shares (the "Shares") are issued, outstanding and held and owned of record by
the Shareholders as shown on Schedule I hereto; and
WHEREAS, James B. Smith and Louise Smith (together, the
"Smiths") own fee simple title to (i) all of the parcels of real property on
which the Homes are situated, as more particularly described under the heading
"Purchased Real Property" on Schedule 4.1 hereto (the "Purchased Real
Property"), and (ii) the real property on which a building is situated adjacent
to the Kubach-Smith Funeral Home containing six garage bays and two apartment
units, as more particularly described under the heading "Leased Real Property"
on Schedule 4.1 hereto (the "Leased Real Property") (the Purchased Real Property
and the Leased Real Property are hereinafter collectively referred to as the
"Real Property"); and
WHEREAS, the parties desire that the Purchaser purchase the
Shares from the Shareholders, purchase the Purchased Real Property from the
Smiths and lease the Leased Real Property from the Smiths, all upon the terms
and conditions and for the consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF THE SHARES AND THE REAL PROPERTY.
1.1. TRANSFER OF THE SHARES. Each Shareholder severally agrees
to sell his or her respective Shares to the Purchaser, free and clear
of all security interests, pledges, liens, mortgages, title
restrictions, charges, encumbrances or rights of any other person
(collectively, "Liens"). The Purchaser, agrees to purchase and accept
the Shares from each of the Shareholders.
1.2. TRANSFER OF THE PURCHASED REAL PROPERTY. The Smiths
jointly and severally agree to sell fee simple title to the Purchased
Real Property to the Purchaser, free and clear of all Liens other than
Permitted Encumbrances described on Schedule 4.1, and the Purchaser
agrees to purchase and accept the Purchased Real Property from the
Smiths.
1.3. CONSIDERATION. Subject to Section 1.4, the consideration
for the Shares and the Purchased Real Property shall be $2,300,000 (the
"Purchase Price"), of which $937,000 shall be allocated to the Shares
and $1,363,000 shall be allocated to the Purchased Real Property. Of
the Purchase Price, (i) an amount sufficient to discharge indebtedness
of the Company, as determined pursuant to Section 1.4(a), shall be paid
by the Purchaser directly to the holders of such indebtedness, or in
such other manner mutually determined by the parties, (ii) the sum of
$200,000 shall collectively be represented by Subordinated Promissory
Notes of Carriage Funeral Services, Inc., a Delaware corporation and
the parent corporation of the Purchaser ("Carriage"), each payable to
the shareholders in the respective original principal amounts shown on
Schedule I, each substantially in the form of Exhibit A attached
hereto, with the blanks appropriately completed (collectively, the
"Subordinated Notes"), and (iii) the balance of the Purchase Price,
after deducting the amounts described in clauses (i) and (ii) above,
shall be allocated between the Purchase Price for the Shares and the
Real Property on a pro rata basis, and the net portion so allocated to
the Shares shall be paid to the Shareholders on a pro rata basis in
accordance with their respective holdings of the Shares as reflected on
Schedule I.
1.4. ADJUSTMENTS TO CONSIDERATION.
(a) AT CLOSING. At or prior to Closing, the
Shareholders shall deliver to the Purchaser a written
statement, certified by them to be accurate and complete,
setting forth a description, and the outstanding balance as of
the Closing, of all liabilities and obligations of the
Company, including (but not limited to) indebtedness for
borrowed money, indebtedness secured by Liens against any
assets or properties of the Company, accounts and trade
payable, accrued liabilities, federal, state and local taxes,
any liabilities under suits, claims, judgments or orders then
pending or any other liability or obligation of the Company
attributable to the operation of the Company's business prior
to Closing (collectively, "Unassumed Liabilities"), excluding
obligations under preneed contracts for which the full amount
has been deposited in trust as required under applicable law.
At Closing, the Purchaser shall pay out of the Purchase Price
such portion as shall be required
-2-
to pay and discharge those Unassumed Liabilities secured by
Liens against any assets or properties of the Company, any
other indebtedness of the Company for borrowed money, and any
other Unassumed Liabilities as mutually determined by the
parties, either directly to such creditors or otherwise in a
manner mutually determined by the parties such as to assure
that the assets and properties of the Company are free and
clear of any Liens and all such Unassumed Liabilities are paid
or satisfied in full. Such payment of Unassumed Liabilities
shall be deemed a downward adjustment to the Purchase Price
for the Shares. Any Unassumed Liabilities remaining unpaid
after the Closing shall be subject to indemnification under
Section 12.1.
(b)POST CLOSING. If in any of the five one-year
periods following the Closing Date (commencing on the first
day of the calendar month following the month in which Closing
occurs and each of the first four anniversaries of such date,
such periods being hereafter collectively referred to as
"Revenue Periods"), the total net revenue (as defined below)
is less than $1,455,000, then the amount of the difference
shall constitute a downward adjustment in the Purchase Price,
provided that the maximum amount of any such adjustment in any
single one-year period shall be $80,000 and the maximum
aggregate amount of such adjustment over such five-year period
shall be $400,000. For purposes of the foregoing, each
one-year period shall be determined on a stand-alone basis
without carry-forwards or carrybacks in any previous or
succeeding years. In each such instance, the Purchaser shall
be entitled to offset the amount of such downward adjustment
against the installments of principal and interest then due
under the Subordinated Notes and the amounts then payable
under the Non-Competition Agreements referred to in Section
2.2(ii), each offset to be applied equally between the
Subordinated Notes on the one hand, and the Non-Competition
Agreements on the other, and then prorata among the Notes and
Non-Competition Agreements, as applicable. In the event of any
such adjustment and offset, the Purchaser shall provide to the
Shareholders written notice thereof within 30 days following
expiration of the applicable Revenue Period, which notice
shall include a calculation of the total net revenues of the
Homes computed as aforesaid. The amount, if any, which is
payable under the Subordinated Notes and the Non-Competition
Agreements after giving effect to such adjustment and offset
shall accompany such notice. Offset shall be applied on a pro
rata basis in accordance with the amount of the annual
payments then payable to each Shareholder that are being
offset against. If in any Revenue Period the amount of
-3-
offset exceeds the amount of all annual payments available for
offset, then the deficiency shall be carried forward to the
next annual installments for offset, and that deficiency shall
not accrue interest during the interim. There shall be no
upward adjustment in the Purchase Price due to this Section
1.4(b). If the Hinman, Tanner and Walker funeral home in
Norwalk, Ohio1 permanently ceases operations (which does not
include a relocation within the Norwalk, Ohio area) while this
paragraph (b) is in effect, then the adjustment and offset
provisions hereof shall terminate upon the adjustment and
offset (if any) for the Revenue Period in which such cessation
occurs, after which there will be no more such adjustments or
offset under this paragraph (b). For purposes hereof, "net
revenues" means the gross revenues attributable to the
operation of the Homes (including rental income attributable
to portions of the Real Property leased to third persons),
less discounts, all determined in accordance with generally
accepted accounting principles consistently applied.
1.5. CERTAIN PRORATIONS. All normal and customarily proratable
items relating to the assets and liabilities of the Homes and to Real
Property, including but not limited to, utilities, real estate and
personal property taxes, shall be prorated as of the Closing Date, the
Shareholders or the Smiths, as the case may be, being charged and
credited for all of same up to such date and the Purchaser being
charged and credited for all of same on and after such date. If the
actual amounts to be prorated are not known as of the Closing Date, the
prorations shall be made on the basis of the best evidence then
available, and thereafter, within thirty (30) days after actual figures
are received, a cash settlement will be made between the Shareholders
and the Purchaser.
1.6. FURTHER ASSURANCES. The Shareholders agree to execute and
deliver from time to time after the Closing, at the reasonable request
of the Purchaser, and without further consideration, such additional
instruments of conveyance and transfer, and to take such other action
as the Purchaser may reasonably require more effectively to convey,
assign, transfer and deliver the Shares and title to the Purchased Real
Property to the Purchaser.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing shall occur at the offices of
Freeman, Laycock, Lux & Conway, 54 East Main Street, Norwalk, Ohio
44897, at 9:00 a.m. on September 6, 1994, or at such other date, time
or place as may be mutually agreed upon by the parties, but in no event
later than September 30, 1994. The date and time of the Closing is
-4-
herein called the "Closing Date", and shall be deemed to have occurred
as of the commencement of business on the Closing Date. At the Closing,
(i) the Shareholders shall deliver all certificates representing their
respective Shares, duly endorsed or accompanied by duly executed stock
powers, (ii) the Smiths shall execute and deliver one or more general
warranty deeds conveying fee simple title to the Purchased Real
Property to the Purchaser, and (iii) the Purchaser shall cause Carriage
to execute and deliver the originals of the Subordinated Notes to the
Shareholders and shall deliver the cash portion of the Purchase Price
payable to the Shareholders at Closing as provided in Section 1.3 by
wire transfer to such account or accounts in the United States as they
shall designate to the Purchaser in writing at least two business days
prior to the Closing. All action to be taken at the Closing as
hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be
considered to have been taken, delivered or made simultaneously, and no
such action or delivery or payment shall be considered as complete
until all action incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the purchase and
sale of the Shares and the Purchased Real Property, the following
transactions shall take place at the Closing:
(i) the Purchaser and the Smiths shall each
execute and deliver to the other a Lease Agreement to be dated
the Closing Date and in substantially the form of Exhibit B
hereto (the "Lease Agreement");
(ii) James B. and Louise Smith, Lee K. and Amy
Smith, and William J. Gelvin and Nancy Smith-Gelvin shall each
execute and deliver to the Purchaser a Non-Competition
Agreement to be dated the Closing Date and in substantially
the forms of Exhibits C-1, C-2 and C-3, respectively attached
hereto, and the Purchaser shall execute and deliver the
Non-Competition Agreements to each of such persons
(collectively, the "Non-Competition Agreements");
(iii) the Purchaser and the Smiths shall each
execute and deliver to the other a Consulting Agreement to be
dated the Closing Date and in substantially the form of
Exhibit D hereto (the "Consulting Agreement"); and
(iv) the Purchaser and Lee K. Smith ("Lee") shall
each execute and deliver to the other an Employment Agreement
to be dated the Closing Date and in substantially the form of
Exhibit E hereto (the "Employment Agreement").
-5-
3. REPRESENTATIONS REGARDING THE SHARES. Each Shareholder
severally (but not jointly) represents and warrants, as to such Shareholder
only, that:
3.1. TITLE TO THE SHARES. Such Shareholder has good and
marketable title to his or her respective Shares as shown on Schedule
I, free and clear of any and all Liens, and such Shareholder has the
absolute and unrestricted right, power, authority and capacity to sell
such Shares to the Purchaser as provided in this Agreement. Upon
delivery of such Shares to the Purchaser, against payment therefor as
provided in Section 1.3, the Purchaser will receive from such
Shareholder good and marketable title thereto, free and clear from all
Liens.
3.2. AUTHORITY OF THE SHAREHOLDER. Such Shareholder has the
full right, capacity and authority to enter into and perform this
Agreement and the other documents to which he or she is a party, and to
consummate the transactions contemplated hereby and thereby. This
Agreement constitutes, and upon execution and delivery by such
Shareholder, each of such other documents will constitute, the legal,
valid and binding obligations of such Shareholders enforceable against
him or her in accordance with their respective terms. Neither the
execution, delivery nor performance of this Agreement or any of such
other documents, nor the consummation of the transactions contemplated
hereby or thereby, will: (i) result in a violation or breach of any
term or provision of, constitute a default or acceleration under,
require notice to or consent of any third party to, or result in the
creation of any Lien by virtue of (x) the charter or bylaws of the
Company or (y) any contract, agreement, lease, license or other
commitment to which the Company or such Shareholder is a party or by
which such shareholder or his or her respective assets or properties
are bound; nor (ii) violate any statute or any order, writ, injunction
or decree of any court, administrative agency or governmental body.
4. REPRESENTATIONS REGARDING THE REAL ESTATE. The Smiths
jointly and severally represent and warrant to and agree with the Purchaser
that:
4.1. DESCRIPTION AND TITLE. Schedule 4.1 attached hereto sets
forth a legal description of all parcels included within the Real
Property (Leased and Purchased), and also briefly describes each
building and major structure and improvement thereon. The Smiths have
good and marketable fee simple title to the Real Property, free and
clear of any and all Liens, other than (i) Liens to be fully released
at or prior to Closing, and (ii) title restrictions described in
Schedule 4.1 (the "Permitted Encumbrances"). No person other than the
Smiths have any ownership, leasehold or other interest of any kind in
the Real Property. The Real Property is the only
-6-
interest in real property used in the conduct of the business of the
Homes as presently conducted. All of the buildings, structures and
improvements located on the Real Property are in good operating
condition, ordinary wear and tear excepted. None of such buildings,
structures or improvements as constructed or configured on the date
hereof, or the operation or maintenance thereof as now operated or
maintained, contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any provision of
law. There is not pending nor, to the knowledge of the Smiths,
threatened any proceeding for the taking or condemnation of the Real
Property or any portion thereof.
4.2. ENVIRONMENTAL CONDITION. No toxic or hazardous wastes (as
defined by the U.S. Environmental Protection Agency, or any similar
state or local agency) or hazardous substances (as defined under the
Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation) have been
generated, stored, dumped, located or released onto or from the Real
Property, nor to the knowledge of the Smiths, have any such materials
or wastes been generated, stored, dumped, located or disposed of on any
real property contiguous or adjacent to the Real Property. The Real
Property is not subject to any reclamation, remediation or reporting
requirements of any federal, state, local or other governmental body or
agency having jurisdiction over the Real Property. The Real Property
does not contain any asbestos, polychlorinated byphenyls, urea,
formaldehyde, radon gas or underground storage tanks, except for
substances used in the ordinary course of the operations of the Homes
that are properly used, stored and disposed of in accordance with
applicable legal requirements.
4.3. NO FLOOD HAZARDS. The Real Property is not located within
an area that has been designated by the Federal Insurance
Administration, the Army Corp of Engineers, or any other governmental
agency or body as being subject to special flooding hazards.
4.4. FIRPTA. Neither of the Smiths is a "foreign person" (as
defined in Section 1445(f)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations issued thereunder), and the
Smiths shall deliver at Closing a non-foreign affidavit in recordable
form containing such information as shall be required by Internal
Revenue Code Section 1445(b)(2) and the regulations issued thereunder.
4.5. BILLS PAID. All bills and other payments due with respect
to the ownership, operation, and maintenance of the Real Property have
been (and on the Closing Date will be)
-7-
paid, and no Liens or other claims for the same have been filed or
asserted against any part of the Real Property.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The
Shareholders jointly and severally represent and warrant to and agree with the
Purchaser as follows (except as to the representa-tion and warranty contained in
the second sentence of Section 5.4, which is being made jointly and severally
only by the Smiths):
5.1. ORGANIZATION AND EXISTENCE. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Ohio, and has all requisite corporate power to enter into
and perform its obligations under this Agreement and to carry on its
business as now conducted. The Shareholders have delivered to the
Purchaser complete and correct copies of the charter and bylaws of the
Company, both as in effect on the date hereof.
5.2. CAPITALIZATION. The authorized capital stock of the
Company consists of 500 shares of Common Stock, no par value, of which
320 shares are validly issued and outstanding, fully paid and
nonassessable and not issued in violation of the preemptive rights of
any person. No shares of the Company are held by it as treasury stock.
The Company does not have any outstanding subscriptions, options or
other agreements or commitments obligating it to issue shares of its
capital stock. From the date hereof through the Closing Date, the
Shareholders will not, and will not cause or permit the Company to,
issue or enter into any subscriptions, options, agreements or other
commitments in respect of the issuance, transfer, sale or encumbrance
of any shares of capital stock of the Company.
5.3. NO SUBSIDIARIES. The Company has no subsidiaries or any
investment or ownership interest in any corporation, joint venture or
other business enterprise.
5.4. FINANCIAL INFORMATION. The Shareholders have delivered to
the Purchaser the unaudited balance sheets of the Company at June 30,
1993 (the "Company Balance Sheet") and at June 30, 1992, and the
related unaudited profit and loss statements of the Company for the
respective twelve-month periods of operations then ended. All such
financial statements are true and correct, have been prepared in
accordance with the books and records of the Company, and present
fairly the financial position of the Company at the dates indicated and
the results of its operations for the periods then ended in accordance
with generally accepted accounting principles consistently applied. The
Homes collectively performed the funeral services for each of its
fiscal years ended June 30, 1991, 1992, 1993 and 1994 as shown on
Schedule 5.4.
-8-
5.5. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes (other
than the Real Property) are owned by the Company. Except for leases and
licenses disclosed in Schedules 5.11 and 5.15, none of such assets,
rights or properties is subject to any lease or license. The Company is
in actual possession and control of all properties owned by it (subject
to the right of customers under preneed contracts to transfer such
contracts as provided under Ohio law), and has good and marketable
title to all of its assets, rights and properties, including without
limitation, all properties and assets reflected in the Company Balance
Sheet (other than properties and assets reflected in such balance sheet
that have been sold or otherwise disposed of in the ordinary course of
business subsequent to the date of the Company Balance Sheet), free and
clear of all Liens, except for Liens to be discharged and released at
or prior to Closing as contemplated in Section 1.4(a).
5.6. ABSENCE OF CHANGES OR EVENTS. Except as described on
Schedule 5.6, since the date of the Company Balance Sheet, there has
not been:
(i) any material adverse change in the financial
condition, operations, properties or prospects of the Company
or of any Home (the term "prospects", for purposes of the
foregoing, to be interpreted based upon events or transactions
occurring during such period);
(ii) any change in the authorized capital or
outstanding securities of the Company;
(iii) any capital stock, bonds or other securities
which the Company has issued, sold, delivered or agreed to
issue, sell or deliver, nor has the Company granted or agreed
to grant any options, warrants or other rights calling for the
issue, sale or delivery thereof;
(iv) any borrowing or agreement by the Company to
borrow any funds, nor has the Company incurred, or become
subject to, any absolute or contingent obligation or
liability, except trade payables incurred in the ordinary
course of business;
(v) any declaration or payment of any bonus or
other extraordinary compensation to any employee of the
Company;
(vi) any hiring, firing, reassignment or other
change in any key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose
-9-
of, any of the inventories or other assets or properties of
the Company, except in the ordinary course of business;
(viii) any material damage, destruction or losses
against the Company or any waiver any rights of material value
to the Company;
(ix) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement, with
respect to employees of the Company;
(x) any claim or liability for any material
damages for any actual or alleged negligence or other tort or
breach of contract against or affecting the Company; or
(xi) any other material transaction or event
entered into or affecting the Company other than in the
ordinary course of the business.
5.7. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in the Company Balance Sheet, the Company has none, and none of its
assets or properties are subject to any, material liabilities or
obligations of any kind or nature, other than unsecured trade accounts
payable and accrued expenses arising in the ordinary course of the
Company's business since the date of the Company Balance Sheet.
5.8. TAX MATTERS. All federal, state, county, local and other
taxes due and payable by the Company on or before the date of this
Agreement have been paid or are adequately provided for in the
Company's books and records. The Company has filed all tax returns and
reports required to be filed by it with all taxing authorities, and all
such tax returns and reports are true, complete and correct. True and
correct copies of the federal, state and local income tax returns filed
by the Company for each of its last three taxable years have been
furnished to the Purchaser. No assessments of deficiencies have been
made against the Company which are presently pending or outstanding. No
state of facts exists or has existed which would constitute grounds for
the assessment of any tax liability against the Company with respect to
any prior taxable period which has not been audited by the Internal
Revenue Service or which has not been closed by applicable statute.
There are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any income tax return of the
Company for any period. The Shareholders shall be fully responsible for
all taxes of the Company accrued through the Closing and for
completing, filing and handling all tax returns and reports in respect
of all periods through Closing, including responding
-10-
to any inquiries, examinations or audits regarding such taxes, returns
and reports.
5.9. INVENTORY; ACCOUNTS RECEIVABLE. The inventories reflected
on the Company Balance Sheet and all items placed in inventory since
the date thereof are (i) accounted for in accordance with generally
accepted accounting principles consistently applied, (ii) accounted for
net of reserves which are sufficient to cover any losses due to
obsolescence, shrinkage, or unmarketability, and (iii) saleable or
usable in the ordinary course of business of the Company at usual and
customary prices, subject to normal returns and markdowns consistent
with past practice. All accounts receivable reflected on the Company
Balance Sheet are, and all of the Company's accounts receivable on the
Closing Date will be (i) bona fide claims against debtors for sales or
other charges and (ii) subject to no defenses, set-offs or
counter-claims (it being understood that the bankruptcy of an account
party, or other economic risk associated with the collection of an
account, shall not be deemed covered by this clause (ii)).
5.10. FIXED ASSETS. Schedule 5.10 lists all motor vehicles and
all other material items of equipment, fixtures, furniture and other
fixed assets owned by the Company.
5.11. CONTRACTS AND COMMITMENTS. Schedule 5.11 hereto sets
forth a complete description of:
(i) all loan, credit and similar agreements to
which the Company is a party or by which it is bound, and all
notes or other evidences of indebtedness of, or agreements
creating any Lien on any property of, the Company;
(ii) all employment contracts, noncompetition
agreements and other agreements relating to the employment of
any employees of the Company;
(iii) all contracts and agreements affecting the
Company which do not terminate or are not terminable by the
Company upon notice of 30 days or less or which involves an
obligation on its part in excess of $1,000 per annum or $5,000
in the aggregate; and
(iv) all other contracts and commitments of the
Company entered into outside the ordinary course of business.
Each contract and commitment described on Schedule 5.11 is
valid and in full force and effect, and neither the Company, nor, to
the knowledge of the Shareholders, any of the other parties thereto,
are in default thereunder. The
-11-
Shareholders have furnished to the Purchaser a true and correct copy of
each document listed on Schedule 5.11.
5.12. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 5.12
hereto accurately and completely lists (i) all preneed contracts of the
Company unfulfilled as of the date hereof, including contracts for the
sale of funeral merchandise and services, and (ii) all trust accounts
relating to the Homes, indicating the location of each and the balance
thereof. All preneed contracts required to be listed on Schedule 5.12
(x) have been entered into in the normal course of business at regular
retail prices, or pursuant to a sales promotion program, solely for use
by the named customers and members of their families on terms not more
favorable than shown on the specimen contracts which have been
delivered to the Purchaser, (y) are subject to the rules and
regulations of the Company as now in force (copies of which have been
delivered to the Purchaser), and (z) on the date hereof are in full
force and effect, subject to no offsets, claims or waivers, and neither
the Company nor such customer is in default thereunder. All funds
received by the Company under preneed contracts have been deposited in
the appropriate accounts and administered and reported in accordance
with the terms thereof and as required by applicable laws and
regulations. The services heretofore provided by the Company have been
rendered in a professional and competent manner consistent with
prevailing professional standards, practices and customs.
5.13. TRADEMARKS, ETC.. The Company does not own nor has it
applied for any patents, patent applications, patent licenses,
trademarks, trademark applications or trademark or trademark licenses
(collectively, "Intangible Rights"), except as described on Schedule
5.13. The Company owns or possesses valid rights or adequate licenses
for all of such Intangible Rights as are necessary to the conduct of
the business of the Homes as presently conducted. The Company is not
charged with infringement of any Intangible Rights of any other person,
nor does the Company know of any such infringement, whether or not
claimed by any person.
5.14. INSURANCE. The Company maintains such policies of
insurance in such amounts, and which insure against such losses and
risks, as are generally maintained for comparable businesses and
properties. Valid policies for such insurance will be outstanding and
duly in force at all times prior to the Closing.
5.15. LICENSES, PERMITS, ETC. Schedule 5.15 hereto correctly
and completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or held by the Company, which
are all that are necessary or appropriate for the conduct of the
business and operations of
-12-
the Company and the Homes. All such items are in full force and effect.
5.16. LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of any
Shareholder, threatened against the Company or any of the assets or
properties of the Company, at law or in equity or before or by any
court or federal, state, municipal or other governmental department,
commission, board, agency or instrumentality. The Company is not
subject to any continuing court or administrative order, writ,
injunction or decree, nor is the Company in default with respect to any
order, writ, injunction or decree issued by any court or foreign,
federal, state, municipal or other governmental department, commission,
board, agency or instrumentality.
5.17. COMPLIANCE WITH LAWS. The Company has complied and is in
compliance in all material respects with all federal, state, municipal
and other statutes, rules, ordinances, and regulations applicable to
the Company, the operation of the Homes and the Company's assets,
rights and properties (including without limitation all environmental
protection and occupations safety and health rules, regulations and
laws, and laws and regulations applicable to preneed contracts and
trust accounts, including the so-called "FTC Funeral Rule").
5.18. EMPLOYEES. Schedule 5.18 hereto correctly and completely
lists the names and monthly or hourly rates of salary and other
compensation of all the employees and agents of the Company. Schedule
5.18 also sets forth the date of the last salary increase for each
employee listed thereon, the outstanding balances of all loans and
advances, if any, made by the Company to any employee or agent of the
Company, and the number of vacation days or other time off to which
each such employee is then eligible to take. At Closing, the
Shareholders will cause the Company to pay or satisfy all vacation,
holiday and other accrued benefits to employees of the Homes which are
then outstanding. There are not pending or threatened against the
Company any general labor disputes, strikes or concerted work
stoppages, and there are no discussions, negotiations, demands or
proposals that are pending or have been conducted or made with or by
any labor union or association with respect to any employees of the
Company. The Company believes that the relations between the Company
and its employees are good.
5.19. EMPLOYEE BENEFIT PLANS. There are no plans, contracts,
commitments, programs and policies (including, without limitation,
pension, profit sharing, thrift, bonus, deferred compensation,
severance, retirement, disability, medical, life, dental and accidental
insurance, vacation, sick
-13-
leave, death benefit and other similar employee benefit plans and
policies) maintained by the Company providing benefits to any employee
or former employee of the Company, other than sick leave, vacation and
group hospitalization benefits that are described on Schedule 5.19, all
of which are maintained in accordance with applicable legal
requirements.
5.20. AFFILIATED PARTY TRANSACTIONS. Each Home has been
operated and is being operated in a manner separate from the personal
and other business activities of the Shareholders and their affiliates,
and neither the Company nor its assets are subject to any affiliated
party commitments or transactions.
5.21. BANK ACCOUNTS. Schedule 5.21 hereto sets forth the name
of each bank, savings and loan or other financial institution in which
the Company has any account or safe deposit box, the style and number
of each such account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto.
5.22. BOOKS AND RECORDS. All books and records of the Company
are true, correct and complete in all material respects, have been
maintained by the Company in accordance with good business practice and
in accordance with all laws, regulations and other requirements
applicable to the Company. The corporate records of the Company reflect
a true record of all meetings and proceedings of the Board of Directors
and the Shareholders of the Company.
5.23. FINDERS. Except as described in Section 14.1, neither
the Company nor any Shareholder is a party to or in any way obligated
under any contract or other agreement, and there are no outstanding
claims against any of them, for the payment of any broker's or finder's
fee in connection with the origin, negotiation, execution or
performance of this Agreement.
5.24. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement has been duly authorized
by its Board of Directors. This Agreement is legally binding and
enforceable against the Company in accordance with its terms. Neither
the execution, delivery nor performance by the Company of this
Agreement will result in a violation or breach of, nor constitute a
default or accelerate the performance required under, the charter or
bylaws of the Company or any indenture, mortgage, deed of trust or
other contract or agreement to which the Company is a party or by which
it or its properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental body.
-14-
5.25. FULL DISCLOSURE. The representations and warranties made
by the Company and the Shareholders hereunder or in any Schedules or
certificates furnished to the Purchaser pursuant hereto or thereto, do
not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein
necessary to make the representations or warranties herein or therein,
in light of the circumstances in which they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company and the
Shareholders that:
6.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Ohio, and has all requisite corporate power to
enter into and perform its obligations under this Agreement and the
other documents to which it is a party.
6.2. AUTHORITY OF THE PURCHASER. The execution, delivery and
performance by the Purchaser of this Agreement and the documents
attached as exhibits hereto have been duly authorized by its Board of
Directors. This Agreement is, and upon their execution and delivery as
herein provided such other documents will be, valid and binding upon
the Purchaser and enforceable against the Purchaser in accordance with
their respective terms. Neither the execution, delivery or performance
by the Purchaser of this Agreement, or any such other document will
conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under, the Articles of
Incorporation or bylaws of the Purchaser or under any indenture,
mortgage, deed of trust or other contract or agreement to which it is a
party or by which it or its property is bound, or violate any order,
writ, injunction or decree of any court, administrative agency or
governmental body.
6.3. FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are not
outstanding claims against it, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
7. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PENDING
CLOSING. The Company and the Shareholders jointly and severally covenant and
agree with the Purchaser that:
7.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of the Company will be operated only in
the ordinary course, and, in
-15-
particular, without the prior written consent of the Purchaser, the
Company will not, and the Shareholders will not cause or allow the
Company to:
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its charter or
bylaws;
(iii) take any action described in Section 5.6;
(iv) enter into any contract, agreement or other
commitment of the type described in Section 5.11; or
(v) hire, fire, reassign or make any other change
in key personnel of the Company, or increase the rate of
compensation of or declare or pay any bonuses to any employee
in excess of that listed on Schedule 5.18.
7.2. ACCESS TO INFORMATION. Prior to Closing, the Company will
give to the Purchaser and its counsel, accountants and other
representatives, full and free access to all of the properties, books,
contracts, commitments and records of the Company so that the Purchaser
may have full opportunity to make such investigation as it shall desire
to make of the affairs of the Company.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholders
will use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated by this
Agreement.
7.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor any Shareholder shall enter into any agreements
or commitments, or initiate, solicit or encourage any offers, proposals
or expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion of
the assets and business of the Company or any other sale of the Company
(whether by merger, consolidation, sale or stock or otherwise) or any
portion of the Real Property, other than with the Purchaser.
8. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company and the Shareholders that:
8.1. CONSENTS AND APPROVALS. The Purchaser will use its best
efforts (which specifically does not include the payment
-16-
of out-of-pocket sums to third parties) to obtain the necessary
consents and approvals of other persons which may be required to be
obtained on its part to consummate the transactions contemplated in
this Agreement.
8.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to the Company from any representative, officer,
director or employee of the Company, including their accountants or
legal counsel, or from any books or records of any of them, in
connection with the transactions contemplated by this Agreement, except
that the Purchaser may disclose such information to its outside
attorneys and accountants and to its lender, provided that the
Purchaser shall remain responsible to the Company for any unauthorized
disclosure thereof by such attorneys, accountants or lender. If the
transactions contemplated hereby are not consummated, neither the
Purchaser nor its representatives shall disclose such data or
information to others, except as such data or information is published
or is a matter of public knowledge or is required by an applicable law
or regulation to be disclosed. If this Agreement is terminated for any
reason, the Purchaser shall return to the Company all written data and
information obtained by the Purchaser from the Company or its
representatives in connection with the transactions contemplated by
this Agreement.
9. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
9.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any material error,
misstatement or omission in the representations and warranties made by
the Shareholders in Sections 3, 4 and 5 hereof; the representations and
warranties made by the Shareholders herein shall be deemed to have been
made again at and as of the time of Closing and shall then be true and
correct in all material respects; the Company and the Shareholders
shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the Purchaser
shall have received a certificate, signed by the Shareholders and an
executive officer of the Company, to the effect of the foregoing
provisions of this Section 9.1.
9.2. OPINION OF COUNSEL. The Company shall have caused to be
delivered to the Purchaser an opinion of Freeman, Laycock, Lux &
Conway, counsel for the Company and the Shareholders, dated the Closing
Date, to the effect that:
-17-
(i) the Company is a corporation validly existing
and in good standing under the laws of the State of Ohio, with
full corporate authority to enter into and perform its
obligations under this Agreement;
(ii) the authorized capital stock of the Company
consists of 500 shares of Common Stock, no par value, of which
320 shares are validly issued and outstanding and fully paid
and nonassessable;
(iii) to the knowledge of such counsel, after due
inquiry, there are no outstanding subscriptions, options or
other agreements or commitments obligating the Company to
issue any shares of its capital stock or securities
convertible into shares of its capital stock;
(iv) the execution, delivery and performance by the
Company of this Agreement has been duly authorized by its
Board of Directors;
(v) this Agreement has been duly and validly
executed and delivered by the Company and constitutes the
valid and binding obligation of the Company enforceable
against it in accordance with its terms;
(vi) neither the execution, delivery or
consummation of the transactions contemplated by this
Agreement or any of such other documents will result in the
breach of or constitute a default under the Articles of
Incorporation or bylaws of the Company; and
(vii) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required on the part of the Company or the Shareholders in
connection with the execution and delivery by the Company and
the Shareholders of this Agreement or any of such other
documents.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholders and officers of the Company and
certificates of public officials, copies of which shall be provided to
the Purchaser at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal law and
the internal laws of the State of Ohio.
9.3. CONSENTS AND APPROVALS. The Company and the Shareholders
shall have obtained all consents and approvals of
-18-
other persons and governmental authorities to the transactions
contemplated by this Agreement.
9.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to the Real Property or the physical
assets and properties of the Company (regardless of whether such loss
or damage was insured), the effect of which would have an adverse
effect on the condition, business, operations or prospects of the
Company or any of Homes.
9.5. RESIGNATIONS AND RELEASES. The Purchaser shall have
received such resignations of the officers and directors of the Company
as shall have been requested by the Purchaser, as well as written
releases, in form and substance acceptable to the Purchaser, under
which the Shareholders and their spouses waive and release all rights
and claims against the Company save and except only those obligations
arising under this Agreement and the exhibits and schedules hereto.
9.6. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall have been approved by counsel for the
Purchaser, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments and
documents as they shall have reasonably requested.
9.7. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review of the
financial information, books and records, and properties and assets of
the Company, the Homes and the Real Property, and shall have discovered
no material change in the business, assets, operations, financial
condition or prospects of the Company, the Homes or the Real Property
which could, in the sole determination of the Purchaser, have a
material adverse effect on the value to the Purchaser of the business,
assets, financial condition or prospects of the Company, the Homes or
the Real Property.
9.8. RELATED TRANSACTIONS. The Smiths shall have executed and
delivered to the Purchaser the Lease Agreement and the Consulting
Agreement. The Shareholders, Amy Smith and William J. Gelvin shall have
executed and delivered to the Purchaser their respective
Non-Competition Agreements. Lee shall have executed and delivered to
the Purchaser the Employment Agreement.
9.9. ENVIRONMENTAL QUESTIONNAIRE. The Company shall have
completed, executed and delivered to the Purchaser an environmental
questionnaire, in form and substance acceptable to the Purchaser,
relating to the operation of the Homes and
-19-
the ownership of the Company's assets and the Real Property, and such
questionnaire as so completed, executed and delivered shall reflect the
absence of any significant environmental hazards, in the Purchaser's
reasonable judgment.
9.10. TITLE INSURANCE. The Smiths shall have obtained, at
their expense, an Owner's Policy of Title Insurance issued to the
Purchaser in the amount of the Purchase Price allocated to the
Purchased Real Property under Section 1.3, issued by a title company as
shall be designated by the Purchaser (the "Title Company"), insuring
that the Purchaser is the owner of each parcel of the Purchased Real
Property subject only to the Permitted Encumbrances, and any standard
printed exceptions included in a Ohio standard form Owner Policy of
Title Insurance. Such policy shall have deleted any exception regarding
restrictions or be limited to restrictions that are Permitted
Encumbrances, any standard exception pertaining to discrepancies,
conflicts or shortages in area shall be deleted except for "shortages
in area", and any standard exception for taxes shall be limited to the
year in which the Closing occurs.
9.11. SURVEY. The Purchaser shall have received, at the
Smiths' expense, an as-built survey prepared by a licensed surveyor
approved by the Purchaser and acceptable to the Title Company, with
respect to each parcel of Real Property, which survey shall comply with
any applicable standards under Ohio law, be sufficient for the Title
Company to delete any survey exception contained in the title insurance
policies referred to in Section 9.10, save and except for the phrase
"shortages in area", and otherwise be in form and content acceptable to
Purchaser.
9.12. FINANCING COMMITMENT. The Purchaser shall have received
from a financial institution acceptable to it a written commitment,
containing such terms and conditions and otherwise in form and
substance acceptable to the Purchaser, providing for the extension of
financing in order to provide the portion of the Purchase Price not
furnished by the Purchaser or obtained by the Purchaser from other
sources, and such commitment shall have been funded in such amount
contemporaneously with the Closing. The Purchaser agrees to exercise
its best efforts to obtain such financing.
9.13. LIEN RELEASES. The holders of the Liens (other than
Permitted Encumbrances) against any assets of the Company or any
portion of the Real Property shall have executed and delivered written
releases of such Liens, all in recordable form and otherwise acceptable
to the Purchaser and its lender.
9.14. MECHEM TRUST. The parties acknowledge that the trustee
under several trusts established for preneed accounts
-20-
of the Company by Mechem Financial Inc. (the "Mechem Trust") have
become insolvent, resulting in an unfunded preneed liability of not
more than $160,000. Set forth on Schedule 9.14 is a list of preneed
accounts, including customer names and prices, covered by the Mechem
Trust prior to its insolvency, which list the Shareholders represent
and warrant to be accurate and complete. It shall be a condition to the
Closing that the Shareholders cause a new trust to be established
covering such accounts, as required under Ohio law and otherwise in a
manner acceptable to the Purchaser, and that the Shareholders shall
have contributed the sum of $80,000 to such trust, providing the
Purchaser such evidence of such contribution as it shall reasonably
request. Subject to the foregoing representations of the Shareholders,
the Purchaser acknowledges that funding for the remaining balance of
the new trust covering such accounts shall be the Company's
responsibility.
10. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The obligations of the Company and the Shareholders under this
Agreement shall be subject to the following conditions, any of which may be
expressly waived by the Company in writing:
10.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Company and the Shareholders shall not have discovered
any material error, misstatement or omission in the representations and
warranties made by the Purchaser in Section 6 hereof; the
representations and warranties made by the Purchaser herein shall be
deemed to have been made again at and as of the time of Closing and
shall then be true and correct in all material respects; the Purchaser
shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the Company and the
Shareholders shall have received a certificate, signed by an executive
officer of the Purchaser, to the effect of the foregoing provisions of
this Section 10.1.
10.2. OPINION OF COUNSEL. The Purchaser shall have caused to
be delivered to the Company and the Shareholders an opinion of Snell &
Smith, A Professional Corporation, counsel for the Purchaser, to the
effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Ohio, and has all requisite corporate power to enter
into and perform its obligations under this Agreement and the
other documents contemplated herein to be executed and
delivered by the Purchaser (as shall be specified in such
opinion);
-21-
(ii) the execution, delivery and performance by
the Purchaser of this Agreement and such other documents have
been duly authorized by its Board of Directors;
(iii) this Agreement is, and upon execution and
delivery as herein provided such other documents will be,
valid and binding upon the Purchaser and enforceable against
the Purchaser in accordance with their respective terms;
(iv) neither the execution, delivery or performance by
the Purchaser of this Agreement or any of such other documents
will conflict with or result in a violation or breach of any
term or provision of, nor constitute a default under, the
Articles of Incorporation or bylaws of the Purchaser or under
any loan or credit agreement, indenture, mortgage, deed of
trust or other contract or agreement known to such counsel and
to which the Purchaser is a party or by which it or its
property is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court, administrative
agency or governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement or any of such other documents, or
the performance of its obligations hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to the Company at Closing.
Any opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of the
State of Texas.
10.3. CONSENTS AND APPROVALS. The Purchaser shall have
obtained all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
10.4. RELATED TRANSACTIONS. The Purchaser shall have executed
and delivered to the Smiths the Consulting Agreement and the Lease
Agreement, to the Shareholders, Amy Smith and William J. Gelvin their
respective Non-Competition Agreements, and to Lee the Employment
Agreement.
-22-
11. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
11.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
11.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless
of any investigation made at any time by or on behalf of any party
hereto, all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Schedule or Exhibit hereto or in
connection with the transactions contemplated hereby and thereby shall
not terminate but shall survive the Closing and continue in effect
thereafter, except that the representations and warranties contained
herein shall terminate on June 30, 1996, except as to those
representations and warranties for which claims have been asserted
prior to such date, which shall continue to survive until such claims
have been fully and finally resolved.
12. INDEMNIFICATION.
12.1. INDEMNIFICATION BY THE SHAREHOLDERS. Each Shareholder
severally (but not jointly) agrees to indemnify and hold harmless the
Purchaser and its successors and assigns from and against any and all
losses, damages, liabilities, obligations, costs or expenses (any one
such item being herein called a "Loss" and all such items being herein
collectively called "Losses") which are caused by or arise out of any
breach or warranty or inaccurate representation made by such
Shareholder in Section 3, and the Smiths jointly and severally agree to
indemnify and hold harmless the Purchaser and (following the Closing)
the Company and their respective successors and assigns from and
against any and all Losses which are caused by or arise out of any
breach of warranty or inaccurate representation made by them in Section
4. The Shareholders jointly and severally agree to indemnify and hold
harmless the Purchaser and (following the Closing) the Company, and
their respective successors and assigns, from and against any and all
losses which are caused by or arise out of (i) any breach or default in
the performance by the Company or the Shareholders of any covenant or
agreement of the Company or the Shareholders contained in this
Agreement, (ii) any breach of warranty or inaccurate or erroneous
representation made by the Company or the Shareholders herein (except
as provided in the first sentence above), in any Schedule delivered to
the Purchaser pursuant hereto or in any certificate or other instrument
delivered by or on behalf of the Company or the Shareholders pursuant
hereto, (iii) any Unassumed Liability of the Company, whether absolute
or contingent,
-23-
known or unknown, to the extent not paid or discharged at Closing as
provided in Section 1.4 and (iv) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) incident to any of the foregoing.
12.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Shareholders and their heirs and
assigns from and against any Losses which are caused by or arise out of
(i) any breach or default in the performance by the Purchaser of any
covenant or agreement of the Purchaser contained in this Agreement,
(ii) any breach of warranty or inaccurate or erroneous representation
made by the Purchaser herein or in any certificate or other instrument
delivered by or on behalf of the Purchaser pursuant hereto, and (iii)
any and all actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees) incident to any of
the foregoing.
12.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying party"),
the indemnifying party shall be given prompt written notice thereof and
shall have the right (i) to participate in the defense thereof and be
represented, at his, her or its own expense, by advisory counsel
selected by him, her or it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts in
connection therewith. Notwithstanding the foregoing, if within ten
business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided herein,
then the indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have the right
(i) to participate in the defense thereof and be represented, at his,
her or its own expenses, by advisory counsel selected by him, her or
it, and (ii) to approve any settlement if the indemnified party's
interests are, or would be, affected thereby.
13. TERMINATION.
13.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholders agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 9 hereof; and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 10 hereof.
-24-
13.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Shareholders,
the Company and the Purchaser;
(b) the Purchaser if a material default shall be made
by the Company or any Shareholder in the observance or in the
due and timely performance by any of their covenants herein
contained, or if there shall have been a material breach or
misrepresentation by the Company or any Shareholder of any of
their warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Company or any Shareholder at or before the
Closing shall not have been complied with or performed at the
time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly
waived by the Purchaser in writing;
(c) the Company if a material default shall be made
by the Purchaser in the observance or in the due and timely
performance by the Purchaser of any of the covenants of the
Purchaser herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser of any
of its warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not
have bene complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Company and the Shareholders in writing; or
(d) either the Company or the Purchaser, if the
Closing has not occurred by September 30, 1994.
13.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 13.2, then no party
shall have any liability to any other party hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 13.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party has
not breached any representation or warranty or failed to comply with
any of its covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party against
any other party which has breached any of its representations,
warranties or covenants herein prior to such termination.
14. MISCELLANEOUS.
-25-
14.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. If the
transactions contemplated by this Agreement and the Exhibits hereto are
consummated, the Company shall have no obligation for, nor shall it be
charged with, any such expenses of the Shareholders (provided that the
foregoing shall not prevent the Company from paying such fees prior to
Closing). All finder's or similar fees and expenses of Thomas, Pierce &
Company shall be borne exclusively by the Shareholders. All sales,
transfer, stamp or other similar taxes, if any, which may be assessed
or charged in connection with the transactions hereunder shall be borne
by the Shareholders.
14.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given when personally delivered or three business days
following the date, mailed, first class, registered or certified mail,
postage prepaid, as follows:
(i) if to the Company or the Shareholders, to:
Kubach-Smith Funeral Home, Inc.
314 E. Main
Norwalk, Ohio 44897
Attention: Mr. James B. Smith
with a copy to:
Freeman, Laycock, Lux & Conway
54 East Main Street
Norwalk, Ohio 44857
Attn: Mr. Jeffrey P. Laycock
(ii) if to the Purchaser, to:
Carriage Funeral Services
of Ohio, Inc.
Three Riverway, Suite 1375
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana
Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
-26-
or to such other address as shall be given in writing by either party
to the other party hereto.
14.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may assign
its rights hereunder without the consent of the Shareholders to a
successor-in-interest to the Purchaser or the Company (whether by
merger, sale of assets or otherwise), provided that the assigning party
shall not thereby be relieved of continuing liability hereunder without
the consent of the Shareholders.
14.4. SUCCESSORS BOUND. Subject to the provisions of Section
14.3, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
personal representatives.
14.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
14.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by both parties hereto.
14.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and supersede
all prior understandings with respect to the subject matter hereof and
thereof (including, without limitation, the letter of intent dated June
27, 1994).
14.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Ohio.
14.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL SERVICES
OF OHIO, INC.
By: /s/ RUSSELL W. ALLEN
Russell W. Allen,
Executive Vice President
-27-
THE COMPANY:
KUBACH-SMITH FUNERAL HOME, INC.
By: /s/ JAMES B. SMITH
James B. Smith,
President
THE SHAREHOLDERS:
/s/ JAMES B. SMITH
James B. Smith
/s/ LOUISE SMITH
Louise Smith
/s/ LEE K. SMITH
Lee K. Smith
/s/ NANCY SMITH-GELVIN
Nancy Smith-Gelvin
-28-
CARRIAGE FUNERAL HOLDINGS, INC., a Delaware corporation, by
its execution hereof, hereby guaranties the financial obligations of Carriage
Funeral Services of Ohio, Inc., an Ohio corporation, set forth in this
Agreement.
CARRIAGE FUNERAL HOLDINGS, INC.
By: /s/ RUSSELL W. ALLEN
Russell W. Allen,
Executive Vice President
-29-
EXHIBIT DESCRIPTION
A Subordinated Promissory Note
B Lease Agreement
C-1 Non-Competition Agreement - James B.
and Louise Smith
C-2 Non-Competition Agreement - Lee K.
and Amy Smith
C-3 Non-Competition Agreement - William
G. Gelvin and Nancy Smith-Gelvin
D Consulting Agreement
E Employment Agreement - Lee K. Smith
SCHEDULE DESCRIPTION
I Stock Ownership
4.1 Real Property
5.4 Funeral Services
5.6 Changes
5.10 Fixed Assets
5.11 Contracts and Commitments
5.12 Preneed Contracts and Trust Accounts
5.13 Trademarks, Etc.
5.15 Licenses
5.18 Employees
5.19 Employee Benefit Plans
5.21 Bank Accounts
9.14 Mechem Preneed Accounts
-30-
Exhibit 10.8
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of May 10, 1995, among CARRIAGE
FUNERAL HOLDINGS, INC., a Delaware corporation (the "Purchaser"), WEST END
FUNERAL HOME, INC., an Illinois corporation (the "Company"), and JAMES C. HIRSCH
and CYNTHIA HIRSCH, both of whom are residents of Cook County, Illinois
(together, the "Shareholders") (the Company and the Shareholders being sometimes
hereafter referred to together as the "Sellers");
WITNESSETH:
WHEREAS, the Company owns all of the operating assets, rights
and properties (other than real property) associated with the operation of the
business (the "Business") of the four Hirsch Funeral Homes located in Chicago
Heights, Tinley Park, Matteson and Crete, Illinois (collectively, the "Homes"),
and the Shareholders collectively own all of the issued and outstanding capital
stock of the Company; and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of such assets, rights and properties of the Homes from the
Company, and that the parties enter into certain related transactions, on the
terms and subject to the conditions hereafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. TRANSFER OF ASSETS BY THE COMPANY. Subject to
the provisions of this Agreement, the Company agrees to sell,
and the Purchaser agrees to purchase, at the Closing referred
to in Section 2.1, substantially all of the properties,
assets, rights and business of the Homes of every kind and
description, tangible and intangible, wherever located, as
they shall exist at the time of the Closing (collectively, the
"Assets"), including, but not limited to, all of the
following-described assets and rights (but excluding those
described in Section 1.2):
(i) inventories of caskets, vaults, urns,
accessories, monuments and other goods and
inventories;
(ii) machinery, equipment, motor vehicles (8),
furniture, fixtures, supplies, tools and other fixed
assets and property, plant and equipment, including
those described on Schedule 3.10 hereto;
(iii) all cash balances in bank accounts and
certificates of deposit to fund obligations under
preneed contracts;
(iv) all pre-need contracts and other
agreements, leases and commitments described on
Schedule 3.11 (other than those shown thereon as not
being assumed by the Purchaser), relating to the
Business;
(v) all rights to the names "Hirsch Funeral
Home," "West End Chapel," "Hirsch Memorial Chapel,"
"Lincolnway Chapel" and "Spindley/Koelling Chapel"
and all derivatives thereof, and all trademarks,
trade names, patents, processes, copyrights, know-how
and similar intangible rights, and all goodwill
associated therewith;
(vi) all permits, licenses, books, records,
brochures and literature, rights in unemployment
compensation, industrial accident and other similar
funds, and prepaid items; and
(vii) all other assets, rights and properties
owned or leased by the Company that are used in or
necessary for the Business at the time of Closing,
excluding those described in Section 1.2.
At the Closing, the Company shall convey to the Purchaser the
Assets free and clear of any and all liens, security
interests, pledges, encumbrances, easements, rights-of-way or
title restrictions of any kind (collectively, "Liens"), other
than Liens (if any) which are described on Schedule 3.4 as
being "Permitted Liens" (the "Permitted Liens").
1.2. RETAINED ASSETS. Notwithstanding the foregoing,
the following properties, assets, rights and interests (the
"Retained Assets") are hereby excluded from the purchase and
sale contemplated hereby and are therefore not included in the
Assets:
(i) all cash on hand, in transit or on
deposit, including bank account balances,
certificates of deposit and marketable securities,
excluding, however, account balances and certificates
of deposit to fund preneed contracts;
(ii) accounts and notes receivable;
(iii) the personal items described on Schedule
1.2 hereto; provided, however, that such items may,
at the Sellers' sole option, remain at the Homes for
up to two years after the Closing, and thereafter
until the Sellers receive 30 days
-2-
prior written notice to remove all or any of such
items, and provided that the Sellers shall remain
responsible for maintaining insurance on all such
items; and
(iv) any prepaid federal income taxes of the
Company, and any rights to or claims for federal
income tax refunds, in respect of the operation of
the Business prior to the Closing.
1.3. PURCHASE PRICE. The purchase price for the
Assets shall be $4,850,000 (the "Purchase Price"). Of the
Purchase Price, (i) $4,000,000 shall be paid in cash at
Closing by wire transfer to such account as the Sellers shall
designate in writing prior to Closing, (ii) the sum of
$500,000 shall be represented by the Promissory Note of
Carriage Funeral Services, Inc., a Delaware corporation and
the Purchaser's parent corporation ("Carriage"), payable to
the Company in such amount and in substantially the form
attached hereto as Exhibit D (the "Note"), and (iii) the
balance of $350,000 (the "Deferred Purchase Price") shall be
payable over a period of ten years following the Closing as
hereafter provided. The Deferred Purchase Price shall be
payable in ten equal annual installments of $35,000 each, the
first of which shall be payable on or before the first
anniversary of the Closing Date, and continuing annually
thereafter on or before the second through tenth anniversaries
of the Closing Date. No interest shall accrue or be payable in
respect of the Deferred Purchase Price. For federal income tax
purposes, the parties agree that the Deferred Purchase Price
shall be deemed to include an imputed rate of interest of
eight percent (8%) per annum. The Note and the Deferred
Purchase Price shall be subject to offset as provided in
Section 10.4. At or before the Closing, the Purchaser and the
Sellers shall agree upon an allocation of the Purchase Price
for the Assets, and the Purchaser and the Sellers agree to use
such allocation for all tax, accounting and other reporting
purposes (including any information furnished under Section
1060 of the Internal Revenue Code of 1986, as amended
[hereafter, the "Code"]).
1.4. ASSUMPTION OF LIABILITIES. The Purchaser, upon
the sale and purchase of the Assets, shall, subject to Section
1.5. below, assume and agree to pay or discharge only the
following liabilities and obligations of the Company
(collectively, the "Assumed Liabilities"):
(i) liabilities under those preneed contracts
of the Homes that are included in the Assets; and
(ii) obligations arising after Closing under
the agreements, leases and commitments of the
-3-
Business described in Schedule 3.11 (other than
agreements, leases and commitments, if any, which are
indicated on such Schedule as not to be assumed by
the Purchaser).
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements so assumed.
Nothing herein shall prevent the Purchaser from contesting in
good faith any of the Assumed Liabilities. At Closing, the
Purchaser shall deliver to the Company an instrument, dated
the Closing Date and reasonably satisfactory in form and
substance to it, pursuant to which the Purchaser will assume
the Assumed Liabilities.
1.5. LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4. above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Company or the Business not specifically included in the
Assumed Liabilities and, in particular, the Purchaser shall
not assume or agree to pay or discharge any of the following:
(i) any notes or accounts payable;
(ii) any trade payables of any kind, regardless
of whether entered into in the ordinary course of the
Business;
(iii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Business prior to the
Closing Date;
(iv) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against the
Company or the Business based upon any set of facts
occurring prior to the Closing;
(v) the liabilities and obligations under any
warranties to customers with respect to goods or
products sold or services provided by the Company
prior to Closing;
(vi) all personal injury, product liability
claims, claims of environmental damage, claims of
hazards to health, strict liability, toxic torts,
enforcement proceedings, cleanup orders and other
similar actions or claims instituted by private
parties or governmental agencies,
-4-
with respect to the conduct of the Business prior to
Closing; or
(vii) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6. CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, shall be prorated as of the Closing Date, the Company
being charged and credited for all of same up to such date and
the Purchaser being charged and credited for all of same on
and after such date. Utility services will be transferred to
the Purchaser's name on the Closing Date. If the actual
amounts to be prorated are not known as of the Closing Date,
the prorations shall be made on the basis of the best evidence
then available, and thereafter, within thirty (30) days after
actual figures are received, a cash settlement will be made
between the Company and the Purchaser.
1.7. INSTRUMENTS OF TRANSFER. At the Closing, the
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale and assignments of motor vehicle
registrations, transferring title to the Assets to the
Purchaser as may reasonably be requested by the Purchaser.
Such instruments shall be reasonably satisfactory in form and
substance to the Purchaser and shall vest in the Purchaser
good and marketable title to all the Assets, free and clear of
all Liens other than Permitted Liens. In addition to the cash
portion of the Purchase Price, at the Closing the Purchaser
shall cause Carriage to execute and deliver the Note to the
Company.
1.8. DELIVERY OF RECORDS, CONTRACTS AND TRUST
FUNDS. At the Closing, the Company will deliver to the
Purchaser all of the leases, contracts, commitments and rights
of the Business constituting a portion of the Assets, with
such assignments thereof and consents to assignment as the
Purchaser shall deem necessary to assure the Purchaser of
their full benefit. Simultaneously with such deliveries, the
Company shall take all requisite steps to put the Purchaser in
actual possession and operating control of the Assets and all
of the records, books and other data of the Business. In
addition, at the Closing, the Sellers and the Purchaser shall
take all necessary or appropriate action to cause the transfer
of the trust funds referred to in Section 3.12 including,
without limitation, the obtaining of governmental and third
party consents.
-5-
1.9. TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Sellers, other than any such
taxes associated with transfers of motor vehicles, which shall
be the responsibility of the Purchaser.
1.10. CLOSING DATE RECEIVABLES. As described in
Section 1.2(ii), all of the accounts and notes receivable of
the Company at the Closing ("Closing Date Receivables") shall
be retained by the Company. At the Closing, the Sellers shall
provide to the Purchaser a listing (certified by them to be
complete and accurate) of the Closing Date Receivables in
order to identify those to be retained by the Company.
Notwithstanding such retention of ownership, the Purchaser
shall have the exclusive (even as to the Sellers) right and
control over the collection of Closing Date Receivables. After
the Closing, for each month in which any Closing Date
Receivables are collected, the Purchaser shall remit 100% of
such collections to the Company by no later than the 15th day
of the following month. The Purchaser shall have no duty to
pursue collection of Closing Date Receivables by means greater
than used on its collection of other accounts receivable, and
in no event shall the Purchaser be required to institute suit
or refer any account to a collection agency. At any time after
the Closing, the Purchaser may at any time, by written notice
to the Company, return the right and control over collection
of Closing Date Receivables to the Company, in which case the
Purchaser shall be thereafter relieved of all further
responsibility hereunder other than in respect of collections
received prior to the giving of such notice.
1.11. EMPLOYEE MATTERS. On the Closing Date, the
Purchaser may (but shall not be required to) offer employment
to each employee of the Homes listed on Schedule 3.18. Each
such employee so offered employment who accepts shall,
effective as of the Closing Date, cease to be an employee of
the Company and shall thereupon become an employee of the
Purchaser. The Sellers shall be responsible for satisfying all
claims, if any, of such employees as to accrued vacation and
holiday, health benefits, workers compensation claims,
termination and severance benefits, and any withdrawal
liability and vested rights under any pension or profit
sharing plans, all arising and accrued through the Closing
Date, and in no event shall the Purchaser have any liability
or responsibility in respect thereof.
-6-
1.12. FURTHER ASSURANCES. The Company shall from time
to time after the Closing, without further consideration,
execute and deliver such instruments of transfer, conveyance
and assignment (in addition to those delivered pursuant to
Section 1.8), and shall take such other action, as the
Purchaser may reasonably request to more effectively transfer,
convey and assign to and vest in the Purchaser, and to put the
Purchaser in actual possession and control of, each of the
Assets.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing shall occur at the
offices of McGrane, Perozzi, Stelter, Gerardi, Brauer & Ross,
165 West Tenth Street, Chicago Heights, Illinois, at 9:00 a.m.
on May 10, 1995, or at such other date, time or place as may
be mutually agreed upon by the parties, but in no event later
than May 31, 1995. The date and time of the Closing is herein
called the "Closing Date", and shall be deemed to have
occurred as of the commencement of business on the Closing
Date. All action to be taken at the Closing as hereinafter set
forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall
be considered to have been taken, delivered or made
simultaneously, and no such action or delivery or payment
shall be considered as complete until all action incident to
the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the
purchase and sale of the Assets, the following transactions
shall take place at the Closing:
(i) the Purchaser shall enter into a separate
Lease Agreement with each of (A) MRJ Building
Corporation, an Illinois corporation ("MRJ"),
substantially in the form of Exhibit A-1, covering
the portion of the Real Property described on
Schedule 3.5 under the heading "Chicago Heights" (the
"Chicago Heights Tract"), (B) Ro-Ja Building
Corporation, an Illinois corporation ("Ro-Ja"),
substantially in the form of Exhibit A-2, covering
the portion of the Real Property described on
Schedule 3.5 under the heading "Tinley Park Tract"
(the "Tinley Park Tract"), and (C) HFH Building
Corporation, an Illinois corporation ("HFH"),
substantially in the forms of Exhibits A-3 and A-4,
covering the portions of the Real Property described
on Schedule 3.5 under the headings "Matteson Tract"
(the "Matteson Tract") and "Crete Tract" (the "Crete
Tract"), respectively (such
-7-
Lease Agreements being referred to herein
collectively as the "Lease Agreements");
(ii) the Purchaser shall enter into (A) a
Non-Competition Agreement with the Shareholders in
substantially the form of Exhibit B-1 hereto (the
"Shareholder Non-Competition Agreement"), and the
Shareholders shall execute and deliver the
Shareholder Non-Competition Agreement to the
Purchaser, and (B) a Non-Competition Agreement with
Jim Gliottoni ("Gliottoni") in substantially the form
of Exhibit B-2 hereto (the "Gliottoni Non-Competition
Agreement") (such Non-Competition Agreements being
sometimes referred to herein together as the
"Non-Competition Agreements); and
(iii) the Purchaser shall enter into a separate
Employment Agreement with each of Gliottoni, Jeffrey
Tutt, James Cull and James C. Hirsch, substantially
in the forms of Exhibits C-1, C-2, C-3 and C-4,
respectively (collectively, the "Employment
Agreements").
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers
jointly and severally represent and warrant to and agree with the
Purchaser that:
3.1. ORGANIZATION AND EXISTENCE. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement.
3.2. OWNERSHIP OF THE COMPANY. The Shareholders are
the owners and holder of all of the issued and outstanding
capital stock of the Company.
3.3. FINANCIAL STATEMENTS. The Sellers have delivered
to the Purchaser the unaudited Balance Sheets of the Company
at December 31, 1993 and 1994 (such balance sheet at December
31, 1994 being hereafter referred to as the "Company Balance
Sheet"), and the related unaudited Income Statements for the
respective twelve-month periods of operations then ended. All
of such financial statements are true and correct, have been
prepared in accordance with the books and records of the
Company, and present fairly the financial positions of the
Company at the dates thereof and the results of operations of
the Company for the periods then ended in accordance with
generally accepted accounting principles consistently applied.
The Homes collectively performed at least 431 adult funeral
services for the twelve months ended
-8-
December 31, 1992, at least 442 adult funeral services for the
twelve months ended December 31, 1993 and at least 440 adult
funeral services for the twelve months ended December 31,
1994.
3.4. TITLE TO AND STATUS OF ASSETS. All assets,
rights and properties required in the conduct of the Business
are owned or validly leased by the Company and are included
within the Assets. The Company is in actual possession and
control of all properties owned or leased by it which are
required in the conduct of the Business, and has good and
marketable title to all of the Assets, free and clear of all
Liens, other than the Permitted Liens described on Schedule
3.4.
3.5. REAL PROPERTY.
(a) Schedule 3.5 sets forth a description of
each parcel of real property on which each Home is
situated or which is otherwise used in the operation
of the Business (hereafter referred to collectively
as the "Real Property"), and also briefly describes
each building and major structure and improvement
thereon. MRJ has good and marketable title to the
Chicago Heights Tract, Ro-Ja has good and marketable
title to the Tinley Park Tract, and HFH has good and
marketable title to each of the Matteson Tract and
the Crete Tract, in each case free and clear of all
Liens, other than Liens described on Schedule 3.5. No
person other than MRJ (as to the Chicago heights
Tract), Ro-Ja (as to the Tinley Park Tract), HFH (as
to the Matteson Tract and the Crete Tract) or the
Company (as tenant on all Tracts) has any ownership,
leasehold or other interest of any kind in the Real
Property. All of the buildings and structures located
on the Real Property are in a reasonable state of
maintenance and repair, ordinary wear and tear
excepted. There is not pending nor, to the knowledge
of any Seller, threatened any proceeding for the
taking or condemnation of the Real Property or any
portion thereof.
(b) No toxic or hazardous wastes (as defined
by the U.S. Environmental Protection Agency, or any
similar state or local agency) or hazardous
substances (as defined under the Comprehensive
Environment Response, Compensation and Liability Act
of 1980, as amended, or the Resource Conservation and
Recovery Act, as amended, or any similar state or
local statute or regulation) have been generated,
stored, dumped, located or released onto
-9-
or from the Real Property, nor to the Sellers'
knowledge have any such materials or wastes been
generated, stored, dumped, located or disposed of on
any real property contiguous or adjacent to the Real
Property. The Real Property is not now, and to the
best of Sellers' knowledge, will not be in the future
as a result of its condition at or prior to Closing,
subject to any reclamation, remediation or reporting
requirements of any federal, state, local or other
governmental body or agency having jurisdiction over
the Real Property. The Real Property does not contain
any asbestos, urea, formaldehyde, lead based paint,
or underground storage tanks, except for materials
are used in the ordinary operation of the Business
and are properly stored and disposed of in accordance
with applicable law.
(c) None of MRJ, Ro-Ja or HFH (together, the
"Lessors") is a "foreign person" (as defined in
Section 1445(f)(3) of the Code and the regulations
issued thereunder), and the Sellers shall cause each
Lessor to deliver to the Purchaser at the Closing a
non-foreign affidavit in recordable form containing
such information as shall be required by Code Section
1445(b)(2) and the regulations issued thereunder,
which information shall include, without limitation,
a sworn statement by each Lessor (A) stating that
such Lessor is not a foreign person, (B) stating that
such Lessor is a United States tax resident
individual, (C) setting forth such Lessor's taxpayer
identification number, (D) stating that such Lessor
intends to file a United States Income Tax Return
with respect to the Real Property, and (E) granting
the Purchaser permission to furnish a copy of such
affidavit to the Internal Revenue Service.
(d) All bills and other payments due with
respect to the ownership, operation, and maintenance
of the Real Property have been (and on the Closing
Date will be) paid, and no Liens or other claims for
the same have been filed or asserted against any part
of the Real Property.
(e) No portion of the Real Property is located
within an area that has been designated by the
Federal Insurance Administration, the Army Corp of
Engineers, or any other governmental agency or body
as being subject to special flooding hazards.
-10-
3.6. ABSENCE OF CHANGES OR EVENTS. Since December 31,
1994, there has not been:
(i) any adverse change in the financial
condition, operations, properties or prospects of any
Home or of the Business;
(ii) any material damage, destruction or losses
against any Home or any of its properties;
(iii) any claim or liability for any material
damages for any actual or alleged negligence or other
tort or breach of contract against or affecting the
Company;
(iv) any declaration or payment of any bonus or
other extraordinary compensation to any employee of
the Company;
(v) any hiring, firing, reassignment or other
change in any key personnel of the Company;
(vi) any sale, transfer or other disposition
of, or agreement to sell, transfer or otherwise
dispose of, any of the inventories or other assets or
properties of the Company, except in the ordinary
course of the Business;
(vii) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement,
with respect to employees of the Company; or
(viii) any other transaction or event entered
into or affecting the Company other than in the
ordinary course of the Business.
3.7. ABSENCE OF UNDISCLOSED LIABILITIES. Except as
set forth in the Company Balance Sheet and in this Agreement,
the Company has no, and none of its assets or properties are
subject to any, liabilities or obligations, other than
unsecured trade accounts payable and accrued expenses arising
in the ordinary course of the Business since the date of the
Company Balance Sheet.
3.8. TAX MATTERS. All federal, state, county, local
and other taxes due and payable on or before the date of this
Agreement in respect of the Company and the ownership of the
Assets and the Real Property have been paid. All tax returns
and reports required to be filed for all such taxes have been
filed with all taxing authorities, and all such tax returns
and reports are true
-11-
and correct. True and correct copies of the federal, state and
local income tax returns filed by the Company for each of its
last three taxable years have been furnished to the Purchaser.
No assessments of deficiencies have been made against the
Company which are presently pending or outstanding, and no
state or facts exist which would constitute grounds for any
such assessment. No agreements, waivers or extensions of time
are in effect for the assessment of deficiencies in respect of
the Business or the Assets. Following the Closing, the Sellers
shall be responsible for accurately and completely preparing,
signing and filing all tax returns and paying all taxes in
respect of the assets and operations of the Company through
the Closing Date and for the sale of the Assets.
3.9. INVENTORY. All inventories reflected in the
Company Balance Sheet are, and all inventories of the Company
on the Closing Date will be, (i) accounted for at the lower of
cost or market in accordance with generally accepted
accounting principles consistently applied, and (ii) saleable
or usable in the ordinary course of the Business at usual and
customary prices, subject to normal returns and markdowns
consistent with past practice.
3.10. FIXED ASSETS. Schedule 3.10 lists all motor
vehicles and other material items of equipment, fixtures,
furniture and other fixed assets used in the operation of the
Business, all of which are included in the Assets. All such
items are in good and operating condition and repair, ordinary
wear and tear excepted.
3.11. CONTRACTS AND COMMITMENTS. Schedule 3.11 sets
forth a complete description of:
(i) all documents evidencing the creation or
existence of any Lien against any of the Assets or
the Real Property, and all documents relating to any
debt secured in whole or in part by any such Liens;
(ii) all collective bargaining agreements,
employment contracts, noncompetition agreements and
other agreements relating to the employment of any
employees of the Company;
(iii) all joint venture agreements and all other
agreements involving the sharing of profits,
involving the Company or the Business;
(iv) all (i) contracts or commitments for
capital expenditures for the Company involving
-12-
obligations aggregating in excess of $5,000, (ii)
leases under which personal property is leased by the
Company and which are not cancelable by either party
thereto without penalty upon notice of 30 days or
less or pursuant to which rentals exceed $5,000 per
annum or $25,000 in the aggregate, or (iii) contracts
and agreements of the Company which do not terminate
or are not terminable by the Company upon notice of
30 days or less or which involves an obligation on
its part in excess of $5,000 per annum or $25,000 in
the aggregate; and
(v) all other contracts and commitments of the
Company entered into outside the ordinary course of
the Business.
Each contract and other document required to be
described in Schedule 3.11 is valid and in full force and
effect and neither the Company, nor, to the knowledge of the
Sellers, none of the other parties thereto, are in default
thereunder. A true and correct copy of each document listed on
Schedule 3.11 has been delivered to the Purchaser by the
Sellers.
3.12. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.12 accurately lists, as of the date hereof, (i) all preneed
contracts of the Homes unfulfilled as of such date, including
contracts for the sale of funeral merchandise and services,
and (ii) all trust accounts relating to the Company,
indicating the location of each and the balance thereof. All
preneed contracts required to be listed on Schedule 3.12 (x)
have been entered into in the normal course of business at
regular retail prices, or pursuant to a sales promotion
program, solely for use by the named customers and members of
their families on terms not more favorable than shown on the
specimen contracts which have been delivered to the Purchaser,
(y) are subject to the rules and regulations of the Homes as
now in force (copies of which have been delivered to the
Purchaser), and (z) on the date hereof are in full force and
effect, subject to no offsets, claims or waivers, and neither
the Company nor, except as disclosed on Schedule 3.12, such
customer is in default thereunder. All funds received by the
Company under preneed contracts have been deposited in the
appropriate accounts and administered and reported in
accordance with the terms thereof and as required by
applicable laws and regulations. The services heretofore
provided by the Homes have been rendered in a professional and
competent manner consistent with prevailing professional
standards, practices and customs.
-13-
3.13. INTANGIBLE RIGHTS. There are no patents, patent
applications, patent licenses, trademarks, trademark
applications or trademark licenses (collectively, "Intangible
Rights") used in the Business, except as described on Schedule
3.13. The Company is not charged with infringement of any
Intangible Rights, nor do the Sellers know of any such
infringement, whether or not claimed by any person.
3.14. INSURANCE AND CLAIMS. Schedule 3.14 lists and
describes all policies of insurance applicable to the Company
and the Assets including, without limitation, all insurance
policies that are for the benefit of, or the proceeds of which
are payable to, employees of the Company or their respective
designees. Valid policies for such insurance, true and
complete copies of which have been provided to the Purchaser,
will be outstanding and duly in force at all times prior to
the Closing. Such policies are in such amounts, and insure
against such losses and risks, as are generally maintained for
comparable businesses and properties.
3.15. LICENSES, PERMITS, ETC. Section 3.15 lists all
licenses, franchises, permits, certificates, consents, rights
and privileges that are necessary or appropriate for the
conduct of the Business. All such items are in full force and
effect.
3.16. LITIGATION. There are no claims, actions,
suits, proceedings or investigations pending or, to the
Sellers' knowledge, threatened against or affecting the
Company or any of the Assets or the Real Property, at law or
in equity or before or by any court or federal, state,
municipal or other governmental department, commission, board,
agency or instrumentality. The Company is not subject to any
continuing court or administrative order, writ, injunction or
decree, nor is the Company in default with respect to any
order, writ, injunction or decree issued by any court or
foreign, federal, state, municipal or other governmental
department, commission, board, agency or instrumentality.
-14-
3.17. COMPLIANCE WITH LAWS. The Company has operated
and is operating each Home in compliance with all federal,
state, municipal and other statutes, rules, ordinances and
regulations applicable to the operation of the Business, the
Real Property and the Assets (including without limitation all
environmental protection and occupational safety and health
rules, regulations and laws, and laws and regulations
applicable to preneed contracts and trust accounts, including
the so-called "FTC Funeral Rule").
3.18. EMPLOYEES. Schedule 3.18 correctly and
completely lists the names and annual or hourly rates of
salary and other compensation of all the employees and agents
of the Company. Schedule 3.18 also sets forth the date of the
last salary increase for each employee listed thereon, and the
outstanding balances of all loans and advances made by the
Company to any such employee or agent. There are not pending
or threatened against the Company any general labor disputes,
strikes or concerted work stoppages, and there are no
discussions, negotiations, demands or proposals that are
pending or have been conducted or made with or by any labor
union or association with respect to any employees of the
Company.
3.19. EMPLOYEE BENEFIT PLANS. Schedule 3.19 lists all
plans, contracts, commitments, programs and policies
(including, without limitation, pension, profit sharing,
thrift, bonus, deferred compensation, severance, retirement,
disability, medical, life, dental and accidental insurance,
vacation, sick leave, death benefit and other similar employee
benefit plans and policies) providing benefits to any employee
or former employee of the Company (collectively, the "Plans").
The Sellers have delivered to the Purchaser true and correct
copies of all documents embodying the Plans. None of the Plans
constitutes a pension plan, profit sharing plan or other plan
required to be qualified under the Employee Retirement Income
Security Act of 1974, as amended.
3.20. BOOKS AND RECORDS. All books and records of the
Company are true, correct and complete, have been maintained
in accordance with good business practice and in accordance
with all laws, regulations and other requirements applicable
to the Business.
3.21. FINDERS. Except as described in Section 12.1,
no Seller is a party to or in any way obligated under any
contract or other agreement, and there are no outstanding
claims against any of them, for the payment of any broker's or
finder's fee in connection with the origin, negotiation,
execution or performance of this Agreement.
-15-
3.22. AUTHORITY OF THE COMPANY. The execution,
delivery and performance of this Agreement by the Company have
been duly authorized by its Board of Directors. This Agreement
is legally binding and enforceable against the Company in
accordance with its terms. Neither the execution, delivery nor
performance of this Agreement by the Company will result in a
violation or breach of, nor constitute a default or accelerate
the performance required under, the Articles of Incorporation
or bylaws of the Company or any indenture, mortgage, deed of
trust or other contract or agreement to which the Company is a
party or by which it or its properties are bound, or violate
any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.23. AUTHORITY OF THE SHAREHOLDERS. The Shareholders
have full authority to enter into this Agreement and the
Documents (as hereafter defined) to which they are parties,
and to perform their obligations hereunder and thereunder, and
neither the execution, delivery nor performance by the
Shareholders of this Agreement or such Documents will result
in a violation or breach of any term or provision of, nor
constitute a default under, any contract, agreement or other
commitment to which any Shareholder is a party or by which any
of them, the Real Property or the Assets are bound, or violate
any order, writ, injunction or decree of any court,
administrative agency or governmental body. This Agreement is,
and such Documents upon their execution and delivery as herein
provided will be, valid and binding obligations of the
Shareholders enforceable against them in accordance with their
respective terms. For purposes of this Agreement, the term
"Documents" shall mean, as to any party hereto, any and all
agreements, certificates and other instruments expressly
contemplated in this Agreement or any exhibit hereto to be
executed or delivered by or on behalf of such party at or in
connection with the Closing hereunder.
3.24. ACQUISITION OF THE NOTE. The Note to be
acquired from Carriage by the Company hereunder will be
acquired by it for investment purposes only and not with the
present intention or view to, or resale in connection with,
any distribution thereof within the meaning of the Securities
Act of 1933, as amended, except that the Company intends to
distribute the Note to the Shareholders following the Closing,
and the Shareholders have no such present intention or view
for resale. The Sellers understand that the Note is not
registered under such Securities Act or any state securities
or blue sky laws, and that Carriage is under no obligation to
register the Note under any such laws. The Sellers
-16-
further understand that transferability of the Note will be
restricted in accordance with applicable state and federal
securities laws, and that a restrictive legend to such effect
will be inscribed thereon. The Sellers have had full
opportunity to receive such information and ask such questions
of representatives of Carriage concerning Carriage, its
subsidiaries and their business, operations, assets and
prospects, and concerning an investment in the Note, as the
Sellers have deemed appropriate in order to make an informed
investment decision with respect to the Note.
3.25. FULL DISCLOSURE. The representations and
warranties made by the Sellers hereunder or in any Schedules
or certificates furnished to the Purchaser pursuant hereto do
not and will not contain any untrue statement of a fact or
omit to state a fact required to be stated herein or therein
or necessary to make the representations or warranties herein
or therein, in light of the circumstances in which they are
made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Sellers that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement and the Documents to which it
is a party.
4.2. AUTHORITY OF THE PURCHASER. The execution,
delivery and performance by the Purchaser of this Agreement
and the Documents to which it is a party have been duly
authorized by its Board of Directors. This Agreement is, and
upon execution and delivery as herein provided the Documents
to which the Purchaser is a party will be, valid and binding
upon the Purchaser and enforceable against the Purchaser in
accordance with their respective terms. Neither the execution,
delivery or performance by the Purchaser of this Agreement or
such documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of the
Purchaser or under any indenture, mortgage, deed of trust or
other contract or agreement to which it is a party or by which
it or its property is bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
-17-
4.3. FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4. CARRIAGE. The execution and delivery by Carriage
of the Note have been duly authorized by its Board of
Directors. The Note, upon its execution and delivery as herein
provided, will be valid and binding upon Carriage and
enforceable against Carriage in accordance with its terms.
Neither the execution, delivery or performance by Carriage of
the Note will conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under,
the Certificate of Incorporation or bylaws of Carriage or
under any indenture, mortgage, deed of trust or other contract
or agreement to which it is a party or by which it or its
property is bound, or violate any order, writ, injunction or
decree of any court, administrative agency or governmental
body. If while the Note is outstanding Carriage conducts a
private placement of its Common Stock (or equity securities
convertible into its Common Stock) for cash investments from
outside investors, Carriage will provide the Sellers with
copies of subscription materials related thereto and will
provide them with the opportunity to apply all or any portion
of the outstanding balance under the Note toward the purchase
of such securities, subject to minimum investment requirements
and other conditions of the offering. In such event, the
Sellers may subscribe on the same terms as other potential
investors, except that the subscription price per share of
Carriage Common Stock will be the LESSER of $5.00 or the price
generally offered to other potential investors.
4.5. FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Sellers pursuant hereto do not
and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated herein
or therein or necessary to make the representations or
warranties herein or therein, in light of the circumstances in
which they are made, not misleading.
5. COVENANTS OF THE SELLERS PENDING CLOSING. The Sellers
jointly and severally covenant with the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the Business will be op-
-18-
erated only in the ordinary course, and, in particular,
without the prior written consent of the Purchaser, the
Company will not (and the Shareholders will not cause or
permit the Company to):
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like
coverage;
(ii) commit any act or permit the occurrence of
any event or the existence of any condition of the
type described in Section 3.6;
(iii) enter into any contract, agreement or
other commitment of the type described in Section
3.11; or
(iv) hire, fire, reassign or make any other
change in key personnel of the Company, or increase
the rate of compensation of or declare or pay any
bonuses to any employee in excess of that listed on
Schedule 3.18.
5.2. ACCESS TO INFORMATION. Prior to Closing, the
Sellers will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to
all of the properties, books, contracts, commitments and
records of the Company so that the Purchaser may have full
opportunity to make such investigation as it shall desire to
make of the Business and the affairs of the Company and the
Assets.
5.3. CONSENTS AND APPROVALS. The Sellers will use
their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on their part to consummate the transactions
contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains
in effect, the Sellers agree that they shall not enter into
any agreements or commitments, or initiate, solicit or
encourage any offers, proposals or expressions of interest, or
otherwise hold any discussions with any potential buyers,
investment bankers or finders, with respect to the possible
sale or other disposition of all or any substantial portion of
the Assets, the sale of all or a controlling interest in the
stock of the Company, or the merger or consolidation of the
Company, other than with the Purchaser.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Sellers that:
-19-
6.1. CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Homes from
any representative or employee of the Company, including the
accountants or legal counsel of the Sellers, or from any books
or records of any of them, in connection with the transactions
contemplated by this Agreement. If the transactions
contemplated hereby are not consummated, neither the Purchaser
nor its representatives shall use such data or information or
disclose the same to others, except as such data or
information is published or is a matter of public knowledge or
is required by an applicable law or regulation to be
disclosed. If this Agreement is terminated for any reason, all
written data and information obtained by the Purchaser from
the Sellers or their representatives in connection with the
transactions contemplated by this Agreement shall be returned
to the Sellers.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any
material error, misstatement or omission in the
representations and warranties made by the Sellers in Section
3 hereof; the representations and warranties made by the
Sellers herein shall be deemed to have been made again at and
as of the time of Closing and shall then be true and correct;
the Sellers shall have performed and complied with all
agreements and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing;
and the Purchaser shall have received a certificate, signed by
the Sellers, to the effect of the foregoing provisions of this
Section 7.1.
7.2. OPINION OF COUNSEL. The Sellers shall have
caused to be delivered to the Purchaser an opinion of McGrane,
Perozzi, Stelter, Gerardi, Brauer & Ross, Ltd., a professional
corporation, counsel for the Sellers, dated the Closing Date,
to the effect that:
(i) the Company is a corporation duly
organized, validly existing and in good standing
-20-
under the laws of the State of Illinois, with full
corporate authority to enter into and perform its
obligations under this Agreement;
(ii) the execution, delivery and performance of
this Agreement by the Company have been duly
authorized by its Board of Directors;
(iii) this Agreement and the Documents to which
the Sellers are parties have been duly and validly
executed and delivered by the Sellers and constitute
the valid and binding obligations of the Sellers
enforceable against them in accordance with their
respective terms;
(iv) each Lease Agreement constitutes the valid
and binding obligation of each respective Lessor,
enforceable against such Lessor in accordance with
its respective terms; and the Gliottoni
Non-Competition Agreement constitutes the valid and
binding obligation of Gliottoni, enforceable against
him in accordance with its terms;
(v) neither the execution, delivery or
consummation of the transactions contemplated by this
Agreement or the Documents to which the Sellers are
parties will (x) result in the breach of or
constitute a default under the Articles of
Incorporation or bylaws of the Company, or under any
loan or credit agreement, indenture, mortgage, deed
of trust or other contract or agreement known to such
counsel and to which any of the Sellers are a party
or by which they or the Assets or the Real Property
are bound, or (y) violate any order, writ, injunction
or decree known to such counsel of any court,
administrative agency or governmental body;
(vi) no authorization, approval or consent of
or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery by the Sellers of this
Agreement or the Documents to which they are parties,
or the performance of their obligations hereunder or
thereunder; and
(vii) to the actual knowledge of such counsel
after due inquiry, there are no claims, actions,
suits, proceedings or investigations pending or
threatened against or affecting the Company or any of
the Assets, at law or in equity or before
-21-
or by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of the Shareholders and officers of the
Company, copies of which shall be provided to Purchaser at
Closing. Any opinion as to the enforceability of any document
may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal
law and the internal laws of the State of Illinois.
7.3. CONSENTS AND APPROVALS. The Sellers shall have
obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by
this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to any substantial
portion of the Assets (regardless of whether such loss or
damage was insured).
7.5. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.6. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review
of the financial information and books and records of the
Company, and shall have discovered no change in the Business,
assets, operations, financial condition or prospects of the
Company which could, in the reasonable determination of the
Purchaser, have an adverse effect on the value to the
Purchaser of the Assets being purchased.
7.7. RELATED TRANSACTIONS. Each Lessor shall have
executed and delivered its respective Lease Agreement, the
Shareholders shall have executed and delivered the Shareholder
Non-Competition Agreement, Gliottoni shall have executed and
delivered his respective Non-Competition Agreement and his
Employment Agreement, and each of Jeffrey Tutt, James Cull and
James C. Hirsch shall each have executed and delivered his
respective Employment Agreement.
-22-
7.8. FINANCING COMMITMENT. The Purchaser shall have
received from a financial institution acceptable to it a
written commitment, containing such terms and conditions and
otherwise in form and substance acceptable to the Purchaser,
providing for the extension of financing in order to provide
the portion of the Purchase Price payable in cash at Closing
which is not furnished by the Purchaser from its own funds or
obtained by the Purchaser from other sources, and such
commitment shall have been funded in such amount
contemporaneously with the Closing.
7.9. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS.
There shall have been conducted, at the Purchaser's expense,
(i) a Phase I (and, if deemed necessary by Purchaser, a Phase
II) environmental audit of the Homes and the Real Property by
an environmental consulting firm selected by Purchaser, (ii) a
health and safety inspection of the Homes by a person (who may
be an employee of the Purchaser) or firm selected by the
Purchaser and who is qualified and experienced in such matters
in the funeral service industry, and (iii) a structural
inspection of the Homes by an engineering firm selected by the
Purchaser. The Sellers agree to pay the costs and to take the
action reasonably recommended by such firms and/or persons, up
to $15,000 in the aggregate. In any event, it shall be a
condition to the Purchaser's obligations hereunder that the
results of the reports of such firms or persons (together with
any remedial action taken by Sellers, regardless of the cost,
in response thereto) shall be satisfactory to Purchaser in its
sole discretion.
7.10. TITLE INSURANCE. The Purchaser shall have
received, at the Sellers' expense, a Leasehold Policy of Title
Insurance in an agreed-upon amount, with respect to each
parcel of Real Property, issued by a title company with
offices in Cook (as to the Chicago Heights, Tinley Park and
Matteson Tracts) and Will (as to the Crete Tract) Counties,
Illinois and reasonably acceptable to the Purchaser (the
"Title Company"), insuring the Purchaser's leasehold interest
in each parcel of the Real Property, subject only to the
standard printed exceptions included in an Illinois standard
form Leasehold Policy of Title Insurance; provided, however,
that such policy shall have deleted the exception regarding
restrictions, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the rights of parties in
possession shall be deleted, and the standard exception for
taxes shall be limited to the year in which the Closing
occurs.
-23-
7.11. SURVEY. The Purchaser shall have received, at
Sellers' expense, an as-built survey prepared by a licensed
surveyor approved by Purchaser and acceptable to the Title
Company, with respect to each parcel of Real Property, which
survey shall comply with prevailing professional standards
under Illinois law, be sufficient for Title Company to delete
the survey exception contained in the leasehold policy of
title insurance referred to in Section 7.11, save and except
for the phrase "shortages in area", and otherwise be in form
and content acceptable to the Purchaser.
7.12. LIEN RELEASES. The holders of the Liens (other
than Permitted Liens) against any of the Assets or any portion
of the Real Property shall have executed and delivered written
releases of such Liens, all in recordable form and otherwise
acceptable to the Purchaser and its lender.
8. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Sellers in
writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Sellers shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by the Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser herein
shall be deemed to have been made again at and as of the time
of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the
Sellers shall have received a certificate, signed by the
President or a Vice President of the Purchaser, to the effect
of the foregoing provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Sellers an opinion of Snell &
Smith, a Professional Corporation, counsel for Purchaser, to
the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement and the
Documents to which it is a party;
-24-
(ii) the execution, delivery and performance by
the Purchaser of this Agreement and the Documents to
which it is a party have been duly authorized by its
Board of Directors;
(iii) this Agreement is, and upon execution and
delivery as herein provided the Documents to which
the Purchaser is a party will be, valid and binding
upon the Purchaser and enforceable against the
Purchaser in accordance with their respective terms;
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement or the
Documents to which it is a party will conflict with
or result in a violation or breach of any term or
provision of, nor constitute a default under, the
Certificate of Incorporation or bylaws of the
Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract
or agreement known to such counsel and to which
Purchaser is a party or by which it or its property
is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of
or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery by the Purchaser of this
Agreement or the Documents to which the Purchaser is
a party or the performance of its obligations
hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to Sellers at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of
the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have
obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by
this Agreement.
-25-
8.4. RELATED TRANSACTIONS. The Purchaser shall have
executed and delivered the Lease Agreements, the
Non-Competition Agreements and the Employment Agreements.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained
in this Agreement or any Schedule or Exhibit hereto shall be
deemed representations and warranties of the party executing
or delivering the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or pursuant
hereto or any Schedule or Exhibit hereto or in connection with
the transactions contemplated hereby and thereby shall not
terminate but shall survive the Closing and continue in effect
thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SELLERS. The Sellers
jointly and severally agree to indemnify and hold harmless the
Purchaser and its successors and assigns from and against any
and all losses, damages, liabilities, obligations, costs or
expenses (any one such item being herein called a "Loss" and
all such items being herein collectively called "Losses")
which are caused by or arise out of (i) any breach or default
in the performance by the Sellers of any covenant or agreement
of the Sellers contained in this Agreement, (ii) any breach of
warranty or inaccurate or erroneous representation made by the
Sellers herein, in any Schedule delivered to the Purchaser
pursuant hereto or in any certificate or other instrument
delivered by or on behalf of the Sellers pursuant hereto,
(iii) any claim made against the Purchaser in respect of any
liabilities or obligations of the Company (whether absolute or
contingent) other than the Assumed Liabilities, and (iv) any
and all actions, suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser
agrees to indemnify and hold harmless the Sellers and their
heirs, successors and assigns from and against any Losses
which are caused by or arise out of (i) any breach or default
in the performance by the Purchaser of any covenant or
agreement of the Purchaser contained in this Agreement, (ii)
any breach of warranty or inaccurate
-26-
or erroneous representation made by the Purchaser herein or in
any certificate or other instrument delivered by or on behalf
of the Purchaser pursuant hereto, (iii) any claim made against
the Sellers in respect of the Assumed Liabilities, and (iv)
any and all actions suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in the defense thereof and
be represented, at his or its own expense, by advisory counsel
selected by him or it, and (ii) to approve any settlement if
the indemnifying party is, or will be, required to pay any
amounts in connection therewith. Notwithstanding the
foregoing, if within ten business days after delivery of the
indemnified party's notice described above, the indemnifying
party indicates in writing to the indemnified party that, as
between such parties, such claims shall be fully indemnified
for by the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have
the right (i) to participate in the defense thereof and be
represented, at his or its own expenses, by advisory counsel
selected by him or it, and (ii) to approve any settlement if
the indemnified party's interests are, or would be, affected
thereby.
10.4. OFFSET. If any Seller becomes obligated to
indemnify the Purchaser after the Closing Date pursuant to
this Agreement, or if either Shareholder breaches the
Shareholder Non-Competition Agreement, at any time when the
Note or any of the Deferred Purchase Price remains payable or
any amount remains payable under Section 1.10 hereof, then the
Purchaser may, at its option and without prejudice to any
right of the Purchaser to proceed directly against any of the
Sellers, set-off the amount for which the Sellers shall be so
obligated for such indemnification or breach against the Note,
the Deferred Purchase Price and the amounts so outstanding
under Section 1.10. The exercise of such right of set-off
shall be evidenced by means of a written notice to such effect
given by the Purchaser to the Sellers, describing the basis
for indemnity or recovery and set-off hereunder and the amount
of the set-off.
-27-
10.5. PENSION PLAN. As described on Schedule 3.19,
the Company maintains the West End Funeral Home, Inc. Profit
Sharing Plan and Trust (the "Profit Sharing Plan") for the
benefit of its employees. The Purchaser is neither acquiring
any benefit of, nor assuming any liability associated with,
the Profit Sharing Plan. The Sellers after the Closing shall
remain solely responsible for, and shall indemnify the
Purchaser in respect of, the continued maintenance and
compliance with all legal requirements of the Profit Sharing
Plan and (if the Sellers choose to terminate the Profit
Sharing Plan) all matters incident to the termination thereof,
including (without limitation) any distributions to employees.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Sellers
agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof
and the Purchaser agrees to use its best efforts to bring
about the satisfaction of the conditions specified in Section
8 hereof.
11.2. TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual written consent of the
Sellers and the Purchaser;
(b) the Purchaser if a material default
shall be made by any Seller in the observance or in
the due and timely performance by any of the Sellers'
covenants herein contained, or if there shall have
been a breach or misrepresentation by any Seller of
any of the Sellers' warranties and representations
herein contained, or if the conditions of this
Agreement to be complied with or performed by the
Sellers at or before the Closing shall not have been
complied with or performed at the time required for
such compliance or performance and such noncompliance
or nonperformance shall not have been expressly
waived by the Purchaser in writing;
(c) the Sellers if a material default shall
be made by the Purchaser in the observance or in the
due and timely performance by the Purchaser of any of
the covenants of the Purchaser herein contained, or
if there shall have been a material breach or
misrepresentation by the Purchaser of any of its
warranties and representations herein contained, or
if the conditions of this Agreement to be complied
with or performed by the Purchaser at
-28-
or before the Closing shall not have been complied
with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Sellers in writing; or
(d) either the Sellers or the Purchaser, if
the Closing has not occurred by May 31, 1995.
11.3. LIABILITY UPON TERMINATION. If this Agreement
is terminated under paragraph (a) or (d) of Section 11.2, then
no party shall have any liability to any other party
hereunder. If this Agreement is terminated under paragraph (b)
or (c) of Section 11.2, then (i) the party so terminating this
Agreement shall not have any liability to any other party
hereto, provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination.
12. MISCELLANEOUS.
12.1. EXPENSES. Regardless of whether the Closing
occurs, the parties shall each pay their own expenses in
connection with the negotiation, preparation and carrying out
of this Agreement and the consummation of the transactions
contemplated herein. Without limiting the generality of the
foregoing, all finders' and similar fees and expenses of
Thomas Pierce & Co., sales representative for the Sellers,
shall be borne solely by the Sellers, and in no event shall
the Purchaser be charged or responsible therefor.
12.2. BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of the Company, such claims shall be the responsibility of the
Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Sellers in
the case of claims arising under any other liabilities of the
Company.
12.3. NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given on the date personally delivered
or three business days following the date
-29-
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i) if to any Seller, to:
Mr. James C. Hirsch
Hirsch Funeral Home
1340 Otto Boulevard
Chicago Heights, Illinois 60411-2752
with a copy to:
McGrane, Perozzi, Stelter,
Gerardi, Brauer & Ross, Ltd.
165 West Tenth Street
Chicago Heights, Illinois 60411
Attention: Mr. Joseph R. Perozzi
(ii) if to the Purchaser, to:
Carriage Funeral Holdings, Inc.
Three Riverway, Suite 1375
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith,
A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any
party to the other parties hereto.
12.4. ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the prior written consent of the
other parties, provided, however, that following the Closing
the Purchaser may assign its rights hereunder without the
consent of the Sellers to a successor-in-interest to the
Purchaser (whether by merger, sale of assets or otherwise).
Nothing in this Agreement, express or implied, is intended to
confer upon any person, other than the parties to this
Agreement and their successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
12.5. SUCCESSORS BOUND. Subject to the provisions of
Section 12.4, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their
-30-
respective successors, assigns, heirs and personal
representatives.
12.6. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
12.7. AMENDMENT. This Agreement may be amended only
by an instrument in writing executed by both parties hereto.
12.8. ENTIRE AGREEMENT. This Agreement and the
Exhibits, Schedules, certificates and other documents referred
to herein constitute the entire agreement of the parties
hereto, and supersede all prior understandings with respect to
the subject matter hereof and thereof (including, without
limitation, the letter of intent between the Purchaser and the
Sellers dated February 10, 1995).
12.9. GOVERNING LAW. This Agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Illinois.
12.10. CONSTRUCTION. As the context requires or
permits: pronouns used herein shall include the masculine, the
feminine and neuter; terms used in plural shall include the
singular, and singular terms shall include the plural;
"hereof", "herein", "hereunder" and "hereto" shall refer to
this Agreement; and section and paragraph references, when not
expressly referring to another agreement or document, shall
mean sections or paragraphs in this Agreement.
12.11. COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which shall constitute the same instrument.
-31-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER
CARRIAGE FUNERAL HOLDINGS, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE COMPANY
WEST END FUNERAL HOME, INC.
By: /s/ JAMES C. HIRSCH
James C. Hirsch,
President
THE SHAREHOLDERS:
/s/ JAMES C. HIRSCH
James C. Hirsch
/s/ CYNTHIA HIRSCH
Cynthia Hirsch
-32-
EXHIBITS DESCRIPTION
A-1 Lease Agreement (Chicago Heights Tract)
A-2 Lease Agreement (Tinley Park Tract)
A-3 Lease Agreement (Matteson Tract)
A-4 Lease Agreement (Crete Tract)
B-1 Non-Competition Agreement (Shareholders)
B-2 Non-Competition Agreement (Gliottoni)
C-1 Employment Agreement (Gliottoni)
C-2 Employment Agreement (Jeffrey Tutt)
C-3 Employment Agreement (James Cull)
C-4 Employment Agreement (James C. Hirsch)
D Promissory Note
SCHEDULES DESCRIPTION
1.2 Retained Assets
3.4 Permitted Liens
3.5 Real Property
3.10 Fixed Assets
3.11 Contracts and Commitments
3.12 Preneed Contracts and Trust Accounts
3.13 Intangible Assets
3.14 Insurance
3.15 Licenses, Permits, Etc.
3.18 Employees
3.19 Employee Benefit Plans
-33-
Exhibit 10.9
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT, dated as of March 8, 1996, among CARRIAGE
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"),
HENNESSY-BAGNOLI FUNERAL HOME, INC., an Ohio corporation (the "Acquisition
Subsidiary"), HENNESSY FUNERAL HOME, INC., an Ohio corporation (the "Company"),
and TERRANCE P. HENNESSY, a resident of Polk County, Florida ("Hennessy"), and
LAWRENCE BAGNOLI, a resident of Summit County, Ohio ("Bagnoli") (Hennessy and
Bagnoli being collectively referred to as the "Shareholders");
WITNESSETH:
WHEREAS, the Company owns and operates the Hennessy-Bagnoli
Funeral Homes located at 936 North Main Street in Akron, Ohio and at 339
Southwest Avenue in Tallmadge, Ohio (collectively, the "Homes"), and leases from
the Shareholders and other persons the real property and improvements upon which
the Homes are situated; and
WHEREAS, the Shareholders collectively are the record and
beneficial owners and holders of all of the issued and outstanding shares of
Common Stock, no par value ("Company Common Stock"), of the Company; and
WHEREAS, the parties desire that the Acquisition Subsidiary
merge with and into the Company in a statutory merger to be consummated under
the Ohio General Corporation Law (the "Ohio Act") and upon the terms and
conditions and for the consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. REORGANIZATION AND MERGER.
1.1. THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time of the Merger (as defined in Section
1.2 below), the Acquisition Subsidiary shall be merged with and into
the Company, and the separate corporate existence of the Acquisition
Subsidiary shall thereupon cease (the "Merger"). The Company shall be
the surviving corporation in the Merger (sometimes hereafter referred
to as the "Surviving Corporation") and shall continue to be governed by
the laws of the State of Ohio, and the separate corporate existence of
the Company, with all of its rights, privileges, immunities and
franchises shall continue unaffected by the Merger. The Merger shall
have the effects specified in the Ohio Act and in this Agreement.
1.2. EFFECTIVE TIME OF THE MERGER. Subject to the terms and
conditions of this Agreement, at the Closing referred to in Section
2.1, the Company and the Acquisition Subsidiary shall prepare, execute
and deliver a certificate of merger with respect to the Merger, in a
form complying with the provisions of Ohio Revised Code ss.1701.81, as
amended, and the parties shall cause the same to be filed with the
Secretary of State of the State of Ohio as soon as practicable on the
Closing Date. The Merger shall become effective upon the filing of such
certificate of merger with the Secretary of State of the State of Ohio,
or at such time thereafter as is mutually agreed to by the parties
(hereinafter referred to as the "Effective Time of the Merger").
1.3. ARTICLES OF INCORPORATION AND BYLAWS. (a) From and after
the Effective Time of the Merger, the Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of the
Acquisition Subsidiary as in effect immediately prior to the Effective
Time of the Merger, subject to the right of the Surviving Corporation
to thereafter amend its Articles of Incorporation as permitted
thereunder and in accordance with applicable law.
(b) From and after the Effective Time of the Merger, the Code
of Regulations of the Surviving Corporation shall be the Code of
Regulations of the Acquisition Subsidiary as in effect immediately
prior to the Effective Time of the Merger, subject to the right of the
Surviving Corporation to thereafter amend its Code of Regulations as
permitted thereunder and in accordance with applicable law.
1.4. OFFICERS AND DIRECTORS. At the Effective Time of the
Merger, the officers and directors of the Surviving Corporation shall
be the officers and directors of the Acquisition Subsidiary in office
at such time, and such persons shall hold office in accordance with the
Code of Regulations of the Surviving Corporation or until their
respective successors shall have ben appointed or elected.
1.5. CONVERSION AND CANCELLATION OF SHARES. The manner of
converting or cancelling shares of the Company and the Acquisition
Subsidiary in the Merger shall be as follows:
(a) At the Effective Time of the Merger, each share of Common
Stock, $.01 par value, of the Acquisition Subsidiary then issued and
outstanding shall, by virtue of the Merger and without any action on
the part of the Acquisition Subsidiary or the holder of such shares, be
converted into one share of Common Stock, $.01 par value, of the
Surviving Corporation.
(b) At the Effective Time of the Merger, each share of capital
stock of the Company issued and held in its treasury shall, by virtue
of the Merger and without any action on the part of the holder thereof,
cease to be outstanding and shall be cancelled and retired without the
payment of any consideration in respect thereof.
-2-
(c) At the Effective Time of the Merger, the shares of issued
and outstanding Company Common Stock owned and held by the Shareholders
shall, by virtue of the Merger and without any action on the part of
the holders thereof, be converted into the right to receive cash and/or
the right to receive shares of Series D Preferred Stock, $.01 par value
("Series D Preferred Stock"), of the Purchaser, in accordance with the
following procedures:
(i) First, the aggregate merger consideration payable
in respect of the issued and outstanding Company Common Stock
shall be determined (the "Merger Consideration"), as the sum
or difference of the following:
(A) $2,741,370.74;
PLUS
(B) The sum of all of the Company's cash
balances in bank accounts, certificates of deposits
or marketable securities (all at current net
realizable value) as of the Effective Time of the
Merger ("Closing Date Cash"), other than any such
cash or other investments that are used or applied to
fund preneed trust accounts or preneed funds of the
Company;
PLUS
(C) An amount equal to fifty percent (50%) of
the outstanding balance that portion of the Company's
accounts receivable as of the Effective Time of the
Merger ("Closing Date Receivables") that are then
less than 90 days past due;
LESS
(D) An amount equal to all liabilities and
obligations of the Company, including (but not
limited to) indebtedness for borrowed money,
indebtedness secured by mortgages, liens, security
interests, pledges, encumbrances or other title
restrictions of any kind (collectively, "Liens")
against any assets or properties of the Company or
any of the real property on which the Homes are
situated, accounts and trade payable, accrued
liabilities, federal, state and local taxes, any
liabilities under suits, claims, judgments or orders
then pending or any other liability or obligation of
the Company attributable to the operation of the
Company's business prior to the
-3-
Effective Time of the Merger (collectively,
"Unassumed Liabilities"), excluding (x) obligations
under preneed contracts for which the full amount has
been deposited in trust as required under applicable
law, and (y) Closing Date Expenses (as described in
subparagraph (ix) below; all to the extent that the
same have not been paid or discharged in full as of
the Effective Time of the Merger;
PLUS or LESS
(E) The net amount owed by or to the
Shareholders or the Surviving Corporation, as the
case may be, in respect of proratable items in
accordance with Section 1.6 below;
PLUS
(F) $50,000.00 allocated to the covenants of
the Shareholders described in Section 12.2.
At the Closing, the Shareholders shall deliver to the
Purchaser a certificate, dated the Closing Date, certified by
them to be accurate and complete, as to the amount of Closing
Date Cash, all of the Closing Date Receivables (including an
aging thereof) and the Unassumed Liabilities, and the parties
shall agree as to the amount of the proratable items under
Section 1.6, all for purposes of determining the amount of the
Merger Consideration in accordance with the above formula.
(ii) Second, the amount of the Merger Consideration
shall be allocated among the holders of the shares of Company
Common Stock issued and outstanding at the Effective Time of
the Merger in accordance with their respective proportions of
shares held in relation to the total number of issued and
outstanding shares. The holders of shares of Company Common
Stock that, as of the date of this Agreement, are held by
Bagnoli shall be entitled to receive the portion of the Merger
Consideration in the form as described in subparagraph (iii)
below, and the holders of shares of Company Common Stock that,
as of the date of this Agreement, are held by Hennessy shall
be entitled to receive the portion of the Merger Consideration
in the form as described in subparagraph (iv) below.
(iii) Of the Merger Consideration payable in respect
of shares of Company Common Stock that, as of the date of this
Agreement, are held by Bagnoli, (x) the sum of $12,000.00
shall be paid by the issuance and delivery
-4-
of 12,000 shares of Series D Preferred Stock of the Purchaser
(having the same terms and provisions described in
subparagraph (iv) below), all of which shares shall be
deposited into escrow as provided in subparagraph (vii) below,
(y) the sum of $18,000.00 cash shall be withheld subject to
the terms of subparagraph (ix) below, and (z) the balance
thereof shall be paid in cash at the Closing, as soon as
practicable following the Effective Time of the Merger, to
such account or accounts in the Continental United States as
shall be designated in writing by the holder(s) of such shares
to the Purchaser at least three business days prior to the
Closing Date.
(iv) All of the Merger Consideration payable in
respect of shares of Company Common Stock that, as of the date
of this Agreement, are held by Hennessy, shall be paid by the
issuance and delivery of a number of shares of Series D
Preferred Stock equal to $1.00 of such Merger Consideration
for each such share, of which 88,000 shares shall be deposited
into escrow as provided in subparagraph (vii) below, 132,000
shares shall be withheld subject to the terms of subparagraph
(ix) below, and the balance of such shares shall be delivered
to Hennessy. All of the shares of Series D Preferred Stock to
be issued to the Shareholders pursuant to this Agreement are
herein collectively referred to as the "Series D Shares." The
terms and provisions of the Series D Preferred Stock shall be
as provided in the Certificate of Designation, Preferences,
Rights and Limitations of the Series D Preferred Stock, a copy
of which is attached hereto as Exhibit A (the "Series D
Designation"). The "Dividend Rate" (as defined in the Series D
Designation) applicable to the Series D Shares shall be
$.0625, payable quarter-annually, and the "Initial Conversion
Base Price" (as defined in the Series D Designation)
applicable to the Series D Shares shall be $7.50 per share.
(v) No fractional Series D Shares or scrip will be
issued in respect of fractional interests; in lieu of any
fractional Series D Share which may be issued in respect of
shares of Company Common Stock held by Hennessy on the date
hereof, he instead shall receive a cash payment in an amount
equal to the product of such fraction multiplied by $1.00.
(vi) No later than 120 days after the Effective Time
of the Merger, the Surviving Corporation shall deliver to each
Shareholder a certificate of the Surviving Corporation,
certified by it to be true and complete, as to the amount of
collections received by it on the Closing Date Receivables
from the Effective Time
-5-
of the Merger through the date specified in such notice
("Interim Collections"). To the extent that the Interim
Collections exceed the component of the Merger Consideration
paid under clause (C) of subparagraph (i) above, the
difference shall constitute an upward adjustment in the Merger
Consideration, and the amount of such difference shall be paid
to the Shareholders promptly following the Surviving
Corporation's delivery of such certificate. On the first
anniversary of the Effective Time of the Merger, the Surviving
Corporation shall deliver to the Shareholders a certificate of
the Surviving Corporation, certified by it to be true and
complete, as to the amount of collections received by it on
Closing Date Receivables from the Effective Time of the Merger
through such first anniversary date ("One Year Collections").
To the extent that the One Year Collections exceed the sum of
the component of the Merger Consideration paid under clause
(C) of subparagraph (i) above PLUS the amount (if any) paid by
the Surviving Corporation in respect of Interim Collections as
provided above, the difference shall constitute a further
upward adjustment in the Merger Consideration, and the amount
of such difference shall be paid to the Shareholders promptly
following the Surviving Corporation's delivery of such
certificate. Each such payment shall be made in cash or in
Series D Shares, as the case may be, in the same proportions
as the original Merger Consideration has been paid at the
Closing as set forth in subparagraphs (iii) and (iv) above.
Neither the Surviving Corporation nor the Purchaser shall have
any duty to pursue collection of Closing Date Receivables by
means greater than used on its collection of other accounts
receivable, and in no event shall the Surviving Corporation or
the Purchaser be required to institute suit or refer any
account to a collection agency. If the amount of One-Year
Collections is less than the amount paid under clause (C) of
subparagraph (i) above, or if any Closing Date Receivables
remain uncollected on such first anniversary date and are
thereafter collected, in either event there shall be no
further adjustments to the Merger Consideration or payments in
respect thereof.
(vii) As provided in subparagraphs (iii) and (iv)
above, at the Effective Time of the Merger $100,000 of the
Merger Consideration, consisting of 100,000 Series D Shares
(the "Escrowed Amount") will be placed into escrow pursuant to
the terms of an Escrow Agreement in form and substance
mutually acceptable to the parties, to be entered into on the
Closing Date among the Purchaser, the Shareholders and
FirstMerit Bank or another financial institution with banking
offices in Akron, Ohio having total assets of at least $100
million and otherwise
-6-
mutually designated by the parties, which shall act as escrow
agent, such Escrowed Amount to be maintained as security for
purposes of any indemnification claims under Section 10.1.
Subject to the terms of such Escrow Agreement, any portion of
the Escrowed Amount remaining after the expiration of three
(3) years following the date of such Escrow Agreement, LESS
any Losses for which there are claims then pending, shall then
be distributed to the Shareholders.
(viii) Within 120 days following the Closing, the
Surviving Corporation shall convert the trusted preneed
accounts referred to in Section 3.13 that are in existence at
the time of the Closing ("Closing Date Preneed Accounts") into
insurance-funded contracts as permitted under Ohio law, at
which time the Shareholders shall be entitled to receive, as
additional Merger Consideration, in the proportion of their
respective holdings of Company Common Stock at the Effective
Time of the Merger, an amount equal to (x) the amount, if any,
by which the aggregate cash balances of Closing Date Preneed
Accounts so converted exceeded, on the Closing Date, the
amount required under applicable law to have been held in such
accounts on the Closing Date, and (y) the amount, if any, of
net proceeds (normally characterized as commission) received
by the Surviving Corporation from the insurance carrier in
respect of the Closing Date Preneed Accounts so converted. The
Surviving Corporation may seek advice from the Shareholder
regarding the identity of the insurance carrier and the manner
of converting Closing Date Preneed Accounts into
insurance-funded products, but such determinations shall be in
the sole discretion of the Surviving Corporation. The
additional Merger Consideration payable to the Shareholders
under this subparagraph (viii) shall be payable in Series D
Shares at $1.00 per share (in the case of Hennessy) or in cash
(in the case of Bagnoli).
(ix) Notwithstanding subparagraph (i)(D) above, up to (but
not exceeding) $200,000.00 in attorneys' fees, accounting fees
and the fees of Thomas, Pierce & Co. that are related to the
transactions described in this Agreement (collectively,
"Closing Date Expenses") shall remain the obligation of the
Surviving Corporation after the Effective Time of the Merger.
At the Closing, the Shareholders shall provide to the
Purchaser copies of invoices, bills or estimates provided by
the third party vendors indicating the amount or estimate of
their respective Closing Date Expenses through the Closing. In
no event shall the Surviving Corporation be responsible for
Closing Date Expenses in excess of $200,000, and any Closing
Date Expenses in excess of such amount shall be
-7-
subject to indemnity as described in Section 10.1. In
connection with the foregoing, at the Effective Time of the
Merger, $18,000.00 of the cash Merger Consideration otherwise
payable to Bagnoli under subparagraph (iii) above, and 132,000
Series D Shares otherwise deliverable to Hennessy under
subparagraph (iv) above, shall be withheld by the Purchaser in
accordance with the provisions hereof. Upon or promptly
following the expiration of 120 days after the Closing, the
parties shall make their post-Closing reconciliation, pursuant
to which the Shareholders shall be given credit for Interim
Collections as provided in subparagraph (vi) above, the amount
to which they are entitled in respect of the conversion of
Closing Date Preneed Accounts under subparagraph (viii) above
and the amount of the Merger Consideration withheld as
provided in this subparagraph (ix), the Purchaser shall be
credited for the Closing Date Expenses, and the appropriate
party or parties shall be credited for any further adjustments
in respect of proratable items as provided in Section 1.6
below, and if such reconciliation results in a net balance to
the Purchaser, the Shareholders shall promptly pay the amount
thereof to the Purchaser in cash, and if such reconciliation
results in a net balance to the Shareholders, the Purchaser
shall pay such amount to the Shareholders in accordance with
their respective interests, in Series D Shares to Hennessy and
in cash to Bagnoli.
(x) Except as otherwise expressly provided in this
Agreement, in all cases under this Agreement in which Merger
Consideration is payable to the Shareholders, the same shall
be paid 88% to Hennessy and 12% to Bagnoli.
(d) At the Effective Time of the Merger, all options,
warrants, calls, or other securities convertible into or exchangeable
with Company Common Stock, and all hereafter issued Company Common
Stock that is not issued and outstanding on the date of this Agreement,
shall, by virtue of the Merger and without any action on the part of
any holder thereof, cease to be outstanding and shall be cancelled and
retired without the payment of any consideration in respect thereof.
1.6. CERTAIN PRORATIONS. All normal and customarily proratable
items relating to the assets and liabilities of the Company, including
but not limited to, utilities, real estate and personal property taxes,
and insurance rebates and refunds, shall be prorated as of the
Effective Time of the Merger, the Shareholders being charged and
credited for all of same up to such date and the Surviving Corporation
being charged and credited for all of same on and after such date. If
the actual amounts to be prorated are not known as of the
-8-
Closing Date, the prorations shall be made on the basis of the best
evidence then available, and thereafter, within thirty (30) days after
actual figures are received, but in any event within 120 days after the
Closing Date, a settlement will be made between the Shareholders and
the Surviving Corporation (which settlement will be in Series D Shares,
at $1.00 per share, in the case of Hennessy, or in cash, in the case of
Bagnoli).
1.7. SS.368 REORGANIZATION. It is the intention of the parties
that the Merger constitute a "reorganization" within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), in accordance with Section 368(a)(2)(E) of the Code. The
parties agree to file all of their respective tax returns and reports
in a manner consistent with such intention, and to not take any filing
position in a manner inconsistent with such intention unless compelled
to do so by court order or administrative decree. Each party agrees to
furnish such information and take such action as may be reasonably
requested of the other party in connection with the foregoing (which
action shall not include any change in the commercial terms of the
Merger and the other transactions incident thereto). In no event,
however, shall the Purchaser or the Surviving Corporation be required
to incur any out-of-pocket expenses in defending such position or
providing such information or taking such action, nor shall the
foregoing constitute a warranty or guaranty that the Merger will in
fact constitute such a reorganization.
1.8. SHAREHOLDER CONSENT; WAIVER OF DISSENTERS' RIGHTS. Each
Shareholder, in his capacity as a shareholder of the Company, and the
Purchaser, in its capacity as a shareholder of the Acquisition
Subsidiary, hereby (i) consents to the Merger pursuant to Ohio Revised
Code ss.1701.78, and (ii) irrevocably and unconditionally waives all
dissenters' and other similar rights with respect to the Merger under
and pursuant to Ohio Revised Code ss.ss.1701.84 and 1701.85.
1.9. FURTHER ASSURANCES. Each party agrees to execute and
deliver from time to time after the Effective Time of the Merger, at
the reasonable request of the other party or parties, and without
further consideration, such additional instruments of conveyance and
transfer, and to take such other action as the other party or parties
may reasonably require to more effectively carry out the terms and
provisions of the Merger and this Agreement.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing of the Merger (the "Closing")
shall occur at the offices of Snell & Smith, A Professional
Corporation, 1000 Louisiana, Suite 3650, Houston,
-9-
Texas 77002, at 9:00 a.m. on March 8, 1996, or at such other date, time
or place as may be mutually agreed upon by the parties, but in no event
later than March 31, 1996. The date and time of the Closing is herein
called the "Closing Date". At the Closing, the Shareholders shall
surrender for cancellation pursuant to the Merger all certificates
representing their respective shares of Company Common Stock, against
receipt from the Purchaser of the Merger Consideration. All action to
be taken at the Closing as hereinafter set forth, and all documents and
instruments executed and delivered, and all payments made with respect
thereto, shall be considered to have been taken, delivered or made
simultaneously, and no such action or delivery or payment shall be
considered as complete until all action incident to the Closing has
been completed.
2.2. RELATED TRANSACTIONS. In addition to the Merger, at the
Closing the Acquisition Subsidiary shall execute and deliver to each of
Hennessy and Bagnoli, and each of Hennessy and Bagnoli shall execute
and deliver to the Acquisition Subsidiary, an Employment Agreement to
be dated the Closing Date and in substantially the forms attached
hereto as Exhibits B-1 and B-2, respectively, attached hereto
(collectively, the "Employment Agreements").
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The
Shareholders jointly and severally represent and warrant to and agree with the
Purchaser and the Acquisition Subsidiary that:
3.1. TITLE TO SHARES. The Shareholders are the owners and
holders, beneficially and of record, of all of the issued and
outstanding shares of Company Common Stock, and the Shareholders have
good and marketable title to all of such issued and outstanding shares,
free and clear of any and all Liens.
3.2. ORGANIZATION AND EXISTENCE. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Ohio, and has all requisite corporate power to enter into
and perform its obligations under this Agreement and to carry on its
business as now conducted. The Shareholders have delivered to the
Purchaser complete and correct copies of the Articles of Incorporation
and Code of Regulations of the Company, both as in effect on the date
hereof.
3.3. CAPITALIZATION. The authorized capital stock of the
Company consists of 500 shares of Common Stock, no par value, of which
285 shares are validly issued and outstanding, fully paid and
nonassessable and not issued in violation of the preemptive rights of
any person. There are 71 shares of Company Common Stock which are held
by it as treasury stock.
-10-
The Company does not have any outstanding subscriptions, options or
other agreements or commitments obligating it to issue shares of its
capital stock. From the date hereof through the Closing Date, the
Shareholders will not, and will not cause or permit the Company to,
issue or enter into any subscriptions, options, agreements or other
commitments in respect of the issuance, transfer, sale or encumbrance
of any shares of capital stock of the Company.
3.4. NO SUBSIDIARIES. The Company has no subsidiaries or any
investment or ownership interest in any corporation, joint venture or
other business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholders have delivered to
the Purchaser the (i) unaudited, compiled statements of assets,
liabilities and equity - income tax basis of the Company at December
31, 1995 (the "Company Balance Sheet") and 1994 and the related
unaudited, compiled statements of revenues, expenses and retained
earnings - income tax basis, statements of cash flows - income tax
basis and detail of operating expenses - income tax basis of the
Company for the respective twelve-month periods of operations then
ended, together with the compilation report of Kee & Associates, Inc.
dated February 9, 1996, and (ii) unaudited, compiled statements of
assets, liabilities and equity - income tax basis of the Company at
December 31, 1993 and 1992, and the related unaudited, compiled
statements of revenues, expenses and retained earnings - income tax
basis and statements of cash flows - income tax basis, for the
respective twelve-month periods of operations then ended, together with
the compilation report of Kee & Associates, Inc. dated February 5,
1994. All such financial statements are true and correct, have been
prepared in accordance with the books and records of the Company, and
present fairly the financial positions of the Company at the dates
indicated and the results of its operations for the periods then ended
in accordance with the income tax basis of accounting, except as to the
absence of any provision for deferred federal income taxes, the absence
of footnotes and (in the case of interim financial statements only)
subject to normally recurring year-end adjustments. The Homes
collectively performed at least 262 funeral services for the twelve
months ended December 31, 1993, at least 248 funeral services for the
twelve months ended December 31, 1994, and at least 292 funeral
services for the twelve months ended December 31, 1995.
3.6. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes are
owned by the Company, other than the real property on which the Homes
are situated, which is leased to the Company under valid leases which
are currently in effect. Except as aforesaid, none of such assets,
rights or properties
-11-
is subject to any lease or license (except as described on Schedule
3.12). The Company is in actual possession and control of all
properties owned by it, and has good and marketable title to all of its
assets, rights and properties, including without limitation, all
properties and assets reflected in the Company Balance Sheet (other
than properties and assets reflected in such balance sheet that have
been sold or otherwise disposed of in the ordinary course of business
subsequent to the date of the Company Balance Sheet), free and clear of
all Liens, except for Liens to be discharged and released at or prior
to Closing.
3.7. ABSENCE OF CHANGES OR EVENTS. Except as described on
Schedule 3.7 hereto, since the date of the Company Balance Sheet, there
has not been:
(i) any material adverse change in the financial
condition, operations, business or properties of the Company
or of either Home, or any event or condition occurring during
such period which, in the reasonable opinion of the
Shareholders, is likely to cause such a material adverse
change in the foreseeable future;
(ii) any change in the authorized capital or
outstanding securities of the Company;
(iii) any capital stock, bonds or other securities
which the Company has issued, sold, delivered or agreed to
issue, sell or deliver, nor has the Company granted or agreed
to grant any options, warrants or other rights calling for the
issue, sale or delivery thereof;
(iv) any borrowing or agreement by the Company to
borrow any funds, nor has the Company incurred, or become
subject to, any absolute or contingent obligation or
liability, except trade payables incurred in the ordinary
course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change
in any key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of
the inventories or other assets or properties of the Company,
except in the ordinary course of business;
-12-
(viii) any material damage, destruction or losses
against the Company or any waiver any rights of material value
to the Company;
(ix) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement, with
respect to employees of the Company;
(x) any claim or liability for any material damages
for any actual or alleged negligence or other tort or breach
of contract against or affecting the Company;
(xi) any new competitor that has, to the
Shareholders' knowledge, built, commenced to build or
announced intentions to build a funeral home or mortuary in
direct competition with either Home; or
(xii) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.8. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in the Company Balance Sheet or as described on Schedule 3.8, the
Company has no, and none of its assets or properties are subject to
any, liabilities or obligations of any kind or nature, other than
unsecured trade accounts payable and accrued expenses arising in the
ordinary course of the Company's business since the date of the Company
Balance Sheet.
3.9. TAX MATTERS. All federal, state, county, local and other
taxes due and payable by the Company on or before the date of this
Agreement have been paid or are adequately provided for in the
Company's books and records. The Company has filed all tax returns and
reports required to be filed by it with all taxing authorities, and all
such tax returns and reports are true, complete and correct. True and
correct copies of the federal, state and local income tax returns filed
by the Company for each of its last three taxable years have been
furnished to the Purchaser. No assessments of deficiencies have been
made against the Company which are presently pending or outstanding. No
state of facts exists or has existed which would constitute grounds for
the assessment of any tax liability against the Company with respect to
any prior taxable period which has not been audited by the Internal
Revenue Service or which has not been closed by applicable statute.
There are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any income tax return of the
Company for any period.
-13-
3.10. INVENTORY; ACCOUNTS RECEIVABLE. The inventories
reflected on the Company Balance Sheet and all items placed in
inventory since the date thereof are (i) accounted for in accordance
with the income tax basis of accounting applied on a consistent basis,
and (ii) saleable or usable in the ordinary course of business of the
Company at usual and customary prices, subject to normal returns and
markdowns consistent with past practice. At the Closing, the
Shareholders shall deliver to the Purchaser a list, certified by the
Shareholders to be complete and correct, of all of the Company's
inventory as of the Closing Date. All of the Closing Date Receivables
will at the Effective Time of the Merger (i) represent bona fide claims
for goods delivered or services rendered, and (ii) not be subject to
any rights of offset or counterclaim.
3.11. FIXED ASSETS. Schedule 3.11 lists all motor vehicles and
all other material items of equipment, fixtures, furniture and other
material fixed assets owned by the Company. All such items are in good
and operating condition and repair, ordinary wear and tear excepted.
3.12. CONTRACTS AND COMMITMENTS. Schedule 3.12 hereto sets
forth a complete description of:
(i) all loan, credit and similar agreements to
which the Company is a party or by which it is bound, and all
notes or other evidences of indebtedness of, or agreements
creating any Lien on any property of, the Company;
(ii) all employment contracts, noncompetition
agreements and other agreements relating to the employment of
any employees of the Company;
(iii) all contracts and agreements affecting the
Company which involve an obligation on its part in excess of
$5,000 per annum or $10,000 in the aggregate; and
(iv) all other contracts and commitments of the
Company entered into outside the ordinary course of business
(other than this Agreement).
Each contract and commitment described on Schedule 3.12 is
valid and in full force and effect, and neither the Company, nor, to
the knowledge of the Shareholders, any of the other parties thereto,
are in default thereunder. The Shareholders have furnished to the
Purchaser a true and correct copy of each document listed on Schedule
3.12.
3.13. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.13
hereto accurately and completely lists, as of December
-14-
31, 1995 (i) all preneed contracts of the Company unfulfilled as of the
date hereof, including contracts for the sale of funeral merchandise
and services, and (ii) all trust accounts relating to the Homes,
indicating the location of each and the balance thereof. All preneed
contracts required to be listed on Schedule 3.13 (x) have been entered
into in the normal course of business at regular retail prices, or
pursuant to a sales promotion program, solely for use by the named
customers and members of their families on terms not more favorable
than shown on the specimen contracts which have been delivered to the
Purchaser, (y) are subject to the rules and regulations of the Company
as now in force (copies of which have been delivered to the Purchaser),
and (z) on the date hereof are in full force and effect, subject to no
offsets, claims or waivers, and neither the Company nor such customer
is in default thereunder. All funds received by the Company under
preneed contracts have been deposited in the appropriate accounts and
administered and reported in accordance with the terms thereof and as
required by applicable laws and regulations. The aggregate market value
of the preneed accounts, trusts or other deposits is equal to or
greater than the aggregate preneed liability related to such accounts.
3.14. PROFESSIONAL SERVICES. The services heretofore provided
by the Company have been rendered in a professional and competent
manner consistent with prevailing professional standards, practices and
customs.
3.15. TRADEMARKS, ETC.. The Company does not own nor has it
applied for any patents, patent applications, patent licenses,
trademarks, trademark applications or trademark or trademark licenses
(collectively, "Intangible Rights"). The Company owns or possesses
valid rights or adequate licenses for all of such Intangible Rights as
are necessary to the conduct of the business of the Homes as presently
conducted. The Company is not charged with infringement of any
Intangible Rights of any other person, nor does the Company know of any
such infringement, whether or not claimed by any person.
3.16. INSURANCE. The Company maintains such policies of
insurance in such amounts, and which insure against such losses and
risks, as are generally maintained for comparable businesses and
properties. Valid policies for such insurance will be outstanding and
duly in force at all times prior to the Closing.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 hereto correctly
and completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges that are (i) necessary or appropriate
for the operation of the Homes as funeral homes in the State of Ohio,
and (ii) are
-15-
otherwise material to the business and operation of the Homes. All such
items are in full force and effect.
3.18. LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of either
Shareholder, threatened against or affecting the Company or any of the
assets or properties of the Company, at law or in equity or before or
by any court or federal, state, municipal or other governmental
department, commission, board, agency or instrumentality. The Company
is not subject to any continuing court or administrative order, writ,
injunction or decree, nor is the Company in default with respect to any
order, writ, injunction or decree issued by any court or foreign,
federal, state, municipal or other governmental department, commission,
board, agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company has complied and is in
compliance in all material respects with all federal, state, municipal
and other statutes, rules, ordinances, and regulations applicable to
the Company, the operation of the Homes and the Company's assets,
rights and properties (including without limitation all environmental
protection and occupations safety and health rules, regulations and
laws, and laws and regulations applicable to preneed contracts and
trust accounts, including the so-called "FTC Funeral Rule").
3.20. EMPLOYEES. Schedule 3.20 hereto correctly and completely
lists the names and monthly or hourly rates of salary and other
compensation of all the employees and agents of the Company. Schedule
3.20 also sets forth the date of the last salary increase for each
employee listed thereon, the outstanding balances of all loans and
advances, if any, made by the Company to any employee or agent of the
Company, and the number of vacation days or other time off to which
each such employee is then eligible to take. At Closing, the
Shareholders will cause the Company to pay or satisfy all vacation,
holiday and other accrued benefits to employees of the Homes which are
then outstanding. There are not pending or, to the knowledge of either
Shareholder, threatened against the Company any general labor disputes,
strikes or concerted work stoppages, and there are no discussions,
negotiations, demands or proposals that are pending or have been
conducted or made with or by any labor union or association with
respect to any employees of the Company. Neither Shareholder is aware
of the existence of any serious health condition of any key management
personnel of either Home that might impair any such person's ability to
carry on his or her normal duties into the foreseeable future after the
Closing. The Company believes that the relations between the Company
and its employees are good.
-16-
3.21. EMPLOYEE BENEFIT PLANS. There are no plans, contracts,
commitments, programs and policies (including, without limitation,
pension, profit sharing, thrift, bonus, deferred compensation,
severance, retirement, disability, medical, life, dental and accidental
insurance, vacation, sick leave, death benefit and other similar
employee benefit plans and policies) maintained by the Company
providing benefits to any employee or former employee of the Company,
other than sick leave, vacation and group hospitalization benefits and
simplified employee benefit plan ("SEP") that are described on Schedule
3.21, all of which are maintained in accordance with applicable legal
requirements. True and complete copies of all such benefit plans
described on Schedule 3.21, none of which (other than the SEP)
constitutes a "pension plan" within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended, have been
provided to the Purchaser. The SEP described on Schedule 3.21 has been
established and maintained by using Model Form 5305-SEP, the Company
has complied in all material respects with all applicable disclosure
and reporting requirements of the Internal Revenue Service and U.S.
Department of Labor, and upon the Effective Time of the Merger the
Surviving Corporation will have no funding or other obligations
thereunder. Following the Effective Time of the Merger, the
Shareholders shall, at their own expense, take all necessary action to
terminate the SEP.
3.22. AFFILIATED PARTY TRANSACTIONS. Except for the current
leases by the Shareholders and related persons of the Real Property to
the Company, and except for Bagnoli's living arrangements at the Home
in Tallmadge, Ohio (which after Closing shall be governed by his
Employment Agreement), the Company and the Homes have been operated and
are being operated in a manner separate from the personal and other
business activities of the Shareholders and their affiliates, and
neither the Company nor its assets are subject to any affiliated party
commitments or transactions.
3.23. BOOKS AND RECORDS. All books and records of the Company
are true, correct and complete in all material respects, have been
maintained by the Company in accordance with good business practice and
in accordance with all laws, regulations and other requirements
applicable to the Company. The corporate records of the Company reflect
a true record of all meetings and proceedings of the Board of Directors
and the Shareholders of the Company.
3.24. FINDERS. Except as described in Section 13.1, neither
the Company nor either Shareholder is a party to or in any way
obligated under any contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any broker's
or finder's fee in connection with the
-17-
origin, negotiation, execution or performance of this Agreement.
3.25. AUTHORITY OF THE SHAREHOLDERS. Each Shareholder has the
full right, capacity and authority to enter into and perform this
Agreement and the other documents to be executed by such Shareholder as
provided in this Agreement, and to consummate the transactions
contemplated hereby and thereby. This Agreement constitutes, and upon
execution and delivery by each Shareholder, each of such other
documents will constitute, the legal, valid and binding obligations of
the Shareholders enforceable against them in accordance with their
respective terms. Neither the execution, delivery nor performance of
this Agreement or any of such other documents, nor the consummation of
the transactions contemplated hereby or thereby, will: (i) result in a
violation or breach of any term or provision of, constitute a default
or acceleration under, require notice to or consent of any third party
to, or result in the creation of any Lien by virtue of (x) the Articles
of Incorporation or Code of Regulations of the Company or (y) any
contract, agreement, lease, license or other commitment to which the
Company or either Shareholder is a party or by which the Company or
such Shareholder or his or its respective assets or properties are
bound; nor (ii) violate any statute or any order, writ, injunction or
decree of any court, administrative agency or governmental body.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement has been duly authorized
by its Board of Directors. This Agreement is legally binding and
enforceable against the Company in accordance with its terms. Neither
the execution, delivery nor performance by the Company of this
Agreement will result in a violation or breach of, nor constitute a
default or accelerate the performance required under, the Articles of
Incorporation or Code of Regulations of the Company or any indenture,
mortgage, deed of trust or other contract or agreement to which the
Company is a party or by which it or its properties are bound, or
violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.27. ACQUISITION OF SERIES D SHARES. The Series D Shares to
be acquired by the Shareholders pursuant to the Merger will be acquired
by them for investment purposes only and not with the present intention
or view to, or resale in connection with, any distribution thereof
within the meaning of the Securities Act of 1933, as amended. Each
Shareholder understands that such Series D Shares will not be
registered under such Securities Act or any state securities or blue
sky laws, that transferability of such Series D Shares will be
-18-
restricted in accordance with applicable state and federal securities
laws, and that a restrictive legend to such effect will be inscribed on
each certificate representing such Series D Shares. Prior to the
Closing, each Shareholder will have had full opportunity to receive
such information and ask such questions of representatives of the
Purchaser concerning the Purchaser, its subsidiaries and their
business, operations, assets and prospects, and concerning an
investment in the Series D Shares, as such Shareholder will then have
deemed appropriate in order to make an informed investment decision
with respect to the Series D Shares.
3.28. SCHEDULES. The Schedules referred to in this Section 3
have been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Shareholders. To the extent that there
occur any changes in the information set forth in such Schedules prior
to the Closing, the Shareholders shall prepare and deliver to the
Purchaser, at least three business days prior to the Closing, amended
and/or restated schedules to reflect any such changes. Such updated
schedules shall be subject to Section 7.5.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The Purchaser and the Acquisition Subsidiary jointly and
severally represent and warrant to and agree with the Company and the
Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Ohio, and has all requisite corporate
power to enter into and perform its obligations under this Agreement
and the other documents to which it is a party. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate
power to enter into and perform its obligations under this Agreement
and the other documents to which it is a party, including the issuance
and delivery of the Series D Shares to the Shareholders as herein
provided. The Purchaser has delivered to the Shareholders complete and
correct copies of the Certificate of Incorporation and Bylaws of the
Purchaser and the Articles of Incorporation and Code of Regulations of
the Acquisition Subsidiary, both as in effect on the date hereof.
4.2. AUTHORITY. The execution, delivery and performance by the
Purchaser and the Acquisition Subsidiary of this Agreement and the
documents contemplated in this Agreement to be executed and delivered
by them have been duly authorized by their respective Boards of
Directors. This Agreement is, and upon their execution and delivery as
herein provided such
-19-
other documents will be, valid and binding upon the Purchaser and the
Acquisition Subsidiary and enforceable against each of them in
accordance with their respective terms. Neither the execution, delivery
or performance by the Purchaser or the Acquisition Subsidiary of this
Agreement or any such other document will conflict with or result in a
violation or breach of any term or provision of, nor constitute a
default under, the Certificate of Incorporation or Bylaws of the
Purchaser or the Articles of Incorporation or Code of Regulations of
the Acquisition Subsidiary, or under any indenture, mortgage, deed of
trust or other contract or agreement to which the Purchaser or the
Acquisition Subsidiary is a party or by which they or their respective
properties are bound, or violate any order, writ, injunction or decree
of any court, administrative agency or governmental body.
4.3. CAPITALIZATION. The authorized capital stock of the
Purchaser consists of (i) 20,000,000 shares of Common Stock, $.01 par
value, of which 5,040,002 shares are issued and outstanding; and (ii)
40,000,000 shares of Preferred Stock, $.01 par value, of which (i)
7,000,000 shares have been designated as Series A Preferred Stock, $.01
par value, all of which shares are issued and outstanding; (ii)
2,500,000 shares have been designated as Series B Preferred Stock, $.01
par value, of which, as of the date of this Agreement, 415,000 shares
are issued and outstanding; (iii) 8,500,000 shares are designated as
Series C Preferred Stock, $.01 par value, all of which shares are
issued and outstanding; and (iv) 10,000,000 shares have been designated
as Series D Preferred Stock, $.01 par value, none of which, as of the
date of this Agreement, is currently issued or outstanding. Except as
disclosed on Schedule 4.3, the Purchaser does not have any outstanding
capital stock or securities convertible into or exchangeable for any
shares of its capital stock, or any outstanding rights to subscribe for
or to purchase, or any outstanding rights or options for the purchase
of, or any agreements providing for the issuance (contingent or
otherwise) of, or any outstanding calls, commitments or claims of any
character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of the
Purchaser.
4.4. FINANCIAL STATEMENTS. The Purchaser has delivered to the
Shareholders the (i) audited, consolidated balance sheets of the
Purchaser and its consolidated subsidiaries at December 31, 1994 and
1993 and the related audited, consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the respective
twelve-month periods of operations then ended, together with the
footnotes thereto and the audit report thereon of Arthur Andersen LLP
dated April 21, 1995, and (ii) the unaudited, consolidated balance
sheet of the Purchaser and its consolidated subsidiaries at December
31, 1995 (the "Purchaser Balance
-20-
Sheet"), and the related unaudited, consolidated statements of income
and cash flows for the twelve-month period of operations then ended.
All such financial statements are true and correct, have been prepared
in accordance with the books and records of the Purchaser and its
consolidated subsidiaries, and present fairly the financial positions
of the Purchaser and its consolidates subsidiaries at the dates
indicated and the results of its operations for the periods then ended
in accordance with generally accepted accounting principles
consistently applied, except (in the case of unaudited financial
statements only) for the absence of footnotes and subject to normally
recurring year-end adjustments.
4.5. NO MATERIAL ADVERSE CHANGE. Since the date of the
Purchaser Balance Sheet, there has not been any material adverse change
in the financial condition, operations, properties or prospects of the
Purchaser and its consolidated subsidiaries taken as a whole.
4.6. LITIGATION; COMPLIANCE WITH LAWS. There are no claims,
actions, suits, proceedings or investigations pending or, to the
knowledge of any executive officer of the Purchaser, threatened against
or affecting the Purchaser or any of its consolidated subsidiaries or
any of their respective assets or properties, at law or in equity or
before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality
which, if adversely determined, would have a material adverse effect on
the financial condition, operations, properties or prospects of the
Purchaser and its consolidated subsidiaries taken as a whole.
4.7. COMPLIANCE WITH LAWS. The Purchaser and its consolidated
subsidiaries have complied and are in compliance with all federal,
state, municipal and other statutes, rules, ordinances, and regulations
applicable to them, except for violations which, in the aggregate,
could not reasonably be expected to have a material adverse effect on
the financial condition, operations, properties or prospects of the
Purchaser and its consolidated subsidiaries taken as a whole.
4.8. FINDERS. Neither the Purchaser nor the Acquisition
Subsidiary is a party to or in any way obligated under any contract or
other agreement, and there are no outstanding claims against either of
them, for the payment of any broker's or finder's fee in connection
with the origin, negotiation, execution or performance of this
Agreement.
4.9. CONTINUITY OF THE SURVIVING CORPORATION. The Purchaser
has no present intention of dissolving, liquidating
-21-
or merging out of existence the Surviving Corporation in the
foreseeable future after the Effective Time of the Merger.
4.10. EMPLOYEES' YEARS OF SERVICE. Employees of the Surviving
Corporation at the Homes will be credited for their years of service
with the Homes in accordance with the Purchaser's policies for purposes
of its employee benefit programs.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PENDING
CLOSING. The Company and the Shareholders jointly and severally covenant and
agree with the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of the Company will be operated only in
the ordinary course, and, in particular, without the prior written
consent of the Purchaser, the Company will not, and the Shareholders
will not cause or allow the Company to:
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its Articles of
Incorporation or Code of Regulations;
(iii) take any action described in Section 3.7;
(iv) enter into any contract, agreement or other
commitment of the type described in Section 3.12;
(v) hire, fire, reassign or make any other change in
key personnel of the Company, or increase the rate of
compensation of or declare or pay any bonuses to any employee
in excess of that listed on Schedule 3.20; or
(vi) take any other action which would cause any of
the representations and warranties made in Section 3 hereof
not to be true and correct in all material respects on and as
of the Closing Date with the same force and effect as if the
same had been made on and as of the Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company will
give to the Purchaser and its counsel, accountants and other
representatives, full and free access to all of the properties, books,
contracts, commitments and records of the Company so that the Purchaser
may have full opportunity to make such investigation as it shall desire
to make of the affairs of the Company.
-22-
5.3. CONSENTS AND APPROVALS. The Company and the Shareholders
will use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated by this
Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor either Shareholder shall enter into any
agreements or commitments, or initiate, solicit or encourage any
offers, proposals or expressions of interest, or otherwise hold any
discussions with any potential buyers, investment bankers or finders,
with respect to the possible sale or other disposition of all or any
substantial portion of the assets and business of the Company or any
other sale of the Company (whether by merger, consolidation, sale or
stock or otherwise) or any portion of the real property covered by the
Lease Agreements referred to in Section 7.8, other than with the
Purchaser and the Acquisition Subsidiary as contemplated in this
Agreement.
6. COVENANTS OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY
PENDING CLOSING. The Purchaser and the Acquisition Subsidiary jointly and
severally covenant with the Company and the Shareholders that:
6.1. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary will use their best efforts to obtain the necessary consents
and approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated in this
Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to the Company from any representative, officer,
director or employee of the Company, including their accountants or
legal counsel, or from any books or records of any of them, in
connection with the transactions contemplated by this Agreement, except
that the Purchaser may disclose such information to its outside
attorneys and accountants and to its lender, provided that the
Purchaser shall remain responsible to the Company for any unauthorized
disclosure thereof by such attorneys, accountants or lender. If the
transactions contemplated hereby are not consummated, neither the
Purchaser nor its representatives shall disclose such data or
information to others, except as such data or information is published
or is a matter of public knowledge or is required by an applicable law
or regulation to be disclosed. If this Agreement is terminated for any
reason, the Purchaser shall return to the Company all written data and
information obtained by the Purchaser from the Company or its
representatives in connection with the transactions contemplated by
this Agreement.
-23-
6.3. CHANGES. From the date of this Agreement to the Closing
Date, neither the Purchaser nor the Acquisition Subsidiary will take
any action which would cause any of the representations and warranties
made in Section 4 hereof not to be true and correct in all material
respects on and as of the Closing Date with the same force and effect
as if the same had been made on and as of the Closing Date.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The obligations of the Purchaser and the Acquisition
Subsidiary under this Agreement shall be subject to the following conditions,
any of which may be expressly waived by the Purchaser in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any error, misstatement or
omission in the representations and warranties made by the Shareholders
in Section 3 hereof; the representations and warranties made by the
Shareholders herein shall be deemed to have been made again at and as
of the time of Closing and shall then be true and correct; the Company
and the Shareholders shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or
complied with by them at or prior to the Closing; and the Purchaser
shall have received a certificate, signed by the Shareholders and an
executive officer of the Company, to the effect of the foregoing
provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Company shall have caused to be
delivered to the Purchaser an opinion of M. Teri Lynch & Associates,
counsel for the Company and the Shareholders, dated the Closing Date,
to the effect that:
(i) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Ohio, with full corporate authority to enter into and
perform its obligations under this Agreement;
(ii) the authorized capital stock of the Company
consists of 500 shares of Common Stock, no par value, of which
285 shares are validly issued and outstanding and fully paid
and nonassessable;
(iii) to the knowledge of such counsel, after due
inquiry, there are no outstanding subscriptions, options or
other agreements or commitments obligating the Company to
issue any shares of its capital stock or securities
convertible into shares of its capital stock;
(iv) the Shareholders are the record and beneficial
owners of all of the issued and outstanding
-24-
shares of Common Stock of the Company, free and clear of any
and all Liens, and the Shareholders have full capacity to
enter into and perform their obligations in accordance with
this Agreement;
(v) the execution, delivery and performance by the
Company of this Agreement has been duly authorized and
approved by all necessary corporate action required on the
part of the Company;
(vi) this Agreement has been duly and validly
executed and delivered by the Company and constitutes the
valid and binding obligation of the Company enforceable
against it in accordance with its terms;
(vii) this Agreement and the other documents to be
executed and delivered hereunder by the Shareholders (as shall
be specified in such opinion) have been duly and validly
executed and delivered by the Shareholders, and this Agreement
and such other documents constitute the valid and binding
obligations of the Shareholders enforceable against them in
accordance with their respective terms;
(viii) neither the execution, delivery or
consummation of the transactions contemplated by this
Agreement or any of such other documents will (x) result in
the breach of or constitute a default under the Articles of
Incorporation or Code of Regulations of the Company or any
loan or credit agreement, indenture, mortgage, deed of trust
or other contract or agreement known to such counsel and to
which either the Company or the Shareholders are a party or by
which they or their respective assets are bound, or (y)
violate any order, writ, injunction or decree known to such
counsel of any court, administrative agency or governmental
body;
(ix) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Company and the Shareholders of this Agreement or any of such
other documents; and
(x) to the knowledge of such counsel after due
inquiry, there are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting the
Company or any of its assets, at law or in equity or before or
by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality.
-25-
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholders and officers of the Company and
certificates of public officials, copies of which shall be provided to
the Purchaser at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal law and
the internal laws of the State of Ohio.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholders
shall have obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by this
Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to the physical assets and properties
of the Company or the real property or improvements on which the Homes
are situated (regardless of whether such loss or damage was insured),
the effect of which would have a material adverse effect on the
condition, business, operations or prospects of the Company or either
Home.
7.5. UPDATED SCHEDULES. If the Shareholders provide to the
Purchaser any amended and/or restated Schedules as contemplated in
Section 3.29, then any new or additional information disclosed pursuant
thereto shall be satisfactory to the Purchaser in its sole discretion.
7.6. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall be subject to the reasonable approval of
counsel for the Purchaser and the Acquisition Subsidiary, and such
counsel shall have been furnished with such certified copies of actions
and proceedings and other instruments and documents as they shall have
reasonably requested.
7.7. NO MATERIAL ADVERSE CHANGE. The Purchaser shall have
discovered no change in the business, assets, operations, or financial
condition of the Company or the Homes which has a material adverse
effect on the value to the Purchaser of the business, assets, or
financial condition of the Company and the Homes being acquired
pursuant to the Merger.
7.8. RELATED TRANSACTIONS. Each of Hennessy and Bagnoli shall
have executed and delivered to the Acquisition Subsidiary their
respective Employment Agreements; each of Hennessy and his wife,
Patricia A. Hennessy, and Bagnoli and his wife Brenda Bagnoli, as
sellers, shall have performed and
-26-
complied with all agreements and conditions required to be performed or
complied with by them at or prior to the Closing by the Real Estate
Purchase Agreement of even date herewith among such persons and the
Acquisition Subsidiary, as buyer (the "Real Estate Purchase
Agreement"), relating to the real property on which the Home in
Tallmadge, Ohio is located, and the closing thereunder shall have
occurred substantially simultaneously with the Effective Time of the
Merger hereunder; Terrance P. and Patricia A. Hennessy, DeWoyne
Hennessy, Francis D. Hennessy, III and Judy A. Hennessy, Helen F.
Rowland and Paul E. Rowland, and Lisa Y. Abraham, all as lessor, shall
have executed and delivered to the Acquisition Subsidiary, as lessee,
the Lease Agreement substantially in the form of Exhibit C-1 hereto,
covering the real property on which the Home in Akron, Ohio is located
(the "Akron Home Lease Agreement"); and Terrance P. and Patricia A.
Hennessy, as lessor, and shall have executed and delivered to the
Acquisition Subsidiary, as lessee, the Lease Agreement substantially in
the form of Exhibit C-2 hereto, covering a portion of the parking lot
for the Home in Akron, Ohio (the "Akron Parking Lot Lease Agreement")
(the Akron Home Lease Agreement and the Akron Parking Lot Lease
Agreement are herein collectively referred to as the "Lease
Agreements").
7.9. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall
have been conducted (or the Purchaser shall have received), at the
Purchaser's expense, (i) an environmental questionnaire of the Homes
and the real property on which they are situated, completed and signed
by an authorized officer of the Company, (ii) a health and safety
inspection of the Homes by a person (who may be an employee of the
Purchaser) or firm selected by the Purchaser and who is qualified and
experienced in such matters in the funeral service industry, and (iii)
a structural inspection of the Homes by an engineering firm selected by
the Purchaser. The Shareholders agree to take the action (and pay any
costs in connection therewith) as may be reasonably recommended by such
firms and/or persons, up to $15,000 in the aggregate. In any event, it
shall be a condition to the Purchaser's obligations hereunder that the
results of the reports of such firms or persons (together with any
remedial action, if any, taken by Shareholders, regardless of the cost,
in response thereto) shall be satisfactory to Purchaser in its sole
discretion.
7.10. FINANCING COMMITMENT. The Purchaser represents that it
has received from Provident Services, Inc. ("Provident") a written
commitment providing for the extension of financing in order to provide
the cash portion of the Merger Consideration not furnished by the
Purchaser or obtained by the Purchaser from other sources. It shall be
a condition to the Purchaser's obligations hereunder that such
-27-
commitment shall have been funded in such amount contemporaneously with
the Closing.
7.11. LIEN RELEASES. The holders of the Liens against any
assets of the Company shall have executed and delivered written
releases of such Liens, all in recordable form and otherwise acceptable
to the Purchaser and Provident. If there will remain after the Closing
any Liens securing borrowed money indebtedness against any of the real
property covered by the Lease Agreements, then the holders of such
Liens, the Purchaser and Provident shall have entered into a
subordination, non-disturbance and attornment agreement in form and
substance acceptable to them.
7.12. OTHER MANAGEMENT ARRANGEMENTS. The Shareholders shall
have identified to the Purchaser such other personnel of the Homes (in
addition to the Shareholders) as may be key to the continued effective
management and operation of the Homes after the Closing, and the
Purchaser shall have entered into mutually satisfactory arrangements
regarding the continued employment of such personnel at the Homes
following the Closing.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The obligations of the Company and the Shareholders under this
Agreement shall be subject to the following conditions, any of which may be
expressly waived by the Company in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Company and the Shareholders shall not have discovered any material
error, misstatement or omission in the representations and warranties
made by the Purchaser and the Acquisition Subsidiary in Section 4
hereof; the representations and warranties made by the Purchaser and
the Acquisition Subsidiary herein shall be deemed to have been made
again at and as of the time of Closing and shall then be true and
correct; the Purchaser and the Acquisition Subsidiary shall have
performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with by them at or prior to
the Closing; and the Company and the Shareholders shall have received a
certificate, signed by an executive officer of each of the Purchaser
and the Acquisition Subsidiary, to the effect of the foregoing
provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Company and the Shareholders an opinion of Snell &
Smith, A Professional Corporation, counsel for the Purchaser and the
Acquisition Subsidiary, to the effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the
-28-
laws of the State of Delaware, and has all requisite corporate
power to enter into and perform its obligations under this
Agreement and the other documents contemplated herein to be
executed and delivered by the Purchaser (as shall be specified
in such opinion); and the Acquisition Subsidiary is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement and the other documents
contemplated herein to be executed and delivered by the
Acquisition Subsidiary (as shall be specified in such
opinion);
(ii) the execution, delivery and performance by the
Purchaser and the Acquisition Subsidiary of this Agreement and
such other documents have been duly authorized and approved by
all necessary corporate action required on their part;
(iii) this Agreement is, and upon execution and
delivery as herein provided such other documents will be,
valid and binding upon the Purchaser and the Acquisition
Subsidiary, enforceable against the Purchaser and the
Acquisition Subsidiary in accordance with their respective
terms;
(iv) neither the execution, delivery or performance
by the Purchaser or the Acquisition Subsidiary of this
Agreement or any of such other documents will conflict with or
result in a violation or breach of any term or provision of,
nor constitute a default under, the Certificate of
Incorporation or Bylaws of the Purchaser, the Articles of
Incorporation or Code of Regulations of the Acquisition
Subsidiary or under any loan or credit agreement, indenture,
mortgage, deed of trust or other contract or agreement known
to such counsel and to which the Purchaser or the Acquisition
Subsidiary is a party or by which they or their respective
properties are bound, or violate any order, writ, injunction
or decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser or the Acquisition Subsidiary of this Agreement or
any of such other documents, or the performance of its
obligations hereunder or thereunder.
-29-
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and the Acquisition
Subsidiary, and on certificates of public officials, copies of which
shall be provided to the Shareholders at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors rights and by principles of equity. Such opinion may be
limited to federal law, the General Corporation Law of the State of
Delaware, the Ohio General Corporation Law (as to the Acquisition
Subsidiary's organization, existence and good standing, in reliance of
an opinion of special Ohio counsel) and the internal laws of the State
of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary shall have obtained all consents and approvals of other
persons and governmental authorities to the transactions contemplated
by this Agreement.
8.4. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall be subject to the reasonable approval of
counsel for the Company and the Shareholders, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall have
reasonably requested.
8.5. RELATED TRANSACTIONS. The Acquisition Subsidiary shall
have executed and delivered to each of Hennessy and Bagnoli their
respective Employment Agreements; the Acquisition Subsidiary shall have
performed and complied with all agreements and conditions required to
be performed or complied with by it at or prior to the Closing by the
Real Estate Purchase Agreement, and the closing thereunder shall have
occurred substantially simultaneously with the Effective Time of the
Merger hereunder; the Acquisition Subsidiary shall have executed and
delivered the Lease Agreements to each of the respective lessors
thereunder; and the Purchaser shall have complied with each of its
obligations under the letter agreement of even date herewith between
the Purchaser and Hennessy that are to be complied by the Purchaser on
or before the Closing Date.
8.6. NO MATERIAL ADVERSE CHANGE. The Shareholders shall have
discovered no change in the business, assets, operations, or financial
condition of the Purchaser and its consolidated subsidiaries taken as a
whole which has a material adverse effect on the value to the
Shareholders of the Series D Shares being acquired by them pursuant to
the Merger.
-30-
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party hereto,
all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Schedule or Exhibit hereto or in
connection with the transactions contemplated hereby and thereby shall
not terminate but shall survive the Closing and continue in effect
thereafter as hereafter provided. The representations and warranties in
Section 3.9 shall survive the Closing for the duration of all
applicable statutes of limitations provided for under the Code; the
representations and warranties under Sections 3.1 through 3.3, 3.6,
3.24 through 3.26, 3.28, 4.1 through 4.3, 4.8 and 12.2(d) hereunder
shall survive the Closing for the duration of the applicable state
statute of limitations; and the remainder of all such representations
and warranties made by the parties shall survive the Closing for a
period of eighteen (18) months thereafter; at which applicable time, as
described above, such representations and warranties shall terminate
except as to claims then pending in respect thereof, as to which the
same shall continue until such claims have been finally resolved.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders
jointly and severally (except as provided in Section 12.2(e)) agree to
indemnify and hold harmless the Purchaser and (following the Effective
Time of the Merger) the Surviving Corporation, and their respective
successors and assigns, from and against any and all losses, damages,
liabilities, obligations, costs or expenses (any one such item being
herein called a "Loss" and all such items being herein collectively
called "Losses") which are caused by or arise out of (i) any breach or
default in the performance by the Company or the Shareholders of any
covenant or agreement of the Company or the Shareholders contained in
this Agreement, (ii) any breach of warranty or inaccurate or erroneous
representation made by the Company or the Shareholders herein, in any
Schedule delivered to the Purchaser pursuant hereto or in any
certificate or other instrument delivered by or on behalf of the
Company or the Shareholders pursuant hereto (subject to the limitations
in Section 9.2 above), (iii) any Unassumed Liability of the Company,
whether absolute or contingent, known or unknown, to the extent not
paid, discharged or
-31-
deducted from the Merger Consideration at the Closing as provided in
Section 1.5(c)(i)(D) (other than up to $200,000 of Closing Date
Expenses, as provided in Section 1.5(c)(ix)), provided that the
Purchaser asserts any claims under this clause (iii) prior to the
expiration of eighteen (18) months after the Closing Date, and (iv) any
and all actions, suits, proceedings, claims, demands, judgments, costs
and expenses (including reasonable legal fees) incident to any of the
foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser and the
Acquisition Subsidiary jointly and severally agree to indemnify and
hold harmless the Shareholders and their heirs and assigns from and
against any Losses which are caused by or arise out of (i) any breach
or default in the performance by the Purchaser or the Acquisition
Subsidiary of any covenant or agreement of the Purchaser or the
Acquisition Subsidiary contained in this Agreement, (ii) any breach of
warranty or inaccurate or erroneous representation made by the
Purchaser or the Acquisition Subsidiary herein or in any certificate or
other instrument delivered by or on behalf of the Purchaser or the
Acquisition Subsidiary pursuant hereto, and (iii) any and all actions,
suits, proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying party"),
the indemnifying party shall be given prompt written notice thereof and
shall have the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected by it,
and (ii) to approve any settlement if the indemnifying party is, or
will be, required to pay any amounts in connection therewith, which
approval shall not be unreasonably withheld or delayed. Notwithstanding
the foregoing, if within ten business days after delivery of the
indemnified party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between such
parties, such claims shall be fully indemnified for by the indemnifying
party as provided herein, then the indemnifying party shall have the
right to control the defense of such claim, provided that the
indemnified party shall have the right (i) to participate in the
defense thereof and be represented, at its own expenses, by advisory
counsel selected by it, and (ii) to approve any settlement if the
indemnified party's interests are, or would be, affected thereby.
10.4. CERTAIN LIMITATIONS. Notwithstanding the foregoing
provisions of this Section 10, the Purchaser shall
-32-
not be entitled to obtain indemnification from the either Shareholder
under clause (i) or (ii) of Section 10.1 (or clause (iv), insofar as
the same relates to clause (i) or (ii)), until such time as the
aggregate amount of all such claims of the Purchaser equal or exceed
$10,000.00, but when such threshold has been so met, the Purchaser
shall be entitled to the entirety of its claim, including the first
$10,000.00.
10.5. PAYMENT IN SERIES D SHARES. The Purchaser agrees that
the Shareholders may satisfy any claims of indemnification hereunder by
the surrender for cancellation of Series D Shares (not otherwise held
in escrow under Section 1.5(c)(vii)), at a value of $1.00 per Series D
Share, for so long as the Shareholder in question holds any Series D
Shares. Each such surrender shall constitute the indemnifying
Shareholder's sale and the Purchaser's purchase of a number of Series D
Shares equal to the amount of such indemnification claim which such
Shareholder has elected to satisfy in such shares, upon which such
Shareholder shall surrender to the Company all certificates
representing such shares for cancellation.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholders agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof; and the
Purchaser and the Acquisition Subsidiary agree to use their best
efforts to bring about the satisfaction of the conditions specified in
Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Shareholders,
the Company, the Purchaser and the Acquisition Subsidiary;
(b) the Purchaser if a material default shall be made
by the Company or either Shareholder in the observance or in
the due and timely performance by any of their covenants
herein contained, or if there shall have been a material
breach or misrepresentation by the Company or either
Shareholder of any of their warranties and representations
herein contained, or if the conditions of this Agreement to be
complied with or performed by the Company or either
Shareholder at or before the Closing shall not have been
complied with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Purchaser in writing;
-33-
(c) the Shareholders if a material default shall be
made by the Purchaser or the Acquisition Subsidiary in the
observance or in the due and timely performance by the
Purchaser or the Acquisition Subsidiary of any of their
covenants herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser or the
Acquisition Subsidiary of any of their warranties and
representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Purchaser
and the Acquisition Subsidiary at or before the Closing shall
not have been complied with or performed at the time required
for such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Company and the Shareholders in writing; or
(d) either the Shareholders or the Purchaser, if the
Closing has not occurred by March 31, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other parties hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party has
not breached any representation or warranty or failed to comply with
any of its covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party against
any other party which has breached any of its representations,
warranties or covenants herein prior to such termination.
12. POST-CLOSING COVENANTS.
12.1. POST-CLOSING TAX MATTERS. The Shareholders shall be
fully responsible for all taxes of the Company accrued through the
Closing and for completing, filing and handling all tax returns and
reports in respect of all periods through Closing, including responding
to any inquiries, examinations or audits regarding such taxes, returns
and reports. In particular, the Purchaser will arrange through its
outside accounting firm for the preparation of short-period federal
income tax return for the Company's current year through the Closing
Date (after which time the Surviving Corporation will be included as
part of the consolidated group of which the Purchaser is the parent
corporation), based upon information furnished by the Shareholders (and
for which the Shareholders shall be solely responsible), and the
Shareholders shall pay or reimburse the Purchaser for all federal
income taxes in respect thereof and the reasonable cost of tax
preparation by such outside accounting firm. If after the Closing the
-34-
Purchaser or the Surviving Corporation receives any refund in respect
of federal income taxes paid for periods of operations ended prior to
the Effective Time of the Merger, then the Purchaser shall forward (or
cause the Surviving Corporation to forward) such payment in the form
received to the Shareholders. The Purchaser agrees that if it takes any
discretionary filing position with respect to federal income taxation
of the Surviving Corporation which is inconsistent with any valid
position taken by the Company prior to the Effective Time of the
Merger, the effect of which action is to increase the Shareholders'
federal income tax liability from that which they would have been
subject to if such position had not been so taken by the Purchaser,
then the Purchaser shall (or shall cause the Surviving Corporation to)
reimburse the Shareholders for the actual amount of such increased
federal income tax liability so suffered by them as aforesaid. In such
case, the Shareholders agree to furnish such information reasonably
requested of them by the Purchaser in order to determine the amount of
such increased federal income tax liability.
12.2. RESTRICTIVE COVENANTS OF THE SHAREHOLDERS.
(a) NON-COMPETITION. If the Closing occurs, then for
a period commencing on the Closing Date and ending ten (10)
years thereafter, neither Shareholder shall directly or
indirectly:
(i) engage, as principal, agent, trustee
or through the agency of any corporation,
partnership, association or agent or agency, anywhere
within a fifty (50) mile radius of either Home,
excluding therefrom that portion of such 50-mile
radius that lies within the incorporated city limits
of Cleveland and Canton, Ohio (the "Territory"), in
the funeral, mortuary, crematory, monument, or any
related line of business (collectively, the
"Business");
(ii) own or hold any beneficial interest in
one percent (1%) or more of the voting securities in
any corporation, partnership or other business entity
which conducts its operations, in whole or in part,
in the Business within the Territory; provided,
however, that the beneficial ownership solely for
purposes of investment of less than five percent (5%)
of a class of outstanding voting securities of a
corporation or other entity that is registered
pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, shall be exempt
from the foregoing restrictions;
-35-
(iii) become an employee of or consultant
to, or otherwise serve in any similar capacity with,
any corporation, partnership or other business entity
that conducts its business, in whole or in part, in
the Business within the Territory; or
(iv) cause or induce any present or future
employee of the Purchaser or any of its affiliates to
leave the employ of the Purchaser or any such
affiliate to accept employment with such Shareholder
or with any person, firm, association or corporation
with which such Shareholder may be or become
affiliated.
Without limiting the generality of the foregoing, a
Shareholder shall be deemed directly or indirectly engaged in
the Business if he acts as a funeral director at any funeral
establishment within the Territory, if a Shareholder engages
in the sale or marketing of preneed funeral contracts for
services to be performed within the Territory, or if a
Shareholder promotes or finances any family member or
affiliate to operate a Business or engage in any of the
foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be
held invalid or unenforceable because of the scope of the
territory or actions subject thereto or restricted thereby, or
the period of time within which such covenants are operative;
but any judgment of a court of competent jurisdiction may
define the maximum territory and actions subject to and
restricted thereby and the period of time during which such
covenants are enforceable.
(c) REMEDIES. Each Shareholder agrees that any remedy
at law for any actual or threatened breach of any of the
foregoing covenants would be inadequate and that the Purchaser
shall be entitled to specific performance hereof or injunctive
relief or both, by temporary or permanent injunction or such
other appropriate judicial remedy, writ or order as may be
entered into by a court of competent jurisdiction in addition
to any damages that the Purchaser may be legally entitled to
recover together with reasonable expenses of litigation,
including attorneys' fees incurred in connection therewith, as
may be approved by such court.
(d) REPRESENTATIONS. Each Shareholder represents and
warrants to and agrees with the Purchaser that (i) such
Shareholder understands that the foregoing restric-
-36-
tions are being made incident to and as a condition of the
Merger, and that such covenants are necessary in order to
protect the business and goodwill being acquired thereby, (ii)
such covenants are not oppressive to either Shareholder in any
respect, and (iii) the consideration for such restrictions is
included in the Merger Consideration, which consideration each
Shareholder acknowledges is fair and adequate for the giving
of the covenants herein and for which such Shareholder
acknowledges a direct and valuable benefit.
(e) INDEPENDENT OBLIGATIONS. The foregoing covenants
shall represent several, but not joint, obligations, of the
Shareholders. A breach by one Shareholder of any of such
covenants shall not, by itself, constitute a breach thereof by
the other Shareholder.
(f) MERGER CONSIDERATION ALLOCATION. The parties
agree to allocate $50,000 of the Merger Consideration to the
foregoing covenants for federal income tax purposes, pursuant
to Section 1060(a) of the Code. Such allocation is not
intended to be a measure of the amount or range of damages
which the Purchaser may suffer or recover as a result of any
breach of the foregoing covenants, and the Shareholders
acknowledge that in case of any such breach, the Purchaser
shall be entitled to seek in excess of such amount as it may
otherwise be able to demonstrate itself justly entitled to.
12.3. ACCESS TO RECORDS. For a period of three years following
the Closing, the Surviving Corporation shall provide the Shareholders,
during normal business hours at the Surviving Corporation's
headquarters' address upon at least 48 hours' prior written notice,
reasonable access to the books and records of the Surviving Corporation
in effect at the time of the Closing, for the purpose of assisting the
Shareholders with respect to any matter involving the Company's federal
or state income tax liability based upon its results of operations for
a period ending at or prior to the Closing Date. Such right of access
shall include the right to make, on a confidential basis, copies or
extracts therefrom, at the Shareholders' own expense. If during such
three-year period the Surviving Corporation proposes to destroy or
dispose of any such books and records, the Surviving Corporation shall
first give the Shareholders ten days' prior written notice thereof and
the opportunity to take over such books and records from the Surviving
Corporation in lieu of such destruction or disposition, and if the
Shareholders shall not have indicated their desire to do so within such
ten-day period, then the Surviving Corporation may proceed with such
-37-
destruction or disposition without further responsibility to either
Shareholder.
12.4. SATISFACTION OF PRENEED LIABILITIES. Subject to the
accuracy and completeness of the representations and warranties
contained in Section 3.13 hereof, the Purchaser agrees with the
Shareholders that, following the Closing, the Surviving Corporation
shall take all such action as shall be required in order to satisfy all
of the obligations of the Surviving Corporation under preneed contracts
and in respect of funds held in trust therefor as described on Schedule
3.13 in accordance with applicable law.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. If the
transactions contemplated by this Agreement and the Exhibits hereto are
consummated, the Company shall have no obligation for, nor shall it be
charged with, any such expenses of the Shareholders. All finder's or
similar fees and expenses of Thomas, Pierce & Company shall be the
responsibility of the Surviving Corporation to the extent (and only to
the extent) included within the Closing Date Expenses in accordance
with Section 1.5(c)(ix), and any portion thereof not covered by such
provisions shall be borne exclusively by the Shareholders. All sales,
transfer, stamp or other similar taxes, if any, which may be assessed
or charged in connection with the transactions hereunder shall be borne
by the Shareholders.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given when personally delivered or three business days
following the date mailed, first class, registered or certified mail,
postage prepaid, as follows:
(i) if to the Company or the Shareholders, to:
Mr. Terrance P. Hennessy
3538 Harbor Circle, N.W.
Winter Haven, Florida 33881
Mr. Lawrence Bagnoli
339 Southwest Avenue
Tallmadge, Ohio 44278
-38-
with a copy to:
M. Teri Lynch & Associates
665 W. Exchange Street
Akron, Ohio 44302
(ii) if to the Purchaser or the Acquisition
Subsidiary, to:
Carriage Funeral Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to
the other parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties;
provided, however, that following the Closing the Purchaser or the
Surviving Corporation may assign its rights hereunder without the
consent of the Shareholders to a successor-in-interest to the Purchaser
or the Surviving Corporation, as the case may be (whether by merger,
sale of assets or otherwise), provided that the assigning party shall
not thereby be relieved of its obligations hereunder without the prior
written consent of the Shareholders.
13.4. SUCCESSORS BOUND. Subject to the provisions of Section
13.3, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
personal representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
13.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by all of the parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein,
together with the related letter agreement of even
-39-
date herewith between the Purchaser and Hennessy referred to in Section
8.5, constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject matter
hereof and thereof (including, without limitation, the letter of intent
dated September 1, 1995).
13.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Ohio.
13.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument. The parties agree that this
Agreement and all Exhibits, Schedules, certificates, agreements and
other documents executed or delivered pursuant hereto or in connection
herewith may be executed by facsimile signature (other than documents
to be filed of public record), and each party hereby waives the
so-called best evidence rule or any other rule requiring original
signatures in connection therewith.
-40-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL SERVICES, INC.
By:/s/ MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE ACQUISITION SUBSIDIARY:
HENNESSY-BAGNOLI FUNERAL HOME, INC.
By:/s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE COMPANY:
HENNESSY FUNERAL HOME, INC.
By:/s/ TERRANCE P. HENNESSY
Terrance P. Hennessy,
President
THE SHAREHOLDERS:
/s/ TERRANCE P. HENNESSY
Terrance P. Hennessy
/s/ LAWRENCE BAGNOLI
Lawrence Bagnoli
-41-
EXHIBIT DESCRIPTION
A Series D Designation
B-1 Employment Agreement (Hennessy)
B-2 Employment Agreement (Bagnoli)
C-1 Lease Agreement (Akron Home)
C-2 Lease Agreement (Akron Parking Lot)
SCHEDULE DESCRIPTION
3.7 Changes
3.8 Off-Balance Sheet Liabilities
3.11 Fixed Assets
3.12 Contracts and Commitments
3.13 Preneed Contracts and Trust Accounts
3.17 Licenses
3.20 Employees
3.21 Employee Benefit Plans
4.3 Purchaser Capitalization
-42-
Exhibit 10.10
REAL PROPERTY PURCHASE AGREEMENT
THIS AGREEMENT, dated as of March 8, 1996, among
HENNESSY-BAGNOLI FUNERAL HOME, INC., an Ohio corporation (the "Purchaser"), and
TERRANCE P. HENNESSY and PATRICIA A. HENNESSY, residents of Polk County,
Florida, and LAWRENCE BAGNOLI and BRENDA BAGNOLI, residents of Summit County,
Ohio (collectively, the "Sellers");
WITNESSETH:
WHEREAS, the Sellers own fee simple title to all of the
parcels of real property and improvements located at 339 Southwest Avenue in
Tallmadge, Summit County, Ohio and more particularly described on Exhibit A
hereto (the "Real Property"); and
WHEREAS, the parties desire that the Purchaser purchase the
Real Property from the Sellers, all upon the terms and conditions and for the
consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF THE REAL PROPERTY.
1.1. TRANSFER OF THE REAL PROPERTY. The Sellers jointly and
severally agree to sell fee simple title to the Real Property to the
Purchaser, free and clear of all liens, mortgages, security interests,
title restrictions, reservations, easements, encumbrances or claims of
any other person (collectively, "Liens"), other than Liens described on
Exhibit B (collectively, "Permitted Encumbrances"), and the Purchaser
agrees to purchase and accept the Real Property from the Sellers.
1.2. CONSIDERATION. The consideration for the Real Property
shall be $208,629.26 (the "Purchase Price"), all of which shall be
payable in cash at the Closing referred to in Section 2 by wire
transfer to such account or accounts as the Sellers shall designate in
writing prior to the Closing.
1.3. CERTAIN PRORATIONS. All normal and customarily proratable
items relating to the Real Property, including but not limited to,
utilities and real property taxes, shall be prorated as of the Closing
Date, the Sellers being charged and credited for all of same up to such
date and the Purchaser being charged and credited for all of same on
and after such date. If the actual amounts to be prorated are not known
as of the Closing Date, the prorations shall be made on the basis of
the best evidence then available, and thereafter, within thirty (30)
days after actual figures are received, a cash settlement will be made
between the Sellers and the Purchaser.
1.4. FURTHER ASSURANCES. The Sellers agree to execute and
deliver from time to time after the Closing, at the reasonable request
of the Purchaser, and without further consideration, such additional
instruments of conveyance and transfer, and to take such other action
as the Purchaser may reasonably require more effectively to convey,
assign, transfer and deliver good and marketable title to the Real
Property to the Purchaser.
2. THE CLOSING. The purchase and sale of the Real Property
(the "Closing") shall occur at the offices of Snell & Smith, A Professional
Corporation, 1000 Louisiana, Suite 3650, Houston, Texas 77002, at 9:00 a.m. on
March 8, 1996, or at such other date, time or place as may be mutually agreed
upon by the parties, but in no event later than March 31, 1996. The date and
time of the Closing is herein called the "Closing Date", and shall be deemed to
have occurred as of the commencement of business on the Closing Date. At the
Closing, the Sellers shall execute and deliver one or more general warranty
deeds conveying fee simple title to the Real Property to the Purchaser, against
receipt from the Purchaser of the Purchase Price. All action to be taken at the
Closing as hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered to
have been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action incident to
the Closing has been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers
jointly and severally represent and warrant to and agree with the Purchaser
that:
3.1. DESCRIPTION. Exhibit A attached hereto sets forth a legal
description of all parcels included within the Real Property, and also
briefly describes each building and major structure and improvement
thereon. The Sellers have good and marketable fee simple title to the
Real Property, free and clear of any and all Liens, other than (i)
Liens to be fully released at or prior to Closing, and (ii) Permitted
Encumbrances. No person other than the Sellers and Hennessy Funeral
Home, Inc., an Ohio corporation ("HFHI"), has any ownership, leasehold
or other interest of any kind in the Real Property, except as otherwise
disclosed in writing by the Sellers to the Purchaser. The Real Property
is the only interest in real property used in the conduct of the
business of Hennessy-Bagnoli Funeral Home (Tallmadge location) (the
"Home") as presently conducted. All of the buildings, structures and
improvements located on the Real Property are in good operating
condition, ordinary wear and tear excepted. None of such buildings,
structures or improvements, or the operation or maintenance thereof as
now operated or maintained, contravenes any zoning ordinance or other
administrative regulation or violates any restrictive covenant or any
provision of law, the effect of which would interfere with or prevent
their continued use for the purposes for which
-2-
they are now being used. There is not pending nor, to the knowledge of
the Sellers, threatened any proceeding for the taking or condemnation
of the Real Property or any portion thereof.
3.2. ENVIRONMENTAL MATTERS. To each Seller's knowledge, no
toxic or hazardous wastes (as defined by the U.S. Environmental
Protection Agency, or any similar state or local agency) or hazardous
substances (as defined under the Comprehensive Environment Response,
Compensation and Liability Act of 1980, as amended, or the Resource
Conservation and Recovery Act, as amended, or any similar state or
local statute or regulation) have been generated, stored, dumped,
located or released onto or from the Real Property, nor have any such
materials or wastes been generated, stored, dumped, located or disposed
of on any real property contiguous or adjacent to the Real Property. To
each Seller's knowledge, the Real Property is not now, and will not be
in the future as a result of its condition at or prior to Closing,
subject to any reclamation, remediation or reporting requirements of
any federal, state, local or other governmental body or agency having
jurisdiction over the Real Property. To each Seller's knowledge, the
Real Property does not contain any asbestos, polychlorinated byphenyls,
urea, formaldehyde, lead based paint, radon gas or underground storage
tanks, except for substances used in the ordinary course of the
operations of the Home that are properly used, stored and disposed of
in accordance with applicable legal requirements.
3.3. NO FLOOD HAZARDS. To the knowledge of the Sellers, the
Real Property is not located within an area that has been designated by
the Federal Insurance Administration, the Army Corp of Engineers, or
any other governmental agency or body as being subject to special
flooding hazards.
3.4. NON-FOREIGN STATUS. No Seller is a "foreign person" (as
defined in Section 1445(f)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations issued thereunder), and the
Sellers shall deliver at Closing a non-foreign affidavit in recordable
form containing such informa-tion as shall be required by Internal
Revenue Code Section 1445(b)(2) and the regulations issued thereunder.
3.5. BILLS PAID. All bills and other payments due with respect
to the ownership, operation, and maintenance of the Real Property have
been (and on the Closing Date will be) paid, and no Liens or other
claims for the same have been filed or asserted against any part of the
Real Property.
3.6. COMPLIANCE WITH LAWS. The Sellers have complied and are
in compliance in all material respects with all federal, state,
municipal and other statutes, rules, ordinances, and regulations
applicable to the Real Property.
-3-
3.7. FINDERS. Except as described in Section 12.1, no Seller
is a party to or in any way obligated under any contract or other
agreement, and there are no outstanding claims against any of them, for
the payment of any broker's or finder's fee in connection with the
origin, negotiation, execution or performance of this Agreement.
3.8. AUTHORITY OF THE SELLERS. Each Seller has the full right,
capacity and authority to enter into and perform this Agreement and the
other documents to be executed by such Seller as provided in this
Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and upon execution and delivery by
each Seller, each of such other documents will constitute, the legal,
valid and binding obligations of the Sellers enforceable against them
in accordance with their respective terms. Neither the execution,
delivery nor performance of this Agreement or any of such other
documents, nor the consummation of the transactions contemplated hereby
or thereby, will: (i) result in a violation or breach of any term or
provision of, constitute a default or acceleration under, require
notice to or consent of any third party to, or result in the creation
of any Lien by virtue of any contract, agreement, lease, license or
other commitment to which any Seller is a party or by which any such
Seller or his or her respective assets or properties are bound; nor
(ii) violate any statute or any order, writ, injunction or decree of
any court, administrative agency or governmental body.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Sellers that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Ohio, and has all requisite corporate power to
enter into and perform its obligations under this Agreement and the
other documents to which it is a party.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery and
performance by the Purchaser of this Agreement and the documents
contemplated in this Agreement to be executed and delivered by it have
been duly authorized by its Board of Directors. This Agreement is, and
upon their execution and delivery as herein provided such other
documents will be, valid and binding upon the Purchaser and enforceable
against the Purchaser in accordance with their respective terms.
Neither the execution, delivery or performance by the Purchaser of this
Agreement, or any such other document will conflict with or result in a
violation or breach of any term or provision of, nor constitute a
default under, the Articles of Incorporation or Code of Regulations of
the Purchaser or under
-4-
any indenture, mortgage, deed of trust or other contract or agreement
to which it is a party or by which it or its property is bound, or
violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
4.3. FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are not
outstanding claims against it, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
5. COVENANTS OF THE SELLERS PENDING CLOSING. The Sellers
jointly and severally covenant and agree with the Purchaser that:
5.1. CONSENTS AND APPROVALS. The Sellers will use their best
efforts to obtain the necessary consents and approvals of other persons
which may be required to be obtained on their part to consummate the
transactions contemplated by this Agreement.
5.2. NO SHOP. For so long as this Agreement remains in effect,
no Seller shall enter into any agreements or commitments, or initiate,
solicit or encourage any offers, proposals or expressions of interest,
or otherwise hold any discussions with any potential buyers, investment
bankers or finders, with respect to the possible sale or other
disposition of all or any portion of the Real Property, other than with
the Purchaser.
6. COVENANT OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Sellers that the Purchaser will use its best efforts to
obtain the necessary consents and approvals of other persons which may be
required to be obtained on its part to consummate the transactions contemplated
in this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any material error,
misstatement or omission in the representations and warranties made by
the Sellers in Section 3 hereof; the representations and warranties
made by the Sellers herein shall be deemed to have been made again at
and as of the time of Closing and shall then be true and correct; the
Sellers shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by them at or prior to the Closing; and the Purchaser
-5-
shall have received a certificate, signed by the Sellers, to the effect
of the foregoing provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Sellers shall have caused to be
delivered to the Purchaser an opinion of M. Teri Lynch & Associates,
counsel for the Sellers, dated the Closing Date, to the effect that:
(i) this Agreement and the other documents to be
executed and delivered hereunder by the Sellers (as shall be
specified in such opinion) have been duly and validly executed
and delivered by the Sellers, and this Agreement and such
other documents constitute the valid and binding obligations
of the Sellers enforceable against them in accordance with
their respective terms;
(ii) neither the execution, delivery or consummation
of the transactions contemplated by this Agreement or any of
such other documents will (x) result in the breach of or
constitute a default under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which any Seller is a
party or by which they or their respective assets are bound,
or (y) violate any order, writ, injunction or decree known to
such counsel of any court, administrative agency or
governmental body; and
(iii) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Sellers of this Agreement or any of such other documents.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Sellers and certificates of public officials,
copies of which shall be provided to the Purchaser at Closing. Any
opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and by principles of equity. Such opinion
may be limited to federal law and the internal laws of the State of
Ohio.
7.3. CONSENTS AND APPROVALS. The Sellers shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to any material portion of the Real
Property.
-6-
7.5. TITLE INSURANCE. The Sellers shall have obtained, at
their expense, a commitment (in form acceptable to the Purchaser) for
an Owner's Policy of Title Insurance issued to the Purchaser in the
amount of the Purchase Price, issued by a title company with offices in
Summit County, Ohio mutually designated by the parties (the "Title
Company"), insuring that the Purchaser is the owner of each parcel of
the Real Property subject only to the Permitted Encumbrances, and any
standard printed exceptions included in a Ohio standard form Owner
Policy of Title Insurance. Such commitment shall provide for a policy
that will delete any exception regarding restrictions or be limited to
restrictions that are Permitted Encumbrances, any standard exception
pertaining to discrepancies, conflicts or shortages in area shall be
deleted except for "shortages in area", and any standard exception for
taxes shall be limited to the year in which the Closing occurs.
7.6. SURVEY. The Purchaser shall have received, at the
Sellers' expense, an ALTA/ASCM survey prepared by a licensed surveyor
approved by the Purchaser and acceptable to the Title Company, with
respect to each parcel of Real Property, which survey shall comply with
any applicable standards under Ohio law, be sufficient for the Title
Company to delete any survey exception contained in the title insurance
policies referred to in Section 7.5, save and except for the phrase
"shortages in area", and otherwise be in form and content acceptable to
Purchaser.
7.7. LIEN RELEASES. The holders of the Liens (other than
Permitted Encumbrances) against any portion of the Real Property shall
have executed and delivered written releases of such Liens, all in
recordable form and otherwise acceptable to the Purchaser and its
lender.
7.8. CONSUMMATION OF MERGER. The merger of HFHI into the
Purchaser pursuant to the Agreement and Plan of Merger of even date
herewith (the "Merger Agreement") among the Purchaser, HFHI and
Carriage Funeral Services, Inc., shall have been consummated in
accordance with the terms thereof.
8. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Sellers in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Sellers shall not have discovered any material error, misstatement
or omission in the representations and warranties made by the Purchaser
in Section 4 hereof; the representations and warranties made by the
Purchaser herein shall be deemed to have been made again at and as of
the time of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and con-
-7-
ditions required by this Agreement to be performed or complied with by
it at or prior to the Closing; and the Sellers shall have received a
certificate, signed by an executive officer of the Purchaser, to the
effect of the foregoing provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Sellers an opinion of Snell & Smith, A Professional
Corporation, counsel for the Purchaser, to the effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Ohio, and has all requisite corporate power to enter
into and perform its obligations under this Agreement and the
other documents contemplated herein to be executed and
delivered by the Purchaser (as shall be specified in such
opinion);
(ii) the execution, delivery and performance by the
Purchaser of this Agreement and such other documents have been
duly authorized by its Board of Directors;
(iii) this Agreement is, and upon execution and
delivery as herein provided such other documents will be,
valid and binding upon the Purchaser and enforceable against
the Purchaser in accordance with their respective terms;
(iv) neither the execution, delivery or performance
by the Purchaser of this Agreement or any of such other
documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default
under, the Articles of Incorporation or Code of Regulations of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which the Purchaser is
a party or by which it or its property is bound, or violate
any order, writ, injunction or decree known to such counsel
and of any court, administrative agency or governmental body;
and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement or any of such other documents, or
the performance of its obligations hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided
-8-
to the Sellers at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors rights and by
principles of equity. Such opinion may be limited to federal law and
the internal laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. The merger of the Purchaser into
HFHI shall have been consummated in accordance with the terms of the
Merger Agreement.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Exhibit hereto shall be deemed representations and
warranties of the party executing or delivering the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party hereto,
all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Exhibit hereto or in connection
with the transactions contemplated hereby and thereby shall not
terminate but shall survive the Closing and continue in effect
thereafter as hereafter provided. The representations and warranties
under Sections 3.1 (insofar as the same relate to title to and
ownership of the Real Property), 3.7, 3.8 and 4 hereunder shall survive
the Closing for the duration of the applicable state statute of
limitations; the representations and warranties under Section 3.2 shall
survive the Closing for a period of three years thereafter; and the
remainder of all representations and warranties made hereunder by the
parties shall survive the Closing for a period of eighteen (18) months
thereafter; at which applicable time, as described above, such
representations and warranties shall terminate except as to claims then
pending in respect thereof, as to which the same shall continue until
such claims have been finally resolved.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SELLERS. The Sellers jointly and
severally agree to indemnify and hold harmless the Purchaser and its
successors and assigns, from and against any and all losses, damages,
liabilities, obligations, costs or expenses (any one such item being
herein called a "Loss" and all such items being herein collectively
called "Losses")
-9-
which are caused by or arise out of (i) any breach or default in the
performance by the Sellers of any covenant or agreement of the Sellers
contained in this Agreement, (ii) any breach of warranty or inaccurate
or erroneous representation made by the Sellers herein, in any Exhibit
attached hereto or in any certificate or other instrument delivered by
or on behalf of the Sellers pursuant hereto, and (iii) any and all
actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the
foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Sellers and their heirs and assigns
from and against any Losses which are caused by or arise out of (i) any
breach or default in the performance by the Purchaser of any covenant
or agreement of the Purchaser contained in this Agreement, (ii) any
breach of warranty or inaccurate or erroneous representation made by
the Purchaser herein or in any certificate or other instrument
delivered by or on behalf of the Purchaser pursuant hereto, and (iii)
any and all actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees) incident to any of
the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying party"),
the indemnifying party shall be given prompt written notice thereof and
shall have the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected by it,
and (ii) to approve any settlement if the indemnifying party is, or
will be, required to pay any amounts in connection therewith, which
approval shall not be unreasonably withheld or delayed. Notwithstanding
the foregoing, if within ten business days after delivery of the
indemnified party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between such
parties, such claims shall be fully indemnified for by the indemnifying
party as provided herein, then the indemnifying party shall have the
right to control the defense of such claim, provided that the
indemnified party shall have the right (i) to participate in the
defense thereof and be represented, at its own expenses, by advisory
counsel selected by it, and (ii) to approve any settlement if the
indemnified party's interests are, or would be, affected thereby.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Sellers agree to
use their best efforts to bring about the satisfaction of the
conditions specified in Section 7 hereof;
-10-
and the Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Sellers and the
Purchaser;
(b) the Purchaser if a material default shall be made
by any Seller in the observance or in the due and timely
performance by any of their covenants herein contained, or if
there shall have been a material breach or misrepresentation
by any Seller of any of their warranties and representations
herein contained, or if the conditions of this Agreement to be
complied with or performed by any Seller at or before the
Closing shall not have been complied with or performed at the
time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly
waived by the Purchaser in writing;
(c) the Sellers if a material default shall be made
by the Purchaser in the observance or in the due and timely
performance by the Purchaser of any of the covenants of the
Purchaser herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser of any
of its warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not
have been complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Sellers in writing; or
(d) either the Sellers or the Purchaser, if the
Closing has not occurred by March 31, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other parties hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party has
not breached any representation or warranty or failed to comply with
any of its covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party against
any other party which has breached any of its representations,
warranties or covenants herein prior to such termination.
-11-
12. MISCELLANEOUS.
12.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. All finder's or
similar fees and expenses of Thomas, Pierce & Company shall be borne
exclusively by the Sellers. All sales, transfer, stamp or other similar
taxes, if any, which may be assessed or charged in connection with the
transactions hereunder shall be borne by the Sellers.
12.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given when personally delivered or three business days
following the date, mailed, first class, registered or certified mail,
postage prepaid, as follows:
(i) if to the Sellers, to:
Mr. Terrance P. Hennessy
Ms. Patricia Hennessy
3538 Harbor Circle, N.W.
Winter Haven, Florida 33881
and
Mr. Lawrence Bagnoli
Ms. Brenda Bagnoli
339 Southwest Avenue
Tallmadge, Ohio 44278
with a copy to:
M. Teri Lynch & Associates
665 W. Exchange Street
Akron, Ohio 44302
(ii) if to the Purchaser, to:
Hennessy-Bagnoli Funeral Home, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
-12-
or to such other address as shall be given in writing by any party to
the other parties hereto.
12.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may assign
its rights hereunder without the consent of the Sellers to a
successor-in-interest to the Purchaser (whether by merger, sale of
assets or otherwise), provided that the Purchaser shall not thereby be
relieved of its obligations hereunder without the prior written consent
of the Sellers.
12.4. SUCCESSORS BOUND. Subject to the provisions of Section
12.3, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
personal representatives.
12.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
12.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by all of the parties hereto.
12.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
certificates and other documents referred to herein constitute the
entire agreement of the parties hereto, and supersede all prior
understandings with respect to the subject matter hereof and thereof
(including, without limitation, the letter of intent dated September 1,
1995).
12.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Ohio.
12.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument. The parties agree that this
Agreement and all other documents executed or delivered pursuant hereto
may be executed by facsimile signature (other than documents to be
filed of public record), and each party hereby waives the so-called
best evidence rule or any other evidentiary or other rule requiring
original signatures in connection therewith.
-13-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
HENNESSY-BAGNOLI FUNERAL HOME, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE SELLERS:
/s/ TERRANCE P. HENNESSY
Terrance P. Hennessy
/s/ PATRICIA A. HENNESSY
Patricia A. Hennessy
/s/ LAWRENCE BAGNOLI
Lawrence Bagnoli
/s/ BRENDA BAGNOLI
Brenda Bagnoli
EXHIBITS
Exhibit A - Description of Real Property
Exhibit B - Permitted Encumbrances
-14-
EXHIBIT "A"
Situated in the City of Tallmadge, County of Summit and State of Ohio: And known
as being part of Lot No. 7, Tract No. 10 of said Township and is further
described as follows: Beginning at an iron pipe set in the southeasterly line of
the Akron-Kent Road or Case Avenue, at the most northerly corner of a 1.70 acre
tract of land now or formerly owned by Sophrana Ritchie as recorded in Volume
241, Page 268, Summit County Records of Deeds, said beginning point being also
defined as being in the westerly line of said Lot No. 7, distant about 929.94
feet from the northwest corner of said Lot No. 7, measuring along the westerly
line of said Lot; thence S. 40 deg. 19' E. 324.30 feet along the northeasterly
line of said Ritchie Tract to an iron pipe; thence N. 49 deg. 41' E. 277.40 feet
to an iron pipe; thence N. 14 deg 56' W. 132.29 feet to an iron pipe; thence N.
1 deg. 34' E. 175.84 feet to an iron pipe; thence N. 41 deg. 16' W. 68.68 feet
to an iron pipe set in the southeasterly line of said Akron-Kent Road; thence S.
50 deg. 22' W. 450.40 feet along the southeasterly line of said Road to the
place of beginning, and contains 2.757 acres of land, according to survey of
said premises made by F.R. Ritchie, Civil Engineer and Surveyor of Akron, Ohio,
for Helen A. Williams on or about October 22, 1928, be the same more or less,
but subject to all legal highways.
EXHIBIT "B"
1. Deed Restrictions recorded in Deed Book 515, Page 699 of Summit County
Records.
2. Right of Way recorded in Deed Book 1284, Page 513 of Summit County
Records.
3. Easement recorded in Deed Book 6193, Page 475 of Summit County Records.
4. Sublease recorded in Volume ____, Page ____, of Summit COunty Records.
Exhibit 10.11
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of January 4, 1996, among CARRIAGE
FUNERAL HOLDINGS, INC., a Delaware corporation (the "Purchaser"), THE LUSK
FUNERAL HOME, INCORPORATED, a Kentucky corporation (the "Company"), and GERALD
T. McFARLAND, JR., a resident of Bourbon County, Kentucky (the "Shareholder");
WITNESSETH:
WHEREAS, the Company owns and operates the Lusk-McFarland
Funeral Home located in Paris, Kentucky and the Pruitt Funeral Home in
Millersburg, Kentucky (collectively, the "Homes"); and
WHEREAS, the authorized capital stock of the Company consists
of 100 shares of Common Stock, no par value ("Common Stock"), of which one (1)
share (the "Share") is issued, outstanding and held and owned of record by the
Shareholder; and
WHEREAS, the parties desire that the Shareholder sell and the
Purchaser purchase the Share from the Shareholder, all upon the terms and
conditions and for the consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF THE SHARE.
1.1. TRANSFER OF THE SHARE. The Shareholder agrees to sell the
Share to the Purchaser, free and clear of all security interests,
pledges, liens, mortgages, title restrictions, charges and other
encumbrances of any kind (collectively, "Liens"). The Purchaser agrees
to purchase and accept the Share from the Shareholder.
1.2. CONSIDERATION FOR THE SHARE. The consideration for the
Share shall be $1,000,000 (the "Purchase Price"). Of the Purchase
Price, (i) an amount sufficient to discharge indebtedness of the
Company as determined by the Purchaser pursuant to Section 1.3 shall be
paid to the holders of such indebtedness, (ii) $100,000 shall be
payable in the form of shares of Series B Preferred Stock, $.01 par
value ("Parent Stock"), of Carriage Funeral Services, Inc., a Delaware
<PAGE>
corporation ("Parent"), at $1.00 per share of Parent Stock, each such
share of Parent Stock to be convertible into Parent's Common Stock at
a conversion price of $5.00 per share, and (iii) the remainder of the
Purchase Price after giving effect to the amounts under clauses (i)
and (ii) above shall be paid to the Shareholder in cash at Closing, by
wire transfer to such account or accounts as the Shareholder shall
designate in writing prior to the Closing. The Purchase Price shall be
subject to adjustment following the Closing (as defined in Section
2.1) as provided in Section 1.3.
1.3. ADJUSTMENT TO CONSIDERATION. At least two business days
prior to the Closing, the Shareholder shall deliver to the Purchaser a
written statement, certified by him to be accurate and complete,
setting forth a description, and the outstanding balance as of the date
of such statement, of all liabilities and obligations of the Company,
including (but not limited to) indebtedness for borrowed money,
indebtedness secured by Liens against any assets or properties of the
Company, accounts and trade payable, accrued liabilities, federal,
state and local taxes, any liabilities under suits, claims judgments or
orders then pending, or any other liability or obligation
(collectively, "Unassumed Liabilities"), excluding obligations under
preneed contracts for which the full amounts have been deposited in
trust as provided under applicable law ("Preneed Liabilities"). To the
extent that any Unassumed Liabilities are based upon goods purchased or
services obtained by the Company (including utility bills and rents
under leases) and other applicable items that apply both before and
after the Closing (including property taxes), then such amounts shall
be prorated as of the Closing Date, the Company being charged and
credited for all of same up to such date and the Purchaser being
charged and credited for all of same on and after such date. At
Closing, the Purchaser shall pay out of the Purchase Price such portion
thereof as shall be required to pay and discharge those Unassumed
Liabilities as the Purchaser in its sole discretion deems appropriate,
which at a minimum shall include liabilities secured by Liens against
any assets of the Company and unsecured indebtedness for borrowed
money, but may also include any of such other liabilities.
Notwithstanding such payment, the Shareholder shall remain responsible
for paying any remaining Unassumed Liabilities. Payments under this
-2-
Section 1.3 shall be deemed downward adjustments in the Purchase
Price. If after the Closing the Company receives any refund payments
from insurance carriers with respect to insured periods arising prior
to the Closing, the Purchaser shall cause the Company to remit such
payments to the Shareholder.
1.4. CLOSING DATE RECEIVABLES. As described in Section 2.2(iv)
below, the Company shall, immediately prior to the Closing, distribute
to the Shareholder (among other things) the right to receive
collections on all but the first $10,000 of the Company's accounts
receivable then outstanding (collectively, the "Closing Date
Receivables"). On the Closing Date, the Shareholder shall prepare and
deliver to the Purchaser a list, certified by him to be accurate and
complete, of all of the Closing Date Receivables. Following the
Closing, the Purchaser shall have the exclusive (even as to the
Shareholder) right to manage and oversee the collection of the Closing
Date Receivables. On or before the 15th day of each month following
each month in which there are any collections on Closing Date
Receivables in excess of the first $10,000 thereof (which first $10,000
of collections shall be retained by the Purchaser, without any recourse
or accounting to the Shareholder), the Purchaser shall remit to the
Shareholder the amount of such collections during the preceding month.
The Purchaser shall have no duty to pursue collection of Closing Date
Receivables by means greater than used on its collection of other
accounts receivable, and in no event shall the Purchaser be required to
institute suit or refer any account to a collection agency. At any time
after the Closing, the Purchaser may, in its sole discretion, return
the management and control over the Closing Date Receivables to the
Shareholder, by giving written notice to him to such effect.
1.5. FURTHER ASSURANCES. The Shareholder agrees to execute and
deliver from time to time after the Closing, at the request of the
Purchaser, and without further consideration, such additional
instruments of conveyance and transfer, and to take such other action
as the Purchaser may reasonably require more effectively to convey,
assign, transfer and deliver the Share to the Purchaser and carry out
the other transactions contemplated hereunder.
-3-
2. THE CLOSING.
2.1. TIME AND PLACE. The closing of the transactions
contemplated under this Agreement (the "Closing") shall occur at the
offices of Miller, Griffin & Marks, Suite 700, Security Trust Building,
271 West Short Street, Lexington, Kentucky, at 9:00 a.m. on January 4,
1995, or at such other date, time or place as may be mutually agreed
upon by the parties, but in no event later than January 15, 1996. The
date and time of the Closing is herein called the "Closing Date", and
shall be deemed to have occurred as of the commencement of business on
the Closing Date. At the Closing: the Shareholder shall deliver all
certificates representing the Share, duly enclosed or accompanied by
duly executed stock powers, against payment by the Purchaser of the
consideration therefor. All action to be taken at the Closing as
hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be
considered to have been taken, delivered or made simultaneously, and no
such action or delivery or payment shall be considered as complete
until all action incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the purchase and
sale of the Share, the following transactions shall take place at the
Closing:
(i) the Purchaser, the Shareholder and his wife,
Melissa McFarland (together, the "Covenantors") shall each
execute and deliver to the other a Non-Competition Agreement
substantially in the form of Exhibit A hereto (the
"Non-Competition Agreement");
(ii) the Purchaser and the Shareholder shall each
execute and deliver to the other an Employment Agreement to be
dated the Closing Date and in substantially the form of
Exhibit B hereto (the "McFarland Employment Agreement");
(iii) the Purchaser and Jeff Morrison ("Morrison")
shall each execute and deliver to each other an Employment
Agreement, substantially in the form of Exhibit C hereto (the
"Morrison Employment Agreement"); and
-4-
(iv) effective immediately prior to the Closing, the
Company shall distribute to the Shareholder (x) all of the
Company's cash balances as of such time, and (y) the right to
receive collections as to all but the first $10,000 of the
Closing Date Receivables.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The
Shareholder represents and warrants to and agrees with the Purchaser that:
3.1. TITLE TO THE SHARE. The Shareholder has good and
marketable title to the Share, free and clear of any and all
Liens, and the Shareholder has the absolute and unrestricted
right, power, authority and capacity to sell the Share to the
Purchaser as provided in this Agreement. Upon delivery of the
Share to the Purchaser, against payment therefor as provided
in Section 1.2, the Purchaser will receive from the
Shareholder good and marketable title thereto, free and clear
of any and all Liens.
3.2. ORGANIZATION AND EXISTENCE. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Kentucky, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement and to carry on its business
as now conducted. Neither the character or location of the
assets owned by the Company nor the nature of the business
transacted by it requires the Company to be qualified to do
business as a foreign corporation in any other jurisdiction.
The Shareholder has delivered to the Purchaser complete and
correct copies of the Articles of Incorporation and bylaws of
the Company, both as in effect on the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of
the Company consists of 100 shares of Common Stock, no par
value per share, of which one (1) share (the Share owned by
the Shareholder) is validly issued and outstanding, fully paid
and nonassessable and not issued in violation of the
preemptive rights of any person. Thirty-nine (39) additional
shares of Common Stock are issued and held by it in its
treasury, of which thirty-eight (38) such shares are subject
to a pledge thereof in favor of certain former shareholders of
the Company as described in Section 3.13 (which pledges
-5-
shall be released at or prior to the Closing pursuant to
Section 1.3). The Company does not have any outstanding
subscriptions, options or other agreements or commitments
obligating it to issue shares of its capital stock. From the
date hereof through the Closing Date, the Shareholder will
not, and will not cause or permit the Company to, issue or
enter into any subscriptions, options, agreements or other
commitments in respect of the issuance, transfer, sale or
encumbrance of any shares of capital stock of the Company.
3.4. NO SUBSIDIARIES. The Company has no subsidiaries
or other entities in which the Company has a controlling
interest, nor does the Company have any investment or
ownership interest in any corporation, joint venture or other
business enterprise except for The Central Kentucky Funeral
Limousine Association, Inc., the interests in which are held
by the Company under the circumstances and based upon such
commitments of the Company as are described on Schedule 3.13.
3.5. FINANCIAL INFORMATION. The Company has delivered
to the Purchaser the unaudited Balance Sheets of the Company
at December 31, 1993 and 1994 (such balance sheet at December
31, 1994 being hereafter referred to as the "Company Balance
Sheet") and the related unaudited Profit and Loss Statements
of the Company for the respective twelve-month periods of
operations then ended. All such financial statements are true
and correct, have been prepared in accordance with the books
and records of the Company, and present fairly the financial
positions of the Company at the dates indicated and the
results of its operations for the periods then ended in
accordance with generally accepted accounting principles
consistently applied. The Homes collectively performed at
least 92 adult funeral services for the twelve months ended
December 31, 1993, at least 102 adult funeral services for the
twelve months ended December 31, 1994 and at least 100 adult
funeral services for the ten months ended October 31, 1995.
3.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 3.6 sets forth a
legal description of all real property in which the Company
has any interest (collectively, the "Real Property"), and also
briefly describes each building and major structure and
-6-
improvement thereon. No person other than the Company has any
ownership, leasehold or other interest of any kind in the Real
Property. The Real Property is the only interest in real
property required for the conduct of the business of the Homes
as presently conducted. All of the buildings, structures and
improvements located on the Real Property are in good
operating condition, ordinary wear and tear excepted. None of
such buildings, structures or improvements, or the operation
or maintenance thereof as now operated or maintained,
contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any
provision of law, the effect of which would interfere with or
prevent their continued use for the purposes for which they
are now being used. There is not pending nor, to the knowledge
of the Shareholder, threatened any proceeding for the taking
or condemnation of the Real Property or any portion thereof.
The Company has good and marketable fee simple title to the
Real Property, free and clear of all Liens other than
Permitted Liens described on Schedule 3.7.
(b) ENVIRONMENTAL CONDITION. Since July 2, 1990 and,
to the Shareholder's knowledge, prior to such date, no toxic
or hazardous wastes (as defined by the U.S. Environmental
Protection Agency, or any similar state or local agency) or
hazardous substances (as defined under the Comprehensive
Environment Response, Compensation and Liability Act of 1980,
as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation)
have been generated, stored, dumped, located or released onto
or from the Real Property, nor to the Shareholder's knowledge
have any such materials or wastes been generated, stored,
dumped, located or disposed of on any real property contiguous
or adjacent to the Real Property. The Real Property is not
now, and to the best of the Shareholder's knowledge, will not
be in the future as a result of its condition at or prior to
Closing, subject to any reclamation, remediation or reporting
requirements of any federal, state, local or other
governmental body or agency having jurisdiction over the Real
Property. The Real Property does not contain any asbestos,
polychlorinated byphenyls, urea, formaldehyde, lead based
paint, radon gas or underground storage tanks, except for
substances used in the ordinary course of the operations of
-7-
the Homes that are properly used, stored and disposed of in
accordance with applicable legal requirements.
(c) FIRPTA. Neither the Company nor the Shareholder
is a "foreign person" (as defined in Section 1445(f)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations issued thereunder), and the Shareholder shall
deliver at Closing a non-foreign affidavit in recordable form
containing such information as shall be required by Code
Section 1445(b)(2) and the regulations issued thereunder.
(d) BILLS PAID. All bills and other payments due with
respect to the ownership, operation, and maintenance of the
Real Property have been (and on the Closing Date will be)
paid, and no Liens or other claims for the same have been
filed or asserted against any part of the Real Property.
(e) NO FLOOD HAZARDS. The Real Property is not
located within an area that has been designated by the Federal
Insurance Administration, the Army Corp of Engineers, or any
other governmental agency or body as being subject to special
flooding hazards.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets,
rights and properties required in the conduct of the business
of the Homes are owned by the Company. None of such assets,
rights or properties is or will be subject to any lease or
license. The Company is in actual possession and control of
all properties owned by it, and has good and marketable title
to all of its assets, rights and properties, including without
limitation, all properties and assets reflected in the Company
Balance Sheet (other than properties and assets reflected in
such balance sheet that have been sold or otherwise disposed
of in the ordinary course of business subsequent to the date
of the Company Balance Sheet), free and clear of all Liens,
except for (i) Liens to be discharged and released at or prior
to Closing, as contemplated in Section 1.3, and (ii) Liens
described on Schedule 3.7 (hereafter, the "Permitted Liens").
3.8. ABSENCE OF CHANGES OR EVENTS. Since the date of
the Company Balance Sheet, there has not been:
-9-
(i) any adverse change in the financial condition,
operations, properties or prospects of the Company or of
either Home;
(ii) any change in the authorized capital or
outstanding securities of the Company;
(iii) any capital stock, bonds or other securities
which the Company has issued, sold, delivered or agreed to
issue, sell or deliver, nor has the Company granted or agreed
to grant any options, warrants or other rights calling for the
issue, sale or delivery thereof;
(iv) any borrowing or agreement by the Company to
borrow any funds, nor has the Company incurred, or become
subject to, any absolute or contingent obligation or
liability, except trade payables incurred in the ordinary
course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change
in any key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of
the inventories or other assets or properties of the Company,
except in the ordinary course of business;
(viii) any material damage, destruction or losses
against the Company or any waiver any rights of material value
to the Company;
(ix) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement, with
respect to employees of the Company;
(x) any claim or liability for any material damages
for any actual or alleged negligence or other tort or breach
of contract against or affecting the Company; or
-9-
(xi) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as
set forth in the Company Balance Sheet, the Company has no,
and none of its assets or properties are subject to any,
liabilities or obligations, other than unsecured trade
accounts payable and accrued expenses arising in the ordinary
course of the Company's business since the date of the Company
Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local
and other taxes due and payable by the Company on or before
the date of this Agreement have been paid or are adequately
provided for in the Company Balance Sheet. The Company has
filed all tax returns and reports required to be filed by it
with all taxing authorities, and all such tax returns and
reports are true, complete and correct. True and correct
copies of the federal, state and local income tax returns
filed by the Company for each of its last three taxable years
have been furnished to the Purchaser. The liabilities for
taxes reflected in the Company Balance Sheet represent
adequate provision for the payment of all accrued or unpaid or
deferred federal, state, local and other taxes of the Company,
for all periods ended on and prior to the date of the Company
Balance Sheet. No assessments of deficiencies have been made
against the Company which are presently pending or
outstanding. No state of facts exists or has existed which
would constitute grounds for the assessment of any tax
liability against the Company with respect to any prior
taxable period which has not been audited by the Internal
Revenue Service or which has not been closed by applicable
statute. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to
any income tax return of the Company for any period. Prior to
the Closing Date, the Company will not, and the Shareholder
will not permit the Company to, cause or permit a change in
any method of accounting for tax purposes during or applicable
to the current tax year. Following the Closing, the
Shareholder shall be fully responsible for accurately and
completely preparing, signing and filing all tax returns and
-10-
paying all taxes in respect of the Company's assets and
operations prior to the Closing Date.
3.11. INVENTORY; ACCOUNTS RECEIVABLE. The inventories
reflected on the Company Balance Sheet and all items placed in
inventory since such date (i) are accounted for in accordance
with generally accepted accounting principles consistently
applied, (ii) are accounted for net of reserves which are
sufficient to cover any losses due to obsolescence, shrinkage,
or unmarketability, and (iii) are saleable or usable in the
ordinary course of business of the Company at usual and
customary prices, subject to normal returns and markdowns
consistent with past practice. Prior to the Closing, the
Shareholder shall deliver to the Purchaser a list, certified
by the Shareholder to be complete and correct, of all of the
Company's inventory as of the Closing Date. All of the Closing
Date Receivables will (i) represent bona fide claims for goods
delivered or services rendered, and (ii) not be subject to any
rights of offset or counterclaim.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor
vehicles and all other material items of equipment, fixtures,
furniture and other fixed assets owned by the Company. All
such items are in good and operating condition and repair,
ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 sets
forth a complete description of:
(i) all loan, credit and similar agreements
to which the Company is a party or by which it is
bound, and all indentures, trust agreements and other
instruments relating to any issue of bonds,
debentures, notes or other evidences of indebtedness,
of or creating any Lien on any property of, the
Company;
(ii) all collective bargaining agreements,
employment contracts, noncompetition agreements and
other agreements relating to the employment of any
employees of the Company;
-11-
(iii) all joint venture agreements and all
other agreements involving the sharing of profits, to
which Company is a party or by which it is bound;
(iv) all (i) contracts or commitments for
capital expenditures for the Company involving
obligations on its part aggregating in excess of
$5,000, (ii) leases under which personal property is
leased to or from the Company and which are not
cancelable by it without penalty upon notice of 30
days or less or pursuant to which rentals payable by
or to the Company exceed $5,000 per annum or $15,000
in the aggregate, or (iii) contracts and agreements
affecting the Company which do not terminate or are
not terminable by it upon notice of 30 days or less
or which involves an obligation on its part in excess
of $5,000 per annum or $25,000 in the aggregate; and
(v) all other contracts and commitments of
the Company entered into outside the ordinary course
of business.
Each contract and commitment described on Schedule 3.13 is
valid and in full force and effect and neither the Company, nor, to the
knowledge of the Shareholder, any of the other parties thereto, are in
default thereunder. A true and correct copy of each document listed on
Schedule 3.13 has been delivered to the Purchaser by the Company.
3.14. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14
accurately and completely lists (i) all preneed contracts of the
Company unfulfilled as of the date hereof, including contracts for the
sale of funeral merchandise and services, and (ii) all trust accounts
relating to the Homes, indicating the location of each and the balance
thereof (including the location and nature of preneed contracts funded
by annuities or through insurance). All preneed contracts required to
be listed on Schedule 3.14 (x) have been entered into in the normal
course of business at regular retail prices, or pursuant to a sales
promotion program, solely for use by the named customers and members of
their families on terms not more favorable than shown on the specimen
contracts which have been delivered to the Purchaser, (y) are subject
to the rules
-12-
and regulations of the Company as now in force (copies of which have
been delivered to the Purchaser), and (z) on the date hereof are in
full force and effect, subject to no offsets, claims or waivers, and
neither the Company nor such customer is in default thereunder. All
funds received by the Company under preneed contracts have been
deposited in the appropriate accounts and administered and reported in
accordance with the terms thereof and as required by applicable laws
and regulations. The aggregate market value of the preneed accounts,
trusts or other deposits is equal to or greater than the aggregate
preneed liability related to such accounts. The services heretofore
provided by the Company have been rendered in a professional and
competent manner consistent with prevailing professional standards,
practices and customs.
3.15. INTANGIBLE RIGHTS. The Company does not own nor has it
applied for any patents, patent applications, patent licenses,
trademarks, trademark applications or trademark or trademark licenses
(collectively, "Intangible Rights"), except as described on Schedule
3.15. The Company owns or possesses (or at Closing will own or possess)
valid rights or adequate licenses for all of such Intangible Rights as
are necessary to the conduct of the business of the Homes as presently
conducted. The Company is not charged with infringement of any
Intangible Rights, nor does the Company know of any such infringement,
whether or not claimed by any person.
3.16. INSURANCE. Schedule 3.16 lists and describes all
policies of insurance held by the Company, including, without
limitation, all insurance policies that are for the benefit of, or the
proceeds of which are payable to, employees of the Company or their
respective designees. Valid policies for such insurance, true and
complete copies of which have been provided to the Purchaser, will be
outstanding and duly in force at all times prior to the Closing. Such
policies are in such amounts, and insure against such losses and risks,
as are generally maintained for comparable businesses and properties.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 correctly and
completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or
-13-
held by the Company, which are all that are necessary or appropriate
for the conduct of the business and operations of the Homes. All such
items are in full force and effect.
3.18. LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the
Shareholder, threatened against or affecting the Company, or any of the
assets, business or properties of the Company, at law or in equity or
before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality.
The Company is not subject to any continuing court or administrative
order, writ, injunction or decree, nor is the Company in default with
respect to any order, writ, injunction or decree issued by any court or
foreign, federal, state, municipal or other governmental department,
commission, board, agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company and the Shareholder
have complied in all material respects with all federal, state,
municipal and other statutes, rules, ordinances and regulations
applicable to the Company, the operation of each Home, and the
Company's assets, rights and properties (including without limitation
all environmental protection and occupational safety and health rules,
regulations and laws, and laws and regulations applicable to preneed
contracts and trust accounts, including the so-called "FTC Funeral
Rule").
3.20. EMPLOYEES. Schedule 3.20 correctly and completely lists
the names and annual or hourly rates of salary and other compensation
of all the employees and agents of the Company. Schedule 3.20 also sets
forth the date of the last salary increase for each employee listed
thereon, and the outstanding balances of all loans and advances, if
any, made by the Company to any such employee or agent. At or
immediately before the Closing, the Company shall furnish the Purchaser
with a list of the vacation days or other time off to which the
Company's employees are then eligible. At Closing, the Shareholder will
cause the Company to pay or satisfy all vacation, holiday and other
accrued benefits to employees of the Company which are then
outstanding. There are not pending or threatened against the Company
any general labor disputes,
-14-
strikes or concerted work stoppages, and there are no discussions,
negotiations, demands or proposals that are pending or have been
conducted or made with or by any labor union or association with
respect to any employees of the Company. The Company believes that the
relations between the Company and its employees are good.
3.21. EMPLOYEE BENEFIT PLANS. Schedule 3.21 lists all plans,
contracts, commitments, programs and policies (including, without
limitation, pension, profit sharing, thrift, bonus, deferred
compensation, severance, retirement, disability, medical (including
retiree medical), life, dental and accidental insurance, vacation, sick
leave, death benefit and other similar employee benefit plans and
policies, whether written or oral) maintained by the Company providing
benefits to any employee or former employee of the Company
(collectively, the "Plans"). The Company has delivered to the Purchaser
true and correct copies of all documents embodying the Plans, and all
determination letters from the Internal Revenue Service regarding Plans
required to be qualified under the Code. Except as reflected on
Schedule 3.21, all obligations of the Company under the Plans have been
fully paid, fully funded or adequate accruals therefor have been made
on the Balance Sheet. All necessary governmental approvals have been
obtained for all Plans subject to the Employee Retirement Income
Security Act of 1974 ("ERISA") and have been qualified under Section
401 of the Code, and each trust established for any Plan is exempt from
federal income taxation under Section 501(a) of the Code. With respect
to any such Plan or any other "employee welfare plan" (as defined in
ERISA) maintained by the Company, there has been no (i) "reportable
event" as defined in Section 4043 of ERISA, (ii) event described in
Section 4062(e) or 4063(a) of ERISA, or (iii) in the case of any
defined benefit plan, termination or partial termination.
3.22. AFFILIATED PARTY TRANSACTIONS. Except as described on
Schedule 3.22, each Home has been operated since the date of the
Company Balance Sheet in a manner separate from the personal and other
business activities of the Shareholder and his affiliates, and neither
the Company nor its assets are subject to any affiliated party
commitments or transactions.
-15-
3.23. BOOKS AND RECORDS. All books and records of the Company
are true, correct and complete in all material respects, have been
maintained by the Company in accordance with good business practice and
in accordance with all laws, regulations and other requirements
applicable to the Company. The corporate records of the Company reflect
a true record of all meetings and proceedings of the Board of Directors
and shareholders of the Company.
3.24. FINDERS. Except as described in Section 12.1, neither
the Company nor the Shareholder is a party to or in any way obligated
under any contract or other agreement, and there are no outstanding
claims against either of them, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
3.25. AUTHORITY OF THE SHAREHOLDER. The Shareholder has the
full right, capacity and authority to enter into and perform this
Agreement and the Documents (as hereinafter defined) to which he is a
party, and to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and upon execution and delivery by
the Shareholder, the Documents will constitute, the legal, valid and
binding obligations of the Shareholder enforceable against him in
accordance with their respective terms. Neither the execution, delivery
nor performance of this Agreement and the Documents to which the
Shareholder is a party, nor the consummation of the transactions
contemplated hereby or thereby, will: (i) result in a violation or
breach of any term or provision of, constitute a default or
acceleration under, require notice to or consent of any third party to,
or result in the creation of any Lien by virtue of (x) the Articles of
Incorporation or bylaws of the Company or (y) any contract, agreement,
lease, license or other commitment to which the Company or the
Shareholder is a party or by which either of them or their respective
assets or properties are bound (except for any such agreement that will
be fully terminated, released and discharged at the Closing as
contemplated in Section 1.3); nor (ii) violate any statute or any
order, writ, injunction or decree of any court, administrative agency
or governmental body. For purposes of this Agreement, the term
"Documents" shall mean, as to any
-16-
party hereto, any and all agreements, certificates and other
instruments expressly contemplated in this Agreement or any exhibit
hereto to be executed or delivered by or on behalf of such party at or
in connection with the Closing hereunder.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance of this Agreement by the Company have been duly authorized
by its Board of Directors. This Agreement is legally binding and
enforceable against the Company in accordance with its terms. Neither
the execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor constitute a
default or accelerate the performance required under, the Articles of
Incorporation or bylaws of the Company or any indenture, mortgage, deed
of trust or other contract or agreement to which the Company is a party
or by which it or its properties are bound (except for any such
agreement that will be fully terminated, released and discharged at the
Closing as contemplated in Section 1.3), or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
3.27. FULL DISCLOSURE. The representations and warranties made
by the Company and the Shareholder hereunder or in any Schedules or
certificates furnished to the Purchaser pursuant hereto or thereto, do
not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein
or necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made, not
misleading.
3.28. ACQUISITION OF PARENT STOCK. The Parent Stock to be
acquired by the Shareholder hereunder will be acquired by him for
investment purposes only and not with the present intention or view to,
or resale in connection with, any distribution thereof within the
meaning of the Securities Act of 1933, as amended. The Shareholder
understands that such Parent Stock is not and will not be registered
under such Securities Act or any state securities or blue sky laws, and
that neither Parent nor the Purchaser is under any obligation to
register any such Parent Stock under any such laws. The Shareholder
further understands that transferability of such
-17-
Parent Stock will be restricted in accordance with applicable state and
federal securities laws, and that a restrictive legend to such effect
will be inscribed on each certificate representing Parent Stock. The
Shareholder prior to the Closing will have had full opportunity to
receive such information and ask such questions of representatives of
Parent concerning Parent, its subsidiaries and their business,
operations, assets and prospects, and concerning an investment in the
Parent Stock, as the Shareholder has deemed appropriate in order to
make an informed investment decision with respect to the Parent Stock.
3.29. SCHEDULES. The Schedules referred to in this Agreement
have been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Shareholder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company and the
Shareholder that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate
power to enter into and perform its obligations under this Agreement
and the Documents to which it is a party.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery and
performance by the Purchaser of this Agreement and the Documents to
which it is a party have been duly authorized by its Board of
Directors. This Agreement is, and upon their execution and delivery as
herein provided the Documents will be, valid and binding upon the
Purchaser and enforceable against the Purchaser in accordance with
their respective terms. Neither the execution, delivery or performance
by the Purchaser of this Agreement and the Documents to which it is a
party will conflict with or result in a violation or breach of any term
or provision of, nor constitute a default under, the Certificate of
Incorporation or bylaws of the Purchaser or under any indenture,
mortgage, deed of trust or other contract or agreement to which it is
-18-
a party or by which it or its property is bound, or violate any order,
writ, injunction or decree of any court, administrative agency or
governmental body.
4.3. FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are no
outstanding claims against it, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
4.4. FULL DISCLOSURE. The representations and warranties made
by the Purchaser hereunder, or in any certificates furnished to the
Company and the Shareholder pursuant hereto or thereto, do not and will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to
make the representations or warranties herein or therein, in light of
the circumstances in which they are made, not misleading.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDER PENDING
CLOSING. The Company and the Shareholder jointly and severally covenant with the
Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of the Company will be operated only in
the ordinary course, and, in particular, without the prior written
consent of the Purchaser, the Company will not, and the Shareholder
will not cause or allow the Company to:
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like coverage;
(ii) amend or otherwise modify the Articles of
Incorporation or bylaws of the Company;
(iii) commit any act or permit the occurrence of any
event or the existence of any condition of the type described
in Section 3.8, other than as contemplated in Section 2.2(iv);
-19-
(iv) enter into any contract, agreement or other
commitment of the type described in Section 3.13; or
(v) hire, fire, reassign or make any other change in
key personnel of the Company, or increase the rate of
compensation of or declare or pay any bonuses to any employee
in excess of that listed on Schedule 3.20.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company and
the Shareholder will give to the Purchaser and its counsel, accountants
and other representatives, full and free access to all of the
properties, books, contracts, commitments and records of the Company so
that the Purchaser may have full opportunity to make such investigation
as it shall desire to make of the affairs of the Company, provided that
such access is during normal business hours of the Homes and conducted
in such a manner so as to not unreasonably interfere with the normal
business operations of the Homes.
5.3. CONSENTS AND APPROVALS. The Company and the Shareholder
will use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated by this
Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor the Shareholder shall enter into any agreements
or commitments, or initiate, solicit or encourage any offers, proposals
or expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion of
the assets and business of the Company any other sale of the Company
(whether by merger, consolidation, sale of stock or otherwise), other
than with the Purchaser.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company and the Shareholder that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use its best
efforts to obtain the necessary consents and approvals of other persons
which may be required to be
-20-
obtained on its part to consummate the transactions contemplated in
this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to the Company from any representative, officer,
director or employee of the Company, including their accountants or
legal counsel, or from any books or records of any of them, in
connection with the transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither the
Purchaser nor its representatives shall use such data or information or
disclose the same to others, except as such data or information is
published or is a matter of public knowledge or is required by an
applicable law or regulation to be disclosed. If this Agreement is
terminated for any reason, the Purchaser shall return to the Company
all written data and information obtained by the Purchaser from the
Company or its representatives in connection with the transactions
contemplated by this Agreement, and the Purchaser shall not retain any
photocopies of such information.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any error, misstatement or
omission in the representations and warranties made by the Company and
the Shareholder in Section 3 hereof; the representations and warranties
made by the Company and the Shareholder herein shall be deemed to have
been made again at and as of the time of Closing and shall then be true
and correct; the Company and the Shareholder shall have performed and
complied with all agreements and conditions required by this Agreement
to be performed or complied with by them at or prior to the Closing;
and the Purchaser shall have received a certificate, signed by the
Shareholder and an executive officer of the Company, to the effect of
the foregoing provisions of this Section 7.1.
-21-
7.2. OPINION OF COUNSEL. The Company shall have caused to be
delivered to the Purchaser an opinion of Miller, Griffin & Marks,
counsel for the Company and the Shareholder, dated the Closing Date, to
the effect that:
(i) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Kentucky, with full corporate authority to enter into
and perform its obligations under this Agreement;
(ii) the authorized capital stock of the Company
consists of 100 shares of Common Stock, no par value per
share, of which one (1) share is validly issued and
outstanding and fully paid and nonassessable;
(iii) to the knowledge of such counsel, after due
inquiry, there are no outstanding subscriptions, options or
other agreements or commitments obligating the Company to
issue any shares of its capital stock or securities
convertible into shares of its capital stock;
(iv) the Shareholder is the record and beneficial
owner of the Share, free and clear of any and all Liens or
claims of any other person, and the Shareholder has full
capacity to sell and transfer the Share in accordance with
this Agreement; and upon such sale and transfer to the
Purchaser by the Shareholder, the Purchaser will acquire from
the Shareholder all of his rights in the Share;
(v) the execution, delivery and performance by the
Company of this Agreement have been duly authorized by its
Board of Directors;
(vi) this Agreement has been duly and validly
executed and delivered by the Company and constitutes the
valid and binding obligation of the Company enforceable
against it in accordance with its terms;
(vii) this Agreement and the Documents to which the
Shareholder is a party have been duly and validly executed and
delivered by him and constitute the valid
-22-
and binding obligations of the Shareholder enforceable against
him in accordance with their respective terms;
(viii) neither the execution, delivery or
consummation of the transactions contemplated by this
Agreement or the Documents to which the Company and the
Shareholder are parties will (x) result in the breach of or
constitute a default under the Articles of Incorporation or
bylaws of the Company or any loan or credit agreement,
indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which either the
Company or the Shareholder is a party or by which they or
their respective assets are bound (except for any such
agreements theretofore in existence which have been terminated
and discharged as contemplated in Section 1.3), or (y) violate
any order, writ, injunction or decree known to such counsel of
any court, administrative agency or governmental body;
(ix) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Company and the Shareholder of this Agreement and the
Documents to which they are parties; and
(x) to the knowledge of such counsel after due
inquiry, there are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting the
Company or any of its assets, at law or in equity or before or
by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholder and officers of the Company and
certificates of public officials, copies of which shall be provided to
Purchaser at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and by
principles of equity.
-23-
Such opinion may be limited to federal law and the internal laws of the
State of Kentucky.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholder
shall have obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by this
Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to any substantial portion of the
physical assets and properties of the Company (regardless of whether
such loss or damage was insured), the effect of which would have a
material adverse effect on the condition, business, operations or
prospects of the Company or of either Home.
7.5. RESIGNATIONS AND RELEASES. The Purchaser shall have
received such resignations of the officers and directors of the Company
as shall have been requested by the Purchaser, as well as written
releases, in form and substance acceptable to the Purchaser, under
which the Shareholder and his spouse waive and release all rights and
claims against the Company other than those arising under Plans
described in Schedule 3.21 or under any of the Documents referred to in
Section 2.2.
7.6. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall have been approved by counsel for the
Purchaser, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments and
documents as they shall have reasonably requested.
7.7. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review of the
financial information, books and records, and properties and assets of
the Company and the Homes and shall have discovered no change in the
business, assets, operations, financial condition or prospects of the
Company or either Home which could, in the reasonable determination of
the Purchaser, have a material adverse effect on the business, assets,
-24-
financial condition or prospects of the Homes being acquired hereunder.
7.8. RELATED TRANSACTIONS. The Covenantors shall have executed
and delivered the Non-Competition Agreement, the Shareholder shall have
executed and delivered the McFarland Employment Agreement, and Morrison
shall have executed and delivered the Morrison Employment Agreement,
all as described in Section 2.2.
7.9. FINANCING COMMITMENT. The Purchaser represents that it
has received from a financial institution acceptable to it a written
commitment providing for the extension of financing in order to provide
the portion of the Purchase Price not furnished by the Purchaser or
obtained by the Purchaser from other sources, and it shall be a
condition to the Purchaser's obligations hereunder that such commitment
shall have been funded in such amount contemporaneously with the
Closing.
7.10. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall
have been conducted, at the Purchaser's expense, (i) a Phase I (and, if
deemed necessary by Purchaser, a Phase II) environmental audit of the
Homes and the Real Property by an environmental consulting firm
selected by Purchaser, (ii) a health and safety inspection of the Homes
by a person (who may be an employee of the Purchaser) or firm selected
by the Purchaser and who is qualified and experienced in such matters
in the funeral service industry, and (iii) a structural inspection of
the Homes by an engineering firm selected by the Purchaser. The
Shareholder agrees to pay the costs and to take the action reasonably
recommended by such firms and/or persons, up to $15,000 in the
aggregate. In any event, it shall be a condition to the Purchaser's
obligations hereunder that the results of the reports of such firms or
persons (together with any remedial action, if any, taken by the
Shareholder, regardless of the cost, in response thereto) shall be
satisfactory to Purchaser in its sole discretion.
7.11. TITLE INSURANCE. The Shareholder shall have provided to
the Purchaser, at the Purchaser's expense, an Owner's Policy of Title
Insurance issued to the Purchaser in an agreed-upon amount, issued by a
title company with offices
-25-
in Bourbon County, Kentucky area and reasonably acceptable to the
Purchaser (the "Title Company"), insuring the ownership interest in the
Real Property in the Purchaser (by transfer to it from the Company
immediately following the Closing), subject only to the Permitted Liens
and any standard printed exceptions included in a Kentucky standard
form Policy of Title Insurance; provided, however, that such policy
shall have deleted any exception regarding restrictions or be limited
to restrictions that are Permitted Liens, any standard exception
pertaining to discrepancies, conflicts or shortages in area shall be
deleted except for "shortages in area", and any standard exception for
taxes shall be limited to subsequent years.
7.12. SURVEY. The Purchaser shall have received, at its
expense, an as-built survey prepared by a licensed surveyor approved by
the Purchaser and acceptable to the Title Company, with respect to each
parcel of Real Property, which survey shall comply with any applicable
standards under Kentucky law, be sufficient for Title Company to delete
any survey exception contained in the owner's policy of title insurance
referred to in Section 7.11, save and except for the phrase "shortages
in area", and otherwise be in form and content acceptable to Purchaser.
7.13. LIEN RELEASES. The holders of the Liens (other than
Permitted Liens) against any assets of the Company or any portion of
the Real Property shall have executed and delivered written releases of
such Liens, all in recordable form and otherwise acceptable to the
Purchaser and its lender.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDER. The obligations of the Company and the Shareholder under this
Agreement shall be subject to the following conditions, any of which may be
expressly waived by the Company in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Company and the Shareholder shall not have discovered any material
error, misstatement or omission in the representations and warranties
made by the Purchaser in Section 4 hereof; the representations and
warranties made by the Purchaser herein shall be deemed to have been
made again at and as of the time of Closing and shall then be true and
-26-
correct; the Purchaser shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the Company and the
Shareholder shall have received a certificate, signed by an executive
officer of the Purchaser, to the effect of the foregoing provisions of
this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Company and the Shareholder an opinion of Snell &
Smith, A Professional Corporation, counsel for Purchaser, to the effect
that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power to
enter into and perform its obligations under this Agreement
and the Documents to which it is a party;
(ii) the execution, delivery and performance by the
Purchaser of this Agreement and the Documents to which it is a
party have been duly authorized by its Board of Directors;
(iii) this Agreement is, and upon execution and
delivery as herein provided the Documents to which the
Purchaser is a party will be, valid and binding upon the
Purchaser and enforceable against the Purchaser in accordance
with their respective terms;
(iv) neither the execution, delivery or performance
by the Purchaser of this Agreement or the Documents to which
it is a party will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of the
Purchaser or under any loan or credit agreement, indenture,
mortgage, deed of trust or other contract or agreement known
to such counsel and to which Purchaser is a party or by which
it or its property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any court,
administrative agency or governmental body; and
-27-
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement or the Documents to which it is a
party or the performance of its obligations hereunder or
thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to the Company at Closing.
Any opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the General Corporation Law of
the State of Delaware and the internal laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. The Purchaser shall have executed
and delivered the Non-Competition Agreement to the Covenantors, the
McFarland Employment Agreement to the Shareholder and the Morrison
Employment Agreement to Morrison.
8.5. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall have been approved by counsel for the
Shareholder, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments and
documents as they shall have reasonably requested.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be
-28-
deemed representations and warranties of the party executing or
delivering the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party hereto,
all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Schedule or Exhibit hereto or in
connection with the transactions contemplated hereby and thereby shall
not terminate but shall survive the Closing and continue in effect
thereafter, provided that all such representations and warranties
(other than those made in Sections 3.1 through 3.3, 3.25, 3.26 and
3.28) shall terminate on the second anniversary of the Closing Date
except as to any claims related thereto that are asserted by the
Purchaser prior to such second anniversary date, which shall continue
until final resolution of such claims.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDER. The Shareholder
agrees to indemnify and hold harmless the Purchaser and (following the
Closing) the Company, and their respective successors and assigns, from
and against any and all losses, damages, liabilities, obligations,
costs or expenses (any one such item being herein called a "Loss" and
all such items being herein collectively called "Losses") which are
caused by or arise out of (i) any breach or default in the performance
by the Company or the Shareholder of any covenant or agreement of the
Company or the Shareholder contained in this Agreement, (ii) any breach
of warranty or inaccurate or erroneous representation made by the
Company or the Shareholder herein, in any Schedule delivered to the
Purchaser pursuant hereto or in any certificate or other instrument
delivered by or on behalf of the Company or the Shareholder pursuant
hereto, (iii) any Unassumed Liability of the Company, whether absolute
or contingent, known or unknown, that is not paid or discharged in full
at Closing as contemplated under Section 1.3, and (iv) any and all
actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the
foregoing.
-29-
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Shareholder and his heirs and
assigns from and against any Losses which are caused by or arise out of
(i) any breach or default in the performance by the Purchaser of any
covenant or agreement of the Purchaser contained in this Agreement,
(ii) any breach of warranty or inaccurate or erroneous representation
made by the Purchaser herein or in any certificate or other instrument
delivered by or on behalf of the Purchaser pursuant hereto, and (iii)
any and all actions suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees) incident to any of
the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying party"),
the indemnifying party shall be given prompt written notice thereof and
shall have the right (i) to participate in the defense thereof and be
represented, at his or its own expense, by advisory counsel selected by
him or it, and (ii) to approve any settlement if the indemnifying party
is, or will be, required to pay any amounts in connection therewith.
Notwithstanding the foregoing, if within ten business days after
delivery of the indemnified party's notice described above, the
indemnifying party indicates in writing to the indemnified party that,
as between such parties, such claims shall be fully indemnified for by
the indemnifying party as provided herein, then the indemnifying party
shall have the right to control the defense of such claim, provided
that the indemnified party shall have the right (i) to participate in
the defense thereof and be represented, at his or its own expense, by
advisory counsel selected by him or it, and (ii) to approve any
settlement if the indemnified party's interests are, or would be,
affected thereby.
10.4. OFFSET. If the Shareholder becomes obligated to
indemnify the Purchaser after the Closing Date pursuant to this
Agreement, or if the Shareholder breaches the Non-Competition
Agreement, at any time when any amount remains payable to the
Shareholder under Section 1.4 hereof or under the Non-Competition
Agreement, then the Purchaser may, at its option and without prejudice
to any right of the Purchaser to
-30-
proceed directly against the Shareholder, set-off the amount for which
the Shareholder shall be so obligated for such indemnification or
breach against the amounts so outstanding under Section 1.4 and the
Non-Competition Agreement. The exercise of such right of set-off shall
be evidenced by means of a written notice to such effect given by the
Purchaser to the Shareholder, describing the basis for indemnity or
recovery and set-off hereunder and the amount of the set-off. Upon the
Purchaser's exercise of any such right of set-off, in lieu of making
any such payment to the Shareholder being offset against, the Purchaser
instead shall, as quickly as shall be reasonably feasible, deliver such
payment (but only to extent for which offset is claimed) to a bank,
trust company or other financial intermediary located in Lexington,
Kentucky to be held by it in trust pending the final resolution of the
Purchaser's claims, unless such resolution occurs prior to
establishment of such escrow.
10.5. CERTAIN LIMITATIONS. Notwithstanding the foregoing, (a)
the Purchaser shall not be entitled to obtain indemnification from the
Shareholder under clause (i) or (ii) of Section 10.1 (or clause (iv),
insofar as the same relates to clause (i) or (ii)), and the Shareholder
shall not be entitled to obtain indemnification from the Purchaser
under clause (i) or (ii) of Section 10.2 (or clause (iv), insofar as
the same relates to clause (i) or (ii)), until such time as the
aggregate amount of all such claims of the party so entitled to
indemnification equal or exceed $15,000, but when such threshold has
been so met, the party entitled to indemnification shall be entitled to
the entirety of its claim, including the first $15,000; and (b) the
aggregate amount for which the Purchaser shall be entitled to seek
indemnification from the Shareholder hereunder shall be limited to a
maximum amount equal to the Purchase Price.
10.6 PROFIT SHARING PLAN. As described on Schedule 3.21, the
Company currently maintains the Lusk-McFarland Funeral Home, Inc.
Profit Sharing Plan for the benefit of its employees (the "Profit
Sharing Plan"). The Shareholder shall be personally and fully
responsible for funding all contributions to the Profit sharing Plan
for all periods prior to the Closing, shall following the Closing
promptly begin all necessary proceedings for the termination, winding
up and
-31-
distribution of the Profit Sharing Plan in accordance with applicable
law and shall pay all costgs and expenses in connection therewith, it
being understood that after the Closing neither the Purchaser nor the
Company shall have any liability for any of the foregoing, and the
Shareholder shall indemnify and hold harmless the Purchaser and the
Company for all Losses incurred in connection with the operation,
termination, winding up or distribution of the Profit Sharing Plan.
From time to time after the Closing the Shareholder shall advise the
Purchaser as to the status of the foregoing matters and shall furnish
copies of relevant proceedings in that regard.
10.7 PARTIAL RELEASE OF MORTGAGES. Following the Closing, the
Shareholder shall use his best efforts to cause the Tichner Liens (as
hereafter defined) to be released, insofar as the same cover the
Tichner Tract (as hereafter defined). For purposes hereof, "Tichner
Tract" means that certain parcel or tract of land situated in
Millersburg, Bourbon County, Kentucky that is described on Schedule 3.6
as the "Tichner Tract"; and "Tichner Liens" means, collectively, the
Mortgage dated February 11, 1987 recorded in Mortgage Book 191, Page
603 in the Bourbon County Clerk's Office in favor of National Bank &
Trust Company, the Mortgage dated June 26, 1992 recorded in Mortgage
Book 222, Page 491 in the Bourbon County Clerk's Office in favor of
Fifth Third Bank of Central Kentucky, N.a. (assigned to The First
National Bank of Chicago, as trustee) and the Mortgage dated November
3, 1995 recorded in Mortgage Book 248, Page 718 in the Bourbon County
Clerk's Office in favor of Fifth Third Bank of Kentucky, Inc.
10.8 ZONING. The Shareholder specifically agrees to indemnify
and hold harmless the Company from all Losses incurred by it to the
extent that the Company does not possess all necessary conditional use
permits or other approvals in order for the Real Property as currently
used to comply with applicable zoning laws. The Shareholder further
agrees to use his best efforts following the Closing to enable the
Purchaser to obtain all necessary permits and approvals to transfer the
Real Property to the Purchaser in compliance with all applicable zoning
laws, provided that the Purchaser intends to use Real Property in the
manner it is being used at the time of the Closing.
-32-
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholder agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof; and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Shareholder and
the Purchaser;
(b) the Purchaser if a material default shall be made
by the Company or the Shareholder in the observance or in the
due and timely performance by any of their covenants herein
contained, or if there shall have been a material breach or
misrepresentation by the Company or the Shareholder of any of
their warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by them at or before the Closing shall not have been
complied with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Purchaser in writing;
(c) the Shareholder if a material default shall be
made by the Purchaser in the observance or in the due and
timely performance by the Purchaser of any of the covenants of
the Purchaser herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser of any
of its warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not
have been complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Shareholder in writing; or
-33-
(d) either the Shareholder or the Purchaser, if the
Closing has not occurred by January 15, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other party hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party has
not breached any representation or warranty or failed to comply with
any of its covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party against
any other party which has breached any of its representations,
warranties or covenants herein prior to such termination.
12. MISCELLANEOUS.
12.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. If the
transactions contemplated by this Agreement and the Exhibits hereto are
consummated, the Company shall have no obligation for, nor shall it be
charged with, any such expenses of the Shareholder. Without limiting
the generality of the foregoing, all finders' and similar fees and
expenses of Lee Brothers, sales representative for the Shareholder,
shall be borne solely by the Shareholder, and in no event shall the
Company or the Purchaser be charged or responsible therefor. All sales,
transfer, stamp or other similar taxes, if any, which may be assessed
or charged in connection with the transactions hereunder shall be borne
by the Shareholder.
12.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given if personally delivered or mailed, first class,
registered or certified mail, postage prepaid, as follows:
-34-
(i) if to the Company or the Shareholder, to:
Mr. Gerald T. McFarland, Jr.
Lusk-McFarland Funeral Home
1120 Main Street
Paris, Kentucky 40361-1795
with a copy to:
Miller, Griffin & Marks
Suite 700, Security Trust Building
271 West Short Street
Lexington, Kentucky 40507-1292
Attention: Mr. William F. Rigsby
(ii) if to the Purchaser, to:
Carriage Funeral Holdings, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne,
President
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to
the other party hereto.
12.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may assign
its rights hereunder without the consent of the Shareholder to a
successor-in-interest to the Purchaser or the Company (whether by
merger, sale of assets or otherwise).
12.4. SUCCESSORS BOUND. Subject to the provisions of Section
12.3, this Agreement shall be binding upon and inure
-35-
to the benefit of the parties hereto and their respective successors,
assigns, heirs and personal representatives.
12.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
12.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by both parties hereto.
12.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and supersede
all prior understandings with respect to the subject matter hereof and
thereof (including, without limitation, the letter of intent between
the Purchaser and the Company dated August 31, 1995).
12.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Kentucky.
12.9. CONSTRUCTION. As the context requires or permits:
pronouns used herein shall include the masculine, the feminine and
neuter; terms used in plural shall include the singular, and singular
terms shall include the plural; "hereof", "herein", "hereunder" and
"hereto" shall refer to this Agreement; and section and paragraph
references, when not expressly referring to another agreement or
document, shall mean sections or paragraphs in this Agreement.
12.10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
-36-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL HOLDINGS, INC.
By:/s/ MELVIN C. PAYNE
Melvin C. Payne,
President
THE COMPANY:
THE LUSK FUNERAL HOME, INCORPORATED
By:/s/ GERALD T. MCFARLAND, JR.
Gerald T. McFarland, Jr.,
President
THE SHAREHOLDER:
/s/ GERALD T. MCFARLAND, JR.
Gerald T. McFarland, Jr.
-37-
EXHIBIT DESCRIPTION
A Non-Competition Agreement
B Employment Agreement (Gerald T. McFarland)
C Employment Agreement (Jeff Morrison)
SCHEDULE DESCRIPTION
3.6 Real Property
3.7 Permitted Liens
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Intangible Assets
3.16 Insurance
3.17 Licenses
3.20 Employees
3.21 Employee Benefit Plans
3.22 Affiliated Party Transactions
Exhibit 10.12
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of February 29, 1996, among CARRIAGE
FUNERAL HOLDINGS, INC., a Delaware corporation (the "Purchaser"), JAMES E. DRAKE
FUNERAL HOME, INC., a Kentucky corporation (the "Company"), and JAMES E. DRAKE
and PATRICIA A. DRAKE, residents of Harrison County, Kentucky (together, the
"Shareholders");
WITNESSETH:
WHEREAS, the Company owns and operates the James E. Drake
Funeral Home and the Whaley-McCarty Funeral Home, both located in Cynthiana,
Kentucky (collectively, the "Homes"); and
WHEREAS, the authorized capital stock of the Company consists
of 2,000 shares of Common Stock, $1,000.00 par value per share ("Common Stock"),
of which 800 shares (the "Shares") are issued, outstanding and held and owned of
record by the Shareholders; and
WHEREAS, the parties desire that the Shareholders sell and the
Purchaser purchase the Shares from the Shareholders, all upon the terms and
conditions and for the consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1. TRANSFER OF THE SHARES. The Shareholders jointly and
severally agree to sell the Shares to the Purchaser, free and clear of
all security interests, pledges, liens, mortgages, title restrictions,
charges and other encumbrances of any kind (collectively, "Liens"). The
Purchaser agrees to purchase and accept the Shares from the
Shareholders.
1.2. CONSIDERATION FOR THE SHARES. The consideration for the
Shares shall be $1,700,000 (the "Purchase Price"). Of the Purchase
Price, (i) an amount sufficient to discharge indebtedness of the
Company as determined by the Purchaser pursuant to Section 1.3 shall be
paid to the holders of such indebtedness, (ii) the sum of $150,000
shall be payable in the form of shares of Series B Preferred Stock,
$.01 par value ("Parent Stock"), of Carriage Funeral Services, Inc., a
Delaware corporation ("Parent"), at $1.00 per share of Parent Stock, of
which 100,000 such shares of Parent Stock will be convertible into
Parent's Common Stock at a conversion price of $4.50 per share and
50,000 such shares will be convertible into Parent's Common Stock at a
conversion price of $5.00 per share, all of which shares of Parent
Stock shall be placed into escrow at Closing as described in Section
10.5, (iii) the sum of $200,000 (the "Deferred Purchase Price") shall
be payable over a period of ten years as hereafter provided, (iv) the
sum of $50,000 in cash shall be placed into escrow at Closing as
described in Section 10.5, and (v) the excess of the Purchase Price
over such amounts under clauses (i) through (iv) above shall be paid to
the Shareholders in cash at Closing, by wire transfer to such account
or accounts as the Shareholders shall designate in writing prior to the
Closing. The Deferred Purchase Price shall be payable in ten equal
installments of $20,000 each, the first of which shall be payable on or
before the first anniversary of the Closing Date, and continuing
annually thereafter on or before the second through tenth anniversaries
of the Closing Date. No interest shall accrue or be payable in respect
of any portion of the Deferred Purchase Price. Solely for federal
income tax purposes, the Deferred Purchase Price shall be deemed to
include an imputed rate of interest of six percent (6%) per annum. The
Purchase Price shall be subject to adjustment following the Closing (as
defined in Section 2.1) as provided in Section 1.3.
1.3. ADJUSTMENT TO CONSIDERATION. At least two business days
prior to the Closing, the Shareholders shall deliver to the Purchaser a
written statement, certified by them to be accurate and complete,
setting forth a description, and the outstanding balance as of the date
of such statement, of all liabilities and obligations of the Company,
including (but not limited to) indebtedness for borrowed money,
indebtedness secured by Liens against any assets or properties of the
Company, accounts and trade payable, accrued liabilities, federal,
state and local taxes, any liabilities under suits, claims judgments or
orders then pending, or any other liability or obligation
(collectively, "Unassumed Liabilities"), excluding obligations under
preneed contracts for which the full amounts have been deposited in
trust as provided under applicable law ("Preneed Liabilities"). At
Closing, the Purchaser shall pay out of the Purchase Price such portion
thereof as shall be required to pay and discharge those Unassumed
Liabilities as the Purchaser in its sole discretion deems appropriate,
which at a minimum shall include liabilities secured by Liens against
any assets of the Company and unsecured indebtedness for borrowed
money, but may also include any of such other liabilities.
Notwithstanding such payment, the Shareholders shall remain responsible
for paying any remaining Unassumed Liabilities. Payments under this
Section 1.3 shall be deemed downward adjustments in the Purchase Price.
1.4. CLOSING DATE RECEIVABLES. As described in Section 2.2(ii)
below, the Company shall, immediately prior to the Closing, distribute
to the Shareholders (among other things) the right to receive
collections on all but the first $10,000
-2-
of the Company's accounts receivable then outstanding (collectively,
the "Closing Date Receivables"). On the Closing Date, the Shareholders
shall prepare and deliver to the Purchaser a list, certified by them to
be accurate and complete, of all of the Closing Date Receivables.
Following the Closing, the Purchaser shall have the exclusive (even as
to the Shareholders) right to manage and oversee the collection of the
Closing Date Receivables. On or before the 15th day of each month
following each month in which there are any collections on Closing Date
Receivables in excess of the first $10,000 thereof (which first $10,000
of collections shall be retained by the Purchaser, without any recourse
or accounting to the Shareholders), the Purchaser shall remit to the
Shareholders the amount of such collections during the preceding month.
The Purchaser shall have no duty to pursue collection of Closing Date
Receivables by means greater than used on its collection of other
accounts receivable, and in no event shall the Purchaser be required to
institute suit or refer any account to a collection agency. At any time
after the Closing, the Purchaser may, in its sole discretion, return
the management and control over the Closing Date Receivables to the
Shareholders, by giving written notice to them to such effect.
1.5. CERTAIN PRORATIONS. All normal and customarily proratable
items relating to the assets and liabilities of the Homes and to the
Real Property (as defined in Section 3.6), including but not limited
to, utilities, real estate and personal property taxes, shall be
prorated as of the Closing Date, the Shareholders being charged and
credited for all of same up to such date and the Purchaser being
charged and credited for all of same on and after such date. If the
actual amounts to be prorated are not known as of the Closing Date, the
prorations shall be made on the basis of the best evidence then
available, and thereafter, within thirty (30) days after actual figures
are received, a cash settlement will be made between the Shareholders
and the Purchaser.
1.6. FURTHER ASSURANCES. The Shareholders jointly and
severally agree to execute and deliver from time to time after the
Closing, at the request of the Purchaser, and without further
consideration, such additional instruments of conveyance and transfer,
and to take such other action as the Purchaser may reasonably require
more effectively to convey, assign, transfer and deliver the Shares to
the Purchaser and carry out the other transactions contemplated
hereunder.
2. THE CLOSING.
2.1. TIME AND PLACE. The closing of the transactions
contemplated under this Agreement (the "Closing") shall occur at the
offices of Swinford & Sims, 40 East Pike Street,
-3-
Cynthiana, Kentucky 41031, at 9:00 a.m. on March 1, 1996, or at such
other date, time or place as may be mutually agreed upon by the
parties, but in no event later than March 15, 1996. The date and time
of the Closing is herein called the "Closing Date", and shall be deemed
to have occurred as of the commencement of business on the Closing
Date. At the Closing: the Shareholders shall deliver all certificates
representing the Shares, duly enclosed or accompanied by duly executed
stock powers, against payment by the Purchaser of the consideration
therefor. All action to be taken at the Closing as hereinafter set
forth, and all documents and instruments executed and delivered, and
all payments made with respect thereto, shall be considered to have
been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the purchase and
sale of the Shares, the following transactions shall take place at the
Closing:
(i) the Company and each Shareholder shall each
execute and deliver to the other a separate Employment
Agreement to be dated the Closing Date and in substantially
the forms of Exhibits A-1 and A-2, respectively, hereto
(collectively, the "Employment Agreements"); and
(ii) effective immediately prior to the Closing, the
Company shall distribute to the Shareholders (x) all of the
Company's cash balances as of such time, (y) the right to
receive collections as to all but the first $10,000 of the
Closing Date Receivables, and (z) the personal items described
on Schedule 2.2 hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE SHARE-HOLDERS. The
Shareholders jointly and severally represent and warrant to and agree with the
Purchaser that:
3.1. TITLE TO THE SHARES. The Shareholders have good and
marketable title to the Shares, free and clear of any and all Liens,
and the Shareholders have the absolute and unrestricted right, power,
authority and capacity to sell the Shares to the Purchaser as provided
in this Agreement. Upon delivery of the Shares to the Purchaser,
against payment therefor as provided in Section 1.2, the Purchaser will
receive from the Shareholders good and marketable title thereto, free
and clear of any and all Liens.
3.2. ORGANIZATION AND EXISTENCE. The Company is a corporation
duly organized, validly existing and in good
-4-
standing under the laws of the State of Kentucky, and has all requisite
corporate power to enter into and perform its obligations under this
Agreement and to carry on its business as now conducted. Neither the
character or location of the assets owned by the Company nor the nature
of the business transacted by it requires the Company to be qualified
to do business as a foreign corporation in any other jurisdiction. The
Shareholders have delivered to the Purchaser complete and correct
copies of the Articles of Incorporation and bylaws of the Company, both
as in effect on the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of the
Company consists of 2,000 shares of Common Stock, $1,000.00 par value
per share, of which 800 shares are validly issued and outstanding,
fully paid and nonassessable and not issued in violation of the
preemptive rights of any person. There are 1,200 shares of Common Stock
of the Company that are held by it in its treasury. The Company does
not have any outstanding subscriptions, options or other agreements or
commitments obligating it to issue shares of its capital stock. From
the date hereof through the Closing Date, the Shareholders will not,
and will not cause or permit the Company to, issue or enter into any
subscriptions, options, agreements or other commitments in respect of
the issuance, transfer, sale or encumbrance of any shares of capital
stock of the Company.
3.4. NO SUBSIDIARIES. The Company has no subsidiaries or any
investment or ownership interest in any corporation, joint venture or
other business enterprise.
3.5. FINANCIAL INFORMATION. The Company has delivered to the
Purchaser the unaudited (compiled) statements of assets, liabilities
and equity-income tax basis of the Company at November 30, 1991, 1992,
1993, 1994 and 1995 (such statement at November 30, 1995 being
hereafter referred to as the "Company Balance Sheet") and the related
unaudited (compiled) statements of revenues and expenses-income tax
basis of the Company for the respective twelve-month periods of
operations then ended, together with the compilation reports of Morris,
Ingram & Brunker thereon. All such financial statements are true and
correct, have been prepared in accordance with the books and records of
the Company, and present fairly the financial positions of the Company
at the dates indicated and the results of its operations for the
periods then ended in accordance with generally accepted accounting
principles consistently applied. The Homes collectively performed at
least 144 adult funeral services for the twelve months ended December
31, 1992, at least 139 adult funeral services for the twelve months
ended December 31, 1993, at least 132 adult funeral services for the
twelve
-5-
months ended December 31, 1994 and at least 138 adult funeral services
for the twelve months ended December 31, 1995.
3.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 3.6 sets forth a legal
description of all real property in which the Company has any interest
(collectively, the "Real Property"), and also briefly describes each
building and major structure and improvement thereon. No person other
than the Company has any ownership, leasehold or other interest of any
kind in the Real Property. The Real Property is the only interest in
real property required for the conduct of the business of the Homes as
presently conducted. All of the buildings, structures and improvements
located on the Real Property are in good operating condition, ordinary
wear and tear excepted. None of such buildings, structures or
improvements, or the operation or maintenance thereof as now operated
or maintained, contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any provision of
law, the effect of which would interfere with or prevent their
continued use for the purposes for which they are now being used. There
is not pending nor, to the knowledge of either Shareholder, threatened
any proceeding for the taking or condemnation of the Real Property or
any portion thereof. The Company has good and marketable fee simple
title to the Real Property, free and clear of all Liens other than
Permitted Liens described on Schedule 3.7.
(b) ENVIRONMENTAL CONDITION. No toxic or hazardous wastes (as
defined by the U.S. Environmental Protection Agency, or any similar
state or local agency) or hazardous substances (as defined under the
Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation) have been
generated, stored, dumped, located or released onto or from the Real
Property, nor to the knowledge of either Shareholder have any such
materials or wastes been generated, stored, dumped, located or disposed
of on any real property contiguous or adjacent to the Real Property.
The Real Property is not now, and to the best of the Shareholders'
knowledge, will not be in the future as a result of its condition at or
prior to Closing, subject to any reclamation, remediation or reporting
requirements of any federal, state, local or other governmental body or
agency having jurisdiction over the Real Property. The Real Property
does not contain any asbestos, polychlorinated byphenyls, urea,
formaldehyde, lead based paint, radon gas or underground storage tanks,
except for substances used in the ordinary course of the operations of
the Homes that are properly used, stored and disposed of in accordance
with applicable legal requirements.
-6-
(c) FIRPTA. Neither the Company nor either Shareholder is a
"foreign person" (as defined in Section 1445(f)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder), and the Shareholders shall deliver at Closing a
non-foreign affidavit in recordable form containing such information as
shall be required by Code Section 1445(b)(2) and the regulations issued
thereunder.
(d) BILLS PAID. All bills and other payments due with respect
to the ownership, operation, and maintenance of the Real Property have
been (and on the Closing Date will be) paid, and no Liens or other
claims for the same have been filed or asserted against any part of the
Real Property.
(e) NO FLOOD HAZARDS. The Real Property is not located within
an area that has been designated by the Federal Insurance
Administration, the Army Corp of Engineers, or any other governmental
agency or body as being subject to special flooding hazards.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties required in the conduct of the business of the Homes are
owned by the Company. None of such assets, rights or properties is or
will be subject to any lease or license. The Company is in actual
possession and control of all properties owned by it, and has good and
marketable title to all of its assets, rights and properties, including
without limitation, all properties and assets reflected in the Company
Balance Sheet (other than properties and assets reflected in such
balance sheet that have been sold or otherwise disposed of in the
ordinary course of business subsequent to the date of the Company
Balance Sheet), free and clear of all Liens, except for (i) Liens to be
discharged and released at or prior to Closing, as contemplated in
Section 1.3, and (ii) Liens described on Schedule 3.7 (hereafter, the
"Permitted Liens").
3.8. ABSENCE OF CHANGES OR EVENTS. Since the date of the
Company Balance Sheet, there has not been:
(i) any adverse change in the financial condition,
operations, properties or prospects of the Company or of
either Home;
(ii) any change in the authorized capital or
outstanding securities of the Company;
(iii) any capital stock, bonds or other securities
which the Company has issued, sold, delivered or agreed to
issue, sell or deliver, nor has the Company granted or agreed
to grant any options, warrants or other rights calling for the
issue, sale or delivery thereof;
-7-
(iv) any borrowing or agreement by the Company to
borrow any funds, nor has the Company incurred, or become
subject to, any absolute or contingent obligation or
liability, except trade payables incurred in the ordinary
course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change
in any key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of
the inventories or other assets or properties of the Company,
except in the ordinary course of business;
(viii) any material damage, destruction or losses
against the Company or any waiver of any rights of material
value to the Company;
(ix) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement, with
respect to employees of the Company;
(x) any claim or liability for any material damages
for any actual or alleged negligence or other tort or breach
of contract against or affecting the Company; or
(xi) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in the Company Balance Sheet, the Company has no, and none of its
assets or properties are subject to any, liabilities or obligations,
other than unsecured trade accounts payable and accrued expenses
arising in the ordinary course of the Company's business since the date
of the Company Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local and other
taxes due and payable by the Company on or before the date of this
Agreement have been paid or are adequately provided for in the Company
Balance Sheet. The Company has filed all tax returns and reports
required to be filed by it with all taxing authorities, and all such
tax returns and reports are true, complete and correct. True and
correct copies of the federal, state and local income tax returns filed
by the Company for each of its last three taxable years
-8-
have been furnished to the Purchaser. The liabilities for taxes
reflected in the Company Balance Sheet represent adequate provision for
the payment of all accrued or unpaid or deferred federal, state, local
and other taxes of the Company, for all periods ended on and prior to
the date of the Company Balance Sheet. No assessments of deficiencies
have been made against the Company which are presently pending or
outstanding. No state of facts exists or has existed which would
constitute grounds for the assessment of any tax liability against the
Company with respect to any prior taxable period which has not been
audited by the Internal Revenue Service or which has not been closed by
applicable statute. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any income
tax return of the Company for any period. Prior to the Closing Date,
the Company will not, and the Shareholders will not permit the Company
to, cause or permit a change in any method of accounting for tax
purposes during or applicable to the current tax year. Following the
Closing, the Shareholders shall be fully responsible for accurately and
completely preparing, signing and filing all tax returns and paying all
taxes in respect of the Company's assets and operations prior to the
Closing Date.
3.11. INVENTORY; ACCOUNTS RECEIVABLE. The inventories
reflected on the Company Balance Sheet and all items placed in
inventory since such date (i) are accounted for in accordance with
generally accepted accounting principles consistently applied, (ii) are
accounted for net of reserves which are sufficient to cover any losses
due to obsolescence, shrinkage, or unmarketability, and (iii) are
saleable or usable in the ordinary course of business of the Company at
usual and customary prices, subject to normal returns and markdowns
consistent with past practice. Prior to the Closing, the Shareholders
shall deliver to the Purchaser a list, certified by them to be complete
and correct, of all of the Company's inventory as of the Closing Date.
All of the Closing Date Receivables will (i) represent bona fide claims
for goods delivered or services rendered, and (ii) not be subject to
any rights of offset or counterclaim.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and
all other material items of equipment, fixtures, furniture and other
fixed assets owned by the Company. All such items are in good and
operating condition and repair, ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 sets forth a
complete description of:
(i) all loan, credit and similar agreements to which
the Company is a party or by which it is bound, and all
indentures, trust agreements and other instru-
-9-
ments relating to any issue of bonds, debentures, notes or
other evidences of indebtedness, of or creating any Lien on
any property of, the Company;
(ii) all collective bargaining agreements, employment
contracts, noncompetition agreements and other agreements
relating to the employment of any employees of the Company;
(iii) all joint venture agreements and all other
agreements involving the sharing of profits, to which Company
is a party or by which it is bound;
(iv) all (i) contracts or commitments for capital
expenditures for the Company involving obligations on its part
aggregating in excess of $5,000, (ii) leases under which
personal property is leased to or from the Company and which
are not cancelable by it without penalty upon notice of 30
days or less or pursuant to which rentals payable by or to the
Company exceed $5,000 per annum or $15,000 in the aggregate,
or (iii) contracts and agreements affecting the Company which
do not terminate or are not terminable by it upon notice of 30
days or less or which involves an obligation on its part in
excess of $5,000 per annum or $15,000 in the aggregate; and
(v) all other contracts and commitments of the
Company entered into outside the ordinary course of business.
Each contract and commitment described on Schedule 3.13 is
valid and in full force and effect and neither the Company, nor, to the
knowledge of either Shareholder, any of the other parties thereto, are
in default thereunder. A true and correct copy of each document listed
on Schedule 3.13 has been delivered to the Purchaser by the Company.
3.14. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14
accurately and completely lists (i) all preneed contracts of the
Company unfulfilled as of the date hereof, including contracts for the
sale of funeral merchandise and services, and (ii) all trust accounts
relating to the Homes, indicating the location of each and the balance
thereof (including the location and nature of preneed contracts funded
by annuities or through insurance). All preneed contracts required to
be listed on Schedule 3.14 (x) have been entered into in the normal
course of business at regular retail prices, or pursuant to a sales
promotion program, solely for use by the named customers and members of
their families on terms not more favorable than shown on the specimen
contracts which have been delivered to the Purchaser, (y) are subject
to the rules
-10-
and regulations of the Company as now in force (copies of which have
been delivered to the Purchaser), and (z) on the date hereof are in
full force and effect, subject to no offsets, claims or waivers, and
neither the Company nor such customer is in default thereunder. All
funds received by the Company under preneed contracts have been
deposited in the appropriate accounts and administered and reported in
accordance with the terms thereof and as required by applicable laws
and regulations. The aggregate market value of the preneed accounts,
trusts or other deposits is equal to or greater than the aggregate
preneed liability related to such accounts. The services heretofore
provided by the Company have been rendered in a professional and
competent manner consistent with prevailing professional standards,
practices and customs.
3.15. INTANGIBLE RIGHTS. The Company does not own nor has it
applied for any patents, patent applications, patent licenses,
trademarks, trademark applications or trademark or trademark licenses
(collectively, "Intangible Rights"), except as described on Schedule
3.15. The Company owns or possesses (or at Closing will own or possess)
valid rights or adequate licenses for all of such Intangible Rights as
are necessary to the conduct of the business of the Homes as presently
conducted. The Company is not charged with infringement of any
Intangible Rights, nor does the Company know of any such infringement,
whether or not claimed by any person.
3.16. INSURANCE. Schedule 3.16 lists and describes all
policies of insurance held by the Company, including, without
limitation, all insurance policies that are for the benefit of, or the
proceeds of which are payable to, employees of the Company or their
respective designees. Valid policies for such insurance, true and
complete copies of which have been provided to the Purchaser, will be
outstanding and duly in force at all times prior to the Closing. Such
policies are in such amounts, and insure against such losses and risks,
as are generally maintained for comparable businesses and properties.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 correctly and
completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or held by the Company, which
are all that are necessary or appropriate for the conduct of the
business and operations of the Homes. All such items are in full force
and effect.
3.18. LITIGATION. Except for the lawsuit described on Schedule
3.18 (the "Ware Lawsuit"), there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of either
Shareholder, threatened against or affecting the Company, or any of the
assets, business or proper-
-11-
ties of the Company, at law or in equity or before or by any court or
federal, state, municipal or other governmental department, commission,
board, agency or instrumentality. The Company is not subject to any
continuing court or administrative order, writ, injunction or decree,
nor is the Company in default with respect to any order, writ,
injunction or decree issued by any court or foreign, federal, state,
municipal or other governmental department, commission, board, agency
or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company and the Shareholders
have complied with all federal, state, municipal and other statutes,
rules, ordinances and regulations applicable to the Company, the
operation of each Home, and the Company's assets, rights and properties
(including without limitation all environmental protection and
occupational safety and health rules, regulations and laws, and laws
and regulations applicable to preneed contracts and trust accounts,
including the so-called "FTC Funeral Rule").
3.20. EMPLOYEES. Schedule 3.20 correctly and completely lists
the names and annual or hourly rates of salary and other compensation
of all the employees and agents of the Company. Schedule 3.20 also sets
forth the date of the last salary increase for each employee listed
thereon, and the outstanding balances of all loans and advances, if
any, made by the Company to any such employee or agent. At or
immediately before the Closing, the Company shall furnish the Purchaser
with a list of the vacation days or other time off to which the
Company's employees are then eligible. At Closing, the Shareholders
will cause the Company to pay or satisfy all vacation, holiday and
other accrued benefits to employees of the Company which are then
outstanding. There are not pending or threatened against the Company
any general labor disputes, strikes or concerted work stoppages, and
there are no discussions, negotiations, demands or proposals that are
pending or have been conducted or made with or by any labor union or
association with respect to any employees of the Company. The Company
believes that the relations between the Company and its employees are
good.
3.21. EMPLOYEE BENEFIT PLANS. Schedule 3.21 lists all plans,
contracts, commitments, programs and policies (including, without
limitation, pension, profit sharing, thrift, bonus, deferred
compensation, severance, retirement, disability, medical (including
retiree medical), life, dental and accidental insurance, vacation, sick
leave, death benefit and other similar employee benefit plans and
policies, whether written or oral) maintained by the Company providing
benefits to any employee or former employee of the Company
(collectively, the "Plans"). The Company has delivered to the Purchaser
true and correct copies of all documents embodying
-12-
the Plans, and all determination letters from the Internal Revenue
Service regarding Plans required to be qualified under the Code. Except
as reflected on Schedule 3.21, all obligations of the Company under the
Plans have been fully paid, fully funded or adequate accruals therefor
have been made on the Balance Sheet. All necessary governmental
approvals have been obtained for all Plans subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") and have been
qualified under Section 401 of the Code, and each trust established for
any Plan is exempt from federal income taxation under Section 501(a) of
the Code. With respect to any such Plan or any other "employee welfare
plan" (as defined in ERISA) maintained by the Company, there has been
no (i) "reportable event" as defined in Section 4043 of ERISA, (ii)
event described in Section 4062(e) or 4063(a) of ERISA, or (iii) in the
case of any defined benefit plan, termination or partial termination.
3.22. AFFILIATED PARTY TRANSACTIONS. Each Home has been
operated since the date of the Company Balance Sheet in a manner
separate from the personal and other business activities of the
Shareholders and their respective affiliates, and neither the Company
nor its assets are subject to any affiliated party commitments or
transactions.
3.23. BOOKS AND RECORDS. All books and records of the Company
are true, correct and complete in all material respects, have been
maintained by the Company in accordance with good business practice and
in accordance with all laws, regulations and other requirements
applicable to the Company. The corporate records of the Company reflect
a true record of all meetings and proceedings of the Board of Directors
and shareholders of the Company.
3.24. FINDERS. Except as described in Section 13.1, neither
the Company nor either Shareholder is a party to or in any way
obligated under any contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any broker's
or finder's fee in connection with the origin, negotiation, execution
or performance of this Agreement.
3.25. AUTHORITY OF THE SHAREHOLDERS. The Shareholders have the
full right, capacity and authority to enter into and perform this
Agreement and the Documents (as hereinafter defined) to which each
Shareholder is a party, and to consummate the transactions contemplated
hereby and thereby. This Agreement constitutes, and upon execution and
delivery by the Shareholders, the Documents will constitute, the legal,
valid and binding obligations of each Shareholder enforceable against
such Shareholder in accordance with their respective terms. Neither the
execution, delivery nor performance of this Agreement and the Documents
to which the Shareholders are
-13-
parties, nor the consummation of the transactions contemplated hereby
or thereby, will: (i) result in a violation or breach of any term or
provision of, constitute a default or acceleration under, require
notice to or consent of any third party to, or result in the creation
of any Lien by virtue of (x) the Articles of Incorporation or bylaws of
the Company or (y) any contract, agreement, lease, license or other
commitment to which the Company or either Shareholder is a party or by
which either of them or their respective assets or properties are
bound; nor (ii) violate any statute or any order, writ, injunction or
decree of any court, administrative agency or governmental body. For
purposes of this Agreement, the term "Documents" shall mean, as to any
party hereto, any and all agreements, certificates and other
instruments expressly contemplated in this Agreement or any exhibit
hereto to be executed or delivered by or on behalf of such party at or
in connection with the Closing hereunder.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance of this Agreement by the Company have been duly authorized
by its Board of Directors. This Agreement is legally binding and
enforceable against the Company in accordance with its terms. Neither
the execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor constitute a
default or accelerate the performance required under, the Articles of
Incorporation or bylaws of the Company or any indenture, mortgage, deed
of trust or other contract or agreement to which the Company is a party
or by which it or its properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
3.27. FULL DISCLOSURE. The representations and warranties made
by the Company and the Shareholders hereunder or in any Schedules or
certificates furnished to the Purchaser pursuant hereto or thereto, do
not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein
or necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made, not
misleading.
3.28. ACQUISITION OF PARENT STOCK. The Parent Stock to be
acquired by the Shareholders pursuant to this Agreement will be
acquired by them for investment purposes only and not with the present
intention or view to, or resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933, as amended.
The Shareholders understand that such Parent Stock is not and will not
be registered under such Securities Act or any state securities or blue
sky laws, and that neither Parent nor the Purchaser is under any
obligation to register any such Parent Stock
-14-
under any such laws. The Shareholders further understand that
transferability of such Parent Stock will be restricted in accordance
with applicable state and federal securities laws, and that a
restrictive legend to such effect will be inscribed on each certificate
representing Parent Stock. The Shareholders prior to the Closing will
have had full opportunity to receive such information and ask such
questions of representatives of Parent concerning Parent, its
subsidiaries and their business, operations, assets and prospects, and
concerning an investment in the Parent Stock, as the Shareholders have
deemed appropriate in order to make an informed investment decision
with respect to the Parent Stock.
3.29. SCHEDULES. The Schedules referred to in this Agreement
have been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company and the
Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate
power to enter into and perform its obligations under this Agreement
and the Documents to which it is a party.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery and
performance by the Purchaser of this Agreement and the Documents to
which it is a party have been duly authorized by its Board of
Directors. This Agreement is, and upon their execution and delivery as
herein provided the Documents will be, valid and binding upon the
Purchaser and enforceable against the Purchaser in accordance with
their respective terms. Neither the execution, delivery or performance
by the Purchaser of this Agreement and the Documents to which it is a
party will conflict with or result in a violation or breach of any term
or provision of, nor constitute a default under, the Certificate of
Incorporation or bylaws of the Purchaser or under any indenture,
mortgage, deed of trust or other contract or agreement to which it is a
party or by which it or its property is bound, or violate any order,
writ, injunction or decree of any court, administrative agency or
governmental body.
4.3. FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are no
outstanding claims against it, for the payment
-15-
of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4. FULL DISCLOSURE. The representations and warranties made
by the Purchaser hereunder, or in any certificates furnished to the
Company and the Shareholders pursuant hereto or thereto, do not and
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or therein,
in light of the circumstances in which they are made, not misleading.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PENDING
CLOSING. The Company and the Shareholders jointly and severally covenant with
the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of the Company will be operated only in
the ordinary course, and, in particular, without the prior written
consent of the Purchaser, the Company will not, and neither Shareholder
will not cause or allow the Company to:
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like coverage;
(ii) amend or otherwise modify the Articles of
Incorporation or bylaws of the Company;
(iii) commit any act or permit the occurrence of any
event or the existence of any condition of the type described
in Section 3.8, other than as contemplated in Section 2.2(ii);
(iv) enter into any contract, agreement or other
commitment of the type described in Section 3.13; or
(v) hire, fire, reassign or make any other change in
key personnel of the Company, or increase the rate of
compensation of or declare or pay any bonuses to any employee
in excess of that listed on Schedule 3.20.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company and
the Shareholders will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to all of
the properties, books, contracts, commitments and records of the
Company so that the Purchaser may have full opportunity to make such
investigation as it shall desire to make of the affairs of the Company.
-16-
5.3. CONSENTS AND APPROVALS. The Company and the Shareholders
will use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated by this
Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor either Shareholder shall enter into any
agreements or commitments, or initiate, solicit or encourage any
offers, proposals or expressions of interest, or otherwise hold any
discussions with any potential buyers, investment bankers or finders,
with respect to the possible sale or other disposition of all or any
substantial portion of the assets and business of the Company any other
sale of the Company (whether by merger, consolidation, sale of stock or
otherwise), other than with the Purchaser.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company and the Shareholders that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use its best
efforts to obtain the necessary consents and approvals of other persons
which may be required to be obtained on its part to consummate the
transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to the Company from any representative, officer,
director or employee of the Company, including their accountants or
legal counsel, or from any books or records of any of them, in
connection with the transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither the
Purchaser nor its representatives shall use such data or information or
disclose the same to others, except as such data or information is
published or is a matter of public knowledge or is required by an
applicable law or regulation to be disclosed. If this Agreement is
terminated for any reason, the Purchaser shall return to the Company
all written data and information obtained by the Purchaser from the
Company or its representatives in connection with the transactions
contemplated by this Agreement, and the Purchaser shall not retain any
photocopies of such information.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any error,
-17-
misstatement or omission in the representations and warranties made by
the Company and the Shareholders in Section 3 hereof; the
representations and warranties made by the Company and the Shareholders
herein shall be deemed to have been made again at and as of the time of
Closing and shall then be true and correct; the Company and the
Shareholders shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by them at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by the Shareholders and an executive
officer of the Company, to the effect of the foregoing provisions of
this Section 7.1.
7.2. OPINION OF COUNSEL. The Company shall have caused to be
delivered to the Purchaser an opinion of Swinford & Sims, counsel for
the Company and the Shareholders, dated the Closing Date, to the effect
that:
(i) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Kentucky, with full corporate authority to enter into
and perform its obligations under this Agreement;
(ii) the authorized capital stock of the Company
consists of 2,000 shares of Common Stock, $1,000.00 par value
per share, of which 800 shares are validly issued and
outstanding and fully paid and nonassessable and 1,200 shares
are held by the Company in its treasury;
(iii) to the knowledge of such counsel, after due
inquiry, there are no outstanding subscriptions, options or
other agreements or commitments obligating the Company to
issue any shares of its capital stock or securities
convertible into shares of its capital stock;
(iv) the Shareholders collectively are the record and
beneficial owners of the Shares, free and clear of any and all
Liens or claims of any other person, and the Shareholders have
full capacity to sell and transfer the Shares in accordance
with this Agreement; and upon such sale and transfer to the
Purchaser by the Shareholders, the Purchaser will acquire from
the Shareholders all of their rights in the Shares;
(v) the execution, delivery and performance by the
Company of this Agreement have been duly authorized by its
Board of Directors;
(vi) this Agreement has been duly and validly
executed and delivered by the Company and constitutes
-18-
the valid and binding obligation of the Company enforceable
against it in accordance with its terms;
(vii) this Agreement and the Documents to which the
Shareholders are parties have been duly and validly executed
and delivered by them and constitute the valid and binding
obligations of the Shareholders enforceable against them in
accordance with their respective terms;
(viii) neither the execution, delivery or
consummation of the transactions contemplated by this
Agreement or the Documents to which the Company and the
Shareholders are parties will (x) result in the breach of or
constitute a default under the Articles of Incorporation or
bylaws of the Company or any loan or credit agreement,
indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which the Company or
either Shareholder is a party or by which they or their
respective assets are bound, or (y) violate any order, writ,
injunction or decree known to such counsel of any court,
administrative agency or governmental body;
(ix) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Company and the Shareholders of this Agreement and the
Documents to which they are parties; and
(x) to the knowledge of such counsel after due
inquiry, there are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting the
Company or any of its assets, at law or in equity or before or
by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholders and officers of the Company and
certificates of public officials, copies of which shall be provided to
Purchaser at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal law and
the internal laws of the State of Kentucky.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholders
shall have obtained all consents and approvals
-19-
of other persons and governmental authorities to the transactions
contemplated by this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to any substantial portion of the
assets and properties of the Company (regardless of whether such loss
or damage was insured).
7.5. RESIGNATIONS AND RELEASES. The Purchaser shall have
received such resignations of the officers and directors of the Company
as shall have been requested by the Purchaser, as well as written
releases, in form and substance acceptable to the Purchaser, under
which the Shareholders waive and release all rights and claims against
the Company other than those arising under Plans described in Schedule
3.21 or under any of the Documents referred to in Section 2.2.
7.6. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall have been approved by counsel for the
Purchaser, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments and
documents as they shall have reasonably requested.
7.7. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review of the
financial information, books and records, and properties and assets of
the Company and the Homes and shall have discovered no change in the
business, assets, operations, financial condition or prospects of the
Company or either Home which could, in the sole determination of the
Purchaser, have an adverse effect on the value to the Purchaser of the
business, assets, financial condition or prospects being acquired
hereunder.
7.8. RELATED TRANSACTIONS. The Shareholders shall have
executed and delivered their respective Employment Agreements, as
described in Section 2.2.
7.9. FINANCING COMMITMENT. The Purchaser shall have received
from a financial institution acceptable to it a written commitment,
containing such terms and conditions and otherwise in form and
substance acceptable to the Purchaser, providing for the extension of
financing in order to provide the portion of the Purchase Price not
furnished by the Purchaser or obtained by the Purchaser from other
sources, and such commitment shall have been funded in such amount
contemporaneously with the Closing.
-20-
7.10. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall
have been conducted, at the Purchaser's expense, (i) a Phase I (and, if
deemed necessary by Purchaser, a Phase II) environmental audit of the
Homes and the Real Property by an environmental consulting firm
selected by Purchaser, (ii) a health and safety inspection of the Homes
by a person (who may be an employee of the Purchaser) or firm selected
by the Purchaser and who is qualified and experienced in such matters
in the funeral service industry, and (iii) a structural inspection of
the Homes by an engineering firm selected by the Purchaser. The
Shareholders agree to pay the costs and to take the action reasonably
recommended by such firms and/or persons, up to $15,000 in the
aggregate. In any event, it shall be a condition to the Purchaser's
obligations hereunder that the results of the reports of such firms or
persons (together with any remedial action, if any, taken by the
Shareholders, regardless of the cost, in response thereto) shall be
satisfactory to Purchaser in its sole discretion.
7.11. TITLE INSURANCE. The Shareholders shall have obtained,
at their expense, an Owner's Policy of Title Insurance issued to the
Purchaser in an agreed-upon amount, issued by a title company with
offices in Harrison County, Kentucky area and reasonably acceptable to
the Purchaser (the "Title Company"), insuring the ownership interest in
the Real Property in the Purchaser (by transfer to it from the Company
immediately following the Closing), subject only to the Permitted Liens
and any standard printed exceptions included in a Kentucky standard
form Policy of Title Insurance; provided, however, that such policy
shall have deleted any exception regarding restrictions or be limited
to restrictions that are Permitted Liens, any standard exception
pertaining to discrepancies, conflicts or shortages in area shall be
deleted except for "shortages in area", and any standard exception for
taxes shall be limited to subsequent years.
7.12. SURVEY. The Purchaser shall have received, at the
expense of the Shareholders, an as-built survey prepared by a licensed
surveyor approved by the Purchaser and acceptable to the Title Company,
with respect to each parcel of Real Property, which survey shall comply
with any applicable standards under Kentucky law, be sufficient for
Title Company to delete any survey exception contained in the owner's
policy of title insurance referred to in Section 7.11, save and except
for the phrase "shortages in area", and otherwise be in form and
content acceptable to Purchaser.
7.13. LIEN RELEASES. The holders of the Liens (other than
Permitted Liens) against any assets of the Company or any portion of
the Real Property shall have executed and delivered written releases of
such Liens, all in recordable form and otherwise acceptable to the
Purchaser and its lender.
-21-
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The obligations of the Company and the Shareholders under this
Agreement shall be subject to the following conditions, any of which may be
expressly waived by the Company in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Company and the Shareholders shall not have discovered any material
error, misstatement or omission in the representations and warranties
made by the Purchaser in Section 4 hereof; the representations and
warranties made by the Purchaser herein shall be deemed to have been
made again at and as of the time of Closing and shall then be true and
correct; the Purchaser shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the Company and the
Shareholders shall have received a certificate, signed by an executive
officer of the Purchaser, to the effect of the foregoing provisions of
this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Company and the Shareholders an opinion of Snell &
Smith, A Professional Corporation, counsel for Purchaser, to the effect
that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power to
enter into and perform its obligations under this Agreement
and the Documents to which it is a party;
(ii) the execution, delivery and performance by the
Purchaser of this Agreement and the Documents to which it is a
party have been duly authorized by its Board of Directors;
(iii) this Agreement is, and upon execution and
delivery as herein provided the Documents to which the
Purchaser is a party will be, valid and binding upon the
Purchaser and enforceable against the Purchaser in accordance
with their respective terms;
(iv) neither the execution, delivery or performance
by the Purchaser of this Agreement or the Documents to which
it is a party will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of the
Purchaser or under any loan or credit agreement, indenture,
mortgage, deed of trust or other contract or agreement known
to such counsel and to which Purchaser is a party or by which
it or
-22-
its property is bound, or violate any order, writ, injunction
or decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement or the Documents to which it is a
party or the performance of its obligations hereunder or
thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to the Company at Closing.
Any opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the General Corporation Law of
the State of Delaware and the internal laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. The Company shall have executed and
delivered to the Shareholders their respective Employment Agreements.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party hereto,
all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Schedule or Exhibit hereto or in
connection with the transactions contemplated hereby and thereby shall
not terminate but shall survive the Closing and continue in effect
thereafter.
-23-
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders
jointly and severally agree to indemnify and hold harmless the
Purchaser and (following the Closing) the Company, and their respective
successors and assigns, from and against any and all losses, damages,
liabilities, obligations, costs or expenses (any one such item being
herein called a "Loss" and all such items being herein collectively
called "Losses") which are caused by or arise out of (i) any breach or
default in the performance by the Company or either Share-holder of any
covenant or agreement of the Company or the Shareholders contained in
this Agreement (including, without limitation, Section 12 hereof), (ii)
any breach of warranty or inaccurate or erroneous representation made
by the Company or either Shareholder herein, in any Schedule delivered
to the Purchaser pursuant hereto or in any certificate or other
instrument delivered by or on behalf of the Company or the Shareholders
pursuant hereto, (iii) any Unassumed Liability of the Company, whether
absolute or contingent, known or unknown, that is not paid or
discharged in full at Closing as contemplated under Section 1.3, and
(iv) any and all actions, suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal fees)
incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Shareholders and their respective
heirs and assigns from and against any Losses which are caused by or
arise out of (i) any breach or default in the performance by the
Purchaser of any covenant or agreement of the Purchaser contained in
this Agreement, (ii) any breach of warranty or inaccurate or erroneous
representation made by the Purchaser herein or in any certificate or
other instrument delivered by or on behalf of the Purchaser pursuant
hereto, and (iii) any and all actions suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying party"),
the indemnifying party shall be given prompt written notice thereof and
shall have the right (i) to participate in the defense thereof and be
represented, at his, her or its own expense, by advisory counsel
selected by him, her or it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts in
connection therewith. Notwithstanding the foregoing, if within ten
business days after delivery of the indemnified party's notice
described above, the indemnifying party
-24-
indicates in writing to the indemnified party that, as between such
parties, such claims shall be fully indemnified for by the indemnifying
party as provided herein, then the indemnifying party shall have the
right to control the defense of such claim, provided that the
indemnified party shall have the right (i) to participate in the
defense thereof and be represented, at his, her or its own expense, by
advisory counsel selected by him, her or it, and (ii) to approve any
settlement if the indemnified party's interests are, or would be,
affected thereby.
10.4. OFFSET. If either Shareholder becomes obligated to
indemnify the Purchaser after the Closing Date pursuant to this
Agreement (including Sections 10.1 and 10.5 hereof), at any time when
any of the Deferred Purchase Price, any amount under Section 1.4 hereof
or any of the Parent Stock or escrowed Purchase Price under Section
10.5 remain outstanding, then the Purchaser may, at its option and
without prejudice to any right of the Purchaser to proceed directly
against either Shareholder, set-off the amount for which the
Shareholders shall be so obligated for such indemnification or breach
against the Deferred Purchase Price and the amounts so outstanding
under Sections 1.4 and 10.5. The exercise of such right of set-off
shall be evidenced by means of a written notice to such effect given by
the Purchaser to the Shareholders, describing the basis for indemnity
or recovery and set-off hereunder and the amount of the set-off.
10.5. WARE LAWSUIT. The Shareholders specifically and jointly
and severally agree to indemnify and hold harmless the Purchaser and
the Company from all Losses arising from, associated with or related to
the Ware Lawsuit. The Shareholders represent that all legal defense
costs for the Company's defense of the Ware Lawsuit have been fully
covered by the insurance described on Schedule 3.16, the Shareholders
have provided to the Purchaser true and complete copies of all
correspondence from the insurance carrier to the Company with respect
to the coverage of the Ware Lawsuit by such insurance, and the
Shareholders agree, at their own expense, to do all things necessary to
continue to maintain the insurance after the Closing to the extent
necessary to ensure that the Ware Lawsuit continues to be covered
thereby in the same manner as covered prior to the Closing. As
additional security for the Shareholders' indemnification obligations
under this Section 10.5, the Purchaser will on the Closing Date, as
described in Section 1.2, deposit out of the Purchase Price all 150,000
shares of Parent Stock and $50,000 in cash in an interest-bearing
escrow account (the "Escrow") with a financial institution mutually
designated by the parties pursuant to an escrow agreement to be entered
into on the Closing Date among the Purchaser, the Shareholders and such
institution in form and substance acceptable to them (the "Escrow
Agreement").
-25-
Certificates representing the Parent Stock will be issued in the
Shareholders' names on the Closing Date and then deposited into Escrow,
together with stock powers duly executed in blank by the Shareholders.
If, prior to final resolution of the Ware Lawsuit (in the manner
hereafter described) the Parent Stock is converted into shares of
Common Stock of Parent, such Common Stock shall continue to be held and
maintained in Escrow in accordance with the Escrow Agreement. From time
to time while the Escrow Agreement is in effect, the Purchaser may seek
to recover from the Escrow for its Losses arising from the Ware
Lawsuit, in accordance with the procedures established in the Escrow
Agreement. At such time as the Ware Lawsuit has been finally or fully
settled, or when the Ware Lawsuit has been reduced to final judgment
and either all appeals thereof have been exhausted or no appeal has
been taken after the time therefor has expired, then the parties agree
to direct the Escrow Agent to disburse the funds and stock held in
Escrow to the Purchaser, to the extent of its Losses relating thereto,
and the balance to the Shareholders, as provided in the Escrow
Agreement.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholders agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof; and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Shareholders
and the Purchaser;
(b) the Purchaser if a material default shall be made
by the Company or either Shareholder in the observance or in
the due and timely performance by any of their covenants
herein contained, or if there shall have been a breach or
misrepresentation by the Company or either Shareholder of any
of their warranties and representations herein contained, or
if the conditions of this Agreement to be complied with or
performed by them at or before the Closing shall not have been
complied with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Purchaser in writing;
(c) the Shareholders if a material default shall be
made by the Purchaser in the observance or in the due
-26-
and timely performance by the Purchaser of any of the
covenants of the Purchaser herein contained, or if there shall
have been a material breach or misrepresentation by the
Purchaser of any of its warranties and representations herein
contained, or if the conditions of this Agreement to be
complied with or performed by the Purchaser at or before the
Closing shall not have been complied with or performed at the
time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly
waived by the Shareholders in writing; or
(d) either the Shareholders or the Purchaser, if the
Closing has not occurred by March 15, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other party hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party has
not breached any representation or warranty or failed to comply with
any of its covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party against
any other party which has breached any of its representations,
warranties or covenants herein prior to such termination.
12. RESTRICTIVE COVENANTS OF THE SHAREHOLDERS.
12.1. NON-COMPETITION. If the Closing occurs, then for a
period commencing on the Closing Date and ending ten (10) years
thereafter, neither Shareholder shall, except in rendering services for
the Purchaser, directly or indirectly:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partnership, association or
agent or agency, anywhere within a fifty (50) mile radius of
either Home (the "Territory"), in the funeral, mortuary,
crematory, monument, or any related line of business
(collectively, the "Business");
(ii) own or hold any beneficial interest in one
percent (1%) or more of the voting securities in any
corporation, partnership or other business entity which
conducts its operations, in whole or in part, in the Business
within the Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corporation,
partnership or other business entity that
-27-
conducts its business, in whole or in part, in the Business
within the Territory; or
(iv) cause or induce any present or future employee
of the Purchaser or any of its affiliates to leave the employ
of the Purchaser or any such affiliate to accept employment
with such Shareholder or with any person, firm, association or
corporation with which such Shareholder may be or become
affiliated.
Without limiting the generality of the foregoing, a
Shareholder shall be deemed directly or indirectly engaged in the
Business if he or she acts as a funeral director at any funeral
establishment within the Territory, if a Shareholder engages in the
sale or marketing of preneed funeral contracts for services to be
performed within the Territory, or if a Shareholder promotes or
finances any family member or affiliate to operate a Business or engage
in any of the foregoing activities within the Territory.
12.2. REFORMATION. The above covenants shall not be held
invalid or unenforceable because of the scope of the territory or
actions subject thereto or restricted thereby, or the period of time
within which such covenants are operative; but any judgment of a court
of competent jurisdiction may define the maximum territory and actions
subject to and restricted thereby and the period of time during which
such covenants are enforceable.
12.3. REMEDIES. Each Shareholder agrees that any remedy at law
for any actual or threatened breach of any of the foregoing covenants
would be inadequate and that the Purchaser shall be entitled to
specific performance hereof or injunctive relief or both, by temporary
or permanent injunction or such other appropriate judicial remedy, writ
or order as may be entered into by a court of competent jurisdiction in
addition to any damages that the Purchaser may be legally entitled to
recover together with reasonable expenses of litigation, including
attorneys' fees incurred in connection therewith, as may be approved by
such court.
12.4. REPRESENTATIONS. Each Shareholder represents and
warrants to and agrees with the Purchaser that (i) such Shareholder
understands that the foregoing restrictions are being made incident to
and as a condition of consummation of the transactions contemplated
hereby, and that such covenants are necessary in order to protect the
business and goodwill being acquired thereby, (ii) such covenants are
not oppressive to either Shareholder in any respect, and (iii) the
consideration for such restrictions is included in the Purchase Price,
which consideration each Shareholder acknowledges is fair and
-28-
adequate for the giving of the covenants herein and for which such
Shareholder acknowledges a direct and valuable benefit.
12.5. PURCHASE PRICE ALLOCATION. The parties agree to allocate
$50,000 of the Purchase Price to the foregoing covenants for federal
income tax purposes, pursuant to Section 1060(a) of the Code. Such
allocation is not intended to be a measure of the amount or range of
damages which the Purchaser may suffer or recover as a result of any
breach of the foregoing covenants, and the Shareholders acknowledge
that in case of any such breach, the Purchaser shall be entitled to
seek in excess of such amount as it may otherwise be able to
demonstrate itself justly entitled to.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. If the
transactions contemplated by this Agreement and the Exhibits hereto are
consummated, the Company shall have no obligation for, nor shall it be
charged with, any such expenses of the Shareholders. Without limiting
the generality of the foregoing, all finders' and similar fees and
expenses of Lee Brothers, sales representative for the Shareholders,
shall be borne solely by the Shareholders, and in no event shall the
Company or the Purchaser be charged or responsible therefor. All sales,
transfer, stamp or other similar taxes, if any, which may be assessed
or charged in connection with the transactions hereunder shall be borne
by the Shareholders.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given if personally delivered or mailed, first class,
registered or certified mail, postage prepaid, as follows:
(i) if to the Company or either Shareholder, to:
Mr. and Mrs. James E. Drake
James E. Drake Funeral Home
114 N. Walnut
Cynthiana, Kentucky 41031
with a copy to:
Swinford & Sims
40 East Pike Street
Cynthiana, Kentucky 41031
Attention: Mr. John Swinford
-29-
(ii) if to the Purchaser, to:
Carriage Funeral Holdings, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne,
President
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to
the other parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may assign
its rights hereunder without the consent of the Shareholders to a
successor-in-interest to the Purchaser or the Company (whether by
merger, sale of assets or otherwise).
13.4. SUCCESSORS BOUND. Subject to the provisions of Section
13.3, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
personal representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
13.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by both parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and supersede
all prior understandings with respect to the subject matter hereof and
thereof (including, without limitation, the letter of intent between
the Purchaser and the Company dated August 31, 1995).
13.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Kentucky.
-30-
13.9. CONSTRUCTION. As the context requires or permits:
pronouns used herein shall include the masculine, the feminine and
neuter; terms used in plural shall include the singular, and singular
terms shall include the plural; "hereof", "herein", "hereunder" and
"hereto" shall refer to this Agreement; and section and paragraph
references, when not expressly referring to another agreement or
document, shall mean sections or paragraphs in this Agreement.
13.10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL HOLDINGS, INC.
By: /s/ JAY D. DODDS
Jay D. Dodds,
Vice President of Operations
THE COMPANY:
JAMES E. DRAKE FUNERAL HOME, INC.
By: /s/ JAMES E. DRAKE
James E. Drake,
President
THE SHAREHOLDERS:
/s/ JAMES E. DRAKE
James E. Drake
/s/ PATRICIA A. DRAKE
Patricia A. Drake
-31-
EXHIBIT DESCRIPTION
A-1 Employment Agreement (James E. Drake)
A-2 Employment Agreement (Patricia A. Drake)
SCHEDULE DESCRIPTION
2.2 Personal Items
3.6 Real Property
3.7 Permitted Liens
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Intangible Assets
3.16 Insurance
3.17 Licenses
3.20 Employees
3.21 Employee Benefit Plans
Exhibit 10.3
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of April 10, 1996, between CFS
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), and SCI TEXAS
FUNERAL SERVICES, INC., a Texas corporation (the "Company");
WITNESSETH:
WHEREAS, the Company owns and operates (i) the two Blackburn
Shaw Funeral Homes located at 315 E. 5th Street in Amarillo, Potter County,
Texas and at 1505 Martin Street in Amarillo, Potter County, Texas (collectively,
the "Homes"), and (ii) the Memory Gardens of Amarillo Cemetery and Crematory
located at I-27 and McCormick Road in Amarillo, Potter County, Texas (the
"Cemetery"); and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of the assets, rights and properties of the Homes and the
Cemetery from the Company, on the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 TRANSFER OF ASSETS. Subject to the provisions of
this Agreement, the Company agrees to sell and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
all of the properties, assets, rights and business of the
Homes and the Cemetery described below, as they shall exist at
the time of the Closing (collectively, the "Assets"),
excluding those described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of caskets, accessories,
monuments and other goods and inventories of the
Homes, and inventories of vaults, crypts, markers,
bases, monuments and other goods and inventories of
the Cemetery;
(iii) the nine (9) motor vehicles described
on Schedule 3.7, and the other machinery, equipment,
furniture, fixtures, supplies, tools and other fixed
assets and property, plant and equipment of the Homes
and the Cemetery, including those described on
Schedule 3.7;
(iv) fee simple title to the real property
and improvements on which the Homes and the Cemetery
are located as described on Schedule 3.5 (the "Real
Property");
<PAGE>
(v) all cash balances in bank accounts,
certificates of deposit and other investments, but
only if such cash balances or certificates of deposit
are committed fund obligations under preneed
contracts and for perpetual care;
(vi) the rights of the Company under
pre-need contracts and the other agreements, leases
and commitments described on Schedules 3.8 and 3.9;
(vii) all rights owned or held by the
Company to the names "Blackburn Shaw Funeral Home"
and "Memory Gardens of Amarillo", and all derivatives
thereof and goodwill associated with the foregoing;
(viii) all transferrable permits and
licenses, and all books, records, brochures and
literature, rights in unemployment compensation,
industrial accident and other similar funds, and
prepaid items; and
(ix) all other assets, rights and properties
owned or held by the Company at the time of Closing
and used in the operation of, or in connection with,
the business of the Homes and the Cemetery or located
thereon, excluding those described in Section 1.2.
At the Closing, the Company shall convey to the Purchaser the
Assets free and clear of any and all liens, security
interests, pledges, encumbrances, or title restrictions of any
kind (collectively, "Liens"), other than Liens against the
Real Property which are described on Schedule 3.5 as being
approved by the Purchaser (the "Permitted Encumbrances").
1.2 RETAINED ASSETS. Notwithstanding the foregoing,
the following properties, assets, rights and interests (the
"Retained Assets") are hereby excluded from the purchase and
sale contemplated hereby and are therefore not included in the
Assets:
(i) all cash on hand or on deposit,
including bank account balances, certificates of
deposit and marketable securities, excluding,
however, account balances, certificates of deposit
and other investments described in Section 1.1(v);
(ii) intercompany accounts and notes
receivable owed to the Company by its indirect parent
corporation, Service Corporation International, a
Texas corporation (the
-2-
"Shareholder"), or any of its affiliates which do not
arise out of the sale of goods or services of the
Company;
(iii) the corporate records, minutes of
proceedings, stock records and corporate seals of the
Company, and any shares of the Company's capital
stock held in its treasury;
(iv) the Company's share of any prepaid
federal or state income taxes and any rights to or
claims for federal or state income tax refunds; and
(v) all assets, rights and properties of
funeral homes and cemeteries owned and operated by
the Company, other than the Homes and the Cemetery.
1.3 PURCHASE PRICE. The purchase price for the Assets
shall be $2,784,674, of which $2,300,000 shall be paid in cash
at Closing by wire transfer to such account as the Company
shall designate prior to Closing, and $484,674 shall be
represented by the Purchaser's unsecured promissory note
payable to the Company in such amount, dated the Closing Date,
bearing interest at the rate of six percent (6%) per annum
(compounded monthly), maturing June 30, 1999, with all
principal and interest due on or before maturity, such note to
otherwise be in form and substance reasonably acceptable to
the parties.
1.4 ASSUMPTION OF LIABILITIES. The Purchaser, upon
the sale and purchase of the Assets, shall, subject to Section
1.5 below, assume and agree to pay or discharge only the
following liabilities and obligations of the Company
(collectively, the "Assumed Liabilities"):
(i) liabilities under the preneed
contracts described in Section 3.9, under preneed
contracts entered into in the ordinary course of
business between the date of such schedule and the
Closing Date, and under at-need contracts for
services to be performed following Closing, provided
that the entire amount of consideration payable by
the customers under at-need contracts is payable
following Closing or an appropriate adjustment to
such effect shall be made at Closing between the
Company and the Purchaser; and
(ii) obligations arising after Closing
under the agreements and leases and commitments
described on Schedule 3.8 hereto (the "Assumed
Contracts").
-3-
The Company represents to the Purchaser that the
Cemetery's unfunded merchandise liability (defined as the
estimated wholesale cost of undelivered merchandise at the
time of Closing) is not more than $450,000 (the "Unfunded
Liability"). The Purchaser agrees as part of the Assumed
Liabilities, it will assume the Unfunded Liability. The
foregoing shall not apply to any other trust fund or account
required to be maintained for either Home or the Cemetery.
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements with the
Company. Nothing herein shall prevent the Purchaser from
contesting in good faith any of the Assumed Liabilities. At
Closing, the Purchaser shall deliver to the Company an
instrument (which may be combined with one or more contract
assignments), dated the Closing Date and reasonably
satisfactory in form and substance to the Company, pursuant to
which the Purchaser will assume the Assumed Liabilities.
1.5 LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4 above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Company not specifically included in the Assumed
Liabilities, and, in particular, the Purchaser shall not
assume or agree to pay or discharge any of the following:
(i) any notes or accounts payable of any
kind, regardless of whether entered into in the
ordinary course of business;
(ii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Homes or the Cemetery
prior to the Closing Date;
(iii) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against the
Company based upon any set of facts occurring prior
to the Closing;
(iv) the liabilities and obligations under
any warranties to customers with respect to goods or
products sold or services provided by the Company
prior to Closing;
(v) all personal injury, product liability
claims, claims of environmental damage,
-4-
claims of hazards to health, strict liability, toxic
torts, enforcement proceedings, cleanup orders and
other similar actions or claims instituted by private
parties or governmental agencies, with respect to the
conduct of the business and operations of the Company
prior to Closing; or
(vi) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6 CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, and payments under the Assumed Contracts shall be
prorated as of the Closing Date, the Company being charged and
credited for all of same up to and on such date and the
Purchaser being charged and credited for all of same after
such date. Utility services will be transferred to the
Purchaser's name on or as soon as possible after the Closing
Date. If the actual amounts to be prorated are not known as of
the Closing Date, the prorations shall be made on the basis of
the best evidence then available, and not thereafter adjusted.
1.7 INSTRUMENTS OF TRANSFER. At the Closing, the
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale, contract assignments and
assignments of motor vehicle registrations, transferring title
to the Assets to the Purchaser as may reasonably be requested
by the Purchaser. Such instruments shall be reasonably
satisfactory in form and substance to the Purchaser and shall
vest in the Purchaser good and indefeasible title to all the
Assets, free and clear of all Liens other than the Permitted
Encumbrances.
1.8 DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS.
At the Closing, the Company will deliver to the Purchaser all
of the Assumed Contracts, with such assignments thereof and
consents to assignment as the Purchaser shall deem necessary
to assure the Purchaser of their full benefit. Simultaneously
with such deliveries, the Company shall take all requisite
steps to put the Purchaser in actual possession and operating
control of the Assets and all of the Company's on-site
business records, books and other data. In addition, at the
Closing, the Company and the Purchaser shall coordinate with
one another in taking all necessary or appropriate action to
cause the transfer of the trust funds referred to in Section
3.9 including, without limitation, the obtaining
-5-
of governmental and third party consents and, if necessary,
the substitution of a successor trustee by the Purchaser or a
designee of the Purchaser.
1.9 FURTHER ASSURANCES. The Company shall from time
to time after the Closing, without further consideration,
execute and deliver such instruments of transfer, conveyance
and assignment (in addition to those delivered pursuant to
Section 1.7), and shall take such other action, as the
Purchaser may reasonably request to more effectively transfer,
convey and assign to and vest in the Purchaser, and to put the
Purchaser in actual possession and control of, each of the
Assets.
1.10 EMPLOYEE MATTERS. On the Closing Date, the
Purchaser may (but shall not be required to) offer employment
to each employee of each Home and the Cemetery. Each such
employee so offered employment who accepts shall, effective as
of the Closing Date, cease to be an employee of the Company
and shall thereupon become an employee of the Purchaser. At
the Closing, the Company shall certify as to the amount of all
accrued vacation and holiday benefits of the employees of the
Company who became employees of the Purchaser, and such amount
shall represent a downward adjustment to the purchase price
for the Assets. In addition, the Company shall remain
responsible for all health benefits, workers compensation
claims, termination and severance benefits, and any withdrawal
liability and rights under pension or profit sharing plans of
such employees through the Closing, and in no event shall the
Purchaser have any liability or responsibility therefor.
1.11 SCHOOLER-GORDON. Prior to the Closing, the
Company and the Purchaser shall cooperate with one another in
settling upon a segregation of assets, rights and properties,
including preneed contracts, of the Homes, on the one hand,
and the Company's Schooler-Gordon Funeral Home, also located
in Amarillo, Texas ("Schooler-Gordon"), on the other. Those
assets, rights and properties so agreed to be allocated to the
Homes shall constitute a portion of the Assets under Section
1.1, and those assets, rights and properties agreed to be
allocated to Schooler-Gordon shall be retained by the Company
under Section 1.2. In no event, however, shall the name
"Schooler-Gordon" constitute a portion of the Assets. After
the Closing, any preneed customer having a contract so
allocated to the Homes who approaches Schooler-Gordon shall
(unless the customer specifically requests otherwise) be
referred by the Company to the Homes for service, and any
preneed customer having a contract so allocated to
Schooler-Gordon who approaches
-6-
either Home shall (unless the customer specifically requests
otherwise) be referred by the Purchaser to Schooler-Gordon for
service.
1.12 MEMORIAL GUARDIAN PLAN RECEIVABLES. The parties
acknowledge that a portion of the accounts receivables to be
transferred to the Purchaser as described in Section 1.1(i)
are owed by Memorial Guardian Plan (collectively, "Guardian
Plan Receivables"). The Company represents that it has not
pursued, outside the ordinary course of business and
consistent with past practice, the collection of any of the
accounts receivable (including the Guardian Plan Receivables)
presented on the March 31, 1996 list(s) of accounts receivable
provided to the Purchaser, and the Company agrees that it will
not pursue its collection activities on such accounts
receivable between the date hereof and the Closing Date except
in the ordinary course of business consistent with past
practice.
2. THE CLOSING. The Closing shall occur at the offices of
Snell & Smith, A Professional Corporation, 1000 Louisiana, Suite 3650,
Houston, Texas, at 9:00 a.m. on the tenth business day following the
Purchaser's receipt of notice of the approval by the Federal Trade
Commission referred to in Section 7.7, or at such other date, time or
place as may be mutually agreed upon by the parties, but in no event
later than April 30, 1996. The date and time of the Closing is herein
called the "Closing Date", and shall be deemed to have occurred as of
the close of business on the Closing Date. All action to be taken at
the Closing as hereinafter set forth, and all documents and instruments
executed and delivered, and all payments made with respect thereto,
shall be considered to have been taken, delivered or made
simultaneously, and no such action or delivery or payment shall be
considered as complete until all action incident to the Closing has
been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with the Purchaser that:
3.1 ORGANIZATION AND EXISTENCE. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and
the Company has all requisite corporate power to enter into
and perform its obligations under this Agreement.
3.2 OWNERSHIP OF THE COMPANY. All of the issued and
outstanding shares of capital stock of the Company are owned
indirectly by the Shareholder.
-7-
3.3 CERTAIN FINANCIAL INFORMATION. The respective
revenues and adult funeral service call averages of each Home,
and the revenues of the Cemetery, in each case for the twelve
months ended December 31, 1993-95, are in all material
respects as follows:
December 31,
1993 1994 1995
---- ---- ----
5th Street Home
Revenues $820,825 $917,076 $980,310
Call Average $ 3,392 $ 3,173 $ 3,756
1505 Martin Street Home
Revenues $386,833 $435,816 $344,446
Call Average $ 3,423 $ 3,962 $ 4,052
Cemetery
Revenues $344,550 $343,275 $514,916
The 5th Street Home performed at least 242 adult funeral
services during the twelve months ended December 31, 1993, at
least 289 adult funeral services during the twelve months
ended December 31, 1994, and at least 261 adult funeral
services during the twelve months ended December 31, 1995. The
Home located at 1505 Martin Street in Amarillo, Texas
performed at least 113 adult funeral services during the
twelve months ended December 31, 1993, at least 110 adult
funeral services during the twelve months ended December 31,
1994, and at least 85 adult funeral services during the twelve
months ended December 31, 1995. The Cemetery performed at
least 186 interments during the twelve months ended December
31, 1993, at least 204 interments during the twelve months
ended December 31, 1994, and at least 223 interments during
the twelve months ended December 31, 1995. The Cemetery Real
Property consists of approximately 75 acres, of which
approximately 28 acres have been platted, developed and
dedicated for cemetery use. The Cemetery has approximately
5,700 unsold individual grave spaces, 65 unsold niches, 220
unsold mausoleum crypts and 820 unsold lawn crypts.
3.4 TITLE TO AND STATUS OF PROPERTY. The Company is
in actual possession and control of all properties owned or
leased by it which are presently used in the conduct of the
business of the Homes and the Cemetery, and has good and
indefeasible title to all of the Assets to be sold and
conveyed to the Purchaser under this Agreement, free and clear
of any and all Liens other than the Permitted Encumbrances.
Without limiting the
-8-
generality of the foregoing, Financing Statement No. 87-143969
filed with the Secretary of State of Texas on May 28, 1987
does not encumber any of the Assets.
3.5 REAL PROPERTY. Schedule 3.5 hereto sets forth a
description of each parcel of the Real Property, which
constitutes all real property interests that are currently
used in the operation of each Home and the Cemetery. Schedule
3.5 also describes all Liens of any kind against the Real
Property. There is not pending or, to the Company's knowledge,
threatened any proceeding for the taking or condemnation of
the Real Property or any portion thereof. Since September 30,
1969 (other than the period May 23, 1990 through June 1, 1992,
hereafter the "Excluded Period"), as to the Homes, and August
30, 1991, as to the Cemetery (as applicable, the "Acquisition
Date"), no toxic or hazardous wastes (as defined by the U.S.
Environmental Protection Agency, or any similar state or local
agency) or hazardous substances (as defined under the
Comprehensive Environment Response, Compensation and Liability
Act of 1980, as amended, or the Resource Conservation and
Recovery Act, as amended, or any similar state or local
statute or regulation) have been generated, stored, dumped or
released onto or from any portion of the Real Property, except
for substances, such as formaldehyde, that are used in the
operation of the Real Property as funeral homes or otherwise
in the ordinary course of business and have been properly
used, stored and disposed of in accordance with applicable
legal requirements, and except for any of the foregoing which
would not, individually or in the aggregate, have a material
adverse impact on the financial condition, operations,
properties or prospects of either Home or the Cemetery. To the
knowledge of the Company, the Real Property is not now subject
to any reclamation, remediation or reporting requirements of
any federal, state, local or other governmental body or agency
having jurisdiction over the Real Property. To the knowledge
of officers of the Company, no portion of the Real Property
contains any underground storage tanks or PCBs.
3.6 ABSENCE OF CHANGES OR EVENTS. Since June 30,
1995, there has not been:
(i) any material adverse change in the
financial condition, operations, properties or
prospects of either Home or the Cemetery;
(ii) any material damage, destruction or
losses against either Home or the Cemetery or any
waiver of any rights of material value to such Home
or the Cemetery;
-9-
(iii) any claim or liability for any
material damages for any actual or alleged negligence
or other tort or breach of contract against or
affecting either Home or the Cemetery; or
(iv) any transaction or event entered into
or affecting either Home or the Cemetery other than
in the ordinary course of the business.
3.7 FIXED ASSETS. Schedule 3.7 hereto lists all motor
vehicles and other material items of equipment, fixtures and
other fixed assets owned by the Company which are used in the
operation of, or in connection with, the business of the Homes
and the Cemetery or located thereon. All such Assets are,
taken as a whole, in operating condition and reasonable
repair, ordinary wear and tear excepted.
3.8 CONTRACTS AND COMMITMENTS. Schedule 3.8 sets
forth a description of each Assumed Contract applicable to
each Home and the Cemetery. Each Assumed Contract is valid and
in full force and effect and neither the Company, nor, to the
knowledge of the Company, any of the other parties thereto,
are in default thereunder.
3.9 PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.9 attached hereto lists, as of December 31, 1995 (except as
otherwise noted therein), (i) all preneed contracts of the
Homes and the Cemetery unfulfilled as of the date thereof,
including contracts for the sale of funeral and cemetery
merchandise and services, and (ii) all trust accounts relating
to the Homes and the Cemetery, whether for preneed contracts
or perpetual care, indicating the location of each and the
balance thereof. In addition, as soon as reasonably possible
(but in any event within 30 days) after the Closing, the
Company shall deliver to the Purchaser a Schedule listing the
information described in such clauses (i) and (ii) as the
Closing Date. All funds received by the Company for the Homes
and the Cemetery under preneed contracts and for perpetual
care since the applicable Acquisition Date (excluding, in the
case of the Homes, the Excluded Period) will, by the time of
Closing (to the extent required by applicable law to have been
deposited by such time), have been deposited in the
appropriate accounts, except as otherwise provided in Section
1.4 with respect to the Unfunded Liability, all of which funds
and accounts have been administered and reported in accordance
with the terms thereof and as required by applicable laws and
regulations. After the Closing, the Company will make all
further necessary deposits as legally required for amounts
collected through the Closing Date
-10-
on all preneed and perpetual care contracts sold through the
Closing Date. As to all such preneed accounts outstanding on
the Closing Date, (i) such accounts are covered by written
contracts signed or approved by the customer, (ii) the direct
costs to be incurred by the Purchaser in providing the
services and merchandise called for by any unwritten
agreements will not exceed trusted principal and interest
receivable with respect thereto or (iii) the obligations of
the Company thereunder are no more than to apply as a credit
the amount of trust balances, including interest, for any
particular account against the price for performing the
service and providing products on an at-need basis. The
services provided by the Company at each Home since the
applicable Acquisition Date (other than, in the case of the
Homes, the Excluded Period) have been rendered in a
professional and competent manner consistent with prevailing
professional standards, practices and customs.
3.10 INVENTORY; ACCOUNT RECEIVABLE. The inventories
of the Homes and the Cemetery on the Closing Date will be
reflected in its books of account at cost. At Closing the
accounts receivable to be included within the Assets will be
valid and legally enforceable obligations of the account
parties whose names are listed in the books and records of
each Home and the Cemetery, as applicable, legally (but not
necessarily financially) collectible in accordance with their
terms, subject to bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally. At the
Closing, the Company will deliver to the Purchaser a listing,
certified by it to be complete and correct, of all of the
inventory (as of a date that is within three business days
prior to Closing) and accounts receivable (as of a date which
is within 30 days prior to Closing) of each Home and the
Cemetery.
3.11 INTANGIBLE RIGHTS. The Company has not received
notice that it is charged with infringement of any patent,
trademark, trade secret, license or other similar proprietary
rights of any other person in respect of the operation of the
business of the Homes and the Cemetery or the use or ownership
of the Assets.
3.12 LICENSES, PERMITS, ETC. The Company possesses
all licenses, franchises, permits, certificates, consents,
rights and privileges necessary or appropriate to the conduct
of the operations of each Home and the Cemetery, including
(without limitation) all permits necessary for compliance with
all applicable environmental laws, except for any such
license, franchise, permit, certificate, consent, right or
privilege
-11-
the absence of which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of either Home or
the Cemetery or any substantial portion of the Assets.
3.13 LITIGATION. Other than the proceedings pending
before the Federal Trade Commission which are the subject of
the agreed consent order referred to in Section 7.7, there are
no claims, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, threatened against or
affecting the Company (with respect to the operation of the
Homes and the Cemetery) or any of the Assets, at law or in
equity or before or by any court or federal, state, municipal
or other governmental department, commission, board, agency or
instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or
in the aggregate, have a material adverse effect on the
financial condition, business, operations or prospects of
either Home or the Cemetery or any substantial portion of the
Assets. The Company is not subject to any continuing court or
administrative order, writ, injunction or decree issued by any
court or foreign, federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, in respect of the operation of the Homes and
the Cemetery or the use or ownership of the Assets.
3.14 COMPLIANCE WITH LAWS. Each Home and the Cemetery
have been operated at all times since the applicable
Acquisition Dates (excluding, in the case of the Homes, the
Excluded Period) in compliance with all federal, state,
municipal and other statutes, rules, ordinances and
regulations applicable to such Home and the Cemetery, the
operation thereof and the Assets to be sold and conveyed to
the Purchaser hereunder, except for any such noncompliance
which would not, individually or in the aggregate, have a
material adverse effect on the financial condition, business,
operations or prospects of either Home or the Cemetery or any
substantial portion of the Assets.
3.15 EMPLOYEES. Schedule 3.15 hereto lists the name,
current annual salary rate and sum of all other direct
monetary compensation in addition to salary received during
the calendar year 1995 of each employee of the Homes and the
Cemetery. Other than as listed on Schedule 3.8, there are no
agreements relating to the employment of any such employee,
including any collective bargaining agreement.
-12-
3.16 FINDERS. The Company is not a party to or in any
way obligated under any contract or other agreement, and there
are no outstanding claims against it, for the payment of any
broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.17 AUTHORITY. The execution, delivery and
performance of this Agreement by the Company have been duly
authorized by all necessary corporate action required on its
part. This Agreement is legally binding and enforceable
against the Company in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required
under, the Articles of Incorporation or bylaws of the Company
or any indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental
body.
3.18 FULL DISCLOSURE. The representations and
warranties made by the Company hereunder or in any Schedules
or certificates furnished to the Purchaser pursuant hereto, do
not and will not contain any untrue statement of a material
fact or, to the knowledge of the Company, omit to state a
material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made,
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company that:
4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement. The Purchaser is duly
qualified as a foreign corporation in the State of Texas.
4.2 AUTHORITY OF THE PURCHASER. The execution,
delivery and performance of this Agreement by the Purchaser
has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon the Purchaser and
enforceable against the Purchaser in accordance with its
terms. Neither the execution, delivery or performance by the
Purchaser of this Agreement will conflict
-13-
with or result in a violation or breach of any term or
provision of, nor constitute a default under, the Certificate
of Incorporation or bylaws of the Purchaser or under any
indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
property is bound, or violate any order, writ, injunction or
decree of any court, administrative agency or governmental
body. At or prior to Closing, the Purchaser will have made all
necessary applications and obtained all necessary licenses and
permits, if any, which, together with the transfer of the
Company's transferrable licenses and permits described in
Section 1.1(viii), will be required in order to enable the
Purchaser to acquire the Assets hereunder and consummate the
Closing.
4.3 FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4 FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Company pursuant hereto or
thereto, do not and will not contain any untrue statement of a
material fact or, to the Purchaser's knowledge, omit to state
a material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made,
not misleading.
5. COVENANTS OF THE COMPANY PENDING CLOSING. The Company
covenants and agrees with the Purchaser that:
5.1 CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of each Home and
the Cemetery will be operated only in the ordinary course,
and, in particular, without the prior written consent of the
Purchaser, the Company will not cause or permit any of the
following actions to occur:
(i) cancel or permit any insurance
applicable to the Assets or either Home or the
Cemetery to lapse or terminate, unless renewed or
replaced by like coverage;
(ii) commit any act or permit the
occurrence of any event or the existence of any
condition of the type described in clause (iv) of
Section 3.6; in addition, if any of the other events
-14-
described in Section 3.6 occurs, the Company will
promptly notify the Purchaser of the existence and
nature of such event;
(iii) alter, amend, cancel or modify in any
respect any of the Assumed Contracts or the standard
form of, and terms and conditions applicable to,
preneed contracts;
(iv) sell or otherwise dispose of any of
the fixed assets described on Schedule 3.7, except
for any items disposed of that are replaced by items
of equivalent quality; or
(v) hire, fire, reassign or make any other
change in key personnel of either Home or the
Cemetery.
5.2 ACCESS TO INFORMATION. Prior to Closing, the
Company will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to
all of the on-site properties, books, contracts, commitments
and records of the Homes and the Cemetery so that the
Purchaser may have full opportunity to make such investigation
as it shall desire to make of the business, affairs and
properties of the Homes and the Cemetery, provided such
investigation is conducted so as not to unreasonably interfere
with the normal day-to-day operations of either Home or the
Cemetery.
5.3 CONSENTS AND APPROVALS. The Company will use its
best efforts to obtain the necessary consents and approvals of
other persons which may be required to be obtained on its part
and on the part of the Company to consummate the transactions
contemplated by this Agreement, including (without limitation)
the approval of the Federal Trade Commission described in
Section 7.7.
5.4 NO SHOP. For so long as this Agreement remains in
effect, the Company agrees that it shall not enter into any
agreements or commitments, or initiate, solicit or encourage
any offers, proposals or expressions of interest, or otherwise
hold any discussions with any potential buyers, investment
bankers or finders, with respect to the possible sale or other
disposition of all or any substantial portion of the assets
and business of either Home or the Cemetery, or any other sale
of the Company (whether by merger, consolidation, sale or
stock or otherwise), other than with the Purchaser; provided,
however, that any such merger, consolidation or sale of stock
may occur with the Shareholder or one or more of its direct or
indirect wholly owned subsidiaries,
-15-
provided that the successor entity joins in the execution of
this Agreement to expressly acknowledge the assumption of the
obligations hereunder of the applicable Company.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company that:
6.1 CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement. In addition, the Purchaser
agrees to furnish information regarding itself as may be
reasonably required in connection with obtaining the approval
of the Federal Trade Commission described in Section 7.7.
6.2 CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Company from
any representative, officer, director or employee of the
Company, including its accountants or legal counsel, or from
any books or records of them, in connection with the
transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither
the Purchaser nor its representatives shall use such data or
information or disclose the same to others, except as such
data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to
be disclosed. If this Agreement is terminated for any reason,
all written data and information obtained by the Purchaser
from the Company or its representatives in connection with the
transactions contemplated by this Agreement shall be returned
to the Company.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any error,
misstatement or omission in the representations and warranties
made by the Company in Section 3 hereof; the representations
and warranties made by the Company herein shall be deemed to
have been made again at and as of the time of Closing and
shall then be true and correct; the Company shall have
performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by
it at or prior to the Closing; and the Purchaser shall have
received a certificate,
-16-
signed by an executive officer of the Company, to the effect
of the foregoing provisions of this Section 7.1.
7.2 OPINION OF COUNSEL. The Company shall have caused to be
delivered to the Purchaser an opinion of internal counsel for the
Company, to the effect that:
(i) the Company is a corporation duly
organized, validly existing and in good standing
under the laws of its state of incorporation and has
all requisite corporate power to enter into and
perform its obligations under this Agreement;
(ii) the execution, delivery and performance
of this Agreement by the Company have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Company and enforceable against it in
accordance with its terms;
(iv) neither the execution, delivery or
performance by the Company of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Articles of Incorporation or bylaws of the
Company or under any material loan or credit
agreement, indenture, mortgage, deed of trust or
other contract or agreement known to such counsel and
to which the Company is a party or by which it or its
property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any
court, administrative agency or governmental body;
and
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Company or the performance of its obligations
hereunder, except for any consents which have already
been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Company and certificates
of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of
any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors rights and by
-17-
principles of equity. Such opinion may be limited to federal
law and the internal laws of the State of Texas.
7.3 NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to a substantial
portion of the physical assets and properties of either Home
or the Cemetery (regardless of whether such loss or damage was
insured), the effect of which would have a material adverse
effect on the condition, business, operations or prospects of
such Home or the Cemetery.
7.4 APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.5 ENVIRONMENTAL QUESTIONNAIRE. The Purchaser shall
have received an environmental questionnaire (on forms
provided by the Purchaser and its lender) for each Home, the
Cemetery and the Real Property, completed and signed by the
Manager or other supervisory employee of each Home and the
Cemetery, and such questionnaire shall be satisfactory to
Purchaser in its sole discretion.
7.6 FINANCING COMMITMENT. The Purchaser represents
that it has received from Texas Commerce Bank National
Association a written commitment providing for the extension
of financing in order to provide the portion of the
consideration for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources. It shall be a
condition to Closing that such commitment shall have been
funded in such amount contemporaneously with the Closing,
provided that the Purchaser agrees to perform its obligations
under such commitment. The Company acknowledges that it is a
condition to the funding of such commitment that the
Shareholder shall have unconditionally guaranteed the
indebtedness to be advanced pursuant thereto.
7.7 FTC AND OTHER APPROVALS. The Purchaser shall have
received written notice of the approval of the Purchaser and
the transactions described herein by the Federal Trade
Commission (the "FTC") under the FTC's Decision and Order in
Service Corporation International, Commission Docket No.
C-3646. In addition, the Shareholder and the Company shall
have obtained all other necessary or appropriate consents and
approvals of other
-18-
persons and governmental authorities to the transactions
contemplated in this Agreement.
7.8 TITLE INSURANCE. The Purchaser shall have
received an Owner's Policy of Title Insurance (at the
Company's expense) for each parcel of Real Property in an
amount mutually determined by the parties. Each such policy
shall be issued by a title company with offices in each County
in which the Real Property is located and reasonably
acceptable to the Purchaser (each hereafter referred to as a
"Title Company"), insuring that Purchaser is the owner of each
parcel of the Real Property subject only to the Permitted
Encumbrances, and the standard printed exceptions included in
a standard form Owner Policy of Title Insurance in effect in
the applicable jurisdiction; provided, however, that such
policy shall be limited to restrictions that are Permitted
Encumbrances, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the exception for rights of
parties in possession shall be deleted, and the standard
exception for taxes shall be limited to the year in which the
Closing occurs, and subsequent years and subsequent
assessments for prior years due to change in land usage or
ownership.
7.9 SURVEY. The Purchaser shall have received, at the
Company's expense, an ALTA/ASCM survey prepared by a licensed
surveyor approved by Purchaser and acceptable to each Title
Company, with respect to each parcel of Real Property, which
survey shall be sufficient for each Title Company to delete
the survey exception contained in the owner policy of title
insurance referred to in Section 7.8, save and except for the
phrase "shortages in area", and otherwise be in form and
content reasonably acceptable to Purchaser and its lender.
7.10 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by: the Asset Purchase Agreement of even date
herewith between the Purchaser and Fort Myers Memorial
Gardens, Inc.; the Asset Purchase Agreement of even date
herewith between the Purchaser and SCI Funeral Services of
Florida, Inc. ("SCI-Florida") (relating to Oaklawn Memorial
Gardens & Mausoleum); and the Asset Purchase Agreement of even
date herewith between the Purchaser and SCI-Florida (relating
to Brevard (North) Funeral Home and Harvey-Engelhardt Funeral
Home) (all of the foregoing being hereinafter referred to as
the "Other Purchase Agreements"); all shall have been
consummated substantially contemporaneously with the Closing
under this Agreement (except to the extent that, in the case
of such Agreement relating to Oaklawn Memorial Gardens &
-19-
Mausoleum, the closing thereunder is delayed pending approval
by the Florida Board of Funeral and Cemetery Services as
described therein).
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Company in
writing:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Company shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by the Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser herein
shall be deemed to have been made again at and as of the time
of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the
Company shall have received a certificate, signed by an
executive officer of the Purchaser, to the effect of the
foregoing provisions of this Section 8.1.
8.2 OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Company an opinion of Snell &
Smith, A Professional Corporation, counsel for the Purchaser,
to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement; and the
Purchaser is duly qualified as a foreign corporation
in the State of Texas;
(ii) the execution, delivery and performance
of this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Purchaser and enforceable against the
Purchaser in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other
-20-
contract or agreement known to such counsel and to
which Purchaser is a party or by which it or its
property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any
court, administrative agency or governmental body;
and
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Purchaser or the performance of its obligations
hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to the Company at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the internal laws of
the State of Texas and the General Corporation Law of the
State of Delaware.
8.3 CONSENTS AND APPROVALS. The consents and
approvals referred to in Section 7.7, including the approval
of the FTC, shall have been obtained.
8.4 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by the Other Purchase Agreements shall have been
consummated substantially contemporaneously with the Closing
under this Agreement (except as otherwise provided in Section
7.10).
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1 NATURE OF STATEMENTS. All statements contained in
this Agreement or any Schedule hereto shall be deemed
representations and warranties of the party executing or
delivering the same.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or in any
Schedule hereto shall not terminate, but shall survive the
Closing and continue in effect thereafter for a period of two
(2) years following the Closing, at which
-21-
time they shall terminate (except as to claims which are then
pending by written notice delivered prior to the expiration of
such two-year period).
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY THE COMPANY. THE COMPANY
AGREES TO INDEMNIFY AND HOLD HARMLESS THE PURCHASER AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES,
DAMAGES, LIABILITIES, OBLIGATIONS, COSTS OR EXPENSES (ANY ONE
SUCH ITEM BEING HEREIN CALLED A "LOSS" AND ALL SUCH ITEMS
BEING HEREIN COLLECTIVELY CALLED "LOSSES") WHICH ARE CAUSED BY
OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE PERFORMANCE
BY THE COMPANY OF ANY COVENANT OR AGREEMENT OF THE COMPANY
CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF WARRANTY OR
INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE COMPANY
HEREIN, IN ANY SCHEDULE DELIVERED TO THE PURCHASER PURSUANT
HERETO OR IN ANY CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY
OR ON BEHALF OF THE COMPANY PURSUANT HERETO, (III) ANY CLAIM
MADE AGAINST THE PURCHASER IN RESPECT OF ANY LIABILITIES OR
OBLIGATIONS OF THE COMPANY (WHETHER ABSOLUTE OR CONTINGENT,
KNOWN OR UNKNOWN) OTHER THAN THE ASSUMED LIABILITIES, AND (IV)
ANY AND ALL ACTIONS, SUITS, PROCEEDINGS, CLAIMS, DEMANDS,
JUDGMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE LEGAL
FEES) INCIDENT TO ANY OF THE FOREGOING.
10.2 INDEMNIFICATION BY THE PURCHASER. THE PURCHASER
AGREES TO INDEMNIFY AND HOLD HARMLESS THE COMPANY AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY LOSSES WHICH ARE
CAUSED BY OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE
PERFORMANCE BY THE PURCHASER OF ANY COVENANT OR AGREEMENT OF
THE PURCHASER CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF
WARRANTY OR INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE
PURCHASER HEREIN OR IN ANY CERTIFICATE OR OTHER INSTRUMENT
DELIVERED BY OR ON BEHALF OF THE PURCHASER PURSUANT HERETO,
(III) ANY CLAIM MADE AGAINST THE COMPANY IN RESPECT OF THE
ASSUMED LIABILITIES OR BASED ON ANY SET OF FACTS ARISING AFTER
THE CLOSING AND RELATED TO THE OPERATION OF EITHER HOME OR THE
CEMETERY, AND (IV) ANY AND ALL ACTIONS SUITS, PROCEEDINGS,
CLAIMS, DEMANDS, JUDGMENTS, COSTS AND EXPENSES (INCLUDING
REASONABLE LEGAL FEES) INCIDENT TO ANY OF THE FOREGOING.
10.3 THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in
-22-
the defense thereof and be represented, at its own expense, by
advisory counsel selected by it, and (ii) to approve any
settlement if the indemnifying party is, or will be, required
to pay any amounts in connection therewith. Notwithstanding
the foregoing, if within ten business days after delivery of
the indemnified party's notice described above, the
indemnifying party indicates in writing to the indemnified
party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided
herein, then the indemnifying party shall have the right to
control the defense of such claim, provided that the
indemnified party shall have the right (i) to participate in
the defense thereof and be represented, at its own expense, by
advisory counsel selected by it, and (ii) to approve any
settlement if the indemnified party's interests are, or would
be, affected thereby.
10.4 BROOKS INDEMNITY. WITHOUT LIMITING THE
GENERALITY OF SECTION 10.1 ABOVE, THE COMPANY HEREBY AGREES TO
INDEMNIFY AND HOLD HARMLESS THE PURCHASER AND ITS SUCCESSORS
AND ASSIGNS FROM ALL LOSSES (INCLUDING, WITHOUT LIMITATION,
ALL ACTIONS, SUITS AND PROCEEDINGS, CLAIMS, DEMANDS,
JUDGMENTS, COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS'
FEES) ARISING OUT OF ANY CLAIM WHATSOEVER RELATED TO THE BILL
OF SALE DATED MAY 1, 1992 EXECUTED BETWEEN SCHOOLER-GORDON
FUNERAL DIRECTORS, INC., AS "SELLER," AND BROOKS FUNERAL
DIRECTORS OF CANYON, INC., AS "BUYER," INCLUDING THE
PROVISIONS CONTAINED IN THE LAST PARAGRAPH THEREOF. SUCH
INDEMNITY SHALL INCLUDE BUT SHALL NOT BE LIMITED TO ANY CLAIMS
OF TORTIOUS INTERFERENCE AGAINST THE PURCHASER OR OTHER
SIMILAR CLAIMS ARISING FROM THE PURCHASER'S ACQUISITION OF THE
HOMES.
11. TERMINATION.
11.1 BEST EFFORTS TO SATISFY CONDITIONS. The Company
agrees to use its best efforts to bring about the satisfaction
of the conditions specified in Section 7 hereof and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2 TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual consent of the Company and
the Purchaser;
(b) the Purchaser if a material default
shall be made by the Company in the observance or in
the due and timely performance by any of its
covenants
-23-
herein contained, or if there shall have been a
material breach or misrepresentation by the Company
of any of its warranties and representations herein
contained, or if the conditions of this Agreement to
be complied with or performed by the Company at or
before the Closing shall not have been complied with
or performed at the time required for such compliance
or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Purchaser in writing, and any such default,
breach, or noncompliance shall continue uncured for a
period of ten (10) days after notice thereof is given
to the Company;
(c) the Company if a material default shall
be made by the Purchaser in the observance or in the
due and timely performance by the Purchaser of any of
the covenants of the Purchaser herein contained, or
if there shall have been a material breach or
misrepresentation by the Purchaser of any of its
warranties and representations herein contained, or
if the conditions of this Agreement to be complied
with or performed by the Purchaser at or before the
Closing shall not have been complied with or
performed at the time required for such compliance or
performance and such noncompliance or nonperformance
shall not have been expressly waived by the Company
in writing, and any such default, breach, or
noncompliance shall continue uncured for a period of
ten (10) days after notice thereof is given to the
Purchaser; or
(d) the Company or the Purchaser, if for any
reason the Closing shall have failed to occur on or
before April 30, 1996.
11.3 LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no
party shall have any liability to any other party hereunder.
If this Agreement is terminated under paragraph (b) or (c) of
Section 11.2, then (i) the party so terminating this Agreement
shall not have any liability to any other party hereto,
provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination.
-24-
12. MISCELLANEOUS.
12.1 EXPENSES. Whether or not the Closing occurs, the
parties shall each pay their own expenses in connection with
the negotiation, preparation and carrying out of this
Agreement and the consummation of the transactions
contemplated herein, and in no event shall any such expenses
of the Company constitute an Assumed Liability hereunder.
12.2 BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of the Company, such claims shall be the responsibility of the
Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Company in
the case of claims arising under any other liabilities of the
Company.
12.3 TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Company, other than motor
vehicle transfer taxes (for which the Purchaser assumes
responsibility).
12.4 NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given if personally delivered or
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i) if to the Company, to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
with a copy to:
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(ii) if to the Purchaser, to:
CFS Funeral Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
-25-
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any
party to the other parties hereto.
12.5 ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the consent of all other parties
hereto, provided, however, that following the Closing the
Purchaser may assign its rights hereunder without the consent
of the Company to a successor-in-interest to the Purchaser
(whether by merger, sale of assets or otherwise), provided
that the Purchaser shall not thereby be relieved of its
obligations hereunder.
12.6 SUCCESSORS BOUND. Subject to the provisions of
Section 12.5, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns.
12.7 SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
12.8 AMENDMENT. This Agreement may be amended only by
an instrument in writing executed by both parties hereto.
12.9 ENTIRE AGREEMENT. This Agreement and the
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject
matter hereof and thereof (including, without limitation, the
letter of intent between the Purchaser and the Shareholder
dated April 2, 1996).
12.10 GOVERNING LAW. This Agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Texas.
12.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but
all of which shall constitute the same instrument.
-26-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered in Houston, Texas as of the date first above written.
THE PURCHASER:
CFS FUNERAL SERVICES, INC.
By: MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE COMPANY:
SCI TEXAS FUNERAL SERVICES, INC.
By: CURT G. BRIGGS
CURTIS G. BRIGGS, Vice President
-27-
<PAGE>
SCHEDULE DESCRIPTION
3.5 Real Property
3.7 Fixed Assets
3.8 Assumed Contracts
3.9 Preneed Contracts and Trust Accounts
3.15 Employees
-28-
Exhibit 10.14
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of April 10, 1996, between CFS
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), and SCI
FUNERAL SERVICES OF FLORIDA, INC., a Florida corporation (the "Company");
WITNESSETH:
WHEREAS, the Company owns and operates (i) the Brevard (North)
Funeral Home located at 1450 Norwood Avenue in Titusville, Brevard County,
Florida (the "Brevard Home"), and (ii) the Harvey-Engelhardt Funeral Home
located at 1600 Colonial Blvd. in Fort Myers, Lee County, Florida (the
"Harvey-Engelhardt Home"); and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of the assets, rights and properties of the Brevard Home and
the Harvey-Engelhardt Home (collectively, the "Homes") from the Company, on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 TRANSFER OF ASSETS. Subject to the provisions of
this Agreement, the Company agrees to sell and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
all of the properties, assets, rights and business of the
Homes described below, as they shall exist at the time of the
Closing (collectively, the "Assets"), excluding those
described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of caskets, accessories,
monuments and other goods and inventories;
(iii) the ten (10) motor vehicles described
on Schedule 3.7, and the other machinery, equipment,
furniture, fixtures, supplies, tools and other fixed
assets and property, plant and equipment of the
Homes, including those described on Schedule 3.7;
(iv) fee simple title to the real property
and improvements on which the Brevard Home is located
as described on Schedule 3.5 (the "Brevard Real
Property") and the Company's leasehold interests in
the real property and improvements on which the
Harvey-Engelhardt Home is located as described on
Schedule 3.5 (the "Harvey-Engelhardt Real Property"),
under the Lease Agreement dated January 31, 1990 (the
"Harvey-Engelhardt Lease") between Cy J. Case,
Trustee (the "Landlord") and Stillbrooke Corporation
of South Florida, predecessor in interest to the
Company (the Brevard Real Property and the
Harvey-Engelhardt Real Property being hereafter
collectively referred to as the "Real Property");
(v) all cash balances in bank accounts,
certificates of deposit and other investments, but
only if such cash balances or certificates of deposit
are committed fund obligations under preneed
contracts;
(vi) the rights of the Company under
pre-need contracts and the other agreements, leases
and commitments described on Schedules 3.8 and 3.9;
(vii) all rights owned or held by the
Company to the names "Brevard (North) Funeral Home"
and "Harvey-Engelhardt Funeral Home", and all
derivatives thereof and goodwill associated with the
foregoing;
(viii) all transferrable permits and
licenses, and all books, records, brochures and
literature, rights in unemployment compensation,
industrial accident and other similar funds, and
prepaid items;
(ix) All right to receive condemnation
proceeds, if any, in connection with the proceeding
styled LEE COUNTY V. STILLBROOKE CORP., No. 94-8863
CA RWOP in the Circuit Court of the Twentieth
Judicial Circuit in Lee County, Florida (the
"Condemnation Proceeding"); and
(x) all other assets, rights and properties
owned or held by the Company at the time of Closing
and used in the operation of, or in connection with,
the business of the Homes or located thereon,
excluding those described in Section 1.2.
At the Closing, the Company shall convey to the Purchaser the
Assets free and clear of any and all liens, security
interests, pledges, encumbrances, or title restrictions of any
kind (collectively, "Liens"), other than Liens against real
property described on Schedule 3.5 that are approved by the
Purchaser (the "Permitted Encumbrances").
1.2 RETAINED ASSETS. Notwithstanding the foregoing,
the following properties, assets, rights and interests (the
"Retained Assets") are hereby excluded
-2-
from the purchase and sale contemplated hereby and are
therefore not included in the Assets:
(i) all cash on hand or on deposit,
including bank account balances, certificates of
deposit and marketable securities, excluding,
however, account balances, certificates of deposit
and other investments described in Section 1.1(v);
(ii) intercompany accounts and notes
receivable owed to the Company by its indirect
corporate parent, Service Corporation International,
a Texas corporation (the "Shareholder"), or any of
its affiliates which do not arise out of the sale of
goods or services of the Company;
(iii) the corporate records, minutes of
proceedings, stock records and corporate seals of the
Company, and any shares of the Company's capital
stock held in its treasury;
(iv) the Company's share of any prepaid
federal or state income taxes and any rights to or
claims for federal or state income tax refunds; and
(v) all assets, rights and properties of
funeral homes and cemeteries owned and operated by
the Company, other than the Homes.
1.3 PURCHASE PRICE. The purchase price for the Assets
shall be $3,284,119, of which $3,000,000 shall be paid in cash
at Closing by wire transfer to such account as the Company
shall designate prior to Closing, and $284,119 shall be
represented by the Purchaser's unsecured promissory note
payable to the Company in such amount, dated the Closing Date,
bearing interest at the rate of six percent (6%) per annum
(compounded monthly), maturing June 30, 1999, with all
principal and interest due on or before maturity, such note to
otherwise be in form and substance reasonably acceptable to
the parties.
1.4 ASSUMPTION OF LIABILITIES. The Purchaser, upon
the sale and purchase of the Assets, shall, subject to Section
1.5 below, assume and agree to pay or discharge only the
following liabilities and obligations of the Company
(collectively, the "Assumed Liabilities"):
(i) liabilities under the preneed
contracts described in Section 3.9, under preneed
contracts entered into in the ordinary course of
business between the date of such schedule and the
-3-
Closing Date, and under at-need contracts for
services to be performed following Closing, provided
that the entire amount of consideration payable by
the customers under at-need contracts is payable
following Closing or an appropriate adjustment to
such effect shall be made at Closing between the
Company and the Purchaser; and
(ii) obligations arising after Closing
under the agreements and leases and commitments
described on Schedule 3.8 hereto (the "Assumed
Contracts").
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements with the
Company. Nothing herein shall prevent the Purchaser from
contesting in good faith any of the Assumed Liabilities. At
Closing, the Purchaser shall deliver to the Company an
instrument (which may be combined with one or more contract
assignments), dated the Closing Date and reasonably
satisfactory in form and substance to the Company, pursuant to
which the Purchaser will assume the Assumed Liabilities.
1.5 LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4 above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Company not specifically included in the Assumed
Liabilities, and, in particular, the Purchaser shall not
assume or agree to pay or discharge any of the following:
(i) any notes or accounts payable of any
kind, regardless of whether entered into in the
ordinary course of business;
(ii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Homes prior to the
Closing Date;
(iii) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against the
Company based upon any set of facts occurring prior
to the Closing;
(iv) the liabilities and obligations under
any warranties to customers with respect to goods or
products sold or services provided by the Company
prior to Closing;
-4-
(v) all personal injury, product liability
claims, claims of environmental damage, claims of
hazards to health, strict liability, toxic torts,
enforcement proceedings, cleanup orders and other
similar actions or claims instituted by private
parties or governmental agencies, with respect to the
conduct of the business and operations of the Company
prior to Closing; or
(vi) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6 CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, and payments under the Assumed Contracts shall be
prorated as of the Closing Date, the Company being charged and
credited for all of same up to and on such date and the
Purchaser being charged and credited for all of same after
such date. Utility services will be transferred to the
Purchaser's name on or as soon as possible after the Closing
Date. If the actual amounts to be prorated are not known as of
the Closing Date, the prorations shall be made on the basis of
the best evidence then available, and not thereafter adjusted.
1.7 INSTRUMENTS OF TRANSFER. At the Closing, the
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale, contract assignments and
assignments of motor vehicle registrations, transferring title
to the Assets to the Purchaser as may reasonably be requested
by the Purchaser. Such instruments shall be reasonably
satisfactory in form and substance to the Purchaser and shall
vest in the Purchaser good and indefeasible title to all the
Assets, free and clear of all Liens other than the Permitted
Encumbrances.
1.8 DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS.
At the Closing, the Company will deliver to the Purchaser all
of the Assumed Contracts, with such assignments thereof and
consents to assignment as the Purchaser shall deem necessary
to assure the Purchaser of their full benefit. Simultaneously
with such deliveries, the Company shall take all requisite
steps to put the Purchaser in actual possession and operating
control of the Assets and all of the Company's on-site
business records, books and other data. In addition, at the
Closing, the Company and the Purchaser shall coordinate with
one another in taking all necessary or appropriate action to
-5-
cause the transfer of the trust funds referred to in Section
3.9 including, without limitation, the obtaining of
governmental and third party consents and, if necessary, the
substitution of a successor trustee by the Purchaser or a
designee of the Purchaser. Without limiting the generality of
the foregoing, the Company shall use its best efforts in
segregating all preneed accounts and trusted funds applicable
to the Homes which are part of the Sun Bank MGP Trust and the
NationsBank Insurance Investment and shall assist the
Purchaser in transferring the same to trusts established by or
through the Purchaser.
1.9 FURTHER ASSURANCES. The Company shall from time
to time after the Closing, without further consideration,
execute and deliver such instruments of transfer, conveyance
and assignment (in addition to those delivered pursuant to
Section 1.7), and shall take such other action, as the
Purchaser may reasonably request to more effectively transfer,
convey and assign to and vest in the Purchaser, and to put the
Purchaser in actual possession and control of, each of the
Assets.
1.10 EMPLOYEE MATTERS. On the Closing Date, the
Purchaser may (but shall not be required to) offer employment
to each employee of each Home. Each such employee so offered
employment who accepts shall, effective as of the Closing
Date, cease to be an employee of the Company and shall
thereupon become an employee of the Purchaser. At the Closing,
the Company shall certify as to the amount of all accrued
vacation and holiday benefits as of the Closing Date of the
employees of the Company who become employees of the
Purchaser, and such amount shall represent a downward
adjustment to the purchase price for the Assets. In addition,
the Company shall remain responsible for all health benefits,
workers compensation claims, termination and severance
benefits, and any withdrawal liability and rights under
pension or profit sharing plans of such employees through the
Closing, and in no event shall the Purchaser have any
liability or responsibility therefor.
1.11 USE OF CREMATORY. The Company agrees that the
Harvey-Engelhardt Home may, for a period of three (3) years
following the Closing Date, use the Southeastern Crematory
located at 5500 Williamsburg in Punta Gorda, Florida (or any
successor location) at a charge of $47.00 per disposition,
provided that during such three-year period such charge to the
Purchaser shall be subject to increase commensurate with any
bona fide increase in internal cost-allocation charges by such
crematory to other funeral homes of the Company and its
affiliates.
-6-
In case of any such increase, the Company shall provide the
Purchaser with the same advance notice thereof as the
Shareholder provides to such other funeral homes.
1.12 CONDEMNATION PROCEEDING. As provided in Section
1.1(ix), the Purchaser shall at the Closing acquire all right
to receive condemnation proceeds, if any, resulting from the
Condemnation Proceeding, and if prior to the Closing the
Company has theretofore received any such proceeds from the
condemning authority, the Company shall remit the same to the
Purchaser at the Closing. From and after the Closing Date, the
Purchaser shall control the tenant's prosecution of the
Condemnation Proceeding and shall be responsible for all costs
and expenses, including professional fees, incurred in
connection therewith. The Company makes no warranty as to
whether any condemnation proceeds will be paid or the amount
thereof.
1.13 MEMORIAL GUARDIAN PLAN RECEIVABLES. The parties
acknowledge that a portion of the accounts receivables to be
transferred to the Purchaser as described in Section 1.1(i)
are owed by Memorial Guardian Plan (collectively, "Guardian
Plan Receivables"). The Company represents that it has not
pursued, outside the ordinary course of business and
consistent with past practice, the collection of any of the
accounts receivable (including the Guardian Plan Receivables)
presented on the March 31, 1996 list(s) of accounts receivable
provided to the Purchaser, and the Company agrees that it will
not pursue its collection activities on such accounts
receivable between the date hereof and the Closing Date except
in the ordinary course of business consistent with past
practice.
2. THE CLOSING. The Closing shall occur at the offices of
Snell & Smith, A Professional Corporation, 1000 Louisiana, Suite 3650,
Houston, Texas, at 9:00 a.m. on the tenth business day following the
Purchaser's receipt of notice of the approval by the Federal Trade
Commission referred to in Section 7.7, or at such other date, time or
place as may be mutually agreed upon by the parties, but in no event
later than April 30, 1996. The date and time of the Closing is herein
called the "Closing Date", and shall be deemed to have occurred as of
the close of business on the Closing Date. All action to be taken at
the Closing as hereinafter set forth, and all documents and instruments
executed and delivered, and all payments made with respect thereto,
shall be considered to have been taken, delivered or made
simultaneously, and no such action or delivery or payment shall be
considered as complete until all action incident to the Closing has
been completed.
-7-
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with the Purchaser that:
3.1 ORGANIZATION AND EXISTENCE. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and
it has all requisite corporate power to enter into and perform
its obligations under this Agreement.
3.2 OWNERSHIP OF THE COMPANY. All of the issued and
outstanding shares of capital stock of the Company are owned
indirectly by the Shareholder.
3.3 CERTAIN FINANCIAL INFORMATION. The respective
revenues and adult funeral service call averages of the Homes
for the twelve months ended December 31, 1993-95, are in all
material respects as follows:
December 31,
1993 1994 1995
---------- ---------- ----------
Brevard Home
Revenues .............. $1,116,930 $1,186,314 $1,150,696
Call Average .......... $ 2,207 $ 2,260 $ 2,243
Harvey-Engelhardt Home
Revenues .............. $ 854,508 $ 820,036 $ 844,816
Call Average .......... $ 2,059 $ 1,855 $ 1,680
The Brevard Home performed at least 506 adult funeral
services during the twelve months ended December 31, 1993, at
least 525 adult funeral services during the twelve months
ended December 31, 1994, and at least 513 adult funeral
services during the twelve months ended December 31, 1995. The
Harvey-Engelhardt Home performed at least 415 adult funeral
services during the twelve months ended December 31, 1993, at
least 442 adult funeral services during the twelve months
ended December 31, 1994, and at least 503 adult funeral
services during the twelve months ended December 31, 1995.
3.4 TITLE TO AND STATUS OF PROPERTY. The Company is
in actual possession and control of all properties owned or
leased by it which are presently used in the conduct of the
business of the Homes, and has good and indefeasible title to
all of the Assets to be sold and conveyed to the Purchaser
under this Agreement, free and clear of any and all Liens
other than the Permitted Encumbrances.
-8-
3.5 REAL PROPERTY. Schedule 3.5 hereto sets forth a
description of each parcel of the Real Property, which
constitutes all interests in real property that are currently
used in the operation of each Home. Schedule 3.5 also
describes all Liens of any kind against the Real Property. The
Harvey-Engelhardt Lease is in full force and effect, the
Company is the current and valid "Tenant" thereunder, and
neither the Company nor, to the knowledge of the Company, the
Landlord is in default thereunder. The current base rent under
the Harvey-Engelhardt Lease, after giving effect to all
adjustments thereunder (including adjustments, if any, in
respect of the condemnation proceeding referred to in Section
1.12), is $8,336.30. There is not pending or, to the Company's
knowledge, threatened any proceeding for the taking or
condemnation of the Real Property or any portion thereof.
Since November 27, 1991, as to the Brevard Home, and December
1, 1990, as to the Harvey-Engelhardt Home (as applicable, the
"Acquisition Date"), no toxic or hazardous wastes (as defined
by the U.S. Environmental Protection Agency, or any similar
state or local agency) or hazardous substances (as defined
under the Comprehensive Environment Response, Compensation and
Liability Act of 1980, as amended, or the Resource
Conservation and Recovery Act, as amended, or any similar
state or local statute or regulation) have been generated,
stored, dumped or released onto or from any portion of the
Real Property, except for substances, such as formaldehyde,
that are used in the operation of the Real Property as funeral
homes or otherwise in the ordinary course of business and have
been properly used, stored and disposed of in accordance with
applicable legal requirements, and except for any of the
foregoing which would not, individually or in the aggregate,
have a material adverse impact on the financial condition,
operations, properties or prospects of either Home. To the
knowledge of the Company, the Real Property is not now subject
to any reclamation, remediation or reporting requirements of
any federal, state, local or other governmental body or agency
having jurisdiction over the Real Property. To the knowledge
of officers of the Company, no portion of the Real Property
contains any underground storage tanks (except for two
underground storage tanks at the Harvey-Engelhardt Home that
are abandoned and no longer in use) or PCBs.
3.6 ABSENCE OF CHANGES OR EVENTS. Since June 30,
1995, there has not been:
(i) any material adverse change in the
financial condition, operations, properties or
prospects of either Home;
-9-
(ii) any material damage, destruction or
losses against either Home or any waiver of any
rights of material value to such Home;
(iii) any claim or liability for any
material damages for any actual or alleged negligence
or other tort or breach of contract against or
affecting either Home; or
(iv) any transaction or event entered into
or affecting either Home other than in the ordinary
course of the business.
3.7 FIXED ASSETS. Schedule 3.7 hereto lists all motor
vehicles and other material items of equipment, fixtures and
other fixed assets owned by the Company which are used in the
operation of, or in connection with, the business of the Homes
or located thereon. All such Assets are, taken as a whole, in
operating condition and reasonable repair, ordinary wear and
tear excepted.
3.8 CONTRACTS AND COMMITMENTS. Schedule 3.8 sets
forth a description of each Assumed Contract applicable to
each Home. Each Assumed Contract is valid and in full force
and effect and neither the Company, nor, to the knowledge of
the Company, any of the other parties thereto, is in default
thereunder.
3.9 PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.9 attached hereto lists, as of February 28, 1996 (except as
otherwise noted therein), (i) all preneed contracts of the
Homes unfulfilled as of the date thereof, including contracts
for the sale of funeral merchandise and services, and (ii) all
trust accounts relating to the Homes, indicating the location
of each and the balance thereof. In addition, as soon as
reasonably possible (but in any event within 30 days) after
the Closing, the Company shall deliver to the Purchaser a
Schedule listing the information described in such clauses (i)
and (ii) as the Closing Date. All funds received by the
Company for the Homes under preneed contracts since the
applicable Acquisition Date will, by the time of Closing (to
the extent required by applicable law to have been deposited
by such time), have been deposited in the appropriate
accounts, all of which funds and accounts have been
administered and reported in accordance with the terms thereof
and as required by applicable laws and regulations. After the
Closing, the Company will make all necessary deposits as
legally required for amounts collected through the Closing
Date on all preneed contracts sold through the Closing Date.
As to all such preneed accounts outstanding on the Clos-
-10-
ing Date, (i) such accounts are covered by written contracts
signed or approved by the customer, (ii) the direct costs to
be incurred by the Purchaser in providing the services and
merchandise called for by any unwritten agreements will not
exceed trusted principal and interest receivable with respect
thereto or (iii) the obligations of the Company thereunder are
no more than to apply as a credit the amount of trust
balances, including interest, for any particular account
against the price for performing the service and providing
products on an at-need basis. The services provided by the
Company at each Home since the applicable Acquisition Date
have been rendered in a professional and competent manner
consistent with prevailing professional standards, practices
and customs. All preneed contracts of the Harvey-Engelhardt
Home have been properly segregated from these for other
funeral homes of the Company and its affiliates; no contract
described on Schedule 3.9 is for goods or services to be
provided by any such other funeral home, and at Closing there
will be no contract providing for goods or services to be
furnished by the Harvey-Engelhardt Home that will not be on
the Closing Date list referred to above.
3.10 INVENTORY; ACCOUNT RECEIVABLE. The inventories
of the Homes on the Closing Date will be reflected in its
books of account at cost. At Closing the accounts receivable
to be included within the Assets will be valid and legally
enforceable obligations of the account parties whose names are
listed in the books and records of each Home, as applicable,
legally (but not necessarily financially) collectible in
accordance with their terms, subject to bankruptcy,
insolvency, moratorium or other similar laws affecting
creditors' rights generally. At the Closing, the Company will
deliver to the Purchaser a listing, certified by it to be
complete and correct, of all of each Home's inventory (as of a
date that is within three business days prior to Closing) and
accounts receivable (as of a date which is within 30 days
prior to Closing).
3.11 INTANGIBLE RIGHTS. The Company has not received
notice that it is charged with infringement of any patent,
trademark, trade secret, license or other similar proprietary
rights of any other person in respect of the operation of the
business of the Homes or the use or ownership of the Assets.
3.12 LICENSES, PERMITS, ETC. The Company possesses
all licenses, franchises, permits, certificates, consents,
rights and privileges necessary or appropriate to the conduct
of the operations of each Home, including
-11-
(without limitation) all permits necessary for compliance with
all applicable environmental laws, except for any such
license, franchise, permit, certificate, consent, right or
privilege the absence of which would not, individually or in
the aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of either Home or
any substantial portion of the Assets.
3.13 LITIGATION. Other than the proceedings pending
before the Federal Trade Commission which are the subject of
the agreed consent order referred to in Section 7.7, there are
no claims, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, threatened against or
affecting the Company (with respect to the operation of the
Homes) or any of the Assets, at law or in equity or before or
by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or
in the aggregate, have a material adverse effect on the
financial condition, business, operations or prospects of
either Home or any substantial portion of the Assets. The
Company is not subject to any continuing court or
administrative order, writ, injunction or decree issued by any
court or foreign, federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, in respect of the operation of the Homes or
the use or ownership of the Assets.
3.14 COMPLIANCE WITH LAWS. Each Home has been
operated at all times since the applicable Acquisition Date in
compliance with all federal, state, municipal and other
statutes, rules, ordinances and regulations applicable to such
Home, the operation thereof and the Assets to be sold and
conveyed to the Purchaser hereunder, except for any such
noncompliance which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of either Home or
any substantial portion of the Assets.
3.15 EMPLOYEES. Schedule 3.15 hereto lists the name,
current annual salary rate and sum of all other direct
monetary compensation in addition to salary received during
the calendar year 1995 of each employee of the Homes. Other
than as listed on Schedule 3.8, there are no agreements
relating to the employment of any such employee, including any
collective bargaining agreement.
-12-
3.16 FINDERS. The Company is not a party to or in any
way obligated under any contract or other agreement, and there
are no outstanding claims against it, for the payment of any
broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.17 AUTHORITY. The execution, delivery and
performance of this Agreement by the Company have been duly
authorized by all necessary corporate action required on its
part. This Agreement is legally binding and enforceable
against the Company in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required
under, the Articles of Incorporation or bylaws of the Company
or any indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental
body.
3.18 FULL DISCLOSURE. The representations and
warranties made by the Company hereunder or in any Schedules
or certificates furnished to the Purchaser pursuant hereto, do
not and will not contain any untrue statement of a material
fact or, to the knowledge of the Company, omit to state a
material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made,
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company that:
4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement. The Purchaser is duly
qualified as a foreign corporation in the State of Florida.
4.2 AUTHORITY OF THE PURCHASER. The execution,
delivery and performance of this Agreement by the Purchaser
has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon the Purchaser and
enforceable against the Purchaser in accordance with its
terms. Neither the execution, delivery or performance by the
Purchaser of this Agreement will conflict with or result in a
violation or breach of any term
-13-
or provision of, nor constitute a default under, the
Certificate of Incorporation or bylaws of the Purchaser or
under any indenture, mortgage, deed of trust or other contract
or agreement to which it is a party or by which it or its
property is bound, or violate any order, writ, injunction or
decree of any court, administrative agency or governmental
body. At or prior to Closing, the Purchaser will have made all
necessary applications and obtained all necessary licenses and
permits, if any, which, together with the transfer of the
Company's transferrable licenses and permits described in
Section 1.1(viii), will be required in order to enable the
Purchaser to acquire the Assets hereunder and consummate the
Closing.
4.3 FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4 FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Company pursuant hereto or
thereto, do not and will not contain any untrue statement of a
material fact or, to the Purchaser's knowledge, omit to state
a material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made,
not misleading.
5. COVENANTS OF THE COMPANY PENDING CLOSING. The Company
covenants and agrees with the Purchaser that:
5.1 CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of each Home will
be operated only in the ordinary course, and, in particular,
without the prior written consent of the Purchaser, the
Company will not cause or permit any of the following actions
to occur:
(i) cancel or permit any insurance
applicable to the Assets or either Home to lapse or
terminate, unless renewed or replaced by like
coverage;
(ii) commit any act or permit the occurrence
of any event or the existence of any condition of the
type described in clause (iv) of Section 3.6; in
addition, if any of the other events described in
Section 3.6 occurs, the Company will
-14-
promptly notify the Purchaser of the existence and
nature of such event;
(iii) alter, amend, cancel or modify in any
respect any of the Assumed Contracts or the standard
form of, and terms and conditions applicable to,
preneed contracts;
(iv) sell or otherwise dispose of any of the
fixed assets described on Schedule 3.7, except for
any items disposed of that are replaced by items of
equivalent quality; or
(v) hire, fire, reassign or make any other
change in key personnel of either Home.
5.2 ACCESS TO INFORMATION. Prior to Closing, the
Company will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to
all of the on-site properties, books, contracts, commitments
and records of the Homes so that the Purchaser may have full
opportunity to make such investigation as it shall desire to
make of the business, affairs and properties of the Homes,
provided such investigation is conducted so as not to
unreasonably interfere with the normal day-to-day operations
of either Home.
5.3 CONSENTS AND APPROVALS. The Company will use its
best efforts to obtain the necessary consents and approvals of
other persons which may be required to be obtained on its part
and on the part of the Company to consummate the transactions
contemplated by this Agreement, including (without limitation)
the approval of the Federal Trade Commission described in
Section 7.7.
5.4 NO SHOP. For so long as this Agreement remains in
effect, the Company agrees that it shall not enter into any
agreements or commitments, or initiate, solicit or encourage
any offers, proposals or expressions of interest, or otherwise
hold any discussions with any potential buyers, investment
bankers or finders, with respect to the possible sale or other
disposition of all or any substantial portion of the assets
and business of either Home or any other sale of the Company
(whether by merger, consolidation, sale or stock or
otherwise), other than with the Purchaser; provided, however,
that any such merger, consolidation or sale of stock may occur
with the Shareholder or one or more of its direct or indirect
wholly owned subsidiaries, provided that the successor entity
joins in the execution of this Agreement to expressly
acknowledge the assumption of the obligations hereunder of the
applicable Company.
-15-
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company that:
6.1 CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement. In addition, the Purchaser
agrees to furnish information regarding itself as may be
reasonably required in connection with obtaining the approval
of the Federal Trade Commission described in Section 7.7.
6.2 CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Company from
any representative, officer, director or employee of the
Company, including its accountants or legal counsel, or from
any books or records of them, in connection with the
transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither
the Purchaser nor its representatives shall use such data or
information or disclose the same to others, except as such
data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to
be disclosed. If this Agreement is terminated for any reason,
all written data and information obtained by the Purchaser
from the Company or its representatives in connection with the
transactions contemplated by this Agreement shall be returned
to the Company.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any error,
misstatement or omission in the representations and warranties
made by the Company in Section 3 hereof; the representations
and warranties made by the Company herein shall be deemed to
have been made again at and as of the time of Closing and
shall then be true and correct; the Company shall have
performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by
it at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by an executive officer of the
Company, to the effect of the foregoing provisions of this
Section 7.1.
-16-
7.2 OPINION OF COUNSEL. The Company shall have caused
to be delivered to the Purchaser an opinion of internal
counsel for the Company, to the effect that:
(i) the Company is a corporation duly
organized, validly existing and in good standing
under the laws of its state of incorporation and has
all requisite corporate power to enter into and
perform its obligations under this Agreement;
(ii) the execution, delivery and performance
of this Agreement by the Company have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Company and enforceable against it in
accordance with its terms;
(iv) neither the execution, delivery or
performance by the Company of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Articles of Incorporation or bylaws of the
Company or under any material loan or credit
agreement, indenture, mortgage, deed of trust or
other contract or agreement known to such counsel and
to which the Company is a party or by which it or its
property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any
court, administrative agency or governmental body;
and
(v) no authorization, approval or consent of
or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Company or the performance of its obligations
hereunder, except for any consents which have already
been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Company and certificates
of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of
any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors rights and by principles of equity. Such opinion may
be limited to federal law and the internal laws of the State
of Texas.
-17-
7.3 NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to a substantial
portion of the physical assets and properties of either Home
(regardless of whether such loss or damage was insured), the
effect of which would have a material adverse effect on the
condition, business, operations or prospects of such Home.
7.4 APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.5 ENVIRONMENTAL QUESTIONNAIRE. The Purchaser shall
have received an environmental questionnaire (on forms
provided by the Purchaser and its lender) for each Home and
the Real Property, completed and signed by the Manager or
other supervisory employee of each Home, and such
questionnaire shall be satisfactory to Purchaser in its sole
discretion.
7.6 FINANCING COMMITMENT. The Purchaser represents
that it has received from Texas Commerce Bank National
Association a written commitment providing for the extension
of financing in order to provide the portion of the
consideration for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources. It shall be a
condition to Closing that such commitment shall have been
funded in such amount contemporaneously with the Closing,
provided that the Purchaser agrees to perform its obligations
under such commitment. The Company acknowledges that it is a
condition to the funding of such commitment that the
Shareholder shall have unconditionally guaranteed the
indebtedness to be advanced pursuant thereto.
7.7 FTC AND OTHER APPROVALS. The Purchaser shall have
received written notice of the approval of the Purchaser and
the transactions described herein by the Federal Trade
Commission (the "FTC") under the FTC's Decision and Order in
Service Corporation International, Commission Docket No.
C-3646. In addition, the Shareholder and the Company shall
have obtained all other necessary or appropriate consents and
approvals of other persons and governmental authorities to the
transactions contemplated in this Agreement.
-18-
7.8 TITLE INSURANCE. The Purchaser shall have
received an Owner's Policy of Title Insurance (at the
Company's expense) for each parcel of Real Property in an
amount mutually determined by the parties. Each such policy
shall be issued by a title company with offices in each County
in which the Real Property is located and reasonably
acceptable to the Purchaser (each hereafter referred to as a
"Title Company"), insuring that Purchaser is the owner of each
parcel of the Real Property subject only to the Permitted
Encumbrances, and the standard printed exceptions included in
a standard form Owner Policy of Title Insurance in effect in
the applicable jurisdiction; provided, however, that such
policy shall be limited to restrictions that are Permitted
Encumbrances, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the exception for rights of
parties in possession shall be deleted, and the standard
exception for taxes shall be limited to the year in which the
Closing occurs, and subsequent years and subsequent
assessments for prior years due to change in land usage or
ownership.
7.9 SURVEY. The Purchaser shall have received, at the
Company's expense, an ALTA/ASCM survey prepared by a licensed
surveyor approved by Purchaser and acceptable to each Title
Company, with respect to each parcel of Real Property, which
survey shall be sufficient for each Title Company to delete
the survey exception contained in the owner policy of title
insurance referred to in Section 7.8, save and except for the
phrase "shortages in area", and otherwise be in form and
content reasonably acceptable to Purchaser and its lender.
7.10 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by: the Asset Purchase Agreement of even date
herewith between the Purchaser and Fort Myers Memorial
Gardens, Inc.; the Asset Purchase Agreement of even date
herewith between the Purchaser and the Company (relating to
Oaklawn Memorial Gardens & Mausoleum); and the Asset Purchase
Agreement of even date herewith between the Purchaser and SCI
Texas Funeral Services, Inc. (all of the foregoing being
hereinafter referred to as the "Other Purchase Agreements");
all shall have been consummated substantially
contemporaneously with the Closing under this Agreement
(except to the extent that, in the case of such Agreement
relating to Oaklawn Memorial Gardens & Mausoleum, the closing
thereunder is delayed pending approval by the Florida Board of
Funeral and Cemetery Services as described therein).
-19-
7.11 HARVEY-ENGELHARDT LEASE. The Landlord shall have
consented to the assignment of the Harvey-Engelhardt Lease to
the Purchaser.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Company in
writing:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Company shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by the Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser herein
shall be deemed to have been made again at and as of the time
of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the
Company shall have received a certificate, signed by an
executive officer of the Purchaser, to the effect of the
foregoing provisions of this Section 8.1.
8.2 OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Company an opinion of Snell &
Smith, A Professional Corporation, counsel for the Purchaser,
to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement; and the
Purchaser is duly qualified as a foreign corporation
in the State of Florida;
(ii) the execution, delivery and performance
of this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Purchaser and enforceable against the
Purchaser in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other
-20-
contract or agreement known to such counsel and to
which Purchaser is a party or by which it or its
property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any
court, administrative agency or governmental body;
and
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Purchaser or the performance of its obligations
hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to the Company at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the internal laws of
the State of Texas and the General Corporation Law of the
State of Delaware.
8.3 CONSENTS AND APPROVALS. The consents and
approvals referred to in Section 7.7, including the approval
of the FTC, shall have been obtained.
8.4 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by the Other Purchase Agreements shall have been
consummated substantially contemporaneously with the Closing
under this Agreement (except as otherwise provided in Section
7.10).
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1 NATURE OF STATEMENTS. All statements contained in
this Agreement or any Schedule hereto shall be deemed
representations and warranties of the party executing or
delivering the same.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or in any
Schedule hereto shall not terminate, but shall survive the
Closing and continue in effect thereafter for a period of two
(2) years following the Closing, at which
-21-
time they shall terminate (except as to claims which are then
pending by written notice delivered prior to the expiration of
such two-year period).
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY THE COMPANY. THE COMPANY
AGREES TO INDEMNIFY AND HOLD HARMLESS THE PURCHASER AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES,
DAMAGES, LIABILITIES, OBLIGATIONS, COSTS OR EXPENSES (ANY ONE
SUCH ITEM BEING HEREIN CALLED A "LOSS" AND ALL SUCH ITEMS
BEING HEREIN COLLECTIVELY CALLED "LOSSES") WHICH ARE CAUSED BY
OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE PERFORMANCE
BY THE COMPANY OF ANY COVENANT OR AGREEMENT OF THE COMPANY
CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF WARRANTY OR
INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE COMPANY
HEREIN, IN ANY SCHEDULE DELIVERED TO THE PURCHASER PURSUANT
HERETO OR IN ANY CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY
OR ON BEHALF OF THE COMPANY PURSUANT HERETO, (III) ANY CLAIM
MADE AGAINST THE PURCHASER IN RESPECT OF ANY LIABILITIES OR
OBLIGATIONS OF THE COMPANY (WHETHER ABSOLUTE OR CONTINGENT,
KNOWN OR UNKNOWN) OTHER THAN THE ASSUMED LIABILITIES, AND (IV)
ANY AND ALL ACTIONS, SUITS, PROCEEDINGS, CLAIMS, DEMANDS,
JUDGMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE LEGAL
FEES) INCIDENT TO ANY OF THE FOREGOING.
10.2 INDEMNIFICATION BY THE PURCHASER. THE PURCHASER
AGREES TO INDEMNIFY AND HOLD HARMLESS THE COMPANY AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY LOSSES WHICH ARE
CAUSED BY OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE
PERFORMANCE BY THE PURCHASER OF ANY COVENANT OR AGREEMENT OF
THE PURCHASER CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF
WARRANTY OR INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE
PURCHASER HEREIN OR IN ANY CERTIFICATE OR OTHER INSTRUMENT
DELIVERED BY OR ON BEHALF OF THE PURCHASER PURSUANT HERETO,
(III) ANY CLAIM MADE AGAINST THE COMPANY IN RESPECT OF THE
ASSUMED LIABILITIES OR BASED ON ANY SET OF FACTS ARISING AFTER
THE CLOSING AND RELATED TO THE OPERATION OF EITHER HOME, AND
(IV) ANY AND ALL ACTIONS SUITS, PROCEEDINGS, CLAIMS, DEMANDS,
JUDGMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE LEGAL
FEES) INCIDENT TO ANY OF THE FOREGOING.
10.3 THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in the defense thereof and
be represented, at its own ex-
-22-
pense, by advisory counsel selected by it, and (ii) to approve
any settlement if the indemnifying party is, or will be,
required to pay any amounts in connection therewith.
Notwithstanding the foregoing, if within ten business days
after delivery of the indemnified party's notice described
above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims
shall be fully indemnified for by the indemnifying party as
provided herein, then the indemnifying party shall have the
right to control the defense of such claim, provided that the
indemnified party shall have the right (i) to participate in
the defense thereof and be represented, at its own expense, by
advisory counsel selected by it, and (ii) to approve any
settlement if the indemnified party's interests are, or would
be, affected thereby.
11. TERMINATION.
11.1 BEST EFFORTS TO SATISFY CONDITIONS. The Company
agrees to use its best efforts to bring about the satisfaction
of the conditions specified in Section 7 hereof and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2 TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual consent of the Company and
the Purchaser;
(b) the Purchaser if a material default
shall be made by the Company in the observance or in
the due and timely performance by any of its
covenants herein contained, or if there shall have
been a material breach or misrepresentation by the
Company of any of its warranties and representations
herein contained, or if the conditions of this
Agreement to be complied with or performed by the
Company at or before the Closing shall not have been
complied with or performed at the time required for
such compliance or performance and such noncompliance
or nonperformance shall not have been expressly
waived by the Purchaser in writing, and any such
default, breach or noncompliance shall continue
uncured for a period of ten (10) days after notice
thereof is given to the Company;
(c) the Company if a material default shall
be made by the Purchaser in the observance or in the
due and timely performance by the Purchaser of
-23-
any of the covenants of the Purchaser herein
contained, or if there shall have been a material
breach or misrepresentation by the Purchaser of any
of its warranties and representations herein
contained, or if the conditions of this Agreement to
be complied with or performed by the Purchaser at or
before the Closing shall not have been complied with
or performed at the time required for such compliance
or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Company in writing, and any such default,
breach or noncompliance shall continue uncured for a
period of ten (10) days after notice thereof is given
to the Purchaser; or
(d) the Company or the Purchaser, if for any
reason the Closing shall have failed to occur on or
before April 30, 1996.
11.3 LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no
party shall have any liability to any other party hereunder.
If this Agreement is terminated under paragraph (b) or (c) of
Section 11.2, then (i) the party so terminating this Agreement
shall not have any liability to any other party hereto,
provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination.
12. MISCELLANEOUS.
12.1 EXPENSES. Whether or not the Closing occurs, the
parties shall each pay their own expenses in connection with
the negotiation, preparation and carrying out of this
Agreement and the consummation of the transactions
contemplated herein, and in no event shall any such expenses
of the Company constitute an Assumed Liability hereunder.
12.2 BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of the Company, such claims shall be the responsibility of the
Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Company in
the case of claims arising under any other liabilities of the
Company.
-24-
12.3 TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Company, other than motor
vehicle transfer taxes (for which the Purchaser assumes
responsibility).
12.4 NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given if personally delivered or
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i) if to the Company, to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
with a copy to:
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(ii) if to the Purchaser, to:
CFS Funeral Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional
Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any
party to the other parties hereto.
12.5 ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the consent of all other parties
hereto, provided, however, that following the Closing the
Purchaser may assign its rights hereunder without the consent
of the Company to a successor-in-interest to the Purchaser
(whether by merger, sale of assets or otherwise), provided
that the Purchaser shall not thereby be relieved of its
obligations hereunder.
-25-
12.6 SUCCESSORS BOUND. Subject to the provisions of
Section 12.5, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns.
12.7 SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
12.8 AMENDMENT. This Agreement may be amended only by
an instrument in writing executed by both parties hereto.
12.9 ENTIRE AGREEMENT. This Agreement and the
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject
matter hereof and thereof (including, without limitation, the
letter of intent between the Purchaser and the Shareholder
dated April 2, 1996).
12.10 GOVERNING LAW. This Agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Texas.
12.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but
all of which shall constitute the same instrument.
-26-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered in Houston, Texas as of the date first above written.
THE PURCHASER:
CFS FUNERAL SERVICES, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE COMPANY:
SCI FUNERAL SERVICES OF FLORIDA, INC.
By:/s/ JOAN B. GOFF
Joan B. Goff,
Secretary
-27-
SCHEDULE DESCRIPTION
3.5 Real Property
3.7 Fixed Assets
3.8 Assumed Contracts
3.9 Preneed Contracts and Trust Accounts
3.15 Employees
-28-
Exhibit 10.15
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of April 10, 1996, between CFS
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), and FORT MYERS
MEMORIAL GARDENS, INC., a Florida corporation (the "Company");
WITNESSETH:
WHEREAS, the Company owns and operates the Metz Funeral Home
located at 1306 LaFayette in Cape Coral, Lee County, Florida (the "Home"); and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of the assets, rights and properties of the Home from the
Company, on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 TRANSFER OF ASSETS. Subject to the provisions of
this Agreement, the Company agrees to sell and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
all of the properties, assets, rights and business of the Home
described below, as they shall exist at the time of the
Closing (collectively, the "Assets"), excluding those
described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of caskets, accessories,
monuments and other goods and inventories;
(iii) the one (1) motor vehicle described
on Schedule 3.7, and the other machinery, equipment,
furniture, fixtures, supplies, tools and other fixed
assets and property, plant and equipment of the Home,
including those described on Schedule 3.7;
(iv) fee simple title to the real property
and improvements described on Schedule 3.5 (the "Real
Property");
(v) all cash balances in bank accounts,
certificates of deposit and other investments, but
only if such cash balances or certificates of deposit
are committed fund obligations under preneed
contracts;
<PAGE>
(vi) the rights of the Company under
pre-need contracts and the other agreements, leases
and commitments described on Schedules 3.8 and 3.9;
(vii) all rights owned or held by the
Company to the name "Metz Funeral Home", and all
derivatives thereof and goodwill associated with the
foregoing;
(viii) all transferrable permits and
licenses, and all books, records, brochures and
literature, rights in unemployment compensation,
industrial accident and other similar funds, and
prepaid items; and
(ix) all other assets, rights and
properties owned or held by the Company at the time
of Closing and used in the operation of, or in
connection with, the business of the Home or located
thereon, excluding those described in Section 1.2.
At the Closing, the Company shall convey to the Purchaser the
Assets free and clear of any and all liens, security
interests, pledges, encumbrances, or title restrictions of any
kind (collectively, "Liens"), other than Liens against the
Real Property which are described on Schedule 3.5 as being
approved by the Purchaser (the "Permitted Encumbrances").
1.2 RETAINED ASSETS. Notwithstanding the foregoing,
the following properties, assets, rights and interests (the
"Retained Assets") are hereby excluded from the purchase and
sale contemplated hereby and are therefore not included in the
Assets:
(i) all cash on hand or on deposit,
including bank account balances, certificates of
deposit and marketable securities, excluding,
however, account balances, certificates of deposit
and other investments described in Section 1.1(v);
(ii) intercompany accounts and notes
receivable owed to the Company by its indirect
corporate parent, Service Corporation International,
a Texas corporation (the "Shareholder"), or any of
its affiliates which do not arise out of the sale of
goods or services of the Company;
(iii) the corporate records, minutes of
proceedings, stock records and corporate seals
-2-
of the Company, and any shares of the Company's
capital stock held in its treasury;
(iv) the Company's share of any prepaid
federal or state income taxes and any rights to or
claims for federal or state income tax refunds; and
(v) all assets, rights and properties of
funeral homes and cemeteries owned and operated by
the Company, other than the Home.
1.3 PURCHASE PRICE. The purchase price for the Assets
shall be $800,000, all of which shall be paid in cash at
Closing by wire transfer to such account as the Company shall
designate prior to Closing.
1.4 ASSUMPTION OF LIABILITIES. The Purchaser, upon
the sale and purchase of the Assets, shall, subject to Section
1.5 below, assume and agree to pay or discharge only the
following liabilities and obligations of the Company
(collectively, the "Assumed Liabilities"):
(i) liabilities under the preneed
contracts described in Section 3.9, under preneed
contracts entered into in the ordinary course of
business between the date of such schedule and the
Closing Date, and under at-need contracts for
services to be performed following Closing, provided
that the entire amount of consideration payable by
the customers under at-need contracts is payable
following Closing or an appropriate adjustment to
such effect shall be made at Closing between the
Company and the Purchaser; and
(ii) obligations arising after Closing
under the agreements and leases and commitments
described on Schedule 3.8 hereto (the "Assumed
Contracts").
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements with the
Company. Nothing herein shall prevent the Purchaser from
contesting in good faith any of the Assumed Liabilities. At
Closing, the Purchaser shall deliver to the Company an
instrument (which may be combined with one or more contract
assignments), dated the Closing Date and reasonably
satisfactory in form and substance to the Company, pursuant to
which the Purchaser will assume the Assumed Liabilities.
-3-
1.5 LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4 above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Company not specifically included in the Assumed
Liabilities, and, in particular, the Purchaser shall not
assume or agree to pay or discharge any of the following:
(i) any notes or accounts payable of any
kind, regardless of whether entered into in the
ordinary course of business;
(ii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Home prior to the
Closing Date;
(iii) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against the
Company based upon any set of facts occurring prior
to the Closing;
(iv) the liabilities and obligations under
any warranties to customers with respect to goods or
products sold or services provided by the Company
prior to Closing;
(v) all personal injury, product liability
claims, claims of environmental damage, claims of
hazards to health, strict liability, toxic torts,
enforcement proceedings, cleanup orders and other
similar actions or claims instituted by private
parties or governmental agencies, with respect to the
conduct of the business and operations of the Company
prior to Closing; or
(vi) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6 CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, and payments under the Assumed Contracts shall be
prorated as of the Closing Date, the Company being charged and
credited for all of same up to and on such date and the
Purchaser being charged and credited for all of same after
such date. Utility services will be transferred to the
Purchaser's name on or as soon as possible after the Closing
Date. If the actual amounts to be prorated are not known as of
-4-
the Closing Date, the prorations shall be made on the basis of
the best evidence then available, and not thereafter adjusted.
1.7 INSTRUMENTS OF TRANSFER. At the Closing, the
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale, contract assignments and
assignments of motor vehicle registrations, transferring title
to the Assets to the Purchaser as may reasonably be requested
by the Purchaser. Such instruments shall be reasonably
satisfactory in form and substance to the Purchaser and shall
vest in the Purchaser good and indefeasible title to all the
Assets, free and clear of all Liens other than the Permitted
Encumbrances.
1.8 DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS.
At the Closing, the Company will deliver to the Purchaser all
of the Assumed Contracts, with such assignments thereof and
consents to assignment as the Purchaser shall deem necessary
to assure the Purchaser of their full benefit. Simultaneously
with such deliveries, the Company shall take all requisite
steps to put the Purchaser in actual possession and operating
control of the Assets and all of the Company's on-site
business records, books and other data. In addition, at the
Closing, the Company and the Purchaser shall coordinate with
one another in taking all necessary or appropriate action to
cause the transfer of the trust funds referred to in Section
3.9 including, without limitation, the obtaining of
governmental and third party consents and, if necessary, the
substitution of a successor trustee by the Purchaser or a
designee of the Purchaser. Without limiting the generality of
the foregoing, the Company shall use its best efforts in
segregating all preneed accounts and trusted funds applicable
to the Home which are part of the Sun Bank MGP Trust and the
NationsBank Insurance Investment and shall assist the
Purchaser in transferring the same to trusts established by or
through the Purchaser.
1.9 FURTHER ASSURANCES. The Company shall from time
to time after the Closing, without further consideration,
execute and deliver such instruments of transfer, conveyance
and assignment (in addition to those delivered pursuant to
Section 1.7), and shall take such other action, as the
Purchaser may reasonably request to more effectively transfer,
convey and assign to and vest in the Purchaser, and to put the
Purchaser in actual possession and control of, each of the
Assets.
-5-
1.10 EMPLOYEE MATTERS. On the Closing Date, the
Purchaser may (but shall not be required to) offer employment
to each employee of the Home. Each such employee so offered
employment who accepts shall, effective as of the Closing
Date, cease to be an employee of the Company and shall
thereupon become an employee of the Purchaser. At the Closing,
the Company shall certify as to the amount of all accrued
vacation and holiday benefits as of the Closing Date of the
employees of the Company who became employees of the
Purchaser, and such amount shall represent a downward
adjustment to the purchase price for the Assets. In addition,
the Company shall remain responsible for all health benefits,
workers compensation claims, termination and severance
benefits, and any withdrawal liability and rights under
pension or profit sharing plans of such employees through the
Closing, and in no event shall the Purchaser have any
liability or responsibility therefor.
1.11 USE OF CREMATORY. The Company agrees that the
Purchaser may, for a period of three (3) years following the
Closing Date, use the Southeastern Crematory located at 5500
Williamsburg in Punta Gorda, Florida (or any successor
location) at a charge of $47.00 per disposition, provided that
during such three-year period such charge to the Purchaser
shall be subject to increase commensurate with any bona fide
increase in internal cost-allocation charges by such crematory
to other funeral homes of the Company and its affiliates. In
case of any such increase, the Company shall provide the
Purchaser with the same advance notice thereof as the
Shareholder provides to such other funeral homes.
1.12 MEMORIAL GUARDIAN PLAN RECEIVABLES. The parties
acknowledge that a portion of the accounts receivables to be
transferred to the Purchaser as described in Section 1.1(i)
are owed by Memorial Guardian Plan (collectively, "Guardian
Plan Receivables"). The Company represents that it has not
pursued, outside the ordinary course of business and
consistent with past practice, the collection of any of the
accounts receivable (including the Guardian Plan Receivables)
presented on the March 31, 1996 list(s) of accounts receivable
provided to the Purchaser, and the Company agrees that it will
not pursue its collection activities on such accounts
receivable between the date hereof and the Closing Date except
in the ordinary course of business consistent with past
practice.
2. THE CLOSING. The Closing shall occur at the offices of
Snell & Smith, A Professional Corporation, 1000 Louisiana, Suite 3650, Houston,
Texas, at 9:00 a.m. on the tenth business
-6-
day following the Purchaser's receipt of notice of the approval by the Federal
Trade Commission referred to in Section 7.7, or at such other date, time or
place as may be mutually agreed upon by the parties, but in no event later than
April 30, 1996. The date and time of the Closing is herein called the "Closing
Date", and shall be deemed to have occurred as of the close of business on the
Closing Date. All action to be taken at the Closing as hereinafter set forth,
and all documents and instruments executed and delivered, and all payments made
with respect thereto, shall be considered to have been taken, delivered or made
simultaneously, and no such action or delivery or payment shall be considered as
complete until all action incident to the Closing has been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with the Purchaser that:
3.1 ORGANIZATION AND EXISTENCE. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and
it has all requisite corporate power to enter into and perform
its obligations under this Agreement.
3.2 OWNERSHIP OF THE COMPANY. All of the issued and
outstanding shares of capital stock of the Company are owned
indirectly by the Shareholder.
3.3 CERTAIN FINANCIAL INFORMATION. The Home performed
at least 229 adult funeral services during the twelve months
ended December 31, 1993, at least 251 adult funeral services
during the twelve months ended December 31, 1994, and at least
163 adult funeral services during the eight months ended
August 31, 1995.
3.4 TITLE TO AND STATUS OF PROPERTY. The Company is
in actual possession and control of all properties owned or
leased by it which are presently used in the conduct of the
business of the Home, and has good and indefeasible title to
all of the Assets to be sold and conveyed to the Purchaser
under this Agreement, free and clear of any and all Liens
other than the Permitted Encumbrances.
3.5 REAL PROPERTY. Schedule 3.5 hereto sets forth a
description of each parcel of the Real Property, which
constitutes all interests in real property that are currently
used in the operation of the Home. Schedule 3.5 also describes
all Liens of any kind against the Real Property. There is not
pending or, to the Company's knowledge, threatened any
proceeding for the taking or condemnation of the Real Property
or any portion thereof.
-7-
Since October 11, 1995 (the "Acquisition Date"), no toxic or
hazardous wastes (as defined by the U.S. Environmental
Protection Agency, or any similar state or local agency) or
hazardous substances (as defined under the Comprehensive
Environment Response, Compensation and Liability Act of 1980,
as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation)
have been generated, stored, dumped or released onto or from
any portion of the Real Property, except for substances, such
as formaldehyde, that are used in the operation of the Real
Property as a funeral home or otherwise in the ordinary course
of business and have been properly used, stored and disposed
of in accordance with applicable legal requirements, and
except for any of the foregoing which would not, individually
or in the aggregate, have a material adverse impact on the
financial condition, operations, properties or prospects of
the Home. To the knowledge of the Company, the Real Property
is not now subject to any reclamation, remediation or
reporting requirements of any federal, state, local or other
governmental body or agency having jurisdiction over the Real
Property. To the knowledge of officers of the Company, no
portion of the Real Property contains any underground storage
tanks or PCBs.
3.6 ABSENCE OF CHANGES OR EVENTS. Since August 31,
1995, there has not been:
(i) any material adverse change in the
financial condition, operations, properties or
prospects of the Home;
(ii) any material damage, destruction or
losses against the Home or any waiver of any rights
of material value to the Home;
(iii) any claim or liability for any
material damages for any actual or alleged negligence
or other tort or breach of contract against or
affecting the Home; or
(iv) any transaction or event entered into
or affecting the Home other than in the ordinary
course of the business.
3.7 FIXED ASSETS. Schedule 3.7 hereto lists all motor
vehicles and other material items of equipment, fixtures and
other fixed assets owned by the Company which are used in the
operation of, or in connection with, the business of the Home
or located thereon. All such Assets are, taken as a whole, in
operating condition and reasonable repair, ordinary wear and
tear excepted.
-8-
3.8 CONTRACTS AND COMMITMENTS. Schedule 3.8 sets
forth a description of each Assumed Contract applicable to the
Home. Each Assumed Contract is valid and in full force and
effect and neither the Company, nor, to the knowledge of the
Company, any of the other parties thereto, is in default
thereunder.
3.9 PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.9 attached hereto lists, as of December 31, 1995 (except as
otherwise noted therein), (i) all preneed contracts of the
Home unfulfilled as of the date thereof, including contracts
for the sale of funeral merchandise and services, and (ii) all
trust accounts relating to the Home, indicating the location
of each and the balance thereof. In addition, as soon as
reasonably possible (but in any event within 30 days) after
the Closing, the Company shall deliver to the Purchaser a
Schedule listing the information described in such clauses (i)
and (ii) as the Closing Date. All funds received by the
Company for the Home under preneed contracts since the
Acquisition Date will, by the time of Closing (to the extent
required by applicable law to have been deposited by such
time), have been deposited in the appropriate accounts, all of
which funds and accounts have been administered and reported
in accordance with the terms thereof and as required by
applicable laws and regulations. After the Closing, the
Company will make all necessary deposits as legally required
for amounts collected through the Closing on all preneed
contracts sold through the Closing Date. As to all such
preneed accounts outstanding on the Closing Date, (i) such
accounts are covered by written contracts signed or approved
by the customer, (ii) the direct costs to be incurred by the
Purchaser in providing the services and merchandise called for
by any unwritten agreements will not exceed trusted principal
and interest receivable with respect thereto or (iii) the
obligations of the Company thereunder are no more than to
apply as a credit the amount of trust balances, including
interest, for any particular account against the price for
performing the service and providing products on an at-need
basis. The services provided by the Company at the Home since
the Acquisition Date have been rendered in a professional and
competent manner consistent with prevailing professional
standards, practices and customs. All preneed contracts of the
Home have been properly segregated from these for other
funeral homes of the Company and its affiliates; no contract
described on Schedule 3.9 is for goods or services to be
provided by any such other funeral home, and at Closing there
will be no contract providing for goods or services to be
furnished by the Home that will not be on the Closing Date
list referred to above.
-9-
3.10 INVENTORY; ACCOUNT RECEIVABLE. The inventories
of the Home on the Closing Date will be reflected in its books
of account at cost. At Closing the accounts receivable to be
included within the Assets will be valid and legally
enforceable obligations of the account parties whose names are
listed in the books and records of the Home, legally (but not
necessarily financially) collectible in accordance with their
terms, subject to bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally. At the
Closing, the Company will deliver to the Purchaser a listing,
certified by it to be complete and correct, of all of the
Home's inventory (as of a date within three business days
prior to Closing) and accounts receivable (as of a date that
is within 30 days prior to Closing).
3.11 INTANGIBLE RIGHTS. The Company has not received
notice that it is charged with infringement of any patent,
trademark, trade secret, license or other similar proprietary
rights of any other person in respect of the operation of the
business of the Home or the use or ownership of the Assets.
3.12 LICENSES, PERMITS, ETC. To the Company's
knowledge, the Company possesses all licenses, franchises,
permits, certificates, consents, rights and privileges
necessary or appropriate to the conduct of the operations of
the Home, including (without limitation) all permits necessary
for compliance with all applicable environmental laws, except
for any such license, franchise, permit, certificate, consent,
right or privilege the absence of which would not,
individually or in the aggregate, have a material adverse
effect on the financial condition, business, operations or
prospects of the Home or any substantial portion of the
Assets.
3.13 LITIGATION. Other than the proceedings pending
before the Federal Trade Commission which are the subject of
the agreed consent order referred to in Section 7.7, there are
no claims, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, threatened against or
affecting the Company (with respect to the operation of the
Home) or any of the Assets, at law or in equity or before or
by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or
in the aggregate, have a material adverse effect on the
financial condition, business, operations or prospects of the
Home or any substantial portion of the Assets. The Company is
not subject to any continuing court or administrative order,
-10-
writ, injunction or decree issued by any court or foreign,
federal, state, municipal or other governmental department,
commission, board, agency or instrumentality, in respect of
the operation of the Home or the use or ownership of the
Assets.
3.14 COMPLIANCE WITH LAWS. The Home has been operated
at all times since the Acquisition Date in compliance with all
federal, state, municipal and other statutes, rules,
ordinances and regulations applicable to the Home, the
operation thereof and the Assets to be sold and conveyed to
the Purchaser hereunder, except for any such noncompliance
which would not, individually or in the aggregate, have a
material adverse effect on the financial condition, business,
operations or prospects of the Home or any substantial portion
of the Assets.
3.15 EMPLOYEES. Schedule 3.15 hereto lists the name,
current annual salary rate and sum of all other direct
monetary compensation in addition to salary received during
the calendar year 1995 of each employee of the Home. Other
than as listed on Schedule 3.8, there are no agreements
relating to the employment of any such employee, including any
collective bargaining agreement.
3.16 FINDERS. The Company is not a party to or in any
way obligated under any contract or other agreement, and there
are no outstanding claims against it, for the payment of any
broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.17 AUTHORITY. The execution, delivery and
performance of this Agreement by the Company have been duly
authorized by all necessary corporate action required on its
part. This Agreement is legally binding and enforceable
against the Company in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required
under, the Articles of Incorporation or bylaws of the Company
or any indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental
body.
3.18 FULL DISCLOSURE. The representations and
warranties made by the Company hereunder or in any Schedules
or certificates furnished to the Purchaser pursuant hereto, do
not and will not contain any untrue statement
-11-
of a material fact or, to the knowledge of the Company, omit
to state a material fact required to be stated herein or
therein or necessary to make the representations or warranties
herein or therein, in light of the circumstances in which they
are made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company that:
4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement. The Purchaser is duly
qualified as a foreign corporation in the State of Florida.
4.2 AUTHORITY OF THE PURCHASER. The execution,
delivery and performance of this Agreement by the Purchaser
has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon the Purchaser and
enforceable against the Purchaser in accordance with its
terms. Neither the execution, delivery or performance by the
Purchaser of this Agreement will conflict with or result in a
violation or breach of any term or provision of, nor
constitute a default under, the Certificate of Incorporation
or bylaws of the Purchaser or under any indenture, mortgage,
deed of trust or other contract or agreement to which it is a
party or by which it or its property is bound, or violate any
order, writ, injunction or decree of any court, administrative
agency or governmental body. At or prior to Closing, the
Purchaser will have made all necessary applications and
obtained all necessary licenses and permits, if any, which,
together with the transfer of the Company's transferrable
licenses and permits described in Section 1.1(viii), will be
required in order to enable the Purchaser to acquire the
Assets hereunder and consummate the Closing.
4.3 FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4 FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Company pursuant hereto or
thereto, do not and will not contain any untrue statement
-12-
of a material fact or, to the Purchaser's knowledge, omit to
state a material fact required to be stated herein or therein
or necessary to make the representations or warranties herein
or therein, in light of the circumstances in which they are
made, not misleading.
5. COVENANTS OF THE COMPANY PENDING CLOSING. The Company
covenants and agrees with the Purchaser that:
5.1 CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of the Home will
be operated only in the ordinary course, and, in particular,
without the prior written consent of the Purchaser, the
Company will not cause or permit any of the following actions
to occur:
(i) cancel or permit any insurance
applicable to the Assets or the Home to lapse or
terminate, unless renewed or replaced by like
coverage;
(ii) commit any act or permit the
occurrence of any event or the existence of any
condition of the type described in clause (iv) of
Section 3.6; in addition, if any of the other events
described in Section 3.6 occurs, the Company will
promptly notify the Purchaser of the existence and
nature of such event;
(iii) alter, amend, cancel or modify in any
respect any of the Assumed Contracts or the standard
form of, and terms and conditions applicable to,
preneed contracts;
(iv) sell or otherwise dispose of any of
the fixed assets described on Schedule 3.7, except
for any items disposed of that are replaced by items
of equivalent quality; or
(v) hire, fire, reassign or make any other
change in key personnel of the Home.
5.2 ACCESS TO INFORMATION. Prior to Closing, the
Company will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to
all of the on-site properties, books, contracts, commitments
and records of the Home so that the Purchaser may have full
opportunity to make such investigation as it shall desire to
make of the business, affairs and properties of the Home,
provided such investigation is conducted so as not to
unreasonably interfere with the normal day-to-day operations
of the Home.
-13-
5.3 CONSENTS AND APPROVALS. The Company will use its
best efforts to obtain the necessary consents and approvals of
other persons which may be required to be obtained on its part
and on the part of the Company to consummate the transactions
contemplated by this Agreement, including (without limitation)
the approval of the Federal Trade Commission described in
Section 7.7.
5.4 NO SHOP. For so long as this Agreement remains in
effect, the Company agrees that it shall not enter into any
agreements or commitments, or initiate, solicit or encourage
any offers, proposals or expressions of interest, or otherwise
hold any discussions with any potential buyers, investment
bankers or finders, with respect to the possible sale or other
disposition of all or any substantial portion of the assets
and business of the Home or any other sale of the Company
(whether by merger, consolidation, sale or stock or
otherwise), other than with the Purchaser; provided, however,
that any such merger, consolidation or sale of stock may occur
with the Shareholder or one or more of its direct or indirect
wholly owned subsidiaries, provided that the successor entity
joins in the execution of this Agreement to expressly
acknowledge the assumption of the obligations hereunder of the
applicable Company.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company that:
6.1 CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement. In addition, the Purchaser
agrees to furnish information regarding itself as may be
reasonably required in connection with obtaining the approval
of the Federal Trade Commission described in Section 7.7.
6.2 CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Company from
any representative, officer, director or employee of the
Company, including its accountants or legal counsel, or from
any books or records of them, in connection with the
transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither
the Purchaser nor its representatives shall use such data or
information or disclose the same to others, except as such
data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to
be disclosed.
-14-
If this Agreement is terminated for any reason, all written
data and information obtained by the Purchaser from the
Company or its representatives in connection with the
transactions contemplated by this Agreement shall be returned
to the Company.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any error,
misstatement or omission in the representations and warranties
made by the Company in Section 3 hereof; the representations
and warranties made by the Company herein shall be deemed to
have been made again at and as of the time of Closing and
shall then be true and correct; the Company shall have
performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by
it at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by an executive officer of the
Company, to the effect of the foregoing provisions of this
Section 7.1.
7.2 OPINION OF COUNSEL. The Company shall have caused
to be delivered to the Purchaser an opinion of internal
counsel for the Company, to the effect that:
(i) the Company is a corporation duly
organized, validly existing and in good standing
under the laws of its state of incorporation and has
all requisite corporate power to enter into and
perform its obligations under this Agreement;
(ii) the execution, delivery and performance
of this Agreement by the Company has been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Company and enforceable against them in
accordance with its terms;
(iv) neither the execution, delivery or
performance by the Company of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Articles of Incorporation or bylaws of the
Company or under any material loan or credit
agreement, indenture, mortgage, deed of trust or
other contract or agreement known to such counsel
-15-
and to which the Company is a party or by which it or
its property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any
court, administrative agency or governmental body;
and
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Company or the performance of its obligations
hereunder, except for any consents which have already
been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Company and certificates
of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of
any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors rights and by principles of equity. Such opinion may
be limited to federal law and the internal laws of the State
of Texas.
7.3 NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to a substantial
portion of the physical assets and properties of the Home
(regardless of whether such loss or damage was insured), the
effect of which would have a material adverse effect on the
condition, business, operations or prospects of the Home.
7.4 APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.5 ENVIRONMENTAL QUESTIONNAIRE. The Purchaser shall
have received an environmental questionnaire (on forms
provided by the Purchaser and its lender) for the Home and the
Real Property, completed and signed by the Manager or other
supervisory employee of the Home, and such questionnaire shall
be satisfactory to Purchaser in its sole discretion.
7.6 FINANCING COMMITMENT. The Purchaser represents
that it has received from Texas Commerce Bank National
-16-
Association a written commitment providing for the extension
of financing in order to provide the portion of the
consideration for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources. It shall be a
condition to Closing that such commitment shall have been
funded in such amount contemporaneously with the Closing,
provided that the Purchaser agrees to perform its obligations
under such commitment. The Company acknowledges that it is a
condition to the funding of such commitment that the
Shareholder shall have unconditionally guaranteed the
indebtedness to be advanced pursuant thereto.
7.7 FTC AND OTHER APPROVALS. The Purchaser shall have
received written notice of the approval of the Purchaser and
the transactions described herein by the Federal Trade
Commission (the "FTC") under the FTC's Decision and Order in
Service Corporation International, Commission Docket No.
C-3646. In addition, the Shareholder and the Company shall
have obtained all other necessary or appropriate consents and
approvals of other persons and governmental authorities to the
transactions contemplated in this Agreement.
7.8 TITLE INSURANCE. The Purchaser shall have
received an Owner's Policy of Title Insurance (at the
Company's expense) for each parcel of Real Property in an
amount mutually determined by the parties. Each such policy
shall be issued by a title company with offices in each County
in which the Real Property is located and reasonably
acceptable to the Purchaser (each hereafter referred to as a
"Title Company"), insuring that Purchaser is the owner of each
parcel of the Real Property subject only to the Permitted
Encumbrances, and the standard printed exceptions included in
a standard form Owner Policy of Title Insurance in effect in
the applicable jurisdiction; provided, however, that such
policy shall be limited to restrictions that are Permitted
Encumbrances, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the exception for rights of
parties in possession shall be deleted, and the standard
exception for taxes shall be limited to the year in which the
Closing occurs, and subsequent years and subsequent
assessments for prior years due to change in land usage or
ownership.
7.9 SURVEY. The Purchaser shall have received, at the
Company's expense, an ALTA/ASCM survey prepared by a licensed
surveyor approved by Purchaser and acceptable to each Title
Company, with respect to each parcel of Real Property, which
survey shall be sufficient for each Title
-17-
Company to delete the survey exception contained in the owner
policy of title insurance referred to in Section 7.8, save and
except for the phrase "shortages in area", and otherwise be in
form and content reasonably acceptable to Purchaser and its
lender.
7.10 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by: the Asset Purchase Agreement of even date
herewith between the Purchaser and SCI Funeral Services of
Florida, Inc. ("SCI-Florida") (relating to Oaklawn Memorial
Gardens & Mausoleum); the Asset Purchase Agreement of even
date herewith between the Purchaser and SCI-Florida (relating
to Brevard (North) and Harvey-Engelhardt Funeral Homes); and
the Asset Purchase Agreement of even date herewith between the
Purchaser and SCI Texas Funeral Services, Inc. (all of the
foregoing being hereinafter referred to as the "Other Purchase
Agreements"); all shall have been consummated substantially
contemporaneously with the Closing under this Agreement
(except to the extent that, in the case of such Agreement
relating to Oaklawn Memorial Gardens & Mausoleum, the closing
thereunder is delayed pending approval by the Florida Board of
Funeral and Cemetery Services as described therein).
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Company in writing:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Company shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by the Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser herein
shall be deemed to have been made again at and as of the time
of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the
Company shall have received a certificate, signed by an
executive officer of the Purchaser, to the effect of the
foregoing provisions of this Section 8.1.
8.2 OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Company an opinion of Snell &
Smith, A Professional Corporation, counsel for the Purchaser,
to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
-18-
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement; and the
Purchaser is duly qualified as a foreign corporation
in the State of Florida;
(ii) the execution, delivery and performance
of this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Purchaser and enforceable against the
Purchaser in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract
or agreement known to such counsel and to which
Purchaser is a party or by which it or its property
is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Purchaser or the performance of its obligations
hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to the Company at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the internal laws of
the State of Texas and the General Corporation Law of the
State of Delaware.
8.3 CONSENTS AND APPROVALS. The consents and
approvals referred to in Section 7.7, including the approval
of the FTC, shall have been obtained.
-19-
8.4 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by the Other Purchase Agreements shall have been
consummated substantially contemporaneously with the Closing
under this Agreement (except as otherwise provided in Section
7.10).
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1 NATURE OF STATEMENTS. All statements contained in
this Agreement or any Schedule hereto shall be deemed
representations and warranties of the party executing or
delivering the same.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or in any
Schedule hereto shall not terminate, but shall survive the
Closing and continue in effect thereafter for a period of two
(2) years following the Closing, at which time they shall
terminate (except as to claims which are then pending by
written notice delivered prior to the expiration of such
two-year period).
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY THE COMPANY. THE COMPANY
AGREES TO INDEMNIFY AND HOLD HARMLESS THE PURCHASER AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES,
DAMAGES, LIABILITIES, OBLIGATIONS, COSTS OR EXPENSES (ANY ONE
SUCH ITEM BEING HEREIN CALLED A "LOSS" AND ALL SUCH ITEMS
BEING HEREIN COLLECTIVELY CALLED "LOSSES") WHICH ARE CAUSED BY
OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE PERFORMANCE
BY THE COMPANY OF ANY COVENANT OR AGREEMENT OF THE COMPANY
CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF WARRANTY OR
INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE COMPANY
HEREIN, IN ANY SCHEDULE DELIVERED TO THE PURCHASER PURSUANT
HERETO OR IN ANY CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY
OR ON BEHALF OF THE COMPANY PURSUANT HERETO, (III) ANY CLAIM
MADE AGAINST THE PURCHASER IN RESPECT OF ANY LIABILITIES OR
OBLIGATIONS OF THE COMPANY (WHETHER ABSOLUTE OR CONTINGENT,
KNOWN OR UNKNOWN) OTHER THAN THE ASSUMED LIABILITIES, AND (IV)
ANY AND ALL ACTIONS, SUITS, PROCEEDINGS, CLAIMS, DEMANDS,
JUDGMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE LEGAL
FEES) INCIDENT TO ANY OF THE FOREGOING.
10.2 INDEMNIFICATION BY THE PURCHASER. THE PURCHASER
AGREES TO INDEMNIFY AND HOLD HARMLESS THE COMPANY AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST
-20-
ANY LOSSES WHICH ARE CAUSED BY OR ARISE OUT OF (I) ANY BREACH
OR DEFAULT IN THE PERFORMANCE BY THE PURCHASER OF ANY COVENANT
OR AGREEMENT OF THE PURCHASER CONTAINED IN THIS AGREEMENT,
(II) ANY BREACH OF WARRANTY OR INACCURATE OR ERRONEOUS
REPRESENTATION MADE BY THE PURCHASER HEREIN OR IN ANY
CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY OR ON BEHALF OF
THE PURCHASER PURSUANT HERETO, (III) ANY CLAIM MADE AGAINST
THE COMPANY IN RESPECT OF THE ASSUMED LIABILITIES OR BASED ON
ANY SET OF FACTS ARISING AFTER THE CLOSING AND RELATED TO THE
OPERATION OF THE HOME, AND (IV) ANY AND ALL ACTIONS SUITS,
PROCEEDINGS, CLAIMS, DEMANDS, JUDGMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE LEGAL FEES) INCIDENT TO ANY OF THE
FOREGOING.
10.3 THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in the defense thereof and
be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts
in connection therewith. Notwithstanding the foregoing, if
within ten business days after delivery of the indemnified
party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between
such parties, such claims shall be fully indemnified for by
the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have
the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected
by it, and (ii) to approve any settlement if the indemnified
party's interests are, or would be, affected thereby.
11. TERMINATION.
11.1 BEST EFFORTS TO SATISFY CONDITIONS. The Company
agrees to use its best efforts to bring about the satisfaction
of the conditions specified in Section 7 hereof and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2 TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual consent of the Company and
the Purchaser;
-21-
(b) the Purchaser if a material default
shall be made by the Company in the observance or in
the due and timely performance by any of its
covenants herein contained, or if there shall have
been a material breach or misrepresentation by the
Company of any of its warranties and representations
herein contained, or if the conditions of this
Agreement to be complied with or performed by the
Company at or before the Closing shall not have been
complied with or performed at the time required for
such compliance or performance and such noncompliance
or nonperformance shall not have been expressly
waived by the Purchaser in writing, and any such
default, breach or noncompliance shall continue
uncured for a period of ten (10) days after notice
thereof is given to the Company;
(c) the Company if a material default shall
be made by the Purchaser in the observance or in the
due and timely performance by the Purchaser of any of
the covenants of the Purchaser herein contained, or
if there shall have been a material breach or
misrepresentation by the Purchaser of any of its
warranties and representations herein contained, or
if the conditions of this Agreement to be complied
with or performed by the Purchaser at or before the
Closing shall not have been complied with or
performed at the time required for such compliance or
performance and such noncompliance or nonperformance
shall not have been expressly waived by the Company
in writing, and any such default, breach or
noncompliance shall continue uncured for a period of
ten (10) days after notice thereof is given to the
Purchaser; or
(d) the Company or the Purchaser, if for any
reason the Closing shall have failed to occur on or
before April 30, 1996.
11.3 LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no
party shall have any liability to any other party hereunder.
If this Agreement is terminated under paragraph (b) or (c) of
Section 11.2, then (i) the party so terminating this Agreement
shall not have any liability to any other party hereto,
provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination.
-22-
12. MISCELLANEOUS.
12.1 EXPENSES. Whether or not the Closing occurs, the
parties shall each pay their own expenses in connection with
the negotiation, preparation and carrying out of this
Agreement and the consummation of the transactions
contemplated herein, and in no event shall any such expenses
of the Company constitute an Assumed Liability hereunder.
12.2 BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of the Company, such claims shall be the responsibility of the
Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Company in
the case of claims arising under any other liabilities of the
Company.
12.3 TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Company, other than motor
vehicle transfer taxes (for which the Purchaser assumes
responsibility).
12.4 NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given if personally delivered or
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i) if to the Company, to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
with a copy to:
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(ii) if to the Purchaser, to:
CFS Funeral Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
-23-
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any
party to the other parties hereto.
12.5 ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the consent of all other parties
hereto, provided, however, that following the Closing the
Purchaser may assign its rights hereunder without the consent
of the Company to a successor-in-interest to the Purchaser
(whether by merger, sale of assets or otherwise), provided
that the Purchaser shall not thereby be relieved of its
obligations hereunder.
12.6 SUCCESSORS BOUND. Subject to the provisions of
Section 12.5, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns.
12.7 SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
12.8 AMENDMENT. This Agreement may be amended only by
an instrument in writing executed by both parties hereto.
12.9 ENTIRE AGREEMENT. This Agreement and the
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject
matter hereof and thereof (including, without limitation, the
letter of intent between the Purchaser and the Shareholder
dated April 2, 1996).
12.10 GOVERNING LAW. This Agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Texas.
12.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but
all of which shall constitute the same instrument.
-24-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered in Houston, Texas as of the date first above written.
THE PURCHASER:
CFS FUNERAL SERVICES, INC.
By: MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE COMPANY:
FORT MYERS MEMORIAL GARDENS, INC.
By: JOAN B. GOFF
JOAN B. GOFF, Secretary
SCI FUNERAL SERVICES OF FLORIDA, INC., a Florida corporation, hereby
irrevocably and unconditionally guarantees the performance by the Company of its
obligations under this Agreement.
SCI FUNERAL SERVICES OF FLORIDA, INC.
By: JOAN B. GOFF
JOAN B. GOFF, Secretary
-25-
<PAGE>
SCHEDULE DESCRIPTION
3.5 Real Property
3.7 Fixed Assets
3.8 Assumed Contracts
3.9 Preneed Contracts and Trust Accounts
3.15 Employees
-26-
Exhibit 10.16
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of April 10, 1996, between CFS
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), and SCI
FUNERAL SERVICES OF FLORIDA, INC., a Florida corporation (the "Company");
WITNESSETH:
WHEREAS, the Company owns and operates the Oaklawn Memorial
Gardens & Mausoleum Cemetery located at 2116 Garden Street in Titusville,
Brevard County, Florida (the "Cemetery"); and
WHEREAS, the parties desire that the Purchaser acquire
substantially all of the assets, rights and properties of the Cemetery from the
Company, on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
<PAGE>
1. PURCHASE AND SALE OF ASSETS.
1.1 TRANSFER OF ASSETS. Subject to the provisions of
this Agreement, the Company agrees to sell and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
all of the properties, assets, rights and business of the
Cemetery described below, as they shall exist at the time of
the Closing (collectively, the "Assets"), excluding those
described in Section 1.2:
(i) accounts and notes receivable;
(ii) inventories of vaults, crypts, markers,
bases, monuments and other goods and inventories;
(iii) machinery, equipment, furniture,
fixtures, supplies, tools and other fixed assets and
property, plant and equipment of the Cemetery,
including those described on Schedule 3.7;
(iv) fee simple title to the real property
and improvements described on Schedule 3.5 (the "Real
Property");
(v) all cash balances in bank accounts,
certificates of deposit and other investments, but
only if such cash balances or certificates of deposit
are committed fund obligations under preneed
contracts and for perpetual care;
(vi) the rights of the Company under
pre-need contracts and the other agreements, leases
and commitments described on Schedules 3.8 and 3.9;
-1-
(vii) all rights owned or held by the
Company to the name "Oaklawn Memorial Gardens &
Mausoleum", and all derivatives thereof and goodwill
associated with the foregoing;
(viii) all transferrable permits and
licenses, and all books, records, brochures and
literature, rights in unemployment compensation,
industrial accident and other similar funds, and
prepaid items; and
(ix) all other assets, rights and
properties owned or held by the Company at the time
of Closing and used in the operation of, or in
connection with, the business of the Cemetery or
located thereon, excluding those described in Section
1.2.
At the Closing, the Company shall convey to the Purchaser the
Assets free and clear of any and all liens, security
interests, pledges, encumbrances, or title restrictions of any
kind (collectively, "Liens"), other than Liens against the
Real Property which are described on Schedule 3.5 as being
approved by the Purchaser (the "Permitted Encumbrances").
1.2 RETAINED ASSETS. Notwithstanding the foregoing, the
following properties, assets, rights and interests (the "Retained
Assets") are hereby excluded from the purchase and sale contemplated
hereby and are therefore not included in the Assets:
(i) all cash on hand or on deposit,
including bank account balances, certificates of
deposit and marketable securities, excluding,
however, account balances, certificates of deposit
and other investments described in Section 1.1(v);
(ii) intercompany accounts and notes
receivable owed to the Company by its indirect
corporate parent, Service Corporation International,
a Texas corporation (the "Shareholder"), or any of
its affiliates which do not arise out of the sale of
goods or services of the Company;
(iii) the corporate records, minutes of
proceedings, stock records and corporate seals of the
Company, and any shares of the Company's capital
stock held in its treasury;
-2-
(iv) the Company's share of any prepaid
federal or state income taxes and any rights to or
claims for federal or state income tax refunds; and
(v) all assets, rights and properties of
funeral homes and cemeteries owned and operated by
the Company, other than the Cemetery.
1.3 PURCHASE PRICE. The purchase price for the Assets shall be
$2,000,000, all of which shall be paid in cash at Closing by wire
transfer to such account as the Company shall designate prior to
Closing.
1.4 ASSUMPTION OF LIABILITIES. The Purchaser, upon the sale
and purchase of the Assets, shall, subject to Section 1.5 below, assume
and agree to pay or discharge only the following liabilities and
obligations of the Company (collectively, the "Assumed Liabilities"):
(i) liabilities under the preneed
contracts described in Section 3.9, under preneed
contracts entered into in the ordinary course of
business between the date of such schedule and the
Closing Date, and under at-need contracts for
services to be performed following Closing, provided
that the entire amount of consideration payable by
the customers under at-need contracts is payable
following Closing or an appropriate adjustment to
such effect shall be made at Closing between the
Company and the Purchaser; and
(ii) obligations arising after Closing
under the agreements and leases and commitments
described on Schedule 3.8 hereto (the "Assumed
Contracts").
In addition, the Purchaser shall be responsible for
replacing the existing Florida Preconstruction Property Sales
Bond and the Florida Merchandise Bond, insofar as the same
relate to the Cemetery, to the extent required under Florida
law. The Company shall provide information relating to such
existing Bonds and shall assist the Purchaser in obtaining new
Bonds, without out-of-pocket expense to the Company.
The assumption by the Purchaser of the Assumed
Liabilities shall not enlarge any rights or remedies of any
third parties under any contracts or arrangements with the
Company. Nothing herein shall prevent the Purchaser from
contesting in good faith any of the Assumed Liabilities. At
Closing, the Purchaser shall deliver to the Company an
instrument (which may be combined with one or
-3-
more contract assignments), dated the Closing Date and
reasonably satisfactory in form and substance to the Company,
pursuant to which the Purchaser will assume the Assumed
Liabilities.
1.5 LIMITATIONS ON ASSUMPTION. Notwithstanding
Section 1.4 above, the Purchaser will not assume and does not
agree to pay or discharge any obligations or liabilities of
the Company not specifically included in the Assumed
Liabilities, and, in particular, the Purchaser shall not
assume or agree to pay or discharge any of the following:
(i) any notes or accounts payable of any
kind, regardless of whether entered into in the
ordinary course of business;
(ii) any federal, state or local tax of any
type, whether arising by reason of the sale of the
Assets or by operation of the Cemetery prior to the
Closing Date;
(iii) any losses, costs, damages or expense
based upon or arising from any claims, litigation,
legal proceedings or other actions against the
Company based upon any set of facts occurring prior
to the Closing;
(iv) the liabilities and obligations under
any warranties to customers with respect to goods or
products sold or services provided by the Company
prior to Closing;
(v) all personal injury, product liability
claims, claims of environmental damage, claims of
hazards to health, strict liability, toxic torts,
enforcement proceedings, cleanup orders and other
similar actions or claims instituted by private
parties or governmental agencies, with respect to the
conduct of the business and operations of the Company
prior to Closing; or
(vi) any other liability or obligation not
specifically included within the Assumed Liabilities.
1.6 CERTAIN PRORATIONS. All normal and customarily
proratable items, including without limitation, real estate
and personal property taxes, rents under leases and utility
bills, and payments under the Assumed Contracts shall be
prorated as of the Closing Date, the Company being charged and
credited for all of same up to
-4-
and on such date and the Purchaser being charged and credited
for all of same after such date. Utility services will be
transferred to the Purchaser's name on or as soon as possible
after the Closing Date. If the actual amounts to be prorated
are not known as of the Closing Date, the prorations shall be
made on the basis of the best evidence then available, and not
thereafter adjusted.
1.7 INSTRUMENTS OF TRANSFER. At the Closing, the
Company shall deliver to the Purchaser such instruments of
transfer, assignment and conveyance, including (without
limitation) bills of sale, contract assignments and
assignments of motor vehicle registrations, transferring title
to the Assets to the Purchaser as may reasonably be requested
by the Purchaser. Such instruments shall be reasonably
satisfactory in form and substance to the Purchaser and shall
vest in the Purchaser good and indefeasible title to all the
Assets, free and clear of all Liens other than the Permitted
Encumbrances.
1.8 DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS.
At the Closing, the Company will deliver to the Purchaser all
of the Assumed Contracts, with such assignments thereof and
consents to assignment as the Purchaser shall deem necessary
to assure the Purchaser of their full benefit. Simultaneously
with such deliveries, the Company shall take all requisite
steps to put the Purchaser in actual possession and operating
control of the Assets and all of the Company's on-site
business records, books and other data. In addition, at the
Closing, the Company and the Purchaser shall coordinate with
one another in taking all necessary or appropriate action to
cause the transfer of the trust funds referred to in Section
3.9 including, without limitation, the obtaining of
governmental and third party consents and, if necessary, the
substitution of a successor trustee by the Purchaser or a
designee of the Purchaser. Without limiting the generality of
the foregoing, the Company shall use its best efforts in
segregating all preneed accounts and trusted funds applicable
to the Cemetery which are part of the Sun Bank MGP Trust and
the NationsBank Insurance Investment and shall assist the
Purchaser in transferring the same to trusts established by or
through the Purchaser.
1.9 FURTHER ASSURANCES. The Company shall from time
to time after the Closing, without further consideration,
execute and deliver such instruments of transfer, conveyance
and assignment (in addition to those delivered pursuant to
Section 1.7), and shall take such other action, as the
Purchaser may reasonably request to
-5-
more effectively transfer, convey and assign to and vest in
the Purchaser, and to put the Purchaser in actual possession
and control of, each of the Assets.
1.10 EMPLOYEE MATTERS. On the Closing Date, the
Purchaser may (but shall not be required to) offer employment
to each employee of the Cemetery. Each such employee so
offered employment who accepts shall, effective as of the
Closing Date, cease to be an employee of the Company and shall
thereupon become an employee of the Purchaser. At the Closing,
the Company shall certify as to the amount of all accrued
vacation and holiday benefits as of the Closing Date of the
employees of the Company who became employees of the
Purchaser, and such amount shall represent a downward
adjustment to the purchase price for the Assets. In addition,
the Company shall remain responsible for all health benefits,
workers compensation claims, termination and severance
benefits, and any withdrawal liability and rights under
pension or profit sharing plans of such employees through the
Closing, and in no event shall the Purchaser have any
liability or responsibility therefor.
2. THE CLOSING. The Closing shall occur at the offices of
Snell & Smith, A Professional Corporation, 1000 Louisiana, Suite 3650,
Houston, Texas, at 9:00 a.m. on the tenth business day following the
later to occur of the Purchaser's receipt of notice of the approval by
the Federal Trade Commission, or its receipt of notice of approval from
the Florida Board of Funeral and Cemetery Services, each as referred to
in Section 7.7, or at such other date, time or place as may be mutually
agreed upon by the parties, but in no event later than June 30, 1996.
The date and time of the Closing is herein called the "Closing Date",
and shall be deemed to have occurred as of the close of business on the
Closing Date. All action to be taken at the Closing as hereinafter set
forth, and all documents and instruments executed and delivered, and
all payments made with respect thereto, shall be considered to have
been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with the Purchaser that:
3.1 ORGANIZATION AND EXISTENCE. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and
it has all requisite corporate power to enter into and perform
its obligations under this Agreement.
-6-
3.2 OWNERSHIP OF THE COMPANY. All of the issued and
outstanding shares of capital stock of the Company are owned
indirectly by the Shareholder.
3.3 CERTAIN FINANCIAL INFORMATION. The revenues of
the Cemetery for the twelve months ended December 31, 1993-95,
are in all material respects as follows:
December 31,
1993 1994 1995
---- ---- ----
Revenues $893,398 $1,064,319 $1,037,672
The Cemetery performed at least 212 interments during the
twelve months ended December 31, 1993, at least 217 interments
during the twelve months ended December 31, 1994, and at least
215 interments during the twelve months ended December 31,
1995. The Real Property consists of approximately 38 acres, of
which approximately 25 acres have been platted, developed and
dedicated for cemetery use. The Cemetery has approximately
3,000 unsold individual grave spaces, 230 unsold niches, 270
unsold mausoleum crypts and 135 unsold lawn crypts.
3.4 TITLE TO AND STATUS OF PROPERTY. The Company is
in actual possession and control of all properties owned or
leased by it which are presently used in the conduct of the
business of the Cemetery, and has good and indefeasible title
to all of the Assets to be sold and conveyed to the Purchaser
under this Agreement, free and clear of any and all Liens
other than the Permitted Encumbrances.
3.5 REAL PROPERTY. Schedule 3.5 hereto sets forth a
description of each parcel of the Real Property, which
constitutes all real property interests that are currently
used in the operation of the Cemetery. Schedule 3.5 also
describes all Liens of any kind against the Real Property.
There is not pending or, to the Company's knowledge,
threatened any proceeding for the taking or condemnation of
the Real Property or any portion thereof. Since November 27,
1991 (the "Acquisition Date"), no toxic or hazardous wastes
(as defined by the U.S. Environmental Protection Agency, or
any similar state or local agency) or hazardous substances (as
defined under the Comprehensive Environment Response,
Compensation and Liability Act of 1980, as amended, or the
Resource Conservation and Recovery Act, as amended, or any
similar state or local statute or regulation) have been
generated, stored, dumped or released onto or from any portion
of the Real Property, except for substances, such as
-7-
formaldehyde, that are used in the operation of the Real
Property as a funeral home or otherwise in the ordinary course
of business and have been properly used, stored and disposed
of in accordance with applicable legal requirements, and
except for any of the foregoing which would not, individually
or in the aggregate, have a material adverse impact on the
financial condition, operations, properties or prospects of
the Cemetery. To the knowledge of the Company, the Real
Property is not now subject to any reclamation, remediation or
reporting requirements of any federal, state, local or other
governmental body or agency having jurisdiction over the Real
Property. To the knowledge of officers of the Company, no
portion of the Real Property contains any underground storage
tanks or PCBs.
3.6 ABSENCE OF CHANGES OR EVENTS. Since June 30,
1995, there has not been:
(i) any material adverse change in the
financial condition, operations, properties or
prospects of the Cemetery;
(ii) any material damage, destruction or
losses against the Cemetery or any waiver of any
rights of material value to the Cemetery;
(iii) any claim or liability for any
material damages for any actual or alleged negligence
or other tort or breach of contract against or
affecting the Cemetery; or
(iv) any transaction or event entered into
or affecting the Cemetery other than in the ordinary
course of the business.
3.7 FIXED ASSETS. Schedule 3.7 hereto lists all motor
vehicles and other material items of equipment, fixtures and
other fixed assets owned by the Company which are used in the
operation of, or in connection with, the business of the
Cemetery or located thereon. All such Assets are, taken as a
whole, in operating condition and reasonable repair, ordinary
wear and tear excepted.
3.8 CONTRACTS AND COMMITMENTS. Schedule 3.8 sets
forth a description of each Assumed Contract applicable to the
Cemetery. Each Assumed Contract is valid and in full force and
effect and neither the Company, nor, to the knowledge of the
Company, any of the other parties thereto, is in default
thereunder.
-8-
3.9 PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule
3.9 attached hereto lists, as of February 28, 1996 (except as
otherwise noted therein), (i) all preneed contracts of the
Cemetery unfulfilled as of the date thereof, including
contracts for the sale of cemetery merchandise and services,
and (ii) all trust accounts relating to the Cemetery, whether
for preneed contracts or perpetual care, indicating the
location of each and the balance thereof. In addition, as soon
as reasonably possible (but in any event within 30 days),
after the Closing, the Company shall deliver to the Purchaser
a Schedule listing the information described in such clauses
(i) and (ii) as the Closing Date. All funds received by the
Company for the Cemetery under preneed contracts and for
perpetual care since the Acquisition Date will, by the time of
Closing (to the extent required by applicable law to have been
deposited by such time), have been deposited in the
appropriate accounts or covered by appropriate bonds, all of
which funds, bonds and accounts have been administered and
reported in accordance with the terms thereof and as required
by applicable laws and regulations. After the Closing, the
Company will make all necessary deposits as legally required
for amounts collected through the Closing on all preneed and
perpetual care contracts sold through the Closing Date. As to
all such preneed accounts outstanding on the Closing Date, (i)
such accounts are covered by written contracts signed or
approved by the customer, (ii) the direct costs to be incurred
by the Purchaser in providing the services and merchandise
called for by any unwritten agreements will not exceed trusted
principal and interest receivable with respect thereto or
(iii) the obligations of the Company thereunder are no more
than to apply as a credit the amount of trust balances,
including interest, for any particular account against the
price for performing the service and providing products on an
at-need basis. The services provided by the Company at the
Cemetery since the Acquisition Date have been rendered in a
professional and competent manner consistent with prevailing
professional standards, practices and customs.
3.10 INVENTORY; ACCOUNT RECEIVABLE. The inventories
of the Cemetery on the Closing Date will be reflected in its
books of account at cost. At Closing the accounts receivable
to be included within the Assets will be valid and legally
enforceable obligations of the account parties whose names are
listed in the books and records of the Cemetery, legally (but
not necessarily financially) collectible in accordance with
their terms, subject to bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally. At
the Closing, the Company will deliver to the Purchaser a
listing,
-9-
certified by it to be complete and correct, of all of the
Cemetery's inventory (as of a date within three business days
prior to Closing) and accounts receivable (as of a date that
is within 30 days prior to Closing).
3.11 INTANGIBLE RIGHTS. The Company has not received
notice that it is charged with infringement of any patent,
trademark, trade secret, license or other similar proprietary
rights of any other person in respect of the operation of the
business of the Cemetery or the use or ownership of the
Assets.
3.12 LICENSES, PERMITS, ETC. The Company possesses
all licenses, franchises, permits, certificates, consents,
rights and privileges necessary or appropriate to the conduct
of the operations of the Cemetery, including (without
limitation) all permits necessary for compliance with all
applicable environmental laws, except for any such license,
franchise, permit, certificate, consent, right or privilege
the absence of which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of the Cemetery
or any substantial portion of the Assets.
3.13 LITIGATION. Other than the proceedings pending
before the Federal Trade Commission which are the subject of
the agreed consent order referred to in Section 7.7, there are
no claims, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, threatened against or
affecting the Company (with respect to the operation of the
Cemetery) or any of the Assets, at law or in equity or before
or by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, except for any such claim, action, suit,
proceeding or investigation which would not, individually or
in the aggregate, have a material adverse effect on the
financial condition, business, operations or prospects of the
Cemetery or any substantial portion of the Assets. The Company
is not subject to any continuing court or administrative
order, writ, injunction or decree issued by any court or
foreign, federal, state, municipal or other governmental
department, commission, board, agency or instrumentality, in
respect of the operation of the Cemetery or the use or
ownership of the Assets.
3.14 COMPLIANCE WITH LAWS. The Cemetery has been
operated at all times since the Acquisition Date in compliance
with all federal, state, municipal and other statutes, rules,
ordinances and regulations applicable to the Cemetery, the
operation thereof and the Assets to be
-10-
sold and conveyed to the Purchaser hereunder, except for any
such noncompliance which would not, individually or in the
aggregate, have a material adverse effect on the financial
condition, business, operations or prospects of the Cemetery
or any substantial portion of the Assets.
3.15 EMPLOYEES. Schedule 3.15 hereto lists the name,
current annual salary rate and sum of all other direct
monetary compensation in addition to salary received during
the calendar year 1995 of each employee of the Cemetery. Other
than as listed on Schedule 3.8, there are no agreements
relating to the employment of any such employee, including any
collective bargaining agreement.
3.16 FINDERS. The Company is not a party to or in any
way obligated under any contract or other agreement, and there
are no outstanding claims against it, for the payment of any
broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.17 AUTHORITY. The execution, delivery and
performance of this Agreement by the Company have been duly
authorized by all necessary corporate action required on its
part. This Agreement is legally binding and enforceable
against the Company in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required
under, the Articles of Incorporation or bylaws of the Company
or any indenture, mortgage, deed of trust or other contract or
agreement to which it is a party or by which it or its
properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental
body.
3.18 FULL DISCLOSURE. The representations and
warranties made by the Company hereunder or in any Schedules
or certificates furnished to the Purchaser pursuant hereto, do
not and will not contain any untrue statement of a material
fact or, to the knowledge of the Company, omit to state a
material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made,
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company that:
-11-
4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform its
obligations under this Agreement. The Purchaser is duly
qualified as a foreign corporation in the State of Florida.
4.2 AUTHORITY OF THE PURCHASER. The execution,
delivery and performance of this Agreement by the Purchaser
has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon the Purchaser and
enforceable against the Purchaser in accordance with its
terms. Neither the execution, delivery or performance by the
Purchaser of this Agreement will conflict with or result in a
violation or breach of any term or provision of, nor
constitute a default under, the Certificate of Incorporation
or bylaws of the Purchaser or under any indenture, mortgage,
deed of trust or other contract or agreement to which it is a
party or by which it or its property is bound, or violate any
order, writ, injunction or decree of any court, administrative
agency or governmental body. At or prior to Closing, the
Purchaser will have made all necessary applications and
obtained all necessary licenses and permits, if any, which,
together with the transfer of the Company's transferrable
licenses and permits described in Section 1.1(viii), will be
required in order to enable the Purchaser to acquire the
Assets hereunder and consummate the Closing.
4.3 FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement, and
there are no outstanding claims against it, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4 FULL DISCLOSURE. The representations and
warranties made by the Purchaser hereunder, or in any
certificates furnished to the Company pursuant hereto or
thereto, do not and will not contain any untrue statement of a
material fact or, to the Purchaser's knowledge, omit to state
a material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or
therein, in light of the circumstances in which they are made,
not misleading.
5. COVENANTS OF THE COMPANY PENDING CLOSING. The Company
covenants and agrees with the Purchaser that:
-12-
5.1 CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of the Cemetery
will be operated only in the ordinary course, and, in
particular, without the prior written consent of the
Purchaser, the Company will not cause or permit any of the
following actions to occur:
(i) cancel or permit any insurance
applicable to the Assets or the Cemetery to lapse or
terminate, unless renewed or replaced by like
coverage;
(ii) commit any act or permit the
occurrence of any event or the existence of any
condition of the type described in clause (iv) of
Section 3.6; in addition, if any of the other events
described in Section 3.6 occurs, the Company will
promptly notify the Purchaser of the existence and
nature of such event;
(iii) alter, amend, cancel or modify in any
respect any of the Assumed Contracts or the standard
form of, and terms and conditions applicable to,
preneed contracts;
(iv) sell or otherwise dispose of any of
the fixed assets described on Schedule 3.7, except
for any items disposed of that are replaced by items
of equivalent quality; or
(v) hire, fire, reassign or make any other
change in key personnel of the Cemetery.
5.2 ACCESS TO INFORMATION. Prior to Closing, the
Company will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to
all of the on-site properties, books, contracts, commitments
and records of the Cemetery so that the Purchaser may have
full opportunity to make such investigation as it shall desire
to make of the business, affairs and properties of the
Cemetery, provided such investigation is conducted so as not
to unreasonably interfere with the normal day-to-day
operations of the Cemetery.
5.3 CONSENTS AND APPROVALS. The Company will use its
best efforts to obtain the necessary consents and approvals of
other persons which may be required to be obtained on its part
and on the part of the Company to consummate the transactions
contemplated by this Agreement, including (without limitation)
the approval of the Federal Trade Commission described in
Section 7.7.
-13-
5.4 NO SHOP. For so long as this Agreement remains in
effect, the Company agrees that it shall not enter into any
agreements or commitments, or initiate, solicit or encourage
any offers, proposals or expressions of interest, or otherwise
hold any discussions with any potential buyers, investment
bankers or finders, with respect to the possible sale or other
disposition of all or any substantial portion of the assets
and business of the Cemetery or any other sale of the Company
(whether by merger, consolidation, sale or stock or
otherwise), other than with the Purchaser; provided, however,
that any such merger, consolidation or sale of stock may occur
with the Shareholder or one or more of its direct or indirect
wholly owned subsidiaries, provided that the successor entity
joins in the execution of this Agreement to expressly
acknowledge the assumption of the obligations hereunder of the
applicable Company.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company that:
6.1 CONSENTS AND APPROVALS. The Purchaser will use
its best efforts to obtain the necessary consents and
approvals of other persons which may be required to be
obtained on its part to consummate the transactions
contemplated in this Agreement (including, without limitation,
the approval of the Florida Board of Funeral and Cemetery
Services described in Section 7.7). In addition, the Purchaser
agrees to furnish information regarding itself as may be
reasonably required in connection with obtaining the approval
of the Federal Trade Commission described in Section 7.7.
6.2 CONFIDENTIALITY. Prior to the Closing, the
Purchaser and its representatives will hold in confidence any
data and information obtained with respect to the Company from
any representative, officer, director or employee of the
Company, including its accountants or legal counsel, or from
any books or records of them, in connection with the
transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither
the Purchaser nor its representatives shall use such data or
information or disclose the same to others, except as such
data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to
be disclosed. If this Agreement is terminated for any reason,
all written data and information obtained by the Purchaser
from the Company or its representatives in connection with the
transactions contemplated by this Agreement shall be returned
to the Company.
-14-
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any error,
misstatement or omission in the representations and warranties
made by the Company in Section 3 hereof; the representations
and warranties made by the Company herein shall be deemed to
have been made again at and as of the time of Closing and
shall then be true and correct; the Company shall have
performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by
it at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by an executive officer of the
Company, to the effect of the foregoing provisions of this
Section 7.1.
7.2 OPINION OF COUNSEL. The Company shall have caused
to be delivered to the Purchaser an opinion of internal
counsel for the Company, to the effect that:
(i) the Company is a corporation duly
organized, validly existing and in good standing
under the laws of its state of incorporation and has
all requisite corporate power to enter into and
perform its obligations under this Agreement;
(ii) the execution, delivery and performance
of this Agreement by the Company have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Company and enforceable against it in
accordance with its terms;
(iv) neither the execution, delivery or
performance by the Company of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Articles of Incorporation or bylaws of the
Company or under any material loan or credit
agreement, indenture, mortgage, deed of trust or
other contract or agreement known to such counsel and
to which the Company is a party or by which it or its
property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any
court, administrative agency or governmental body;
and
-15-
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Company or the performance of its obligations
hereunder, except for any consents which have already
been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Company and certificates
of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of
any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors rights and by principles of equity. Such opinion may
be limited to federal law and the internal laws of the State
of Texas.
7.3 NO LOSS OR DAMAGE. Prior to the Closing there
shall not have occurred any loss or damage to a substantial
portion of the physical assets and properties of the Cemetery
(regardless of whether such loss or damage was insured), the
effect of which would have a material adverse effect on the
condition, business, operations or prospects of the Cemetery.
7.4 APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall
have been furnished with such certified copies of actions and
proceedings and other instruments and documents as they shall
have reasonably requested.
7.5 ENVIRONMENTAL QUESTIONNAIRE. The Purchaser shall
have received an environmental questionnaire (on forms
provided by the Purchaser and its lender) for each Home and
the Real Property, completed and signed by the Manager or
other supervisory employee of each Home, and such
questionnaire shall be satisfactory to Purchaser in its sole
discretion.
7.6 FINANCING COMMITMENT. The Purchaser represents
that it has received from Texas Commerce Bank National
Association a written commitment providing for the extension
of financing in order to provide the portion of the
consideration for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources. It shall be a
condition to Closing that such commitment shall have been
funded in such amount
-16-
contemporaneously with the Closing, provided that the
Purchaser agrees to perform its obligations under such
commitment. The Company acknowledges that it is a condition to
the funding of such commitment that the Shareholder shall have
unconditionally guaranteed the indebtedness to be advanced
pursuant thereto.
7.7 FTC, FLORIDA BOARD AND OTHER APPROVALS. The
Purchaser shall have received written notice of the approval
of the Purchaser and the transactions described herein by the
Federal Trade Commission (the "FTC") under the FTC's Decision
and Order in Service Corporation International, Commission
Docket No. C-3646. The Purchaser shall also have received
written notice of the approval of its application to acquire
control of the Cemetery from the Florida Board of Funeral and
Cemetery Services, pursuant to Florida Statutes '497.007(2).
In addition, the Shareholder and the Company shall have
obtained all other necessary or appropriate consents and
approvals of other persons and governmental authorities to the
transactions contemplated in this Agreement.
7.8 TITLE INSURANCE. The Purchaser shall have
received an Owner's Policy of Title Insurance (at the
Company's expense) for each parcel of Real Property in an
amount mutually determined by the parties. Each such policy
shall be issued by a title company with offices in each County
in which the Real Property is located and reasonably
acceptable to the Purchaser (each hereafter referred to as a
"Title Company"), insuring that Purchaser is the owner of each
parcel of the Real Property subject only to the Permitted
Encumbrances, and the standard printed exceptions included in
a standard form Owner Policy of Title Insurance in effect in
the applicable jurisdiction; provided, however, that such
policy shall be limited to restrictions that are Permitted
Encumbrances, the standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", the exception for rights of
parties in possession shall be deleted, and the standard
exception for taxes shall be limited to the year in which the
Closing occurs, and subsequent years and subsequent
assessments for prior years due to change in land usage or
ownership.
7.9 SURVEY. The Purchaser shall have received, at the
Company's expense, an ALTA/ASCM survey prepared by a licensed
surveyor approved by Purchaser and acceptable to each Title
Company, with respect to each parcel of Real Property, which
survey shall be sufficient for each Title Company to delete
the survey exception contained in the owner policy of title
insurance referred to in Section
-17-
7.8, save and except for the phrase "shortages in area", and
otherwise be in form and content reasonably acceptable to
Purchaser and its lender.
7.10 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by: the Asset Purchase Agreement of even date
herewith between the Purchaser and Fort Myers Memorial
Gardens, Inc.; the Asset Purchase Agreement of even date
herewith between the Purchaser and the Company (relating to
Brevard (North) and Harvey-Engelhardt Funeral Homes); and the
Asset Purchase Agreement of even date herewith between the
Purchaser and SCI Texas Funeral Services, Inc. (all of the
foregoing being hereinafter referred to as the "Other Purchase
Agreements"); all shall have been consummated either prior to
or substantially contemporaneously with the Closing under this
Agreement.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Company in writing:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Company shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by the Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser herein
shall be deemed to have been made again at and as of the time
of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing; and the
Company shall have received a certificate, signed by an
executive officer of the Purchaser, to the effect of the
foregoing provisions of this Section 8.1.
8.2 OPINION OF COUNSEL. The Purchaser shall have
caused to be delivered to the Company an opinion of Snell &
Smith, A Professional Corporation, counsel for the Purchaser,
to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Delaware, and has all
requisite corporate power to enter into and perform
its obligations under this Agreement; and the
Purchaser is duly qualified as a foreign corporation
in the State of Florida;
-18-
(ii) the execution, delivery and performance
of this Agreement by the Purchaser have been duly
authorized by its Board of Directors;
(iii) this Agreement is valid and binding
upon the Purchaser and enforceable against the
Purchaser in accordance with its terms;
(iv) neither the execution, delivery or
performance by the Purchaser of this Agreement will
conflict with or result in a violation or breach of
any term or provision of, nor constitute a default
under, the Certificate of Incorporation or bylaws of
the Purchaser or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract
or agreement known to such counsel and to which
Purchaser is a party or by which it or its property
is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent
of or declaration or filing with any governmental
authority or regulatory body, federal, state or
local, is necessary or required in connection with
the execution and delivery of this Agreement by the
Purchaser or the performance of its obligations
hereunder, except for such consents which have
already been obtained.
Such opinion may, as to matters of fact, be given in reliance
upon certificates of officers of the Purchaser and
certificates of public officials, copies of which shall be
provided to the Company at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the internal laws of
the State of Texas and the General Corporation Law of the
State of Delaware.
8.3 CONSENTS AND APPROVALS. The consents and
approvals referred to in Section 7.7, including the approval
of the FTC, shall have been obtained.
8.4 OTHER PURCHASE AGREEMENTS. The transactions
contemplated by the Other Purchase Agreements shall have been
consummated either prior to or substantially contemporaneously
with the Closing under this Agreement.
-19-
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1 NATURE OF STATEMENTS. All statements contained in
this Agreement or any Schedule hereto shall be deemed
representations and warranties of the party executing or
delivering the same.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigation made at any time by or on
behalf of any party hereto, all covenants, agreements,
representations and warranties made hereunder or in any
Schedule hereto shall not terminate, but shall survive the
Closing and continue in effect thereafter for a period of two
(2) years following the Closing, at which time they shall
terminate (except as to claims which are then pending by
written notice delivered prior to the expiration of such
two-year period).
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY THE COMPANY. THE COMPANY
AGREES TO INDEMNIFY AND HOLD HARMLESS THE PURCHASER AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES,
DAMAGES, LIABILITIES, OBLIGATIONS, COSTS OR EXPENSES (ANY ONE
SUCH ITEM BEING HEREIN CALLED A "LOSS" AND ALL SUCH ITEMS
BEING HEREIN COLLECTIVELY CALLED "LOSSES") WHICH ARE CAUSED BY
OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE PERFORMANCE
BY THE COMPANY OF ANY COVENANT OR AGREEMENT OF THE COMPANY
CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF WARRANTY OR
INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE COMPANY
HEREIN, IN ANY SCHEDULE DELIVERED TO THE PURCHASER PURSUANT
HERETO OR IN ANY CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY
OR ON BEHALF OF THE COMPANY PURSUANT HERETO, (III) ANY CLAIM
MADE AGAINST THE PURCHASER IN RESPECT OF ANY LIABILITIES OR
OBLIGATIONS OF THE COMPANY (WHETHER ABSOLUTE OR CONTINGENT,
KNOWN OR UNKNOWN) OTHER THAN THE ASSUMED LIABILITIES, AND (IV)
ANY AND ALL ACTIONS, SUITS, PROCEEDINGS, CLAIMS, DEMANDS,
JUDGMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE LEGAL
FEES) INCIDENT TO ANY OF THE FOREGOING.
10.2 INDEMNIFICATION BY THE PURCHASER. THE PURCHASER
AGREES TO INDEMNIFY AND HOLD HARMLESS THE COMPANY AND ITS
SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY LOSSES WHICH ARE
CAUSED BY OR ARISE OUT OF (I) ANY BREACH OR DEFAULT IN THE
PERFORMANCE BY THE PURCHASER OF ANY COVENANT OR AGREEMENT OF
THE PURCHASER CONTAINED IN THIS AGREEMENT, (II) ANY BREACH OF
WARRANTY OR INACCURATE OR ERRONEOUS REPRESENTATION MADE BY THE
PURCHASER HEREIN OR IN ANY CERTIFICATE OR OTHER INSTRUMENT
DELIVERED BY OR ON
-20-
BEHALF OF THE PURCHASER PURSUANT HERETO, (III) ANY CLAIM MADE
AGAINST THE COMPANY IN RESPECT OF THE ASSUMED LIABILITIES OR
BASED ON ANY SET OF FACTS ARISING AFTER THE CLOSING AND
RELATED TO THE OPERATION OF THE CEMETERY, AND (IV) ANY AND ALL
ACTIONS SUITS, PROCEEDINGS, CLAIMS, DEMANDS, JUDGMENTS, COSTS
AND EXPENSES (INCLUDING REASONABLE LEGAL FEES) INCIDENT TO ANY
OF THE FOREGOING.
10.3 THIRD PARTY CLAIMS. If any third person asserts
a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification
against an indemnifying party hereunder, the indemnifying
party shall be given prompt written notice thereof and shall
have the right (i) to participate in the defense thereof and
be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts
in connection therewith. Notwithstanding the foregoing, if
within ten business days after delivery of the indemnified
party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between
such parties, such claims shall be fully indemnified for by
the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have
the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected
by it, and (ii) to approve any settlement if the indemnified
party's interests are, or would be, affected thereby.
11. TERMINATION.
11.1 BEST EFFORTS TO SATISFY CONDITIONS. The Company
agrees to use its best efforts to bring about the satisfaction
of the conditions specified in Section 7 hereof and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2 TERMINATION. This Agreement may be terminated
prior to Closing by:
(a) the mutual consent of the Company and
the Purchaser;
(b) the Purchaser if a material default
shall be made by the Company in the observance or in
the due and timely performance by any of its
covenants herein contained, or if there shall have
been a material breach or misrepresentation by the
Company
-21-
of any of its warranties and representations herein
contained, or if the conditions of this Agreement to
be complied with or performed by the Company at or
before the Closing shall not have been complied with
or performed at the time required for such compliance
or performance and such noncompliance or
nonperformance shall not have been expressly waived
by the Purchaser in writing, and any such default,
breach or noncompliance shall continue uncured for a
period of ten (10) days after such notice thereof is
given to the Company;
(c) the Company if a material default shall
be made by the Purchaser in the observance or in the
due and timely performance by the Purchaser of any of
the covenants of the Purchaser herein contained, or
if there shall have been a material breach or
misrepresentation by the Purchaser of any of its
warranties and representations herein contained, or
if the conditions of this Agreement to be complied
with or performed by the Purchaser at or before the
Closing shall not have been complied with or
performed at the time required for such compliance or
performance and such noncompliance or nonperformance
shall not have been expressly waived by the Company
in writing, and any such default, breach or
noncompliance shall continue uncured for a period of
ten (10) days after notice thereof is given to the
Purchaser; or
(d) the Company or the Purchaser, if for any
reason the Closing shall have failed to occur on or
before April 30, 1996, unless the only reason for
such failure is the failure to obtain final approval
for the Purchaser's acquisition of the Cemetery under
Florida law, in which case such date shall be
extended to June 30, 1996.
11.3 LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no
party shall have any liability to any other party hereunder.
If this Agreement is terminated under paragraph (b) or (c) of
Section 11.2, then (i) the party so terminating this Agreement
shall not have any liability to any other party hereto,
provided the terminating party has not breached any
representation or warranty or failed to comply with any of its
covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party
against any other party which has breached any of its
representations, warranties or covenants herein prior to such
termination.
-22-
12. MISCELLANEOUS.
12.1 EXPENSES. Whether or not the Closing occurs, the
parties shall each pay their own expenses in connection with
the negotiation, preparation and carrying out of this
Agreement and the consummation of the transactions
contemplated herein, and in no event shall any such expenses
of the Company constitute an Assumed Liability hereunder.
12.2 BULK SALES LAWS. The transactions contemplated
by this Agreement shall be consummated without compliance with
the bulk sales laws of any state. If by reason of any
applicable bulk sales law any claims are asserted by creditors
of the Company, such claims shall be the responsibility of the
Purchaser in the case of claims arising under any of the
Assumed Liabilities, or the responsibility of the Company in
the case of claims arising under any other liabilities of the
Company.
12.3 TAXES. Any sales or transfer taxes which may be
payable in connection with the sale of the Assets under this
Agreement shall be paid by the Company.
12.4 NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall
be deemed to have been given if personally delivered or
mailed, first class, registered or certified mail, postage
prepaid, as follows:
(i)if to the Company, to:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attn: President
with a copy to:
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(ii) if to the Purchaser, to:
CFS Funeral Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
-23-
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any
party to the other parties hereto.
12.5 ASSIGNMENT. This Agreement may not be assigned
by any party hereto without the consent of all other parties
hereto, provided, however, that following the Closing the
Purchaser may assign its rights hereunder without the consent
of the Company to a successor-in-interest to the Purchaser
(whether by merger, sale of assets or otherwise), provided
that the Purchaser shall not thereby be relieved of its
obligations hereunder.
12.6 SUCCESSORS BOUND. Subject to the provisions of
Section 12.5, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns.
12.7 SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
12.8 AMENDMENT. This Agreement may be amended only by
an instrument in writing executed by both parties hereto.
12.9 ENTIRE AGREEMENT. This Agreement and the
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject
matter hereof and thereof (including, without limitation, the
letter of intent between the Purchaser and the Shareholder
dated April 2, 1996).
12.10 GOVERNING LAW. This Agreement shall be
construed and enforced under and in accordance with and
governed by the law of the State of Texas.
12.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but
all of which shall constitute the same instrument.
-24-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered in Houston, Texas as of the date first above written.
THE PURCHASER:
CFS FUNERAL SERVICES, INC.
By: MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE COMPANY:
SCI FUNERAL SERVICES OF FLORIDA, INC.
By: JOAN B. GOFF
JOAN B. GOFF, Secretary
<PAGE>
-25-
SCHEDULE DESCRIPTION
3.5 Real Property
3.7 Fixed Assets
3.8 Assumed Contracts
3.9 Preneed Contracts and Trust Accounts
3.15 Employees
Exhibit 10.17
STOCK AND REAL PROPERTY PURCHASE AGREEMENT
THIS AGREEMENT, dated as of March 29, 1996, among CARRIAGE
FUNERAL HOLDINGS, INC., a Delaware corporation (the "Purchaser"), DWAYNE R.
SPENCE FUNERAL HOME, INC., an Ohio corporation (the "Company"), DWAYNE R. SPENCE
and PATRICIA F. SPENCE, residents of Fairfield County, Ohio (the "Spences"), and
JAMES H. SHERIDAN, a resident of Fairfield County, Ohio ("Sheridan") (Sheridan
and Dwayne R. Spence being hereafter referred to together as the "Shareholders",
and the Spences and Sheridan are together referred to as the "Sellers");
WITNESSETH:
WHEREAS, the Company owns and operates the Dwayne R. Spence
Funeral Homes located in Canal Winchester and Pickerington, Ohio (collectively,
the "Homes"); and
WHEREAS, the authorized capital stock of the Company consists
of 1,000 shares of Common Stock, no par value ("Common Stock"), all of which
shares (the "Shares") are issued, outstanding and held and owned of record by
the Shareholders as shown on Schedule I hereto; and
WHEREAS, the Spences own fee simple title to all of the real
property and improvements on which the Home in Canal Winchester, Ohio is located
(the "Canal Winchester Tract"), and the Shareholders, through S & S Management
Company, an Ohio general partnership of which they are the sole partners
("S&S"), own fee simple title to all of the real property and improvements on
which the Home in Pickerington, Ohio is located (the "Pickerington Tract") (the
Canal Winchester Tract and the Pickerington Tract are collectively referred to
herein as the "Real Property"); and
WHEREAS, the parties desire that the Purchaser purchase the
Shares and the Pickerington Tract from the Shareholders and the Canal Winchester
Tract from the Spences, all upon the terms and conditions and for the
consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF THE SHARES AND THE REAL PROPERTY.
1.1. TRANSFER OF THE SHARES. The Shareholders jointly and
severally agree to sell the Shares to the Purchaser, free and clear of
all security interests, pledges, liens, mortgages, title restrictions,
charges, encumbrances or rights of any other person (collectively,
"Liens"). The Purchaser, agrees to purchase and accept the Shares from
each of the Shareholders.
<PAGE>
1.2. TRANSFER OF THE REAL PROPERTY. The Spences jointly and
severally agree to sell fee simple title to the Canal Winchester Tract
to the Purchaser, free and clear of all Liens other than "Permitted
Encumbrances" (herein so called) described on Schedule 3.6, and the
Purchaser agrees to purchase and accept the Canal Winchester Tract from
the Spences. The Shareholders (through S&S) jointly and severally agree
to sell fee simple title to the Pickerington Tract to the Purchaser,
free and clear of all Liens other than Permitted Encumbrances described
on Schedule 3.6, and the Purchaser agrees to purchase and accept the
Pickerington Tract from the Shareholders.
1.3. CONSIDERATION. The purchase price for the Canal
Winchester Tract shall be $750,000.00, all of which shall be payable in
cash at the Closing by wire transfer to such account or accounts as the
Spences shall designate in writing prior to the Closing. The purchase
price for the Pickerington Tract shall be $450,000.00, all of which
shall be payable in cash at the Closing by wire transfer to such
account or accounts as the Shareholders shall designate in writing
prior to the Closing. The purchase price for the Shares shall be
$2,477,407.83. Of the purchase price for the Shares:
(i) An amount sufficient to discharge indebtedness
of the Company as determined by the Purchaser pursuant to
Section 1.4 below, shall be paid to the holders of such
indebtedness.
(ii) The sum of $910,500.00 shall be payable by the
issuance and delivery to the Shareholders of 910,500 shares of
Series D Preferred Stock, $.01 par value ("Series D Preferred
Stock"), of Carriage Funeral Services, Inc., a Delaware
corporation ("Carriage"). Of the Series D Preferred Stock to
be issued to the Shareholders as aforesaid, 720,000 shares
shall be issued to Dwayne R. Spence and 190,500 shares shall
be issued to Sheridan. In addition, at the Closing, Carriage
shall issue and deliver to C. Jeffrey Spence ("Jeffrey") an
additional 90,000 shares of Series D Preferred Stock, not as
purchase price but as partial consideration for his execution
and delivery of and performance under his Non-Competition
Agreement referred to in Section 2.2(i). The shares of Series
D Preferred Stock to be so issued to the Shareholders and
Jeffrey as provided above (collectively, the "Series D
Shares") shall have the terms and provisions described in
Section 1.5 below.
(iii) The sum of $662,407.83 (the "Deferred Purchase
Price") shall be payable over a period of ten years following
the Closing as hereafter provided. The Deferred Purchase Price
shall bear interest at a rate of
-2-
six percent (6%) per annum. The Deferred Purchase Price shall
be payable in ten equal annual installments of principal and
interest, each in the amount of $90,000, the first of which
shall be payable on or before the first anniversary of the
Closing Date, and continuing annually thereafter on or before
the second through tenth anniversaries of the Closing Date.
The Deferred Purchase Price shall be payable to the
Shareholders in accordance with their respective holdings of
the Shares as shown on Schedule I hereto. Any installment of
Deferred Purchase Price not paid within 30 days after the date
due shall commence to accrue interest on the overdue amount at
the rate of ten percent (10%) per annum. The Deferred Purchase
Price shall be subject to offset as provided in Section 10.4.
(iv) The excess of such purchase price over such
amounts determined under the foregoing clauses (i) through
(iii) shall be paid to the Shareholders in cash at Closing, by
wire transfer to such account or accounts as the Shareholders
shall designate in writing prior to the Closing.
The purchase price for the Shares shall be subject to
adjustment as provided in Section 1.4 below.
1.4. ADJUSTMENT TO CONSIDERATION. At or prior to Closing, the
Shareholders shall deliver to the Purchaser a written statement,
certified by them to be accurate and complete, setting forth a
description, and the outstanding balance as of the Closing, of all
liabilities and obligations of the Company, including (but not limited
to) indebtedness for borrowed money, indebtedness secured by Liens
against any assets or properties of the Company or any of the Real
Property, accounts and trade payable, accrued liabilities, federal,
state and local taxes, any liabilities under suits, claims, judgments
or orders then pending or any other liability or obligation of the
Company attributable to the operation of the Company's business prior
to Closing (collectively, "Unassumed Liabilities"), excluding
obligations under preneed contracts for which the full amount has been
deposited in trust as required under applicable law. At Closing, the
Purchaser shall pay out of the purchase price for the Shares such
portion as shall be required to pay and discharge those Unassumed
Liabilities secured by Liens against any assets or properties of the
Company, any other indebtedness of the Company for borrowed money, and
any other Unassumed Liabilities as mutually determined by the parties,
either directly to such creditors or otherwise in a manner mutually
determined by the parties such as to assure that the assets and
properties of the Company and the Real Property are free and clear of
any Liens (other than Permitted
-3-
Encumbrances) and all such Unassumed Liabilities are paid or satisfied
in full. Any Unassumed Liabilities remaining unpaid after the Closing
shall be subject to indemnification under Section 10.1.
1.5. SERIES D PREFERRED STOCK. The terms and provisions of the
Series D Preferred Stock shall be as provided in the Certificate of
Designation, Preferences, Rights and Limitations of the Series D
Preferred Stock, a copy of which has been provided to the Shareholders
(the "Series D Designation"), to the extent applicable to the Series D
Shares and subject to this Section 1.5. The "Dividend Rate" (as defined
in the Series D Designation) applicable to the Series D Shares to be
issued at the Closing as provided herein shall be $.06 per annum,
payable quarter-annually, and the "Initial Conversion Base Price" (as
defined in the Series D Designation) of the Series D Shares shall be
$9.00 per share. Carriage's obligations under the terms of the Series D
Designation to distribute assets on a preferential basis to the holders
of the Series D Shares in connection with the dissolution, liquidation
or winding up of the affairs of the Purchaser, to redeem the Series D
Shares on December 31, 2001 at $1.00 per Series D Share, and to pay
quarterly dividends in respect of the Series D Shares as therein
provided, shall, at all times while the Series D Shares are
outstanding, be secured by an irrevocable standby letter of credit
(together, with any and all renewals and replacements, the "Letter of
Credit") to be issued by Provident Services, Inc. ("Provident"), for
the account of Carriage, in favor of Dwayne R. Spence, as agent for the
Shareholders and Jeffrey, as beneficiaries (all of whom, in their
capacities as such, including their successors and permitted assigns,
are hereafter referred to as "Beneficiaries"), in an amount equal to
the aggregate redemption price for the Series D Shares then outstanding
plus the aggregate amount of dividends to accrue thereon for the two
successive quarter-annual dividend periods. The initial Letter of
Credit shall be in the amount of $1,030,515.00, shall be dated the
Closing Date and shall be in substantially the form of Exhibit A
attached hereto. The initial Letter of Credit shall have an expiry date
of no earlier than one year from its date of issue and shall provide
that, if within 15 days prior to its expiry date, it is not renewed,
replaced or extended for an additional period of at least one year (but
in no event for any period extending past January 31, 2002) in the
amount calculated above, the Shareholders shall be entitled to draw
thereon as therein provided. Any replacement Letter of Credit may be
issued by Provident or by another financial institution having combined
capital, surplus and undivided profits of at least $100 million. It
shall be a condition to any conversion of the Series D Shares into
Common Stock of Carriage pursuant to the Series D Designation that the
holders thereof have surrendered the Letter of Credit (x)
-4-
without replacement or renewal, if all of such Series D Shares have
been fully converted, or (y) if less than all of such Series D Shares
have been so converted, in exchange for and receipt of a replacement
Letter of Credit in the amount of the aggregate redemption price of the
Series D Shares remaining outstanding after such conversion plus
dividends to accrue thereon for the two successive quarter-annual
dividend periods thereafter. The Letter of Credit shall be
transferrable only in connection with any transfer of the Series D
Shares and the transferee's acknowledgment of the obligations of the
Beneficiaries under this Agreement, but the Letter of Credit shall not
be divisible into separate letters of credit. Dwayne R. Spence shall at
all times act as agent for all Beneficiaries under the Letter of Credit
until his death, resignation or removal in such capacity by unanimous
consent of all of the other Beneficiaries for breach of fiduciary duty,
in which case a majority in interest of the remaining Beneficiaries
shall designate in writing to Carriage a successor agent among them to
take his place. Carriage may conclusively rely upon the actions taken
by Dwayne R. Spence or any successor agent for the Beneficiaries in all
dealings in respect of the Letter of Credit and the Beneficiaries'
rights and interests thereunder.
1.6. CERTAIN PRORATIONS. All normal and customarily proratable
items relating to the assets and liabilities of the Homes and to the
Real Property, including but not limited to, utilities, real estate and
personal property taxes, and the right to receive refunds or rebates of
premiums in respect of real estate, automobile and malpractice
insurance maintained by the Company through the Closing, shall be
prorated as of the Closing Date, the Sellers being charged and credited
for all of same up to such date and the Purchaser being charged and
credited for all of same on and after such date. If the actual amounts
to be prorated are not known as of the Closing Date, the prorations
shall be made on the basis of the best evidence then available, and
thereafter, within thirty (30) days after actual figures are received,
a cash settlement will be made between the Sellers and the Purchaser,
if the net adjustment exceeds $200.00.
1.7. FURTHER ASSURANCES. The Sellers agree to execute and
deliver from time to time after the Closing, at the reasonable request
of the Purchaser, and without further consideration, such additional
instruments of conveyance and transfer, and to take such other action
as the Purchaser may reasonably require more effectively to convey,
assign, transfer and deliver the Shares and good and marketable title
to the Real Property to the Purchaser.
-5-
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing shall occur at the offices of
Sitterley and Vandervoort, 123 South Broad Street, Suite 211,
Lancaster, Ohio 43130, at 9:00 a.m. on March 29, 1996, or at such other
date, time or place as may be mutually agreed upon by the parties, but
in no event later than March 29, 1996. The date and time of the Closing
is herein called the "Closing Date", and shall be deemed to have
occurred as of the commencement of business on the Closing Date. At the
Closing, the Shareholders shall deliver all certificates representing
their respective Shares, duly endorsed or accompanied by duly executed
stock powers, and the Sellers shall each execute and deliver one or
more general warranty deeds conveying fee simple title to the Real
Property to the Purchaser, all against receipt of the consideration
therefor. All action to be taken at the Closing as hereinafter set
forth, and all documents and instruments executed and delivered, and
all payments made with respect thereto, shall be considered to have
been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the purchase and
sale of the Shares and the Real Property, the following transactions
shall take place at the Closing:
(i) the Purchaser and Jeffrey shall each execute
and deliver to the other a Non-Competition Agreement to be
dated the Closing Date in substantially the form of Exhibit B
hereto (the "Non-Competition Agreement");
(ii) the Company, on the one hand, and each of
Dwayne R. Spence, Sheridan and Jeffrey, on the other, shall
each execute and deliver to the other an Employment Agreement
to be dated the Closing Date and in substantially the forms of
Exhibits C-1, C-2 and C-3, respectively, hereto (collectively,
the "Employment Agreements");
(iii) the Purchaser and the Shareholders shall each
execute and deliver to the other a First Refusal Agreement to
be dated the Closing Date and in substantially the form of
Exhibit D hereto (the "First Refusal Agreement"); and
(iv) effective immediately prior to the Closing, the
Company shall distribute to the Shareholders (x) all of the
Company's accounts receivable as of the Closing Date ("Closing
Date Receivables"), and (y) all of
-6-
the Company's cash balances in bank accounts, certificates of
deposits or marketable securities as of the Closing Date,
other than any such cash or other investments that are used or
applied to fund preneed trust accounts or funds of the
Company.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers
jointly and severally represent and warrant to and agree with the Purchaser
that:
3.1. TITLE TO THE SHARES. The Shareholders have good and
marketable title to the Shares as shown on Schedule I, free and clear
of any and all Liens, and the Shareholders have the absolute and
unrestricted right, power, authority and capacity to sell the Shares to
the Purchaser as provided in this Agreement. Upon delivery of the
Shares to the Purchaser, against payment therefor as provided in
Section 1.3, the Purchaser will receive from the Shareholders good and
marketable title thereto, free and clear from all Liens.
3.2. ORGANIZATION AND EXISTENCE. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Ohio, and has all requisite corporate power to enter into
and perform its obligations under this Agreement and to carry on its
business as now conducted. The Shareholders have delivered to the
Purchaser complete and correct copies of the Articles of Incorporation
and Code of Regulations of the Company, both as in effect on the date
hereof.
3.3. CAPITALIZATION. The authorized capital stock of the
Company consists of 1,000 shares of Common Stock, no par value, all of
which shares are validly issued and outstanding, fully paid and
nonassessable and not issued in violation of the preemptive rights of
any person. No shares of the Company are held by it as treasury stock.
The Company does not have any outstanding subscriptions, options or
other agreements or commitments obligating it to issue shares of its
capital stock. From the date hereof through the Closing Date, the
Shareholders will not, and will not cause or permit the Company to,
issue or enter into any subscriptions, options, agreements or other
commitments in respect of the issuance, transfer, sale or encumbrance
of any shares of capital stock of the Company.
3.4. NO SUBSIDIARIES. The Company has no subsidiaries or any
investment or ownership interest in any corporation, joint venture or
other business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholders have delivered to
the Purchaser (i) the unaudited Balance Sheet of the Company at June
30, 1995 (the "Company Balance Sheet") and
-7-
the related unaudited Profit and Loss Statement of the Company for the
six-month period of operations then ended, and (ii) the unaudited
(compiled) Balance Sheets of the Company at December 31, 1993 and 1994
and the related unaudited (compiled) Profit and Loss Statements of the
Company for the respective twelve-month periods of operations then
ended, together with the notes thereto and compilation reports of
Federated Funeral Directors of America thereon. All such financial
statements are true and correct, have been prepared in accordance with
the books and records of the Company, and present fairly the financial
positions of the Company at the dates indicated and the results of its
operations for the periods then ended in accordance with the Standards
of Generally Accepted Tax Accounting Principles consistently applied
(the "Standards"). The Homes collectively performed at least 197 adult
funeral services for the twelve months ended December 31, 1993, at
least 225 adult funeral services for the twelve months ended December
31, 1994, and at least 223 adult funeral services for the twelve months
ended December 31, 1995.
3.6. REAL PROPERTY. (a) Schedule 3.6 attached hereto sets
forth a legal description of all parcels included within the Real
Property, and also briefly describes each building and major structure
and improvement thereon. The Spences have good and marketable fee
simple title to the Canal Winchester Tract, and the Shareholders
(through S&S) have good and marketable fee simple title to the
Pickerington Tract, in each case free and clear of any and all Liens,
other than (i) Liens to be fully released at or prior to Closing, and
(ii) title restrictions described in Schedule 3.6 as constituting
"Permitted Encumbrances" (the "Permitted Encumbrances"). No person
other than the Sellers and the Company have any ownership, leasehold or
other interest of any kind in the Real Property. The Real Property is
the only interest in real property used in the conduct of the business
of the Homes as presently conducted. All of the buildings, structures
and improvements located on the Real Property are in good operating
condition, ordinary wear and tear excepted. None of such buildings,
structures or improvements, or the operation or maintenance thereof as
now operated or maintained, contravenes any zoning ordinance or other
administrative regulation or violates any restrictive covenant or any
provision of law, the effect of which would interfere with or prevent
their continued use for the purposes for which they are now being used.
There is not pending nor, to the knowledge of any Seller, threatened
any proceeding for the taking or condemnation of the Real Property or
any portion thereof.
(b) No toxic or hazardous wastes (as defined by the U.S.
Environmental Protection Agency, or any similar state or local agency)
or hazardous substances (as defined under the
-8-
Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation) have been
generated, stored, dumped, located or released onto or from the Real
Property, nor to the knowledge of any Seller, have any such materials
or wastes been generated, stored, dumped, located or disposed of on any
real property contiguous or adjacent to the Real Property. The Real
Property is not now, and will not be in the future as a result of its
condition at or prior to Closing (based upon the state of the law on
the date of this Agreement), subject to any reclamation, remediation or
reporting requirements of any federal, state, local or other
governmental body or agency having jurisdiction over the Real Property.
The Real Property does not contain any asbestos, polychlorinated
byphenyls, urea, formaldehyde, lead based paint, radon gas or
underground storage tanks, except for substances used in the ordinary
course of the operation of the Homes that are properly used, stored and
disposed of in accordance with applicable legal requirements.
(c) None of the Real Property is located within an area that
has been designated by the Federal Insurance Administration, the Army
Corp of Engineers, or any other governmental agency or body as being
subject to special flooding hazards.
(d) No Seller is a "foreign person" (as defined in Section
1445(f)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations issued thereunder), and the Sellers shall
deliver at Closing a non-foreign affidavit in recordable form
containing such information as shall be required by Internal Revenue
Code Section 1445(b)(2) and the regulations issued thereunder.
(e) All bills and other payments due with respect to the
ownership, operation, and maintenance of the Real Property have been
(or on the Closing Date will be) paid, and no Liens or other claims for
the same have been filed or asserted against any part of the Real
Property.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes (other
than the Real Property) are owned by the Company. None of such assets,
rights or properties is subject to any lease or license. The Company is
in actual possession and control of all properties owned by it, and has
good and marketable title to all of its assets, rights and properties,
including without limitation, all properties and assets reflected in
the Company Balance Sheet (other than properties and assets reflected
in such balance sheet that have been sold or otherwise disposed of in
the ordinary course of business
-9-
subsequent to the date of the Company Balance Sheet), free and clear of
all Liens, except for Liens to be discharged and released at or prior
to Closing as contemplated in Section 1.4.
3.8. ABSENCE OF CHANGES OR EVENTS. Since the date of the
Company Balance Sheet, there has not been:
(i) any adverse change in the financial condition,
operations, properties or prospects of the Company or either
Home;
(ii) any change in the authorized capital or
outstanding securities of the Company;
(iii) any capital stock, bonds or other securities
which the Company has issued, sold, delivered or agreed to
issue, sell or deliver, nor has the Company granted or agreed
to grant any options, warrants or other rights calling for the
issue, sale or delivery thereof;
(iv) any borrowing or agreement by the Company to
borrow any funds, nor has the Company incurred, or become
subject to, any absolute or contingent obligation or
liability, except trade payables incurred in the ordinary
course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change
in any key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of
the inventories or other assets or properties of the Company,
except in the ordinary course of business;
(viii) any material damage, destruction or losses
against the Company or any waiver any rights of material value
to the Company;
(ix) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement, with
respect to employees of the Company;
(x) any claim or liability for any material
damages for any actual or alleged negligence or other tort or
breach of contract against or affecting the Company;
-10-
(xi) any new competitor that has, to the
Shareholders' knowledge, built, commenced to build or
announced intentions to build a funeral home or mortuary in
direct competition with either Home; or
(xii) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in the Company Balance Sheet, the Company has no, and none of its
assets or properties are subject to any, liabilities or obligations of
any kind or nature, other than unsecured trade accounts payable and
accrued expenses arising in the ordinary course of the Company's
business since the date of the Company Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local and other
taxes due and payable by the Company on or before the date of this
Agreement have been paid or are adequately provided for in the
Company's books and records. The Company has filed all tax returns and
reports required to be filed by it with all taxing authorities, and all
such tax returns and reports are true, complete and correct. True and
correct copies of the federal, state and local income tax returns filed
by the Company for each of its last three taxable years have been
furnished to the Purchaser. No assessments of deficiencies have been
made against the Company which are presently pending or outstanding. No
state of facts exists or has existed which would constitute grounds for
the assessment of any tax liability against the Company with respect to
any prior taxable period which has not been audited by the Internal
Revenue Service or which has not been closed by applicable statute.
There are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any income tax return of the
Company for any period. The Shareholders shall be fully responsible for
all taxes of the Company accrued through the Closing and for
completing, filing and handling (or for reimbursing the Purchaser for
its out-of-pocket cost in completing, filing and handling, based solely
on information furnished by the Shareholders) all tax returns and
reports in respect in of all periods through Closing, including
responding to any inquiries, examinations or audits regarding such
taxes, returns and reports.
3.11. INVENTORY; ACCOUNTS RECEIVABLE. The inventories
reflected on the Company Balance Sheet and all items placed in
inventory since the date thereof are (i) accounted for in accordance
with the Standards, (ii) accounted for net of reserves which are
sufficient to cover any losses due to obsolescence, shrinkage, or
unmarketability, and (iii)
-11-
saleable or usable in the ordinary course of business of the Company at
usual and customary prices, subject to normal returns and markdowns
consistent with past practice. All of the note and accounts receivables
of the Company will, on the Closing Date (i) represent bona fide claims
for goods delivered or services rendered, and (ii) not be subject to
any rights of offset or counterclaim. At the Closing, the Share-holders
shall provide to the Purchaser a list, certified by them to be true and
complete, of all of the Company's inventory and all of the Company's
notes and accounts receivable, in each case as of the Closing Date.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and
all other material items of equipment, fixtures, furniture and other
fixed assets owned by the Company. All such items are in good and
operating condition and repair, ordinary wear and tear excepted. The
Purchaser acknowledges that there is located in the Homes six water
color paintings that belong personally to Dwayne R. Spence, and the
Purchaser agrees that such paintings may continue to be displayed at
the Homes for so long after the Closing as Mr. Spence wishes.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto sets
forth a complete description of:
(i) all loan, credit and similar agreements to
which the Company is a party or by which it is bound, and all
notes or other evidences of indebtedness of, or agreements
creating any Lien on any property of, the Company;
(ii) all employment contracts, noncompetition
agreements and other agreements relating to the employment of
any employees of the Company;
(iii) all contracts and agreements affecting the
Company which do not terminate or are not terminable by the
Company upon notice of 30 days or less or which involves an
obligation on its part in excess of $1,000 per annum or $5,000
in the aggregate; and
(iv) all other contracts and commitments of the
Company entered into outside the ordinary course of business.
Each contract and commitment described on Schedule 3.13 is
valid and in full force and effect, and neither the Company, nor, to
the knowledge of the Shareholders, any of the other parties thereto,
are in default thereunder. The Shareholders have furnished to the
Purchaser a true and correct copy of each document listed on Schedule
3.13.
-12-
3.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14
hereto accurately and completely lists (i) all preneed contracts of the
Company unfulfilled as of the date hereof, including contracts for the
sale of funeral merchandise and services, and (ii) all trust accounts
relating to the Homes, indicating the location of each and the balance
thereof. All preneed contracts required to be listed on Schedule 3.14
(x) have been entered into in the normal course of business at regular
retail prices, or pursuant to a sales promotion program, solely for use
by the named customers and members of their families on terms not more
favorable than shown on the specimen contracts which have been
delivered to the Purchaser, (y) are subject to the rules and
regulations of the Company as now in force (copies of which have been
delivered to the Purchaser), and (z) on the date hereof are in full
force and effect, subject to no offsets, claims or waivers, and neither
the Company nor such customer is in default thereunder. All funds
received by the Company under preneed contracts have been deposited in
the appropriate accounts and administered and reported in accordance
with the terms thereof and as required by applicable laws and
regulations. The aggregate market value of the preneed accounts, trusts
or other deposits is equal to or greater than the aggregate preneed
liability related to such accounts. The services heretofore provided by
the Company have been rendered in a professional and competent manner
consistent with prevailing professional standards, practices and
customs.
3.15. TRADEMARKS, ETC. The Company does not own nor has it
applied for any patents, patent applications, patent licenses,
trademarks, trademark applications or trademark licenses (collectively,
"Intangible Rights"), except as described on Schedule 3.15. The Company
owns or possesses valid rights or adequate licenses for all of such
Intangible Rights as are necessary to the conduct of the business of
the Homes as presently conducted. The Company is not charged with
infringement of any Intangible Rights of any other person, nor does the
Company know of any such infringement, whether or not claimed by any
person.
3.16. INSURANCE. The Company maintains such policies of
insurance in such amounts, and which insure against such losses and
risks, as are generally maintained for comparable businesses and
properties. Valid policies for such insurance will be outstanding and
duly in force at all times prior to the Closing.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 hereto correctly
and completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or held by the Company, which
are all that are necessary or appropriate for the conduct of the
business and operations of
-13-
the Company and the Homes. All such items are in full force and effect.
3.18. LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of either
Shareholder, threatened against or affecting the Company or any of the
assets or properties of the Company, at law or in equity or before or
by any court or federal, state, municipal or other governmental
department, commission, board, agency or instrumentality. The Company
is not subject to any continuing court or administrative order, writ,
injunction or decree, nor is the Company in default with respect to any
order, writ, injunction or decree issued by any court or foreign,
federal, state, municipal or other governmental department, commission,
board, agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company has complied and is in
compliance with all federal, state, municipal and other statutes,
rules, ordinances, and regulations applicable to the Company, the
operation of the Homes and the Company's assets, rights and properties
(including without limitation all environmental protection and
occupations safety and health rules, regulations and laws, and laws and
regulations applicable to preneed contracts and trust accounts,
including the so-called "FTC Funeral Rule").
3.20. EMPLOYEES. Schedule 3.20 hereto correctly and completely
lists the names and monthly or hourly rates of salary and other
compensation of all the employees and agents of the Company. Schedule
3.20 also sets forth the date of the last salary increase for each
employee listed thereon, the outstanding balances of all loans and
advances, if any, made by the Company to any employee or agent of the
Company, and the number of vacation days or other time off to which
each such employee is presently eligible to take. At Closing, the
Shareholders will cause the Company to pay or satisfy all vacation,
holiday and other accrued benefits to employees of the Homes which are
then outstanding. Following the Closing, the Purchaser agrees that it
will give each such employee credit for years of service with the Homes
for purposes of determining seniority under the Purchaser's employee
benefit plans. There are not pending or threatened against the Company
any general labor disputes, strikes or concerted work stoppages, and
there are no discussions, negotiations, demands or proposals that are
pending or have been conducted or made with or by any labor union or
association with respect to any employees of the Company. Neither
Shareholder is aware of the existence of any serious health condition
of any key management personnel of either Home that might impair any
such person's ability to carry on his or her normal duties into the
foreseeable future after the Closing. The Company believes
-14-
that the relations between the Company and its employees are good.
3.21. EMPLOYEE BENEFIT PLANS. Schedule 3.21 describes all
plans, contracts, commitments, programs and policies (including,
without limitation, pension, profit sharing, thrift, bonus, deferred
compensation, severance, retirement, disability, medical, life, dental
and accidental insurance, vacation, sick leave, death benefit and other
similar employee benefit plans and policies) maintained by the Company
providing benefits to any employees or former employee of the Company
(collectively, the "Plans"). The Shareholders have delivered to the
Purchaser true and correct copies of all documents embodying the Plans,
and all determination letters from the Internal Revenue Service
regarding Plans required to be qualified under the Code. All
obligations of the Company under the Plans have been fully paid and
fully funded. All necessary governmental approvals have been obtained
for all Plans subject to the Employee Retirement Income Security Act of
1974 ("ERISA") and have been qualified under Section 401 of the Code,
and each trust established for any Plan is exempt from federal income
taxation under Section 501(a) of the Code. With respect to any such
Plan or any other "employee welfare plan" (as defined in ERISA)
maintained by the Company, there has been no (i) "reportable event" as
defined in Section 4043 of ERISA, or (ii) event described in Section
4062(e) or 4036(a) of ERISA.
3.22. AFFILIATED PARTY TRANSACTIONS. Each Home has been
operated and is being operated in a manner separate from the personal
and other business activities of the Sellers and their affiliates, and
neither the Company nor its assets are subject to any affiliated party
commitments or transactions.
3.23. BOOKS AND RECORDS. All books and records of the Company
are true, correct and complete in all material respects, have been
maintained by the Company in accordance with good business practice and
in accordance with all laws, regulations and other requirements
applicable to the Company. The corporate records of the Company reflect
a true record of all meetings and proceedings of the Board of Directors
and the shareholders of the Company.
3.24. FINDERS. Neither the Company nor any Seller is a party
to or in any way obligated under any contract or other agreement, and
there are no outstanding claims against any of them, for the payment of
any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.25. AUTHORITY OF THE SELLERS. Each Seller has the full
right, capacity and authority to enter into and perform
-15-
this Agreement and the other documents to be executed by such Seller as
provided in this Agreement, and to consummate the transactions
contemplated hereby and thereby. This Agreement constitutes, and upon
execution and delivery by each Seller, each of such other documents
will constitute, the legal, valid and binding obligations of the
Sellers enforceable against them in accordance with their respective
terms. Neither the execution, delivery nor performance of this
Agreement or any of such other documents, nor the consummation of the
transactions contemplated hereby or thereby, by any Seller will: (i)
result in a violation or breach of any term or provision of, constitute
a default or acceleration under, require notice to or consent of any
third party to, or result in the creation of any Lien by virtue of (x)
the Articles of Incorporation or Code of Regulations of the Company or
(y) any contract, agreement, lease, license or other commitment to
which the Company or any Seller is a party or by which the Company or
such Seller or his, her or its respective assets or properties are
bound; nor (ii) violate any statute or any order, writ, injunction or
decree of any court, administrative agency or governmental body.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement has been duly authorized
by its Board of Directors. This Agreement is legally binding and
enforceable against the Company in accordance with its terms. Neither
the execution, delivery nor performance by the Company of this
Agreement will result in a violation or breach of, nor constitute a
default or accelerate the performance required under, the Articles of
Incorporation or Code of Regulations of the Company or any indenture,
mortgage, deed of trust or other contract or agreement to which the
Company is a party or by which it or its properties are bound, or
violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.27. FULL DISCLOSURE. The representations and warranties made
by the Company and the Sellers hereunder or in any Schedules or
certificates furnished to the Purchaser pursuant hereto or thereto, do
not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein
necessary to make the representations or warranties herein or therein,
in light of the circumstances in which they are made, not misleading.
3.28. ACQUISITION OF SERIES D SHARES. The Series D Shares to
be acquired by the Shareholders hereunder will be acquired by them for
investment purposes only and not with the present intention or view to,
or resale in connection with, any distribution thereof within the
meaning of the Securities
-16-
Act of 1933, as amended. Each Shareholder understands that the Series D
Shares will not be registered under such Securities Act or any state
securities or blue sky laws, and except as provided in the Series D
Designation neither Carriage nor the Purchaser is under any obligation
to register any Series D Shares under any such laws. The Shareholders
further understand that transferability of the Series D Shares will be
restricted in accordance with applicable state and federal securities
laws, and that a restrictive legend to such effect will be inscribed on
each certificate representing Series D Shares. The Shareholders prior
to the Closing will have had full opportunity to receive such
information and ask such questions of representatives of Carriage
concerning Carriage, its subsidiaries and their business, operations,
assets and prospects, and concerning an investment in the Series D
Shares, as the Shareholders will have deemed appropriate in order to
make an informed investment decision with respect to the Series D
Shares.
3.29. SCHEDULES. The Schedules referred to in this Agreement
have been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Sellers.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Company and the Sellers
that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate
power to enter into and perform its obligations under this Agreement
and the other documents to which it is a party.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery and
performance by the Purchaser of this Agreement and the documents
contemplated in this Agreement to be executed and delivered by it have
been duly authorized by its Board of Directors. This Agreement is, and
upon their execution and delivery as herein provided such other
documents will be, valid and binding upon the Purchaser and enforceable
against the Purchaser in accordance with their respective terms.
Neither the execution, delivery or performance by the Purchaser of this
Agreement, or any such other document will conflict with or result in a
violation or breach of any term or provision of, nor constitute a
default under, the Certificate of Incorporation or Bylaws of the
Purchaser or under any indenture, mortgage, deed of trust or other
contract or agreement to which it is a party or by which it or its
property is
-17-
bound, or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
4.3. SECURITIES LAWS. Assuming that the representations and
warranties of the Shareholders in Section 3.28 are true, Carriage's
issuance of the Series D Shares to the Shareholders will be exempt from
the registration and/or qualification requirements of all federal and
state securities or blue sky laws applicable to the issuance or sale of
the Series D Shares.
4.4. FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are not
outstanding claims against it, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
4.5. FULL DISCLOSURE. The representations and warranties made
by the Purchaser hereunder, or in any certificates furnished to the
Sellers pursuant hereto do not and will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated herein or therein or necessary to make the representations
or warranties herein or therein, in light of the circumstances in which
they are made, not misleading.
5. COVENANTS OF THE COMPANY AND THE SELLERS PENDING CLOSING.
The Company and the Sellers jointly and severally covenant and agree with the
Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of the Company will be operated only in
the ordinary course, and, in particular, without the prior written
consent of the Purchaser, the Company will not, and the Sellers will
not cause or allow the Company to:
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its Articles of
Incorporation or Code of Regulations;
(iii) take any action described in Section 3.8;
(iv) enter into any contract, agreement or other
commitment of the type described in Section 3.13;
(v) hire, fire, reassign or make any other change in
key personnel of the Company, or increase the rate of
compensation of or declare or pay any bonuses to
-18-
any employee in excess of that listed on Schedule 3.20; or
(vi) take any other action which would cause any of
the representations and warranties made in Section 3 hereof
not to be true and correct in all material respects on and as
of the Closing Date with the same force and effect as if the
same had been made on and as of the Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company will
give to the Purchaser and its counsel, accountants and other
representatives, full and free access to all of the properties, books,
contracts, commitments and records of the Company so that the Purchaser
may have full opportunity to make such investigation as it shall desire
to make of the affairs of the Company. If in the process of such
investigation an executive officer of the Purchaser becomes actually
aware that any representation or warranty under Section 3 is untrue,
the Purchaser shall use its best efforts to inform the Shareholders
thereof so that the same may be resolved prior to the Closing.
5.3. CONSENTS AND APPROVALS. The Company and the Sellers will
use their best efforts to obtain the necessary consents and approvals
of other persons which may be required to be obtained on their part to
consummate the transactions contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor any Seller shall enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals or
expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion of
the assets and business of the Company or any other sale of the Company
(whether by merger, consolidation, sale or stock or otherwise) or any
portion of the Real Property, other than with the Purchaser.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser
covenants with the Company and the Sellers that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use its best
efforts to obtain the necessary consents and approvals of other persons
which may be required to be obtained on its part to consummate the
transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to the Company from
-19-
any representative, officer, director or employee of the Company,
including their accountants or legal counsel, or from any books or
records of any of them, in connection with the transactions
contemplated by this Agreement, except that the Purchaser may disclose
such information to its outside attorneys and accountants and to its
lender, provided that the Purchaser shall remain responsible to the
Company for any unauthorized disclosure thereof by such attorneys,
accountants or lender. If the transactions contemplated hereby are not
consummated, neither the Purchaser nor its representatives shall
disclose such data or information to others, except as such data or
information is published or is a matter of public knowledge or is
required by an applicable law or regulation to be disclosed. If this
Agreement is terminated for any reason, the Purchaser shall return to
the Company all written data and information obtained by the Purchaser
from the Company or its representatives in connection with the
transactions contemplated by this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any error, misstatement or
omission in the representations and warranties made by the Sellers in
Section 3 hereof; the representations and warranties made by the
Sellers herein shall be deemed to have been made again at and as of the
time of Closing and shall then be true and correct; the Company and the
Sellers shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by them at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by the Sellers and an executive officer
of the Company, to the effect of the foregoing provisions of this
Section 7.1.
7.2. OPINION OF COUNSEL. The Company shall have caused to be
delivered to the Purchaser an opinion of Sitterley and Vandervoort,
counsel for the Company and the Sellers, dated the Closing Date, to the
effect that:
(i) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Ohio, with full corporate authority to enter into and
perform its obligations under this Agreement;
(ii) the authorized capital stock of the Company
consists of 1,000 shares of Common Stock, no par
-20-
value, all of which shares are validly issued and outstanding
and fully paid and nonassessable;
(iii) to the knowledge of such counsel, after due
inquiry, there are no outstanding subscriptions, options or
other agreements or commitments obligating the Company to
issue any shares of its capital stock or securities
convertible into shares of its capital stock;
(iv) the Shareholders are the record and beneficial
owners of the Shares as shown on Schedule I hereto, free and
clear of any and all Liens, and the Shareholders have full
capacity to sell and transfer the Shares in accordance with
this Agreement; and upon such sale and transfer to the
Purchaser by the Shareholders, the Purchaser will acquire from
the Shareholders all of their rights in the Shares;
(v) the execution, delivery and performance by the
Company of this Agreement has been duly authorized by its
Board of Directors;
(vi) this Agreement has been duly and validly
executed and delivered by the Company and constitutes the
valid and binding obligation of the Company enforceable
against it in accordance with its terms;
(vii) this Agreement and the other documents to be
executed and delivered hereunder (as shall be specified in
such opinion) by the Sellers and Jeffrey have been duly and
validly executed and delivered by the Sellers and Jeffrey, and
this Agreement and such other documents constitute the valid
and binding obligations of the Sellers and Jeffrey enforceable
against them in accordance with their respective terms;
(viii) neither the execution, delivery or
consummation of the transactions contemplated by this
Agreement or any of such other documents will (x) result in
the breach of or constitute a default under the Articles of
Incorporation or Code of Regulations of the Company or any
loan or credit agreement, indenture, mortgage, deed of trust
or other contract or agreement known to such counsel and to
which either the Company or any Seller is a party or by which
they or their respective assets are bound, or (y) violate any
order, writ, injunction or decree known to such counsel of any
court, administrative agency or governmental body;
(ix) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary
-21-
or required in connection with the execution and delivery by
the Company and the Sellers of this Agreement or any of such
other documents; and
(x) to the knowledge of such counsel after due
inquiry, there are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting the
Company or any of its assets, at law or in equity or before or
by any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Sellers and officers of the Company and
certificates of public officials, copies of which shall be provided to
the Purchaser at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal law and
the internal laws of the State of Ohio.
7.3. CONSENTS AND APPROVALS. The Company and the Sellers shall
have obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by this
Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to the Real Property or the physical
assets and properties of the Company (regardless of whether such loss
or damage was insured), the effect of which would have a material
adverse effect on the condition, business, operations or prospects of
the Company or either Home.
7.5. RESIGNATIONS AND RELEASES. The Purchaser shall have
received such resignations of the officers and directors of the Company
as shall have been requested by the Purchaser, as well as written
releases, in form and substance acceptable to the Purchaser, under
which the Shareholders and their spouses waive and release all rights
and claims against the Company save and except only those obligations
arising under this Agreement and the exhibits and schedules hereto.
7.6. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other
related legal matters shall have been approved by counsel for the
Purchaser, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments and
documents as they shall have reasonably requested.
-22-
7.7. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review of the
financial information, books and records, and properties and assets of
the Company, the Homes and the Real Property, and shall have discovered
no change in the business, assets, operations, financial condition or
prospects of the Company, the Homes or the Real Property which could,
in the sole determination of the Purchaser, have a material adverse
effect on the value to the Purchaser of the business, assets, financial
condition or prospects of the Company, the Homes or the Real Property.
7.8. RELATED TRANSACTIONS. Jeffrey shall have executed and
delivered to the Purchaser the Non-Competition Agreement, the
Shareholders and Jeffrey shall have executed and delivered to the
Company their respective Employment Agreements and the Shareholders
shall have executed and delivered to the Purchaser the First Refusal
Agreement.
7.9. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall
have been conducted, at the Purchaser's expense, (i) a Phase I (and, if
deemed necessary by Purchaser, a Phase II) environmental audit of each
Home and the Real Property by an environmental consulting firm selected
by Purchaser, (ii) a health and safety inspection of each Home by a
person (who may be an employee of the Purchaser) or firm selected by
the Purchaser and who is qualified and experienced in such matters in
the funeral service industry, and (iii) a structural inspection of each
Home by an engineering firm selected by the Purchaser. The Sellers
agree to pay the costs and to take the action reasonably recommended by
such firms and/or persons, up to $15,000 in the aggregate. In any
event, it shall be a condition to the Purchaser's obligations hereunder
that the results of the reports of such firms or persons (together with
any remedial action, if any, taken by Sellers, regardless of the cost,
in response thereto) shall be satisfactory to Purchaser in its sole
discretion.
7.10. TITLE INSURANCE. The Purchaser shall have received, at
its expense, an Owner's Policy of Title Insurance issued to the
Purchaser in the amount of the purchase price for the Real Property
under Section 1.3, issued by a title company with offices in Fairfield
County, Ohio mutually designated by the parties (the "Title Company"),
insuring that the Purchaser is the owner of each parcel of the Real
Property subject only to the Permitted Encumbrances, and any standard
printed exceptions included in an Ohio standard form Owner Policy of
Title Insurance. Such policy shall have deleted any exception regarding
restrictions or be limited to restrictions that are Permitted
Encumbrances, any standard exception pertaining to discrepancies,
conflicts or shortages in area shall be deleted except for "shortages
in area", and any
-23-
standard exception for taxes shall be limited to the year in which the
Closing occurs.
7.11. SURVEY. The Purchaser shall have received, at its
expense, an ALTA/ASCM survey prepared by a licensed surveyor approved
by the Purchaser and acceptable to the Title Company, with respect to
each parcel of Real Property, which survey shall comply with any
applicable standards under Ohio law, be sufficient for the Title
Company to delete any survey exception contained in the title insurance
policy referred to in Section 7.10, save and except for the phrase
"shortages in area", and otherwise be in form and content acceptable to
Purchaser.
7.12. FINANCING COMMITMENT. The Purchaser shall have received
from Provident or another financial institution acceptable to it a
written commitment, containing such terms and conditions and otherwise
in form and substance acceptable to the Purchaser, providing for the
extension of financing in order to provide the portion of the purchase
price not furnished by the Purchaser or obtained by the Purchaser from
other sources, and such commitment shall have been funded in such
amount contemporaneously with the Closing.
7.13. LIEN RELEASES. The holders of the Liens (other than
Permitted Encumbrances) against any assets of the Company or any
portion of the Real Property shall have executed and delivered written
releases of such Liens, all in recordable form and otherwise acceptable
to the Purchaser and its lender.
7.14. OTHER MANAGEMENT ARRANGEMENTS. The Shareholders shall
have identified to the Purchaser such other key management personnel of
the Homes, and the Purchaser shall have entered into mutually
satisfactory arrangements regarding the continued employment of such
personnel at the Homes following the Closing.
8. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Sellers in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Sellers shall not have discovered any material error, misstatement
or omission in the representations and warranties made by the Purchaser
in Section 4 hereof; the representations and warranties made by the
Purchaser herein shall be deemed to have been made again at and as of
the time of Closing and shall then be true and correct; the Purchaser
shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Closing; and the Sellers shall
-24-
have received a certificate, signed by an executive officer of the
Purchaser, to the effect of the foregoing provisions of this Section
8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Sellers an opinion of Snell & Smith, A Professional
Corporation, counsel for the Purchaser, to the effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power to
enter into and perform its obligations under this Agreement
and the other documents contemplated herein to be executed and
delivered by the Purchaser (as shall be specified in such
opinion);
(ii) the execution, delivery and performance by the
Purchaser of this Agreement and such other documents have been
duly authorized by its Board of Directors;
(iii) this Agreement is, and upon execution and
delivery as herein provided such other documents will be,
valid and binding upon the Purchaser and enforceable against
the Purchaser in accordance with their respective terms;
(iv) neither the execution, delivery or performance
by the Purchaser of this Agreement or any of such other
documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default
under, the Certificate of Incorporation or Bylaws of the
Purchaser or under any loan or credit agreement, indenture,
mortgage, deed of trust or other contract or agreement known
to such counsel and to which the Purchaser is a party or by
which it or its property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any court,
administrative agency or governmental body;
(v) assuming the accuracy of the Shareholders'
representations in Section 3.28 hereof, the offer and sale of
the Series D Shares by Carriage to the Shareholders is exempt
from the registration requirements of the Securities Act of
1933, as amended, and the securities law of the State of Ohio;
and
(vi) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement or any of such other
-25-
documents, or the performance of its obligations hereunder or
thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to the Company at Closing.
Any opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of the
State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. The Purchaser shall have executed
and delivered to Jeffrey the Non-Competition Agreement, Carriage shall
have issued to Jeffrey the Series D Shares contemplated thereby, and
the Company shall have executed and delivered to the Shareholders and
Jeffrey their respective Employment Agreements.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party hereto,
all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Schedule or Exhibit hereto or in
connection with the transactions contemplated hereby and thereby shall
not terminate but shall survive the Closing and continue in effect
thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SELLERS. The Sellers jointly and
severally agree to indemnify and hold harmless the Purchaser and
(following the Closing) the Company, and their respective successors
and assigns, from and against any and all losses, damages, liabilities,
obligations, costs or expenses (any one such item being herein called a
"Loss" and all such items being herein collectively called "Losses")
which are caused by or arise out of (i) any breach or default in the
-26-
performance by the Company or the Sellers of any covenant or agreement
of the Company or the Sellers contained in this Agreement, (ii) any
breach of warranty or inaccurate or erroneous representation made by
the Company or the Sellers herein, in any Schedule delivered to the
Purchaser pursuant hereto or in any certificate or other instrument
delivered by or on behalf of the Company or the Sellers pursuant
hereto, (iii) any Unassumed Liability of the Company, whether absolute
or contingent, known or unknown, to the extent not paid or discharged
at Closing as provided in Section 1.4 and (iv) any and all actions,
suits, proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal fees) incident to any of the foregoing. To
the extent that the Purchaser or the Company receives payment in
respect of an indemnified Loss from any insurance maintained by the
Company prior to the Closing or by the Shareholders (and at their cost)
at any time, the Purchaser or the Company (as the case may be) may not
also recover from the Shareholders for the Loss on which such payment
has been received (except to the extent not covered by insurance).
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Sellers and their heirs and assigns
from and against any Losses which are caused by or arise out of (i) any
breach or default in the performance by the Purchaser of any covenant
or agreement of the Purchaser contained in this Agreement, (ii) any
breach of warranty or inaccurate or erroneous representation made by
the Purchaser herein or in any certificate or other instrument
delivered by or on behalf of the Purchaser pursuant hereto, and (iii)
any and all actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees) incident to any of
the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying party"),
the indemnifying party shall be given prompt written notice thereof and
shall have the right (i) to participate in the defense thereof and be
represented, at its own expense, by advisory counsel selected by it,
and (ii) to approve any settlement if the indemnifying party is, or
will be, required to pay any amounts in connection therewith, which
approval shall not be unreasonably withheld or delayed. Notwithstanding
the foregoing, if within ten business days after delivery of the
indemnified party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between such
parties, such claims shall be fully indemnified for by the indemnifying
party as provided herein, then the indemnifying party shall have the
right to control the defense of such
-27-
claim, provided that the indemnified party shall have the right (i) to
participate in the defense thereof and be represented, at its own
expenses, by advisory counsel selected by it, and (ii) to approve any
settlement if the indemnified party's interests are, or would be,
affected thereby.
10.4. OFFSET. If any Seller becomes obligated to indemnify the
Purchaser after the Closing Date pursuant to this Agreement, at any
time when any Deferred Purchase Price remains payable under Section
1.3, then the Purchaser may, at its option and without prejudice to any
right of the Purchaser to proceed directly against any Seller, set-off
the amount for which the Sellers shall be so obligated against the
Deferred Purchase Price. The exercise of such right of set-off shall be
evidenced by means of a written notice to such effect given by the
Purchaser to the Sellers, describing the basis for indemnity and
set-off hereunder and the amount of the set-off.
10.5. CERTAIN LIMITATIONS. Notwithstanding the foregoing
provisions of this Section 10, (i) the Purchaser shall not seek
indemnification from the Sellers under clauses (i) or (ii) of Section
10.1 (or clause (iv) thereof, insofar as the same relates to said
clauses (i) or (ii)), until such time as the total of all Losses is at
least $5,000.00, at which time the Purchaser shall be entitled to
indemnification for all Losses, including the first $5,000.00, and (ii)
the Purchaser shall not assert any claim for indemnification (other
than arising in respect of Section 12.2) after the fifth anniversary of
the Closing Date, provided that the foregoing shall not affect any
claims for indemnification that theretofore have been asserted and are
then pending, which shall continue in effect until such claims are
finally resolved.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Sellers agree to use their best efforts to bring about the satisfaction
of the conditions specified in Section 7 hereof; and the Purchaser
agrees to use its best efforts to bring about the satisfaction of the
conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Sellers and the
Purchaser;
(b) the Purchaser if a material default shall be made
by the Company or any Seller in the observance or in the due
and timely performance by any of their covenants
-28-
herein contained, or if there shall have been a breach or
misrepresentation by any Seller of any of their warranties and
representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Sellers at
or before the Closing shall not have been complied with or
performed at the time required for such compliance or
performance and such noncompliance or nonperformance shall not
have been expressly waived by the Purchaser in writing;
(c) the Sellers if a material default shall be made
by the Purchaser in the observance or in the due and timely
performance by the Purchaser of any of the covenants of the
Purchaser herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser of any
of its warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not
have bene complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Sellers in writing; or
(d) either the Sellers or the Purchaser, if the
Closing has not occurred by March 29, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other parties hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party has
not breached any representation or warranty or failed to comply with
any of its covenants in this Agreement, and (ii) such termination shall
not prejudice the rights and remedies of the terminating party against
any other party which has breached any of its representations,
warranties or covenants herein prior to such termination.
12. POST-CLOSING COVENANTS.
12.1. CLOSING DATE RECEIVABLES. As described in Section
2.2(iv), the Company shall, immediately prior to the Closing,
distribute to the Shareholders the Closing Date Receivables. On the
Closing Date, the Shareholders shall prepare and deliver to the
Purchaser a list, certified by them to be accurate and complete, of all
of the Closing Date Receivables. Following the Closing, the Purchaser
shall have the exclusive (even as to the Shareholders) right to manage
and oversee the collection of the Closing Date Receivables.
-29-
On or before the 15th day of each month following each month in which
there are any collections on Closing Date Receivables, the Purchaser
shall remit to the Shareholders the amount of such collections during
the preceding month. The Purchaser shall have no duty to pursue
collection of Closing Date Receivables by means greater than used on
its collection of other accounts receivable, and in no event shall the
Purchaser be required to institute suit or refer any account to a
collection agency. At any time after the Closing, the Purchaser may, in
its sole discretion, return the management and control over the Closing
Date Receivables to the Shareholders, by giving written notice to them
to such effect.
12.2. RESTRICTIVE COVENANTS OF THE SHAREHOLDERS.
(a) NON-COMPETITION. If the Closing occurs, then for a period
commencing on the Closing Date and ending ten (10) years thereafter,
neither Shareholder shall, except in rendering services for the
Purchaser, directly or indirectly:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partnership, association or
agent or agency, anywhere within a fifty (50) mile radius of
either Home (the "Territory"), in the funeral, mortuary,
crematory, monument, or any related line of business
(collectively, the "Business");
(ii) own or hold any beneficial interest in one
percent (1%) or more of the voting securities in any
corporation, partnership or other business entity which
conducts its operations, in whole or in part, in the Business
within the Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corporation,
partnership or other business entity that conducts its
business, in whole or in part, in the Business within the
Territory; or
(iv) cause or induce any present or future employee
of the Purchaser or any of its affiliates to leave the employ
of the Purchaser or any such affiliate to accept employment
with such Shareholder or with any person, firm, association or
corporation with which such Shareholder may be or become
affiliated.
Without limiting the generality of the foregoing, a
Shareholder shall be deemed directly or indirectly engaged in the
Business if he acts as a funeral director at any funeral establishment
within the Territory, if a Shareholder engages in the sale or marketing
of preneed funeral contracts for services to be performed within the
Territory, or if a
-30-
Shareholder promotes or finances any family member or affiliate to
operate a Business or engage in any of the foregoing activities within
the Territory.
(b) REFORMATION. The above covenants shall not be held invalid
or unenforceable because of the scope of the territory or actions
subject thereto or restricted thereby, or the period of time within
which such covenants are operative; but any judgment of a court of
competent jurisdiction may define the maximum territory and actions
subject to and restricted thereby and the period of time during which
such covenants are enforceable.
(c) REMEDIES. Each Shareholder agrees that any remedy at law
for any actual or threatened breach of any of the foregoing covenants
would be inadequate and that the Purchaser shall be entitled to
specific performance hereof or injunctive relief or both, by temporary
or permanent injunction or such other appropriate judicial remedy, writ
or order as may be entered into by a court of competent jurisdiction in
addition to any damages that the Purchaser may be legally entitled to
recover together with reasonable expenses of litigation, including
attorneys' fees incurred in connection therewith, as may be approved by
such court.
(d) REPRESENTATIONS. Each Shareholder represents and warrants
to and agrees with the Purchaser that (i) such Shareholder understands
that the foregoing restrictions are being made incident to and as a
condition of consummation of the transactions contemplated hereby, and
that such covenants are necessary in order to protect the business and
goodwill being acquired thereby, (ii) such covenants are not oppressive
to either Shareholder in any respect, and (iii) the consideration for
such restrictions is included in the purchase price for the Shares,
which consideration each Shareholder acknowledges is fair and adequate
for the giving of the covenants herein and for which such Shareholder
acknowledges a direct and valuable benefit.
(e) INDEPENDENT OBLIGATIONS. The foregoing covenants shall
represent several, but not joint, obligations, of the Shareholders. A
breach by one Shareholder of any of such covenants shall not, by
itself, constitute a breach thereof by the other Shareholder.
(f) PURCHASE PRICE ALLOCATION. The parties agree to allocate
$50,000 of the purchase price for the Shares to the foregoing covenants
for federal income tax purposes, pursuant to Section 1060(a) of the
Code. Such allocation is not intended to be a measure of the amount or
range of damages which the Purchaser may suffer or recover as a result
of any breach of the foregoing covenants, and the Shareholders
-31-
acknowledge that in case of any such breach, the Purchaser shall be
entitled to seek in excess of such amount as it may otherwise be able
to demonstrate itself justly entitled to.
12.3. 401(K) PLAN. As described on Schedule 3.21, the Company
has maintained the Dwayne R. Spence Funeral Home, Inc. 401(k) Plan (the
"401(k) Plan") for the benefit of its employees. The Shareholders,
following the Closing, shall take all necessary steps to terminate the
401(k) Plan under ERISA and the Code. The Shareholders, jointly and
severally, shall be responsible for and shall indemnify the Purchaser
and the Company for, (i) all legal, actuarial, trustee and other filing
fees, costs and expenses and administrative costs in connection with
the termination of the 401(k) Plan and the distribution of its assets
to plan beneficiaries, (ii) any liability or other amounts owed to
401(k) Plan beneficiaries in excess of the assets in the 401(k) Plan
available therefor, and (iii) all fines, penalties and other
assessments of the Internal Revenue Service of the Pension Benefit
Guaranty Corporation for any failure of the 401(k) Plan to have fully
complied (and after the Closing Date to continue to comply) with all
applicable laws, rules and regulations.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. If the
transactions contemplated by this Agreement and the Exhibits hereto are
consummated, the Company shall have no obligation for, nor shall it be
charged with, any such expenses of the Sellers. All sales, transfer,
stamp or other similar taxes, if any, which may be assessed or charged
in connection with the transactions hereunder shall be borne by the
Sellers.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given when personally delivered or three business days
following the date, mailed, first class, registered or certified mail,
postage prepaid, as follows:
(i) if to the Company or any Seller, to:
Dwayne R. Spence Funeral Home, Inc.
650 W. Waterloo Street
Canal Winchester, Ohio 43110
Attention: Mr. Dwayne R. Spence
-32-
with a copy to:
Sitterley and Vandervoort
123 South Broad Street, Suite 211
Lancaster, Ohio 43130
Attention: Mr. William J. Sitterley
(ii) if to the Purchaser, to:
Carriage Funeral Holdings, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to
the other parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may assign
its rights hereunder without the consent of any Seller to a
successor-in-interest to the Purchaser or the Company (whether by
merger, sale of assets or otherwise), without, however, releasing the
assigning party of its continuing liability hereunder.
13.4. SUCCESSORS BOUND. Subject to the provisions of Section
13.3, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
personal representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
13.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by all of the parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and supersede
all prior understandings with respect to
-33-
the subject matter hereof and thereof (including, without limitation,
the letter of intent dated December 21, 1995).
13.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Ohio.
13.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
<PAGE>
-34-
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL HOLDINGS, INC.
By: MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE COMPANY:
DWAYNE R. SPENCE FUNERAL HOME, INC.
By: DWAYNE R. SPENCE
DWAYNE R. SPENCE, President
THE SELLERS:
DWAYNE R. SPENCE
DWAYNE R. SPENCE,
Individually and as General Partner of S&S
MANAGEMENT COMPANY
PATRICIA F. SPENCE
PATRICIA F. SPENCE
JAMES H. SHERIDAN
JAMES H. SHERIDAN,
Individually and as General Partner of
S&S MANAGEMENT COMPANY
-35-
<PAGE>
EXHIBIT DESCRIPTION
A Letter of Credit
B Non-Competition Agreement
C-1 Employment Agreement
(Dwayne R. Spence)
C-2 Employment Agreement
(James H. Sheridan)
C-3 Employment Agreement
(Jeffrey Spence)
D First Refusal Agreement
SCHEDULE DESCRIPTION
I Stock Ownership
3.6 Real Property
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Trademarks, Etc.
3.17 Licenses
3.20 Employees
3.21 Employee Benefit Plans
Exhibit 10.18
MERGER AGREEMENT
THIS AGREEMENT, dated as of March 22, 1996, among CARRIAGE
FUNERAL SERVICES, INC., a Delaware corporation (the "Purchaser"), CARRIAGE
FUNERAL SERVICES OF IDAHO, INC., an Idaho corporation (the "Acquisition
Subsidiary"), MERCHANT FUNERAL HOME, INC., a Washington corporation ("MFHI"),
COEUR D'ALENE, MEMORIAL GARDENS, INC., an Idaho corporation ("CDMGI"), LEWIS
CLARK MEMORIAL PARK, INC., an Idaho corporation ("LCMPI") (MFHI, CDMGI and LCMPI
are sometimes herein collectively called the "Companies" and individually
referred to as a "Company"), ROBERT D. LARRABEE and I. RENEE LARRABEE, residents
of Asotin County, Washington (the "Larrabees"), and LARRABEE LAND COMPANY, INC.,
an Idaho corporation ("LLC") (the Larrabees and LLC are sometimes together
referred to herein as the "Shareholders");
W I T N E S S E T H:
WHEREAS, MFHI owns and operates the Merchant Funeral Home
located at 1000 7th Street in Clarkston, Asotin County, Washington (the
"Merchant Home"), the Richardson-Brown Funeral Home located at 750 Columbia
Street in Pomeroy, Garfield County, Washington (the "Richardson-Brown Home") and
the Mountain View Funeral Home located at 7th and Cedar in Lewiston, Nez Perce
County, Idaho (the "Mountain View Home"); CDMGI owns and operates the Coeur
d'Alene Memorial Chapel (the "Coeur d'Alene Home") and the Coeur d'Alene
Memorial Gardens Cemetery (the "Coeur d'Alene Cemetery"), both located at 7315
No Government Way in Coeur d'Alene, Kootenai County, Idaho; and LCMPI owns and
operates the Lewis Clark Memorial Park Cemetery located at 7th and Cedar in
Lewiston, Nez Perce County, Idaho (the "Lewis Clark Cemetery") (the Merchant
Home, the Richardson-Brown Home, the Mountain View Home and the Coeur d'Alene
Home are collectively referred to herein as the "Homes", and the Coeur d'Alene
Cemetery and the Lewis Clark Cemetery are collectively referred to herein as the
"Cemeteries"); and
WHEREAS, the Larrabees own all of the issued and outstanding
capital stock of each of MFHI and CDMGI, and LLC owns all of the issued and
outstanding capital stock of LCMPI; and
WHEREAS, the parties desire that LCMPI, MFHI and CDMGI merge
with and into the Acquisition Subsidiary in a statutory merger (the "Merger") to
be consummated under the laws of the States of Idaho and Washington and the Plan
of Merger among the Companies and the Acquisition Subsidiary attached hereto as
Exhibit A (the "Plan of Merger"), under which the Acquisition Subsidiary shall
be the surviving corporation; NOW, THEREFORE, the parties agree as follows:
<PAGE>
1. REORGANIZATION AND MERGER.
1.1. THE MERGER. Simultaneously with the execution and
delivery of this Agreement, the Plan of Merger shall be executed and delivered
by the Purchaser, the Acquisition Subsidiary and the Companies. Subject to the
terms and conditions set forth in this Agreement and in the Plan of Merger, at
the Effective Time of the Merger (as defined in the Plan of Merger), the
Companies shall be merged with and into the Acquisition Subsidiary in accordance
with the laws of the States of Idaho and Washington and the Plan of Merger. The
corporation surviving the Merger is sometimes herein referred to as the
"Surviving Corporation."
1.2. SS.368 REORGANIZATION. It is the intention of the parties
that the Merger constitute a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), in
accordance with Section 368(a)(2)(D) of the Code. The parties agree to file all
of their respective tax returns and reports in a manner consistent with such
intention, and to not take any filing position in a manner inconsistent with
such intention unless compelled to do so by court order or administrative
decree. Each party agrees to furnish such information and take such action as
may be reasonably requested of the other party in connection with the foregoing
(which action shall not include any change in the commercial terms of the Merger
and the other transactions incident thereto). In no event, however, shall the
Purchaser or the Surviving Corporation be required to incur any out-of-pocket
expenses in defending such position or providing such information or taking such
action, nor shall the foregoing constitute a warranty or guaranty that the
Merger will in fact constitute such a reorganization.
1.3. SHAREHOLDER CONSENT; WAIVER OF DISSENTERS' RIGHTS. Each
Shareholder, in its, his or her capacity as a shareholder of each Company (as
applicable), and the Purchaser, in its capacity as a shareholder of the
Acquisition Subsidiary, hereby (i) consent to the Merger pursuant to Idaho Code
ss.30-1-73 and Washington Revised Code ss.23B.11.030, as applicable, and (ii)
irrevocably and unconditionally waive all dissenters' and other similar rights
with respect to the Pre-closing Merger and the Merger under and pursuant to
Idaho Code ss.30-1-80 and Washington Revised Code ss.23B.13.020, as applicable.
1.4. FURTHER ASSURANCES. The Shareholders agree to execute and
deliver from time to time after the Effective Time of the Merger, at the
reasonable request of the Purchaser, and without further consideration, such
additional instruments of conveyance and transfer, and to take such other action
as the Purchaser may reasonably require to more effectively carry out the terms
and provisions of the Merger and the other transaction contemplated by this
Agreement.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing of the Merger (the "Closing")
shall occur at the offices of Jack Curtin, 2517 17th Street, Suite C, Lewiston,
Idaho 83501, at 9:00 a.m. on March 22, 1996, or at such other date, time or
place as may be mutually agreed upon by the parties, but in no event later than
March 31, 1996. The date and time of the Closing is herein called the "Closing
Date". At the Closing, the Shareholders shall surrender for cancellation
pursuant to the Merger all certificates representing their respective shares of
capital stock of each Company against receipt from the Purchaser of the Merger
Consideration (as defined in the Plan of Merger). All action to be taken at the
Closing as hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered to
have been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action incident to
the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the Merger, at the
Closing the following transactions shall occur:
(i)Simultaneously with the execution and delivery of this
Agreement, the Acquisition Subsidiary, as purchaser, and the
Shareholders and Larrabee Investments, L.L.C., an Idaho limited
liability company, as sellers (the "Real Property Sellers"), are
entering into a Real Property Purchase Agreement of even date herewith
(the "Real Property Purchase Agreement") providing for (among other
things) the purchase and sale of all of the real property on which the
Merchant Home is situated, a portion of the real property on which the
Mountain View Home/Lewis Clark Cemetery and the Coeur d'Alene
Home/Coeur d'Alene Cemetery are situated. The closing of the
transactions under the Real Property Purchase Agreement shall occur on
the Closing Date substantially simultaneously with the Effective Time
of the Merger hereunder.
(ii)The Acquisition Subsidiary and Lisa Larrabee ("Lisa")
shall each execute and deliver to the other a Non-Competition Agreement
to be dated the Closing Date
-3-
and in substantially the form of Exhibit B hereto (the "Non-Competition
Agreement").
(iii)The Acquisition Subsidiary, on the one hand, and each of
Robert D. Larrabee ("Robert") and Lisa, on the other, shall each
execute and deliver a separate Employment Agreement to be dated the
Closing Date and in substantially the forms of Exhibits C-1 and C-2
hereto, respectively (collectively, the "Employment Agreements").
(iv)The Acquisition Subsidiary shall establish its Carriage
Partners Program for Northern Idaho and Eastern Washington in
substantially the form of Exhibit D hereto (the "Program"), and Robert
shall become a Participant in the Program in accordance with the terms
thereof.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The
Shareholders jointly and severally represent and warrant to and agree with the
Purchaser and the Acquisition Subsidiary that:
3.1. TITLE TO SHARES. The Larrabees are currently the owners
and holders, beneficially and of record, of all of the issued and outstanding
shares of capital stock of each of MFHI and CDMGI, and the Larrabees have good
and marketable title to all of such issued and outstanding shares, free and
clear of any and all liens, encumbrances, pledges, security interests, mortgages
or claims of any other person (collectively, the "Liens"). LLC is currently the
owner and holder, beneficially and of record, of all of the issued and
outstanding shares of capital stock of LCMPI, the LLC has good and marketable
title thereto, free and clear of all Liens.
3.2. ORGANIZATION AND EXISTENCE. Each Company is a corporation
duly organized, validly existing and in good standing under the laws of its
respective state of incorporation as shown in the recitals, and each has all
requisite corporate power to enter into and perform its obligations under this
Agreement and to carry on its business as now conducted. The Shareholders have
delivered to the Purchaser complete and correct copies of the respective
Articles of Incorporation, certified by the Secretary of State of its
incorporation, and Bylaws, certified by its Secretary, of each Company, all as
in effect on the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of (i) MFHI
consists of 1,000 shares of Common Stock, $100.00 par value, of which 500 shares
are issued and outstanding and held by the Larrabees, (ii) CDMGI consists of
100,000 shares of
-4-
Common Stock, $1.00 par value, of which 1,000 shares are issued and outstanding
and held by the Larrabees, and (iii) LCMPI consists of 10,000 shares of Common
Stock, no par value, of which one hundred fifty (150) shares are issued and
outstanding and held by LLC. All such issued and outstanding shares are validly
issued and outstanding, fully paid and nonassessable and not issued in violation
of the preemptive rights of any person. No such shares of capital stock are held
by any Company as treasury stock. No Company has any outstanding subscriptions,
options or other agreements or commitments obligating it to issue shares of its
capital stock. There are no shareholders, buy-sell, voting or other similar
agreements or commitments affecting the voting or transferability of any such
shares. From the date hereof through the Closing Date, the Shareholders will
not, and will not cause or permit any Company to, issue or enter into any
subscriptions, options, agreements or other commitments in respect of the
issuance, transfer, sale or encumbrance of any shares of capital stock of such
Company.
3.4. NO SUBSIDIARIES. No Company has any subsidiaries or any
investment or ownership interest in any corporation, joint venture or other
business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholders have delivered to
the Purchaser the (i) unaudited Profit and Loss Statements of MFHI for the
respective twelve-month periods of operations ended June 30, 1993-95, (ii) the
unaudited balance sheet and general ledger of CDMGI at and for the period ended
November 30, 1995, and (iii) the unaudited Profit and Loss Statements of LCMPI
for the respective twelve-month periods of operations ended June 30, 1993-95.
All such financial statements are true and correct, have been prepared in
accordance with the books and records of each respective Company, and present
fairly the financial positions of each respective Company at the dates indicated
and the results of their respective operations for the periods then ended in
accordance with the federal income tax basis of accounting applied on a
consistent basis. The Homes collectively performed the number of adult funeral
services for each of the twelve-month periods indicated below:
TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------
HOME 1993 1994 1995
---- ---- ---- ----
Merchant 192 213 167
Richardson-Brown 35 32 45
Mountain View 80 89 107
Coeur d'Alene* 82 86 93
*December 31
-5-
The Coeur d'Alene Cemetery consists of approximately 19.38 acres, of which
approximately 12 acres have been developed, platted and dedicated for cemetery
use, having at least 1,738 unsold individual grave spaces and 204 unsold niches.
The Lewis Clark Cemetery consists of approximately 22.5 acres, of which
approximately 5 acres have been developed, platted and dedicated for cemetery
use, having at least 1,099 unsold individual grave spaces, 60 unsold niches, 33
unsold mausoleum crypts, 0 unsold lawn crypts and 2,318 D/D spaces. Each
Cemetery performed at least the number of interments for each of the
twelve-month periods indicated below:
TWELVE MONTHS ENDED DECEMBER 31,
------------------------------------------------
CEMETERY 1993 1994 1995
- -------- ---- ---- ----
Coeur d'Alene 106 126 129
Lewis Clark 153 187 181
3.6. REAL PROPERTY. (a) Schedule 3.6 attached hereto sets
forth a legal description of all parcels of real property on which each Home and
each Cemetery is located or used in its business (the "Real Property") and also
briefly describes each building and major structure and improvement thereon. No
person other than the Real Property Purchasers has any ownership, leasehold or
other interest of any kind in the Real Property. The Real Property collectively
constitute all of the interests in real property used in the conduct of the
business of the Homes and the Cemeteries as presently conducted. To the
knowledge of the Shareholders, all of the buildings, structures and improvements
located on the Real Property are in good operating condition, ordinary wear and
tear excepted. To the Shareholders' knowledge, none of such buildings,
structures or improvements, or the operation or maintenance thereof as now
operated or maintained, contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any provision of law, the
effect of which would interfere with or prevent their continued use for the
purposes for which they are now being used. There is not pending nor, to the
knowledge of any Shareholder, threatened any proceeding for the taking or
condemnation of the Real Property or any portion thereof.
(b) To the Shareholders' knowledge, no toxic or hazardous
wastes (as defined by the U.S. Environmental Protection Agency, or any similar
state or local agency) or
-6-
hazardous substances (as defined under the Comprehensive Environment Response,
Compensation and Liability Act of 1980, as amended, or the Resource Conservation
and Recovery Act, as amended, or any similar state or local statute or
regulation) have been generated, stored, dumped, located or released onto or
from the Real Property, nor to the knowledge of the Shareholders, have any such
materials or wastes been generated, stored, dumped, located or disposed of on
any real property contiguous or adjacent to the Real Property. To the knowledge
of the Shareholders, the Real Property is not now, and will not be in the future
as a result of its condition at or prior to Closing, subject to any reclamation,
remediation or reporting requirements of any federal, state, local or other
governmental body or agency having jurisdiction over the Real Property. To the
knowledge of the Shareholders, the Real Property does not contain any asbestos,
polychlorinated byphenyls, urea, formaldehyde, lead based paint, radon gas or
underground storage tanks, except (i) for substances used in the ordinary course
of the operation of the Homes and the Cemeteries that are properly used, stored
and disposed of in accordance with applicable legal requirements, and (ii) as
described on Schedule 3.6(b).
(c) To the Shareholders' knowledge, none of the Real Property is
located within an area that has been designated by the Federal Insurance
Administration, the Army Corp of Engineers, or any other governmental agency or
body as being subject to special flooding hazards.
(d) All bills and other payments due with respect to the ownership,
operation, and maintenance of the Real Property have been (and on the Closing
Date will be) paid, and no Liens or other claims for the same have been filed or
asserted against any part of the Real Property.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes and the
Cemeteries are owned by the Companies, other than the real property on which the
Homes and the Cemeteries are situated, which are leased to the Companies under
valid leases which are currently in effect. Except as aforesaid, none of such
assets, rights or properties is subject to any lease or license. Each Company is
in actual possession and control of all properties owned by it, and has good and
marketable title to all of its assets, rights and properties, including without
limitation, all properties and assets reflected in the financial statements
described in Section 3.5, free and clear of all Liens, except for Liens to be
discharged and released at or prior to Closing.
3.8. ABSENCE OF CHANGES OR EVENTS. Since June 30, 1995, there
has not been:
(i) any adverse change in the financial condition, operations,
business, properties or prospects of any Company or of any Home or
either Cemetery;
(ii) any change in the authorized capital or outstanding
securities of any Company;
(iii) any capital stock, bonds or other securities which any
Company has issued, sold, delivered or agreed to issue, sell or
deliver, nor has any Company granted or agreed to grant any options,
warrants or other rights calling for the issue, sale or delivery
thereof;
(iv) any borrowing or agreement by any Company to borrow any
funds, nor has any Company incurred, or become subject to, any absolute
or contingent obligation or liability, except trade payables incurred
in the ordinary course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of any Company;
(vi) any hiring, firing, reassignment or other change in any
key personnel of any Company;
(vii) any sale, transfer or other disposition of, or agreement
to sell, transfer or otherwise dispose of, any of the inventories or
other assets or properties of any Company, except in the ordinary
course of business;
(viii) any damage, destruction or losses against any Company
or any waiver any rights of material value to any Company;
(ix) any labor strike or labor dispute, or the entering into
of any collective bargaining agreement, with respect to employees of
any Company;
(x) any claim or liability for any material damages for any
actual or alleged negligence or other tort or breach of contract
against or affecting any Company;
(xi) any new competitor that has, to the Shareholders'
knowledge, built, commenced to build or
-8-
announced intentions to build a funeral home, mortuary or cemetery in
direct competition with any Home or either Cemetery; or
(xii) any other transaction or event entered into or affecting
any Company other than in the ordinary course of the business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in the financial statements described in Section 3.5, no Company has any, and
none of their respective assets or properties are subject to any, liabilities or
obligations of any kind or nature, other than unsecured trade accounts payable
and accrued expenses arising in the ordinary course of each Company's business
since the date of such financial statements.
3.10. TAX MATTERS. All federal, state, county, local and other
taxes due and payable by any Company on or before the date of this Agreement
have been paid or are adequately provided for in such Company's books and
records. Each Company has filed all tax returns and reports required to be filed
by it with all taxing authorities, other than the federal income tax return of
CDMGI for the period ended December 31, 1994 (which shall be filed on or before
April 15, 1996 and, in any event, shall be governed by section 12.1), and all
such tas returns and reports are true, complete and correct. True and correct
copies of the federal, state and local income tax returns filed by the Companies
for each of their last three taxable years have been furnished to the Purchaser.
No assessments of deficiencies have been made against any Company which are
presently pending or outstanding. No state of facts exists or has existed which
would constitute grounds for the assessment of any tax liability against any
Company with respect to any prior taxable period which has not been audited by
the Internal Revenue Service or which has not been closed by applicable statute.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any income tax return of any Company for any period.
3.11. INVENTORY. The inventories reflected in the financial
statements described in Section 3.5, and all items placed in inventory since the
date thereof, are (i) accounted for in accordance with the federal income tax
basis of accounting applied on a consistent basis, and (ii) saleable or usable
in the ordinary course of business of each Company at usual and customary
prices, subject to normal returns and markdowns consistent with past practice.
At the Closing, the Shareholders shall deliver to the Purchaser a list,
certified
-9-
by the Shareholders to be complete and correct, of all of the inventory of each
Company as of the Closing Date.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and
all other material items of equipment, fixtures, furniture and other fixed
assets owned by the Companies. To the Shareholders' knowledge, all such items
are in good and operating condition and repair, ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto sets
forth a complete description of:
(i) all loan, credit and similar agreements to which any
Company is a party or by which it is bound, and all notes or other
evidences of indebtedness of, or agreements creating any Lien on any
property of, any Company;
(ii) all employment contracts, noncompetition agreements and
other agreements relating to the employment of any employees of any
Company;
(iii) all contracts and agreements affecting any Company which
do not terminate or are not terminable by such Company upon notice of
30 days or less or which involve an obligation on its part in excess of
$1,000 per annum or $5,000 in the aggregate; and
(iv) all other contracts and commitments of the Companies
entered into outside the ordinary course of business (other than this
Agreement).
Each contract and commitment described on Schedule 3.13 is
valid and in full force and effect, and neither the Company which is a party
thereto, nor, to the knowledge of the Shareholders, any of the other parties
thereto, are in default thereunder. The Shareholders have furnished to the
Purchaser a true and correct copy of each document listed on Schedule 3.13.
3.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14
hereto accurately and completely lists, as of the date of this Agreement (i) all
preneed contracts of the Companies unfulfilled as of the date hereof, including
contracts for the sale of funeral and cemetery merchandise and services, and
(ii) all trust accounts relating to the Homes and the Cemeteries, whether for
preneed obligations or perpetual care, indicating the location of each and the
balance thereof. All preneed contracts required to be listed on Schedule 3.14
(x)
-10-
have been entered into in the normal course of business at regular retail
prices, or pursuant to a sales promotion program, solely for use by the named
customers and members of their families on terms not more favorable than shown
on the specimen contracts which have been delivered to the Purchaser, (y) are
subject to the rules and regulations of the applicable Company as now in force
(copies of which have been delivered to the Purchaser), and (z) on the date
hereof are in full force and effect, subject to no offsets, claims or waivers,
and no Company nor such customer is in default thereunder. All funds received by
the Companies under preneed contracts or for perpetual care have been deposited
in the appropriate accounts and administered and reported in accordance with the
terms thereof and as required by applicable laws and regulations. The aggregate
market value of the preneed accounts, trusts or other deposits is equal to or
greater than the aggregate preneed liability related to such accounts, except to
the extent described in section 12.5. The services heretofore provided by each
Company have been rendered in a professional and competent manner consistent
with prevailing professional standards, practices and customs.
3.15. TRADEMARKS, ETC.. No Company owns or has applied for any
patents, patent applications, patent licenses, trademarks, trademark
applications or trademark or trademark licenses (collectively, "Intangible
Rights"), except as described on Schedule 3.15. Each Company owns or possesses
valid rights or adequate licenses for all of such Intangible Rights as are
necessary to the conduct of the business of the Homes and the Cemeteries as
presently conducted. No Company is charged with infringement of any Intangible
Rights of any other person, nor does any Shareholder know of any such
infringement, whether or not claimed by any person.
3.16. INSURANCE. Each Company maintains such policies of
insurance in such amounts, and which insure against such losses and risks, as
are generally maintained for comparable businesses and properties. Valid
policies for such insurance will be outstanding and duly in force at all times
prior to the Closing.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 hereto correctly
and completely lists all licenses, franchises, permits, certificates, consents,
rights and privileges issued to or held by each Company, which are all that are
necessary or appropriate for the operation of the Homes and the Cemeteries as
presently operated. All such items are in full force and effect.
-11-
3.18. LITIGATION. As of the close of business on the day
immediately preceding the Closing Date, there shall be no claims, actions,
suits, proceedings or investigations pending or, to the knowledge of any
Shareholder, threatened against or affecting any Company or any of the assets or
properties of any Company, at law or in equity or before or by any court or
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality. No Company is subject to any continuing court or
administrative order, writ, injunction or decree, nor is any Company in default
with respect to any order, writ, injunction or decree issued by any court or
foreign, federal, state, municipal or other governmental department, commission,
board, agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. Each Company has complied and is
in compliance in all material respects with all federal, state, municipal and
other statutes, rules, ordinances, and regulations applicable to such Company,
the operation of the Homes and the Cemeteries, and such Company's assets, rights
and properties (including without limitation all environmental protection and
occupations safety and health rules, regulations and laws, and laws and
regulations applicable to preneed contracts and trust accounts, including the
so-called "FTC Funeral Rule").
3.20. EMPLOYEES. Schedule 3.20 hereto correctly and completely
lists the names and monthly or hourly rates of salary and other compensation of
all the employees and agents of each Company. Schedule 3.20 also sets forth the
date of the last salary increase for each employee listed thereon, the
outstanding balances of all loans and advances, if any, made by any Company to
any employee or agent thereof, and the number of vacation days or other time off
to which each such employee is then eligible to take. At Closing, the
Shareholders will cause each Company to pay or satisfy all vacation, holiday and
other accrued benefits to employees of the Homes and the Cemeteries which are
then outstanding. There are not pending or, to the knowledge of any Shareholder,
threatened against any Company any general labor disputes, strikes or concerted
work stoppages, and there are no discussions, negotiations, demands or proposals
that are pending or have been conducted or made with or by any labor union or
association with respect to any employees of any Company. No Shareholder is
aware of the existence of any serious health condition of any key management
personnel of any Home or either Cemetery that might impair any such person's
ability to carry on his or her normal duties into the foreseeable future after
the Closing. The Shareholders believe that the relations between each Company
and its employees are good.
-12-
3.21. EMPLOYEE BENEFIT PLANS. Schedule 3.21 describes all
plans, contracts, commitments, programs and policies (including, without
limitation, pension, profit sharing, thrift, bonus, deferred compensation,
severance, retirement, disability, medical, life, dental and accidental
insurance, vacation, sick leave, death benefit and other similar employee
benefit plans and policies) maintained by any Company providing benefits to any
employees or former employee of any Company (collectively, the "Plans"). The
Shareholders have delivered to the Purchaser true and correct copies of all
documents embodying the Plans, and all determination letters from the Internal
Revenue Service regarding Plans required to be qualified under the Code. All
obligations of the Companies under the Plans have been fully paid and fully
funded. All necessary governmental approvals have been obtained for all Plans
subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and
have been qualified under Section 401 of the Code, and each trust established
for any Plan is exempt from federal income taxation under Section 501(a) of the
Code. With respect to any such Plan or any other "employee welfare plan" (as
defined in ERISA) maintained by the Companies, there has been no (i) "reportable
event" as defined in Section 4043 of ERISA, or (ii) event described in Section
4062(e) or 4036(a) of ERISA.
3.22. AFFILIATED PARTY TRANSACTIONS. Each Company, the Homes
and the Cemeteries have been operated and are being operated in a manner
separate from the personal and other business activities of the Shareholders and
their affiliates, and no Company nor any of their respective assets are subject
to any affiliated party commitments or transactions.
3.23. BOOKS AND RECORDS. All books and records of the
Companies are true, correct and complete each have been maintained by them in
accordance with good business practice and in accordance with all laws,
regulations and other requirements applicable to each Company. The corporate
records of each Company reflect a true record of all meetings and proceedings of
the Board of Directors and the shareholders of such Company.
3.24. FINDERS. Except as described in Section 13.1, no Company
nor any Shareholder is a party to or in any way obligated under any contract or
other agreement, and there are no outstanding claims against any of them, for
the payment of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.25. AUTHORITY OF THE SHAREHOLDERS. Each Shareholder has the
full right, capacity and authority to enter
-13-
into and perform this Agreement and the other documents to be executed by such
Shareholder as provided in this Agreement, and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by LLC
of this Agreement have been duly authorized by its Board of Directors. This
Agreement constitutes, and upon execution and delivery by each Shareholder, each
of such other documents will constitute, the legal, valid and binding
obligations of the Shareholders enforceable against them in accordance with
their respective terms. Neither the execution, delivery nor performance of this
Agreement or any of such other documents, nor the consummation of the
transactions contemplated hereby or thereby, will: (i) result in a violation or
breach of any term or provision of, constitute a default or acceleration under,
require notice to or consent of any third party to, or result in the creation of
any Lien by virtue of (x) the Articles of Incorporation or Bylaws of any Company
or LLC, or (y) any contract, agreement, lease, license or other commitment to
which any Company or any Shareholder is a party or by which such Company or such
Shareholder or his, her or its respective assets or properties are bound; nor
(ii) violate any statute or any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.26. AUTHORITY OF THE COMPANIES. The execution, delivery and
performance by the Companies of this Agreement have been duly authorized by
their respective Boards of Directors. This Agreement is legally binding and
enforceable against each Company in accordance with its terms. Neither the
execution, delivery nor performance by the Companies of this Agreement will
result in a violation or breach of, nor constitute a default or accelerate the
performance required under, the respective Articles of Incorporation or Bylaws
of any Company or any indenture, mortgage, deed of trust or other contract or
agreement to which any Company is a party or by which it or its properties are
bound, or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.27. ACQUISITION OF SERIES D SHARES. The Series D Shares (as
defined in the Plan of Merger) to be acquired by the Larrabees pursuant to the
Merger will be acquired by them for investment purposes only and not with the
present intention or view to, or resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933, as amended. The
Larrabees understand that such Series D Shares will not be registered under such
Securities Act or any state securities or blue sky laws, that transferability of
such Series D Shares will be restricted in accordance with applicable state and
federal securities laws, and that a
-15-
restrictive legend to such effect will be inscribed on each certificate
representing such Series D Shares. Prior to the Closing, the Larrabees will have
had full opportunity to receive such information and ask such questions of
representatives of the Purchaser concerning the Purchaser, its subsidiaries and
their business, operations, assets and prospects, and concerning an investment
in the Series D Shares, as they will then have deemed appropriate in order to
make an informed investment decision with respect to the Series D Shares.
3.28. FULL DISCLOSURE. The Shareholders are not aware, and
after the exercise of reasonable diligence should not be aware, that the
representations and warranties made by the Shareholders hereunder or in any
Schedules or certificates furnished to the Purchaser pursuant hereto or thereto,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein necessary to make the representations or
warranties herein or therein, in light of the circumstances in which they are
made, not misleading.
3.29. SCHEDULES. The Schedules referred to in this Section 3
have been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been signed for
identification by the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
ACQUISITION Subsidiary. The Purchaser and the Acquisition Subsidiary jointly and
severally represent and warrant to and agree with the Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Idaho, and has all requisite corporate power to enter into
and perform its obligations under this Agreement and the other documents to
which it is a party. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite corporate power to enter into and perform its obligations under
this Agreement and the other documents to which it is a party, including the
issuance and delivery of the Series D Shares to the Larrabees as provided in the
Plan of Merger. The Purchaser has delivered to the Shareholders complete and
correct copies of the Certificate of Incorporation and Bylaws of the Purchaser
and the Articles of Incorporation and Bylaws of the Acquisition Subsidiary, both
as in effect on the date hereof.
-15-
4.2. AUTHORITY. The execution, delivery and performance by the
Purchaser and the Acquisition Subsidiary of this Agreement and the documents
contemplated in this Agreement to be executed and delivered by them have been
duly authorized by their respective Boards of Directors. This Agreement is, and
upon their execution and delivery as herein provided such other documents will
be, valid and binding upon the Purchaser and the Acquisition Subsidiary and
enforceable against each of them in accordance with their respective terms.
Neither the execution, delivery or performance by the Purchaser or the
Acquisition Subsidiary of this Agreement or any such other document will
conflict with or result in a violation or breach of any term or provision of,
nor constitute a default under, the Certificate of Incorporation or Bylaws of
the Purchaser or the Articles of Incorporation or Bylaws of the Acquisition
Subsidiary, or under any indenture, mortgage, deed of trust or other contract or
agreement to which the Purchaser or the Acquisition Subsidiary is a party or by
which they or their respective properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or governmental body.
4.3. FINDERS. Neither the Purchaser nor the Acquisition
Subsidiary is a party to or in any way obligated under any contract or other
agreement, and there are no outstanding claims against either of them, for the
payment of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
5. COVENANTS OF THE COMPANIES AND THE SHAREHOLDERS PENDING
CLOSING. The Companies and the Shareholders covenant and agree with the
Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the business of each Company will be operated only in the
ordinary course, and, in particular, without the prior written consent of the
Purchaser, no Company will, and the Shareholders will not cause or allow any
Company to:
(i) cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its Articles of Incorporation
or Bylaws;
(iii) take any action described in Section 3.8;
(iv) enter into any contract, agreement or other commitment of
the type described in Section 3.13;
-17-
(v) hire, fire, reassign or make any other change in key
personnel of any Company, or increase the rate of compensation of or
declare or pay any bonuses to any employee in excess of that listed on
Schedule 3.20; or
(vi) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to be true
and correct in all material respects on and as of the Closing Date with
the same force and effect as if the same had been made on and as of the
Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, each Company
will give to the Purchaser and its counsel, accountants and other
representatives, full and free access to all of the properties, books,
contracts, commitments and records of such Company so that the Purchaser may
have full opportunity to make such investigation as it shall desire to make of
the affairs of the Companies, the Homes and the Cemeteries.
5.3. CONSENTS AND APPROVALS. The Companies and the
Shareholders will use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be obtained on their part to
consummate the transactions contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
no Company nor any Shareholder shall enter into any agreements or commitments,
or initiate, solicit or encourage any offers, proposals or expressions of
interest, or otherwise hold any discussions with any potential buyers,
investment bankers or finders, with respect to the possible sale or other
disposition of all or any substantial portion of the assets and business of any
Company or any other sale of any Company (whether by merger, consolidation, sale
or stock or otherwise), other than with the Purchaser and the Acquisition
Subsidiary as contemplated in this Agreement.
5.5. COMPANY LIABILITIES. At or prior to the Closing, the
Shareholders shall cause to be paid and discharged in full all liabilities and
obligations of the Companies, including (but not limited to) indebtedness for
borrowed money, indebtedness secured by Liens against any assets or properties
of any Company, accounts and trade payable, accrued liabilities, federal, state
and local taxes, any liabilities under suits, claims, judgments or orders then
pending or any other liability or obligation of any Company attributable to the
operation of the its business prior to Closing (collectively, "Unassumed
-17-
Liabilities"), excluding obligations under preneed contracts for which the full
amount has been deposited in trust as required under applicable law (and
unfunded preneed liabilities as described in Section 12.5). Any Unassumed
Liabilities remaining unpaid after the Closing shall be subject to
indemnification under Section 10.1.
6. COVENANTS OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY
PENDING CLOSING. The Purchaser and the Acquisition Subsidiary jointly and
severally covenant with the Shareholders that:
6.1. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary will use their best efforts to obtain the necessary consents and
approvals of other persons which may be required to be obtained on their part to
consummate the transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information obtained
with respect to the Companies from any representative, officer, director or
employee of the Companies, including their accountants or legal counsel, or from
any books or records of any of them, in connection with the transactions
contemplated by this Agreement, except that the Purchaser may disclose such
information to its outside attorneys and accountants and to its lender, provided
that the Purchaser shall remain responsible to the Companies for any
unauthorized disclosure thereof by such attorneys, accountants or lender. If the
transactions contemplated hereby are not consummated, neither the Purchaser nor
its representatives shall disclose such data or information to others, except as
such data or information is published or is a matter of public knowledge or is
required by an applicable law or regulation to be disclosed. If this Agreement
is terminated for any reason, the Purchaser shall return to the Companies all
written data and information obtained by the Purchaser from the Companies or its
representatives in connection with the transactions contemplated by this
Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The obligations of the Purchaser and the Acquisition
Subsidiary under this Agreement shall be subject to the following conditions,
any of which may be expressly waived by the Purchaser in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any error, misstatement or omission in
the representations and warranties made by the Shareholders in Section 3 hereof;
the representations
-18-
and warranties made by the Shareholders herein shall be deemed to have been made
again at and as of the time of Closing and shall then be true and correct; the
Companies and the Shareholders shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the Purchaser shall have received a
certificate, signed by the Shareholders and an executive officer of each
Company, to the effect of the foregoing provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Shareholders shall have caused to
be delivered to the Purchaser an opinion of Jack Curtin, counsel for the
Companies and the Shareholders, dated the Closing Date, to the effect that:
(i) Each Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of its
incorporation (as specified in such opinion), with full corporate
authority to enter into and perform its obligations under this
Agreement and the Plan of Merger;
(ii) All of the issued and outstanding shares of capital stock
of each Company are fully paid and nonassessable;
(iii) to the knowledge of such counsel, after due inquiry,
there are no outstanding subscriptions, options or other agreements or
commitments obligating any Company to issue any shares of its capital
stock or securities convertible into shares of its capital stock;
(iv) the Shareholders are the record and beneficial owners of
all of the issued and outstanding shares of capital stock of each
Company, free and clear of any and all Liens, and the Shareholders have
full capacity to enter into and perform their obligations in accordance
with this Agreement;
(v) the execution, delivery and performance by each Company of
this Agreement has been duly authorized and approved by all necessary
corporate action required on the part of such Company;
(vi) this Agreement and the Plan of Merger have been duly and
validly executed and delivered by each Company; and this Agreement and
the Plan of Merger constitute the valid and binding obligation of each
Company enforceable against them in accordance with its terms;
-19-
(vii) this Agreement and the other documents to be executed
and delivered hereunder by the shareholders (as shall be specified in
such opinion) have been duly and validly executed and delivered by the
Shareholders, and this Agreement and such other documents constitute
the valid and binding obligations of the Shareholders enforceable
against them in accordance with their respective terms;
(viii) neither the execution, delivery or consummation of the
transactions contemplated by this Agreement, the Plan of Merger or any
of such other documents will (x) result in the breach of or constitute
a default under the Articles of Incorporation or Bylaws of any Company
or LLC, or any loan or credit agreement, indenture, mortgage, deed of
trust or other contract or agreement known to such counsel and to which
either any Company or any Shareholder is a party or by which they or
their respective assets are bound, or (y) violate any order, writ,
injunction or decree known to such counsel of any court, administrative
agency or governmental body;
(ix) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body, federal,
state or local, is ncessary or required in connection with the
execution and delivery by the Companies and the Shareholders of this
Agreement, the Plan of Merger or any of such other documents; and
(x) to the knowledge of such counsel after due inquiry, there
are no claims, actions, suits, proceedings or investigations pending or
threatened against or affecting any Company or any of its assets, at
law or in equity or before or by any court or federal, state, municipal
or other governmental department, commission, board, agency or
instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon certificates
of the Shareholders and officers of LCMPI and certificates of public officials,
copies of which shall be provided to the Purchaser at Closing. Any opinion as to
the enforceability of any document may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal law and the
internal laws of the State of Idaho.
7.3. CONSENTS AND APPROVALS. The Companies and the
Shareholders shall have obtained all consents and approvals of
-20-
other persons and governmental authorities to the transactions contemplated by
this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to the physical assets and properties of the
Companies or the real property or improvements on which the Homes and the
Cemeteries are situated (regardless of whether such loss or damage was insured),
the effect of which would have a material adverse effect on the condition,
business, operations or prospects of the Companies, any Home or either Cemetery.
7.5. APPROVAL BY COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal matters shall
be subject to the approval of counsel for the Purchaser and the Acquisition
Subsidiary, and such counsel shall have been furnished with such certified
copies of actions and proceedings and other instruments and documents as they
shall have requested.
7.6. PRE-ACQUISITION REVIEW. The Purchaser and its
representatives shall have completed a pre-acquisition review of the financial
information, books and records, and properties and assets of the Companies, the
Homes and the Cemeteries, and shall have discovered no change in the business,
assets, operations, financial condition or prospects of any Company, any Home or
any Cemetery which could, in the sole determination of the Purchaser, have a
material adverse effect on the value to the purchaser of the business, assets,
financial condition or prospects of the Companies, the Homes or the Cemeteries.
7.7. RELATED TRANSACTIONS. All conditions precedent to the
Acquisition Subsidiary's obligations to closing under the Real Property Purchase
Agreement shall have been satisfied or waived by it, and such closing shall have
occurred substantially simultaneously with the Closing under this Agreement;
Lisa shall have executed and delivered to the Acquisition Subsidiary the
Non-Competition Agreement and her Employment Agreement; and Robert shall have
executed and delivered to the Acquisition Subsidiary his Employment Agreement
and a plan adoption agreement as provided for under the Program.
7.8. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall
have been conducted, at the Purchaser's expense, (i) a Phase I (and, if deemed
necessary by Purchaser, a Phase II) environmental audit of the Homes and the
Cemeteries, including the real property on which they are situated, by an
environmental consulting firm selected by Purchaser, (ii) a health
-21-
and safety inspection of the Homes and the Cemeteries by a person (who may be an
employee of the Purchaser) or firm selected by the Purchaser and who is
qualified and experienced in such matters in the funeral service and cemetery
industries, and (iii) a structural inspection of the Homes and all structures
located at the Cemeteries by an engineering firm selected by the Purchaser. The
Shareholders agree to take the action (and pay any costs in connection
therewith) as may be reasonably recommended by such firms and/or persons, up to
$15,000 in the aggregate. In any event, it shall be a condition to the
Purchaser's obligations hereunder that the results of the reports of such firms
or persons (together with any remedial action, if any, taken by Shareholders,
regardless of the cost, in response thereto) shall be satisfactory to Purchaser
in its sole discretion.
7.9. TITLE INSURANCE. The Acquisition Subsidiary shall have
received, at the Shareholders' expense, one or more Owners Policies of Title
Insurance (with respect to the Real Property) to be issued to the Surviving
Corporation in agreed-upon amounts, by one or more title companies with offices
mutually designated by the parties (collectively, the "Title Company"), insuring
the Surviving Corporation's fee interests in each parcel of Real Property
subject only to any standard printed exceptions included in a Washington or
Idaho (as applicable) standard form Policy of Title Insurance. Such policies
shall have deleted any exception regarding restrictions, any standard exception
pertaining to discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", and any standard exception for taxes shall be
limited to the year in which the Closing occurs.
7.10. SURVEY. The Acquisition Subsidiary shall have received,
at its own expense, an ALTA/ASCM survey prepared by a licensed surveyor approved
by the Purchaser and acceptable to the Title Company, with respect to each
parcel of Real Property, which survey shall comply with any applicable standards
under Washington or Idaho (as applicable) law, be sufficient for the Title
Company to delete any survey exception contained in the title insurance policy
referred to in Section 7.9, save and except for the phrase "shortages in area",
and otherwise be in form and content acceptable to Purchaser.
7.11. FINANCING COMMITMENT. The Purchaser shall have received
from Provident Services, Inc. ("Provident") or another financial institution
acceptable to it a written commitment, containing such terms and conditions and
otherwise in form and substance acceptable to the Purchaser, providing for the
extension of financing in order to provide the portion of the Merger
Consideration (as defined in the Plan of Merger)
-22-
not furnished by the Purchaser or obtained by the Purchaser from other sources,
and such commitment shall have been funded in such amount contemporaneously with
the Closing.
7.12. LIEN RELEASES. The holders of the Liens against any
assets of any Company shall have executed and delivered written releases of such
Liens, all in recordable form and otherwise acceptable to the Purchaser and
Provident. If there will remain after the Closing any Liens securing borrowed
money indebtedness against any of the Leased Real Property, then the holders of
such Liens, the Acquisition Subsidiary and Provident shall have entered into a
subordination, non-disturbance and attornment agreement in form and substance
acceptable to them.
7.13. OTHER MANAGEMENT ARRANGEMENTS. The Shareholders shall
have identified to the Purchaser such other personnel of the Homes and the
Cemeteries (in addition to Robert and Lisa) as may be key to the continued
effective management and operation of the Homes and the Cemeteries after the
Closing, and the Purchaser shall have entered into mutually satisfactory
arrangements regarding the continued employment of such personnel at the Homes
and the Cemeteries following the Closing.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND THE
SHAREHOLDERS. The obligations of the Companies and the Shareholders under this
Agreement shall be subject to the following conditions, any of which may be
expressly waived by the Shareholders in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Shareholders shall not have discovered any material error, misstatement or
omission in the representations and warranties made by the Purchaser and the
Acquisition Subsidiary in Section 4 hereof; the representations and warranties
made by the Purchaser and the Acquisition Subsidiary herein shall be deemed to
have been made again at and as of the time of Closing and shall then be true and
correct; the Purchaser and the Acquisition Subsidiary shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
Shareholders shall have received a certificate, signed by an executive officer
of each of the Purchaser and the Acquisition Subsidiary, to the effect of the
foregoing provisions of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Shareholders an opinion of Snell &
-23-
Smith, A Professional Corporation, counsel for the Purchaser and the Acquisition
Subsidiary, to the effect that:
(i) the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power to enter into and perform its
obligations under this Agreement and the other documents contemplated
herein to be executed and delivered by the Purchaser (as shall be
specified in such opinion); and the Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Idaho, and has all requisite corporate power
to enter into and perform its obligations under this Agreement and the
other documents contemplated herein to be executed and delivered by the
Acquisition Subsidiary (as shall be specified in such opinion);
(ii) the execution, delivery and performance by the Purchaser
and the Acquisition Subsidiary of this Agreement and such other
documents have been duly authorized and approved by all necessary
corporate action required on their part;
(iii) this Agreement is, and upon execution and delivery as
herein provided such other documents will be, valid and binding upon
the Purchaser and the Acquisition Subsidiary, enforceable against the
Purchaser and the Acquisition Subsidiary in accordance with their
respective terms;
(iv) neither the execution, delivery or performance by the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default under, the
Certificate of Incorporation or Bylaws of the Purchaser, the Articles
of Incorporation or Bylaws of the Acquisition Subsidiary or under any
loan or credit agreement, indenture, mortgage, deed of trust or other
contract or agreement known to such counsel and to which the Purchaser
or the Acquisition Subsidiary is a party or by which they or their
respective properties are bound, or violate any order, writ, injunction
or decree known to such counsel and of any court, administrative agency
or governmental body; and 8.1.14.1. no authorization, approval or
consent of or declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary
-24-
or required in connection with the execution and delivery By the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents, or the performance of its obligations hereunder
or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon certificates
of officers of the Purchaser and the Acquisition Subsidiary, and on certificates
of public officials, copies of which shall be provided to the f Shareholders at
Closing. Any opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors rights and by principles of equity. Such opinion may be
limited to federal law, the General Corporation Law of the State of Delaware and
the internal laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary shall have obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. All conditions precedent to the
obligations of the Real Property Sellers to closing under the Real Property
Purchase Agreement shall have been satisfied or waived by them, and such closing
shall have occurred substantially simultaneously with the Closing under this
Agreement; the Acquisition Subsidiary shall have executed and delivered the
Non-Competition Agreement and Lisa's Employment Agreement to Lisa, and shall
have executed and delivered to Robert his Employment Agreement; and the
Acquisition Subsidiary shall have established the Program and executed and
delivered to Robert his plan adoption agreement thereunder.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed representations and
warranties of the party executing or delivering the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party hereto, all
covenants, agreements, representations and warranties made hereunder or pursuant
hereto or any Schedule or Exhibit hereto or in connection with the transactions
contemplated hereby and thereby shall not terminate but shall survive the
Closing and continue in effect thereafter.
-25-
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders
jointly and severally agree to indemnify and hold harmless the Purchaser and
(following the Effective Time of the Merger) the Surviving Corporation, and
their respective successors and assigns, from and against any and all losses,
damages, liabilities, obligations, costs or expenses (any one such item being
herein called a "Loss" and all such items being herein collectively called
"Losses") which are caused by or arise out of (i) any breach or default in the
performance by any Company or any Shareholder of any covenant or agreement of
the Companies or the Shareholders contained in this Agreement, (ii) any breach
of warranty or representation made by any Shareholder herein, in any Schedule
delivered to the Purchaser pursuant hereto or in any certificate or other
instrument delivered by or on behalf of any Company or any Shareholder pursuant
hereto, (iii) any Unassumed Liability (as defined in Section 5.5) of any Company
of any kind or nature, whether absolute or contingent, known or unknown, to the
extent not paid or discharged prior to the Effective Time of the Merger, and
(iv) any and all actions, suits, proceedings, claims, demands, judgments, costs
and expenses (including reasonable legal fees) incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser and the
Acquisition Subsidiary jointly and severally agree to indemnify and hold
harmless the Shareholders and their heirs and assigns from and against any
Losses which are caused by or arise out of (i) any breach or default in the
performance by the Purchaser or the Acquisition Subsidiary of any covenant or
agreement of the Purchaser or the Acquisition Subsidiary contained in this
Agreement, (ii) any breach of warranty or representation made by the Purchaser
or the Acquisition Subsidiary herein or in any certificate or other instrument
delivered by or on behalf of the Purchaser or the Acquisition Subsidiary
pursuant hereto, and (iii) any and all actions, suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal fees)
incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified party")
that, if successful, might result in a claim for indemnification against another
party hereunder ("indemnifying party"), the indemnifying party shall be given
prompt written notice thereof and shall have the right (i) to participate in the
defense thereof and be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the indemnifying
-26-
party is, or will be, required to pay any amounts in connection therewith, which
approval shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, if within ten business days after delivery of the indemnified party's
notice described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall be fully
indemnified for by the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense of such claim,
provided that the indemnified party shall have the right (i) to participate in
the defense thereof and be represented, at its own expenses, by advisory counsel
selected by it, and (ii) to approve any settlement if the indemnified party's
interests are, or would be, affected thereby.
10.4. CERTAIN LIMITATIONS. The Purchaser agrees that (i) any
claim under Section 10.1(ii), insofar as the same relates to the representations
and warranties of the Shareholders under Section 3 (other than Sections 3.1
through 3.4, 3.7 and 3.24 through 3.27 and 3.29) must be asserted, if at all, on
or before the second anniversary of the Closing Date, and (ii) the Purchaser
shall not be entitled to indemnification under Section 10.1(i) and (ii) (or
clause (iv), insofar as the same relates to clauses (i) and (ii)), until such
time as the aggregate amount of all such claims of the Purchaser equal or exceed
$5,000.00, but when such threshold has been so met, the Purchaser shall be
entitled to the entirety of its claim(s), including the first $5,000.00.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Companies and
the Shareholders agree to use their best efforts to bring about the satisfaction
of the conditions specified in Section 7 hereof; and the Purchaser and the
Acquisition Subsidiary agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Shareholders and the
Purchaser;
(b) the Purchaser if a material default shall be made by any
Company or any Shareholder in the observance or in the due and timely
performance by any of their covenants herein contained, or if there
shall have been a material breach or misrepresentation by any Company
or any Shareholder of any of their warranties and representations
-27-
herein contained, or if the conditions of this Agreement to be complied
with or performed by any Company or any Shareholder at or before the
Closing shall not have been complied with or performed at the time
required for such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the Purchaser in
writing;
(c) the Shareholders if a material default shall be made by
the Purchaser or the Acquisition Subsidiary in the observance or in the
due and timely performance by the Purchaser or the Acquisition
Subsidiary of any of their covenants herein contained, or if there
shall have been a material breach or misrepresentation by the Purchaser
or the Acquisition Subsidiary of any of their warranties and
representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Purchaser and the
Acquisition Subsidiary at or before the Closing shall not have been
complied with or performed at the time required for such compliance or
performance and such noncompliance or nonperformance shall not have
been expressly waived by the Shareholders in writing; or
(d) either the Shareholders or the Purchaser, if the Closing
has not occurred by March 31, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party shall have
any liability to any other parties hereunder. If this Agreement is terminated
under paragraph (b) or (c) of Section 11.2, then (i) the party so terminating
this Agreement shall not have any liability to any other party hereto, provided
the terminating party has not breached any representation or warranty or failed
to comply with any of its covenants in this Agreement, and (ii) such termination
shall not prejudice the rights and remedies of the terminating party against any
other party which has breached any of its representations, warranties or
covenants herein prior to such termination.
12. POST-CLOSING COVENANTS.
12.1. POST-CLOSING TAX MATTERS. The Shareholders shall be
fully responsible for all taxes of each Company accrued through the Closing and
for completing, filing and handling all tax returns and reports in respect in of
all periods through Closing, including responding to any inquiries, examinations
or audits regarding such taxes, returns and reports. In particular, the
Purchaser will arrange through its outside
-28-
accounting firm for the preparation of short-period federal income tax return
for each Company's current year through the Closing Date (after which time the
Surviving Corporation will be included as part of the consolidated group of
which the Purchaser is the parent corporation), based upon information furnished
by the Shareholders (and for which the Shareholders shall be solely
responsible), and the Shareholders shall pay or reimburse the Purchaser for all
federal income taxes in respect thereof and the reasonable cost of tax
preparation by such outside accounting firm.
12.2. RESTRICTIVE COVENANTS OF THE SHAREHOLDERS.
(a) NON-COMPETITION. If the Closing occurs, then for a period
commencing on the Closing Date and ending ten (10) years thereafter, no
Shareholder shall directly or indirectly:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partnership, association or
agent or agency, anywhere within a fifty (50) mile radius of
any Home or either Cemetery (the "Territory"), in the funeral,
mortuary, crematory, cemetery, monument, or any related line
of business (collectively, the "Business");
(ii)own or hold any beneficial interest in one
percent (1%) or more of the voting securities in any
corporation, partnership or other business entity which
conducts its operations, in whole or in part, in the Business
within the Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corporation,
partnership or other business entity that conducts its
business, in whole or in part, in the Business within the
Territory; or
(iv) cause or induce any present or future employee
of the Purchaser or any of its affiliates within the Territory
to leave the employ of the Purchaser or any such affiliate to
accept employment with such Shareholder or with any person,
firm, association or corporation with which such Shareholder
may be or become affiliated, if such employment is within the
Business.
Without limiting the generality of the foregoing, a
Shareholder shall be deemed directly or indirectly engaged in the
Business if he or she acts as a funeral director at any funeral
establishment within the Territory, if a Shareholder engages in the
sale or marketing of preneed funeral contracts for services to be
performed within the Territory, or if a Shareholder promotes or
finances any family member or affiliate to operate a Business or engage
in any of the foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be
held invalid or unenforceable because of the scope of the
territory or actions subject thereto or restricted thereby, or
the period of time within which such covenants are operative;
but any judgment of a court of competent jurisdiction may
define the maximum territory and actions subject to and
restricted thereby and the period of time during which such
covenants are enforceable.
(c) REMEDIES. Each Shareholder agrees that any remedy
at law for any actual or threatened breach of any of the
foregoing covenants would be inadequate and that the Purchaser
shall be entitled to specific performance hereof or injunctive
relief or both, by temporary or permanent injunction or such
other appropriate judicial remedy, writ or order as may be
entered into by a court of competent jurisdiction in addition
to any damages that the Purchaser may be legally entitled to
recover together with reasonable expenses of litigation,
including attorneys' fees incurred in connection therewith, as
may be approved by such court.
(d) REPRESENTATIONS. Each Shareholder represents and
warrants to and agrees with the Purchaser that (i) such
Shareholder understands that the foregoing restrictions are
being made incident to and as a condition of the Merger, and
that such covenants are necessary in order to protect the
business and goodwill being acquired thereby, (ii) such
covenants are not oppressive to any Shareholder in any
respect, and (iii) the consideration for such restrictions is
included in the Merger Consideration, which consideration each
Shareholder acknowledges is fair and adequate for the giving
of the covenants herein and for which such Shareholder
acknowledges a direct and valuable benefit.
(e) MERGER CONSIDERATION ALLOCATION. The parties
agree to allocate $50,000 of the Merger Consideration to the
foregoing covenants for federal income tax purposes,
-30-
pursuant to Section 1060(a) of the Code. Such allocation is
not intended to be a measure of the amount or range of damages
which the Purchaser may suffer or recover as a result of any
breach of the foregoing covenants, and the Shareholders
acknowledge that in case of any such breach, the Purchaser
shall be entitled to seek in excess of such amount as it may
otherwise be able to demonstrate itself justly entitled to.
12.3. BOARD POSITION. At such time as the Purchaser becomes a
"reporting company" within the meaning of the Securities Exchange Act of 1934,
as amended, and has a class of its equity securities traded on a national
securities exchange or over-the-counter and reported on NASDAQ, then the
Purchaser shall use its commercially reasonable efforts to cause Robert to be
elected to the Purchaser's Board of Directors, subject to further action of the
Purchaser's shareholders and applicable legal requirements and restrictions.
12.4. PROFIT SHARING PLAN. As described on Schedule 3.21, MFHI
has maintained the Merchant Funeral Home, Inc. Profit Sharing Plan (the "Profit
Sharing Plan") for the benefit of its employees. The Shareholders, following the
Closing, shall take all necessary steps to terminate the Profit Sharing Plan
under ERISA and the Code. The Shareholders, jointly and severally, shall be
responsible for and shall indemnify the Purchaser and the Surviving Corporation
for, (i) all legal, actuarial, trustee and other filing fees, costs and expenses
and administrative costs in connection with the termination of the Profit
Sharing Plan and the distribution of its assets to plan beneficiaries, (ii) any
liability or other amounts owed to Profit Sharing Plan beneficiaries in excess
of the assets in the Profit Sharing Plan available therefor, and (iii) all
fines, penalties and other assessments of the Internal Revenue Service of the
Pension Benefit Guaranty Corporation for any failure of the Pension Plan to have
fully complied (and after the Closing Date to continue to comply) with all
applicable laws, rules and regulations.
12.5. CDMGI/LCMPI PRENEED ACCOUNTS. The Purchaser acknowledges
that no funds have been set aside, deposited or held in trust with respect to
the cemetery preneed accounts of (i) the Coeur d'Alene Cemetery that were
entered into prior to December 31, 1985 and (ii) the Lewis Clark Cemetery that
were entered into on or before December 31, 1985. Obligations of the Companies
under such preneed accounts of the Coeur dAlene Cemetery in an amount
(calculated as hereinafter specified) not to exceed $100,000, and under preneed
accounts of Lewis Clark Cemetery in an amount which, as of the Closing Date, is
-31-
determined in accordance with the Purchaser's generally recognized industry
accounting practices, to represent an aggregate liability of no more than
$500,000, shall not constitute "Unassumed Liabilities" under section 5.5 but
rather shall remain liabilities of the Surviving Corporation. The foregoing
shall not apply to, and the Shareholders shall indemnify the Purchaser and the
Surviving Corporation in respect of, unfunded preneed liabilities of Coeur
d'Alene Cemetery which is determined above, exceeds $100,000 and of Lewis Clark
Cemetery which, as determined above, exceeds $500,000, provided that the
Purchaser asserts any claim under this section 12.5 on or before the second
anniversary of the Closing Date.
12.6 LLC'S ACQUISITION OF SERIES D SHARES. Pursuant to the
Plan of Merger, LLC will be acquiring Series D Shares as calculated thereunder.
The terms applicable to the Series D Shares provide, among other things, for
certain restrictions on transferability thereof, including a right of first
refusal. The Larrabees agree not to sell or otherwise dispose of their interests
in LLC (while it holds Series D Shares) in such a way that the ultimate
beneficial owner would not be a permitted holder as if the Series D Shares by
were transferred directly to each person. A transfer of Series D Shares by LLC
to the Larrabees shall be specifically permitted.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the negotiation,
preparation and carrying out of this Agreement and the consummation of the
transactions contemplated herein. If the transactions contemplated by this
Agreement and the Exhibits hereto are consummated, no Company shall have no
obligation for, nor shall any Company be charged with, any such expenses of the
Shareholders. All finder's or similar fees and expenses of Thomas, Pierce &
Company shall be borne exclusively by the Shareholders. All sales, transfer,
stamp or other similar taxes, if any, which may be assessed or charged in
connection with the transactions hereunder shall be borne by the Shareholders.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
given when personally delivered or three business days following the date,
mailed, first class, registered or certified mail, postage prepaid, as follows:
-32-
(i) if to any Company or any Shareholder, to:
Mr. Robert D. Larrabee
1000 7th Street
Clarkston, Washington 99403
with a copy to:
Mr. Jack Curtin
P.O. Box 677
Lewiston, Idaho 83501
(ii)if to the Purchaser or the Acquisition Subsidiary, to:
Carriage Funeral Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana
Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to the other
parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties; provided,
however, that following the Closing the Purchaser or the Surviving Corporation
may assign its rights hereunder without the consent of the Shareholders to a
successor-in-interest to the Purchaser or the Surviving Corporation, as the case
may be (whether by merger, sale of assets or otherwise).
13.4. SUCCESSORS BOUND. Subject to the provisions of Section
13.3, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and personal
representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
-33-
13.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by all of the parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein, constitute the
entire agreement of the parties hereto, and supersede all prior understandings
with respect to the subject matter hereof and thereof (including, without
limitation, the letter of intent dated January 31, 1996).
13.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the State of
Idaho.
13.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL SERVICES, INC.
By: MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE ACQUISITION SUBSIDIARY:
CARRIAGE FUNERAL SERVICES
OF IDAHO, INC.
By: MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE COMPANIES:
MERCHANT FUNERAL HOME, INC.
By: ROBERT D. LARRABEE
ROBERT D. LARRABEE, President
COEUR D'ALENE, MEMORIAL GARDENS, INC.
By: ROBERT D. LARRABEE
ROBERT D. LARRABEE, President
(Signatures Continued on Next Page)
LEWIS CLARK MEMORIAL PARK, INC.
By:ROBERT D. LARRABEE
ROBERT D. LARRABEE, President
THE SHAREHOLDERS:
ROBERT D. LARRABEE
ROBERT D. LARRABEE
I. RENEE LARRABEE
I. RENEE LARRABEE
LARRABEE LAND COMPANY, INC.
By: ROBERT D. LARRABEE
ROBERT D. LARRABEE, President
EXHIBIT 10.19
REAL PROPERTY PURCHASE AGREEMENT
THIS AGREEMENT, dated as of March 22, 1996, among CARRIAGE FUNERAL
SERVICES OF IDAHO, INC., an Idaho corporation (the "Purchaser"), LARRABEE
INVESTMENTS, L.L.C., an Idaho limited liability company ("Larrabee
Investments"), LARRABEE LAND COMPANY, INC., an Idaho corporation ("LLC"), and
ROBERT D. LARRABEE and I. RENEE LARRABEE, residents of Asotin County, Washington
(together, the "Larrabees") (Larrabee Investments, LLC and the Larrabees being
collectively called the "Sellers");
W I T N E S S E T H:
WHEREAS, the Sellers individually or collectively own fee simple
title to all of the parcels of real property and improve ments located in Asotin
and Garfield Counties, Washington and Nez Perce and Kootenai Counties, Idaho,
all as more particularly described on Exhibit A hereto (collectively, the "Real
Property"); and also own title to the motor vehicles and equipment listed in
Exhibit C hereto (the "Equipment"); and
WHEREAS, the parties desire that the Purchaser purchase the Real
Property and Equipment from the Sellers, all upon the terms and conditions and
for the consideration herein set forth;
NOW, THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF THE REAL PROPERTY AND EQUIPMENT.
1.1. TRANSFER OF THE REAL PROPERTY AND EQUIPMENT. The Sellers
jointly and severally agree to sell fee simple title to the respective
Real Property owned by them and good and marketable title to the Equipment
to the Purchaser, free and clear of all liens, mortgages, security
interests, title restrictions, reservations, easements, encumbrances or
claims of any other person (collectively, "Liens"), other than (in the
case of Real Property) Liens described on Exhibit B (collectively,
"Permitted Encumbrances"), and the Purchaser agrees to purchase and accept
the Real Property from the Sellers.
1.2. CONSIDERATION. The aggegate consideration for the Real Property
and the Equipment shall be $3,746,000 (the "Purchase Price"). Of the
Purchase Price, (i) the sum of $600,000 (the "Deferred Purchase Price")
shall be payable over a period of ten years as hereafter provided, (i) the
sum of $246,000 shall be represented by the Purchaser's promissory note in
such amount payable to the Larrabees, which note shall not bear interest,
shall be payable in 120 monthly principal installments of $800. each and
one final installment of $150,000 upon its maturity and shall be secured
by a first lien deed of trust against the Real Property in Garfield
County, Washington, such note and deed of trust to be in form and
substance acceptable to the parties, and (ii) the excess of the Purchase
Price over such amount shall be paid to the Sellers in cash at Closing, by
wire transfer to such account or accounts as the Sellers shall designate
in writing prior to the Closing. The Deferred Purchase Price shall be
payable in ten equal installments of $60,000 each, the first of which
shall be payable on or before the first anniversary of the Closing Date,
and continuing annually thereafter on or before the second through tenth
anniversaries of the Closing Date. No interest shall accrue or be payable
in respect of any portion of the Deferred Purchase Price. Solely for
federal income tax purposes, the Deferred Purchase Price and the
promissory note referred to above shall be deemed to include an imputed
rate of interest of six percent (6%) per annum. The Purchase Price shall
be paid as specified in Exhibit E hereto.
1.3. CERTAIN PRORATIONS. All normal and customarily proratable items
relating to the Real Property, including but not limited to, utilities and
real property taxes, shall be prorated as of the Closing Date, the Sellers
being charged and credited for all of same up to such date and the
Purchaser being charged and credited for all of same on and after such
date. If the actual amounts to be prorated are not known as of the Closing
Date, the prorations shall be made on the basis of the best evidence then
available, and thereafter, within thirty (30) days after actual figures
are received, a cash settlement will be made between the Sellers and the
Purchaser.
1.4. FURTHER ASSURANCES. The Sellers agree to execute and deliver
from time to time after the Closing, at the reasonable request of the
Purchaser, and without further consideration, such additional instruments
of conveyance and transfer, and to take such other action as the Purchaser
may reasonably require more effectively to convey, assign, transfer and
deliver good and marketable title to the Real Property to the Purchaser.
2. THE CLOSING. The purchase and sale of the Real Property and the
Equipment (the "Closing") shall occur at the offices of Jack Curtin, 2517
17th Street, Suite C, Lewiston, Idaho 83501, at 9:00 a.m. on March 22,
1996, or at such other date, time or place as may be mutually agreed upon
by the parties, but in no event later than March 31, 1996. The date and
time of the Closing is herein called the "Closing Date", and shall be
deemed to have occurred as of the commencement of business on the Closing
Date. At the Closing, the Sellers shall execute and deliver one or more
general warranty deeds conveying fee simple title to the Real Property and
one or more bills of sale and certificate transfers transferring title to
the Equipment, to the Purchaser, against receipt from the Purchaser of the
Purchase Price. All action to be taken at the Closing as hereinafter set
forth, and all documents and instruments executed and delivered, and all
payments made with respect thereto, shall be considered to have been
taken, delivered or made simultaneously, and no such action or delivery or
payment shall be considered as complete until all action incident to the
Closing has been completed.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers
jointly and severally represent and warrant to and agree with the Purchaser
that:
3.1. DESCRIPTION. Exhibit A attached hereto sets forth a legal
description of all parcels included within the Real Property, and also
briefly describes each building and major structure and improvement
thereon; Exhibit C hereto describes all of the Equipment. The Sellers have
good and marketable fee simple title to the tracts of Real Property owned
by them as shown on Exhibit A, free and clear of any and all Liens, other
than (i) Liens to be fully released at or prior to Closing, and (ii)
Permitted Encumbrances. No person other than the Sellers and Merchant
Funeral Home, Inc., a Washington corporation ("MFHI"), Coeur d'Alene,
Memorial Gardens, Inc., an Idaho corporation ("CDMGI"), and Lewis Clark
Memorial Park, Inc., an Idaho corporation ("LCMPI"), has any ownership,
leasehold or other interest of any kind in the Real Property. To the
Sellers' knowledge, all of the buildings, structures and improvements
located on the Real Property are in good operating condition, ordinary
wear and tear excepted. To the Sellers' knowledge, none of such buildings,
structures or improvements, or the operation or maintenance thereof as now
operated or maintained, contravenes any zoning ordinance or other
administrative regulation or violates any restrictive covenant or any
provision of law, the effect of which would interfere with or prevent
their continued use for the purposes for which they are now being used.
There is not pending nor, to the knowledge of the Sellers, threatened any
proceeding for the taking or condemnation of the Real Property or any
portion thereof.
3.2. ENVIRONMENTAL MATTERS. To the Sellers' knowledge, no toxic or
hazardous wastes (as defined by the U.S. Environmental Protection Agency,
or any similar state or local agency) or hazardous substances (as defined
under the Comprehensive Environment Response, Compensation and Liability
Act of 1980, as amended, or the Resource Conservation and Recovery Act, as
amended, or any similar state or local statute or regulation) have been
generated, stored, dumped, located or released onto or from the Real
Property, nor to the knowledge of the Sellers, have any such materials or
wastes been generated, stored, dumped, located or disposed of on any real
property contiguous or adjacent to the Real Property. To the Sellers'
knowledge, the Real Property is not now, and will not be in the future as
a result of its condition at or prior to Closing, subject to any
reclamation, remediation or reporting requirements of any federal, state,
local or other governmental body or agency having jurisdiction over the
Real Property. To the Sellers' knowledge, the Real Property does not
contain any asbestos, polychlorinated byphenyls, urea, formaldehyde, lead
based paint, radon gas or underground storage tanks, except (i) for
substances used in the ordinary course of the operations of the funeral
homes and cemeteries located thereon that are properly used, stored and
disposed of in accordance with applicable legal requirements, and (ii) as
described on Exhibit D hereto.
3.3. NO FLOOD HAZARDS. To the Sellers' knowledge, the Real Property
is not located within an area that has been designated by the Federal
Insurance Administration, the Army Corp of Engineers, or any other
governmental agency or body as being subject to special flooding hazards.
3.4. NON-FOREIGN STATUS. No Seller is a "foreign person" (as defined
in Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations issued thereunder), and the Sellers
shall deliver at Closing a non-foreign affidavit in recordable form
containing such information as shall be required by Internal Revenue Code
Section 1445(b)(2) and the regulations issued thereunder.
3.5. BILLS PAID. All bills and other payments due with respect to
the ownership, operation, and maintenance of the Real Property have been
(and on the Closing Date will be) paid, and no Liens or other claims for
the same have been filed or asserted against any part of the Real
Property.
3.6. COMPLIANCE WITH LAWS. The Sellers have complied and are in
compliance in all material respects with all federal, state, municipal and
other statutes, rules, ordinances, and regulations applicable to the Real
Property and the Equipment.
3.7. FINDERS. Except as described in Section 12.1, no Seller is a
party to or in any way obligated under any contract or other agreement,
and there are no outstanding claims against any of them, for the payment
of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
3.8. AUTHORITY OF THE SELLERS. Each Seller has the full right,
capacity and authority to enter into and perform this Agreement, and to
consummate the transactions contemplated hereby. The execution, delivery
and performance by LLC of this Agreement have been duly authorized by its
Board of Directors and by Larrabee Investments by its members. This
Agreement constitutes the legal, valid and binding obligation of the
Sellers enforceable against them in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement, nor the
consummation of the transactions contemplated hereby, will: (i) result in
a violation or breach of any term or provision of, constitute a default or
acceleration under, require notice to or consent of any third party to, or
result in the creation of any Lien by virtue of, the Articles of
Organization or Regulations of Larrabee Investments, the Articles of
Incorporation or Bylaws of LLC or any contract, agreement, lease, license
or other commitment to which any Seller is a party or by which any such
Seller or its, his or her respective assets or properties are bound; nor
(ii) violate any statute or any order, writ, injunction or decree of any
court, administrative agency or governmental body.
3.9 NATURE OF REPRESENTATIONS. The representations made by the
Sellers in this Section 3 shall apply (as applicable) only as to the Real
Property or Equipment being sold by such Seller hereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Sellers that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Idaho, and has all requisite
corporate power to enter into and perform its obligations under this
Agreement.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery
and performance by the Purchaser of this Agreement have been duly
authorized by its Board of Directors. This Agreement is valid and
binding upon the Purchaser and enforceable against the Purchaser
in accordance with its terms. Neither the execution, delivery
or performance by the Purchaser of this Agreement, nor the
consummation of the transactions contemplated hereby, will conflict
with or result in a violation or breach of any term or provision of,
nor constitute a default under, the Articles of Incorporation or
Bylaws of the Purchaser or under any indenture, mortgage, deed of
trust or other contract or agreement to which it is a party or by
which it or its property is bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.
4.3. FINDERS. The Purchaser is not a party to or in
any way obligated under any contract or other agreement,
and there are not outstanding claims against it, for the
payment of any broker's or finder's fee in connection with the
origin, negotiation, execution or performance of this Agreement.
5. COVENANTS OF THE SELLERS PENDING CLOSING. The
Sellers jointly and severally covenant and agree with the
Purchaser that:
5.1. CONSENTS AND APPROVALS. The Sellers will use their
best efforts to obtain the necessary consents and approvals of other
persons which may be required to be obtained on their part to
consummate the transactions contemplated by this Agreement.
5.2. NO SHOP. For so long as this Agreement remains in
effect, no Seller shall enter into any agreements or commitments, or
initiate, solicit or encourage any offers, proposals or expressions
of interest, or otherwise hold any discussions with any potential
buyers, investment bankers or finders, with respect to the possible
sale or other disposition of all or any portion of the Real
Property, other than with the Purchaser.
6. COVENANT OF THE PURCHASER PENDING CLOSING. The
Purchaser covenants with the Sellers that the Purchaser will
use its best efforts to obtain the necessary consents and approvals of
other persons which may be required to be obtained on its part to
consummate the transactions contemplated in this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The
obligations of the Purchaser under this Agreement shall be subject to the
following conditions, any of which may be expressly waived by it in
writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS
PERFORMED. The Purchaser shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by the Sellers in Section 3 hereof; the
representations and warranties made by the Sellers herein shall be
deemed to have been made again at and as of the time of Closing and
shall then be true and correct; the Sellers shall have performed and
complied with all agreements and conditions required by this
Agreement to be performed or complied with by them at or prior to
the Closing; and the Purchaser shall have received a certificate,
signed by the Larrabees, an authorized officer of LLC, and a member
of Larrabee Investments, to the effect of the foregoing provisions
of this Section 7.1.
7.2. OPINION OF COUNSEL. The Sellers shall have
caused to be delivered to the Purchaser an opinion of Jack Curtin,
counsel for the Sellers, dated the Closing Date, to the effect that:
(i) Larrabee Investments is a limited liability
company duly organized, validly existing and in good standing
under the laws of the State of Idaho, and has all requisite
authority to enter into and perform its obligations under this
Agreement; and LLC is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Idaho, and has all requisite authority to enter into and
perform its obligations under this Agreement;
(ii) this Agreement has been duly and validly
executed and delivered by the Sellers, and this Agreement
constitutes the valid and binding obligations of the Sellers
enforceable against them in accordance with its terms; neither
the execution, delivery or consummation of the transactions
contemplated by this Agreement will (x) result in the breach
of or constitute a default under the Articles of Incorporation
or Bylaws of LLC, the Articles of Organization or Regulations
of Larrabee Investments, or any loan or credit agreement,
indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which any Seller is a
party or by which they or their respective assets are bound,
or (y) violate any order, writ, injunction or decree known to
such counsel of any court, administrative agency or
governmental body; and
(iii) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Sellers of this Agreement.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Sellers and certificates of public officials,
copies of which shall be provided to the Purchaser at Closing. Any
opinion as to the enforceability of any document may
7.3. CONSENTS AND APPROVALS. The Sellers shall have
obtained all consents and approvals of other persons and
governmental authorities to the transactions contemplated by this
Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall
not have occurred any loss or damage to any material portion of the
Real Property.
7.5. TITLE INSURANCE. The Sellers shall have obtained, at
their expense, one or more Owner's Policies of Title Insurance
issued to the Purchaser in agreed-upon amounts, issued by one or
more title companies mutually designated by the parties
(collectively, the "Title Company"), insuring that the Purchaser is
the owner of each parcel of the Real Property subject only to the
Permitted Encumbrances, and any standard printed exceptions included
in the standard form Owner Policy of Title Insurance in Washington
and Idaho (as applicable). Such policies shall have deleted any
exception regarding restrictions or be limited to restrictions that
are Permitted Encumbrances, any standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted
except for "shortages in area", and any standard exception for taxes
shall be limited to the year in which the Closing occurs.
7.6. SURVEY. The Purchaser shall have received, at its own
expense, an ALTA/ASCM survey prepared by a licensed surveyor
approved by the Purchaser and acceptable to the Title Company, with
respect to each parcel of Real Property, which survey shall comply
with any applicable standards under Idaho or Washington law (as
applicable), be sufficient for the Title Company to delete any
survey exception contained in the title insurance policies referred
to in Section 7.5, save and except for the phrase "shortages in
area", and otherwise be in form and content acceptable to Purchaser.
7.7. LIEN RELEASES. The holders of the Liens (other than
Permitted Encumbrances) against any portion of the Real Property and
any of the Equipment shall have executed and delivered written
releases of such Liens, all in recordable form and otherwise
acceptable to the Purchaser and its lender.
7.8. CONSUMMATION OF MERGER. The merger of MFHI and CDMGI
into LCMPI, and the related merger of the Purchaser into LCMPI (as
the survivor of the earlier merger), pursuant to the Merger
Agreement of even date herewith, and the related Plans of Merger
attached as exhibits thereto (collectively, the "Merger Agreement")
among the Purchaser, Carriage Funeral Services, Inc., MFHI, CDMGI,
LCMPI, the Larrabees and Larrabee Land Company, Inc., shall have
been consummated in accordance with the terms thereof.
7.9 OPTION AGREEMENT. The Purchaser and the Larrabees shall
have entered into an Option Agreement, mutually satisfactory in form
and substance to such parties, under which the Larrabees grant to
the Purchaser an option to purchase and acquire the approximately
five-acre tract of land adjacent to the portion of the Real Property
in Coeur d'Alene, Idaho that has been identified by the parties, on
such terms as such parties shall determine.
7.10 EXCHANGE AGREEMENT. The Purchaser and the Larrabees shall have
entered into a Property Exchange Agreement mutually satisfactory in form
and substance to such parties, under which the Larrabees agree to sell a
one-acre tract of land adjacent to the portion of the Real Property in
Coeur d'Alene, Idaho, on such terms as the parties may mutually determine.
8. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by the Sellers in
writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Sellers shall not have discovered any material error,
misstatement or omission in the representations and warranties made
by the Purchaser in Section 4 hereof; the representations and
warranties made by the Purchaser herein shall be deemed to have been
made again at and as of the time of Closing and shall then be true
and correct; the Purchaser shall have performed and complied with
all agreements and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing; and the
Sellers shall have received a certificate, signed by an executive
officer of the Purchaser, to the effect of the foregoing provisions
of this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Sellers an opinion of Snell & Smith, A Professional
Corporation, counsel for the Purchaser, to the effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Idaho, and has all requisite corporate power to enter
into and perform its obligations under this Agreement;
(ii) the execution, delivery and performance by the
Purchaser of this Agreement have been duly authorized by its
Board of Directors;
(iii) this Agreement is valid and binding upon the
Purchaser and enforceable against the Purchaser in accordance
with its terms;
(iv) neither the execution, delivery or performance
by the Purchaser of this Agreement will conflict with or
result in a violation or breach of any term or provision of,
nor constitute a default under, the Articles of Incorporation
or Bylaws of the Purchaser or under any loan or credit
agreement, indenture, mortgage, deed of trust or other
contract or agreement known to such counsel and to which the
Purchaser is a party or by which it or its property is bound,
or violate any order, writ, injunction or decree known to such
counsel and of any court, administrative agency or
governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement, or the performance of its
obligations hereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to the Sellers at
Closing. Any opinion as to the enforceability of any document may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors rights and by principles of
equity. Such opinion may be limited to federal law and the internal
laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. The mergers described in Section
7.8 hereof shall have been consummated in accordance with the terms
of the Merger Agreement.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Exhibit hereto shall be deemed representations and
warranties of the party executing and delivering the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party
hereto, all covenants, agreements, representations and warranties
made hereunder or pursuant hereto or any Exhibit hereto or in
connection with the transactions contemplated hereby and thereby
shall not terminate but shall survive the Closing and continue in
effect thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SELLERS. The Sellers jointly and
severally agree to indemnify and hold harmless the Purchaser and its
successors and assigns, from and against any and all losses,
damages, liabilities, obligations, costs or expenses (any one such
item being herein called a "Loss" and all such items being herein
collectively called "Losses") which are caused by or arise out of
(i) any breach or default in the performance by the Sellers of any
covenant or agreement of the Sellers contained in this Agreement,
(ii) any breach of warranty or representation made by the Sellers
herein, in any Exhibit attached hereto or in any certificate or
other instrument delivered by or on behalf of the Sellers pursuant
hereto, and (iii) any and all actions, suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees
to indemnify and hold harmless the Sellers and their heirs,
successors and assigns from and against any Losses which are caused
by or arise out of (i) any breach or default in the performance by
the Purchaser of any covenant or agreement of the Purchaser
contained in this Agreement, (ii) any breach of warranty or
representation made by the Purchaser herein or in any certificate or
other instrument delivered by or on behalf of the Purchaser pursuant
hereto, and (iii) any and all actions, suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for
indemnification against another party hereunder ("indemnifying
party"), the indemnifying party shall be given prompt written notice
thereof and shall have the right (i) to participate in the defense
thereof and be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the
indemnifying party is, or will be, required to pay any amounts in
connection therewith, which approval shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, if within ten
business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall
be fully indemnified for by the indemnifying party as provided
herein, then the indemnifying party shall have the right to control
the defense of such claim, provided that the indemnified party shall
have the right (i) to participate in the defense thereof and be
represented, at its own expenses, by advisory counsel selected by
it, and (ii) to approve any settlement if the indemnified party's
interests are, or would be, affected thereby.
10.4. CERTAIN LIMITATIONS. The Purchaser agrees that (i) any
claim under Section 10.1(ii), insofar as the same relates to the
representations and warranties of the Sellers under Section 3 (other
than the second sentence of Section 3.1 and Sections 3.7 and 3.8)
must be asserted, if at all, on or before the second anniversary of
the Closing Date, and (ii) the Purchaser shall not be entitled to
indemnification under Section 10.1 until such time as the aggregate
amount of all such claims of the Purchaser equal or exceed
$5,000.00, but when such threshold has been so met, the Purchaser
shall be entitled to the entirety of its claim(s), including the
first $5,000.00.
10.5. OFFSET. If any Seller becomes obligated to indemnify the
Purchaser after the Closing Date pursuant to this Agreement or
pursuant to Section 10.1 of the Merger Agreement, at any time when
any of the Deferred Purchase Price remains outstanding, then the
Purchaser may, at its option and without prejudice to any right of
the Purchaser to proceed directly against any Seller, set-off the
amount for which the Sellers shall be so obligated for such
indemnification or breach against the Deferred Purchase Price. The
exercise of such right of set-off shall be evidenced by means of a
written notice to such effect given by the Purchaser to the Sellers,
describing the basis for indemnity or recovery and set-off hereunder
and the amount of the set-off. If the Sellers object to any such
exercise of set-off by the Purchaser by delivering written notice of
objection to the Purchaser within ten (10) business days after
receipt of the Purchaser's offset notice, the Purchaser shall
deposit the amount in dispute in escrow with a financial institution
in Spokane, Washington, where the funds shall remain pending final
resolution of such dispute.
10.6 COUR D'ALENE PROPERTY. The parties acknowledge that the
ALTA/ACSM survey for the Real Property in Coeur d'Alene, Idaho
reveals that the Larrabees may not have title to a triangular strip
of land along the southern boundary of such property (reference Note
2 on such survey) and that the parties have intended to be includeds
in the purchase and sale hereunder (the "Subject Tract"). The
Larrabees represent that no grave spaces are located within the
Subject Tract and agree that they shall use their best efforts to
either cure the title defect shown in such survey so that title to
the subject Tract is vested in the Purchaser, or shall purchase the
Subject Tract from the owner(s) thereof and convey the same to the
Purchaser without cost to the Purchaser, in either case in the same
manner as the other Real Property hereunder.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Sellers agree to
use their best efforts to bring about the satisfaction of the
conditions specified in Section 7 hereof; and the Purchaser agrees
to use its best efforts to bring about the satisfaction of the
conditions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual written consent of the Sellers and the
Purchaser;
(b) the Purchaser if a material default shall be made
by any Seller in the observance or in the due and timely
performance by any of the covenants of the Sellers herein
contained, or if there shall have been a material breach or
misrepresentation by any Seller of any of the warranties and
representations of the Sellers herein contained, or if the
conditions of this Agreement to be complied with or performed
by any Seller at or before the Closing shall not have been
complied with or performed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Purchaser in writing;
(c) the Sellers if a material default shall be made by
the Purchaser in the observance or in the due and timely
performance by the Purchaser of any of the covenants of the
Purchaser herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser of any
of its warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not
have been complied with or performed at the time required for
such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Sellers in writing; or
(d) either the Sellers or the Purchaser, if the
Closing has not occurred by March 31, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other parties hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party
has not breached any representation or warranty or failed to comply
with any of its covenants in this Agreement, and (ii) such
termination shall not prejudice the rights and remedies of the
terminating party against any other party which has breached any of
its representations, warranties or covenants herein prior to such
termination.
12. MISCELLANEOUS.
12.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. All finder's
or similar fees and expenses of Thomas, Pierce & Company shall be
borne exclusively by the Sellers. All sales, transfer, stamp or
other similar taxes, if any, which may be assessed or charged in
connection with the transactions hereunder shall be borne by the
Sellers.
12.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given when personally delivered or three business days
following the date, mailed, first class, registered or certified
mail, postage prepaid, as follows:
(i) if to the Sellers, to:
Mr. Robert D. Larrabee
1000 7th Street
Clarkston, Washington 99403
with a copy to:
Mr. Jack Curtin
P.O. Box 677
Lewiston, Idaho 83501
(ii) if to the Purchaser, to:
Carriage Funeral Services of Idaho,
Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana
Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party
to the other parties hereto.
12.3. ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may
assign its rights hereunder without the consent of the Sellers to a
successor-in-interest to the Purchaser (whether by merger, sale of
assets or otherwise).
12.4. SUCCESSORS BOUND. Subject to the provisions of Section
12.3, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns,
heirs and personal representatives.
12.5. SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this
Agreement.
12.6. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by all of the parties hereto.
12.7. ENTIRE AGREEMENT. This Agreement and the Exhibits,
certificates and other documents referred to herein constitute the
entire agreement of the parties hereto, and supersede all prior
understandings with respect to the subject matter hereof and thereof
(including, without limitation, the letter of intent dated January
31, 1996).
12.8. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of Idaho.
12.9. SS.1031 EXCHANGE. The Purchaser acknowledges that the
Sellers are intending for the transactions under this Agreement, in
conjunction with certain other transactions involving the Sellers
and third party accommodation parties, qualify for treatment under
Section 1031 of the Code. The Purchaser agrees to cooperate with the
Sellers in connection therewith, provided the same shall not alter
the respective rights or responsibilities of the parties hereunder,
nor shall the same require the Purchaser to incur any expense or
liability in connection therewith.
12.10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemean original, but all of
which shall constitute the instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL SERVICES
OF IDAHO, INC.
By: /s/ MARK W. DUFFEY
MARK W. DUFFEY,
Executive Vice President
THE SELLERS:
LARRABEE INVESTMENTS L.L.C.
By: /s/ ROBERT D. LARRABEE
ROBERT D. LARRABEE,
Member
LARRABEE LAND COMPANY, INC.
By: /s/ ROBERT D. LARRABEE
ROBERT D. LARRABEE,
President
/s/ ROBERT D. LARRABEE
ROBERT D. LARRABEE
/s/ I. RENEE LARRABEE
I. RENEE LARRABEE
EXHIBITS
Exhibit A - Description of Real Property
Exhibit B - Permitted Encumbrances
Exhibit C - Description of Exhibits
Exhibit D - Environmental Matters
Exhibit E - Purchase Price Allocation
EXHIBIT 10.20
MERGER AGREEMENT
THIS AGREEMENT, dated as of July 3, 1996, among CARRIAGE SERVICES,
INC., a Delaware corporation (the "Purchaser"), CSI FUNERAL SERVICES OF
CONNECTICUT, INC., a Connecticut corporation (the "Acquisition Subsidiary"), C.
FUNK & SON FUNERAL HOME, INCORPORATED, a Connecticut corporation (the
"Company"), and RONALD F. DUHAIME, EMILIE P. DUHAIME and CHRISTOPHER J. DUHAIME,
residents of Hartford County, Connecticut (together, the "Shareholders");
W I T N E S S E T H:
WHEREAS, the Company owns and operates the C. Funk & Son Funeral
Home located at 35 Bellevue Avenue in Bristol, Hartford County, Connecticut (the
"Home"), and the Shareholders collectively own all of the issued and outstanding
capital stock of the Company; and
WHEREAS, the parties desire that the Acquisition Subsidiary merge
with and into the Company in a statutory merger (the "Merger") to be consummated
under the laws of the State of Connecticut and upon the terms and conditions and
for the consideration herein set forth and in the Plan of Merger among the
Purchaser, the Acquisition Subsidiary and the Company in the form attached as
Exhibit A hereto (the "Plan of Merger");
NOW, THEREFORE, the parties agree as follows:
1. REORGANIZATION AND MERGER.
1.1. THE MERGER. Simultaneously with the execution and delivery of
this Agreement, the Plan of Merger shall be exe cuted and delivered by the
Purchaser, the Acquisition Subsidiary and the Company. Subject to the
terms and condi tions set forth in this Agreement and in the Plan of
Merger, at the Effective Time of the Merger (as defined in the Plan of
Merger), the Acquisition Subsidiary shall be merged with and into the
Company in accordance with the laws of the State of Connecticut and the
Plan of Merger. The corporation surviving the Merger is sometimes herein
referred to as the "Surviving Corporation."
1.2. SS.368 REORGANIZATION. It is the intention of the parties that
the Merger constitute a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), in accordance with Section 368(a)(2)(E) of the Code. The parties
agree to file all of their respective tax returns and reports in a manner
consistent with such intention, and to not take any filing position in a
manner inconsistent with such intention unless compelled to do so by court
order or administrative decree. Each party agrees to furnish such
information and take such
-1-
action as may be reasonably requested of the other party in connection
with the foregoing (which action shall not include any change in the
commercial terms of the Merger and the other transactions incident
thereto). In no event, however, shall the Purchaser or the Surviving
Corporation be required to incur any out-of-pocket expenses in defending
such position or providing such information or taking such action, nor
shall the foregoing constitute a warranty or guaranty that the Merger will
in fact constitute such a reorganization.
1.3. SHAREHOLDER CONSENT; WAIVER OF DISSENTERS' RIGHTS. The
Shareholders, in their capacities as shareholders of the Company, and the
Purchaser, in its capacity as a shareholder of the Acquisition Subsidiary,
hereby (i) consent to the Merger pursuant to Section 33-366 of the
Connecticut General Statutes, as amended (the "Connecticut Statutes"), and
(ii) irrevocably and unconditionally waive all dissenters' and other
similar rights with respect to the Merger under and pursuant to Sections
33-373 and 33-374, of the Connecticut Statutes.
1.4. POST-CLOSING TAX MATTERS. The Shareholders shall be fully
responsible for all federal, state and local taxes (including, but not
limited to, income taxes) of the Company accrued through the Closing and
for completing, filing and handling all tax returns and reports in respect
in of all periods through Closing and consummation of the Merger,
including responding to any inquiries, examinations or audits regarding
such taxes, returns and reports. Without limiting the generality of the
foregoing, the Purchaser will arrange through its outside accounting firm
for the preparation of short-period federal income tax return for the
Company's current year through the Closing Date (after which time the
Surviving Corporation will be included as part of the consolidated group
of which the Purchaser is the parent corporation), based upon information
furnished by the Shareholders (and for which the Shareholders shall be
solely responsible), and the Shareholders shall pay or reimburse the
Purchaser for all federal income taxes in respect thereof and the
reasonable cost of tax preparation by such outside accounting firm.
1.5. FURTHER ASSURANCES. The Shareholders agree to exe cute and
deliver from time to time after the Effective Time of the Merger, at the
reasonable request of the Purchaser, and without further consideration,
such additional instruments of conveyance and transfer, and to take such
other action as the Purchaser may reasonably require to more effectively
carry out the terms and provisions of the Merger and the other trans
action contemplated by this Agreement.
-2-
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing of the Merger (the "Closing") shall
occur at the offices of Ruggiero, Ziogas & Allaire, 271 Farmington Avenue,
Bristol, Connecticut on July 3, 1996, or at such other date, time or place
as may be mutually agreed upon by the parties. The date and time of the
Closing is herein called the "Closing Date". At the Closing, the
Shareholders shall surrender for cancellation pursuant to the Merger all
certificates representing their respective shares of capital stock of the
Company, against receipt from the Purchaser of the Merger Consideration
(as defined in the Plan of Merger). All action to be taken at the Closing
as hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered
to have been taken, delivered or made simultaneously, and no such action
or delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the Merger, at the Closing
the following transactions shall occur:
(i) The Acquisition Subsidiary, on the one hand, and each of
the Shareholders, on the other, shall each execute and deliver the
other a separate Employment Agreement to be dated the Closing Date
and in substantially the forms of Exhibits B-1, B-2 and B-3 hereto,
respectively (collectively, the "Employment Agreements");
(ii) The Acquisition Subsidiary shall establish the Carriage
Partners Program for Connecticut to be dated the Closing Date and in
substantially in the form of Exhibit C hereto (the "Carriage
Partners Program"), and the Acquisition Subsidiary and Ronald F.
Duhaime shall each execute and deliver to the other a plan
participation agreement evidencing his participation thereunder; and
(iii) Immediately prior to the Closing and consum mation of
the Merger, the Company shall distribute to the Shareholders,
without recourse or warranty against the Company, the assets
[including bank stock] described on Schedule 2.2 hereto (the
"Distributed Property").
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
The Shareholders jointly and severally represent and warrant to and
agree with the Purchaser and the Acquisition Subsidiary that:
3.1. TITLE TO SHARES. The Shareholders are the owners
and holders, beneficially and of record, of all of the issued
-3-
and outstanding shares of capital stock of the Company, and the
Shareholders have good and marketable title to all of such issued and
outstanding shares, free and clear of any and all liens, encumbrances,
pledges, security interests, mortgages or claims of any other person
(collectively, the "Liens").
3.2. ORGANIZATION AND EXISTENCE. The Company is a corpo ration duly
organized, validly existing and in good standing under the laws of the
State of Connecticut, and has all requisite corporate power to enter into
and perform its obli gations under this Agreement and the Plan of Merger
and to carry on its business as now conducted. The Shareholders have
delivered to the Purchaser complete and correct copies of the Certificate
of Incorporation, certified by the Secretary of State of Connecticut, and
the Bylaws, certified by its Secretary, of the Company, all as in effect
on the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 100 shares of Common Stock, without par value, of which 100
shares are issued and outstanding and held by the Shareholders. All such
issued and outstanding shares are validly issued and outstanding, fully
paid and nonassessable and not issued in violation of the preemptive
rights of any person. No such shares of capital stock are held by the
Company as treasury stock. The Company does not have any outstanding
subscriptions, options or other agreements or commitments obligating it to
issue shares of its capital stock. There are no shareholders, buy-sell,
voting or other similar agreements or commitments affecting the voting or
transferability of any such shares. From the date hereof through the
Closing Date, the Shareholders will not, and will not cause or permit the
Company to, issue or enter into any subscriptions, options, agreements or
other commitments in respect of the issuance, transfer, sale or
encumbrance of any shares of capital stock of the Company.
3.4. NO SUBSIDIARIES. The Company does not have any subsidiaries or
any investment or ownership interest in any corporation, joint venture or
other business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholders have delivered to the
Purchaser the unaudited balance sheets of the Company at September 30,
1995] (the "Company Balance Sheet"), and the related unaudited statement
of income and expenses of the Company for the twelve-month period of
operations then ended. All such financial statements are true and correct,
have been prepared in accordance with the books and records of the
Company, and present fairly the financial positions of the Company at the
date indicated and the results of its operations for the period then ended
in accordance with United States federal income tax accounting principles,
consistently
-4-
applied. The Home performed 253 adult funeral services for the
twelve-month period ended December 31, 1993, 258 adult funeral services
for the twelve-month period ended December 31, 1994, and 266 adult funeral
services for the twelve-month period ended December 31, 1995.
3.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 3.6 sets forth a legal
description of all parcels of real property in which the Company has any
interest or which is used in its business (herein referred to as the "Real
Property"), and also briefly describes each building and major structure
and improvement thereon. No person other than the Company has any
ownership, leasehold or other interest of any kind in the Real Property.
The Real Property is the only interest in real property required for the
conduct of the business of the Home as presently conducted. All of the
buildings, structures and im provements located on the Real Property are
in good operating condition, ordinary wear and tear excepted. None of such
buildings, structures or improvements, or the operation or maintenance
thereof as now operated or maintained, contravenes any zoning ordinance or
other administrative regulation or violates any restrictive covenant or
any provision of law, the effect of which would interfere with or prevent
their con tinued use for the purposes for which they are now being used.
There is not pending nor, to the knowledge of the Shareholders, threatened
any proceeding for the taking or condemnation of the Real Property or any
portion thereof. The Company has good and marketable fee simple title to
all of the Real Property used in the business of the Home, free and clear
of all Liens, other than easements and other similar title exceptions
described on Schedule 3.6 ("Permitted Liens").
(b) ENVIRONMENTAL CONDITION. No "Hazardous Substances" (defined
herein to mean any substance which is regulated by or listed under any
federal, state or local law, statute, rule or regulation pertaining to the
environment or the protection of human health and welfare, including the
Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, the Toxic Substances Control Act, as amended, or any similar
state or local statute or regulation) have been generated, stored, dumped,
located or released onto or from the Real Property, nor to the knowledge
of the Shareholders have any Hazardous Substances been generated, stored,
dumped, located or disposed of on any real property contiguous or adjacent
to the Real Property. The Real Property is not now, and to the best of the
Shareholders' knowledge, will not be in the future as a result of its
condition at or prior to Closing, subject to any reclamation, remediation
or reporting requirements of any federal, state, local or other
-5-
governmental body or agency having jurisdiction over the Real Property.
Neither the Company nor any Shareholder has received notice or knows of
any claim, request for information, enforcement action or other proceeding
related to the off-site disposal of Hazardous Substances generated by the
Company. Except as described on Schedule 3.6, to the best of knowledge of
the Shareholders, the Real Property does not con tain any asbestos,
polychlorinated byphenyls, urea, formal dehyde, lead based paint, radon
gas or underground storage tanks, except for substances used in the
ordinary course of the operations of the Home that are properly used,
stored and disposed of in accordance with applicable legal requirements.
(c) FIRPTA. Neither the Company nor any Shareholder is a "foreign
person" (as defined in Section 1445(f)(3) of the Code, and the regulations
issued thereunder), and the Shareholders shall deliver at Closing a
non-foreign affidavit in recordable form containing such information as
shall be required by Code Section 1445(b)(2) and the regulations issued
thereunder.
(d) BILLS PAID. All bills and other payments due with respect to the
ownership, operation, and maintenance of the Real Property have been (and
on the Closing Date will be) paid, and no Liens or other claims for the
same have been filed or asserted against any part of the Real Property.
(e) NO FLOOD HAZARDS. No portion of the Real Property is located
within an area that has been designated by the Federal Insurance
Administration, the Army Corp of Engineers, or any other governmental
agency or body as being subject to special flooding hazards.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Home are owned
by the Company. None of such assets, rights or properties is subject to
any lease or license. The Company is in actual possession and control of
all properties owned by it, and has good and marketable title to all of
its assets, rights and properties, including without limitation, all
properties and assets reflected in the Company Balance Sheet, free and
clear of all Liens, except for (i) Liens to be discharged and released at
or prior to Closing, and (ii) Permitted Liens against Real Property.
3.8. ABSENCE OF CHANGES OR EVENTS. Since the date of the Company
Balance Sheet, there has not been:
(i) any adverse change in the financial condi tion,
operations, business, properties or prospects of the Company or of
the Home;
-6-
(ii) any change in the authorized capital or outstanding
securities of the Company;
(iii) any capital stock, bonds or other secu rities which
the Company has issued, sold, delivered or agreed to issue, sell or
deliver, nor has the Company granted or agreed to grant any options,
warrants or other rights calling for the issue, sale or delivery
thereof;
(iv) any borrowing or agreement by the Company to borrow
any funds, nor has the Company incurred, or become subject to, any
absolute or contingent obligation or liability, except trade
payables incurred in the ordinary course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change in
any key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of the
inventories or other assets or properties of the Company, except in
the ordinary course of business;
(viii) any damage, destruction or losses against the
Company or any waiver of any rights of material value to the
Company;
(ix) any labor strike or labor dispute, or the entering
into of any collective bargaining agreement, with respect to
employees of the Company;
(x) any claim or liability for any material damages for any
actual or alleged negligence or other tort or breach of contract
against or affecting the Company;
(xi) any new competitor that has, to the knowledge of the
Shareholders, built, commenced to build or announced intentions to
build a funeral home or mortuary in direct competition with the
Home; or
(xii) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Company Balance Sheet, the Company does not have
-7-
any, and none of its assets or properties are subject to any, liabilities
or obligations of any kind or nature, other than unsecured trade accounts
payable and accrued expenses arising in the ordinary course of the
Company's business since the date of the Company Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local and other taxes
due and payable by the Company on or before the date of this Agreement
have been paid or are adequately provided for in the Company's books and
records. The Company has filed all tax returns and reports required to be
filed by it with all taxing authorities, and all such tax returns and
reports are true, complete and correct. True and correct copies of the
federal, state and local income tax returns filed by the Company for each
of its last three taxable years have been furnished to the Purchaser. No
assessments of deficiencies have been made against the Company which are
presently pending or outstanding. No state of facts exists or has existed
which would constitute grounds for the assessment of any tax liability
against the Company with respect to any prior taxable period which has not
been audited by the Internal Revenue Service or which has not been closed
by applicable statute. There are no outstanding agreements or waivers
extending the statutory period of limitations applica ble to any income
tax return of the Company for any period.
3.11. INVENTORY. The inventories reflected in the Company Balance
Sheet, and all items placed in inventory since the date thereof, are (i)
accounted for in accordance with United States federal income tax
accounting principles applied on a consistent basis, and (ii) saleable or
usable in the ordinary course of business of the Company at usual and
customary prices, subject to normal returns and markdowns consistent with
past practice. At the Closing, the Shareholders shall deliver to the
Purchaser a list, certified by the Shareholders to be complete and
correct, of all of the inventory of the Company.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and all
other material items of equipment, fixtures, furniture and other fixed
assets owned by the Company. All such items are in good and operating
condition and repair, ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto sets forth a
complete description of:
(i) all loan, credit and similar agreements to which the
Company is a party or by which it is bound, and all notes or other
evidences of indebtedness of, or agreements creating any Lien on any
property of, the Company;
-8-
(ii) all employment contracts, noncompetition agreements and
other agreements relating to the employ ment of any employees of the
Company;
(iii) all contracts and agreements affecting the Company which
do not terminate or are not terminable by the Company upon notice of
30 days or less or which involve an obligation on its part in excess
of $1,000 per annum or $5,000 in the aggregate; and
(iv) all other contracts and commitments of the Company
entered into outside the ordinary course of busi ness.
Each contract and commitment described on Schedule 3.13 is valid and
in full force and effect, and neither the Company, nor, to the knowledge
of the Shareholders, any of the other parties thereto, are in default
thereunder. The Shareholders have furnished to the Purchaser a true and
cor rect copy of each document listed on Schedule 3.13.
3.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14 hereto
accurately and completely lists, as of the date of this Agreement (i) all
preneed contracts of the Company unfulfilled as of the date hereof,
including contracts for the sale of funeral merchandise and services, and
(ii) all trust accounts relating to the Home, indicating the location of
each and the balance thereof. All preneed contracts required to be listed
on Schedule 3.14 (x) have been entered into in the normal course of
business at regular retail prices, or pursuant to a sales promotion
program, solely for use by the named customers and members of their
families on terms not more favorable than shown on the specimen contracts
which have been delivered to the Purchaser, (y) are subject to the rules
and regulations of the Company as now in force (copies of which have been
delivered to the Purchaser), and (z) on the date hereof are in full force
and effect, subject to no offsets, claims or waivers, and neither the
Company nor such customer is in default thereunder. All funds received by
the Company under preneed contracts have been deposited in the appropriate
accounts and administered and reported in accordance with the terms
thereof and as required by applicable laws and regulations. The aggregate
market value of the preneed accounts, trusts or other deposits is equal to
or greater than the aggregate preneed liability related to such accounts.
The services heretofore provided by the Company have been rendered in a
professional and competent manner consistent with prevailing professional
standards, practices and customs.
3.15. TRADEMARKS, ETC. The Company does not own and it has not
applied for any patents, patent applications,
-9-
patent licenses, trademarks, trademark applications or trademark or
trademark licenses (collectively, "Intangible Rights"), except as
described on Schedule 3.15. The Company owns or possesses valid rights or
adequate licenses for all of such Intangible Rights as are necessary to
the conduct of the business of the Home as presently conducted. The
Company is not charged with infringement of any Intangible Rights of any
other person, nor does any Shareholder know of any such infringement,
whether or not claimed by any person.
3.16. INSURANCE. The Company maintains such policies of insurance in
such amounts, and which insure against such losses and risks, as are
generally maintained for comparable businesses and properties. Valid
policies for such insurance will be outstanding and duly in force at all
times prior to the Closing.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 hereto correctly and
completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or held by the Company, which
are all that are necessary or appropriate for the operation of the Home as
presently operated. All such items are in full force and effect.
3.18. LITIGATION. Except as set forth on Schedule 3.18, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Shareholders, threatened against or affecting the Company
or any of the assets or properties of the Company, at law or in equity or
before or by any court or federal, state, municipal or other governmental
department, commission, board, agency or instrumentality. The Company is
not subject to any continuing court or administrative order, writ,
injunction or decree, nor is the Company in default with respect to any
order, writ, injunction or decree issued by any court or foreign, federal,
state, municipal or other governmental department, commission, board,
agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company has complied and is in
compliance with all federal, state, municipal and other statutes, rules,
ordinances, and regulations applicable to the Company, the operation of
the Home, and the Company's assets, rights and properties (including
without limitation all environmental protection and occupations safety and
health rules, regulations and laws, and laws and regulations applicable to
preneed contracts and trust accounts, including the so-called "FTC Funeral
Rule").
3.20. EMPLOYEES. Schedule 3.20 hereto correctly and completely lists
the names and monthly or hourly rates of salary and other compensation of
all the employees and agents of the Company. Schedule 3.20 also sets forth
the date of the
-10-
last salary increase for each employee listed thereon, the outstanding
balances of all loans and advances, if any, made by the Company to any
employee or agent thereof, and the number of vacation days or other time
off to which each such employee is then eligible to take. There are not
pending or, to the knowledge of the Shareholders, threatened against the
Company any general labor disputes, strikes or concerted work stoppages,
and there are no discussions, negotiations, demands or proposals that are
pending or have been conducted or made with or by any labor union or
association with respect to any employees of the Company. No Shareholder
is aware of the existence of any serious health condition of any key
manage ment personnel of the Home that might impair any such person's
ability to carry on his or her normal duties into the foresee able future
after the Closing. The Shareholders believe that the relations between the
Company and its employees are good.
3.21. EMPLOYEE BENEFIT PLANS. There are no plans, contracts,
commitments, programs and policies (including, without limitation,
pension, profit sharing, thrift, bonus, deferred compensation, severance,
retirement, disability, medical, life, dental and accidental insurance,
vacation, sick leave, death benefit and other similar employee benefit
plans and policies) maintained by the Company providing benefits to any
employee or former employee of the Company, other than sick leave,
vacation and group hospitalization benefits that are described on Schedule
3.21, all of which are maintained in accordance with applicable legal
requirements. True and com plete copies of all such benefit plans
described on Schedule 3.21, have been provided to the Purchaser.
3.22. AFFILIATED PARTY TRANSACTIONS. The Company and the Home have
been operated and are being operated in a manner separate from the
personal and other business activities of the Shareholders and their
affiliates, and neither the Company nor any of its assets are subject to
any affiliated party commitments or transactions.
3.23. BOOKS AND RECORDS. All books and records of the Company are
true, correct and complete each have been maintained by it in accordance
with good business practice and in accordance with all laws, regulations
and other require ments applicable to the Company. The corporate records
of the Company reflect a true record of all meetings and proceedings of
the Board of Directors and the shareholders of the Company.
3.24. FINDERS. Except as described in Section 13.1, neither the
Company nor any Shareholder is a party to or in any way obligated under
any contract or other agreement, and there are no outstanding claims
against any of them, for the payment of any broker's or finder's fee in
connection with the
-11-
origin, negotiation, execution or performance of this Agreement.
3.25. AUTHORITY OF THE SHAREHOLDERS. The Share holders have the full
right, capacity and authority to enter into and perform this Agreement and
the other documents to be executed by the Shareholders as provided in this
Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and upon execution and delivery by
the Shareholders, each of such other documents will constitute, the legal,
valid and binding obligations of the Shareholders enforceable against them
in accordance with their respective terms. Neither the execution, delivery
nor performance of this Agreement or any of such other documents, nor the
consummation of the transactions contemplated hereby or thereby, will: (i)
result in a violation or breach of any term or provision of, constitute a
default or acceleration under, require notice to or consent of any third
party to, or result in the creation of any Lien by virtue of (x) the
Certificate of Incorporation or Bylaws of the Company or (y) any contract,
agreement, lease, license or other commit ment to which the Company or any
Shareholder is a party or by which the Company or such Shareholder or its,
his or her respective assets or properties are bound; nor (ii) violate any
statute or any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement and the Plan of Merger have
been duly authorized by its Board of Directors. This Agreement and the
Plan of Merger are legally binding and enforceable against the Company in
accordance with their respective terms. Neither the execution, delivery
nor performance by the Company of this Agreement or the Plan of Merger
will result in a violation or breach of, nor constitute a default or
accelerate the performance required under, the Certificate of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust or other contract or agreement to which the Company is a party or by
which it or its properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or governmental
body.
3.27. ACQUISITION OF PARENT SHARES. The Parent Shares (as defined in
the Plan of Merger) to be acquired by the Shareholders pursuant to the
Merger will be acquired by them for investment purposes only and not with
the present intention or view to, or resale in connection with, any dis
tribution thereof within the meaning of the Securities Act of 1933, as
amended. The Shareholders understand that such Parent Shares will not be
registered under such Securities Act or any state securities or blue sky
laws, that transferability of such Parent Shares will be restricted in
accordance with
-12-
applicable state and federal securities laws, and that a restrictive
legend to such effect will be inscribed on each certificate representing
such Parent Shares. Prior to the Closing, the Shareholders will have had
full opportunity to receive such information and ask such questions of
represen tatives of the Purchaser concerning the Purchaser, its
subsidiaries and their business, operations, assets and pros pects, and
concerning an investment in the Parent Shares, as the Shareholders will
then have deemed appropriate in order to make an informed investment
decision with respect to the Parent Shares.
3.28. FULL DISCLOSURE. The representations and war ranties made by
the Shareholders hereunder or in any Schedules or certificates furnished
to the Purchaser pursuant hereto or thereto, do not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein necessary to make the representa
tions or warranties herein or therein, in light of the circum stances in
which they are made, not misleading.
3.29. SCHEDULES. The Schedules referred to in this Section 3 have
been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The Purchaser and the Acquisition Subsidiary jointly and
severally represent and warrant to and agree with the Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Connecticut, and has all requisite corporate
power to enter into and perform its obligations under this Agreement, the
Plan of Merger and the other documents to which it is a party. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power to enter into and perform its obligations under this
Agreement and the Plan of Merger, including the issuance and delivery of
the Parent Shares to the Shareholders as provided in the Plan of Merger.
The Purchaser has delivered to the Shareholders complete and correct
copies of the respective Certificates of Incorporation and Bylaws of the
Purchaser and the Acquisition Subsidiary, all as in effect on the date
hereof.
4.2. AUTHORITY. The execution, delivery and performance
by the Purchaser and the Acquisition Subsidiary of this Agree
ment and the documents contemplated in this Agreement to be
-13-
executed and delivered by them have been duly authorized by their
respective Boards of Directors. This Agreement is, and upon their
execution and delivery as herein provided such other documents will be,
valid and binding upon the Purchaser and the Acquisition Subsidiary and
enforceable against each of them in accordance with their respective
terms. Neither the execution, delivery or performance by the Purchaser or
the Acquisition Subsidiary of this Agreement or any such other document
will conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under, the respective Certificates
of Incorporation or Bylaws of the Purchaser or the Acquisition Subsidiary,
or under any inden ture, mortgage, deed of trust or other contract or
agreement to which the Purchaser or the Acquisition Subsidiary is a party
or by which they or their respective properties are bound, or violate any
order, writ, injunction or decree of any court, administrative agency or
governmental body.
4.3. FINDERS. Neither the Purchaser nor the Acquisition Subsidiary
is a party to or in any way obligated under any contract or other
agreement, and there are no outstanding claims against either of them, for
the payment of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PEND ING CLOSING.
The Company and the Shareholders jointly and severally covenant and agree with
the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agree ment to the
Closing Date, the business of the Company will be operated only in the
ordinary course, and, in particular, without the prior written consent of
the Purchaser, the Company will not, and no Shareholder will cause or
allow the Company to:
(i) cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its Certificate of
Incorporation or Bylaws;
(iii) take any action described in Section 3.8 (except as
contemplated in Section 2.2(iii));
(iv) enter into any contract, agreement or other commitment
of the type described in Section 3.13;
(v) hire, fire, reassign or make any other change in key
personnel of the Company, or increase the rate of compensation of or
declare or pay any bonuses to
-14-
any employee in excess of that listed on Schedule 3.20;
or
(vi) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to be
true and correct in all material respects on and as of the Closing
Date with the same force and effect as if the same had been made on
and as of the Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company will give
to the Purchaser and its counsel, accountants and other representatives,
full and free access to all of the properties, books, contracts,
commitments and records of the Company so that the Purchaser may have full
opportunity to make such investigation as it shall desire to make of the
affairs of the Company and the Home.
5.3. CONSENTS AND APPROVALS. The Company and the Shareholders will
use their best efforts to obtain the neces sary consents and approvals of
other persons which may be required to be obtained on their part to
consummate the trans actions contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor any Shareholder shall enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals or
expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion of
the assets and business of the Company or any other sale of the Company
(whether by merger, consolidation, sale or stock or otherwise), other than
with the Purchaser and the Acquisition Subsidiary as contemplated in this
Agreement.
5.5. COMPANY LIABILITIES. At or prior to the Closing, the
Shareholders shall cause to be paid and discharged in full all liabilities
and obligations of the Company, for indebtedness for borrowed money,
indebtedness secured by Liens against any assets or properties of the
Company, accrued liabilities, federal, state and local taxes, any
liabilities under suits, claims, judgments or orders then pending or any
other liability or obligation of the Company (other than accounts and
trade payables) attributable to the operation of the its business prior to
Closing (collectively, "Unassumed Liabilities"), EXCLUDING (i) obligations
under preneed contracts for which the full amount has been deposited in
trust as required under applicable law and (ii) indebtedness as described
on Schedule 5.5 and (iii) accounts and trade payables (collectively, the
"Assumed Debt"). At the Closing, the Shareholders shall deliver to the
Purchaser certificates
-15-
of the holders of the Assumed Debt, certifying as to the amount, expressed
in dollars, of all principal, interest and other charges (including
prepayment penalties or premiums) required to pay and discharge the
Assumed Debt in full and release all Liens securing the same, and such
amount shall constitute a downward adjustment in the Merger Consideration
pursuant to the terms of the Plan of Merger. Any Unassumed Liabilities
remaining unpaid after the Closing shall be paid pursuant to Section 12.1
or if funds are insufficient shall then be subject to indemnification
under Section 10.1. Property taxes, utility bills and other normal
proratable items shall be prorated as of the Closing Date, the
Shareholders being charged for the same through the Closing and the
Surviving Corporation being responsible for such charges thereafter. The
Purchaser agrees that to the extent there exist at the Closing any fully
earned cash rebates or refunds due from vendors which have not then been
paid, the Surviving Corporation, pursuant to Section 12.1, will pay to the
Shareholders any such cash rebates or refunds which are received after the
Closing.
6. COVENANTS OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY
PENDING CLOSING. The Purchaser and the Acquisition Subsidiary jointly and
severally covenant with the Shareholders that:
6.1. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary will use their best efforts to obtain the necessary consents
and approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and its
representatives will hold in confidence any data and information obtained
with respect to the Company from any representative, officer, director or
employee of the Company, including their accountants or legal counsel, or
from any books or records of any of them, in connection with the
transactions contemplated by this Agreement, except that the Purchaser may
disclose such information to its outside attorneys and accountants and to
its lender, provided that the Purchaser shall remain responsible to the
Company for any unauthorized disclosure thereof by such attorneys,
accountants or lender. If the transactions contemplated hereby are not
consummated, neither the Purchaser nor its representatives shall disclose
such data or information to others, except as such data or information is
published or is a matter of public knowledge or is required by an
applicable law or regulation to be disclosed. If this Agreement is
terminated for any reason, the Purchaser shall return to the Company all
written data and information obtained by the Purchaser from the Company or
its
-16-
representatives in connection with the transactions contem
plated by this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE ACQUISITION
SUBSIDIARY. The obligations of the Purchaser and the Acquisition Subsidiary
under this Agreement shall be subject to the following conditions, any of which
may be expressly waived by the Purchaser in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Purchaser shall not have discovered any material error, misstatement or
omission in the representa tions and warranties made by the Shareholders
in Section 3 hereof; the representations and warranties made by the
Shareholders herein shall be deemed to have been made again at and as of
the time of Closing and shall then be true and correct; the Company and
the Shareholders shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Purchaser shall have received a
certificate, signed by each Shareholder and an executive officer of the
Company, to the effect of the foregoing provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Shareholders shall have caused to be
delivered to the Purchaser an opinion of Ruggiero, Ziogas & Allaire,
counsel for the Company and the Shareholders, dated the Closing Date, to
the effect that:
(i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Connecticut, with full corporate authority to enter into and perform
its obligations under this Agreement and the Plan of Merger;
(ii) the authorized capital stock of the Company consists of
100 shares of Common Stock, without par value, of which 100 shares
are validly issued and outstanding and fully paid and nonassessable;
(iii) to the knowledge of such counsel, after due inquiry,
there are no outstanding subscriptions, options or other agreements
or commitments obligating the Company to issue any shares of its
capital stock or securities convertible into shares of its capital
stock;
(iv) the Shareholders are the record and bene ficial owners
of all of the issued and outstanding shares of capital stock of the
Company, free and clear of any and all Liens, and the Shareholders
have full capacity to enter into and perform their obligations in
accordance with this Agreement;
-17-
(v) the execution, delivery and performance by the Company
of this Agreement and the Plan of Merger have been duly authorized
and approved by all necessary corporate action required on the part
of the Company;
(vi) this Agreement and the Plan of Merger have been duly
and validly executed and delivered by the Company, and this
Agreement and the Plan of Merger con stitute the valid and binding
obligations of the Company enforceable against it in accordance with
their respective terms;
(vii) this Agreement and the other documents to be executed
and delivered hereunder by the Shareholders (as shall be specified
in such opinion) have been duly and validly executed and delivered
by the Shareholders, and this Agreement and such other documents
constitute the valid and binding obligations of the Shareholders
enforceable against them in accordance with their respective terms;
(viii) neither the execution, delivery or consum mation of the
transactions contemplated by this Agree ment, the Plan of Merger or
any of such other documents will (x) result in the breach of or
constitute a default under the Certificate of Incorporation or
Bylaws of the Company or any loan or credit agreement, indenture,
mort gage, deed of trust or other contract or agreement known to
such counsel and to which either the Company or any Shareholder is a
party or by which they or their respec tive assets are bound, or (y)
violate any order, writ, injunction or decree known to such counsel
of any court, administrative agency or governmental body;
(ix) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection with
the execution and delivery by the Company and the Shareholders of
this Agreement, the Plan of Merger or any of such other documents;
and
(x) to the knowledge of such counsel after due inquiry,
there are no claims, actions, suits, proceedings or investigations
pending or threatened against or affecting the Company or any of its
assets, at law or in equity or before or by any court or federal,
state, municipal or other governmental department, commission,
board, agency or instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholders and officers of the Company and
certificates of public officials, copies of which
-18-
shall be provided to the Purchaser at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
and by principles of equity. Such opinion may be limited to federal law
and the internal laws of the State of Connecticut.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholders shall
have obtained all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not have
occurred any loss or damage to the physical assets and properties of the
Company, including (without limitation) any of the Real Property or any
improvements located thereon (regardless of whether such loss or damage
was insured), the effect of which would have a material adverse effect on
the condition, business, operations or prospects of the Company or the
Home.
7.5. APPROVAL BY COUNSEL. All actions, proceedings, instruments and
documents required to carry out the trans actions contemplated by this
Agreement or incidental thereto and all other related legal matters shall
be subject to the approval of counsel for the Purchaser and the
Acquisition Subsidiary, and such counsel shall have been furnished with
such certified copies of actions and proceedings and other instruments and
documents as they shall have requested.
7.6. PRE-ACQUISITION REVIEW. The Purchaser and its representatives
shall have completed a pre-acquisition review of the financial
information, books and records, and proper ties and assets of the Company
and the Home, and shall have discovered no change in the business, assets,
operations, financial condition or prospects of the Company or the Home
which could, in the sole determination of the Purchaser, have a material
adverse effect on the value to the Purchaser of the business, assets,
financial condition or prospects of the Company or the Home.
7.7. RELATED TRANSACTIONS. Each Shareholder shall have executed and
delivered to the Acquisition Subsidiary his or her respective Employment
Agreement, and Ronald F. Duhaime shall have executed and delivered his
plan adoption agreement under the Carriage Partners Program.
7.8. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall have
been conducted, at the Purchaser's expense, (i) a Phase I (and, if deemed
necessary by Purchaser, a Phase II) environmental audit of the Home and
the Real Property by an environmental consulting firm selected by
Purchaser (or, in
-19-
lieu thereof, in the sole discretion of the Purchaser, environmental
questionnaires completed and signed by the manager of each the Home, on
forms provided by the Acquisition Subsidiary and approved by its lender),
(ii) a health and safety inspection of the Home by a person (who may be an
employee of the Purchaser) or firm selected by the Purchaser and who is
qualified and experienced in such matters in the funeral service industry,
and (iii) a structural inspection of the Home by an engineering firm
selected by the Purchaser. The Shareholders agree to take the action (and
pay any costs in taking such action) as may be reasonably recommended by
such firms and/or persons, up to $15,000 in the aggregate. In any event,
it shall be a condition to the Purchaser's obligations hereunder that the
results of the reports of such firms or persons (together with any
remedial action, if any, taken by Shareholders, regardless of the cost, in
response thereto) shall be satisfactory to Purchaser in its sole
discretion.
7.9. TITLE INSURANCE. The Shareholders shall have pro vided, at
their expense, an Owner's Policy of Title Insurance issued to the
Surviving Corporation in an agreed-upon amount, issued by a title company
with offices in Hartford County, Connecticut and reasonably acceptable to
the Surviving Corporation (the "Title Company"), insuring the Surviving
Corporation's interest in the Real Property, subject only to the Permitted
Liens and any standard printed exceptions included in a Connecticut
standard form Policy of Title Insurance; provided, however, that such
policy shall have deleted any exception regarding restrictions or be
limited to restrictions that are Permitted Liens, any standard exception
pertaining to discrepancies, conflicts or shortages in area shall be
deleted except for "shortages in area", and any standard exception for
taxes shall be limited to subsequent years.
7.10. SURVEY. The Purchaser shall have received, at the
Shareholder's expense, a survey prepared by a licensed surveyor approved
by the Purchaser and acceptable to the Title Company, with respect to each
parcel of Real Property, which survey shall comply with any applicable
standards under Connecticut law, be sufficient for Title Company to delete
any survey exception contained in the owner's policy of title insurance
referred to in Section 7.9, save and except for the phrase "shortages in
area", and otherwise be in form and content acceptable to Purchaser.
7.11. FINANCING COMMITMENT. The Purchaser shall have received from
Provident Services, Inc. or another financial institution acceptable to it
a written commitment, containing such terms and conditions and otherwise
in form and substance acceptable to the Purchaser, providing for the
extension of
-20-
financing and other financial accommodations in order to provide the
portion of the Merger Consideration (as defined in the Plan of Merger)
that is not furnished by the Purchaser or obtained by the Purchaser from
other sources, and such commitment shall have been funded in such amount
contemporaneously with the Closing.
7.12. LIEN RELEASES. The holders of the Liens against any assets of
the Company, including any of the Real Property (other than Permitted
Liens) shall have executed and delivered written releases of such Liens,
all in recordable form and otherwise acceptable to the Purchaser and its
lender.
7.13. OTHER MANAGEMENT ARRANGEMENTS. The Share holders shall have
identified to the Purchaser such other personnel of the Home (in addition
to the Shareholders) as may be key to the continued effective management
and operation of the Home after the Closing, and the Purchaser shall have
entered into mutually satisfactory arrangements regarding the continued
employment of such personnel at the Home following the Closing.
7.14. OTHER CONNECTICUT TRANSACTION. The transaction contemplated by
the Merger Agreement of even date herewith among the Purchaser, CFS
Funeral Services of Connecticut, Inc., O'Brien Funeral Home, Incorporated
and Thomas P. O'Brien, shall have been consummated prior to or
contemporaneously with the Closing under this Agreement.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS.
The obligations of the Company and the Shareholders under this Agreement shall
be subject to the following conditions, any of which may be expressly waived by
the Shareholders in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Shareholders shall not have discovered any ma terial error, misstatement
or omission in the representations and warranties made by the Purchaser
and the Acquisition Subsidiary in Section 4 hereof; the representations
and warranties made by the Purchaser and the Acquisition Subsidiary herein
shall be deemed to have been made again at and as of the time of Closing
and shall then be true and correct; the Purchaser and the Acquisition
Subsidiary shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Shareholders shall have received
a certificate, signed by an executive officer of each of the Purchaser and
the Acquisition Subsidiary, to the effect of the foregoing provisions of
this Section 8.1.
-21-
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Shareholders an opinion of counsel for the Purchaser and
the Acquisition Subsidiary, to the effect that:
(i) the Purchaser is a corporation duly organ ized, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power to enter into and
perform its obligations under this Agreement and the Plan of Merger;
and the Acquisition Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut, and has all requisite corporate power to enter into and
perform its obligations under this Agreement and the other documents
contemplated herein to be executed and delivered by the Acquisition
Subsidiary (as shall be specified in such opinion);
(ii) the execution, delivery and performance by the Purchaser
and the Acquisition Subsidiary of this Agreement and such other
documents have been duly authorized and approved by all necessary
corporate action required on their part;
(iii) this Agreement is, and upon execution and delivery as
herein provided such other documents will be, valid and binding upon
the Purchaser and the Acquisition Subsidiary, enforceable against
the Purchaser and the Acquisition Subsidiary in accordance with
their respective terms;
(iv) neither the execution, delivery or per formance by the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default under,
the respective Certificates of Incorporation or Bylaws of the
Purchaser or the Acquisition Subsidiary, or under any loan or credit
agreement, indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which the Purchaser or the
Acquisition Subsidiary is a party or by which they or their
respective properties are bound, or violate any order, writ,
injunction or decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection with
the execution and delivery by the Purchaser or the Acquisition
Subsidiary of this
-22-
Agreement or any of such other documents, or the per formance of its
obligations hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and the Acquisition Subsidiary,
and on certificates of public offi cials, copies of which shall be
provided to the Shareholders at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy, insolvency,
reorgani zation, moratorium or other similar laws affecting creditors
rights and by principles of equity. Such opinion may be limited to federal
law, the General Corporation Law of the State of Delaware and the internal
laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary shall have obtained all consents and approvals of other persons
and governmental authorities to the transactions contemplated by this
Agreement.
8.4. RELATED TRANSACTIONS. The Acquisition Subsidiary shall have
executed and delivered to the Shareholders their respective Employment
Agreements; and shall have established the Carriage Partners Program and
executed and delivered to Ronald F. Duhaime his plan adoption agreement
thereunder.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regard less of any
investigation made at any time by or on behalf of any party hereto, all
covenants, agreements, representations and warranties made hereunder or
pursuant hereto or any Schedule or Exhibit hereto or in connection with
the trans actions contemplated hereby and thereby shall not terminate but
shall survive the Closing and continue in effect thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders jointly
and severally agree to indemnify and hold harmless the Purchaser and
(following the Effective Time of the Merger) the Surviving Corporation,
and their respective successors and assigns, from and against any and all
losses, damages, liabilities, obligations, costs or expenses (any one such
item being herein called a "Loss" and all such items being herein
collectively called "Losses") which are caused by
-23-
or arise out of (i) any breach or default in the performance by the
Company or any Shareholder of any covenant or agreement of the Company or
the Shareholders contained in this Agree ment, (ii) any breach of warranty
or inaccurate or erroneous representation made by the Shareholders herein,
in any Schedule delivered to the Purchaser pursuant hereto or in any
certificate or other instrument delivered by or on behalf of the Company
or any Shareholder pursuant hereto, (iii) any Unassumed Liability of the
Company of any kind or nature, whether absolute or contingent, known or
unknown, to the extent not paid or discharged prior to the Effective Time
of the Merger as provided in Section 5.5, and (iv) any and all actions,
suits, proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal fees) incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Pur chaser and the
Acquisition Subsidiary jointly and severally agree to indemnify and hold
harmless the Shareholders and their respective heirs and assigns from and
against any Losses which are caused by or arise out of (i) any breach or
default in the performance by the Purchaser or the Acquisition Subsidiary
of any covenant or agreement of the Purchaser or the Acquisition
Subsidiary contained in this Agreement, (ii) any breach of warranty or
inaccurate or erroneous represen tation made by the Purchaser or the
Acquisition Subsidiary herein or in any certificate or other instrument
delivered by or on behalf of the Purchaser or the Acquisition Subsidiary
pursuant hereto, and (iii) any and all actions, suits, pro ceedings,
claims, demands, judgments, costs and expenses (in cluding reasonable
legal fees) incident to any of the forego ing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for indemnification
against another party hereunder ("indemnifying party"), the indemnifying
party shall be given prompt written notice thereof and shall have the
right (i) to participate in the defense thereof and be repre sented, at
its own expense, by advisory counsel selected by it, and (ii) to approve
any settlement if the indemnifying party is, or will be, required to pay
any amounts in connec tion therewith, which approval shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, if within
ten business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided herein, then
the indemnifying party shall have the right to control the defense of such
claim, provided that the indemnified party shall have the
-24-
right (i) to participate in the defense thereof and be repre sented, at
its own expenses, by advisory counsel selected by it, and (ii) to approve
any settlement if the indemnified party's interests are, or would be,
affected thereby.
10.4. CERTAIN LIMITATIONS. The payment of any claims for Losses
pursuant hereto shall not relieve any Shareholder of personal
responsibility for indemnification under Section 10.1. The Purchaser
agrees, however, that (i) the aggregate amount of Losses which the
Purchaser and the Surviving Corporation shall be entitled to recover from
the Shareholders under Section 10.1 shall be limited to the Merger
Considera tion, and (ii) no claim shall be asserted in respect of clause
(ii) of Section 10.1 (or clause iv), insofar as the same relates to said
clause (ii)) after (x) expiration of the applicable state or federal
statute of limitations, in the case of claims arising under Sections 3.1
to 3.3, 3.10 and 3.24 to 3.28, or (y) June 30, 1998, in all other cases.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholders agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof; and the
Purchaser and the Acquisition Subsidiary agree to use their best efforts
to bring about the satisfaction of the conditions specified in Section 8
hereof.
11.2. TERMINATION. This Agreement may be terminated prior to Closing
by:
(a) the mutual written consent of the Shareholders and the
Purchaser;
(b) the Purchaser if a material default shall be made by the
Company or any Shareholder in the observance or in the due and
timely performance by any of their covenants herein contained, or if
there shall have been a material breach or misrepresentation by the
Company or any Shareholder of any of their warranties and represen
tations herein contained, or if the conditions of this Agreement to
be complied with or performed by the Company or any Shareholder at
or before the Closing shall not have been complied with or performed
at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly waived
by the Purchaser in writing;
(c) the Shareholders if a material default shall be made by
the Purchaser or the Acquisition Subsidiary in the observance or in
the due and timely performance by the Purchaser or the Acquisition
Subsidiary of any of
-25-
their covenants herein contained, or if there shall have been a
material breach or misrepresentation by the Purchaser or the
Acquisition Subsidiary of any of their warranties and
representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Purchaser and the
Acquisition Subsidiary at or before the Closing shall not have been
complied with or performed at the time required for such compli ance
or performance and such noncompliance or nonper formance shall not
have been expressly waived by the Shareholders in writing; or
(d) either the Shareholders or the Purchaser, if the Closing
has not occurred by July 3, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is terminated
under paragraph (a) or (d) of Section 11.2, then no party shall have any
liability to any other parties here under. If this Agreement is terminated
under paragraph (b) or (c) of Section 11.2, then (i) the party so
terminating this Agreement shall not have any liability to any other party
hereto, provided the terminating party has not breached any representation
or warranty or failed to comply with any of its covenants in this
Agreement, and (ii) such termination shall not prejudice the rights and
remedies of the terminating party against any other party which has
breached any of its representations, warranties or covenants herein prior
to such termination.
12. POST-CLOSING COVENANTS.
12.1. CLOSING DATE CASH AND RECEIVABLES. At the Closing, the
Shareholders shall provide to the Purchaser a listing (certified by them
to be complete and accurate) of the Closing Date Cash and Receivables in
order to identify them on Schedule 12.1. The Purchaser shall have the
exclusive right and control over the collection of Closing Date
Receivables. Six months after the Closing, the Purchaser shall remit such
collections (less Assumed Debt of the Company not paid at Closing pursuant
to Section 5.5 hereof, if any, which are paid by the Company subsequent to
the Closing. The form of payment shall be in Series D Preferred Stock in
accordance with each Shareholder's respective interest shown on Annex A to
the Plan of Merger. The Purchaser shall have no duty to pursue collection
of Closing Date Receivables by means greater than used on its collection
of other accounts receivable, and in no event shall the Purchaser be
required to institute suit or refer any account to a collection agency. At
any time after the Closing, the Purchaser may at any time, by written
notice to the Shareholders, return the right and control over collection
of Closing Date Receivables to the Shareholders, in which case the
Purchaser shall be thereafter relieved of all
-26-
further responsibility hereunder other than in respect of collections
received prior to the giving of such notice.
12.2. RESTRICTIVE COVENANTS OF THE SHAREHOLDERS.
(a) NON-COMPETITION. If the Closing occurs, then for a period
commencing on the Closing Date and ending ten (10) years thereafter,
no Shareholder shall, directly or indirectly:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partner ship, association or
agent or agency, in the following towns and/or cities:
Bristol, Plainville, New Britain, Southington, Wolcott,
Plymouth, Harwinton, Burlington and Farmington, (the
"Territory"), in the funeral, mortuary, crematory, monument,
or any related line of business (collec tively, the
"Business");
(ii) own or hold any beneficial interest in one percent
(1%) or more of the voting securi ties in any corporation,
partnership or other busi ness entity which conducts its
operations, in whole or in part, in the Business within the
Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corporation,
partnership or other busi ness entity that conducts its
business, in whole or in part, in the Business within the
Territory; or
(iv) cause or induce any present or future employee of
the Purchaser or any of its affiliates (including the
Surviving Corporation) to leave the employ of the Purchaser or
any such affiliate to accept employment with such Share holder
or with any person, firm, association or corporation with
which such Shareholder may be or become affiliated.
Without limiting the generality of the foregoing, a
Shareholder shall be deemed directly or indirectly engaged in the
Business if he or she acts as a funeral director at any funeral
establishment within the Territory, if a Shareholder engages in the
sale or marketing of preneed funeral contracts for services to be
performed within the Territory, or if a Shareholder promotes or
finances any family member or affiliate to operate a Business or
engage in any of the foregoing activities within the Territory.
-27-
(b) REFORMATION. The above covenants shall not be held invalid
or unenforceable because of the scope of the territory or actions
subject thereto or restricted there by, or the period of time within
which such covenants are operative; but any judgment of a court of
competent jurisdiction may define the maximum territory and actions
subject to and restricted thereby and the period of time during
which such covenants are enforceable.
(c) REMEDIES. Each Shareholder agrees that any remedy at law
for any actual or threatened breach of any of the foregoing
covenants would be inadequate and that the Purchaser shall be
entitled to specific performance hereof or injunctive relief or
both, by temporary or permanent injunction or such other appropriate
judicial remedy, writ or order as may be entered into by a court of
competent jurisdiction in addition to any damages that the Purchaser
may be legally entitled to recover together with reasonable expenses
of litigation, including attor neys' fees incurred in connection
therewith, as may be approved by such court.
(d) REPRESENTATIONS. Each Shareholder represents and warrants
to and agrees with the Purchaser that (i) such Shareholder
understands that the foregoing restric tions are being made incident
to and as a condition of consummation of the Merger, and that such
covenants are necessary in order to protect the business and
goodwill being acquired thereby, (ii) such covenants are not
oppressive to such Shareholder in any respect, and (iii) the
consideration for such restrictions is included in the Merger
Consideration, which consideration such Shareholder acknowledges is
fair and adequate for the giving of the covenants herein and for
which such Shareholder acknowledges a direct and valuable benefit.
(e) MERGER CONSIDERATION ALLOCATION. The parties agree to
allocate $50,000 of the Merger Consideration to the foregoing
covenants for federal income tax purposes, pursuant to Section
1060(a) of the Code. Such allocation is not intended to be a measure
of the amount or range of damages which the Purchaser or any
affiliate may suffer or recover as a result of any breach of the
foregoing covenants, and each Shareholder acknowledges that in case
of any such breach, the Purchaser shall be entitled to seek in
excess of such amount as it may otherwise be able to demonstrate
itself justly entitled to.
12.3. LETTER OF CREDIT. Pursuant to the Plan of Merger, the
Purchaser will cause to be issued and delivered to Ronald F. Duhaime
("Duhaime"), as agent for all Shareholders who accept Parent Shares as a
portion of the Merger
-28-
Consideration, the Letter of Credit (as defined in the Plan of Merger). As
provided in the Plan of Merger, the Letter of Credit terminates upon
consummation of an Initial Public Offering (as defined in each Parent
Stock Designation, referred to in the Plan of Merger). Duhaime agrees to
return to the Purchaser the original of the Letter of Credit (including
any renewals or reissues thereof) upon receipt of written certification
from the Purchaser that an Initial Public Offering has been consummated,
and the other Shareholders who accept such Parent Shares hereby authorize
such return.
12.4. CONVERSION OF PRENEED TRUSTS. The Acquisition Subsidiary
agrees that it will not convert the preneed trusts and accounts of the
Home in existence at the Effective Time of the Merger into
insurance-funded products as permitted under Connecticut law without the
prior written consent of Ronald F. Duhaime, which consent will not be
unreasonably withheld or delayed. The foregoing shall not apply to any new
accounts or preneed contracts written or entered into on or after the
Closing Date.
12.5. EMPLOYEE MATTERS. At or prior to the Closing, the Shareholders
will cause the Company to pay or satisfy any accrued benefits to employees
of the Homes which are then outstanding, or, at the election of the
Shareholders, may be included in the Assumed Debt as set forth on Schedule
5.5 (which would then be deducted from the Merger Consideration) the
difference between any accrued and untaken vacation that any such
employees are entitled to as of Closing minus any vacation time such
employees are entitled to receive for the remainder of the current fiscal
year under the Purchaser's employee benefit policy. The Purchaser agrees
that, for purposes of its vacation and other leave policies, it will
recognize the original start date with the Home of each person who becomes
an employee of the Surviving Corporation as a result of the Merger. The
Purchaser also agrees that the starting rate or salary of each such
employee of the Home who so becomes employed by the Surviving Corporation
will include compensation for any additional health insurance or similar
benefits formerly provided by the Company which are not included in
employee benefits provided by the Purchaser and its subsidiaries.
12.6. COMPLIMENTARY FUNERAL SERVICE. The Surviving Corporation will
assume the Company's obligation to provide, without charge, a funeral
service for Ms. Delvina Coggins and Blanche Cormier, as outlined in the
contracts with such persons attached as Schedule 12.6. [provide details].
12.7. IMPROVEMENTS TO HOME. The Surviving Corporation will commit
following the Closing up to $15,000 in
-29-
capital improvements to the Home to place siding on three sides of the
Home, according to current plans for such improvements.
12.8. As described on Schedule 3.21, the Company has maintained the
C. Funk & Son Funeral Home, Inc. Profit Sharing Plan (the "Plan") for the
benefit of its employees. Neither the Purchaser, the Acquisition
Subsidiary, nor the Surviving Corporation intends to continue the Plan as
an active Plan after the Closing. The Shareholder(s) shall amend the Plan
at or prior to Closing to freeze the Plan's operations as of the date of
the Closing. The Shareholder's represent and warrant that all
contributions required to be made under the Plan have been made prior to
closing. The Shareholder(s) shall terminate and/or assist in terminating
(as applicable) the Plan as soon as it can be terminated in a reasonable
and prudent manner. The Shareholders shall be solely responsible for, and
shall bear all costs associated with, the Plan until it is terminated,
including but not limited to the cost of freezing the Plan, administering
and evaluating the Plan until it is terminated, preparing and filing the
Plan's annual tax return (Form 5500), including the cost of any audits
required in connection therewith, and terminating the Plan. The
Shareholder(s) shall reimburse the Purchaser, the Acquisition Subsidiary,
or the Surviving Corporation, as applicable, for any such costs it may
have to pay. Additionally, the Shareholder(s) shall continue after the
Closing to be solely responsible for and shall indemnify the Purchaser
pursuant to Section 10 hereof for any claim or action in any way relating
to the Plan or its operation, past, present or future, including but not
limited to (i) the past or present investments of the Plan, (ii) the past
and continued maintenance and compliance of the Plan with all legal
requirements applicable to the Plan, including but not limited to
compliance with the fiduciary responsibility and prohibited transaction
requirements applicable to the Plan, (iii) the freezing of the Plan, (iv)
the termination of the Plan within a reasonable time period following the
Closing, and (v) the ultimate distributions to the Plan Participants.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the negotiation,
preparation and carrying out of this Agreement and the consummation of the
transactions contem plated herein. If the transactions contemplated by
this Agreement and the Exhibits hereto are consummated, the Company shall
have no obligation for, nor shall the Company be charged with, any such
expenses of the Shareholders. Without limiting the generality of the
foregoing, all finders' and similar fees and expenses of Thomas Pierce &
Co., sales representative for
-30-
the Shareholders, shall be borne solely by the Shareholders, and in no
event shall the Company or the Purchaser be charged or responsible
therefor. All sales, transfer, stamp or other similar taxes, if any, which
may be assessed or charged in connection with the transactions hereunder
shall be borne by the Shareholders.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been given when personally delivered or three business days following the
date, mailed, first class, registered or certified mail, postage prepaid,
as follows:
(i) if to the Company or any Shareholder, to:
C. Funk & Son Funeral Home, Incorporated
35 Bellevue Avenue
Bristol, Connecticut 06010
Attention: Mr. Ronald F. Duhaime
with a copy to:
Ruggiero, Ziogas & Allaire
271 Farmington Avenue
Bristol, Connecticut 06010
Attention: Mr. Stephen O. Allaire
(ii) if to the Purchaser or the Acquisition
Subsidiary, to:
Carriage Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to the
other parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties; provided,
however, that following the Closing the Purchaser or the Surviving
Corporation may assign its rights hereunder without the consent of any
Shareholder to a successor-in-interest to the Purchaser or the Surviving
-31-
Corporation, as the case may be (whether by merger, sale of assets or
otherwise).
13.4. SUCCESSORS BOUND. Subject to the provisions of Section 13.3,
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and
personal representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings in this Agreement are for reference purposes only and shall not
affect the meaning or interpreta tion of this Agreement.
13.6. AMENDMENT. This Agreement may be amended only by an instrument
in writing executed by all of the parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates and other documents referred to herein, constitute the entire
agreement of the parties hereto, and supersede all prior understandings
with respect to the subject matter hereof and thereof (including, without
limitation, the letter of intent dated May 10, 1996).
13.8. GOVERNING LAW. This Agreement shall be con strued and enforced
under and in accordance with and governed by the law of the State of
Connecticut.
13.9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall
constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
-32-
THE PURCHASER:
CARRIAGE SERVICES, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE ACQUISITION SUBSIDIARY:
CSI FUNERAL SERVICES
OF CONNECTICUT, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE COMPANY:
C. FUNK & SON FUNERAL HOME,
INCORPORATED
By: /s/ RONALD F. DUHAIME
Ronald F. Duhaime, President
THE SHAREHOLDERS:
/s/ RONALD F. DUHAIME
Ronald F. Duhaime
/s/ EMILIE P. DUHAIME
Emilie P. Duhaime
/s/ CHRISTOPHER J. DUHAIME
Christopher J. Duhaime
-33-
EXHIBIT DESCRIPTION
- ------- -----------
A Plan of Merger
B-1 Employment Agreement (Ronald F. Duhaime)
B-2 Employment Agreement (Emilie P. Duhaime)
B-3 Employment Agreement (Christopher J. Duhaime)
C Carriage Partners Program
SCHEDULE DESCRIPTION
- -------- -----------
2.2 Distributed Property
3.6 Real Property
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Intangible Rights
3.17 Licenses
3.18 Litigation
3.20 Employees
3.21 Employee Benefit Plans
5.5 Assumed Debt
12.1 List of Closing Date Cash and Accounts
Receivable
12.6 Contracts for Services for Delvina Coggins and
Blanche Cormier
-34-
EXHIBT 10.21
MERGER AGREEMENT
THIS AGREEMENT, dated as of July 3, 1996, among CARRIAGE SERVICES,
INC., a Delaware corporation (the "Purchaser"), CFS FUNERAL SERVICES OF
CONNECTICUT, INC., a Connecticut corporation (the "Acquisition Subsidiary"),
O'BRIEN FUNERAL HOME, INCORPORATED, a Connecticut corporation (the "Company"),
and THOMAS P. O'BRIEN, a resident of Hartford County, Connecticut (the
"Shareholder");
W I T N E S S E T H:
WHEREAS, the Company owns and operates the O'Brien Funeral Home
located at 24 Lincoln Avenue in Bristol, Hartford County, Connecticut (the
"O'Brien Home"), and the Plainville Memorial Funeral Home located at 106 West
Main Street & 7-9 Canal Street in Plainville, Hartford County, Connecticut (the
"Plainville Home") (the O'Brien Home and the Plainville Home being hereafter
collectively referred to as the "Homes"), except for the real estate on which
the Plainville Home is situated, and the Shareholder owns all of the issued and
outstanding capital stock of the Company; and
WHEREAS, the parties desire that the Acquisition Subsidiary merge
with and into the Company in a statutory merger (the "Merger") to be consummated
under the laws of the State of Connecticut and upon the terms and conditions and
for the consideration herein set forth and in the Plan of Merger among the
Purchaser, the Acquisition Subsidiary and the Company in the form attached as
Exhibit A hereto (the "Plan of Merger");
NOW, THEREFORE, the parties agree as follows:
1. REORGANIZATION AND MERGER.
1.1. THE MERGER. Simultaneously with the execution and delivery of
this Agreement, the Plan of Merger shall be exe cuted and delivered by the
Purchaser, the Acquisition Subsidiary and the Company. Subject to the
terms and condi tions set forth in this Agreement and in the Plan of
Merger, at the Effective Time of the Merger (as defined in the Plan of
Merger), the Acquisition Subsidiary shall be merged with and into the
Company in accordance with the laws of the State of Connecticut and the
Plan of Merger. The corporation surviving the Merger is sometimes herein
referred to as the "Surviving Corporation."
1.2. SS.368 REORGANIZATION. It is the intention of the
parties that the Merger constitute a "reorganization" within
the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended (the "Code"), in accordance with
Section 368(a)(2)(E) of the Code. The parties agree to file
all of their respective tax returns and reports in a manner
-1-
consistent with such intention, and to not take any filing position in a
manner inconsistent with such intention unless compelled to do so by court
order or administrative decree. Each party agrees to furnish such
information and take such action as may be reasonably requested of the
other party in connection with the foregoing (which action shall not
include any change in the commercial terms of the Merger and the other
transactions incident thereto). In no event, however, shall the Purchaser
or the Surviving Corporation be required to incur any out-of-pocket
expenses in defending such position or providing such information or
taking such action, nor shall the foregoing constitute a warranty or
guaranty that the Merger will in fact constitute such a reorganization.
1.3. SHAREHOLDER CONSENT; WAIVER OF DISSENTERS' RIGHTS. The
Shareholder, in his capacity as a shareholder of the Company, and the
Purchaser, in its capacity as a shareholder of the Acquisition Subsidiary,
hereby (i) consent to the Merger pursuant to Section 33-366 of the
Connecticut General Statutes, as amended (the "Connecticut Statutes"), and
(ii) irrevocably and unconditionally waive all dissenters' and other
similar rights with respect to the Merger under and pursuant to Sections
33-373 and 33-374, of the Connecticut Statutes.
1.4. POST-CLOSING TAX MATTERS. The Shareholder shall be fully
responsible for all federal, state and local taxes (including, but not
limited to, income taxes) of the Company accrued through the Closing and
for completing, filing and handling all tax returns and reports in respect
of all periods through Closing and consummation of the Merger, including
responding to any inquiries, examinations or audits regarding such taxes,
returns and reports. Without limiting the generality of the foregoing, the
Purchaser will arrange through its outside accounting firm for the
preparation of a short-period federal income tax return for the Company's
current year through the Closing Date (after which time the Surviving
Corporation will be included as part of the consolidated group of which
the Purchaser is the parent corporation), based upon information furnished
by the Shareholder (and for which the Shareholder shall be solely
responsible), and the Shareholder shall pay or reimburse the Purchaser for
all federal income taxes in respect thereof and the reasonable cost of tax
preparation by such outside accounting firm.
1.5. FURTHER ASSURANCES. The Shareholder agrees to exe cute and
deliver from time to time after the Effective Time of the Merger, at the
reasonable request of the Purchaser, and without further consideration,
such additional instruments of conveyance and transfer, and to take such
other action as the Purchaser may reasonably require to more effectively
carry out
-2-
the terms and provisions of the Merger and the other trans
actions contemplated by this Agreement.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing of the Merger (the "Closing") shall
occur at the offices of Ruggiero, Ziogas & Allaire, 271 Farmington Avenue,
Bristol, Connecticut on July 3, 1996, or at such other date, time or place
as may be mutually agreed upon by the parties. The date and time of the
Closing is herein called the "Closing Date". At the Closing, the
Shareholder shall surrender for cancellation pursuant to the Merger all
certificates representing his shares of capital stock of the Company,
against receipt from the Purchaser of the Merger Consideration (as defined
in the Plan of Merger). All action to be taken at the Closing as
hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered
to have been taken, delivered or made simultaneously, and no such action
or delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the Merger, at
the Closing the following transactions shall occur:
(i) The Acquisition Subsidiary, on the one hand, and each of
the Shareholder, Robert Lavoie, Mark Seleman and Peter Grady, on the
other, shall each execute and deliver the other a separate
Employment Agreement to be dated the Closing Date and in
substantially the forms of Exhibits B-1, B-2, B-3 and B-4 hereto,
respectively (collectively, the "Employment Agreements");
(ii) The Acquisition Subsidiary shall establish the Carriage
Partners Program for Connecticut to be dated the Closing Date and in
substantially in the form of Exhibit C hereto (the "Carriage
Partners Program"), and the Acquisition Subsidiary and the
Shareholder shall each execute and deliver to the other a plan
participation agreement evidencing the Shareholder's participation
thereunder;
(iii) Immediately prior to the Closing and consum mation of
the Merger, the Company shall distribute to the Shareholder, without
recourse or warranty against the Company, the assets described on
Schedule 2.2 hereto (the "Distributed Property"); and
(iv) The Acquisition Subsidiary, as tenant, and the
Shareholder, Robert Lavoie and Donna Papazian (collectively,
"Lessor"), as landlord, shall have
-3-
executed and delivered to each other a fully paid-up Lease Agreement
covering the Real Property on which the Plainville Home is situated,
to be dated the Closing Date and in substantially the form of
Exhibit D hereto (the "Lease Agreement"). In addition, Lessor shall
execute and deliver to the Acquisition Subsidiary a restrictive
covenant, running with the land, in recordable form and acceptable
in form and substance to the Purchaser, to the effect that the
property covered by the Lease Agreement may not be operated as a
funeral home or other similar business except by the Acquisition
Subsidiary or its affiliates, successors and assigns.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.
The Shareholder represents and warrants to and agrees with the
Purchaser and the Acquisition Subsidiary that:
3.1. TITLE TO SHARES. The Shareholder is the sole owner and holder,
beneficially and of record, of all of the issued and outstanding shares of
capital stock of the Company, and the Shareholder has good and marketable
title to all of such issued and outstanding shares, free and clear of any
and all liens, encumbrances, pledges, security interests, mortgages or
claims of any other person (collectively, the "Liens").
3.2. ORGANIZATION AND EXISTENCE. The Company is a corpo ration duly
organized, validly existing and in good standing under the laws of the
State of Connecticut, and has all requisite corporate power to enter into
and perform its obligations under this Agreement and the Plan of Merger
and to carry on its business as now conducted. The Shareholder has
delivered to the Purchaser complete and correct copies of the Certificate
of Incorporation, certified by the Secretary of State of Connecticut, and
the Bylaws, certified by its Secretary, of the Company, all as in effect
on the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 3,000 shares of Common Stock, $10.00 par value, of which 2,273
shares are issued and outstanding and held by the Shareholder and 727
shares are held by the Company as Treasury shares. All such issued and
outstanding shares are validly issued and outstanding, fully paid and
nonassessable and not issued in violation of the preemptive rights of any
person. The Company does not have any outstanding subscriptions, options
or other agreements or commitments obligating it to issue shares of its
capital stock. There are no shareholders, buy-sell, voting or other
similar agreements or commitments affecting the voting or transferability
of any such shares. From the date hereof through the Closing Date, the
Shareholder will not, and will not cause or permit the Company to, issue
or enter into any
-4-
subscriptions, options, agreements or other commitments in respect of the
issuance, transfer, sale or encumbrance of any shares of capital stock of
the Company.
3.4. NO SUBSIDIARIES. The Company does not have any subsidiaries or
any investment or ownership interest in any corporation, joint venture or
other business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholder has deliv ered to the
Purchaser the unaudited balance sheets of the Company at [December 31,
1995] (the "Company Balance Sheet"), and the related unaudited statement
of income and expenses of the Company for the [twelve]-month period of
operations then ended. All such financial statements are true and correct,
have been prepared in accordance with the books and records of the
Company, and present fairly the financial positions of the Company at the
date indicated and the results of its opera tions for the period then
ended in accordance with United States federal income tax accounting
principles, consistently applied. The Homes collectively performed the
number of adult funeral services for each of the twelve-month periods as
described below:
Twelve Months Ended December 31,
HOME 1993 1994 1995
- ---- ---- ---- ----
O'Brien 165 174 186
Plainville 15 18 24
3.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 3.6 sets forth a legal
description of all parcels of real property in which the Company has any
interest or which is used in its business (herein referred to as the "Real
Property"), and also briefly describes each building and major structure
and improvement thereon. No person other than the Company or (in the case
of the Plainville Home only) Lessor has any ownership, leasehold or other
interest of any kind in the Real Property. The Real Property is the only
interest in real property required for the conduct of the business of the
Homes as presently conduct ed. All of the buildings, structures and
improvements located on the Real Property are in good operating condition,
ordinary wear and tear excepted. None of such buildings, structures or
improvements, or the operation or maintenance thereof as now operated or
maintained, contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any provision of law,
the effect of which would interfere with or prevent their continued use
for the purposes for which they are now being used. There is not pending
nor, to the knowledge of the Shareholder, threatened any proceeding
-5-
for the taking or condemnation of the Real Property or any portion
thereof. The Company has good and marketable fee simple title to all of
the Real Property used in the business of the O'Brien Home and Lessor has
good and marketable title to all of the Real Property covered by the Lease
Agreement, in each case free and clear of all Liens, other than easements
and other similar title exceptions described on Schedule 3.6 ("Permitted
Liens").
(b) ENVIRONMENTAL CONDITION. No "Hazardous Substances" (defined
herein to mean any substance which is regulated by or listed under any
federal, state or local law, statute, rule or regulation pertaining to the
environment or the protection of human health and welfare, including the
Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, the Toxic Substances Control Act, as amended, or any similar
state or local statute or regulation) have been generated, stored, dumped,
located or released onto or from the Real Property, nor to the knowledge
of the Shareholder have any Hazardous Substances been generated, stored,
dumped, located or disposed of on any real property contiguous or adjacent
to the Real Property. The Real Property is not now, and to the best of the
Shareholder's knowledge, will not be in the future as a result of its
condition at or prior to Closing, subject to any reclamation, remediation
or reporting requirements of any federal, state, local or other
governmental body or agency having jurisdiction over the Real Property.
Neither the Company nor the Shareholder has received notice or knows of
any claim, request for information, enforcement action or other proceeding
related to the off-site disposal of Hazardous Substances generated by the
Company. Except as described on Schedule 3.6, to the best of the knowledge
of the Shareholder, the Real Property does not contain any asbestos,
polychlorinated byphenyls, urea, formal dehyde, lead based paint, radon
gas or underground storage tanks, except for substances used in the
ordinary course of the operations of the Homes that are properly used,
stored and disposed of in accordance with applicable legal requirements.
(c) FIRPTA. Neither the Company nor the Shareholder is a "foreign
person" (as defined in Section 1445(f)(3) of the Code, and the regulations
issued thereunder), and the Shareholder shall deliver at Closing a
non-foreign affidavit in recordable form containing such information as
shall be required by Code Section 1445(b)(2) and the regulations issued
thereunder.
(d) BILLS PAID. All bills and other payments due with respect to the
ownership, operation, and maintenance of the Real Property have been (and
on the Closing Date will be) paid, and no Liens or other claims for the
same have been
-6-
filed or asserted against any part of the Real Property.
(e) NO FLOOD HAZARDS. No portion of the Real Property is located
within an area that has been designated by the Federal Insurance
Administration, the Army Corp of Engineers, or any other governmental
agency or body as being subject to special flooding hazards.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes (except as
otherwise described in Section 3.6) are owned by the Company. None of such
assets, rights or properties is subject to any lease or license. The
Company is in actual possession and control of all properties owned by it,
and has good and marketable title to all of its assets, rights and
properties, including without limitation, all properties and assets
reflected in the Company Balance Sheet, free and clear of all Liens,
except for (i) Liens to be discharged and released at or prior to Closing,
and (ii) Permitted Liens against Real Property.
3.8. ABSENCE OF CHANGES OR EVENTS. Since the date of the Company
Balance Sheet, there has not been:
(i) any adverse change in the financial condi tion,
operations, business, properties or prospects of the Company or of
either Home;
(ii) any change in the authorized capital or outstanding
securities of the Company;
(iii) any capital stock, bonds or other secu rities which the
Company has issued, sold, delivered or agreed to issue, sell or
deliver, nor has the Company granted or agreed to grant any options,
warrants or other rights calling for the issue, sale or delivery
thereof;
(iv) any borrowing or agreement by the Company to borrow any
funds, nor has the Company incurred, or become subject to, any
absolute or contingent obligation or liability, except trade
payables incurred in the ordinary course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change in any
key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose
-7-
of, any of the inventories or other assets or properties
of the Company, except in the ordinary course of
business;
(viii) any damage, destruction or losses against the Company
or any waiver of any rights of material value to the Company;
(ix) any labor strike or labor dispute, or the entering into
of any collective bargaining agreement, with respect to employees of
the Company;
(x) any claim or liability for any material damages for any
actual or alleged negligence or other tort or breach of contract
against or affecting the Company;
(xi) any new competitor that has, to the knowledge of the
Shareholder, built, commenced to build or announced intentions to
build a funeral home or mortuary in direct competition with either
Home; or
(xii) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Company Balance Sheet, the Company does not have any, and none of its
assets or properties are subject to any, liabilities or obligations of any
kind or nature, other than unsecured trade accounts payable and accrued
expenses arising in the ordinary course of the Company's business since
the date of the Company Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local and other taxes
due and payable by the Company on or before the date of this Agreement
have been paid or are adequately provided for in the Company's books and
records. The Company has filed all tax returns and reports required to be
filed by it with all taxing authorities, and all such tax returns and
reports are true, complete and correct. True and correct copies of the
federal, state and local income tax returns filed by the Company for each
of its last three taxable years have been furnished to the Purchaser. No
assessments of deficiencies have been made against the Company which are
presently pending or outstanding. No state of facts exists or has existed
which would constitute grounds for the assessment of any tax liability
against the Company with respect to any prior taxable period which has not
been audited by the Internal Revenue Service or which has not been closed
by applicable statute. There are no outstanding agreements or
-8-
waivers extending the statutory period of limitations applica ble to any
income tax return of the Company for any period.
3.11. INVENTORY. The inventories reflected in the Company Balance
Sheet, and all items placed in inventory since the date thereof, are (i)
accounted for in accordance with United States federal income tax
accounting principles applied on a consistent basis, and (ii) saleable or
usable in the ordinary course of business of the Company at usual and
customary prices, subject to normal returns and markdowns consistent with
past practice. At the Closing, the Shareholder shall deliver to the
Purchaser a list, certified by the Shareholder to be complete and correct,
of all of the inventory of the Company.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and all
other material items of equipment, fixtures, furniture and other fixed
assets owned by the Company. All such items are in good and operating
condition and repair, ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto sets forth a
complete description of:
(i) all loan, credit and similar agreements to which the
Company is a party or by which it is bound, and all notes or other
evidences of indebtedness of, or agreements creating any Lien on any
property of, the Company;
(ii) all employment contracts, noncompetition agreements and
other agreements relating to the employ ment of any employees of the
Company;
(iii) all contracts and agreements affecting the Company
which do not terminate or are not terminable by the Company upon
notice of 30 days or less or which involve an obligation on its part
in excess of $1,000 per annum or $5,000 in the aggregate; and
(iv) all other contracts and commitments of the Company
entered into outside the ordinary course of busi ness.
Each contract and commitment described on Schedule 3.13 is valid and
in full force and effect, and neither the Company, nor, to the knowledge
of the Shareholder, any of the other parties thereto, are in default
thereunder. The Shareholder has furnished to the Purchaser a true and
correct copy of each document listed on Schedule 3.13.
-9-
3.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14 hereto
accurately and completely lists, as of the date of this Agreement (i) all
preneed contracts of the Company unfulfilled as of the date hereof,
including contracts for the sale of funeral merchandise and services, and
(ii) all trust accounts relating to the Homes, indicating the location of
each and the balance thereof. All preneed contracts required to be listed
on Schedule 3.14 (x) have been entered into in the normal course of
business at regular retail prices, or pursuant to a sales promotion
program, solely for use by the named customers and members of their
families on terms not more favorable than shown on the specimen contracts
which have been delivered to the Purchaser, (y) are subject to the rules
and regulations of the Company as now in force (copies of which have been
delivered to the Purchaser), and (z) on the date hereof are in full force
and effect, subject to no offsets, claims or waivers, and neither the
Company nor such customer is in default thereunder. All funds received by
the Company under preneed contracts have been deposited in the appropriate
accounts and administered and reported in accordance with the terms
thereof and as required by applicable laws and regulations. The aggregate
market value of the preneed accounts, trusts or other deposits is equal to
or greater than the aggregate preneed liability related to such accounts.
The services heretofore provided by the Company have been rendered in a
professional and competent manner consistent with prevailing professional
standards, practices and customs.
3.15. TRADEMARKS, ETC. The Company does not own and it has not
applied for any patents, patent applications, patent licenses, trademarks,
trademark applications or trademark or trademark licenses (collectively,
"Intangible Rights"), except as described on Schedule 3.15. The Company
owns or possesses valid rights or adequate licenses for all of such
Intangible Rights as are necessary to the conduct of the business of the
Homes as presently conducted. The Company is not charged with infringement
of any Intangible Rights of any other person, nor does the Shareholder
know of any such infringement, whether or not claimed by any person.
3.16. INSURANCE. The Company maintains such policies of insurance in
such amounts, and which insure against such losses and risks, as are
generally maintained for comparable businesses and properties. Valid
policies for such insurance will be outstanding and duly in force at all
times prior to the Closing.
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 hereto correctly and
completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or held by the Company, which
are all that are necessary or
-10-
appropriate for the operation of the Homes as presently
operated. All such items are in full force and effect.
3.18. LITIGATION. Except as set forth on Schedule 3.18, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Shareholder, threatened against or affecting the Company
or any of the assets or properties of the Company, at law or in equity or
before or by any court or federal, state, municipal or other governmental
department, commission, board, agency or instrumentality. The Company is
not subject to any continuing court or administrative order, writ,
injunction or decree, nor is the Company in default with respect to any
order, writ, injunction or decree issued by any court or foreign, federal,
state, municipal or other governmental department, commission, board,
agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company has complied and is in
compliance with all federal, state, municipal and other statutes, rules,
ordinances, and regulations applicable to the Company, the operation of
the Homes, and the Company's assets, rights and properties (including
without limitation all environmental protection and occupations safety and
health rules, regulations and laws, and laws and regulations applicable to
preneed contracts and trust accounts, including the so-called "FTC Funeral
Rule").
3.20. EMPLOYEES. Schedule 3.20 hereto correctly and completely lists
the names and monthly or hourly rates of salary and other compensation of
all the employees and agents of the Company. Schedule 3.20 also sets forth
the date of the last salary increase for each employee listed thereon, the
outstanding balances of all loans and advances, if any, made by the
Company to any employee or agent thereof, and the number of vacation days
or other time off to which each such employee is then eligible to take.
There are not pending or, to the knowledge of the Shareholder, threatened
against the Company any general labor disputes, strikes or concerted work
stoppages, and there are no discussions, negotiations, demands or
proposals that are pending or have been conducted or made with or by any
labor union or association with respect to any employees of the Company.
The Shareholder is not aware of the existence of any serious health
condition of any key manage ment personnel of either Home that might
impair any such per son's ability to carry on his or her normal duties
into the foreseeable future after the Closing. The Shareholder believes
that the relations between the Company and its employees are good.
3.21. EMPLOYEE BENEFIT PLANS. There are no plans, contracts,
commitments, programs and policies (including, without limitation,
pension, profit sharing, thrift, bonus,
-11-
deferred compensation, severance, retirement, disability, medical, life,
dental and accidental insurance, vacation, sick leave, death benefit and
other similar employee benefit plans and policies) maintained by the
Company providing benefits to any employee or former employee of the
Company, other than sick leave, vacation and group hospitalization
benefits that are described on Schedule 3.21, all of which are maintained
in accordance with applicable legal requirements. True and com plete
copies of all such benefit plans described on Schedule 3.21, have been
provided to the Purchaser.
3.22. AFFILIATED PARTY TRANSACTIONS. The Company and the Homes have
been operated and are being operated in a man ner separate from the
personal and other business activities of the Shareholder and his
affiliates, and neither the Company nor any of its assets are subject to
any affiliated party commitments or transactions.
3.23. BOOKS AND RECORDS. All books and records of the Company are
true, correct and complete each have been maintained by it in accordance
with good business practice and in accordance with all laws, regulations
and other require ments applicable to the Company. The corporate records
of the Company reflect a true record of all meetings and proceedings of
the Board of Directors and the shareholders of the Company.
3.24. FINDERS. Except as described in Section 13.1, neither the
Company nor the Shareholder is a party to or in any way obligated under
any contract or other agreement, and there are no outstanding claims
against either of them, for the payment of any broker's or finder's fee in
connection with the origin, negotiation, execution or performance of this
Agreement.
3.25. AUTHORITY OF THE SHAREHOLDER. The Shareholder has the full
right, capacity and authority to enter into and perform this Agreement and
the other documents to be executed by the Shareholder as provided in this
Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and upon execution and delivery by
the Shareholder, each of such other documents will constitute, the legal,
valid and binding obligations of the Shareholder enforceable against him
in accordance with their respective terms. Neither the execution, delivery
nor performance of this Agreement or any of such other documents, nor the
consum mation of the transactions contemplated hereby or thereby, will:
(i) result in a violation or breach of any term or pro vision of,
constitute a default or acceleration under, require notice to or consent
of any third party to, or result in the creation of any Lien by virtue of
(x) the Certificate of Incorporation or Bylaws of the Company or (y) any
contract, agreement, lease, license or other commitment to which the
-12-
Company or the Shareholder is a party or by which the Company or the
Shareholder or its or his respective assets or proper ties are bound; nor
(ii) violate any statute or any order, writ, injunction or decree of any
court, administrative agency or governmental body.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement and the Plan of Merger have
been duly authorized by its Board of Directors. This Agreement and the
Plan of Merger are legally binding and enforceable against the Company in
accordance with their respective terms. Neither the execution, delivery
nor performance by the Company of this Agreement or the Plan of Merger
will result in a violation or breach of, nor constitute a default or
accelerate the performance required under, the Certificate of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust or other contract or agree ment to which the Company is a party or
by which it or its properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or governmental
body.
3.27. ACQUISITION OF PARENT SHARES. The Parent Shares (as defined in
the Plan of Merger) to be acquired by the Shareholder pursuant to the
Merger will be acquired by him for investment purposes only and not with
the present inten tion or view to, or resale in connection with, any
distri bution thereof within the meaning of the Securities Act of 1933, as
amended. The Shareholder understands that such Parent Shares will not be
registered under such Securities Act or any state securities or blue sky
laws, that transferability of such Parent Shares will be restricted in
accordance with applicable state and federal securities laws, and that a
restrictive legend to such effect will be inscribed on each certificate
representing such Parent Shares. Prior to the Closing, the Shareholder
will have had full opportunity to receive such information and ask such
questions of represen tatives of the Purchaser concerning the Purchaser,
its subsidiaries and their business, operations, assets and pros pects,
and concerning an investment in the Parent Shares, as the Shareholder will
then have deemed appropriate in order to make an informed investment
decision with respect to the Parent Shares.
3.28. FULL DISCLOSURE. The representations and war ranties made by
the Shareholder hereunder or in any Schedules or certificates furnished to
the Purchaser pursuant hereto or thereto, do not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein necessary to make the representa
tions or warranties herein or therein, in light of the circum stances in
which they are made, not misleading.
-13-
3.29. SCHEDULES. The Schedules referred to in this Section 3 have
been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Shareholder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The Purchaser and the Acquisition Subsidiary jointly and
severally represent and warrant to and agree with the Shareholder that:
4.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Connecticut, and has all requisite corporate
power to enter into and perform its obligations under this Agreement, the
Plan of Merger and the other documents to which it is a party. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power to enter into and perform its obligations under this
Agreement and the Plan of Merger, including the issuance and delivery of
the Parent Shares to the Shareholder as provided in the Plan of Merger.
The Purchaser has delivered to the Shareholder complete and correct copies
of the respective Certificates of Incorporation and Bylaws of the
Purchaser and the Acquisition Subsidiary, all as in effect on the date
hereof.
4.2. AUTHORITY. The execution, delivery and performance by the
Purchaser and the Acquisition Subsidiary of this Agree ment and the
documents contemplated in this Agreement to be executed and delivered by
them have been duly authorized by their respective Boards of Directors.
This Agreement is, and upon their execution and delivery as herein
provided such other documents will be, valid and binding upon the
Purchaser and the Acquisition Subsidiary and enforceable against each of
them in accordance with their respective terms. Neither the execution,
delivery or performance by the Purchaser or the Acquisition Subsidiary of
this Agreement or any such other document will conflict with or result in
a violation or breach of any term or provision of, nor constitute a
default under, the respective Certificates of Incorporation or Bylaws of
the Purchaser or the Acquisition Subsidiary, or under any inden ture,
mortgage, deed of trust or other contract or agreement to which the
Purchaser or the Acquisition Subsidiary is a party or by which they or
their respective properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or governmental
body.
4.3. FINDERS. Neither the Purchaser nor the Acquisition Subsidiary
is a party to or in any way obligated under any contract or other
agreement, and there are no outstanding
-14-
claims against either of them, for the payment of any broker's or finder's
fee in connection with the origin, negotiation, execution or performance
of this Agreement.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDER PENDING CLOSING.
The Company and the Shareholder jointly and severally covenant and agree with
the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agree ment to the
Closing Date, the business of the Company will be operated only in the
ordinary course, and, in particular, without the prior written consent of
the Purchaser, the Company will not, and the Shareholder will not cause or
allow the Company to:
(i) cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its Certificate of
Incorporation or Bylaws;
(iii) take any action described in Section 3.8 (except as
contemplated in Section 2.2(iii));
(iv) enter into any contract, agreement or other commitment
of the type described in Section 3.13;
(v) hire, fire, reassign or make any other change in key
personnel of the Company, or increase the rate of compensation of or
declare or pay any bonuses to any employee in excess of that listed
on Schedule 3.20; or
(vi) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to be
true and correct in all material respects on and as of the Closing
Date with the same force and effect as if the same had been made on
and as of the Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company will give
to the Purchaser and its counsel, accountants and other representatives,
full and free access to all of the properties, books, contracts,
commitments and records of the Company so that the Purchaser may have full
opportunity to make such investigation as it shall desire to make of the
affairs of the Company and the Homes.
5.3. CONSENTS AND APPROVALS. The Company and the Shareholder will
use their best efforts to obtain the neces sary consents and approvals of
other persons which may be
-15-
required to be obtained on their part to consummate the trans actions
contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor the Shareholder shall enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals or
expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion of
the assets and business of the Company or any other sale of the Company
(whether by merger, consolidation, sale or stock or otherwise), other than
with the Purchaser and the Acquisition Subsidiary as contemplated in this
Agreement.
5.5. COMPANY LIABILITIES. At or prior to the Closing, the
Shareholder shall cause to be paid and discharged in full all liabilities
and obligations of the Company, for indebtedness for borrowed money,
indebtedness secured by Liens against any assets or properties of the
Company, accrued liabilities, federal, state and local taxes, any
liabilities under suits, claims, judgments or orders then pending or any
other liability or obligation of the Company (other than accounts and
trade payables) attributable to the operation of the its business prior to
Closing (collectively, "Unassumed Liabilities"), EXCLUDING (i) obligations
under preneed contracts for which the full amount has been deposited in
trust as required under applicable law, and (ii) indebtedness as described
on Schedule 5.5 and (iii) accounts and trade payables (collectively,
the"Assumed Debt"). At the Closing, the Shareholder shall deliver to the
Purchaser certificates of the holders of the Assumed Debt, certifying as
to the amount, expressed in dollars, of all principal, interest and other
charges (including prepayment penalties or premiums) required to pay and
discharge the Assumed Debt in full and release all Liens securing the
same, and such amount shall constitute a downward adjustment in the Merger
Consideration pursuant to the terms of the Plan of Merger. Any Unassumed
Liabilities remaining unpaid after the Closing shall be paid pursuant to
Section 12.1, or if funds are insufficient, shall then be subject to
indemnification under Section 10.1. Property taxes, utility bills and
other normal proratable items shall be prorated as of the Closing Date,
the Shareholder being charged for the same through the Closing and the
Surviving Corporation being responsible for such charges thereafter. The
Purchaser agrees that to the extent there exist at the Closing any fully
earned cash rebates or refunds due from vendors which have not then been
paid, the Surviving Corporation will pay to the Shareholder any such cash
rebates or refunds which are received after the Closing.
-16-
6. COVENANTS OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY
PENDING CLOSING. The Purchaser and the Acquisition Subsidiary jointly and
severally covenant with the Shareholder that:
6.1. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary will use their best efforts to obtain the necessary consents
and approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and its
representatives will hold in confidence any data and information obtained
with respect to the Company from any representative, officer, director or
employee of the Company, including their accountants or legal counsel, or
from any books or records of any of them, in connection with the
transactions contemplated by this Agreement, except that the Purchaser may
disclose such information to its outside attor neys and accountants and to
its lender, provided that the Purchaser shall remain responsible to the
Company for any unauthorized disclosure thereof by such attorneys,
accountants or lender. If the transactions contemplated hereby are not
consummated, neither the Purchaser nor its representatives shall disclose
such data or information to others, except as such data or information is
published or is a matter of public knowledge or is required by an
applicable law or regulation to be disclosed. If this Agreement is
terminated for any reason, the Purchaser shall return to the Company all
written data and information obtained by the Purchaser from the Company or
its representatives in connection with the transactions contem plated by
this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE ACQUISITION
SUBSIDIARY. The obligations of the Purchaser and the Acquisition Subsidiary
under this Agreement shall be subject to the following conditions, any of which
may be expressly waived by the Purchaser in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Purchaser shall not have discovered any material error, misstatement or
omission in the representa tions and warranties made by the Shareholder in
Section 3 hereof; the representations and warranties made by the
Shareholder herein shall be deemed to have been made again at and as of
the time of Closing and shall then be true and correct; the Company and
the Shareholder shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Purchaser shall have received a
certificate, signed by the Shareholder and an executive
-17-
officer of the Company, to the effect of the foregoing
provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Shareholder shall have caused to be
delivered to the Purchaser an opinion of Ruggiero, Ziogas & Allaire,
counsel for the Company and the Shareholder, dated the Closing Date, to
the effect that:
(i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Connecticut, with full corporate authority to enter into and perform
its obligations under this Agreement and the Plan of Merger;
(ii) the authorized capital stock of the Company consists of
3,000 shares of Common Stock, $10.00 par value, of which 2,273
shares are validly issued and outstanding and fully paid and
nonassessable;
(iii) to the knowledge of such counsel, after due inquiry,
there are no outstanding subscriptions, options or other agreements
or commitments obligating the Company to issue any shares of its
capital stock or securities convertible into shares of its capital
stock;
(iv) the Shareholder is the record and bene ficial owner of
all of the issued and outstanding shares of capital stock of the
Company, free and clear of any and all Liens, and the Shareholder
has full capacity to enter into and perform their obligations in
accordance with this Agreement;
(v) the execution, delivery and performance by the Company
of this Agreement and the Plan of Merger have been duly authorized
and approved by all necessary corporate action required on the part
of the Company;
(vi) this Agreement and the Plan of Merger have been duly
and validly executed and delivered by the Company, and this
Agreement and the Plan of Merger con stitute the valid and binding
obligations of the Company enforceable against it in accordance with
their respective terms;
(vii) this Agreement and the other documents to be executed
and delivered hereunder by the Shareholder (as shall be specified in
such opinion) have been duly and validly executed and delivered by
the Shareholder, and this Agreement and such other documents
constitute the valid and binding obligations of the Shareholder
enforceable against him in accordance with their respective terms;
-18-
(viii) neither the execution, delivery or consum mation of the
transactions contemplated by this Agree ment, the Plan of Merger or
any of such other documents will (x) result in the breach of or
constitute a default under the Certificate of Incorporation or
Bylaws of the Company or any loan or credit agreement, indenture,
mort gage, deed of trust or other contract or agreement known to
such counsel and to which either the Company or the Shareholder is a
party or by which they or their respec tive assets are bound, or (y)
violate any order, writ, injunction or decree known to such counsel
of any court, administrative agency or governmental body;
(ix) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection with
the execution and delivery by the Company and the Shareholder of
this Agreement, the Plan of Merger or any of such other documents;
and
(x) to the knowledge of such counsel after due inquiry,
there are no claims, actions, suits, proceedings or investigations
pending or threatened against or affecting the Company or any of its
assets, at law or in equity or before or by any court or federal,
state, municipal or other governmental department, commission,
board, agency or instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholder and officers of the Company and
certificates of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of any document
may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of the State
of Connecticut.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholder shall
have obtained all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not have
occurred any loss or damage to the physical assets and properties of the
Company, including (without limitation) any of the Real Property or any
improvements located thereon (regardless of whether such loss or damage
was insured), the effect of which would have a material adverse effect on
the condition, business, operations or prospects of the Company or the
Homes.
-19-
7.5. APPROVAL BY COUNSEL. All actions, proceedings, instruments and
documents required to carry out the trans actions contemplated by this
Agreement or incidental thereto and all other related legal matters shall
be subject to the approval of counsel for the Purchaser and the
Acquisition Subsidiary, and such counsel shall have been furnished with
such certified copies of actions and proceedings and other instruments and
documents as they shall have requested.
7.6. PRE-ACQUISITION REVIEW. The Purchaser and its representatives
shall have completed a pre-acquisition review of the financial
information, books and records, and proper ties and assets of the Company
and the Homes, and shall have discovered no change in the business,
assets, operations, financial condition or prospects of the Company or the
Homes which could, in the sole determination of the Purchaser, have a
material adverse effect on the value to the Purchaser of the business,
assets, financial condition or prospects of the Company or the Homes.
7.7. RELATED TRANSACTIONS. Each of the Shareholder, Robert Lavoie,
Mark Seleman and Peter Grady shall have executed and delivered to the
Acquisition Subsidiary his respective Employment Agreement; the
Shareholder shall have executed and delivered his plan adoption agreement
under the Carriage Partners Program; and Lessor shall have executed and
delivered the Lease Agreement and the restrictive covenant described in
Section 2.2(iv).
7.8. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall have
been conducted, at the Purchaser's expense, (i) a Phase I (and, if deemed
necessary by Purchaser, a Phase II) environmental audit of each Home and
the Real Property by an environmental consulting firm selected by
Purchaser (or, in lieu thereof, in the sole discretion of the Purchaser,
environmental questionnaires completed and signed by the manager of each
such Home, on forms provided by the Acquisition Subsidiary and approved by
its lender), (ii) a health and safety inspection of the Homes by a person
(who may be an employee of the Purchaser) or firm selected by the
Purchaser and who is qualified and experienced in such matters in the
funeral service industry, and (iii) a structural inspection of the O'Brien
Home by an engineering firm selected by the Purchaser. The Shareholder
agrees to take the action (and pay any costs in taking such action) as may
be reasonably recommended by such firms and/or persons, up to $15,000 in
the aggregate. In any event, it shall be a condition to the Purchaser's
obligations hereunder that the results of the reports of such firms or
persons (together with any remedial action, if any, taken by Shareholder,
regardless of the cost, in response thereto) shall be satisfactory to
Purchaser in its sole discretion.
-20-
7.9. TITLE INSURANCE. The Shareholder shall have provided, at his
expense, an Owner's Policy of Title Insurance issued to the Surviving
Corporation in an agreed-upon amount, issued by a title company with
offices in Hartford County, Connecticut and reasonably acceptable to the
Surviving Corporation (the "Title Company"), insuring the Surviving
Corporation's interest in the Real Property (excluding Real Property
covered by the Lease Agreement), subject only to the Permitted Liens and
any standard printed exceptions included in a Connecticut standard form
Policy of Title Insurance; provided, however, that such policy shall have
deleted any exception regarding restrictions or be limited to restrictions
that are Permitted Liens, any standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted except for
"shortages in area", and any standard exception for taxes shall be limited
to subsequent years.
7.10. SURVEY. The Purchaser shall have received, at the
Shareholder's expense, a survey prepared by a licensed surveyor approved
by the Purchaser and acceptable to the Title Company, with respect to each
parcel of Real Property covered by Section 7.9 above, which survey shall
comply with any applicable standards under Connecticut law, be sufficient
for Title Company to delete any survey exception contained in the owner's
policy of title insurance referred to in Section 7.9, save and except for
the phrase "shortages in area", and otherwise be in form and content
acceptable to Purchaser.
7.11. FINANCING COMMITMENT. The Purchaser shall have received from
Provident Services, Inc. or another financial institution acceptable to it
a written commitment, containing such terms and conditions and otherwise
in form and substance acceptable to the Purchaser, providing for the
extension of financing and other financial accommodations in order to
provide the portion of the Merger Consideration (as defined in the Plan of
Merger) that is not furnished by the Purchaser or obtained by the
Purchaser from other sources, and such commitment shall have been funded
in such amount contemporaneously with the Closing.
7.12. LIEN RELEASES. The holders of the Liens against any assets of
the Company, including any of the Real Property (other than Permitted
Liens) shall have executed and delivered written releases of such Liens,
all in recordable form and otherwise acceptable to the Purchaser and its
lender.
7.13. OTHER MANAGEMENT ARRANGEMENTS. The Shareholder shall have
identified to the Purchaser such other personnel of the Homes (in addition
to the parties to the Employment Agreements) as may be key to the
continued effective management and operation of the Homes after the
Closing, and the Purchaser shall have entered into mutually satisfactory
-21-
arrangements regarding the continued employment of such
personnel at the Homes following the Closing.
7.14. OTHER CONNECTICUT TRANSACTION. The transaction contemplated by
the Merger Agreement of even date herewith among the Purchaser, CSI
Funeral Services of Connecticut, Inc., C. Funk & Son Funeral Home,
Incorporated and Ronald F. Duhaime, Emilie P. Duhaime and Christopher J.
Duhaime, shall have been consummated prior to or contemporaneously with
the Closing under this Agreement.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDER.
The obligations of the Company and the Shareholder under this Agreement shall be
subject to the following conditions, any of which may be expressly waived by the
Shareholder in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Shareholder shall not have discovered any ma terial error, misstatement or
omission in the representations and warranties made by the Purchaser and
the Acquisition Subsidiary in Section 4 hereof; the representations and
warranties made by the Purchaser and the Acquisition Subsidiary herein
shall be deemed to have been made again at and as of the time of Closing
and shall then be true and correct; the Purchaser and the Acquisition
Subsidiary shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Shareholder shall have received a
certificate, signed by an executive officer of each of the Purchaser and
the Acquisition Subsidiary, to the effect of the foregoing provisions of
this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Shareholder an opinion of counsel for the Purchaser and
the Acquisition Subsidiary, to the effect that:
(i) the Purchaser is a corporation duly organ ized, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power to enter into and
perform its obligations under this Agreement and the Plan of Merger;
and the Acquisition Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut, and has all requisite corporate power to enter into and
perform its obligations under this Agreement and the other documents
contemplated herein to be executed and delivered by the Acquisition
Subsidiary (as shall be specified in such opinion);
(ii) the execution, delivery and performance by the Purchaser
and the Acquisition Subsidiary of this
-22-
Agreement and such other documents have been duly authorized and
approved by all necessary corporate action required on their part;
(iii) this Agreement is, and upon execution and delivery as
herein provided such other documents will be, valid and binding upon
the Purchaser and the Acquisition Subsidiary, enforceable against
the Purchaser and the Acquisition Subsidiary in accordance with
their respective terms;
(iv) neither the execution, delivery or per formance by the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default under,
the respective Certificates of Incorporation or Bylaws of the
Purchaser or the Acquisition Subsidiary, or under any loan or credit
agreement, indenture, mortgage, deed of trust or other contract or
agreement known to such counsel and to which the Purchaser or the
Acquisition Subsidiary is a party or by which they or their
respective properties are bound, or violate any order, writ,
injunction or decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection with
the execution and delivery by the Purchaser or the Acquisition
Subsidiary of this Agreement or any of such other documents, or the
per formance of its obligations hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and the Acquisition Subsidiary,
and on certificates of public offi cials, copies of which shall be
provided to the Shareholder at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors
rights and by principles of equity. Such opinion may be limited to federal
law, the General Corporation Law of the State of Delaware and the internal
laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary shall have obtained all consents and approvals of other persons
and governmental authorities to the transactions contemplated by this
Agreement.
-23-
8.4. RELATED TRANSACTIONS. The Acquisition Subsidiary shall have
executed and delivered to the Shareholder and Messrs. Lavoie, Seleman and
Grady their respective Employment Agreements; shall have established the
Carriage Partners Program and executed and delivered to the Shareholder
his plan adoption agreement thereunder; and shall have executed and
delivered the Lease Agreement.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regard less of any
investigation made at any time by or on behalf of any party hereto, all
covenants, agreements, representations and warranties made hereunder or
pursuant hereto or any Schedule or Exhibit hereto or in connection with
the trans actions contemplated hereby and thereby shall not terminate but
shall survive the Closing and continue in effect thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDER. The Shareholder agrees to
indemnify and hold harmless the Pur chaser and (following the Effective
Time of the Merger) the Surviving Corporation, and their respective
successors and assigns, from and against any and all losses, damages, lia
bilities, obligations, costs or expenses (any one such item being herein
called a "Loss" and all such items being herein collectively called
"Losses") which are caused by or arise out of (i) any breach or default in
the performance by the Company or the Shareholder of any covenant or
agreement of the Company or the Shareholder contained in this Agreement,
(ii) any breach of warranty or inaccurate or erroneous representation made
by the Shareholder herein, in any Schedule delivered to the Purchaser
pursuant hereto or in any certificate or other instrument delivered by or
on behalf of the Company or the Shareholder pursuant hereto, (iii) any
Unassumed Liability of the Company of any kind or nature, whether absolute
or con tingent, known or unknown, to the extent not paid or dis charged
prior to the Effective Time of the Merger as provided in Section 5.5, and
(iv) any and all actions, suits, proceed ings, claims, demands, judgments,
costs and expenses (includ ing reasonable legal fees) incident to any of
the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Pur chaser and the
Acquisition Subsidiary jointly and severally
-24-
agree to indemnify and hold harmless the Shareholder and his heirs and
assigns from and against any Losses which are caused by or arise out of
(i) any breach or default in the performance by the Purchaser or the
Acquisition Subsidiary of any covenant or agreement of the Purchaser or
the Acquisition Subsidiary contained in this Agreement, (ii) any breach of
warranty or inaccurate or erroneous representation made by the Purchaser
or the Acquisition Subsidiary herein or in any certificate or other
instrument delivered by or on behalf of the Purchaser or the Acquisition
Subsidiary pursuant hereto, and (iii) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for indemnification
against another party hereunder ("indemnifying party"), the indemnifying
party shall be given prompt written notice thereof and shall have the
right (i) to participate in the defense thereof and be repre sented, at
its own expense, by advisory counsel selected by it, and (ii) to approve
any settlement if the indemnifying party is, or will be, required to pay
any amounts in connec tion therewith, which approval shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, if within
ten business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided herein, then
the indemnifying party shall have the right to control the defense of such
claim, provided that the indemnified party shall have the right (i) to
participate in the defense thereof and be repre sented, at its own
expenses, by advisory counsel selected by it, and (ii) to approve any
settlement if the indemnified party's interests are, or would be, affected
thereby.
10.4. CERTAIN LIMITATIONS. The payment of any claims for Losses
pursuant hereto shall not relieve the Shareholder of personal
responsibility for indemnification under Section 10.1. The Purchaser
agrees, however, that (i) the aggregate amount of Losses which the
Purchaser and the Surviving Corporation shall be entitled to recover from
the Shareholder under Section 10.1 shall be limited to the Merger
Considera tion, and (ii) no claim shall be asserted in respect of clause
(ii) of Section 10.1 (or clause iv), insofar as the same relates to said
clause (ii)) after (x) expiration of the applicable state or federal
statute of limitations, in the case of claims arising under Sections 3.1
to 3.3, 3.10 and 3.24 to 3.28, or (y) June 30, 1998, in all other cases.
-25-
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholder agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof; and the
Purchaser and the Acquisition Subsidiary agree to use their best efforts
to bring about the satisfaction of the conditions specified in Section 8
hereof.
11.2. TERMINATION. This Agreement may be terminated prior to Closing
by:
(a) the mutual written consent of the Shareholder and the
Purchaser;
(b) the Purchaser if a material default shall be made by the
Company or the Shareholder in the observance or in the due and
timely performance by any of their covenants herein contained, or if
there shall have been a material breach or misrepresentation by the
Company or the Shareholder of any of its or his warranties and
representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Company or the
Shareholder at or before the Closing shall not have been complied
with or performed at the time required for such compliance or
performance and such noncompliance or nonperformance shall not have
been expressly waived by the Purchaser in writing;
(c) the Shareholder if a material default shall be made by the
Purchaser or the Acquisition Subsidiary in the observance or in the
due and timely performance by the Purchaser or the Acquisition
Subsidiary of any of their covenants herein contained, or if there
shall have been a material breach or misrepresentation by the
Purchaser or the Acquisition Subsidiary of any of their warranties
and representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Purchaser and the
Acquisition Subsidiary at or before the Closing shall not have been
complied with or performed at the time required for such compli ance
or performance and such noncompliance or nonper formance shall not
have been expressly waived by the Shareholder in writing; or
(d) either the Shareholder or the Purchaser, if the Closing
has not occurred by July 3, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is terminated
under paragraph (a) or (d) of Section 11.2, then no party shall have any
liability to any other parties here under. If this Agreement is terminated
under paragraph (b) or
-26-
(c) of Section 11.2, then (i) the party so terminating this Agreement
shall not have any liability to any other party hereto, provided the
terminating party has not breached any representation or warranty or
failed to comply with any of its covenants in this Agreement, and (ii)
such termination shall not prejudice the rights and remedies of the
terminating party against any other party which has breached any of its
representations, warranties or covenants herein prior to such termination.
12. POST-CLOSING COVENANTS.
12.1. CLOSING DATE, CASH AND RECEIVABLES. At the Closing, the
Shareholder shall provide to the Purchaser a listing (certified by him to
be complete and accurate) of the Closing Date Cash and Receivables in
order to identify them. The Purchaser shall have the exclusive right and
control over the collection of Closing Date Receivables. Six months after
the Closing, the Purchaser shall remit such collections (less Assumed Debt
of the Company not paid at Closing pursuant to Section 5.5 hereof, if any,
which are paid by the Company subsequent to the Closing. The form of
payment shall be in Series D Preferred Stock in accordance with each
Shareholder's respective interest shown on Annex A of the Plan of Merger.
The Purchaser shall have no duty to pursue collection of Closing Date
Receivables by means greater than used on its collection of other accounts
receivable, and in no event shall the Purchaser be required to institute
suit or refer any account to a collection agency. At any time after the
Closing, the Purchaser may at any time, by written notice to the
Shareholder, return the right and control over collection of Closing Date
Receivables to the Shareholder, in which case the Purchaser shall be
thereafter relieved of all further responsibility hereunder other than in
respect of collections received prior to the giving of such notice.
12.2. RESTRICTIVE COVENANTS OF THE SHAREHOLDER.
(a) NON-COMPETITION. If the Closing occurs, then for a period
commencing on the Closing Date and ending ten (10) years thereafter,
the Shareholder shall not, directly or indirectly:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partner ship, association or
agent or agency, in the following towns and/or cities:
Bristol, Plainville, New Britain, Southington, Wolcott,
Plymouth, Harwinton, Burlington and Farmington (the
"Territory"), in the funeral, mortuary, crematory, monument,
or any related line of business (collec tively, the
"Business");
-27-
(ii) own or hold any beneficial interest in one percent
(1%) or more of the voting securi ties in any corporation,
partnership or other busi ness entity which conducts its
operations, in whole or in part, in the Business within the
Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corporation,
partnership or other busi ness entity that conducts its
business, in whole or in part, in the Business within the
Territory; or
(iv) cause or induce any present or future employee of
the Purchaser or any of its affiliates (including the
Surviving Corporation) to leave the employ of the Purchaser or
any such affiliate to accept employment with the Shareholder
or with any person, firm, association or corpora tion with
which the Shareholder may be or become affiliated.
Without limiting the generality of the foregoing, the
Shareholder shall be deemed directly or indirectly engaged in the
Business if he acts as a funeral director at any funeral
establishment within the Territory, if the Shareholder engages in
the sale or marketing of preneed funeral contracts for services to
be performed within the Territory, or if the Shareholder promotes or
finances any family member or affiliate to operate a Business or
engage in any of the foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be held invalid
or unenforceable because of the scope of the territory or actions
subject thereto or restricted there by, or the period of time within
which such covenants are operative; but any judgment of a court of
competent jurisdiction may define the maximum territory and actions
subject to and restricted thereby and the period of time during
which such covenants are enforceable.
(c) REMEDIES. The Shareholder agrees that any remedy at law
for any actual or threatened breach of any of the foregoing
covenants would be inadequate and that the Purchaser shall be
entitled to specific performance hereof or injunctive relief or
both, by temporary or permanent injunction or such other appropriate
judicial remedy, writ or order as may be entered into by a court of
competent jurisdiction in addition to any damages that the Purchaser
may be legally entitled to recover together with reasonable expenses
of litigation, including attor neys' fees incurred in connection
therewith, as may be
-28-
approved by such court.
(d) REPRESENTATIONS. The Shareholder represents and warrants
to and agrees with the Purchaser that (i) the Shareholder
understands that the foregoing restric tions are being made incident
to and as a condition of consummation of the Merger, and that such
covenants are necessary in order to protect the business and
goodwill being acquired thereby, (ii) such covenants are not
oppressive to the Shareholder in any respect, and (iii) the
consideration for such restrictions is included in the Merger
Consideration, which consideration the Shareholder acknowledges is
fair and adequate for the giving of the covenants herein and for
which the Share holder acknowledges a direct and valuable benefit.
(e) MERGER CONSIDERATION ALLOCATION. The parties agree to
allocate $50,000 of the Merger Consideration to the foregoing
covenants for federal income tax purposes, pursuant to Section
1060(a) of the Code. Such allocation is not intended to be a measure
of the amount or range of damages which the Purchaser or any
affiliate may suffer or recover as a result of any breach of the
foregoing covenants, and the Shareholder acknowledges that in case
of any such breach, the Purchaser shall be entitled to seek in
excess of such amount as it may otherwise be able to demonstrate
itself justly entitled to.
12.3. LETTER OF CREDIT. Pursuant to the Plan of Merger, the
Purchaser will cause to be issued and delivered to the Shareholder the
Letter of Credit (as defined in the Plan of Merger). As provided in the
Plan of Merger, the Letter of Credit terminates upon consummation of an
Initial Public Offering (as defined in the Parent Stock Designations,
referred to in the Plan of Merger). The Shareholder agrees to return to
the Purchaser the original of the Letter of Credit (including any renewals
or reissues thereof) upon receipt of written certification from the
Purchaser that an Initial Public Offering has been consummated.
12.4. EMPLOYEE MATTERS. At or prior to the Closing, the Shareholder
will cause the Company to pay or satisfy any accrued benefits to employees
of the Homes which are then outstanding, or, at the election of the
Shareholder, may be included in the Assumed Debt as set forth on Schedule
5.5 (which would then be deducted from the Merger Consideration) the
difference between any accrued and untaken vacation that any such
employees are entitled to as of Closing minus any vacation time such
employees are entitled to receive for the remainder of the current fiscal
year under the Purchaser's employee benefit policy. The Purchaser agrees
that, for purposes of its vacation and other leave policies, it will
-29-
recognize the original start date with the Home of each person who becomes
an employee of the Surviving Corporation as a result of the Merger. The
Purchaser also agrees that the starting rate or salary of each such
employee of the Home who so becomes employed by the Surviving Corporation
will include compensation for any additional health insurance or similar
benefits formerly provided by the Company which are not included in
employee benefits provided by the Purchaser and its subsidiaries.
12.5. COMPLIMENTARY FUNERAL SERVICE. The Surviving Corporation will
assume the Company's obligation to provide, without charge, a funeral
service for Rosemary O'Hazo as outlined in the contract with such person
attached as Schedule 12.5.
12.6. MONICA O'BRIEN. The Purchaser agrees that fol lowing the
Closing, the Acquisition Subsidiary will continue to provide Monica
O'Brien, the Shareholder's mother, the nonassignable, rent-free use of her
current apartment at the Home, for so long as her mental and physical
health make such arrangements practicable, subject to policies of the
Purchaser concerning such living arrangements.
12.7. As described on Schedule 3.21, the Company has maintained the
O'Brien Funeral Home, Incorporated Pension Plan (the "Plan") for the
benefit of its employees. Neither the Purchaser, the Acquisition
Subsidiary, nor the Surviving Corporation intends to continue the Plan as
an active Plan after the Closing, except to the extent required by law
until the Plan can be frozen. The Shareholder shall amend the Plan at or
prior to Closing to freeze the Plan's operations as soon as allowed by law
and shall give any notice required in connection with the freezing of the
Plan promptly upon amendment of the Plan. The Shareholder shall make to
the Plan all Employer Contributions required by the Plan for service by
Plan Participants through the date as of which the Plan is frozen (the
effective date of the amendment freezing the Plan). The Shareholder shall
terminate and/or assist in terminating (as applicable) the Plan as soon as
it can be terminated in a reasonable and prudent manner but in no event to
exceed a two (2) year time period from the date hereof. The Shareholder
shall be solely responsible for, and shall bear all costs associated with
the Plan until it is terminated, including but not limited to the cost of
freezing the Plan, administering and evaluating the Plan until it is
terminated, amending the Plan as required by law until it is terminated,
preparing and filing the Plan's annual tax return (Form 5500), including
the cost of any audits required in connection therewith, and terminating
the Plan. The Shareholder shall reimburse the Purchaser, the Acquisition
Subsidiary, or the Surviving Corporation, as applicable, for
-30-
any such costs it may have to pay. Additionally, the Shareholder shall
continue after the Closing to be solely responsible for and shall
indemnify the Purchaser pursuant to Section 10 hereof for any claim or
action in any way relating to the Plan or its operation, past, present or
future, including but not limited to (i) the past or present investments
of the Plan, (ii) the past and continued maintenance and compliance of the
Plan with all legal requirements applicable to the Plan, including but not
limited to compliance with the fiduciary responsibility and prohibited
transaction requirements applicable to the Plan, (iii) the freezing of the
Plan, (iv) the termination of the Plan within a reasonable time period
following the Closing, and (v) the ultimate distributions to the Plan
Participants.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the negotiation,
preparation and carrying out of this Agreement and the consummation of the
transactions contem plated herein. If the transactions contemplated by
this Agreement and the Exhibits hereto are consummated, the Company shall
have no obligation for, nor shall the Company be charged with, any such
expenses of the Shareholder. Without limiting the generality of the
foregoing, all finders' and similar fees and expenses of Thomas Pierce &
Co., sales representative for the Shareholder, shall be borne solely by
the Shareholder, and in no event shall the Company or the Purchaser be
charged or responsible therefor. All sales, transfer, stamp or other
similar taxes, if any, which may be assessed or charged in connection with
the transactions hereunder shall be borne by the Shareholder.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been given when personally delivered or three business days following the
date, mailed, first class, registered or certified mail, postage prepaid,
as follows:
(i) if to the Company or the Shareholder, to:
O'Brien Funeral Home, Incorporated
24 Lincoln Avenue
Bristol, Connecticut 06010
Attention: Mr. Thomas P. O'Brien
with a copy to:
Ruggiero, Ziogas & Allaire
271 Farmington Avenue
Bristol, Connecticut 06010
Attention: Mr. Stephen O. Allaire
-31-
(ii) if to the Purchaser or the Acquisition
Subsidiary, to:
Carriage Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to the
other parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties; provided,
however, that following the Closing the Purchaser or the Surviving
Corporation may assign its rights hereunder without the consent of the
Shareholder to a successor-in-interest to the Purchaser or the Surviving
Corporation, as the case may be (whether by merger, sale of assets or
otherwise).
13.4. SUCCESSORS BOUND. Subject to the provisions of Section 13.3,
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and
personal representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
13.6. AMENDMENT. This Agreement may be amended only by an instrument
in writing executed by all of the parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates and other documents referred to herein, constitute the entire
agreement of the parties hereto, and supersede all prior understandings
with respect to the subject matter hereof and thereof (including, without
limitation, the letter of intent dated May 10, 1996).
13.8. GOVERNING LAW. This Agreement shall be con strued and enforced
under and in accordance with and governed by the law of the State of
Connecticut.
-32-
13.9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall
constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
-33-
THE PURCHASER:
CARRIAGE SERVICES, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE ACQUISITION SUBSIDIARY:
CFS FUNERAL SERVICES
OF CONNECTICUT, INC.
By: /s/ MARK W. DUFFEY
Mark W. Duffey,
Executive Vice President
THE COMPANY:
O'BRIEN FUNERAL HOME, INCORPORATED
By: /s/ THOMAS P. O'BRIEN
Thomas P. O'Brien, President
THE SHAREHOLDER:
/s/ THOMAS P. O'BRIEN
Thomas P. O'Brien
-34-
EXHIBIT DESCRIPTION
- ------- -----------
A Plan of Merger
B-1 Employment Agreement (Thomas P. O'Brien)
B-2 Employment Agreement (Robert Lavoie)
B-3 Employment Agreement (Mark Seleman)
B-4 Employment Agreement (Peter Grady)
C Carriage Partners Program
D Lease Agreement
SCHEDULE DESCRIPTION
- -------- -----------
2.2 Distributed Property
3.6 Real Property
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Intangible Rights
3.17 Licenses
3.18 Litigation
3.20 Employees
3.21 Employee Benefit Plans
5.5 Assumed Debt
12.1 List of Closing Date Cash and Accounts
Receivable
12.5 Contract for Service for Rosemary O'Hazo
-35-
EXHIBIT 10.22
MERGER AGREEMENT
THIS AGREEMENT, dated as of June 26, 1996, among CARRIAGE SERVICES,
INC., a Delaware corporation (the "Purchaser"), CARRIAGE FUNERAL SERVICES OF
SOUTH CAROLINA, INC., a South Carolina corpora tion (the "Acquisition
Subsidiary"), FOREST LAWN OF CHESNEE, INC., a South Carolina corporation (the
"Company"), and the individuals whose names appear under the heading "The
Shareholders" on the signature pages hereto (together, the "Shareholders");
W I T N E S S E T H:
WHEREAS, the Company owns and operates the three Forest Lawn
Mortuary funeral homes, located at 815 S. Alabama Street in Chesnee, Spartanburg
County, South Carolina, at 4161 Boiling Springs Road in Inman, Spartanburg
County, South Carolina, and at 257 N. Main Street in Woodruff, Spartanburg
County, South Carolina (collectively, the "Homes"), and the Shareholders
collectively own all of the issued and outstanding capital stock of the Company;
and
WHEREAS, the parties desire that the Acquisition Subsidiary merge
with and into the Company in a statutory merger (the "Merger") to be consummated
under the laws of the State of South Carolina and upon the terms and conditions
and for the consideration herein set forth and in the Plan of Merger among the
Purchaser, the Acquisition Subsidiary and the Company in the form attached as
Exhibit A hereto (the "Plan of Merger");
NOW, THEREFORE, the parties agree as follows:
1. REORGANIZATION AND MERGER.
1.1. THE MERGER. Simultaneously with the execution and delivery of
this Agreement, the Plan of Merger shall be exe cuted and delivered by the
Purchaser, the Acquisition Subsidiary and the Company. Subject to the
terms and condi tions set forth in this Agreement and in the Plan of
Merger, at the Effective Time of the Merger (as defined in the Plan of
Merger), the Acquisition Subsidiary shall be merged with and into the
Company in accordance with the laws of the State of South Carolina and the
Plan of Merger. The corporation surviving the Merger is sometimes herein
referred to as the "Surviving Corporation."
1.2. SS.368 REORGANIZATION. It is the intention of the parties that
the Merger constitute a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), in accordance with Section 368(a)(2)(E) of the Code. The parties
agree to file all of their respective tax returns and reports in a manner
consistent with such intention, and to not take any filing position in a
manner inconsistent with such intention unless
-1-
compelled to do so by court order or administrative decree. Each party
agrees to furnish such information and take such action as may be
reasonably requested of the other party in connection with the foregoing
(which action shall not include any change in the commercial terms of the
Merger and the other transactions incident thereto). In no event, however,
shall the Purchaser or the Surviving Corporation be required to incur any
out-of-pocket expenses in defending such position or providing such
information or taking such action, nor shall the foregoing constitute a
warranty or guaranty that the Merger will in fact constitute such a
reorganization.
1.3. SHAREHOLDER CONSENT; WAIVER OF DISSENTERS' RIGHTS. Each
Shareholder, in his capacity as a shareholder of the Company, and the
Purchaser, in its capacity as a shareholder of the Acquisition Subsidiary,
hereby (i) consent to the Merger pursuant to Section 33-11-103 of the 1976
South Carolina Code, as amended (the "South Carolina Code"), and (ii)
irrevocably and unconditionally waive all dissenters' and other similar
rights with respect to the Merger under and pursuant to Section 33-13-101,
ET SEQ. of the South Carolina Code.
1.4. POST-CLOSING TAX MATTERS. The Shareholders shall be fully
responsible for all federal, state and local taxes (including, but not
limited to, income taxes) of the Company accrued through the Closing and
for completing, filing and handling all tax returns and reports in respect
in of all periods through Closing and consummation of the Merger,
including responding to any inquiries, examinations or audits regarding
such taxes, returns and reports. Without limiting the generality of the
foregoing, the Shareholders will arrange through their outside accounting
firm for the preparation of short-period federal income tax return for the
Company's current year through the Closing Date (after which time the
Surviving Corporation will be included as part of the consolidated group
of which the Purchaser is the parent corporation), based upon information
furnished by the Shareholders (and for which the Shareholders shall be
solely responsible), and the Shareholders shall pay all federal income
taxes in respect thereof and the cost of tax preparation by such
accounting firm. The Shareholders shall furnish the Purchaser with a copy
of such return and keep the Purchaser reasonably advised as to the status
of such filings.
1.5. FURTHER ASSURANCES. The Shareholders agree to exe cute and
deliver from time to time after the Effective Time of the Merger, at the
reasonable request of the Purchaser, and without further consideration,
such additional instruments of conveyance and transfer, and to take such
other action as the Purchaser may reasonably require to more effectively
carry out
-2-
the terms and provisions of the Merger and the other trans
action contemplated by this Agreement.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing of the Merger (the "Closing") shall
occur at the offices of Danny E. Allen, Magnolia Place, 409-B Magnolia
Street in Spartanburg, South Carolina on June 26, 1996, or at such other
date, time or place as may be mutually agreed upon by the parties, but in
no event later than June 30, 1996. The date and time of the Closing is
herein called the "Closing Date". At the Closing, the Shareholders shall
surrender for cancellation pursuant to the Merger all certificates
representing their respective shares of capital stock of the Company,
against receipt from the Purchaser of the Merger Consideration (as defined
in the Plan of Merger). All action to be taken at the Closing as
hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered
to have been taken, delivered or made simultaneously, and no such action
or delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the Merger, at
the Closing the following transactions shall occur:
(i) The Acquisition Subsidiary, on the one hand, and each of
Sam Watts and Robert Gwinn (together, the "Managers"), on the other,
shall each execute and deliver a separate Employment Agreement to be
dated the Closing Date and in substantially the forms of Exhibits
B-1 and B-2 hereto, respectively (collectively, the "Employment
Agreements"); and
(ii) Immediately prior to the Closing and consummation of the
Merger, the Company shall distribute to the Shareholders, without
recourse or warranty against the Company, (v) non-trade accounts
receivable in an aggregate amount not to exceed $9,070, as further
described on Schedule 2.2, (w) the right to receive refunds in
respect of pre-paid federal income taxes and insurance through the
Closing Date, (x) all of the Company's cash balances in bank
accounts, certificates of deposits or marketable securities as of
the Closing Date, other than any such cash or other investments that
are used or committed to fund preneed trust or other similar
accounts or funds of the Homes, (y) all of the Company's accounts
receivable outstanding on the Closing Date (collectively, the
"Closing Date Receivables"), and (z) the real property consisting of
approximately 38 acres in
-3-
Cherokee County, South Carolina more particularly described on
Schedule 2.2 hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
The Shareholders jointly and severally represent and warrant to and
agree with the Purchaser and the Acquisition Subsidiary that:
3.1. TITLE TO SHARES. The Shareholders are the owners and holders,
beneficially and of record, of all of the issued and outstanding shares of
capital stock of the Company as shown on Annex A to the Plan of Merger,
and the Shareholders have good and marketable title to all of such issued
and outstanding shares, free and clear of any and all liens, encumbrances,
pledges, security interests, mortgages or claims of any other person
(collectively, the "Liens").
3.2. ORGANIZATION AND EXISTENCE. The Company is a corpo ration duly
organized, validly existing and in good standing under the laws of the
State of South Carolina, and has all requisite corporate power to enter
into and perform its obligations under this Agreement and the Plan of
Merger and to carry on its business as now conducted. The Shareholders
have delivered to the Purchaser complete and correct copies of the
Articles of Incorporation, certified by the Secretary of State of South
Carolina, and the Bylaws, certified by its Secretary, of the Company, all
as in effect on the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, $10.00 par value, of which
4,680 shares are issued and outstanding and held by the Shareholders. All
such issued and outstanding shares are validly issued and outstanding,
fully paid and nonassessable and not issued in violation of the preemptive
rights of any person. No such shares of capital stock are held by the
Company as treasury stock. The Company does not have any outstanding
subscriptions, options or other agreements or commitments obligating it to
issue shares of its capital stock. There are no shareholders, buy-sell,
voting or other similar agreements or commitments affecting the voting or
transferability of any such shares. From the date hereof through the
Closing Date, the Shareholders will not, and will not cause or permit the
Company to, issue or enter into any subscriptions, options, agreements or
other commitments in respect of the issuance, transfer, sale or
encumbrance of any shares of capital stock of the Company.
3.4. NO SUBSIDIARIES. The Company does not have any
subsidiaries or any investment or ownership interest in any
corporation, joint venture or other business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholders have
delivered to the Purchaser (i) the unaudited balance sheet of
-4-
the Company at April 30, 1996 (the "Company Balance Sheet") and the
related unaudited income statement of the Company for the eight-month
period of operations then ended, and (ii) the unaudited balance sheets of
the Company at August 31, 1993, 1994 and 1995, and the related unaudited
income statements of the Company for the respective twelve-month periods
of operations then ended. All such financial statements are true and
correct, have been prepared in accordance with the books and records of
the Company, and present fairly the financial positions of the Company at
the dates indicated and the results of its operations for the periods then
ended in accordance with generally accepted accounting principles
consistently applied. The Homes collectively performed the number of
funeral services for each of the twelve-month periods as described below:
Twelve Months Ended December 31,
HOME 1993 1994 1995
- ---- ---- ---- ----
Chesnee 135 106 127
Inman (Boiling Springs) 74 98 94
Woodruff N/A N/A 43*
* Ten months.
3.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 3.6 sets forth a legal
description of all parcels of real property in which the Company has any
interest or which is used in its business (collectively, the "Real
Property"), and also briefly des cribes each building and major structure
and improvement thereon. No person other than the Company has any
ownership, leasehold or other interest of any kind in the Real Property.
The Real Property is the only interest in real property required for the
conduct of the business of the Homes as presently conducted. All of the
buildings, structures and im provements located on the Real Property are
in good operating condition, ordinary wear and tear excepted. None of such
buildings, structures or improvements, or the operation or maintenance
thereof as now operated or maintained, contravenes any zoning ordinance or
other administrative regulation or violates any restrictive covenant or
any provision of law, the effect of which would interfere with or prevent
their con tinued use for the purposes for which they are now being used.
There is not pending nor, to the knowledge of any Shareholder, threatened
any proceeding for the taking or condemnation of the Real Property or any
portion thereof. The Company has good and marketable fee simple title to
all of the Real Property, free and clear of all Liens, other than
easements
-5-
and other similar title exceptions described on Schedule 3.6
("Permitted Liens").
(b) ENVIRONMENTAL CONDITION. No "Hazardous Substances" (defined
herein to mean any substance which is regulated by or listed under any
federal, state or local law, statute, rule or regulation pertaining to the
environment or the protection of human health and welfare, including the
Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended, or the Resource Conservation and Recovery Act, as
amended, the Toxic Substances Control Act, as amended, or any similar
state or local statute or regulation) have been generated, stored, dumped,
located or released onto or from the Real Property by the Company or on
its directions, nor to the knowledge of any Shareholder have any Hazardous
Substances been generated, stored, dumped, located or disposed of on any
real property contiguous or adjacent to the Real Property. The Real
Property is not now, and to the best of the Shareholders' knowledge, will
not be in the future as a result of its condition at or prior to Closing,
subject to any recla mation, remediation or reporting requirements of any
federal, state, local or other governmental body or agency having
jurisdiction over the Real Property. Neither the Company nor any
Shareholder has received notice or knows of any claim, request for
information, enforcement action or other proceeding related to the
off-site disposal of Hazardous Substances generated by the Company. The
Real Property does not contain any asbestos, polychlorinated byphenyls,
urea, formaldehyde, lead based paint, radon gas or underground storage
tanks, except for substances used in the ordinary course of the operations
of the Homes that are properly used, stored and disposed of in accordance
with applicable legal requirements.
(c) FIRPTA. Neither the Company nor any Shareholder is a "foreign
person" (as defined in Section 1445(f)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations issued thereunder), and
the Shareholders shall deliver at Closing a non-foreign affidavit in
recordable form containing such information as shall be required by Code
Sec tion 1445(b)(2) and the regulations issued thereunder, on a form to be
provided by the Purchaser.
(d) BILLS PAID. All bills and other payments due with respect to the
ownership, operation, and maintenance of the Real Property have been (and
on the Closing Date will be) paid, and no Liens or other claims for the
same have been filed or asserted against any part of the Real Property.
(e) NO FLOOD HAZARDS. No portion of the Real Property
is located within an area that has been designated by the
Federal Insurance Administration, the Army Corp of Engineers,
-6-
or any other governmental agency or body as being subject to
special flooding hazards.
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes are owned
by the Company. None of such assets, rights or properties is subject to
any lease or license. The Company is in actual possession and control of
all properties owned by it, and has good and marketable title to all of
its assets, rights and properties, including without limitation, all
properties and assets reflected in the Company Balance Sheet, free and
clear of all Liens, except for (i) Liens to be discharged and released at
or prior to Closing, and (ii) Permitted Liens against Real Property.
3.8. ABSENCE OF CHANGES OR EVENTS. Except as described on Schedule
3.8, since the date of the Company Balance Sheet, there has not been:
(i) any adverse change in the financial condi tion,
operations, business, properties or prospects of the Company or of
any Home;
(ii) any change in the authorized capital or outstanding
securities of the Company;
(iii) any capital stock, bonds or other secu rities which the
Company has issued, sold, delivered or agreed to issue, sell or
deliver, nor has the Company granted or agreed to grant any options,
warrants or other rights calling for the issue, sale or delivery
thereof;
(iv) any borrowing or agreement by the Company to borrow any
funds, nor has the Company incurred, or become subject to, any
absolute or contingent obligation or liability, except trade
payables incurred in the ordinary course of business;
(v) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change in any
key personnel of the Company;
(vii) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of the
inventories or other assets or properties of the Company, except in
the ordinary course of business;
-7-
(viii) any damage, destruction or losses against the Company
or any waiver any rights of material value to the Company;
(ix) any labor strike or labor dispute, or the entering into
of any collective bargaining agreement, with respect to employees of
the Company;
(x) any claim or liability for any material damages for any
actual or alleged negligence or other tort or breach of contract
against or affecting the Company;
(xi) any new competitor that has, to the knowledge of any
Shareholder, built, commenced to build or announced intentions to
build a funeral home or mortuary in direct competition with any
Home; or
(xii) any other transaction or event entered into or
affecting the Company other than in the ordinary course of the
business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Company Balance Sheet, the Company does not have any, and none of its
assets or properties are subject to any, liabilities or obligations of any
kind or nature, other than unsecured trade accounts payable and accrued
expenses arising in the ordinary course of the Company's business since
the date of the Company Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local and other taxes
due and payable by the Company on or before the date of this Agreement
have been paid or are adequately provided for in the Company's books and
records. The Company has filed all tax returns and reports required to be
filed by it with all taxing authorities, and all such tax returns and
reports are true, complete and correct. True and correct copies of the
federal, state and local income tax returns filed by the Company for each
of its last three taxable years have been furnished to the Purchaser. No
assessments of deficiencies have been made against the Company which are
presently pending or outstanding. No state of facts exists or has existed
which would constitute grounds for the assessment of any tax liability
against the Company with respect to any prior taxable period which has not
been audited by the Internal Revenue Service or which has not been closed
by applicable statute. There are no outstanding agreements or waivers
extending the statutory period of limitations applica ble to any income
tax return of the Company for any period.
3.11. INVENTORY; ACCOUNTS RECEIVABLE. The inventories reflected in
the Company Balance Sheet, and all
-8-
items placed in inventory since the date thereof, are (i) accounted for in
accordance with generally accepted accounting principles applied on a
consistent basis, and (ii) saleable or usable in the ordinary course of
business of the Company at usual and customary prices, subject to normal
returns and markdowns consistent with past practice. All accounts and
notes receivable reflected in the Company Balance Sheet, and all accounts
and notes receivable arising since the date thereof, (x) represent bona
fide claims against the obligors for money lent, goods sold or services
rendered, and (y) are not subject to offsets or defenses of any kind,
except as to application of statutes of limitation. At the Closing, the
Shareholders shall deliver to the Purchaser a list, certified by the
Shareholders to be complete and correct, of all of the inventory of the
Company and all of its accounts receivable as of the Closing Date.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and all
other material items of equipment, fixtures, furniture and other fixed
assets owned by the Company. All such items are in good and operating
condition and repair, ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto sets forth a
complete description of:
(i) all loan, credit and similar agreements to which the
Company is a party or by which it is bound, and all notes or other
evidences of indebtedness of, or agreements creating any Lien on any
property of, the Company;
(ii) all employment contracts, noncompetition agreements and
other agreements relating to the employ ment of any employees of the
Company;
(iii) all contracts and agreements affecting the Company which
do not terminate or are not terminable by the Company upon notice of
30 days or less or which involve an obligation on its part in excess
of $1,000 per annum or $5,000 in the aggregate; and
(iv) all other contracts and commitments of the Company
entered into outside the ordinary course of busi ness.
Each contract and commitment described on Schedule 3.13 is valid and
in full force and effect, and neither the Company, nor, to the knowledge
of the Shareholders, any of the other parties thereto, are in default
thereunder. The Shareholders have furnished to the Purchaser a true and
cor rect copy of each document listed on Schedule 3.13.
-9-
3.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14 hereto
accurately and completely lists, as of the date of this Agreement (i) all
preneed contracts of the Company unfulfilled as of the date hereof,
including contracts for the sale of funeral merchandise and services, and
(ii) all trust accounts relating to the Homes, indicating the location of
each and the balance thereof. All preneed contracts required to be listed
on Schedule 3.14 (x) have been entered into in the normal course of
business at regular retail prices, or pursuant to a sales promotion
program, solely for use by the named customers and members of their
families on terms not more favorable than shown on the specimen contracts
which have been delivered to the Purchaser, (y) are subject to the rules
and regulations of the Company as now in force (copies of which have been
delivered to the Purchaser), and (z) on the date hereof are in full force
and effect, subject to no offsets, claims or waivers, and neither the
Company nor such customer is in default thereunder. All funds received by
the Company under preneed contracts have been deposited in the appropriate
accounts and administered and reported in accordance with the terms
thereof and as required by applicable laws and regulations. To the best
knowledge of the Shareholder, the aggregate market value of the preneed
accounts, trusts or other deposits is equal to or greater than the
aggregate preneed liability related to such accounts. The services
heretofore provided by the Company have been rendered in a professional
and competent manner consistent with then prevailing professional
standards, practices and customs.
3.15. TRADEMARKS, ETC. The Company does not own and it has not
applied for any patents, patent applications, patent licenses, trademarks,
trademark applications or trademark or trademark licenses (collectively,
"Intangible Rights"), except as described on Schedule 3.15. The Company
owns or possesses valid rights or adequate licenses for all of such
Intangible Rights as are necessary to the conduct of the business of the
Homes as presently conducted. The Company is not charged with infringement
of any Intangible Rights of any other person, nor does any Shareholder
know of any such infringement, whether or not claimed by any person.
3.16. INSURANCE. The Company maintains such policies of insurance in
such amounts, and which insure against such losses and risks, as are
generally maintained for comparable businesses and properties. Valid
policies for such insurance will be outstanding and duly in force at all
times prior to the Closing. It is the parties' intention that the
Surviving Corporation will cancel such insurance following the Closing,
and the parties agree that the Shareholders will be entitled to any
refunds for unearned premiums accrued through the Closing Date with
respect thereto.
-10-
3.17. LICENSES, PERMITS, ETC. Schedule 3.17 hereto correctly and
completely lists all licenses, franchises, permits, certificates,
consents, rights and privileges issued to or held by the Company, which
are all that are necessary or appropriate for the operation of the Homes
as presently operated. All such items are in full force and effect.
3.18. LITIGATION. There are no claims, actions, suits, proceedings
or investigations pending or, to the knowl edge of any Shareholder,
threatened against or affecting the Company or any of the assets or
properties of the Company, at law or in equity or before or by any court
or federal, state, municipal or other governmental department, commission,
board, agency or instrumentality. The Company is not subject to any
continuing court or administrative order, writ, injunction or decree, nor
is the Company in default with respect to any order, writ, injunction or
decree issued by any court or foreign, federal, state, municipal or other
governmental department, commission, board, agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company has complied and is in
compliance with all federal, state, municipal and other statutes, rules,
ordinances, and regulations applicable to the Company, the operation of
the Homes, and the Company's assets, rights and properties (including
without limitation all environmental protection and occupations safety and
health rules, regulations and laws, and laws and regulations applicable to
preneed contracts and trust accounts, including the so-called "FTC Funeral
Rule").
3.20. EMPLOYEES. Schedule 3.20 hereto correctly and completely lists
the names and monthly or hourly rates of salary and other compensation of
all the employees and agents of the Company. Schedule 3.20 also sets forth
the date of the last salary increase for each employee listed thereon, the
outstanding balances of all loans and advances, if any, made by the
Company to any employee or agent thereof, and the number of vacation days
or other time off to which each such employee is then eligible to take. At
Closing, the Share holders will cause the Company to pay or satisfy all
vacation, holiday and other accrued benefits to employees of the Homes
which are then outstanding. There are not pending or, to the knowledge of
any Shareholder, threatened against the Company any general labor
disputes, strikes or concerted work stoppages, and there are no
discussions, negotiations, demands or proposals that are pending or have
been conducted or made with or by any labor union or association with
respect to any employees of the Company. No Shareholder is aware of the
existence of any serious health condition of any key management personnel
of any Home that might impair any such person's ability to carry on his or
her normal duties into the foreseeable future after the Closing. The
Shareholders
-11-
believe that the relations between the Company and its employees are good.
3.21. EMPLOYEE BENEFIT PLANS. There are no plans, contracts,
commitments, programs and policies (including, without limitation,
pension, profit sharing, thrift, bonus, deferred compensation, severance,
retirement, disability, medical, life, dental and accidental insurance,
vacation, sick leave, death benefit and other similar employee benefit
plans and policies) maintained by the Company providing benefits to any
employee or former employee of the Company, other than sick leave,
vacation and group hospitalization benefits that are described on Schedule
3.21, all of which are maintained in accordance with applicable legal
requirements. True and com plete copies of all such benefit plans
described on Schedule 3.21, none of which constitutes a "pension plan"
within the meaning of Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended, have been provided to the Purchaser.
3.22. AFFILIATED PARTY TRANSACTIONS. The Company and the Homes have
been operated and are being operated in a manner separate from the
personal and other business activities of the Shareholders and their
affiliates, and neither the Company nor any of its assets are subject to
any affiliated party commitments or transactions.
3.23. BOOKS AND RECORDS. All books and records of the Company are
true, correct and complete each have been maintained by it in accordance
with good business practice and in accordance with all laws, regulations
and other require ments applicable to the Company. The corporate records
of the Company reflect a true record of all meetings and proceedings of
the Board of Directors and the shareholders of the Company, as required by
law.
3.24. FINDERS. Neither the Company nor any Shareholder is a party to
or in any way obligated under any contract or other agreement, and there
are no outstanding claims against any of them, for the payment of any
broker's or finder's fee in connection with the origin, negotiation, exe
cution or performance of this Agreement.
3.25. AUTHORITY OF THE SHAREHOLDERS. Each Share holder has the full
right, capacity and authority to enter into and perform this Agreement and
the other documents to be executed by such Shareholder as provided in this
Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and upon execution and delivery by
each Shareholder, each of such other documents will constitute, the legal,
valid and binding obligations of the Shareholders enforceable against them
in accordance with
-12-
their respective terms. Neither the execution, delivery nor performance of
this Agreement or any of such other documents, nor the consummation of the
transactions contemplated hereby or thereby, will: (i) result in a
violation or breach of any term or provision of, constitute a default or
acceleration under, require notice to or consent of any third party to, or
result in the creation of any Lien by virtue of (x) the Articles of
Incorporation or Bylaws of the Company or (y) any contract, agreement,
lease, license or other commitment to which the Company or any Shareholder
is a party or by which the Company or such Shareholder or his or its
respective assets or properties are bound; nor (ii) violate any statute or
any order, writ, injunction or decree of any court, admin istrative agency
or governmental body.
3.26. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement and the Plan of Merger have
been duly authorized by its Board of Directors. This Agreement and the
Plan of Merger are legally binding and enforceable against the Company in
accordance with their respective terms. Neither the execution, delivery
nor performance by the Company of this Agreement or the Plan of Merger
will result in a violation or breach of, nor constitute a default or
accelerate the performance required under, the Articles of Incorporation
or Bylaws of the Company or any indenture, mortgage, deed of trust or
other contract or agreement to which the Company is a party or by which it
or its properties are bound, or violate any order, writ, injunction or
decree of any court, administrative agency or governmental body.
3.27. ACQUISITION OF SERIES D SHARES. The Series D Shares (as
defined in the Plan of Merger) to be acquired by the Shareholders pursuant
to the Merger will be acquired by them for investment purposes only and
not with the present intention or view to, or resale in connection with,
any dis tribution thereof within the meaning of the Securities Act of
1933, as amended. Each Shareholder understands that such Series D Shares
will not be registered under such Securities Act or any state securities
or blue sky laws, that transfer ability of such Series D Shares will be
restricted in accor dance with applicable state and federal securities
laws, and that a restrictive legend to such effect will be inscribed on
each certificate representing such Series D Shares. Prior to the Closing,
each Shareholder will have had full opportunity to receive such
information and ask such questions of repre sentatives of the Purchaser
concerning the Purchaser, its subsidiaries and their business, operations,
assets and pros pects, and concerning an investment in the Series D
Shares, as such Shareholder will then have deemed appropriate in order to
make an informed investment decision with respect to the Series D Shares.
-13-
3.28. FULL DISCLOSURE. The representations and war ranties made by
the Shareholders hereunder or in any Schedules or certificates furnished
to the Purchaser pursuant hereto or thereto, do not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein necessary to make the representa
tions or warranties herein or therein, in light of the circum stances in
which they are made, not misleading.
3.29. SCHEDULES. The Schedules referred to in this Section 3 have
been prepared as of the date hereof in a separate binder or volume
contemporaneously with the execution of this Agreement, and have been
signed for identification by the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The Purchaser and the Acquisition Subsidiary jointly and
severally represent and warrant to and agree with the Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of the State of South Carolina, and has all requisite corporate
power to enter into and perform its obligations under this Agreement, the
Plan of Merger and the other documents to which it is a party. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power to enter into and perform its obligations under this
Agreement and the Plan of Merger, including the issuance and delivery of
the Series D Shares to the Shareholders as provided in the Plan of Merger.
The Purchaser has delivered to the Shareholders complete and correct
copies of the Certificate of Incorporation and Bylaws of the Purchaser and
the Articles of Incorporation and Bylaws of the Acquisition Subsidiary,
both as in effect on the date hereof.
4.2. AUTHORITY. The execution, delivery and performance by the
Purchaser and the Acquisition Subsidiary of this Agree ment and the
documents contemplated in this Agreement to be executed and delivered by
them have been duly authorized by their respective Boards of Directors.
This Agreement is, and upon their execution and delivery as herein
provided such other documents will be, valid and binding upon the
Purchaser and the Acquisition Subsidiary and enforceable against each of
them in accordance with their respective terms. Neither the execution,
delivery or performance by the Purchaser or the Acquisition Subsidiary of
this Agreement or any such other document will conflict with or result in
a violation or breach of any term or provision of, nor constitute a
default under, the Certificate of Incorporation or Bylaws of the Purchaser
or
-14-
the Articles of Incorporation or Bylaws of the Acquisition Subsidiary, or
under any indenture, mortgage, deed of trust or other contract or
agreement to which the Purchaser or the Acquisition Subsidiary is a party
or by which they or their respective properties are bound, or violate any
order, writ, injunction or decree of any court, administrative agency or
governmental body.
4.3. FINDERS. Neither the Purchaser nor the Acquisition Subsidiary
is a party to or in any way obligated under any contract or other
agreement, and there are no outstanding claims against either of them, for
the payment of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PEND ING CLOSING.
The Company and the Shareholders jointly and severally covenant and agree with
the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agree ment to the
Closing Date, the business of the Company will be operated only in the
ordinary course, and, in particular, without the prior written consent of
the Purchaser, the Company will not, and the Shareholders will not cause
or allow the Company to:
(i) cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) amend or otherwise modify its Articles of Incorporation
or Bylaws;
(iii) take any action described in Section 3.8 (except as
contemplated in Section 2.2(ii));
(iv) enter into any contract, agreement or other commitment
of the type described in Section 3.13;
(v) hire, fire, reassign or make any other change in key
personnel of the Company, or increase the rate of compensation of or
declare or pay any bonuses to any employee in excess of that listed
on Schedule 3.20; or
(vi) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to be
true and correct in all material respects on and as of the Closing
Date with the same force and effect as if the same had been made on
and as of the Closing Date.
-15-
5.2. ACCESS TO INFORMATION. Prior to Closing, the Company will give
to the Purchaser and its counsel, accountants and other representatives,
full and free access to all of the properties, books, contracts,
commitments and records of the Company so that the Purchaser may have full
opportunity to make such investigation as it shall desire to make of the
affairs of the Company and the Homes.
5.3. CONSENTS AND APPROVALS. The Company and the Shareholders will
use their best efforts to obtain the neces sary consents and approvals of
other persons which may be required to be obtained on their part to
consummate the trans actions contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
neither the Company nor any Shareholder shall enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals or
expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion of
the assets and business of the Company or any other sale of the Company
(whether by merger, consolidation, sale or stock or otherwise), other than
with the Purchaser and the Acquisition Subsidiary as contemplated in this
Agreement.
5.5. COMPANY LIABILITIES. At or prior to the Closing, the
Shareholders shall cause to be paid and discharged in full all liabilities
and obligations of the Company, including (but not limited to)
indebtedness for borrowed money, indebtedness secured by Liens against any
assets or properties of the Company, accounts and trade payable, accrued
liabilities, federal, state and local taxes, any liabilities under suits,
claims, judgments or orders then pending or any other liability or
obligation of the Company attributable to the operation of the its
business prior to Closing (collectively, "General Liabilities"), EXCLUDING
(i) obligations under preneed contracts for which the full amount has been
deposited in trust as required under applicable law and (ii) indebted ness
due and payable to NationsBank of South Carolina, N.A. ("NationsBank") in
an amount not to exceed $843,000 (the "NationsBank Debt"). At the Closing,
the Shareholders shall deliver to the Purchaser a certificate of a duly
authorized officer of NationsBank, certifying as to the amount, expressed
in dollars, of all principal, interest and other charges (including
prepayment penalties or premiums) required to pay and discharge the
NationsBank Debt in full and release all Liens securing the same. Any
General Liabilities remaining unpaid after the Closing shall be paid by
the Shareholders and shall be subject to indemnification under Section
10.1.
-16-
6. COVENANTS OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY PENDING
CLOSING. The Purchaser and the Acquisition Subsidiary jointly and severally
covenant with the Shareholders that:
6.1. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary will use their best efforts to obtain the necessary consents
and approvals of other persons which may be required to be obtained on
their part to consummate the transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and its
representatives will hold in confidence any data and information obtained
with respect to the Company from any representative, officer, director or
employee of the Company, including their accountants or legal counsel, or
from any books or records of any of them, in connection with the
transactions contemplated by this Agreement, except that the Purchaser may
disclose such information to its outside attorneys and accountants and to
its lender, provided that the Purchaser shall remain responsible to the
Company for any unauthorized disclosure thereof by such attorneys,
accountants or lender. If the transactions contemplated hereby are not
consummated, neither the Purchaser nor its representatives shall disclose
such data or information to others, except as such data or information is
published or is a matter of public knowledge or is required by an
applicable law or regulation to be disclosed. If this Agreement is
terminated for any reason, the Purchaser shall return to the Company all
written data and information obtained by the Purchaser from the Company or
its representatives in connection with the transactions contem plated by
this Agreement.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE ACQUISITION
SUBSIDIARY. The obligations of the Purchaser and the Acquisition Subsidiary
under this Agreement shall be subject to the following conditions, any of which
may be expressly waived by the Purchaser in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Purchaser shall not have discovered any error, misstatement or omission in
the representations and warranties made by the Shareholders in Section 3
hereof; the represen tations and warranties made by the Shareholders
herein shall be deemed to have been made again at and as of the time of
Closing and shall then be true and correct; the Company and the
Shareholders shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Purchaser shall have received a
certificate, signed by the Shareholders and an executive officer of the
Company, to the effect of the foregoing provisions of this Section 7.1.
-17-
7.2. OPINION OF COUNSEL. The Shareholders shall have
caused to be delivered to the Purchaser an opinion of Danny E.
Allen, counsel for the Company and the Shareholders, dated the
Closing Date, to the effect that:
(i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of South
Carolina, with full corporate authority to enter into and perform
its obligations under this Agreement and the Plan of Merger;
(ii) the authorized capital stock of the Company consists of
10,000 shares of Common Stock, $10.00 par value, of which 4,680
shares are validly issued and outstanding and fully paid and
nonassessable;
(iii) to the knowledge of such counsel, after due inquiry,
there are no outstanding subscriptions, options or other agreements
or commitments obligating the Company to issue any shares of its
capital stock or securities convertible into shares of its capital
stock;
(iv) the Shareholders are the record and bene ficial owners
of all of the issued and outstanding shares of capital stock of the
Company as shown on Annex A to the Plan of Merger, free and clear of
any and all Liens, and the Shareholders have full capacity to enter
into and perform their obligations in accordance with this Agree
ment;
(v) the execution, delivery and performance by the Company
of this Agreement and the Plan of Merger have been duly authorized
and approved by all necessary corporate action required on the part
of the Company;
(vi) this Agreement and the Plan of Merger have been duly
and validly executed and delivered by the Company, and this
Agreement and the Plan of Merger con stitute the valid and binding
obligations of the Company enforceable against it in accordance with
their respective terms;
(vii) this Agreement and the other documents to be executed
and delivered hereunder by the Shareholders (as shall be specified
in such opinion) have been duly and validly executed and delivered
by the Shareholders, and this Agreement and such other documents
constitute the valid and binding obligations of the Shareholders
enforceable against them in accordance with their respective terms;
-18-
(viii) other than with respect to the NationsBank Debt,
neither the execution, delivery or consummation of the transactions
contemplated by this Agreement, the Plan of Merger or any of such
other documents will (x) result in the breach of or constitute a
default under the Articles of Incorporation or Bylaws of the Company
or any loan or credit agreement, indenture, mortgage, deed of trust
or other contract or agreement known to such counsel and to which
either the Company or any Shareholder is a party or by which they or
their respec tive assets are bound, or (y) violate any order, writ,
injunction or decree known to such counsel of any court,
administrative agency or governmental body;
(ix) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection with
the execution and delivery by the Company and the Shareholders of
this Agreement, the Plan of Merger or any of such other documents;
and
(x) to the knowledge of such counsel after due inquiry,
there are no claims, actions, suits, proceedings or investigations
pending or threatened against or affecting the Company or any of its
assets, at law or in equity or before or by any court or federal,
state, municipal or other governmental department, commission,
board, agency or instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholders and officers of the Company and
certificates of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of any document
may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of the State
of South Carolina.
7.3. CONSENTS AND APPROVALS. The Company and the Shareholders shall
have obtained all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not have
occurred any loss or damage to the physical assets and properties of the
Company, including (without limitation) any of the Real Property or any
improvements located thereon (regardless of whether such loss or damage
was insured), the effect of which would have a material adverse effect on
the condition, business, operations or prospects of the Company or any
Home.
-19-
7.5. APPROVAL BY COUNSEL. All actions, proceedings, instruments and
documents required to carry out the trans actions contemplated by this
Agreement or incidental thereto and all other related legal matters shall
be subject to the approval of counsel for the Purchaser and the
Acquisition Subsidiary, and such counsel shall have been furnished with
such certified copies of actions and proceedings and other instruments and
documents as they shall have requested.
7.6. PRE-ACQUISITION REVIEW. The Purchaser and its representatives
shall have completed a pre-acquisition review of the financial
information, books and records, and proper ties and assets of the Company
and the Homes, and shall have discovered no change in the business,
assets, operations, financial condition or prospects of the Company or the
Homes which could, in the sole determination of the Purchaser, have a
material adverse effect on the value to the Purchaser of the business,
assets, financial condition or prospects of the Company or the Homes.
7.7. RELATED TRANSACTIONS. Each Manager shall have executed and
delivered to the Acquisition Subsidiary his respective Employment
Agreement. The Acquisition Subsidiary and the Purchaser shall be
responsible for negotiating and securing such Employment Agreements and
shall exercise all reasonable efforts in order to satisfy (or waive) this
condition precedent no later than June 26, 1996.
7.8. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall have
been conducted, at the Purchaser's expense, (i) a Phase I (and, if deemed
necessary by Purchaser, a Phase II) environmental audit of each Home and
the Real Property by an environmental consulting firm selected by
Purchaser (or, in lieu thereof, in the sole discretion of the Purchaser,
environmental questionnaires completed and signed by the Manager of each
such Home, on forms provided by the Acquisition Subsidiary and approved by
its lender), (ii) a health and safety inspection of the Homes by a person
(who may be an employee of the Purchaser) or firm selected by the
Purchaser and who is qualified and experienced in such matters in the
funeral service industry, and (iii) a structural inspection of the Homes
by an engineering firm selected by the Purchaser. The Shareholders agree
to take the action (and pay any costs in taking such action) as may be
reasonably recommended by such firms and/or persons, up to $15,000 in the
aggregate. In any event, it shall be a condition to the Purchaser's
obligations hereunder that the results of the reports of such firms or
persons (together with any remedial action, if any, taken by Shareholders,
regardless of the cost, in response thereto) shall be satisfactory to
Purchaser in its sole discretion.
-20-
7.9. TITLE INSURANCE. The Shareholders shall have provided, at their
expense, an Owner's Policy of Title Insurance issued to the Surviving
Corporation in an agreed-upon amount, issued by a title company with
offices in Spartanburg County, South Carolina and reasonably acceptable to
the Surviving Corporation (the "Title Company"), insuring the Surviving
Corporation's interest in the Real Property, subject only to the Permitted
Liens and any standard printed exceptions included in a South Carolina
standard form Policy of Title Insurance; provided, however, that such
policy shall have deleted any exception regarding restrictions or be lim
ited to restrictions that are Permitted Liens, any standard exception
pertaining to discrepancies, conflicts or shortages in area shall be
deleted except for "shortages in area", and any standard exception for
taxes shall be limited to taxes not yet due and payable in 1996 and
subsequent years.
7.10. SURVEY. The Purchaser shall have received, at the
Shareholders' expense, an ALTA/ACSM survey prepared by a licensed surveyor
approved by the Purchaser and acceptable to the Title Company, with
respect to each parcel of Real Property, which survey shall comply with
any applicable stan dards under South Carolina law, be sufficient for
Title Company to delete any survey exception contained in the owner's
policy of title insurance referred to in Section 7.9, save and except for
the phrase "shortages in area", and otherwise be in form and content
acceptable to Purchaser.
7.11. FINANCING COMMITMENT. The Purchaser shall have received from
Provident Services, Inc. or another financial institution acceptable to it
a written commitment, containing such terms and conditions and otherwise
in form and substance acceptable to the Purchaser, providing for the
extension of financing and other financial accommodations in order to
provide the portion of the Merger Consideration (as defined in the Plan of
Merger) that is not furnished by the Purchaser or obtained by the
Purchaser from other sources, and such commitment shall have been funded
in such amount contemporaneously with the Closing.
7.12. LIEN RELEASES. The holders of the Liens against any assets of
the Company, including any of the Real Property (other than Permitted
Liens) shall have executed and delivered written releases of such Liens,
all in recordable form and otherwise acceptable to the Purchaser and its
lender. In addition, the Purchaser shall have received from NationsBank
the certificate referred to in Section 5.5 indicating that the amount of
the NationsBank Debt is not more than $843,000 (or, if more, then the
Shareholders shall have paid the amount of the difference prior to any
funding by the Purchaser), and the Purchaser shall also have received a
certificate from a duly authorized officer of Lee Brothers to
-21-
the effect that the total amount owed to that firm in respect of the
transactions hereunder is not more than $287,000.
7.13. OTHER MANAGEMENT ARRANGEMENTS. The Share holders shall have
identified to the Purchaser such other personnel of the Homes (in addition
to the Managers) as may be key to the continued effective management and
operation of the Homes after the Closing, and (if the Shareholders shall
have identified any such personnel) the Purchaser shall have entered into
mutually satisfactory arrangements regarding the continued employment of
such personnel at the Homes following the Closing.
7.14. CLOSING DATE RECEIVABLES. The aggregate balance of the Closing
Date Receivables shall not be more than $450,000.00.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS.
The obligations of the Company and the Shareholders under this Agreement shall
be subject to the following conditions, any of which may be expressly waived by
the Shareholders in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Shareholders shall not have discovered any ma terial error, misstatement
or omission in the representations and warranties made by the Purchaser
and the Acquisition Subsidiary in Section 4 hereof; the representations
and warranties made by the Purchaser and the Acquisition Subsidiary herein
shall be deemed to have been made again at and as of the time of Closing
and shall then be true and correct; the Purchaser and the Acquisition
Subsidiary shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the Shareholders shall have received
a certificate, signed by an executive officer of each of the Purchaser and
the Acquisition Subsidiary, to the effect of the foregoing provisions of
this Section 8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Shareholders an opinion of counsel for the Purchaser and
the Acquisition Subsidiary, to the effect that:
(i) the Purchaser is a corporation duly organ ized, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power to enter into and
perform its obligations under this Agreement and the Plan of Merger;
and the Acquisition Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of
South Carolina, and has all requisite
-22-
corporate power to enter into and perform its obligations under this
Agreement and the other documents contemplated herein to be executed
and delivered by the Acquisition Subsidiary (as shall be specified
in such opinion);
(ii) the execution, delivery and performance by the Purchaser
and the Acquisition Subsidiary of this Agreement and such other
documents have been duly authorized and approved by all necessary
corporate action required on their part;
(iii) this Agreement is, and upon execution and delivery as
herein provided such other documents will be, valid and binding upon
the Purchaser and the Acquisition Subsidiary, enforceable against
the Purchaser and the Acquisition Subsidiary in accordance with
their respective terms;
(iv) neither the execution, delivery or per formance by the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default under,
the Certificate of Incorporation or Bylaws of the Purchaser, the
Articles of Incorporation or Bylaws of the Acquisi tion Subsidiary
or under any loan or credit agreement, indenture, mortgage, deed of
trust or other contract or agreement known to such counsel and to
which the Purchaser or the Acquisition Subsidiary is a party or by
which they or their respective properties are bound, or violate any
order, writ, injunction or decree known to such counsel and of any
court, administrative agency or governmental body; and
(v) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection with
the execution and delivery by the Purchaser or the Acquisition
Subsidiary of this Agreement or any of such other documents, or the
per formance of its obligations hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and the Acquisition Subsidiary,
and on certificates of public offi cials, copies of which shall be
provided to the Shareholders at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy, insolvency,
reorgani zation, moratorium or other similar laws affecting creditors
rights and by principles of equity. Such opinion may be limited to federal
law, the General Corporation Law of the State of Delaware and the internal
laws of the State of Texas.
-23-
8.3. CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary shall have obtained all consents and approvals of other persons
and governmental authorities to the transactions contemplated by this
Agreement.
8.4. RELATED TRANSACTIONS. The Acquisition Subsidiary shall have
executed and delivered the Employment Agreements to the Managers.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering the
same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regard less of any
investigation made at any time by or on behalf of any party hereto, all
covenants, agreements, representations and warranties made hereunder or
pursuant hereto or any Schedule or Exhibit hereto or in connection with
the trans actions contemplated hereby and thereby shall not terminate but
shall survive the Closing and continue in effect thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders jointly
and severally agree to indemnify and hold harmless the Purchaser and
(following the Effective Time of the Merger) the Surviving Corporation,
and their respective successors and assigns, from and against any and all
losses, damages, liabilities, obligations, costs or expenses (any one such
item being herein called a "Loss" and all such items being herein
collectively called "Losses") which are caused by or arise out of (i) any
breach or default in the performance by the Company or any Shareholder of
any covenant or agreement of the Company or the Shareholders contained in
this Agree ment, (ii) any breach of warranty or inaccurate or erroneous
representation made by any Shareholder herein, in any Schedule delivered
to the Purchaser pursuant hereto or in any certifi cate or other
instrument delivered by or on behalf of the Company or any Shareholder
pursuant hereto, (iii) any General Liability of the Company of any kind or
nature, whether absolute or contingent, known or unknown, to the extent
not paid or discharged as provided in Section 5.5, and (iv) any and all
actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the
foregoing.
-24-
10.2. INDEMNIFICATION BY THE PURCHASER. The Pur chaser and the
Acquisition Subsidiary jointly and severally agree to indemnify and hold
harmless the Shareholders and their heirs and assigns from and against any
Losses which are caused by or arise out of (i) any breach or default in
the performance by the Purchaser or the Acquisition Subsidiary of any
covenant or agreement of the Purchaser or the Acquisition Subsidiary
contained in this Agreement, (ii) any breach of warranty or inaccurate or
erroneous representation made by the Purchaser or the Acquisition
Subsidiary herein or in any certificate or other instrument delivered by
or on behalf of the Purchaser or the Acquisition Subsidiary pursuant
hereto, and (iii) any and all actions, suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal fees)
incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against a party entitled to indemnification hereunder ("indemnified
party") that, if successful, might result in a claim for indemnification
against another party hereunder ("indemnifying party"), the indemnifying
party shall be given prompt written notice thereof and shall have the
right (i) to participate in the defense thereof and be repre sented, at
its own expense, by advisory counsel selected by it, and (ii) to approve
any settlement if the indemnifying party is, or will be, required to pay
any amounts in connec tion therewith, which approval shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, if within
ten business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided herein, then
the indemnifying party shall have the right to control the defense of such
claim, provided that the indemnified party shall have the right (i) to
participate in the defense thereof and be repre sented, at its own
expenses, by advisory counsel selected by it, and (ii) to approve any
settlement if the indemnified party's interests are, or would be, affected
thereby.
10.4. SECURITY FOR INDEMNITY; LETTER OF CREDIT. The obligations of
the Shareholders under this Section 10 to indemnify the Surviving
Corporation and the Purchaser shall, for a period of two years following
the Closing (the "Letter of Credit Period") be secured by an irrevocable
standby letter of credit (together, with any and all renewals and
replacements, the "Indemnity Letter of Credit") issued by Chesnee State
Bank in Chesnee, South Carolina ("CSB") for the account of the
Shareholders (or a corporation controlled by them) in favor of the
Purchaser, as beneficiary. The Indemnity Letter of Credit shall be in the
amount of $150,000, shall be dated the Closing Date and shall be in
substantially
-25-
the form of Exhibit C attached hereto. The foregoing shall not relieve the
Shareholders of their personal indemnification obligations hereunder.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholders agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof; and the
Purchaser and the Acquisition Subsidiary agree to use their best efforts
to bring about the satisfaction of the conditions specified in Section 8
hereof.
11.2. TERMINATION. This Agreement may be terminated prior to Closing
by:
(a) the mutual written consent of the Shareholders and the
Purchaser;
(b) the Purchaser if a material default shall be made by the
Company or any Shareholder in the observance or in the due and
timely performance by any of their covenants herein contained, or if
there shall have been a material breach or misrepresentation by the
Company or any Shareholder of any of their warranties and represen
tations herein contained, or if the conditions of this Agreement to
be complied with or performed by the Company or any Shareholder at
or before the Closing shall not have been complied with or performed
at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly waived
by the Purchaser in writing;
(c) the Shareholders if a material default shall be made by
the Purchaser or the Acquisition Subsidiary in the observance or in
the due and timely performance by the Purchaser or the Acquisition
Subsidiary of any of their covenants herein contained, or if there
shall have
-26-
been a material breach or misrepresentation by the Purchaser or the
Acquisition Subsidiary of any of their warranties and
representations herein contained, or if the conditions of this
Agreement to be complied with or performed by the Purchaser and the
Acquisition Subsidiary at or before the Closing shall not have been
complied with or performed at the time required for such compli ance
or performance and such noncompliance or nonper formance shall not
have been expressly waived by the Shareholders in writing; or
(d) either the Shareholders or the Purchaser, if the Closing
has not occurred by June 30, 1996.
11.3. LIABILITY UPON TERMINATION. If this Agreement is terminated
under paragraph (a) or (d) of Section 11.2, then no party shall have any
liability to any other parties here under. If this Agreement is terminated
under paragraph (b) or (c) of Section 11.2, then (i) the party so
terminating this Agreement shall not have any liability to any other party
hereto, provided the terminating party has not breached any representation
or warranty or failed to comply with any of its covenants in this
Agreement, and (ii) such termination shall not prejudice the rights and
remedies of the terminating party against any other party which has
breached any of its representations, warranties or covenants herein prior
to such termination.
12. POST-CLOSING COVENANTS.
12.1. CLOSING DATE RECEIVABLES. As described in Section 2.2(ii), all
of the Closing Date Receivables (as well as the other items described in
said Section 2.2(ii)) shall be distributed to the Shareholders effective
immediately prior to the Effective Time of the Merger. At the Closing, the
Shareholders shall provide to the Purchaser a listing (certified by them
to be complete and accurate) of the Closing Date Receivables in order to
identify those to be distributed to them. Notwithstanding such
distribution, the Purchaser shall have the exclusive (even as to the
Shareholders) right and control over the collection of Closing Date
Receivables. After the Closing, for each month in which any Closing Date
Receivables are collected, the Purchaser shall remit 100% of such
collections to the Shareholders (in accordance with their respective
interests shown on Annex A to the Plan of Merger), or any person
designated in writing by them to receive such payments, by no later than
the 15th day of the following month. The Purchaser shall have no duty to
pursue collection of Closing Date Receivables by means greater than used
on its collection of other accounts receivable, and in no event shall the
Purchaser be required to institute suit or refer any account to a
collection agency. In collecting such accounts,
-27-
the Purchaser will comply with normal and customary processing procedures
under the South Carolina probate laws for the collection of funeral
expenses. At any time after the Closing, the Purchaser may at any time, by
written notice to the Shareholders, return the right and control over
collection of Closing Date Receivables to the Shareholders, in which case
the Purchaser shall be thereafter relieved of all further responsibility
hereunder other than in respect of collections received prior to the
giving of such notice.
12.2. RESTRICTIVE COVENANTS OF THE SHAREHOLDERS.
(a) NON-COMPETITION. If the Closing occurs, then for a period
commencing on the Closing Date and ending ten (10) years thereafter,
no Shareholder shall, directly or indirectly:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partner ship, association or
agent or agency, anywhere within a twenty-five (25) mile
radius of any Home (the "Territory"), in the funeral,
mortuary, crematory, monument, or any related line of business
(collectively, the "Business");
(ii) own or hold any beneficial interest in one percent
(1%) or more of the voting securi ties in any corporation,
partnership or other busi ness entity which conducts its
operations, in whole or in part, in the Business within the
Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corporation,
partnership or other busi ness entity that conducts its
business, in whole or in part, in the Business within the
Territory; or
(iv) cause or induce any present or future employee of
the Purchaser or any of its affiliates (including the
Surviving Corporation) to leave the employ of the Purchaser or
any such affiliate to accept employment with such Share holder
or with any person, firm, association or corporation with
which such Shareholder may be or become affiliated.
Without limiting the generality of the foregoing, a
Shareholder shall be deemed directly or indirectly engaged in the
Business if he acts as a funeral director at any funeral
establishment within the Territory, if a Shareholder engages in the
sale or marketing of preneed funeral contracts for services to be
performed within the
-28-
Territory, or if a Shareholder promotes or finances any family
member or affiliate to operate a Business or engage in any of the
foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be held invalid
or unenforceable because of the scope of the territory or actions
subject thereto or restricted there by, or the period of time within
which such covenants are operative; but any judgment of a court of
competent jurisdiction may define the maximum territory and actions
subject to and restricted thereby and the period of time during
which such covenants are enforceable.
(c) REMEDIES. Each Shareholder agrees that any remedy at law
for any actual or threatened breach of any of the foregoing
covenants would be inadequate and that the Purchaser shall be
entitled to specific performance hereof or injunctive relief or
both, by temporary or permanent injunction or such other appropriate
judicial remedy, writ or order as may be entered into by a court of
competent jurisdiction in addition to any damages that the Purchaser
may be legally entitled to recover together with reasonable expenses
of litigation, including attor neys' fees incurred in connection
therewith, as may be approved by such court.
(d) REPRESENTATIONS. Each Shareholder represents and warrants
to and agrees with the Purchaser that (i) such Shareholder
understands that the foregoing restric tions are being made incident
to and as a condition of consummation of the Merger, and that such
covenants are necessary in order to protect the business and
goodwill being acquired thereby, (ii) such covenants are not
oppressive to such Shareholder in any respect, and (iii) the
consideration for such restrictions is included in the Merger
Consideration, which consideration such Shareholder acknowledges is
fair and adequate for the giving of the covenants herein and for
which such Shareholder acknowledges a direct and valuable benefit.
(e) MERGER CONSIDERATION ALLOCATION. The parties agree to
allocate $50,000 of the Merger Consideration to the foregoing
covenants for federal income tax purposes, pursuant to Section
1060(a) of the Code. Such allocation is not intended to be a measure
of the amount or range of damages which the Purchaser or any
affiliate may suffer or recover as a result of any breach of the
foregoing covenants, and the Shareholders acknowledge that in case
of any such breach, the Purchaser shall be entitled to seek in
excess of such amount as it may otherwise be able to demonstrate
itself justly entitled to.
-29-
(f) ANSEL COOLEY. Notwithstanding the foregoing, for Ansel E.
Cooley, Sr. only, the "Territory" to which the foregoing covenants
apply shall not include any area within the State of North Carolina.
12.3. BOOKS AND RECORDS. All books, records, documents, dates and
information relating to the business and operations of the Company prior
to the Closing (collectively, "Records") shall belong to the Surviving
Corporation, and should any Shareholder have or come into possession or
control of any Records, the same shall immediately be turned over to the
Surviving Corporation. The Purchaser agrees that the Shareholders shall be
entitled to have access to Records after the Closing, upon reasonable
notice during normal business hours, and to make copies therefrom (i) for
the purpose of completing and filing the short-period tax return referred
to in Section 1.4, and (ii) for any other proper purpose if, and only if,
such inspection or copying is necessary in order for the requesting party
to defend a claim arising after the Closing and then only to the extent
that such inspection or copying is relevant to the defense of such claim.
12.4 FUNERAL SERVICE CHARGES. Following the Closing, the Surviving
Corporation will make available at any one of the Homes maintained by it,
for each Shareholder and his or her current spouse (if applicable), a
complete funeral service (including service and funeral merchandise, but
exclusive of cemetery plots, markers or monuments) for a charge not to
exceed the Surviving Corporation's wholesale merchandise cost.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall pay their own expenses in connection with the negotiation,
preparation and carrying out of this Agreement and the consummation of the
transactions contem plated herein. If the transactions contemplated by
this Agreement and the Exhibits hereto are consummated, the Company shall
have no obligation for, nor shall the Company be charged with, any such
expenses of the Shareholders. All sales, transfer, stamp or other similar
taxes, if any, which may be assessed or charged in connection with the
transactions hereunder shall be borne by the Shareholders.
13.2. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been given when personally delivered or three business days following the
date, mailed, first class, registered or certified mail, postage prepaid,
as follows:
-30-
(i) if to the Company or any Shareholder, to:
The named Shareholder
c/o Alverson Accounting
504 W. Cherokee Street
P.O. Box 9
Chesnee, South Carolina 29323
with a copy to:
Mr. Danny E. Allen
Magnolia Place
409-B Magnolia Street
P.O. Box 1146
Spartanburg, South Carolina 29304-1146
(ii) if to the Purchaser or the Acquisition
Subsidiary, to:
Carriage Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: Mr. Melvin C. Payne
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to the
other parties hereto.
13.3. ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties; provided,
however, that following the Closing the Purchaser or the Surviving
Corporation may assign its rights hereunder without the consent of the
Shareholders to a successor-in-interest to the Purchaser or the Surviving
Corporation, as the case may be (whether by merger, sale of assets or
otherwise).
13.4. SUCCESSORS BOUND. Subject to the provisions of Section 13.3,
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and
personal representatives.
13.5. SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings in this Agreement are for reference purposes only and shall not
affect the meaning or interpre tation of this Agreement.
-31-
13.6. AMENDMENT. This Agreement may be amended only by an instrument
in writing executed by all of the parties hereto.
13.7. ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates and other documents referred to herein, constitute the entire
agreement of the parties hereto, and supersede all prior understandings
with respect to the subject matter hereof and thereof (including, without
limitation, the letter of intent dated April 23, 1996).
13.8. GOVERNING LAW. This Agreement shall be con strued and enforced
under and in accordance with and governed by the law of the State of South
Carolina.
13.9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall
constitute the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
THE PURCHASER:
CARRIAGE SERVICES, INC.
By: /s/ JAY D. DODDS
Jay D. Dodds
Vice President of Operations
THE ACQUISITION SUBSIDIARY:
CARRIAGE FUNERAL SERVICES
OF SOUTH CAROLINA, INC.
By: /s/ JAY D. DODDS
Jay D. Dodds
Vice President of Operations
-32-
THE COMPANY:
FOREST LAWN OF CHESNEE, INC.
By: /s/ CURTIS C. GILBERT
Curtis C. Gilbert, President
THE SHAREHOLDERS:
/s/ EDSEL L. CASH
Edsel L. Cash
/s/ ANSEL E. COOLEY, SR.
Ansel E. Cooley, SR.
/s/ FRANK E. COOLEY
Frank E. Cooley
/s/ BRUCE C. EHLICH
Bruce C. Ehlich
/s/ CURTIS C. GILBERT
Curtis C. Gilbert
/s/ GRACE LAWTER JOLLEY
Grace Lawter Jolley
/s/ CHARLES L. THOMPSON
Charles L. Thompson
/s/ JAMES B. THOMPSON
James B. Thompson
-33-
EXHIBIT DESCRIPTION
- ------- -----------
A Plan of Merger
B-1 Employment Agreement (Sam Watts)
B-2 Employment Agreement (Robert Gwinn)
C Indemnity Letter of Credit
SCHEDULE DESCRIPTION
- -------- -----------
2.2 Distributed Property
3.6 Real Property
3.8 Changes
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Intangible Rights
3.17 Licenses
3.20 Employees
3.21 Employee Benefit Plans
-34-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
July 18, 1996
EXHIBIT 23.2
CONSENT OF KEE & ASSOCIATES, INC.
As independant public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registation statement.
KEE & ASSOCIATES, INC.
By: /s/ J. THADDEUS KEE, CPA
Name: J. Thaddeus Kee, CPA
Title: Prsident
Uniontown, Ohio
July 18, 1996
EXHIBIT 23.7
CONSENT OF MCCAULEY, NICOLAS & COMPANY, LLC
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
By: /s/ KENNETH N. NICOLAS
Name: Kenneth N. Nicolas, CPA
Title: Member
July 18, 1996
EXHIBIT 23.8
CONSENT OF MICHAEL S. UPTON, CPA, P.A.
As an independent public accountant, I hereby consent to the use of my
reports (and to all references to my firm) included in or made a part of this
registration statement.
MICHAEL S. UPTON, CPA, P.A.
By: /s/ MICHAEL S. UPTON
Name: Michael S. Upton, CPA
Title: President
Greenville, South Carolina
July 18, 1996
EXHIBIT 23.9
CONSENT OF GITLIN, CAMPISE, PASCOE & BLUM
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
GITLIN, CAMPISE, PASCOE & BLUM
West Hartford, Connecticut
July 18, 1996
EXHIBIT 23.10
CONSENT OF SCOTT, CALLICOTTE & CO.
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
SCOTT, CALLICOTTE & CO.
By: /s/ JOHN C. CALLICOTTE
Name: John C. Callicotte, CPA
Title: Partner
July 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 7,573 4,490
<SECURITIES> 864 1
<RECEIVABLES> 2,942 4,108
<ALLOWANCES> 305 360
<INVENTORY> 1,501 2,140
<CURRENT-ASSETS> 605 1,018
<PP&E> 23,981 40,118
<DEPRECIATION> 2,311 2,994
<TOTAL-ASSETS> 61,746 94,037
<CURRENT-LIABILITIES> 7,213 10,134
<BONDS> 0 0
0 0
157 162
<COMMON> 25 25
<OTHER-SE> 8,969 8,463
<TOTAL-LIABILITY-AND-EQUITY> 61,746 94,037
<SALES> 24,237 16,925
<TOTAL-REVENUES> 24,237 16,925
<CGS> 20,247 13,536
<TOTAL-COSTS> 20,247 13,536
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,684 2,644
<INCOME-PRETAX> (1,800) (410)
<INCOME-TAX> 694 251
<INCOME-CONTINUING> (2,494) (762)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,494) (762)
<EPS-PRIMARY> (.66) (.17)
<EPS-DILUTED> 0 0
</TABLE>
