<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1996
REGISTRATION NO. 333-14599
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRIME SUCCESSION, INC.
(FORMERLY KNOWN AS PRIME SUCCESSION ACQUISITION CORP.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7261 13-3904211
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
------------------------
3940 OLYMPIC BOULEVARD
SUITE 300
ERLANGER, KENTUCKY 41018
(606) 746-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GARY L. WRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRIME SUCCESSION, INC.
3940 OLYMPIC BOULEVARD
SUITE 300
ERLANGER, KENTUCKY 41018
(606) 746-6800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
WILSON S. NEELY, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1996
PROSPECTUS
PRIME SUCCESSION, INC.
(FORMERLY KNOWN AS PRIME SUCCESSION ACQUISITION CORP.)
OFFER TO EXCHANGE $100,000,000 OF ITS 10 3/4% SENIOR SUBORDINATED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR $100,000,000 OF ITS
OUTSTANDING 10 3/4% SENIOR SUBORDINATED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED
(THE 'EXPIRATION DATE').
------------------------
Prime Succession, Inc. (formerly known as Prime Succession Acquisition
Corp.) ('New Prime') hereby offers to exchange (the 'Exchange Offer') up to
$100,000,000 aggregate principal amount of its new 10 3/4% Senior Subordinated
Notes due 2004 (the 'Exchange Notes') for $100,000,000 aggregate principal
amount of its outstanding 10 3/4% Senior Subordinated Notes due 2004 (the
'Notes'). NEW PRIME HAD $90 MILLION OF SENIOR INDEBTEDNESS OUTSTANDING, NO
SUBORDINATED INDEBTEDNESS OUTSTANDING AND NO FIRM ARRANGEMENTS TO ISSUE ANY
SIGNIFICANT SUBORDINATED INDEBTEDNESS, IN EACH CASE AS OF SEPTEMBER 30, 1996,
AND ITS SUBSIDIARIES HAD APPROXIMATELY $84.9 MILLION OF LIABILITIES OUTSTANDING
AS OF SUCH DATE. THE EXCHANGE NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL
OUTSTANDING LIABILITIES OF NEW PRIME AND ITS SUBSIDIARIES, WHICH TOTALLED
APPROXIMATELY $174.9 MILLION IN THE AGGREGATE AS OF SEPTEMBER 30, 1996. THE
COMPANY CURRENTLY HAS NO OUTSTANDING INDEBTEDNESS TO WHICH THE EXCHANGE NOTES
WOULD BE SENIOR. THE INDENTURE (AS DEFINED HEREIN) CONTAINS CERTAIN LIMITATIONS
WITH RESPECT TO THE AMOUNT OF ADDITIONAL INDEBTEDNESS (AS DEFINED HEREIN)
(INCLUDING INDEBTEDNESS WHICH MAY RANK SENIOR IN RIGHT OF PAYMENT TO OR PARI
PASSU IN RIGHT OF PAYMENT WITH THE EXCHANGE NOTES) THAT MAY BE INCURRED BY NEW
PRIME AND/OR ANY OF ITS SUBSIDIARIES.
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to this offer, except that the
Exchange Notes will be freely transferable by holders thereof (other than as
provided below) and are issued free from any covenant regarding registration.
The Exchange Notes will evidence the same indebtedness as the Notes and contain
terms which are identical in all material respects to the terms of the Notes
that are to be exchanged therefor. The Notes were sold by New Prime to finance,
in part, the Acquisition (as defined herein) of Prime Succession Holdings, Inc.,
a Delaware corporation (formerly known as Prime Succession, Inc.) ('Existing
Prime'), by Blackstone Capital Partners II Merchant Banking Fund L.P. and its
affiliates (collectively, 'Blackstone') and Loewen Group International, Inc.
('Loewen'), a subsidiary of The Loewen Group Inc. ('Loewen Group'). In
connection with the Acquisition, which was consummated on August 26, 1996 (the
'Acquisition Closing Date'), New Prime became a wholly owned subsidiary of
Existing Prime. See 'Summary--The Acquisition.'
Interest on the Exchange Notes will be payable semi-annually on February 15
and August 15 of each year, commencing February 15, 1997. The Exchange Notes
will mature on August 15, 2004. The Exchange Notes will be unsecured senior
subordinated obligations of New Prime, will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined herein) of New Prime
(which includes all indebtedness of New Prime under the Bank Credit Facilities
(as defined herein)) and effectively subordinated to all existing and future
liabilities of New Prime's subsidiaries and will rank senior in right of payment
to all other subordinated indebtedness of New Prime.
The Exchange Notes will be redeemable in cash at the option of New Prime,
in whole or in part, at any time on or after August 15, 2000 at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the
redemption date. Subject to certain conditions and limitations, in the event of
a Change of Control (as defined herein), New Prime will be obligated to make an
offer to purchase all of the then outstanding Exchange Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the purchase date. There can be no assurance that New Prime will have
sufficient funds to purchase all such Exchange Notes upon a Change of Control.
In addition, New Prime will be obligated to make an offer to purchase Exchange
Notes in the event of certain asset sales. See 'Description of Exchange Notes.'
The Notes were issued and sold on August 20, 1996 in transactions not
registered under the Securities Act of 1933, as amended (the 'Securities Act'),
in reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereunder in order to satisfy
certain of the obligations of New Prime under a registration rights agreement
relating to the Notes. See 'The Exchange Offer--Purpose of the Exchange Offer.'
New Prime is making
(Cover continued on next page)
SEE 'RISK FACTORS' BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
, 1996
<PAGE>
(Cover continued from previous page)
the Exchange Offer in reliance upon an interpretation by the staff of the
Securities and Exchange Commission set forth in a series of no-action letters
issued to third parties. See Exxon Capital Holdings Corp.(available April 13,
1989), Morgan Stanley & Co. Incorporated (available June 5, 1991) and Shearman &
Sterling (available July 2, 1993). Based on such interpretation, New Prime
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than any such holder that is an 'affiliate' of New Prime
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any such
other person is engaging in or intends to engage in a distribution of such
Exchange Notes. However, New Prime has not sought, and does not intend to seek,
its own no-action letter, and there can be no assurance that the staff of the
Securities and Exchange Commission would make a similar determination with
respect to the Exchange Offer. Each broker-dealer that receives Exchange Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal relating to the Exchange Offer states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. Each
broker-dealer that received Notes from New Prime in the offering of the Notes
and not as a result of market-making or other trading activities, in the absence
of an exemption, must comply with the registration requirements of the
Securities Act. New Prime will, for a period of 180 days after the Expiration
Date (as defined herein), make copies of this Prospectus available to any
broker-dealer for use in connection with any such resale. See 'Plan of
Distribution.'
The Notes are designated for trading in the Private Offerings, Resales and
Trading through Automated Linkages ('PORTAL') market. The Exchange Notes
constitute securities for which there is no established trading market. Any
Notes not tendered and accepted in the Exchange Offer will remain outstanding.
New Prime does not currently intend to list the Exchange Notes on any securities
exchange. To the extent that any Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Notes could be adversely affected.
No assurance can be given as to the liquidity of the trading market for either
the Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes being tendered for exchange. The date of acceptance and exchange
of the Notes (the 'Exchange Date') will be the first business day following the
Expiration Date. Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. New Prime will pay all expenses
incident to the Exchange Offer. New Prime will not receive any proceeds from the
Exchange Offer.
2
<PAGE>
ADDITIONAL INFORMATION
New Prime has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the 'Registration
Statement') under the Securities Act with respect to the Exchange Notes being
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. For further information with respect to New Prime and the Exchange
Notes, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions in such exhibit, to which reference is hereby made. Copies of
the Registration Statement may be examined without charge at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Commission's Regional Offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the Registration Statement can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of certain fees prescribed by the Commission. The
Registration Statement has been and will be filed through the Electronic Data
Gathering, Analysis and Retrieval ('EDGAR') system. Electronic registration
statements filed through the EDGAR system are publicly available through the
Commission Web Site (http:/www.sec.gov).
New Prime is not currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'). Upon
completion of the Exchange Offer, New Prime will be subject to the informational
requirements of the Exchange Act, and, in accordance therewith, will file
periodic reports and other information with the Commision at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of any material so filed can be obtained
from the Public Reference Section of the Commission, upon payment of certain
fees prescribed by the Commission. In addition, pursuant to the Indenture
covering the Notes and the Exchange Notes, New Prime has agreed to file with the
Commission and provide to the Noteholders the annual reports and the
information, documents and other reports otherwise required pursuant to Section
13 of the Exchange Act.
------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes 'forward-looking statements.' All statements other
than statements of historical facts included in this Prospectus, including,
without limitation, the statements under 'Management's Discussion and Analysis
of Financial Condition and Results of Operations' and 'Business--Company
Overview,' '--Business Strategy Following Acquisition,' '--Litigation,' and
'Management--Compensation of Executive Officers,' and located elsewhere herein
regarding the Company's financial position, plans to increase revenues, reduce
general and administrative expense and take advantage of synergies, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from the Company's
expectations ('Cautionary Statements') are disclosed in this Prospectus,
including, without limitation, in conjunction with the forward-looking
statements included in this Prospectus and under 'Risk Factors.' All subsequent
written and oral forward-looking statements attributable to the Company (as
defined herein) or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
3
<PAGE>
SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. Unless the context otherwise requires, all references to the
'Company' shall mean, collectively, New Prime and its subsidiaries and, prior to
the Acquisition, Existing Prime and its subsidiaries. New Prime is a direct,
wholly owned subsidiary of Existing Prime. All references to 'Management' shall
mean the new management of the Company as of the Acquisition Closing Date.
THE COMPANY
The Company is the fourth-largest operator of funeral homes and cemeteries,
on the basis of revenues, in the United States and is the largest privately-held
company in the funeral and cemetery industry. For a discussion of the funeral
service industry, see 'Business--The Funeral Service Industry.' The Company owns
146 funeral homes and 16 cemeteries in 20 states. Existing Prime was founded in
1991, began operations in 1992 and expanded rapidly through the aggressive
acquisition of funeral homes and cemeteries, primarily in non-urban areas of the
United States. The Company has focused on non-urban areas in order to take
advantage of the opportunities offered by such areas, including (i) the
opportunity to establish and maintain a higher market share as a result of the
smaller number of death care providers and (ii) the stronger preference for
traditional full-service funeral services and burials. Historically, the
Company's primary growth strategy has been to purchase properties that can serve
as anchor locations and subsequently to acquire additional funeral homes and
cemeteries located near those central assets.
Existing Prime had no funeral homes when it began operations in 1992 and
grew to 146 funeral homes in 1996. In order to achieve this rapid growth, former
management was primarily focused on identifying funeral homes to be acquired and
consummating acquisitions of such homes rather than on maximizing profitability
of the funeral homes and cemeteries which it had acquired. As a result, former
management did not take advantage of certain opportunities to improve the
efficiency and performance of the funeral homes acquired by it. New Management
intends to substantially eliminate the Company's acquisition program. In
addition, new Management intends to take advantage of (i) the quality and size
of the Company's portfolio of properties, (ii) the opportunity to operate more
efficiently those properties located in close proximity to one another, (iii)
the shift in focus from acquisitions to profit maximization at existing
locations and (iv) the cost reduction opportunities both at local sites and at
the corporate headquarters made possible by an administrative services agreement
with Loewen (the 'Administrative Services Agreement') to improve the Company's
present and long-term operating performance. See 'Business.'
BUSINESS STRATEGY
Overview. Management believes, based upon their experience in the funeral
industry and their assessment of the Company, that opportunities exist to
enhance the revenues and profitability of the Company's existing locations both
in the short-term and over time. The Company's new senior management team is
headed by two former executives of Loewen Group, North America's second-largest
operator of funeral homes and cemeteries, one of whom has 29 years of experience
and the other of whom has 12 years of experience in the funeral industry.
Existing Prime's operations underperformed significantly compared to its peer
group companies in the funeral service industry. As a result, Management has
identified, and the Company intends to undertake, a number of initiatives that
Management believes will result in an improvement in both revenues and operating
profit, including planned reductions in both operating and general and
administrative expenses. Over time, the Company will continue to endeavor to
increase revenues and profitability by capitalizing on the location and
concentration of its properties, improved merchandising, enhanced pre-need
marketing, and a management structure that encourages an entrepreneurial
business culture.
Revenue Enhancement. Management believes that the quality and location of
the Company's funeral homes offer substantial opportunity for both near-term and
long-term revenue enhancement. The Company will seek to capitalize on this
opportunity through the introduction of more sophisticated merchandising and the
pricing of its services more closely to the industry average.
4
<PAGE>
Clustered Operations. Management believes that the Company has not fully
capitalized on the competitive advantages and scale economies available to its
clustered properties. Specifically, the Company expects to expand the sharing
within clusters of service personnel, vehicles, preparation services, clerical
staff and other key resources. Additionally, Management plans to implement
revenue enhancing cross-marketing programs that will benefit proximate locations
without increasing overhead expenses. The Company also benefits from its
Administrative Services Agreement with Loewen, which will enable the Company to
reduce costs through the elimination of certain fixed expenses and the more
efficient use of facilities and personnel. See 'Certain Related
Transactions--Administrative Services Agreement.'
Reduced General & Administrative Expense. Management believes that
significant and immediate cost savings can be realized, at both the local site
and corporate levels, from the restructuring of the Company's general and
administrative staff to more appropriately reflect the Company's new focus on
existing operations. At the site level, Management intends to reduce excess
workforce and take advantage of the Company's funeral home and cemetery clusters
by pooling local resources to eliminate currently duplicative functions in the
areas of finance and administration. In addition, the Company has contracted
with Loewen to provide certain services pursuant to the Administrative Services
Agreement, thereby facilitating the reduction of excess resources. As the
Company's acquisition program will be substantially eliminated, the reduction of
acquisition-related functions at the corporate headquarters will offer further
opportunities for savings.
Pre-Need Marketing. The services offered by funeral homes and cemeteries
can be purchased at the time of death ('at-need') or in advance through a
prearranged funeral contract ('pre-need'). Individuals increasingly are
recognizing the benefits of purchasing funeral products and services in advance,
and the Company is committed to providing quality advanced funeral and cemetery
planning to the communities it serves. Management believes that such programs
considerably enhance long-term revenues for funeral homes by securing future
market share. In addition, the Company can realize significant current revenues
from the sale, through a commissioned sales force, of cemetery pre-need
arrangements. To capitalize on these opportunities, the Company intends to
recruit experienced senior managers who will focus exclusively on building a
leading pre-need sales program based on the foundation currently in place at the
Company.
Management Structure. The Company's management structure and remuneration
practices will be designed to support and encourage entrepreneurial drive and
individual responsibility.
See 'Business--Business Strategy Following Acquisition.'
THE ACQUISITION
The Notes were sold by New Prime to finance, in part, the acquisition (the
'Acquisition') of Existing Prime by Blackstone and Loewen. In the
Acquisition, Existing Prime's capital stock was purchased by Blackstone,
Loewen and PSI Management Direct L.P., a Delaware limited partnership ("PSIM"),
and New Prime became a wholly owned subsidiary of Existing Prime. As
described more fully below, the Acquisition was financed through a
contribution of $130 million by Blackstone, Loewen and PSIM and $190
million of borrowings, including the issuance of the Notes. The principal
components of the Acquisition, which was consummated on August 26, 1996,
included the following:
o The contribution by Blackstone, Loewen and PSIM, of $130 million and all
of the common stock of New Prime to Existing Prime (the
'Blackstone/Loewen Contribution') in exchange for 100% of the capital
stock of Existing Prime (after giving effect to the Stock Repurchase
referred to below). New Prime thereby became a wholly owned subsidiary of
Existing Prime.
o The transfer by Existing Prime of the shares of all of its directly held
subsidiaries and all of its other assets and liabilities to New Prime.
o The establishment of new senior secured credit facilities (the 'Bank
Credit Facilities') between the Company and a syndicate of financial
institutions (the 'Bank Lenders'), with Goldman Sachs Credit Partners,
L.P., formerly known as Pearl Street L.P. ('GSCP'), an affiliate of
Goldman, Sachs & Co. ('Goldman Sachs'), as arranging agent. The Bank
Credit Facilities provided the Company with a $90 million term loan
facility (the 'Bank Term Facility'), the proceeds of which were used to
finance the Acquisition and related transaction costs, to pre-fund
certain capital expenditures and to repay or defease
5
<PAGE>
existing indebtedness of the Company, and a $25 million revolving credit
facility (the 'Revolving Credit Facility'), the proceeds of which are
available for general corporate purposes. Existing Prime and each of the
Company's subsidiaries (collectively, the 'Bank Guarantors') have
guaranteed (the 'Bank Guarantees') all obligations of New Prime under the
Bank Credit Facilities. The Bank Credit Facilities and the Bank
Guarantees are secured by all of the assets of the Company and the Bank
Guarantors (other than real property and certificates of title on
vehicles), 100% of the capital stock of the Company and each of its
subsidiaries and all intercompany receivables. See 'Description of Bank
Credit Facilities.'
o The repurchase by Existing Prime from its then existing stockholders (the
'Stock Repurchase'), using the proceeds of the Blackstone/Loewen
Contribution and a portion of the proceeds of the offering of the Notes
and the Bank Term Facility, of all of the then outstanding shares of
capital stock of Existing Prime for an aggregate purchase price of
approximately $171.8 million. As of the Acquisition Closing Date,
Blackstone and Loewen owned 75.8% and 23.5%, respectively, of the common
stock of Existing Prime.
o The repayment or defeasance of existing indebtedness and the discharge of
certain other existing obligations of Existing Prime in an aggregate
amount of approximately $126.4 million.
The following table sets forth a summary of the sources and uses of funds
associated with the Acquisition and the offering of the Notes:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES:
Bank Term Facility.............................................. $ 90.0
Notes........................................................... 100.0
Blackstone/Loewen Contribution.................................. 129.6
Existing cash................................................... 1.7
-------------
Total......................................................... $ 321.3
-------------
-------------
USES:
Stock Repurchase by Existing Prime.............................. $ 171.8
Repayment or defeasance of existing indebtedness and discharge
of certain other existing obligations of Existing Prime....... 126.4
Pre-funding of capital expenditures of New Prime................ 2.9
Payment of fees and expenses related to the Acquisition, the
offering of the Notes and the repayment of existing
indebtedness of Existing Prime................................ 20.2
-------------
Total......................................................... $ 321.3
-------------
-------------
</TABLE>
See 'Certain Related Transactions--Stock Purchase Agreement and
Acquisition.'
PUT/CALL AND OTHER ARRANGEMENTS
Pursuant to an agreement (the 'Put/Call Agreement') executed by Blackstone,
Loewen Group, Loewen and PSIM, in connection with the Acquisition, (i) Loewen
has a call option, exercisable from and after the fourth anniversary of the
Acquisition Closing Date until but excluding the sixth anniversary of the
Acquisition Closing Date, to purchase the shares of common stock of Existing
Prime held by Blackstone and/or PSIM and (ii) each of Blackstone and PSIM has a
put option, exercisable from and after the sixth anniversary of the Acquisition
Closing Date until but excluding the eighth anniversary of the Acquisition
Closing Date, to sell such shares of common stock of Existing Prime held by
Blackstone or PSIM, as the case may be, to Loewen. The option price in each case
is derived from a formula based on earnings before interest, taxes, depreciation
and amortization ('EBITDA'). In addition, pursuant to the terms of a
stockholders' agreement entered into by Existing Prime, Blackstone, Loewen and
PSIM on the Acquisition Closing Date, (x) neither Blackstone nor Loewen may
transfer its shares of Existing Prime common stock without the prior written
consent of the other party, subject to certain exceptions, and (y) PSIM may not
transfer its shares of Existing Prime common stock without the consent of
Blackstone and Loewen. See 'Certain Related Transactions.'
6
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer...... New Prime is offering to exchange pursuant to the
Exchange Offer up to $100,000,000 aggregate principal
amount of its new 10 3/4% Senior Subordinated Notes due
2004 (the 'Exchange Notes'), for $100,000,000 aggregate
principal amount of its outstanding 10 3/4% Senior
Subordinated Notes due 2004 (the 'Notes'). The Notes
were issued and sold on August 20, 1996 in transactions
not registered under the Securities Act, to Smith
Barney Inc. (the 'Initial Purchaser'), in reliance upon
the exemption provided in Section 4(2) of the
Securities Act. The terms of the Exchange Notes are
identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (other than as
provided herein), and are not subject to any covenant
regarding registration under the Securities Act. See
'The Exchange Offer--Terms of the Exchange' and
'--Terms and Conditions of the Letter of Transmittal'
and 'Description of Exchange Notes.'
Interest Payments....... Interest on the Exchange Notes shall accrue from the
last Interest Payment Date (February 15 or August 15)
on which interest was paid on the Notes so surrendered
or, if no interest has been paid on such Notes, from
August 20, 1996.
Minimum Condition....... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Notes being tendered for
exchange.
Expiration Date......... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, unless extended
(the 'Expiration Date'). Any Note not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
Exchange Date........... The date of acceptance for exchange of the Notes will
be the first business day following the Expiration
Date.
Conditions of the
Exchange Offer........ New Prime's obligation to consummate the Exchange
Offer will be subject to certain conditions. See 'The
Exchange Offer--Conditions to the Exchange Offer.'
New Prime reserves the right to terminate or amend
the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition.
Withdrawal Rights....... The tender of Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration Date.
Procedures for Tendering
Notes................. See 'The Exchange Offer--Tender Procedure.'
Federal Income Tax
Consequences.......... The exchange of Notes for Exchange Notes will not be a
taxable exchange for federal income tax purposes. See
'United States Federal Income Tax Consequences.'
Effect on Holders of
Notes................. As a result of the making of, and upon acceptance or
exchange of all validly tendered Notes pursuant to the
terms of, this Exchange Offer, New Prime will have
fulfilled a covenant contained in the Registration
Rights Agreement (the 'Registration Rights Agreement')
dated as of August 15, 1996 between New Prime and the
Initial Purchaser and, accordingly, there will be no
increase in the interest rate on the Notes pursuant to
the terms of the Registration Rights Agreement, and
the holders of the Notes will
7
<PAGE>
have no further registration or other rights under the
Registration Rights Agreement. Holders of the Notes who
do not tender their Notes in the Exchange Offer will
continue to hold such Notes and will be entitled to all
the rights and subject to all the limitations
applicable thereto (including the restrictions on
transfer thereof) under the Indenture, dated as of
August 15, 1996, between New Prime and United States
Trust Company of New York, as Trustee, relating to the
Notes and the Exchange Notes (the 'Indenture'), except
for any such rights under the Registration Rights
Agreement that by their terms terminate or cease to
have further effectiveness as a result of the making
of, and the acceptance for exchange of all validly
tendered Notes pursuant to, the Exchange Offer. Except
for the restrictions on registrations and transfers,
all untendered Notes and the Exchange Notes will be
treated as one class of securities for purposes of the
covenants and the other terms contained in the
Indenture. In general, the Notes may not be offered or
sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws. New Prime does not
currently anticipate that it will register the Notes
under the Securities Act. To the extent that Notes are
tendered and accepted in the Exchange Offer, the
trading market for untendered Notes could be adversely
affected.
Use of Proceeds......... There will be no cash proceeds to New Prime from the
exchange pursuant to the Exchange Offer.
Exchange Agent.......... United States Trust Company of New York is serving as
Exchange Agent in connection with the Exchange Offer.
TERMS OF THE EXCHANGE NOTES
Issuer.................. Prime Succession, Inc. (formerly known as Prime
Succession Acquisition Corp.).
Securities Offered...... $100 million principal amount of 10 3/4% Senior
Subordinated Notes due 2004.
Maturity Date........... August 15, 2004.
Interest Payment
Dates................. February 15 and August 15 of each year, commencing
February 15, 1997.
Ranking................. The Exchange Notes will be unsecured senior
subordinated obligations of the Company, will be
subordinated in right of payment to all existing and
future Senior Indebtedness of the Company (which
includes all indebtedness of the Company under the Bank
Credit Facilities) and effectively subordinated to all
existing and future liabilities of its subsidiaries and
will rank senior in right of payment to all other
subordinated indebtedness of the Company. New Prime had
$90 million of Senior Indebtedness outstanding, no
subordinated indebtedness outstanding and no firm
arrangements to issue any significant subordinated
indebtedness, in each case as of September 30, 1996,
and its subsidiaries had approximately $84.9 million of
liabilities outstanding as of such date. The Exchange
Notes will be effectively subordinated to all existing
liabilities of New Prime and its subsidiaries, which
totalled $174.9 million in the aggregate as of
September 30, 1996. See
8
<PAGE>
'Description of Exchange Notes--Subordination.' The
Indenture contains certain limitations with respect to
the amount of additional Indebtedness (including
Indebtedness which may rank senior in right of payment
to or pari passu in right of payment with the Exchange
Notes) that may be incurred by New Prime and/or any of
its subsidiaries See 'Description of Exchange
Notes--Certain Covenants--Limitation on Indebtedness.'
Optional Redemption..... The Exchange Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after August 15, 2000 at a premium declining to par in
2003, plus accrued and unpaid interest, if any, to the
redemption date. See 'Description of Exchange
Notes--Redemption--Optional Redemption.'
The Company does not intend to establish a sinking fund
for the benefit of the holders of the Exchange Notes.
Change of Control....... In the event of a Change of Control (as defined
herein), the Company will be obligated to make an offer
to purchase the then outstanding Exchange Notes at a
purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to
the purchase date. The Company's ability to purchase
the Exchange Notes if a Change of Control occurs will
be dependent upon obtaining third-party financing to
the extent it does not have available funds to meet its
purchase obligations. There can be no assurance that
the Company will be able to obtain such financing. The
term 'Change of Control' is limited to certain
specified transactions (which do not include the
purchase by Loewen of the shares of Existing Prime held
by Blackstone) and may not include other events that
might adversely affect the financial condition of the
Company or result in a downgrade of the credit rating
of the Exchange Notes. Pursuant to the Bank Credit
Facilities, the Company would be required to satisfy
its obligations thereunder prior to its purchase of the
Exchange Notes upon a Change of Control in accordance
with the Indenture. As of September 30, 1996, the
aggregate amount of the Company's indebtedness under
the Bank Credit Facilities was $90 million. See
'Description of Exchange Notes--Certain
Covenants--Change of Control.'
Certain Covenants....... The Indenture contains certain covenants by the Company
and its Subsidiaries (as defined herein), including,
but not limited to, covenants with respect to
limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii) certain
payments, including dividends and investments, (iii)
the creation of liens, (iv) sales of assets and
preferred stock, (v) transactions with interested
persons, (vi) payment restrictions affecting
subsidiaries, (vii) sale-leaseback transactions and
(viii) mergers and consolidations. See 'Description of
Exchange Notes--Certain Covenants.' In addition, the
Bank Credit Agreement (as defined herein) contains
certain covenants that, among other things, restrict
the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness,
prepay other indebtedness (including the Exchange
Notes), pays dividends or make certain restricted
payments, create liens on assets, engage in mergers or
acquisitions or enter into leases or transactions with
affiliates. See 'Description of Bank Credit
Facilities--Covenants.' Immediately after giving effect
to the Acquisition, the Company was in material
compliance
9
<PAGE>
with all financial and operating covenants contained in
the Indenture and the Bank Credit Agreement.
Absence of a Public
Market for the
Exchange Notes........ The Exchange Notes are new securities, and there is
currently no established market for the Exchange
Notes. The Exchange Notes will generally be freely
transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for which
there will not initially be a market. Accordingly,
there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. The
Initial Purchaser has advised the Company that it
currently intends to make a market in the Exchange
Notes. However, the Initial Purchaser is not obligated
to do so, and any market making with respect to the
Exchange Notes may be discontinued at any time without
notice. The Company does not intend to apply for a
listing of the Exchange Notes on a securities
exchange.
RISK FACTORS
Holders of Notes should consider carefully the information set forth in
this Prospectus and, in particular, should evaluate the specific factors set
forth under 'Risk Factors' before tendering Notes in exchange for Exchange
Notes.
10
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain selected historical consolidated
financial data for the Company for and at the end of each of the years in the
four-year period ended December 31, 1995 and the nine-month period ended
September 30, 1995, the period from January 1, 1996 through August 25, 1996 and
the period from August 26, 1996 through September 30, 1996. The selected
historical financial data for the four fiscal years ended December 31, 1995 were
derived from the Company's financial statements which have been audited by Ernst
& Young LLP ('E&Y'), independent auditors of Existing Prime (Predecessor
Company) through December 31, 1995. KPMG Peat Marwick LLP ('KPMG') have been
appointed auditors of New Prime (Successor Company). The selected historical
financial data for the nine months ended September 30, 1995 were derived from
the unaudited financial statements of the Company. The selected historical
financial data for the period from January 1, 1996 through August 25, 1996 and
the period from August 26, 1996 through September 30, 1996 were derived from the
financial statements of the Company which have been audited by KPMG. The results
for the nine months ended September 30, 1995, the period from January 1, 1996
through August 25, 1996 and the period from August 26, 1996 through September
30, 1996 are not necessarily indicative of the results for the full fiscal year.
The selected pro forma financial data give effect to (i) cost reductions
associated with elimination of specific and identifiable job functions, (ii) the
acquisition of eleven funeral homes in 1995 and three funeral homes in 1996 and
related financing transactions, (iii) the Acquisition and (iv) the offering of
the Notes, as if each such transaction or cost reduction, as the case may be,
had occurred on January 1, 1995.
The following table should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Pro Forma Financial Information' and the Consolidated Financial Statements,
including, in each case, the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR COMPANY COMPANY
---------------------------------------------------------------------- -------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 1, AUGUST 26,
FOR THE NINE 1996 1996
FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED THROUGH THROUGH
------------------------------------ SEPTEMBER 30, AUGUST 25, SEPTEMBER 30,
1992 1993 1994 1995 1995(2) 1996(2) 1996(2)
------ ------ ------ ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS EXCEPT REVENUE PER FUNERAL SERVICE)
(UNAUDITED)
-------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Funeral services................ $ 5.0 $ 33.0 $ 60.9 $ 68.6 $ 50.4 $ 47.3 $ 6.9
Cemetery sales.................. 0.2 8.9 11.3 12.9 9.6 8.8 1.4
------ ------ ------ ------ ------ ------ ------
5.2 41.9 72.2 81.5 60.0 56.1 8.3
Cost of sales:
Funeral homes................... 1.0 5.7 10.9 11.3 8.6 7.6 1.1
Cemetery........................ 0.1 1.4 2.7 2.4 1.8 1.6 0.3
Cumulative effect of change in
accounting estimate(3)........ -- -- -- (3.5) -- -- --
------ ------ ------ ------ ------ ------ ------
1.1 7.1 13.6 10.2 10.4 9.2 1.4
Operating expenses:
Funeral homes................... 3.2 21.1 35.2 38.1 27.9 26.2 3.9
Cemetery........................ 0.1 4.7 6.7 7.5 5.5 5.2 0.8
------ ------ ------ ------ ------ ------ ------
3.3 25.8 41.9 45.6 33.4 31.4 4.7
Corporate and regional general and
administrative expenses......... 1.6 2.9 4.6 6.1 4.6 4.9 0.6
Amortization of goodwill.......... 0.1 0.7 1.8 1.9 1.5 1.3 0.5
Covenants not to compete.......... 0.2 1.2 2.6 2.8 2.0 2.0 0.3
Legal settlement.................. -- -- -- -- -- 6.3 --
------ ------ ------ ------ ------ ------ ------
Operating income (loss)........... (1.1) 4.2 7.7 14.9 8.1 1.0 0.8
Other income and expense:
Interest expense................ 0.8 6.4 12.4 15.4 11.4 10.1 2.5
Other expense (income), net..... -- 0.3 (0.1) (0.1) (0.3) -- --
------ ------ ------ ------ ------ ------ ------
0.8 6.7 12.3 15.3 11.1 10.1 2.5
------ ------ ------ ------ ------ ------ ------
Loss before income taxes.......... (1.9) (2.5) (4.6) (0.4) (3.0) (9.1) (1.7)
Income tax benefit (expense)...... -- 0.2 0.3 (0.3) (0.4) (0.4) --
------ ------ ------ ------ ------ ------ ------
Net loss.......................... (1.9) (2.3) (4.3) (0.7) (3.4) (9.5) (1.7)
Redeemable preferred stock
dividend requirements........... -- -- -- (0.4) (0.3) (0.3) --
------ ------ ------ ------ ------ ------ ------
Net loss attributable to common
shareholders.................... $ (1.9) $ (2.3) $ (4.3) $ (1.1) $ (3.7) $ (9.8) $ (1.7)
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
<CAPTION>
PRO FORMA(1)
-----------------------------
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
-----------------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Funeral services................ $ 72.5 $ 54.3
Cemetery sales.................. 12.9 10.2
------ -----
85.4 64.5
Cost of sales:
Funeral homes................... 11.9 8.7
Cemetery........................ 2.8 2.2
Cumulative effect of change in
accounting estimate(3)........ (3.5) --
------ -----
11.2 10.9
Operating expenses:
Funeral homes................... 40.2 30.2
Cemetery........................ 7.5 6.0
------ -----
47.7 36.2
Corporate and regional general and
administrative expenses......... 5.7 5.3
Amortization of goodwill.......... 5.9 4.4
Covenants not to compete.......... 2.8 2.2
Legal settlement.................. -- 6.3
------ -----
Operating income (loss)........... 12.1 (0.8)
Other income and expense:
Interest expense................ 23.3 15.6
Other expense (income), net..... (0.2) --
------ -----
23.1 15.6
------ -----
Loss before income taxes.......... (11.0) (16.4)
Income tax benefit (expense)...... (0.3) (0.4)
------ -----
Net loss.......................... (11.3) (16.8)
Redeemable preferred stock
dividend requirements........... -- --
------ -----
Net loss attributable to common
shareholders.................... $(11.3) $ (16.8)
------ -----
------ -----
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR COMPANY COMPANY
---------------------------------------------------------------------- -------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 1, AUGUST 26,
FOR THE NINE 1996 1996
FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED THROUGH THROUGH
------------------------------------ SEPTEMBER 30, AUGUST 25, SEPTEMBER 30,
1992 1993 1994 1995 1995(2) 1996(2) 1996(2)
------ ------ ------ ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS EXCEPT REVENUE PER FUNERAL SERVICE)
(UNAUDITED)
-------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization(4):
Depreciation.................... $ 0.2 $ 1.4 $ 2.2 $ 2.5 $ 1.9 $ 1.9 $ 0.2
Amortization of goodwill........ 0.1 0.7 1.8 1.9 1.5 1.3 0.5
Amortization of covenants not to
compete....................... 0.2 1.2 2.6 2.8 2.0 2.0 0.3
Amortization of consulting
agreements.................... -- 0.2 0.3 0.3 0.2 0.2 --
------ ------ ------ ------ ------ ------ ------
$ 0.5 $ 3.5 $ 6.9 $ 7.5 $ 5.6 $ 5.4 $ 1.0
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Capital expenditures.............. 0.1 1.9 2.6 1.6 1.2 1.0 0.1
Cash interest expense(5).......... 0.7 6.1 11.9 14.9 11.1 9.7 2.4
EBITDA, as adjusted(6)(7)......... (0.6) 7.4 14.7 19.0 14.0 12.7 1.8
Ratio of EBITDA, as adjusted to
cash interest expense........... -- 1.2x 1.2x 1.3x 1.3x 1.3x 0.8x
Cash flows from(8):
Operating activities............ -- 2.0 2.7 6.0 4.8 3.3 (2.6)
Investing activities............ -- (69.5) (25.7) (9.1) (2.9) (1.6) (0.2)
Financing activities............ -- 68.6 22.8 0.2 (4.5) (1.0) 5.2
Ratio of earnings to fixed
charges(9)...................... -- -- -- -- -- -- --
OPERATING DATA:
Number of funeral home
locations....................... 38 101 131 143 135 146 146
Number of funeral services........ 1,700 10,889 17,590 19,776 14,556 13,827 1,888
Total funeral service revenues per
funeral service................. $2,943 $3,027 $3,460 $3,470 $ 3,464 $ 3,419 $ 3,684
Number of cemeteries.............. 5 14 16 16 16 16 16
<CAPTION>
PRO FORMA(1)
-----------------------------
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
-----------------------------
<S> <C> <C>
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization(4):
Depreciation.................... $ 3.0 $ 2.4
Amortization of goodwill........ 5.9 4.4
Amortization of covenants not to
compete....................... 2.8 2.3
Amortization of consulting
agreements.................... 0.3 0.2
------ -----
$ 12.0 $ 9.3
------ -----
------ -----
Capital expenditures.............. 1.6 1.1
Cash interest expense(5).......... 21.5 14.3
EBITDA, as adjusted(6)(7)......... 21.4 14.8
Ratio of EBITDA, as adjusted to
cash interest expense........... 1.0x 1.0x
Cash flows from(8):
Operating activities............ 1.2 (1.1)
Investing activities............ (9.1) (1.8)
Financing activities............ 0.2 4.2
Ratio of earnings to fixed
charges(9)...................... -- --
OPERATING DATA:
Number of funeral home
locations....................... -- --
Number of funeral services........ -- --
Total funeral service revenues per
funeral service................. -- --
Number of cemeteries.............. -- --
</TABLE>
<TABLE>
<CAPTION>
AS AT
AS AT DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------
1992 1993 1994 1995 1996
------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................... $ 67.6 $163.9 $195.3 $196.1 $ 402.7
Total debt and redeemable
preferred stock(10)............. 43.5 103.2 123.5 124.6 199.9
Shareholders' equity(11).......... 12.3 20.7 20.7 22.7 127.8
Ratio of total debt to total
capitalization(12).............. 78.0% 83.3% 85.6% 84.6% 61.0%
</TABLE>
- ------------------
(1) The selected pro forma financial data give effect to the acquisitions of
funeral homes by the Company in 1995 and 1996 and to the Acquisition, the
offering of the Notes and certain cost reductions, as if each such
transaction or cost reduction, as the case may be, had occurred on January
1, 1995. See 'Unaudited Pro Forma Consolidated Financial Information' and
the notes thereto.
(2) The selected historical financial data for the nine months ended September
30, 1995 and the periods from January 1, 1996 through August 25, 1996 and
from August 26, 1996 through September 30, 1996 were derived from the
unaudited financial statements of the Company. The results for the nine
months ended September 30, 1995 and the periods from January 1, 1996 through
August 25, 1996 and from August 26, 1996 through September 30, 1996 are not
necessarily indicative of the results for the full fiscal year.
(3) In 1995, the Company constructed a cemetery vault manufacturing facility in
Alabama that allows for the production of vaults at a significantly lower
cost than purchasing from independent manufacturers. As a result, Existing
Prime recorded a $3.5 million one-time gain related to the adjustment of a
deferred merchandise liability for pre-need cemetery vault sales.
(4) Does not include amortization of deferred financing costs, which are
included in interest expense.
(5) Cash interest expense is defined as interest expense less amortization of
deferred financing costs.
(Footnotes continued on next page)
12
<PAGE>
(Footnotes continued from previous page)
(6) EBITDA, as adjusted is defined as loss before income taxes plus interest
expense, depreciation and amortization, adjusted for (i) the one-time $3.5
million and $2.9 million net change in accounting estimate for,
respectively, the historical and pro forma year ended December 31, 1995, and
(ii) the $6.3 million one-time charge for the settlement of certain
litigation for the period from January 1, 1996 through August 25, 1996.
These adjustments are described below:
o In December 1995, the Company constructed a cemetery vault manufacturing
facility in Alabama that allows for the production of vaults at a
significantly lower cost than purchasing from independent manufacturers.
The lower cost of sales from the new manufacturing plant allowed Existing
Prime to recognize a one-time gain of $3.5 million by reducing its
estimated deferred merchandise liability for pre- need cemetery vault
sales. On a pro forma basis for 1995, assuming the plant was in operation
since January 1, 1995, estimated savings were $0.6 million.
o The Company settled certain litigation in April 1996 and recorded a
one-time charge of $6.3 million in the first half of 1996 for the present
value of future cash payments due under the litigation settlement
agreements. See 'Business--Litigation--Gamble Settlement.'
These two adjustments to EBITDA have been made because both are considered
infrequent and non-recurring in nature by the Company.
The calculation of EBITDA, as adjusted is shown below.
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR COMPANY COMPANY
---------------------------------------------------------------------- -------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 1, AUGUST 26,
FOR THE NINE 1996 1996
FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED THROUGH THROUGH
------------------------------------ SEPTEMBER 30, AUGUST 25, SEPTEMBER 30,
1992 1993 1994 1995 1995(2) 1996(2) 1996(2)
------ ------ ------ ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
-------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss before income taxes........... $ (1.9) $ (2.5) $ (4.6) $ (0.4) $ (3.0) $ (9.1) $ (1.7)
Interest expense................... 0.8 6.4 12.4 15.4 11.4 10.1 2.5
Depreciation and amortization...... 0.5 3.5 6.9 7.5 5.6 5.4 1.0
Legal settlement (see 'Business--
Litigation')...................... -- -- -- -- -- 6.3 --
Cumulative effect of change in
accounting estimate, net.......... -- -- -- (3.5) -- -- --
------ ------ ------ ------ ------ ------ ------
EBITDA, as adjusted................ $ (0.6) $ 7.4 $ 14.7 $ 19.0 $ 14.0 $ 12.7 $ 1.8
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
<CAPTION>
PRO FORMA(1)
-----------------------------
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
-----------------------------
<S> <C> <C>
Loss before income taxes........... $(11.0) $ (16.4)
Interest expense................... 23.3 15.6
Depreciation and amortization...... 12.0 9.3
Legal settlement (see 'Business--
Litigation')...................... -- 6.3
Cumulative effect of change in
accounting estimate, net.......... (2.9) --
------ -----
EBITDA, as adjusted................ $ 21.4 $ 14.8
------ -----
------ -----
</TABLE>
EBITDA, as adjusted is presented because (i) Management believes that EBITDA
provides relevant and useful information, (ii) it is a widely accepted
financial indicator of a company's ability to incur and service debt and
(iii) it is the basis on which compliance with the financial covenants
contained in the Indenture and the Bank Credit Agreement is determined.
However, EBITDA, as adjusted should not be considered in isolation, as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. Also, this measure of EBITDA, as adjusted may
not be comparable to similar measures reported by other companies.
(7) The Unaudited Pro Forma Consolidated Statements of Operations do
not give effect to $3.6 million representing net savings resulting
from a number of initiatives including elimination of overstaffing
at selected funeral homes, elimination of redundant staffing at
site-level made possible by automation of existing tasks and by
sharing resources of selected homes in close proximity to one
another, reduction of labor at the regional administrative centers
made possible by the consolidation of certain accounting and
administrative functions into the corporate headquarters and the
reduction of labor at the corporate headquarters made possible by
elimination of acquisition functions. Certain costs and expenses
are being replaced, in part, by the Administrative Services
Agreement. See "Certain Related Transactions -- Administrative
Services Agreement."
(Footnotes continued on next page)
13
<PAGE>
(Footnotes continued from previous page)
The effect of the $3.6 million of annual cost savings on the pro
forma EBITDA, as adjusted is summarized below:
<TABLE>
<CAPTION>
For the Nine
Year Ended Months Ended
December 31, September 30,
1995 1996
<S> <C> <C>
Pro forma EBITDA, as adjusted 21.4 14.8
Elimination of salaries and benefits(1) 5.1 3.3
Administrative Services Agreement(2) (0.3) (0.2)
Monitoring fees(3) (0.3) (0.2)
Costs of new management compensation(4) (0.9) (0.6)
----- -----
Revised EBITDA, as adjusted 25.0 17.1
----- -----
Ratio of revised EBITDA, as adjusted to
cash interest expense 1.2x 1.2x
</TABLE>
(1) Represents cost savings from the elimination of specific and
identifiable job positions and functions at both the corporate and
site levels. The Unaudited Pro Forma Consolidated Statements of
Operations do not reflect certain additional cost savings expected to
be achieved from implementation of the changes in operating strategy
described under "Business--Business Strategy Following Acquisition" or
$0.3 million relating to severance costs. See "Business--Business
Strategy Following Acquisition" and "Risk Factors--Potential Adverse
Consequences of Changes in Operating Strategy."
(2) Represents fees payable to Loewen pursuant to the Administrative
Services Agreement that the Company entered into on the Acquisition
Closing Date. See "Certain Related Transactions--Administrative
Services Agreement."
(3) Represents monitoring fees payable to an affiliate of Blackstone
pursuant to the Stockholders' Agreement that the Company entered into
prior to the Acquisition Closing Date. See "Certain Related
Transactions--Payment of Certain Fees and Expenses."
(4) Represents estimate of salaries and bonuses for the Company's new
senior management team.
(8) Pro forma cash flows from operating activities reflect the impact of the
pro forma adjustments on net income, depreciation and amortization. Pro
forma cash flows from investing activities are assumed to be unchanged from
the historic cash flows. Pro forma cash flows from financing activities
reflect the cash flows relating to the Acquisition and the offering of the
Notes which are assumed to occur as of the Acquisition Closing Date.
(9) Earnings used in computing the ratio of earnings to fixed charges consist
of income before provision for income taxes plus fixed charges. Fixed
charges consist of interest expense, including amortization of debt
issuance costs, and a portion of operating lease rental expense deemed to
be representative of the interest factor. Earnings were insufficient to
cover fixed charges for each of the years in the four year period ended
December 31, 1995, the nine months ended September 30, 1995, the periods
from January 1, 1996 through August 25, 1996, from August 26, 1996 through
September 30, 1996, the year ended December 31, 1995 pro forma and the nine
months ended September 30, 1996 pro forma, by $1.9 million, $2.5 million,
$4.6 million, $0.4 million, $3.0 million, $9.1 million, $1.7 million, $11.0
million and $16.4 million, respectively.
(10) Total debt and redeemable preferred stock for December 31, 1994 and 1995
includes $2.0 million and $2.3 million, respectively, of redeemable
preferred stock.
(11) Does not include redeemable preferred stock.
(12) Total capitalization includes redeemable preferred stock.
14
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, holders of Notes
should consider carefully the following factors before tendering their Notes in
exchange for Exchange Notes offered hereby. The risk factors set forth below are
generally applicable to the Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE INDEBTEDNESS
The Company has incurred substantial indebtedness in connection with the
Acquisition and is highly leveraged. At September 30, 1996, the Company's total
debt was $199.9 million, the Company's total debt to total capitalization ratio
was 61.0% and the Company and its subsidiaries, on a consolidated basis, had
liabilities (including total debt) of approximately $274.9 million. In the
ordinary course of business, the Company has incurred and, subject to certain
covenants and financial tests set out in the Bank Credit Agreement (as defined
herein) and the Indenture, will continue to incur additional indebtedness to
fund working capital requirements and for other corporate purposes. See
'Capitalization,' 'Description of Bank Credit Facilities,' 'Description of
Exchange Notes' and the Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including: (i) the Company's
ability to obtain financing in the future for working capital or other purposes
may be impaired; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness; (iii) the indebtedness outstanding under the Bank Credit
Facilities is secured and will mature prior to the maturity of the Exchange
Notes; (iv) certain of the Company's borrowings is at variable rates of
interest, which could result in higher interest expense in the event of
increases in interest rates; and (v) the Company's high degree of leverage may
make it more vulnerable to economic downturns and may limit its ability to
withstand competitive pressures.
The Company believes that, based upon current levels of operations and
anticipated growth and availability under the Revolving Credit Facility, it will
be able to meet its principal and interest payment obligations. There can be no
assurance, however, that the Company's business will generate sufficient cash
flow from operations or that future working capital borrowings will be available
in an amount sufficient to enable the Company to service its indebtedness,
including the Exchange Notes. If the Company cannot generate sufficient cash
flow from operations or borrow under the Revolving Credit Facility to meet such
obligations, then the Company may be required to take certain actions, including
reducing capital expenditures, restructuring its debt, selling assets or seeking
additional equity in order to avoid an Event of Default (as defined herein).
There can be no assurance that such actions could be effected or would be
effective in allowing the Company to meet such obligations. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
EXCHANGE NOTES REPRESENT UNSECURED, SUBORDINATED CLAIMS;
NO LIMITATION ON ADDITIONAL INDEBTEDNESS
The Exchange Notes will be unsecured obligations of the Company that are
subordinated in right of payment to all Senior Indebtedness of the Company,
including all indebtedness under the Bank Credit Facilities. As of September 30,
1996, $90 million of Senior Indebtedness was outstanding and the Company had
borrowing availability of approximately $25 million under the Revolving Credit
Facility. The Indenture and the Bank Credit Facilities permit the Company to
incur additional Senior Indebtedness, provided that certain conditions are met,
and the Company expects from time to time to incur additional Senior
Indebtedness. Furthermore, the Indenture does not limit the Company's ability to
secure Senior Indebtedness. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding up of the Company or upon a default
in payment with respect to, or the acceleration of, or if a judicial proceeding
is pending with respect to, any default under any Senior Indebtedness, the
lenders under the Bank Credit Facilities (the 'Lenders') and any other creditors
who are holders of Senior Indebtedness must be paid in full before a holder of
the Exchange Notes may be paid. Accordingly, there may be insufficient assets
remaining after such payments to pay principal of or interest on the Exchange
Notes. See 'Description of Exchange Notes--Subordination.' In addition, the
Exchange Notes will be structurally subordinated to any liabilities or
obligations of the Company's subsidiaries as described below under '--Holding
Company Structure.'
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The Company's obligations under the Bank Credit Facilities are secured by
substantially all of the assets of the Company and its subsidiaries. If a
default occurs under the Bank Credit Agreement and the Company is unable to
repay such borrowings, the Lenders would have the right to exercise the remedies
available to secured creditors under applicable law and pursuant to the Bank
Credit Agreement. Accordingly, the Lenders would be entitled to payment in full
out of the assets securing such indebtedness prior to payment to holders of the
Exchange Notes. If the Lenders or the holders of any other secured indebtedness
were to foreclose on the collateral securing the Company's obligations to them,
it is possible that there would be insufficient assets remaining after
satisfaction in full of all such indebtedness to satisfy in full the claims of
holders of the Exchange Notes.
RESTRICTIVE DEBT COVENANTS; CONSEQUENCES OF FAILURE TO COMPLY WITH DEBT
COVENANTS
The Bank Credit Agreement and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, pay dividends, prepay
subordinated indebtedness (including, in the case of the Bank Credit Agreement,
the Exchange Notes), enter into sale-leaseback transactions, create liens, make
capital expenditures and make certain investments or acquisitions and otherwise
restrict corporate activities. In addition, under the Bank Credit Agreement, the
Company is required to satisfy specified financial ratios and tests, including,
without limitation, minimum fixed charge coverage, minimum interest coverage,
minimum net worth, maximum senior debt leverage and maximum total debt leverage
tests. The ability of the Company to comply with such provisions may be affected
by events beyond the Company's control. To the extent that the Company does not
achieve the pro forma estimates with respect to its operations, it may not be in
compliance with certain of the covenants included in the Bank Credit Agreement.
See 'Pro Forma Financial Information.' The breach of any of these covenants
could result in a default under the Bank Credit Agreement. See 'Description of
Bank Credit Facilities.' In the event of any such default, depending upon the
actions taken by the Lenders, the Company could be prohibited from making any
payments of principal of or interest on the Exchange Notes. See 'Description of
Exchange Notes-- Subordination.' In addition, the Lenders could elect to declare
all amounts borrowed under the Bank Credit Facilities, together with accrued
interest, to be due and payable or could proceed against the collateral securing
such indebtedness.
HISTORICAL NET LOSSES; WEAKNESS IN FINANCIAL ACCOUNTING CONTROLS
From the time that Existing Prime commenced operations in early 1992, it
grew dramatically through the acquisition of funeral homes and cemeteries.
Primarily as a result of this acquisition strategy, the Company has incurred net
losses in each of its four years of operations. There can be no assurance that
the Company will become profitable in the future or that it will be able to
implement successfully its planned changes in operating strategy. See
'--Potential Adverse Consequences of Planned Changes in Operating Strategy.'
Existing Prime's rapid growth also placed a significant strain on the
Company's accounting systems and internal controls. The lack of sufficiently
skilled financial management at Existing Prime's Alabama subsidiary has had an
adverse impact on such subsidiary's ability to produce accurate and timely
financial information. In connection with the audit of Existing Prime's
financial statements for the year ended December 31, 1995 and the review of its
March 31, 1996 financial statements, Existing Prime's independent public
accountants, E&Y, issued a management letter enumerating certain reportable
conditions related to the Company's Alabama operations. Such conditions included
the failure to perform key account reconciliations and the lack of qualified
financial personnel at the Alabama subsidiary's operations.
During the latter half of 1995 and in 1996, management of Existing Prime
took steps designed to address the concerns raised by E&Y, including the
dedication of corporate personnel to work on site in Alabama to assist in the
processing and summarizing of financial data, the replacement of an outside
service bureau that had previously been responsible for funeral service
accounting at most of Existing Prime's locations and the institution of new and
automated accounting systems and procedures overall. Management has undertaken
an extensive review of the Company's accounting controls and procedures and
believes that appropriate accounting controls and procedures are now being
utilized. However, Management will continue to monitor the functioning of its
accounting controls and procedures and intends to implement any additional steps
deemed necessary. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--General.'
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POTENTIAL ADVERSE CONSEQUENCES OF PLANNED CHANGES IN OPERATING STRATEGY
The implementation of the changes in operating strategy described under
'Business--Business Strategy Following Acquisition' could result in consequences
which could have an adverse effect on the Company's results of operations. For
example, the enactment of price increases may result in a reduction in market
share and the implementation of staff reductions intended to decrease general
and administrative expenses may lead to low morale and the further loss of
personnel. In addition, the Administrative Services Agreement may not result in
the realization of the expected savings from such agreement. See 'Certain
Related Transactions--Administrative Services Agreement.' There can be no
assurance that these consequences will not occur and, if they occur, that they
will not result in a material adverse effect on the Company's results of
operations and prevent the Company from increasing its revenues and operating
profit.
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES TO SERVICE INDEBTEDNESS;
EXCHANGE NOTES SUBORDINATED TO SUBSIDIARY LIABILITIES
The Company is a holding company with no significant independent business
operations. Accordingly, its primary sources of cash to meet debt service and
other obligations (including payments on the Exchange Notes) are dividends and
other payments from its subsidiaries. Consequently, obligations of the Company
to its creditors, including holders of the Exchange Notes, are effectively
subordinated in right of payment and junior to all liabilities (including trade
payables) of the Company's subsidiaries. The Bank Credit Facilities are
guaranteed by each of the Company's subsidiaries. The aggregate amount of
liabilities of the Company's subsidiaries (excluding intercompany indebtedness)
as of September 30, 1996 was approximately $84.9 million.
CONSEQUENCES OF FRAUDULENT TRANSFER
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company (a) had incurred such indebtedness with the intent to hinder, delay or
defraud creditors, or (b)(A) was insolvent at the time of such incurrence, (B)
was rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its business, or (D) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they mature, then, in each such case, a court of competent jurisdiction could
avoid, in whole or in part, the Exchange Notes or, in the alternative,
subordinate the Exchange Notes to existing and future indebtedness of the
Company. The measure of insolvency for purposes of the foregoing would likely
vary depending upon the law applied in such case. Generally, however, the
Company would be considered insolvent if the sum of its debts, including
contingent liabilities, were greater than all of its assets at a fair valuation,
or if the present fair saleable value of its assets were less than the amount
that would be required to pay the probable liabilities on its existing debts,
including contingent liabilities, as such debts became absolute and matured. The
Company believes that, for purposes of the United States Bankruptcy Code and
state fraudulent transfer or conveyance laws, the Company received equivalent
value at the time the indebtedness was incurred under the Notes. In addition,
the Company believes that it (i) is not and will not be insolvent, (ii) is not
and will not be engaged in a business or transaction for which its remaining
assets constitute unreasonably small capital, and (iii) does not intend and will
not intend to incur debt beyond its ability to repay such debts as they mature.
However, there can be no assurance that a court passing on such issues would
agree with the determination of the Company.
In rendering their opinions in connection with the offering of the Notes,
counsel for the Company and counsel for the Initial Purchaser did not express
any opinion as to the applicability of federal or state fraudulent transfer
laws.
CONTROL BY BLACKSTONE; POSSIBLE FUTURE CONTROL BY LOEWEN;
POTENTIAL CONFLICTS OF INTEREST
Blackstone owns, on a fully diluted basis, 75.8% of the issued and
outstanding common stock of Existing Prime, which in turn owns 100% of the
issued and outstanding common stock of the Company. Accordingly, Blackstone,
subject to certain exceptions described in the Stockholders' Agreement (as
defined herein), effectively exercises control over the election of a majority
of the Company's directors, the appointment of its
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management and decisions concerning substantially all actions requiring the
approval of the Company's stockholders. There can be no assurance that the
interests of Blackstone will not conflict with the interests of holders of the
Exchange Notes. Loewen may acquire control of Existing Prime after the fourth
anniversary of the Acquisition Closing Date pursuant to various options
contained in the Put/Call Agreement. There can be no assurance that such options
will be exercised or, if Loewen does acquire control of Existing Prime, that its
interests will not conflict with the interests of the holders of the Exchange
Notes. See 'Principal Stockholders' and 'Certain Related Transactions--Put/Call
Arrangement.'
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Notes. The Notes
were offered and sold in August 1996 to a small number of institutional
investors and are eligible for trading in the National Association of Securities
Dealers, Inc.'s PORTAL market.
There is currently no established market for the Exchange Notes and there
can be no assurance that a public market will develop or, if such a market
develops, as to the liquidity of such market, nor can there be any assurance as
to the ability of the holders of the Exchange Notes to sell their Exchange Notes
or the price at which such holders would be able to sell their Exchange Notes.
The Exchange Notes will not be listed on any securities exchange. If the
Exchange Notes are traded after their initial issuance, they may trade at a
discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities, the performance of the Company and
other factors. Although there is currently no market for the Exchange Notes,
Smith Barney Inc. has advised the Company that it intends to make a market in
the Exchange Notes after consummation of the Exchange Offer, as permitted by
applicable laws and regulations; however, the Initial Purchaser is not obligated
to do so and any such market-making activity may be discontinued at any time
without notice.
USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer. The net proceeds from the offering of the Notes were used, together with
the proceeds of the Bank Term Facility and the Blackstone/Loewen Contribution,
as follows: (i) approximately $171.8 million was used to effect the Stock
Repurchase, (ii) approximately $121.0 million was used to repay or defease
outstanding indebtedness of Existing Prime under (a) a credit agreement with
Provident Services, Inc., maturing on various dates beginning in September 1999,
with a final maturity date in November 2002 and bearing interest at the prime
rate plus 1.5%, (b) a credit agreement with Heller Financial, Inc., maturing on
May 12, 1997 and bearing interest at the prime rate plus 1.75%, (c) certain
notes issued to the sellers in connection with the acquisition of certain of
Existing Prime's operations, with maturity dates ranging from January 1, 1998 to
October 26, 2015 and bearing interest at rates ranging from 8.0% to 9.5% and (d)
certain demand notes payable to Harris Trust and Savings Bank, bearing interest
at the prime rate, (iii) approximately $5.4 million was used to discharge the
obligation of Existing Prime under an agreement entered into to settle certain
litigation (see 'Business--Litigation--Gamble Settlement'), (iv) approximately
$2.9 million was used to pre-fund certain capital expenditures to be made by New
Prime and (v) approximately $20.2 million was used to pay other fees and
expenses related to the Acquisition and such repayment of indebtedness
(including the payment of a fee of $3.2 million to and reimbursement of certain
expenses of affiliates of Blackstone, the payment of a consulting fee of $1.5
million to Loewen and the reimbursement of Loewen for certain expenses equal to
$1 million). See 'Summary--The Acquisition,' 'Capitalization,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources' and 'Certain Related Transactions--Payment of
Certain Fees and Expenses.'
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Notes were originally issued and sold on August 20, 1996. The offer and
sale of the Notes was not required to be registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act. In
connection with the sale of the Notes, the Company agreed to use its best
efforts to cause to be filed with the Commission a registration statement
relating to an exchange offer pursuant to which new senior subordinated notes of
the Company covered by such registration statement and containing terms
indentical in all
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material respects to the terms of the Notes would be offered in exchange for
Notes tendered at the option of the holders thereof, or, if applicable
interpretations of the staff of the Commission did not permit the Company to
effect such an Exchange Offer, the Company agreed to file a shelf registration
statement covering resales of the Notes (the 'Shelf Registration Statement') and
use its best efforts to have such Shelf Registration Statement become effective
under the Securities Act and to keep effective the Shelf Registration Statement
for 180 days after the Effective Date thereof or such shorter period ending when
all Notes covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement.
The purpose of the Exchange Offer is to fulfill certain of the Company's
obligations under the Registration Rights Agreement. Except as otherwise
expressly set forth herein, this Prospectus may not be used by any holder of the
Notes or any holder of the Exchange Notes to satisfy the registration and
prospectus delivery requirements under the Securities Act that may apply in
connection with any resale of such Notes or Exchange Notes. See '-- Terms of the
Exchange.'
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See 'Plan of Distribution.'
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of Notes.
The terms of the Exchange Notes are identical in all material respects to the
terms of the Notes for which they may be exchanged pursuant to this Exchange
Offer, except that the Exchange Notes will generally be freely transferable by
holders thereof and will not be subject to any covenant regarding registration.
The Exchange Notes will evidence the same indebtedness as the Notes and will be
entitled to the benefits of the Indenture. See 'Description of Exchange Notes.'
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Notes
may be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties
(see Exxon Capital Holdings Corp. (available April 13, 1989), Morgan Stanley &
Co. Incorporated (available June 5, 1991) and Shearman & Sterling (available
July 2, 1993)), the Company believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by any holder of such Exchange Notes (other than any such
holder that is an 'affiliate' or the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in the distribution of such
Exchange Notes. Since the Commission has not considered the Exchange Offer in
the context of a no-action letter, there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any holder who is an affiliate of the Company or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder must
acknowledge that it has no arrangement or understanding with any person to
participate in the distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Notes, where such
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See '-- Terms
and Conditions of the Letter of Transmittal' and 'Plan of Distribution.'
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Interest on the Exchange Notes shall accrue from the last Interest Payment
Date on which interest was paid on the Notes so surrendered or, if no interest
has been paid on such Notes, from August 20, 1996.
Tendering holders of the Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Notes pursuant
to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term
'Expiration Date' means 5:00 p.m., New York City time, on , 1997,
unless the Company in its sole discretion extends the period during which the
Exchange Offer is open, in which event the term 'Expiration Date' shall mean the
latest time and date on which the Exchange Offer, as so extended by the Company,
shall expire. The Company reserves the right to extend the Exchange Offer at any
time and from time to time by giving oral or written notice to United States
Trust Company of New York (the 'Exchange Agent') and by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Notes previously tendered and not withdrawn
pursuant to the Exchange Offer will remain subject to the Exchange Offer.
The term 'Exchange Date' means the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Notes if any of the events set
forth below under 'Conditions to the Exchange Offer' shall have occurred and
shall not have been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is advantageous
to the holders of the Notes, whether before or after any tender of the Notes.
Unless the Company terminates the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date, the Company will exchange the Exchange Notes
for the Notes on the Exchange Date.
TENDER PROCEDURE
The tender to the Company of Notes by a holder thereof pursuant to one of
the procedures set forth below and the acceptance thereof by the Company will
constitute a binding agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent out on or about , 1996, to all holders of Notes
known to the Company and the Exchange Agent.
A holder of Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Notes being tendered and any required signature guarantees and
any other documents required by the Letter of Transmittal, to the Exchange Agent
at its address set forth on the Letter of Transmittal on or prior to the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Notes are registered in the name of the signer of the Letter of
Transmittal and the Exchange Notes to be issued in exchange therefor are to be
issued (and any untendered Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
'book-entry transfer facility') whose name appears on a security listing as the
owner of Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office, branch, agency or correspondent in the United States, or by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. (any of the foregoing hereinafter
referred to as an 'Eligible Institution'). If the Exchange Notes and/or Notes
not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Notes, the signature in
the Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE
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OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. NO
LETTERS OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Notes at the book-entry
transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the book-entry transfer facility system may make book-entry
delivery of Notes by causing such book-entry transfer facility to transfer such
Notes into the Exchange Agent's account with respect to the Notes in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Notes may be effected through book-entry transfer into the Exchange
Agent's accounts at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth on the Letter of Transmittal on or prior
to the Expiration Date, or, if the guaranteed delivery procedures described
below are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Notes to reach the Exchange Agent before the Expiration
Date or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if the Exchange Agent has received at its office
listed on the Letter of Transmittal on or prior to the Expiration Date a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Notes are registered and, if possible, the certificate numbers of the Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that three New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Notes, in proper form for transfer (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at the
book-entry facility), will be delivered by such Eligible Institution together
with a properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Notes being tendered by the above-described method
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Notes (or a confirmation of book-entry transfer of such Notes
into the Exchange Agent's account at the book-entry transfer facility) is
received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Notes will be determined
by the Company, whose determination will be final and binding. The Company
reserves the absolute right to reject any Notes not properly tendered or the
acceptance for exchange of which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Notes. Unless waived, any defects or irregularities in connection with
tenders of Notes for exchange must be cured within such reasonable period of
time as the Company shall determine. None of the Company, the Exchange Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See 'Plan of Distribution.'
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TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the 'Transferor') exchanges,
assigns and transfers the Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Notes and to acquire Exchange Notes issuable
upon the exchange of such tendered Notes, and that, when the same are accepted
for exchange, the Company will acquire good and unencumbered title to the
tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Notes or transfer ownership of
such Notes on the account books maintained by a book-entry transfer facility.
The Transferor further agrees that acceptance of any tendered Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of certain of its obligations under the
Registration Rights Agreement. All authority conferred by the Transferor will
survive the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
By tendering, each holder of Notes will represent to the Company that,
among other things, (i) such Holder is not an 'affiliate' of the Company within
the meaning of Rule 405 under the Securities Act, (ii) Exchange Notes to be
acquired by such holder of Notes in connection with the Exchange Offer are being
acquired by such holder in the ordinary course of business of such holder and
(iii) such holder has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes. If the holder is a
broker-dealer that will receive Exchange Notes for such holder's own account in
exchange for Notes that were acquired as a result of market-making activities or
other trading activities, such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. See 'Plan of
Distribution.' This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company will, for a period of 180 days after the Expiration
Date, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the Letter of Transmittal, and with respect to a facsimile
transmission, must be confirmed by telephone and an original delivered by
guaranteed overnight delivery. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered Notes to be
withdrawn, the certificate numbers of Notes to be withdrawn, the principal
amount of Notes to be withdrawn, a statement that such holder is withdrawing his
election to have such Notes exchanged, and the name of the registered holder of
such Notes, and must be signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Notes promptly following receipt of notice of withdrawal. If Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Notes or otherwise comply
with the book-entry transfer procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Company and such determination will be final and binding on all parties.
22
<PAGE>
Any Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Notes tendered by
book-entry transfer into the Exchange Agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described above, such
Notes will be credited to an account with such book-entry transfer facility
specified by the holder) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Notes may be
retendered by following one of the procedures described under '--Tender
Procedure' above, at any time on or prior to the Expiration Date.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the satisfaction or waiver, prior to the Expiration Date, of all the
terms and conditions of the Exchange Offer, the acceptance for exchange of Notes
validly tendered and not withdrawn and issuance of the Exchange Notes will be
made on the Exchange Date. For the purposes of the Exchange Offer, the Company
shall be deemed to have accepted for exchange validly tendered Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent.
The Exchange Agent will act as agent for the tendering holders of Notes for
the purposes of receiving Exchange Notes from the Company and causing the Notes
to be assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Notes will be made by the Exchange Agent promptly after
acceptance of the tendered Notes. Tendered Notes not accepted for exchange by
the Company will be returned without expense to the tendering holders promptly
following the Expiration Date or, if the Company terminated the Exchange Offer
prior to the Expiration Date, promptly after the Exchange Offer is so
terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News
Service), or, at its option, modify or otherwise amend the Exchange Offer, if
any of the following events occur:
(a) any law, rule or regulation or applicable interpretations of the
staff of the Commission which, in the good faith determination of the
Company, do not permit the Company to effect the Exchange Offer; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
that is an 'affiliate' of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangements with any person to participate in the
distribution of such Exchange Notes; or
(c) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(d) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become
23
<PAGE>
aware of facts that have or may have adverse significance with respect to
the value of the Notes or the Exchange Notes;
which, in the reasonable judgment of the Company in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Notes). In addition, the Company
may amend the Exchange Offer at any time prior to the Expiration Date if any of
the conditions set forth above occur. Moreover, regardless of whether any of
such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in the reasonable judgment of the
Company. Any determination made by the Company concerning an event, development
or circumstance described or referred to above will be final and binding on all
parties.
The Company is not aware of the existence of any of the foregoing events.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the Letter of Transmittal. United
States Trust Company of New York also acts as Trustee and Registrar (the
'Registrar') under the Indenture.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and related documents to the
beneficial owners of the Notes and in handling or forwarding tenders for their
customers.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Notes in
such jurisdiction. In any jurisdiction in which the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
24
<PAGE>
TRANSFER TAXES
Holders who tender their Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register Exchange Notes in the name of, or request that Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
EFFECTS OF TENDERING ON HOLDERS OF NOTES
Participation in the Exchange Offer is voluntary, and holders of Notes
should carefully consider whether to participate. Holders of the Notes are urged
to consult their financial and tax advisors in making their own decisions on
which action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled certain covenants contained in the Registration
Rights Agreement. Holders of Notes who do not tender their Notes in the Exchange
Offer will continue to hold such Notes and will be entitled to all the rights,
and limitations applicable thereto, under the Indenture, except for such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effectiveness as a result of the making of this Exchange Offer.
See 'Description of Exchange Notes.' All untendered Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture. In general,
the Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Notes under the Securities Act.
To the extent that Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Notes could be adversely affected.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Notes which are not
tendered in the Exchange Offer.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------
(IN MILLIONS)
(UNAUDITED)
<S> <C>
Short-term debt, including current portion of
long-term debt.................................. $ 10.1
Long-term debt (less current portion)
Notes and mortgages payable..................... 0.8
Bank Term Facility.............................. 89.0
Notes........................................... 100.0
-------
Total long-term debt(1)........................... 189.8
Shareholders' equity:
Common stock.................................... --
Additional paid-in capital...................... 129.5
Accumulated deficit............................. (1.7)
-------
Total shareholders' equity........................ 127.8
-------
Total capitalization.............................. $ 327.7
-------
-------
</TABLE>
- ------------------
(1) As of September 30, 1996, the Company would have had the ability, subject to
customary borrowing conditions, to borrow $25 million for general corporate
purposes pursuant to the Revolving Credit Facility.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
'Pro Forma Financial Information') of the Company has been derived by the
application of pro forma adjustments to the historical consolidated financial
statements of Existing Prime and New Prime and has been prepared to illustrate
the effects of the acquisitions described below. The adjustments, which are
based upon available information and upon certain assumptions that Management
believes are reasonable, are described in the accompanying notes. The Pro Forma
Financial Information should be read in conjunction with the Consolidated
Financial Statements of Existing Prime and New Prime and the accompanying notes
thereto and the other financial information included elsewhere in this
Prospectus.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1995 and for the nine months ended September 30, 1996 give
effect to (i) cost reductions associated with elimination of specific and
identifiable job functions, (ii) the acquisition of eleven funeral homes in 1995
and three funeral homes in 1996 and related financing transactions, (iii) the
Acquisition and (iv) the offering of the Notes, as if each such transaction or
cost reduction, as the case may be, had occurred on January 1, 1995.
The funeral homes acquired in 1995 and 1996 and the Acquisition were
accounted for using the purchase method of accounting. The total purchase cost
of the Acquisition was allocated to the tangible and intangible assets acquired
and liabilities assumed based on their respective fair values. The excess of
purchase cost over the historical basis of the net assets acquired has been
allocated in the accompanying Pro Forma Financial Information based upon
preliminary appraisal estimates and other valuation studies which are in process
and certain assumptions that Management believes are reasonable. The actual
allocation is subject to the finalization of these studies; however, Management
does not expect that the differences between the preliminary and final
allocations will have a material impact on the Company's financial position or
results of operations.
The Pro Forma Financial Information is not necessarily indicative of either
future results of operations or the results that might have occurred if the
foregoing transactions had been consummated on the indicated dates.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
PRO FORMA
ADJUSTMENTS FOR
ACQUISITION AND
1995/1996 OFFERING OF
HISTORICAL ACQUISITIONS(A) NOTES TOTAL
---------- --------------- ---------------- -----
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Funeral services............................. $ 68.6 $ 3.9 $ -- $72.5
Cemetery sales............................... 12.9 -- -- 12.9
---------- ----- ------ -----
81.5 3.9 -- 85.4
---------- ----- ------ -----
Cost of sales:
Funeral homes................................ 11.3 0.6 -- 11.9
Cemetery..................................... 2.4 -- 0.4(B) 2.8
Cumulative effect of change in accounting
estimate................................... (3.5) -- -- (3.5)
---------- ----- ------ -----
10.2 0.6 0.4 11.2
---------- ----- ------ -----
Operating expenses:
Funeral homes................................ 38.1 2.1 -- 40.2
Cemetery..................................... 7.5 -- -- 7.5
---------- ----- ------ -----
45.6 2.1 -- 47.7
---------- ----- ------ -----
Corporate and regional general and
administrative expenses...................... 6.1 -- (0.4)(C) 5.7
Amortization of goodwill........................ 1.9 0.1 3.9(D) 5.9
Covenants not to compete........................ 2.8 -- -- 2.8
---------- ----- ------ -----
Operating income (loss)......................... 14.9 1.1 (3.9) 12.1
---------- ----- ------ -----
Other income and expense:
Interest expense............................. 15.4 0.6 7.3(E) 23.3
Other expense (income), net.................. (0.1) -- (0.1)(C) (0.2)
---------- ----- ------ -----
15.3 0.6 7.2 23.1
---------- ----- ------ -----
Income (loss) before income taxes............... (0.4) 0.5 (11.1) (11.0)
Income tax benefit (expense).................... (0.3) (0.2) 0.2(F) (0.3)
---------- ----- ------ -----
Net income (loss) (G)........................... $ (0.7) $ 0.3 $(10.9) $(11.3)
---------- ----- ------ -----
---------- ----- ------ -----
OTHER DATA:
Depreciation and amortization:
Depreciation................................. $ 2.5 $ 0.1 $ 0.4 $ 3.0
Amortization of goodwill..................... 1.9 0.1 3.9 5.9
Amortization of covenants not to compete..... 2.8 -- -- 2.8
Amortization of consulting agreements........ 0.3 -- -- 0.3
---------- ----- ------ -----
7.5 0.2 4.3 12.0
---------- ----- ------ -----
Capital expenditures............................ 1.6 -- -- 1.6
Cash interest expense (H)....................... 14.9 0.6 6.0 21.5
Ratio of earnings to fixed charges (I).......... -- -- -- --
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)--(CONTINUED)
<TABLE>
<CAPTION>
EXISTING PRIME NEW PRIME
HISTORICAL HISTORICAL
FOR THE PERIOD FROM FOR THE PERIOD FROM PRO FORMA
JANUARY 1, 1996 AUGUST 26, 1996 ADJUSTMENTS FOR
THROUGH AUGUST 25, THROUGH SEPTEMBER 1996 ACQUISITIONS AND
1996 30, 1996 ACQUISITIONS OFFERING OF NOTES PRO FORMA
------------------- ------------------- ------------ --------------------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Funeral services........................ $47.3 $ 6.9 $ 0.1 -- $ 54.3
Cemetery sales.......................... 8.8 1.4 -- -- 10.2
------ ------ ------ ------ ---------
56.1 8.3 0.1 -- 64.5
------ ------ ------ ------ ---------
Cost of sales:
Funeral homes........................... 7.6 1.1 -- -- 8.7
Cemetery................................ 1.6 0.3 -- 0.3(B) 2.2
------ ------ ------ ------ ---------
9.2 1.4 -- 0.3 10.9
------ ------ ------ ------ ---------
Operating expenses:
Funeral homes........................... 26.2 3.9 0.1 -- 30.2
Cemetery................................ 5.2 0.8 -- -- 6.0
------ ------ ------ ------ ---------
31.4 4.7 0.1 -- 36.2
------ ------ ------ ------ ---------
Corporate and regional general and
administrative expenses................. 5.0 0.6 -- (0.3)(C) 5.3
Amortization of goodwill.................. 1.3 0.5 -- 2.6(D) 4.4
Covenants not to compete.................. 1.9 0.3 -- -- 2.2
Legal settlement.......................... 6.3 -- -- -- 6.3
------ ------ ------ ------ ---------
Operating income.......................... 1.0 0.8 -- (2.6) (0.8)
------ ------ ------ ------ ---------
Other income and expense:
Interest expense........................ 10.1 2.5 -- 3.0(E) 15.6
Other expense, net...................... -- -- -- --(C) --
------ ------ ------ ------ ---------
10.1 2.5 -- 3.0 15.6
------ ------ ------ ------ ---------
Income (loss) before income taxes......... (9.1) (1.7) -- (5.6) (16.4)
Income tax (expense)...................... (0.4) -- -- --(F) (0.4)
------ ------ ------ ------ ---------
Net income (loss)(G)...................... $(9.5) $(1.7) -- (5.6) (16.8)
------ ------ ------ ------ ---------
------ ------ ------ ------ ---------
OTHER DATA:
Depreciation and amortization:
Depreciation............................ $ 1.9 $ 0.2 -- 0.3 2.4
Amortization of goodwill................ 1.3 0.5 -- 2.6 4.4
Amortization of covenants not to
compete.............................. 2.0 0.3 -- -- 2.3
Amortization of consulting agreements... 0.2 -- -- -- 0.2
------ ------ ------ ------ ---------
5.4 1.0 -- 2.9 9.3
------ ------ ------ ------ ---------
Capital expenditures...................... 1.0 0.1 -- -- 1.1
Cash interest expense (H)................. 9.7 2.4 -- 2.2 14.3
Ratio of earnings to fixed charges (I).... -- -- -- -- --
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
A) Existing Prime acquired 11 funeral home locations in 1995 and 3 locations in
1996. Pro forma results were adjusted to reflect the historical operations
of the acquired entities prior to acquisition. In calculating pro forma
results, the 1995 and 1996 acquisitions were included in the pro forma
results as though the acquisitions had taken place on January 1, 1995.
B) Represents incremental depreciation of developed and undeveloped cemetery
land resulting from the preliminary estimated fair values under the purchase
method of accounting which is amortized over the estimated life of the land,
assumed to be 80 years. The preliminary increase in fair value of developed
and undeveloped cemetery properties was $8.6 million and $23.0 million
respectively.
C) Represents the elimination of the historic costs relating to former owners
under employment and other agreements which have been recorded as a
liability of $2.3 million under purchase accounting based on the present
value of future payments computed at a 13% discount rate. The adjustment is
allocated as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1,
YEAR ENDED 1996 THROUGH
DECEMBER 31, 1995 AUGUST 25, 1996
----------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Corporate and regional general and
administrative expenses............... $ 0.4 $ 0.3
Other expense, net...................... 0.1 --
------ ------
Total adjustment........................ $ 0.5 $ 0.3
------ ------
------ ------
</TABLE>
D) Represents incremental goodwill amortization resulting from the preliminary
allocation of the purchase cost. For purposes of this pro forma
presentation, goodwill of $156.8 million is being amortized over a 40-year
period.
E) Interest expense based on the pro forma capitalization of the Company is
summarized in the table below.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1,
YEAR ENDED 1996 THROUGH
DECEMBER 31, 1995 AUGUST 25, 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Notes (1)............................... $10.8 $ 7.2
Revolving Credit Facility (2)........... -- --
Bank Term Facility (3).................. 7.8 5.1
Commitment fees (4)..................... 0.1 0.1
Interest expense on former owners'
liability (5)......................... 0.3 0.2
------ ------
19.0 12.6
Less historical interest on debt
repaid................................ (13.0) (10.4)
------ ------
Increase in cash interest expense....... 6.0 2.2
Amortization of deferred financing costs
(6)................................... 1.8 1.2
Less historical amortization of deferred
financing costs....................... (0.5) (0.4)
------ ------
Total increase in interest expense...... $ 7.3 $ 3.0
------ ------
------ ------
</TABLE>
- ------------------
(1) Assumes an interest rate of 10.75%.
(2) Assumes an interest rate of 8.4375% on drawn-down balance. The pro forma
average balance drawn-down was zero.
(3) Pro forma average balances for the Bank Term Facility were determined
based on the scheduled maturities. The pro forma average balance for the
Bank Term Facility was $88.8 million for the year ended December 31,
1995 and $88.5 million for the period from January 1, 1996 through
August 25, 1996. Assumes an interest rate of 8.6693%.
29
<PAGE>
(4) Represents a commitment fee of 0.5% applied to the $25.0 million unused
portion of the Revolving Credit Facility.
(5) Assumes the liability for future payments due to former owners under
employment and other agreements of $2.3 million recorded in purchase
accounting is based on a present value calculated at an interest rate of
13.0%.
(6) Deferred financing costs of $14.1 million are amortized over the life of
the related debt, seven years for the Revolving Credit Facility and the
Bank Term Facility and eight years for the Notes.
A change of 0.125% in the interest rate shown above would change interest
expense on the Bank Credit Facilities by $112,000 and $84,000 for the year
ended December 31, 1995 and the period from January 1, 1996 through August
25, 1996, respectively.
F) The adjustment represents the additional income tax expense that the Company
would have had to record on the annualized income for 1995/1996
acquisitions, offset by net operating losses. The Company has a valuation
allowance for the net deferred tax asset generated from loss carry forwards
and other timing differences for the current and prior periods. While the
Company currently expects that its long term profitability should ultimately
be sufficient to enable it to realize full benefit of its future tax
deductions, considering all relevant factors, the Company believes that the
gross deferred tax assets may not satisfy the 'more likely than not' test of
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' required to be satisfied in order to reverse the valuation allowance.
G) The Unaudited Pro Forma Consolidated Statements of Operations do not
give effect to $3.6 million representing net savings resulting from a number
of initiatives including elimination of overstaffing at selected funeral
homes, elimination of redundant staffing at site-level made possible by
automation of existing tasks and by sharing resources of selected homes in
close proximity to one another, reduction of labor at the regional
administrative centers made possible by the consolidation of certain
accounting and administrative functions into the corporate headquarters
and the reduction of labor at the corporate headquarters made possible by
elimination of acquisition functions. Certain costs and expenses are being
replaced, in part, by the Administrative Services Agreement. See "Certain
Related Transactions--Administrative Services Agreement."
The savings not reflected in the Unaudited Pro Forma Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
For the Nine
Year Ended Months Ended
December 31, September 30,
1995 1996
<S> <C> <C>
Elimination of salaries and benefits(1) 5.1 3.3
Administrative Services Agreement(2) (0.3) (0.2)
Monitoring fees(3) (0.3) (0.2)
Costs of new management compensation(4) (0.9) (0.6)
----- -----
3.6 2.3
----- -----
</TABLE>
(1) Represents cost savings from the elimination of specific and
identifiable job positions and functions at both the corporate and
site levels. The Unaudited Pro Forma Consolidated Statements of
Operations do not reflect certain additional cost savings expected to
be achieved from implementation of the changes in operating strategy
described under "Business--Business Strategy Following Acquisition" or
$0.3 million relating to severance costs. See "Business--Business
Strategy Following Acquisition" and "Risk Factors--Potential Adverse
Consequences of Changes in Operating Strategy."
(2) Represents fees payable to Loewen pursuant to the Administrative
Services Agreement that the Company entered into on the Acquisition
Closing Date. See "Certain Related Transactions--Administrative
Services Agreement."
30
<PAGE>
(3) Represents monitoring fees payable to an affiliate of Blackstone
pursuant to the Stockholders' Agreement that the Company entered into
prior to the Acquisition Closing Date. See "Certain Related
Transactions--Payment of Certain Fees and Expenses."
(4) Represents estimate of salaries and bonuses for the Company's new
senior management team.
H) Cash interest expense is defined as interest expense less amortization of
deferred financing costs.
I) Earnings used in computing the ratio of earnings to fixed charges consist of
income before provision for income taxes plus fixed charges. Fixed charges
consist of interest expense, including amortization of debt issuance costs,
and a portion of operating lease rental expense deemed to be representative
of the interest factor. Earnings were insufficient to cover fixed charges by
$0.4 million, $11.0 million, $9.1 million, $1.7 million and $16.4 million
for the historical and pro forma years ended December 31, 1995 and for the
historical periods from January 1, 1996 through August 25, 1996 and from
August 26, 1996 through September 30, 1996 and pro forma nine months ended
September 30, 1996, respectively.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is the fourth-largest operator of funeral homes and cemeteries,
on the basis of revenues, in the United States and is the largest privately-held
company in the funeral and cemetery industry. The Company owns 146 funeral homes
and 16 cemeteries in 20 states. Existing Prime commenced operations in 1992 and
expanded rapidly through the aggressive acquisition of funeral homes and
cemeteries, primarily in non-urban areas of the United States. The Company's
consolidated revenues and operating income were $81.5 million and $14.9 million,
respectively, for the year ended December 31, 1995. Sales of funeral services
and cemetery sales accounted for approximately 84% and 16%, respectively, of
total net sales for 1995.
Existing Prime had no funeral homes when it began operations in
1992 and grew to 146 funeral homes in 1996. In order to achieve this
rapid growth, former management was primarily focused on identifying
funeral homes to be acquired and consummating acquisitions of such homes
rather than on maximizing profitability of the funeral homes and
cemeteries which it had acquired. As a result, former management did not
take advantage of certain opportunities to improve the efficiency and
performance of the funeral homes acquired by it. New Management intends
to substantially eliminate the Company's acquisition program. In
addition, new Management intends to take advantage of (i) the quality
and size of the Company's portfolio of properties, (ii) the opportunity
to operate more efficiently those properties located in close proximity
to one another, (iii) the shift in focus from acquisitions to profit
maximization at existing locations and (iv) the benefits at both local
sites and the corporate headquarters from the Administrative Services
Agreement with Loewen to improve the Company's present and long-term
operating performance. The Company's future results of operations will
depend in large part on the ability of Management to successfully
implement its business strategy.
In September 1995, the Company's Corporate Controller visited the
operations of the Company's Alabama subsidiary. He found that Alabama management
did not have adequate record keeping and financial backup for their financial
statements. In October 1995, E&Y, Existing Prime's independent auditors, went to
the Alabama central office for 1995 audit preparation. E&Y first reported to
management regarding concerns about the financial reporting on their return from
Alabama. E&Y felt they would be delayed in the audit due to the condition of
financial records required to complete the audit process. E&Y and management had
discussions regarding the financial record keeping in Alabama throughout the
audit engagement. Although management started taking steps, as described below,
to correct the situation during the latter half of 1995, the situation did not
significantly improve during the 1995 audit period and E&Y formally issued a
reportable conditions letter with respect to Existing Prime's Alabama operations
to Existing Prime's Board of Directors on May 9, 1996, at the completion of the
audit and again at the completion of their review of the March 31, 1996
consolidated financial statements. (The Alabama operations accounted for
approximately 19.5% of the Company's consolidated revenues and approximately
22% of its consolidated assets during 1995. While the Company had a
consolidated net loss of $663,000 in 1995, the Alabama subsidiary had net
income after tax of $778,000.) Reportable conditions involve matters relating
to significant deficiencies in the design or operation of a company's internal
control structure that, in the judgment of the auditors, could adversely affect
the company's ability to record, process, summarize and report financial data
consistent with the assertions of management in the consolidated financial
statements. Such reportable conditions at the Alabama subsidiary included the
failure to perform key account reconciliations and the lack of qualified
financial personnel at such subsidiary's operations. Differences between the
subsidiary system and the general ledger which affected accounts receivable,
deferred revenue, commissions payable and accounts payable were not quantified
and corrected during the course of the year. In addition bank reconciliations
were not prepared which enabled significant errors to remain undetected for the
entire year.
During the latter half of 1995 and in 1996, management of Existing Prime
took steps designed to address the concerns raised by E&Y, including, from
January to September 1996, the dedication of corporate personnel to work on site
in Alabama to assist in the processing and summarizing of financial data, the
replacement of an outside service bureau that had previously been responsible
for funeral service accounting at most of Existing Prime's locations and the
institution of new and automated accounting systems and procedures overall. In
June 1996, the accounts payable function, as well as all general ledger
responsibility, was moved to the corporate office. Management has undertaken an
extensive review of the Company's accounting controls and procedures
32
<PAGE>
and believes that appropriate accounting controls and procedures are now being
utilized. However, Management will continue to monitor the functioning of its
accounting controls and procedures and intends to implement any additional
steps deemed necessary.
The report of independent auditors for the years ended December 31, 1993,
1994 and 1995 cited a condition that, according to such auditors, raised
substantial doubt about Existing Prime's ability to continue as a going concern.
As discussed in Note 1 to the Consolidated Financial Statements included
elsewhere herein, Provident Services, Inc., the lender under one of Existing
Prime's then existing credit facilities (the 'Provident Facility'), advised
Existing Prime that it was deemed to be in violation of certain covenants
contained in the Provident Facility relating to the incurrence of indebtedness,
notifications regarding acquisitions not financed by Provident and the provision
of audited financial statements within a specified period. If so, a default
existed under the Provident Facility giving Provident the right to accelerate
the payment of the indebtedness outstanding thereunder, and there was also a
default under Existing Prime's then outstanding credit facility with Heller
Financial, Inc. (the 'Heller Facility') by virtue of cross-default provisions
contained therein. Existing Prime notified Provident that it disagreed with
Provident's interpretation of the events categorized as defaults. As discussed
elsewhere in this Prospectus, in connection with the Acquisition, the
indebtedness outstanding under the Provident Facility and the Heller Facility
was repaid in full and the facilities were terminated.
On April 11, 1996, the Company settled a lawsuit with Jeffrey Gamble, the
former owner of a business acquired by a subsidiary of the Company, alleging the
breach of a pre-need funding agreement. The Company paid Mr. Gamble
approximately $6,300,000 for the dismissal of the lawsuit and the termination of
the pre-need funding agreement.
RESULTS OF OPERATIONS
September 1996 Compared with September 1995
Consolidated revenues increased 7.4% to $64.4 million for the nine months
ended September 30, 1996 from $60.0 million for the nine months ended
September 30, 1995, with funeral service revenues increasing 7.6% to
$54.2 million, and cemetery revenues increasing 6.3% to $10.2 million.
Consolidated operating income decreased from $8.1 million for the nine
months ended September 30, 1995 to $1.0 million for the nine months
ended September 30, 1996, primarily due to the $6.3 million legal
settlement with Jeffrey Gamble, with funeral contribution increasing
10.1% to $15.4 million and cemetery contribution increasing 2.4% to $2.3
million. Contribution is defined as funeral revenues or cemetery
revenues, as the case may be, less related cost of sales and less
related direct operating expenses. Funeral revenues increased primarily
as a result of a 1996 acquisition and a full nine months of 1995
acquisitions. On same-store business, excluding 1995 and 1996
acquisitions, total calls increased by 139 from 14,084 calls for the
nine months ended September 30, 1995 to 14,223 calls for the nine months
ended September 30, 1996 and average revenue per call increased by $24
from $3,418 for the nine months ended September 30, 1995 to $3,442 for
the nine months ended September 30, 1996. Cemetery revenues increased
due to increased pre-need sales efforts in Alabama and Florida.
As a percentage of revenues, consolidated operating margin
before legal settlement of $6.3 million decreased to 12.6% at September
30, 1996 from 13.6% at September 30, 1995, with funeral contribution
margin increasing to 28.4% from 27.7% and cemetery contribution margin
decreasing to 22.3% from 23.1%. Contribution margin is defined as
contribution as a percentage of funeral revenues or cemetery revenues,
as the case may be.
Corporate and regional general and administrative expense increased to $5.5
million at September 30, 1996 from $4.6 million at September 30, 1995. As a
percentage of consolidated revenue, general and administrative expense increased
to 8.6% in 1996 from 7.6% in 1995. Corporate and regional general and
administrative expense increased due to additional corporate and regional staff
as well as expenses associated with new information and accounting systems.
Interest expense of $12.6 million at September 30, 1996 increased by $1.2
million compared to $11.4 million at September 30, 1995 primarily as a result of
higher interest rates on borrowings and additional borrowings.
Consolidated net loss before legal settlement of $6.3 million was $4.5
million at September 30, 1996 compared to a consolidated net loss of $3.0
million at September 30, 1995.
33
<PAGE>
1995 Compared with 1994
Consolidated revenues increased 12.9% to $81.5 million in 1995 from $72.2
million in 1994, with funeral service revenues increasing 12.8% to $68.6
million, and cemetery revenues increasing 13.9% to $12.9 million. Consolidated
operating income, including the impact of a change in an accounting estimate of
$3.5 million for pre-need vaults (see below), increased 93.4% to $14.9 million
in 1995 from $7.7 million in 1994, with funeral contribution increasing 30.4% to
$19.2 million and cemetery contribution, excluding the change in accounting
estimate, increasing 46.6% to $3.0 million. Contribution is defined as funeral
revenues or cemetery revenues, as the case may be, less related cost of sales
and less related direct operating expenses. Funeral revenues increased primarily
as a result of 1995 acquisitions and a full year of 1994 acquisitions. On
same-store business, excluding 1994 and 1995 acquisitions, total calls decreased
by 213 from 15,624 calls in 1994 to 15,411 calls in 1995 while average revenue
per call increased by $61 from $3,332 per call in 1994 to $3,393 per call in
1995. Cemetery revenues increased due to increased pre-need sales efforts in
Alabama and Florida.
In 1995, the Company completed construction of a vault manufacturing
facility in Alabama that allows for production of vaults at a significantly
lower cost than the purchase of vaults from independent manufacturers. As a
result of the availability of this new facility, the Company was able to reduce
the deferred merchandise liability, resulting in a one-time reduction to cost of
sales of approximately $3.5 million. The Company recognized the adjustment as a
non-recurring gain in 1995.
As a percentage of revenues, consolidated operating margin, including the
change in accounting estimate, increased to 18.2% in 1995 from 10.7% in 1994,
with funeral contribution margin increasing to 28.0% from 24.2% and cemetery
contribution margin, excluding the change in accounting estimate, increasing to
22.5% from 17.5%. Contribution margin is defined as contribution as a percentage
of funeral revenues or cemetery revenues, as the case may be. Funeral home
contribution margin increased in part because of a new merchandising program
implemented in 1995 which produced higher retail sales and lower casket costs.
Cemetery contribution margin increased as a result of improved efficiencies at
Alabama cemeteries and new pre-need merchandising programs.
Corporate and regional general and administrative expense increased to $6.1
million in 1995 from $4.6 million in 1994. As a percentage of consolidated
revenue, general and administrative expense increased to 7.5% in 1995 from 6.4%
in 1994. Corporate and regional general and administrative expense increased due
to additional corporate and regional staff as well as expenses associated with
new information and accounting systems.
Interest expense increased by $3.0 million in 1995, primarily as a result
of additional borrowings by the Company to finance its acquisitions.
Consolidated net loss was $0.7 million in 1995 compared to a consolidated
net loss of $4.3 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash since 1994 have been funds provided
by operating activities, proceeds from additional long-term debt and capital
contributions by Existing Prime's majority shareholder. For the nine months
ended September 30, 1996, operating activities generated $0.7 million of cash
compared to $4.8 million of cash for the nine months ended September 30, 1995.
Operating activities generated $6.0 million of cash in 1995 compared with $2.7
million in 1994.
For the nine months ended September 30, 1996, long-term debt proceeds
provided $190.6 million of cash compared to $2.8 million of cash for the nine
months ended September 30, 1995. Long-term debt proceeds provided $10.0 million
of cash in 1995 compared with $27.2 million in 1994. In 1994, capital
contributions contributed $6.3 million in cash. For the nine months ended
September 30, 1996, the disposal of assets provided cash of $0.2 million
compared to $1.3 million for the nine months ended September 30, 1995. The
disposal of assets in 1995 and 1994 provided cash of $1.4 million and $0.3
million, respectively.
The primary uses of cash since 1994 have been for the acquisition of
funeral homes and cemeteries, principal payments on long-term debt and capital
expenditures. For the nine months ended September 30, 1996, the Company
purchased three funeral homes for an aggregate purchase price of $0.7 million
compared to three funeral home purchases for an aggregate purchase price of $3.1
million for the nine months ended September 30, 1995. In 1995, the Company
purchased 11 funeral homes for an aggregate purchase price of $8.9 million. In
1994, the Company purchased 31 funeral homes and two cemeteries for an aggregate
purchase price of $23.4 million.
34
<PAGE>
For the nine months ended September 30, 1996 the Company used $1.1 million
for capital expenditures, compared to $1.2 million for the nine months ended
September 30, 1995. In 1995 and 1994, the Company used $1.6 million and $2.6
million, respectively, for capital expenditures and improvements. For the nine
months ended September 30, 1996, the Company paid $112.9 million in principal
payments on long-term debt compared to $6.0 million for the same period in 1995.
In 1995 and 1994, the Company paid $7.7 million and $8.9 million in principal
payments on long-term debt, respectively.
The Company estimates capital expenditures of approximately $3.8 million in
the first year following the Acquisition to be used in part for the repair and
improvement of existing mausoleums and the purchase of additional computers to
support the Company's new centralized management information system. The Company
believes that cash provided by the Acquisition will be adequate to fund all
capital expenditures expected to be incurred in the first year following the
Acquisition with cash from the Acquisition.
As of September 30, 1996, the Company had $199.9 million of indebtedness
outstanding and approximately $25 million of borrowing availability under the
Revolving Credit Facility. The Company believes that, based upon current levels
of operations and anticipated growth and availability under the Revolving Credit
Facility, it can adequately service its indebtedness. If the Company cannot
generate sufficient cash flow from operations or borrow under the Revolving
Credit Facility to meet such obligations, then the Company may be required to
take certain actions, including reducing capital expenditures, restructuring its
debt, selling assets or seeking additional equity in order to avoid an Event of
Default. There can be no assurance that such actions could be effected or would
be effective in allowing the Company to meet such obligations.
The Company and its Subsidiaries are subject to certain restrictive
covenants contained in the Indenture, including, but not limited to, covenants
imposing limitations on the incurrence of additional indebtedness; certain
payments, including dividends and investments; the creation of liens; sales of
assets and preferred stock; transactions with interested persons; payment
restrictions affecting subsidiaries; sale-leaseback transactions; and mergers
and consolidations. See 'Description of Exchange Notes--Certain Covenants.' In
addition, the Bank Credit Agreement contains certain restrictive covenants that,
among other things, limit the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness
(including the Exchange Notes), pay dividends or make certain restricted
payments, create liens on assets, engage in mergers or acquisitions or enter
into leases or transactions with affiliates. See 'Description of Bank Credit
Facilities--Covenants.'
35
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is the fourth-largest operator of funeral homes and cemeteries,
on the basis of revenues, in the United States and is the largest privately-held
company in the funeral and cemetery industry. The Company owns 146 funeral homes
and 16 cemeteries in 20 states. Existing Prime was founded in 1991 and expanded
rapidly through the aggressive acquisition of funeral homes and cemeteries,
primarily in non-urban areas of the United States. The Company has focused on
non-urban areas in order to take advantage of the opportunities offered by such
areas, including (i) the opportunity to establish and maintain a higher market
share as a result of the smaller number of death care providers and (ii) the
stronger preference for traditional full-service funeral services and burials.
Historically, the Company's primary growth strategy has been to purchase
properties that can serve as anchor locations and subsequently to acquire
additional funeral homes and cemeteries located near those central assets.
Existing Prime had no funeral homes when it began operations in 1992 and
grew to 146 funeral homes in 1996. In order to achieve this rapid growth,
former management was primarily focused on identifying funeral homes to be
acquired and consummating acquisitions of such homes rather than on maximizing
profitability of the funeral homes and cemeteries which it had acquired. As a
result, former management did not take advantage of certain opportunities to
improve the efficiency and performance of the funeral homes acquired by it. New
Management intends to substantially eliminate the Company's acquisition program.
In addition, new Management intends to take advantage of (i) the quality and
size of the Company's portfolio of properties, (ii) the opportunity to operate
more efficiently those properties located in close proximity to one another,
(iii) the shift in focus from acquisitions to profit maximization at existing
locations and (iv) the cost reduction opportunities both at local sites and at
the corporate headquarters made possible by the Administrative Services
Agreement to improve the Company's present and long-term operating performance.
New Prime was incorporated in Delaware in May 1996. The Company's principal
executive offices are located at 3940 Olympic Boulevard, Suite 300, Erlanger,
Kentucky 41018 and its telephone number is (606) 746-6800.
THE FUNERAL SERVICE INDUSTRY
In the last fifteen years, demand has grown steadily at a 1% compound
annual growth rate while the aggregate number of funeral homes has remained
relatively constant. Future demographic trends are expected to contribute to the
continued stability of the funeral service industry. The first members of the
'Baby Boom' generation will begin to turn 50 in 1996 and are advancing into the
prime savings and planning phases of their lives. The Census Bureau projects
that the segment of the United States population over 65 years old, which
presently totals 33 million, will double in size over the next 35 years. Over
the next fifteen years, this aging of the population is expected to outweigh the
effects of increased life expectancies. The Census Bureau projects that the
number of deaths in the United States is projected to grow at approximately 1.0%
annually through 2010.
A Wirthlin Group study conducted in 1995 concluded that the three most
important factors in selecting a funeral home are that it had previously served
the family, was close to the respondent's residence and had a strong reputation
in the community. Fewer than five percent of the respondents to the Wirthlin
study specified price as an important factor in selecting a funeral home. The
relationship between reputation and market share is an important competitive
advantage for existing funeral homes in that unless a new market entrant is able
to establish the community reputation necessary to gain market share, existing
homes will retain considerable pricing flexibility.
BUSINESS OPERATIONS
Funeral Home Operations
The Company's funeral homes offer a full range of services to respond to
individuals' funeral needs, including the collection of remains, certification
of death, professional embalming, use of funeral home facilities, sale of
caskets and related merchandise, transportation to a place of worship or funeral
chapel for a religious service and transportation to a cemetery or crematorium.
To provide the public with the opportunity to choose the service that is most
appropriate from both an emotional and financial perspective, the Company offers
complete funeral services (including caskets and related merchandise) at prices
ranging from approximately $600 to
36
<PAGE>
$20,000 (and averaging approximately $3,364). In addition, most of the Company's
funeral homes are able to offer families the opportunity to conduct both
visitation and religious services at a non-denominational chapel on the
premises, thereby reducing transportation costs to the Company and inconvenience
to the families.
Although cremation, as a percentage of total funeral services, has been
increasing by approximately 1% annually over the past five years in the United
States, the number of caskets sold (typically associated with a traditional
funeral service) has remained relatively constant. Over the next 10 years the
cremation rate is expected to continue to increase at the same rate, while the
number of caskets sold is expected to remain constant. Cremation rates vary
dramatically across regions of the United States, at least in part because of
demographic differences in religious, ethnic and socioeconomic backgrounds.
While the Company views cremation as an alternative to earth burial and
encourages the provision of a traditional funeral or other appropriate
commemorative service, Management believes a substantial increase in the rate of
cremations performed by the Company could adversely affect the Company's
revenues and gross profits.
The services offered by both funeral homes and cemeteries can be purchased
at-need or pre-need. In general, payments made for pre-need funeral services are
not recorded as revenues until such services are provided. Payments made on
pre-need contracts, in accordance with applicable state law, typically are
either deposited in a trust fund by the Company and/or used by the purchasers of
the pre-need contracts to purchase life insurance policies under which the
Company is designated the beneficiary. On the date of performance of a
pre-arranged service, the Company records as funeral revenue the amount
originally trusted, together with all accumulated trust earnings, or the
payments under the insurance policy, as applicable.
The Company is a party to a casket supply agreement with Batesville Casket
Company, Inc. ('BCC'), pursuant to which the Company must purchase caskets
exclusively from BCC, subject to certain exceptions, through March 31, 2000.
Following such date, the agreement is terminable by either the Company or BCC
upon 30 days' written notice. Management believes that the terms of such supply
agreement are favorable to the Company. Pursuant to the terms of the
Administrative Services Agreement Loewen may provide the Company with the
ability to purchase supplies under certain of Loewen's supply agreements with
third parties, including Loewen's agreement with BCC. See 'Certain Related
Transactions--Administrative Services Agreement.'
Funeral home operations accounted for approximately 84% of the Company's
total revenues during the fiscal year ended December 31, 1995.
Cemetery Operations
The Company's cemetery division assists families in making at-need and
pre-need arrangements and offers a complete line of cemetery products (including
a selection of burial spaces, burial vaults, lawn crypts, memorials, niches and
mausoleum crypts), the opening and closing of graves and cremation services. The
sale of cemetery pre-need arrangements is a significant component of the
cemetery operations, having represented approximately 75% of the Company's
cemetery revenues during the fiscal year ended December 31, 1995. The pre-need
sale of interment rights and other related products generally is recorded as
revenue when customer contracts are signed and a down payment is received and,
concurrently, related costs are recorded and an allowance is established for
customer cancellations and refunds.
PROPERTIES
Set forth in the table below is the number, by state, of the Company's
funeral homes and cemeteries:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
STATE FUNERAL HOMES CEMETERIES
- -------------------- ------------- ----------
<S> <C> <C>
Alabama............. 25 8
Arizona............. 2 0
Arkansas............ 3 0
California.......... 15 0
Florida............. 21 4
Georgia............. 6 0
Illinois............ 18 0
Indiana............. 7 0
Iowa................ 1 0
Kentucky............ 3 1
Michigan............ 8 0
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
STATE FUNERAL HOMES CEMETERIES
- -------------------- ------------- ----------
<S> <C> <C>
Minnesota........... 10 0
Missouri............ 5 0
Nebraska............ 4 0
New York............ 3 0
Ohio................ 1 0
Tennessee........... 6 3
Texas............... 5 0
West Virginia....... 2 0
Wisconsin........... 1 0
--- ---
Total.......... 146 16
=== ===
</TABLE>
Of the 146 funeral homes listed above, 105 are owned by the Company or one
of its subsidiaries and 41 are leased. The leases have terms ranging from one
month to twenty years. Some of the funeral homes listed above are located at the
same site and are operated as combination operations. The Company's 16
cemeteries contain an aggregate of approximately 714 acres, of which
approximately 62% are developed. The Company also owns six crematories, two of
which are located in Illinois and the remaining four of which are located in
California, Florida, Indiana and Tennessee.
The Company's headquarters occupy approximately 5,600 square feet of office
space in a building in Erlanger, Kentucky under a lease agreement which expires
in November 2004; provided that the lease may be terminated in or after November
2000 by the Company if Loewen exercises its call option pursuant to the Put/Call
Agreement and certain other terms and conditions are met. See 'Certain Related
Transactions--Put/Call Arrangement.'
HISTORICAL ACQUISITION STRATEGY
From the time that Existing Prime commenced operations in early 1992 until
the Acquisition Closing Date, its central focus had been rapid expansion through
the aggressive acquisition of leading funeral home and cemetery businesses,
primarily in non-urban areas of the United States.
The total consideration paid by Existing Prime in connection with these
acquisitions was approximately $50,900,000, $67,700,000, $23,400,000, $8,900,000
and $675,000 in 1992, 1993, 1994, 1995 and 1996, respectively, of which
approximately $43,200,000, $56,300,000, $20,600,000, $7,700,000 and $618,000,
respectively, was financed through borrowings. In 1992, 1993, 1994, 1995 and
1996, Existing Prime acquired assets, excluding goodwill, with fair market
values aggregating approximately $41,600,000, $35,600,000, $11,500,000,
$4,400,000 and $536,000, and assumed liabilities of approximately $4,300,000,
$14,300,000, $1,700,000, $200,000 and $0, in each case, respectively.
As described below under '--Business Strategy Following Acquisition,'
Existing Prime's history of acquisitions has resulted in geographic
concentrations of funeral homes and cemeteries that Management believes present
important opportunities for reducing costs and increasing revenues by
capitalizing on operational and marketing synergies.
BUSINESS STRATEGY FOLLOWING ACQUISITION
Overview. Management believes, based upon their experience in the funeral
industry and their assessment of the Company, that opportunities exist to
enhance the revenue and profitability of the Company's existing locations both
in the short-term and over time. The Company's new senior management team is
headed by two former executives of Loewen Group, North America's second-largest
operator of funeral homes and cemeteries, one of whom has 29 years of experience
and the other of whom has 12 years of experience in the funeral industry.
Existing Prime's operations underperformed significantly compared to its peer
group companies in the funeral service industry. As a result, Management has
identified, and the Company intends to undertake, a number of initiatives that
Management believes will result in an improvement in both revenues and operating
profit, including planned reductions in both operating and general and
administrative expenses. Over time, the Company will continue to endeavor to
increase revenues and profitability by capitalizing on the location and
38
<PAGE>
concentration of its properties, improved merchandising, enhanced pre-need
marketing, and a management structure that encourages an entrepreneurial
business culture.
Revenue Enhancement. The two key drivers behind consistent revenue growth
in the funeral home industry are price per funeral and funeral services per
home. In 1995, the Company's properties averaged $3,364 per funeral and 144
services per home. Both of these figures measured significantly below the
estimated 1995 national average of $4,150 per funeral and 170 services per
funeral home. (Sources: Business Trend Analysts, US Funeral/Cremation
Services/Supplies Report, April 1, 1995 and National Funeral Directors
Association, respectively; the average revenue per funeral for both the Company
and the industry exclude trust earnings and insurance commission revenues).
Management believes that the quality and location of the Company's funeral homes
offer substantial opportunity for both near-term and long-term revenue
enhancement. The Company will seek to capitalize on this opportunity through the
introduction of more sophisticated merchandising and the pricing of its services
more closely to the industry average. Based on 1995 aggregate call volume, every
$100 increase in price per funeral could result in an approximate $2 millon
increase per year in the Company's revenues, although there can be no assurance
that such price increases can be effectively implemented or that such growth in
revenues will be realized. At the Company's cemetery operations, Management will
undertake to increase revenues through an enhanced marketing program to more
effectively serve the needs of the growing number of people who wish to plan
their burial needs in advance.
Clustered Operations. More than 80 percent of the Company's funeral homes
and cemeteries are located in clusters or in sufficient proximity to provide
significant opportunities for the sharing of resources. The Company's major
funeral home and cemetery clusters are in Alabama, Florida, Illinois, California
and Minnesota. Management believes that the Company has not fully capitalized on
the competitive advantages and scale economies available to its clustered
properties. Specifically, the Company expects to expand the sharing within
clusters of service personnel, vehicles, preparation services, clerical staff
and other key resources. Additionally, Management plans to implement revenue
enhancing cross-marketing programs that will benefit proximate locations without
increasing overhead expenses. The Company also now benefits from its
Administrative Services Agreement with Loewen, which will enable the Company to
reduce costs through the elimination of certain fixed expenses and the more
efficient use of facilities and personnel. See 'Certain Related
Transactions--Administrative Services Agreement.'
Reduced General & Administrative Expense. Management believes that
significant and immediate cost savings can be realized, at both the local site
and corporate levels, from the restructuring of the Company's general and
administrative staff to more appropriately reflect the Company's new focus on
existing operations. At the site level, Management intends to reduce excess
workforce and take advantage of the Company's funeral home and cemetery clusters
by pooling local resources to eliminate currently duplicative functions in the
areas of finance and administration. In addition, the Company has contracted
with Loewen to provide certain services pursuant to the Administrative Services
Agreement, thereby facilitating the reduction of excess resources. As the
Company's acquisition program will be substantially eliminated, the reduction of
acquisition-related functions at the corporate headquarters will offer further
opportunities for savings.
Pre-Need Marketing. Management realizes that individuals increasingly are
recognizing the benefits of purchasing funeral products and services in advance
and is committed to providing quality advanced funeral and cemetery planning to
the communities it serves. Management believes that such programs considerably
enhance long-term revenues for funeral homes by securing future market share. In
addition, the Company can realize significant current revenues from the sale,
through a commissioned sales force, of cemetery pre-need arrangements. To
capitalize on these opportunities, the Company intends to recruit experienced
senior managers who will focus exclusively on building a leading pre-need sales
program based on the foundation currently in place at the Company.
Management Structure. The Company's management structure and remuneration
practices will be designed to support and encourage entrepreneurial drive and
individual responsibility. Each funeral home and cemetery will be operated as a
distinct profit center, with monthly and annual financial performance monitored
by regional and corporate management in accordance with budgeted projections.
Local managers will be given a high degree of autonomy, as Management believes
that such managers, as members of the local community, are best able to judge
how to conduct day-to-day operations in a manner consistent with the established
character of
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the particular funeral home or cemetery and the needs of the community.
Additionally, senior management's compensation will be based in part on the
performance of the Company.
COMPETITION
In the funeral industry, local community competition is oriented towards
gaining market share. At the local level, competition primarily is based on
building goodwill in the community by strengthening the name and reputation of
each individual funeral home or cemetery. Market share increases within a
community are usually gained over a long period of time because of the high
importance of reputation and superior service. Modest and tasteful promotional
programs can help enhance community profile but typically do not increase market
share significantly.
The Company also faces competition from large 'consolidators' in the
industry which seek to reap profits from an acquisition and consolidation
strategy. Such competitors include several large, publicly-traded funeral
services companies, including Service Corporation International, Loewen, Stewart
Enterprises, Inc. and Equity Corporation International, as well as various
smaller companies which provide competition with the Company on a regional basis
and, on a local level, from operators who have focused on acquiring funeral home
groupings in concentrated geographic regions of the United States.
REGULATION
The Company's funeral home operations are regulated by the Federal Trade
Commission ('FTC'), which administers the Trade Regulation Rule on Funeral
Industry Practices (the 'Funeral Rule'), which became effective on April 30,
1984 and was revised as of July 19, 1994. The Funeral Rule defines certain acts
and practices in connection with the provision of funeral goods or services as
unfair or deceptive and sets forth various requirements intended to prevent such
unfair or deceptive acts and practices. The Company also must comply with other
federal legislation, including the Americans with Disabilities Act and
regulations administered by the Occupational Safety and Health Administration.
The Company's operations also are regulated at the state and local level,
with a vast majority of jurisdictions requiring licensing and supervision of
individuals who provide funeral-related services. A number of jurisdictions also
regulate the sale of pre-need services and the administration of any resulting
trust funds or insurance contracts. In addition, concerns regarding lack of
competition have led a few jurisdictions to enact legislation designed to
encourage competition by restricting the common ownership of funeral homes and
related operations within a specific geographic region. State legislatures and
regulatory agencies may propose new laws and regulations, some of which, if
enacted, could have a material effect on the death care industry in general and
on the Company's operations. The Company cannot predict the likelihood of
enactment of any such proposed laws or regulations or the effect that any such
enactment might have on the Company or its operations.
The Company believes that it is currently in substantial compliance with
the Funeral Rule and all other applicable federal, state and local laws and
regulations.
ENVIRONMENTAL MATTERS
In connection with the Acquisition, New Prime conducted extensive
environmental reviews of all properties owned by Existing Prime prior to the
Acquisition Closing Date. Although Management is aware of some contamination
related to the use of underground storage tanks and embalming materials,
Management does not believe that any costs relating to these or other
environmental issues will have a material adverse effect on the Company's
financial results.
EMPLOYEES
As of September 30, 1996 the Company employed approximately 1,134 people.
None of the employees of the Company or its subsidiaries is covered by a
collective bargaining agreement. Management believes that its relationship with
its employees is good.
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LITIGATION
Gamble Settlement. On February 26, 1996, a lawsuit was filed (the 'Alabama
Litigation') against the Company by World Service Life Insurance Company of
America ('World Service') and Jeffrey M. Gamble ('Gamble'), the former owner of
a business located in Alabama which was acquired by a subsidiary of the Company,
in connection with a pre-need funeral service funding agreement between the
Company and World Service (the 'Alabama Pre-need Agreement'). On February 29,
1996, a lawsuit (the 'Texas Litigation') was filed against the Company by South
Texas Bankers Life Insurance Company ('South Texas') and Gamble in connection
with a pre-need funeral service funding agreement between the Company and South
Texas (the 'Texas Pre-need Agreement;' together with the Alabama Pre-need
Agreement, the 'Pre-need Agreements').
On April 11, 1996, the Company settled the Alabama Litigation and the Texas
Litigation by entering into a Termination of Pre-need Funding Agreements and
Release with World Service, Gamble and South Texas (the 'Termination and
Release'). Pursuant to the Termination and Release, (a) the Pre-need Agreements
were immediately terminated, (b) each of the parties released the others from
all claims under or with respect to the Pre-need Agreements and (c) the Alabama
Litigation and the Texas Litigation were dismissed with prejudice. As
consideration for such termination, release and dismissal, the Company paid
Gamble approximately $6,300,000, which was recorded as a charge against income
in the Company's financial statements.
On the Acquisition Closing Date, the Company used a portion of the net
proceeds from the offering of the Notes and the Bank Term Facility to purchase
an annuity to fund the remaining monthly payments provided for in the
Termination and Release. See 'Use of Proceeds.' Management believes that the
Company will recover a substantial portion of the cost of the settlement over
time through higher commission rates and increased policy benefits with the
purchase of pre-need insurance policies from an alternative insurance carrier.
Other. The Company is a party to other legal proceedings in the ordinary
course of its business but Management does not expect the outcome of any such
proceedings to have a material adverse effect on the Company's financial
condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of New Prime, and their ages
as of October 15, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ------------------------------------------------
<S> <C> <C>
Gary L. Wright........... 50 President and Chief Executive Officer, Director
Myles Cairns............. 41 Chief Financial Officer, Secretary and
Treasurer
Gregory M. Hilgendorf.... 47 North Central Regional Vice President
Robert G. Salerno........ 54 Western Regional Vice President
Bruce L. Woodard......... 36 Central Regional Vice President
Joseph E. Franckewitz.... 40 Vice President of Pre-Need Sales
Warren B. Rudman......... 66 Director
Howard A. Lipson......... 32 Director
John R. Woodard.......... 32 Director
Chinh E. Chu............. 29 Director
Peter K. Grunebaum....... 63 Director
Clifford R. Hinkle....... 47 Director
</TABLE>
Mr. Bruce Woodard and Mr. John Woodard are not related.
The business experience of each of such executive officers and directors is
set forth below.
Gary L. Wright has joined New Prime as President and Chief Executive
Officer. Mr. Wright served as Divisional Vice President for the Southeast United
States, overseeing operations in Alabama, Georgia, Florida and Puerto Rico and
managing the operations of over 100 funeral home locations for Loewen since June
1993. Prior thereto he served as Loewen's Regional Manager for the Pacific
Northwest, supervising operations in Washington, Oregon and Alaska, from 1989 to
1993. Prior to joining Loewen, Mr. Wright was a partner in the Price-Helton
Funeral Chapel which was acquired by Loewen in 1988. Mr. Wright is a past
President of the Washington State Funeral Directors Association and a past
member of the Board of Governors of the National Funeral Directors Association.
Myles S. Cairns has joined New Prime as Chief Financial Officer, Secretary
and Treasurer. Mr. Cairns served as Vice President, Operations Controller of
Loewen since October 1994. Prior thereto, Mr. Cairns held various positions at
Loewen, including Director of Risk Management from November 1993 to October
1994, Director of Operations Planning and Control from 1990 to November 1993 and
Corporate Controller from 1985 to 1989.
Gregory M. Hilgendorf has served as North Central Regional Vice President
of Existing Prime since 1992, overseeing operations in Illinois, Indiana,
Kentucky, Michigan, Minnesota and Wisconsin. He also has served as a member of
Existing Prime's Advisory Board and Senior Management Team. Prior to joining
Existing Prime, Mr. Hilgendorf served as President of Olson Funeral Homes from
1982 until its acquisition by Existing Prime in 1992 and was the owner of five
Olson funeral homes.
Robert G. Salerno has served as Western Regional Vice President of Existing
Prime since 1993, overseeing operations in Arizona, California and Texas. Prior
thereto, Mr. Salerno served in various capacities at Pierce Brothers, beginning
in 1960, including Manager, Area Vice President and Senior Vice President.
Bruce L. Woodard has served as Central Regional Vice President of Existing
Prime since 1992, overseeing operations in Arkansas, Iowa, Missouri and
Nebraska. Prior thereto, Mr. Woodard was an owner and General Manager of
Mason-Woodard Funeral Homes, which operates five funeral homes in southwest
Missouri.
Joseph E. Franckewitz has joined New Prime as Vice President of Pre-Need
Sales. Mr. Franckewitz has served in various capacities at Gibraltar Mausoleum
Corporation since 1989, including Regional Sales Manager in Brandon, Florida and
Regional Sales Manager in Baltimore, Maryland.
Warren B. Rudman became a partner of Paul, Weiss, Rifkind, Wharton and
Garrison in 1993 after serving two consecutive terms as a United States Senator
from New Hampshire, from 1980 through 1992. Senator Rudman was appointed
Attorney General of New Hampshire in 1970 and in 1975, he was elected president
of the
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National Association of Attorneys General. Senator Rudman currently serves on
the Board of Directors of the Chubb Corporation, Collins & Aikman, the Raytheon
Company and the Concord Coalition.
Howard A. Lipson is Senior Managing Director of The Blackstone Group L.P.,
which he joined in 1988, and was a Vice President from January 1991 to March
1994. Prior to joining Blackstone, Mr. Lipson was a member of the Mergers and
Acquisitions Group of Salomon Brothers Inc. He currently serves on the Board of
Directors of UCAR International Inc., Volume Services, Inc., AMF Group Inc., and
Ritvik Holdings, Inc.
John R. Woodard joined The Blackstone Group L.P. as a Managing Director in
1996. Prior thereto, he was a Vice President at Vestar Capital Partners from
1990 to 1996.
Chinh E. Chu is a Vice President of The Blackstone Group L.P., which he
joined in 1990. Prior to joining Blackstone, Mr. Chu was a member of the Mergers
and Acquisitions Group of Salomon Brothers Inc from 1988 to 1990.
Peter K. Grunebaum has been a Director of Fortrend International LLC since
February 1996. Prior thereto, he had been a Director of ICA International since
April 1989. He currently serves on the Board of Directors of Pre-Paid Legal
Services, Inc.
Clifford R. Hinkle has served as President and a Director of Flagler
Capital Corporation since its founding in 1992, as Chief Executive Officer and
Chairman of the Board of Directors of Flagler Holdings, Inc. since its formation
in January 1996 and as Chairman, President and Chief Executive Officer of Hinkle
& Co. since 1992. Prior thereto, he was Executive Director of the State Board of
Administration of Florida from 1987 to 1991. Mr. Hinkle also was a Director and
President and Chief Executive Officer of MHI Group, Inc. from 1993 until its
merger with Loewen Group in 1995. He currently serves on the Board of Directors
of Commercial Net Lease Realty.
Pursuant to the Stockholders' Agreement described below (see 'Certain
Related Transactions-- Stockholders' Agreement'), Blackstone and Loewen
designated five and two nominees, respectively, to the Board of Directors of
Existing Prime. Messrs. Wright, Rudman, Lipson, J. Woodard and Chu were the
nominees designated by Blackstone. Messrs. Grunebaum and Hinkle (neither of whom
is an officer or a director of Loewen Group) were the nominees designated by
Loewen. Pursuant to the Stockholders' Agreement, Loewen will designate one
additional nominee. Each of Blackstone's and Loewen's nominees to the Board of
Directors of Existing Prime also was nominated to the Board of Directors of New
Prime.
Directors of the Company (other than Directors who are employed by the
Company or Blackstone) will receive $25,000 annually for their service as
Directors plus the reimbursement of expenses. Such Directors will not receive a
separate fee for service on committees of the Board. Directors of the Company
who are employed by the Company or Blackstone will serve without compensation.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth for the fiscal year ended December 31, 1995
the compensation paid by Existing Prime to its Chief Executive Officer and each
of the other most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION(2)
- ------------------------------------------- -------- ------- ---------------
<S> <C> <C> <C>
Thomas H. Johnson
President and Chief Executive Officer.... $263,474 $15,000 $ 600
Bernhard L. Gaarsoe
Vice President, Chief Financial Officer,
Treasurer and Secretary................ $145,998 $ 6,000 $ 600
Robert G. Horn
Vice President and Chief Operating
Officer.................................. $135,684 $ 5,625 $ 600
</TABLE>
(Footnotes on next page)
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<PAGE>
(Footnotes from previous page)
- ------------------
(1) Each of the executive officers listed above was an executive officer of
Existing Prime prior to the Acquisition, but is no longer an executive
officer of New Prime. For information concerning the compensation of the
executive officers of New Prime, see '--Employment Agreements' below.
(2) All Other Compensation includes amounts paid to the named executive officers
which may be applied to the payment of medical, dental and life insurance
benefits.
Employment Agreements
The Company has entered into letter agreements with Messrs. Wright and
Cairns regarding certain terms of their employment with the Company. The
agreements provide that Messrs. Wright and Cairns will be paid a base salary of
$225,000 per year, with annual increases at the discretion of the Board of
Directors of the Company plus an annual cash bonus. In 1996, such bonus will be
at the discretion of the Board, and thereafter such bonus will be equal to a
percentage of such executive's salary, which percentage will in turn be based on
the extent to which the Company achieves a target EBITDA. For purposes of the
employment agreements, EBITDA is defined as Consolidated Cash Flow (as defined
in the Indenture). EBITDA is a non-GAAP measure of cash flow. See 'Description
of Exchange Notes--Certain Definitions.' The agreements will provide that the
target EBITDA is $35.0 million and $37.7 million for 1997 and 1998,
respectively. The target for the following years will be set by the Board.
The 1997 and 1998 targeted amounts were derived from the stockholders'
review of Management's estimates of projected cost savings and increase in
revenues following the Acquisition. The target EBITDA is a performance target
and is not a forecast of actual performance that will be realized by the
Company. Actual performance during the year may differ materially from the
targeted amount. See 'Risk Factors--Potential Adverse Consequences of Planned
Changes in Operating Strategy.'
The agreements further provide that Messrs. Wright and Cairns will be
entitled to a long-term incentive bonus at any time that Loewen purchases all of
the shares of common stock of Existing Prime owned by Blackstone, provided that
certain EBITDA targets are achieved. Such bonus will equal $500,000 if such
purchase occurs prior to 2002 and will be increased by $100,000 each year
thereafter up to a maximum of $900,000.
Other
The compensation of the executive officers other than Messrs. Wright and
Cairns will be determined by the Board of Directors of the Company.
PRINCIPAL STOCKHOLDERS
Upon consummation of the Acquisition, New Prime became a direct, wholly
owned subsidiary of Existing Prime. The following table sets forth certain
information regarding the beneficial ownership of the common stock of Existing
Prime:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES STOCK
- ------------------------------------ --------- ------------
<S> <C> <C>
Blackstone Management Associates II
L.L.C.(1)......................... 764.70589 76.5%
Loewen Group International,
Inc.(2)........................... 235.29411 23.5%
Gary L. Wright(7)................... -- --
Warren B. Rudman(3)................. -- --
Howard A. Lipson(4)................. -- --
John R. Woodard(4).................. -- --
Chinh E. Chu(4)..................... -- --
Peter K. Grunebaum(5)...............
Clifford R. Hinkle(6)...............
Directors and executive officers as
a group(7) (12 persons)........... -- --
</TABLE>
(Footnotes on next page)
44
<PAGE>
(Footnotes from previous page)
- ------------------
(1) 544.59536, 158.78262 and 54.71026 shares, respectively, are held by
Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners II L.P. and Blackstone Family Investment
Partnership II L.P. Blackstone Management Associates II L.L.C., as the
general partner of each of Blackstone Capital Partners II Merchant Banking
Fund L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone
Family Investment Partnership II L.P., exercises voting and dispositive
power with respect to such shares. Blackstone Management Associates II
L.L.C. is also the sole stockholder of PSI P&S Corp. ('PSI P&S'), which is
the general partner of PSIM, the holder of 6.61765 shares of Existing Prime
Common Stock. Blackstone Management Associates II L.L.C. disclaims
beneficial ownership of such shares of Existing Prime Common Stock. See
'Certain Transactions--Formation of PSIM; Loans to Management.' The address
for the Blackstone entities is c/o Blackstone Group L.P., 345 Park Avenue,
New York, N.Y. 10154.
(2) The address for Loewen is 50 River Center Boulevard, Covington, KY 41011.
(3) Mr. Rudman's business address is c/o Paul, Weiss, Rifkind, Wharton &
Garrison, 1615 L Street, N.W., Suite 1300, Washington, D.C. 20038.
(4) Messrs. Lipson, Woodard and Chu are affiliated with Blackstone in the
capacities described under 'Management--Executive Officers and Directors.'
Each such person's business address is c/o The Blackstone Group L.P., 345
Park Avenue, New York, NY 10154. Mr. Lipson disclaims beneficial ownership
of any such shares of Common Stock beneficially owned by Blackstone
Management Associates II L.L.C.
(5) Mr. Grunebaum's business address is c/o Fortrend International LLC, 805
Third Avenue, Suite 2300, New York, New York 10022.
(6) Mr. Hinkle's business address is c/o Flagler Capital Corporation, 215 South
Monroe Street, Suite 500, Tallahassee, Florida 32301.
(7) None of the named executive officers owns any shares of Existing Prime
Common Stock. Each of the executive officers of New Prime holds a limited
partnership interest in PSIM, the holder of 6.61765 shares (approximately
0.7%) of Existing Prime Common Stock; however, such executive officers do
not have voting or dispositive power with respect to such shares.
CERTAIN RELATED TRANSACTIONS
The summaries of the Stock Purchase Agreement, the Stockholders' Agreement,
the Put/Call Agreement and the Administrative Services Agreement set forth below
do not purport to be complete and are qualified in their entirety by reference
to all the provisions of the Stock Purchase Agreement, the Stockholders'
Agreement, the Put/Call Agreement and the Administrative Services Agreement,
respectively. Copies of the Stock Purchase Agreement, the Stockholders'
Agreement, the Put/Call Agreement and the Administrative Services Agreement are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
STOCK PURCHASE AGREEMENT AND ACQUISITION
On June 14, 1996, as a precursor to the Acquisition, a company controlled
by Blackstone (the 'Purchaser') entered into a Stock Purchase Agreement with
Loewen Group and all of the holders of capital stock of Existing Prime (the
'Selling Stockholders'), pursuant to which the Selling Stockholders agreed to
sell to the Purchaser, and the Purchaser agreed to purchase from the Selling
Stockholders, all of the shares of Existing Prime held by the Selling
Stockholders. At the closing of the Acquisition, the Purchaser assigned back to
Existing Prime its rights and obligations as Purchaser under the Stock Purchase
Agreement, such that at the closing Existing Prime repurchased from the Selling
Stockholders all of their shares in Existing Prime.
In connection with the Acquisition, (i) Blackstone, Loewen and PSIM
contributed $130 million and all of the common stock of New Prime to Existing
Prime (the 'Blackstone/Loewen Contribution') in exchange for 100% of the capital
stock of Existing Prime, resulting in New Prime's becoming a wholly owned
subsidiary of Existing Prime; (ii) Existing Prime transferred the shares of all
of its directly held subsidiaries and all of its other assets and liabilities to
New Prime, (iii) the Bank Credit Agreement was entered into (see 'Description of
Bank Credit Facilities'), (iv) Existing Prime (a) repurchased the shares of its
common stock owned by the Selling Stockholders and (b) repaid or defeased
existing indebtedness and discharged certain other existing obligations in
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<PAGE>
an aggregate amount of approximately $126.4 million using the proceeds of the
Blackstone/Loewen Contribution and a portion of the proceeds of the offering of
the Notes and the Bank Term Facility.
STOCKHOLDERS' AGREEMENT
In connection with the Acquisition, Blackstone, Loewen and PSIM entered
into an agreement with Existing Prime (the 'Stockholders' Agreement') setting
forth certain of their rights and obligations as stockholders of Existing Prime.
The Stockholders' Agreement provides that, subject to the Put/Call
Agreement referred to below, (i) neither Blackstone nor Loewen is permitted to
transfer any of its respective shares of common stock of Existing Prime
('Existing Prime Common Stock') without the other's prior written consent,
subject to certain exceptions, and (ii) PSIM is not permitted to transfer any of
its shares of Existing Prime Common Stock without the consent of Blackstone and
Loewen.
Pursuant to the Stockholders' Agreement, Blackstone and Loewen designated
five and three nominees as directors, respectively, to the Board of Directors of
Existing Prime. The parties to the Stockholders' Agreement further agreed that
Existing Prime shall cause the Board of Directors of New Prime at all times to
consist of the same individuals who comprise the Board of Directors of Existing
Prime. In addition, the Certificate of Incorporation and the By-Laws of Existing
Prime provide that certain actions by or with respect to Existing Prime require
a supermajority vote of the Board of Directors and/or the stockholders of
Existing Prime. See '--Certain Matters Subject to Supermajority Vote.'
The Stockholders' Agreement will terminate following the exercise by either
Blackstone or Loewen of its option pursuant to the Put/Call Agreement or on such
other date as Blackstone and Loewen may agree.
PUT/CALL ARRANGEMENT
Pursuant to a separate agreement among Blackstone, PSIM, Loewen Group and
Loewen (the 'Put/Call Agreement'), (i) Loewen has a call option, exercisable
from and after the fourth anniversary of the Acquisition Closing Date until but
excluding the sixth anniversary of the Acquisition Closing Date, to purchase all
of Blackstone's or PSIM's shares of Existing Prime Common Stock (the 'Call
Option') and (ii) each of Blackstone and PSIM has a put option, exercisable from
and after the sixth anniversary of the Acquisition Closing Date until but
excluding the eighth anniversary of the Acquisition Closing Date, to require
Loewen to purchase Blackstone's or PSIM's, as the case may be, shares of
Existing Prime Common Stock (the 'Put Option'). The option price in each case is
derived from a formula based on EBITDA. The performance by Loewen of its
obligations under the Put/Call Agreement will be guaranteed by Loewen Group.
By virtue of the Put/Call Agreement, it is likely that the Company will
eventually become a wholly owned subsidiary of Loewen. See 'Risk
Factors--Control by Blackstone; Possible Future Control by Loewen.' There can be
no assurance, however, that either the Call Option or Put Option will be
exercised.
The exercise of either the Call Option or the Put Option will not give rise
to a Change of Control under the Indenture. See 'Description of Exchange Notes.'
CERTAIN MATTERS SUBJECT TO SUPERMAJORITY VOTE
The Certificate of Incorporation and/or the By-Laws of Existing Prime
provide that (1) amendments to the Certificate of Incorporation or By-Laws of
Existing Prime require the approval of holders of 90% of the issued and
outstanding Existing Prime Common Stock and (2) transactions involving the
merger, consolidation or sale of substantially all of the assets of Existing
Prime require the unanimous approval of both the Board of Directors and the
stockholders of Existing Prime.
ADMINISTRATIVE SERVICES AGREEMENT
In connection with the Acquisition, the Company has engaged Loewen to
provide certain administrative services and share certain resources (Loewen, in
such capacity, being the 'Administrative Services Provider') pursuant to the
Administrative Services Agreement. Such services will include the licensing of,
the maintenance of and the provision of training and other support services with
respect to, software, hardware and other information systems; the provision of
certain legal services, training and support services relating to certain types
of regulatory compliance, risk management services, travel arrangement services
and assistance and support with respect to environmental compliance and
remediation efforts, and the granting of access to certain telecommunications
equipment and services, as well as technical support therefor. In addition, the
Administrative Services Provider will provide the Company with the ability to
purchase supplies under certain of Loewen's
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<PAGE>
supply agreements with third parties. Also pursuant to the Administrative
Services Agreement, Loewen and the Company will contract for, to the extent
feasible and cost-effective in particular markets, access to embalming
facilities and automobile fleets.
As compensation for services provided under the Administrative Services
Agreement, the Administrative Services Provider receives from the Company, in
cash, a fee (the 'Administrative Services Fee') payable monthly in arrears and
in an aggregate annual amount equal to $250,000 for the first year following the
Acquisition Closing Date, to be increased by 2.5% for each year thereafter until
the termination of the Administration Services Agreement. The Company is also
required to reimburse the Administrative Services Provider for all out-of-pocket
costs and expenses incurred by it from third parties in connection with
performing the administrative services described in the Administrative Services
Agreement.
The Administrative Services Agreement is subject to termination (i)
automatically on the eighth anniversary of the Acquisition Closing Date, (ii)
automatically upon closing following the exercise of the Call Option or the Put
Option, (iii) if required pursuant to a legally binding order of a court or any
other governmental agency with appropriate jurisdiction, (iv) subject to
applicable grace periods and an arbitration requirement in the event of a
dispute, upon notice by either the Company or Loewen in the event of a material
breach by the other party of any provision of the Administrative Services
Agreement and (v) at the option of the Company.
PAYMENT OF CERTAIN FEES AND EXPENSES
In connection with the Acquisition, on the Acquisition Closing Date,
affiliates of Blackstone received fees of approximately $3.2 million and New
Prime reimbursed Blackstone for all out-of-pocket expenses incurred in
connection with the Acquisition and Loewen received a consulting fee of $1.5
million and was reimbursed for certain expenses incurred in connection with the
Acquisition equal to $1.0 million. In addition, from the Acquisition Closing
Date until the date on which Loewen or Blackstone exercises the Call Option or
the Put Option, respectively, pursuant to the Put/Call Agreement, an affiliate
of Blackstone will receive a monitoring fee equal to $250,000 per annum from New
Prime.
FORMATION OF PSIM; LOANS TO MANAGEMENT
In connection with the Acquisition, on the Acquisition Closing Date,
Messrs. Wright and Cairns and certain other officers of New Prime (the 'PSIM
Limited Partners') subscribed for limited partnership interests in PSIM and PSI
P&S subscribed for a general partnership interest in PSIM, the proceeds of which
subscriptions PSIM used to purchase approximately 0.7% of the Existing Prime
common stock (the 'PSIM-Owned Stock').
In order to effect such purchase, on the Acquisition Closing Date, New
Prime made a loan to PSIM which was evidenced by a note bearing interest at an
annual rate of 9% and secured by the PSIM-Owned Stock, the proceeds of which
loan PSIM used to make a loan to each of the PSIM Limited Partners. The loan to
each of Messrs. Wright and Cairns was in the principal amount of $97,750,
evidenced by a note bearing interest at an annual rate of 9% and secured by his
limited partnership interest in PSIM.
DESCRIPTION OF BANK CREDIT FACILITIES
The summary of the Bank Credit Facilities set forth below does not purport
to be complete and is qualified in its entirety by reference to all the
provisions of the credit agreement governing the Bank Credit Facilities, which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
General. Contemporaneously with the consummation of the Acquisition, the
Company entered into a credit agreement (the 'Bank Credit Agreement') with the
Bank Lenders and The Bank of Nova Scotia, as administrative agent (in such
capacity, the 'Bank Agent'), in order to effect the Bank Credit Facilities,
under which GSCP acted as arranging agent and Goldman Sachs as syndication agent
and the Company is the sole borrower.
Commitments. The Bank Credit Facilities provided the Company with senior
secured amortization extended term loan facilities in an aggregate principal
amount of $90 million, the proceeds of which were used to finance the
Acquisition and related transaction costs, to pre-fund certain capital
expenditures and to refinance existing indebtedness of the Company, and a senior
secured revolving credit facility in an aggregate principal amount of up to $25
million, the proceeds of which will be used for general corporate purposes and a
portion of which may be extended (as agreed upon) in the form of swing line
loans or letters of credit for the account of the Company.
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<PAGE>
Maturities; Amortization. The Bank Term Facility will mature 7 years after
the Acquisition Closing Date, and the Bank Revolving Facility will mature 5
years after the Acquisition Closing Date. The Bank Term Facility is subject to
amortization, subject to certain conditions, in semi-annual installments in the
amounts of $1 million in each of the first three years after the anniversary of
the closing date of the Bank Term Facility (the 'Bank Closing'); $4 million in
the fourth year after the Bank Closing; $9 million in the fifth year after the
Bank Closing; $12.5 million in the sixth year after the Bank Closing and $61.5
million upon the maturity of the Bank Term Facility. The Revolving Credit
Facility will be payable in full at maturity, with no prior amortization.
Interest. Borrowings (i) under the Bank Term Facility bear interest at a
rate per annum equal to, at the option of the Company (subject to certain
conditions), either (A) the Bank Agent's customary Base Rate (the 'Base Rate')
plus 2.00% or (B) the Bank Agent's reserve-adjusted Eurodollar Rate (the
'Adjusted Eurodollar Rate') plus 3.00% and (ii) under the Revolving Credit
Facility bear interest at a rate per annum equal to, at the option of the
Company (subject to certain conditions), either (A) the Base Rate plus 1.75% or
(B) the Adjusted Eurodollar Rate plus 2.75%; provided, in each case, that, at
the end of any quarter commencing with the quarter ending March 31, 1997, the
applicable margin over the Base Rate or Adjusted Eurodollar Rate, as the case
may be, is subject to an increase of .25%, in the event that the ratio of EBITDA
(as defined) to interest for the four quarters then ended is less than
1.50:1.00. Overdue principal and interest bear interest at the applicable rate
on loans bearing interest at the rate determined by reference to the Base Rate
plus 2.00% per annum.
Fees. The Bank Lenders under the Bank Revolving Facility are paid
commitment fees at a rate of 0.50% per annum on unused commitments. In addition,
the Bank Agent and the Bank Lenders received and/or will receive such other fees
as were separately agreed upon.
Mandatory Prepayments. The Company is required to prepay the loans made to
it under the Bank Credit Facilities, in the amounts and as otherwise set forth
in the Bank Credit Agreement, in the event of certain asset sales, certain
issuances of equity securities of (or capital contributions made to) New Prime
or Existing Prime or the generation of excess cash flow, proceeds from pension
plan revisions or certain proceeds of insurance or condemnation awards.
Call Premium. In the event that all or any portion of the Bank Term
Facility is repaid for any reason within two years following the Acquisition
Closing Date (other than pursuant to a scheduled amortization payment, certain
acceleration events or a mandatory prepayment), the Company will be required to
make any such repayment (i) on or before the first anniversary of the
Acquisition Closing Date, at 102% of the amount of loans so repaid and (ii)
after the first anniversary of the Acquisition Closing Date but on or before the
second anniversary of the Acquisition Closing Date, at 101% of the amount of
loans so repaid.
Guarantees. All obligations under the Bank Credit Facilities and any
interest rate hedging agreements entered into with the Bank Lenders or their
affiliates in connection therewith are unconditionally guaranteed, jointly and
severally, by Existing Prime and each of the Company's existing and future
domestic subsidiaries.
Security. All obligations of the Company and the Bank Guarantors under the
Bank Credit Facilities and the Bank Guarantees are secured by first priority
security interests in all existing and future assets (other than real property
and vehicles covered by certificates of title) of the Company and the Bank
Guarantors. In addition, the Bank Credit Facilities are secured by a first
priority security interest in 100% of the capital stock of the Company and each
subsidiary thereof and all intercompany receivables.
Covenants. The Bank Credit Agreement contains a number of affirmative
covenants, as well as negative covenants, that, among other things, restrict the
ability of Existing Prime, the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, prepay other indebtedness (including the
Exchange Notes), pay dividends or make other payments on subordinated debt or on
equity, create liens on assets, make investments, capital expenditures or
guarantees, engage in mergers or acquisitions, enter into leases or transactions
with affiliates, and otherwise restrict corporate activities. In addition, the
Company is required to maintain a minimum fixed charge coverage ratio, a minimum
interest coverage ratio and a minimum net worth and to meet maximum senior and
total debt leverage tests.
Events of Default. Events of default under the Bank Credit Agreement
include, among other things: (i) failure to make payment when due; (ii) breaches
of representations and warranties; (iii) default in the performance of
covenants; (iv) default under certain other agreements governing indebtedness
(including the Indenture); (v) certain events of bankruptcy; (vi) failure to
satisfy certain material ERISA requirements; (vii) certain material impairment
of security interests in collateral; (viii) invalidity of the guarantees and
(ix) the occurrence of a Change of Control (as defined therein) of the Company.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an indenture dated as of August 15,
1996 (the 'Indenture') between the Company and United States Trust Company of
New York, as trustee (the 'Trustee'). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Indenture
(which is incorporated herein by reference and a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part
and may be obtained upon request to the Company), including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended, as in effect on the
date of the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under '--Certain Definitions.'
GENERAL
The Exchange Notes will be unsecured senior subordinated obligations of the
Company limited to $100,000,000 aggregate principal amount. Except for the
restrictions on registrations and transfers, all untendered Notes and the
Exchange Notes will be treated as one class of securities for purposes of the
covenants and the other terms contained in the Indenture.
Except as described under the heading 'Book Entry; Delivery and Form,' the
Exchange Notes initially will be represented by a single, permanent global
certificate in definitive, fully registered form (the 'Global Note'). The Global
Note will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ('DTC') and registered in the name of a nominee of DTC or will
remain in the custody of the Trustee pursuant to the FAST Balance Certificate
Agreement between the Depository and the Trustee.
MATURITY, INTEREST AND PRINCIPAL
The Exchange Notes will mature on August 15, 2004. Interest on the Exchange
Notes will accrue at the rate of 10 3/4% per annum and will be payable
semiannually on each February 15 and August 15, commencing February 15, 1997, to
the holders of record of Exchange Notes at the close of business on the February
1 or August 1 immediately preceding such interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from August 20, 1996 (the 'Issue Date').
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
Optional Redemption. The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after August 15, 2000, on
not less than 30 nor more than 60 days' prior notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, if any, to the redemption date, if redeemed during the 12-month
period beginning on or after August 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---------------------- ----------
<S> <C>
2000.................. 105.375%
2001.................. 103.583%
2002.................. 101.792%
2003 and thereafter... 100.000%
</TABLE>
Purchase at Option of Holders. As described below, the Company is
obligated (a) upon the occurrence of a Change of Control, to make an offer to
purchase all outstanding Exchange Notes at a purchase price of 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase, and (b) upon the occurrence of certain sales or dispositions of
assets, to make an offer to purchase Exchange Notes with a portion of the net
cash proceeds thereof, at a purchase price of 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase. See
'--Certain Covenants--Change of Control' and '-- Disposition of Proceeds of
Asset Sales.'
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SUBORDINATION
The indebtedness evidenced by the Exchange Notes will be subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
existing and future Senior Indebtedness of the Company. The Indenture contains
certain limitations with respect to the amount of additional Indebtedness
(including Indebtedness which may rank senior in right of payment to or pari
passu in right of payment with the Exchange Notes) that may be incurred by the
Company and/or any of its subsidiaries.
The Indenture will provide that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or its assets, or any liquidation, dissolution or other winding-up of
the Company, whether voluntary or involuntary, or any assignment for the benefit
of creditors or other marshalling of assets or liabilities of the Company, all
Senior Indebtedness of the Company (including, in the case of Designated Senior
Indebtedness, any interest accruing subsequent to the filing of a petition for
bankruptcy whether or not such interest is an allowed claim) must be paid in
full in cash or Cash Equivalents before any payment or distribution (excluding
certain permitted equity or subordinated securities) is made on account of the
principal of, premium, if any, or interest on, or any other obligations to the
holders of the Exchange Notes in respect of, the Exchange Notes.
During the continuance of any default in the payment of principal, premium,
if any, or interest on any Senior Indebtedness, when the same becomes due, no
direct or indirect payment (other than payments previously made pursuant to the
provisions described under '--Defeasance or Covenant Defeasance of Indenture')
by or on behalf of the Company of any kind or character (excluding certain
permitted equity or subordinated securities) may be made on account of the
principal of, premium, if any, or interest on, or other obligations to the
holders of the Exchange Notes in respect of, or the purchase, redemption or
other acquisition of, the Exchange Notes unless and until such default has been
cured or waived or has ceased to exist or such Senior Indebtedness shall have
been discharged or paid in full in cash or Cash Equivalents.
In addition, during the continuance of any other default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a 'Non-payment Default') and upon the earlier to occur of (a)
receipt by the Trustee from the representatives of holders of such Designated
Senior Indebtedness of a written notice of such Non-payment Default or (b) if
such Non-payment Default results from the acceleration of the Exchange Notes,
the date of such acceleration, no payment (other than payments previously made
pursuant to the provisions described under '--Defeasance or Covenant Defeasance
of Indenture') of any kind or character (excluding certain permitted equity or
subordinated securities) may be made by the Company on account of the principal
of, premium, if any, or interest on, or the purchase, redemption, or other
acquisition of, the Exchange Notes for the period specified below (the 'Payment
Blockage Period').
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default ('Payment Blockage Notice') by the Trustee from the
representatives of holders of Designated Senior Indebtedness or the date of the
acceleration referred to in clause (b) of the preceding paragraph, as the case
may be, and shall end on the earliest to occur of the following events: (i) 179
days has elapsed since the receipt of such notice or the date of such
acceleration (provided such Designated Senior Indebtedness shall not theretofore
have been accelerated), (ii) such default is cured or waived or ceases to exist
or such Designated Senior Indebtedness is discharged or paid in full in cash or
Cash Equivalents, or (iii) such Payment Blockage Period shall have been
terminated by written notice to the Company or the Trustee from the
representatives of holders of Designated Senior Indebtedness initiating such
Payment Blockage Period, after which the Company shall promptly resume making
any and all required payments in respect of the Exchange Notes, including any
missed payments. Notwithstanding anything in the foregoing to the contrary, a
Payment Blockage Notice may only be given and therefore shall only be effective
in respect of the Company and the Trustee if given by, (i) the agent under the
Bank Credit Agreement as long as any Senior Indebtedness remains outstanding
under the Bank Credit Agreement and (ii) if no Senior Indebtedness remains
outstanding under the Bank Credit Agreement, any other representative of
outstanding Designated Senior Indebtedness. Only one Payment Blockage Period
with respect to the Exchange Notes may be commenced within any 365 consecutive
day period. No Non-payment Default with respect to Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period will be, or can be, made the basis for
the commencement of a second Payment Blockage Period, whether or not within a
period of 365 consecutive days, unless such default has been cured or waived for
a period of not less than 180 consecutive days. In no event will a Payment
Blockage Period extend beyond 179 days from
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<PAGE>
the receipt by the Trustee of the notice or the date of the acceleration
initiating such Payment Blockage Period and there must be a 186 consecutive day
period in any 365 day period during which no Payment Blockage Period is in
effect.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Exchange Notes
to accelerate the maturity thereof. See '--Events of Default.'
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Exchange Notes and funds which would be
otherwise payable to the holders of the Exchange Notes will be paid to the
holders of the Senior Indebtedness to the extent necessary to pay the Senior
Indebtedness in full, and the Company may be unable to meet its obligations
fully with respect to the Exchange Notes.
On a pro forma basis after giving effect to the Acquisition, the Company
would have had $90 million of Senior Indebtedness outstanding as of June 30,
1996 and would have had $25 million available to be borrowed under the Revolving
Credit Facility. The Indenture limits, but does not prohibit, the incurrence by
the Company of additional Indebtedness which is senior to the Exchange Notes,
and limits the incurrence by the Company of Indebtedness which is subordinated
in right of payment to any other Indebtedness of the Company.
HOLDING COMPANY STRUCTURE
The Company is a holding company for its Subsidiaries, with no material
operations of its own and only limited assets. Accordingly, the Company is
dependent upon the distribution of the earnings of its Subsidiaries, whether in
the form of dividends, advances or payments on account of intercompany
obligations, to service its debt obligations. In addition, the claims of the
holders of Exchange Notes are subject to the prior payment of all liabilities
(whether or not for borrowed money) and to any preferred stock interest of such
Subsidiaries. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets available from the Company and its
Subsidiaries to satisfy the claims of the holders of Exchange Notes. See 'Risk
Factors-- Holding Company Structure.'
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable, contingently or
otherwise, for the payment of (in each case, to 'incur') any Indebtedness
(including, without limitation, any Acquired Indebtedness); provided, however,
that the Company and any of its Subsidiaries will be permitted to incur
Indebtedness (including, without limitation, Acquired Indebtedness) if at the
time of such incurrence, and after giving pro forma effect thereto, the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to
2.00:1.
Notwithstanding the foregoing, the Company and its Subsidiaries may, to the
extent specifically set forth below, incur each and all of the following:
(a) Indebtedness of the Company evidenced by the Notes and the
Exchange Notes;
(b) Indebtedness of the Company and its Subsidiaries outstanding on
the Issue Date;
(c) Indebtedness of the Company represented by the notes issued under
the Bank Term Facility;
(d) Indebtedness of the Company under the Revolving Credit Facility
(including with respect to letters of credit issued thereunder) or any
other revolving credit facility in an aggregate principal amount at any one
time outstanding not to exceed $25,000,000;
(e) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company or a Subsidiary of the Company and (ii)
Interest Rate Protection Obligations of any Subsidiary of the Company
covering Indebtedness of such Subsidiary; provided, however, that, in the
case of either clause (i) or (ii), (x) any Indebtedness to which any such
Interest Rate Protection Obligations relate bears interest at fluctuating
interest rates and is otherwise permitted to be incurred under this
covenant and (y) the notional
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principal amount of any such Interest Rate Protection Obligations does not
exceed the principal amount of the Indebtedness to which such Interest Rate
Protection Obligations relate;
(f) Indebtedness of a Wholly-Owned Subsidiary owed to and held by the
Company or another Wholly-Owned Subsidiary, in each case which is not
subordinated in right of payment to any Indebtedness of such Subsidiary
(other than Indebtedness under its guaranty of the Bank Credit Facilities),
except that (i) any transfer of such Indebtedness by the Company or a
Wholly-Owned Subsidiary (other than to the Company or to a Wholly-Owned
Subsidiary) and (ii) the sale, transfer or other disposition by the Company
or any Subsidiary of the Company of Capital Stock of a Wholly-Owned
Subsidiary which is owed Indebtedness of another Wholly-Owned Subsidiary
such that it ceases to be a Wholly-Owned Subsidiary of the Company shall,
in each case, be an incurrence of Indebtedness by such Subsidiary subject
to the other provisions of this covenant;
(g) Indebtedness of the Company owed to and held by a Wholly-Owned
Subsidiary of the Company which is unsecured and subordinated in right of
payment to the payment and performance of the Company's obligations under
the Bank Credit Facilities and the Indenture, the Notes and the Exchange
Notes except that (i) any transfer of such Indebtedness by a Wholly-Owned
Subsidiary of the Company (other than to another Wholly-Owned Subsidiary of
the Company) and (ii) the sale, transfer or other disposition by the
Company or any Subsidiary of the Company of Capital Stock of a Wholly-Owned
Subsidiary which holds Indebtedness of the Company such that it ceases to
be a Wholly-Owned Subsidiary shall, in each case, be an incurrence of
Indebtedness by the Company, subject to the other provisions of this
covenant;
(h) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(i) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(j) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
(k) purchase money Indebtedness incurred to finance the acquisition of
property or assets of the Company or any Subsidiary acquired in the
ordinary course of business within 90 days of such acquisition; provided
that the amount of such purchase money Indebtedness at any time outstanding
may not exceed $5,000,000 in the aggregate; provided, further, that any
Lien arising in connection with any such Indebtedness shall be limited to
the property or assets being financed;
(l) Indebtedness of the Company or any Subsidiary of the Company in
addition to that described in clauses (a) through (k) above, in an
aggregate principal amount outstanding at any time not exceeding
$5,000,000; provided, that if, at the time of incurrence of Indebtedness,
the ratio of the aggregate principal amount of Indebtedness on a pro forma
basis after giving effect to the Indebtedness then being incurred to
Consolidated Cash Flow for the four full fiscal quarters immediately
preceding the date of such incurrence is less than or equal to 6.00:1, then
such amount shall be an aggregate principal amount not exceeding
$10,000,000; and
(m) (i) Indebtedness of the Company (including any Indebtedness
incurred in connection with a Sale-Leaseback Transaction permitted pursuant
to the covenant described under '--Limitation on Sale-Leaseback
Transactions') the proceeds of which are used solely to refinance (whether
by amendment, renewal, extension or refunding) Indebtedness of the Company
or any of its Subsidiaries and (ii) Indebtedness of any Subsidiary of the
Company the proceeds of which are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of such
Subsidiary, in each case other than the Indebtedness refinanced, redeemed
or retired as described under 'Use of Proceeds' herein;
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<PAGE>
provided, however, that (x) the principal amount of Indebtedness incurred
pursuant to this clause (m) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of the principal
amount of Indebtedness so refinanced, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of such Indebtedness or the amount of any premium reasonably
determined by the Board of Directors of the Company as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated purchase, plus the amount of expenses in connection therewith,
(y) in the case of Indebtedness incurred by the Company pursuant to this
clause (m) to refinance Subordinated Indebtedness, such Indebtedness (A)
does not have a Stated Maturity prior to the Maturity of the Subordinated
Indebtedness being refinanced, (B) has an Average Life to Stated Maturity
equal to or greater than the remaining Average Life to Stated Maturity of
the Subordinated Indebtedness being refinanced and (C) is subordinated to
the Exchange Notes in the same manner and to the same extent that the
Subordinated Indebtedness being refinanced is subordinated to the Exchange
Notes and (z) in the case of Indebtedness incurred by the Company pursuant
to this clause (m) to refinance Pari Passu Indebtedness, such Indebtedness
(A) does not have a Stated Maturity prior to the Stated Maturity of the
Pari Passu Indebtedness being refinanced, (B) has an Average Life to Stated
Maturity equal to or greater than the remaining Average Life to Stated
Maturity of the Pari Passu Indebtedness being refinanced and (C)
constitutes Pari Passu Indebtedness or Subordinated Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any of its
Subsidiaries or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any of its
Subsidiaries (other than (x) the dividends-in-kind payable on the Company's
outstanding Preferred Stock in accordance with the terms thereof and any
other dividends or distributions payable solely in Capital Stock of the
Company (other than Redeemable Capital Stock) or in options, warrants or
other rights to purchase Capital Stock of the Company (other than
Redeemable Capital Stock), (y) the declaration or payment of dividends or
other distributions to the extent declared or paid to the Company or any
Subsidiary of the Company and (z) the declaration or payment of dividends
or other distributions by any Subsidiary of the Company to all holders of
Common Stock of such Subsidiary on a pro rata basis),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries (other than any
such Capital Stock owned by the Company or a Wholly-Owned Subsidiary of the
Company (in each case other than in exchange for its Capital Stock (other
than Redeemable Stock)),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness or Pari Passu Indebtedness
other than (x) any such Indebtedness owned by the Company or a Wholly-Owned
Subsidiary of the Company and (y) the prepayment or defeasance on or before
January 31, 1997 of the notes to certain former owners of funeral homes
acquired by Existing Prime which are outstanding on the Issue Date, or
(d) make any Investment (other than any Permitted Investment) in any
Person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as 'Restricted Payments'), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
such Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described under '--
Limitation on Indebtedness' above (assuming a market rate of interest with
respect to such additional Indebtedness) and (C) the aggregate amount of all
Restricted Payments declared or made from and after the Issue Date would not
exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the first
day of the fiscal quarter of the Company following
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the fiscal quarter during which the Issue Date occurs and ending on the last day
of the fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment, which period shall be treated as a single
accounting period (or, if such aggregate cumulative Consolidated Net Income of
the Company for such period shall be a deficit, minus 100% of such deficit) plus
(2) the aggregate net cash proceeds received by the Company either (x) as
capital contributions to the Company after the Issue Date from any Person (other
than a Subsidiary of the Company) or (y) from the issuance or sale of Capital
Stock (excluding Redeemable Capital Stock, but including Capital Stock issued
upon the conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Redeemable Capital
Stock)) of the Company to any Person (other than to a Subsidiary of the Company)
after the Issue Date plus (3) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date
(excluding any Investment described in clause (v) of the following paragraph),
an amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the cost of the
disposition of such Investment. For purposes of the preceding clause (C)(2), the
value of the aggregate net proceeds received by the Company upon the issuance of
Capital Stock upon the conversion of convertible Indebtedness or upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such Indebtedness, options, warrants or rights plus the
incremental cash amount received by the Company upon the conversion or exercise
thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Company or any Subsidiary of the Company in
exchange for, or out of the net cash proceeds of, a substantially concurrent (x)
capital contribution to the Company from any Person (other than a Subsidiary of
the Company) or (y) issue and sale of other shares of Capital Stock (other than
Redeemable Capital Stock) of the Company to any Person (other than to a
Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; (iii) so long as no Default or Event of Default shall have occurred
and be continuing, any redemption, repurchase or other acquisition or retirement
of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of
a substantially concurrent (x) capital contribution to the Company from any
Person (other than a Subsidiary of the Company) or (y) issue and sale of (1)
Capital Stock (other than Redeemable Capital Stock) of the Company to any Person
(other than to a Subsidiary of the Company); provided, however, that the amount
of any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement shall be excluded from clause
(C)(2) of the preceding paragraph; or (2) Indebtedness of the Company issued to
any Person (other than a Subsidiary of the Company), so long as such
Indebtedness is Subordinated Indebtedness which (x) has no Stated Maturity
earlier than the Stated Maturity of the Subordinated Indebtedness so purchased,
exchanged, redeemed, acquired or retired, (y) has an Average Life to Stated
Maturity equal to or greater than the remaining Average Life to Stated Maturity
of the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired, and (z) is subordinated to the Notes in the same manner and at least to
the same extent as the Subordinated Indebtedness so purchased, exchanged,
redeemed, acquired or retired; (iv) so long as no Default or Event of Default
shall have occurred and be continuing, any redemption, repurchase or other
acquisition or retirement of Pari Passu Indebtedness by exchange for, or out of
the net cash proceeds of, a substantially concurrent (x) capital contribution to
the Company from any Person (other than a Subsidiary of the Company) or (y)
issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the
Company to any Person (other than to a Subsidiary of the Company); provided,
however, that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase or other acquisition or retirement is excluded from
clause (C)(2) of the preceding paragraph; or (2) Indebtedness of the Company
issued to any Person (other than a Subsidiary of the Company), so long as such
Indebtedness is Subordinated Indebtedness or Pari Passu Indebtedness which (x)
has no Stated Maturity earlier than the Stated Maturity of the Pari Passu
Indebtedness so purchased, exchanged, redeemed, acquired or retired and (y) has
an Average Life to Stated Maturity equal to or greater than the remaining
Average Life to Stated Maturity of the Pari Passu Indebtedness so purchased,
exchanged, redeemed, acquired or retired; (v) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the covenant
described under '--Disposition of Proceeds of Asset Sales' below; (vi) so long
as no Default or Event
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of Default has occurred and is continuing, repurchases by the Company of Common
Stock of the Company or Existing Prime from employees of the Company or any of
its Subsidiaries or their authorized representatives upon the death, disability
or termination of employment of such employees, in an aggregate amount not
exceeding $500,000 in any calendar year; (vii) other Restricted Payments not to
exceed $2,500,000; provided that at the time such Restricted Payment is made,
the ratio of the aggregate principal amount of Indebtedness on a pro forma basis
after giving effect to any Indebtedness incurred in connection with such
Restricted Payment to Consolidated Cash Flow for the four full fiscal quarters
immediately preceding the date of such Restricted Payment shall be less than or
equal to 6.00:1; (viii) any payments permitted to be made pursuant to clauses
(ii) through (vi) of the proviso set forth in the covenant described under
'--Limitation on Transactions with Interested Persons' below; (ix) payments to
Existing Prime in an amount sufficient to pay (a) director's fees and the
reasonable expenses of directors, (b) accounting, legal or other administrative
expenses incurred by Existing Prime relating to the operations of the Company in
the ordinary course of business and (c) so long as Existing Prime files
consolidated income tax returns which include the Company, payments to Existing
Prime in an amount equal to the amount of income tax that the Company would have
paid if it had filed consolidated tax returns on a separate-company basis or (x)
payments to Existing Prime in an amount sufficient to consummate the
Acquisition. In computing the amount of Restricted Payments previously made for
purposes of clause (C) of the preceding paragraph, Restricted Payments made
under the preceding clauses (v) and (vi) shall be included and clauses (i),
(ii), (iii), (iv), (vii), (viii), (ix) and (x) shall not be so included.
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
(x) in the case of Liens securing Subordinated Indebtedness, the Exchange Notes
are secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (y) in all other cases, the Exchange Notes are
equally and ratably secured, except for (a) Liens existing as of the Issue Date;
(b) Liens securing the Exchange Notes; (c) Liens on assets of the Company and
its Subsidiaries securing Senior Indebtedness; (d) Liens in favor of the
Company; (e) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
provided, however, that such Liens do not extend to or cover any property or
assets of the Company or any of its Subsidiaries not securing the Indebtedness
so refinanced; and (f) Permitted Liens.
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase (a 'Change of Control Offer'),
and shall purchase all Exchange Notes properly tendered into the Change of
Control Offer and not withdrawn, on a business day (the 'Change of Control
Purchase Date') not more than 60 nor less than 30 days following the date the
notice described below is mailed to holders of the Exchange Notes, all of the
then outstanding Exchange Notes at a purchase price (the 'Change of Control
Purchase Price') equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the Change of Control Purchase Date. The Company
shall be required to purchase all Exchange Notes properly tendered into the
Change of Control Offer and not withdrawn. The Change of Control Offer is
required to remain open for at least 20 business days and until the close of
business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the occurrence of the Change of Control, mail to
each holder of Exchange Notes notice of the Change of Control Offer, which
notice shall govern the terms of the Change of Control Offer and shall state,
among other things, the procedures that holders of Exchange Notes must follow to
accept the Change of Control Offer.
The occurrence of the events constituting a Change of Control under the
Indenture will result in an event of default under the Bank Credit Agreement
and, thereafter, the lenders will have the right to require repayment of the
borrowings thereunder in full. The Company's obligations under the Bank Credit
Facilities will constitute Designated Senior Indebtedness and will represent
obligations senior in right of payment to the Exchange Notes. Consequently, the
subordination provisions of the Indenture will have the effect of precluding the
purchase of the Exchange Notes by the Company in the event of a Change of
Control, absent consent of the lenders under the Bank Credit Facilities or
repayment of all amounts outstanding thereunder (although the failure by the
Company to comply with its obligations in the event of a Change of Control will
constitute a default under the Exchange Notes). There can be no assurance that
the Company will have adequate resources to repay or refinance all Indebtedness
owing under the Bank Credit Facilities or to fund the purchase of the Exchange
Notes upon a Change of Control.
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The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Exchange Notes validly tendered and not withdrawn under such Change of Control
Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Exchange Notes as described above. To the extent
that the provisions of any securities laws or regulations conflict with the
Change of Control provisions under the Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Indenture by virtue thereof.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Subsidiaries to, make any Asset Sale unless (a) the Company or
such Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or assets sold
or otherwise disposed of and (b) at least 75% of such consideration consists of
cash or Cash Equivalents. To the extent the Net Cash Proceeds of any Asset Sale
are not applied to repay the Bank Term Facility or permanently reduce the
commitments under the Revolving Credit Facility, the Company or such Subsidiary,
as the case may be, may, within 365 days from the receipt of the Net Cash
Proceeds, apply such Net Cash Proceeds to an investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the business of the Company and
its Subsidiaries existing on the Issue Date or in businesses reasonably related
thereto ('Replacement Assets'). Any Net Cash Proceeds from any Asset Sale that
are neither used to repay the Bank Term Facility, or permanently reduce the
commitments under the Revolving Credit Facility, nor invested in Replacement
Assets within the 365-day period described above constitute 'Excess Proceeds'
subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $5,000,000,
the Company shall make an offer to purchase (an 'Asset Sale Offer'), from all
holders of the Exchange Notes, not less than 20 Business Days nor more than 40
Business Days thereafter, an aggregate principal amount of Notes equal to such
Excess Proceeds, at a price in cash equal to 100% of the outstanding principal
amount thereof plus accrued and unpaid interest, if any, to the purchase date.
To the extent that the aggregate principal amount of Exchange Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use such deficiency for general corporate purposes. If the aggregate
principal amount of Exchange Notes validly tendered and not withdrawn by holders
thereof exceeds the Excess Proceeds, Exchange Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset to zero.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Issuances and Sale of Preferred Stock by Subsidiaries. The
Company (a) will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to the Company or a Wholly-Owned Subsidiary of the Company) and (b)
will not permit any Person (other than the Company or a Wholly-Owned Subsidiary
of the Company) to own any Preferred Stock of any Subsidiary of the Company;
provided, however, that this covenant shall not prohibit the issuance and sale
of (x) all, but not less than all, of the issued and outstanding Capital Stock
of any Subsidiary of the Company owned by the Company or any of its Subsidiaries
in compliance with the other provisions of the Indenture, (y) directors'
qualifying shares or investments by foreign nationals mandated by applicable law
or (z) issuances of Preferred Stock to former owners of funeral homes acquired
by the Company or any Subsidiary of the Company; provided that the sum of (i)
the aggregate Fair Market Value of such Preferred Stock and (ii) the aggregate
Fair Market Value of all Investments permitted under clause (ix) of the
definition of 'Permitted Investments' shall not exceed $5,000,000 at any time
outstanding.
Limitation on Transactions with Interested Persons. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, transfer, disposition, purchase,
exchange or lease of assets, property or services) with, or for the benefit of,
any Affiliate of the Company or any beneficial owner (determined in accordance
with the Indenture) of 5% or more of the Company's Common Stock at any time
outstanding ('Interested Persons'), unless (a) such transaction or series of
related transactions is on terms that are no less
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favorable to the Company or such Subsidiary, as the case may be, than those
which could have been obtained in a comparable transaction at such time from
Persons who are not Affiliates of the Company or Interested Persons, (b) with
respect to a transaction or series of transactions (other than commercial
arrangements with any limited partner of Blackstone Capital Partners II Merchant
Banking Fund L.P. or any Affiliate of such limited partners) involving aggregate
payments or value equal to or greater than $5,000,000, the Company has obtained
a written opinion from an Independent Financial Advisor stating that the terms
of such transaction or series of transactions are fair to the Company or its
Subsidiary, as the case may be, from a financial point of view and (c) with
respect to a transaction or series of transactions (other than commercial
arrangements with any limited partner of Blackstone Capital Partners II Merchant
Banking Fund L.P. or any Affiliate of such limited partners) involving aggregate
payments or value equal to or greater than $1,000,000, the Company shall have
delivered an officer's certificate to the Trustee certifying that such
transaction or series of transactions complies with the preceding clause (a)
and, if applicable, certifying that the opinion referred to in the preceding
clause (b) has been delivered and that such transaction or series of
transactions has been approved by a majority of the Board of Directors of the
Company; provided, however, that this covenant will not restrict the Company
from (i) paying dividends in respect of its Capital Stock permitted under the
covenant described under '--Limitation on Restricted Payments' above, (ii)
paying reasonable and customary fees and indemnities to directors of the Company
who are not employees of the Company, (iii) making loans or advances to, or
providing indemnities of, officers, employees or consultants of the Company and
its Subsidiaries (including travel and moving expenses) in the ordinary course
of business for bona fide business purposes of the Company or such Subsidiary
not in excess of $1,000,000 in the aggregate at any one time outstanding, (iv)
making loans to officers (or a partnership comprised of such officers) for the
purpose of purchasing common stock of Existing Prime and making any payment
required or specifically permitted by the terms of the Administrative Services
Agreement, (v) paying an annual monitoring fee of $250,000 (plus any increase
thereof which may be made to account for inflation) to Blackstone Management
Partners L.P. or any of its Affiliates designated by Blackstone Management
Partners L.P., (vi) making any payment to Existing Prime permitted by the
covenant described under '--Limitations on Restricted Payments' above or (vii)
entering into any transaction with any of its Wholly-Owned Subsidiaries or
restrict any Subsidiary from entering into any transaction with any other
Wholly-Owned Subsidiary.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or any other interest or
participation in, or measured by, its profits, (b) pay any Indebtedness owed to
the Company or any other Subsidiary of the Company, (c) make loans or advances
to, or any investment in, the Company or any other Subsidiary of the Company,
(d) transfer any of its properties or assets to the Company or any other
Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or
any other Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Subsidiary of the Company, (iii) customary
restrictions on transfers of property subject to a Lien permitted under the
Indenture, (iv) any agreement or other instrument of a Person acquired by the
Company or any Subsidiary of the Company (or a Subsidiary of such Person) in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the properties
or assets of the Person, so acquired, (v) provisions contained in agreements or
instruments relating to Indebtedness which prohibit the transfer of all or
substantially all of the assets of the obligor thereunder unless the transferee
shall assume the obligations of the obligor under such agreement or instrument,
(vi) any restriction with respect to a Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Subsidiary pending the closing of such
sale or disposition, (vii) any encumbrance or restriction arising or agreed to
in the ordinary course of business and that does not, individually or in the
aggregate, detract from the value of the property or assets of the Company or
any Subsidiary in any manner material to the Company or such Subsidiary and
(viii) encumbrances and restrictions under agreements in effect on the Issue
Date, including the Bank Credit Agreement, and encumbrances and restrictions in
permitted refinancings or replacements of Indebtedness evidenced by the
agreements referred to in this clause (viii) which are no less favorable to the
holders of the Exchange Notes than those contained in the Indebtedness so
refinanced or replaced.
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Limitation on the Issuance of Other Senior Subordinated Indebtedness. The
Company will not, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company, unless such Indebtedness (x) is pari passu with or
(y) is subordinate in right of payment to the Exchange Notes in the same manner
and at least to the same extent as the Exchange Notes are subordinated to Senior
Indebtedness.
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any of its Subsidiaries to, enter into any Sale-Leaseback Transaction
with respect to any property of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, the Company and its Subsidiaries may enter into
Sale-Leaseback Transactions; provided that (a) the Attributable Value of such
Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company or
such Subsidiary, as the case may be, and (b) either (i) after giving pro forma
effect to any such Sale-Leaseback Transaction and the foregoing clause (a), the
Company would be able to incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under '--Limitation on Indebtedness'
above (assuming a market rate of interest with respect to such additional
Indebtedness) or (ii) the proceeds of such Sale-Leaseback Transaction are
applied to repay existing Indebtedness (other than Indebtedness outstanding
under any revolving credit facility).
Reporting Requirements. The Company will file with the Commission or, if
not permitted, deliver to the Trustee, the annual reports, quarterly reports and
other documents required to be filed with the Commission pursuant to Sections 13
and 15 of the Exchange Act, whether or not the Company has a class of securities
registered under the Exchange Act. In the event that The Loewen Group Inc. fully
and unconditionally guarantees the obligations of the Company under the Exchange
Notes, the reporting requirements may be satisfied through the filing and
provisions of the annual reports, quarterly reports and other documents in
respect of The Loewen Group Inc. Such requirements may also be satisfied prior
to November 15, 1996, with the filing with the Commission of the Exchange Offer
Registration Statement. The Company will be required to file with the Trustee
and provide to each Noteholder within 15 days after it files them with the
Commission (or if any such filing is not permitted under the Exchange Act, 15
days after the Company would have been required to make such filing) copies of
such reports and documents.
MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as an
entirety to, any Person or Persons, and the Company will not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or the Company and
its Subsidiaries, taken as a whole, to any other Person or Persons, unless at
the time of and after giving effect thereto (a) either (i) if the transaction or
series of transactions is a merger or consolidation, the Company shall be the
surviving Person of such merger or consolidation, or (ii) the Person formed by
such consolidation or into which the Company or such Subsidiary is merged or to
which the properties and assets of the Company or such Subsidiary, as the case
may be, are transferred (any such surviving Person or transferee Person being
the 'Surviving Entity') shall be a corporation organized and existing under the
laws of the United States of America, any state thereof, the District of
Columbia, Canada or any province thereof and shall expressly assume by a
supplemental indenture executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, all the obligations of the Company under the
Exchange Notes and the Indenture, and in each case, the Indenture shall remain
in full force and effect; (b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (c) the Company or the Surviving Entity, as the case may be, after
giving effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), could incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under '--Certain Covenants--
Limitation on Indebtedness' above (assuming a market rate of interest with
respect to such additional Indebtedness); and (d) immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), the Consolidated Net Worth of the Company or the Surviving
Entity, as the case
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may be, is at least equal to the Consolidated Net Worth of the Company
immediately before such transaction or series of transactions.
Notwithstanding the foregoing clauses (b), (c) and (d), (i) any Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officer's certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture; provided, however, that solely for purposes of
computing amounts described in subclause (C) of the covenant described under
'--Certain Covenants--Limitation on Restricted Payments' above, any such
successor Person shall only be deemed to have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor corporation had been named as the Company therein.
EVENTS OF DEFAULT
The following will be 'Events of Default' under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any Exchange Note when the same becomes due and payable (upon Stated
Maturity, acceleration, optional redemption, required purchase, scheduled
principal payment or otherwise); or
(ii) default in the payment of an installment of interest on any of
the Exchange Notes, when the same becomes due and payable, which default
continues for a period of 30 days; or
(iii) failure to perform or observe any other term, covenant or
agreement contained in the Exchange Notes or the Indenture (other than a
default specified in clause (i) or (ii) above) and such default continues
for a period of 30 days after written notice of such default requiring the
Company to remedy the same shall have been given (x) to the Company by the
Trustee or (y) to the Company and the Trustee by holders of at least 25% in
aggregate principal amount of the Exchange Notes then outstanding; or
(iv) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Subsidiary of the Company then has outstanding
Indebtedness in excess of $5,000,000, individually or in the aggregate, and
either (a) such Indebtedness has not been paid at final maturity or (b)
such default or defaults have resulted in the acceleration of the maturity
of such Indebtedness; or
(v) one or more judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, either individually or in the
aggregate, shall be entered against the Company or any Subsidiary of the
Company or any of their respective properties and shall not be discharged
or fully bonded and there shall have been a period of 60 days after the
date on which any period for appeal has expired and during which a stay of
enforcement of such judgment, order or decree shall not be in effect; or
(vi) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Significant Subsidiary of the Company shall
have occurred.
If an Event of Default (other than as specified in clause (vi) above with
respect to the Company) shall occur and be continuing, the Trustee, by notice to
the Company, or the holders of at least 25% in aggregate principal amount of the
Exchange Notes then outstanding, by notice to the Trustee and the Company, may
declare the principal of, premium, if any, and accrued and unpaid interest, if
any, on all of the outstanding Exchange Notes to be due and payable immediately,
upon which declaration, all amounts payable in respect of the Exchange Notes
shall be immediately due and payable; provided, however, that so long as the
Bank Credit Agreement shall be in force
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and effect, if an Event of Default shall have occurred and be continuing (other
than an Event of Default under clause (vi) with respect to the Company), any
such acceleration shall not be effective until the earlier to occur of (x) five
business days following delivery of a notice of such acceleration to the Bank
Agent under the Bank Credit Agreement and (y) the acceleration of any
Indebtedness under the Bank Credit Facilities. If an Event of Default specified
in clause (vi) above with respect to the Company occurs and is continuing, then
the principal of, premium, if any, and accrued and unpaid interest, if any, on
all of the outstanding Exchange Notes shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any holder of Exchange Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Exchange Notes, by written notice to the Company and the Trustee,
may rescind such declaration if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all Exchange Notes, (iii) the principal of and premium, if any, on any Exchange
Notes which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Exchange Notes, and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Exchange Notes which has become
due otherwise than by such declaration of acceleration; (b) the rescission would
not conflict with any judgment or decree of a court of competent jurisdiction;
and (c) all Events of Default, other than the non-payment of principal of,
premium, if any, and interest on the Exchange Notes that have become due solely
by such declaration of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Exchange Notes may on behalf of the holders of all the Exchange
Notes waive any past defaults under the Indenture, except a default in the
payment of the principal of, premium, if any, or interest on any Exchange Note,
or in respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Exchange Note
outstanding.
No holder of any of the Exchange Notes has any right to institute any
proceeding with respect to the Indenture or the Exchange Notes or any remedy
thereunder, unless the holders of at least 25% in aggregate principal amount of
the outstanding Exchange Notes have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee under the
Exchange Notes and the Indenture, the Trustee has failed to institute such
proceeding within 30 days after receipt of such notice and the Trustee, within
such 30-day period, has not received directions inconsistent with such written
request by holders of a majority in aggregate principal amount of the
outstanding Exchange Notes. Such limitations do not apply, however, to a suit
instituted by a holder of an Exchange Note for the enforcement of the payment of
the principal of, premium, if any, or interest on such Exchange Note on or after
the respective due dates expressed in such Exchange Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, whether or not an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of not less than a majority in aggregate principal
amount of the outstanding Exchange Notes have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee under the
Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Exchange Notes
notice of the Default or Event of Default within 30 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Exchange Notes, the
Trustee may withhold the notice to the holders of such Exchange Notes if a
committee of its trust officers in good faith determines that withholding the
notice is in the interest of the holders of the Exchange Notes.
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The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within ten days of any event which is, or after
notice or lapse of time or both would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Exchange Notes ('defeasance').
Such defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Exchange
Notes, except for (i) the rights of holders of outstanding Exchange Notes to
receive payment in respect of the principal of, premium if any, and interest on
such Exchange Notes when such payments are due, (ii) the Company's obligations
to issue temporary Exchange Notes, register the transfer or exchange of any
Exchange Notes, replace mutilated, destroyed, lost or stolen Exchange Notes and
maintain an office or agency for payments in respect of the Exchange Notes,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv)
the defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company with
respect to certain covenants that are set forth in the Indenture, some of which
are described under '--Certain Covenants' above (including the covenant
described under '--Certain Covenants--Change of Control' above) and any
subsequent failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes ('covenant
defeasance').
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Exchange Notes, cash in United States dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding Exchange Notes to redemption or maturity
(except lost, stolen or destroyed Exchange Notes which have been replaced or
paid); (ii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that the holders of the outstanding Exchange Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred (in the
case of defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit; (iv) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest with respect to any securities
of the Company; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument to which the Company is a party or by which it is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that (A) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and (B) the trust funds
will not be subject to the rights of holders of Senior Indebtedness, including,
without limitation, those rights arising under the Indenture; and (vii) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the
Indenture to either defeasance or covenant defeasance, as the case may be, have
been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when (i) either (a) all the Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or repaid and Exchange Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all
Exchange Notes not theretofore delivered to the Trustee for cancellation (except
lost, stolen
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or destroyed Exchange Notes which have been replaced or paid) have been called
for redemption pursuant to the terms of the Exchange Notes or have otherwise
become due and payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Exchange Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Exchange Notes to the date of deposit together with irrevocable instructions
from the Company directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; (iii) there exists no
Default or Event of Default under the Indenture; and (iv) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its
Board of Directors and the Trustee may, without the consent of the holders of
any outstanding Exchange Notes, amend, waive or supplement the Indenture or the
Exchange Notes for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act of 1939,
evidencing the acceptance and appointment of a successor trustee, providing for
the guarantee of the Exchange Notes by the Loewen Group Inc. or making any other
change that does not adversely affect the rights of any holder of Exchange
Notes; provided, however, that the Company has delivered to the Trustee an
opinion of counsel stating that such change does not adversely affect the rights
of any holder of Exchange Notes. Other amendments and modifications of the
Indenture or the Exchange Notes may be made by the Company and the Trustee with
the consent of the holders of not less than a majority of the aggregate
principal amount of the outstanding Exchange Notes; provided, however, that no
such modification or amendment may, without the consent of the holder of each
outstanding Exchange Note affected thereby, (i) reduce the principal amount of,
extend the fixed maturity of or alter the redemption provisions of, the Exchange
Notes, (ii) change the currency in which any Exchange Notes or any premium or
the interest thereon is payable or make the principal of, premium, if any, or
interest on any Exchange Note payable in money other than that stated in the
Exchange Note, (iii) reduce the percentage in principal amount of outstanding
Exchange Notes that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Exchange Notes, (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to the Exchange Notes, (v) waive a default in payment with respect to
the Exchange Notes, (vi) amend, change or modify the obligations of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate the offer with respect to any Asset Sale or
modify any of the provisions or definitions with respect thereto, (vii) reduce
or change the rate or time for payment of interest on the Exchange Notes or
(viii) modify or change any provision of the Indenture affecting the
subordination or ranking of the Exchange Notes in a manner adverse to the
holders of the Exchange Notes.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement entered into by the Company and
the Initial Purchaser concurrently with the issuance of the Notes, the Company
agreed to file with the Commission and use its best efforts to cause to become
effective a registration statement (the 'Exchange Offer Registration Statement')
with respect to the Exchange Notes and, upon its becoming effective, to offer
the holders of the Notes the opportunity to exchange their Notes for the
Exchange Notes of the corresponding series (the 'Exchange Offer'). Under
existing Commission interpretations contained in no-action letters to third
parties, the Exchange Notes in general would be freely transferable after the
Exchange Offer by the holders thereof, other than affiliates of the Company,
without further registration under the Securities Act (subject to certain
representations required to be made by each such holder); provided that in the
case of broker-dealers ('Participating Broker-Dealers'), a prospectus meeting
the requirements of the Securities Act is delivered as required. The Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement,
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the Company is required to allow Participating Broker-Dealers and any other
persons, if any, with similar prospectus delivery requirements, to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of the Exchange Notes. A Participating Broker-Dealer or any
other person that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations
thereunder).
The Registration Statement of which this Prospectus is a part constitutes
the Exchange Offer Registration Statement for the Exchange Offer.
In the event that (i) due to a change in current interpretations by the
Commission, the Company is not permitted to effect the Exchange Offer, (ii) the
Exchange Offer is not for any other reason consummated within 150 days after the
Acquisition Closing Date or (iii) under certain circumstances, if the Initial
Purchaser shall so request, it is contemplated that the Company will file a
registration statement (a 'Shelf Registration Statement') covering resales (a)
by the holders of the Notes in the event the Company is not permitted to effect
the Exchange Offer pursuant to the foregoing clause (i) or the Exchange Offer is
not consummated within 150 days after the Acquisition Closing Date pursuant to
the foregoing clause (ii) or (b) by the holders of Notes with respect to which
the Company receives notice pursuant to the foregoing clause (iii), and will use
its best efforts to cause any such Shelf Registration Statement to become
effective and to keep such Shelf Registration Statement effective for 180 days
from the effective date thereof. The Company shall, if it files a Shelf
Registration Statement, provide to each holder of the Notes copies of the
prospectus and notify each such holder when the Shelf Registration Statement has
become effective. A holder that sells Notes pursuant to a Shelf Registration
Statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a current prospectus to purchasers, and
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales.
Under the Registration Rights Agreement, the Company agreed to: (i) file
the Exchange Offer Registration Statement or a Shelf Registration Statement with
the Commission within 60 days after the Acquisition Closing Date, (ii) use its
best efforts to have such Exchange Offer Registration Statement or Shelf
Registration Statement declared effective by the Commission within 120 days
after the Acquisition Closing Date, and (iii) use its best efforts to consummate
the Exchange Offer within 150 days after the Acquisition Closing Date. Each
holder of Notes, by virtue of having become so, is bound by the provisions of
the Registration Rights Agreement that may require the holder to furnish notice
or other information to the Company as a condition to certain obligations of the
Company to file a Shelf Registration Statement by a particular date or to
maintain its effectiveness for the prescribed 180-day period.
If the Company fails to comply with the above provisions, additional
interest (the 'Additional Interest') shall be assessed on the Notes as follows:
(i) (A) if an Exchange Offer Registration Statement or, in the event
that due to a change in current interpretations by the Commission the
Company is not permitted to effect the Exchange Offer, a Shelf Registration
Statement is not filed within 60 days following the Acquisition Closing
Date or (B) in the event that within the prescribed time period, any holder
or holders of Notes shall notify the Company that such holder or holders
(x) have received an opinion of counsel to the effect that such holder or
holders are prohibited by applicable law or Commission policy from
participating in the Exchange Offer, (y) have received an opinion of
counsel to the effect that such holder or holders may not resell Exchange
Notes acquired by it in the Exchange Offer to the public without delivering
a prospectus and that the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by
such holder or (z) are broker-dealers and hold Notes acquired directly from
the Company or an 'affiliate' of the Company, if a Shelf Registration
Statement is not filed within 45 days after expiration of the prescribed
time period, then commencing on the 61st day after the Closing Date or the
46th day after expiration of the prescribed time period, as the case may
be, Additional Interest shall be accrued on the Notes over and above the
accrued interest at a rate of .50% per annum for the first 90 days
immediately following the 61st day after the Acquisition Closing Date or
the 46th day after expiration of the prescribed
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time period, as the case may be, such Additional Interest rate increasing
by an additional .25% per annum at the beginning of each subsequent 90-day
period;
(ii) if an Exchange Offer Registration Statement or a Shelf
Registration Statement is filed pursuant to clause (i) of the preceding
full paragraph and is not declared effective within 120 days following
either the Acquisition Closing Date or the expiration of the prescribed
time period, as the case may be, then commencing on the 121st day after
either the Acquisition Closing Date or the expiration of the prescribed
time period, as the case may be, Additional Interest shall be accrued on
the Notes over and above the accrued interest at a rate of .50% per annum
for the first 90 days immediately following the 121st day after either the
Acquisition Closing Date or the expiration of the prescribed time period,
as the case may be, such Additional Interest rate increasing by an
additional .25% per annum at the beginning of each subsequent 90-day
period; and
(iii) if either (A) the Company has not exchanged Exchange Notes for
all Notes validly tendered and not withdrawn in accordance with the terms
of the Exchange Offer on or prior to 30 days after the date on which the
Exchange Offer Registration Statement was declared effective, or (B) if
applicable, a Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective prior to 180 days
from its original effective date, then, subject to certain exceptions,
Additional Interest shall be accrued on the Notes over and above the
accrued interest at a rate of .50% per annum for the first 60 days
immediately following the (x) 31st day after such effective date, in the
case of (A) above, or (y) the day such Shelf Registration Statement ceases
to be effective in the case of (B) above, such Additional Interest rate
increasing by an additional .25% per annum at the beginning of each
subsequent 60-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
1.5% per annum; and provided further that (1) upon the filing of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
(i) above), (2) upon the effectiveness of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of (ii) above), or (3)
upon the exchange of Exchange Notes for all Notes validly tendered in the
Exchange Offer or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective prior to 180 days from its original
effective date (in the case of (iii) above), Additional Interest on the Notes as
a result of such clause (i), (ii) or (iii) shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on the interest payment dates of the Notes.
The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Notes,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period, and the denominator
of which is 360.
If the Company effects the Exchange Offer, the Company will be entitled to
close the Exchange Offer provided that it has accepted all Notes theretofore
validly tendered in accordance with the terms of the Exchange Offer. Notes not
tendered in the Exchange Offer shall bear interest at the same rate as in effect
at the time of issuance of the Notes.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Rights
Agreement which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Notes pursuant to the terms of, the Exchange Offer, the Company
will have fulfilled certain of its obligations under the Registration Rights
Agreement and, accordingly, there will be no increase in the interest rate on
the Notes and the holders of the Notes will have no further registration or
other rights under such agreement.
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined in such Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture and the Exchange Notes will be governed by the laws of the
State of New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
'Acquisition' means the acquisition of Existing Prime by Blackstone Capital
Partners II Merchant Banking Fund L.P. and its affiliates and Loewen Group
International, Inc.
'Acquired Indebtedness' means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a Subsidiary of any other Person.
'Administrative Services Agreement' means the Administrative Services
Agreement, dated as of August 26, 1996, between the Company and Loewen Group
International, Inc., as the same may be amended, supplemented or otherwise
modified from time to time.
'Affiliate' means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person.
'Asset Acquisition' means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any Subsidiary of the Company, or
shall be merged with or into the Company or any Subsidiary of the Company, (b)
the acquisition by the Company or any Subsidiary of the Company of the assets of
any Person (other than a Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or (c) the acquisition by the
Company or any Subsidiary of the Company of any division or line of business of
any Person (other than a Subsidiary of the Company).
'Asset Sale' means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any Person other than the Company or a
Subsidiary of the Company, in one or a series of related transactions, of (a)
any Capital Stock of any Subsidiary of the Company (other than in respect of
director's qualifying shares or investments by foreign nationals mandated by
applicable law); (b) all or substantially all of the properties and assets of
any division or line of business of the Company or any Subsidiary of the
Company; or (c) any other properties or assets of the Company or any Subsidiary
of the Company other than in the ordinary course of business. For the purposes
of this definition, the term 'Asset Sale' shall not include (i) any sale,
transfer or other disposition of equipment, tools or other assets (including
Capital Stock of any Subsidiary of the Company) by the Company or any of its
Subsidiaries in one or a series of related transactions in respect of which the
Company or such Subsidiary receives cash or property with an aggregate Fair
Market Value of $1,000,000 or less; (ii) a disposition by a Subsidiary to the
Company or a Wholly-Owned Subsidiary of the Company and (iii) any sale,
issuance, conveyance, transfer, lease or other disposition of properties or
assets that is governed by the provisions described under '--Merger, Sale of
Assets, Etc.' above.
'Attributable Value' means, as to any particular lease under which any
Person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as
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determined in accordance with GAAP, discounted from the last date of such
initial term to the date of determination at a rate per annum equal to the
discount rate which would be applicable to a Capitalized Lease Obligation with a
like term in accordance with GAAP. The net amount of rent required to be paid
under any such lease for any such period shall be the aggregate amount of rent
payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the amount of such penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated. 'Attributable Value' means, as to a Capitalized Lease
Obligation under which any Person is at the time liable and at any date as of
which the amount thereof is to be determined, the capitalized amount thereof
that would appear on the face of a balance sheet of such Person in accordance
with GAAP.
'Average Life to Stated Maturity' means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
'Bank Agent' means The Bank of Nova Scotia, as administrative agent under
the Bank Credit Agreement.
'Bank Credit Agreement' means the Credit Agreement, dated as of August 26,
1996, among the Company, as borrower, Existing Prime, the Lenders referred to
therein, The Bank of Nova Scotia, as administrative agent, and Pearl Street
L.P., as arranging agent, and Goldman, Sachs & Co., as syndication agent, and
all promissory notes, guarantees, security agreements, pledge agreements, deeds
of trust, mortgages, letters of credit and other instruments, agreements and
documents executed pursuant thereto or in connection therewith, in each case as
the same may be amended, supplemented, restated, renewed, refinanced, replaced
or otherwise modified (in whole or in part and without limitation as to amount,
terms, conditions, covenants or other provisions) from time to time.
'Bank Credit Facilities' means collectively, the Bank Term Facility and the
Revolving Credit Facility under the Bank Credit Agreement.
'Bank Term Facility' means the $90 million senior secured term loan
facility under the Bank Credit Agreement.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
'Capitalized Lease Obligation' means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
'Cash Equivalents' means, at any time, (i) any evidence of Indebtedness
with a maturity of 365 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 365 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) certificates of deposit with a
maturity of 365 days or less of any financial institution that is not organized
under the laws of the United States, any state thereof or the District of
Columbia that are rated at least A-2 by S&P or at least P-2 by Moody's or at
least an equivalent rating category of another nationally recognized securities
rating agency; (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
in each case maturing within 365 days from the date of acquisition; provided
that the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985;
(v) notes held by the Company or any Subsidiary which were obtained by the
Company or such Subsidiary
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in connection with Asset Sales (x) in the ordinary course of its funeral home,
cemetery or cremation businesses or (y) which were required to be made pursuant
to applicable federal or state law; and (vi) with respect to moneys held in the
escrow account pursuant to the Escrow Agreement, Eligible Investments (as
defined in the Escrow Agreement).
'Change of Control' means the occurrence of any of the following events:
(a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), excluding Permitted Holders, is or becomes the 'beneficial
owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have 'beneficial ownership' of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of more than 35% of the total Voting Stock
of Existing Prime, under circumstances where the Permitted Holders (i)
'beneficially own' (as so defined) in the aggregate a lower percentage of the
Voting Stock than such other Person or 'group' and (ii) do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of Existing Prime; (b) Existing
Prime consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to another Person, or another Person
consolidates with, or merges with or into, Existing Prime, in any such event
pursuant to a transaction in which the outstanding Voting Stock of Existing
Prime is converted into or exchanged for cash, securities or other such
transaction where (i) the outstanding Voting Stock of Existing Prime is
converted into or exchanged for (1) Voting Stock (other than Redeemable Capital
Stock) of the surviving or transferee corporation or (2) cash, securities and
other property in an amount which could then be paid by the Company as a
Restricted Payment under the Indenture, or a combination thereof, and (ii)
immediately after such transaction no 'person' or 'group' (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have 'beneficial
ownership' of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise), directly or indirectly, of more than
50% of the total Voting Stock of the surviving or transferee corporation; (c) at
any time during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Existing Prime
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of Existing Prime was approved
by a vote of 66-2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of Existing Prime then in office; or (d)
Existing Prime is liquidated or dissolved or adopts a plan of liquidation.
The determination of whether a particular sale of less than all of Existing
Prime's assets would constitute a sale of 'substantially all' of Existing
Prime's assets in accordance with clause (b) above would be a factual matter
subject to interpretation by a trier of fact and, as such, would be a matter
subject to some uncertainty.
'Common Stock' means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
'Consolidated Cash Flow' means, with respect to any Person for any period,
the sum of, without duplication, the amounts for such period, taken as a single
accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash
Charges, (c) Consolidated Interest Expense and (d) Consolidated Income Tax
Expense.
'Consolidated Fixed Charge Coverage Ratio' means, with respect to any
Person, the ratio of the aggregate amount of Consolidated Cash Flow of such
Person for the four full fiscal quarters immediately preceding the date of the
transaction (the 'Transaction Date') giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the 'Four Quarter Period') to the aggregate amount
of Consolidated Fixed Charges of such Person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, 'Consolidated Cash Flow' and 'Consolidated Fixed Charges' shall be
calculated after giving effect on a pro forma basis for the period of such
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calculation to, without duplication, (a) the incurrence of any Indebtedness of
such Person or any of its Subsidiaries (and the application of the net proceeds
thereof) during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the 'Reference Period'),
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation (and the application of the net proceeds
thereof), as if such incurrence (and application) occurred on the first day of
the Reference Period, and (b) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period. Furthermore, in calculating 'Consolidated
Fixed Charges' for purposes of determining the denominator (but not the
numerator) of this 'Consolidated Fixed Charge Coverage Ratio,' (i) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date (taking into account any Interest
Rate Protection Agreement applicable to such Indebtedness if such Interest Rate
Protection Agreement has a remaining term in excess of 12 months); and (ii) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Reference Period. If such Person or any of its Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the above
clause shall give effect to the incurrence of such guaranteed Indebtedness as if
such Person or such Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
'Consolidated Fixed Charges' means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the product of (a) the aggregate amount
of dividends and other distributions paid or accrued during such period in
respect of Preferred Stock and Redeemable Capital Stock (other than dividends
and distributions on Preferred Stock and Redeemable Capital Stock that are
non-cash through the Final Maturity Date) of such Person and its Subsidiaries on
a consolidated basis times (b) a fraction, the numerator which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal; provided,
however, that the denominator in clause (b) shall be one if such dividend or
other distribution is fully tax deductible.
'Consolidated Income Tax Expense' means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
'Consolidated Interest Expense' means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations, (c)
the interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and (e) all accrued interest and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such Person and its Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
'Consolidated Net Income' means, with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of such Person and its Subsidiaries allocable to
minority interests in unconsolidated Persons to the extent that cash dividends
or distributions have not actually been received by such Person or one of its
Subsidiaries, (iii) net income (or loss) of any Person combined with such Person
or one of its Subsidiaries on a 'pooling of interests' basis attributable to any
period prior to the date of combination, (iv) any gain or loss realized upon the
termination of any employee pension benefit plan, on an after-tax basis, (v)
gains or losses in respect of any Asset Sales by such Person or one of its
Subsidiaries, (vi) the net income of any Subsidiary of such Person to the extent
that the declaration of dividends or similar distributions
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by that Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders and (vii) any closing costs
associated with the Acquisition and the financing thereof, severance costs,
restructuring costs and costs related to the closing of facilities.
'Consolidated Net Worth' means, with respect to any Person at any date, the
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such Person and
its Subsidiaries, as determined in accordance with GAAP.
'Consolidated Non-cash Charges' means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Subsidiaries reducing Consolidated Net Income of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which required an accrual of or a reserve for
cash charges for any future period).
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
'Designated Senior Indebtedness' means (i) all Senior Indebtedness under
the Bank Credit Agreement and (ii) any other Senior Indebtedness which (a) at
the time of the determination exceeds $5,000,000 in aggregate principal amount
and (b) is specifically designated in the instrument evidencing such Senior
Indebtedness as 'Designated Senior Indebtedness' by the Company.
'Escrow Agreement' means the Escrow Agreement, dated as of August 15, 1996
between the Company and United States Trust Company of New York, as escrow
agent.
'Event of Default' has the meaning set forth under 'Events of Default'
herein.
'Existing Prime' means Prime Succession, Inc., a Delaware corporation and
the parent of the Company, which will be renamed Prime Succession Holdings, Inc.
upon consummation of the Acquisition.
'Fair Market Value' means, with respect to any assets, the price, as
determined by the Company, acting in good faith which could be negotiated in an
arm's-length free market transaction, for cash, between a willing seller and a
willing buyer, neither of which is under pressure or compulsion to complete the
transaction; provided, however, that, with respect to any transaction which
involves an asset or assets in excess of $250,000, such determination shall be
evidenced by resolutions of the Board of Directors of the Company delivered to
the Trustee.
'Final Maturity Date' means August 15, 2004.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable on the date of
the Indenture and are consistently applied.
'guarantee' means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
'Indebtedness' means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 90 days, and excluding all obligations, contingent or
otherwise, of such Person in connection with any
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undrawn letters of credit, banker's acceptance or other similar credit
transaction, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (c) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all Indebtedness referred to in the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the Fair Market Value of such property or asset or the amount of
the obligation so secured), (f) all guarantees of Indebtedness referred to in
this definition by such Person, (g) all Redeemable Capital Stock of such Person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends, (h) all obligations under or in respect of
Currency Agreements and Interest Rate Protection Obligations of such Person, (i)
any Preferred Stock of any Subsidiary of such Person valued at the sum of
(without duplication) (A) the liquidation preference thereof, (B) any mandatory
redemption payment obligations in respect thereof and (C) accrued cash dividends
thereon, and (j) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (a)
through (i) above. For purposes hereof, the 'maximum fixed repurchase price' of
any Redeemable Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Capital Stock as
if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Indenture, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital Stock.
'Independent Financial Advisor' means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
'Interest Rate Protection Agreement' means, with respect to any Person, any
arrangement with any other Person whereby, directly or indirectly, such Person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
'Interest Rate Protection Obligations' means the obligations of any Person
pursuant to an Interest Rate Protection Agreement.
'Investment' means, with respect to any Person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person. In addition, the Fair
Market Value of the assets of any Subsidiary of the Company at the time that
such Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to
be an Investment made by the Company in such Unrestricted Subsidiary at such
time. 'Investments' shall exclude extensions of trade credit by the Company and
its Subsidiaries in the ordinary course of business in accordance with normal
trade practices of the Company or such Subsidiary, as the case may be.
'Issue Date' means the date on which the Notes are originally issued.
'Lien' means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
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'Maturity Date' means, with respect to any security, the date on which any
principal of such security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed by or sold
with recourse to the Company or any Subsidiary of the Company) net of (i)
brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any Person (other than the
Company or any Subsidiary of the Company) owning a beneficial interest in the
assets subject to such Asset Sale, (iv) all payments made on any Indebtedness
which is secured by any assets subject to such Asset Sale, in accordance with
the terms of any Lien upon such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Sale, or by applicable law, be
repaid out of the proceeds from such Asset Sale and (v) appropriate amounts to
be provided by the Company or any Subsidiary of the Company, as the case may be,
as a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Subsidiary of the
Company, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee.
'Pari Passu Indebtedness' means Indebtedness of the Company which ranks
pari passu in right of payment with the Exchange Notes.
'Permitted Holder' means Blackstone Capital Partners II Merchant Banking
Fund L.P. or Loewen Group International, Inc., or any Affiliate of either.
'Permitted Investments' means any of the following:
(i) Investments in any Wholly-Owned Subsidiary of the Company
(including any Person that pursuant to such Investment becomes a
Wholly-Owned Subsidiary of the Company) and any Person that is merged or
consolidated with or into, or transfers or conveys all or substantially all
of its assets to, the Company or any Wholly-Owned Subsidiary of the Company
at the time such Investment is made;
(ii) Investments in Cash Equivalents;
(iii) loans or advances to officers, employees or consultants of the
Company and its Subsidiaries in the ordinary course of business for bona
fide business purposes of the Company and its Subsidiaries (including
travel and moving expenses) not in excess of $1,000,000 in the aggregate at
any one time outstanding;
(iv) Investments in evidences of Indebtedness, securities or other
property received from another Person by the Company or any of its
Subsidiaries in connection with any bankruptcy proceeding or by reason of a
composition or readjustment of debt or a reorganization of such Person or
as a result of foreclosure, perfection or enforcement of any Lien in
exchange for evidences of Indebtedness, securities or other property of
such Person held by the Company or any of its Subsidiaries, or for other
liabilities or obligations of such other Person to the Company or any of
its Subsidiaries that were created, in accordance with the terms of the
Indenture;
(v) Investments of funds received by the Company or its Subsidiaries
in the ordinary course of business, which funds are required to be held in
trust for the benefit of others by the Company or such Subsidiary, as the
case may be, and which funds do not constitute assets or liabilities of the
Company or such Subsidiary;
(vi) Investments in acquired Subsidiaries; provided that the sum of
(i) the aggregate Fair Market Value of all such Investments and (ii) the
aggregate Fair Market Value of all Preferred Stock permitted to be issued
pursuant to clause (z) of the covenant described under '--Certain
Covenants--Limitation on Issuances and Sale of Preferred Stock by
Subsidiaries' shall not exceed $5,000,000 at any time outstanding;
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(vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Subsidiary or in satisfaction of judgments;
(viii) Investments in Persons to the extent such Investment represents
the non-cash consideration otherwise permitted to be received by the
Company or its Subsidiaries in connection with an Asset Sale; and
(ix) Investments existing on the Issue Date.
'Permitted Liens' means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, governmental
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(g) purchase money Liens to finance the acquisition of property or
assets of the Company or any Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any property or assets
of the Company or any Subsidiary of the Company other than the property and
assets so acquired and (ii) the Lien securing such Indebtedness either (x)
exists at the time of such acquisition or (y) shall be created within 90
days of such acquisition;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(i) Liens with respect to Acquired Indebtedness incurred in accordance
with the covenant described under '--Certain Covenants--Limitation on
Indebtedness.'
'Person' means any individual, corporation, limited liability company
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
'Preferred Stock' means, with respect to any Person, any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
'Redeemable Capital Stock' means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any
Exchange Note or is redeemable at the option of the holder
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thereof at any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity.
'Revolving Credit Facility' means the $25 million senior secured revolving
credit facility under the Bank Credit Agreement.
'Sale-Leaseback Transaction' of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset.
The stated maturity of such arrangement shall be the date of the last payment of
rent or any other amount due under such arrangement prior to the first date on
which such arrangement may be terminated by the lessee without payment of a
penalty.
'S&P' means Standard & Poor's Ratings Group and its successors.
'Senior Indebtedness' means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Exchange Notes. Without limiting the
generality of the foregoing, 'Senior Indebtedness' shall include all obligations
of the Company now or hereafter existing under the Bank Credit Agreement,
including without limitation principal of, premium, and interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not such post-petition
interest is allowed as a claim in such proceeding) on Indebtedness outstanding
under the Bank Credit Agreement, reimbursement obligations of the Company with
respect to any letters of credit outstanding under the Bank Credit Agreement and
any obligation for fees, expenses and indemnities. Notwithstanding the
foregoing, 'Senior Indebtedness' shall not include (a) Indebtedness evidenced by
the Notes and the Exchange Notes, (b) Indebtedness that is expressly subordinate
or junior in right of payment to any Indebtedness of the Company, (c)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company, (d) Indebtedness which is represented by Redeemable Capital Stock, (e)
Indebtedness for goods, materials or services purchased in the ordinary course
of business or Indebtedness consisting of trade payables or other current
liabilities (other than any current liabilities owing under the Bank Credit
Facilities or the current portion of any long-term Indebtedness which would
constitute Senior Indebtedness but for the operation of this clause (e)), (f)
Indebtedness of or amounts owed by the Company for compensation to employees or
for services rendered to the Company, (g) any liability for federal, state,
local or other taxes owed or owing by the Company, (h) Indebtedness of the
Company to a Subsidiary of the Company or any other Affiliate of the Company or
any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which
is incurred by the Company in violation of the Indenture and (j) amounts owing
under leases (other than Capitalized Lease Obligations).
'Significant Subsidiary' shall mean a Subsidiary which is a 'Significant
Subsidiary' as defined in Rule 1.02(v) of Regulation S-X under the Securities
Act.
'Stated Maturity' means, when used with respect to any Exchange Note or any
installment of interest thereon, the date specified in such Exchange Note as the
fixed date on which the principal of such Exchange Note or such installment of
interest is due and payable, and when used with respect to any other
Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
'Subordinated Indebtedness' means Indebtedness of the Company or a
Subsidiary which is expressly subordinated in right of payment to the Exchange
Notes.
'Subsidiary' means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof and (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority
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ownership interest entitled to vote in the election of directors, managers or
trustees thereof (or other Person performing similar functions). For purposes of
this definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be deemed a Subsidiary of the Company under the Indenture,
other than for purposes of the definition of an Unrestricted Subsidiary, unless
the Company shall have designated an Unrestricted Subsidiary as a 'Subsidiary'
by written notice to the Trustee under the Indenture, accompanied by an
Officers' Certificate as to compliance with the Indenture; provided, however,
that the Company shall not be permitted to designate any Unrestricted Subsidiary
as a Subsidiary unless, after giving pro forma effect to such designation, (i)
the Company would be permitted to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the first paragraph of the covenant described
under'--Certain Covenants--Limitation on Indebtedness' above (assuming a market
rate of interest with respect to such Indebtedness) and (ii) all Indebtedness
and Liens of such Unrestricted Subsidiary would be permitted to be incurred by a
Subsidiary of the Company under the Indenture. A designation of an Unrestricted
Subsidiary as a Subsidiary may not thereafter be rescinded.
'Unrestricted Subsidiary' means a Subsidiary of the Company (i) none of
whose properties or assets were owned by the Company or any of its Subsidiaries
prior to the Issue Date, other than any such assets as are transferred to such
Unrestricted Subsidiary in accordance with the covenant described under
'--Certain Covenants--Limitation on Restricted Payments' above, (ii) whose
properties and assets, to the extent that they secure Indebtedness, secure only
Non-Recourse Indebtedness and (iii) which has no Indebtedness other than
Non-Recourse Indebtedness. As used above, 'Non-Recourse Indebtedness' means
Indebtedness as to which (i) neither the Company nor any of its Subsidiaries
(other than the relevant Unrestricted Subsidiary or another Unrestricted
Subsidiary) (1) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness), (2) guarantees or is otherwise
directly or indirectly liable or (3) constitutes the lender (in each case, other
than pursuant to and in compliance with the covenant described under '--Certain
Covenants--Limitation on Restricted Payments') and (ii) no default with respect
to such Indebtedness (including any rights which the holders thereof may have to
take enforcement action against the relevant Unrestricted Subsidiary or its
assets) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or its Subsidiaries (other than Unrestricted
Subsidiaries) to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
'Voting Stock' means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, Capital
Stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
'Wholly-Owned Subsidiary' means any Subsidiary of the Company of which 100%
of the outstanding Capital Stock is owned by one or more Wholly-Owned
Subsidiaries of the Company or by the Company and one or more Wholly-Owned
Subsidiaries of the Company. For purposes of this definition, any directors'
qualifying shares or investments by foreign nationals mandated by applicable law
shall be disregarded in determining the ownership of a Subsidiary.
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BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by one or more permanent global certificates in definitive,
fully registered form (each a 'Global Exchange Note'). Each Global Exchange Note
will be deposited on the Exchange Date with, or on behalf of, The Depository
Trust Company, New York, New York ('DTC') and registered in the name of a
nominee of DTC.
Exchange Notes held by persons who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(and which are thus ineligible to trade through DTC) (collectively referred to
herein as the 'Non-Global Purchasers') will be issued in registered certificated
form ('Certificated Exchange Notes'). Upon the transfer of any Certificated
Exchange Note initially issued to a Non-Global Purchaser, such Certificated
Exchange Note will, unless the transferee requests otherwise or the Global
Exchange Note has previously been exchanged in whole for Certificated Exchange
Notes, be exchanged for an interest in the Global Exchange Note.
The Exchange Notes issued to Non-Global Purchasers will be issued only in
registered form without coupons, in denominations of $1,000 and integral
multiples thereof. Principal of and premium, if any, and interest on such
Exchange Notes will be payable, and such Exchange Notes will be transferable, at
the office of the Company's agent in the City of New York located at the
corporate trust office of the Trustee. In addition, interest may be paid, at the
option of the Company, by check mailed to the person entitled thereto as shown
on the security register. No service charge will be made for any transfer or
exchange of such Exchange Notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection therewith.
THE GLOBAL EXCHANGE NOTE
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Exchange Note, DTC or its custodian will credit, on
its internal system, the principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Exchange Note to the respective
accounts for persons who have accounts with DTC and (ii) ownership of beneficial
interest in the Global Exchange Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of persons who have accounts with DTC
('participants') and the records of participants (with respect to interests of
persons other than participants). Ownership of beneficial interests in the
Global Exchange Note will be limited to persons who have accounts with DTC
participants or persons who hold interests through participants.
So long as DTC or its nominee is the registered owner or holder of Exchange
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Exchange Notes represented by such Global Exchange Note
for all purposes under the Indenture. No beneficial owner of an interest in the
Global Exchange Note will be able to transfer that interest except in accordance
with DTC's procedures, in addition to those provided for under the Indenture
with respect to the Exchange Notes.
Payments of the principal of, premium, if any, and interest on, the Global
Exchange Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
of the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note or for maintaining, supervising, or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Exchange Note,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Exchange Note as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Exchange Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Exchange Note
75
<PAGE>
for any reason, including to sell Exchange Notes to persons in states that
require physical delivery of the Certificated Exchange Notes, or to pledge such
securities, such holder must transfer its interest in the Global Exchange Note
in accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants, to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Exchange Notes,
which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a 'clearing corporation' within the meaning of the
Uniform Commercial Code and a 'clearing agency' registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants through electronic book entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ('indirect
participants'). QIBs may elect to hold Exchange Notes through DTC. QIBs who are
not participants may beneficially own securities held by or on behalf of DTC
only through participants or indirect participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Exchange Note among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED EXCHANGE NOTES
If (i) the Company notifies the Trustee in writing that DTC is at any time
unwilling or unable to continue as a depository for the Global Exchange Note and
a successor depository is not appointed by the Company within 90 days, or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Exchange Notes in definitive form under the Indenture,
then, upon surrender by DTC of the Global Exchange Note, Certificated Exchange
Notes will be issued to each person that DTC identifies as the beneficial owner
of the Exchange Notes represented by the Global Exchange Note.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is the opinion of Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York, relating to
certain United States federal income tax consequences of the exchange of Notes
for Exchange Notes as of the date hereof. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed below.
The exchange of Exchange Notes for Notes in the Exchange Offer will not
constitute a taxable event to holders for United States federal income tax
purposes. Consequently, no gain or loss will be recognized by a holder upon
receipt of an Exchange Note, the holding period of the Exchange Note will
include the holding period of the Note and the basis of the Exchange Note will
be the same as the basis of the Note immediately before the exchange.
76
<PAGE>
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF NOTES FOR EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTIONS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. New Prime has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 1997, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
New Prime will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an 'underwriter' within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Exchange Date New Prime will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. New Prime has agreed to pay all expenses incident to the
Exchange Offer other than commssions or concessions of any brokers or dealers
and will indemnify the holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
will be passed upon for the Company by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of December 31,
1995, and for each of the two years in the period ended December 31, 1995,
included in this Prospectus have been audited by Ernst & Young LLP, independent
auditors, as stated in their report (which contains an explanatory paragraph
with respect to the Company's ability to continue as a going concern) appearing
herein.
The consolidated balance sheet of Prime Succession, Inc. and subsidiaries
(Successor Company) as of September 30, 1996 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the period
from August 26, 1996 through September 30, 1996 (Successor Company period) and
the consolidated statements of operations, shareholders' equity, and cash flows
of Prime Succession, Inc. and subsidiaries (Predecessor Company) for the period
from January 1, 1996 through August 25, 1996 (Predecessor
77
<PAGE>
Company period) included in this Prospectus have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their report appearing herein.
CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective August 26, 1996, in connection with the engagement by the
Company's new Management of KPMG Peat Marwick LLP ('KPMG') as its auditor
following the Acquisition, Ernst & Young LLP ('E&Y'), Existing Prime's auditor
prior to the Acquisition, was dismissed. The decision to appoint KPMG in
replacement of E&Y as the Company's auditor was approved by the Board of
Directors of the Company.
E&Y's opinion was qualified as of and for the year ended December 31, 1995,
in that the financial statements were prepared assuming the Company and its
subsidiaries would continue as a going concern. The Company had not complied
with certain of its covenants in loan agreements with two of its lenders. These
violations constituted events of default which provided the lenders with the
right to demand immediate repayment of the debt and related accrued interest.
The demand for repayment would raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements did not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may have resulted from the outcome of this uncertainty.
There were no disagreements between the Company and its auditors during
E&Y's appointment as auditor for the Company.
In planning and performing the audit of the consolidated financial
statements of the Company and its subsidiaries for the year ended December 31,
1995, and again during their review of the March 31, 1996 consolidated financial
statements, the auditors noted certain matters involving the internal control
structure and its operation at the Alabama subsidiary that they considered to be
reportable conditions under standards established by the American Institute of
Certified Public Accountants.
Specifically, the auditors found that a number of key reconciliations were
not performed during the year at the Alabama subsidiary. Differences between a
subsidiary system and the general ledger which affected accounts receivable,
deferred revenue, commission payable and accounts payable were not quantified
and corrected during the course of the year. In addition, bank reconciliations
were not prepared which enabled significant errors to remain undetected for the
entire year.
During the latter half of 1995 and in 1996, management of the Company took
steps designed to address the concerns raised by E&Y, including the dedication
of corporate personnel to work on site in Alabama to assist in the processing
and summarizing of financial data, the replacement of an outside service bureau
that had previously been responsible for funeral service accounting at most of
the Company's locations and the institution of new and automated accounting
systems and procedures overall. Management has undertaken an extensive review of
the Company's accounting controls and procedures and believes that appropriate
accounting controls and procedures are now being utilized. However, Management
will continue to monitor the functioning of its accounting controls and
procedures and intends to implement any additional steps necessary.
78
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Prime Succession, Inc. and Subsidiaries as of December 31, 1995 and
for the two years in the period ended December 31, 1995:
Report of Independent Auditors...................................... F-2
Consolidated Balance Sheet.......................................... F-3
Consolidated Statements of Operations............................... F-4
Consolidated Statements of Shareholders' Equity..................... F-5
Consolidated Statements of Cash Flows............................... F-6
Notes to Consolidated Financial Statements.......................... F-7
Prime Succession, Inc. and Subsidiaries as of September 30, 1996 and
for the nine months ended September 30, 1995 (unaudited) and for the
periods from January 1, 1996 through August 25, 1996 and from August
26, 1996 through September 30, 1996:
Independent Auditors' Report........................................ F-17
Consolidated Balance Sheet.......................................... F-18
Consolidated Statements of Operations............................... F-19
Consolidated Statements of Shareholders' Equity..................... F-20
Consolidated Statements of Cash Flows............................... F-21
Notes to Consolidated Financial Statements.......................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Prime Succession, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Prime
Succession, Inc. (Existing Prime) and subsidiaries as of December 31, 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1995. 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 Prime
Succession, Inc. and subsidiaries at December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Prime Succession, Inc. and subsidiaries will continue as a going concern. As
discussed in Note 1, the Company has not complied with certain covenants of loan
agreements with two of its lenders. These violations constitute events of
default which provide the lenders with the right to demand immediate repayment
of the debt and related accrued interest. This condition raises substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
ERNST & YOUNG LLP
Indianapolis, Indiana,
May 9, 1996, except for Note 15, as to
which the date is June 14, 1996
F-2
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................................. $ 766,349
Receivables, less allowance of $2,926,331............................................................. 9,409,130
Accounts receivable from shareholder.................................................................. 3,000,000
Inventories:
Merchandise........................................................................................... 3,068,037
Cemetery lots and mausoleum spaces.................................................................... 496,389
-----------------
3,564,426
Prepaids and other currents assets.................................................................... 1,298,372
-----------------
Total current assets.................................................................................... 18,038,277
Property and equipment:
Land and land improvements............................................................................ 13,335,855
Buildings and improvements............................................................................ 39,988,607
Equipment, furniture and fixtures..................................................................... 10,910,479
Accumulated depreciation.............................................................................. (6,160,304)
-----------------
58,074,637
Developed cemetery properties, at cost.................................................................. 5,322,650
Undeveloped cemetery properties, at cost................................................................ 7,634,747
Names and reputations, less accumulated amortization of $7,944,175...................................... 22,591,211
Goodwill, less accumulated amortization of $4,416,174................................................... 75,216,667
Other intangible assets, less accumulated amortization of $1,405,258.................................... 2,407,425
Long-term receivables, less allowance of $240,704....................................................... 6,048,023
Other assets............................................................................................ 784,017
-----------------
$ 196,117,654
-----------------
-----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................................... $ 2,230,200
Accrued salaries, commissions and withholdings........................................................ 2,249,557
Other accrued expenses................................................................................ 3,883,806
Current maturities of obligations under agreements with former owners................................. 2,280,929
Current maturities of long-term debt and long-term debt in default.................................... 113,813,885
-----------------
Total current liabilities............................................................................... 124,458,377
Deferred merchandise liabilities, less trust fund deposits.............................................. 8,318,054
Deferred revenues, less trust fund deposits............................................................. 6,480,194
Obligations under agreements with former owners, less current maturities................................ 18,718,176
Long-term debt, less current maturities................................................................. 8,449,738
Deferred income taxes................................................................................... 866,146
Other long-term liabilities............................................................................. 3,826,494
Contingencies (Notes 1 and 13)
Redeemable Preferred Stock, par value $1,000 per share, 18% cumulative, at liquidation value; 1,957
shares authorized, issued and outstanding, including accrued and unpaid dividends of $352,260 at
December 31, 1995................................................................................... 2,309,260
Shareholders' equity:
Common Stock, Class A, par value $.01 per share authorized 142 shares; 129.04 issued and outstanding
shares.............................................................................................. 1
Common Stock, Class B, par value $.01 per share; 900 shares authorized, issued and outstanding........ 9
Additional paid-in capital.............................................................................. 31,902,729
Retained earnings deficit............................................................................... (9,211,524)
-----------------
22,691,215
-----------------
$ 196,117,654
-----------------
-----------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Revenues:
Funeral services................................................................. $60,857,509 $68,623,948
Cemetery sales................................................................... 11,317,321 12,890,745
----------- -----------
72,174,830 81,514,693
Cost of sales:
Funeral homes.................................................................... 10,910,596 11,312,913
Cemetery......................................................................... 2,678,796 2,479,450
Cumulative effect of change in accounting estimate (Note 5)...................... -- (3,552,000)
----------- -----------
13,589,392 10,240,363
Operating expenses:
Funeral homes.................................................................... 35,230,611 38,119,312
Cemetery......................................................................... 6,659,942 7,510,047
----------- -----------
41,890,553 45,629,359
Corporate and regional general and administrative expenses......................... 4,632,993 6,108,842
Amortization of goodwill........................................................... 1,790,705 1,890,862
Covenants not to compete........................................................... 2,578,342 2,770,817
----------- -----------
Operating income................................................................... 7,692,845 14,874,450
Other income and expense:
Interest expense................................................................. 12,421,811 15,401,048
Other income, net................................................................ (72,611) (172,082)
----------- -----------
12,349,200 15,228,966
----------- -----------
Loss before income taxes........................................................... (4,656,355) (354,516)
Income tax benefit (expense)....................................................... 309,870 (308,624)
----------- -----------
Net loss........................................................................... (4,346,485) (663,140)
Redeemable Preferred Stock dividend requirements................................... -- (352,260)
----------- -----------
Net loss attributable to common shareholders....................................... $(4,346,485) $(1,015,400)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------
CLASS CLASS
A B ADDITIONAL RETAINED
------ ------ PAID-IN EARNINGS
AMOUNT AMOUNT CAPITAL (DEFICIT)
------ ------ ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.................................. $ 1 $ 9 $ 24,899,990 $(4,201,899)
Common stock issued......................................... -- -- 4,354,999 --
Net loss.................................................... -- -- -- (4,346,485)
------ ------ ------------ -----------
Balance at December 31, 1994................................ 1 9 29,254,989 (8,548,384)
Common stock issued......................................... -- -- 3,000,000 --
Net loss.................................................... -- -- -- (663,140)
Accrued dividends on Redeemable Preferred Stock............. -- -- (352,260) --
------ ------ ------------ -----------
Balance at December 31, 1995................................ $ 1 $ 9 $ 31,902,729 $(9,211,524)
------ ------ ------------ -----------
------ ------ ------------ -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................................... $ (4,346,485) $ (663,140)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation..................................................................... 2,180,318 2,549,399
Amortization..................................................................... 5,059,588 5,456,104
Provision for doubtful accounts.................................................. 1,281,140 973,561
Provision for deferred income taxes.............................................. (560,598) 81,578
Gain on disposition of business.................................................. -- (207,092)
Cumulative effect of change in estimate of deferred merchandise liability........ -- (3,552,000)
Changes in operating assets and liabilities net of effects of acquisitions of
subsidiaries:
Receivables................................................................... (3,918,418) (2,103,297)
Inventories................................................................... (63,160) 548,877
Accounts payable and accrued expenses......................................... 3,162,251 (1,052,504)
Deferred merchandise and revenue (net)........................................ 1,002,110 2,518,817
Other......................................................................... (1,085,545) 1,409,655
------------ -----------
Net cash provided by operating activities.......................................... 2,711,201 5,959,958
INVESTING ACTIVITIES
Proceeds from the disposal of assets............................................... 304,034 1,436,849
Purchases of property and equipment................................................ (2,578,259) (1,561,564)
Net cash paid for purchases of businesses.......................................... (23,399,311) (8,931,865)
------------ -----------
Net cash used in investing activities.............................................. (25,673,536) (9,056,580)
FINANCING ACTIVITIES
Proceeds from long-term debt....................................................... 27,238,525 9,994,034
Payments on long-term debt......................................................... (8,936,642) (7,725,492)
Payments on obligations under agreements with former owners........................ (1,791,002) (2,031,248)
Capital contributions.............................................................. 4,355,000 --
Issuance of preferred stock........................................................ 1,957,000 --
------------ -----------
Net cash provided by financing activities.......................................... 22,822,881 237,294
------------ -----------
Decrease in cash and cash equivalents.............................................. (139,454) (2,859,328)
Cash and cash equivalents at beginning of period................................... 3,765,131 3,625,677
------------ -----------
Cash and cash equivalents at end of period......................................... $ 3,625,677 $ 766,349
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
1. GOING CONCERN
The accompanying financial statements have been prepared assuming Prime
Succession, Inc. and subsidiaries (the Company) will continue as a going
concern. As discussed in Note 7, the Company must comply with certain
restrictive covenants in connection with its borrowings. At December 31, 1995,
the principal lender notified the Company that it is deemed to be in violation
of certain of these covenants. As a result, the debt with a second lender is
also in default. Under the agreements, the default situation results in the debt
being callable by the lenders, however, they have not indicated an intention to
do so. The debt from these lenders, amounting to $108,604,361 at December 31,
1995, has been classified as a current liability, resulting in the working
capital of the Company being in a substantial deficit position. The Company's
future existence is contingent upon its ability to cure the defaults or
otherwise refinance the debt. Management disagrees with the lender's
interpretation of certain events categorized as defaults and is confident the
defaults will be cured or they will be able to locate alternative financing.
Therefore, the financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
2. LITIGATION SETTLEMENT
On February 26, 1996, a lawsuit was filed against the Company and two of
its officers by World Service Life Insurance Company of America (World Service)
and Jeffrey M. Gamble, the former owner of an acquired subsidiary, alleging,
among other things, breach of a pre-need funeral service funding agreement
between the Company and World Service. Immediately preceding the filing of the
lawsuit, the Company notified World Service that it had breached the pre-need
funding agreement by charging premiums to the Company in excess of those charged
to other World Service customers.
On April 11, 1996, the parties settled the litigation with the execution of
a Termination of Pre-need Funding Agreements and Release. Under the terms of the
settlement, the Company agreed to pay a total of $9,000,000 over twenty years to
Mr. Gamble in consideration for the dismissal of the lawsuit and the termination
of the pre-need funding agreement. The present value of the future settlement
payments was recorded as a charge against income of $6,273,985 in the first
quarter of 1996. Payments under the agreement are as follows: $1,000,000 upon
execution, $2,000,000 to be paid on or before April 1997, and monthly payments
of $25,000 over twenty years beginning May, 1996. Upon the earlier date of the
sale of the Company or April 1998, the Company will purchase an annuity to fund
the remaining monthly payments. However, in lieu of the annuity, Mr. Gamble may
demand payment from the Company of an amount equal to the purchase price of the
annuity. As a result of the pending sale of the Company (see Note 15), the
settlement has been classified as current in the March 31, 1996 unaudited
balance sheet.
The Company believes that it will recover a substantial portion of the cost
of the settlement over time through higher commission rates and increased policy
benefits through the purchase of pre-need insurance policies from an alternative
insurance carrier.
3. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company, which began operations in 1991, owns and operates funeral
homes and cemeteries throughout the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and subsidiaries after elimination of intercompany accounts and transactions.
F-7
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
3. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents
All highly liquid investments, generally with original maturities of three
months or less, are considered to be cash equivalents. These investments are
valued at cost, which approximates fair value.
Receivables
The Company's receivables represent a combination of amounts due on at-need
and pre-need (installment) contracts. The Company frequently extends credit to
its customers for the purchase of funeral services or cemetery space. The
customers' credit worthiness is evaluated on a case by case basis and collateral
is generally not required on credit sales. Installment contracts receivable,
arising primarily from the sales of cemetery property and merchandise, are
generally due in monthly installments over periods of one to six years. The
contracts require a cash down payment and generally include simple interest,
computed at rates ranging from 8.0% to 14.3% per annum, which is recognized on
the interest method over the contract life. Allowances include estimates for
contract cancellations and uncollectible accounts.
Inventories
Inventories of mausoleum spaces, cemetery lots and merchandise are recorded
principally at average cost which is not in excess of market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation of buildings,
improvements and equipment is provided on a straight-line basis over the
expected useful lives of the respective assets ranging from 3 to 40 years.
Expenditures for maintenance and repairs are expensed when incurred.
Names and Reputations
Amounts on the consolidated balance sheet under the caption Names and
Reputations represent the present value of amounts due under consultative and
noncompetition agreements as well as prepaid amounts related to such contracts.
Amortization of these assets is provided on a straight-line basis over the terms
of the relevant agreements, typically ten years.
Goodwill
Goodwill, resulting from the cost of assets acquired exceeding the
underlying net asset value, is being amortized on a straight-line basis over a
forty-year period. The Company periodically evaluates the carrying value of
goodwill to assess its continued recoverability. The determination includes
evaluation of factors such as current market value, future asset utilization,
business climate, and future cash flows expected to result from the use of the
related assets. The Company's policy is to record an impairment loss in the
period when it is determined that the carrying amount of the asset may not be
recoverable and the future undiscounted cash flows attributable to the asset are
less than its carrying value. The amount of the impairment loss is calculated as
the excess, if any, of the carrying amount of the impaired asset over the future
discounted cash flows attributable to the asset. In March 1995, Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of was issued. SFAS
No. 121 requires the recognition of impairment losses on long-lived assets used
in operations and intangible assets whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. As required, the Company will adopt SFAS No. 121 in 1996. Based
on current circumstances, SFAS No. 121 would not have a material impact on the
Company's consolidated results of operations or financial position as of
December 31, 1995.
F-8
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
3. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other Intangible Assets
Deferred organization and loan costs have arisen in connection with the
acquisition of various companies. These assets are being amortized using the
straight-line method over 5 to 7 years. See Note 7 for discussion of a potential
impairment of loan costs at December 31, 1995.
Funeral Services
The Company sells pre-arranged funeral services under contracts that
provide for delivery of funeral services at the time of death at a price
determined at the time the agreement is signed.
Revenues from the pre-need funeral services are not recognized in the
financial statements until services are provided. Payments are typically used to
purchase insurance contracts on the lives of the patrons or deposited into trust
funds as required by state law, and are not shown on the consolidated balance
sheet (see Note 10). The payment amounts trusted are available to the Company
only as funeral services are delivered or are refundable to the purchasers under
certain state laws that provide for return of such amounts to the purchasers
under their option to cancel the contract. Earnings on the trust funds are
recognized when withdrawn from trust, typically as the funeral services are
delivered.
Funeral services sold at the time of need are recognized as funeral revenue
when contracted.
Trust earnings available for withdrawal prior to the delivery of funeral
services, as well as insurance commissions paid in connection with the insurance
contracts described above, are recognized currently as part of funeral service
revenues. Trust earnings recognized in income were $1,478,246 and $1,138,192 in
1995 and 1994, respectively.
Cemetery Sales
The Company accounts for its cemetery sales in accordance with the full
accrual method. Pre-need sales of cemetery interment rights and other related
products and services are recorded as revenues when customer contracts are
signed and a down payment is received, with concurrent accrual of related costs.
Allowances for customer cancellation and refunds are provided at the date of
sale based on historical experience.
In compliance with local laws, a portion of the proceeds from the sale of
cemetery lots may be required to be paid into perpetual or endowment care trust
funds. A portion of the proceeds from the related pre-need sale of other
cemetery merchandise may also be required to be paid into merchandise trust
funds. At December 31, 1995, the amount held in merchandise trust funds was
$4,051,973. The Company recognizes currently the earnings on amounts deposited
in these trusts; $187,834 and $189,953 in 1995 and 1994, respectively. Earnings
on the perpetual or endowment care trust funds are used to defray cemetery
maintenance costs. The principal amount of deposits placed in the merchandise
trusts is available to the Company when the merchandise is delivered.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
4. ACQUISITIONS
During 1995, the Company purchased the following funeral homes:
<TABLE>
<CAPTION>
DATE NAME LOCATION ENTITY
- ------------------ ----------------------------------------- -------------- ------------
<S> <C> <C> <C>
April 17, 1995 Aaron Cremation and Burial California Funeral Home
April 28, 1995 Brewer-Korisko Mortuary, Inc. Nebraska Funeral Home
August 29, 1995 Grotewald Simi Valley Mortuary, Inc. California Funeral Home
October 26, 1995 Weigel Funeral Home, Inc. Indiana Funeral Home
October 27, 1995 Lambert Corporation, Inc. West Virginia Funeral Home
October 27, 1995 J&W, Inc. West Virginia Funeral Home
October 27, 1995 Spencer Funeral Home Ohio Funeral Home
November 15, 1995 Hertz-Thoma Chapel, Ltd. Illinois Funeral Home
November 27, 1995 Simpson-Meyer Corporation Indiana Funeral Home
November 27, 1995 Simpson Funeral Home, Inc. Indiana Funeral Home
November 27, 1995 Simpson-Volkman Corporation Indiana Funeral Home
</TABLE>
During 1994, the Company purchased the following funeral homes and cemetery
businesses:
<TABLE>
<CAPTION>
DATE NAME LOCATION ENTITY
- ------------------ --------------------------------------------- -------------- ------------
<S> <C> <C> <C>
January 20, 1994 Hot Springs Funeral Home Arkansas Funeral Home
February 15, 1994 Metcalf Funeral Home Nebraska Funeral Home
February 25, 1994 Vining Funeral Home Georgia Funeral Home
February 25, 1994 Lester B. Hayman Funeral Home Georgia Funeral Home
February 25, 1994 Copeland Funeral Home South Carolina Funeral Home
March 8, 1994 Craig Funeral Home Florida Funeral Home
March 8, 1994 Flagler Palms Memorial Gardens Florida Cemetery
March 17, 1994 Brown Funeral Home Florida Funeral Home
March 17, 1994 Wachob-Forest Lawn Florida Cemetery
April 27, 1994 Kurfiss Funeral Home Florida Funeral Home
May 20, 1994 Welsheimer Funeral Home Indiana Funeral Home
June 10, 1994 Norris Funeral Services, Inc. Alabama Funeral Home
June 20, 1994 Burns Funeral Home Arkansas Funeral Home
June 30, 1994 Beck Memorial Homes* Illinois Funeral Home
July 1, 1994 Kalis Funeral Home Florida Funeral Home
July 29, 1994 Hawthorn Funeral Home Texas Funeral Home
August 1, 1994 Clayton Frank & Sons Funeral Home Florida Funeral Home
August 31, 1994 Hughes Funeral Chapel California Funeral Home
September 2, 1994 Norwood Chapel, Inc. Alabama Funeral Home
September 15, 1994 Clary-Godwin Funeral Home Florida Funeral Home
September 15, 1994 Comander Funeral Home Florida Funeral Home
September 30, 1994 McWane Family Funeral Home Inc. California Funeral Home
</TABLE>
- ------------------
* On June 30, 1994, 83% ownership was obtained.
The total consideration paid was approximately $23,399,000 and $8,932,000
in 1994 and 1995, respectively, of which $20,603,000 and $7,692,000 was financed
through borrowings. In 1994 and 1995, the Company acquired assets, excluding
goodwill, with fair values aggregating approximately $11,465,000 and $4,413,000
and assumed liabilities of $1,722,000 and $194,000, respectively. All
acquisitions have been accounted for using the purchase method of accounting.
The excess of the purchase price over the fair value of net assets is
established as goodwill. The results of operations for all acquisitions since
the dates of acquisition have been included in the consolidated results of
operations.
F-10
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
4. ACQUISITIONS--(CONTINUED)
The operating results of each acquisition are included in the Company's
operations from the date of the acquisition. The following represents the
unaudited pro forma results of operations as if all of the above noted business
combinations had occurred at the beginning of 1994.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.... $82,881,107 $85,386,185
----------- -----------
----------- -----------
Net loss.... $(4,016,210) $ (82,887)
----------- -----------
----------- -----------
</TABLE>
The pro forma information presented above does not purport to be indicative
of the results that actually would have been obtained if the acquisitions had
been consummated at the beginning of 1994 and is not intended to be a projection
of future results or trends.
In 1996, the Company acquired the assets of three funeral homes for a
purchase price of approximately $675,000 of which $618,000 was financed through
borrowings.
5. CHANGE IN ESTIMATE OF DEFERRED MERCHANDISE LIABILITY
Effective in the fourth quarter of 1995, the Company revised its estimates
of the obligation to provide vaults and to open and close gravesites on pre-need
sales of cemetery interment rights in the state of Alabama. The Company's 1995
construction of a vault manufacturing facility allows production of vaults at a
significantly lower cost than the purchase of vaults from independent
manufacturers. Preparation of the gravesite will be performed by employees,
thereby eliminating the use of higher cost outside contractors. These changes
resulted in a reduction of the estimated deferred merchandise liability and cost
of goods sold in 1995 by approximately $3,552,000.
6. INCOME TAXES
Deferred income taxes relate primarily to temporary differences between the
tax basis of assets and liabilities and their reported amounts in the financial
statements.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1995
--------- --------
<S> <C> <C>
Federal:
Deferred...... $(560,598) $ 81,581
State:
Current....... 250,728 227,043
--------- --------
$(309,870) $308,624
--------- --------
--------- --------
</TABLE>
F-11
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
6. INCOME TAXES--(CONTINUED)
The differences between the U.S. federal statutory tax rate and the
Company's effective rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Computed income tax at the
applicable federal statutory
income tax rate................... $(1,583,161) $ (120,535)
Goodwill amortization............... 179,585 242,755
Change in estimate of deferred
merchandise liability............. -- (1,207,680)
State taxes, net of federal
benefit........................... 165,480 149,848
Valuation allowance................. 1,011,607 1,198,463
Other............................... (83,381) 45,773
----------- -----------
Income tax expense (benefit)........ $ (309,870) $ 308,624
----------- -----------
----------- -----------
</TABLE>
Components of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
-----------
<S> <C>
Excess of the book value over tax basis of fixed
assets acquired, net of depreciation............ $(4,397,043)
Goodwill.......................................... (1,450,111)
-----------
Deferred tax liabilities.......................... (5,847,154)
Net operating loss carryforwards.................. 3,294,098
Allowance for doubtful accounts................... 1,203,474
Deferred marketing costs and trust fund income
related to pre-arranged funeral sales........... 2,458,843
Covenants and consulting agreements............... 872,103
Other............................................. 103,863
-----------
Deferred tax assets............................... 7,932,381
Valuation allowance............................... (2,951,373)
-----------
Net deferred tax liability........................ $ (866,146)
-----------
-----------
</TABLE>
The Company has net operating loss carryforwards for tax purposes of
approximately $7,311,000 at December 31, 1995 which expire in varying amounts
from 2006 through 2010.
F-12
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
7. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Debt in default:
Acquisition term loans:
Interest and principal payable quarterly with
final installments in July 1998 through
October 2002. Interest at prime rate plus
1.5% (10% at December 31, 1995).............. $100,355,242
Interest payable monthly with principal due at
maturity, May 1996 through October 2000.
Interest at prime plus 1.75% (10.25% at
December 31, 1995)........................... 8,249,119
Demand notes, interest at lender's prime rate
(8.5% at December 31, 1995).................. 4,550,000
Other, principally seller financing of acquired
operations........................................ 9,109,262
------------
122,263,623
Less current maturities........................... 113,813,885
------------
$ 8,449,738
------------
------------
</TABLE>
The Company has a loan agreement with Provident Services, Inc. (Provident)
which provides for a revolving credit facility, acquisition term loans and
construction term loans. As of December 31, 1995, no additional borrowings are
permitted due to the defaults discussed below. Borrowings under the revolving
credit facility are for general working capital use and generally have a final
maturity date of two years after the borrowing date. The acquisition term loans
are used to fund acquisitions and require quarterly payments. Borrowings under
this portion of the agreement require the investment of additional capital from
the Class A shareholders of the Company if certain debt to equity ratios are
exceeded. The construction term loans enable the borrower to construct facility
improvements and require quarterly payments. All borrowings bear interest at
prime plus 1.5%. Borrowings under the Provident loan agreement are secured by
substantially all of the assets of the Company. The loan agreement contains
various restrictive covenants that limit additional borrowing, capital
expenditures, disposition of assets and payment of dividends. Additionally, the
Company is required to maintain specified financial ratios related to cash flow,
total liabilities and working capital. There were no borrowings outstanding
under the revolving credit facility at December 31, 1995.
At December 31, 1995, Provident notified the Company that it deemed the
Company to be in violation of covenants pertaining to (1) the incurrence of
additional indebtedness, (2) notifications, approvals and furnishing of
information regarding acquisitions not financed by the principal lender and (3)
delivery of audited financial statements within the period specified in the
agreement. Asserted violations of the indebtedness covenants also include the
assumption of additional indebtedness related to the Company's litigation
settlement (See Note 2) and extended payment terms negotiated with one of the
Company's principal suppliers. Management disagrees with the lender's assertion
that the extension of payment terms by its vendor constitutes prohibited
indebtedness. Under the terms of the loan agreement, the lender may call the
loans if the Company is in violation of any restrictive covenants. The lender
has not waived any of the claimed violations, and accordingly the entire balance
of the loans at December 31, 1995 of $100,355,242 has been included in current
liabilities. This results in an additional violation of a covenant under the
loan agreement regarding the maintenance of working capital ratios. Included in
the consolidated balance sheet caption other intangibles at December 31, 1995 is
approximately $2.3 million of deferred loan costs related to the aforementioned
loans. In the event that the loans are refinanced, the costs will be charged
against income as other expense at the time of refinancing.
The Company also has an agreement with Heller Financial, Inc. for a $35
million loan facility which provides for a revolving credit facility and an
acquisition loan facility as well as letter of credit financing to support
certain acquisition-related obligations. The facility carries a fee of one half
of one percent on the unused
F-13
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
7. LONG-TERM DEBT--(CONTINUED)
portion. The primary purpose of the facility is to provide funds for future
acquisitions. The loan agreement contains various restrictive covenants that
require the Company to maintain specified financial ratios. Because the cited
violations of the Provident loan agreement have not been waived, cross default
provisions in this loan agreement cause a default under the Heller agreement.
These defaults allow Heller to call its loans and also preclude the Company from
any additional borrowings. Therefore, the entire balance of these loans at
December 31, 1995 of $8,249,119 has also been included in current liabilities.
A portion of the Company's other long-term debt is secured by letters of
credit in the amount of $829,000.
The carrying value of the debt approximates market as a result of its
variable interest rate.
Future maturities on long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.......... $113,813,885
1997.......... 659,485
1998.......... 683,845
1999.......... 608,348
2000.......... 675,743
Thereafter.... 5,822,317
------------
$122,263,623
------------
------------
</TABLE>
Interest paid was approximately $8.7 million and $14.9 million for the
years ended 1994 and 1995, respectively.
8. OBLIGATIONS UNDER AGREEMENTS WITH FORMER OWNERS
The Company has entered into consultative and noncompetition agreements
(generally for ten years) with certain officers of the Company and former owners
and key employees of businesses acquired. Obligations under these agreements are
as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
-----------
<S> <C>
Obligations under covenants not to compete,
amounts payable monthly with final installments
in May 1997 through April 2010. Obligations have
been discounted at 10%.......................... $18,079,045
Obligations under consulting agreements, amounts
payable monthly with final installments in
January 1997 through November 2013. Obligations
have been discounted at 10%..................... 2,920,060
-----------
20,999,105
Less current maturities...................... 2,280,929
-----------
$18,718,176
-----------
-----------
</TABLE>
Future maturities on these agreements at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.......... $ 2,280,929
1997.......... 2,453,646
1998.......... 2,484,167
1999.......... 2,391,993
2000.......... 2,646,345
Thereafter.... 8,742,025
-------------
$ 20,999,105
-------------
-------------
</TABLE>
Certain of the covenants are collateralized by letters of credit of $5.3
million.
F-14
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
9. REDEEMABLE PREFERRED STOCK
On December 31, 1994 the Company issued 1,957 shares of Preferred Stock
with a liquidation value of $1,957,000. Dividends on each share of Preferred
Stock accrue on an annual basis at a rate of 18% based upon the sum of the
liquidation value plus all accumulated and unpaid dividends thereon.
The holders of a majority of the Preferred Stock may, at any time, request
redemption of all shares of the Preferred Stock. Upon such request, the Company
is required to redeem all shares at a price per share equal to the liquidation
value thereof plus all accrued and unpaid dividends thereon.
Upon liquidation or dissolution of the Company, each holder of Preferred
Stock will be entitled to be paid, before any distribution or payment is made on
any junior securities, an amount in cash equal to the aggregate liquidation
value, plus all accrued and unpaid dividends. The holders will not be entitled
to any further payment.
10. PRE-ARRANGED FUNERAL TRUSTS
The Company enters into contracts with customers to pre-arrange funeral
services at a fixed price. In certain arrangements, the Company receives payment
on the contract from the customer. In turn, the Company invests in a variety of
instruments to fund pre-arranged funeral and cremation services and the related
merchandise sold but not delivered. Amounts trusted are invested primarily in
life insurance contracts, investment grade equity and corporate debt securities,
and time deposits. Such investments are subject to the risk that the current
market value may fall below cost.
The Company has other arrangements under which the customer purchases an
insurance policy which is assigned to the Company. The Company does not have
control of these policies and is obligated to deliver the service at the fixed
price only if the customer delivers the policy proceeds. Both types of these
arrangements are reflected in the table below. At December 31, 1995
approximately 39% and 14% of the insurance contracts held to satisfy pre-need
contracts represent insurance policies written by two insurance companies.
<TABLE>
<S> <C>
Cumulative pre-funded funeral services sold....... $ 155,642,543
--------------
--------------
Assets held to fund pre-need services:
Investments in trusted assets, at market........ $ 42,959,613
Insurance, at face value of policy.............. 71,036,319
Accounts receivable............................. 28,586,306
Other............................................. 3,816,499
--------------
$ 146,398,737
--------------
--------------
</TABLE>
11. SHAREHOLDERS' EQUITY
The rights of the Class A and Class B Common Stock are identical except for
the payment of distributions on the Common Stock. In the event a distribution is
made by the Company, it will be made first to holders of Class A Common Stock in
an amount equal to the sum of the shares' unreturned original cost plus any
unpaid yield (at a 5% rate of return). Any distribution in excess of this amount
will then be paid at a ratio of 9:1 to the holders of Class B and Class A Common
Stock, respectively.
F-15
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
12. LEASES
The annual payments for operating leases (which are primarily for funeral
home facilities and vehicles) at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.......... $ 2,330,794
1997.......... 1,974,584
1998.......... 1,683,663
1999.......... 1,373,267
2000.......... 1,145,455
Thereafter.... 5,551,297
-------------
$ 14,059,060
-------------
-------------
</TABLE>
The majority of the operating leases for funeral home facilities contain
one of the following options: (a) purchase of the property at the fair value at
date of expiration; (b) purchase of the property for a value determined at the
inception of the lease or (c) renewal of the lease at the fair rental value at
the end of the primary term of the lease. In addition, four of the leases
contain contingent rentals based upon revenues associated with the location.
Rent expense paid under operating leases was approximately $2,119,000 and
$2,469,000 in 1994 and 1995, respectively, of which approximately 50% and 34%,
respectively, was paid to former owners currently employed by the Company.
13. CONTINGENCIES
The Company is a party to legal proceedings in the ordinary course of its
business but does not expect the outcome of any such proceedings to have a
material adverse effect on the Company's financial position.
14. EMPLOYEE BENEFITS
The Company has established a 401(k) plan for the benefit of its employees.
All full-time employees who have reached the age of 21 and have one year of
service with the Company are eligible. Employees may defer 0-20% of their
compensation. The Company will match 25% of the employee's contribution up to a
maximum of 1% of their salary. Total expense recognized by the Company during
1994 and 1995 was $100,000 and $145,000, respectively.
15. SUBSEQUENT EVENT
On June 14, 1996 the Company entered into a purchase agreement whereby all
shares of the common stock of the Company will be sold to a new company formed
by Blackstone Capital Partners II Merchant Banking Fund L.P. and The Loewen
Group Inc. for approximately $295 million. The sale of the Company is expected
to be completed in mid-September, 1996 and is subject to a number of conditions,
including regulatory approvals and financing.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Prime Succession, Inc.:
We have audited the accompanying consolidated balance sheet of Prime Succession,
Inc. and subsidiaries (Successor Company) as of September 30, 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the period from August 26, 1996 through September 30, 1996 (Successor
Company period), and the consolidated statements of operations, shareholders'
equity, and cash flows of Prime Succession, Inc. and subsidiaries (Predecessor
Company) for the period from January 1, 1996 through August 25, 1996
(Predecessor Company period). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 aforementioned Successor Company consolidated financial
statements present fairly, in all material respects, the financial position of
Prime Succession, Inc. and subsidiaries as of September 30, 1996, and the
results of their operations and their cash flows for the Successor Company
period, in conformity with generally accepted accounting principles. Further, in
our opinion, the aforementioned Predecessor Company consolidated financial
statements present fairly, in all material respects, the results of their
operations and their cash flows for the Predecessor Company period, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
August 26, 1996, all of the outstanding capital stock of the Predecessor Company
was acquired in a business combination accounted for as a purchase. As a result
of this acquisition, the consolidated financial information for the period after
the acquisition is presented on a different cost basis than that for the period
before the acquisition and, therefore, is not comparable.
KPMG Peat Marwick LLP
Cincinnati, Ohio
December 6, 1996
F-17
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents......................................................................... $ 3,811,353
Restricted cash................................................................................... 9,109,084
Receivables, less allowance of $2,735,041......................................................... 9,156,322
Inventories:
Merchandise..................................................................................... 3,252,824
Cemetery lots and mausoleum spaces.............................................................. 1,080,618
-------------
Total inventories.......................................................................... 4,333,442
-------------
Prepaids and other current assets................................................................. 1,473,967
Prepaid fees to shareholders (note 4)............................................................. 500,000
-------------
Total current assets....................................................................... 28,384,168
-------------
Property and equipment:
Land and land improvements...................................................................... 15,959,324
Buildings and improvements...................................................................... 45,068,276
Equipment, furniture and fixtures............................................................... 6,625,813
Accumulated depreciation........................................................................ (172,314)
-------------
Net property and equipment................................................................. 67,481,099
-------------
Developed cemetery properties..................................................................... 13,250,987
Undeveloped cemetery properties................................................................... 30,616,355
Goodwill, less accumulated amortization of $479,336............................................... 230,169,212
Other intangible assets, less accumulated amortization of $420,672................................ 26,523,940
Long-term receivables, less allowance of $2,395,812............................................... 5,476,109
Other assets...................................................................................... 803,761
-------------
$ 402,705,631
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................................................................................. $ 2,073,621
Other accrued expenses............................................................................ 10,857,298
Current installments of obligations under agreements with former owners (note 5).................. 3,375,803
Current installments of long-term debt (note 6)................................................... 10,108,452
-------------
Total current liabilities.................................................................. 26,415,174
-------------
Deferred merchandise liabilities, less trust fund deposits........................................ 8,693,756
Deferred revenues, less trust fund deposits....................................................... 9,322,460
Obligations under agreements with former owners, less current installments (note 5)............... 18,003,984
Long-term debt, less current installments (note 6)................................................ 189,807,406
Deferred income taxes (note 9).................................................................... 18,493,081
Other long-term liabilities (note 12)............................................................. 4,157,841
Shareholders' equity (note 7):
Common Stock, par value $.01 per share, 1,000 shares authorized;
100 issued and outstanding shares............................................................... 1
Additional paid-in capital...................................................................... 129,554,499
Accumulated deficit............................................................................. (1,742,571)
-------------
Total shareholders' equity................................................................. 127,811,929
-------------
Commitments and contingencies (notes 10, 11 and 12)...............................................
$ 402,705,631
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
FOR THE PERIODS FROM JANUARY 1, 1996 THROUGH AUGUST 25, 1996
AND FROM AUGUST 26, 1996 THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------------------------- -------------
NINE MONTHS JANUARY 1, AUGUST 26,
ENDED 1996 THROUGH 1996 THROUGH
SEPTEMBER 30, AUGUST 25, SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
(UNAUDITED)
Revenues:
<S> <C> <C> <C>
Funeral services........................................................ $ 50,424,724 $ 47,281,120 $ 6,955,889
Cemetery sales.......................................................... 9,602,075 8,834,774 1,370,313
------------- ------------ -------------
60,026,799 56,115,894 8,326,202
Cost of sales:
Funeral homes........................................................... 8,559,694 7,583,461 1,144,923
Cemetery................................................................ 1,826,485 1,625,157 293,716
------------- ------------ -------------
10,386,179 9,208,618 1,438,639
Operating expenses:
Funeral homes........................................................... 27,884,514 26,193,929 3,926,035
Cemetery................................................................ 5,555,663 5,226,029 786,180
------------- ------------ -------------
33,440,177 31,419,958 4,712,215
Corporate and regional general and administrative expenses................ 4,561,596 4,886,663 641,463
Amortization of goodwill.................................................. 1,455,583 1,346,337 479,336
Covenants not to compete.................................................. 2,032,853 1,921,944 252,207
Legal settlement (note 3)................................................. -- 6,344,313 --
------------- ------------ -------------
Operating income.......................................................... 8,150,411 988,061 802,342
------------- ------------ -------------
Other income and expense:
Interest expense........................................................ 11,434,483 10,059,415 2,512,064
Other expense (income), net............................................. (304,388) 39,315 (9,158)
------------- ------------ -------------
11,130,095 10,098,730 2,502,906
------------- ------------ -------------
Loss before income taxes.................................................. (2,979,684) (9,110,669) (1,700,564)
Income tax expense (note 9)............................................... (445,565) (364,796) (42,007)
------------- ------------ -------------
Net loss.................................................................. (3,425,249) (9,475,465) (1,742,571)
Redeemable Preferred Stock dividend requirements.......................... (264,195) (277,111) --
------------- ------------ -------------
Net loss attributable to common shareholders.............................. $ (3,689,444) $ (9,752,576) $(1,742,571)
------------- ------------ -------------
------------- ------------ -------------
Net loss per share attributable to common shareholders.................... $ -- $ -- $ 17,425.71
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS FROM JANUARY 1, 1996 THROUGH AUGUST 25, 1996
AND FROM AUGUST 26, 1996 THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON COMMON COMMON
STOCK STOCK STOCK ADDITIONAL TOTAL
CLASS CLASS (NOTE PAID-IN ACCUMULATED SHAREHOLDERS'
A B 7) CAPITAL DEFICIT EQUITY
------ ------ ------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company:
Balance as of December 31, 1995......... $1 $9 $-- $ 31,902,729 $ (9,211,524) $ 22,691,215
Net loss for the period January 1, 1996
through August 25, 1996............... -- -- -- -- (9,475,465) (9,475,465)
Accrued dividends on Redeemable
Preferred Stock....................... -- -- -- (277,111) -- (277,111)
------ ------ ------ ------------ ------------ -------------
Balance as of August 25, 1996........... $1 $9 $-- $ 31,625,618 $(18,686,989) $ 12,938,639
------ ------ ------ ------------ ------------ -------------
------ ------ ------ ------------ ------------ -------------
Successor Company:
Acquisition of Predecessor Company...... $-- $-- $1 $129,999,999 $ -- $ 130,000,000
Receivable due from parent company...... -- -- -- (445,500) -- (445,500)
Net loss for the period August 26, 1996
through September 30, 1996............ -- -- -- -- (1,742,571) (1,742,571)
------ ------ ------ ------------ ------------ -------------
Balance as of September 30, 1996........ $-- $-- $1 $129,554,499 $ (1,742,571) $ 127,811,929
------ ------ ------ ------------ ------------ -------------
------ ------ ------ ------------ ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
FOR THE PERIODS FROM JANUARY 1, 1996 THROUGH AUGUST 25, 1996
AND FROM AUGUST 26, 1996 THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------------------------- -------------
NINE MONTHS JANUARY 1, AUGUST 26,
ENDED 1996 THROUGH 1996 THROUGH
SEPTEMBER 30, AUGUST 25, SEPTEMBER 30,
1995 1996 1996
------------- ------------ -------------
(UNAUDITED)
Operating activities:
<S> <C> <C> <C>
Net loss.............................................................. $(3,425,249) $ (9,475,465) $ (1,742,571)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation..................................................... 1,867,659 1,872,180 172,314
Amortization..................................................... 4,095,241 3,829,239 900,008
Provision for doubtful accounts.................................. 891,060 113,143 120,828
Provision for deferred income taxes.............................. 535,954 155,227 41,264
Gain on disposition of business.................................. (202,396) -- --
Legal settlement................................................. -- 6,344,313 --
Payment on legal settlement...................................... -- (1,100,000) (5,344,313)
Changes in operating assets and liabilities net effects of
acquisition of subsidiaries:
Receivables................................................. (1,800,485) (211,649) (904,260)
Inventories................................................. 367,309 (68,444) 26,477
Accounts payable and accrued expenses....................... (1,604,665) 887,452 1,941,449
Deferred merchandise and revenue (net)...................... (216,233) 2,475,263 759,566
Other....................................................... 4,301,874 (1,515,129) 1,418,790
------------- ------------ -------------
Net cash provided by (used in) operating activities..................... 4,810,069 3,306,130 (2,610,448)
Investing activities:
Proceeds from the disposal of assets.................................. 1,322,351 152,205 7,000
Purchases of property and equipment................................... (1,183,293) (1,087,432) (166,180)
Net cash paid for purchase of business................................ (3,083,681) (675,000) --
------------- ------------ -------------
Net cash used in investing activities................................. (2,944,623) (1,610,227) (159,180)
Financing activities:
Proceeds from long-term debt.......................................... 2,837,989 618,000 190,000,000
Payments on long-term debt............................................ (6,025,159) (3,219,194) (109,707,365)
Payments on obligations under agreements with former owners........... (1,340,578) (1,444,015) (177,867)
Capital contributions................................................. -- 3,000,000 --
Issuance of common stock.............................................. -- -- 129,554,500
Acquisition of Predecessor Company.................................... -- -- (195,396,246)
Increase in restricted cash........................................... -- -- (9,109,084)
------------- ------------ -------------
Net cash provided by (used in) financing activities..................... (4,527,748) (1,045,209) 5,163,938
------------- ------------ -------------
Increase in cash and cash equivalents................................... (2,662,302) 650,694 2,394,310
Cash and cash equivalents at beginning of year.......................... 3,625,677 766,349 1,417,043
------------- ------------ -------------
Cash and cash equivalents at end of year................................ $ 963,375 $ 1,417,043 $ 3,811,353
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) ACQUISITION AND DESCRIPTION OF THE BUSINESS
On August 26, 1996 (Closing Date), Prime Succession, Inc.'s (Predecessor
Company) capital stock was purchased (the Acquisition) by Blackstone Capital
Partners II Merchant Banking Fund L.P. and affiliates (Blackstone), Loewen
Group International, Inc. (Loewen) and PSI Management Direct L.P. (PSIM). A new
entity, Prime Succession, Inc. (Successor Company), was formed and became a
wholly-owned subsidiary of the Predecessor Company. In connection with the
Acquisition, all of the assets and liabilities of the Predecessor Company were
transferred to the Successor Company. Collectively, the Predecessor Company and
Successor Company are herein referred to as 'the Company'. The total purchase
price was approximately $320 million of which approximately $130 million was
contributed by Blackstone and Loewen, and $190 million was financed through
bank borrowings and the issuance of senior subordinated notes. The purchase
accounting method was used to record the transaction. The estimated fair value
of the acquired assets, excluding goodwill, aggregated approximately $173
million and liabilities assumed aggregated approximately $85 million. The
excess of the purchase price over the fair value of net assets of approximately
$230 million was established as goodwill and will be amortized over 40 years.
Since purchase accounting was reflected in the opening balance sheet of the
Successor Company on August 26, 1996, the financial statements of the Successor
Company are not comparable to the financial statements of the Predecessor
Company. Accordingly, a vertical black line is shown to separate Successor
Company financial statements from those of the Predecessor Company for periods
ended prior to August 26, 1996.
The following represents the unaudited pro forma results of operations as
if the acquisition occurred at the beginning of 1995.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE NINE
SEPTEMBER MONTHS ENDED
30, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenue......................................................... $ 63,900,000 64,500,000
------------ -------------
------------ -------------
Net loss........................................................ $ (8,900,000) (14,500,000)
------------ -------------
------------ -------------
</TABLE>
The unaudited pro forma results of operations include 14 funeral home
acquisitions make in 1995 and 1996, as if the acquisitions were made at the
beginning of 1995. The effect of these acquisitions increased revenue by
$3,900,000 and $100,000 in 1995 and 1996, respectively, and decreased net loss
by $300,000 in 1995. The pro forma results of operations also include
adjustments for increased depreciation, amortization and interest expenses, and
reduced expenses resulting from the elimination of certain personnel. The effect
of these adjustments increased the net loss by $5,500,000 and $3,300,000 in 1995
and 1996, respectively.
The unaudited pro forma information presented above does not purport to be
indicative of the results that actually would have been obtained if the
acquisition had been consummated at the beginning of 1995 and is not intended to
be a projection of future results or trends.
The Company is the fourth-largest operator of funeral homes and cemeteries,
on the basis of revenues, in the United States and is the largest privately-held
company in the funeral and cemetery industry. The Company owns 146 funeral homes
and 16 cemeteries in 20 states. The Company was founded in 1991, began
operations in 1992 and expanded rapidly through the aggressive acquisition of
funeral homes and cemeteries, primarily in non-urban areas of the United States.
The Company has focused on non-urban areas in order to take advantage of the
opportunities offered by such areas, including (i) the opportunity to establish
and maintain a higher market share as a result of the smaller number of death
care providers and (ii) the stronger preference for traditional full-service
funeral services and burials. Historically, the Company's primary growth
strategy has been to purchase properties that can serve as anchor locations and
subsequently to acquire additional funeral homes and cemeteries located near
those central assets.
F-22
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
(b) Cash and Cash Equivalents
All highly liquid investments, generally with original maturities of three
months or less, are considered to be cash equivalents. Restricted cash of
$9,109,084 is segregated from cash and cash equivalents on the balance sheet as
a separate caption. The use of this cash, which has been deposited at several
financial institutions, is restricted for the future defeasance of certain
former owner debt and the collateralization of a letter of credit of
approximately $7,600,000 and $1,500,000, respectively. These investments are
valued at cost, which approximates fair value.
(c) Receivables
The Company's receivables represent a combination of amounts due on at-need
and pre-need (installment) contracts. The Company frequently extends credit to
its customers for the purchase of funeral services or cemetery space. The
customers' credit worthiness is evaluated on a case by case basis and collateral
is generally not required on credit sales. Installment contracts receivable,
arising primarily from the sales of cemetery property and merchandise, are
generally due in monthly installments over periods of one to six years. The
contracts require cash down payments and generally include simple interest,
computed at rates ranging from approximately 8% to 14% per annum, which is
recognized on the interest method over the contract life. Allowances include
estimates for contract cancellations and uncollectible accounts.
(d) Inventories
Inventories of mausoleum spaces, cemetery lots and merchandise are recorded
principally at average cost, which is not in excess of market. However, as
provided under the purchase method of accounting, all inventories in existence
on August 26, 1996 are recorded at fair value which is not in excess of market.
(e) Property and Equipment
Property and equipment are recorded at cost. However, as provided under the
purchase method of accounting, property and equipment in existence on August 26,
1996 are recorded at fair value, which is not in excess of market. Depreciation
of buildings, improvements and equipment is provided on a straight-line basis
over the expected useful lives of the respective assets, ranging from 3 to 40
years. Expenditures for maintenance and repairs are expensed when incurred.
(f) Goodwill
Goodwill, resulting from the cost of assets acquired exceeding the
underlying net asset value, is being amortized on a straight-line basis over a
forty-year period. The Company periodically evaluates the carrying value of
goodwill to assess its continued recoverability as required by Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The determination
includes evaluation of factors such as current market value, future asset
utilization, business climate and future cash flows expected to result from the
use of related assets. The Company's policy is to record an impairment loss in
the period when it is determined that the carrying amount of the asset may not
be recoverable.
F-23
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(g) Other Intangible Assets
Other intangible assets include deferred organization and loan costs which
are being amortized using the straight-line method over 5 to 8 years, and names
and reputations which represent the present value of amounts due under
consultative and noncompetition agreements as well as prepaid amounts related to
such contracts. Amortization of these assets is provided on a straight-line
basis over the terms of the relevant agreements, typically ten years.
(h) Revenue Recognition--Funeral Services
Funeral services sold at the time of need are recognized as funeral revenue
when contracted. The Company also sells pre-arranged funeral services under
contracts that provide for delivery of funeral services at the time of death at
a price determined at the time the agreement is signed.
Revenues from the pre-need funeral services are not recognized in the
financial statements until services are provided. Payments are typically used to
purchase insurance contracts on the lives of the patrons or deposited into trust
funds as required by state law, and are not shown on the consolidated balance
sheet (see Note 8). The payment amounts trusted are available to the Company
only as funeral services are delivered or are refundable to the purchasers under
certain state laws that provide for return of such amounts to the purchasers
under their option to cancel the contract. Earnings on the trust funds are
recognized when withdrawn from the trust, typically as the funeral services are
delivered.
Trust earnings available for withdrawal prior to the delivery of funeral
services, as well as insurance commissions paid in connection with the insurance
contracts described above, are recognized currently as part of funeral service
revenues. Trust earnings recognized in income were approximately $960,000 and
$160,000 for the periods from January 1, 1996 through August 25, 1996 and from
August 26, 1996 through September 30, 1996, respectively.
(i) Revenue Recognition--Cemetery Sales
The Company accounts for its cemetery sales in accordance with the full
accrual method. Pre-need sales of cemetery interment rights and other related
products and services are recorded as revenues when customer contracts are
signed and a down payment is received, with concurrent accrual of related costs.
Allowances for customer cancellation and refunds are provided at the date of
sale based on historical experience.
In compliance with local laws, a portion of the proceeds from the sale of
cemetery lots may be required to be paid into perpetual or endowment care trust
funds. A portion of the proceeds from the related pre-need sale of other
cemetery merchandise may also be required to be paid into merchandise trust
funds. As of September 30, 1996, the amount held in merchandise trust funds was
approximately $4,500,000. The Company recognizes currently the earnings on
amounts withdrawn from these trusts; approximately $130,000 and $20,000 for the
periods from January 1, 1996 through August 25, 1996 and from August 26, 1996
through September 31, 1996, respectively. Earnings on the perpetual or endowment
care trust funds are used to defray cemetery maintenance costs. The principal
amount of deposits placed in the merchandise trusts is available to the Company
when the merchandise is delivered.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and net operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
F-24
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(k) Disclosures About Fair Value of Financial Instruments
The carrying amounts as of September 30, 1996 of receivables, accounts
payable and other accrued expenses approximate fair value due to the short
maturity of these instruments. See Notes 5 and 6 for disclosures regarding the
fair value of obligations under agreements with former owners and long-term
debt, respectively.
(l) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(m) Net Loss Per Share
Net loss per share attributable to common shareholders for the Successor
Company is computed on the weighted average number of shares outstanding during
the period from August 26, 1996 through September 30, 1996, which was 100
shares.
(3) LITIGATION SETTLEMENT
On February 26, 1996, a lawsuit was filed against the Company and two of
its officers by World Service Life Insurance Company of America (World Service)
and Jeffrey M. Gamble, the former owner of an acquired subsidiary, alleging,
among other things, breach of a pre-need funeral service funding agreement
between the Company and World Service. Immediately preceding the filing of the
lawsuit, the Company notified World Service that it had breached the pre-need
funding agreement by charging premiums to the Company in excess of those charged
to other World Service Customers.
On April 11, 1996, the parties settled the litigation with the execution of
a Termination of Pre-Need Funding Agreements and Release. Subsequently, the
Company paid Mr. Gamble approximately $6,300,000 in August of 1996 for the
dismissal of the lawsuit and the termination of the Pre-need Funding Agreements.
(4) RELATED PARTY TRANSACTIONS
On August 26, 1996, the Company entered into an Administrative Services
Agreement (Agreement) with Loewen. The agreement requires Loewen to provide
various administrative services and support to the Company including, but not
limited to, licenses to use software packages, legal services, employee training
and support services, travel services, etc. The Company paid Loewen $250,000 on
August 26, 1996 as a prepayment for services in the first year of the agreement.
The term of the agreement is eight years and requires annual increases of 2.5%
on the $250,000 base fee to be paid each August 26. The agreement also requires
the Company to reimburse Loewen on a timely basis for all out of pocket costs
and expenses incurred from third parties in connection with the provision of
services described above.
On August 26, 1996, the Company also paid $250,000 in advance to Blackstone
on behalf of Prime Succession Holdings, Inc. (Holdings), the parent company, as
a monitoring fee. This $250,000 monitoring fee is payable annually in advance on
August 26 until such time that the Put/Call Agreement is exercised (see Note 7).
F-25
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(5) OBLIGATIONS UNDER AGREEMENTS WITH FORMER OWNERS
The Company has entered in to consultative and noncompetition agreements
(generally for ten years) with certain officers of the Company and former owners
and key employees of businesses acquired. Obligations under these agreements are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Obligations under covenants not to compete, amounts payable monthly with final
installments in May 1997 through April 2010. Obligations have been
discounted at 13%........................................................... $ 17,213,766
Obligations under consulting agreements, amounts payable monthly with final
installments in January 1997 through November 2013. Obligations have been
discounted at 13%........................................................... 4,166,021
-------------
21,379,787
Less current installments..................................................... 3,375,803
-------------
$ 18,003,984
-------------
-------------
</TABLE>
As of September 30, 1996, the carrying amount of obligations under
agreements with former owners approximates fair value.
The approximate aggregate maturities on these agreements for the five years
ending September 30, 2001 and thereafter are as follows:
<TABLE>
<S> <C>
1997.......................................................................... $ 3,375,803
1998.......................................................................... 2,370,395
1999.......................................................................... 2,429,263
2000.......................................................................... 2,587,197
2001 and thereafter........................................................... 10,617,129
-------------
$ 21,379,787
-------------
-------------
</TABLE>
Certain of the obligations are collateralized by letters of credit of
$5,400,000.
(6) LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Senior subordinated notes, interest payable semi-annually beginning February
1, 1997 with maturity date of August 15, 2004.
Interest is fixed at 10 3/4%................................................ $ 100,000,000
Term loans, interest payable quarterly and principal payable
semi-annually from February 1, 1997 through August 1, 2003
(8.67% interest rate at September 30, 1996)................................. 90,000,000
Other......................................................................... 9,915,858
-------------
199,915,858
Less current installments..................................................... 10,108,452
-------------
Long-term debt, excluding current installments................................ $ 189,807,406
-------------
-------------
</TABLE>
F-26
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(6) LONG-TERM DEBT--(CONTINUED)
As of September 30, 1996, the Company had $100,000,000 in Senior
Subordinated Notes outstanding with various institutional investors from an
August 20, 1996 private offering. The notes, which mature on August 15, 2004,
require semi-annual interest payments on February 15 and August 15 of each year
at a rate of 10 3/4%. The notes were used to partially finance the Acquisition
of the Company, as described in Note 1. The Company intends to exchange up to
$100,000,000 of new 10 3/4% Senior Subordinated Notes due 2004 for the
$100,000,000 outstanding Senior Subordinated Notes due 2004.
As of September 30, 1996, the Company had $90,000,000 in term loans
outstanding under the Bank Credit Agreement dated August 26, 1996. The term
loans, which bear interest at the Base Rate or the Adjusted Eurodollar Rate, as
defined in the Bank Credit Agreement dated August 26, 1996 require quarterly
interest payments and semi-annual principal payments from February 1, 1997
through August 1, 2003. The term loans were used to partially finance the
Acquisition of the Company, as described in Note 1. The Company has pledged
substantially all of its assets, except real property and vehicles, to secure
the term loans.
The Company is subject to certain restrictive covenants in connection with
its Senior Subordinated Notes including, but not limited to, covenants imposing
limitations on the incurrence of additional indebtedness; certain payments,
including dividends and investments; the creation of liens; sales of assets and
preferred stock; transactions with interested persons; payment restrictions
affecting subsidiaries; sale-leaseback transactions; and mergers and
consolidations. In addition, the Bank Credit Agreement contains certain
restrictive convenants that, among other things, limit the ability of the
Company and its subsidiaries to dispose of assets, incur additional
indebtedness, prepay other indebtedness, pay dividends or make certain
restricted payments, create liens on assets, engage in mergers or aquisitions or
enter into leases or transactions with affiliates.
The Company also has approximately $9,900,000 of other debt outstanding as
of September 30, 1996. Approximately $7,600,000 of this other debt is due to
former owners with rates ranging from 8% to 11%.
As of September 30, 1996, the carrying amount of long-term debt
approximates fair value.
The approximate aggregate principal maturities of long-term debt for the
five years ending September 30, 2001 and thereafter are as follows:
<TABLE>
<S> <C>
1997.......................................................................... $ 10,108,452
1998.......................................................................... 1,257,034
1999.......................................................................... 1,169,713
2000.......................................................................... 4,190,728
2001 and thereafter........................................................... 183,189,931
-------------
$ 199,915,858
-------------
-------------
</TABLE>
Interest paid was approximately $6,900,000 and $100,000 for the periods
from January 1, 1996 through August 25, 1996 and from August 26, 1996 through
September 30, 1996, respectively.
(7) SHAREHOLDERS' EQUITY
As of September 30, 1996, all of the outstanding shares of common stock of
the Company are held by Holdings.
Pursuant to an agreement executed by Blackstone, Loewen and PSIM, in
connection with the Acquisition, (i) Loewen has a call option, exercisable from
and after the fourth anniversary of the Acquisition Closing Date until but
excluding the sixth anniversary of the Acquisition Closing Date, to purchase the
shares of common stock of Holdings held by Blackstone and/or PSIM and (ii) each
of Blackstone and PSIM has a put option, exercisable from and after the sixth
anniversary of the Acquisition Closing Date until but excluding the eighth
F-27
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(7) SHAREHOLDERS' EQUITY--(CONTINUED)
anniversary of the Acquisition Closing Date, to sell such shares of common stock
of Holdings held by Blackstone or PSIM, as the case may be, to Loewen. The
option price in each case is derived from a formula based on earnings before
interest, taxes, depreciation and amortization. In addition, pursuant to the
terms of a stockholders' agreement entered into by Holdings, Blackstone, Loewen
and PSIM on the Acquisition Closing Date, neither Blackstone nor Loewen may
transfer its shares of Holdings common stock without the prior written consent
of the other party, subject to certain exceptions, and PSIM may not transfer its
shares of Holdings common stock without the consent of Blackstone and Loewen.
(8) PRE-ARRANGED FUNERAL CONTRACTS
The Company enters into contracts with customers to pre-arrange funeral
services at a fixed price. In certain arrangements, the Company receives payment
on the contract from the customer. In turn, the Company invests in a variety of
instruments to fund pre-arranged funeral and cremation services and the related
merchandise sold but not delivered. Amounts trusted are invested primarily in
investment grade debt securities and time deposits. Such investments are subject
to the risk that the current market value may fall below cost. The market value
of assets held in trust at September 30, 1996 was approximately $44,800,000. In
the state of Alabama, which does not require pre-arranged funeral trusts, the
Company invests in insurance contracts to cover the estimated future costs of
fulfilling its pre-arranged funeral contracts. At September 30, 1996 the amount
invested in insurance contracts was approximately $7,400,000.
The Company has other arrangements under which the customer purchases an
insurance policy which is assigned to the Company. The Company does not have
control of these policies and is obligated to deliver the service at the fixed
price only if the customer delivers the policy proceeds.
(9) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
------------ -------------
PERIOD FROM PERIOD FROM
JANUARY 1, AUGUST 26,
1996 THROUGH 1996 THROUGH
AUGUST 25, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
Federal:
Current............................................. $ -- $ --
Deferred............................................ 138,887 36,920
State:
Current............................................. 209,569 743
Deferred............................................ 16,340 4,344
------------ -------------
$364,796 $42,007
------------ -------------
------------ -------------
</TABLE>
F-28
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(9) INCOME TAXES--(CONTINUED)
The differences between income taxes provided in the accompanying
consolidated statements of operations and the amounts which would be computed by
applying the U.S. Federal income tax rate of 34% to loss before income taxes are
as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
------------ -------------
PERIOD FROM PERIOD FROM
JANUARY 1, AUGUST 26,
1996 THROUGH 1996 THROUGH
AUGUST 25, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
Computed 'expected' tax benefit....................... $ (3,097,627) $(578,192)
Increase (decrease) in taxes resulting from:
Goodwill amortization............................... 211,146 124,560
State taxes, net of federal income taxes............ 149,100 3,357
Valuation allowance................................. 3,197,841 542,184
Other............................................... (95,664) (49,902)
------------ -------------
Actual income tax expense........................ $ 364,796 $ 42,007
------------ -------------
------------ -------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward.......................... $ 6,834,707
Allowance for doubtful accounts.......................... 1,911,971
Covenants not-to-compete and consulting agreements....... 2,037,995
Deferred funeral charges................................. 3,199,842
Accrued other expenses................................... 747,484
Environmental reserve.................................... 313,500
Other.................................................... 419,686
-------------
Total gross deferred tax assets....................... 15,465,185
Less valuation allowance.............................. 10,612,854
-------------
Total deferred tax assets............................. 4,852,331
-------------
Deferred tax liabilities:
Cemetery property, principally due to purchase
accounting............................................ 12,016,530
Property and equipment, principally due to purchase
accounting and differences in depreciation............ 8,230,007
Goodwill, principally due to differences in
amortization.......................................... 1,804,527
Prepaid loan costs....................................... 735,484
Other.................................................... 193,998
-------------
Total deferred tax liabilities........................ 22,980,546
-------------
Net deferred tax liability............................ $ 18,128,215
-------------
-------------
</TABLE>
F-29
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(9) INCOME TAXES--(CONTINUED)
The valuation allowance for deferred tax assets as of September 30, 1996
and December 31, 1995 was $10,612,854 and $2,951,373, respectively. The net
change in total valuation allowance for the period ended September 30, 1996 was
an increase of $7,661,481. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which these temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based upon these factors, management believes the
valuation allowance as of September 30, 1996 is appropriate.
Subsequently recognized tax benefits of $3,921,456 relating to the
valuation allowance for deferred tax assets as of September 30, 1996 will be
allocated to goodwill.
As of September 30, 1996, the Company has a net operating loss carryforward
of approximately $18,000,000 for Federal income tax purposes. If not used to
offset future taxable income, the tax loss carryforward will expire in varying
amounts from 2006 through 2011.
(10) LEASES
The Company leases primarily funeral home facilities and vehicles under
various noncancelable operating lease agreements. Approximate future minimum
lease payments required under such operating leases with initial or remaining
terms in excess of one year as of September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997....................................................... $ 2,351,414
1998....................................................... 1,983,284
1999....................................................... 1,547,423
2000....................................................... 1,213,236
2001 and thereafter........................................ 4,837,814
-------------
$ 11,933,171
-------------
-------------
</TABLE>
The majority of the operating leases for funeral home facilities contain
one of the following options: (a) purchase the property at the fair vale at date
of expiration; (b) purchase the property for a fair value determined at the
inception of the lease or (c) renewal of the lease at the fair rental value at
the end of the primary term of the lease. In addition, four of the leases
contain contingent rentals based upon revenues associated with the location.
Rent expense paid under operating leases was approximately $1,931,000 and
$295,000 for the periods from January 1, 1996 through August 25, 1996 and from
August 26, 1996 through September 30, 1996, respectively, of which approximately
15% and 12%, respectively, was paid to former owners currently employed by the
Company.
(11) EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) plan for the benefit of its employees.
All full-time employees who have reached the age of 21 and have one year of
service with the Company are eligible. Employees may defer a maximum of 20% of
their compensation, subject to IRS limitations. The Company will match 25% of
the employees' contribution up to a maximum of 1% of their salary. Total expense
recognized by the Company during the period from January 1, 1996 through August
25, 1996 and from August 26, 1996 through September 30, 1996 was approximately
$95,000 and $13,000, respectively.
F-30
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(12) COMMITMENTS AND CONTINGENCIES
The Company and Batesville Casket Company, Inc. (BCC) entered into a Casket
Supply Agreement dated January 1, 1992. The agreement, as amended, requires the
Company to purchase caskets solely form BCC at current market prices for the
period from April 1, 1995 through March 31, 2000, to the extent BCC stocks those
caskets required by the Company. It is not possible to quantify such purchase
commitment due to the uncertainty involving the casket purchase requirements of
the Company.
The Company has accrued $825,000 in other long-term liabilities as their
best estimate of potential future environmental liabilities. The most
significant components of this liability are storage tanks and septic tanks into
which embalming fluids and other contaminants were discharged resulting in
potential groundwater or soil contamination. The Company's current estimated
range of costs for clean-up or removal is $476,000 to $1,150,000, with $825,000
representing the most probable costs which the Company expects to incur within
the next five years.
The Company is a party to legal proceedings in the ordinary course of its
business but does not expect the outcome of any such proceedings to have a
material adverse effect on the Company's financial position.
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NEW PRIME. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE EXCHANGE
NOTES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE EXCHANGE NOTES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information........................................... 3
Disclosure Regarding Forward-Looking Statements.................. 3
Summary.......................................................... 4
Risk Factors..................................................... 15
Use of Proceeds.................................................. 18
The Exchange Offer............................................... 18
Capitalization................................................... 25
Unaudited Pro Forma Consolidated Financial Information........... 26
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 32
Business......................................................... 36
Management....................................................... 42
Principal Stockholders........................................... 44
Certain Related Transactions..................................... 45
Description of Bank Credit Facilities............................ 47
Description of Exchange Notes.................................... 49
Book Entry; Delivery and Form.................................... 75
United States Federal Income Tax Consequences.................... 76
Plan of Distribution............................................. 77
Legal Matters.................................................... 77
Independent Auditors............................................. 77
Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure........................................... 78
Index to Consolidated Financial
Statements..................................................... F-1
</TABLE>
------------------------
Until , 1997 (90 days after the date
of this Prospectus), all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
PRIME SUCCESSION, INC.
(FORMERLY KNOWN AS PRIME
SUCCESSION ACQUISITION CORP.)
OFFER TO EXCHANGE
$100,000,000 OF ITS 10 3/4%
SENIOR SUBORDINATED NOTES DUE
2004 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES
ACT FOR $100,000,000 OF ITS
OUTSTANDING 10 3/4% SENIOR
SUBORDINATED NOTES DUE 2004
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the 'DGCL') provides
for, among other things:
a. permissive indemnification for expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by designated
persons, including directors and officers of a corporation, in the event
such persons are parties to litigation other than stockholder derivative
actions if certain conditions are met;
b. permissive indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to stockholder
derivative actions if certain conditions are met;
c. mandatory indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are successful on the merits or
otherwise in litigation covered by a. and b. above; and
d. that the indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights which may be provided under any
by-law, agreement, stockholder or disinterested director vote, or
otherwise.
The Company's By-Laws provide that:
'Section 1. Indemnity Undertaking. To the fullest extent permitted by
law (including, without limitation, Section 145 of the General Corporation
Law of the State of Delaware (as amended from time to time, the 'General
Corporation Law')), the Corporation shall indemnify any person who is or
was made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding (a 'Proceeding'), whether civil,
criminal, administrative or investigative, including, without limitation,
an action by or in the right of the Corporation to procure a judgment in
its favor, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a Director or officer of the
Corporation, or is or was serving in any capacity at the request of the
Corporation for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise (an 'Other Entity'), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements).
Persons who are not Directors or officers of the Corporation may be
similarly indemnified in respect of service to the Corporation or to an
Other Entity at the request of the Corporation to the extent the Board of
Directors at any time specifies that such persons are entitled to the
benefits of this [Article].
Section 2. Advancement of Expenses. The Corporation shall, from time
to time, reimburse or advance to any Director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in
connection with any Proceeding, in advance of the final disposition of such
Proceeding; provided, however, that, if required by the General Corporation
Law, such expenses incurred by or on behalf of any such Director, officer
or other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Corporation of an undertaking, by or on
behalf of such Director, officer or other person indemnified hereunder, to
repay any such amount so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right of appeal that
such Director, officer or other person is not entitled to be indemnified
for such expenses.
Section 3. Rights Not Exclusive. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant
to, this [Article] shall not be deemed exclusive of any other rights which
a person seeking indemnification or reimbursement or advancement of
expenses may have or to which such person hereafter may be entitled under
any statute, the Restated Certificate of Incorporation, these By-Laws, any
agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office.
II-1
<PAGE>
Section 4. Continuation of Benefits. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted
pursuant to, this [Article] shall continue as to a person who has ceased to
be a Director or officer (or other person indemnified hereunder) and shall
inure to the benefit of the executors, administrators, legatees and
distributees of any such person.
Section 5. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee
or agent of an Other Entity, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions
of this [Article] or the Restated Certificate of Incorporation or under
Section 145 of the General Corporation Law or any other provision of law.
Section 6. Binding Effect. The provisions of this [Article] shall be
a contract between the Corporation, on the one hand, and each Director and
officer who serves in such capacity at any time while this [Article] is in
effect and/or any other person indemnified hereunder, on the other hand,
pursuant to which the Corporation and each such Director, officer or other
person intend to be legally bound. No repeal or modification of this
[Article] shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon any such state of facts.
Section 7. Procedural Rights. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant
to, this [Article] shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of providing that such indemnification
or reimbursement or advancement of expenses is not appropriate shall be on
the Corporation. Neither the failure of the Corporation (including its
Board of Directors, its independent legal counsel and its stockholders) to
have made a determination prior to the commencement of such action that
such indemnification or reimbursement or advancement of expenses is proper
in the circumstances nor an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel and its
stockholders) that such person is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses incurred in connection
with successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
Section 8. Service Deemed at Corporation's Request. Any Director or
officer of the Corporation serving in any capacity (a) another corporation
of which a majority of the shares entitled to vote in the election of its
directors is held, directly or indirectly, by the Corporation or (b) any
employee benefit plan of the Corporation or any corporation referred to in
clause (a) shall be deemed, in each case, to be doing so at the request of
the Corporation.
Section 9. Election of Applicable Law. Any person entitled to be
indemnified or to receive reimbursement or advancement of expenses as a
matter of right pursuant to this [Article] may elect to have the right to
indemnification or reimbursement or advancement of expenses interpreted on
the basis of the applicable law in effect at the time of the occurrence of
the event or events giving rise to the applicable Proceeding, to the extent
permitted by law, or on the basis of the applicable law in effect at the
time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the
Corporation, at the time indemnification or reimbursement or advancement of
expenses is sought; provided, however, that if not such notice is given,
the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.'
The directors and officers of the Company are insured against certain civil
liabilities, including liabilities under federal securities laws, which might be
incurred by them in such capacity.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) See Index to Exhibits.
(b) All schedules are omitted as the required information is presented in
the registrants' consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the 'Securities Act');
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the 'Calculation of Registration
Fee' in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request; and
(5) To supply by means of a post-effective amendment all information
concerning the Exchange Offer that was not the subject of and included in
the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Erlanger,
Kentucky, on December 16, 1996.
PRIME SUCCESSION, INC.
(formerly known as Prime Succession
Acquisition Corp.)
By: /s/ MYLES S. CAIRNS
--------------------------------
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ------------------------------------------ ------------------
<S> <C> <C>
* President, Chief Executive Officer December 16, 1996
- ------------------------ (principal executive officer) and Director
Gary L. Wright
/s/ MYLES S. CAIRNS Chief Financial Officer, Secretary and December 16, 1996
- ------------------------ Treasurer (principal financial officer;
Myles S. Cairns principal accounting officer)
* Director December 16, 1996
- ------------------------
Warren B. Rudman
* Director December 16, 1996
- ------------------------
Howard A. Lipson
* Director December 16, 1996
- ------------------------
John R. Woodard
* Director December 16, 1996
- ------------------------
Chinh E. Chu
* Director December 16, 1996
- ------------------------
Peter K. Grunebaum
* Director December 16, 1996
- ------------------------
Clifford R. Hinkle
*By: /s/ MYLES S. CAIRNS
---------------------
Myles S. Cairns
Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------- -----------------------------------------------------------------------
<S> <C>
2+ -- Stock Purchase Agreement, dated as of June 14, 1996, by and among
Prime Succession, Inc., the individuals or entities listed on the
signature pages thereof, The Loewen Group Inc. and Blackhawk
Acquisition Corp.
3.1+ -- Certificate of Incorporation of Blackhawk Acquisition Corp.
3.2+ -- Certificate of Amendment of Certificate of Incorporation of
Blackhawk Acquisition Corp. changing its name to Prime Succession
Acquisition Corp.
3.3+ -- Certificate of Amendment of Certificate of Incorporation of Prime
Succession Acquisition Corp. changing its name to Prime Succession,
Inc.
3.4+ -- By-Laws of Prime Succession, Inc.
4.1+ -- Indenture dated as of August 15, 1996 between Prime Succession
Acquisition Corp. and United States Trust Company of New York, as
Trustee
4.2+ -- Form of 10 3/4% Senior Subordinated Note due 2004 (included in
Exhibit 4.1)
5+ -- Opinion of Simpson Thacher & Bartlett regarding the legality of the
Exchange Notes
8+ -- Opinion of Simpson Thacher & Bartlett regarding certain tax matters
10.1(a)*++ -- Casket Supply Agreement, dated January 1, 1993, between Batesville
Casket Company, Inc. and Prime Succession, Inc.
10.1(b)*++ -- Amendment Agreement, dated August 1994, between Batesville Casket
Company, Inc. and Prime Succession, Inc. (with respect to Casket
Supply Agreement)
10.1(c)*++ -- Amendment 2, dated May 22, 1995, between Batesville Casket Company,
Inc. and Prime Succession, Inc. (with respect to Casket Supply
Agreement)
10.2+ -- Stockholders' Agreement dated as of August 26, 1996 among Prime
Succession, Inc. (to be renamed Prime Succession Holdings, Inc.),
Blackstone Capital Partners II Merchant Banking Fund L.P.,
Blackstone Offshore Capital Partners II L.P., Blackstone Family
Investment Partnership II L.P., PSI Management Direct L.P. and
Loewen Group International, Inc.
10.3+ -- Administrative Services Agreement dated as of August 26, 1996
between Prime Succession Acquisition Corp. (to be renamed Prime
Succession, Inc.) and Loewen Group International, Inc.
10.4+ -- Credit Agreement dated as of August 26, 1996 among Prime Succession,
Inc. (to be renamed Prime Succession Holdings, Inc.), Prime
Succession Acquisition Corp. (to be renamed Prime Succession, Inc.),
Goldman, Sachs & Co., as syndication agent and arranging agent, the
financial institutions from time to time parties thereto as lenders
and The Bank of Nova Scotia, as administrative agent for such
lenders
10.5+ -- Letter Agreement dated August 1, 1996 between Prime Succession
Acquisition Corp. (to be renamed Prime Succession, Inc.) and Gary
Wright
10.6+ -- Letter Agreement dated August 1, 1996 between Prime Succession
Acquisition Corp. (to be renamed Prime Succession, Inc.) and Myles
Cairns
10.7+ -- Put/Call Agreement, dated as of August 26, 1996, among Blackstone
Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore
Capital Partners II L.P., Blackstone Family Investment Partnership
II L.P., PSI Management Direct L.P., Loewen Group International Inc.
and the Loewen Group Inc.
12+ -- Computation of Ratio of Earnings to Fixed Charges
16+ -- Letter from Ernst & Young LLP (independent auditors prior to the
Acquisition) concerning change in Company's accountants delivered
pursuant to Item 304(a) of Regulation S-K.
21+ -- Subsidiaries of Prime Succession, Inc. (formerly known as Prime
Succession Acquisition Corp.)
23.1+ -- Consent of Simpson Thacher & Bartlett (included in Exhibits 5 and 8)
23.2* -- Consent of Ernst & Young LLP (independent auditors prior to the
Acquisition)
23.3* -- Consent of KPMG Peat Marwick LLP (independent auditors following the
Acquisition)
24+ -- Power of Attorney (included on page II-4 of the Registration
Statement)
25+ -- Statement of Eligibility on Form T-1 of United States Trust Company
of New York
27* -- Financial Data Schedule
99.1+ -- Registration Rights Agreement dated as of August 15, 1996 between
Prime Succession Acquisition Corp. and Smith Barney Inc.
99.2+ -- Form of Letter of Transmittal
99.3+ -- Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------
*Filed herewith.
+Previously filed.
++Subject to a pending request for confidential treatment pursuant to Rule 406
under the Securities Act.
<PAGE>
EXHIBIT 10.1(a)
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406 under the Securities Act of 1933, as amended.
Batesville Casket Company, Inc.
CASKET SUPPLY AGREEMENT
VALUE PLUS
AGREEMENT, made between Batesville Casket Company, Inc. an Indiana Corporation
("Batesville"), and, Prime Succession with its principal location at 691 Tekulve
Avenue, referred to hereafter as ("Funeral Director"), to become effective
beginning with the 1st day of January, 1993.
1. Funeral Director, recognizing Batesville's delivery and consistency of
supply capabilities, agrees to establish an initial inventory ("Initial
Inventory") and to make available for resale no less than * Batesville
Caskets purchased from Batesville within 60 days from the date hereof.
Funeral Director may increase the number of Batesville Caskets in the
Initial Inventory at any time, but in any event, agrees to make available
for resale no less than * Batesville Caskets throughout the term of this
Agreement.
2. Each Batesville Casket purchased from Batesville during the term hereof
will be invoiced on a monthly statement at terms of * % discount if
payment is received by the 15th of the month following the month of
delivery, or net * days. Funeral Director agrees to pay such invoices
pursuant to such term; or such other terms upon which Funeral Director and
Batesville mutually agree. Funeral Director agrees to pay a service charge
as shown on this monthly statement from Batesville Casket Co., Inc., on
all invoices that are past due.
3. Within 30 days after each anniversary date of this Agreement, Batesville
agrees to pay Funeral Director a rebate based on Funeral Director's
purchases from Batesville during each contract year of this Agreement. The
rebate will be based on the schedules attached hereto. Batesville retains
the right to apply any rebate payment to any past due balance owing
Batesville.
4. Funeral Director agrees that Batesville or its authorized representative
may verify, on a monthly basis, that the Initial Inventory level remains
available for resale. In the event the Initial Inventory falls below the
agreed level, this Agreement shall terminate immediately and further
purchases of Batesville Caskets shall be pursuant to Batesville's standard
terms.
5. Funeral Director shall be named as an additional insured on Batesville's
$5,500,000 Products Liability Insurance Policy with respect to occurrences
during the policy period as defined by Batesville's policies of insurance
relating to any manufacturing defects in products manufactured by and
purchased from Batesville. Coverage shall exist under and pursuant to the
terms of the policies, provided the Funeral Director:
a. displays the Batesville warranty certificate provided with each
Batesville casket prominently therewith in the selection room or
makes the warranty certificate available to clients as required by
law; and
b. Presents said warranty certificate to such clients at the time of
rendering the service statement; and
c. Uses reasonable care in handling of Batesville caskets while under
Funeral Director's control; and
d. Upon an occurrence:
i. Notifies Batesville immediately; and
ii. Gives Batesville and/or the insurer full and complete
control over the disposition of any claim arising out of the
occurrence, including the right to defend or settle on behalf of
Batesville and Funeral Director, and
iii. Cooperates fully with Batesville and/or the insurer in all
matters respecting any claims.
Coverage shall not apply to any product manufactured by others
notwithstanding its sale by Batesville.
6. This Agreement shall continue in force until terminated by either party
upon 30 days written notice. This Agreement may not be assigned by Funeral
Director without express written consent of Batesville and shall be
construed according to the laws of the State of Indiana.
* See Attached
BATESVILLE CASKET COMPANY, INC. Prime Succession
FUNERAL ESTABLISHMENT:
/s/ Michael DiBease /s/Thomas Johnson
- ------------------------------- ------------------------------
By: By:
1/1/93 1/1/93
- ------------------------------- ------------------------------
Date: Date:
<PAGE>
BATESVILLE'S VALUE PLUS REBATE PROGRAM (ADDENDUM)
Prime Successions' participation in Batesville Casket Company's Value Plus
Rebate Program is conducted through the funeral homes and/or related businesses,
corporations, etc., acquired by Prime Succession. Therefore, Batesville Casket
Company recognizes all of Prime Successions' businesses, that are at or above
80% floor representation, and the purchases of Batesville caskets by those
businesses, to be combined for an annual rebate.
The purpose of this addendum is to state the procedures that will occur if and
when a business is acquired in the middle of the rebate period. Some businesses
that are acquired may already be participating in Batesville's Value Plus Rebate
Program. If indeed this is the case, then the following guidelines will take
effect:
All purchases made by the acquired business, during it's respective rebate
period, will be included into the Prime Succession Rebate Contract, as
well as all purchases forward from date of the acquisition to the end of
Prime Succession's Rebate period, if the firm acquired is at or above the
80% floor representation level.
On the other hand, if the acquired firm is not participating in Batesville's
Value Plus Rebate program, then the following procedure will take place:
Only those purchases of Batesville caskets that are billed out after the
acquisition date will count towards Prime Successions' annual rebate, if
indeed that funeral home is at or above the 80% floor representation
level.
o Firms below the 80% level will stand alone for rebate purposes.
o Any rebates owed to former owners will be handled by Prime
Succession accordingly.
<PAGE>
CASKET SUPPLY AGREEMENT
FLOOR PERCENTAGE TERMS
4 5 6 7 8 9 10 11
30% - [ ]% 30, net 60 3 3 3 3 3 3 3 3
40% - [ ]% 30, net 60 4 4 4 4 4 4 4 4
50% - [ ]% 30, net 60 N/A 5 5 5 5 5 5 5
60% - [ ]% 30, net 90 N/A N/A 6 6 6 6 6 7
70% - [ ]% 30, net 90 N/A N/A N/A 7 7 7 7 8
80% - [ ]% 30, net 120 N/A N/A N/A N/A 8 8 8 9
90% - [ ]% 30, net 120 N/A N/A N/A N/A 8 8 9 10
100% - [ ]% 30, net 120 N/A N/A N/A N/A 8 9 10 11
<PAGE>
BATESVILLE CASKET COMPANY, INC.
CASKET SUPPLY AGREEMENT
REBATE SCHEDULE
VALUE PLUS
The rebate will be determined from the average wholesale price of all caskets
purchased from Baresville under this agreement multiplied by the number of
caskets purchased times the applicable rebate percentage shown below.
BATESVILLE CASKETS
PURCHASED REBATE PERCENTAGE
------------------ -----------------
0 - 30 0%
40 - 69 [ ]% on units 1-69
70 - 99 [ ]% on units 1-99
100 - 249 [ ]% on units 1-249
250 - 499 [ ]% on units 250-499
500 - 999 [ ]% on units 500-999
1000 - 2499 [ ]% on units 1000-2499
2500 - 4999 [ ]% on units 2500-4999
5000+ [ ]% on units over 5000
<PAGE>
EXHIBIT 10.1(b)
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406 under the Securities Act of 1933, as amended.
AMENDMENT TO
CASKET SUPPLY AGREEMENT
This Amendment to the Casket Supply Agreement is made between Batesville Casket
Company, Inc. (BCC) and Prime Succession, Inc. (Prime).
Whereas BCC and Prime have entered into a Casket Supply Agreement (Agreement)
which allows Prime, through its wholly owned subsidiaries, to purchase caskets
from Batesville.
Whereas the parties desire to amend certain provisions of said Agreement.
Therefore, in mutual consideration, the parties agree as follows:
1. BCC agrees to [ ] certain purchase orders. [ ].
Effective September 1, 1994, Prime shall have [ ]. In
the event there is a [ ], Prime agrees to [ ].
2. BCC shall notify Prime when the purchase orders total [ ].
Subsequent purchase orders shall be subject to the Value Plus
terms as set forth in the Agreement.
3. Prime may apply its Value Plus discount to any amount which is to be
paid before August 26, 1995.
4. All other terms and conditions shall remain in full force and
effect.
Prime Succession, Inc. Batesville Casket Company, Inc.
By: /s/ Thomas Johnson By: /s/ Michael DiBease
------------------------- ------------------------------
Title: President Title: Vice President - National
Markets
<PAGE>
EXHIBIT 10.1(c)
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406 under the Securities Act of 1933, as amended.
AMENDMENT 2 TO
CASKET SUPPLY AGREEMENT
This Amendment to a certain Casket Supply Agreement is made between Batesville
Casket Company, Inc., ("BCC") and Prime Succession, Inc. ("Prime").
Whereas, BCC and Prime have entered into a Casket Supply Agreement dated January
1, 1992 ("Agreement"), which Agreement was amended in August, 1994.
Whereas, the parties desire to further amend certain provisions of said
Agreement under the following terms and conditions.
Therefore, in consideration of the mutual promises and obligations set forth
herein, the parties agree as follows:
1. It is agreed between the parties that, as of March 31, 1995, Prime
has an [ ]. In consideration of the obligations under Paragraph 5,
Prime agrees to pay BCC such [ ], commencing March 15, 1996 and
continuing through February 15, 2000.
2. It is further agreed between the parties that as of March 31, 1995, [ ].
In consideration of the obligations under Paragraph 5, Prime agrees to
pay BCC such [ ] commencing March 15, 1996 and continuing through
February 15, 1997.
<PAGE>
2
3. BCC agrees that purchases of caskets, on and after April 1, 1995, and
throughout the term of this Agreement, shall be subject to a [ ]% discount
if payment is made by the fifteenth of the month following delivery.
4. In the event of default in payment of any said amounts due or of any other
amount owed to BCC, [ ] shall be due and payable immediately without
prior notice, and upon demand, at the sole election of BCC. In the event
of a default, BCC shall be entitled to offset the amount due, or any other
amount owed to BCC, by any unpaid rebate amount to which Prime would be
otherwise entitled.
5. Commencing April 1, 1995, and continuing through March 31, 2000, Prime
covenants to purchase caskets exclusively from BCC. This covenant shall be
construed to mean that Prime, through the funeral homes it owns as of
April 1, 1995, and through any funeral home it may acquire and/or operate
or manage through March 31, 2000, shall purchase caskets solely from BCC.
Caskets shall include those models BCC currently offers for sale or may
offer for sale through March 31, 2000. Since BCC does not offer cloth and
non-protective steel caskets, Prime may purchase such casket from another
source. If, however, at any time during the term of this Amendment, BCC
offers cloth and/or non-protective steel caskets on a competitive basis,
Prime agrees to purchase such caskets from BCC. If a customer of one of
Prime's funeral homes has a pre-need contract dated prior to April 1,
1995, in which a casket manufactured by someone other than BCC is
designated, Prime may purchase such casket from such other manufacturer
solely for the purpose of completing such pre-need contract. If a customer
of one of Prime's funeral
<PAGE>
3
homes has a pre-need contract, regardless of the date, which contains only
a generic reference to a casket, and BCC competitively offers such casket,
Prime agrees to purchase such casket from BCC.
6. Prime grants to BCC access to its corporate records, and those of its
funeral homes, in order to verify the exclusivity of purchases. BCC shall
conduct such verification during normal business hours at its own expense
upon 24 hours notice to Prime of its desire to examine said records.
7. In the event BCC determines that Prime has breached its covenant to
purchase caskets exclusively from BCC, BCC may, at its sole option,
accelerate and call due and payable [ ]. In addition, BCC shall be
entitled to seek all remedies at law or in equity to which it is
entitled as a result of such breach, as well as interest from the date
of said breach in the amount of 9% annum.
8. The Agreement and all addenda thereto shall be binding upon any successor
of Prime pursuant to any merger, consolidation, sale of all or
substantially all of its assets, or through any other change in the legal
identity of Prime during the period contemplated herein. In addition,
<PAGE>
4
Prime shall use its reasonable best efforts to assure that conversion of
Prime to any other legal entity will not result in the reduction of casket
purchases from BCC by any successor entity to Prime.
9. In the event Prime decides to make a public offering of stock or debt,
Prime agrees, no later than 6 months before said offering, to notify BCC
of its intention to make such offering. Prime further agrees, on or before
the earlier of the date Prime files a registration statement with the
Securities and Exchange Commission (SEC) or otherwise would be required to
publicly disclose the terms of this Agreement, to pay to BCC [ ] so that
the remaining amounts would not be material or require public disclosure
of the terms of the Agreement.
10. The first sentence of paragraph 6 of the Agreement, which states "This
Agreement shall continue in force until terminated by either party upon 30
days written notice" is deleted and replaced with the following:
"This Agreement shall continue in force until March 31, 2000. Thereafter,
either party may terminate the Agreement by giving the other party 30 days
written notice of its intent to terminate."
11. The Amendment to the Casket Supply Agreement, which was executed in
August, 1994, and provided for [ ] is superseded by this Amendment 2.
<PAGE>
5
12. The terms of the Agreement and all addenda shall be kept confidential by
both parties and may be disclosed only to those employees on a need to
know basis.
13. All other terms and conditions of the Agreement are hereby ratified and
shall remain in full force and effect.
Dated at Batesville, Indiana, this 22 day of May, 1995.
Prime Succession, Inc. Batesville Casket Company, Inc.
By: Thomas Johnson By: Michael DiBease
------------------------- ------------------------
Title: President Title: Vice President National
Markets
Date: 5/22/95 Date: 5/23/95
MR:re
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Auditors," "Selected Historical and Unaudited Pro Forma Consolidated
Financial Data" and to the use of our report dated May 9, 1996 (except
for Note 15, as to which the date is June 14, 1996) in Amendment No. 4
to the Registration Statement (Form S-4 No. 333-14599) and the related
Prospectus of Prime Succession, Inc. for the registration of
$100,000,000 of Prime Succession, Inc. 10.75% Senior Subordinated Notes
due 2004.
/s/ Ernst & Young LLP
Indianapolis, Indiana
December 16, 1996
<PAGE>
EXHIBIT 23.3
The Board of Directors
Prime Succession, Inc.
We consent to the use of our report included herein and to the references
to our firm under the headings 'Selected Historical and Unaudited Pro Forma
Consolidated Financial Information' and 'Independent Auditors' in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
Cincinnati, Ohio
December 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Prime Succession, Inc., for the year ended
December 31, 1995 and for the nine month period ended September 30, 1996, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 766 3,811
<SECURITIES> 0 0
<RECEIVABLES> 12,335 11,891
<ALLOWANCES> 2,926 2,735
<INVENTORY> 3,564 4,333
<CURRENT-ASSETS> 18,038 28,384
<PP&E> 64,235 67,653
<DEPRECIATION> 6,160 172
<TOTAL-ASSETS> 196,118 402,706
<CURRENT-LIABILITIES> 124,458 26,415
<BONDS> 27,168 207,811
0 0
2,309 0
<COMMON> 0 0
<OTHER-SE> 31,903 129,554
<TOTAL-LIABILITY-AND-EQUITY> 196,118 402,706
<SALES> 81,515 64,442
<TOTAL-REVENUES> 81,515 64,442
<CGS> 10,240 10,647
<TOTAL-COSTS> 55,869 46,779
<OTHER-EXPENSES> 25,999 28,474
<LOSS-PROVISION> 974 234
<INTEREST-EXPENSE> 15,401 12,571
<INCOME-PRETAX> (355) (10,811)
<INCOME-TAX> 309 407
<INCOME-CONTINUING> (663) (11,218)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (663) (11,218)
<EPS-PRIMARY> 0.000 0.000
<EPS-DILUTED> 0.000 0.000
</TABLE>
