SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11961
CARRIAGE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0423828
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 556-7400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
(affiliates being, for these purposes only, directors, executive officers and
holders of more than 5% of the Company's Class A Common Stock) of the Registrant
as of March 12, 1998 was approximately $124,268,000.
The number of shares of the Registrant's Class A Common Stock, $.01 par value
per share, and Class B Common Stock, $.01 par value per share, outstanding as of
March 12, 1998 was 6,530,827 and 4,624,823 respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement in connection with the 1998 annual meeting of shareholders,
incorporated in Part III of this Report.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Carriage Services, Inc. (the "Company") is the fifth largest publicly
traded provider of death care services and products in the United States. The
Company provides a complete range of funeral services and products to meet
families' needs, including consultation, removal and preparation of remains,
sale of caskets and related funeral merchandise, transportation services and the
use of funeral home facilities for visitation. The Company also offers cemetery
products and services, including rights to interment in cemetery sites,
interment services and related cemetery merchandise. As of December 31, 1997,
the Company operated 120 funeral homes and 20 cemeteries in 20 states. Funeral
services constituted approximately 93% and 84% of revenues in 1996 and 1997,
respectively.
Since the Company's formation in 1991, management has undertaken a
disciplined approach to growth that has allowed the Company the necessary time
to integrate acquisitions, develop effective operating, administrative and
financial systems and controls, recruit an experienced operating management team
and promote a decentralized, entrepreneurial service culture. From 1992 through
1995, the Company acquired 42 funeral homes and four cemeteries for
consideration ranging from approximately $9 million to $14 million in each of
the four years. The Company believes that the infrastructure it developed during
this period positioned the Company to pursue an accelerated growth strategy
beginning in late 1995. As a result, the Company acquired 38 funeral homes and
seven cemeteries for consideration of $68 million during 1996 and 44 funeral
homes and 10 cemeteries for consideration of $118 million during 1997. In
addition, as of March 12, 1998, the Company has either acquired or had letters
of intent to acquire14 funeral homes and two cemeteries for consideration of
approximately $31 million.
The Company was incorporated in Delaware on December 29, 1993, and became
a public reporting company in August, 1996. The Company's principal executive
office is located at 1300 Post Oak Blvd., Suite 1500, Houston, Texas 77056, and
its telephone number is (281) 556-7400.
DEATH CARE INDUSTRY
Death care companies provide products and services to families in three
principal areas: (i) ceremony and tribute, generally in the form of a funeral or
memorial service; (ii) disposition of remains, either through burial or
cremation; and, (iii) memorialization, generally through monuments, markers or
inscriptions. The death care industry in the United States is characterized by
the following fundamental attributes:
HIGHLY FRAGMENTED OWNERSHIP. A significant majority of death care
operators consist of small, family-owned businesses that control one or several
funeral homes or cemeteries in a single community. Management estimates that
there are approximately 22,000 funeral homes and 9,600 commercial (as opposed to
religious, family, fraternal, military or municipal) cemeteries in the United
States. Less than 21% of the 1995 United States death care industry revenues are
represented by the Company and the four largest publicly traded domestic death
care companies.
BARRIERS TO ENTRY. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Heritage and tradition afford an
established funeral home or cemetery a local franchise and provides the
opportunity for repeat business. Other difficulties faced by entities desiring
to enter a market include local zoning restrictions, substantial capital
requirements, increasing regulatory burdens and scarcity of cemetery land in
certain urban areas. In addition, established firms' backlog of preneed,
prefunded funerals or presold cemetery and mausoleum spaces also makes it
difficult for new entrants to gain entry into the marketplace.
STABILITY. The death rates in the United States are fairly predictable,
thereby affording stability to the death care industry. Since 1980, the number
of deaths in the United States has increased at a compounded rate of
approximately 1% per year until 1997, when there was no increase from 1996. The
number of deaths in the United States is expected to increase by approximately
1% per year through 2010. Because the industry is relatively stable,
non-cyclical and fairly predictable, business failures are uncommon. As a
result, ownership of funeral home and cemetery businesses generally
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has not experienced significant turnover, and the aggregate number of funeral
homes and cemeteries in the United States has remained relatively constant.
INCREASED CONSOLIDATION. In the past several years the industry has
experienced a trend toward consolidation of small death care operations with
large, primarily publicly owned death care providers that can benefit from
economies of scale, improved managerial control and more effective strategic
planning and greater financial resources. This trend appears to result
principally from increased regulation, a desire on the part of small, family
operated funeral businesses to address family succession and estate planning
issues, a desire for liquidity, and the increasing competitive threat posed by
the large death care providers. The active acquisition market for funeral homes
and cemeteries provides a source of potential liquidity that was not as readily
available to individual owners in the past. The consolidation trend has
accelerated in recent years as several large death care companies have expanded
their operations significantly through acquisitions.
CLUSTERED OR COMBINED OPERATIONS. The death care industry has also
witnessed a trend by companies to cluster their funeral home and cemetery
operations. Clusters refer to funeral homes and/or cemeteries which are grouped
together in a geographical region. Clusters provide a company with the ability
to generate cost savings through the sharing of personnel, vehicles and other
resources. Firms also are increasingly combining funeral home and cemetery
operations at a single site to allow cross-marketing opportunities and for
further cost reductions through shared resources. The ability to offer the full
range of products and services at one location or to cluster funeral home and
cemetery operations and cross-market the full range of death care services has
proven to be a competitive advantage which tends to increase the market share
and profitability of both the funeral home and cemetery.
PRENEED MARKETING. In addition to sales at the time of death or on an "at
need" basis, an increasing number of death care products and services are being
sold prior to the time of death or on a "preneed" basis by death care providers
who have developed sophisticated marketing organizations to actively promote
such products and services. At the same time, consumers are becoming more aware
of the benefits of advanced planning, such as the financial assurance and peace
of mind achieved by establishing in advance a fixed price and type of service,
and the elimination of the emotional strain of making death care plans at the
time of need. Effective marketing of preneed products and services assures a
backlog of future business.
CREMATION. In recent years, there has been steady, gradual growth in the
number of families in the United States that have chosen cremation as an
alternative to traditional methods of burial. According to industry studies,
cremations represented approximately 21% of the United States burial market in
1996, as compared to approximately 10% in 1980. Many parts of the Southern and
Midwestern United States and many non-metropolitan communities exhibit
significantly lower rates of cremation as a result of religious and cultural
traditions. Cremation historically has been marketed as a less costly
alternative to interment. However, cremation is increasingly marketed as part of
a complete death care package that includes traditional funeral services and
memorialization.
BUSINESS STRATEGY
The Company's objective is to become the most professional, ethical and
highest quality funeral and cemetery service organization in the industry while
continuing to promote a decentralized, entrepreneurial service culture.
Management believes that the Company's reputation and collaborative operating
style allows it to successfully pursue attractive acquisition candidates. The
Company also has been successful in implementing programs to increase
profitability at newly acquired properties.
OPERATING STRATEGY. Since its formation, the Company has focused on
quality service and on becoming a succession planning alternative to the larger
death care providers. The Company believes that its decentralized operating
style, which provides autonomy and flexibility to local management, is
attractive to owners of funeral homes seeking to sell their operations.
Management believes that its operating style is also a key component in its
ability to attract and retain quality managers. While the Company's management
style allows local operators significant responsibility in the daily operating
decisions, financial parameters, jointly established during the budgeting
process, are monitored by senior management through the Company's management and
accounting systems. The Company utilizes computer systems linked to most of the
Company's funeral home locations. These systems enable a location to function on
its own by maintaining accounts receivables and payables locally, at a cluster
processing site, or at the Company's centralized processing center at the option
of the local manager. The same information is provided to the Company's senior
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management which allows the Company, on a timely basis, to access critical
operating and financial data from a site in order to analyze the performance of
individual locations and institute corrective action if necessary.
The Company has established a compensation structure that is designed to
maintain and create a sense of ownership. Local management is awarded meaningful
cash bonuses and stock options for exceptional performance when achieving
specified earnings objectives. The Company has also structured a stock option
program which awards options to most full-time employees based upon the
performance of their local business during the period. As a result, all
management and most full-time employees have the opportunity to increase their
personal net worth through strong local and corporate performance.
Management also believes that implementing its operating strategy in newly
acquired businesses leads to enhanced profitability of acquired operations. The
Company has an extensive merchandising and training program that is designed to
educate local funeral home operators about opportunities to improve marketing of
products and services, to share sales leads and other cross-marketing
opportunities, and to become familiar with, and adopt, the Company's business
objectives. The larger size of the Company, as compared to local operators, also
allows favorable pricing and terms to be achieved from vendors through volume
discounts on significant expenditures, such as caskets, vaults, memorials and
vehicles. In addition, while operational functions and management autonomy are
retained at the local level, centralizing certain financial, accounting, legal,
administrative and employee benefit functions allows for more efficient and
cost-effective operations. The Company also has recently greatly expanded its
preneed sales programs in selected local markets to maintain or increase market
presence and assure a backlog of future business.
ACQUISITION STRATEGY. The Company believes that significant acquisition
opportunities currently exist in the death care industry that the Company
intends to aggressively pursue. In evaluating specific acquisition candidates,
the Company considers such factors as the property's location, reputation,
heritage, physical size, volume of business, profitability, name recognition,
aesthetics, potential for development or expansion, competitive market position,
pricing structure and quality of operating management. The Company will continue
to aggressively pursue the acquisition of premier funeral homes that have a
strong local market presence and that conduct from 100 to 600 funeral services
per year, as well as funeral homes in close proximity to the Company's existing
businesses. In addition, although the Company, in the early years, focused on
acquiring funeral home operations, the Company aggressively pursues cemetery
acquisitions in markets where the Company operates, or plans to operate, funeral
homes to take advantage of cross-marketing opportunities. The Company is also
pursuing larger acquisition transactions which provides significant strategic
benefits to the Company, such as new market penetration. For example, in January
1997, the Company merged with CNM, a premier California-based company which
operates ten funeral homes and one cemetery, and in November 1997, merged with
the John E. Day Funeral Home in New Jersey and the Forest Lawn/Evergreen
Management Co. of Florida, which together operate seven funeral homes and three
cemeteries. These three transactions accounted for over 60% of the acquisition
spending in 1997. The Company also seeks to issue, and has been successful in
issuing, equity securities to the previous owners of acquired businesses. Since
inception through March 12, 1998, the Company has issued 37,775,608 shares of
redeemable preferred stock and 982,044 shares of Class A Common Stock in
conjunction with acquisition transactions. As of March 12, 1998, a total of
23,760,823 shares of redeemable preferred stock have converted into shares of
Class A and Class B Common Stock. Management believes that its success in
issuing equity securities in conjunction with acquisitions reflects in large
part previous owners' desires to remain affiliated with and to be invested in
the Company.
In purchasing the premier location in a particular market, management
believes that the Company is able to attract the most talented personnel,
minimize downside risk of loss of volume to competitors and provide
opportunities for increased profitability when such operations are coupled with
the Company's management techniques. In addition, the Company generally retains
the former owners and other key personnel of acquired funeral homes and provides
them with significant operating responsibility to assure the continuation of
high quality services and the maintenance of the acquired firm's reputation and
heritage. In nearly all cases, acquired funeral homes continue operations under
the same trade name as those of the prior owners. In addition, the Company views
experienced management of certain acquired operations as potential corporate
management candidates. Management believes that this potential for advancement
with the Company, combined with the Company's decentralized operating structure
and incentive-based compensation system, makes it a particularly attractive
acquirer to some independent owners. The Company targets additional funeral
homes in present markets so that personnel and vehicles can be shared and profit
margins enhanced.
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The Company follows a disciplined approach to acquisitions utilizing
specific operating and financial criteria. The Company develops pro forma
financial statements for acquisition targets reflecting estimates of revenue and
costs under the Company's ownership and then utilizes such information to
determine a purchase price which it believes is reasonable. The Company
anticipates that the consideration for future acquisitions will consist of a
combination of cash, deferred purchase price and preferred and common equity.
The Company also will typically enter into management, consulting and
non-competition agreements with former owners and key executive personnel of
acquired businesses.
Although the Company did not initially focus on acquiring cemetery
operations, as a result of the increased access to capital and the Company's
enhanced profile in the industry, the Company is encountering significant
cemetery acquisition opportunities. The Company will continue to pursue cemetery
acquisitions in markets where they operate funeral homes to take advantage of
cross-marketing opportunities and in markets where a funeral home acquisition
strategy is viable.
While the Company focuses its efforts on identifying individual
acquisition candidates with the potential for a negotiated, non-competitive
acquisition process, the Company also competes for more broadly marketed
acquisition opportunities. In many cases, the Company has been successful in
acquiring operations where it has not been the highest bidder because of the
Company's reputation, operating strategy and corporate culture. Management
believes that the issuance of equity securities to fund certain funeral home and
cemetery acquisitions has been, and will continue to be, attractive to select
acquisition candidates.
The Company has successfully executed this acquisition strategy since its
inception, as demonstrated in the table set forth below.
FUNERAL
YEAR(3) CONSIDERATION HOMES(1) CEMETERIES(2)
------------- -------- -------------
(dollars in thousands)
1992 ...... $ 11,832 14 2
1993 ...... 13,843 11 1
1994 ...... 9,153 9 1
1995 ...... 12,191 8 0
1996 ...... 68,181 38 7
1997 ...... 118,260 44 10
------------- -------- -------------
$ 233,460 124 21
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(1) The Company subsequently divested four of these funeral homes.
(2) The Company subsequently divested one of these cemeteries.
(3) From January 1, 1998 through March 12, 1998, the Company has acquired four
funeral homes and one cemetery for aggregate consideration of $8 million.
OPERATIONS
The Company's funeral home operations, cemetery operations and preneed
programs are managed by service-minded professionals with extensive death care
industry experience. In response to the rapid growth experienced beginning in
1996, the Company increased operations staffing, including a new transition
team, to provide local managers with the additional support and direction needed
during the integration of newly acquired properties.
Although certain financial management and policy matters are centralized,
local funeral home and cemetery managers have substantial autonomy in
determining the manner in which their services and products are marketed and
delivered and their funeral homes are managed. The Company believes that this
strategy permits each local firm to maintain its unique style of operation and
to capitalize on its reputation and heritage while the Company maintains
centralized supervisory controls and provides specialized services at the
corporate level.
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FUNERAL HOME OPERATIONS. As of December 31, 1997, the Company operated 120
funeral homes in 20 states. Funeral home revenues accounted for approximately
93% and 84% of the Company's net revenues for each of the years ended December
31, 1996 and 1997. The Company's funeral home operations are managed by a team
of experienced death care industry professionals.
The Company's funeral homes offer a complete range of services to meet
family's funeral needs, including consultation, the removal and preparation of
remains, the sale of caskets and related funeral merchandise, the use of funeral
home facilities for visitation and religious services, and transportation
services. Most of the Company's funeral homes have a non-denominational chapel
on the premises, which permits family visitation and religious services to take
place at one location, which reduces transportation costs to the Company and
inconvenience to the family.
CEMETERY OPERATIONS. As of December 31, 1997, the Company operated 20
cemeteries in 10 states. Cemetery revenues accounted for approximately 7% and
16% of the Company's net revenues for each of the years ended December 31, 1996
and 1997.
As a result of a growing number of potential cemetery acquisition
candidates, the Company has made additional investments in the cemetery
operations infrastructure. Beginning in the fourth quarter of 1996, experienced
preneed marketing professionals were added at the national and regional levels.
This investment in additional preneed marketing management allowed the Company
to increase preneed sales at existing cemetery properties and positioned the
Company to more effectively integrate future cemetery acquisitions. As of
December 31, 1997, the Company employed a staff of approximately 144 advance
planning representatives for the sale of interment rights and merchandise.
The Company's cemetery products and services include interment services,
the rights to interment in cemetery sites (including grave sites, mausoleum
crypts and niches) and related cemetery merchandise such as memorials and
vaults. Cemetery operations generate revenues through sales of interment rights,
memorials and installation, fees for interment and cremation services, finance
charges from installment sales contracts and investment income from preneed
cemetery merchandise and perpetual care trusts.
PRENEED PROGRAMS. In addition to sales of funeral merchandise and
services, cemetery interment rights, cemetery merchandise and services at the
time of need, the Company also markets funeral and cemetery services and
products on a preneed basis. Preneed funeral or cemetery contracts enable
families to establish in advance the type of service to be performed, the
products to be used and the cost of such products and services in accordance
with prices prevailing at the time the contract is signed rather than when the
products and services are delivered. Preneed contracts permit families to
eliminate the emotional strain of making death care plans at the time of need
and enable the Company to establish a portion of its future market share.
Proceeds from the sale of preneed funeral contracts are not recognized as
revenues until the time the funeral service is performed. The Company sold 3,760
and 4,020 preneed funeral contracts in the years ended December 31, 1996 and
1997, respectively. At December 31, 1997, the Company had a backlog of 34,797
preneed funeral contracts to be delivered in the future.
Preneed funeral contracts are usually paid on an installment basis. The
performance of preneed funeral contracts is usually secured by placing the funds
collected in trust for the benefit of the customer or by the purchase of a life
insurance policy, the proceeds of which will pay for such services at the time
of need. Insurance policies, intended to fund preneed funeral contracts cover
the original contract price and generally include built-in escalation clauses
designed to offset future inflationary cost increases.
In addition to preneed funeral contracts, the Company also offers
"preplanned" funeral arrangements whereby a client determines in advance
substantially all of the details of a funeral service without any financial
commitment or other obligation on the part of the client, until the actual time
of need. Preplanned funeral arrangements permit families to avoid the emotional
strain of making death care plans at the time of need and enable a funeral home
to establish relationships with clients that eventually lead to at-need sales.
Preneed cemetery sales are usually financed by the Company through
installment sale contracts, generally with terms of five years. Preneed sales of
cemetery interment rights and other related services and merchandise are
recorded as revenues when the contract is signed, with concurrent recognition of
related costs. The Company always receives an initial payment at the time the
contract is signed. Allowances for customer cancellations and refunds are
accrued at the
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date of sale based upon historical experience. Preneed cemetery sales
represented approximately 67% and 65% of the Company's net cemetery revenues for
the years ended December 31, 1996 and 1997, respectively.
COMPETITION
The acquisition environment in the death care industry is highly
competitive. Four publicly held death care companies, Service Corporation
International, The Loewen Group, Inc., Stewart Enterprises, Inc. and Equity
Corporation International, are substantially larger than the Company and have
significantly greater financial and other resources than the Company. In
addition, a number of smaller companies are actively acquiring funeral homes and
cemeteries. Prices for funeral homes and cemeteries have increased substantially
in recent years, and, in some cases, competitors have paid acquisition prices
substantially more than the prices offered by the Company. Accordingly, no
assurance can be given that the Company will be successful in expanding its
operations through acquisitions or that funeral homes and cemeteries will be
available at reasonable prices or on reasonable terms.
The Company's funeral home and cemetery operations generally face
competition in the markets that they serve. Market share for funeral homes and
cemeteries is largely a function of reputation and heritage, although
competitive pricing, professional service and attractive, well-maintained and
conveniently located facilities are also important. The sale of preneed funeral
services and cemetery property has increasingly been used by many companies as
an important marketing tool to build market share. Due to the importance of
reputation and heritage, market share increases are usually gained over a long
period of time.
TRUST FUNDS
GENERAL. The Company has established a variety of trusts in connection
with its funeral home and cemetery operations as required under applicable state
law. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery
merchandise and service trusts; and, (iii) perpetual care trusts. These trusts
are typically administered by independent financial institutions selected by the
Company. The Company also uses independent professional managers to advise the
Company on investment matters.
PRENEED FUNERAL TRUSTS. Preneed funeral sales are facilitated by deposits
to a trust or purchase of a third-party insurance product. All preneed funeral
sales are deferred until the service is performed. The trust fund income earned
and any increase in insurance benefits are also deferred until the service is
performed in order to offset possible inflation in cost when providing the
service in the future. Although direct marketing costs and commissions incurred
for the sale of preneed funeral contracts are a current use of cash, such costs
are also deferred and amortized over the expected timing of the performance of
the services related to the preneed funeral sales. Since the Company does not
have access to the trust fund principal or earnings, the related assets and
liabilities are not reflected on the Company's balance sheet. In most states,
the Company is not permitted to withdraw principal or investment income from
such trusts until the funeral service is performed. Some states, however, allow
for the retention of a percentage (generally 10%) of the receipts to offset any
administrative and selling expenses, which the Company defers until the service
is provided. The aggregate balance of the Company's preneed funeral contracts
held in trust was approximately $36.5 million and $52.9 million as of December
31, 1996 and 1997, respectively.
PRENEED CEMETERY MERCHANDISE AND SERVICE TRUSTS. The Company is generally
required under applicable state laws to deposit a specified amount (which varies
from state to state, generally 50% to 100% of selling price) into a merchandise
and service trust fund for cemetery merchandise and services sold on a preneed
basis. The related trust fund income earned is recognized in current revenues as
trust earnings. These earnings are offset by any current period inflation costs
accrued related to the merchandise and services that have not yet been provided.
Liabilities for undelivered cemetery merchandise and services, including
accruals for inflation increases, are reflected in the balance sheet net of the
merchandise and service trust balance. The Company is permitted to withdraw the
trust principal and the accrued income when the merchandise is purchased or
service is provided by the Company or when the contract is canceled. The
merchandise and service trust fund balances, in the aggregate, were
approximately $1.1 million and $9.6 million as of December 31, 1996 and 1997,
respectively.
PERPETUAL CARE TRUSTS. In certain states, regulations require a portion
(generally 10%), of the sale amount of cemetery property and memorials to be
placed in trust. These perpetual care trusts provide the funds necessary to
maintain cemetery property and memorials in perpetuity. The related trust fund
income earned is recognized in current
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revenues as trust earnings. While the Company is entitled to withdraw the income
from its perpetual care trust to provide for the maintenance of the cemetery
property and memorials, they are not entitled to withdraw any of the principal
balance of the trust fund, and therefore, none of the principal balances are
reflected in the Company's balance sheet. The Company's perpetual care trust
balances were approximately $2.0 million and $8.4 million as of December 31,
1996 and 1997, respectively.
For additional information with respect to the Company's trusts, see Note
1 of the Consolidated Financial Statements.
REGULATION
The Company's funeral home operations are subject to substantial
regulation by the Federal Trade Commission (the "FTC"). Certain regulations
contain minimum standards for funeral industry practices, require extensive
price and other affirmative disclosures to the customer at the time of sale and
impose mandatory itemization requirements for the sale of funeral products and
services.
The Company is subject to the requirements of the federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the United States Environmental Protection Agency
community right-to-know regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and similar state statutes require the Company
to organize information about hazardous materials used or produced in its
operations. Certain of this information must be provided to employees, state and
local governmental authorities and local citizens. The Company is also subject
to the Federal Americans with Disabilities Act and similar laws which, among
other things, may require that the Company modify its facilities to comply with
minimum accessibility requirements for disabled persons.
The Company's operations, including its preneed sales and trust funds,
are also subject to extensive regulation, supervision and licensing under
numerous other Federal, state and local laws and regulations. See "-- Trust
Funds."
The Company believes that it is in substantial compliance with all such
laws and regulations. Federal and state legislatures and regulatory agencies
frequently propose new laws, rules and regulations some of which, if enacted,
could have a material adverse effect on the Company's results of operations. The
Company cannot predict the outcome of any proposed legislation or regulations or
the effect that any such legislation or regulations might have on the Company.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries employed 616
full-time employees, 523 part-time employees and 186 advance planning
representatives. All of the Company's funeral directors and embalmers possess
licenses required by applicable regulatory agencies. Management believes that
its relationship with its employees is good. No employees of the Company or its
subsidiaries are members of a collective bargaining unit.
ITEM 2. PROPERTIES
At December 31, 1997, the Company operated 120 funeral homes and 20
cemeteries in 20 states. The Company owns the real estate and buildings of 89 of
its funeral homes and all of its cemeteries and leases facilities in connection
with 31 of its funeral homes. The 20 cemeteries operated by the Company cover a
total of approximately 725 acres. The Company's inventory of unsold developed
lots totaled approximately 44,000 and 80,000 at December 31, 1996 and 1997,
respectively. In addition, approximately 359 acres, or approximately 50% of the
total acreage, is available for future development. The Company does not
anticipate any shortage of available space in any of its current cemeteries for
the foreseeable future.
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The following table sets forth certain information as of December 31, 1997
regarding the Company's funeral homes and cemeteries by state:
NUMBER OF
FUNERAL HOMES
-------------------
STATE OWNED LEASED(1) CEMETERIES
----- --------- ----------
Ohio................................ 13 3 0
California.......................... 11 2 1
Texas............................... 10(2) 1 3
Kentucky............................ 7 4 1
Florida............................. 4 3 4
South Carolina...................... 5 0 4
Idaho............................... 5(3) 0 3
Kansas.............................. 8 0 0
Connecticut......................... 5 2 0
Georgia............................. 3 3 0
Michigan............................ 4 2 0
Illinois............................ 0 5 1
New Jersey.......................... 3 2 0
Tennessee........................... 3 1 1
Indiana............................. 1 2 1
North Carolina...................... 1 1 1
Alabama............................. 2 0 0
Washington.......................... 2 0 0
Montana............................. 1 0 0
Rhode Island........................ 1 0 0
--- --- ---
Total(4)......................... 89 31 20
=== === ===
(1)The leases, with respect to these funeral homes, have remaining terms
ranging from two to fifteen years, and the Company generally has a right
of first refusal on any proposed sale of the property where these funeral
homes are located.
(2)One of these funeral homes is located on property contiguous to and
operated in combination with a Company cemetery.
(3)Two of these funeral homes are located on property contiguous to and
operated in combination with Company cemeteries.
(4)From January 1, 1998 through March 12, 1998, the Company has acquired one
funeral home and one cemetery in California, one funeral home in Illinois,
one funeral home in Kentucky and one funeral home in New England for an
aggregate consideration of $8 million.
The Company's corporate headquarters occupy approximately 19,700 square feet
of leased office space in Houston, Texas.
At December 31, 1997, the Company operated 465 vehicles, of which 388
were owned and 77 were leased.
The specialized nature of the Company's business requires that its
facilities be well-maintained. Management believes that this standard is met.
ITEM 3. LEGAL PROCEEDINGS
Certain of the funeral homes located in California that were acquired by
the Company in early 1997, along with other death care providers, are defendants
in litigation in the state of California alleging that a flight service
contracted to
8
<PAGE>
dispose of cremains failed to properly carry out its duties. While the
litigation is in the early stages, management, with advice of legal counsel,
believes that there are adequate insurance coverages, indemnities and reserves
such that the results of the litigation will not have a material effect on the
Company's consolidated financial position or result of operations. Additionally,
the Company and its subsidiaries are parties to a number of legal proceedings
that arise from time to time in the ordinary course of business. While the
outcome of these proceedings cannot be predicted with certainty, management does
not expect these matters to have a material adverse effect on the Company.
The Company carries insurance with coverages and coverage limits that it
believes to be customary in the funeral home and cemetery industries. Although
there can be no assurance that such insurance will be sufficient to protect the
Company against all contingencies, management believes that its insurance
protection is reasonable in view of the nature and scope of the Company's
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock is traded in the over-the-counter
market and quoted on the Nasdaq National Market under the symbol "CRSV". The
following table presents the quarterly high and low sale prices as reported by
the Nasdaq National Market since the shares became publicly traded on August 9,
1996 at an initial price of $13.50. These quotations reflect the inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
1996 HIGH LOW
------- -------
Third Quarter (beginning August 9, 1996).. $22.75 $14.25
Fourth Quarter............................ $23.50 $18.375
1997
First Quarter............................. $26.00 $18.25
Second Quarter............................ $22.75 $17.00
Third Quarter............................. $22.75 $16.25
Fourth Quarter............................ $19.625 $16.50
As of March 12, 1998, there were 6,530,827 shares of the Company's Class A
Common Stock and 4,624,823 shares of the Company's Class B Common Stock
outstanding. The holders of Class A Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of Common stockholders. The
holders of Class B Common Stock are entitled to ten votes for each share held on
all matters submitted to a vote of Common stockholders. The Class A Common Stock
shares outstanding are held by approximately 194 stockholders of record. The
Company believes there are approximately 2,400 beneficial owners of the Class A
Common Stock.
The Company has never paid a cash dividend on its Class A or Class B
Common Stock. The Company currently intends to retain earnings to finance the
growth and development of its business and does not anticipate paying any cash
dividends on its common stock in the foreseeable future. Any future change in
the Company's dividend policy will be made at the discretion of the Company's
Board of Directors in light of the financial condition, capital requirements,
earnings and prospects of the Company and any restrictions under credit
agreements, as well as other factors the Board of Directors may deem relevant.
RECENT SALES OF UNREGISTERED SECURITIES
From October 28, 1994 to May 29, 1996, the Company sold an aggregate of
715,000 shares of Preferred Stock, valued at $1.00 per share, to the former
owners of acquired funeral homes. Consideration for such shares consisted of
ownership interests in funeral home businesses and contract rights. The Company
relied on an exemption under Section 4(2) of the Securities Act in effecting
these transactions.
On September 25, 1995, the Company sold in a private placement an
aggregate of 8,500,000 shares of Preferred Stock. The Chicago Corporation acted
as placement agent in connection with this offering. Such shares were purchased
for $1.00 per share. The Company relied on an exemption under Section 4(2) of
the Securities Act in effecting the placement.
From March 8, 1996 to September 6, 1996, the Company sold an aggregate of
17,775,616 shares of Series D Preferred Stock, valued at $1.00 per share, to the
former owners of acquired funeral homes. Consideration for such shares consisted
of ownership interests in funeral home businesses. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.
10
<PAGE>
On May 28, 1996, an employee exercised options to purchase 1,000 shares of
Common Stock pursuant to the Company's 1995 Stock Incentive Plan at an exercise
price of $10.00 per share. The Company relied on an exemption under Section 4(2)
of the Securities Act in effecting this transaction.
On January 7, 1997, the Company sold 19,999,992 shares of Series F
Preferred Stock, valued at $1.00 per share, to the former owners of acquired
funeral homes. Consideration for such shares consisted of ownership interests in
funeral home businesses. The Company relied on an exemption under Section 4(2)
of the Securities Act in effecting this transaction.
From August 30, 1996 to May 31, 1997, the Company sold an aggregate of
517,197 shares of Class A Common Stock, valued at market prices, to the former
owners of acquired funeral homes. Consideration for such shares consisted of
ownership interests in funeral home businesses. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.
11
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- --------- ---------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral ...................................................... $ 10,651 $ 17,368 $ 22,661 $ 37,445 $ 64,888
Cemetery ..................................................... 614 1,036 1,576 2,903 12,533
-------- -------- -------- --------- ---------
Total net revenues ........................................... 11,265 18,404 24,237 40,348 77,421
-------- -------- -------- --------- ---------
Gross profit:
Funeral ...................................................... 917 2,856 3,740 6,804 16,484
Cemetery ..................................................... 143 158 250 362 2,899
-------- -------- -------- --------- ---------
Total gross profit ........................................... 1,060 3,014 3,990 7,166 19,383
General and administrative expenses .......................... 985 1,266 2,106 2,474 5,277
-------- -------- -------- --------- ---------
Operating income ............................................. 75 1,748 1,884 4,692 14,106
Interest expense, net ........................................ 1,745 2,671 3,684 4,347 5,889
-------- -------- -------- --------- ---------
Income (loss) before income taxes ............................ (1,670) (923) (1,800) 345 8,217
Provision for income taxes ................................... -- (1) 40 694 138 3,726
-------- -------- -------- --------- ---------
Net income (loss) before extraordinary item (1,670) (963) (2,494) 207 4,491
Extraordinary item, net ...................................... -- -- -- (498) (195)
-------- -------- -------- --------- ---------
Income (loss) after extraordinary item ....................... (1,670) (963) (2,494) (291) 4,296
Preferred stock dividends .................................... -- -- -- 622 890
-------- -------- -------- --------- ---------
Net income (loss) available to common stockholders ........... $ (1,670) $ (963) $ (2,494) $ (913) $ 3,406
======== ======== ======== ========= =========
Earnings (loss) per share
Basic:
Continuing operations ........................................ $ (.66)(1) $ (.38) $ (.99) $ (.09) $ .35
Extraordinary item ........................................... -- -- -- (.10) (.02)
-------- -------- -------- --------- ---------
Basic earnings (loss) per share .............................. $ (.66) $ (.38) $ (.99) $ (.19) $ .33
======== ======== ======== ========= =========
Diluted:
Continuing operations ........................................ $ (.66)(1) $ (.38) $ (.99) $ (.09) $ .34
Extraordinary item ........................................... -- -- -- (.10) (.02)
-------- -------- -------- --------- ---------
Diluted earnings (loss) per share ............................ $ (.66) $ (.38) $ (.99) $ (.19) $ .32
======== ======== ======== ========= =========
Weighted average number of common and
common equivalent shares outstanding:
Basic ........................................................ 2,520 (1) 2,520 2,520 4,869 10,226
======== ======== ======== ========= =========
Diluted ...................................................... 2,520 (1) 2,520 2,520 4,869 10,485
======== ======== ======== ========= =========
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period ............................... 25 34 41 76 120
Funeral services performed during period ..................... 2,265 3,529 4,414 7,181 12,131
Preneed funeral contracts sold ............................... 644 762 2,610 3,760 4,020
Backlog of preneed funeral contracts ......................... 5,170 6,855 8,676 22,925 34,797
Depreciation and amortization ................................ $ 947 $ 1,476 $ 1,948 $ 3,629 $ 7,809
BALANCE SHEET DATA:
Working capital .............................................. $ (142) $ 4,271 $ 6,472 $ 5,089 $ 5,823
Total assets ................................................. 28,784 44,165 61,746 131,308 277,940
Long-term debt, net of current maturities .................... 26,270 32,622 42,057 42,733 121,553
Redeemable preferred stock ................................... -- -- -- 17,251 13,951
Stockholders' equity (deficit) ............................... (2,626) 3,429 9,151 57,043 98,565
</TABLE>
(1)Prior to January 1, 1994, the Company consisted of three entities whose
owners contributed their equity in these entities in exchange for 2,520,000
shares of common stock of the Company effective January 1, 1994. Accordingly,
shares of common stock shown outstanding for these periods assume the
exchange had taken place at the beginning of the periods presented. In 1993,
the entities were subchapter S corporations, and taxes were the direct
responsibility of the owners. Thus, the tax provision reflected above for
this period is based on assumptions about what tax provisions (benefits)
would have been if the Company had been a taxable entity. In the opinion of
management, no pro forma tax provision (benefit) was appropriate for the
period because the Company followed a policy of not recognizing the benefits
associated with net operating losses during such periods.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company became a public company during the third quarter of 1996, and
achieved initial profitability for the fourth quarter of 1996. The Company's
focus is on growth through acquisitions and enhancements at facilities currently
owned to increase revenues and gross profit. The Company entered 1997 with the
goals (among others) of increasing cash flow from operations; increasing margins
in the funeral home and cemetery sectors; substantially increasing the preneed
sales and marketing activities; and filling critical personnel needs in the
finance, corporate development and cemetery operations areas. The objective of
these goals was to build the infrastructure and stability of the Company as it
continues to pursue consolidation opportunities in the death care industry.
These goals were met with success and the end result was profitability in each
quarter of 1997, even though death rates were lower than expected in certain
markets.
Cash flow from operations, which the Company defines as earnings before
interest, income taxes, and depreciation and amortization, increased, as a
percentage of net revenues, from 22.6% for 1996 to 29.7% for 1997. This
improvement was largely due to the increased gross profits at the individual
locations, as general and administrative expenses on the same basis were
comparable. Gross margins for the funeral homes increased from 18% in 1996 to
25% in 1997 as a result of margin management training for the managers and
directors related to merchandising and memorialization and benefits from cost
containment and clustering, where realizable. Improvements in cemetery gross
profit margins were dramatic in 1997. Fueled by a doubling of the number of
cemeteries during the year and the restructuring of the preneed sales function
in late 1996, cemetery gross profit increased 700% while cemetery revenues
increased 332%. As a percentage of cemetery net revenues, cemetery gross profit
was 23% in 1997 compared to 12% in 1996. The Rolling Hills Cemetery, which was
part of the CNM acquisition in early 1997, contributed 87% of the revenue
increase for the year. Preneed sales and marketing efforts began to have a
significant impact in the latter part of 1997, as revenues and gross profits
from cemeteries owned at least one year increased 66% and 373%, respectively, in
the fourth quarter compared to the same period in 1996.
Beginning in late 1995, the Company began identifying infrastructure needs in
anticipation of accelerating its acquisition activity. At the end of 1995, the
Company owned 44 facilities. During 1996 and 1997, the Company acquired 45 and
54 facilities, respectively. In a deliberate and managed process, the Company
increased personnel and related infrastructure as a function of the increase in
the Company's revenue run rate. As a consequence, general and administrative
expenses increased from $2.1 million in 1995 to $2.5 million in 1996 and to $5.3
million in 1997. The additional personnel filled critical roles in expanding the
geographic coverage of both corporate development and preneed sales and
marketing activities, as well as the financial, data processing and
administrative functions needed to support the growing number of locations
operating in a decentralized management fashion with timely financial and
management information.
During 1996, the Company acquired 38 funeral homes and seven cemeteries for
an aggregate consideration of approximately $68 million. Forty-four funeral
homes and ten cemeteries were acquired during 1997 for approximately $118
million. These acquisitions were funded through cash flow from operations,
additional borrowings under the Company's credit facilities and issuance of
preferred and common stock. In addition, as of March 12, 1998, the Company has
either acquired or has letters of intent to acquire 14 funeral homes and two
cemeteries for an aggregate consideration of approximately $31 million. The
Company believes its increased recognition in the death care industry as an
established purchaser of funeral homes and cemeteries has improved its ability
to attract potential acquisitions that are larger, strategic and accretive and
its ability to finance its acquisitions with debt and equity.
Certain matters discussed herein may contain forward-looking statements
that are subject to risks and uncertainties that could cause actual results to
differ materially from those projected. Such risks and uncertainties include,
but are not limited to, the following: the Company's ability to sustain its
rapid acquisition rate, to manage the growth and to obtain adequate performance
from acquired businesses; the economy and financial market conditions, including
stock prices, interest rates and credit availability; and death rates and
competition in the Company's markets.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement data for the
Company expressed as a percentage of net revenues for the periods presented:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------ -------
Total revenues, net................. 100.0% 100.0% 100.0%
Total gross profit.................. 16.5 17.8 25.0
General and administrative expenses. 8.7 6.1 6.8
Operating income.................... 7.8 11.6 18.2
Interest expense, net............... 15.2 10.8 7.6
Net income (loss) before
extraordinary item................ (10.3) 0.5 5.8
The following table sets forth the number of funeral homes and cemeteries
owned and operated by the Company for the periods presented:
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
Funeral homes at beginning of period ...... 34 41 76
Acquisitions .............................. 8 38 44
Divestitures .............................. 1 3 0
---- ---- ----
Funeral homes at end of period ............ 41 76 120
==== ==== ====
Cemeteries at beginning of period ......... 3 3 10
Acquisitions .............................. 0 7 10
Divestitures .............................. 0 0 0
---- ---- ----
Cemeteries at end of period ............... 3 10 20
==== ==== ====
The following is a discussion of the Company's results of operations for
1995, 1996 and 1997. For purposes of this discussion, funeral homes and
cemeteries owned and operated for the entirety of each year being compared are
referred to as "existing operations". Operations acquired or opened during
either year being compared are referred to as "acquired operations".
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its funeral home
operations during the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
--------------------- ----------------------
1996 1997 AMOUNT PERCENT
------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations ........... $25,042 $24,627 $ (415) (1.7)%
Acquired operations ........... 12,403 40,261 27,858 *
------- ------- --------
Total net revenues ........ $37,445 $64,888 $ 27,443 73.3%
======= ======= ========
Gross profit:
Existing operations ........... 4,396 5,675 1,279 29.1%
Acquired operations ....... 2,408 10,809 8,401 *
------- ------- --------
Total gross profit ........ 6,804 16,484 9,680 142.3%
======= ======= ========
</TABLE>
- -------------
*Not meaningful.
14
<PAGE>
Due to the rapid growth of the Company, existing operations represented
only 38% of the total funeral revenues and only 34% of the total funeral gross
profit for the year ended December 31, 1997. Total funeral net revenues for the
year ended December 31, 1997 increased $27.4 million or 73.3% over 1996. The
higher net revenues reflect an increase of $27.9 million in net revenues from
acquired operations and a decrease in net revenues of $415,000 or 1.7% from
existing operations. The decrease in revenues for the existing operations
primarily resulted from fewer funeral services being performed, which was
partially offset by a 2.6% increase in the average revenue per funeral service.
Fewer services were performed in 1997 primarily due to lower than usual seasonal
death rates in certain of the Company's markets, especially in the East North
Central region of the country where the Company has a large number of existing
operations.
Total funeral gross profit for the year ended December 31, 1997 increased
$9.7 million or 142.3% over 1996. The higher total gross profit reflected an
increase of $8.4 million from acquired operations and an increase of $1.3
million or 29.1% from existing operations. Gross profit for existing operations
increased due to the efficiencies gained by consolidation, cost savings,
improved collections experience and the increasing effectiveness of the
Company's merchandising strategy, which were partially offset by lower revenues.
Total gross profit increased from 18.2% for 1996 to 25.4% for 1997 due to these
factors.
CEMETERY SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its cemetery
operations for the years ended December 31, 1996 and 1997.
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- -------------------
1996 1997 AMOUNT PERCENT
------ ------- ------ -------
(dollars in thousands)
Total net revenues ........ $2,903 $12,533 $9,630 331.7%
====== ======= ======
Total gross profit ........ $ 362 $ 2,899 $2,537 700.8%
====== ======= ======
Due to the rapid growth of the Company, existing operations represented
approximately 15% of cemetery revenues and approximately 9% of cemetery gross
profit for the years ended December 31, 1997. As a result, the Company does not
believe it is meaningful to present the results for existing and acquired
operations separately.
Total cemetery net revenues for the years ended December 31, 1997 increased
$9.6 million or 331.7% over 1996 and total cemetery gross profit increased $2.5
million or 700.8% over 1996. Total gross margin increased from 12.5% for the
year ended December 31, 1996 to 23.1% for the year ended December 31, 1997.
These increases were due primarily to the Company's acquisition of ten
cemeteries during 1997 and increased preneed marketing efforts.
As a result of the acceleration of the Company's acquisition program
beginning in 1996, the profit contribution from acquired properties exceeded
that of existing operations even though most were not owned for the entire year.
The acquisition and integration of these new properties received the majority of
the corporate operations group's management focus during the year. During the
fourth quarter of 1996, significant additional management resources were added
to this group to provide assistance in increasing revenue and profit margins
from existing ongoing operations and to more rapidly achieve targeted margins
for acquired businesses.
General and administrative expenses for the year ended December 31, 1997
increased $2.8 million or 113.3% over 1996 due primarily to the increased
personnel expense necessary to support a higher rate of growth and acquisition
activity. However, the increase in general and administrative expenses as a
percentage of net revenues was less than one percentage point as the expenses
were spread over a larger volume of revenue.
Interest expense for the year ended December 31, 1997 increased $1.5
million over 1996 principally due to increased borrowings for acquisitions. In
August 1996, the Company utilized the net proceeds from its IPO and borrowings
under a credit facility to repay the majority of its outstanding debts. In
September 1997, the Company entered into a new credit facility for an increased
line of credit. In connection with repayments of debt in both years, the Company
recognized an extraordinary loss of approximately $498,000 and $195,000, net of
income tax benefits of approximately $332,000 and $159,000, for the write-off of
the deferred loan costs associated with the early retirement of debts, for the
years ended December 31, 1996 and 1997, respectively. The new credit facility
reflects substantially improved terms and reduced interest rates compared to the
previous arrangements.
15
<PAGE>
During 1997, the Company issued approximately $20 million of redeemable
preferred stock to fund a portion of its acquisition program. Dividends on this
preferred stock are 4% per annum. Preferred dividends of $890,000 were
subtracted from the $4.5 million of net income before extraordinary item in
computing earnings attributable to common stockholders resulting in a net income
before extraordinary item of $3.6 million for purposes of computing basic and
diluted earnings per common share.
For 1997, the Company provided for income taxes on income before income
taxes and extraordinary item at a combined state and federal tax rate of 45.3%.
The provision for income taxes for 1997 includes a one-time charge in the amount
of $390,000 to revalue the historical deferred tax liability accounts because
the Company's taxable income has grown at which the federal corporate tax rate
increases from 34% to 35%. Amortization of names and reputations related to
stock acquisitions, which is nondeductible, is the primary cause of the
Company's effective rate exceeding 34%. Prior to 1997, the Company experienced
net operating losses and the tax benefits associated with these net operating
loss carryforwards were reserved. The Company continues to analyze the benefits
associated with these losses and adjusts the valuation allowance as appropriate.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following table sets forth certain information regarding the net
revenues and gross profit of the Company from its operations during the years
ended December 31, 1995 and 1996:
YEAR ENDED
DECEMBER 31, CHANGE
------------------- -------------------
1995 1996 AMOUNT PERCENT
------- ------- -------- -------
(dollars in thousands)
Net revenues:
Existing operations ........ $21,482 $20,921 $ (561) (2.6)%
Acquired operations ........ 2,755 19,427 16,672 *
------- ------- --------
Total net revenues ....... $24,237 $40,348 $ 16,111 66.5%
------- ------- --------
Gross profit:
Existing operations ......... $ 3,451 $ 3,481 $ 30 0.9%
Acquired operations ......... 539 3,685 3,146 *
------- ------- --------
Total gross profit ....... $ 3,990 $ 7,166 $ 3,176 79.6%
======= ======= ========
- --------
*Not meaningful.
Total net revenues for the year ended December 31, 1996 increased $16.1
million or 66.5% over 1995. The higher net revenues reflected an increase of
$16.7 million in net revenues from acquired operations and a decrease in net
revenues of $561,000 or 2.6% from existing operations. The decrease in net
revenues for the existing operations primarily resulted from fewer funeral
services being performed, which was partially offset by a 3.9% increase in the
average revenue per funeral service. Fewer services were performed in 1996 due
to the divestiture of three funeral homes and a longer than normal seasonal
decline in the number of deaths in certain of the Company's markets. At December
31, 1996, the Company operated 10 cemeteries. The net revenues and gross profit
of cemeteries represented less than eight percent of the Company's total
operations.
Total gross profit for the year ended December 31, 1996 increased $3.2
million or 79.6% over 1995. The higher total gross profit reflected an increase
of $3.1 million from acquired operations and an increase of $30,000 or 0.9% from
existing operations. Gross profit for existing operations increased due to the
efficiencies gained by consolidation and the increasing effectiveness of the
Company's merchandising strategy, which was partially offset by lower revenues.
Total gross margin increased from 16.5% for 1995 to 17.8% for 1996 due to these
factors. As a result of the acceleration of the Company's acquisition program in
1996, the profit contribution from acquired properties exceeded that of existing
operations even though most were not owned for the entire year. The acquisition
and integration of these new properties received the majority of the corporate
operations group's management focus during the year. During the fourth quarter,
significant additional management resources were added to this group to provide
assistance in increasing revenue and profit margins from existing ongoing
operations and to more rapidly achieve targeted margins for acquired businesses.
16
<PAGE>
General and administrative expenses for the year ended December 31, 1996
increased $368,000 or 17.5% over 1995 due primarily to the increased personnel
expense necessary to support a higher rate of growth and acquisition activity.
However, general and administrative expenses as a percentage of net revenues
decreased from 8.7% for 1995 to 6.1% for 1996, reflecting economies of scale
realized by the Company as the expenses were spread over a larger operations
revenue base.
Interest expense for the year ended December 31, 1996 increased $663,000
over 1995 principally due to increased borrowings for acquisitions. In August
1996, the Company utilized the net proceeds from the IPO and borrowings under a
credit facility to repay the majority of its outstanding debts. In connection
with repayment of debt, the Company recognized an extraordinary charge of
approximately $498,000, net of income tax benefit of approximately $332,000, to
reflect the write-off of the deferred loan costs associated with the early
retirement of debt. This credit facility contained substantially improved terms
and reduced interest costs compared to the previous arrangements.
During 1996, the Company issued approximately $18 million of redeemable
preferred stock to fund a portion of its acquisition program. Dividends on the
majority of this preferred stock range from 6-7% per annum. Preferred dividends
of $622,000 were subtracted from the $207,000 of net income before extraordinary
item in computing earnings attributable to common stockholders resulting in a
net loss of $415,000 for purposes of computing earnings per common share.
For 1996, the Company provided for income taxes (benefits) at a combined
state and federal tax rate of 40%.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $6.1 million at December 31, 1997,
representing an increase of $4.4 million from December 31, 1996. For the year
ended December 31, 1997, cash provided by operations was $9.7 million as
compared to $314,000 for the year ended December 31, 1996. The increase in cash
provided by operations was due in part to the net income in 1997 compared to the
net loss for 1996. Cash used in investing activities was $75 million for the
year ended December 31, 1997 compared to $46 million in 1996, due primarily to
the significant increase in acquisitions and construction of funeral facilities.
In 1997, cash flow provided by financing activities amounted to approximately
$70 million, primarily due to proceeds from long-term debt which were used to
fund acquisitions. In 1996, cash flow provided by financing activities amounted
to $40 million primarily due to the proceeds from the IPO.
Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of common and preferred stock. The Company issued 977,736
shares of Class A Common Stock and approximately 20,000,000 shares of Series F
Preferred Stock and paid $66 million in cash to fund acquisitions in 1997. As of
December 31, 1997, the Company has 1,682,500 shares of Series D Preferred Stock
and 12,278,285 shares of Series F Preferred Stock issued and outstanding. The
Series D Preferred Stock is convertible into Class B Common Stock and the Series
F Preferred Stock is convertible into Class A Common Stock. The holders of
Series D Preferred Stock are entitled to receive cash dividends at an annual
rate of $.06-$.07 per share depending upon when such shares were issued.
Commencing on the second anniversary of the completion of the IPO (August 8,
1998), the Company may, at its option, redeem all or any portion of the shares
of Series D Preferred Stock then outstanding at a redemption price of $1.00 per
share, together with all accrued and unpaid dividends. Such redemption is
subject to the right of each holder of Series D Preferred Stock to convert such
holder's shares into shares of Class B Common Stock. On December 31, 2001, the
Company must redeem all shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends.
In conjunction with the closing of the IPO, the Company entered into a
credit facility (the " Former Credit Facility") which provided for a $75 million
revolving line of credit with both LIBOR and base rate interest options. In
August 1996, the Company paid all of its outstanding indebtedness with the
proceeds from the issuance of its Class A Common Stock in connection with the
Company's IPO (see Note 7) and utilization of the Former Credit Facility. The
Former Credit facility was unsecured with a term of three years and contained
customary restrictive covenants, including a restriction on the payment of
dividends on common stock, and required the Company to maintain certain
financial ratios. During September 1997, the Company entered into a new credit
facility (the "New Credit Facility") for a $150 million revolving line of
credit. The New Credit Facility has a five-year term, is unsecured and contains
customary restrictive covenants, including a restriction on the payment of
dividends on common stock and requires the Company to maintain certain financial
ratios. Interest under the New Credit Facility is provided at both LIBOR and
prime rate options. In
17
<PAGE>
connection with repayment of debt in August 1996 and the retirement of debt
issued with the New Credit Facility in September 1997, the Company recognized an
extraordinary loss of approximately $498,000 and $195,000, net of income tax
benefit of approximately $332,000 and $159,000 for the write-off of the deferred
loan costs associated with the early retirement of debt for the years ended
December 31, 1996 and 1997, respectively. At February 27, 1998 approximately
$115 million was outstanding under the New Credit Facility.
The holders of the Series F Preferred Stock are entitled to receive cash
dividends at the annual rate initially of $.04 per share, with the annual rate
increasing by 5% per year commencing January 1, 1998 until January 1, 2001, at
which time the annual rate becomes fixed at $.0486 per share. On December 31,
2007, the Company must redeem all shares of Series F Preferred Stock, as
discussed above, then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends. The Company does not have the
option to redeem any Series F Preferred Stock prior to December 31, 2007. The
Series F Preferred Stock is convertible at each holder's option into an
aggregate of 722,250 shares of Class A Common Stock based on the exercise price
in effect at March 12, 1998.
The Company expects to continue to aggressively pursue additional
acquisitions of funeral homes and cemeteries to take advantage of the trend
toward consolidation occurring in the industry which will require significant
levels of funding from various sources. In addition, the Company currently
expects to incur less than $10 million of capital expenditures during 1998,
primarily for upgrading funeral home facilities. The Company believes that cash
flow from operations, borrowings under the New Credit Facility and its ability
to issue additional debt and equity securities should be sufficient to fund
acquisitions and its anticipated capital expenditures and other operating
requirements for 1998. In March 1997, the Company filed a shelf registration
statement relating to 2,000,000 shares of Class A Common Stock to be issued to
fund acquisitions. As of March 12, 1998, approximately 1,500,000 shares remained
available for issuance under this shelf registration. Because future cash flows
and the availability of financing are subject to a number of variables, such as
the number and size of acquisitions made by the Company, there can be no
assurance that the Company's capital resources will be sufficient to fund its
capital needs. Additional debt and equity financing may be required to maintain
the Company's acquisition program. The availability and terms of these capital
sources will depend on prevailing market conditions and interest rates and the
then existing financial condition of the Company.
SEASONALITY
Although the death care business is relatively stable and fairly
predictable, the Company's business can be affected by seasonal fluctuations in
the death rate. Generally, death rates are higher during the winter months. In
addition, the quarterly results of the Company may fluctuate depending on the
magnitude and timing of acquisitions.
INFLATION
Inflation has not had a significant impact on the results of operations of
the Company during the last three years.
YEAR 2000
The Company's Information Systems management group is constantly reviewing
the management and accounting software packages for internal accounting and
information requirements to meet with the continued growth of the Company. In
addition, the Company's staff has comprehensively considered existing systems
and equipment that need to be changed as a result of the Year 2000 or so-called
"Millennium Bug". The Company's staff has determined that some computer software
will require upgrading. Based on current estimates, the costs related to these
upgrades are immaterial. The Company is in contact with its vendors and
customers and no major problem has been discovered to date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item 8 are incorporated under Item
14 in Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 1998 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") within 120
days after the end of the last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 1998 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Exchange Act within 120 days after the end of the last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 1998 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Exchange Act within 120 days after the end of the last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 1998 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Exchange Act within 120 days after the end of the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1 FINANCIAL STATEMENTS
The following financial statements and the Report of Independent Public
Accountants are filed as a part of this report on the pages indicated:
PAGE
Report of Independent Public Accountants............................ 25
Consolidated Balance Sheets as of December 31, 1996 and 1997........ 26
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.................................. 27
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997...................... 28
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 1996 and 1997................................... 29
Notes to Consolidated Financial Statements.......................... 30
(A) 2 FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedule and the Report of
Independent Accountants on Financial Statement Schedule are included in this
report on the pages indicated:
PAGE
Report of Independent Public Accountants on Financial Statement
Schedule.......................................................... 44
Financial Statement Schedule II -- Valuation and Qualifying
Accounts.......................................................... 45
19
<PAGE>
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated financial
statements or related notes.
(A) 3 EXHIBITS
The exhibits to this report have been included only with the copies of
this report filed with the Securities and Exchange Commission. Copies of
individual exhibits will be furnished to stockholders upon written request to
the Company and payment of a reasonable fee.
EXHIBIT
NO. DESCRIPTION
3.1 -- Amended and Restated Certificate of Incorporation, as amended,
of the Company. Incorporated herein by reference to Exhibit
3.1 to the Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 1996.
3.2 -- Certificate of Amendment dated May 9, 1996. Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for its fiscal quarter ended September 30, 1997.
3.3 -- Certificate of Decrease, reducing the authorized Series D
Preferred Stock. Incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for its fiscal
quarter ended September 30, 1997.
3.4 -- Certificate of Decrease, reducing the authorized Series F
Preferred Stock. Incorporated by reference to Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for its fiscal
quarter ended September 30, 1997.
3.5 -- Amended and Restated Bylaws of the Company. Incorporated
herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 333-05545).
10.1 -- Loan Agreement between the Company and NationsBank of Texas,
N.A. dated September 9, 1997. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for its fiscal quarter ended September 30, 1997.
10.2 -- Agreement and Plan of Merger dated March 8, 1996 among
Carriage Funeral Services, Inc., Hennessy-Bagnoli Funeral
Home, Inc., Hennessy Funeral Home, Inc., Terrance P. Hennessy
and Lawrence Bagnoli. Incorporated herein by reference to
Exhibit 10.9 to the Company's Registration Statement on Form
S-1 (File No. 333-05545).
10.3 -- Real Property Purchase Agreement dated the Closing Date among
Hennessy-Bagnoli Funeral Home, Inc., Hennessy and Patricia
Hennessy, and Bagnoli and Brenda Bagnoli. Incorporated herein
by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-05545).
10.4 -- Stock Purchase Agreement dated January 4, 1996 among Carriage
Funeral Holdings, Inc., The Lusk Funeral Home, Incorporated
and Gerald T. McFarland, Jr. Incorporated herein by reference
to Exhibit 10.11 to the Company's Registration Statement on
Form S-1 (File No. 333-05545).
10.5 -- Stock Purchase Agreement dated February 29, 1996 among
Carriage Funeral Holdings, Inc., James E. Drake Funeral Home,
Inc., and James E. Drake and Patricia A. Drake. Incorporated
herein by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (File No. 333-05545).
10.6 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and SCI Texas Funeral Services, Inc.
Incorporated herein by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (File No.
333-05545).
10.7 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and SCI Funeral Services of Florida,
Inc. Incorporated herein by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (File No.
333-05545).
10.8 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and Fort Myers Memorial Gardens, Inc.
Incorporated herein by reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (File No.
333-05545).
10.9 -- Asset Purchase Agreement dated April 10, 1996 between CFS
Funeral Services, Inc. and SCI Funeral Services of Florida,
Inc. Incorporated herein by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (File No.
333-05545).
10.10 -- Stock and Real Property Purchase Agreement dated March 29,
1996 among Carriage Funeral Holdings, Inc., Dwayne R. Spence
Funeral Home, Inc., Dwayne R. Spence, Patricia Spence and
James H. Sheridan. Incorporated herein by reference to Exhibit
10.17 to the Company's Registration Statement on Form S-1
(File No. 333-05545).
10.11 -- Merger Agreement dated March 22, 1996 among Carriage Funeral
Services, Inc., Carriage Funeral Services of Idaho, Inc.,
Merchant Funeral Home, Inc., Coeur d'Alene Memorial Gardens,
Inc., Lewis Clark Memorial Park, Inc., Robert D. Larrabee, I.
Renee Larrabee and Larrabee Land Company, Inc. Incorporated
herein by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (File No. 333-05545).
10.12 -- Real Property Purchase Agreement dated March 22, 1996 among
Carriage Funeral Services, Inc. and Larrabee Investments,
L.L.C. Incorporated herein by reference to Exhibit 10.19 to
the Company's Registration Statement on Form S-1 (File No.
333-05545).
10.13 -- Merger Agreement dated July 3, 1996 among Carriage Services,
Inc., CSI Funeral Services of Connecticut, Inc., C. Funk & Son
Funeral Home, Incorporated and Ronald F. Duhaime and
Christopher J. Duhaime. Incorporated herein by reference to
Exhibit 10.20 to the Company's Registration Statement on Form
S-1 (File No. 333-05545).
10.14 -- Merger Agreement dated July 3, 1996 among Carriage Services,
Inc., CFS Funeral Services of Connecticut, Inc., O'Brien
Funeral Home, Incorporated and Thomas P. O'Brien. Incorporated
herein by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (File No. 333-05545).
10.15 -- Merger Agreement dated June 26, 1996 among Carriage Services,
Inc., Carriage Funeral Services of South Carolina, Inc.,
Forest Lawn of Chesnee, Inc. and shareholders. Incorporated
herein by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-1 (File No. 333-05545).
10.16 -- Merger Agreement dated October 17, 1996 among Carriage
Services, Inc., Carriage Funeral Services of California, Inc.,
CNM and the shareholders of CNM. Incorporated herein by
reference to Exhibit 10.22 to the Company's Current Report on
Form 8-K/A dated January 7, 1997.
*10.17 -- Asset Purchase Agreement dated November 13, 1997 among
Carriage Funeral Holdings, Inc., Sidun Funeral Group, Inc. and
Charles D. Sidun.
*10.18 -- Merger Agreement dated November 19, 1997 among Carriage
Services, Inc., Carriage Services of Florida, Inc., Forest
Lawn/Evergreen Management Corp., Greg M. Brudnicki and Charles
E. Kent.
*10.19 -- Asset Purchase Agreement dated November 19, 1997 among
Carriage Funeral Holdings, Inc., Kent-Thornton Funeral Home,
Inc., Greg Brudnicki, Charles Kent, Ricky Kent and Jane
Thornton.
20
<PAGE>
+10.20 -- Employment Agreement with Melvin C. Payne. Incorporated herein
by reference to Exhibit 10.23 to the Company's Registration
Statement on Form S-1 (File No. 333-05545).
+10.21 -- Employment Agreement with Mark W. Duffey. Incorporated herein
by reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (File No. 333-05545).
+10.22 -- Employment Agreement with Russell W. Allen. Incorporated
herein by reference to Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (File No. 333-05545).
+10.23 -- Employment Agreement with Gary O'Sullivan. Incorporated herein
by reference to Exhibit 10.26 to the Company's Annual Report
on Form 10-K for its fiscal year ended December 31, 1996.
+10.24 -- Employment Agreement with Thomas C. Livengood. Incorporated
herein by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31,
1996.
+10.25 -- Amended and Restated 1995 Stock Incentive Plan. Incorporated
herein by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31,
1996.
+10.26 -- Amended and Restated 1996 Stock Incentive Plan. Incorporated
herein by reference to Exhibit 10.24 to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31,
1996.
21
<PAGE>
+10.27 -- Amended and Restated 1996 Directors' Stock Option Plan.
Incorporated herein by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1996.
*11.1 -- Statement regarding computation of earnings per share.
*21.1 -- Subsidiaries of the Company
*27.1 -- Financial Data Schedule
__________________
(*) Filed herewith.
(+) Management contract or compensation plan.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on January 21, 1997 with
respect to its merger with the CNM Group on January 7, 1997. The Company also
file a Current Report on Form 8-K/A on March 14, 1997 to include in the Form 8-K
filed on January 21, 1997 the financial statements and pro forma financial
information required by item 7.
The Company filed a Current Report on Form 8-K on August 18, 1997 with
respect to its acquisition of substantially all of the operating assets of
McNary - Moore Funeral Service on August 1,1997. The Company also filed a
Current Report on Form 8-K/A on October 14, 1997 to include in the Form 8-K
filed on August 18, 1997 the financial statements and pro forma financial
information required by item 7.
The Company filed a Current Report on Form 8-K on October 10, 1997 with
respect to its merger with Cemetery Enterprises, Inc. on September 25, 1997.
The Company filed a Current Report on Form 8-K on November 26, 1997 with
respect to its acquisition of substantially all of the operating assets of Sidun
Funeral Group Inc. on November 13, 1997 and Kent-Thornton Funeral Home, Inc. on
November 20, 1997, and its merger with Forest Lawn/Evergreen Management Corp. on
November 20, 1997. The Company also filed a Current Report on Form 8-K/A on
March 25, 1998 to include in the Form 8-K filed on November 26, 1997 the
financial statements and pro forma financial information required by item 7.
The Company filed a Current Report on Form 8-K on December 31, 1997 with
respect to its acquisition of all of the outstanding shares of common stock of
Johnson Mortuary and Crematory, Inc. on December 17, 1997. The Company also
filed a Current Report on Form 8-K/A on March 25, 1998 to include in the Form
8-K filed on December 31, 1997 the financial statements and pro forma financial
information required by item 7.
The Company filed a Current Report on Form 8-K on March 23, 1998 with respect
to its acquisition of all of the outstanding shares of common stock of Redgate
Funeral Service Corporation on June 17, 1997.
The Company filed a Current Report on Form 8-K on March 25, 1998 with respect
to its merger with Barnett-Larkin-Brown Funeral Homes, Inc. on March 28, 1997.
The Company filed a Current Report on Form 8-K on March 25, 1998 with respect
to its acquisition of substantially all of the operating assets of Allen J.
Harden Funeral Home, Inc. on June 20, 1997.
22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 17, 1998.
CARRIAGE SERVICES, INC.
BY: /S/ MELVIN C. PAYNE
MELVIN C. PAYNE
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/S/ MELVIN C. PAYNE Chairman of the Board, Chief March 26, 1998
MELVIN C. PAYNE Executive Officer and Director
(Principal Executive Officer)
/S/ MARK W. DUFFEY President and Director March 26, 1998
MARK W. DUFFEY
/S/ THOMAS C. LIVENGOOD Executive Vice President, Chief March 26, 1998
THOMAS C. LIVENGOOD Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/S/ C. BYRON SNYDER Director March 26, 1998
C. BYRON SNYDER
/S/ ROBERT D. LARRABEE Director March 26, 1998
ROBERT D. LARRABEE
/S/ BARRY K. FINGERHUT Director March 26, 1998
BARRY K. FINGERHUT
/S/ STUART W. STEDMAN Director March 26, 1998
STUART W. STEDMAN
/S/ RONALD A. ERICKSON Director March 26, 1998
RONALD A. ERICKSON
/S/ MARK F. WILSON Director March 26, 1998
MARK F. WILSON
/S/ GREG M. BRUDNICKI Director March 26, 1998
GREG M. BRUDNICKI
23
<PAGE>
CARRIAGE SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS: ----
Report of Independent Public Accountants....................... 25
Consolidated Balance Sheets as of December 31, 1996 and 1997... 26
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997............................. 27
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997......... 28
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997............................. 29
Notes to Consolidated Financial Statements..................... 30
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders' and Board of Directors of Carriage Services, Inc.:
We have audited the accompanying consolidated balance sheets of Carriage
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Carriage Services,
Inc., and subsidiaries as of December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSON LLP
Houston, Texas
February 10, 1998
25
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------
ASSETS 1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 1,712 $ 6,126
Accounts receivable-
Trade, net of allowance for doubtful accounts
of $530 in 1996 and
$1,291 in 1997 .................................. 5,665 11,617
Other ............................................... 673 1,295
--------- ---------
6,338 12,912
Inventories and other current assets ................. 3,350 5,691
--------- ---------
Total current assets .............. 11,400 24,729
--------- ---------
Property, plant and equipment, at cost:
Land ................................................. 9,640 21,789
Buildings and improvements ........................... 31,750 56,153
Furniture and equipment .............................. 8,817 15,046
--------- ---------
50,207 92,988
Less-accumulated depreciation ........................ (4,095) (7,123)
--------- ---------
46,112 85,865
Cemetery property, at cost ............................. 4,061 32,154
Names and reputations, net of accumulated amortization
of $2,007 in 1996 and $4,480 in 1997 ................. 62,568 118,099
Deferred charges and other non-current assets .......... 7,167 17,093
--------- ---------
$ 131,308 $ 277,940
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ..................................... $ 2,192 $ 9,022
Accrued liabilities .................................. 3,033 7,545
Current portion of long-term debt and obligations
under capital leases ................................. 1,086 2,339
--------- ---------
Total current liabilities .................. 6,311 18,906
Preneed liabilities, net ............................... 3,664 7,403
Long-term debt, net of current portion ................. 42,733 121,553
Obligations under capital leases, net of current portion 557 4,449
Deferred income taxes .................................. 3,749 13,113
--------- ---------
Total liabilities .......................... 57,014 165,424
--------- ---------
Commitments and contingencies
Redeemable preferred stock ............................. 17,251 13,951
Stockholders' equity:
Class A Common Stock, $.01 par value; 40,000,000
shares authorized; 3,990,000 and 6,454,000 issued
and outstanding in 1996 and 1997, respectively ...... 40 64
Class B Common Stock; $.01 par value; 10,000,000
shares authorized; 4,502,000 and 4,691,000 issued and
outstanding in 1996 and 1997, respectively .......... 45 47
Contributed capital .................................. 63,966 102,056
Retained deficit ..................................... (7,008) (3,602)
--------- ---------
Total stockholders' equity ................. 57,043 98,565
--------- ---------
$ 131,308 $ 277,940
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues, net
Funeral ................................... $ 22,661 $ 37,445 $ 64,888
Cemetery .................................. 1,576 2,903 12,533
-------- -------- --------
24,237 40,348 77,421
Costs and expenses
Funeral ................................... 18,921 30,641 48,404
Cemetery .................................. 1,326 2,541 9,634
-------- -------- --------
20,247 33,182 58,038
-------- -------- --------
Gross profit .............................. 3,990 7,166 19,383
General and administrative expenses ......... 2,106 2,474 5,277
-------- -------- --------
Operating income .......................... 1,884 4,692 14,106
Interest expense, net ....................... 3,684 4,347 5,889
-------- -------- --------
Income (loss) before income taxes and
extraordinary item ........................ (1,800) 345 8,217
Provision for income taxes .................. 694 138 3,726
-------- -------- --------
Net income (loss) before extraordinary item (2,494) 207 4,491
Extraordinary item--loss on early
extinguishment of debt, net of income
tax benefit of $332 in 1996 and $159 in
1997....................................... -- (498) (195)
-------- -------- --------
Net income (loss) ......................... (2,494) (291) 4,296
Preferred stock dividend requirements ....... -- 622 890
-------- -------- --------
Net income (loss) available to common
stockholders .............................. $ (2,494) $ (913) $ 3,406
======== ======== ========
Basic earnings (loss) per share:
Net income (loss) before extraordinary item $ (.99) $ (.09) $ .35
Extraordinary item ........................ -- (.10) (.02)
-------- -------- --------
Net Income (loss) ......................... $ (.99) $ (.19) $ .33
======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) before extraordinary item $ (.99) $ (.09) $ .34
Extraordinary item ........................ -- (.10) (.02)
-------- -------- --------
Net Income (loss) ......................... $ (.99) $ (.19) $ .32
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding
Basic ................................... 2,520 4,869 10,226
======== ======== ========
Diluted ................................... 2,520 4,869 10,485
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Contribute Unrealized Retained
No. of Preferred No. of Common Capital Gain Earnings
Shares Stock Shares Stock (Deficit) (loss) (Deficit) Total
------- ------- ------- ---- --------- ---- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 ................ 7,160 $ 72 2,520 $ 25 $ 6,992 $(59) (3,601) 3,429
Net loss - 1995 ............................ -- -- -- -- -- -- (2,494) (2,494)
Issuance of preferred
stock .................................... 8,500 85 -- -- 8,108 -- -- 8,193
Unrealized
net gain - available
for sale securities ...................... -- -- -- -- -- 23 -- 23
------- ------- ------- ---- --------- ---- ------ --------
BALANCE - DECEMBER 31, 1995 ................ 15,660 157 2,520 25 15,100 (36) (6,095) 9,151
Net loss - 1996 ............................ -- -- -- -- -- -- (291) (291)
Issuance of preferred
stock .................................... 555 5 -- -- 540 -- -- 545
Issuance of
common stock ............................. -- -- 3,947 40 47,942 -- -- 47,982
Conversion of preferred
stock to common stock .................... (16,045) (160) 1,980 20 140 -- -- 0
Conversion of redeemable
preferred stock to
common stock ............................. -- -- 39 -- 522 -- -- 522
Unrealized net gain -
available for sale
securities ............................... -- -- -- -- -- 36 -- 36
Purchase treasury
stock .................................... (170) (2) -- -- (339) -- -- (341)
Exercise of stock
options .................................. -- -- 6 -- 61 -- -- 61
Preferred dividends ........................ -- -- -- -- -- -- (622) (622)
------- ------- ------- ---- --------- ---- ------ --------
BALANCE - DECEMBER 31, 1996 ................ -- -- 8,492 85 63,966 -- (7,008) 57,043
Net income - 1997 .......................... -- -- -- -- -- -- 4,296 4,296
Issuance of common stock ................... -- -- 978 10 14,714 -- -- 14,724
Conversion of redeemable
preferred stock to
common stock ............................. -- -- 1,658 16 23,276 -- -- 23,292
Purchase of treasury stock ................. -- -- (3) -- (60) -- -- (60)
Exercise of stock options .................. -- -- 20 -- 160 -- -- 160
Preferred dividends ........................ -- -- -- -- -- -- (890) (890)
------- ------- ------- ---- --------- ---- ------ --------
BALANCE DECEMBER 31, 1997 ................. -- $ -- 11,145 $111 $ 102,056 $ 0 (3,602) $ 98,565
======= ======= ======= ==== ========= ==== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................... $ (2,494) $ (291) $ 4,296
Adjustments to reconcile net income (loss) to
net cash provided by
Operating activities --
Depreciation and amortization .......................................... 1,948 3,629 7,809
Provision for losses on accounts receivable ............................ 488 683 1,025
Loss on early extinguishment of debt, net of
income taxes .......................................................... -- 498 195
Deferred income taxes .................................................. 659 54 2,230
Changes in assets and liabilities net of
effects from acquisitions:
Increase in accounts receivable .................................... (1,125) (3,440) (4,747)
Decrease (increase) in inventories and
other current assets ............................................. 115 (465) (1,203)
Increase in other deferred charges ................................. (144) (1,146) (1,884)
Increase (decrease) in accounts payable ............................ 45 1,151 1,168
Increase (decrease) in accrued liabilities ......................... 1,461 (403) 422
Increase (decrease) in preneed liabilities ......................... 44 44 371
-------- -------- --------
Net cash provided by operating activities ........................... 997 314 9,661
Cash flows from investing activities:
Acquisitions, net of cash acquired ...................................... (12,191) (42,707) (65,607)
Disposition of businesses formerly owned ................................ -- 393 --
Purchase of marketable securities available for sale .................... (1,795) -- --
Disposal of marketable securities available for sale .................... 5,312 976 --
Purchase of property, plant and equipment ............................... (3,019) (4,630) (9,163)
-------- -------- --------
Net cash used in investing activities ............................... (11,693) (45,968) (74,770)
Cash flows from financing activities:
Proceeds from long-term debt ............................................ 11,563 59,849 79,300
Payments on long-term debt and obligations
under capital leases ................................................... (2,273) (65,925) (9,196)
Proceeds from sale of preferred stock ................................... 8,192 -- --
Proceeds from issuance of common stock .................................. -- 47,694 566
Preferred stock dividends ............................................... -- (622) (890)
Exercise of stock options ............................................... -- 61 160
Purchase of treasury stock .............................................. -- (341) (60)
Payment of deferred debt charges ........................................ (49) (923) (357)
-------- -------- --------
Net cash provided by financing activities ........................... 17,433 39,793 69,523
Net increase (decrease) in cash and cash equivalents ...................... 6,737 (5,861) 4,414
Cash and cash equivalents at beginning of year ............................ 836 7,573 1,712
-------- -------- --------
Cash and cash equivalents at end of year .................................. $ 7,573 $ 1,712 $ 6,126
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid through issuance of new debt .............................. $ 644 $ -- $ --
======== ======== ========
Retirement of debt through issuance of stock ............................ $ 500 $ -- $ --
======== ======== ========
Cash paid for interest .................................................. $ 3,127 $ 4,466 $ 5,477
======== ======== ========
Cash paid for income taxes ............................................ $ -- $ -- $ 1,385
======== ======== ========
Retirement of debt through disposition of business ...................... $ -- $ 2,642 $ --
======== ======== ========
Non-cash consideration for acquisitions ................................. $ -- $ 25,474 $ 33,412
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Carriage Services, Inc. (the "Company") was organized under the laws of the
State of Delaware on December 29, 1993. The Company owns and operates funeral
homes and cemeteries throughout the United States. The Company provides
professional services related to funerals and interments at its funeral homes
and cemeteries. Prearranged funerals and preneed cemetery property are marketed
in the geographic markets served by the Company's locations.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The financial statements include the consolidated financial statements of
Carriage Services, Inc. and its subsidiaries. In consolidation, all significant
intercompany balances and transactions have been eliminated. Certain prior year
amounts in the consolidated financial statements have been reclassified to
conform with current year presentation.
FUNERAL AND CEMETERY OPERATIONS
The Company records the sale of funeral merchandise and services upon
performance of the funeral service. The Company records the sale of the right of
cemetery interment or mausoleum entombment and related merchandise at the time
of sale. The cost for cemetery merchandise and services sold, but not yet
provided, is accrued as an expense at the same time the cemetery revenue is
recognized. Allowances for customer cancellations, refunds and bad debts are
provided at the date of sale based on the historical experience of the Company.
Accounts receivable-trade, net consists of approximately $4,977,000 and
$7,245,000 of funeral receivables and approximately $688,000 and $4,372,000 of
current cemetery receivables at December 31, 1996 and 1997, respectively.
Non-current cemetery receivables, those payable after one year, are included in
Deferred Charges and Other Non-current Assets on the Consolidated Balance
Sheets.
PRENEED FUNERAL ARRANGEMENTS
Preneed funeral sales are effected by deposits to a trust or purchase of a
third-party insurance product. Since the Company does not have access to these
funds, the sale is not recorded until the service is performed, nor generally,
are the related assets and liabilities reflected on the Consolidated Balance
Sheets. The trust income earned and the increases in insurance benefits on the
insurance products are also deferred until the service is performed in order to
offset inflation in cost to provide the service in the future. The preneed
funeral trust assets were approximately $36,523,000 and $52,931,000 at December
31, 1996 and 1997, respectively, which in the opinion of management, exceed the
future obligations under such arrangements. The type of instruments that the
trusts may invest in are regulated by state agencies.
30
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summary reflects the composition of the assets held in trust to
satisfy the Company's future obligations under preneed funeral arrangements:
<TABLE>
<CAPTION>
HISTORICAL UNREALIZED
COST BASIS GAIN (LOSS) FAIR VALUE
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
As of December 31, 1996 --
Cash and cash equivalents ................................................... $ 16,022 $ -- $ 16,022
Fixed income investment contracts ........................................... 8,434 -- 8,434
Mutual funds, corporate
bonds and stocks .......................................................... 11,965 102 12,067
----------- ----------- -----------
Total .................................................................... $ 36,421 $ 102 $ 36,523
----------- ----------- -----------
As of December 31, 1997
Cash and cash
equivalents .............................................................. $ 23,891 $ -- $ 23,891
Fixed income investment
contracts ................................................................ 10,638 -- 10,638
Mutual funds, corporate
bonds and stocks ......................................................... 17,960 442 18,402
----------- ----------- -----------
Total ................................................................... $ 52,489 $ 442 $ 52,931
----------- ----------- -----------
</TABLE>
CEMETERY MERCHANDISE AND SERVICE TRUST
The Company is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust fund for cemetery
merchandise and service contracts sold on a preneed basis. The principal and
accumulated earnings of the trust may be withdrawn by the Company upon maturity
(generally, the death of the purchaser) or cancellation of the contracts. Trust
fund investment income is recognized in current revenues as trust earnings
accrue, net of current period inflation costs recognized related to the
merchandise that has not yet been purchased. Merchandise and service trust fund
balances, in the aggregate, were approximately $1,134,000 and $9,567,000 at
December 31, 1996 and 1997, respectively, and are included in Preneed
Liabilities, net on the accompanying Consolidated Balance Sheets.
PERPETUAL AND MEMORIAL CARE TRUST
In accordance with respective state laws, the Company is required to deposit
a specified amount into perpetual and memorial care trust funds for each
interment/entombment right and memorial sold. Income from the trust fund is used
to provide care and maintenance for the cemeteries and mausoleums and is
periodically distributed to the Company and recognized as revenue upon
distribution. The perpetual and memorial care trust assets were approximately
$2,002,000 and $8,408,000 at December 31, 1996 and 1997, respectively, which, in
the opinion of management, will cover future obligations to provide care and
maintenance for the Company's cemeteries and mausoleums. The Company does not
have the right to withdraw any of the principal balances of these funds and,
accordingly, these trust fund balances are not reflected in the accompanying
Consolidated Balance Sheets.
DEFERRED OBTAINING COSTS
Deferred obtaining costs consist of sales commissions and other direct
marketing costs applicable to preneed funeral sales, net of insurance
commissions received. These costs are deferred and amortized in funeral costs
and expenses over the expected timing of the performance of the services covered
by the preneed funeral contracts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
31
<PAGE>
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, and all of the Company's
investment securities are classified as available for sale securities. At
December 31, 1996 and 1997, the Company had no gross unrealized gains (losses).
The Company does not use derivative financial instruments or participate in
hedging activities.
INVENTORY
Inventory is recorded at the lower of its cost basis (determined by the
specific identification method) or net realizable value.
NAMES AND REPUTATIONS
The excess of the purchase price over the fair value of net identifiable
assets acquired, as determined by management in transactions accounted for as
purchases, is recorded as Names and Reputations. Such amounts are amortized over
40 years. Many of the Company's acquired funeral homes have provided high
quality service to families for generations. The resulting loyalty often
represents a substantial portion of the value of a funeral business. The Company
reviews the carrying value of Names and Reputations at least quarterly on a
location-by-location basis to determine if facts and circumstances exist which
would suggest that this intangible asset may be impaired or that the
amortization period needs to be modified. If indicators are present which
indicate impairment is probable, the Company will prepare a projection of the
undiscounted cash flows of the location and determine if the intangible assets
are recoverable based on these undiscounted cash flows. If impairment is
indicated, then an adjustment will be made to reduce the carrying amount of the
intangible asset to its fair value. At December 31, 1997, no impairment was
deemed to have occurred.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," as of January 1, 1996, and such adoption
did not have a material impact on the Company's consolidated financial position
or results of operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The costs of ordinary
maintenance and repairs are charged to operations as incurred, while renewals
and betterments are capitalized. Capitalized interest was $162,000 and $ 264,000
in 1996 and 1997, respectively. Depreciation of property, plant and equipment is
computed based on the straight-line method over the following estimated useful
lives of the assets:
YEARS
-------------
Buildings and improvements 15 to 40
Furniture and fixtures 7 to 10
Machinery and equipment 5 to 10
Automobiles 5 to 7
INCOME TAXES
The Company files a consolidated U.S. federal income tax return. The Company
records deferred taxes for temporary differences between the tax basis and
financial reporting basis of assets and liabilities.
EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE, which replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities.
32
<PAGE>
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
presented have been restated to conform to the Statement 128 requirements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes that carrying value approximates fair value for
cash and cash equivalents and marketable equity securities which are designated
as available-for-sale. Additionally, its floating rate Credit Facility
approximates its fair value. Management also believes that its redeemable
preferred stock is stated at fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and Related
Information. SFAS 131, effective for years beginning after December 15, 1997,
requires segment information to be reported on a basis consistent with that used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company will adopt SFAS No. 131 in 1998 and is
evaluating the way segment information is reported.
2. ACQUISITIONS:
During 1997, the Company acquired 44 funeral homes and 10 cemeteries through
the purchase of stock and assets. In 1996, the Company acquired 38 funeral homes
and 7 cemeteries through the purchase of stock and assets. These transactions
have been accounted for utilizing the purchase method of accounting, and the
results of operations of the acquired businesses have been included in the
results of the Company from the respective dates of acquisition.
In accordance with APB Opinion 16, purchase prices were allocated to the net
assets acquired based on management's estimate of the fair value of the acquired
assets and liabilities at the date of acquisition. Many of the Company's
acquired funeral homes have provided high quality service to families for
generations. The resulting loyalty often represents a substantial portion of the
value of a funeral business. As a result, the excess of the consideration paid
over the fair value of net tangible and other identifiable intangible assets is
allocated to Names and Reputations. Future adjustments to the allocation of the
purchase price may be made during the 12 months following the date of
acquisition due to resolution of uncertainties existing at the acquisition date,
which may include obtaining additional information regarding asset and liability
valuations.
33
<PAGE>
The effect of the above acquisitions on the Consolidated Balance Sheets at
December 31, 1996 and 1997 was as follows:
1996 1997
--------- ---------
(IN THOUSANDS)
Current Assets ................................. $ 3,532 $ 11,909
Cemetery Property .............................. 3,610 28,276
Property, Plant and Equipment .................. 22,574 34,830
Deferred Charges and Other Non-current
Assets ......................................... 1,542 1,597
Names and Reputations .......................... 43,139 55,013
Current Liabilities ............................ (1,025) (1,631)
Debt ........................................... -- (1,072)
Other Liabilities .............................. (5,191) (10,662)
--------- ---------
68,181 118,260
Consideration:
Redeemable preferred stock issued .............. (17,775) (20,000)
Debt ........................................... (6,582) (18,210)
Preferred stock issued ......................... (555) --
Cash acquired in acquisitions .................. (274) (556)
Common Stock issued ............................ (288) (13,887)
--------- ---------
Cash used for acquisitions .................. $ 42,707 $ 65,607
========= =========
The following table reflects, on an unaudited pro forma basis, the
combined operations of the Company and the businesses acquired during 1996 and
1997 as if such acquisitions had taken place at the beginning of 1996.
Appropriate adjustments have been made to reflect the accounting basis used in
recording these acquisitions. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that would have resulted had the combination been in effect on the
date indicated, that have resulted since the respective dates of acquisition or
that may result in the future.
1996 1997
-------- -------
(UNAUDITED AND IN THOUSANDS)
Revenues, net ............................... $ 95,169 $98,672
Income (loss) before income taxes
and extraordinary item ................. (1,686) 7,803
Net income (loss) available to common
stockholders ............................. (2,157) 3,207
Earnings (loss) per share
Basic ............................... (.44) .31
Diluted ............................... (.44) .31
3. DEFERRED CHARGES AND OTHER NON-CURRENT ASSETS:
Deferred charges and other non-current assets at December 31, 1996 and
1997 were as follows (in thousands):
1996 1997
------- -------
Agreements not to compete, net of
accumulated amortization of
$1,722 and $2,233 respectively ............... $ 3,297 $ 4,034
Deferred debt expense, net of
accumulated amortization of $78
and $23, respectively ........................ 511 324
Non-current cemetery and notes
receivable ................................... 2,114 9,807
Deferred obtaining costs, net of
accumulated amortization of $44
and $253, respectively ....................... 1,245 2,928
------- -------
$ 7,167 $17,093
======= =======
34
<PAGE>
The cost of agreements not to compete with former owners of businesses
acquired are amortized over the term of the respective agreements, ranging from
four to 10 years. Deferred debt expense is being amortized over the term of the
related debt. Non-current cemetery receivables result from the multi-year
payment terms in the underlying contracts. These cemetery receivables are
recorded net of allowances for customer cancellations, refunds and bad debts.
4. LONG-TERM DEBT:
The Company's long-term debt consisted of the following at December 31 (in
thousands):
1996 1997
--------- ---------
Credit Facility, unsecured floating
rate $150 million line, interest is
due on a quarterly basis for prime
borrowings and on the maturity dates
of the eurodollar borrowings at the
applicable eurodollar rate plus .50%
to 1.25% (weighted average interest
rate was 6.8772% for the quarter ended
December 31, 1997), matures in
September, 2002 .............................. $ -- $ 107,500
Credit Facility, unsecured floating
rate $75 million line, interest was
due on a quarterly basis at prime to
prime plus .25% or at the applicable
eurodollar rate plus .75% to 2.0% ............ 36,500 --
Acquisition debt ............................... 6,395 10,817
Other .......................................... 574 5,219
Less-Current portion ........................... (736) (1,983)
--------- ---------
$ 42,733 $ 121,553
========= =========
In conjunction with the closing of the initial public offering (the "IPO")
in August 1996, the Company entered into a Credit Facility (the "Former Credit
Facility") which provided for a $75 million revolving line of credit with both
LIBOR and base rate interest options. This Former Credit Facility was unsecured
and was for a term of three years. During September 1997, the Company entered
into a new credit facility (the "New Credit Facility") for a $150 million
revolving line of credit. The New Credit Facility has a five year term, is
unsecured and contains customary restrictive covenants, including a restriction
on the payment of dividends on common stock and requires the Company to maintain
certain financial ratios. The Company was in compliance with all covenants at
December 31, 1997. In August 1996, the Company paid all of its outstanding
indebtedness with the proceeds from the issuance of its Class A Common Stock in
connection with the Company's IPO (see Note 7) and utilization of the Former
Credit Facility. In connection with repayment of debt in August 1996 and the
retirement of debt issued by the Former Credit Facility in September 1997, the
Company recognized an extraordinary loss of approximately $498,000 and $195,000,
net of income tax benefit of approximately $332,000 and $159,000 for the
write-off of the deferred loan costs associated with the early retirement of
debt for the years ended December 31, 1996 and 1997, respectively.
Acquisition debt consists of deferred purchase prices, payable to
sellers. The deferred purchase price notes bearing interest at 0%, discounted at
imputed interest rates ranging from 6% to 8%, with maturities from 3 to 15
years.
The aggregate maturities of long-term debt for the year ended
December 31, 1998 and for the subsequent four years, are approximately
$1,983,000, $2,021,000, $1,196,000, $1,193,000, and $108,744,000, respectively
and $8,399,000 thereafter.
5. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain office facilities, vehicles and equipment under
operating leases for terms ranging from one to fifteen years. Certain of these
leases provide for an annual adjustment. Rent expense was approximately
$951,000, $924,000 and $1,997,000 for 1995, 1996 and 1997, respectively.
35
<PAGE>
Assets acquired under capital leases are included in property, plant and
equipment on the accompanying Consolidated Balance Sheets.
At December 31, 1997 minimum lease payments were as follows:
MINIMUM LEASE PAYMENTS
---------------------
OPERATING CAPITAL
LEASES LEASES
--------- ---------
(IN THOUSANDS)
Years ended December 31,
1998 ................................................. $ 1,792 $ 679
1999 ................................................. 1,557 2,632
2000 ................................................. 1,099 230
2001 ................................................. 799 207
2002 ................................................. 1,449 198
Thereafter ............................................. 2,181 2,716
--------- ---------
Total minimum lease payments ........................... $ 8,877 $ 6,662
=========
Less: amount representing interest ..................... 1,857
Less: current portion of obligations
under capital leases ................................... 356
---------
Long-term obligations under capital
leases ................................................. $ 4,449
=========
AGREEMENTS AND EMPLOYEE BENEFITS
The Company has entered into various employment agreements and agreements
not to compete with key employees and former owners of businesses acquired.
Payments for such agreements are not made in advance. These agreements are
generally for one to ten years and provide for future payments annually,
quarterly or monthly. The aggregate payments due under these agreements for the
subsequent five years, are approximately $1,356,000, $1,342,000, $1,101,000,
$924,000 and $845,000, respectively and $2,576,000 thereafter. In conformity
with industry practice, these agreements are not included in the accompanying
Consolidated Balance Sheets.
The Company sponsors one defined contribution plan for the benefit of its
employees. The expense for this plan has not been significant for the periods
presented. In addition, the Company does not offer any other post-retirement or
post-employment benefits.
LITIGATION
Certain of the funeral homes located in California that were
acquired by the Company in early 1997, along with other death care providers,
are defendants in litigation in the state of California alleging that a flight
service contracted to dispose of cremains failed to properly carry out its
duties. While the litigation is in the early stages, management, with the advice
of legal counsel, believes that there are adequate insurance coverages,
indemnities and reserves such that the results of this litigation will not have
a material effect on the Company's consolidated financial position or result of
operations. Additionally, the Company is, from time to time, subject to routine
litigation arising in the normal course of its business. Management, with the
advice of legal counsel, similarly believes that the results of any such routine
litigation or other pending legal proceedings will not have a material effect on
the Company's consolidated financial position or results of operations.
36
<PAGE>
6. INCOME TAXES:
The provision for income taxes for 1995, 1996 and 1997 consisted of:
1995 1996 1997
---- ---- ------
Current: (IN THOUSANDS)
U. S. Federal .......................... $-- $-- $1,275
State .................................. 35 84 759
---- ---- ------
Total current provision .............. 35 84 2,034
---- ---- ------
Deferred:
U. S. Federal .......................... 585 48 1,564
State .................................. 74 6 128
---- ---- ------
Total deferred provision ............. 659 54 1,692
---- ---- ------
Total income tax provision ............. $694 $138 $3,726
==== ==== ======
A reconciliation of taxes to the U.S. federal statutory rate to those
reflected in the Consolidated Statements of Operations for 1995, 1996 and 1997
is as follows:
1995 1996 1997
------ ------ ------
Federal statutory rate .................. (34.0)% 34.0% 34.0%
Effect of state income taxes,
net of federal benefit at 34% ........ (6.0) 4.0 5.3
Effect of nondeductible
expenses and other, net ............... 3.9 57.3 15.9
Effect of valuation
allowance ............................. 74.7 (55.3) (14.5)
Effect of change in
statutory rate ........................ -- -- 4.6
------ ------ ------
38.6% 40.0% 45.3%
====== ====== ======
The tax effects of temporary differences that give rise to significant
deferred tax assets and liabilities at December 31, 1996 and 1997 were as
follows:
1996 1997
-------- --------
Deferred tax assets: (IN THOUSANDS)
Net operating loss carryforwards ............. $ 2,369 $ 510
Reserves not currently deductible ............ 200 509
Accrued liabilities and other ................ 104 701
Amortization of non-compete
agreements ................................... 387 816
-------- --------
3,060 2,536
Valuation allowance ............................ (1,442) (268)
-------- --------
Total deferred tax assets ................... $ 1,618 $ 2,268
======== ========
Deferred tax liability:
Amortization and depreciation ................ $ (4,893) $(12,814)
Preneed assets, net .......................... (170) (1,670)
-------- --------
Total deferred tax
liabilities ............................ $ (5,063) $(14,484)
-------- --------
Net deferred tax liability ..................... $ (3,445) $(12,216)
======== ========
Current net deferred asset ..................... $ 304 $ 897
Non-current net deferred liability ............. (3,749) (13,113)
-------- --------
$ (3,445) $(12,216)
======== ========
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets for which realization is uncertain. The Company
reviews the valuation allowance at the end of each quarter and makes adjustments
37
<PAGE>
if it is determined that it is more likely than not that the NOL's will be
realized. At December 31, 1997, the Company has approximately $584,000 of
federal net operating loss ("NOL") carryforwards which will expire between 2009
and 2011, if not utilized, and $3,826,000 of state NOL carryforwards which will
expire between the years 2000 and 2012, if not utilized. As a result of the IPO
(see Note 7), there may be a limitation placed on the Company's utilization of
its NOL's by Section 382 of the Internal Revenue Code in any one particular tax
year. Deferred tax liabilities were recorded with respect to purchase accounting
transactions during the year ended December 31, 1997 in the approximate amount
of $7,218,000.
7. STOCKHOLDERS' EQUITY:
INITIAL PUBLIC OFFERING
On August 8, 1996 the Company completed its IPO of 3,910,000 shares of its
Class A Common Stock at $13.50 per share for net proceeds of approximately $48
million, after selling commissions and related expenses of approximately $5
million. The net proceeds of the IPO were used to repay outstanding indebtedness
of the Company. In connection with the IPO, the Company performed a
recapitalization of its Common Stock into two classes of Common Stock (Class A
and Class B), provided separate voting rights to each class and converted
existing Common Stock to Class B Common Stock. The holders of Class A Common
Stock are entitled to one vote for each share held on all matters submitted to a
vote of common stockholders. The holders of Class B Common Stock are entitled to
ten votes for each share held on all matters submitted to a vote of common
stockholders. The Series A, B and C Preferred Stocks automatically converted
into Class B Common Stock upon closing of the IPO. Series D Preferred Stock
remained outstanding after the IPO (see Note 8).
PREFERRED STOCK
Prior to the IPO, the Company had three classes of preferred stock
outstanding, Series A, B and C. These preferred stocks automatically converted
into shares of Class B Common Stock at the effective date of the IPO (August 8,
1996).
TREASURY STOCK
The Company purchased 3,292 shares of Class B Common Stock for $60,000 and
170,000 shares of Series B Preferred Stock for $341,000, during 1997 and 1996,
respectively. Such shares have been canceled.
STOCK OPTION PLANS
The Company has three stock option plans currently in effect under which
future grants may be issued: the 1995 Stock Incentive Plan (the "1995 Plan"),
the 1996 Stock Option Plan (the "1996 Plan") and the 1996 Nonemployee Director
Stock Option Plan (the "Directors' Plan").
Options granted under the 1995 Plan have a ten year term. All options
granted under the 1995 Plan prior to the IPO vest immediately, while
substantially all of those issued in conjunction with and after the IPO vest
over a four year period at 25% per year. Options issued under this plan prior to
the Company's IPO are satisfied with shares of Class B Common Stock, but options
issued after that date are satisfied with shares of Class A Common Stock. A
total of 700,000 shares are reserved for issuance under the 1995 Plan of which
408,449 shares were outstanding at December 31, 1997.
Options granted under the 1996 Plan and the Directors' Plan have ten year
terms and vest 8.33% per year on the first through fourth anniversary dates of
the grant date and 16.66% per year on the fifth through eighth anniversary dates
of the grant date; provided, however, the options scheduled to vest in years 5-8
from the grant date (i.e., 66 2/3 of the total grant) vest immediately if the
average of the daily high and low prices of the Class A Common Stock for 20
consecutive trading days exceeds $27.99 prior to the fourth anniversary of the
grant date. A total of 600,000 shares of Class A Common Stock are reserved for
issuance under the 1996 Plan and 200,000 shares of Class A Common Stock are
reserved for issuance under the Directors' Plan. A total of 560,000 and 130,000
shares were outstanding under the 1996 Plan and Directors' Plan, respectively
38
<PAGE>
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's net loss and loss
per share would have been the following pro forma amounts:
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss) available to
common stockholders
As reported ......................... $ (2,494) $ (913) $ 3,406
Pro forma ............................. (2,721) (1,122) 2,353
Net income (Loss) per share
available to common
stockholders:
Basic
As reported ........................ (.99) (.19) .33
Pro forma .......................... (1.08) (.23) .23
Diluted
As reported ........................ (.99) (.19) .32
Pro forma .......................... (1.08) (.23) .22
Each of the plans is administered by a stock option committee appointed by
the Board of Directors. The plans allow for options to be granted as
non-qualified options, incentive stock options, reload options, alternative
appreciation rights and stock bonus options. As of December 31, 1997, only
non-qualified options and incentive stock options have been issued. The options
are granted with an exercise price equal to the then fair market value of the
Company's Common Stock as determined by the Board of Directors.
A summary of the status of the plans at December 31, 1996 and 1997 and
changes during the year ended is presented in the table and narrative below:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997
-------------------- --------------------
SHARES WTD AVG. SHARES WTD AVG.
(000) EX PRICE (000) EX PRICE
-------- -------- -------- --------
Outstanding at beginning of period 50 9.80 850 $ 13.74
Granted .......................... 818 13.9 338 20.18
Exercised ........................ (5) 10.43 (23) 11.35
Canceled ......................... (13) 10.11 (65) 16.80
-------- --------
Outstanding at end of year ....... 850 13.74 1,100 15.40
-------- --------
Exercisable at end of year ....... 74 10.34 146 12.41
-------- --------
Weighted average fair value of
options granted .................. $ 8.00 -- $ 8.52 --
All of the options outstanding at December 31, 1997 have exercise prices
between $8.00and $24.75, with a weighted average exercise price of $15.40 and a
weighted average remaining contractual life of 8.8 years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997, respectively: risk-free interest
rates of 6.67% and 6.45%; expected dividend yields of zero percent and zero
percent; expected lives of ten years and five years; expected volatility of
30.45% and 35.90%.
REVERSE STOCK SPLIT
On July 18, 1996, the Company's Board of Directors and stockholders
approved an amendment to the Company's Certificate of Incorporation which
authorized a one for two reverse stock split. The Consolidated Financial
Statements
39
<PAGE>
were restated in 1996 as if the reverse stock split had occurred at the
beginning of the earliest period presented. For each two shares of Class B
Common Stock at $.01 par, the stockholder received one share of Class B Common
Stock at $.01 par. Upon completion of the IPO, the Series A, B and C Preferred
Stocks automatically converted into Class B Common Stock. The number of shares
held by each Series A, B and C Preferred stockholder remained the same; however,
the conversion prices for Class B Common Stock on those preferred shares doubled
in conjunction with the above-mentioned reverse stock split. In addition, the
exercise prices on outstanding stock options also doubled related to this
reverse stock split, and the number of shares of Class B Common Stock covered by
such options decreased by 50%.
8. REDEEMABLE PREFERRED STOCK:
The Company has 20,000,000 authorized shares of Series D Preferred Stock
with a par value of $.01 per share, of which approximately 17,253,000 and
1,682,500 shares were issued and outstanding at December 31, 1996 and 1997,
respectively. As of December 31, 1997, these shares can be converted into Class
A Common Stock at the rate of $15.50 per share. The holders of Series D
Preferred Stock are entitled to receive preferential dividends at an annual rate
ranging from $0.06 to $0.07 per share, payable quarterly. Dividends are payable
quarterly as long as the stock is outstanding. The Series D Preferred Stock is
redeemable, in whole or in part, at the option of the Company, at any time
during the period commencing with the second anniversary of the Company's IPO
(August 8, 1998) and ending December 31, 2001. On December 31, 2001, the Company
must redeem all shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends.
Concurrent with every issuance of Series D Preferred Stock, irrevocable
standby letters of credit, issued by a financial institution and guaranteed by
the Company, were given to the holders (or designated beneficiaries) and can be
drawn upon if certain events occur, including the following: the Company has
failed to pay preferred stock dividends, the Company has failed to redeem the
preferred stock shares on the designated mandatory redemption date or a
liquidation, dissolution or winding up of affairs of the Company occurs. As of
December 31, 1997, letters of credit of approximately $1,740,000 were
outstanding relative to Series D Preferred Stock.
During the first quarter of 1997, the Company issued approximately
20,000,000 shares of Series F Preferred Stock with a par value of $.01 per share
to fund a portion of the acquisitions, of which 12,278,285 were outstanding at
December 31, 1997. These shares are convertible into Class A Common Stock at the
rate of $16.00 per share as of December 31, 1997, and increasing to $17.00 per
share on January 1, 1998. The holders of the Series F Preferred Stock are
entitled to receive preferential dividends at the amount of $.04 payable
quarterly, increasing to five percent per year for the period January 1, 1998
until January 1, 2001, at which time the annual rate becomes fixed at $.0486 per
share. On December 31, 2007, the Company must redeem all shares of Series F
Preferred Stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends.
40
<PAGE>
9. EARNINGS PER SHARE:
The following table sets forth the computation of the basic and diluted
earnings (loss) per share for 1995, 1996 and 1997:
1995 1996 1997
------- ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Numerator:
Net income (loss) before
extraordinary item ..................... $(2,494) $ 207 $ 4,491
Extraordinary item ....................... -- (498) (195)
------- ------- --------
Net income (loss) ........................ (2,494) (291) 4,296
Preferred stock dividends ................ -- (622) (890)
------- ------- --------
Numerator for basic earnings per share
- net income (loss) available to
common stockholders ..................... (2,494) (913) 3,406
Effect of dilutive securities:
Preferred stock dividends ................ -- -- --
------- ------- --------
Numerator for diluted earnings per
share - net income available to
common stockholders after assumed
conversions ............................. $(2,494) $ (913) $ 3,406
Denominator:
Denominator for basic earnings per
share - weighted-average shares ......... 2,520 4,869 10,226
Effect of dilutive securities:
Stock options ............................. -- -- 259
------- ------- --------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions .......... 2,520 4,869 10,485
Basic earnings per share:
Net income (loss) before extraordinary
item ...................................... $ (.99) $ (.09) $ .35
Extraordinary item ......................... -- (.10) (.02)
------- ------- --------
Net income (loss) .......................... $ (.99) $ (.19) $ .33
======= ======= ========
Diluted earnings per share:
Net income (loss) before extraordinary
item ...................................... $ (.99) $ (.09) $ .34
Extraordinary item ......................... -- (.10) (.02)
------- ------- --------
Net income (loss) .......................... $ (.99) $ (.19) $ .32
======= ======= ========
41
<PAGE>
10. MAJOR SEGMENTS OF BUSINESS
The Company conducts funeral and cemetery operations only in the United
States.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT NUMBER OF
OPERATING LOCATIONS) Funeral Cemetery Corporate Consolidated
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
1997 ................................ $ 64,888 $ 12,533 $ -- $ 77,421
1996 ................................ 37,445 2,903 -- 40,348
1995 ................................ 22,661 1,576 -- 24,237
- -----------------------------------------------------------------------------------------------
Income from operations:
1997 ................................ $ 16,484 $ 2,899 $ (5,277) $ 14,106
1996 ................................ 6,804 362 (2,474) 4,692
1995 ................................ 3,740 250 (2,106) 1,884
- -----------------------------------------------------------------------------------------------
Identifiable assets:
1997 ................................ 208,833 57,020 12,087 277,940
1996 ................................ 117,061 9,285 4,962 131,308
1995 ................................ 48,847 2,169 10,730 61,746
- -----------------------------------------------------------------------------------------------
Depreciation and amortization:
1997 ................................ 5,195 1,454 1,160 7,809
1996 ................................ 2,863 129 637 3,629
1995 ................................ 1,609 72 267 1,948
- -----------------------------------------------------------------------------------------------
Capital expenditures: (a)
1997 ................................ 34,858 34,653 2,758 72,269
1996 ................................ 24,737 5,073 1,004 30,814
1995 ................................ 4,530 100 1,116 5,746
- -----------------------------------------------------------------------------------------------
Number of operating locations at year end:
1997 ................................ 120 20 -- 140
1996 ................................ 76 10 -- 86
1995 ................................ 41 3 -- 44
- -----------------------------------------------------------------------------------------------
</TABLE>
(a)Includes $2,727, $26,184 and $63,106 for the three years ended December
31, 1997, respectively, for purchases of property, plant and equipment and
cemetery property of acquired businesses.
42
<PAGE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
The table below sets forth consolidated operating results by fiscal quarter
for the years ended December 31, 1996 and 1997 (in thousands, except per share
data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1996 (A)
Revenues, net .................... $ 7,635 $ 9,290 $ 10,145 $13,278
Gross profit ..................... 1,670 1,719 994 2,783
Net income (loss) before
extraordinary item ............... (193) (468) (414) 1,282
Extraordinary item ............... -- -- (498) --
Preferred stock dividend
requirements ..................... 10 91 250 271
Net income (loss) ................ (203) (559) (1,162) 1,011
Basic earnings (loss) per
common share
Continuing operations ......... (.08) (.22) (.11) .12
Extraordinary item ............ -- -- (.09) --
-------- -------- -------- -------
Net income (loss) ............. $ (.08) $ (.22) $ (.20) $ .12
-------- -------- -------- -------
Diluted earnings (loss) per
common share
Continuing operations ......... $ (.08) $ (.22) $ (.11) $ .12
Extraordinary item ............ -- -- (.09) --
-------- -------- -------- -------
Net income (loss) ............. $ (.08) $ (.22) $ (.20) $ .12
-------- -------- -------- -------
1997 (A)
Revenues, net .................... $ 17,989 $ 19,061 $ 18,245 $22,126
Gross profit ..................... 5,143 5,003 3,557 5,680
Net income before
extraordinary item ............. 1,825 1,489 347 830(b)
Extraordinary item ............... -- -- (195) --
Preferred stock dividend
requirements ................... 363 174 176 177
Net income (loss) ................ 1,462 1,315 (24) 653(b)
Basic earnings per common share:
Continuing operations ......... $ .16 $ .13 $ 0.02 $ .06(b)
Extraordinary item ............ -- -- (0.02) --
-------- -------- -------- -------
Net income .................... $ .16 $ .13 $ -- $ .06(b)
-------- -------- -------- -------
Diluted earnings per common share:
Continuing operations ......... $ .16 $ .12 $ 0.02 $ .06(b)
Extraordinary item ............ -- -- (0.02) --
-------- -------- -------- -------
Net income .................... $ .16 $ .12 $ -- $ .06(b)
-------- -------- -------- -------
</TABLE>
(a) Earnings per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share amounts does
not equal the total computed for the year due to stock transactions
which occurred during the periods presented.
(b) Includes a one-time charge of $390,000 (equivalent to $.04 per share) to
revalue historical deferred tax accounts from 34% to 35%.
43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Carriage Services, Inc.:
We have audited in accordance with generally accepted auditing standards, the
Consolidated Financial Statements of Carriage Services, Inc. and subsidiaries
included in this Form 10-K, and have issued our report thereon dated February
10, 1998. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in Part IV,
Item 14 (a)(2) for Carriage Services, Inc. and subsidiaries is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1998
44
<PAGE>
CARRIAGE SERVICES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTION YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for bad debts and contract cancellations ................ $205 $ 488 $388 $ 305
Year ended December 31, 1996:
Allowance for bad debts and contract cancellations ................ $305 $ 683 $458 $ 530
Year ended December 31, 1997:
Allowance for bad debts and contract cancellations ................ $530 $1,025 $264 $1,291
</TABLE>
45
EXHIBIT 10.17
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of November __, 1997, among CARRIAGE FUNERAL
HOLDINGS, INC., a Delaware corporation (the "Purchaser"), SIDUN FUNERAL GROUP,
INC., an New Jersey corporation (the "Company"), and CHARLES D. SIDUN (the
"Shareholder") (the Company and the Shareholder being sometimes hereafter
referred to together as the "Sellers");
W I T N E S S E T H:
WHEREAS, the Company owns all of the operating assets, rights and
properties, other than real property, associated with the operation of the John
E. Day Funeral Home located at 85 Riverside Avenue in Red Bank, Monmouth County,
New Jersey (the "Red Bank Home"), the two Bedle Funeral Homes located at 61
Broad Street in Keyport, Monmouth County, New Jersey (the "Keyport Home") and at
212 Main Street in Matawan, Monmouth County, New Jersey (the "Matawan Home"),
and the Braun Funeral Home located at 106 Broad Street, Eatontown, Monmouth
County, New Jersey (the "Eatontown Home"), and owns all of the assets, rights
and properties, including real property, associated with the operation of the
Family Arrangement Center located at 33 Allen Place in Red Bank, Monmouth
County, New Jersey (the "Family Center") (the Red Bank Home, the Keyport Home,
the Matawan Home, the Eatontown Home and the Family Center being hereafter
collectively referred to as the "Homes");
WHEREAS, the Shareholder owns all of the issued and outstanding
capital stock of the Company; and
WHEREAS, the parties desire that the Purchaser acquire substantially
all of such assets, rights and properties of the Homes from the Company, and
that the parties enter into certain related transactions, on the terms and
subject to the conditions hereafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. TRANSFER OF ASSETS BY THE COMPANY. Subject to the provisions
of this Agreement, the Company agrees to sell, and the Purchaser
agrees to purchase, at the Closing referred to in Section 2.1,
substantially all of the properties, assets, rights and business of
the Homes of every kind and description, tangible and intangible,
real, personal or mixed, wherever located, as they shall exist at the
time of the Closing (collectively, the "Assets"), including, but not
limited to, all of
<PAGE>
the following-described assets, rights and properties (but excluding
those described in Section 1.2):
(i) inventories of caskets, vaults, urns, accessories,
monuments and other goods and inventories;
(ii) notes and accounts receivable; and
(iii) machinery, equipment, motor vehicles (13),
furniture, fixtures, supplies, tools and other fixed assets and
property, plant and equipment, including those described on
Schedule 3.10 hereto;
(iv) fee simple title to the real property on which the
Family Center is situated (the "Family Center Tract");
(v) all cash balances in bank accounts and certificates
of deposit and other investments to fund obligations under
preneed contracts;
(vi) all pre-need contracts of the Homes and other
agreements, leases and commitments described on Schedule 3.11,
including (without limitation) the Redemption Agreement dated
November 4, 1997 between the Company and Douglas Sidun (but
excluding those contracts and commitments shown thereon, if any,
as not being assumed by the Purchaser);
(vii) all rights to the names "Sidun Funeral Group", "John
E. Day Funeral Home", "Bedle Funeral Home" and "Braun Funeral
Home" and all derivatives thereof, and all trademarks, trade
names, patents, processes, copyrights, know-how and similar
intangible rights, and all goodwill associated therewith;
(viii) all permits, licenses, books, records, brochures and
literature, rights in unemployment compensation, industrial
accident and other similar funds, and prepaid items; and
(ix) all other assets, rights and properties owned or
leased by the Company that are used in or necessary for the Homes
at the time of Closing, excluding those described in Section 1.2.
-2-
<PAGE>
At the Closing, the Company shall convey to the Purchaser the Assets
free and clear of any and all liens, security interests, pledges,
encumbrances, easements, rights-of-way or title restrictions of any
kind (collectively, "Liens") except (in the case of the Family Center
Tract only) for Permitted Encumbrances described on Schedule 3.5.
1.2. RETAINED ASSETS. Notwithstanding the foregoing, the
following properties, assets, rights and interests (the "Retained
Assets") are hereby excluded from the purchase and sale contemplated
hereby and are therefore not included in the Assets:
(i) all cash on hand, in transit or on deposit,
including bank account balances, certificates of deposit and
marketable securities, excluding, however, account balances and
certificates of deposit to fund preneed contracts;
(ii) any prepaid federal income taxes of the Company, and
any rights to or claims for federal income tax refunds, in
respect of the operation of the Homes prior to the Closing; and
(iii) the two motor vehicles, the accounts receivable due
the Company from two existing employees and any life insurance
policy on the life of the Shareholder or any of the other parties
to the Employment Agreements referred to in Section 2.2(i), all
as described on Schedule 1.2 hereto.
1.3. PURCHASE PRICE. The purchase price for the Assets shall be
$13,315,799.00 (the "Purchase Price"). Of the Purchase Price, (i) an
amount sufficient to discharge indebtedness of the Company as
determined by the Purchaser pursuant to Section 1.4 shall be paid to
the holders of such indebtedness, (ii) the sum of $2,000,000.00 (the
"Deferred Purchase Price") shall be payable in forty-eight (48) equal
quarterly installments of $41,666.67
-3-
<PAGE>
each, payable on or before the last day of each January, April, July
and October during the twelve- year period following the Closing,
commencing January 31, 1998 and continuing quarterly thereafter until
paid in full, (iii) the sum of $100,000.00 shall be withheld from the
Purchase Price by the Purchaser, subject to disbursement under the
circumstances and subject to the conditions described in Section 10.5,
and (iv) the balance of the Purchase Price, after deducting the
amounts in clauses (i) through (iii) above, shall be paid to the
Company in cash at Closing by wire transfer to such account as the
Sellers shall designate in writing at least three business days prior
to the Closing. No interest shall accrue or be payable in respect to
the Deferred Purchase Price. For federal income tax purposes, the
parties agree that the Deferred Purchase Price shall be deemed to
include an imputed rate of interest of seven percent (7.0%) per annum.
The Deferred Purchase Price shall be subject to offset as provided in
Section 10.4. The Purchase Price shall be subject to adjustment
following the Closing as provided in Section 1.4. The Purchaser
acknowledges that its obligations to pay Deferred Purchase Price will
be assigned by the Company 50% to the Shareholder and 50% to Douglas
Sidun following the Closing, and that upon the death of either such
person such payments shall continue to be made to such person's
estate, heirs and beneficiaries.
1.4. ADJUSTMENT TO PURCHASE PRICE. At least two business days
prior to the Closing, the Sellers shall deliver to the Purchaser a
written statement, certified by them to be accurate and complete,
setting forth a description, and the outstanding balance as of the
date of such statement, of all liabilities and obligations of the
Company, including (but not limited to) indebtedness for borrowed
money, indebtedness secured by Liens against any of the Assets,
accounts and trade payable, accrued liabilities, federal, state and
local taxes, any liabilities under suits, claims judgments or orders
then pending, or any other
-4-
<PAGE>
liability or obligation (collectively, "Unassumed Liabilities"),
excluding only Assumed Liabilities described in Section 1.5. At
Closing, the Purchaser shall pay out of the Purchase Price such
portion thereof as shall be required to pay and discharge those
Unassumed Liabilities as the Purchaser in its sole discretion deems
appropriate, which at a minimum shall include liabilities secured by
Liens against any of the Assets, and any and unsecured indebtedness
for borrowed money, but may also include any of such other
liabilities. Notwithstanding such payment, the Sellers shall remain
responsible for paying any remaining Unassumed Liabilities. Payments
under this Section 1.4 shall be deemed downward adjustments in the
Purchase Price.
1.5. ASSUMPTION OF LIABILITIES. The Purchaser, upon the sale and
purchase of the Assets, shall, subject to Section 1.6 below, assume
and agree to pay or discharge only the following liabilities and
obligations of the Company (collectively, the "Assumed Liabilities"):
(i) liabilities under those preneed contracts of the
Homes that are included in the Assets, provided that as of the
Closing such liabilities are covered by trust or insurance to the
full extent required by the rules, regulations and procedures of
New Jersey law; and
(ii) obligations arising after Closing under the agree
ments, leases and commitments of the Homes described in Schedule
3.11 (other than agreements, leases and commitments, if any,
which are indicated on such Schedule as not to be assumed by the
Purchaser).
The assumption by the Purchaser of the Assumed Liabilities shall
not enlarge any rights or remedies of any third parties under any
contracts or arrangements so assumed. Nothing herein shall prevent the
Purchaser from contesting in good faith
-5-
<PAGE>
any of the Assumed Liabilities. At Closing, the Purchaser shall
deliver to the Company an instrument, dated the Closing Date and
reasonably satisfactory in form and substance to it, pursuant to which
the Purchaser will assume the Assumed Liabilities.
1.6. LIMITATIONS ON ASSUMPTION. Notwithstanding Section 1.5
above, the Purchaser will not assume and does not agree to pay or
discharge any obligations or liabilities of the Company not specif
ically included in the Assumed Liabilities. In particular, without
limiting the generality of the definition of "Unassumed Liabilities"
under Section 1.4 above, the Purchaser shall not assume or agree to
pay or discharge any of the following:
(i) any notes or accounts payable;
(ii) any trade payables of any kind, regardless of
whether entered into in the ordinary course of business;
(iii) any federal, state or local tax of any type, whether
arising by reason of the sale of the Assets or by operation of
the Homes prior to the Closing Date;
(iv) any losses, costs, damages or expense based upon or
arising from any claims, litigation, legal proceedings or other
actions against the Company based upon any set of facts occurring
prior to the Closing;
(v) the liabilities and obligations under any war
ranties to customers with respect to goods or products sold or
services provided by the Company prior to Closing;
(vi) all personal injury, product liability claims,
claims of environmental damage, claims of hazards to health,
strict liability, toxic torts, enforcement proceedings, cleanup
orders and other similar
-6-
<PAGE>
actions or claims instituted by private parties or governmental
agencies, with respect to the operation of the Homes prior to
Closing; or
(vii) any other liability or obligation not specifically
included within the Assumed Liabilities.
1.7. CERTAIN PRORATIONS. All normal and customarily proratable
items, including without limitation, real estate and personal property
taxes, rents under leases and utility bills, shall be prorated as of
the Closing Date, the Company being charged and credited for all of
same up to such date and the Purchaser being charged and credited for
all of same on and after such date. Utility services will be
transferred to the Purchaser's name on the Closing Date. If the actual
amounts to be prorated are not known as of the Closing Date, the
prorations shall be made on the basis of the best evidence then
available, and thereafter, within thirty (30) days after actual
figures are received, a cash settlement will be made between the
Company and the Purchaser.
1.8. INSTRUMENTS OF TRANSFER. At the Closing, the Sellers shall
deliver to the Purchaser such instruments of transfer, assignment and
conveyance, including (without limitation) bills of sale, general
warranty deeds, lease assignments and assignments of motor vehicle
registrations, transferring title to the Assets to the Purchaser as
may reasonably be requested by the Purchaser. Such instruments shall
be reasonably satisfactory in form and substance to the Purchaser and
shall vest in the Purchaser good and marketable title to all the
Assets, free and clear of all Liens (except, in the case of the Family
Center Tract, for Permitted Encumbrances).
1.9. DELIVERY OF RECORDS, CONTRACTS AND TRUST FUNDS. At the
Closing, the Company will deliver to the Purchaser all of the leases,
contracts, commitments and rights of the Homes constituting a
-7-
<PAGE>
portion of the Assets, with such assignments thereof and consents to
assignment as the Purchaser shall deem necessary to assure the Pur
chaser of their full benefit. Simultaneously with such deliveries, the
Company shall take all requisite steps to put the Purchaser in actual
possession and operating control of the Assets and all of the records,
books and other data of the Homes. In addition, at the Closing, the
Sellers and the Purchaser shall take all necessary or appropriate
action to cause the transfer of the trust funds referred to in Section
3.11 including, without limitation, the obtaining of governmental and
third party consents.
1.10. TAXES. Any sales or transfer taxes which may be payable in
connection with the sale of the Assets under this Agreement shall be
paid by the Sellers.
1.11. EMPLOYEE MATTERS. On the Closing Date, the Purchaser may
(but shall not be required to) offer employment to each employee of
the Homes listed on Schedule 3.19. Each such employee so offered
employment who accepts shall, effective as of the Closing Date, cease
to be an employee of the Company and shall thereupon become an
employee of the Purchaser. The Sellers shall be responsible for
satisfying all claims, if any, of such employees as to holiday, health
benefits, workers compensation claims, termination and severance
benefits, and any withdrawal liability and vested rights under any
pension or profit sharing plans, all arising and accrued through the
Closing Date, and in no event shall the Purchaser have any liability
or responsibility in respect thereof. The Purchaser agrees that it
will assume responsibility for such employees' accrued vacation, but
only for five payroll days accrued as of January 1, 1998.
1.12. FURTHER ASSURANCES. The Sellers shall from time to time
after the Closing, without further consideration, execute and deliver
such instruments of transfer, conveyance and assignment
-8-
<PAGE>
(in addition to those delivered pursuant to Section 1.8), and shall
take such other action, as the Purchaser may reasonably request to
more effec tively transfer, convey and assign to and vest in the
Purchaser, and to put the Purchaser in actual possession and control
of, each of the Assets.
2. THE CLOSING.
2.1. TIME AND PLACE. The closing of the transactions contemplated
under this Agreement (the AClosing@) shall occur at the offices of
Schanker and Hochberg, 317 Madison Avenue, Suite 703, New York 10017,
at 9:00 a.m. on November 13, 1997, or at such other date, time or
place as may be mutually agreed upon by the parties, but in no event
later than November 30, 1997. The date and time of the Closing is
herein called the "Closing Date", and shall be deemed to have occurred
as of the commencement of business on the Closing Date. All action to
be taken at the Closing as hereinafter set forth, and all documents
and instruments executed and delivered, and all payments made with
respect thereto, shall be considered to have been taken, delivered or
made simultaneously, and no such action or delivery or payment shall
be considered as complete until all action incident to the Closing has
been completed.
2.2. RELATED TRANSACTIONS. In addition to the purchase and
sale of the Assets, the following transactions shall take place at
the Closing:
(i) the Purchaser, on the one hand, and each of Douglas
Sidun ("Douglas"), Ted Sidun ("Ted") and Drew Sidun ("Drew"), on
the other, shall each execute and deliver to the other an
Employment Agreement to be dated the Closing Date, substantially
in the forms of Exhibits A-1, A-2 and A-3, respectively, hereto
(collectively, the "Employment Agreements");
(ii) the Purchaser, as tenant, and CAT Real Estate
Partnership, a New Jersey
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general partnership ("CAT"), as landlord, shall each execute
and deliver to the other a Lease Agreement to be dated the
Closing Date, covering the real estate and improvements on
which the Red Bank Home is situated, substan tially in the
form of Exhibit B hereto (the "Lease Agreement"); and
(iii) on the date of this Agreement, the Purchaser and
(x) the Charles D. Sidun Charitable Remainder Trust ("CRT"), have
entered into a Real Property Purchase Agreement (the AMatawan
Real Property Agreement@) providing for, among other things, the
sale by the CRT to the Purchaser of fee simple title to the real
property and improvements on which the Matawan Home is situated,
and (y) Charles have entered into a Real Property Purchase
Agreement (the AKeyport/Eatontown Real Property Agreement@)
providing for, among other things, the sale by Charles to the
Purchaser of fee simple title to the real property and
improvements on which the Keyport and Eatontown Homes are
situated; and the Closing hereunder is subject to the closing
substantially simultaneously therewith of such purchase and sale
transactions under the Matawan Real Property Agreement and the
Keyport/Eatontown Real Property Agreement (collectively, the
"Real Property Agreements").
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers jointly
and severally represent and warrant to and agree with the Purchaser that:
3.1. ORGANIZATION AND EXISTENCE. The Company is a corporation
duly organized, validly existing and in good standing under the laws
of the State of New Jersey, and has all requisite corporate power to
enter into and perform its obligations under this Agreement. The
Company is the surviving corporation of the merger among John E. Day
Funeral Home, Inc. ("Day"), Bedle Funeral Home, Inc. ("Bedle") and
Braun Funeral Home, Inc.
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("Braun"), all New Jersey corporations. For purposes hereof, any
reference to the "Company" shall, with respect to any time or period
prior to the effective time of such merger, include and incorporate
each of Day, Bedle and Braun, as the context requires.
3.2. OWNERSHIP OF THE COMPANY. The Shareholder owns all of
the issued and outstanding capital stock of the Company.
3.3. FINANCIAL STATEMENTS. The Sellers have delivered to the
Purchaser (i) the unaudited (reviewed) combined balance sheets of Day,
Bedle and Braun at December 31, 1995 and 1996 (such balance sheet at
December 31, 1996 being hereafter referred to as the "Company Balance
Sheet") and the related unaudited (reviewed) combined statements of
income and retained earnings of Day, Bedle and Braun for the
respective twelve-month periods of operations then ended, together
with the notes thereto and the review report thereon of Sobel & Co.,
LLC dated January 17, 1997, and (ii) the unaudited (reviewed) combined
balance sheets of Day, Bedle and Braun at December 31, 1994 and 1995
and the related unaudited (reviewed) combined statements of income and
retained earnings of Day, Bedle and Braun for the respective
twelve-month periods of operations then ended, together with the notes
thereto and the review report thereon of Sobel & Co., LLC dated
January 22, 1996. All of such financial statements are true and
correct, have been prepared in accordance with the books and records
of Day, Bedle and Braun (now of the Company), and present fairly the
combined financial positions of Day, Bedle and Braun at the dates
thereof and their combined results of operations for the periods then
ended in accordance with generally accepted accounting principles
consistently applied. The total assets of the "acquired person" (as
that term is used in the Hart- Scott-Rodino Antitrust Improvements Act
of 1976, as amended), with respect to the transactions described
herein, as reflected in the most recent regularly prepared balance
sheet, is less than $10
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million. The Homes collectively performed at least the number of adult
casketed funeral services for each of the periods as shown below:
TWELVE MONTHS ENDED DECEMBER 31, SIX MONTHS
--------------------------------------- ENDED JUNE 30,
LOCATION 1994 1995 1996 1997
- -------- ---- ---- ---- ----
Red Bank ......... 310 371 403 214
Keyport .......... 64 86 74 38
Matawan .......... 40 39 45 19
Eatontown ........ 99 108 108 46
3.4. TITLE TO AND STATUS OF ASSETS. All assets, rights and prop
erties required in the operation of the Homes are owned or validly
leased by the Company and (except for the real property covered by the
Lease Agreement and the Real Property Agreements) are included within
the Assets. The Company is in actual possession and control of all
properties owned or leased by it which are required in the operation
of the Homes, and has good and marketable title to all of the Assets,
free and clear of all Liens (except for Permitted Liens against the
Family Center Tract). The Family Center Tract, together with the real
property covered by the Lease Agreement and the Real Property
Agreements (collectively, the "Real Property"), constitute all
interests in real property required in the operation of the Homes.
3.5. FAMILY CENTER TRACT.
(a) DESCRIPTION AND TITLE. Schedule 3.5 sets forth a legal
description of the Family Center Tract. No person other than the
Company has any ownership, leasehold or other interest of any kind in
the Family Center Tract. The Family Center Tract is the only interest
in real property
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required for the conduct of the business of the Family Center as
presently conducted. No improvements located on the Family Center
Tract, nor the operation or maintenance thereof as now operated or
maintained, contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any provision of
law, the effect of which would interfere with or prevent their
continued use for the purposes for which they are now being used.
There is not pending nor, to the knowledge of the Sellers, threatened
any proceeding for the taking or condemnation of the Family Center
Tract or any portion thereof. All improvements located on the Family
Center Tract are in a reasonable state of maintenance and repair,
ordinary wear and tear excepted. The Company has good and marketable
fee simple title to the Family Center Tract, free and clear of all
Liens, other than easements and other similar Liens described on
Schedule 3.5 ("Permitted Encumbrances").
(b) FIRPTA. No Seller is a "foreign person" (as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations issued thereunder), and the Company
shall deliver at Closing a non-foreign affidavit in recordable form
containing such information as shall be required by Code Section
1445(b)(2) and the regulations issued thereunder.
(c) BILLS PAID. All bills and other payments due with respect to
the ownership, operation, and maintenance of the Family Center Tract
have been (and on the Closing Date will be) paid, and no Liens or
other claims for the same have been filed or asserted against any part
of the Family Center Tract.
3.6. ABSENCE OF CHANGES OR EVENTS. Since the date of the
Company Balance Sheet, there has not been:
(i) any adverse change in the financial condition,
operations, properties or prospects of any Home;
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(ii) any material damage, destruction or losses against
any Home or any of its properties;
(iii) any claim or liability for any material damages for
any actual or alleged negligence or other tort or breach of
contract against or affecting the Company;
(iv) any declaration or payment of any bonus or other
extraordinary compensation to any employee of the Company;
(v) any hiring, firing, reassignment or other change in
any key personnel of the Company;
(vi) any sale, transfer or other disposition of, or
agreement to sell, transfer or otherwise dispose of, any of the
inventories or other assets or properties of the Company, except
in the ordinary course of business;
(vii) any labor strike or labor dispute, or the entering
into of any collective bargaining agreement, with respect to
employees of the Company;
(viii) any new competitor that has, to the knowledge of the
Shareholder, built, commenced to build or announced intentions to
build a funeral home or mortuary in direct competition with any
Home; or
(ix) any other transaction or event entered into or
affecting the Company other than in the ordinary course of
business.
3.7. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
the Company Balance Sheet and in this Agreement, the Company has no,
and none of its assets or properties are subject to any, liabilities
or obligations, other than unsecured
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trade accounts payable and accrued expenses arising in the ordinary
course of business since the date of the Company Balance Sheet.
3.8. TAX MATTERS. All federal, state, county, local and other
taxes due and payable on or before the date of this Agreement in
respect of the Company and the ownership of the Assets, have been
paid. All tax returns and reports required to be filed for all such
taxes have been filed with all taxing authorities, and all such tax
returns and reports are true and correct. True and correct copies of
the federal, state and local income tax returns filed by the Company
for each of its last three taxable years have been furnished to the
Purchaser. No assessments of deficiencies have been made against the
Company which are presently pending or outstanding, and no state or
facts exist which would constitute grounds for any such assessment. No
agreements, waivers or extensions of time are in effect for the
assessment of deficiencies in respect of the Company or any of the
Assets. Following the Closing, the Sellers shall be responsible for
accurately and completely preparing, signing and filing all tax
returns and paying all taxes in respect of the assets and operations
of the Company through the Closing Date and for the sale of the
Assets.
3.9. INVENTORY; ACCOUNTS RECEIVABLE. All inventories reflected in
the Company Balance Sheet are, and all inventories of the Company on
the Closing Date will be, (i) accounted for at the lower of cost or
market on a first-in, first-out basis in accordance with generally
accepted accounting principles consistently applied, and (ii) saleable
or usable in the ordinary course of business at usual and customary
prices, subject to normal returns and markdowns consistent with past
practice. All accounts receivable of the Company are valid and legally
enforceable obligations of the account parties and are not subject to
any claim of offset or deduction against the Company. At the Closing,
the Sellers will deliver to the Purchaser lists, certified by them to
be complete
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and correct, of all of the inventory and accounts receivable of the
Homes.
3.10. FIXED ASSETS. Schedule 3.10 lists all motor vehicles and
other material items of equipment, fixtures, furniture and other fixed
assets used in the operation of the Homes, all of which are included
in the Assets. All such items are in good and operating con dition and
repair, ordinary wear and tear excepted.
3.11. CONTRACTS AND COMMITMENTS. Schedule 3.11 sets forth a
complete description of:
(i) all documents evidencing any money borrowed by the
Company or the creation or existence of any Lien against any of
the Assets, and all documents relating to any debt secured in
whole or in part by any such Liens;
(ii) all collective bargaining agreements, employment
contracts, noncompetition agreements and other agreements re
lating to the employment of any employees of the Company, or with
any former employees or owners of any of the Homes;
(iii) all joint venture agreements and all other agree ments
involving the sharing of profits, involving the Company or any
Home;
(iv) all (i) contracts or commitments for capital
expenditures for the Company involving obligations aggregating in
excess of $5,000, (ii) leases under which personal property is
leased by the Company and which are not cancelable by either
party thereto without penalty upon notice of 30 days or less or
pursuant to which rentals exceed $1,000 per annum or $5,000 in
the aggregate, or (iii) contracts and agreements of the Company
which do not terminate or are not terminable by the Company upon
notice of 30 days or less or which involves an obligation on its
part in excess of $1,000 per annum or $5,000 in the
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aggregate; and
(v) all other contracts and commitments of the Company
entered into outside the ordinary course of business.
Each contract and other document required to be described in
Schedule 3.11 is valid and in full force and effect and neither the
Company, nor, to the knowledge of the Sellers, none of the other
parties thereto, are in default thereunder. A true and correct copy of
each document listed on Schedule 3.11 has been delivered to the
Purchaser by the Sellers.
3.12. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.12
accurately lists, as of the date of this Agreement, (i) all preneed
contracts of the Homes unfulfilled as of such date, including
contracts for the sale of funeral merchandise and services, and (ii)
all trust accounts and insurance products funding such preneed con
tracts, indicating the location of each and the balance thereof. All
preneed contracts required to be listed on Schedule 3.12 (x) have been
entered into in the normal course of business at regular retail
prices, or pursuant to a sales promotion program, solely for use by
the named customers and members of their families on terms not more
favorable than shown on the specimen contracts which have been
delivered to the Purchaser, (y) are subject to the rules and regula
tions of the Homes as now in force (copies of which have been
delivered to the Purchaser), and (z) on the date hereof are in full
force and effect, subject to no offsets, claims or waivers, and
neither the Company nor, except as disclosed on Schedule 3.12, such
customer is in default thereunder. All funds received by the Company
under preneed contracts have been deposited in the appropriate
accounts and administered and reported in accordance with the terms
thereof and as required by applicable laws, regulations and procedures
required in the State of New Jersey. The aggregate market value of
such preneed accounts, trusts and
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other deposits is equal to or greater than the aggregate preneed
liability related thereto (liability measured by the actual cost of
providing services and merchandise as of the Closing Date). The
services heretofore provided by the Homes have been rendered in a
professional and compe tent manner consistent with prevailing
professional standards, practices and customs.
3.13. INTANGIBLE RIGHTS. There are no patents, patent
applications, patent licenses, trademarks, trademark applications or
trademark or trademark licenses (collectively, "Intangible Rights")
used in the operation of the Homes, except as described on Schedule
3.13. The Company is not charged with infringement of any Intangible
Rights, nor do the Sellers know of any such infringement, whether or
not claimed by any person.
3.14. INSURANCE AND CLAIMS. The Company maintains such poli cies
of insurance in such amounts, and which insure against such losses and
risks, as are generally maintained for comparable businesses and
properties. Valid policies for such insurance will be outstanding and
duly in force at all times prior to the Closing.
3.15. LICENSES, PERMITS, ETC. Schedule 3.15 lists all licen ses,
franchises, permits, certificates, consents, rights and privi leges
that are necessary or appropriate for the operation of the Homes. All
such items are in full force and effect.
3.16. LITIGATION. There are no claims, actions, suits, pro
ceedings or investigations pending or, to the Sellers' knowledge,
threatened against or affecting the Company or any of the Assets, at
law or in equity or before or by any court or federal, state, munici
pal or other governmental department, commission, board, agency or in
strumentality. The Company is not subject to any continuing court or
administrative order, writ, injunction or decree, nor is the Company
in default with respect to any order, writ, injunction or
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decree issued by any court or foreign, federal, state, municipal or
other governmental department, commission, board, agency or
instrumentality.
3.17. COMPLIANCE WITH LAWS. The Company has operated and is
operating each Home in compliance with all federal, state, municipal
and other statutes, rules, ordinances and regulations applicable to
the operation of the Homes and the Assets (including without limita
tion all environmental protection and occupational safety and health
rules, regulations and laws, and laws and regulations applicable to
preneed contracts and trust accounts, including the so-called "FTC
Funeral Rule").
3.18. ENVIRONMENTAL MATTERS. The following representations and
warranties are made by the Sellers as set forth below, without
qualification, with respect to the ownership and operation of the
Company, its predecessors, the Assets and the Real Property since (i)
October 1, 1986, as to the Red Bank Home, (ii) July 6, 1990, as to the
Eatontown Home, (iii) March 25, 1989, as to the Keyport and Matawan
Homes, and (iv) July 14, 1994 as to the Family Center, and to the best
knowledge of the Sellers with respect to such ownership and operation
prior to such dates (in each case, as applicable):
(a) The Company has complied and is in compliance with all
Environmental Laws (as hereinafter defined).
(b) Without limiting the generality of the foregoing, the Company
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 Company.
(c) The Company has not received any notice, report or other
information regarding any liabilities (whether accrued, absolute,
contingent,
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unliquidated or otherwise) or investigatory, remedial or corrective
obligations, relating to its business or any of the Real Property
arising under Environmental Laws.
(d) Except as set forth on Schedule 3.18, none of the following
exists on any portion of the Real Property:
(i) Underground storage tanks or surface
impoundments;
(ii) Asbestos-containing material in any form or
condition; or
(iii) Materials or equipment containing polychlorinated
biphenyls.
(e) The Company 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 lia
bilities 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) 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) Without limiting the foregoing, no facts, events or
conditions relating to the past or present facilities, properties or
operations of the Company will prevent, hinder or limit continued
compliance with Environmental Laws, give rise to any investigatory,
remedial or
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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) The Company's SIC (Standard Industrial Classification) number
as designated in the Standard Classification Manual prepared by the
Office of Management and Budget, is 7261, and the Company does not
constitute an "Industrial Establishment" subject to the requirements
of the Industrial Site Recovery Act (previously known as the
Environmental Cleanup Responsibility Act), N.J.S.A. 13:1K-6 ET SEQ.
("ISRA"), and consummation of the transactions hereunder or pursuant
to the Real Property Agreements and the Lease Agreement shall require
notice to or consent of any person or governmental entity under ISRA.
(i) For purposes of this Section 3.17:
"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, polychlori
nated 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.
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3.19. EMPLOYEES. Schedule 3.19 correctly and completely lists the
names and annual or hourly rates of salary and other compen sation of
all the employees and agents of the Company. Schedule 3.19 also sets
forth the date of the last salary increase for each employee listed
thereon, and the outstanding balances of all loans and advances made
by the Company to any such employee or agent. There are not pending or
threatened against the Company any general labor disputes, strikes or
concerted work stoppages, and there are no discussions, negotiations,
demands or proposals that are pending or have been conducted or made
with or by any labor union or association with respect to any
employees of the Company. No Seller is aware of the existence of any
serious health condition of any key management personnel of any Home
that might impair any such person's ability to carry on the essential
functions of his or her position into the foreseeable future after the
Closing. The Sellers believe that the relations between the Company
and its employees are good.
3.20. EMPLOYEE BENEFIT PLANS. Schedule 3.20 lists all plans,
contracts, commitments, programs and policies (including, without
limitation, pension, profit sharing, thrift, bonus, deferred
compensation, severance, retirement, disability, medical, life, dental
and accidental insurance, vacation, sick leave, death benefit and
other similar employee benefit plans and policies) providing benefits
to any employee or former employee of the Company (collectively, the
"Plans"). The Sellers have delivered to the Purchaser true and correct
copies of all documents embodying the Plans. All obligations of the
Company under the Plans have been fully paid, fully funded or adequate
accruals therefor have been made on the Company Balance Sheet. All
necessary governmental approvals have been obtained for all Plans
subject to the Employee Retirement Income Security Act of 1974
("ERISA") and have been qualified under Section 401 of the Code, and
each trust established for any Plan is exempt from
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federal income taxation pursuant to Section 501(a) of the Code. With
respect to any such Plan maintained by the Company, there has been no
(i) "reportable event" as defined in Section 4043 of ERISA, (ii) event
described in Section 4062(e) or 4063(a) of ERISA, or (iii) in the case
of any defined benefit plan, termination or partial termination. The
profit sharing plan described on Schedule 3.20 has been established
and maintained in accordance with the applicable disclosure and
reporting requirements of the Internal Revenue Service and the U.S.
Department of Labor, and to the Shareholder's knowledge at the Closing
the Company will have no funding or other obligations thereunder.
3.21. BOOKS AND RECORDS. All books and records of the Company are
true, correct and complete, have been maintained in accor dance with
good business practice and in accordance with all laws, regulations
and other requirements applicable to the Homes.
3.22. FINDERS. Neither Seller 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, negotiation, execution
or performance of this Agreement.
3.23. AUTHORITY OF THE COMPANY. The execution, delivery and
performance of this Agreement by the Company have been duly authorized
by its Board of Directors. This Agreement is legally binding and
enforceable against the Company in accordance with its terms. Neither
the execution, delivery nor performance of this Agreement by the
Company will result in a violation or breach of, nor constitute a
default or accelerate the performance required under, the Certificate
of Incorporation or bylaws of the Company or any indenture, mortgage,
deed of trust or other contract or agreement to which the Company is a
party or by which it or its properties are
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bound, or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
3.24. AUTHORITY OF THE SHAREHOLDER. The Share-holder has full
authority to enter into this Agreement and the Documents (as hereafter
defined) to which he is a party, and to perform his obligations
hereunder and thereunder, and neither the execution, delivery nor
performance by the Shareholder of this Agreement or such Documents
will result in a violation or breach of any term or provision of, nor
constitute a default under, any contract, agreement or other
commitment to which the Shareholder is a party or by which the
Shareholder or the Assets are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body. This Agreement is, and such Documents upon their
execution and delivery as herein provided will be, valid and binding
obligations of the Shareholder enforceable against the Shareholder in
accordance with their respective terms. For purposes of this
Agreement, the term "Documents" shall mean, as to any party hereto,
any and all agreements, certificates and other instruments expressly
contemplated in this Agreement or any exhibit hereto to be executed or
delivered by or on behalf of such party at or in connection with the
Closing hereunder.
3.25. FULL DISCLOSURE. The representations and warranties made by
the Sellers hereunder or in any Schedules or certificates furnished to
the Purchaser pursuant hereto do not and will not contain any untrue
statement of a fact or omit to state a fact required to be stated
herein or therein or necessary to make the representations or
warranties herein or therein, in light of the circumstances in which
they are made, not misleading.
3.26. SCHEDULES. The Schedules referred to in this Section 3 have
been prepared as of the date hereof in a separate binder or volume
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contemporaneously with the execution of this Agreement, and have been
signed for identification by the Sellers.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to and agrees with the Sellers that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power to
enter into and perform its obligations under this Agreement and the
Documents to which it is a party.
4.2. AUTHORITY. The execution, delivery and performance by the
Purchaser of this Agreement and the Documents contemplated in this
Agreement to be executed and delivered by it have been duly autho
rized by its Board of Directors. This Agreement is, and upon their
execution and delivery as herein provided such other Documents will
be, valid and binding upon the Purchaser and enforceable against it in
accordance with their respective terms. Neither the execution,
delivery or performance by the Purchaser of this Agreement or any such
other document will conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under, the
Certificate of Incorporation or Bylaws of the Purchaser, or under any
indenture, mortgage, deed of trust or other contract or agreement to
which the Purchaser is a party or by which it or its properties are
bound, except for such contracts and commitments for which all
necessary consents will have been duly and validly obtained by the
time of Closing, or violate any order, writ, injunction or decree of
any court, administrative agency or governmental body.
4.3. FINDERS. Except as described in Section 13.1, the Purchaser
is not a party to or in any way obligated under any contract or other
agreement, and there are no outstanding claims against it, for the
payment of any broker's or finder's fee in
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connection with the origin, negotiation, execution or performance of
this Agreement.
4.4. FULL DISCLOSURE. The representations and warranties made by
the Purchaser hereunder or in any certificates furnished to the
Sellers pursuant hereto do not and will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated herein or therein or necessary to make the
representations or warranties herein or therein, in light of the
circumstances in which they are made, not misleading.
5. COVENANTS OF THE SELLERS PENDING CLOSING. The Sellers jointly and
severally covenant with the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to the
Closing Date, each Home will be operated only in the ordinary course,
and, in particular, without the prior written consent of the
Purchaser, the Company will not (and the Shareholder will not cause or
permit the Company to):
(i) cancel or permit any insurance to lapse or termi
nate, unless renewed or replaced by like coverage;
(ii) commit any act or permit the occurrence of any
event or the existence of any condition of the type described in
Section 3.5;
(iii) enter into any contract, agreement or other com
mitment of the type described in Section 3.10;
(iv) hire, fire, reassign or make any other change in key
personnel of the Company, or increase the rate of compensation of
or declare or pay any bonuses to any employee in excess of that
listed on Schedule 3.19; or
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(v) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to be
true and correct in all material respects on and as of the
Closing Date with the same force and effect as if the same had
been made on and as of the Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Sellers will
give to the Purchaser and its counsel, accountants and other represen
tatives, full and free access to all of the properties, books, con
tracts, commitments and records of the Company so that the Purchaser
may have full opportunity to make such investigation as it shall de
sire to make of the Homes and the affairs of the Company and the
Assets.
5.3. CONSENTS AND APPROVALS. The Sellers will use their best
efforts to obtain the necessary consents and approvals of other per
sons which may be required to be obtained on their part to consummate
the transactions contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect,
the Sellers agree that they shall not enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals
or expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion
of the Assets, the sale of all or a controlling interest in the stock
of the Company, or the merger or consolidation of the Company, other
than with the Purchaser. If, during such period, any Seller receives
an inquiry or expression of interest regarding any such transaction,
the Sellers 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.
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6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser cove
nants with the Sellers that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use its best
efforts to obtain the necessary consents and approvals of other
persons which may be required to be obtained on its part to consum
mate the transactions contemplated in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and its
representatives will hold in confidence any data and information
obtained with respect to the Homes from any representative or employee
of the Company, including the accountants or legal counsel of the
Sellers, or from any books or records of any of them, in connection
with the transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, none of the
Purchaser nor its representatives shall use such data or information
or disclose the same to others, except as such data or information is
published or is a matter of public knowledge or is required by an
applicable law or regulation to be disclosed. If this Agreement is
terminated for any reason, all written data and information obtained
by the Purchaser from the Sellers or their representatives in con
nection with the transactions contemplated by this Agreement shall be
returned to the Sellers.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the
Purchaser under this Agreement shall be subject to the following condi
tions, any of which may be expressly waived by it in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any material error,
misstatement or omission in the representations and warranties made by
the Sellers in Section 3 hereof; the representations and warranties
made by the Sellers herein shall be deemed to have been made again at
and as of the time of Closing and shall then be true and correct; the
Sellers shall have performed and complied
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with all agreements and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing; and the
Purchaser shall have received a certificate, signed by the Shareholder
and the President of the Company, to the effect of the foregoing
provisions of this Section 7.1.
7.2. OPINION OF COUNSEL. The Sellers shall have caused to be
delivered to the Purchaser an opinion of Schanker and Hochberg, coun
sel for the Sellers, dated the Closing Date, to the effect that:
(i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New
Jersey, with full corporate authority to enter into and perform
its obligations under this Agreement; and CAT is a general
partnership duly organized and existing under the laws of the
State of New Jersey
(ii) the execution, delivery and performance of this
Agreement by the Company have been duly authorized by all
necessary corporate action required on the part of the Company;
(iii) this Agreement and the Documents to which the Sellers
are parties have been duly and validly executed and delivered by
the Sellers and constitute the valid and binding obligations of
the Sellers enforceable against them in accordance with their
respective terms; the Lease Agreement has been duly and validly
executed and delivered by CAT and constitutes the valid and
binding obligation of CAT enforceable against it in accordance
with its terms; and the Redemption Agreement (including, without
limitation, the non-competition provisions attached as Exhibit
"A" thereto) was duly executed and delivered by Douglas and
constitutes the valid and binding obligation
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of Douglas enforceable against him in accordance with its terms;
(iv) neither the execution, delivery or consummation of
the transactions contemplated by this Agreement or the Documents
to which the Sellers are parties will (x) result in the breach of
or constitute a default under the Certificate of Incorporation or
bylaws of the Company, or under any loan or credit agreement,
indenture, mortgage, deed of trust or other contract or agreement
known to such counsel and to which any Seller is a party or by
which the Sellers or the Assets are bound, or (y) violate any
order, writ, injunction or decree known to such counsel of any
court, administrative agency or governmental body;
(v) no authorization, approval or consent of or declaration
or filing with any governmental authority or regulatory body,
federal, state or local, is necessary or required in connection
with the execution and delivery by the Sellers of this Agreement
or the Documents to which they are parties, or the performance of
their obligations hereunder or thereunder; and
(vi) to the knowledge of such counsel after due inquiry,
there are no claims, actions, suits, proceedings or investiga
tions pending or threatened against or affecting the Company or
any of the Assets, at law or in equity or before or by any court
or federal, stated, municipal or other governmental department,
commission, board, agency or instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholder and officers of the Company, copies of
which shall be provided to Purchaser at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy,
insolvency, reorganization,
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moratorium and similar laws affecting creditors' rights and by
principles of equity. Such opinion may be limited to federal law and
the internal laws of the State of New Jersey.
7.3. CONSENTS AND APPROVALS. The Sellers shall have obtained all
consents and approvals of other persons and governmental authorities
to the transactions contemplated by this Agreement.
7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not have
occurred any loss or damage to any substantial portion of the Assets,
regardless of whether such loss or damage was insured.
7.5. APPROVAL BY COUNSEL. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal
matters shall have been approved by counsel for the Purchaser, and
such counsel shall have been furnished with such certified copies of
actions and proceedings and other instruments and documents as they
shall have reasonably requested.
7.6. PRE-ACQUISITION REVIEW. The Purchaser and its repre
sentatives shall have completed a pre-acquisition review of the
financial information, books and records, and Assets of the Homes and
shall have discovered no change in the business, Assets, operations,
financial condition or prospects of the Homes which could, in the sole
determination of the Purchaser, have an adverse effect on the value to
the Purchaser of the business, Assets, financial condition or
prospects being acquired hereunder.
7.7. RELATED TRANSACTIONS. Each of Douglas, Ted and Drew shall
have executed and delivered to the Purchaser his respective Employment
Agreement; CAT shall have executed and delivered the Lease Agreement;
and the closings under the Real Property Agreements shall have
occurred substantially simultaneously with the Closing hereunder.
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7.8. ENVIRONMENTAL, OSHA AND STRUCTURAL REPORTS. There shall have
been conducted, at the Purchaser's expense, (i) a Phase I (and, if
deemed necessary by Purchaser, a Phase II) environmental audit of each
Home and the Real Property by an environmental consulting firm
selected by Purchaser (or, in lieu thereof, in the Purchaser's sole
discretion, an environmental questionnaire, on forms provided by the
Purchaser, shall have been completed by the manager of the Homes and
delivered to the Purchaser), (ii) a health and safety inspection of
each Home by a person (who may be an employee of the Purchaser) or
firm selected by the Purchaser and who is qualified and experienced in
such matters in the funeral service industry, and (iii) a structural
inspection of each Home by an engineering firm selected by the
Purchaser. In any event, it shall be a condition to the Purchaser's
obligations hereunder that the results of the reports of such firms or
persons (together with any remedial action taken by Sellers,
regardless of the cost, in response thereto) shall be satisfactory to
Purchaser in its sole discretion. Without limiting the generality of
the foregoing, the underground storage tanks located at the Eatontown
and Matawan Homes as described on Schedule 3.18 shall be tested at the
Purchaser's expense for soil contamination by an environmental
consulting firm reasonably acceptable to the Purchaser. The
underground storage tanks at the Keyport Home, which the Sellers
represent are no longer in use, shall be removed following the Closing
as described in Section 10.5.
7.9. ZONING. The Purchaser shall have received a letter or other
acceptable form of communication from a responsible officer of each
municipality or other governmental authority having jurisdiction over
any zoning ordinance or regulation of each Home, indicating the zoning
classification for each parcel on which it is located, affirmatively
stating that the use thereof as a funeral home complies with such
classification, and setting forth (if applicable) the number of
parking spaces required for each such parcel under such ordinance or
regulation.
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7.10. LIEN RELEASES. The holders of any Liens against any of the
Assets (other than Permitted Encumbrances against the Family Center
Tract) or against any of the Real Property covered by the Lease
Agreement (other than the Assumed Mortgage referred to therein) shall
have executed and delivered written releases of such Liens, all in
recordable form and otherwise acceptable to the Purchaser. In
addition, the Mortgagee (as defined in the Lease Agreement) shall have
entered into a subordination, non-disturbance and attornment agreement
with the Purchaser with respect to such Real Property, in form and
substance acceptable to them.
7.11. OTHER MANAGEMENT ARRANGEMENTS. The Sellers shall have
identified to the Purchaser such personnel of the Homes (in addition
to those persons covered by the Employment Agreements) as may be key
to the continued effective management and operation of the Homes after
the Closing, and the Purchaser shall have entered into mutually
satisfactory arrangements regarding the continued employment of such
personnel at the Homes following the Closing.
7.12. APPROVED BUDGET. The Purchaser, the Shareholder and the
Manager of each Home shall have reached agreement regarding the
proposed Operating Budget for the Homes for the current fiscal year of
the Purchaser and for the next succeeding fiscal year; and the
Purchaser shall have received from the Shareholder and such Managers
their certificate, acceptable in form and substance to the Purchaser,
setting forth their acknowledgement regarding such Budget and each
such Manager's agreement to utilize his best efforts to achieve the
results therein contained.
7.13. RELIANCE LETTERS. The Purchaser shall have received a
letter or other written instrument acceptable in form and substance to
the Purchaser from Sobel & Co., LLC, pursuant to which such firm
permits the Purchaser to rely upon its
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review reports referred to in Section 3.3 and waives any requirement
or defense of privity in connection therewith.
7.14. TITLE INSURANCE. The Purchaser shall have received Owner's
(with respect to the Family Center Tract) and Leasehold (with respect
to the Lease Agreement Real Property) Policies of Title Insurance
issued to the Purchaser in agreed-upon amounts, issued by Commonwealth
Land Title Company or another title company mutually designed by the
parties (the "Title Company"), insuring Purchaser's interests therein,
subject only to the Permitted Encumbrances and any standard printed
exceptions included in a New Jersey standard form Policy of Title
Insurance; provided, however, that such policies shall have deleted
any exception regarding restrictions or be limited to restrictions
that are Permitted Encumbrances, any standard exception pertaining to
discrepancies, conflicts or shortages in area shall be deleted except
for "shortages in area", and any standard exception for taxes shall be
limited to subsequent years. All premiums, escrow fees and other costs
associated with the issuance of such policies shall be borne by the
Purchaser.
7.15. 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 the Family Center
Tract and the Lease Agreement Real Property, which surveys shall
comply with any applicable standards under New Jersey law, be
sufficient for Title Company to delete any survey exception contained
in the owner's policy of title insurance referred to in Sec tion 7.14,
and otherwise be in form and content acceptable to Purchaser. All fees
and costs associated with the issuance and finalization of such
surveys shall be borne by the Purchaser.
8. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers under this Agreement shall be subject to the following conditions,
any of which may be
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expressly waived by the Sellers in writing:
8.1. REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Sellers shall not have discovered any material error, mis
statement or omission in the representations and warranties made by
the Purchaser in Section 4 hereof; the representations and warranties
made by the Purchaser herein shall be deemed to have been made again
at and as of the time of Closing and shall then be true and correct;
the Purchaser shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing; and the Sellers shall have
received a certificate, signed by an executive officer of the
Purchaser, to the effect of the foregoing provisions of this Section
8.1.
8.2. OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Sellers an opinion of Snell & Smith, A Professional
Corporation, counsel for Purchaser to the effect that:
(i) the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, and the Purchaser has all requisite corporate power to
enter into and perform its obligations under this Agreement and
the Documents to which it is a party;
(ii) the execution, delivery and performance by the
Purchaser of this Agreement and the Documents to which it is a
party have been duly authorized by its Boards of Directors;
(iii) this Agreement is, and upon execution and delivery as
herein provided the Documents to which the Purchaser is a party
will be, valid and binding upon the Purchaser and enforceable
against the Purchaser in accordance with their respective terms;
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(iv) neither the execution, delivery or performance by the
Purchaser of this Agreement or the Documents to which it is a
party will conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under, the
Certificate of Incorporation or bylaws of the Purchaser or under
any loan or credit agreement, indenture, mortgage, deed of trust
or other contract or agreement known to such counsel and to which
the Purchaser is a party or by which the Purchaser or its
property is bound, or violate any order, writ, injunction or
decree known to such counsel and of any court, administrative
agency or governmental body; and
(v) no authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser of this Agreement or the Documents to which the
Purchaser is a party or the performance of its obligations
hereunder or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public
officials, copies of which shall be provided to Sellers at Closing.
Any opinion as to the enforceability of any document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors rights and by principles of equity. Such
opinion may be limited to federal law, the General Corporation Law of
the State of Delaware and the internal laws of the State of Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
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8.4. RELATED TRANSACTIONS. The Purchaser shall have executed and
delivered to each of Douglas, Ted and Drew his respective Employment
Agreement, and to CAT the Lease Agreement; and the closings under the
Real Property Agreements shall have occurred substantially
simultaneously with the Closing hereunder.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this
Agreement or any Schedule or Exhibit hereto shall be deemed
representations and warranties of the party executing or delivering
the same.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party
hereto, all covenants, agreements, representations and warranties made
hereunder or pursuant hereto or any Schedule or Exhibit hereto or in
connection with the transactions contemplated hereby and thereby shall
not terminate but shall survive the Closing and con tinue in effect
thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SELLERS. The Sellers jointly and
severally agree to indemnify and hold harmless the Purchaser and its
successors and assigns from and against any and all losses, damages,
liabilities, obligations, costs or expenses (any one such item being
herein called a "Loss" and all such items being herein collectively
called "Losses") which are caused by or arise out of (i) any breach or
default in the performance by any Seller of any cove nant or agreement
of the Sellers contained in this Agreement, (ii) any breach of
warranty or inaccurate or erroneous representation made by the Sellers
herein, in any Schedule delivered to the Purchaser pursuant hereto or
in any certificate or other instrument delivered by or on behalf of
the Sellers pursuant hereto,
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(iii) any claim made against the Purchaser in respect of any of the
Unassumed Liabilities, and (iv) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Sellers and their heirs, successors
and assigns from and against any Losses which are caused by or arise
out of (i) any breach or default in the performance by the Purchaser
of any covenant or agreement of the Purchaser contained in this
Agreement, (ii) any breach of warranty or inaccurate or erroneous
representation made by the Purchaser herein or in any certificate or
other instrument delivered by or on behalf of the Purchaser pursuant
hereto, (iii) any claim made against the Sellers in respect of the
Assumed Liabilities, and (iv) any and all actions suits, proceedings,
claims, demands, judgments, costs and expenses (including reasonable
legal fees) incident to any of the foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim
against an indemnified party hereunder that, if successful, might
result in a claim for indemnification against an indemnifying party
hereunder, the indemnifying party shall be given prompt written notice
thereof and shall have the right (i) to participate in the defense
thereof and be represented, at his or its own expense, by advisory
counsel selected by him or it, and (ii) to approve any settlement if
the indemnifying party is, or will be, required to pay any amounts in
connection therewith. Notwithstanding the foregoing, if within ten
business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the
indemnified party that, as between such parties, such claims shall be
fully indemnified for by the indemnifying party as provided herein,
then the indemnifying party shall have the right to control the
defense of such
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claim, provided that the indemnified party shall have the right (i) to
participate in the defense thereof and be repre sented, at his or its
own expenses, by advisory counsel selected by him or it, and (ii) to
approve any settlement if the indemnified party's interests are, or
would be, affected thereby.
10.4. OFFSET. If any Seller becomes obligated to indemnify the
Purchaser after the Closing Date pursuant to this Agreement, at any
time when any Deferred Purchase Price remains payable, then the
Purchaser may, at its option and without prejudice to any right of the
Purchaser to proceed directly against any Seller, set-off the amount
for which any such Seller shall be so obligated against the Deferred
Purchase Price, provided that at the time of offset the Purchaser
shall have accumulated Losses of at least $10,000.00 (it being
understood, however, that the Purchaser shall be entitled to recover
all Losses, including the first $10,000.00). The exercise of such
right of set-off shall be evidenced by means of a written notice to
such effect given by the Purchaser to the Sellers, describing the
basis for indemnity and set-off hereunder and the amount of the
set-off.
10.5. UST REMOVAL. Promptly following the Closing, the (i) the
Purchaser, at its sole cost and expense, shall have the underground
storage tanks at the Matawan and Eatontown Homes (collectively, the
AMatawan and Eatontown Tanks@) tested for soil contamination, and
shall cause the inactive underground storage tanks located at the
Keyport Home as described on Schedule 3.18 (the "Keyport Tanks") to be
removed by a reputable and competent contractor, and the Purchaser
shall, at its sole cost and expense, cause the surrounding soil to be
tested for any contamination resulting from the use, operation or
presence of the Keyport Tanks; and (ii) if the results of such testing
shall reveal the presence of soil or ground water contamination or any
other violation of applicable law, then the Sellers shall, on a
cost-sharing basis as hereafter described, cause such soil to be
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remediated and disposed of in a manner complying with all federal,
state and local legal requirements, or such other action required for
the site to comply with applicable law, and otherwise reasonably
satisfactory to the Purchaser, in which case the Sellers shall file
all necessary reports and other materials with all regulatory agencies
having jurisdiction over such matter, with respect to such removal and
remediation and shall furnish the Purchaser with written evidence of
all of the foregoing as it shall have reasonably requested. In
addition to the "Losses" for which the Purchaser shall be indemnified
against as provided in Section 10.1, the Sellers jointly and severally
agree to indemnify the Purchaser for any Losses arising from the
Matawan and Eatontown Tanks and the Keyport Tanks, including any
remediation, cleanup or other related costs and expenses, as well as
liability, fines and penalties to governmental agencies and third
parties; provided, however, that (after giving effect to any proceeds
received and applied against such liability, costs and expenses from
insurance maintained by the Sellers), the first $25,000.00 shall be
the Sellers' responsibility, the Purchaser shall bear the next
$50,000.00 of such expenses, and the Sellers shall be responsible for
all such costs, expenses and liability in excess of $75,000.00. As
additional security for such indemnification, at the Closing the
Purchaser shall withhold from the Purchase Price the sum of
$100,000.00 (the "Withheld Amount"). If the Purchaser completes (i)
above and (ii) above does not apply, then the Purchaser shall promptly
remit the Withheld Amount to the Company. If (ii) does apply and the
conditions therein described have not been fully satisfied within 120
days after the Purchaser's completion of (i) above, then the Purchaser
shall have the right (but not the obligation) to assume control over
such matters described in (ii) above as shall then not be complete,
all on a cost-sharing basis as described above and without relieving
the Sellers of their responsibility in that regard. The Purchaser
shall have the right to apply the Withheld Amount toward any such
expenses incurred pursuant to the
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preceding sentence, or for any other Losses for which it is entitled
to indemnification under this Section 10.5. Once all of the conditions
set forth in clause (ii) have been satisfied without any further
liability or other "Losses" outstanding (or any and all such Losses
have been paid by the Sellers), any remaining Withheld Amount shall
then be disbursed to the Company.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS. The Sellers agree to
use their best efforts to bring about the satisfaction of the
conditions specified in Section 7 hereof, and the Purchaser agrees to
use its best efforts to bring about the satisfaction of the condi
tions specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior
to Closing by:
(a) the mutual written consent of the Sellers and the
Purchaser;
(b) the Purchaser if a material default shall be made by any
Seller in the observance or in the due and timely per formance by
any of the Sellers' covenants herein contained, or if there shall
have been a material breach or misrepresentation by any Seller of
any of the Sellers' warranties and representa tions herein
contained, or if the conditions of this Agreement to be complied
with or performed by the Sellers at or before the Closing shall
not have been complied with or performed at the time required for
such compliance or performance and such non compliance or
nonperformance shall not have been expressly waived by the
Purchaser in writing;
(c) the Sellers if a material default shall be made by the
Purchaser in the observance or in the due and timely performance
by the Purchaser of any of the covenants of the
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Purchaser herein contained, or if there shall have been a
material breach or mis representation by the Purchaser of any of
its warranties and representations herein contained, or if the
conditions of this Agreement to be complied with or performed by
the Purchaser at or before the Closing shall not have been
complied with or per formed at the time required for such
compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the
Sellers in writing; or
(d) either the Sellers or the Purchaser, if the Closing has
not occurred by November 30, 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 party hereunder. If this Agreement is
terminated under paragraph (b) or (c) of Section 11.2, then (i) the
party so terminating this Agreement shall not have any liability to
any other party hereto, provided the terminating party has not
breached any representation or warranty or failed to comply with any
of its covenants in this Agreement, and (ii) such termi nation 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. RESTRICTIVE COVENANTS.
(a) NON-COMPETITION. If the Closing occurs, Charles agrees
that he shall not, and by her execution hereof Charles' spouse
(Charles, together with his spouse, being herein collectively
referred to as the "Covenantors") agrees that she shall not,
directly or indirectly, for a period commencing on the Closing
Date and ending ten
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(10) years thereafter, do any of the following:
(i) engage, as principal, agent, trustee or through
the agency of any corporation, partnership, association or
agent or agency, anywhere within a 25-mile radius of any
Home (the "Territory"), in the funeral, mortuary, crematory,
monument, or any related line of business (collectively, the
"Business");
(ii) own or hold any beneficial interest in one
percent (1%) or more of the voting securities in any
corporation, partnership or other business entity which con
ducts its operations, in whole or in part, in the Business
within the Territory;
(iii) become an employee of or consultant to, or
otherwise serve in any similar capacity with, any corpora
tion, partnership or other business entity that conducts its
business, in whole or in part, in the Business within the
Territory; or
(iv) cause or induce any present or future employee of
the Purchaser or any of its affiliates to leave the employ
of the Purchaser or any such affiliate to accept employment
with such Covenantor or with any person, firm, association
or corporation with which such Covenantor may be or become
affiliated.
Without limiting the generality of the foregoing, a
Covenantor shall be deemed directly or indirectly engaged in the
Business if he or she acts as a funeral director at any funeral
establishment within the Territory, if such Covenantor engages in
the sale or
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marketing of preneed funeral contracts for services to be
performed within the Territory, or if such Covenantor promotes or
finances any family member or affiliate to operate a Business or
engage in any of the foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be held
invalid or unenforceable because of the scope of the territory or
actions subject thereto or restricted thereby, or the period of
time within which such covenants are operative; but any judg ment
of a court of competent jurisdiction may define the maximum
territory and actions subject to and restricted thereby and the
period of time during which such covenants are enforceable.
(c) REMEDIES. The Covenantors agree that any remedy at law
for any actual or threatened breach of any of the foregoing
covenants would be inadequate and that the Purchaser shall be
entitled to specific performance hereof or injunctive relief or
both, by temporary or permanent injunction or such other appro
priate judicial remedy, writ or order as may be entered into by a
court of competent jurisdiction in addition to any damages that
the Purchaser may be legally entitled to recover together with
reasonable expenses of litigation, including attorneys' fees
incurred in connection therewith, as may be approved by such
court.
(d) REPRESENTATIONS. Each Covenantor represents and warrants
to and agrees with the Purchaser that (i) such Covenantor
understands that the foregoing restrictions are being made
incident to and as a condition of the purchase and sale of the
Assets hereunder, and that such covenants are necessary in order
to protect the business and goodwill being acquired thereby, (ii)
such covenants are not oppressive to such Covenantor in any
respect, and (iii) the consideration for such
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<PAGE>
restrictions is included in the Purchase Price, which
consideration such Covenantor acknowledges is fair and adequate
for the giving of the covenants herein and for which such
Covenantor acknowledges a direct and valuable benefit.
(e) PURCHASE PRICE ALLOCATION. The parties agree to allocate
$50,000 of the Purchase Price to the foregoing covenants for
federal income tax purposes. Such allocation is not intended to
be a measure of the amount or range of damages which the
Purchaser may suffer or recover as a result of any breach of the
foregoing covenants, and the Covenantors acknowledge that in case
of any such breach, the Purchaser shall be entitled to seek in
excess of such amount as it may otherwise be able to demonstrate
itself justly entitled to.
12.2. CHANGE OF NAME. Promptly following the Closing (but in no
event later than 30 days thereafter), the Sellers shall cause the
Articles of Incorporation of the Company to be amended so as to change
its name to one wholly dissimilar to "Sidun Funeral Group" or its
equivalent, and will furnish the Purchaser with written evidence of
such amendment.
12.3. TERMINATION OF PROFIT SHARING PLAN. The parties agree that
the Profit Sharing Plan described on Schedule 3.20 (the "Profit
Sharing Plan") shall not be included as part of the Assets, the
Purchaser shall not be substituted as the sponsoring employer under
the Profit Sharing Plan, and the Assumed Liabilities shall in no event
include any withdrawal, termination, unfunded or underfunded liability
arising in connection with the Profit Sharing Plan. Following the
Closing, the Sellers shall take all necessary action to terminate the
Profit Sharing Plan in accordance with applicable law, in connection
with which the Sellers shall file all necessary forms and pay all
appropriate fees, fines, penalties and other sums due in respect
thereof. Without limiting the
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<PAGE>
generality of Section 10.1, the "Losses" against which the Purchaser
shall be indemnified against shall include all such liabilities,
obligations and responsibilities arising in connection with the Profit
Sharing Plan, whether arising before or after the Closing, and
(regardless of any limitation set forth in the last sentence of
Section 3.20) whether or not known to the Sellers at the time of
Closing.
13. MISCELLANEOUS.
13.1. EXPENSES. Regardless of whether the Closing occurs, the
parties shall each pay their own expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. Without limiting
the generality of the foregoing, all finders' and similar fees and
expenses of Success Plan shall be borne solely by the Purchaser, and
in no event shall the Sellers be charged or responsible therefor.
13.2. BULK SALES LAWS. The transactions contemplated by this
Agreement shall be consummated without compliance with the bulk sales
laws of any state. If by reason of any applicable bulk sales law any
claims are asserted by creditors of the Company, such claims shall be
the responsibility of the Purchaser in the case of claims arising
under any of the Assumed Liabilities, or the responsibility of the
Sellers in the case of claims arising under any other liabilities of
the Company.
13.3. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given on the date personally delivered, three business days
following the date mailed, first class, registered or certified mail,
postage prepaid, or when sent by telex or telecopy and receipt is
confirmed, as follows:
(i) if to any Seller, to:
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<PAGE>
Sidun Funeral Group, Inc.
85 Riverside Avenue
Red Bank, New Jersey 07701
Attn: Mr. Charles D. Sidun
with a copy to:
Schanker and Hochberg
27 West Neck Road
Huntington, New York 11743
Attn: Mr. Steven M. Schanker
(ii) if to the Purchaser, to:
Carriage Funeral Holdings, Inc.
1300 Post Oak Blvd., Suite 1500
Houston, Texas 77056
Attention: President
with a copy to:
Snell & Smith,
A Professional Corporation
1000 Louisiana, Suite 1200
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to
the other parties hereto.
13.4. ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may assign
its rights hereunder without the consent of the Sellers to a
successor-in-interest to the Purchaser (whether by merger, sale of
assets or otherwise). Nothing in this Agreement, express or implied,
is intended to confer upon any person, other than the parties to this
Agreement and their successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
13.5. SUCCESSORS BOUND. Subject to the provisions of Section
13.4, this Agreement shall be
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<PAGE>
binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs and personal representatives.
13.6. SHAREHOLDER CONSENT. The Shareholder, in his capacity as
the sole shareholder of the Company, hereby (i) consents to the sale
of the Assets hereunder pursuant to New Jersey Revised Statutes
Tit.14A, c.10, '11, and (ii) irrevocably and unconditionally waives
all dissenters' and other similar rights with respect to the sale of
the Assets under and pursuant to New Jersey Revised Statutes Tit.14A,
c.11, "1,2.
13.7. SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
13.8. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by both parties hereto.
13.9. ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein con
stitute the entire agreement of the parties hereto, and supersede all
prior understandings with respect to the subject matter hereof and
thereof.
13.10. GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of New Jersey.
13.11. CONSTRUCTION. As the context requires or permits: pronouns
used herein shall include the masculine, the feminine and neuter;
terms used in plural shall include the singular, and singular terms
shall include the plural; "hereof", "herein", "hereunder" and "hereto"
shall refer to this Agreement; and section and paragraph references,
when not expressly referring to another agreement or document, shall
mean sections or paragraphs in this Agreement.
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<PAGE>
13.12. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
13.13 PUBLICITY. The parties agree to (i) maintain the
confidentiality of the commercial terms of the transactions under this
Agreement, including the amount of the Purchase Price, and (ii)
coordinate with one another regarding any press releases or other
public announcements of the consummation of such transactions.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered as of the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL HOLDINGS, INC.
By:_______________________________
MARK W. DUFFEY, President
THE COMPANY:
SIDUN FUNERAL GROUP, INC.
By:_______________________________
CHARLES D. SIDUN, President
THE SHAREHOLDER:
__________________________________
CHARLES D. SIDUN
CARRIAGE SERVICES, INC., a Delaware corporation and the Purchaser's
parent corporation, hereby joins in the execution of this Agreement to evidence
its unconditional and irrevocable guaranty of the obligations of the Purchaser
to pay Deferred Purchase Price pursuant to Section 1.3 hereof.
CARRIAGE SERVICES, INC.
By:_______________________________
MARK W. DUFFEY, President
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<PAGE>
The undersigned spouse of Charles D. Sidun hereby joins in the
execution of this Agreement in order to evidence her agreement to be bound by
the provisions of Section 12.2 hereof.
____________________________________
VIRGINIA L. SIDUN, spouse of
CHARLES D. SIDUN
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<PAGE>
EXHIBIT DESCRIPTION
A-1 Employment Agreement (Douglas Sidun)
A-2 Employment Agreement (Ted Sidun)
A-3 Employment Agreement (Drew Sidun)
B Lease Agreement
SCHEDULES DESCRIPTION
1.2 Retained Assets
3.5 Family Center Tract
3.10 Fixed Assets
3.11 Contracts and Commitments
3.12 Preneed Contracts and Trust Accounts
3.13 Intangible Assets
3.15 Licenses, Permits, Etc.
3.18 Environmental Matters
3.19 Employees
3.20 Employee Benefit Plans
10.6 Building Repairs
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MERGER AGREEMENT
THIS MERGER AGREEMENT dated as of November 19, 1997 (this "Agreement"),
among CARRIAGE SERVICES, INC., a Delaware corporation (the "Purchaser"),
CARRIAGE SERVICES OF FLORIDA, INC., a Florida corporation (the "Acquisition
Subsidiary"), FOREST LAWN/EVERGREEN MANAGEMENT CORP., a Florida corporation (the
"Company"), and GREG M. BRUDNICKI and CHARLES E. KENT, residents of Bay County,
Florida (together, the "Shareholders");
WITNESSETH:
WHEREAS, the Company owns and operates the Forest Lawn Memorial Cemetery
located at 2403 Harrison Avenue, the Evergreen Memorial Gardens Cemetery located
at 3733 U.S. Highway 231 North, and the Garden of Memories Cemetery located at
5435 East 15th Street, all in Panama City, Bay County, Florida (collectively,
the "Cemeteries"), and the Kent Forest Lawn Funeral Home located at 2403
Harrison Avenue in Panama City, Bay County, Florida and the Emerald Coast
Funeral Home located at 113 Racetrack Road, N.E. in Fort Walton Beach, Okaloosa
County, Florida (collectively, the "Homes"), and the Shareholders collectively
own all of the issued and outstanding capital stock of the Company in the
respective amounts shown on Schedule I 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 Florida and upon the terms and conditions and for
the consideration herein set forth and in the Plan of Merger among the
Purchaser, the Acquisition Subsidiary and the Company in the form attached as
Exhibit A hereto (the "Plan of Merger");
NOW, THEREFORE, the parties agree as follows:
1. REORGANIZATION AND MERGER.
1.1. THE MERGER. Simultaneously with the execution of this Agreement, the
Plan of Merger shall be executed and delivered by the Purchaser, the Acquisition
Subsidiary and the Company. Subject to the terms and conditions set forth in
this Agreement and in the Plan of Merger, at the Effective Time of the Merger
(as defined in the Plan of Merger), the Company shall be merged with and into
the Acquisition Subsidiary in accordance with the laws of the State of Florida
and the Plan of Merger. The corporation surviving the Merger is sometimes herein
referred to as the "Surviving Corporation."
1.2. SS.368 REORGANIZATION. It is the intention of the parties that the
Merger constitute a "reorganization" within the meaning of Section 368 (a) (1)
(A) of the Internal Revenue Code of 1986, as amended (the "Code"), in accordance
with Section 368 (a) (2) (D) of the
<PAGE>
Code. The parties agree to file all of their respective tax returns and reports
in a manner consistent with such intention, and to not take any filing position
in a manner inconsistent with such intention unless compelled to do so by court
order or administrative decree. Each party agrees to furnish such information
and take such action as may be reasonably requested of the other party in
connection with the foregoing (which action shall not include any change in the
commercial terms of the Merger and the other transactions incident thereto) . In
no event, however, shall the Purchaser or the Surviving Corporation be required
to incur any out-of-pocket expenses in defending such position or providing such
information or taking such action, nor shall the foregoing constitute a warranty
or guaranty on the part of the Purchaser or the Surviving Corporation that the
Merger will in fact constitute such a reorganization.
1.3. SHAREHOLDER CONSENT; WAIVER OF DISSENTERS' RIGHTS. The Shareholders,
in their capacities as shareholders of the Company, and the Purchaser, in its
capacity as a shareholder of the Acquisition Subsidiary, hereby (i) consent to
the Merger pursuant to Section 607.1103 of the Florida Statutes Annotated, and
(ii) irrevocably and unconditionally waive all dissenters' and other similar
rights with respect to the Merger under and pursuant to Sections 607.1302 and
607.1320 of the Florida Statutes Annotated.
1.4. FURTHER ASSURANCES. The Shareholders jointly and severally agree to
execute and deliver from time to time after the Effective Time of the Merger, at
the reasonable request of the Purchaser, and without further consideration, such
additional instruments of conveyance and transfer, and to take such other action
as the Purchaser may reasonably require to more effectively carry out the terms
and provisions of the Merger and the other transaction contemplated by this
Agreement and the Plan of Merger.
2. THE CLOSING.
2.1. TIME AND PLACE. The Closing of the Merger (the "Closing") shall occur
at the offices of Cranston Pope, 335 Magnolia Avenue, Panama City, Florida 32401
on November 20, 1997, or at such other date, time or place as may be mutually
agreed upon by the parties, but in no event later than November 30, 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 representi4g 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
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<PAGE>
respect thereto, shall be considered to have been taken, delivered or made
simultaneously, and no such action or delivery or payment shall be considered as
complete until all action incident to the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the Merger, at or prior to the
Closing (as specified below) the following transactions shall occur:
(a) The Acquisition Subsidiary, on the one hand, and each of Greg M.
Brudnicki ("Brudnicki"), Charles E. Kent ("Kent"), Charles Kent, Jr.
("Kent, Jr."), and James Holmes ("Holmes"), on the other, shall each
execute and deliver to the other an Employment Agreement to be dated the
Closing Date and in substantially the forms of Exhibits B-1, B-2, B-3 and
B-4, respectively, hereto (collectively, the "Employment Agreements");
(b) The number of positions on the Purchaser's Board of Directors
shall be increased by one (1), and Brudnicki shall be elected to the
vacancy created by such increase;
(c) The Acquisition Subsidiary shall establish its Carriage Partners
Program for Northern Florida, Southern Georgia and Alabama in substantially
the form of Exhibit C hereto (the "Program"), and each Shareholder shall
become a participant in the Program in accordance with the terms and
provisions thereof; and
(d) Immediately prior to the Closing, the Company shall distribute (by
dividend, distribution or bonus) to the Shareholders (or a corporation or
other entity controlled by them) all of the capital stock owned by the
Company in LaGrange Funeral Home, Inc., a Georgia corporation (the
"LaGrange Corporation"), which owns and operates the LaGrange Funeral Home
in LaGrange, Georgia (the "LaGrange Location"), provided that from and
after the Closing the Surviving Corporation shall have no liability in
respect thereof.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
jointly and severally represent and warrant to and agree with the Purchaser and
the Acquisition Subsidiary that:
3.1. TITLE TO SHARES. The 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 I, 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"), other than a Lien on such
stock in
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<PAGE>
favor of People's First Community Bank to secure loans to the Company (which
Liens will be released at or prior to Closing).
3.2. ORGANIZATION AND EXISTENCE. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, 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 Florida,
and the Bylaws, certified by its Secretary, of the Company, all as in effect on
the date hereof.
3.3. CAPITALIZATION. The authorized capital stock of the Company consists
of 500 shares of Common Stock, $1.00 par value, all of which 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.
3.4. NO SUBSIDIARIES. Other than the La Grange Corporation (which will be
transferred out of the Company by the time of Closing), the Company does not
have any subsidiaries or any investment or ownership interest in any
corporation, joint venture or other business enterprise.
3.5. FINANCIAL INFORMATION. The Shareholders have delivered to the
Purchaser (i) the unaudited balance of the Company at May 31, 1997 (the "Company
Balance Sheet") and the related unaudited income statement of the Company for
the nine months then ended, and (ii) the unaudited balance sheet of the Company
at August 31, 1996 and the related unaudited income statement of the Company for
the twelve months then ended. All such financial statements are true and
correct, have been prepared in accordance with the books and records of the
Company, and present fairly the respective financial positions of the Company at
the dates indicated and its results of operations for the periods then ended in
accordance with the federal income tax method of accounting applied on a
consistent basis. Each Home performed the number of adult funeral services in
each of the twelve-month periods ended December 31, 1994 through 1996 and for
the seven months ended July 31, 1997 as set forth on Schedule 3.5 hereto. Each
Cemetery performed at least the number of interments for each
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<PAGE>
of such twelve-month and seven-month periods as set forth on Schedule 3.5.
3.6. REAL PROPERTY.
(a) DESCRIPTION AND TITLE. Schedule 3.6 sets forth a legal description
of all parcels of real property in which the Company have any interest or
which is used in its business (collectively, the "Real Property"), other
than the Excluded Real Property described on Schedule 5.1(a). Schedule 3.6
also briefly describes each building and major structure and improvement
located on the Real Property. No person other than the Company has any
ownership, leasehold or other interest of any kind in the Real Property,
except for the real property on which the Emerald Coast Funeral Home is
located (the "Emerald Coast Real Property"), which is leased to the Company
as described in paragraph (b) below. The Real Property is the only interest
in real property required for the conduct of the business of the Homes and
the Cemeteries as presently conducted. All of the buildings, structures and
improvements located on the Real Property are in good operating condition,
ordinary wear and tear excepted. None of such buildings, structures or
improvements, or the operation or maintenance thereof as now operated or
maintained, contravenes any zoning ordinance or other administrative
regulation or violates any restrictive covenant or any provision of law,
the effect of which would interfere with or prevent their continued use for
the purposes for which they are now being used. There is not pending nor,
to the knowledge of either Shareholder, threatened any proceeding for the
taking or condemnation of the Real Property or any portion thereof. The
Company has good and marketable fee simple title to all of its respective
Real Property (other than the Emerald Coast Real Property), free and clear
of all Liens, other than easements and other similar title exceptions
described on Schedule 3.6 ("Permitted Liens").
(b) EMERALD COAST LEASE. All of the Emerald Coast Real Property is
validly leased to the Company under the Lease Agreement dated March 1, 1996
between the Company, as tenant, and Dennis Ginsburg, Trustee, as landlord
(such Lease Agreement, together with all amendments thereto, being
hereafter referred to as the "Emerald Coast Lease"); the Company is the
current lessee under the Emerald Coast Lease; a true and complete copy of
the Emerald Coast Lease has been provided to the Purchaser; there have been
no amendments or modifications to the Emerald Coast Lease except for those
for which copies have been provided to the Purchaser; the Emerald Coast
Lease is in full force and effect and valid and binding on the parties
thereto, and neither the Company nor (to
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<PAGE>
the Shareholders' knowledge) the landlord thereunder is in default
thereunder.
(c) FIRPTA. Neither the Company nor either Shareholder is a "foreign
person" (as defined in Section 1445(f) (3) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations issued thereunder), and
the Shareholders shall deliver at Closing 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.
(d) BILLS PAID. All bills and other payments due with respect to the
ownership, operation, and maintenance of the Real Property have been (and
on the Closing Date will be) paid, and no Liens or other claims for the
same have been filed or asserted against any part of the Real Property.
(e) NO FLOOD HAZARDS. No portion of the Real Property is located
within an area that has been designated by the Federal Insurance
Administration, the Army Corp of Engineers, or any other governmental
agency or body as being subject to special flooding hazards.
(f) STATUS OF CEMETERY PROPERTIES. All of the Real Property used in
the business of each Cemetery has been plotted for cemetery use. Each
Cemetery consists of the number of developed and undeveloped acres and the
number of unsold individual grave spaces, unsold niches, unsold mausoleum
crypts and unsold lawn crypts as set forth below:
<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF
NO. OF NO. OF UNSOLD NO. OF UNSOLD UNSOLD
DEVELOPED UNDEVELOPED GRAVE UNSOLD MAUSOLEUM LAWN
ACRES ACRES SPACES NICHES CRYPTS CRYPTS
--------- ----------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Forest Lawn ................... 9.75 12.25 645 251 145 16
Evergreen ..................... 26 15 420 45 198 (260)
Garden of Memories ............ 8 9 4,125 12 157 N/A
</TABLE>
3.7. TITLE TO AND STATUS OF PROPERTIES. All assets, rights and properties
utilized in the conduct of the business of the Homes and the Cemeteries are
owned by the Company, and none of such assets, rights or properties is subject
to any lease or license, except for Emerald Coast Real Property that is leased
to the Company as described in Section 3.6. The Company is in actual possession
and control of all properties owned by it, and has good and marketable title to
all of its assets, rights and properties, including without limitation, all
properties and assets reflected in the Company Balance Sheet, free and clear of
all Liens, except for (i) Liens to be
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<PAGE>
discharged and released at or prior to Closing, and (ii) Permitted Liens against
Real Property.
3.8. ABSENCE OF CHANGES OR EVENTS. Since the date of the Company Balance
Sheet, there has not been:
(i) any material adverse change in the financial condition,
operations, business, properties or prospects of the Company;
(ii) any change in the authorized capital or outstanding securities of
the Company;
(iii) any capital stock, bonds or other securities which the Company
has issued, sold, delivered or agreed to issue, sell or deliver, nor has
the Company granted or agreed to grant any options, warrants or other
rights calling for the issue, sale or delivery thereof;
(iv) any borrowing or agreement by the Company to borrow any funds,
nor has the Company incurred, or become subject to, any absolute or
contingent obligation or liability, except trade payables incurred in the
ordinary course of business;
(v) any declaration or payment of any bonus or other extraordinary
compensation to any employee of the Company;
(vi) any hiring, firing, reassignment or other change in any key
personnel of the Company;
(vii) any sale, transfer or other disposition of, or agreement to
sell, transfer or otherwise dispose of, any of the inventories 6r other
assets or properties of the Company, except in the ordinary course of
business;
(viii) any damage, destruction or losses against the Company or any
waiver any rights of material value to the Company;
(ix) any labor strike or labor dispute, or the entering into of any
collective bargaining agreement, with respect to employees of the Company;
(x) any claim or liability for any material damages for any actual or
alleged negligence or other tort or breach of contract against or affecting
the Company;
(xi) any new competitor that has, to the knowledge of either
Shareholder, built, commenced to build or
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<PAGE>
announced intentions to build a funeral home or mortuary in direct
competition with either Home or a cemetery or mausoleum in direct
competition with any Cemetery; or
(xii) any other transaction or event entered into or affecting the
Company other than in the ordinary course of business.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the Company
Balance Sheet, the Company has no, and none of its assets or properties is
subject to any, liabilities or obligations of any kind or nature, other than
unsecured trade accounts payable, 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 Company Balance Sheet.
3.10. TAX MATTERS. All federal, state, county, local and other taxes due
and payable by the Company on or before the date of this Agreement have been
paid or are adequately provided for in the Company Balance Sheet. The Company
has filed all tax returns and reports required to be filed by each of them with
all taxing authorities, and all such tax returns and reports are true, complete
and correct. True and correct copies of the federal, state and local income tax
returns filed by or for the Company for each of its last three taxable years
have been furnished to the Purchaser. Except as described on Schedule 3.10, no
assessments of deficiencies for taxes of any kind have been made against the
Company which are presently pending or outstanding, and no audits which may
result in any such assessment are pending or, to the Share-holders' knowledge,
threatened. Except as described on Schedule 3.10, no state of facts exists or
has existed which would constitute grounds for the assessment of any tax
liability against the Company with respect to any prior taxable period which has
not been audited by the Internal Revenue Service or which has not been closed by
applicable statute. Except as described on Schedule 3.10, there are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any income tax return of the Company for any period.
3.11. INVENTORY; ACCOUNTS RECEIVABLE. The inventories reflected in the
Company Balance Sheet, and all items placed in inventory since the date thereof,
are (i) accounted for in accordance with the federal income tax method of
accounting applied on a consistent basis, and (ii) saleable or usable in the
ordinary course of business of the Company at usual and customary prices,
subject to normal returns and markdowns consistent with past practice. All
accounts and notes receivable reflected in the Company Balance Sheet, and all
accounts and notes receivable arising since the date thereof, (x) represent bona
fide claims against customers for
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<PAGE>
goods sold or services rendered, and (y) are not subject to offsets or defenses
of any kind. At the Closing, the Shareholders shall deliver to the Purchaser a
list, certified by the Shareholders to be complete and correct, of all of the
inventory of the Company as of the Closing Date and all of their accounts
receivable arising from the preneed sale of services or merchandise by the
Cemeteries as of the Closing Date.
3.12. FIXED ASSETS. Schedule 3.12 lists all motor vehicles and all other
material items of equipment, fixtures, furniture and other fixed assets owned by
the Company. All such items are in good and operating condition and repair,
ordinary wear and tear excepted.
3.13. CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto sets forth a complete
description of:
(i) all loan, credit and similar agreements to which the Company is a
party or by which it is bound, and all notes or other evidences of
indebtedness of, or agreements creating any Lien on any property of, the
Company;
(ii) all employment contracts, noncompetition agreements and other
agreements relating to the employment of any employees of the Company;
(iii) all contracts and agreements affecting the Company which do not
terminate or are not terminable by the Company upon notice of 30 days or
less or which involve an obligation on its part in excess of $1,000 per
annum or $5,000 in the aggregate; and
(iv) all other contracts and commitments of the Company entered into
outside the ordinary course of business.
Each contract and commitment described on Schedule 3.13 is valid and
binding on the parties thereto and in full force and effect, and neither the
Company, as the case may be, nor, to the knowledge of the Shareholders, any of
the other parties thereto, is in default thereunder. The Shareholders have
furnished to the Purchaser a true and complete copy of each document listed on
Schedule 3.13.
3.14. PRENEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.14 hereto accurately
and completely lists, as of the date of this Agreement (i) all preneed contracts
of the Company unfulfilled as of the date hereof, including contracts for the
sale of funeral merchandise and services, and summaries of contracts for
cemetery merchandise and plots, and (ii) all trust accounts relating to the
Homes and the Cemeteries,
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indicating the location of each and the balance thereof. All preneed contracts
required to be listed on Schedule 3.14 (x) have been entered into in the normal
course of business at regular retail prices, or pursuant to a sales promotion
program, solely for use by the named customers and members of their families on
terms not more favorable than shown on the specimen contracts which have been
delivered to the Purchaser, (y) are subject to the rules and regulations of the
Company as now in force (copies of which have been delivered to the Purchaser),
and (z) on the date hereof are in full force and effect, subject to no offsets,
claims or waivers, and neither the Company, as the case may be, nor such
customer is in default thereunder. All funds received by the Company under
preneed contracts have been deposited in the appropriate accounts and
administered and reported in accordance with the terms thereof and as required
by applicable laws and regulations. The aggregate market value of the preneed
accounts, trusts or other deposits is equal to or greater than the aggregate
preneed liability related to such accounts. The services heretofore provided by
the Company have been rendered in a professional and competent manner consistent
with prevailing professional standards, practices and customs.
3.15. TRADEMARKS. ETC. Schedule 3.15 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. The Company owns or
possesses valid rights or adequate licenses for all of such Intangible Rights as
are necessary to the conduct of the business of the Homes and the Cemeteries as
presently conducted. The Company is not charged with infringement of any
Intangible Rights of any other person, nor does either Shareholder know of any
such infringement, whether or not claimed by any person.
3.16. INSURANCE. The Company maintains such policies of insurance in such
amounts, and which insure against such losses and risks, as are generally
maintained for comparable businesses and properties. Valid policies for such
insurance will be outstanding and duly in force at all times prior to the
Closing.
3.17. LICENSES. PERMITS. ETC. Schedule 3.17 hereto correctly and completely
lists all licenses, franchises, permits, certificates, consents, rights and
privileges issued to or held by the Company, which are all that are necessary or
appropriate for the operation of the Homes and the Cemeteries as presently
operated. All such items are in full force and effect.
3.18. LITIGATION. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowl-
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edge of either Shareholder, threatened against or affecting the Company 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. The Company is not subject to any
continuing court or administrative order, writ, injunction or decree, nor is the
Company in default with respect to any order, writ, injunction or decree issued
by any court or foreign, federal, state, municipal or other governmental
department, commission, board, agency or instrumentality.
3.19. COMPLIANCE WITH LAWS. The Company has complied and is in compliance
with all federal, state, municipal and other statutes, rules, ordinances, and
regulations applicable to the Company and its assets, rights and properties, and
to the operation of each Home and each Cemetery (including without limitation
all occupational safety and health rules, regulations and laws, and laws and
regulations applicable to preneed and perpetual care contracts and trust
accounts, including the so-called "FTC Funeral Rule").
3.20. ENVIRONMENTAL MATTERS.
(a) The Company has complied and is in compliance with all
Environmental Laws (as hereinafter defined)
(b) Without limiting the generality of the foregoing, the Company 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 Company.
(c) The Company has not 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 3.20, none of the following exists
on any portion of the Real Property:
(i) Underground storage tanks or surface impoundments;
(ii) Asbestos-containing material in any form or condition; or
(iii) Materials or equipment containing polychlorinated biphenyls.
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(e) The Company has not 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) 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) Without limiting the foregoing, no facts, events or conditions
relating to the past or present facilities, properties or operations of the
Company 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 3.20:
"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. The Purchaser acknowledges that the
Company uses formaldehyde and other similar chemicals typically associated
with the operation of a funeral
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home, and that such substances constitute "Hazardous Materials."
"Release" has the meaning set forth in CERCLA.
3.21. EMPLOYEES. Schedule 3.21 hereto correctly and completely lists the
names and monthly or hourly rates of salary and other compensation of all the
employees and agents of the Company. Schedule 3.21 also sets forth the date of
the last salary increase for each employee listed thereon, the outstanding
balances of all loans and advances, if any, made by the Company to any employee
or agent thereof, and the number of vacation days or other time off to which
each such employee is presently eligible to take. There are not pending or, to
the knowledge of either Shareholder, threatened against the Company any general
labor disputes, strikes or concerted work stoppages, and there are no
discussions, negotiations, demands or proposals that are pending or have been
conducted or made with or by any labor union or association with respect to any
employees of the Company. No Shareholder is aware of the existence of any
serious health condition of any key management personnel of the Company 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
Shareholders believe that the relations between the Company, on the one hand,
and their respective employees, on the other, are good.
3.22. EMPLOYEE BENEFIT PLANS. Schedule 3.22 sets 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 which provides benefits to
any employee or former employee of the Company. True and complete copies of all
such benefit plans have been provided to the Purchaser. All obligations of the
Company under the Plans have been fully paid, fully funded or adequate accruals
therefor have been made on the Company Balance Sheet. All necessary governmental
approvals have been obtained for all Plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA") and have been qualified under Section 401
of the Code, and each trust established for any Plan is exempt from federal
income taxation pursuant to Section 501 (a) of the Code. With respect to any
such Plan, there has been no (i) "reportable event" as defined in Section 4043
of ERISA, (ii) event described in Section 4062(e) or 4063 (a) of ERISA, or (iii)
in the case of any defined benefit plan, termination or partial termination.
3.23. AFFILIATED PARTY TRANSACTIONS. The Company have been operated and are
being operated in a manner separate
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from the personal and other business activities of the Shareholders and their
affiliates1 and neither of the Company nor any of its assets are subject to any
affiliated party commitments or transactions.
3.24. BOOKS AND RECORDS. All books and records of the Company are true,
correct and complete and have been maintained by it in accordance with good
business practices and in accordance with all laws, regulations and other
requirements applicable to the Company. The corporate records of the Company
reflect a true record of all meetings and proceedings of the Board of Directors
and shareholders of the Company.
3.25. FINDERS. Neither the Company nor either Shareholder is a party to or
in any way obligated under any contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
3.26. AUTHORITY OF THE SHAREHOLDERS. Each Shareholder has the full right,
capacity and authority to enter into and perform this Agreement and the other
documents to be executed by such Shareholder as provided in this Agreement, and
to consummate the transactions contemplated hereby and thereby. This Agreement
constitutes, and upon execution and delivery by each Shareholder, each of such
other documents will constitute, the legal, valid and binding obligations of the
Shareholders enforceable against them in accordance with their respective terms.
Neither the execution, delivery nor performance of this Agreement or any of such
other documents, nor the consummation of the transactions contemplated hereby or
thereby, will: (i) result in a violation or breach of any term or provision of,
constitute a default or acceleration under, require notice to or consent of any
third party to, or result in the creation of any Lien by virtue of (x) the
Articles of Incorporation or Bylaws of the Company, or (y) any contract,
agreement, lease, license or other commitment to which the Company or either
Shareholder is a party or by which the Company or any such Shareholder or his or
its respective assets or properties are bound; nor (ii) violate any statute or
any order, writ, injunction or decree of any court, administrative agency or
governmental body.
3.27. 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 Agreement is legally binding and enforceable against the Company
in accordance with their respective terms. Neither the execution, delivery nor
performance by the Company of this Agreement will result in a violation or
breach of, nor constitute a default or accelerate the performance required
under, the
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<PAGE>
Articles of Incorporation or Bylaws of the Company or any indenture, mortgage,
deed of trust or other contract or agreement to which the Company is a party or
by which it or its properties are bound, or violate any order, writ, injunction
or decree of any court, administrative agency or governmental body.
3.28. FULL DISCLOSURE. The representations and warranties 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 representations or warranties
herein or therein, in light of the circumstances in which they are made, not
misleading.
3.29. SCHEDULES. The Schedules referred to in this Section 3 have been
prepared as of the date hereof in a separate binder or volume contemporaneously
with the execution of this Agreement, and have been signed for identification by
the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE ACQUISITION
SUBSIDIARY. The Purchaser and the Acquisition Subsidiary jointly and severally
represent and warrant to and agree with the Shareholders that:
4.1. ORGANIZATION AND EXISTENCE. The Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida, 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.
4.2. CAPITALIZATION. The authorized capital stock of the Purchaser consists
of (i) 40,000,000 shares of Class A Common Stock, $.0l par value, of which
5,541,780 shares were issued and outstanding as of September 30, 1997; (ii)
10,000,000 shares of Class B Common Stock, $.01 par value, of which 5,050,485
shares were issued and outstanding as of September 30, 1997, and (iii)
70,000,000 shares of Preferred Stock, $.0l par value, of which (x) 2,000,000
shares have been designated as Series D Preferred Stock, $.01 par value, of
which
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<PAGE>
1,682,500 shares were issued and outstanding as of September 30, 1997; (y)
11,000,000 shares have been designated as Series E Preferred Stock, $.01 par
value, none of which shares were issued and outstanding as of September 30,
1997; and (z) 15,000,000 shares have been designated as Series F Preferred
Stock, $.0l par value, of which 14,611,677 shares were issued and outstanding as
of September 30, 1997.
4.3. 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) the Prospectus dated June 3, 1997 relating to the shelf
registration of 2,000,000 shares of the Purchaser's Class A Common Stock, and
(ii) its Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, both as filed with the Securities and Exchange Commission (collectively,
"SEC Filings"). As of their respective dates, the SEC Filings did 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 true and correct in all
material respects, have been prepared in accordance with the books and records
of the Purchaser and its subsidiaries, and 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.
4.4. NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has not been
any material adverse change in the financial condition, operations, properties
or prospects of the Purchaser and its consolidated subsidiaries taken as a
whole.
4.5. AUTHORITY. The execution, delivery and performance by the Purchaser
and the Acquisition Subsidiary of this Agreement and the documents contemplated
in this Agreement to be executed and delivered by them have been duly authorized
by their respective Boards of Directors. This Agreement is, and upon their
execution and delivery as herein provided such other documents will be, valid
and binding upon the Purchaser and the Acquisition Subsidiary and enforceable
against each of them in accordance with their respective terms. Neither the
execution, delivery or performance by the Purchaser or the Acquisition
Subsidiary of this Agreement or any such other document will conflict with or
result in a violation or breach of any term or provision of, nor constitute a
default under, the 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
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<PAGE>
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. Consummation of the transactions contemplated by this
Agreement will not require the consent or approval of 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, Inc., or
otherwise.
4.6. FINDERS. Except as described in Section 11.1, 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 performance of this Agreement.
5. COVENANTS PENDING CLOSING.
5.1. 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 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, do any the following:
(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.
(iv) take any action described in Section 3.8;
(v) enter into any contract, agreement or other commitment of the
type described in Section 3.13;
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(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 3.21; or
(vii) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to be true
and correct in all material respects on and as of the Closing Date
with the same force and effect as if the same had been made on and as
of the Closing Date.
Notwithstanding the foregoing, the Company may, immediately prior to
the Closing, (x) transfer the stock of the La Grange Corporation to the
Shareholders as contemplated in Section 2.2(d); and (y) sell to the
Shareholders fee simple title to the real estate described on Schedule
5.1(a) (the "Excluded Real Property") for the sum of $400,000.00, as shall
be represented by the Shareholders' Promissory Note payable to the Company
in such amount (the "Shareholders Note").
(b) ACCESS TO INFORMATION. Prior to Closing, the Company will give to
the Purchaser and its counsel, accountants and other representatives, full
and free access to all of the properties, books, contracts, commitments and
records of the Company so that the Purchaser may have full opportunity to
make such investigation as it shall desire to make of the affairs of the
Company.
(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 consummate
the transactions contemplated by this Agreement.
(d) NO SHOP. For so long as this Agreement remains in effect, neither
the Company nor either Shareholder shall enter into any agreements or
commitments, or initiate, solicit or encourage any offers, proposals or
expressions of interest, or otherwise hold any discussions with 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 other sale of the Company (whether by
merger, consolidation, sale of any shares of capital stock of the Company,
or otherwise), other than with the Purchaser and the Acquisition Subsidiary
as contemplated in this Agreement. If, during such period, the Company or
either Shareholder receives an inquiry or expression of interest regarding
any such
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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.
5.2. COVENANTS OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY. The
Purchaser and the Acquisition Subsidiary jointly and severally covenant with the
Shareholders that 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.
5.3. CONFIDENTIALITY. Prior to the Closing, each 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 responsible 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 knowledge or is required by an applicable
law or regulation 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.
6. CONDITIONS TO CLOSING.
6.1. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE ACQUISITION
SUBSIDIARY. The obligations of the Purchaser and the Acquisition Subsidiary
under this Agreement shall be subject to the following conditions, any of which
may be expressly waived by the Purchaser in writing:
(a) REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED. The
Purchaser shall not have discovered any error, misstatement or omission in
the representations and warranties made by the Shareholders in Section 3
hereof; the representations and warranties made by the Shareholders herein
shall be deemed to have been made again at and as of the time of Closing
and shall then be true and correct; the Company and the Shareholders shall
have performed and complied with all agreements and conditions required by
this Agreement to be performed or
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complied with by them at or prior to the Closing; and the Purchaser shall have
received a certificate, signed by the Shareholders and an executive officer of
the Company, to the effect of the foregoing provisions of this Section 6.1(a).
(b) OPINION OF LEGAL COUNSEL. The Shareholders shall have caused to be
delivered to the Purchaser an opinion of Cranston Pope, legal counsel for
the Company and the Shareholders, dated the Closing Date, to the effect
that:
(i) the Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida, with full
corporate authority to enter into and perform its obligations under
this Agreement and the Plan of Merger;
(ii) the authorized capital stock of the Company consists of 500
shares of Common Stock, $1.00 par value, all of which shares are
validly issued and outstanding and fully paid and nonassessable;
(iii) to the knowledge of such counsel, after due inquiry, there
are no outstanding subscriptions, options or other agreements or
commitments obligating the Company to issue any shares of its capital
stock or securities convertible into shares of its capital stock;
(iv) the Shareholders are the record and beneficial owners of all
of the issued and outstanding shares of capital stock of the Company,
free and clear of any and all Liens (other than as described in
Section 3.1, and the Shareholders have full capacity to enter into and
perform their obligations in accordance with this Agreement;
(v) the execution, delivery and performance by the Company of
this Agreement and the Plan of Merger have been duly authorized and
approved by all necessary corporate action required on the part of the
Company;
(vi) this Agreement and the Plan of Merger have been duly and
validly executed and delivered by the Company, and this Agreement and
the Plan of Merger constitute the valid and binding obligations of the
Company enforceable against it in accordance with their respective
terms;
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<PAGE>
(vii) this Agreement and the other documents to be executed and
delivered hereunder by the Shareholders (as shall be specified in such
opinion) have been duly and validly executed and delivered by the
Shareholders, and this Agreement and such other documents constitute
the valid and binding obligations of the Shareholders enforceable
against them in accordance with their respective terms;
(viii) neither the execution, delivery or consummation of the
transactions contemplated by this Agreement, the Plan of Merger or any
of such other documents will (x) result in the breach of or constitute
a default under the Articles of Incorporation or Bylaws of the Company
or any loan or credit agreement, indenture, mortgage, deed of trust or
other contract or agreement known to such counsel and to which the
Company or either Shareholder is a party or by which they or their
respective assets are bound, or (y) violate any order, writ,
injunction or decree known to such counsel of any court,
administrative agency or governmental body;
(ix) except as specified in such opinion, no authorization,
approval or consent of or declaration or filing with any governmental
authority or regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the Company
and the Shareholders of this Agreement, the Plan of Merger or any of
such other documents;
(x) to the knowledge of such counsel after due inquiry, there are
no claims, actions, suits, proceedings or investigations pending or
threatened against or affecting the Company or any of its assets, at
law or in equity or before or by any court or federal, state,
municipal or other governmental department, commission, board, agency
or instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of the Shareholders and officers of the Company and
certificates of public officials, copies of which shall be provided to the
Purchaser at Closing. Any opinion as to the enforceability of any document
may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of the State of
Florida.
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(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: (i) the landlord under the
Emerald Coast Lease shall have delivered to the Purchaser a written
instrument pursuant to which such landlord (x) consents to the transactions
hereunder (or certifies that such consent is not required) and (y)
represents to the Purchaser that the Emerald Coast Lease is in full force
and effect and that neither it nor, to its knowledge, the Company is in
default thereunder; and (ii) the Purchaser shall have received written
notice that its application to acquire control of the Cemeteries has been
approved by the Florida Board of Funeral and Cemetery Services, pursuant to
Florida Statutes Ann. ss.497.007(2), and that all publication and waiting
periods in connection therewith have expired.
(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, 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.
(e) RELATED TRANSACTIONS. Brudnicki, Kent, Kent, Jr. and Holmes shall
have executed and delivered to the Acquisition Subsidiary their respective
Employment Agreements; and each Shareholder shall have executed and
delivered his plan adoption agreement pursuant to the terms of the Program.
(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
Cemeteries by a person (who may be an employee of the Purchaser) or firm
selected by the Purchaser and who is qualified and experienced in such
matters in the funeral service industry, and (iii) a structural inspection
of each Home and each building on the Cemeteries 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 $25,000 in the aggregate at the Homes and
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the Cemeteries, 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 thereto) 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 Emerald Coast Real Property) and one or more Owner's Policies of
Title Insurance (with respect to all other Real Property) issued to the
applicable Acquisition Subsidiary in agreed-upon amounts, issued by
Commonwealth Land Title Insurance Company or another title agency
reasonably acceptable to the parties (the "Title Company"), insuring the
Acquisition Subsidiary's leasehold or ownership interest (as the case may
be) in the Real Property, subject only to the Permitted Liens and any
standard printed exceptions included in a Florida 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. All premiums and other expenses to the Title Company associated with
the issuance of such title policies shall be borne equally between the
Purchaser and the Shareholders.
(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 Florida law, be
sufficient for Title Company to delete any survey exception contained in
each applicable policy of title insurance referred to in Section 6.1(g),
save and except for the phrase "shortages in area", and otherwise be in
form and content acceptable to the Purchaser. All fees and expenses of such
surveyor shall be borne equally between the Purchaser and the Shareholders.
(i) ZONING. The Purchaser shall have received a letter or other
acceptable form of communication from a responsible officer of each
municipality or other governmental authority having jurisdiction over any
zoning ordinance or regulation of each parcel of Real Property, indicating
the zoning classification for each such parcel, affirmatively stating that
the use thereof as a
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funeral home or cemetery, as the case may be, complies with such
classification, and setting forth (if applicable) the number of parking
spaces required for each such parcel under such ordinance or regulation.
(j) LIEN RELEASES. The holders of the Liens against any assets or
stock of the Company, including any of the Real Property (other than
Permitted Liens) shall have executed and delivered written releases of such
Liens, all in recordable form and otherwise acceptable to the Purchaser.
(k) OTHER MANAGEMENT ARRANGEMENTS. The Shareholders shall have
identified to the Purchaser such other personnel of the Company (in
addition to the parties to the Employment Agreements) as may be key to the
continued effective management and operation of the Homes and the
Cemeteries after the Closing, and the Purchaser shall have entered into
mutually satisfactory arrangements regarding the continued employment of
such personnel at the applicable Home or the Cemeteries following the
Closing.
(1) APPROVED BUDGET. The Purchaser and the Shareholders shall have
reached agreement regarding the proposed Operating Budget for the Homes and
the Cemeteries for the fiscal year ending December 31, 1998; and the
Purchaser shall have received from the Shareholders their certificate,
acceptable in form and substance to the Purchaser, setting forth their
acknowledgement regarding such Budget and their agreement to utilize their
best efforts to achieve the results therein contained.
(m) SHAREHOLDERS NOTE. Effective upon the Closing, the Shareholders
shall have paid in full the amount of the Shareholders Note and the amount
of all other loans and other sums owed by them to the Company.
6.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS. The
obligations of the Company and the Shareholders under this Agreement shall be
subject to the following conditions, any of which may be expressly waived by the
Shareholders in writing:
(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 4 hereof; the representations and
warranties made by the Purchaser and the Acquisition Subsidiary herein
shall be deemed to have been made again at and as of the time of Closing
and
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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 6.2(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, dated the Closing Date, to the effect that:
(i) the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power to enter into and perform its
obligations under this Agreement and the Plan of Merger; and the
Acquisition Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida,
and has all requisite corporate power to enter into and perform its
obligations under this Agreement and the other documents contemplated
herein to be executed and delivered by the Acquisition Subsidiary (as
shall be specified in such opinion);
(ii) the execution, delivery and performance by the Purchaser and
the Acquisition Subsidiary of this Agreement and such other documents
have been duly authorized and approved by all necessary corporate
action required on their part;
(iii) this Agreement is, and upon execution and delivery as
herein provided such other documents will be, valid and binding upon
the Purchaser and the Acquisition Subsidiary, enforceable against the
Purchaser and the Acquisition Subsidiary in accordance with their
respective terms;
(iv) neither the execution, delivery or performance by the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default under,
the Certificate of Incorporation or Bylaws of the Purchaser, the
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Articles of Incorporation or Bylaws of the Acquisition Subsidiary or
under any loan or credit agreement, indenture, mortgage, deed of trust
or other contract or agreement known to such counsel and to which the
Purchaser or the Acquisition Subsidiary is a party or by which they or
their respective properties are bound, or violate any order, writ,
injunction or decree known to such counsel and of any court,
administrative agency or governmental body; and
(v) except as specified in such opinion, no authorization,
approval or consent of or declaration or filing with any governmental
authority or regulatory body, federal, state or local, is necessary or
required in connection with the execution and delivery by the
Purchaser or the Acquisition Subsidiary of this Agreement or any of
such other documents, or the performance of its obligations hereunder
or thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and the Acquisition Subsidiary,
and on certificates of public officials, copies of which shall be provided
to the Shareholder at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors rights and by
principles of equity. Such opinion may be limited to federal law, the
General Corporation Law of the State of Delaware and the internal laws of
the State of Texas.
(c) CONSENTS AND APPROVALS. The Purchaser and the Acquisition
Subsidiary shall have obtained all consents and approvals of other persons
and governmental authorities to the transactions contemplated by this
Agreement.
(d) 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.
(e) RELATED TRANSACTIONS. The Acquisition Subsidiary shall have
executed and delivered to Brudnicki, Kent, Kent, Jr. and Holmes their
respective Employment Agreements; the number of positions on the
Purchaser's Board of Directors shall have been increased by one (1) and
Brudnicki shall have been elected to the vacancy created by such increase;
and the Acquisition Subsidiary
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shall have established the Program and executed and delivered to the
Shareholders their plan adoption agreements thereunder.
6.3. MUTUAL CONDITIONS TO CLOSING. The respective obligations 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) 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.
(b) 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.
7. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
7.1. 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.
7.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation made at any time by or on behalf of any party hereto, all
covenants, agreements, representations and warranties made hereunder or pursuant
hereto or any Schedule or Exhibit hereto or in connection with the transactions
contemplated hereby and thereby shall not terminate but shall survive the
Closing and continue in effect thereafter.
8. INDEMNIFICATION.
8.1. 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
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or arise out of (i) any breach or default in the performance by the Company or
either Shareholder of any covenant or agreement of the Company or the
Shareholders contained in this Agreement, (ii) any breach of warranty or
inaccurate or erroneous representation made by either Shareholder herein, in any
Schedule delivered to the Purchaser pursuant hereto or in any certificate or
other instrument delivered by or on behalf of the Company or either Shareholder
pursuant hereto, (iii) any Closing Date Liability (as defined in the Plan of
Merger) of the Company of any kind or nature, whether absolute or contingent,
known or unknown, to the extent not paid or discharged prior to the Effective
Time of the Merger or not disclosed pursuant to the certificate of the
Shareholders delivered to the Purchaser as provided in Sections 5(a) (iii) (F)
and 5(g) of the Plan of Merger, (iv) all liabilities and obligations whatsoever
associated with the ownership and operation of the La Grange Location, and (v)
any and all actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the foregoing.
8.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser and the Acquisition
Subsidiary jointly and severally agree to indemnify and hold harmless the
Shareholders and their heirs and assigns from and against any Losses which are
caused by or arise out of (i) any breach or default in the performance by the
Purchaser or the Acquisition Subsidiary of any covenant or agreement of the
Purchaser or the Acquisition Subsidiary contained in this Agreement, (ii) any
breach of warranty or inaccurate or erroneous representation made by the
Purchaser or the Acquisition Subsidiary herein or in any certificate or other
instrument delivered by or on behalf of the Purchaser or the Acquisition
Subsidiary pursuant hereto, and (iii) any and all actions, suits, proceedings,
claims, demands, judgments, costs and expenses (including reasonable legal fees)
incident to any of the foregoing.
8.3. THIRD PARTY CLAIMS. If any third person asserts a claim against a
party entitled to indemnification hereunder ("indemnified party") that, if
successful, might result in a claim for indemnification against another party
hereunder ("indemnifying party"), the indemnifying party shall be given prompt
written notice thereof and shall have the right (i) to participate in the
defense thereof and be represented, at its own expense, by advisory counsel
selected by it, and (ii) to approve any settlement if the indemnifying party is,
or will be, required to pay any amounts in connection therewith, which approval
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, if
within ten business days after delivery of the indemnified party's notice
described above, the indemnifying party indicates in writing to the indemnified
party that, as between such parties, such claims shall be fully indemnified for
by the indemnifying party as provided
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herein, then the indemnifying party shall have the right to control the defense
of such claim, provided that the indemnified party shall have the right (i) to
participate in the defense thereof and be represented, at its own expenses, by
advisory counsel selected by it, and (ii) to approve any settlement if the
indemnified party's interests are, or would be, affected thereby.
8.4. OFFSET. If either Shareholder becomes obligated to indemnify the
Surviving Corporation or the Purchaser after the Closing Date pursuant to this
Agreement, at any time when any Deferred Merger Consideration or Contingent
Merger Consideration (as such terms are defined in the Plan of Merger), or any
portion of the Merger Consideration attributable to Closing Date Receivables (as
defined in the Plan of Merger), remains payable, then the Purchaser may, at its
option and without prejudice to any right of the Purchaser to proceed directly
against any of the Shareholders, set-off the amount for which the Shareholders
shall be so obligated against such components of the Merger Consideration. The
exercise of such right of set-off shall be evidenced by means of a written
notice to such effect given by the Purchaser to the Shareholders, describing the
basis for indemnity and set-off hereunder and the amount of the set-off. To the
extent of any offset against Deferred Merger Consideration, the amount offset
against shall be determined based upon present value as of the date of such
offset, at a discount rate of seven percent (7%) per annum.
9. TERMINATION.
9.1. 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 6.1 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 6.2 hereof.
9.2. TERMINATION. This Agreement may be terminated prior to Closing by:
(a) the mutual written consent of the Shareholders and the Purchaser;
(b) the Purchaser if a material default shall be made by the Company
or either Shareholder in the observance or in the due and timely
performance by any of their covenants herein contained, or if there shall
have been a material breach or misrepresentation by the Company or either
Shareholder of any of their warranties and representations herein
contained, or if the conditions of this Agreement to be complied with or
performed
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by the Company or either Shareholder at or before the Closing shall not
have been complied with or performed at the time required for such
compliance or performance and such noncompliance or nonperformance shall
not have been expressly waived by the Purchaser in writing;
(c) the Shareholders if a material default shall be made by the
Purchaser or the Acquisition Subsidiary in the observance or in the due and
timely performance by the Purchaser or the Acquisition Subsidiary of any of
their covenants herein contained, or if there shall have been a material
breach or misrepresentation by the Purchaser or the Acquisition Subsidiary
of any of their warranties and representations herein contained, or if the
conditions of this Agreement to be complied with or performed by the
Purchaser and the Acquisition Subsidiary at or before the Closing shall not
have been complied with or performed at the time required for such
compliance or performance and such noncompliance or nonperformance shall
not have been expressly waived by the Shareholders in writing; or
(d) either the Shareholders or the Purchaser, if the Closing has not
occurred by November 30, 1997.
9.3. LIABILITY UPON TERMINATION. If this Agreement is terminated under
paragraph (a) or (d) of Section 9.2, then no party shall have any liability to
any other parties hereunder. If this Agreement is terminated under paragraph (b)
or (c) of Section 9.2, 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.
10. POST-CLOSING COVENANTS.
10.1. RESTRICTIVE COVENANTS.
(a) NON-COMPETITION. If the Closing occurs, then for a period
commencing on the Closing Date and ending fifteen (15) years thereafter,
neither Shareholder nor by her execution hereof such Shareholder's spouse
(the Shareholders, together with their spouses being hereafter referred to
as the "Covenantors") shall, directly or indirectly:
(i) engage, as principal, agent, trustee or through the agency of
any corporation, partner-
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ship, association or agent or agency, anywhere within a fifty (50)
mile radius of either Home or any Cemetery (the "Territory"), in the
funeral, mortuary, crematory, monument, cemetery or any related line
of business (collectively, the "Business");
(ii) own or hold any beneficial interest in one percent (1%) or
more of the voting securities in any corporation, partnership or other
business entity which conducts its operations, in whole or in part, in
the Business within the Territory;
(iii) become an employee of or consultant to, or otherwise serve
in any similar capacity with, any corporation, partnership or other
business entity that conducts its business, in whole or in part, in
the Business within the Territory; or
(iv) cause or induce any present or future employee of the
Purchaser or any of its affiliates to leave the employ of the
Purchaser or any such affiliate to accept employment with such
Covenantor or with any person, firm, association or corporation with
which such Covenantor may be or become affiliated.
Without limiting the generality of the foregoing, a Covenantor shall
be deemed directly or indirectly engage in the Business if he or she acts
as a funeral director at any funeral establishment within the Territory, if
such Covenantor engages in the sale or marketing of preneed funeral
contracts for services to be performed within the Territory, or if such
Covenantor promotes or finances any family member or affiliate to operate a
Business or engage in any of the foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be held invalid or
unenforceable because of the scope of the territory or actions subject
thereto or restricted thereby, or the period of time within which such
covenants are operative; but any judgment of a court of competent
jurisdiction may define the maximum territory and actions subject to and
restricted thereby and the period of time during which such covenants are
enforceable.
(c) REMEDIES. The Covenators agree that any remedy at law for any
actual or threatened breach of any of the foregoing covenants would be
inadequate and that the Purchaser shall be entitled to specific performance
hereof or injunctive relief or both, by temporary or
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permanent injunction or such other appropriate judicial remedy, writ or
order as may be entered into by a court of competent jurisdiction in
addition to any damages that the Purchaser may be legally entitled to
recover together with reasonable expenses of litigation, including
attorneys' fees incurred in connection therewith, as may be approved by
such court.
(d) REPRESENTATIONS. Each Covenator represents and warrants to and
agrees with the Purchaser that (i) such Covenantor understands that the
foregoing restrictions are being made incident to and as a condition of
consummation of the Merger hereunder, and that such covenants are necessary
in order to protect the business and goodwill being acquired thereby, (ii)
such covenants are not oppressive to such Covenantor in any respect, and
(iii) the consideration for such restrictions is included in the Merger
Consideration, which consideration such Covenantor acknowledges is fair and
adequate for the giving of the covenants herein and for which such
Covenantor acknowledges a direct and valuable benefit.
(e) MERGER CONSIDERATION ALLOCATION. The parties agree to allocate
$50,000 of the Merger Consideration to the foregoing covenants for federal
income tax purposes. Such allocation is not intended to be a measure of the
amount or range of damages which the Purchaser may suffer or recover as a
result of any breach of the foregoing covenants, and the Covenantors
acknowledge that in case of any such breach, the Purchaser shall be
entitled to seek in excess of such amount as it may otherwise be able to
demonstrate itself justly entitled to.
10.2. TAX MATTERS. (a) Except as provided in paragraph (b) below, 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 (i) jointly and severally indemnify the Surviving
Corporation and the Purchaser from any Losses (including income tax liability,
assessments, interest and penalties) arising from any disallowance of the Merger
as a "reorganization" under Code Section 368 (other than as a result of any
action taken by the Purchaser or the Surviving Corporation following the
Merger), and (ii) 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 will be included as part of the consolidated group of
which the Purchaser is the parent
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corporation), and the Shareholders shall pay all federal income taxes in respect
thereof. If after the Closing the Surviving Corporation becomes entitled to and
actually receives any federal or state income tax refund in respect of any tax
period prior to the Closing Date, the Surviving Corporation shall forward such
refund, in the form received, to the Shareholders.
(b) Notwithstanding paragraph (a) above, the Shareholders shall not be
responsible for (and the Surviving Corporation shall retain liability for)
any federal or state income tax liability ("Assumed Tax Liability") which
may be assessed after the Closing in respect of operations of the Company
prior to the Closing, but only insofar as any such tax liability is
directly attributable to the sale of cemetery merchandise and services on a
preneed basis as to which there are accounts receivable in existence on
(and ONLY to the extent of the balance of such accounts receivable as of)
the Closing Date arising from such sales ("Preneed Cemetery Accounts
Receivable"); provided, however, that without limiting the generality of
the foregoing, there is specifically excluded from Assumed Tax Liability
(i) any federal or state income tax liability arising from (a) sales from
funeral merchandise and services; (b) sales of cemetery merchandise and
services on an at-need basis; and (c) sales of cemetery merchandise and
services on a preneed basis1 but only insofar as such sales are not
reflected in the Preneed Cemetery Accounts Receivable; (ii) any penalties
and interest that may be assessed in respect of the Assumed Tax Liability;
and (iii) the professional fees of any attorneys, tax advisors or other
consultants in defending any tax position or in negotiating or settling any
tax liability. The Shareholders shall have the right to control the defense
of any audits or proceedings in which an Assumed Tax liability may be
assessed, provided that the Shareholders shall keep the Purchaser
reasonably advised of all developments in any such audit or proceedings,
the Purchaser may participate in such defense with counsel or advisors of
its own choice (and at the Purchaser's own expense), and the Purchaser
shall have the right to approve any settlement concerning the Assumed Tax
Liability, which consent shall not be unreasonably withheld or delayed. At
such time as any such assessment which may result in Assumed Tax Liability
may become final (whether by judgment or agreement), the Shareholders and
the Purchaser shall provide access to each other's records and otherwise
cooperate with one another so as to properly allocate the total tax based
upon (x) the proportion between sales of preneed cemetery merchandise and
services attributable to Preneed Cemetery Accounts Receivable balances as
of the Closing Date (on the one hand) and such sales for which there are
not such corresponding balances as of the Closing Date (on the other), and
(y) the other principles set forth above. At such time as the Assumed Tax
Liability becomes finally determined in accordance
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with this Section 10.2, the Purchaser shall reimburse the Shareholders for
the amount thereof within ten (10) business days.
10.3. 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 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 3.22 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 8.1, the "Losses"
against which the Purchaser and the Surviving Corporation shall be indemnified
against shall include all such liabilities1 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.
10.4. RESALE OF CARRIAGE STOCK. The parties acknowledge that all shares of
Class A Common Stock of the Purchaser (and all shares of Class A Common Stock
issuable upon conversion of the Purchaser's Series E Preferred Stock)
constituting a portion of the Merger Consideration as provided in the Plan of
Merger ("Carriage Stock") will be registered under the Securities Act of 1933,
as amended, pursuant to a Registration Statement on Form S-4. Notwithstanding
such registration, however, each Shareholder, for himself and for all future
holders of the Carriage Stock, hereby agrees that, for a period of two years
following the Closing, (i) he shall not, without the Purchaser's prior written
consent, sell a number of shares of Carriage Stock, over any three-month period,
in excess of the greater of (x) one percent (1%) of the total number of shares
of Common Stock of the Purchaser then outstanding or (y) the average weekly
reported volume of trading of the Common Stock on any national securities
exchange on which the Common Stock is traded, or as reported on the NASDAQ
National Market Service, as applicable, during the four calendar weeks preceding
the date of the proposed sale; and (ii) if during such two-year period the
Purchaser engages in an underwritten public offering of its Common Stock, and
the managing underwriter(s) request(s) either or both Shareholders to refrain
from selling or otherwise disposing of any Carriage Stock for a certain period
(not to exceed 180 days), then the Shareholders shall enter into the requested
lock-up agreement
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with such underwriter(s) to the extent and in the same manner that members of
the Purchaser's Board of Directors are so requested.
10.5. LA GRANGE LOCATION. Immediately prior to the Closing, as provided in
Section 2.2(d), the Company shall distribute to the Shareholders (or their
designated entity) all of the stock of the La Grange Corporation. The Surviving
Corporation shall have no liability and obligations associated with the La
Grange Corporation or the La Grange Location, and the Surviving Corporation and
the Purchaser shall be indemnified in respect thereof as provided in Section
8.1(iv). Prior to or following the Closing, the Shareholders shall take all
necessary action to obtain all necessary approvals under Georgia law to permit
the transfer of the La Grange Corporation's stock as described in said Section
2.2(d), including any necessary transfers of the La Grange Location's funeral
establishment license to, or to be obtain a new license in the name of, the
Shareholders or their designated entity.
11. MISCELLANEOUS.
11.1. EXPENSES. Regardless of whether the Closing occurs, the parties shall
pay their own expenses in connection with the negotiation, preparation and
carrying out of this Agreement and the consummation of the transactions
contemplated herein. If the transactions contemplated by this Agreement and the
Exhibits hereto are consummated, the Company shall have no obligation for, nor
shall 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 either 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.
11.2. 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, or when sent by facsimile
transmission and receipt is confirmed, as follows:
(i) if to the Company or either Shareholder, to:
Forest Lawn/Evergreen Management Corp.
2403 Harrison Avenue
Panama City, Florida 32405
Attention: Mr. Greg M. Brudnicki
Facsimile: 850/785-1897
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with a copy to:
Cranston Pope
P.0. Box 12151
Panama City, Florida 32401
Facsimile: 904/784-9175
(ii) if to the Purchaser or the Acquisition Subsidiary, to:
Carriage Services, Inc.
1300 Post Oak Boulevard, Suite 1500
Houston, Texas 77056
Attention: President
Facsimile: (281) 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.
11.3. 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).
11.4. SUCCESSORS BOUND. Subject to the provisions of Section 11.3, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
11.5. 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.
11.6. AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by all of the parties hereto.
11.7. ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates and other documents referred to herein, constitute the entire
agreement of the parties
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hereto, and supersede all prior understandings with respect to the subject
matter hereof and thereof.
11.8. GOVERNING LAW. This Agreement shall be construed and enforced under
and in accordance with and governed by the law of the State of Florida.
11.9. 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.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
THE PURCHASER:
CARRIAGE SERVICES, INC.
By: MARK W. DUFFEY, President
THE ACQUISITION SUBSIDIARY:
CARRIAGE SERVICES OF FLORIDA, INC.
By: MARK W. DUFFEY, President
THE COMPANY:
FOREST LAWN/EVERGREEN MANAGEMENT CORP.
By: GREG M. BRUDNICKI, President
THE SHAREHOLDERS:
GREG M. BRUDNICKI
CHARLES E. KENT
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<PAGE>
The undersigned spouses of the Shareholders hereby join in the execution of
this Agreement for purposes of evidencing their agreement to be bound by the
provisions of Section 10.1 hereof.
EVELYN L. BRUDNICKI, wife of GREG M.
BRUDNICKI
JULIE KENT, wife of CHARLES E. KENT
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<PAGE>
EXHIBIT DESCRIPTION
A Plan of Merger
B-1 Employment Agreement (Greg M. Brudnicki)
B-2 Employment Agreement (Charles E. Kent)
B-3 Employment Agreement (Charles Kent, Jr.)
B-4 Employment Agreement (Jim Holmes)
C Carriage Partners Program
SCHEDULE DESCRIPTION
I The Shareholders
3.5 Financial Information
3.6 Real Property
3.12 Fixed Assets
3.13 Contracts and Commitments
3.14 Preneed Contracts and Trust Accounts
3.15 Intangible Rights
3.17 Licenses
3.20 Environmental Matters
3.21 Employees
3.22 Employee Benefit Plans
5.1(a) Excluded Real Property
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EXHIBIT 10.19
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of November 19, 1997, among CARRIAGE FUNERAL
HOLDINGS, INC., a Delaware corporation (the "Purchaser"), KENT-THORNTON FUNERAL
HOME, INC., an Alabama corporation (the "Company"), and GREG BRUDNICKI, CHARLES
KENT, RICKY KENT and JANE THORNTON (collectively, the "Shareholders") (the
Company and the Shareholders being sometimes hereafter referred to together as
the "Sellers");
W I T N E S S E T H:
WHEREAS, the Company owns all of the operating assets, rights and
properties associated with the operation of the Kent-Thornton Funeral Home
located at 1468 Hartford Highway in Dothan, Houston County, Alabama (the
"Home"), and the Shareholders collectively own all of the issued and outstanding
capital stock of the Company; and
WHEREAS, the parties desire that the Purchaser acquire substantially all of
such assets, rights and properties of the Home from the Company, and that the
parties enter into certain related transactions, on the terms and subject to the
conditions hereafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. TRANSFER OF ASSETS BY THE COMPANY. Subject to the provisions of this
Agreement, the Company agrees to sell, and the Purchaser agrees to purchase, at
the Closing referred to in Section 2.1, substantially all of the properties,
assets, rights and business of the Home of every kind and description, tangible
and intangible, real, personal or mixed, wherever located, as they shall exist
at the time of the Closing (collectively, the "Assets"), including, but not
limited to, all of the following-described assets, rights and properties (but
excluding those described in Section 1.2):
(i) inventories of caskets, vaults, urns, accessories, monuments and
other goods and inventories;
(ii) fee simple title to all of the interests in real property used in
the business and operations of the Home, more particularly described on
Schedule 3.5 hereto (collectively, the "Real Property");
<PAGE>
(iii) machinery, equipment, motor vehicles (five), furniture,
fixtures, supplies, tools and other fixed assets and property, plant and
equipment, including those described on Schedule 3.10 hereto;
(iv) all cash balances in bank accounts and certificates of deposit
and other investments to fund obligations under preneed contracts;
(v) all pre-need contracts of the Home and other agreements, leases
and commitments described on Schedule 3.11 (other than those shown thereon,
if any, as not being assumed by the Purchaser);
(vi) all rights to the name "Kent-Thornton Funeral Home" and all
derivatives thereof, and all trademarks, trade names, patents, processes,
copyrights, know-how and similar intangible rights, and all goodwill
associated therewith;
(vii) all permits, licenses, books, records, brochures and literature,
rights in unemployment compensation, industrial accident and other similar
funds, and prepaid items; and
(viii) all other assets, rights and properties owned or leased by the
Company that are used in or necessary for the Home at the time of Closing,
excluding those described in Section 1.2.
At the Closing, the Company shall convey to the Purchaser the Assets free and
clear of any and all liens, security interests, pledges, encumbrances,
easements, rights-of-way or title restrictions of any kind (collectively,
"Liens"), other than easements and other similar restrictions against Real
Property described on Schedule 3.5 ("Permitted Encumbrances").
1.2. RETAINED ASSETS. Notwithstanding the foregoing, the following
properties, assets, rights and interests (the "Retained Assets") are hereby
excluded from the purchase and sale contemplated hereby and are therefore not
included in the Assets:
(i) all cash on hand, in transit or on deposit, including bank account
balances, certificates of deposit and marketable securities, excluding,
however, account balances and certificates of deposit to fund preneed
contracts;
(ii) notes and accounts receivable; and
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(iii) any prepaid federal income taxes of the Company, and any rights
to or claims for federal income tax refunds, in respect of the operation of
the Home prior to the Closing.
1.3. PURCHASE PRICE. The purchase price for the Assets shall be
$1,000,000.00 PLUS the amount (if any) of the Contingent Purchase Price payable
under Section 1.5 below (the "Purchase Price"). Of the Purchase Price, (i) an
amount sufficient to discharge indebtedness of the Company as determined by the
Purchaser pursuant to Section 1.4 shall be paid to the holders of such
indebtedness, (ii) the Contingent Purchase Price, if earned, shall be payable in
the manner specified in Section 1.5, and (iii) the balance of the Purchase
Price, after deducting the amounts in clauses (i) through (ii) above, shall be
paid to the Company in cash at Closing by wire transfer to such account as the
Sellers shall designate in writing at least three business days prior to the
Closing. The Purchase Price shall be subject to adjustment following the Closing
as provided in Sections 1.4 and 1.5.
1.4. ADJUSTMENT TO PURCHASE PRICE. At least two business days prior to the
Closing, the Sellers shall deliver to the Purchaser a written statement,
certified by them to be accurate and complete, setting forth a description, and
the outstanding balance as of the date of such statement, of all liabilities and
obligations of the Company, including (but not limited to) indebtedness for
borrowed money, indebtedness secured by Liens against any of the Assets,
accounts and trade payable, accrued liabilities, federal, state and local taxes,
any liabilities under suits, claims judgments or orders then pending, or any
other liability or obligation (collectively, "Unassumed Liabilities"), excluding
only Assumed Liabilities described in Section 1.6. At Closing, the Purchaser
shall pay out of the Purchase Price such portion thereof as shall be required to
pay and discharge those Unassumed Liabilities as the Purchaser in its sole
discretion deems appropriate, which at a minimum shall include liabilities
secured by Liens against any of the Assets, and any and unsecured indebtedness
for borrowed money, but may also include any of such other liabilities.
Notwithstanding such payment, the Sellers shall remain responsible for paying
any remaining Unassumed Liabilities. Payments under this Section 1.4 shall be
deemed downward adjustments in the Purchase Price.
1.5. CONTINGENT PURCHASE PRICE. If the Earnout Amount (as hereafter
calculated) is determined to be greater than $1,000,000.00, then the Purchaser
shall pay,
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as additional Purchase Price hereunder, the amount by which the Earnout Amount
exceeds $1,000,000.00, without interest. If the Earnout Amount is equal to or
less than $1,000,000.00, then no adjustment to the Purchase Price shall be made
hereunder. If the Contingent Purchase Price is so earned, the Purchaser shall
pay the same on or before March 31, 2001, either in cash or in shares of Class A
Common Stock, $.01 par value ("Class A Common Stock") (based upon its Fair
Market Value, as hereafter defined, determined as of December 31, 2000), of
Carriage Services, Inc., a Delaware corporation ("Parent"), as the Shareholders
shall indicate by written notice delivered to the Purchaser on or before
February 28, 2001 (and in the absence of such notice, the entire amount of the
Contingent Purchase Price shall be payable in cash). The Contingent Purchase
Price shall be subject to offset as provided in Section 10.4. For purposes
hereof:
"Earnout Amount" means the product of (x) the sum of the Home's
Operating Net Income (as hereafter defined) for the Purchaser's fiscal
years ending December 31, 1998-2000, divided by three, MULTIPLIED BY (y)
seven.
"Operating Net Income" of the Home means for any fiscal year, the net
income for such fiscal year attributable to the revenues and expenses from
the Home, determined in accordance with generally accepted accounting
principles and as reflected in the unaudited statement of income of the
operations of the Home for such Fiscal Year, PLUS federal income taxes,
interest, depreciation and amortization deducted for purposes of
calculating such net income. In no event will there be charged against
Operating Net Income, for purposes of the above calculation, any corporate
overhead charges from the Purchaser's corporate offices in Houston, Texas,
other than auditors fees, insurance premiums, legal expenses and other
similar costs of the Purchaser, all of which must be reasonably and
directly attributable to the Home's operations.
"Fair Market Value" means the average Trading Value of a share of
Class A Common Stock for the ten trading days immediately preceding the
date of determination. For purposes of the foregoing, "Trading Value"
means, on any trading day for the Class A Common Stock, (i) if the Class A
Common Stock is traded on a national securities exchange on such trading
day, then the closing price on such trading day as reflected in the
consolidated trading tables of the WALL STREET JOURNAL or any other
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appropriate publication, (ii) if the Class A Common Stock is traded
over-the-counter and reported on NASDAQ, then the average of the high and
low sales prices on such trading day as reported in such publication or, if
not so published, then as reported by NASDAQ, or (iii) if the Class A
Common Stock is not traded on a national securities exchange or in the
NASDAQ National Market System on such trading day, then the representative
bid and asked prices at the end of such trading day in such market as
reported by NASDAQ.
1.6. ASSUMPTION OF LIABILITIES. The Purchaser, upon the sale and purchase
of the Assets, shall, subject to Section 1.7 below, assume and agree to pay or
discharge only the following liabilities and obligations of the Company
(collectively, the "Assumed Liabilities"):
(i) liabilities under those preneed contracts of the Home that are
included in the Assets, provided that as of the Closing such liabilities
are fully covered by trust or insurance; and
(ii) obligations arising after Closing under the agreements, leases
and commitments of the Home described in Schedule 3.11 (other than
agreements, leases and commitments, if any, which are indicated on such
Schedule as not to be assumed by the Purchaser).
The assumption by the Purchaser of the Assumed Liabilities shall not
enlarge any rights or remedies of any third parties under any contracts or
arrangements so assumed. Nothing herein shall prevent the Purchaser from
- -contesting in good faith any of the Assumed Liabilities. At Closing, the
Purchaser shall deliver to the Company an instrument, dated the Closing Date and
reasonably satisfactory in form and substance to it, pursuant to which the
Purchaser will assume the Assumed Liabilities.
1.7. LIMITATIONS ON ASSUMPTION. Notwithstanding Section 1.6 above, the
Purchaser will not assume and does not agree to pay or discharge any obligations
or liabilities of the Company not specifically included in the Assumed
Liabilities. In particular, without limiting the generality of the definition of
"Unassumed Liabilities" under Section 1.4 above, the Purchaser shall not assume
or agree to pay or discharge any of the following:
(i) any notes or accounts payable;
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(ii) any trade payables of any kind, regardless of whether entered
into in the ordinary course of business;
(iii) any federal, state or local tax of any type, whether arising by
reason of the sale of the Assets or by operation of the Home prior to the
Closing Date;
(iv) any losses, costs, damages or expense based upon or arising from
any claims, litigation, legal proceedings or other actions against the
Company based upon any set of facts occurring prior to the Closing;
(v) the liabilities and obligations under any warranties to customers
with respect to goods or products sold or services provided by the Company
prior to Closing;
(vi) all personal injury, product liability claims, claims of
environmental damage, claims of hazards to health, strict liability, toxic
torts, enforcement proceedings, cleanup orders and other similar actions or
claims instituted by private parties or governmental agencies, with respect
to the operation of the Home prior to Closing; or
(vii) any other liability or obligation not specifically included
within the Assumed Liabilities.
1.8. CERTAIN PRORATIONS. All normal and customarily proratable items,
including without limitation, real estate and personal property taxes, rents
under leases and utility bills, shall be prorated as of the Closing Date, the
Company being charged and credited for all of same up to such date and the
Purchaser being charged and credited for all of same on and after such date.
Utility services will be transferred to the Purchaser's name on the Closing
Date. If the actual amounts to be prorated are not known as of the Closing Date,
the prorations shall be made on the basis of the best evidence then available,
and thereafter, within thirty (30) days after actual figures are received, a
cash settlement will be made between the Company and the Purchaser.
1.9. INSTRUMENTS OF TRANSFER. At the Closing, the Sellers shall deliver to
the Purchaser such instruments of transfer, assignment and conveyance, including
(without limitation) bills of sale, general warranty deeds,
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lease assignments and assignments of motor vehicle registrations, transferring
title to the Assets to the Purchaser as may reasonably be requested by the
Purchaser. Such instruments shall be reasonably satisfactory in form and
substance to the Purchaser and shall vest in the Purchaser good and marketable
title to all the Assets, free and clear of all Liens except (in the case of Real
Property) for any Permitted Encumbrances.
1.10. DELIVERY OF RECORDS. CONTRACTS AND TRUST FUNDS. At the Closing, the
Company will deliver to the Purchaser all of the leases, contracts, commitments
and rights of the Home constituting a portion of the Assets, with such
assignments thereof and consents to assignment as the Purchaser shall deem
necessary to assure the Purchaser of their full benefit. Simultaneously with
such deliveries, the Company shall take all requisite steps to put the Purchaser
in actual possession and operating control of the Assets and all of the records,
books and other data of the Home. In addition, at the Closing, the Sellers and
the Purchaser shall take all necessary or appropriate action to cause the
transfer of the trust-funds referred to in Section 3.12 including, without
limitation, the obtaining of governmental and third party consents.
1.11. TAXES. Any sales or transfer taxes which may be payable in connection
with the sale of the Assets under this Agreement shall be paid by the Sellers.
1.12. EMPLOYEE MATTERS. On the Closing Date, the Purchaser may (but shall
not be required to) offer employment to each employee of the Home listed on
Schedule 3.19. Each such employee so offered employment-who accepts shall,
effective as of the Closing Date, cease to be an employee of the Company and
shall thereupon become an employee of the Purchaser. The Sellers shall be
responsible for satisfying all claims, if any, of such employees as to accrued
vacation and holiday, health benefits, workers compensation claims, termination
and severance benefits, and any withdrawal liability and vested rights under any
pension or profit sharing plans, all arising and accrued through the Closing
Date, and in no event shall the Purchaser have any liability or responsibility
in respect thereof.
1.13. FURTHER ASSURANCES. The Sellers shall from time to time after the
Closing, without further consideration, execute and deliver such instruments of
transfer, conveyance and assignment (in addition to those delivered pursuant to
Section 1.9), and shall take such other action, as the Purchaser may reasonably
request to
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more effectively transfer, convey and assign to and vest in the Purchaser, and
to put the Purchaser in actual possession and control of, each of the Assets.
2. THE CLOSING.
2.1. TIME AND PLACE. The closing of the transactions contemplated under
this Agreement (the "Closing") shall occur at the offices of Cranston Pope, 438
N. Cove Blvd., Panama City, Florida 32401, at 9:00 a.m. on November 20, 1997, or
at such other date, time or place as may be mutually agreed upon by the parties,
but in no event later than November 30, 1997. The date and time of the Closing
is herein called the "Closing Date", and shall be deemed to have occurred as of
the commencement of business on the Closing Date. All action to be taken at the
Closing as hereinafter set forth, and all documents and instruments executed and
delivered, and all payments made with respect thereto, shall be considered to
have been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action incident to
the Closing has been completed.
2.2. RELATED TRANSACTIONS. In addition to the purchase and sale of the
Assets, the following transactions shall take place at the Closing:
(i) the Purchaser, on the one hand, and each of Kendall Glover
("Glover") and Earl Sellers ("Earl"), on the other, shall each execute and
deliver to the other an Employment Agreement to be dated the Closing Date,
substantially in the forms of Exhibit A-1 and A-2, respectively, hereto
(collectively, the "Employment Agreements"); and
(ii) on the date of this Agreement, Parent, Carriage Services of
Florida, Inc. ("Carriage-Florida"), Forest Lawn/Evergreen Management Corp.
("Forest Lawn) and the shareholders of Forest Lawn have entered into a
Merger Agreement (the "Merger Agreement") providing for, among other
things, the merger of Forest Lawn with and into Carriage-Florida, and the
Closing hereunder is subject to the closing substantially simultaneously
therewith of such merger transaction under the Merger Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers jointly and
severally represent and warrant to and agree with the Purchaser that:
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3.1. ORGANIZATION AND EXISTENCE. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Alabama, and has all requisite corporate power to enter into and perform its
obligations under this Agreement.
3.2. OWNERSHIP OF THE COMPANY. The Shareholders collectively own and hold
all of the issued and outstanding capital stock of the Company.
3.3. FINANCIAL STATEMENTS. The Sellers have delivered to the Purchaser (i)
the unaudited balance sheet of the Company at December 31, 1996 (the "Company
Balance Sheet") and the related unaudited income statement of the Company for
the twelve-month period of operations then ended, and (ii) the unaudited balance
sheet of the Company at December 31, 1995 and the related unaudited income
statement of the Company for the twelve-month period of operations then ended.
All of such financial statements are true and correct, have been prepared in
accordance with the books and records of the Company, and present fairly the
financial positions of the Company at the dates thereof and the results of
operations of the Company for the periods then ended in accordance with the
federal income tax method of accounting applied on a consistent basis. The Home
performed at least 114 adult casketed funeral services for the twelve months
ended December 31, 1995, at least 164 adult casketed funeral services for the
twelve months ended December 31, 1996, and at least 74 adult casketed funeral
services for the seven months ended July 31, 1997.
3.4. TITLE TO AND STATUS OF ASSETS. All assets, rights and properties
required in the operation of the -Home are owned or validly leased by the
Company and are included within the Assets. The Company is in actual possession
and control of all properties owned or leased by it which are required in the
operation of the Home, and has good and marketable title to all of the Assets,
free and clear of all Liens (except, in the case of Real Property, for Permitted
Encumbrances).
3.5. REAL PROPERTY.
(a) DESCRIPTION. Schedule 3.5 sets forth a legal description of all parcels
included within the Real Property, and also briefly describes each building and
major structure and improvement thereon. The Company has good and marketable fee
simple title to the Real Property as shown on Schedule 3.5, free and clear of
any and all Liens, other than Permitted Encumbrances. No person other than the
Company has any ownership, leasehold or
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other interest of any kind in the Real Property. The Real Property constitutes
all of the interests in real property required for the operation of the Home as
presently conducted. All of the buildings, structures and improvements located
on the Real Property are in good operating condition, ordinary wear and tear
excepted. None of such buildings, structures or improvements, or the operation
or maintenance thereof as now operated or maintained, contravenes any zoning
ordinance or other administrative regulation or violates any restrictive
covenant or any provision of law, the effect of which would interfere with or
prevent their continued use for the purposes for which they are now being used.
There is not pending nor, to the knowledge of any Seller, threatened any
proceeding for the taking or condemnation of the Real Property or any portion
thereof.
(b) NO FLOOD HAZARDS. The Real Property is not located within an area that
has been designated by the Federal Insurance Administration, the Army Corp of
Engineers, or any other governmental agency or body as being subject to special
flooding hazards.
(c) NON-FOREIGN STATUS. The Company is not a "foreign person" or a "United
States real property holding corporation" (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 Company shall deliver at Closing a non-foreign
affidavit in recordable form containing such information as shall be required by
Code Section 1445(b)(2) and the regulations issued thereunder.
(d) BILLS PAID. All bills and other payments due -with respect to the
ownership, operation, and maintenance of the Real Property have been (and on the
Closing Date will be) paid, and no Liens or other claims for the same have been
filed or asserted against any part of the Real Property.
3.6. ABSENCE OF CHANGES OR EVENTS. Since the date of the Company Balance
Sheet, there has not been:
(i) any adverse change in the financial condition, operations,
properties or prospects of the Home;
(ii)any material damage, destruction or losses against the Home or any
of its properties;
(iii) any claim or liability for any material damages for any actual
or alleged negli-
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gence or other tort or breach of contract against or affecting the Company;
(iv) any declaration or payment of any bonus or other extraordinary
compensation to any employee of the Company;
(v) any hiring, firing, reassignment or other change in any key
personnel of the Company;
(vi) any sale, transfer or other disposition of, or agreement to sell,
transfer or otherwise dispose of, any of the inventories or other assets or
properties of the Company, except in the ordinary course of business;
(vii) any labor strike or labor dispute, or the entering into of any
collective bargaining agreement, with respect to employees of the Company;
(viii) 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 the Home; or
(ix) any other transaction or event entered into or affecting the
Company other than in the ordinary course of business.
3.7. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the Company
Balance Sheet and in this Agreement, the Company has no, and none of its assets
or properties are subject to any, liabilities or obligations, other than
unsecured trade accounts payable and accrued expenses arising in the ordinary
course of business since the date of the Company Balance Sheet.
3.8. TAX MATTERS. All federal, state, county, local and other taxes due and
payable on or before the date of this Agreement in respect of the Company and
the ownership of the Assets have been paid. All tax returns and reports required
to be filed for all such taxes have been filed with all taxing authorities, and
all such tax returns and reports are true and correct. True and correct copies
of the federal, state and local income tax returns filed by the Company for each
of its last three taxable years have been furnished to the Purchaser. No
assessments of deficiencies have been made against the Company which are
presently pending or outstanding, and no state or facts exist which would
constitute grounds
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for any such assessment. No agreements, waivers or extensions of time are in
effect for the assessment of deficiencies in respect of the business or any of
the Assets. Following the Closing, the Sellers shall be responsible for
accurately and completely preparing, signing and filing all tax returns and
paying all taxes in respect of the assets and operations of the Company through
the Closing Date and for the sale of the Assets.
3.9. INVENTORY. All inventories reflected in the Company Balance Sheet are,
and all inventories of the Company on the Closing Date will be, (i) accounted
for in accordance with the federal income tax method of accounting applied on a
consistent basis, and (ii) saleable or usable in the ordinary course of business
at usual and customary prices, subject to normal returns and markdowns
consistent with past practice. At the Closing, the Sellers will deliver to the
Purchaser a list, certified by them to be complete and correct, of all of the
inventory of the Home.
3.10.FIXED ASSETS. Schedule 3.10 lists all motor vehicles and other
material items of equipment, fixtures, furniture and other fixed assets used in
the operation of the Home, all of which are included in the Assets. All such
items are in good and operating condition and repair, ordinary wear and tear
excepted.
3.11.CONTRACTS AND COMMITMENTS. Schedule 3.11 sets forth a complete
description of:
(i) all documents evidencing any money borrowed by the Company or the
creation or existence of any Lien against any of the Assets, and all
documents relating to any debt secured in whole or in part by any such
Liens;
(ii) all collective bargaining agreements, employment contracts,
noncompetition agreements and other agreements relating to the employment
of any employees of the Company;
(iii) all joint venture agreements and all other agreements involving
the sharing of profits, involving the Company or the Home;
(iv) all (i) contracts or commitments for capital expenditures for the
Company involving obligations aggregating in excess of $5,000, (ii) leases
under which personal property is leased by the Company and which are not
cancelable by either party thereto without penalty upon notice of 30
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days or less or pursuant to which re $1,000 per annum or $5,000 in the
aggregate, or (iii) contracts and agreements of the Company which do not
terminate or are not terminable by the Company upon notice of 30 days or
less or which involves an obligation on its part in excess of $1,000 per
annum or $5,000 in the aggregate; and
(v) all other contracts and commitments of the Company entered into
outside course of business.
Each contract and other document required to be described in Schedule 3.11 is
valid and in full force and effect and neither the Company, nor, to the
knowledge of the Sellers, none of the other parties thereto, are in default
thereunder. A true and correct copy of each document listed on Schedule 3.11 has
been delivered to the Purchaser by the Sellers.
3.12. PRE-NEED CONTRACTS AND TRUST ACCOUNTS. Schedule 3.12 accurately
lists, as of the date of this Agreement, (i) all preneed contracts of the Home
unfulfilled as of such date, including contracts for the sale of funeral
merchandise and services, and (ii) all trust accounts relating of the Company,
indicating the location of each and the balance thereof. All preneed contracts
required to be listed on Schedule 3.12 (x) have been entered into in the normal
course of business at regular retail prices, or pursuant to a sales promotion
program, solely for use by the named customers and members of their families on
terms not more favorable than shown on the specimen contracts which have been
delivered to the Purchaser, (y) are subject to the rules and regulations of the
Home as now in force (copies of which have been delivered to the Purchaser), and
(z) on the date hereof are in full force and effect, subject to no offsets,
claims or waivers, and neither the the company nor, except as disclosed on
Schedule 3.12, such customer is in default thereunder. All funds received by the
company under preneed contracts have been deposited in the appropriate accounts
and administered and reported in accordance with the terms thereof and as
required by applicable laws and regulations. The aggregate market value of such
preneed accounts, trusts and other depoosits in equal to or greater than the
aggregate preneed liability related thereto. The services heretofore provided by
the Home have been rendered in a professional and competent manner consistent
with prevailing professional standards, practices and customs.
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3.13. INTANGIBLE RIGHTS. There are no patents, patent applications, patent
licenses, trademarks, trademark applications or trademark or trademark licenses
(collectively, "Intangible Rights") used in the operation of the Home, except as
described on Schedule 3.13. The Company is not charged with infringement of any
Intangible Rights, nor do the Sellers know of any such infringement, whether or
not claimed by any person.
3.14. INSURANCE AND CLAIMS. The Company maintains such policies of
insurance in such amounts, and which insure against such losses and risks, as
are generally maintained for comparable businesses and properties. Valid
policies for such insurance will be outstanding and duly in force at all times
prior to the Closing.
3.15. LICENSES. PERMITS. ETC. Schedule 3.15 lists all licenses, franchises,
permits, certificates, consents, rights and privileges that are necessary or
appropriate for the operation of the Home. All such items are in full force and
effect.
3.16. LITIGATION. There are no claims, actions, suits, proceedings or
investigations pending or, to the Sellers' knowledge, threatened against or
affecting the Company or any of the Assets, at law or in equity or before or by
any court or federal, state, municipal or other governmental department,
commission, board, agency or instrumentality. The Company is not subject to any
continuing court or administrative order, writ, injunction or decree, nor is the
Company in default with respect to any order, writ, injunction or decree issued
by any court or foreign, federal, state, municipal or other governmental
department, commission, board, agency or instrumentality.
3.17. COMPLIANCE WITH LAWS. The Company has operated and is operating the
Home in compliance with all federal, state, municipal and other statutes, rules,
ordinances and regulations applicable to the operation of the Home and the
Assets (including without limitation all environmental protection and
occupational safety and health rules, regulations and laws, and laws and
regulations applicable to preneed contracts and trust accounts, including the
so-called "FTC Funeral Rule").
3.18. ENVIRONMENTAL MATTERS.
(a) The Company has complied and is in compliance with all Environmental
Laws (as hereinafter defined).
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(b) Without limiting the generality of the foregoing, the Company 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
Company.
(c) The Company has not 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 3.18, none of the following exists on
any portion of the Real Property:
(i) Underground storage tanks or surface impoundments;
(ii) Asbestos-containing material in any form or condition; or
(iii) Materials or equipment containing polychlorinated biphenyls.
(e) The Company has not 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) 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) Without limiting the foregoing, no facts, events or conditions relating
to the past or present facilities, properties or operations of the Company will
prevent, hinder or limit continued compliance with Environmental Laws, give rise
to any investigatory, remedial or corrective obligations pursuant to
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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 3.18:
"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 byptoducts, 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.
3.19. EMPLOYEES. Schedule 3.19 correctly and completely lists the names and
annual or hourly rates of salary and other compensation of all the employees and
agents of the Company. Schedule 3.19 also sets forth the date of the last salary
increase for each employee listed thereon, and the outstanding balances of all
loans and advances made by the Company to any such employee or agent. There are
not pending or threatened against the Company any general labor disputes,
strikes or concerted work stoppages, and there are no discussions, negotiations,
demands or proposals that are pending or have been conducted or made with or by
any labor union or association with respect to any employees of the Company. No
Shareholder is aware of the existence of any serious health condition of any key
management personnel of the Home that might impair any such person's ability to
carry on the essential functions of his or her position into the foreseeable
future after the Closing. The Sellers believe that the relations between the
Company and its employees are good.
3.20. EMPLOYEE BENEFIT PLANS. Schedule 3.20 lists all plans, contracts,
commitments, programs and policies
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(including, without limitation, pension, profit sharing, thrift, bonus, deferred
compensation, severance, retirement, disability, medical, life, dental and
accidental insurance, vacation, sick leave, death benefit and other similar
employee benefit plans and policies) providing benefits to any employee or
former employee of the Company (collectively, the "Plans"). The Sellers have
delivered to the Purchaser true and correct copies of all documents embodying
the Plans. All obligations of the Company under the Plans have been fully paid,
fully funded or adequate accruals therefor have been made on the Company Balance
Sheet. No Plan constitutes a defined benefit plan or defined contribution plan
within the meaning of the Employee Retirement Income Security Act of 1974.
3.21. BOOKS AND RECORDS. All books and records of the Company are true,
correct and complete, have been maintained in accordance with good business
practice and in accordance with all laws, regulations and other requirements
applicable to the Home.
3.22. FINDERS. Except as described in Section 13.1, no Seller is a party to
or in any way obligated under any contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.
3.23. AUTHORITY OF THE COMPANY. The execution, delivery and performance of
this Agreement by the Company have been duly authorized by its Board of
Directors. This Agreement is legally binding and enforceable against the Company
in accordance with its terms. Neither the execution, delivery nor performance of
this Agreement by the Company will result in a violation or breach of, nor
constitute a default or accelerate the performance required under, the Articles
of Incorporation or bylaws of the Company or any indenture, mortgage, deed of
trust or other contract or agreement to which the Company is a party or by which
it or its properties are bound, or violate any order, writ, injunction or decree
of any court, administrative agency or governmental body.
3.24. AUTHORITY OF THE SHAREHOLDERS. Each Shareholder has full authority to
enter into this Agreement and the Documents (as hereafter defined) to which he,
she or it is a party, and to perform his, her or its obligations hereunder and
thereunder, and neither the execution, delivery nor performance by such
Shareholder of this Agreement or such Documents will result in a violation or
breach of any term or provision of, nor con-
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stitute a default under, any contract, agreement or other commitment to which
such Shareholder is a party or by which such Shareholder or the Assets are
bound, or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body. This Agreement is, and such
Documents upon their execution and delivery as herein provided will be, valid
and binding obligations of each Shareholder enforceable against such Shareholder
in accordance with their respective terms. For purposes of this Agreement, the
term "Documents" shall mean, as to any party hereto, any and all agreements,
certificates and other instruments expressly contemplated in this Agreement or
any exhibit hereto to be executed or delivered by or on behalf of such party at
or in connection with the Closing hereunder.
3.25. FULL DISCLOSURE. The representations and warranties made by the
Sellers hereunder or in any Schedules or certificates furnished to the Purchaser
pursuant hereto do not and will not contain any untrue statement of a fact or
omit to state a fact required to be stated herein or therein or necessary to
make the representations or warranties herein or therein, in light of the
circumstances in which they are made, not misleading.
3.26. SCHEDULES. The Schedules referred to in this Section 3 have been
prepared as of the date hereof in a separate binder or volume contemporaneously
with the execution of this Agreement, and have been signed for identification by
the Sellers.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to and agrees with the Sellers that:
4.1. ORGANIZATION AND EXISTENCE. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power to enter into and perform its
obligations under this Agreement and the Documents to which it is a party.
4.2. AUTHORITY OF THE PURCHASER. The execution, delivery and performance by
the Purchaser of this Agreement and the Documents to which it is a party have
been duly authorized by its Board of Directors. This Agreement is, and upon
execution and delivery as herein provided the Documents to which the Purchaser
is a party will be, valid and binding upon the Purchaser and enforceable against
it in accordance with their respective terms. Neither the execution, delivery or
performance by the Purchaser of this Agreement or such
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Documents will conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under, the Certificate of Incorporation
or bylaws of the Purchaser or under any indenture, mortgage, deed of trust or
other contract or agreement to which it is a party or by which the Purchaser or
its property is bound, or violate any order, writ, injunction or decree of any
court, administrative agency or governmental body.
4.3. FINDERS. The Purchaser is not a party to or in any way obligated under
any contract or other agreement, and there are no outstanding claims against it,
for the payment of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement.
4.4. FULL DISCLOSURE. The representations and warranties made by the
Purchaser hereunder or in any certificates furnished to the Sellers pursuant
hereto do not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein or
necessary to make the representations or warranties herein or therein, in light
of the circumstances in which they are made, not misleading.
5. COVENANTS OF THE SELLERS PENDING CLOSING. The Sellers jointly and
severally covenant with the Purchaser that:
5.1. CONDUCT OF BUSINESS. From the date of this Agreement to the Closing
Date, the Home 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 permit the Company to):
(i) cancel or permit any insurance to lapse or terminate, unless
renewed or replaced by like coverage;
(ii) commit any act or permit the occurrence of any event or the
existence of any condition of the type described in Section 3.6;
(iii) enter into any contract, agreement or other commitment of the
type described in Section 3.11;
(iv) hire, fire, reassign or make any other change in key personnel of
the Company, or increase the rate of compensation of or declare or
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pay any bonuses to any employee in excess of that listed on Schedule 3.19;
or
(v) take any other action which would cause any of the representations
and warranties made in Section 3 hereof not to be true and correct in all
material respects on and as of the Closing Date with the same force and
effect as if the same had been made on and as of the Closing Date.
5.2. ACCESS TO INFORMATION. Prior to Closing, the Sellers will give to the
Purchaser and its counsel, accountants and other representatives, full and free
access to all of the properties, books, contracts, commitments and records of
the Company so that the Purchaser may have full opportunity to make such
investigation as it shall desire to make of the Home and the affairs of the
Company and the Assets.
5.3. CONSENTS AND APPROVALS. The Sellers will use their best efforts to
obtain the necessary consents and approvals of other persons which may be
required to be obtained on their part to consummate the transactions
contemplated by this Agreement.
5.4. NO SHOP. For so long as this Agreement remains in effect, the Sellers
agree that they shall not enter into any agreements or commitments, or initiate,
solicit or encourage any offers, proposals or expressions of interest, or
otherwise hold any discussions with any potential buyers, investment bankers or
finders, with respect to the possible sale or other disposition of all or any
substantial portion of the Assets, the sale of all or a controlling interest in
the stock of the Company, or-the merger or consolidation of the Company, other
than with the Purchaser.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Purchaser covenants with
the Sellers that:
6.1. CONSENTS AND APPROVALS. The Purchaser will use its best efforts to
obtain the necessary consents and approvals of other persons which may be
required to be obtained on its part to consummate the transactions contemplated
in this Agreement.
6.2. CONFIDENTIALITY. Prior to the Closing, the Purchaser and its
representatives will hold in confidence any data and information obtained with
respect to the Home from any representative or employee of the Company,
including the accountants or legal counsel of the Sellers, or from any books or
records of any of them, in
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connection with the transactions contemplated by this Agreement. If the
transactions contemplated hereby are not consummated, neither the Purchaser nor
its representatives shall use such data or information or disclose the same to
others, except as such data or information is published or is a matter of public
knowledge or is required by an applicable law or regulation to be disclosed. If
this Agreement is terminated for any reason, all written data and information
obtained by the Purchaser from the Sellers or their representatives in
connection with the transactions contemplated by this Agreement shall be
returned to the Sellers.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the
Purchaser under this Agreement shall be subject to the following conditions, any
of which may be expressly waived by them in writing:
7.1. REPRESENTATIONS AND WARRANTIES TRUE: COVENANTS PERFORMED. The
Purchaser shall not have discovered any material error, misstatement or omission
in the representations and warranties made by the Sellers in Section 3 hereof;
the representations and warranties made by the Sellers herein shall be deemed to
have been made again at and as of the time of Closing and shall then be true and
correct; the Sellers shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by them
at or prior to the Closing; and the Purchaser shall have received a certificate,
signed by each Shareholder and the President of the Company, to the effect of
the foregoing provisions of this Section 7.1.
7.2.OPINION OF COUNSEL. The Sellers shall have caused to be delivered to
the Purchaser an opinion of Cranston Pope, counsel for the Sellers, dated the
Closing Date, to the effect that:
(i) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alabama, with full
corporate authority to enter into and perform its obligations under this
Agreement;
(ii) the execution, delivery and performance of this Agreement by the
Company have been duly authorized by all necessary corporate action
required on the part of the Company;
(iii) this Agreement and the Documents to which the Sellers are
parties have been duly and validly executed and delivered by the Sellers
and
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constitute the valid and binding obligations of the Sellers enforceable
against them in accordance with their respective terms;
(iv) neither the execution, delivery or consummation of the
transactions contemplated by this Agreement or the Documents to which the
Sellers are parties will (x) result in the breach of or constitute a
default under the Articles of Incorporation or bylaws of the Company, or
under any loan or credit agreement, indenture, mortgage, deed of trust or
other contract or agreement known to such counsel and to which any Seller
is a party or by which the Sellers or the Assets are bound, or (y) violate
any order, writ, injunction or decree known to such counsel of any court,
administrative agency or governmental body;
(v) no authorization, approval or consent of or declaration or filing
with any governmental authority or regulatory body, federal, state or
local, is necessary or required in connection with the execution and
delivery by the Sellers of this Agreement or the Documents to which they
are parties, or the performance of their obligations hereunder or
thereunder; and
(vi) to the knowledge of such counsel after due inquiry, there are no
claims, actions, suits, proceedings or investigations pending or threatened
against or affecting the Company or any of the Assets, at law or in equity
or before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality.
Such opinion may, as to matters of fact, be given in reliance upon certificates
of the Shareholders and officers of the Company, copies of which shall be
provided to Purchaser at Closing. Any opinion as to the enforceability of any
document may be limited by bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and by principles of equity. Such
opinion may be limited to federal law and the internal laws of the State of
Alabama.
7.3. CONSENTS AND APPROVALS. The Sellers shall have obtained all consents
and approvals of other persons and governmental authorities to the transactions
contemplated by this Agreement.
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7.4. NO LOSS OR DAMAGE. Prior to the Closing there shall not have occurred
any loss or damage to any substantial portion of the Assets, regardless of
whether such loss or damage was insured.
7.5. APPROVAL BY COUNSEL. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental thereto and all other related legal matters shall have been
approved by counsel for the Purchaser, and such counsel shall have been
furnished with such certified copies of actions and proceedings and other
instruments and documents as they shall have reasonably requested.
7.6. RELATED TRANSACTIONS. Forest Lawn shall have been merged with and into
Carriage-Florida in accordance with the Merger Agreement substantially
simultaneously with the Closing hereunder; and Glover and Earl shall have
executed and delivered to the Purchaser their respective Employment Agreements.
7.7. ENVIRONMENTAL. OSHA AND STRUCTURAL REPORTS. There shall have been
conducted, at the Purchaser's expense, (i) a Phase I (and, if deemed necessary
by Purchaser, a Phase II) environmental audit of the Home and the Real Property
by an environmental consulting firm selected by Purchaser (or, in lieu thereof,
in the Purchaser's sole discretion, an environmental questionnaire, on forms
provided by the Purchaser, shall have been completed by the manager of the Home
and delivered to the Purchaser), (ii) a health and safety inspection of the Home
by a person (who may be an employee of the Purchaser) or firm selected by the
Purchaser and who is qualified and experienced in such matters in the funeral
service industry, and (iii) a structural inspection of the Home by an
engineering firm selected by the Purchaser. The Sellers agree to pay the costs
and to take the action reasonably recommended by such firms and/or persons, up
to $25,000 in the aggregate. In any event, it shall be a condition to the
Purchaser's obligations hereunder that the results of the reports of such firms
or persons (together with any remedial action taken by Sellers, regardless of
the cost, in response thereto) shall be satisfactory to Purchaser in its sole
discretion.
7.8. TITLE INSURANCE. The Purchaser shall have received one or more Owner's
Policies of Title Insurance issued to the Purchaser in agreed-upon amounts,
issued by Commonwealth Land Title Insurance Company or another title company
acceptable to the parties (the "Title Company"), insuring that the Purchaser is
the owner of
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each parcel of the Real Property subject only to the Permitted Encumbrances, and
any standard printed exceptions included in the standard form Owner Policy of
Title Insurance in Alabama. Such policies shall have deleted any exception
regarding restrictions or be limited to restrictions that are Permitted
Encumbrances, any standard exception pertaining to discrepancies, conflicts or
shortages in area shall be deleted except for "shortages in area", and any
standard exception for taxes shall be limited to the year in which the Closing
occurs. All premiums and other costs associated with issuing such policy or
policies shall be borne equally between the Sellers and the Purchaser.
7.9. 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 Alabama law, be sufficient for the Title
Company to delete any survey exception contained in the title insurance policies
referred to in Section 7.8, save and except for the phrase "shortages in area",
and otherwise be in form and content acceptable to Purchaser. The fees and costs
associated with such survey shall be borne equally between the Sellers and the
Purchaser.
7.10. LIEN RELEASES. The holders of any Liens against any of the Assets
(other than Permitted Encumbrances against Real Property) shall have executed
and delivered written releases of such Liens, all in recordable form and
otherwise acceptable to the Purchaser and its lender.
7.11. OTHER MANAGEMENT ARRANGEMENTS. The Sellers shall have identified to
the Purchaser such personnel of the Home (in addition to Glover) as may be key
to the continued effective management and operation of the Home after the
Closing, and the Purchaser shall have entered into mutually satisfactory
arrangements regarding the continued employment of such personnel at the Home
following the Closing.
7.12. APPROVED BUDGET. The Purchaser and the Shareholders shall have
reached agreement regarding the proposed Operating Budget for the Home for the
current fiscal year of the Purchaser and for the next succeeding fiscal year;
and the Purchaser shall have received from the Shareholders their certificate,
acceptable in form and substance to the Purchaser, setting forth their
acknowledgement regarding such Budget and the agreement
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of Greg M. Brudnicki and Charles E. Kent to utilize their best efforts to
achieve the results therein contained.
8. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the Sellers
under this Agreement shall be subject to the following conditions, any of which
may be expressly waived by the Sellers in writing:
8.1 REPRESENTATIONS AND WARRANTIES TRUE: COVENANTS PERFORMED. The Sellers
shall not have discovered any material error, misstatement or omission in the
representations and warranties made by the Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser herein shall be deemed to
have been made again at and as of the time of Closing and shall then be true and
correct; the Purchaser shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by it at
or prior to the Closing; and the Sellers shall have received a certificate,
signed by an executive officer of the Purchaser, to the effect of the foregoing
provisions of this Section 8.1.
8.2.OPINION OF COUNSEL. The Purchaser shall have caused to be delivered to
the Sellers an opinion of Snell & Smith, A Professional Corporation, counsel for
Purchaser to the effect that:
(i) the Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and the
Purchaser has all requisite corporate power to enter into and perform its
obligations under this Agreement and the Documents to which it is a party;
(ii) the execution, delivery and performance by the Purchaser of this
Agreement and the Documents to which it is a party have been duly
authorized by its Board of Directors;
(iii) this Agreement is, and upon execution and delivery as herein
provided the Documents to which the Purchaser is a party will be, valid and
binding upon the Purchaser and enforceable against it in accordance with
their respective terms;
(iv) neither the execution, delivery or performance by the Purchaser
of this Agreement or the Documents to which it is a party will conflict
with or result in a violation or breach of any term or provision of, nor
constitute a default under,
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the Certificate of Incorporation or bylaws of the Purchaser or under any
loan or credit agreement, indenture, mortgage, deed of trust or other
contract or agreement known to such counsel and to which the Purchaser is a
party or by which it or its property is bound, or violate any order, writ,
injunction or decree known to such counsel and of any court, administrative
agency or governmental body; and
(v) no authorization, approval or consent of or declaration or filing
with any governmental authority or regulatory body, federal, state or
local, is necessary or required in connection with the execution and
delivery by the Purchaser of this Agreement or the Documents to which the
Purchaser is a party or the performance of its obligations hereunder or
thereunder.
Such opinion may, as to matters of fact, be given in reliance upon
certificates of officers of the Purchaser and certificates of public officials,
copies of which shall be provided to Sellers at Closing. Any opinion as to the
enforceability of any document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors rights and
by principles of equity. Such opinion may be limited to federal law, the General
Corporation Law of the State of Delaware and the internal laws of the State of
Texas.
8.3. CONSENTS AND APPROVALS. The Purchaser shall have obtained all consents
and approvals of other persons and governmental authorities to the transactions
contemplated by this Agreement.
8.4. RELATED TRANSACTIONS. The Purchaser shall have executed and delivered
to Glover and Earl their respective Employment Agreements; and Forest Lawn shall
have been merged with and into Carriage-Florida in accordance with the Merger
Agreement substantially simultaneously with the Closing hereunder. In addition,
the Purchaser shall have entered into an Employment Agreement with Jane Thornton
on terms mutually acceptable to them.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
9.1. NATURE OF STATEMENTS. All statements contained in this Agreement or
any Schedule or Exhibit hereto shall be deemed representations and warranties of
the party executing or delivering the same.
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9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation made at any time by or on behalf of any party hereto, all
covenants, agreements, representations and warranties made hereunder or pursuant
hereto or any Schedule or Exhibit hereto or in connection with the transactions
contemplated hereby and thereby shall not terminate but shall survive the
Closing and continue in effect thereafter.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION BY THE SELLERS. The Sellers jointly and severally
agree to indemnify and hold harmless the Purchaser and its successors and
assigns from and against any and all losses, damages, liabilities, obligations,
costs or expenses (any one such item being herein called a "Loss" and all such
items being herein collectively called "Losses") which are caused by or arise
out of (i) any breach or default in the performance by the Sellers of any
covenant or agreement of the Sellers contained in this Agreement, (ii) any
breach of warranty or inaccurate or erroneous representation made by the Sellers
herein, in any Schedule delivered to the Purchaser pursuant hereto or in any
certificate or other instrument delivered by or on behalf of the Sellers
pursuant hereto, (iii) any claim made against the Purchaser in respect of any of
the Unassumed Liabilities, and (iv) any and all actions, suits, proceedings,
claims, demands, judgments, costs and expenses (including reasonable legal fees)
incident to any of the foregoing.
10.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to indemnify
and hold harmless the Sellers and their heirs, successors and assigns from and
against-any Losses which are caused by or arise out of (i) any breach or default
in the performance by the Purchaser of any covenant or agreement of the
Purchaser contained in this Agreement, (ii) any breach of warranty or inaccurate
or erroneous representation made by the Purchaser herein or in any certificate
or other instrument delivered by or on behalf of the Purchaser pursuant hereto,
(iii) any claim made against the Sellers in respect of the Assumed Liabilities,
and (iv) any and all actions suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees) incident to any of the
foregoing.
10.3. THIRD PARTY CLAIMS. If any third person asserts a claim against an
indemnified party hereunder that, if successful, might result in a claim for
indemnification against an indemnifying party hereunder, the indemnifying party
shall be given prompt written notice
-27-
<PAGE>
thereof and shall have the right (i) to participate in the defense thereof and
be represented, at his or its own expense, by advisory counsel selected by him,
her or it, and (ii) to approve any settlement if the indemnifying party is, or
will be, required to pay any amounts in connection therewith. Notwithstanding
the foregoing, if within ten business days after delivery of the indemnified
party's notice described above, the indemnifying party indicates in writing to
the indemnified party that, as between such parties, such claims shall be fully
indemnified for by the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense of such claim,
provided that the indemnified party shall have the right (i) to participate in
the defense thereof and be represented, at his or its own expenses, by advisory
counsel selected by him, her, or it, and (ii) to approve any settlement if the
indemnified party's interests are, or would be, affected thereby.
10.4. OFFSET. If any Seller becomes obligated to indemnify the Purchaser
after the Closing date pursuant to this Agreement, at any time when any
Contingent Purchase Price under Section 1.5 or any amount in respect of Closing
Date Receivables under Section 12.1 may then or thereafter be payable, then the
Purchaser may, at its option and without prejudice to any right of the Purchaser
its proceed directly against any Seller, set-off the amount for which any such
Seller shall be so obligated against the Contingent Purchase Price and the
Closing Date Receivables. The exercise of such right of set-off shall be
evidenced by means of a written notice to such effect given by the Purchaser to
the Sellers, describing the basis for indemnity and set-off hereunderand the
amount of the set-off.
11. TERMINATION.
11.1. BEST EFFORTS TO SATISFY CONDITIONS The Sellers agree to use their
best efforts the satisfaction of the conditions specified in Section 7 hereof,
and the Purchaser agrees to use its best efforts to bring about the satisfaction
of specified in Section 8 hereof.
11.2. TERMINATION. This Agreement may be terminated prior to Closing by:
(a) the mutual written consent of the Sellers and the Purchaser;
(b) the Purchaser if a material default shall be made by any Seller in
the observance or in the
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<PAGE>
due and timely performance by any of the Sellers' covenants herein
contained, or if there shall have been a material breach or
misrepresentation by any Seller of any of the Sellers' warranties and
representations herein contained, or if the conditions of this Agreement to
be complied with or performed by the Sellers at or before the Closing shall
not have been complied with or performed at the time required for such
compliance or performance and such noncompliance or nonperformance shall
not have been expressly waived by the Purchaser in writing;
(c) the Sellers if a material default shall be made by the Purchaser
in the observance or in the due and timely performance by the Purchaser of
any of the covenants of the Purchaser herein contained, or if there shall
have been a material breach or misrepresentation by the Purchaser of any of
its warranties and representations herein contained, or if the conditions
of this Agreement to be complied with or performed by the Purchaser at or
before the Closing shall not have been complied-with or performed at the
time required for such compliance or performance and such noncompliance or
nonperformance shall not have been expressly waived by the Sellers in
writing; or
(d) either the Sellers or the Purchaser, if the Closing has not
occurred by November 30, 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 party hereunder. If this Agreement is terminated under paragraph (b)
or (c) of Section 11.2, then (i) the party so terminating this Agreement shall
not have any liability to any other party hereto, provided the terminating party
has not breached any representation or warranty or failed to comply with any of
its covenants in this Agreement, and (ii) such termination shall not prejudice
the rights and remedies of the terminating party against any other party which
has breached any of its representations, warranties or covenants herein prior to
such termination.
12. POST-CLOSING COVENANTS.
12.1. CLOSING DATE RECEIVABLES. As described in Section 1.2(ii), all of the
accounts and notes receivable of the Company at the Closing ("Closing Date
Receivables") shall be retained by the Company. At the Closing, the Sellers
shall provide to the Purchaser a listing (certified by them to be complete and
accurate) of the
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<PAGE>
Closing Date Receivables in order to identify those to be retained by the
Company. Notwithstanding such retention of ownership, the Purchaser shall have
the exclusive (even as to the Sellers) right and control over the collection of
Closing Date Receivables. After the Closing, for each month in which any Closing
Date Receivables are collected, the Purchaser shall remit 100% of such
collections to the Company by no later than the 15th day of the following month.
The Purchaser shall have no duty to pursue collection of Closing Date
Receivables by means greater than used on its collection of other accounts
receivable, and in no event shall the Purchaser be required to institute suit or
refer any account to a collection agency. At any time after the Closing, the
Purchaser may at any time, by written notice to the Company, return the right
and control over collection of Closing Date Receivables to the Company, in which
case the Purchaser shall be thereafter relieved of all further responsibility
hereunder other than in respect of collections received prior to the giving of
such notice.
12.2. RESTRICTIVE COVENANTS.
(a) NON-COMPETITION. If the Closing occurs, the Shareholders agree
that they shall not, and by their execution hereof the respective spouses
of those Shareholders who are married (the Shareholders, together with all
such spouses, being herein collectively referred to as the "Covenantors")
agree that they shall not, directly or indirectly, for a period commencing
on the Closing Date and ending fifteen (15) years thereafter, do any of the
following
(i) engage, as principal, agent, trustee or through the agency of
any corporation, partnership, association or agent or agency, anywhere
within a 50-mile radius of the Home (the "Territory"), in the funeral,
mortuary, crematory, monument, or any related line of business
(collectively, the "Business");
(ii) own or hold any beneficial interest in one percent (1%) or
more of the voting securities in any corporation, partnership or other
business entity which conducts its operations, in whole or in part, in
the Business within the Territory;
(iii) become an employee of or consultant to, or otherwise serve
in any similar
-30-
<PAGE>
capacity with, any corporation, partnership or other business entity
that conducts its business, in whole or in part, in the Business
within the Territory; or
(iv) cause or induce any present or future employee of the
Purchaser or any of its affiliates to leave the employ of the
Purchaser or any such affiliate to accept employment with such
Covenantor or with any person, firm, association or corporation with
which such Covenantor may be or become affiliated.
Without limiting the generality of the foregoing, a Covenantor shall be
deemed directly or indirectly engaged in the Business if he or she acts as a
funeral director at any funeral establishment within the Territory, if such
Covenantor engages in the sale or marketing of preneed funeral contracts for
services to be performed within the Territory, or if such Covenantor promotes or
finances any family member or affiliate to operate a Business or engage in any
of the foregoing activities within the Territory.
(b) REFORMATION. The above covenants shall not be held invalid or
unenforceable because of the scope of the territory or actions subject thereto
or restricted thereby, or the period of time within which such covenants are
operative; but any judgment of a court of competent jurisdiction may define the
maximum territory and actions subject to and restricted thereby and the period
of time during which such covenants are enforceable.
(c) REMEDIES. The Covenantors agree that any remedy at law for any actual
or threatened breach of any of the foregoing covenants would be inadequate and
that the Purchaser shall be entitled to specific performance hereof or
injunctive relief or both, by temporary or permanent injunction or such other
appropriate judicial remedy, writ or order as may be entered into by a court of
competent jurisdiction in addition to any damages that the Purchaser may be
legally entitled to recover together with reasonable expenses of litigation,
including attorneys' fees incurred in connection therewith, as may be approved
by such court.
(d) REPRESENTATIONS. Each Covenantor represents and warrants to and agrees
with the Purchaser
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<PAGE>
that (i) such Covenantor understands that the foregoing restrictions are being
made incident to and as a condition of the purchase and sale of the Assets
hereunder, and that such covenants are necessary in order to protect the
business and goodwill being acquired thereby, (ii) such covenants are not
oppressive to such Covenantor in any respect, and (iii) the consideration for
such restrictions is included in the Purchase Price, which consideration such
Covenantor acknowledges is fair and adequate for the giving of the covenants
herein and for which such Covenantor acknowledges a direct and valuable benefit.
(e) PURCHASE PRICE ALLOCATION. The parties agree to allocate $50,000 of the
Purchase Price to the foregoing covenants for federal income tax purposes. Such
allocation is not intended to be a measure of the amount or range of damages
which the Purchaser may suffer or recover as a result of any breach of the
foregoing covenants, and the Shareholders acknowledge that in case of any such
breach, the Purchaser shall be entitled to seek in excess of such amount as it
may otherwise be able to demonstrate itself justly entitled to.
12.3. CHANGE OF NAME. Promptly following the Closing (but in no event later
than 30 days thereafter), the Sellers shall cause the Articles of Incorporation
of the Company to be amended so as to change its name to one wholly dissimilar
to "Kent-Thornton" or its equivalent, and will furnish the Purchaser with
written evidence of such amendment.
13. MISCELLANEOUS.
13.1.EXPENSES. Regardless of whether the Closing occurs, the parties shall
each pay their own expenses in connection with the negotiation, preparation and
carrying out of this Agreement and the consummation of the transactions
contemplated herein. Without limiting the generality of the foregoing, all
finders' and similar fees and expenses of Thomas, Pierce & Co., sales
representative for the Sellers, shall be borne solely by the Sellers, and in no
event shall the Purchaser be charged or responsible therefor.
13.2.BULK SALES LAWS. The transactions contemplated by this Agreement shall
be consummated without compliance with the bulk sales laws of any state. If by
reason of any applicable bulk sales law any claims are asserted by creditors of
the Company, such claims shall
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<PAGE>
be the responsibility of the Purchaser in the case of claims arising under any
of the Assumed Liabilities, or the responsibility of the Sellers in the case of
claims arising under any other liabilities of the company.
13.3. Notices. All notices, requests, consents and other communication
hereunder shall be in writing and shall be deemed to have been given on the date
personnally delivered, three business days following the date mailed, first
class, registered or certified mail, postage pre-paid, or when sent by telex or
telecopy and receipt is confirmed, as follows:
(i) if to any Seller, to:
Kent-Thornton Funeral Home, Inc.
1468 Hartford Highway
Dothan, Alabama 36301
Attn: Mr. Greg Brudnicki
with a copy to:
Mr. Cranston Pope
438 N. Cove Blvd.
Panama City, Florida 32401
(ii) if to the Purchaser, to:
Carriage Funeral Holdings, Inc
1300 Post Oak Blvd., Suite 1500
Houston, Texas 77056
Attn: President
with a copy to:
Snell & Smith,
A Professional Corporation
1000 Louisiana, Suite 1200
Houston, Texas 77002
Attn: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party to the other
parties hereto.
13.4 Assignment. The Agreement may not be assigned by any party hereto
without the prior written consent of the other parties, provided, however, that
following the Closing the Purchaser may assign its rights hereunder without the
consent of the Sellers to a successor-in-interest to the Purchaser (whether by
merger, sale of assets or otherwise). Nothing in this Agreement, express or
implied, is intended to confer upon
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<PAGE>
any person, other than the parties to this Agreement and their successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
13.5.SUCCESSORS BOUND. Subject to the provisions of Section 13.4, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
13.6.SHAREHOLDER CONSENT. The Shareholders, in their capacities as the
shareholders of the Company, hereby (i) consent to the sale of the Assets
hereunder pursuant to Alabama Code S10-2B-12.02, and (ii) irrevocably and
unconditionally waive all dissenters' and other similar rights with respect to
the sale of the Assets under and pursuant to Alabama Code ss.10-2B-13.21, et
SEQ.
13.7.SECTION AND PARAGRAPH HEADINGS. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
13.8.AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by both parties hereto.
13.9.ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates and other documents referred to herein constitute the entire
agreement of the parties hereto, and supersede all prior understandings with
respect to the subject matter hereof and thereof (including, without limitation,
the letter of intent between the Purchaser and the Sellers dated June 9, 1997).
13.10. GOVERNING LAW. This Agreement shall be construed and enforced under
and in accordance with and governed by the law of the State of Alabama.
13.11. CONSTRUCTION. As the context requires or permits: pronouns used
herein shall include the masculine, the feminine and neuter; terms used in
plural shall include the singular, and singular terms shall include the plural;
"hereof", "herein", "hereunder" and "hereto" shall refer to this Agreement; and
section and paragraph references, when not expressly referring to another
agreement or document, shall mean sections or paragraphs in this Agreement.
-34-
<PAGE>
13.12. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute the same
instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first above written.
THE PURCHASER:
CARRIAGE FUNERAL HOLDINGS, INC.
By: Mark W. Duffey, President
THE COMPANY:
KENT-THORNTON FUNERAL HOME, INC.
By: Greg Brudnicki, President
THE SHAREHOLDERS:
GREG BRUDNICKI
CHARLES KENT
RICKY KENT
JANE THORNTON
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<PAGE>
The undersigned spouses of those Shareholders who are married hereby join
in the execution of this Agreement in order to evidence their agreement to be
bound by the provisions of Section 12.2 hereof.
EVELYN L BRUDNICKI, spouse of
GREG BRUDNICKI
JULIE KENT, spouse of
CHARLES KENT
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<PAGE>
EXHIBIT DESCRIPTION
A-1 Employment Agreement (Kendall Glover)
A-2 Employment Agreement (Earl Sellers)
SCHEDULES DESCRIPTION
3.5 Real Property
3.10 Fixed Assets
3.11 Contracts and Commitments
3.12 Preneed Contracts and Trust Accounts
3.13 Intangible Assets
3.15 Licenses, Permits, Etc.
3.18 Environmental Matters
3.19 Employees
3.20 Employee Benefit Plans
-37-
EXHIBIT 11.1
CARRIAGE SERVICES, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Earnings (loss) per share for 1995, 1996 and 1997 is calculated based on the
weighted average number of common and common equivalent shares outstanding
during each year as proscribed by SFAS 128. The following table sets forth the
computation of the basic and diluted earnings (loss) per share for 1995, 1996
and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net income (loss) before extraordinary item ........................... $(2,494) $ 207 $ 4,491
Extraordinary item .................................................... -- (498) (195)
------- ------- --------
Net income (loss) ..................................................... (2,494) (291) 4,296
Preferred stock dividends ............................................. -- (622) (890)
------- ------- --------
Net income (loss) available to common
stockholders for basic EPS computation ............................. (2,494) (913) $ 3,406
Effect of dilutive securities ......................................... -- -- --
------- ------- --------
Net income (loss) available to common
stockholders for diluted EPS computation ........................... $(2,494) $ (913) $ 3,406
======= ======= ========
Weighted average number of common shares
outstanding for basic EPS computation .............................. 2,520 4,869 10,226
Effect of dilutive securities:
Stock options ..................................................... -- -- 259
------- ------- --------
Weighted average number of common and
common equivalent shares outstanding
for diluted EPS computation ........................................ 2,520 4,869 10,485
======= ======= ========
Basic earnings per share
Net income (loss) before extraordinary item ...................... $ (.99) $ (.09) $ .35
Extraordinary item ............................................... -- (.10) (.02)
------- ------- --------
Net income (loss) ................................................ $ (.99) $ (.19) $ .33
======= ======= ========
Diluted earnings per share
Net income (loss) before extraordinary item ...................... $ (.99) $ (.09) $ .34
Extraordinary item ............................................... -- (.10) (.02)
------- ------- --------
Net income (loss) ................................................ $ (.99) $ (.19) $ .32
======= ======= ========
</TABLE>
EXHIBIT 21.1
CARRIAGE SERVICES, INC.
SUBSIDIARIES AS OF MARCH 12. 1998
JURISDICTION OF
NAME INCORPORATION
- ------------------------------- -------------
Carriage Funeral Holdings, Inc. Delaware
CFS Funeral Services, Inc. Delaware
Carriage Holding Company, Inc. Delaware
Carriage Funeral Services of Michigan, Inc. Michigan
Carriage Funeral Services of Ohio, Inc. Ohio
CFS Funeral Services of Ohio, Inc. Ohio
The Lusk Funeral Home, Incorporated Kentucky
James E. Drake Funeral Home, Inc. Kentucky
Hennessy-Bagnoli Funeral Home, Inc. Ohio
Carriage Funeral Services of Idaho, Inc. Idaho
Dwayne R. Spence Funeral Home, Inc. Ohio
Carriage Funeral Services of Kentucky, Inc. Kentucky
Carriage Funeral Services of South Carolina, Inc. South Carolina
Carriage Funeral Services of Connecticut, Inc. Connecticut
Carriage Funeral Services of Indiana, Inc. Indiana
Carriage Funeral Services of Texas, Inc. Texas
Carriage Funeral Services of California, Inc. California
Wilson & Kratzer Mortuaries California
Rolling Hills Memorial Park California
Cheda & Matteucci, Inc. California
Ouimet Concord Funeral Chapel, Inc. California
Frank J. Calcaterra Funeral Home, Inc. Michigan
Dakan Funeral Chapel, Inc. Idaho
Hillcrest Memorial Gardens, Inc. Idaho
Richmond County Memorial Park, Inc. North Carolina
Bryan Funeral Home, Inc. Ohio
Cox Funeral Home, Incorporated Tennessee
Stevens Funeral Homes, Inc. Ohio
Grandview Memorial Gardens, Inc. Indiana
Carriage Funeral Services of Kansas, Inc. Kansas
CFS Funeral Services of Kansas Inc. Kansas
CFS Services of Kentucky, Inc. Kentucky
Carriage Services of Illinois, Inc. Illinois
Carriage Services of New York, Inc. New York
Pioneer Funeral Plans, Inc. Texas
Redgate Funeral Service Corporation Connecticut
Carriage Services of Connecticut, Inc. Connecticut
Geisendorf-Rush Smith Funeral Home, Ltd. Kansas
Hamilton County Burial Services, Inc. Tennessee
Carriage Services of Florida, Inc. Florida
Schlup-Pucak Funeral Home, Inc. Ohio
Fox-Engartner Funeral Home, Inc. Ohio
Johnson Mortuary & Crematory, Inc. Montana
Feeney Funeral Home, Inc. New Jersey
CSI Funeral Services of Massachusetts, Inc. Massachusetts
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,126
<SECURITIES> 0
<RECEIVABLES> 14,203
<ALLOWANCES> 1,291
<INVENTORY> 5,691
<CURRENT-ASSETS> 24,729
<PP&E> 92,988
<DEPRECIATION> 7,123
<TOTAL-ASSETS> 277,940
<CURRENT-LIABILITIES> 18,906
<BONDS> 126,002
0
13,951
<COMMON> 111
<OTHER-SE> 98,454
<TOTAL-LIABILITY-AND-EQUITY> 277,940
<SALES> 77,421
<TOTAL-REVENUES> 77,421
<CGS> 58,038
<TOTAL-COSTS> 58,038
<OTHER-EXPENSES> 5,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,889
<INCOME-PRETAX> 8,217
<INCOME-TAX> 3,726
<INCOME-CONTINUING> 4,491
<DISCONTINUED> 0
<EXTRAORDINARY> (195)
<CHANGES> 0
<NET-INCOME> 4,296
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
