UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K/A
-------------------------
AMENDING THE
CURRENT REPORT ON FORM 8-K
FILED JANUARY 21, 1997
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 7, 1997
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11961 76-0423828
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(Address of principal executive offices) (Zip Code)
(281) 556-7400
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 7, 1997, Carriage Services, Inc. (the "Company"), through a
wholly owned subsidiary, completed its merger with the CNM Group, a California
corporation which, through its subsidiaries, owns and operates the ten Wilson &
Kratzer funeral homes located in Alameda and Contra Costa Counties, California
and the Rolling Hills Memorial Park Cemetery located in Richmond, California. Of
the ten funeral home locations acquired, nine are currently operational and one
is being converted from a library to a funeral home and will be operational by
late 1997. Total consideration for the merger consisted of 107,445 shares of the
Company's Class A Common Stock, 19,999,992 shares of the Company's Series F
Preferred Stock, assumption of existing indebtedness of $2,367,112 and cash of
approximately $15.5 million. The cash portion of the purchase consideration was
made available through utilization of the Company's existing credit facility.
The consideration was determined through negotiations between the Company and
representatives of the CNM Group. In connection with this merger, the Company
entered into customary employment, consulting and non-compete agreements with
certain key employees and former owners of the CNM Group. The merger will be
accounted for under the purchase method of accounting for financial reporting
purposes.
The Company is not aware of any pre-existing material relationships between
(i) the CNM Group or any of its shareholders, on the one hand, and (ii) the
Company, any of the Company's affiliates, directors and officers or any
associate of such directors and officers, on the other.
The Company also completed the acquisition of several other businesses (the
"Other Acquisitions") since June 30, 1996. None of the Other Acquisitions is
material, individually or in the aggregate, to the results of operations or
financial position of the Company. However, the merger with the CNM Group
requires the filing of financial statements and pro forma financial information
pursuant to Rules 3-05(b)(1)(i) and 11-01(c) of Regulation S-X since such
business constitutes a "significant subsidiary" under such Rules.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
This Form 8-K/A is being filed to include in the Current Report on
Form 8-K filed by the Registrant with the Securities and Exchange
Commission on January 21, 1997 the financial statements and pro forma
financial information required by Item 7.
(A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
PAGE
----
THE CNM GROUP
Balance Sheets as of December 31, 1996 and March 31, 1996..... 13
Statements of Operations for the Nine Months Ended December 31,
1996 and the Year Ended March 31, 1996................... 14
Statements of Cash Flows for the Nine Months Ended December 31,
1996 and the Year Ended March 31, 1996................... 15
Stockholders' Equity for the Nine Months Ended December 31,
1996 and the Year Ended March 31, 1996................... 16
Notes to Financial Statements................................. 17
2
<PAGE>
(B) PRO FORMA FINANCIAL INFORMATION
PAGE
----
CARRIAGE SERVICES, INC.
Unaudited Pro Forma Consolidated Balance Sheet --
September 30, 1996....................................... 7
Unaudited Pro Forma Consolidated Statement of Operations --
Nine Months Ended September 30, 1996..................... 8
Unaudited Pro Forma Consolidated Statement of Operations --
Year Ended December 31, 1995............................. 9
Notes to Unaudited Pro Forma Consolidated Financial Statements 10
(C) EXHIBITS
10.22 -- Merger Agreement dated October 17, 1996 among Carriage Services,
Inc., Carriage Funeral Services of California, Inc., CNM and the
shareholders of CNM
3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS CURRENT REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CARRIAGE SERVICES, INC.
By:/s/ THOMAS C. LIVENGOOD
THOMAS C. LIVENGOOD
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: March 11, 1997
4
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On January 7, 1997, Carriage Services, Inc. (the "Company"), through a
wholly owned subsidiary, completed its merger with the CNM Group, a California
corporation which through its subsidiaries owns and operates the ten Wilson &
Kratzer funeral homes located in Alameda and Contra Costa Counties, California
and the Rolling Hills Memorial Park Cemetery located in Richmond, California. Of
the ten funeral home locations acquired, nine are currently operational and one
is being converted from a library to a funeral home and will be operational by
late 1997. Total consideration for the merger consisted of 107,445 shares of the
Company's Class A Common Stock 19,999,992 shares of the Company's Series F
Preferred Stock, assumption of existing indebtedness of $2,367,112 and cash of
approximately $15.5 million. The cash portion of the purchase consideration was
made available through utilization of the Company's existing credit facility.
The consideration was determined through negotiations between the Company and
representatives of the CNM Group. In connection with this merger, the Company
entered into customary employment, consulting and non-compete agreements with
certain employees and former owners of the CNM Group. The merger will be
accounted for under the purchase method of accounting for financial reporting
purposes.
The accompanying Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1996 includes the accounts of the Company and reflects the CNM
merger as if such merger had occurred on September 30, 1996. The accompanying
Unaudited Pro Forma Consolidated Statements of Operations for the nine months
ended September 30, 1996 and the year ended December 31, 1995 include the
accounts of the Company and reflect the CNM merger as if such merger had been
completed as of the beginning of each of the respective periods. The
accompanying Unaudited Pro Forma Consolidated Financial Statements do not
include the pro forma results of other businesses acquired by the Company since
June 30, 1996 as the financial position and results of operations of such other
acquired businesses were not deemed, individually or in the aggregate, to be
significant pursuant to the rules and regulations of the Securities and Exchange
Commission.
The accompanying Unaudited Pro Forma Consolidated Financial Statements have
been prepared based upon certain assumptions and include adjustments as detailed
in the Notes to Unaudited Pro Forma Consolidated Financial Statements. The
estimated fair market values reflected in the Unaudited Pro Forma Consolidated
Financial Statements are based on preliminary estimates and assumptions and are
subject to revision as more information regarding asset and liability valuations
becomes available. In management's opinion, the preliminary allocation reflected
herein is not expected to be materially different from the final allocation.
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 CNM Group, nor do they assume increases in corporate general and
administrative expenses which may have resulted from the Company managing the
CNM Group for the periods presented.
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 as included in the Company's Form 10-Q as of
September 30, 1996 and the prospectus dated August 8, 1996. Such pro forma
information is based on historical data with respect to the Company and the CNM
Group. 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 Securities and Exchange Commission. The pro forma
information does not reflect any adjustments to reflect the manner in which the
acquired entity is being or will be operated under the control of the Company.
5
<PAGE>
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CARRIAGE THE CNM PRO FORMA TOTAL
ASSETS SERVICES, INC. GROUP ADJUSTMENTS(1) PRO FORMA
-------------- ------- -------------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......... $ 1,805 $1,040 $ (876) $ 1,969
Accounts receivable --
Trade, net of allowance......... 4,297 5,702 (355) 9,644
Other........................... 585 83 (37) 631
-------------- ------- -------------- ---------
4,882 5,785 (392) 10,275
Marketable securities.............. 129 -- -- 129
Inventories and other current
assets.......................... 3,693 698 (456) 3,935
-------------- ------- -------------- ---------
Total current assets....... 10,509 7,523 (1,724) 16,308
-------------- ------- -------------- ---------
PROPERTY, PLANT AND EQUIPMENT, at
cost (net)......................... 43,192 5,997 6,562 55,751
CEMETERY PROPERTY, at cost........... 2,542 1,775 11,954 16,271
NAMES AND REPUTATIONS, net........... 56,017 397 17,185 73,599
DEFERRED CHARGES AND OTHER NONCURRENT
ASSETS............................. 6,390 939 (923) 6,406
-------------- ------- -------------- ---------
$118,650 $16,631 $ 33,054 $ 168,335
============== ======= ============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 1,602 $ 707 $ (603) $ 1,706
Accrued liabilities................ 3,310 666 (553) 3,423
Current portion of long-term debt
and capital leases.............. 1,010 226 (226) 1,010
-------------- ------- -------------- ---------
Total current
liabilities............. 5,922 1,599 (1,382) 6,139
PRENEED LIABILITIES, net............. 3,136 2,734 (16) 5,854
LONG-TERM DEBT, net.................. 33,182 4,764 13,064 51,010
OBLIGATIONS UNDER CAPITAL LEASES, net
of current portion................. 643 212 -- 855
DEFERRED INCOME TAXES................ 2,267 207 6,931 9,405
-------------- ------- -------------- ---------
Total liabilities.......... 45,150 9,516 18,597 73,263
-------------- ------- -------------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK........... 17,775 -- 20,000 37,775
STOCKHOLDERS' EQUITY:
Class A Common Stock............... 39 -- 1 40
Class B Common Stock............... 45 -- -- 45
Treasury stock, at cost............ (341) -- -- (341)
Contributed capital................ 64,003 -- 1,571 65,574
Retained deficit................... (8,021) -- -- (8,021)
CNM equity......................... -- 7,115 (7,115) --
-------------- ------- -------------- ---------
Total stockholders'
equity.................. 55,725 7,115 (5,543) 57,297
-------------- ------- -------------- ---------
$118,650 $16,631 $ 33,054 $ 168,335
============== ======= ============== =========
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
6
<PAGE>
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CARRIAGE THE CNM PRO FORMA TOTAL
SERVICES, INC. GROUP ADJUSTMENTS PRO FORMA
-------------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues, net........................ $ 27,070 $8,735 $ -- $35,805
Costs and expenses................... 22,687 6,321 330 (2) 29,588
123 (3)
127 (4)
-------------- ------- ----------- ---------
22,687 6,321 580 29,588
-------------- ------- ----------- ---------
Gross profit.................... 4,383 2,414 (580) 6,217
General and administrative
expenses........................... 1,766 1,094 -- 2,860
-------------- ------- ----------- ---------
Operating income................ 2,617 1,320 (580) 3,357
Interest expense, net................ 3,713 334 593 (5) 4,640
-------------- ------- ----------- ---------
Income (loss) before income
taxes and extraordinary
item.......................... (1,096) 986 (1,173) (1,283)
Provision (benefit) for income
taxes.............................. (21) 420 (912)(6) (513)
-------------- ------- ----------- ---------
Income (loss) before extraordinary
item.......................... (1,075) 566 (261) (770)
Extraordinary item -- loss on early
extinguishment of debt, net of
income tax benefit of $332......... (498) -- -- (498)
-------------- ------- ----------- ---------
Net income (loss)............... (1,573) 566 (261) (1,268)
Preferred stock dividend
requirements....................... 351 -- 630 (7) 981
-------------- ------- ----------- ---------
Net income (loss) attributable to
common stockholders........... $ (1,924) $ 566 $ (891) $(2,249)
============== ======= =========== =========
(Loss) per share:
(Loss) per common and common
equivalent share before
extraordinary item,
attributable to common
stockholders.................. $ (.39) $ (.47)
Extraordinary item.............. (.14) (.13)
-------------- ---------
Net (loss) per common share..... $ (.53) $ (.60)
============== =========
Weighted average number of common and
common equivalent shares
outstanding (in thousands)......... 3,662 107 (8) 3,769
============== =========== =========
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
7
<PAGE>
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CARRIAGE THE CNM PRO FORMA TOTAL
SERVICES, INC. GROUP ADJUSTMENTS PRO FORMA
-------------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues, net........................ $ 24,237 $11,338 $ -- $35,575
Costs and expenses................... 20,247 8,143 440 (2) 29,169
170 (3)
169 (4)
-------------- ------- ----------- ---------
20,247 8,143 779 29,169
-------------- ------- ----------- ---------
Gross profit.................... 3,990 3,195 (779) 6,406
General and administrative
expenses........................... 2,106 1,144 -- 3,250
-------------- ------- ----------- ---------
Operating income................ 1,884 2,051 (779) 3,156
Interest expense, net................ 3,684 436 888 (5) 5,008
-------------- ------- ----------- ---------
Income (loss) before income
taxes and extraordinary
item.......................... (1,800) 1,615 (1,667) (1,852)
Provision (benefit) for income
taxes.............................. 694 694 (2,129)(6) (741)
-------------- ------- ----------- ---------
Net income (loss)............... (2,494) 921 462 (1,111)
Preferred stock dividend
requirements....................... -- -- 800 (7) 800
-------------- ------- ----------- ---------
Net income (loss) attributable
to common stockholders........ $ (2,494) $ 921 $ (338) $(1,911)
============== ======= =========== =========
(Loss) per share:
Net (loss) per common and common
equivalent share, attributable
to common stockholders........ $ (.66) $ (.49)
============== =========
Weighted average number of common and
common equivalent shares
outstanding (in thousands)......... 3,781 107 (8) 3,888
============== =========== =========
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Consolidated Financial
Statements.
8
<PAGE>
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
September 30, 1996 gives effect to the CNM merger. The estimated fair market
values reflected herein 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.
(1) To record the elimination of assets and liabilities not acquired or
assumed by the Company and record the total consideration (including estimated
transaction costs) and the preliminary allocation of total consideration to the
identifiable net assets of the acquired business.
The effect of the CNM merger on the Consolidated Balance Sheet at September
30, 1996 was as follows:
1996
---------------
(IN THOUSANDS)
Current assets....................... $ 5,799
Cemetery property.................... 13,729
Property, plant and equipment........ 12,559
Deferred charges and other noncurrent
assets............................... 16
Names and reputations................ 17,582
Current liabilities.................. (217)
Other liabilities.................... (10,068)
---------------
39,400
Consideration:
Redeemable preferred stock issued.... (20,000)
Debt assumed......................... (2,367)
Class A Common Stock issued.......... (1,572)
---------------
Cash used for acquisition....... $ 15,461
===============
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 nine months ended September 30, 1996
give effect to the CNM merger as if such merger occurred at the beginning of
each of the respective periods.
(2) To record adjustment to amortization expense relative to the Company's
new basis in net assets acquired in conjunction with the CNM merger as if said
merger had occurred as of the beginning of each of the respective periods
presented. The amortization expense of $330,000 and $440,000 for the nine months
ended September 30, 1996 and the year ended December 31, 1995, respectively, is
resultant from the amortization, over a 40 year life, of the $17,582,000 in
names and reputations recorded in conjunction with the merger with CNM.
(3) To record additional depreciation expense of $123,000 and $170,000 for
the nine months ended September 30, 1996 and the year ended December 31, 1995,
respectively, relative to the Company's increased basis in property and
equipment resultant from the merger with CNM as if said merger had occurred at
the beginning of each of the respective periods presented. 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.
9
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) To record amortization expense relative to non-prepaid, non-compete
agreements of $127,000 and $169,000 for the nine months ended September 30, 1996
and the year ended December 31, 1995, respectively. These agreements are
amortized over the term of the agreements.
(5) To record additional interest expense of $593,000 and $888,000 for the
nine months ended September 30, 1996 and the year ended December 31, 1995,
respectively, which would have been incurred by the Company assuming the CNM
merger had occurred as of the beginning of each of the respective periods
presented. It has been calculated as a function of the $15.5 million utilization
on the available line of credit used to fund certain costs incurred in
conjunction with the merger.
(6) To record the tax benefit to reflect a normal effective rate of 40%.
This adjustment reflects a tax benefit of $912,000 and $2,129,000 for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively. The Company's management believes that this effective rate is
indicative of the Company's normal tax position assuming the merger was made as
of the beginning of the respective periods presented, not considering the
utilization of previously existing NOLs.
(7) To reflect the pro forma dividends on the Company's Series F
Convertible Preferred Stock issued in conjunction with the CNM merger as if the
related stock issuance had occurred as of the beginning of the respective
periods presented. A total of 19,999,992 shares of Series F Convertible
Preferred Stock have been issued. These shares would have yielded a pro forma
cash dividend of $630,000 and $800,000 for the nine months ended September 30,
1996 and the year ended December 31, 1995, respectively.
(8) To adjust weighted average shares outstanding to reflect the pro forma
effects of the 107,445 Class A Common Stock shares issued in conjunction with
the CNM merger as if such shares were issued as of the beginning of the
respective periods presented. The shares of Series F Convertible Preferred Stock
are not common stock equivalents.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the CNM Group:
We have audited the accompanying balance sheets of the CNM Group as of
December 31, 1996, and March 31, 1996, and the related statements of operations,
stockholders' equity and cash flows for the nine months ended December 31, 1996,
and for the year ended March 31, 1996. These financial statements are the
responsibility of the CNM 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the CNM Group as of December
31, 1996, and March 31, 1996, and the results of its operations and its cash
flows for the nine months ended December 31, 1996, and for the year ended March
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
January 17, 1997
11
<PAGE>
CNM GROUP
BALANCE SHEETS
DECEMBER 31, MARCH 31,
1996 1996
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,039,677 $ 1,975,368
------------ -----------
Accounts receivable --
Trade, net of allowance for
doubtful accounts of
$544,677 and $550,000 at
December 31, 1996, and
March 31, 1996,
respectively............ 5,702,153 5,611,358
Other...................... 82,824 104,377
------------ -----------
5,784,977 5,715,735
Inventories and other current
assets........................ 698,708 433,029
------------ -----------
Total current
assets............. 7,523,362 8,124,132
PROPERTY AND EQUIPMENT:
Land............................ 2,978,980 2,978,980
Buildings and improvements...... 4,067,481 3,928,245
Furniture and equipment......... 1,505,784 1,488,047
Automobiles..................... 631,729 603,147
------------ -----------
9,183,974 8,998,419
Less -- Accumulated
depreciation.................. (3,187,321) (2,994,087)
------------ -----------
5,996,653 6,004,332
CEMETERY PROPERTY, at cost........... 1,774,818 1,307,514
NAMES AND REPUTATIONS, net of
accumulated amortization of
$830,771 and $784,745 at December
31, 1996, and March 31, 1996,
respectively....................... 396,554 442,580
DEFERRED CHARGES AND OTHER NONCURRENT
ASSETS............................. 939,303 970,023
------------ -----------
Total assets.......... $ 16,630,690 $16,848,581
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 706,320 $ 446,618
Accrued liabilities............. 666,280 1,016,943
Current portion of long-term
debt and obligations under
capital leases................ 226,246 255,571
------------ -----------
Total current
liabilities........ 1,598,846 1,719,132
PRENEED LIABILITIES.................. 2,733,828 3,114,676
LONG-TERM DEBT, net of current
portion............................ 4,764,093 4,946,902
OBLIGATIONS UNDER CAPITAL LEASES, net
of current portion................. 211,847 211,210
DEFERRED INCOME TAXES................ 207,120 307,643
------------ -----------
Total liabilities..... 9,515,734 10,299,563
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY................. 7,114,956 6,549,018
------------ -----------
Total liabilities and
stockholders'
equity............. $ 16,630,690 $16,848,581
============ ===========
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CNM GROUP
STATEMENTS OF OPERATIONS
FOR THE
NINE MONTHS FOR THE
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1996 1996
------------ -----------
REVENUES, net........................ $8,734,651 $11,337,693
COSTS AND EXPENSES................... 6,320,904 8,142,840
------------ -----------
Gross profit.................... 2,413,747 3,194,853
GENERAL AND ADMINISTRATIVE
EXPENSES............................. 1,094,423 1,143,623
------------ -----------
Operating income................ 1,319,324 2,051,230
INTEREST EXPENSE, net................ 333,354 436,499
------------ -----------
Income before income taxes...... 985,970 1,614,731
PROVISION FOR INCOME TAXES........... 420,032 693,652
------------ -----------
Net income...................... $ 565,938 $ 921,079
============ ===========
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
CNM GROUP
STATEMENTS OF CASH FLOWS
FOR THE
NINE MONTHS FOR THE
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1996 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 565,938 $ 921,079
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and amortization... 452,122 575,374
Bad debt expense................ -- 50,000
Deferred income tax benefit..... (100,523) (55,220)
Decrease (increase) in accounts
receivable...................... (63,919) 245,156
Increase in inventories and
other current assets.......... (271,002) (91,945)
Increase (decrease) in accounts
payable....................... 259,702 (15,005)
Decrease in accrued and preneed
liabilities and other......... (732,311) (26,519)
------------ -----------
Net cash provided by
operating activities.... 110,007 1,602,920
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
and cemetery property........... (883,269) (1,019,475)
Proceeds from sale of property and
equipment....................... 49,068 96,248
------------ -----------
Net cash used in investing
activities.............. (834,201) (923,227)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt......... (211,497) (415,250)
------------ -----------
Net cash used in financing
activities.............. (211,497) (415,250)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (935,691) 264,443
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 1,975,368 1,710,925
------------ -----------
CASH AND CASH EQUIVALENTS, end of
period............................... $1,039,677 $ 1,975,368
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid...................... $ 358,741 $ 487,161
Taxes paid......................... 413,400 664,614
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
CNM GROUP
STATEMENTS OF STOCKHOLDERS' EQUITY
BALANCE, March 31, 1995.............. $ 5,627,939
Net income...................... 921,079
------------
BALANCE, March 31, 1996.............. 6,549,018
Net income...................... 565,938
------------
BALANCE, December 31, 1996........... $ 7,114,956
============
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
CNM GROUP
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION/NATURE OF BUSINESS
Effective January 7, 1997, Carriage Funeral Services of California, Inc.
(Carriage), a wholly owned subsidiary of Carriage Services, Inc., acquired the
stock of CNM, Inc., and two of its wholly owned subsidiaries, Rolling Hills
Memorial Park and Wilson & Kratzer Mortuaries (these three entities are
hereinafter referred to as the Group or the CNM Group), for aggregate
consideration in excess of the recorded amount of the net assets of the Group.
The net assets and results of operations of a third subsidiary owned by CNM,
Inc., which was not engaged in the death care industry and which was not
acquired by Carriage, have not been included in the accompanying financial
statements. Based on this presentation, the Group's stockholders' equity has
been presented on an aggregated basis to reflect the equity of the Group rather
than the equity of CNM, Inc.
The Group owns and operates 10 funeral homes and one cemetery in Northern
California. The Group performs personal and professional services related to
funerals and interments at its funeral homes and cemetery. Prearranged funerals
and preneed cemetery products and services are marketed in the geographic
markets served by the Group's locations.
FUNERAL AND CEMETERY REVENUES
The CNM Group records the sale of funeral merchandise and services upon
performance. The Group records the sale of the right of cemetery interment or
mausoleum entombment and related merchandise at the time of sale. State law
requires cash receipts for certain cemetery products and services to be fully
trusted; the revenue for these sales is recognized upon delivery. Provision for
bad debts is recorded at the date of sale and cancellations are recorded in the
period of cancellation.
TRUST FUNDS
The CNM Group is required by state law 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 CNM 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 specific service. The
prearranged funeral trust assets were approximately $2,223,000 and $2,267,000 at
December 31, 1996, and March 31, 1996, respectively, which exceeds the future
costs under such arrangements. The CNM Group does not have the right to withdraw
any of such balances and, accordingly, these trust fund balances are not
reflected in the accompanying financial statements.
In accordance with respective state laws, the CNM Group is generally
required to deposit a specified amount into perpetual and memorial care trust
funds for each interment/entombment right and memorial sold. Income from such
trust funds is used to provide care and maintenance for the cemeteries and
mausoleums and is periodically distributed to the CNM Group. The CNM Group does
not have the right to withdraw any of the principal balances of these funds,
which were approximately $3,923,000 and $3,788,000 at December 31, 1996, and
March 31, 1996, respectively. Accordingly, these trust fund balances are not
reflected in the accompanying balance sheets.
The CNM Group is also required to deposit a specified amount into a
merchandise and service trust fund for cemetery merchandise and service
contracts sold on a preneed basis. The principal of the trust may
16
<PAGE>
CNM GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
be withdrawn by the CNM Group upon maturity (generally, death of the purchaser)
or cancellation of the contract. Accumulated earnings provided by the underlying
assets held by the trust are periodically distributed by the trust and recorded
as income when received. Revenue, as it relates to merchandise and service
contracts sold on a preneed basis, is recognized at the time of service.
Merchandise and service trust fund balances, in the aggregate, were
approximately $2,464,000 and $2,266,000 at December 31, 1996, and March 31,
1996, respectively. The CNM Group does not have the right to withdraw any of the
principal balances on these funds. Accordingly, these trust fund balances are
not reflected in the accompanying balance sheets.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the CNM Group considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
INVENTORY
Inventory is stated at the lower of its cost basis (as determined by the
specific identification method) or market.
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 financial statements
as names and reputations of the operations acquired. Such amounts are being
amortized over 20 years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes the recognition and measurement standards related to the
impairment of long-lived assets. SFAS No. 121 was adopted by the Group on April
1, 1996. Such adoption did not have a material effect on the Group's financial
position or results of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation of property and
equipment is based on the straight-line method over the estimated useful lives
of the assets. The costs of ordinary maintenance and repairs are charged to
operations, while renewals and replacements are capitalized.
Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS
-----
Building and improvements............ 10-32
Furniture and fixtures............... 3-10
Automobiles.......................... 3-5
INCOME TAXES
The CNM Group accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the Group determines
deferred tax assets and liabilities based on the estimated future tax effects of
differences between the financial statement basis 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the
17
<PAGE>
CNM GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. DEFERRED CHARGES AND OTHER NONCURRENT ASSETS:
Deferred charges and other noncurrent assets at December 31, 1996, and
March 31, 1996, were as follows:
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
Investment in affiliated entity...... $892,247 $ 891,447
Agreements not to compete, net of
accumulated amortization of
$1,086,216 in December 1996 and
$1,054,696 in March 1996........... 44,056 75,576
Other................................ 3,000 3,000
------------ ---------
$939,303 $ 970,023
============ =========
3. LONG-TERM DEBT:
The CNM Group's long-term debt consisted of the following:
DECEMBER 31, MARCH 31,
1996 1996
------------ ----------
Note payable to former stockholder,
secured by deed of trust and
security agreements covering
certain real property, due in
monthly installments of $16,667,
including interest at 8.0% through
May 2003 with a final payment of
approximately $1,632,415 due in May
2003............................... $2,034,250 $2,061,286
Note payable, secured by deed of
trust and security agreements
covering certain real property, due
in monthly installments of $13,901,
including interest at 9.0% through
December 2007...................... 1,679,686 1,690,992
Note payable, secured by deed of
trust and security agreements
covering certain real property, due
in monthly installments of $7,923,
including interest at 9.5% through
July 2010.......................... 724,031 742,993
Note payable, secured by deed of
trust and security agreements
covering certain real property, due
in monthly installments of $2,608,
including interest at 9.25% through
April 2004......................... 166,178 177,671
Notes payable, secured by deed of
trust and security agreements
covering certain real property, due
in monthly installments of $3,144,
including interest at 7.0% through
May 2001........................... 140,655 160,967
Note payable, secured by deed of
trust and security agreements
covering certain real property, due
in monthly installments of $3,144,
including interest at 7.0% through
May 2001........................... 140,655 160,967
Note payable, secured by deed of
trust and security agreements
covering certain real property, due
in monthly installments ranging
from $404 to $5,313, including
interest ranging from 8.0% to
10.25% with payment through October
1996 to September 2008............. 104,884 207,597
Less -- Current portion.............. (226,246) (255,571)
------------ ----------
$4,764,093 $4,946,902
============ ==========
The aggregate maturities of long-term debt for the three-month period ended
March 31, 1997, and the subsequent five years are approximately $77,000,
$228,000, $288,000, $290,000, $316,000, $272,000, respectively, and $3,519,000
thereafter. The debt agreements do not contain any significant restrictive
covenants.
18
<PAGE>
CNM GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
CLAIMS AND LAWSUITS
The Group is subject to certain claims and lawsuits arising in the normal
course of business, relating to employment discrimination, harassment, personal
injury and compensation issues being reviewed by the Labor Board. The Group
maintains various insurance coverages in order to minimize financial risk
associated with the claims. In the opinion of management, uninsured losses, if
any, resulting from the ultimate resolution of these matters will not be
material to the Group's financial position or results of operations.
BENEFIT PLAN
The CNM Group sponsors a defined contribution benefit plan covering
substantially all full-time employees having at least one year of service. In
its sole discretion, the Group can make contributions to the plan. Contributions
to such plan totaled $79,000 and $112,610 for the nine months ended December 31,
1996, and for the year ended March 31, 1996, respectively. These amounts are
included in "Costs and Expenses" in the accompanying statements of operations.
LEASES
The CNM Group leases certain office facilities, vehicles and equipment for
periods from one to seven years with options on some of the facilities for
extended periods. Certain operating leases provide for an annual adjustment to
rent in accordance with changes in relevant pricing indices. Rent expense was
approximately $121,000 and $160,000 for the nine months ended December 31, 1996,
and for the year ended March 31, 1996, respectively.
In addition, the CNM Group leases a mortuary facility under a capital
lease. Accumulated depreciation relating to the leased assets is $67,000 and
$63,000 as of December 31, 1996, and March 31, 1996, respectively.
Minimum payments over the lease periods will be as follows (in thousands):
MINIMUM LEASE PAYMENTS
------------------------
OPERATING CAPITAL
LEASES LEASES
---------- --------
Three months ending 1997............. $ 40 $ 6
Years ending March 31 --
1998............................ 158 24
1999............................ 160 26
2000............................ 160 26
2001............................ 160 26
2002............................ 160 26
Thereafter...................... 861 459
---------- --------
Total minimum lease payments......... $1,699 593
==========
Less -- Amount representing
interest........................... 381
--------
Long-term obligations under capital
leases............................... $ 212
========
19
<PAGE>
CNM GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
Historically, the CNM Group has been included in the consolidated U.S.
federal income tax return for CNM, Inc. The only significant temporary
differences between the Group's financial statement and tax bases of accounting
relate to accruals made in connection with preneed marker and base sales, and
differences relating to depreciation. Permanent differences relate to tax-exempt
income received from certain trust funds and state income taxes. The income tax
provision for the nine months ended December 31, 1996, and for the year ended
March 31, 1996, consisted of:
FOR THE FOR THE
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
Current --
U.S. federal....................... $ 404,103 $ 573,455
State.............................. 116,452 175,417
------------ ---------
520,555 748,872
------------ ---------
Deferred --
U.S. federal....................... (83,003) (39,516)
State.............................. (17,520) (15,704)
------------ ---------
(100,523) (55,220)
------------ ---------
$ 420,032 $ 693,652
============ =========
The differences in the income taxes provided for and the amounts determined
by applying the federal statutory rate to income taxes of the CNM Group for the
nine months ended December 31, 1996 and for the year ended March 31, 1996, are
summarized as follows:
FOR THE FOR THE
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
Federal income statutory rate........... 34.0% 34.0%
Effect of state income taxes, net of
federal benefit....................... 6.2 6.2
Effect of nondeductible expenses and
other................................. 2.4 2.8
------------ ---------
42.6% 43.0%
============ =========
The following table sets forth the gross deferred tax assets and
liabilities as of December 31, 1996, and March 31, 1996:
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
Deferred income tax assets --
Noncurrent......................... $ 53,033 $ 53,033
------------ ---------
Deferred income tax liabilities --
Noncurrent......................... (260,153) (360,676)
------------ ---------
Net deferred tax liability.............. $ (207,120) $(307,643)
============ =========
20
<PAGE>
CNM GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The sources of significant temporary differences and related tax effect
were as follows:
FOR THE FOR THE
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
Depreciation and amortization........ $ (9,997) $ 35,306
Preneed marker and bases............. (90,526) (90,526)
------------ ---------
Total deferred income tax benefit.... $ (100,523) $ (55,220)
============ =========
6. RELATED PARTIES:
The Group has $24,850 in notes payable to officers of Wilson & Kratzer
Mortuaries originated on September 24, 1996, paying interest at 6.58 percent per
annum. To date, no principal payments have been made.
The Group has paid interest of $4,201 and $7,601 for the nine months ended
December 31, 1996, and the year ended March 31, 1996, respectively, on the
outstanding debt obligations of $57,518 and $79,815 as of the respective
period-end dates to the chairperson of the board for CNM, Inc. and Rolling
Hills Memorial Park. The obligation pays interest at 8.0 percent per annum.
The Group leases a facility owned by a related party which is wholly owned
by members of the board of directors of CNM, Inc., Wilson & Kratzer Mortuaries,
and Rolling Hills Memorial Park. Lease expense of $21,833 and $29,029 was
recognized for the nine months ended December 31, 1996, and the year ended March
31, 1996, respectively, relating to this facility.
Additionally, compensation of $202,500 and $279,000 for the nine months
ended December 31, 1996, and the year ended March 31, 1996, respectively, was
paid in the form of directors' fees and consultation fees to various members of
the respective board of directors and/or related parties.
21
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------- ----
10.22 -- Merger Agreement dated October 17, 1996 among
Carriage Services, Inc., Carriage Funeral Services
of California, Inc., CNM and the shareholders of CNM....... 24
23
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of October 17, 1996
(this "Agreement"), among CARRIAGE SERVICES, INC., a Delaware corporation (the
"Purchaser"), CARRIAGE FUNERAL SERVICES OF CALIFORNIA, INC., a California
corporation (the "Acquisition Subsidiary"), CNM, a California corporation (the
"Company"), and MARK F. WILSON, a resident of Contra Costa County, California,
WENDY WILSON BOYER, a resident of Contra Costa County, California, WARREN A.
BROWN, IV, a resident of Alameda County, California, William Boyer and Wendy
Wilson Boyer, Trustees of THE BOYER FAMILY TRUST DATED SEPTEMBER 22, 1986, fbo
Wendy Wilson Boyer, Marie Dietz and Mark F. Wilson, Trustees of TRUST B UNDER
AGREEMENT DATED SEPTEMBER 9, 1977 by Francis Wilson, and Marie Dietz and Mark F.
Wilson, Trustees of TRUST C UNDER AGREEMENT DATED SEPTEMBER 9, 1977 by Francis
Wilson (together, the "Shareholders");
W I T N E S S E T H:
WHEREAS, the Company, through its wholly owned subsidi aries,
owns and operates the nine Wilson & Kratzer Funeral Homes located in Alameda and
Contra Costa Counties, California as more particularly described on Schedule I
hereto (collectively, the "Homes"), and the Rolling Hills Memorial Park Cemetery
located in Contra Costa County, California, also more particularly described on
Schedule I (the "Cemetery"), and the Shareholders collectively own all of the
issued and outstanding capital stock of the Company in the respective amounts
shown on Schedule II hereto; and
WHEREAS, the parties desire that the Company merge with and
into the Acquisition Subsidiary in a statutory merger (the "Merger") to be
consummated under the laws of the State of California 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. At the Effective Time of the Merger (as
defined in Section 1.2 below), the Company shall be merged with and
into the Acquisition Subsidiary in a statutory merger (the "Merger") to
be consummated pursuant to and on the terms and conditions set forth in
this Agreement and in accordance with the California General
Corporation Law ("CGCL"). The Acquisition Subsidiary shall be the
surviving corporation of the Merger (the "Surviving Corporation"), and
shall continue its corporate existence as a corporation governed by the
laws of the State of California.
1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall
become effective at such time (the "Effective Time of the
Merger") as a copy of this Agreement (or a short-form version
hereof meeting the statutory requirements of the CGCL) and the
requisite officers' certificate pursuant to Section 1103 of
-1-
<PAGE>
the CGCL are filed with the Secretary of State of California and become
effective; such filing shall be made, and shall provide that the
instruments filed therewith shall become effective, as soon as
practicable after the Closing referred to in Section 4.1.
1.3. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in Section 1107 of the CGCL.
1.4. 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, but shall cooperate
to the extent reasonably necessary in connection with the defense by
the Shareholders of the intended tax free nature of the reorganization,
nor shall the foregoing constitute a warranty or guaranty that the
Merger will in fact constitute such a reorganization.
2. ARTICLES OF INCORPORATION, BYLAWS, OFFICERS AND DIRECTORS.
2.1. ARTICLES OF INCORPORATION. From and after the Effective
Time of the Merger, the Articles of Incorporation of the Acquisition
Subsidiary in effect immediately prior to the Effective Time of the
Merger shall be the Articles of Incorporation of the Surviving
Corporation, subject to the right of the Surviving Corporation to amend
its Articles of Incorporation after the Effective Time of the Merger in
accordance with such Articles of Incorporation and the CGCL.
2.2. BYLAWS. From and after the Effective Time of the Merger,
the bylaws of the Acquisition Subsidiary in effect immediately prior to
the Effective Time of the Merger, shall be the bylaws of the Surviving
Corporation, until changed or amended as provided therein.
2.3. DIRECTORS. From and after the Effective Time of the
Merger, the directors of the Surviving Corporation shall be three (3),
who shall be those persons who are directors of the Acquisition
Subsidiary immediately prior thereto and Mark F. Wilson, each of whom
shall hold office subject to the provisions of, and the number of
directors shall be subject to adjustment as provided in, the CGCL and
the Articles of Incorporation and bylaws of the Surviving Corporation.
2.4. OFFICERS. From and after the Effective Time of the
Merger, the officers of the Surviving Corporation shall be those
persons who are officers of the Acquisition Subsidiary immediately
prior thereto, except that at the Effective Time of the Merger Mark F.
Wilson shall become President of the Surviving Corporation. Each of the
foregoing officers shall thereafter hold office subject to the
provisions of the CGCL and the bylaws of the Surviving Corporation.
-2-
<PAGE>
3. CONVERSION OF SHARES.
3.1. CONVERSION OF SHARES. The manner of converting shares of
the capital stock of the Company and the Acquisition Subsidiary issued
and outstanding immediately prior to the Effective Time of the Merger
into shares of Common Stock, no par value, of the Surviving
Corporation, or into the right to receive shares of Class A Common
Stock, $.01 par value, of the Purchaser ("Class A Common Stock"),
shares of Series F Preferred Stock, $.01 par value ("Series F Preferred
Stock"), of the Purchaser, cash or Deferred Merger Consideration (as
hereafter defined), as the case may be, shall be as follows:
(a) At the Effective Time of the Merger, each share
of Common Stock, no 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, no 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.
(c) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time of the
Merger shall, by virtue of the Merger, without any action on
the part of the holders thereof, automatically be converted
into and become, at the Effective Time of the Merger, the
right to receive from the Purchaser, consideration
(collectively, the "Merger Consideration"), determined as
follows:
FIRST, the aggregate Merger Consideration for all shares of
issued and outstanding Company Common Stock shall be
calculated as the sum of the following:
(A) An amount in cash equal to $14,900,000.00
LESS the outstanding balance as of the
Effective Time of the Merger of the Closing
Date Liabilities (as defined in Section
3.7), PLUS $54,189.00 PLUS those Interim
Expenses for the Danville Property that are
approved pursuant to Section 7.3(d) PLUS an
amount accruing at the rate of $109.10 per
diem from September 20, 1996 through the
Closing Date;
(B) 200,000 shares of Class A Common Stock;
(C) 15,000,000 shares of Series F Preferred
Stock;
(D) $5,000,000.00 payable in installments after
the Closing as provided in Section 3.6 below
(the "Deferred Merger Consideration");
-3-
<PAGE>
(E) An amount (not to exceed $250,000.00),
payable in cash, equal to the amount of the
aggregate cash balances at the Effective
Time of the Merger of the Company and the
Subsidiaries referred to in Section 5.4
(excluding any cash balances dedicated to
fund preneed, merchandise and perpetual care
trusts and accounts), which amount shall be
set forth in a certificate of the
Shareholders as to such balances; and
(F) The amount of those accounts receivable of
the Subsidiaries outstanding at the
Effective Time of the Merger which arise
from the sale of merchandise and services
for funeral service performed at the Homes
prior to the Closing Date and from the
at-need sale of Cemetery merchandise and
plots at the Cemetery prior to the Closing
Date (collectively "Closing Date
Receivables") specifically excluding preneed
cemetery accounts receivables. An amount
equal to 50% of those Closing Date
Receivables which are less than 90 days past
the invoice date at the Effective Time of
the Merger shall be paid in cash at the
Closing, and the remainder shall be payable
as provided in Section 3.8.
SECOND, the Merger Consideration payable per share of
outstanding Company Common Stock shall be determined by
dividing the aggregate Merger Consideration calculated above
by the number of shares of Company Common Stock which are
issued and outstanding at the Effective Time of the Merger.
Each component of Merger Consideration set forth in clauses
(A) through (F) above shall be allocated equally among all of
the shares of Company Common Stock which are issued and
outstanding at the Effective Time of the Merger, unless the
Purchaser receives, at least thirty (30) days prior to the
date set for the Closing, a written notice (which shall be
irrevocable and binding on each Shareholder) signed by all of
the Shareholders, setting forth a different allocation of such
components of the Merger Consideration specified in clauses
(A), (B), (C) and (D) above. Such notice may provide for a
reallocation of each such component of the Merger
Consideration among the Shareholders without affecting the
total allocation of Merger Consideration to such component, or
may provide for a reallocation of Merger Consideration from
one or more such components to one or more other such
components, all as shall be specified in such notice, which
notice shall be attached to this Agreement and constitute a
part hereof when accepted by the Purchaser; provided, however,
that (i) for purposes of any such reallocation, each share of
Class A Common Stock shall be deemed to have a value of
$15.00, each share of Series F Preferred Stock shall be deemed
to have a value of $1.00, and the Deferred Merger
Consideration shall be based upon the present value thereof on
the Closing Date at a discount rate of seven percent (7%) per
annum; (ii) in no event shall the aggregate Merger
Consideration be affected; (iii) in no event shall the net
amount under clause (A) above, after deducting the amount of
Closing Date Liabilities, be reduced to below zero; and (iv)
the amount under clause (C) above shall in
-4-
<PAGE>
no event exceed 20,000,000 shares of Series F Preferred Stock.
The terms and provisions applicable to the Series F Preferred
Stock shall be as described in Section 3.5 below, the terms
and provisions applicable to the Deferred Merger Consideration
shall be as described in Section 3.6 below, and the terms
applicable to the Closing Date Receivables shall be as
described in Section 3.8 below.
(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 con sideration in respect thereof.
(e) No fractional shares of Class A Common Stock or
Series F Preferred Stock (collectively, "Purchaser Stock") or
scrip will be issued in respect of fractional interests; in
lieu of any fractional shares of Purchaser Stock which may be
issued in respect of shares of Company Common Stock as
aforesaid, the holders thereof instead shall receive a cash
payment in an amount equal to the product of such fraction
multiplied by $15.00.
3.2. SURRENDER AND PAYMENT. After the Effective Time of the
Merger, each holder of an outstanding certificate which prior to the
Effective Time of the Merger represented shares of Company Common Stock
shall, upon surrender of such certifi cate to the Surviving
Corporation, be entitled to receive the Merger Consideration pursuant
to Section 3.1(c) of this Agreement. Until so surrendered, each
outstanding certificate which prior to the Effective Time of the Merger
represented shares of Company Common Stock shall, upon and after the
Effective Time of the Merger, represent and evidence only the right to
receive payment therefor as provided in Section 3.1(c) of this
Agreement.
3.3. NO FURTHER TRANSFERS. Upon and after the Effective Time
of the Merger, no transfer of shares of Company Common Stock issued and
outstanding immediately prior to the Effec tive Time of the Merger
shall be made on the stock transfer books of the Surviving Corporation.
3.4. CONSENT TO MERGER; WAIVER OF DISSENTERS' RIGHTS. Each
Shareholder, in his or her capacity as a shareholder of the Company,
and the Purchaser, in its capacity as a share holder of the Acquisition
Subsidiary, hereby (i) consent to the Merger pursuant to Chapter 12 of
the CGCL, and (ii) irrevocably and unconditionally waive all
dissenters' and other similar rights with respect to the Merger under
and pursuant to Chapter 13 of the CGCL.
3.5. SERIES F PREFERRED STOCK. The terms and provisions of the
Series F Preferred Stock shall be as provided in the Certificate of
Designation, Preferences, Rights and Limita tions of the Series F
Preferred Stock in the form attached hereto as Exhibit H attached
hereto, with such amendments thereto as shall be agreed upon by the
parties hereto, and which shall be the form on file with the Secretary
of State of Delaware and in effect at the Effective Time of the Merger
-5-
<PAGE>
(the "Series F Designation"), subject to amendment as therein provided.
Of the shares of Series F Preferred Stock to be so issued as part of
the Merger Consideration (as the same may be reallocated prior to the
Closing as described in Section 3.1(c)), one-third (1/3) of such shares
(rounded down to the nearest whole share) shall be issued as
"Designated Preferred Stock" (within the meaning of the Series F
Designation) and the remainder of such shares shall constitute Series F
Preferred Stock which is not Designated Preferred Stock.
3.6. DEFERRED MERGER CONSIDERATION. The Deferred Merger
Consideration shall be payable in ten (10) equal annual installments of
$500,000.00 each, payable on or before the first through tenth
anniversaries of the Closing Date. Each installment of Deferred Merger
Consideration shall be payable to each Shareholder on a pro rata basis
in proportion to his or her respective holdings of Company Common Stock
at the Effective Time of the Merger, except as the same may be
reallocated among the Shareholders as provided in Section 3.1(c). No
interest shall accrue or be payable in respect of the Deferred Merger
Consideration. For federal income tax purposes, the parties agree that
the Deferred Merger Consideration shall be deemed to include an imputed
rate of interest of seven percent (7%) per annum.
3.7. CLOSING DATE LIABILITIES. At the Closing, the
Shareholders shall deliver to the Purchaser a statement, certified by
them to be true and complete, of all liabilities and obligations of the
Company and the Subsidiaries of whatever nature and character including
(but not limited to) indebtedness for borrowed money, indebtedness
secured by Liens against any assets or properties of the Company or any
Subsidiary, accounts and trade payable, accrued liabilities, any
liabilities under suits, claims, judgments or orders then pending or
any other liability or obligation of the Company and the Subsidiaries
attributable to the operation of the their businesses prior to Closing
(collectively, "Closing Date Liabilities"), EXCLUDING (i) obligations
under preneed funeral contracts for which the full amount has been
deposited in trust or funded by insurance as required under applicable
law, and under cemetery endowment care, merchandise and service
contracts for which the full amount has been deposited in trust, the
merchandise has been purchased, or as to which there are outstanding
preneed accounts receivable covering such obligations, and obligations
in respect of commissions for preneed services and merchandise based
upon cemetery preneed accounts receivable to the extent not collected
as of the Effective Time of the Merger, (ii) obligations arising after
the Closing under the executory contracts listed on Schedule 5.13 under
the heading "Executory Contracts" and under the Greer Lease, (iii) any
obligations to be paid by the Company or Purchaser with respect to the
Danville Property pursuant to Section 7.3(d) hereof, and (iv)
obligations payable after the Closing under the Stahl Agreement
referred to in Section 5.6(h). Such statement of the Shareholders shall
include a proration, as of the Closing Date, of proratable items, such
as property taxes, rents under leases (including the Greer Lease) and
(to the extent known) utilities, subject to reconciliation as described
in Section 3.9. In the case of indebtedness for borrowed money or
secured by Liens against any assets of the Company or any Subsidiary,
such statement shall be accompanied by statements of the holders of
such indebtedness certifying as to the balance thereof, including per
diem interest. For purposes of
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calculating the amount of Closing Date Liabilities, there shall be
included all amounts necessary to pay and discharge the same in full at
the Effective Time of the Merger, includ ing principal, interest, fees,
prepayment fees or premiums, and other similar amounts, however
characterized. Such statement shall include estimated federal and state
income tax liabilities, which shall be reconciled as described in
Section 3.9. To the extent that Closing Date Liabilities are
outstanding at the Effective Time of the Merger, the amount thereof
shall be deducted from the cash portion of the Merger Consideration as
described in Section 3.1(c)(A). Any Closing Date Liabilities remaining
unpaid after the Closing which are not set forth on such statement of
the Shareholders shall be paid by the Shareholders and shall be subject
to indemnification under Section 10.1.
3.8. CLOSING DATE RECEIVABLES. At the Closing, the
Shareholders shall deliver to the Purchaser a list of the Closing Date
Receivables, certified by them to be true and complete. That portion of
the Merger Consideration payable under Section 3.1(c)(F), which is not
paid at the Closing, shall be payable as hereafter provided in this
Section 3.8. Within 30 days after the last day of each of the third,
eighth and twelfth calendar months following the Closing Date (each
such date being referred to as a "Collection Date"), 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 Collection Date
("Post-Closing Collections"). To the extent that the cumulative amount
of Post-Closing Collections through each Collection Date exceed the
amount theretofore paid by the Purchaser as Merger Consideration in
respect of Closing Date Receivables pursuant to Section 3.1(c)(F)
(including amounts payable hereunder in respect of previous Collection
Dates), the Purchaser shall pay the amount of the excess to the
Shareholders in cash upon delivery of each such certificate; provided,
however, that such payment in respect of the Collection Date which is
the last day of the third month after the Closing shall be subject to
reconciliation as provided in Section 3.9. 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 all
collections on Closing Date Receivables is less than the amount paid
under clause (F) of Section 3.1(c), or if any Closing Date Receivables
remain uncollected on such last Collection Date and are thereafter
collected, in either event there shall be no further adjustments to the
Merger Consideration or payments in respect thereof.
3.9. POST-CLOSING RECONCILIATION. Within 30 days after the
first Collection Date referred to in Section 3.8, the Purchaser shall
deliver to the Shareholders a certificate certified by it to be true
and complete, of the following reconciling items as of the Effective
Time of the Merger:
(i) Any trade or accounts payable of the Company or
any Subsidiary outstanding at the Effective Time of the
Merger, or other Closing Date Liabilities (including federal
income tax liabilities), to the extent not
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deducted from the Merger Consideration pursuant to Section
3.1(c)(A);
(ii) Any proratable items described in Section 3.7,
as adjusted to reflect information regarding such prorations
which became known after the Closing;
(iii) non-trusted cemetery merchandise obligations
for lawn crypts, markers and granite bases, which shall be
reconciled in a manner to be mutually determined among the
parties prior to the Closing Date; and
(iv) the non-preneed and non-trusted cash balances of
the Company and the Subsidiaries that, despite the
Shareholders' best efforts to reduce such balances to below
$250,000 by the Effective Time of the Merger, is in excess of
such amount and therefore has not been added to the Merger
Consideration under Section 3.1(c)(A).
Based upon a reconciliation of the foregoing items, the Merger
Consideration shall be adjusted as hereafter provided. The Shareholders
shall be given credit as of such Collection Date for the first Closing
Date Receivables reconciliation then due under Section 3.8, and for
proratable items to the extent of expenses arising after the Effective
Time of the Merger; and the Purchaser shall be given credit for Closing
Date Liabilities under (i) above and proratable times to the extent of
expenses arising prior to the Effective Time of the Merger. If, based
upon such reconciliation, the Merger Consideration shall be increased,
the Purchaser shall pay to the Shareholders the amount of such increase
in cash within 30 days after such reconciliation, and if the Merger
Consideration shall be decreased, the Shareholders shall pay to the
Purchaser the amount of such decrease within 30 days after such
reconciliation.
3.10. 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 any other party, and without further
consideration, such additional instruments of conveyance and transfer,
and to take such other action as the other party may reasonably require
to more effectively carry out the terms and provisions of the Merger
and the other transaction contemplated by this Agreement.
4. THE CLOSING.
4.1. TIME AND PLACE. The Closing of the Merger (the "Closing")
shall occur at the offices of Freeland, Cooper, LeHocky & Hamburg, 150
Spear Street, Suite 1800, San Francisco, California on the second
business day following the date that the last of the conditions to
Closing under Section 8 hereof have been satisfied, or at such other
date, time or place as may be mutually agreed upon by the parties, but
in no event later than January 10, 1997. 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. 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
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action or delivery or payment shall be considered as complete until all
action incident to the Closing has been completed.
4.2. RELATED TRANSACTIONS. In addition to the Merger, at the
Closing the following transactions shall occur:
(a) The Purchaser and the Shareholders shall each
execute and deliver to the other a Stock Registration
Agreement to be dated the Closing Date and in substantially
the form of Exhibit A hereto (the "Registration Agreement");
(b) The number of positions on the Purchaser's Board
of Directors shall be increased by one (1), and Mark Wilson
("Wilson") shall be elected to the vacancy created by such
increase, as a Class III Director, within the meaning of the
Purchaser's By-laws;
(c) The Acquisition Subsidiary, on the one hand, and
each of Wilson and Wendy Wilson Boyer ("Boyer"), 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");
(d) The Acquisition Subsidiary shall establish its
Carriage Partners Program for California in substantially the
form of Exhibit C hereto (the "Program"), and Wilson shall
become a participant in the Program in accordance with the
terms and provisions thereof;
(e) The Acquisition Subsidiary and the Purchaser, on
the one hand, and each of Wilson and Boyer, on the other,
shall each execute and deliver a separate Non- Competition
Agreement to be dated the Closing Date and in substantially
the forms of Exhibits D-1 and D-2, respectively, hereto
(collectively, the "Non-Competition Agreements");
(f) Melvin C. Payne, Mark W. Duffey, C. Byron
Snyder and Barry K. Fingerhut (collectively, the
"Carriage Stockholders") and the Shareholders shall each
execute and deliver to the other a Co-Sale Agreement to
be dated the Closing Date and in substantially the form
of Exhibit E hereto (the "Co-Sale Agreement");
(g) Crockett Properties, a California partnership
("Related Partnership"), shall convey fee simple title to
Wilson & Kratzer Mortuaries, a California corporation and
wholly owned subsidiary of the Company ("Wilson & Kratzer"),
all of the real property and improvements on which the Grant
Miller Chapel in Oakland, California is situated (as more
particularly described on Schedule 5.6, hereafter the "Grant
Real Property"), free and clear of all Liens other than
Permitted Liens against such property described on Schedule
5.6, for a consideration consisting entirely in cash or notes
of Wilson & Kratzer that will, at the Effective Time of the
Merger, constitute Closing Date Liabilities deducted from the
Merger Consideration under Section 3.1(c)(A); and
(h) BWB Diablo Properties, LLC ("BWB") shall convey
and assign to Wilson & Kratzer fee simple title to all of the
real property and improvements located at 825 Hartz
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Way in Danville, Contra Costa County, California more
particularly described on Schedule 5.6(c) (the "Danville
Property"), acquired by BWB from The Danville Community
Development Agency pursuant to the Purchase and Sale Agreement
between BWB and such Agency dated July 22, 1996 (the "Danville
Purchase Agreement"), such assignment to include BWB's rights
under the Danville Purchase Agree ment, under the
Architectural and Engineering Services Agreement and the
Interior Design, Procurement and Installment Series Agreement,
both dated March 5, 1996 and both with The Doody Group, and
under all other con tracts, agreements and appurtenant rights
acquired or entered into in connection with the foregoing (all
of the foregoing being collectively referred to as the
"Danville Agreements"), without payment or obligation on the
part of the Company or any Subsidiary, subject to Section
7.3(d).
5. 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:
5.1. 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 Schedule
II, 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, "Liens").
5.2. ORGANIZATION AND EXISTENCE. The Company is a corpo ration
duly organized, validly existing and in good standing under the laws of
the State of California, 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,
certified by the Secretary of State of California, and the Bylaws,
certified by its Secretary, of the Company, all as in effect on the
date hereof.
5.3. CAPITALIZATION. The authorized capital stock of the
Company consists of 100,000 shares of Common Stock, no par value, of
which 41,625 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.
5.4. SUBSIDIARIES. Schedule 5.4 sets forth the name and
jurisdiction of incorporation or organization of Wilson & Kratzer and
every other corporation in which the Company directly or indirect has
an ownership interest (collectively, the "Subsidiaries"), other than
Brown & Wilson, Inc., a California corporation which is a subsidiary of
Wilson & Kratzer ("Brown & Wilson"). Each Subsidiary is a corporation
duly organized, validly existing and in good standing under
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the laws of the State of California, and has all requisite power 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 bylaws of each Subsidiary, both as in effect on the
date hereof. The authorized, issued and outstanding capital stock of
each Subsidiary is correctly and completely described on Schedule 5.4.
All such shares of stock are issued and outstanding and owned by the
Company (except for 208 shares of the non-voting common stock of Wilson
& Kratzer which are owned by Dennis Steiner, hereafter the "Steiner
Shares"), free and clear of all Liens (except for a pledge of the
outstanding shares of Rolling Hills to secure obligations under the
Stahl Agreement), fully paid and nonassessable, and not issued in
violation of the preemptive rights of any person. No shares of any
Subsidiary have been issued that are held by it in its treasury. No
Subsidiary has any outstanding subscriptions, options or other
agreements or commitments obligating it to issue any shares of its
capital stock. Neither the Company nor any Subsidiary has an investment
or ownership interest in any corporation, limited liability company,
partnership, joint venture or other business entity, except as
described on Schedule 5.4 and except for Brown & Wilson.
5.5. FINANCIAL INFORMATION. The Shareholders have delivered to
the Purchaser (i) for Wilson & Kratzer, (x) its unaudited (compiled)
balance sheet at March 31, 1996 (the "Wilson & Kratzer Balance Sheet")
and the related unaudited (compiled) statement of earnings of Wilson &
Kratzer for the twelve months then ended, together with the
supplementary schedules thereto and the compilation report thereon of
Alphonse deRoo & Associates, and (y) its unaudited (compiled) balance
sheet at March 31, 1995 and the related unaudited (compiled) statement
of earnings of Wilson & Kratzer for the twelve months then ended,
together with the supplementary schedules thereto and the compilation
report thereon of Alphonse deRoo & Associates; and (ii) for Rolling
Hills Memorial Park, a California corporation and one of the
Subsidiaries ("Rolling Hills"), (x) its unaudited (reviewed) balance
sheet at March 31, 1996 (the "Rolling Hills Balance Sheet") and the
related unaudited (reviewed) statements of income and retained
earnings, and cash flows of Rolling Hills for the twelve months then
ended, together with the notes thereto and the review report thereon of
Hood and Strong dated June 27, 1996, and (y) its unaudited (reviewed)
balance sheet at March 31, 1995 and the related unaudited (reviewed)
state ments of income and retained earnings, and cash flows of Rolling
Hills for the twelve months then ended, together with the notes thereto
and the review report thereon of Hood and Strong dated July 14, 1995.
The Wilson & Kratzer Balance Sheet and the Rolling Hills Balance Sheet
are sometimes here after collectively referred to as the "Year-End
Balance Sheets". All such financial statements are true and correct in
all material respects, have been prepared in accordance with the books
and records of the applicable Subsidiaries, and present fairly the
respective financial positions of such Subsidiaries at the dates
indicated and their respective results of operations for the periods
then ended in accordance with generally accepted accounting principles
consistently applied. The Company has no assets or properties other
than the outstanding capital stock of each Subsidiary, has no
liabilities or obligations of any kind (other than arising under this
Agreement and for federal income tax liability based upon the
consolidated earnings and profits of its
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subsidiaries, for which the Shareholders shall be responsible as
described in Section 12.1), and has no income or expenses except for
dividend income and nominal expenses incident to the maintenance of its
corporate status. Each Home performed the number of funeral services in
each of the twelve-month periods ended March 31, 1994 through 1996 as
set forth on Schedule 5.5 hereto. The Cemetery performed at least the
number of interments as set forth on Schedule 5.5.
5.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 5.6 will set
forth a legal description of all parcels of real property in
which the Company or the Subsidiaries have any interest or
which is used in their respective businesses (collectively,
the "Real Property"), and also briefly describes each building
and major structure and improvement thereon. No person other
than the Company or a Subsidiary (as to be shown on Schedule
5.6) has any ownership, leasehold or other interest of any
kind in the Real Property, other than (i) the Real Property on
which the Greer Mortuary is located (the "Greer Real
Property"), which is validly leased to Wilson & Kratzer under
the Greer Lease described in paragraph (b) below, (ii) the
Grant Real Property, which is validly leased to Wilson &
Kratzer by the Related Partnership and which will be conveyed
to Wilson & Kratzer on the Closing Date as contemplated in
Section 4.2(g), and (iii) the undeveloped portion of the
Cemetery which is subject to option under the Stahl Agreement.
The Real Property is the only interest in real property
required for the conduct of the business of the Homes and the
Cemetery as presently conducted. To the best knowledge of
Shareholders, all of the buildings, structures and im
provements located on the Real Property are in good oper ating
condition, ordinary wear and tear excepted. To the best of the
Shareholders' knowledge, none of such build ings, 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. As shown on Schedule 5.6, each Subsidiary has
good and marketable fee simple title to all of its respective
Real Property, free and clear of all Liens, other than (i)
easements and other similar title exceptions to be described
on Schedule 5.6 ("Permitted Liens"), (ii) the Greer Real
Property, in which Wilson & Kratzer has good and marketable
title to its leasehold interest thereto, free and clear of any
and all Liens, (iii) the Grant Real Property, and at the
Closing Wilson & Kratzer will have good and marketable fee
simple title to the Grant Real Property free and clear of all
Liens other than Permitted Liens to be described on Schedule
5.6, and (iv) that portion of the Cemetery subject to option
under the Stahl Agreement.
(b) GREER LEASE. All of the Greer Real Property is
validly leased to Wilson & Kratzer under the Lease Agreement
dated January 16, 1983 among Don L. Koubek and
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Mary Sue Koubek dba DLK Properties, as lessor, and Ralph
Greer, Freda Greer and Holly Haugen dba Greer Family Mortuary
- Alameda Chapel, as lessee (such Lease Agreement, together
with all amendments thereto, being hereafter referred to as
the "Greer Lease"); Wilson & Kratzer is the current lessee
under the Greer Lease; a true and complete copy of the Greer
Lease has been provided to the Purchaser; there have been no
amendments or modifications to the Greer Lease except for
those for which copies have been provided to the Purchaser;
the Greer Lease is in full force and effect and valid and
binding on the parties thereto, and neither Wilson & Kratzer
nor (to the Shareholders' knowledge) the lessor thereunder is
in default thereunder.
(c) DANVILLE PROPERTY. Schedule 5.6(c) sets forth a
true and complete legal description of the Danville Property,
and also accurately and completely lists each Danville
Agreement. The Shareholders have provided to the Purchaser a
true and correct copy of each Danville Agreement. Each
Danville Agreement is valid, binding and enforceable against
the parties, and neither BWB nor (to the knowledge of the
Shareholders) the other parties thereto are in default
thereunder. Prior to the closing under the Danville Purchase
Agreement, BWB conducted a reasonable due diligence review of
the matters covered thereby, and nothing has come to its
attention before or after such closing which would reasonably
cause it to believe that any of the representations and
warranties of the seller thereunder are untrue in any material
respect. Schedule 5.6(c) also sets forth a true and complete
listing of all closing costs, fees and expenses paid by BWB
pursuant to the Danville Purchase Agreement, as well as all
out-of-pocket expenses, professional fees and other sums paid
or incurred through the date hereof in renovating or
refurbishing the improvements located on the Danville Property
(collectively, "Danville Expenses").
(d) FIRPTA. None of the Company, the Subsidiaries or
the Shareholders 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 one or more non-foreign
affidavits in recordable form containing such information as
shall be required by Code Section 1445(b)(2) and the
regulations issued thereunder.
(e) 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 (except for Permitted Liens) or other
claims for the same have been filed or asserted against any
part of the Real Property.
(f) NO FLOOD HAZARDS. To the best of the
Shareholders' knowledge, 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.
(g) STATUS OF CEMETERY PROPERTY. All of the Real
Property used in the business of the Cemetery has been plotted
for cemetery use. The Cemetery (including the Real Property
remaining under option under Stahl
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Agreement) consists of approximately 96 acres (of which 46
acres have been developed and 50 acres are undeveloped), had,
as of September 30, 1996, at least 3,068 unsold developed
individual grave spaces, 151 unsold niches, 136 unsold
mausoleum crypts and 1,132 unsold lawn crypts.
(h) STAHL AGREEMENT. The Shareholders have delivered
to the Purchaser a true and complete copy of the Exclusive
Option dated March 31, 1960 among Tennessee Land Company and
John M. Stahl (collectively, "Stahl"), and Rolling Hills
Memorial Park, predecessor to Rolling Hills, as amended by the
letter agreement dated May 29, 1963 (collectively, the "Stahl
Agreement"). The Stahl Agreement is currently in full force
and effect, Rolling Hills is the valid successor in interest
as the "Second Party" thereunder, and neither Rolling Hills
nor, to the Shareholders' knowledge, the "First Party" is in
default thereunder. Rolling Hills has duly and validly
acquired all of the Cemetery Real Property owned by it in
accordance with the Stahl Agreement, and Rolling Hills has the
continuing option to acquire one acre per year (of which there
remains approximately 40 acres to be acquired) under the Stahl
Agreement, subject to Rolling Hills' continued compliance
therewith. All necessary consents to the transfer of the
outstanding stock of Rolling Hills to the Company has been
obtained, and the only person required to consent to the
transactions under the terms of the Stahl Agreement is Rosalie
K. Stahl.
5.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties utilized in the conduct of the business of the Homes and the
Cemetery are owned by the Company or one or more of its Subsidiaries,
and none of such assets, rights or properties is subject to any lease
or license, except for Real Property leased to Wilson & Kratzer as
described in Section 5.6 and except for those assets which are leased
as described in Schedule 5.13. The Company and each Subsidiary 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 Year-End Balance Sheets, 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.
5.8. ABSENCE OF CHANGES OR EVENTS. Since the date of the
Year-End Balance Sheets, there has not been:
(i) any material adverse change in the finan cial
condition, operations, business, properties or pros pects of
the Company and its Subsidiaries taken as a whole;
(ii) any change in the authorized capital or
outstanding securities of the Company or any Subsidiary;
(iii) any capital stock, bonds or other securi ties
which the Company or any Subsidiary has issued, sold,
delivered or agreed to issue, sell or deliver, nor has the
Company or any Subsidiary granted or agreed to grant any
options, warrants or other rights calling for the issue, sale
or delivery thereof;
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(iv) any borrowing or agreement by the Company or
any Subsidiary to borrow any funds, nor has the Company or any
Subsidiary incurred, or become subject to, any absolute or
contingent obligation or liability, except trade payables
incurred in the ordinary course of business and obligations
incurred in connection with the acquisition or improvement of
the Danville Property;
(v) any declaration or payment of any bonus or
other extraordinary compensation to any employee of the
Company or any Subsidiary;
(vi) any hiring, firing, reassignment or other
change in any key personnel of the Company or any
Subsidiary;
(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
or any Subsidiary, except in the ordinary course of business;
(viii) any material damage, destruction or losses
against the Company or any Subsidiary, or any waiver of any
rights of material value to the Company or any Subsidiary;
(ix) any labor strike or labor dispute, or the
entering into of any collective bargaining agreement, with
respect to employees of the Company or any Subsidiary;
(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 any
Subsidiary, except as set forth in Schedule 5.18;
(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 a cemetery or mausoleum in direct
competition with the Cemetery; or
(xii) any other transaction or event entered into or
affecting the Company or any Subsidiary other than in the
ordinary course of business, except for the acquisition of the
Danville Property and as set forth in Schedule 5.18.
5.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in the Year-End Balance Sheets, neither the Company nor any Subsidiary
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 pay able, accrued expenses and preneed
obligations (fully funded by insurance or covered by trust) arising in
the ordinary course of the business since the date of the Year-End
Balance Sheets, except as set forth in Schedule 5.9.
5.10. TAX MATTERS. All federal, state, county, local
and other taxes due and payable by the Company and the
Subsidiaries on or before the date of this Agreement have been
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paid or are adequately provided for in the Year-End Balance Sheets. The
Company and the Subsidiaries have filed all tax returns and reports
required to be filed by each of them with all taxing authorities, and
all such tax returns and reports are true, complete and correct in all
material respects. True and correct copies of the federal, state and
local income tax returns filed by or for the Company and the
Subsidiaries for each of their last three taxable years have been
furnished to the Purchaser. For each of such years, the Company and
each Subsidiary has been included in the consolidated group of
corporations of which the Company is the parent corporation. No
assessments of deficiencies for taxes of any kind have been made
against the Company or any Subsidiary 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 or any Subsidiary 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 or any Subsidiary
for any period.
5.11. INVENTORY; ACCOUNTS RECEIVABLE. The inven tories
reflected in the Year-End Balance Sheets, and all items placed in
inventory since the date thereof, are (i) accounted for in accordance
with generally accepted accounting prin ciples applied on a consistent
basis, and (ii) saleable or usable in the ordinary course of business
of the Company and the Subsidiaries at usual and customary prices,
subject to normal returns and markdowns consistent with past practice.
All cemetery pre-need accounts and notes receivable reflected in the
Year-End Balance Sheets, and all such accounts and notes receivable
arising since the date thereof, (x) represent bona fide claims against
customers for goods sold or services rendered, and (y) to the
Shareholder's knowledge, are not subject to offsets or defenses of any
kind. At the Closing, the Shareholders shall deliver to the Purchaser a
list, certi fied by the Shareholders to be complete and correct, of all
of the inventory of the Subsidiaries as of the Closing Date and all of
their accounts receivable arising from the preneed sale of services or
merchandise by the Cemetery as of the Closing Date.
5.12. FIXED ASSETS. Schedule 5.12 will list all motor vehicles
and all other material items of equipment, fix tures, furniture and
other fixed assets owned by the Company and the Subsidiaries. All such
items are in good operating condition and repair, ordinary wear and
tear excepted.
5.13. CONTRACTS AND COMMITMENTS. Schedule 5.13 will set forth
a complete description of:
(i) all loan, credit and similar agreements to
which the Company or any Subsidiary 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 or any Subsidiary;
(ii) all employment contracts, noncompetition
agreements and other agreements relating to the employment of
any employees of the Company and the Subsidiaries;
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(iii) all contracts and agreements affecting the
Company or any Subsidiary which do not terminate or are not
terminable by the Company or such Subsidiary 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 or any Subsidiary entered into outside the ordi nary
course of business.
Each contract and commitment to be described on Schedule 5.13
is valid and binding on the parties thereto and in full force and
effect, and neither the Company or the applicable Subsidiary, as the
case may be, nor, to the knowledge of the Shareholders, any of the
other parties thereto, are in default thereunder. The Shareholders will
have furnished to the Purchaser a true and complete copy of each
document listed on Schedule 5.13.
5.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 5.14
hereto will accurately and completely list, as of the date of this
Agreement (i) all preneed contracts of the Company and the Subsidiaries
unfulfilled as of the date hereof, including contracts for the sale of
funeral merchandise and services and for cemetery merchandise and
plots, and (ii) all trust accounts relating to the Homes and the
Cemetery, indicating the location of each and the balance thereof. All
preneed contracts required to be listed on Schedule 5.14 (x) have been
entered into in the normal course of business at regular retail prices
then in effect, or pursuant to a sales promotion program, solely for
use by the named customers and members of their families on terms not
more materially 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 or the applicable Subsidiary 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 the Shareholders'
knowledge, to no offsets, claims or waivers, and neither the Company or
the applicable Subsidiary, as the case may be, nor such customer is in
default thereunder, except as to be set forth in Schedule 5.14. All
funds received by the Company and the Subsidiaries 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 Shareholders make no
representation or warranty to the effect that the market value of the
preneed accounts, trusts or other deposits is equal to or greater than
the preneed liability related thereto. The services heretofore provided
by the Company and the Subsidiaries have been rendered in a
professional and competent manner consistent with prevailing
professional standards, practices and customs.
5.15. TRADEMARKS, ETC. Schedule 5.15 accurately and completely
describes all trademarks, copyrights, patents and other intellectual
property rights, and applications and licenses for the foregoing
(collectively, "Intangible Rights"), owned by or licensed to or in the
name of the Company or any Subsidiary. The Company and the Subsidiaries
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 and the Cemetery as presently conducted.
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Neither the Company nor any Subsidiary 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.
5.16. INSURANCE. The Company and the Subsidiaries maintain
such policies of insurance in such amounts, and which insure against
such losses and risks, as are, in the Company's opinion, 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.
5.17. LICENSES, PERMITS, ETC. Schedule 5.17 hereto will
correctly and completely list all licenses, franchises, permits,
certificates, consents, rights and privileges issued to or held by the
Company and each Subsidiary, which will be all that are necessary or
appropriate for the operation of the Homes and the Cemetery as
presently operated. All such items are in full force and effect.
5.18. LITIGATION. Except as set forth in Schedule 5.18, there
are no claims, actions, suits, proceedings or investigations pending
or, to the knowledge of any Shareholder, threatened against or
affecting the Company or any Subsidiary 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. Neither the Company nor any
Subsidiary is subject to any continuing court or administrative order,
writ, injunction or decree, nor is the Company or any Subsidiary 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.
5.19. COMPLIANCE WITH LAWS. The Company and the Subsidiaries
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 Company, the Subsidiaries and their
respective assets, rights and properties, and to the operation of each
Home and the Cemetery (including without limitation all occupational
safety and health rules, regulations and laws, and laws and regula
tions applicable to preneed and perpetual care contracts and trust
accounts, including the so-called "FTC Funeral Rule").
5.20. ENVIRONMENTAL MATTERS.
(a) The Company and each Subsidiary has complied and
is in compliance in all material respects with all
Environmental Laws, insofar as the same relate to
asbestos-containing materials ("ACM") that are friable,
underground storage tanks and the ownership and operation of
crematories ("Identified Environmental Concerns"), and to the
Shareholders' knowledge have so complied as to all other
matters.
(b) Without limiting the generality of the foregoing,
the Company and each Subsidiary has obtained, and has complied
and is in compliance with, all permits, licenses and other
authorizations that may be required pursuant to Environmental
Laws for the occupation of the Real Property and the operation
of the business of the
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Company and the Subsidiaries, insofar as the same relates to
Identified Environmental Concerns and, to the Shareholders'
knowledge, as to all other matters.
(c) Neither the Company nor any Subsidiary has
received any notice, report or other information regarding any
liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or investigatory, remedial or
corrective obligations, relating to their respective
businesses or any of the Real Property arising under
Environmental Laws.
(d) Except as set forth on Schedule 5.20, none of the
following exists on any portion of the Real Property:
(i) Underground storage tanks or surface
impoundments;
(ii) Any friable ACM, or to the
Shareholders' knowledge, any other ACM in any form or
condition; or
(iii) To the Shareholders' knowledge, any
materials or equipment containing polychlorinated
biphenyls.
(e) In respect of Identified Environmental Concerns,
and to the knowledge of the Shareholders, in all other
respects, neither the Company nor any Subsidiary has treated,
stored, disposed of, arranged for or permitted the disposal
of, transported, handled, or Released any substance, including
without limitation any Hazardous Materials, or owned or
operated any facility or property, so as to give rise to
liabilities for response costs, natural resource damages or
attorneys fees pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"),
as amended, or similar state Environmental Laws.
(f) To the knowledge of the Shareholders, neither
this Agreement nor the consummation of the transaction that is
the subject of this Agreement will result in any obligations
for site investigation or cleanup, or notification to or
consent of any governmental authority or third parties,
pursuant to any so-called "transaction- triggered" or
"responsible property transfer" Environmental Laws.
(g) To the knowledge of the Shareholders, without
limiting the foregoing, no facts, events or conditions
relating to the past or present facilities, properties or
operations of the Company or any Subsidiary will prevent,
hinder or limit continued compliance with Environmental Laws,
give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental Laws, or give rise to
any other liabilities (whether accrued absolute, contingent,
unliquidated or otherwise) pursuant to Environmental Laws,
including without limitation any relating to onsite or offsite
Releases or threatened Releases of Hazardous Materials,
substances or wastes, personal injury, property damage or
natural resource damage.
(h) For purposes of this Section 5.20:
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"Environmental Laws" means all laws concerning
pollution or protection of the environment (including without
limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing,
processing, discharge, Release, threatened Release, control or
cleanup of any Hazardous Materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or
radiation).
"Hazardous Materials" means any hazardous, toxic,
dangerous or other waste, substance of material defined as
such in, regulated by or for purposes of any Environmental
Law.
"Release" has the meaning set forth in CERCLA.
5.21. EMPLOYEES. Schedule 5.21 will correctly and completely
list the names and monthly or hourly rates of salary and other
compensation of all the employees and agents of the Company and the
Subsidiaries. Schedule 5.21 will also set 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 or any
Subsidiary to any employee or agent thereof, and the number of vacation
days or other time off to which each such employee is presently
eligible to take. There are not pending or, to the knowledge of any
Shareholder, threatened against the Company or any Subsidiary 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 or any
Subsidiary. No Shareholder is aware of the existence of any serious
health condition of any key management personnel of the Company or any
Subsidiary that might impair any such person's ability to perform the
essential functions of his or her normal duties into the foreseeable
future after the Closing. The Share holders believe that the relations
between the Company and the Subsidiaries, on the one hand, and their
respective employees, on the other, are good.
5.22. EMPLOYEE BENEFIT PLANS. Schedule 5.22 will set forth a
description of 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 or any Subsidiary which provides benefits to
any employee or former employee of the Company or any Subsidiary. True
and complete copies of all such benefit plans have been provided to the
Purchaser. All obligations of the Company and the Subsidiaries under
the Plans have been fully paid, fully funded or adequate accruals
therefor have been made on the Year-End Balance Sheets. 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 pursuant to Section
501(a) of the Code. With respect to any such Plan, there has been no
(i)
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"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.
5.23. AFFILIATED PARTY TRANSACTIONS. Except as described on
Schedule 5.23, the Company and the Subsidiaries have been operated and
are being operated in a manner separate from the personal and other
business activities of the Share holders and their affiliates, and none
of the Company, any Subsidiary nor any of their respective assets are
subject to any affiliated party commitments or transactions.
5.24. BOOKS AND RECORDS. All books and records of the Company
and each Subsidiary are true, correct and complete and have been
maintained by them in accordance with good business practices and in
accordance with all laws, regula tions and other requirements
applicable to the Company and the Subsidiaries. The corporate records
of the Company and the Subsidiaries reflect a true record of all
meetings and pro ceedings of the respective Boards of Directors and
sharehold ers of the Company and the Subsidiaries.
5.25. FINDERS. None of the Company, any Subsidiary nor any
Shareholder is a party to or in any way obligated under any contract or
other agreement, and there are no out standing claims against any of
them, for the payment of any broker's or finder's fee in connection
with the origin, nego tiation, execution or performance of this
Agreement.
5.26. 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. For each Shareholder that is a trust,
the execution, delivery and performance of this Agreement is within
such trust's powers, and each of the undersigned trustees of such trust
has all requisite authority to enter into this Agreement on behalf of
such trust. 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 the Company or any Subsidiary or the trust documents of any
Shareholder that is a trust or (y) any contract, agreement, lease,
license or other commitment to which the Company, any Subsidiary or any
Shareholder is a party or by which the Company, any such Subsidiary or
any such Shareholder or his, her or its respective assets or properties
are bound, other than those contracts and commitments described on
Schedule 5.26 (provided, however, that all necessary consents under the
Stahl Agreement have been duly and validly obtained); nor (ii) violate
any statute or any order, writ, injunction or decree of any court,
administrative agency or governmental body, other than the filing of a
notification of
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change of ownership with the California Department of Consumer Affairs
(the "CDCA Consent").
5.27. AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement have been duly authorized
by its Board of Directors. This Agree ment 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 Bylaws of the Company or any Subsidiary or any
indenture, mortgage, deed of trust or other contract or agreement to
which the Company or any Subsidiary is a party or by which it or its
properties are bound, other than those described in Section 5.26 above,
or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body, other than the CDCA
Consent.
5.28. ACQUISITION OF PURCHASER STOCK. The Purchaser Stock 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 Purchaser Stock will not be
registered under such Securities Act or any state securities or blue
sky laws, that transferability of such Purchaser 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 such Purchaser Stock. 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, opera tions, assets and prospects, and concerning an
investment in the Purchaser Stock, as such Shareholder will then have
deemed appropriate in order to make an informed investment decision
with respect to the Purchaser Stock.
5.29. 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.
5.30. SCHEDULES. The Schedules identified in the
Exhibit/Schedule Page hereto as "Delivered" 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. The Shareholders shall deliver to
the Purchaser those Schedules identified on the Exhibit/ Schedule Page
as "To Be Delivered" within fifteen (15) business days after the date
of execution of this Agreement.
The representations and warranties of the Shareholders herein
or in any Schedules or certificates furnished to Purchaser pursuant
hereto are the only representations and warranties upon which Purchaser
is relying in connection with the transactions described herein.
Purchaser is an
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experienced and sophisticated owner and operator of mortuaries and
cemeteries and is not relying upon the Shareholders (except for such
representations and warranties) in determining the extent to which it
will conduct any due diligence investigations in evaluating the truth
and accuracy of the representations and warranties of the Shareholders
contained herein. No statement, assurance or other action by any other
person or entity, whether or not an employee, affiliate, agent or other
representative of the Company or the Shareholders shall be deemed to be
a representation or warranty upon which Purchaser may rely unless same
shall be set forth herein or pursuant hereto.
6. 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:
6.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is
a corporation duly organized, validly existing and in good standing
under the laws of the State of California, 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, including the issuance and delivery of the Purchaser Stock
to the Shareholders as provided in this Agreement. The Purchaser has
delivered to the Shareholders complete and correct copies of the
Amended and Restated 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.
6.2. CAPITALIZATION. The authorized capital stock of the
Purchaser consists of (i) 15,000,000 shares of Class A Common Stock,
$.01 par value, of which 3,942,194 shares were issued and outstanding
as of September 30, 1996; (ii) 15,000,000 shares of Class B Common
Stock, $.01 par value; of which 4,501,466 shares were issued and
outstanding as of September 30, 1996, and (iii) 50,000,000 shares of
Preferred Stock, $.01 par value, of which (x) 19,000,000 shares have
been (or will be) designated as Series D Preferred Stock, $.01 par
value of which 17,775,616 shares were issued and outstanding as of
September 30, 1996 and (y) 11,000,000 shares have been (or will be)
designated as Series E Preferred Stock, $.01 par value, none of which
shares were issued and outstanding as of September 30, 1996; and (z)
20,000,000 shares have been (or will be) designated as Series F
Preferred Stock, $.01 par value, none of which shares were issued and
outstanding as of September 30, 1996. 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 Purchaser as treasury
stock. Neither the Purchaser nor the Acquisition Subsidiary has any
outstanding subscriptions, options or other agreements or commitments
obligating it to issue shares of its capital stock, other than options
granted under one or more of the Purchaser's stock incentive and option
plans, of which options covering an aggregate of 689,900 shares were
outstanding on September 30, 1996. There are no shareholders, buy-sell,
voting or other similar agreements or commitments affecting the voting
or
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transferability of any such shares, of which the Purchaser has actual
knowledge, except as described in the Registration Statement referred
to in Section 6.3.
6.3. REPORTS AND FINANCIAL STATEMENTS. The Purchaser has filed
all reports required to be filed by it under the Securities Exchange
Act of 1934, as amended. The Purchaser has delivered to the
Shareholders true and complete copies of (i) its Registration Statement
on Form S-1 (No. 333-05545) relating to the initial public offering of
the Purchaser's Class A Common Stock, and (ii) its Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996, both as filed
with the Securities and Exchange Commission (collec tively, "SEC
Filings"). In addition, the Purchaser will deliver to the Shareholders
a true and complete copy of its Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996, promptly after the filing
thereof. As of their respective dates, the SEC Filings did not, and
such Form 10-Q at September 30, 1996 will not, contain any 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, in
light of the circumstances under which they were made, not misleading.
All of the financial statements included in the SEC Filings are or will
be (as the case may be) true and correct in all material respects, have
been (or will be) prepared in accordance with the books and records of
the Purchaser and its subsidiaries, and present (or will present)
fairly the consolidated financial positions of the Purchaser and its
subsidiaries at the dates indicated and the consolidated results of
their operations for the periods then ended in accordance with
generally accepted accounting principles consistently applied.
6.4. NO MATERIAL ADVERSE CHANGE. Since June 30, 1996, 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.
6.5. 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 Amended and Restated 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, except for such
contracts and commitments for which all necessary consents have been
duly and validly obtained, or violate any order, writ, injunction or
decree of any court, administrative agency or governmental body, except
for the CDCA Consent. Consummation of the transactions contemplated by
this Agreement will not require the consent or approval of
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the stockholders of the Purchaser, under the laws of the State of
Delaware, under applicable rules and regulations of the National
Association of Securities Dealers, or otherwise.
6.6. NO MATERIAL DEFAULTS OR LITIGATION. There exists no
material default by the Purchaser or any of its consolidated
Subsidiaries under its senior credit agreement or any other material
agreement to which the Purchaser or any such Subsidiary is a party, or
any pending or, to the Purchaser's knowledge, threatened, claim,
action, suit, proceeding or investigation against the Purchaser or any
such subsidiary, any of which would reasonably be expected to have a
material adverse effect on the financial condition, operations,
properties or prospects of the Purchaser and such Subsidiaries taken as
a whole. The Purchaser is not in default in the payment of dividends on
its preferred stock which require the payment of dividends.
6.7. FULL DISCLOSURE. The representations and warranties made
by the Purchaser hereunder or in any certificate 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 necessary to make the
representations or warranties herein or therein, in light of the
circumstances in which they were made, not misleading.
6.8. FINDERS. Except as described in Section 13.1, 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 per formance of this Agreement.
6.9. DISCLAIMER OF RELIANCE. The representations and
warranties of the Purchaser and the Acquisition Subsidiary herein or in
any certificates furnished to the Shareholders pursuant hereto are the
only representations and warranties upon which the Shareholders are
relying in connection with the transactions described herein. The
Shareholders are experienced and sophisticated in transactions of this
nature. No statement, assurance or other action by any other person or
entity, whether or not an employee, affiliate, agent or other
representation of the Purchaser or the Acquisition Subsidiary, shall be
deemed to be a representation or warranty upon which any Shareholder
may rely unless the same shall be set forth herein or pursuant hereto.
7. COVENANTS PENDING CLOSING.
7.1. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS. The
Company and the Shareholders jointly and severally covenant and agree
with the Purchaser that:
(a) CONDUCT OF BUSINESS. From the date of this
Agreement to the Closing Date, the business of the Company and
each Subsidiary 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, and neither the Company nor any
Shareholder will cause or allow any Subsidiary to, do any the
following:
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(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) 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 or any
Subsidiary, except for the acquisition by Wilson &
Kratzer of the Steiner Shares as described in Section
8.1(n);
(iv) take any action described in Section
5.8;
(v) enter into any contract, agreement or
other commitment of the type described in Sec tion
5.13, except for (1) the sale of the assets of
Brown-Wilson and its dissolution as described in
Section 8.1(m), and the sale by the Subsidiaries to
the Shareholders for consideration consisting only of
cash, without recourse or warranty to such
Subsidiary, of those assets described on Schedule
7.1(a), (2) the acquisition of the Grant Real
Property and the Danville Property, and (3) the sale
of four (4) residences owned by Rolling Hills located
on Alhambra Avenue, El Sobrante, California.
(vi) 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 5.21, other than year-end bonuses consistent
with past practices; or
(vii) take any other action which would
cause any of the representations and warranties made
in Section 5 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.
(b) ACCESS TO INFORMATION. Prior to Closing, the
Company will give to the Purchaser and its counsel,
accountants and other representatives, full and free ac cess
to all of the properties, books, contracts, commit ments and
records of the Company and the Subsidiaries 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
each Subsidiary.
(c) 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 consum mate the
transactions contemplated by this Agreement.
(d) 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,
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solicit or encourage any offers, proposals or expressions of
interest, or otherwise hold any discussions with or respond to
any inquiries or expressions of interest with any potential
buyers, investors 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 Subsidiary or any other sale of the Company or any
Subsidiary (whether by merger, consolidation, sale of any
shares of capital stock of the Company or any Subsidiary, or
otherwise), other than with the Purchaser and the Acquisition
Subsidiary as contemplated in this Agreement. If, during such
period, the Company or any Shareholder receives an inquiry or
expression of interest regarding any such transaction, the
Company or such Shareholder, as the case may be, shall
promptly notify the Purchaser of such fact; provided that the
foregoing shall not require that the source of such expression
of interest be disclosed.
7.2. COVENANTS OF THE PURCHASER AND THE ACQUISITION
SUBSIDIARY. The Purchaser and the Acquisition Subsidiary jointly and
severally covenant with the Shareholders that:
(a) 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.
(b) SERIES F PREFERRED STOCK. From the date of this
Agreement to the Closing Date: the Purchaser will not cause or
permit any amendment or modification to the Series F
Designation as in effect on the date of this Agreement and in
the form delivered to the Shareholders pursuant to Section
6.1, nor shall the Purchaser issue to any person, other than
to the Shareholders pursuant to this Agreement, any shares of
Series F Preferred Stock, nor shall the Purchaser issue any
shares of capital stock or take any action which would be
prohibited under the provisions of, or would require the
consent of the holders of, the Series F Preferred Stock, had
the Series F Preferred Stock been issued and outstanding on
the date hereof.
7.3. MUTUAL COVENANTS. Each party agrees with one another
that:
(a) CONFIDENTIALITY. Prior to the Closing, such party
will hold in confidence any data and information obtained with
respect to the other party or parties from any representative,
officer, director or employee thereof, 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 such party may disclose such
information to its outside attorneys and accountants and to
its lenders, provided that the disclosing party shall remain
responsi ble to the other parties for any unauthorized
disclosure thereof by such attorneys, accountants or lenders.
If the transactions contemplated hereby are not consummated,
no party in receipt of such information shall disclose such
data or information to others, except as such data or
information is published or is a matter of public
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knowledge or is required by an applicable law or regula tion
to be disclosed. If this Agreement is terminated for any
reason, any party receiving such confidential information
shall return to the party which provided it all such data and
information so obtained which is in written form.
(b) PUBLIC ANNOUNCEMENTS. Any public announcement
with respect to this Agreement or the transactions con
templated hereby will be issued, if at all, at such time and
in such manner as may be determined by the Purchaser. Unless
consented to by the Purchaser in advance, prior to the Closing
neither the Company nor any Shareholder shall (and the Company
shall not cause or permit any Subsidiary to) make any public
announcement or disclosure of this Agreement or such
transactions. The Purchaser and the Shareholders shall consult
with one another concerning the means by which the employees,
customers and suppliers of the Company and the Subsidiaries
will be informed of such transactions, and representatives of
the Purchaser shall have the right to be present for any such
communication.
(c) HART-SCOTT-RODINO. The Company, as the "ulti mate
parent entity" of the acquired person (as defined in the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, hereafter the "HSR Act") shall promptly pre pare and
cause to be filed a premerger notification and report under
the HSR Act, and the Purchaser, as the "ultimate parent
entity" of the acquiring person, shall promptly prepare and
cause to be filed a premerger notification and report under
the HSR Act. The Purchaser shall bear sole responsibility for
the cost of the filing fee due under ss.605 of PL 101-162 (103
Stat 1031), as amended by PL 103-317 (108 Stat 1724). Each
such party shall request early termination in connection
therewith and shall promptly respond to any inquiries of the
Federal Trade Commission or Department of Justice in
connection with such filings and shall coordinate the
foregoing with one another.
(d) DANVILLE PROPERTY. At the Closing, and subject to
the conditions herein specified, the Purchaser shall pay to
BWB the sum of $669,647. From the date of this Agreement
through the Closing, the Shareholders shall keep the Purchaser
advised regarding the progress of the renovation and
refurbishing of the improvements on the Danville Property. In
addition, the Shareholders shall provide the Purchaser with
periodic estimates of expenses incurred or to be incurred
after October 11, 1996 in connection with such renovation and
refurbishing ("Interim Expenses"), and for purposes of the
Purchaser's expense reimbursement obligation set forth below,
such estimates shall be subject to the Purchaser's approval,
which approval shall not be unreasonably withheld or delayed.
At the Closing, the Purchaser shall also pay, as a portion of
the Merger Consideration under Section 3.1(C)(a), all Interim
Expenses which have been so approved in advance by the
Purchaser.
8. CONDITIONS TO CLOSING.
8.1. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE
ACQUISITION SUBSIDIARY. The obligations of the Purchaser and
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the Acquisition Subsidiary under this Agreement shall be sub ject to
the following conditions, any of which may be express ly waived by the
Purchaser in writing:
(a) 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
Section 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; 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 certifi cate, signed by the Shareholders and an
executive officer of the Company, to the effect of the
foregoing provisions of this Section 8.1(a).
(b) OPINION OF LEGAL COUNSEL. The Shareholders shall
have caused to be delivered to the Purchaser an opinion of
Freeland, Cooper, LeHocky & Hamburg, legal counsel for the
Company, the Subsidiaries and the Shareholders, dated the
Closing Date, in substantially the form attached as Exhibit F.
(c) 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. Without limiting the
generality of the foregoing, the lessor under the Greer Lease
shall have delivered to the Purchaser a written instrument
pursuant to which such lessor (x) consents to the transactions
hereunder (or certifies that such consent is not required) and
(y) represents to the Purchaser that the Greer Lease is in
full force and effect and that neither it nor, to its
knowledge, Wilson & Kratzer is in default thereunder.
(d) NO MATERIAL ADVERSE CHANGE. Prior to the Closing
there shall not have occurred any loss or damage to the assets
and properties of the Company or any Subsidiary, including
(without limitation) any of the Real Property or any
improvements located thereon (regardless of whether such loss
or damage was insured), or any other event or condition, the
effect of which could reasonably be expected to have a
material adverse effect on the condition, business, operations
or prospects of the Company and the Subsidiaries, taken as a
whole. The foregoing shall not be construed to include (i)
events or conditions affecting the United States economy or
the funeral/cemetery industry in general, or (ii) the
consummation or failure to consummate any transaction
unrelated to the transactions hereunder.
(e) RELATED TRANSACTIONS. The Shareholders shall have
executed and delivered to the Purchaser the Registration
Agreement; each of Wilson and Boyer shall have executed and
delivered to the Acquisition Subsidiary their respective
Employment Agreements and their respec tive Non-Competition
Agreements; Wilson shall have exe cuted and delivered his plan
adoption agreement pursuant to the terms of the Program; the
Shareholders shall have
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executed and delivered the Co-Sale Agreement; the Related
Partnership shall have conveyed fee simple title to the Grant
Real Property to Wilson & Kratzer in the manner specified in
Section 4.2(g); and BWB shall have conveyed to Wilson &
Kratzer the Danville Property and the Danville Agreements in
the manner specified in Section 4.2(h).
(f) 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 parcel of Real Property by an
environmental consulting firm selected by Purchaser, (ii) a
health and safety inspection of each Home and each building on
the Cemetery 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 indus try, and (iii) a structural inspection of each
Home and each building on the Cemetery 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
$10,000 in the aggregate at any Home or at the Cemetery, as
the case may be. 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 there to) shall be satisfactory to Purchaser in
its sole discretion.
(g) TITLE INSURANCE. The Shareholders shall have
provided to the Acquisition Subsidiary a Leasehold Policy of
Title Insurance (with respect to the Greer Real Property) and
one or more Owner's Policies of Title Insurance (with respect
to all other Real Property) issued to the applicable
Subsidiary in agreed-upon amounts, issued by one or more title
companies with offices in Contra Costa or Alameda County,
California and reasonably acceptable to the Purchaser (whether
one or more, the "Title Company"), insuring the applicable
Subsidiary's leasehold or ownership interest (as the case may
be) in the Real Property, subject only to the Per mitted Liens
and any standard printed exceptions included in a California
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. The Purchaser and the
Shareholders shall each bear one-half the cost of issuing such
policies of title insurance under this paragraph (g) and for
the surveys under paragraph (h) below, provided that in no
event shall the Shareholders' aggregate share of such costs
exceed $35,000.
(h) SURVEY. The Purchaser shall have received 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 standards under
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California law, be sufficient for Title Company to delete any
survey exception contained in each applicable policy of title
insurance referred to in Section 8.1(g), save and except for
the phrase "shortages in area", and otherwise be in form and
content acceptable to the Purchaser.
(i) ZONING. The Purchaser shall have received a
letter or other acceptable form of communication from a
responsible officer of each of the municipalities or other
governmental authorities having jurisdiction over zoning
ordinances or regulations of all or substantially all of the
Real Property, or an opinion of counsel for the Company,
indicating the zoning classification for each such parcel,
affirmatively stating that the use thereof as funeral homes or
as a cemetery, as the case may be, complies with such
classification.
(j) RELIANCE LETTERS. The Purchaser shall have
received a letter or other written instrument acceptable in
form and substance to the Purchaser from each of Alphonse
deRoo & Associates and Hood and Strong, pursuant to which such
firms permit the Purchaser to rely upon their respective
review or compilation reports (as the case may be) referred to
in Section 5.5 and waive any requirement or defense of privity
in connection therewith.
(k) LIEN RELEASES. The holders of the Liens against
any assets of the Company, including any of the Real Property
(other than Permitted Liens, the vehicle lease described on
Schedule 5.9 and any Liens securing Closing Date Liabilities
which are deducted from the Merger Consideration under Section
3.1(c)(A)) shall have executed and delivered written releases
of such Liens, all in recordable form and otherwise acceptable
to the Purchaser.
(l) SCHEDULE DELIVERY. The Purchaser shall have
received those schedules identified on the Exhibit/Schedule
Page as "To Be Delivered," together with a certificate of the
Shareholders certifying that the same are true and complete,
on or before the 15th business day after the date hereof, and
within ten (10) (10) business days thereafter the Purchaser
shall not have evidenced its disapproval of any of such
schedules (or the information disclosed therein) by written
notice to such effect delivered to the Shareholders.
(m) BROWN & WILSON. All of the assets of Brown &
Wilson shall have been conveyed and transferred to one or more
of the Shareholders (or another person designated by them),
and Brown & Wilson shall have been dissolved and liquidated,
in accordance with the laws of the State of California,
without any further liabilities or obligations continuing
after the Closing Date.
(n) STEINER SHARES. Wilson & Kratzer shall have duly
and validly acquired all of the Steiner Shares, for a
consideration payable solely in cash, with the result that
Wilson & Kratzer shall become a wholly owned Subsidiary of the
Company.
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8.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The obligations of the Company and the Share holders
under this Agreement shall be subject to the following conditions, any
of which may be expressly waived by the Shareholders in writing:
(a) 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 6 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 8.2(a).
(b) OPINION OF LEGAL COUNSEL. The Purchaser shall
have caused to be delivered to the Shareholders an opinion of
Snell & Smith, A Professional Corporation, legal counsel for
the Purchaser and the Acquisition Subsidiary, in substantially
the form attached as Exhibit G.
(c) OPINION OF TAX COUNSEL. The Purchaser shall have
caused to be delivered to the Shareholders an opinion of
Arthur Andersen, L.L.P., tax counsel for the Purchaser and the
Acquisition Subsidiary, in form and substance reasonably
acceptable to the Shareholders, to the effect that the Series
F Preferred Stock constitutes "stock" for purposes of Code
Section 368(a)(2)(D).
(d) CONSENTS AND APPROVALS. The Purchaser and the
Acquisition Subsidiary shall have obtained all consents and
approvals of other persons and governmental authori ties to
the transactions contemplated by this Agreement.
(e) NO MATERIAL ADVERSE CHANGE. Prior to the Closing
there shall not have occurred any event or condition, the
effect of which could reasonably be expected to have a
material adverse effect on the condition, business, operations
or prospects of the Purchaser and its consolidated
subsidiaries, taken as a whole. The foregoing shall not be
construed to include (i) events or conditions affecting the
United States economy or the funeral/cemetery industry in
general, or (ii) the consummation or failure to consummate any
transaction unrelated to this transaction.
(f) RELATED TRANSACTIONS. The Purchaser shall have
executed and delivered to the Shareholders the Registration
Agreement; the number of positions on the Purchaser's Board of
Directors shall have been increased by one (1) and Wilson
shall have been elected to the vacancy created by such
increase; the Acquisition Subsidiary shall have executed and
delivered the Employment Agreements and the Non-Competition
Agreements
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to each of Wilson and Boyer; the Acquisition Subsidiary shall
have established the Program and executed and delivered to
Wilson his plan adoption agreement thereunder; and the
Carriage Stockholders shall have executed and delivered the
Co-Sale Agreement.
(g) MARKET PRICE. The Trading Price (as defined in
the Series F Designation) as of the second trading day
immediately preceding the Closing Date shall not be less than
$15.00 per share of Class A Common Stock.
(h) NO CHANGE IN CONTROL. The Purchaser shall not
have announced, or entered into any agreement for, a
transaction involving the sale of all or substantially all of
its assets, the merger or consolidation of the Purchaser with
an unaffiliated entity in which the Purchaser will not be the
survivor, the sale of more than 50% of the voting control of
the Purchaser's fully diluted Class A Common Stock, or any
other equivalent change in control transaction.
(i) NO CHANGE IN TAX LAW. There shall not have been
between the date of this Agreement and the Closing Date (i)
any change in the Code or the Revenue Regulations promulgated
thereunder, or (ii) any pronouncement by the Internal Revenue
Service to the effect that a change in the interpretation of
the Code or such regulations has occurred, in any case which,
solely by virtue of such change, the Merger shall not qualify
as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code.
8.3. MUTUAL CONDITIONS TO CLOSING. The respective obli
gations of each of the parties under this Agreement shall be
subject to the following mutual conditions, which may be
waived only by the unanimous agreement of all parties:
(a) HSR ACT. Any person required in connection with
the transactions contemplated hereby to file a notification
and report form in compliance with the HSR Act shall have
filed such form and the applicable waiting period with respect
to each such form (including any extension thereof by reason
of a request for additional information) shall have expired or
been terminated.
(b) CLOSING CERTIFICATES. The Company, the Purchaser
and the Acquisition Subsidiary shall have executed and
delivered to each other such certificates as to the incumbency
of its officers who are executing and delivering documents
hereunder and as to the adoption of resolutions by its
directors and (where applicable) shareholders, and shall have
provided certificates of public officials certifying as to
their existence and good standing, all as shall be reasonably
requested by the other parties hereunder.
(c) NO INJUNCTIONS. There shall not have been
entered or issued any injunction, writ or order of a
court of competent jurisdiction which prohibits or
substantially limits the consummation of the transactions
contemplated by this Agreement.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
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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 CLOSING DATE LIABILITY OF THE COMPANY OR ANY SUBSIDIARY 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
OR NOT DISCLOSED PURSUANT TO THE CERTIFICATE OF THE SHAREHOLDERS
DELIVERED TO THE PURCHASER AS PROVIDED IN SECTION 3.7, (IV) ANY CLAIMS,
ACTIONS, SUITES, PROCEEDINGS OR INVESTIGATIONS DISCLOSED ON SCHEDULE
5.18, (V) ANY LIABILITIES OR OBLIGATIONS OF ANY NATURE RELATING TO THE
OPERATION OR OWNERSHIP OF BROWN & WILSON, AND (VI) 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 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
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CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY OR ON BEHALF OF THE
PURCHASER OR THE ACQUISITION SUBSIDIARY PURSUANT HERETO, (III) ANY
CLOSING DATE LIABILITY OF THE COMPANY OR ANY SUBSIDIARY WHICH HAS BEEN
DEDUCTED FROM THE CASH PORTION OF THE MERGER CONSIDERATION PURSUANT TO
SECTION 3.1(C) OR ANY LIABILITY OF THE COMPANY OR ANY SUBSIDIARY WHICH
IS DESCRIBED IN CLAUSES (I) THROUGH (IV) OF SECTION 3.7, 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 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 (10) 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 indem nifying 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.
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 8.1 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 8.2 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 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
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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 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 January 10, 1997.
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. 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 cause 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
and the Subsidiaries will be included as part of the consolidated group
of which the Purchaser is the parent corporation), and the Shareholders
shall pay or cause to be paid all federal income taxes in respect
thereof. Without limiting the generality of the "Losses" for which the
Purchaser and the Surviving Corporation shall be indemnified against
under Section 10.1, such indemnity shall additionally include all
Losses arising from (i) all federal, state and local taxes associated
with the operation of the Company and the Subsidiaries and the
ownership of their assets for all periods prior to the Effective Time
of the Merger, together with any fees, interest, fines or penalties
associated therewith, (ii) all returns and reports filed in respect of
all such taxes, and (iii) any federal and state income tax liability
(less the net
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present value of any realized net federal income tax benefits) arising
from any disallowance of the Merger as a "reorganization" within the
meaning of Code Section 368(a)(1)(A), other than resulting from a
violation of the Purchaser's covenants under Section 12.4.
12.2. EMPLOYEE MATTERS. At Closing, the Shareholders will
cause the Company to pay or satisfy all vacation, holiday and other
accrued benefits to employees of the Company and the Subsidiaries which
are then outstanding. Following the Closing, the Shareholders shall be
fully responsible for funding all necessary contributions to each
pension, profit sharing or other similar employee benefit plan
described on Schedule 5.22 that is required to be qualified under ERISA
(collectively, "Pension Plans") for all periods, and following the
Closing the Shareholders shall take all necessary action to terminate
the Pension Plans in accordance with applicable law, in connection with
which the Shareholders shall file all necessary forms and pay all
appropriate fees, fines, penalties and other sums due in respect
thereof and make any necessary distributions to plan beneficiaries.
Without limiting the generality of Section 10.1, the "Losses" against
which the Purchaser and the Surviving Corporation shall be indemnified
against shall include all such liabilities, obligations and
responsibilities arising in connection with the Pension Plans (whether
arising before or after the Closing). The Shareholders shall keep the
Purchaser reasonably informed regarding the progress of the
termination, winding up and distribution of the Pension Plans.
12.3. LOCK-UP AGREEMENT. The Shareholders agree with the
Purchaser and with the managing underwriters of the initial public
offering of the Purchaser's Class A Common Stock ("Underwriters") that,
during the period commencing on the Closing Date and ending on February
7, 1997, no Shareholder will, without the prior written consent of the
Purchaser and the Underwriters, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to sell,
grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of Purchaser Stock, whether owned on
the date hereof or hereafter acquired by the Shareholders or with
respect to which the Shareholders have or thereafter acquire the power
of disposition, or file any registration statement under the Securities
Act of 1933, as amended, 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 Purchaser Stock, whether any such swap
or transaction is to be settled by delivery of Purchaser Stock or other
securities, in cash or otherwise.
12.4. NO SALE OF ASSETS. For a period of three (3) years
following the Closing, the Purchaser shall not cause or allow the
Surviving Corporation to dispose of a substantial interest in the stock
of any Subsidiary or cause or allow either Subsidiary to sell or
otherwise dispose of all or any material portion of its assets to any
person, other than (in any such case) to another subsidiary included in
the consolidated group of corporations of which the Purchaser is the
corporate parent, provided such transferee subsidiary is at the same
relative tier of ownership as the Subsidiary making such disposition,
unless the Purchaser shall have first delivered to the Shareholders (i)
the written opinion
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(reasonably acceptable in form and substance to the Shareholders) of
Arthur Andersen L.L.P. or another "big six" public accounting firm that
such disposition should not cause a disallowance of the Merger as a
"reorganization" within the meaning of Code Section 368(a)(1)(A), and
(ii) the Purchaser's written agreement (reasonably acceptable in form
and substance to the Shareholders), to indemnify the Shareholders for
any Losses (including interest, fines, fees and penalties) they may
suffer as a result of such disallowance due to such disposition.
Without limiting the generality of the "Losses" for which the
Shareholders shall be indemnified against hereunder, such indemnity
shall include any federal and state income tax liability arising from
any disallowance of the Merger as a "reorganization" within the meaning
of Code Section 368(a)(1)(A), as a result of such disposition.
12.5. CURRENT PUBLIC INFORMATION. For so long after the
Closing as the Shareholders hold Purchaser Stock and are eligible to
dispose of Class A Common Stock in reliance on Rule 144 promulgated
under the Securities Act of 1933, as amended (except to the extent that
Rule 144(k) is available), the Purchaser shall maintain "current public
information" as required under Rule 144(c) (for as long as Rule 144
requires such current public information to be so maintained for
dispositions to be permitted under Rule 144).
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
finders' and similar fees and expenses of Thomas Pierce & Co. shall be
borne solely by the Purchaser, and in no event shall any Shareholder 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:
Wilson & Kratzer Mortuaries
455 - 24th Street
Richmond, California 94804
Facsimile: (415) 233-4383
with a copy to:
Freeland, Cooper, LeHocky & Hamburg
150 Spear Street, Suite 1800
San Francisco, California 94105
Attention: Mr. Steven A. Cooper, or
Mrs. Kate C. Freeland
Facsimile: (415) 495-4332
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(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
Facsimile: (713) 556-7401
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
Facsimile: (713) 651-8010
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.
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.
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 California.
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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:__________________________
MELVIN C. PAYNE, President
THE ACQUISITION SUBSIDIARY:
CARRIAGE FUNERAL SERVICES
OF CALIFORNIA, INC.
By:__________________________
MELVIN C. PAYNE, President
THE COMPANY:
CNM
By:__________________________
MARK F. WILSON, President
THE SHAREHOLDERS:
_____________________________
MARK WILSON
_____________________________
WENDY WILSON BOYER
_____________________________
WARREN A. BROWN, IV
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THE BOYER FAMILY TRUST DATED
SEPTEMBER 22, 1986
By:__________________________
William Boyer, Trustee
By:__________________________
Wendy Wilson Boyer, Trustee
TRUST B UNDER AGREEMENT DATED
SEPTEMBER 9, 1977
By:__________________________
Marie Dietz, Trustee
By:__________________________
Mark F. Wilson, Trustee
TRUST C UNDER AGREEMENT DATED
SEPTEMBER 9, 1977
By:__________________________
Marie Dietz, Trustee
By:__________________________
Mark F. Wilson, Trustee
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