<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
NEW SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7261 APPLIED FOR
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
JAMES M. SHELGER
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
NEW SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY 1929 ALLEN PARKWAY
HOUSTON, TEXAS 77019 HOUSTON, TEXAS 77019
(713) 522-5141 (713) 522-5141
(Address, including zip code, and telephone number, (Name and address, including zip code, and
including area code, of registrant's principal executive telephone number, including area code, of agent
offices) for service)
</TABLE>
---------------------
SCI HOLDINGS CANADA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BRITISH COLUMBIA 7261 NA
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
JOHN A. GORDON
PRESIDENT
SCI HOLDINGS CANADA, INC.
3789 ROYAL OAK AVENUE 3789 ROYAL OAK AVENUE
BURNABY, BRITISH COLUMBIA V5G 3MI BURNABY, BRITISH COLUMBIA V5G 3MI
(604) 294-9338 (604) 294-9338
(Address, including zip code, and telephone number, (Name and address, including zip code, and
including area code, of registrant's principal executive telephone number, including area code, of agent
offices) for service)
</TABLE>
---------------------
Copy to:
RICHARD D. KATCHER
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
---------------------
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, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE FEE(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share............ 119,233,604 Not Applicable $2,863,594,908.50 $867,756.03
Exchangeable Shares without par value.............. 64,708,438 Not Applicable $1,562,036,794.25 $473,344.48
===================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of common stock of New Service
Corporation International and an estimated number of exchangeable shares of
SCI Holdings Canada, Inc. issuable upon consummation of the exchange offer
for Common Shares without par value (the "Shares") and 6.00% Cumulative
Redeemable Convertible First Preferred Shares, Series C without par value
(the "Preferred Shares") of The Loewen Group Inc. based upon the number of
Shares and Preferred Shares outstanding and the estimated percentage of such
securities held in Canada, on August 9, 1996.
(2) Pursuant to Rules 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended, and solely for purposes of calculating the registration fee, the
registration fee was computed on the basis of (i) the average of the high
and low prices of Shares as reported on the Nasdaq National Market on
October 1, 1996, and (ii) the average of the high and low prices of
Preferred Shares on the Toronto Stock Exchange on October 1, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
NEW SERVICE CORPORATION INTERNATIONAL
SCI HOLDINGS CANADA, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Table of Contents; Available
Information; Incorporation of
Certain Information by
Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Prospectus Summary
4. Terms of the Transaction.............................. Prospectus Summary; Background of
the Offers; The Offers;
Description of Capital Stock of
Buyer and Canadian Newco;
Comparison of Rights of Holders
of Shares and Preferred Shares
and Buyer Common Stock and
Exchangeable Shares; Market
Prices and Dividends
5. Pro Forma Financial Information....................... Unaudited Pro Forma Combined
Financial Data
6. Material Contacts with the Company Being Acquired..... Background of the Offers; The
Offers
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... *
8. Interests of Named Experts and Counsel................ Validity of Buyer Common Stock
and Exchangeable Shares;
Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
10. Information with Respect to S-3 Registrants........... Incorporation of Certain
Information by Reference
11. Incorporation of Certain Information by Reference..... Incorporation of Certain
Information by Reference;
Description of Capital Stock of
Buyer and Canadian Newco
12. Information with Respect to S-2 or S-3 Registrants.... *
13. Incorporation of Certain Information by Reference..... *
14. Information with Respect to Registrants Other Than S-2
or
S-3 Registrants..................................... Prospectus Summary; Market Prices
and Dividends
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------------ ---------------------------------
<C> <S> <C>
15. Information with Respect to S-3 Companies............. Incorporation of Certain Informa-
tion by Reference; Background
of the Offers
16. Information with Respect to S-2 or S-3 Companies...... *
17. Information with Respect to Companies Other than S-2
or
S-3 Companies....................................... *
18. Information if Proxies, Consents or Authorizations are
to be Solicited..................................... *
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer......... Outside Front Cover Page;
Prospectus Summary; The Offers;
Incorporation of Certain
Information by Reference
</TABLE>
- ---------------
* Indicates that Item is not applicable or answer is in the negative.
<PAGE> 4
***************************************************************************
* *
* 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 OCTOBER 3, 1996
PROSPECTUS OFFERS TO EXCHANGE:
<TABLE>
<S> <C> <C>
I. EACH OUTSTANDING COMMON II. EACH OUTSTANDING
SHARE (INCLUDING THE 6.00% CUMULATIVE
ASSOCIATED COMMON SHARE REDEEMABLE CONVERTIBLE
PURCHASE RIGHTS) FIRST PREFERRED SHARE, SERIES C
OF OF
THE LOEWEN GROUP INC. THE LOEWEN GROUP INC.
FOR FOR
$45.00 OF COMMON STOCK $29.51 OF COMMON STOCK
(SUBJECT TO ADJUSTMENT) AND (SUBJECT TO ADJUSTMENT)
OF OF
NEW SERVICE CORPORATION INTERNATIONAL NEW SERVICE CORPORATION INTERNATIONAL
OR OR
$45.00 OF EXCHANGEABLE SHARES $29.51 OF EXCHANGEABLE SHARES
(SUBJECT TO ADJUSTMENT) (SUBJECT TO ADJUSTMENT)
OF OF
SCI HOLDINGS CANADA, INC. SCI HOLDINGS CANADA, INC.
</TABLE>
THE OFFERS AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 A.M., NEW YORK CITY
TIME, ON , 1996, UNLESS EXTENDED. SHARES WHICH ARE TENDERED PURSUANT
TO THE OFFERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE
OFFERS.
New Service Corporation International, a Delaware corporation ("Buyer"), is
currently a wholly owned subsidiary of Service Corporation International, a
Texas corporation ("SCI"). Upon consummation of the Holding Company Merger (as
defined herein), which will occur immediately prior to consummation of the
Offers (as defined herein), Buyer will own all of the common equity of SCI, and
stockholders of SCI will become stockholders of Buyer.
Buyer hereby offers, upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal (collectively, the "Buyer
Offer"), to exchange (i) a number of shares of Common Stock, par value $0.01 per
share, of Buyer ("Buyer Common Stock") equal to the Share Exchange Ratio (as
defined below) for each outstanding Common Share without par value (each, a
"Share" and collectively, the "Shares"), of The Loewen Group Inc., a company
incorporated under the laws of British Columbia (the "Company"), including the
associated common share purchase rights (each, a "Right" and collectively, the
"Rights") issued pursuant to the Shareholder Protection Rights Plan Agreement,
dated as of April 20, 1990, between the Company and The Royal Trust Company, as
Rights Agent (the "Rights Agreement"), validly tendered on or prior to the
Expiration Date (as defined herein) and not withdrawn, and (ii) a number of
shares of Buyer Common Stock equal to the Preferred Share Exchange Ratio (as
defined below) for each outstanding 6.00% Cumulative Redeemable Convertible
First Preferred Share, Series C without par value (each, a "Preferred Share" and
collectively, the "Preferred Shares"), of the Company, validly tendered on or
prior to the Expiration Date and not withdrawn. Unless the context otherwise
requires and unless and until the Rights are redeemed, all references to Shares
shall include the associated Rights. The term "Share Exchange Ratio" means the
quotient (rounded to the nearest 1/100,000) determined by dividing $45.00 by the
average of the high and low sales prices of the Common Stock, par value $1.00
per share, of SCI ("SCI Common Stock") (as reported on the New York Stock
Exchange Composite Tape) (the "SCI Average Price") on each of the twenty
consecutive trading days ending with the third trading day immediately preceding
the Expiration Date; provided, however, that the Share Exchange Ratio shall not
be greater than 1.76471. The term "Preferred Share Exchange Ratio" means the
product of (i) the Share Exchange Ratio and (ii) .65574; provided, however, that
the Preferred Share Exchange Ratio shall not be greater than 1.15719. The Share
Exchange Ratio and the Preferred Exchange Ratio are referred to collectively as
the "Exchange Ratios."
Pursuant to the Exchange Ratios, each Share which is validly tendered to
Buyer and not withdrawn on or prior to the Expiration Date will be exchanged for
$45.00 of Buyer Common Stock and each Preferred Share which is validly tendered
to Buyer and not withdrawn on or prior to the Expiration Date will be exchanged
for $29.51 of Buyer Common Stock if the SCI Average Price is greater than or
equal to $25.50. If the SCI Average Price is less than $25.50, each such Share
will be exchanged for less than $45.00 of Buyer
(Continued on next page)
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.
NO SECURITIES COMMISSION OR SIMILAR AUTHORITY IN CANADA HAS IN ANY WAY PASSED
UPON THE MERITS OF THE SECURITIES OFFERED HEREUNDER AND ANY
REPRESENTATION TO THE CONTRARY IS AN OFFENSE.
---------------------
THE DEALER MANAGERS FOR THE OFFERS ARE:
J.P. MORGAN TD SECURITIES INC.
60 WALL STREET 7TH FLOOR, TD BANK TOWER
NEW YORK, NEW YORK 10260-0060 66 WELLINGTON ST. WEST
TORONTO, ONTARIO
M5K 1A1
(IN CANADA)
, 1996
<PAGE> 5
Common Stock and each such Preferred Share will be exchanged for less than
$29.51 of Buyer Common Stock. On October 1, 1996, the closing price of the SCI
Common Stock on the New York Stock Exchange Composite Tape was $29.875. Based on
such closing price, the Share Exchange Ratio would be 1.50628 and each such
Share would be exchanged for $45.00 of Buyer Common Stock and the Preferred
Share Exchange Ratio would be 0.98773 and each such Preferred Share would be
exchanged for $29.51 of Buyer Common Stock, assuming for these purposes that the
value of the Buyer Common Stock immediately after consummation of the Offers is
equivalent to the value of the SCI Common Stock immediately prior to
consummation of the Offers. Shares of Buyer Common Stock are sometimes referred
to herein as "Buyer Common Shares."
The Exchange Ratios will change as the market price of the SCI Common Stock
changes. Shareholders of the Company may call (800) - any time on or
after the date hereof throughout the Expiration Date for the current Exchange
Ratios calculated based on the then-current SCI Average Price for the twenty
consecutive trading days ending with the third trading day immediately preceding
the date the call is placed. The actual SCI Average Price and Exchange Ratios
will be calculated as of the third trading day immediately prior to the
Expiration Date, as described above, and a press release will be issued
announcing the actual Exchange Ratios prior to the opening of trading on the
second trading day prior to the Expiration Date (as it may be extended from time
to time).
SCI Holdings Canada, Inc. ("Canadian Newco," and each of Canadian Newco and
Buyer, a "Purchaser," and collectively, the "Purchasers"), a company
incorporated under the laws of British Columbia and a wholly owned subsidiary of
Buyer, hereby offers, upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal (collectively, the "Canadian
Newco Offer," and each of the Canadian Newco Offer and the Buyer Offer, an
"Offer," and collectively, the "Offers"), to exchange (i) a number of
Exchangeable Shares without par value of Canadian Newco ("Exchangeable Shares,"
and together with the Buyer Common Stock, the "Offered Stock") equal to the
Share Exchange Ratio for each outstanding Share validly tendered on or prior to
the Expiration Date and not withdrawn, and (ii) a number of Exchangeable Shares
equal to the Preferred Share Exchange Ratio for each outstanding Preferred Share
validly tendered on or prior to the Expiration Date and not withdrawn. The
number of Exchangeable Shares issuable in the Canadian Newco Offer in respect of
each Share or Preferred Share, as the case may be, validly tendered to Canadian
Newco and not withdrawn prior to the Expiration Date is equal to the number of
shares of Buyer Common Stock issuable in the Buyer Offer in respect of each
Share or Preferred Share, as the case may be, validly tendered to Buyer and not
withdrawn prior to the Expiration Date.
No certificates representing fractional shares of Offered Stock will be
issued pursuant to the Offers. In lieu thereof, each tendering shareholder who
would otherwise be entitled to a fractional share of Offered Stock will receive
cash in an amount equal to such fraction (expressed as a decimal and rounded to
the nearest 0.01 of a share) times the closing price for shares of SCI Common
Stock on the New York Stock Exchange Composite Tape on the date such
shareholder's Shares or Preferred Shares, as the case may be, are accepted for
exchange by the respective Purchaser. See "The Offers -- Cash in Lieu of
Fractional Shares of Offered Stock."
THE PURCHASERS' RESPECTIVE OBLIGATIONS TO EXCHANGE SHARES OF OFFERED STOCK
FOR SHARES AND PREFERRED SHARES PURSUANT TO THE OFFERS IS CONDITIONED UPON,
AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO
THE EXPIRATION OF THE OFFER (x) A NUMBER OF SHARES WHICH, TOGETHER WITH THE
SHARES BENEFICIALLY OWNED BY THE PURCHASERS AND SCI FOR THEIR OWN RESPECTIVE
ACCOUNTS, WILL CONSTITUTE AT LEAST 75 PERCENT OF THE TOTAL NUMBER OF OUTSTANDING
SHARES ON A FULLY DILUTED BASIS (I.E., AS THOUGH ALL OPTIONS OR OTHER SECURITIES
CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR SHARES, OTHER THAN THE
RIGHTS, THE PREFERRED SHARES AND THE DEBENTURES (AS DEFINED HEREIN), HAD BEEN SO
CONVERTED, EXERCISED OR EXCHANGED) AS OF THE DATE THE SHARES ARE ACCEPTED FOR
EXCHANGE BY THE PURCHASERS PURSUANT TO THE OFFERS, AND (y) A NUMBER OF PREFERRED
SHARES WHICH, TOGETHER WITH THE PREFERRED SHARES BENEFICIALLY OWNED BY THE
PURCHASERS AND SCI FOR THEIR OWN RESPECTIVE ACCOUNTS, WILL CONSTITUTE AT LEAST
75 PERCENT OF THE TOTAL NUMBER OF OUTSTANDING PREFERRED SHARES ON A FULLY
DILUTED BASIS (I.E., AS THOUGH ALL OPTIONS OR OTHER SECURITIES CONVERTIBLE INTO
OR EXERCISABLE OR EXCHANGEABLE FOR PREFERRED SHARES HAD BEEN SO CONVERTED,
EXERCISED OR
<PAGE> 6
EXCHANGED) AS OF THE DATE THE PREFERRED SHARES ARE ACCEPTED FOR EXCHANGE
BY THE PURCHASERS PURSUANT TO THE OFFERS (COLLECTIVELY, THE "MINIMUM TENDER
CONDITION"), (ii) APPROVAL OF THE HOLDING COMPANY MERGER (AS DEFINED BELOW) BY A
VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SCI COMMON STOCK
ELIGIBLE TO VOTE AT A MEETING OF SUCH HOLDERS AND OF THE ISSUANCE OF OFFERED
STOCK PURSUANT TO THE OFFERS AND THE TRANSACTIONS (AS DEFINED BELOW) BY A VOTE
OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SCI COMMON STOCK
PRESENT AND VOTING AT A MEETING OF SUCH HOLDERS (THE "SCI SHAREHOLDER APPROVAL
CONDITION"), (iii) THE PURCHASERS HAVING DETERMINED IN THEIR SOLE DISCRETION
THAT (a) THE BOARD OF DIRECTORS OF THE COMPANY HAS REDEEMED ALL OUTSTANDING
RIGHTS OR WAIVED THE APPLICATION OF THE RIGHTS AGREEMENT TO THE PURCHASE OF THE
SHARES AND PREFERRED SHARES BY THE PURCHASERS PURSUANT TO THE OFFERS AND THE
SECOND STEP TRANSACTION (AS HEREIN DEFINED); (b) A CEASE TRADING ORDER OR AN
INJUNCTION SHALL HAVE BEEN ISSUED AND SHALL CONTINUE IN EFFECT THAT PROHIBITS OR
PREVENTS THE EXERCISE OF THE RIGHTS OR THE ISSUE OF SHARES OR OTHER SECURITIES
OR PROPERTY UPON THE EXERCISE OF THE RIGHTS, (c) A COURT OF COMPETENT
JURISDICTION SHALL HAVE MADE A BINDING AND FINAL ORDER THAT THE RIGHTS ARE
ILLEGAL, OF NO FORCE OR EFFECT OR MAY NOT BE EXERCISED IN RELATION TO THE OFFERS
AND THE SECOND STEP TRANSACTION, (d) THE RIGHTS AND THE RIGHTS AGREEMENT SHALL
OTHERWISE HAVE BEEN HELD UNEXERCISABLE OR UNENFORCEABLE IN RELATION TO THE
SHARES AND PREFERRED SHARES PURSUANT TO THE OFFERS AND THE SECOND STEP
TRANSACTION, OR (e) THE RIGHTS AGREEMENT DOES NOT AFFECT THE OFFERS OR THE
TRANSACTIONS (THE "RIGHTS PLAN CONDITION"), (iv) THE RESIGNATION OF AT LEAST A
MAJORITY OF THE INCUMBENT MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY AND
THE ELECTION OR DESIGNATION OF PERSONS DESIGNATED BY PURCHASERS TO CONSTITUTE A
MAJORITY OF THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD
CONDITION"), (v) THE SATISFACTION OF ALL REQUIREMENTS PURSUANT TO THE PROVISIONS
OF (x) THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, (y)
THE COMPETITION ACT OF CANADA AND (z) THE APPROVAL OF THE MINISTER RESPONSIBLE
FOR THE INVESTMENT CANADA ACT, IN EACH CASE WITH RESPECT TO THE OFFERS AND THE
TRANSACTIONS CONTEMPLATED HEREBY (THE "REGULATORY CONDITION") AND (vi)
CONSUMMATION OF THE HOLDING COMPANY MERGER (AS DEFINED HEREIN) (THE "HOLDING
COMPANY MERGER CONDITION").
For the purposes of all Applicable Canadian Securities Laws (as defined
herein), this Prospectus constitutes the offer and accompanying circular
required to be provided pursuant to such laws.
The Purchasers are unable to predict the amount of time necessary to
satisfy the regulatory waiting periods required to complete the Offers. It is
anticipated, however, that the time necessary to satisfy such waiting periods
will extend beyond the initial Expiration Date, and the Purchasers expect that
they will extend the Offers from time to time in their sole discretion.
---------------------
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE BUSINESSES OF BUYER
FOLLOWING CONSUMMATION OF THE OFFERS AND THE TRANSACTIONS CONTEMPLATED HEREBY.
THE ACTUAL RESULTS OF THE BUSINESSES OF BUYER AND ITS SUBSIDIARIES FOLLOWING
CONSUMMATION OF THE OFFERS AND THE TRANSACTIONS CONTEMPLATED HEREBY MAY DIFFER
SIGNIFICANTLY FROM THOSE DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THE ABILITY
TO ACHIEVE EXPECTED COST SAVINGS FROM THE TRANSACTIONS, THE ABILITY TO
SUCCESSFULLY INTEGRATE THE COMPANY'S BUSINESSES INTO SCI'S BUSINESSES, THE
GENERAL SUCCESS OF SCI'S BUSINESSES AND THE CONTINUED RECEPTIVE-
<PAGE> 7
NESS OF ITS CUSTOMERS TO ITS SERVICES AND PRODUCTS, GENERAL BUSINESS AND
ECONOMIC CONDITIONS, AS WELL AS CERTAIN FACTORS DESCRIBED BELOW UNDER
"PROSPECTUS SUMMARY -- ADVANTAGES TO SHAREHOLDERS" AND "-- THE OFFERS". FURTHER
INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF BUYER
AFTER CONSUMMATION OF THE OFFERS AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE
INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY REFERENCE HEREIN.
---------------------
THIS PROSPECTUS AND THE OFFERS MADE HEREBY DO NOT CONSTITUTE A SOLICITATION OF
ANY PROXIES OR CONSENTS. ANY SUCH SOLICITATIONS WILL BE MADE ONLY PURSUANT TO
SEPARATE PROXY OR CONSENT SOLICITATION MATERIALS COMPLYING WITH THE REQUIREMENTS
OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
---------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of his Shares and the
associated Rights or his Preferred Shares, as the case may be, should either (a)
complete and sign the Letter of Transmittal or a facsimile copy thereof in
accordance with the instructions in the Letter of Transmittal, and mail or
deliver the Letter of Transmittal or such facsimile and any other required
documents to the Exchange Agent or the Canadian Forwarding Agent (as such terms
are defined herein) and either deliver the certificates for such Shares and
Rights or such Preferred Shares, as the case may be, to the Exchange Agent or
the Canadian Forwarding Agent along with the Letter of Transmittal, deliver such
Shares and Rights or such Preferred Shares, as the case may be, pursuant to the
procedures for book-entry transfer set forth herein (in the case of Rights, only
if such procedures are available) or comply with the guaranteed delivery
procedures set forth below or (b) request his broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for him. A shareholder
having Shares and Rights or Preferred Shares, as the case may be, registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee if he desires to tender such Shares and Rights or such Preferred Shares,
as the case may be.
Any shareholder desiring to tender all or any portion of his Shares (and
the associated Rights) or his Preferred Shares, as the case may be, pursuant to
either the Buyer Offer or the Canadian Newco Offer, must indicate (the
"Election") in the appropriate space provided on the Letter of Transmittal, (i)
the number of Shares (and the associated Rights) and/or the number of Preferred
Shares such shareholder desires to tender pursuant to the Buyer Offer in
exchange for shares of Buyer Common Stock, and (ii) the number of Shares (and
the associated Rights) and/or the number of Preferred Shares such shareholder
desires to tender pursuant to the Canadian Newco Offer in exchange for
Exchangeable Shares. A SHAREHOLDER WHO TENDERS SHARES (AND THE ASSOCIATED
RIGHTS) OR PREFERRED SHARES, AS THE CASE MAY, AND FAILS TO MAKE AN ELECTION WITH
RESPECT TO SUCH TENDER SHALL BE DEEMED TO HAVE TENDERED SUCH SHARES (AND THE
ASSOCIATED RIGHTS) OR PREFERRED SHARES, AS THE CASE MAY BE, PURSUANT TO THE
BUYER OFFER IN EXCHANGE FOR BUYER COMMON STOCK. See "Certain U.S. and Canadian
Federal Tax Consequences of the Acquisition."
Shareholders will be required to tender one Right for each Share tendered
in order to effect a valid tender of Shares, unless the Rights Plan Condition
has been satisfied or waived. Unless the Separation Time (as defined herein)
occurs, a tender of Shares will constitute a tender of the associated Rights.
Tendering shareholders will not be obligated to pay any charges or expenses
of the Exchange Agent or the Canadian Forwarding Agent or any brokerage
commissions. Except as set forth in the Instructions to the Letter of
Transmittal, transfer taxes, if any, on the exchange of Shares or Preferred
Shares, as the case may be, pursuant to the Offers will be paid by or on behalf
of the Purchasers.
Questions and requests for assistance may be directed to the Information
Agent or to one of the Dealer Managers at their respective address and telephone
numbers set forth on the back cover of this Prospectus. Requests for additional
copies of this Prospectus and the Letter of Transmittal may be directed to the
Information Agent or to brokers, dealers, commercial banks or trust companies.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................................................................. ii
Exchange Rates........................................................................ iii
Incorporation of Certain Information by Reference..................................... iii
Company Information................................................................... iv
Prospectus Summary.................................................................... 1
Background of the Offers.............................................................. 20
The Offers............................................................................ 26
General............................................................................. 26
Purpose of the Offers; the Transactions............................................. 26
Extension, Termination and Amendment................................................ 29
Exchange of Shares; Delivery of Offered Stock....................................... 30
Cash in Lieu of Fractional Shares of Offered Stock.................................. 31
Withdrawal Rights................................................................... 32
Notice to Canadian Shareholders..................................................... 32
Procedure for Tendering............................................................. 33
Effect of Offers on Market for Shares and Preferred Shares; Registration Under the
Exchange Act and Reporting Issuer Status Under Applicable Canadian Securities
Laws............................................................................. 36
Minimum Tender Condition............................................................ 37
SCI Shareholder Approval Condition.................................................. 38
Rights Plan Condition............................................................... 38
Company Board Condition............................................................. 39
Regulatory Condition................................................................ 39
Holding Company Merger Condition.................................................... 41
Certain Other Conditions of the Offers.............................................. 41
Relationships with the Company...................................................... 45
Fees and Expenses................................................................... 45
Accounting Treatment................................................................ 47
Stock Exchange Listing.............................................................. 47
Dissent Rights...................................................................... 47
Eligibility for Investment in Canada................................................ 48
Certain U.S. and Canadian Federal Tax Consequences of the Acquisition................. 48
Legal Proceedings..................................................................... 59
Unaudited Pro Forma Combined Financial Information.................................... 60
Description of Capital Stock of Buyer and Canadian Newco.............................. 75
Comparison of Rights of Holders of Shares and Preferred Shares and Buyer Common Stock
and Exchangeable Shares............................................................. 84
Market Prices and Dividends........................................................... 94
Validity of Buyer Common Stock and Exchangeable Shares................................ 96
Statutory Rights...................................................................... 96
Enforcement of Civil Liability Against U.S. Persons................................... 96
Experts............................................................................... 96
Schedule A -- Directors and Executive Officers of SCI and the Purchasers.............. A-1
Schedule B -- Shares Held by SCI and the Purchasers................................... B-1
</TABLE>
<PAGE> 9
AVAILABLE INFORMATION
SCI and the Company are (and Buyer will be) subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, SCI and the Company file (and Buyer will
file) reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and other
information filed by the Purchasers, SCI and the Company with the Commission may
be inspected and copied at the Commission's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the Commission's regional offices located
at: 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is (http://www.sec.gov). The Shares are listed on the New York
Stock Exchange, Inc. (the "NYSE"), the Toronto Stock Exchange (the "TSE") and
the Montreal Exchange (the "ME") and the Preferred Shares are listed on the TSE
and the ME. The periodic reports, proxy statements and other information filed
by the Company with the Commission may be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, at the
offices of the TSE, Exchange Tower, 2 First Canadian Place, 8th Floor, Toronto,
Ontario M5X 1J2, Canada, and at the offices of the ME, 800 Victoria Square, P.O.
Box 61, Montreal, Quebec H4Z 1A9, Canada. The SCI Common Stock is (and the Buyer
Common Stock will be) listed on the NYSE. The periodic reports, proxy statements
and other information filed by SCI (and to be filed by Buyer) with the
Commission may be inspected at the offices of the NYSE. Application will be made
(i) to list the Buyer Common Stock on the NYSE and (ii) to list the Exchangeable
Shares on the TSE and the ME.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-4 (the "Registration Statement") covering the
Offered Stock offered hereby which has been filed with the Commission, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission, and to which portions reference is hereby made for further
information with respect to the Purchasers, the Company and the securities
offered hereby. Statements contained herein concerning any documents are not
necessarily complete and, in each instance, reference is made to the copies of
such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
Not later than the date of commencement of the Offers, the Purchasers will
file with the Commission a statement on Schedule 14D-1 pursuant to Rule 14d-3
under the Exchange Act furnishing certain information with respect to the
Offers. Pursuant to Rules 14d-9 and 14e-2 under the Exchange Act, the Company
will be required to file within ten business days after the commencement of the
Offers a statement on Schedule 14D-9 (the "Company Schedule 14D-9") regarding
its position concerning the Offers. Such Schedule and any amendments thereto
should be available for inspection and copying as set forth above (except that
such Schedules and any amendments thereto will not be available at the regional
offices of the Commission). The directors of the Company are also required to
file not later than 10 days after the date of the Offers with the Canadian
Securities Regulatory Authorities (as defined below) and deliver to the holders
of Shares and Preferred Shares a directors' circular (prepared in accordance
with the securities laws, regulations, rules, orders and policies applicable to
the Company in each of the provinces and territories of Canada (the "Applicable
Canadian Securities Laws")) which includes, among other matters, a statement
concerning their recommendations with respect to the Offers.
On , 1996, pursuant to Rule 409 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and Rule 12b-21
promulgated under the Exchange Act, the Purchasers requested that the Company
provide to the Purchasers the information required for complete disclosure
concerning the business, operations, financial condition and management of the
Company. The Purchasers will provide any and all information which they receive
from the Company prior to the expiration of the Offers and which the
<PAGE> 10
Purchasers deem material, reliable and appropriate in a subsequently prepared
amendment or supplement hereto.
In accordance with the Applicable Canadian Securities Laws, the Company
files reports, proxy statements and other information with the securities
regulatory authorities in each of the provinces and territories of Canada (the
"Canadian Securities Regulatory Authorities"). Such information may be inspected
at the offices of the TSE and the ME referred to above. The Canadian Securities
Regulatory Authorities maintain a public record of such information and this
information may be obtained by contacting such authorities.
After filing this Prospectus with the Canadian Securities Regulatory
Authorities, the Purchasers will become "reporting issuers" or obtain some
similar status for the purposes of the Applicable Canadian Securities Laws, and,
as a result, will become subject to certain continuous disclosure requirements
under such Applicable Canadian Securities Laws. The Purchasers intend to seek
exemptions from such requirements pending the consummation of the Offers.
EXCHANGE RATES
The exchange rates expressed in Canadian dollars for U.S.$1.00 at the end
of the five years ended December 31, 1995 and the period ended ,
1996, and the average and the high and the low exchange rates for each of such
periods were as follows (being the noon rates for the U.S. dollars in Canada as
reported by the Bank of Canada):
<TABLE>
<CAPTION>
JANUARY 1 DECEMBER 31,
THROUGH -----------------------------------------------
, 1996 1995 1994 1993 1992 1991
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
At end of period........... 1.3645 1.4019 1.3254 1.2074 1.1558
Average for period*........ 1.3720 1.3660 1.2900 1.2090 1.1460
High for period............ 1.4243 1.4065 1.3446 1.2887 1.1645
Low for period............. 1.3303 1.3109 1.2425 1.1420 1.1203
</TABLE>
- ---------------
* Based on the average of the exchange rates on the last business day of each
month during the period.
The noon rates for the U.S. dollar in Canada on September 16, 1996 and on
, 1996, as reported by the Bank of Canada were, respectively,
U.S.$1.00 = C$1.3704 and U.S.$1.00 = C$ .
All dollar references in this Prospectus are in United States dollars
unless otherwise indicated. References to "C$" refer to Canadian dollars.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO
(i) SECRETARY, SERVICE CORPORATION INTERNATIONAL, 1929 ALLEN PARKWAY, HOUSTON,
TEXAS 77019 OR BY TELEPHONE REQUEST TO THE CORPORATE SECRETARY'S DEPARTMENT AT
(713) 522-5141 OR (ii) CONTROLLER, SCI HOLDINGS CANADA, INC. 3789 ROYAL OAK
AVENUE, BURNABY BRITISH COLUMBIA V5G 3MI OR BY TELEPHONE REQUEST TO THE
CONTROLLER'S OFFICE AT (604) 294-9338. IN ORDER TO ENSURE TIMELY DELIVERY OF
SUCH DOCUMENTS, ANY REQUEST FOR DOCUMENTS SHOULD BE SUBMITTED NOT LATER THAN
SEVEN BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE OFFER.
The following documents filed with the Commission (File No. 1-06402) by SCI
and filed with the Canadian Securities Regulatory Authorities together with this
Prospectus are incorporated herein by reference: (a) SCI's Annual Report on Form
10-K for the year ended December 31, 1995 (the "1995 Buyer 10-K"); (b) the
portions of SCI's Proxy Statement for the Annual Meeting of Stockholders held on
May 9, 1996 that have been incorporated by reference in the 1995 Buyer 10-K; (c)
SCI's Quarterly Reports on
iii
<PAGE> 11
Form 10-Q for the periods ended March 31, 1996 and June 30, 1996; and (d) SCI's
Current Reports on Form 8-K dated December 4, 1995 and April 16, 1996.
The following documents filed with the Commission (File No. 1-18429) and
the Canadian Securities Regulatory Authorities by the Company are incorporated
herein by reference: (a) the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, as amended (the "1995 Company 10-K"); (b) the portions
of the Company's Proxy Statement for the Annual Meeting of Stockholders held on
May 16, 1996 that have been incorporated by reference in the 1995 Company 10-K;
(c) the Company's Quarterly Reports on Form 10-Q for the periods ended March 31,
1996 and June 30, 1996; and (d) the Company's Current Reports on Form 8-K dated
August 7, 1996, August 29, 1996, September 5, 1996, September 17, 1996,
September 20, 1996 and September 24, 1996.
All documents filed by either SCI or the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the date the Offers are terminated or Shares or Preferred Shares are accepted
for exchange shall be deemed to be incorporated herein by reference and to be a
part hereof from the date of such filing. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part hereof, except as so modified or superseded.
Following the commencement of the Offers and pending completion of the
Offers SCI will file with the Canadian Securities Regulatory Authorities each of
the types of documents filed by it pursuant to the Exchange Act, as referred to
above.
COMPANY INFORMATION
While the Purchasers have included information concerning the Company
insofar as it is known or reasonably available to the Purchasers, the Company is
not affiliated with the Purchasers and the Company has not to date permitted
access by the Purchasers to the Company's books and records. Therefore,
information concerning the Company which has not been made public is not
available to the Purchasers. The Purchasers were not involved in the preparation
of the information and statements relating to the Company contained or
incorporated by reference in this Prospectus in reliance upon publicly available
information and, for the foregoing reasons, are not in a position to verify any
such information or statements and make no representation or warranty as to its
accuracy or completeness.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFERS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PURCHASERS OR THE DEALER MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. THE OFFERS ARE NOT BEING MADE TO, NOR WILL TENDERS BE
ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF SHARES OR PREFERRED SHARES IN ANY
JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, THE PURCHASERS MAY, IN
THEIR SOLE DISCRETION, TAKE SUCH ACTION AS THEY MAY DEEM NECESSARY TO MAKE THE
OFFERS IN ANY SUCH JURISDICTION AND EXTEND THE OFFERS TO HOLDERS OF SHARES OR
PREFERRED SHARES IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY EXCHANGE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
iv
<PAGE> 12
PURCHASERS, SCI OR THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS
FURNISHED OR THE DATE HEREOF.
IN ACCORDANCE WITH VARIOUS STATE SECURITIES LAWS APPLICABLE TO THE OFFERS
WHICH REQUIRE THE OFFERS TO BE MADE TO THE PUBLIC BY A LICENSED BROKER OR
DEALER, THE OFFERS ARE HEREBY MADE TO THE COMPANY'S SHAREHOLDERS RESIDING IN
EACH SUCH STATE BY J.P. MORGAN SECURITIES INC., AS DEALER MANAGER, ON BEHALF OF
THE PURCHASERS.
v
<PAGE> 13
PROSPECTUS SUMMARY
The information below is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus,
including the documents incorporated in this Prospectus by reference. As used in
this Prospectus, (i) the term "Buyer" refers to New Service Corporation
International and, unless the context otherwise requires, its subsidiaries, (ii)
the term "Canadian Newco" refers to SCI Holdings Canada, Inc. and, unless the
context otherwise requires, its subsidiaries, (iii) the term "SCI" refers to
Service Corporation International and, unless the context otherwise requires,
its subsidiaries, (iv) the term "Company" refers to The Loewen Group Inc. and,
unless the context otherwise requires, its subsidiaries, and (v) the term
"Purchasers" means Buyer and Canadian Newco and "Purchaser" means either of
them.
SCI
SCI was incorporated in Texas on July 5, 1962. SCI is the largest funeral
service and cemetery organization in the world. At June 30, 1996, SCI operated
2,832 funeral service locations, 331 cemeteries and 146 crematoria located in
North America, Europe, and the Pacific Rim. In addition, SCI provides capital
financing to independent funeral home and cemetery operators through its wholly
owned subsidiary, Provident Services, Inc. ("Provident").
SCI's mission is:
- To demonstrate the highest degree of professionalism while assisting
client families at a pivotal time in their lives;
- To exercise its responsibility as an industry leader by setting high
standards of service, safety and fair business practices; and
- To increase shareholder value through sound fiscal management and
corporate development.
The SCI Common Stock has been traded on the New York Stock Exchange since
May 14, 1974, under the ticker symbol SRV. For the period 1990 through 1995,
SCI's earnings per share growth rate of 18.6 percent compounded annually, ranks
in the top two percent of the Standard & Poor's 500 Index, excluding companies
reporting loss years or down years during this six year period.
SCI has its principal executive offices at 1929 Allen Parkway, Houston,
Texas 77019, telephone number (713) 522-5141.
NEW SERVICE CORPORATION INTERNATIONAL
Buyer is a subsidiary of SCI formed for the purpose of effecting the
Holding Company Merger (as defined herein) and the Buyer Offer. Except as
described herein, Buyer has no assets or liabilities. In the Holding Company
Merger, all of the SCI Common Stock (except for shares of SCI Common Stock held
by SCI or Buyer) will become Buyer Common Stock, and shareholders of SCI will
become shareholders of Buyer. Immediately following the consummation of the
Holding Company Merger and the Offers, Buyer will be a holding company, the
principal assets of which will be all of the common stock of SCI and the common
shares of Canadian Newco and the Shares and Preferred Shares that are purchased
by Buyer pursuant to the Buyer Offer.
Following the Holding Company Merger, the name of Buyer will be changed to
"Service Corporation International" and the name of SCI will be changed to
Service Corporation International (Texas), Inc.
Buyer has its principal executive offices at 1929 Allen Parkway, Houston,
Texas 77019, telephone number (713) 522-5141.
SCI HOLDINGS CANADA, INC.
Canadian Newco is a subsidiary of Buyer formed for the purpose of effecting
the Canadian Newco Offer. Except as described herein, Canadian Newco has no
assets or liabilities. Immediately following consummation
<PAGE> 14
of the Offers, Canadian Newco will own all of the Shares and Preferred Shares
that are validly tendered to Canadian Newco and not withdrawn prior to the
Expiration Date pursuant to the Offers.
Immediately following consummation of the Transactions, Buyer will own all
of the outstanding common shares of Canadian Newco, and former holders of Shares
and Preferred Shares that were acquired by Canadian Newco pursuant to the
Canadian Newco Offer will own all of the outstanding Exchangeable Shares of
Canadian Newco. After consummation of the Offers, the Purchasers intend to cause
the Company to enter into the Second Step Transaction described under "The
Offers -- Purpose of the Offers; the Transactions." Pursuant to the Second Step
Transaction, all Shares and Preferred Shares not owned by Purchasers or any of
their subsidiaries will be exchanged for, at the option of the holders thereof,
the same number of shares of Buyer Common Stock or Exchangeable Shares as were
issued per Share or Preferred Share pursuant to the Offers. As a result thereof,
the Company will become a direct and indirect wholly owned subsidiary of Buyer.
See "The Offers -- Purpose of the Offers; the Transactions."
Canadian Newco has its principal executive offices at 3789 Royal Oak
Avenue, Burnaby, British Columbia V5G 3MI, telephone number (604) 294-9338.
THE LOEWEN GROUP INC.
The following information concerning the Company is excerpted from the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996:
The Company operates the second-largest number of funeral homes and
cemeteries in North America and the largest number of funeral homes in Canada.
As of July 26, 1996, the Company operated 909 funeral homes (not all of which
are wholly owned) throughout North America. This included 796 funeral homes in
the United States (including locations in Puerto Rico) and 113 funeral homes in
Canada. In addition, as at such date, the Company operated 247 cemeteries in the
United States and six cemeteries in Canada.
The Company has its principal executive offices at 4126 Norland Avenue,
Burnaby, British Columbia V5G 3S8, telephone number (604) 299-9321.
BACKGROUND OF THE OFFERS
In June of 1996, SCI began to consider the acquisition of the Company.
After a thorough review of the publicly available information with respect to
the Company and discussions with SCI's financial and legal advisors, SCI
concluded that an acquisition by SCI of the Company in a stock-for-stock
transaction at a significant premium to the prices at which the Company's stock
was trading, would benefit the shareholders of both companies.
Beginning the week of September 9, 1996, L. William Heiligbrodt, President
and Chief Operating Officer of SCI, placed several telephone calls to the office
of Raymond L. Loewen, Chairman and Chief Executive Officer of the Company, to
propose that Mr. Loewen and Mr. Heiligbrodt meet to discuss a combination of the
two companies. Mr. Loewen did not return any of the calls.
On September 17, 1996, before the opening of trading on the Nasdaq National
Market, a letter was delivered from Mr. Heiligbrodt to Mr. Loewen, with a copy
to each of the members of the Board of Directors of the Company, proposing a
combination of SCI and the Company in a stock-for-stock exchange accounted for
as a pooling-of-interests which would value the Company at $43 per share (such
proposal, the "Proposal").
Mr. Heiligbrodt's letter noted that the Proposal would result in
shareholders of the Company receiving, on an essentially tax-free basis that
permitted shareholders to continue their investment in the industry, a premium
of 48.9 percent above the price at which the Shares traded 30 days prior to the
Proposal, 39.3 percent above the price at which the Shares traded one week prior
to the Proposal and 27.4 percent above the price at which the Shares traded on
the day before the Proposal. The letter also noted that, after a due diligence
review, SCI may be able to increase the consideration that shareholders of the
Company would receive. The letter also requested discussions with Mr. Loewen.
2
<PAGE> 15
Mr. Loewen did not make any attempts to discuss the Proposal with Mr.
Heiligbrodt or otherwise seek to obtain any further information from SCI
concerning the Proposal.
On September 24, 1996, the Company announced that its Board of Directors
had rejected the Proposal and had concluded that "the best way to maximize value
for [the Company's] shareholders is through the continued implementation of the
Company's long-term business plan as an independent company."
In light of the significant benefit to the shareholders of both companies
that SCI believes this transaction would achieve, SCI determined to proceed with
the Offers.
SCI intends to account for the Offers and the transactions contemplated
hereby as a pooling-of-interests. However, there is no assurance that such
transactions, if consummated, can be accounted for in such a manner. See "The
Offers -- Accounting Treatment." The Purchasers would be willing to increase the
consideration payable pursuant to the Offers if SCI and the Company were to
enter into a negotiated agreement providing for a business combination on the
basis of pooling-of-interests accounting. The amount of any such increase would
depend upon discussions among the parties.
ADVANTAGES TO SHAREHOLDERS
Significant Premium. The Offers and the Transactions provide shareholders
of the Company an opportunity to receive a significant premium for their Shares
and Preferred Shares. The Share Exchange Ratio represents a 55.8 percent premium
above the price at which the Shares traded one month prior to the announcement
of the Proposal, a 45.7 percent premium above the price at which the Shares
traded one week prior to the Proposal, a 33.3 percent premium above the price at
which the Shares traded the day before the Proposal and a 49.4 percent premium
above that average price of the Shares during the 30-day period prior to the
announcement of the Proposal.
Based on the noon rate for U.S. dollars in Canada as reported by the Bank
of Canada on October 1, 1996, the Preferred Share Exchange Ratio represents a
34.0 percent premium above the price at which the Preferred Shares traded one
month prior to the announcement of the Proposal, a 27.6 percent premium above
the price at which the Preferred Shares traded one week prior to the Proposal, a
21.8 percent premium above the price at which the Preferred Shares traded the
day before the Proposal and a 27.2 percent premium above the average price of
the Preferred Shares during the 30-day period prior to the announcement of the
Proposal.
Tax Free Exchange. The Offers provide all of the Company's shareholders the
ability to receive this premium on a basis that is tax-free for United States
and Canadian federal income tax purposes. As discussed below under "Certain U.S.
and Canadian Federal Tax Consequences of the Acquisition," the receipt by United
States Holders (as defined herein) of Buyer Shares pursuant to the Buyer Offer
will not trigger recognition of gain or loss for U.S. federal income tax
purposes and the receipt by Canadian residents of Exchangeable Shares pursuant
to the Canadian Newco Offer will not trigger gain for Canadian federal income
tax purposes if the appropriate election is filed. The redemption of the
Exchangeable Shares by Canadian Newco or the exercise by Buyer of either the
Liquidation Call Right (as defined herein) or the Redemption Call Right (as
defined herein) will be a taxable event under the Canadian Tax Act (as defined
herein). In the Second Step Transaction, the receipt by Canadian residents of
Exchangeable Shares will not trigger gain for Canadian federal income tax
purposes if the appropriate election is filed. However, the receipt by U.S.
citizens or residents of any Offered Stock in the Second Step Transaction may
require the recognition of gain or loss. Shareholders of the Company that are
United States Holders are urged to consider the potentially significant
difference in tax consequences of exchanging their Shares and Preferred Shares
pursuant to the Buyer Offer and the Second Step Transaction. See "Certain U.S.
and Canadian Federal Tax Consequences of the Acquisition."
Opportunity to Receive Canadian Property. The Canadian Newco Offer provides
all of the Company's Canadian shareholders with the ability to receive
Exchangeable Shares. Canadian Newco intends to apply for the listing of the
Exchangeable Shares on the TSE and the ME, which will qualify the Exchangeable
Shares to be treated as not being "foreign property" under the Canadian Tax Act
for trusts governed by registered
3
<PAGE> 16
pension plans, registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans or for certain other tax-exempt persons.
Continued funeral services investment opportunity. If the Offers and the
Transactions are consummated, the Company's current operations will be combined
with SCI's and the Company's existing shareholders will become shareholders of
Buyer and Canadian Newco. The former Company shareholders will continue to
participate in the funeral services industry.
- Diverse Portfolio of Properties. If the Acquisition is consummated, Buyer
will hold, subject to any divestitures required to alleviate competition
issues, approximately 3,750 funeral service locations and 600 cemeteries
operating in 13 countries in North America, Europe and the Pacific Rim.
In 1993, SCI made its first acquisition outside North America, entering
Australia with its acquisition of The Pine Grove Funeral Group and in
1994 it acquired LePine Holdings Proprietary Limited, which together
consisted of 77 funeral service locations and 8 cemeteries. In 1994, SCI
also acquired the two largest publicly traded funeral service companies
in the United Kingdom, Great Southern Group plc. ("GSG") and Plantsbrook
Group plc. ("PG") which together consisted of 517 funeral service
locations and 2 cemeteries. In 1995, SCI acquired Pompes Funebres
Generales S.A. ("PFG"), the largest funeral service provider in Europe,
with 950 funeral service locations. The PFG transaction included
operations in six European and two Pacific Rim countries. In total, 36
percent of SCI's total revenues for the first six months of 1996 were
derived from locations outside of North America.
- International Opportunities. SCI perceives significant opportunities for
future growth and expansion overseas. SCI has been able to improve the
operating margins of the properties acquired through international
acquisitions by introducing its management techniques, merchandise and
service options and its cluster approach. SCI also believes significant
opportunities exist for additional international acquisitions. With its
strong international base and established management and operating
infrastructure, SCI believes that it enjoys a strategic advantage for
further expansion.
- Management. SCI believes that a significant portion of its success is
attributable to its strong management and dedicated employees. As the
oldest and most established consolidator in the industry, SCI has
assembled a quality management team from the local level to senior
management. SCI's senior management has been stable and consistent over
the last several years and has contributed significantly to SCI's
record-breaking results in every year since 1990. The current officers of
SCI have an average of 18 years of experience in the industry and an
average of over 12 years of experience with SCI.
- Superior Stock Performance. Over the last three years, SCI has produced
share price appreciation in excess of the Company, despite the fact that
SCI is substantially larger. SCI's share price growth for the three years
ended June 1996 was 40.7 percent versus the Company's 12.5 percent for
the same period. Past stock price performance is not necessarily
indicative of likely future stock price performance.
Risks of Failure to Tender. Shareholders of the Company now have the
opportunity to receive a significant premium for their Shares and Preferred
Shares, and to participate in the benefits of SCI's operating capabilities and
financial results, by participating in the Offers. By declining an opportunity
to exchange Shares and Preferred Shares for Buyer Common Stock and Exchangeable
Shares, and choosing instead to continue with an investment in the Company,
shareholders are assuming the risk that the value of the Shares and Preferred
Shares may not appreciate to the value being offered by the Purchasers in the
Offers. This risk may be intensified by the following issues:
- Disclosure of Material Information. The Company has recently announced
two transactions (the acquisitions of Prime Succession Inc. ("Prime
Succession") which has been consummated, and of The Rose Hill Memorial
Park Association and The Rose Hills Company, Inc. (collectively, "Rose
Hills"), which has not yet been consummated) in conjunction with a third
party investor. The agreement related to Prime Succession permits that
investor to require the Company to purchase the investor's ownership in
Prime Succession, and permits the Company to require that investor to
sell its interest in
4
<PAGE> 17
Prime Succession to the Company, for undisclosed prices. According to
press reports, the agreement related to Rose Hills has similar "put" and
"call" rights. In view of the Company's failure to disclose the put and
call prices in the Prime Succession transaction and, assuming the
accuracy of such press reports, the put and call prices in the Rose Hills
transaction, SCI believes that shareholders are unable to assess the
attractiveness of these commitments.
- Uncertainty of Future Tax Rate. SCI believes that the Company's earnings
currently benefit from a lower than normal effective tax rate based upon
a financing strategy whereby the Company reduces U.S. withholding taxes
from 30 percent to 10 percent on U.S. source interest income paid to
certain Canadian residents who are affiliates of the Company. Proposed
IRS withholding tax regulations, issued in April of 1996 which have a
stated effective date of January 1, 1998, may, if adopted, eliminate this
tax savings technique which could have a material impact on the Company's
earnings.
See "Background of the Offers."
THE OFFERS
Buyer hereby offers, upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal, to exchange (i) a number of
shares of Buyer Common Stock equal to the Share Exchange Ratio for each
outstanding Share validly tendered on or prior to the Expiration Date (as
defined below) and not withdrawn and (ii) a number of shares of Buyer Common
Stock equal to the Preferred Share Exchange Ratio for each outstanding Preferred
Share validly tendered on or prior to the Expiration Date and not withdrawn. The
term "Share Exchange Ratio" means the quotient (rounded to the nearest
1/100,000) determined by dividing $45.00 by the average of the high and low
sales prices of the SCI Common Stock (as reported on the NYSE Composite Tape)
(the "SCI Average Price") on each of the twenty consecutive trading days ending
with the third trading day immediately preceding the Expiration Date; provided,
however, that the Share Exchange Ratio shall not be greater than 1.76471. The
term "Preferred Share Exchange Ratio" means the product of (i) the Share
Exchange Ratio and (ii) .65574; provided, however, that the Preferred Share
Exchange Ratio shall not be greater than 1.15719. The Share Exchange Ratio and
the Preferred Exchange Ratio are referred to collectively as the "Exchange
Ratios."
Pursuant to the Exchange Ratios, each Share which is validly tendered to
Buyer and not withdrawn on or prior to the Expiration Date will be exchanged for
$45.00 of Buyer Common Stock and each Preferred Share which is validly tendered
to Buyer and not withdrawn on or prior to the Expiration Date will be exchanged
for $29.51 of Buyer Common Stock if the SCI Average Price is greater than or
equal to $25.50. If the SCI Average Price is less than $25.50, each such Share
will be exchanged for less than $45.00 of Buyer Common Stock and each such
Preferred Share will be exchanged for less than $29.51 of Buyer Common Stock. On
October 1, 1996, the closing price of the SCI Common Stock on the NYSE Composite
Tape was $29.875. Based on such closing price, the Share Exchange Ratio would be
1.50628 and each such Share would be exchanged for $45.00 of Buyer Common Stock
and the Preferred Share Exchange Ratio would be 0.98773 and each such Preferred
Share would be exchanged for $29.51 of Buyer Common Stock, assuming for these
purposes that the value of the Buyer Common Stock immediately after consummation
of the Offers is equivalent to the value of the SCI Common Stock immediately
prior to consummation of the Offers.
The Exchange Ratios will change as the market price of the SCI Common Stock
changes. Shareholders of the Company may call (800) - any time on or after
the date hereof throughout the Expiration Date for the current Exchange Ratios
calculated based on the then-current SCI Average Price for the twenty
consecutive trading days ending with the third trading day immediately preceding
the date the call is placed. The actual SCI Average Price and Exchange Ratios
will be calculated as of the third trading day immediately prior to the
Expiration Date, as described above, and a press release will be issued
announcing the actual Exchange Ratios prior to the opening of trading on the
second trading day prior to the Expiration Date (as it may be extended from time
to time).
Canadian Newco hereby offers, upon the terms and subject to the conditions
set forth herein and in the related Letter of Transmittal, to exchange (i) a
number of Exchangeable Shares equal to the Share Exchange Ratio for each
outstanding Share validly tendered on or prior to the Expiration Date and not
withdrawn, and
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(ii) a number of Exchangeable Shares equal to the Preferred Share Exchange Ratio
for each outstanding Preferred Share validly tendered on or prior to the
Expiration Date and not withdrawn. The number of Exchangeable Shares issuable in
the Canadian Newco Offer in respect of each Share or Preferred Share, as the
case may be, validly tendered to Canadian Newco and not withdrawn prior to the
Expiration Date is equal to the number of shares of Buyer Common Stock issuable
in the Buyer Offer in respect of each Share or Preferred Share, as the case may
be, validly tendered to Buyer and not withdrawn prior to the Expiration Date.
A SHAREHOLDER WHO TENDERS SHARES (AND THE ASSOCIATED RIGHTS) OR PREFERRED
SHARES, AS THE CASE MAY BE, AND FAILS TO MAKE AN ELECTION WITH RESPECT TO SUCH
TENDER SHALL BE DEEMED TO HAVE TENDERED SUCH SHARES (AND THE ASSOCIATED RIGHTS)
OR PREFERRED SHARES, AS THE CASE MAY BE, PURSUANT TO THE BUYER OFFER IN EXCHANGE
FOR BUYER COMMON STOCK. See "Certain U.S. and Canadian Federal Tax Consequences
of the Acquisition."
The term "Expiration Date" shall mean 10:00 a.m., New York City time, on
, 1996, unless and until the Purchasers extend the period of time
for which the Offers are open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offers, as so extended by the
Purchasers, shall expire.
Purpose of the Offers; the Transactions
The purpose of the Offers is for Buyer to acquire control of, and
ultimately the entire common equity interest in, the Company. Immediately prior
to the consummation of the Offers, SCI will effect a merger (the "Holding
Company Merger") of SCI Merger, Inc., a Texas corporation and a wholly owned
subsidiary of Buyer ("Merger Sub"), with and into SCI, with SCI as the surviving
corporation of the Holding Company Merger. Pursuant to the Holding Company
Merger, each outstanding share of SCI Common Stock (except for shares of SCI
Common Stock owned by SCI or Buyer) will be converted into one share of Buyer
Common Stock and SCI will become a wholly owned subsidiary of Buyer. The
Purchasers will not consummate the Offers unless the Holding Company Merger has
been effected.
SCI and the Purchasers currently intend, as soon as reasonably practicable
after the consummation of the Offers and the Holding Company Merger, to seek to
have the Company and Canadian Newco consummate an arrangement under British
Columbia law (the "Second Step Transaction") pursuant to which (i) each
outstanding Share (except for treasury shares of the Company and Shares held by
the Purchasers or any subsidiary of the Purchasers) will be exchanged for, at
the election of the holder of such Share, a number of shares of Buyer Common
Stock or Exchangeable Shares equal to the Share Exchange Ratio, (ii) each
outstanding Preferred Share (except for treasury shares of the Company and
Preferred Shares held by the Purchasers or any subsidiary of the Purchasers
other than in a fiduciary capacity) will be exchanged for, at the election of
the holder of such Preferred Share, a number of shares of Buyer Common Stock or
Exchangeable Shares equal to the Preferred Share Exchange Ratio, (iii) the
Company's 1994 Management Equity Investment Plan (the "MEIP") will be affected
in the manner described below and (iv) the Company will become a direct and
indirect subsidiary of Buyer, and all of the outstanding Shares and Preferred
Shares of the Company will be owned either by Buyer or Canadian Newco.
According to publicly available information, under the MEIP, a new issue of
senior exchangeable debentures (the 1994 Exchangeable Floating Rate Debentures
due July 15, 2001 ("Debentures")) of The Loewen Group International, Inc.
("LGII"), a Delaware corporation and a wholly owned subsidiary of the Company,
was issued to a wholly owned special purpose subsidiary (the "SPS") of LGII. The
Debentures are exchangeable for the Company's Convertible First Preferred
Shares, Series B ("Series B Shares"). At any time before July 15, 2011, each of
the Series B Shares may be converted at the option of the holder into 10 Shares,
subject to certain anti-dilution adjustments. There are currently no Series B
Shares outstanding. The SPS, acting as the agent of LGII, financed approximately
95 percent of the purchase price of the Debentures through third-party financing
(guaranteed by the Company and LGII). The remaining purchase price of the
Debentures (approximately 5 percent) was financed through the sale to certain
key employees of LGII's direct and indirect U.S. subsidiaries of rights (an
"Investment Option Agreement") and obligations (a "Purchase Agreement") to
purchase the Debentures. No Investment Option Agreement or Purchase Agreement
has been publicly filed and, accordingly, the terms thereof are not known to SCI
or the Purchasers. The Company has reserved for issuance, upon exchange of the
Debentures, 425,000 Series B Shares. The
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maximum number of Shares which may be issued under the MEIP, upon conversion of
the Series B Shares, is limited to 4,250,000. The aggregate principal amount of
Debentures which may be sold to participants pursuant to the MEIP is limited to
$128 million.
Based upon the information contained in publicly filed documents, SCI and
the Purchasers believe that (i) all the Debentures are currently owned by the
SPS, and (ii) certain Investment Option Agreements and a Purchase Agreement are
outstanding but not currently exercisable and do not become exercisable by their
terms until at the earliest 1999. Pursuant to the special rights and
restrictions attached to the Series B Shares, as a result of the Second Step
Transaction, a holder of Series B Shares would no longer have the right to
receive Shares upon conversion of the Series B Shares but instead would have the
right to receive, at the election of such holder, the number of shares of Buyer
Common Stock or Exchangeable Shares to which such holder would have been
entitled if such holder had converted such Series B Shares immediately prior to
the consummation of the Second Step Transaction.
The Purchasers intend that the Second Step Transaction be effected pursuant
to an arrangement under the laws of the Province of British Columbia. After
consummation of the Offers, the Purchasers intend to cause the Company to apply
to the Supreme Court of British Columbia (the "BC Court") for an interim order
convening a meeting or meetings of the shareholders of the Company (the
"Shareholders' Meeting") to consider an arrangement which would have the effects
described above, and which would become effective if (x) approved by (i) if so
ordered by the BC Court, at least three-quarters of the votes cast at the
Shareholders' Meeting by the holders of the outstanding Shares and the holders
of the outstanding Preferred Shares voting as separate classes, and (ii) the BC
Court in a final order, and (y) accepted for filing by the British Columbia
Registrar of Companies. If the Offers are consummated and the Minimum Tender
Condition is met, the Purchasers will own a sufficient number of Shares and
Preferred Shares to approve the arrangement at the Shareholders' Meeting without
the vote of any additional shareholders of the Company. The level of shareholder
approval is in the discretion of the BC Court. It is possible that no separate
approval of the holders of outstanding Preferred Shares will be required
depending upon the proposed terms of the arrangement. At the hearing of the
motion for the final order, the BC Court will consider, among other things, the
fairness and reasonableness of the arrangement. It is intended that the
arrangement to be put before the Shareholders' Meeting will not provide for
dissent or appraisal rights to any shareholders who vote against the
arrangement.
There can be no assurance that the BC Court will approve the arrangement on
the terms described above, or that the BC Court will not require that
shareholders of the Company that do not vote in favor of the Second Step
Transaction be granted dissent or appraisal rights. See "The Offers -- Dissent
Rights." In the event that the BC Court does not approve the arrangement on the
terms described above, SCI and the Purchasers intend to seek to acquire the
remaining Shares and Preferred Shares pursuant to an amalgamation, a revised
arrangement or another transaction permitted under applicable law. The Second
Step Transaction or any such alternative transaction may be subject to the
provisions of policies of certain of the Canadian Securities Regulatory
Authorities relating to "going private transactions" and "related party
transactions."
Subject to such regulatory approvals as may be necessary, it is the
intention of SCI and the Purchasers that, at the effective time of the Second
Step Transaction, each outstanding option to purchase Shares granted under the
Company's employee stock option plans (a "Company Option") will become an option
(a "New Option") to purchase a number of shares of Buyer Common Stock (in the
case of options ("U.S. Options") outstanding under the Company's Employee Stock
Option Plan (United States), as restated and amended as at September 19, 1995)
or a number of Exchangeable Shares (in the case of options ("Canadian Options")
outstanding under the Company's Employee Stock Option Plan (Canada), as restated
and amended as at September 19, 1995), equal in either case to (x) the number of
Shares subject to such Company Option at the effective time of the Second Step
Transaction multiplied by (y) the Share Exchange Ratio, and the exercise price
of such New Option (per share of Buyer Common Stock or per Exchangeable Share,
as applicable) will be equal to (a) the exercise price per Share of such Company
Option immediately prior to the effective time of the Second Step Transaction
divided by (b) the Share Exchange Ratio.
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<PAGE> 20
As soon as reasonably practicable after the consummation of the Second Step
Transaction, SCI and the Purchasers intend to contribute (the "Buyer
Reorganization") certain of their assets (which may include equity interests of
the Company) to LGII, in exchange for at least 80 percent of the outstanding
common stock of LGII ("LGII Common Stock") and at least 80 percent of each class
of nonvoting stock of LGII. It is intended that the Buyer Reorganization qualify
as a tax-free transaction pursuant to the provisions of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code").
The Holding Company Merger, the Second Step Transaction and the Buyer
Reorganization are sometimes referred to herein collectively as the
"Transactions." See "The Offers -- Purpose of the Offers; the Transactions."
The Purchasers' respective obligations to exchange shares of Offered Stock
for Shares and Preferred Shares pursuant to the Offers are conditioned upon
satisfaction of the Minimum Tender Condition, the SCI Shareholder Approval
Condition, the Rights Plan Condition, the Company Board Condition, the
Regulatory Condition and the Holding Company Merger Condition (in each case as
defined on the cover page of this Prospectus) and the other conditions set forth
under "The Offers -- Certain Other Conditions of the Offers." See "The
Offers -- Minimum Tender Condition," "-- SCI Shareholder Approval Condition,"
"-- Rights Plan Condition," "-- Company Board Condition," "-- Regulatory
Condition," "-- Holding Company Merger Condition," and "-- Certain Other
Conditions of the Offers." Waiver or amendment of any of these conditions may
require an extension of the Offers.
Shareholders will be required to tender one Right for each Share tendered
in order to effect a valid tender of Shares, unless the Rights Plan Condition
has been satisfied or waived. Unless the Separation Time occurs, a tender of
Shares will constitute a tender of the associated Rights.
Extension, Termination and Amendment
The Purchasers expressly reserve the right, in their sole discretion, at
any time or from time to time, to extend the period of time during which the
Offers are to remain open by giving written notice or other communication
confirmed in writing of such extension to the Exchange Agent, and by causing the
Exchange Agent to provide as soon as practicable thereafter a copy of such
notice to all holders of Shares and Preferred Shares whose addresses as shown on
the register of Shares and Preferred Shares of the Company are in Canada
("Canadian Holders") and by making a public announcement thereof. There can be
no assurance that the Purchasers will exercise their right to extend the Offers.
However, it is the Purchasers' current intention to extend the Offers until all
conditions have been satisfied or waived. See "The Offers -- Extension,
Termination and Amendment." During any such extension, all Shares and all
Preferred Shares previously tendered and not withdrawn will remain subject to
the Offers, subject to the right of a tendering shareholder to withdraw his
Shares or his Preferred Shares, as the case may be. See "The
Offers -- Withdrawal Rights."
Subject to the applicable rules and regulations of the Commission and
Applicable Canadian Securities Laws, the Purchasers expressly reserve the right,
in their sole discretion, at any time or from time to time, (i) to delay
acceptance for exchange of any Shares or any Preferred Shares, as the case may
be, pursuant to the Offers or to amend or terminate the Offers and not accept
for exchange any Shares or Preferred Shares, as the case may be, upon the
failure of any of the conditions of the Offers to be satisfied and (ii) to waive
any of the conditions of the Offers or any defect or irregularity in the tender
of any securities, except that the Purchasers will not waive the Holding Company
Merger Condition or the Regulatory Condition, or (iii) otherwise amend the
Offers in any respect, by giving written notice or other communication confirmed
in writing of such delay, termination or amendment to the Exchange Agent and
causing the Exchange Agent to provide as soon as practicable thereafter a copy
of such notice to all Canadian Holders and by making a public announcement
thereof.
Exchange of Shares and Preferred Shares; Delivery of Offered Stock
Upon the terms and subject to the conditions of the Offers, and if the
conditions of the Offers have been fulfilled or waived at the Expiration Date,
the Purchasers will be obligated to accept for exchange and to exchange, Shares
and Preferred Shares validly tendered and not withdrawn as promptly as
practicable after
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<PAGE> 21
the Expiration Date. Such acceptance shall occur not later than 10 days after
the Expiration Date and such exchange shall occur not later than three days
after accepting such Shares and Preferred Shares for exchange. See "The
Offers -- Exchange of Shares and Preferred Shares; Delivery of Offered Stock."
Withdrawal Rights
Tenders of Shares or Preferred Shares, as the case may be, made pursuant to
the Offers are irrevocable, except that Shares or Preferred Shares, as the case
may be, tendered pursuant to the Offers may be withdrawn at any time prior to
the Expiration Date, and, unless theretofore accepted for exchange and exchanged
by the Purchasers pursuant to the Offers, may also be withdrawn at any time
after , 1996. See "The Offers -- Withdrawal Rights."
Procedure for Tendering
For a shareholder to validly tender Shares or Preferred Shares, as the case
may be, pursuant to either the Buyer Offer or the Canadian Newco Offer, (i) a
properly completed and duly executed Letter of Transmittal (or manually executed
facsimile thereof), together with any required signature guarantees and any
other required documents, must be transmitted to and received by the Exchange
Agent or the Canadian Forwarding Agent at one of their addresses set forth on
the back cover of this Prospectus and certificates for tendered Shares or
Preferred Shares, as the case may be, must be received by the Exchange Agent or
the Canadian Forwarding Agent at such address or such Shares must be tendered
pursuant to the procedures for book-entry tender set forth under "The
Offers -- Procedure for Tendering" (and a confirmation of receipt of such tender
received), in each case prior to the Expiration Date, or (ii) such shareholder
must comply with the guaranteed delivery procedure set forth under "The
Offers -- Procedure for Tendering." As noted above, shareholders will be
required to tender one Right for each Share tendered in order to effect a valid
tender of Shares, unless the Rights Plan Condition has been satisfied or waived.
Unless the Separation Time occurs, a tender of Shares will constitute a tender
of the associated Rights.
Any shareholder desiring to tender Shares or Preferred Shares, as the case
may be, pursuant to either the Buyer Offer or the Canadian Newco Offer, must
make an Election by indicating in the appropriate space provided on the Letter
of Transmittal, (i) the number of Shares and/or the number of Preferred Shares
such shareholder desires to tender pursuant to the Buyer Offer in exchange for
shares of Buyer Common Stock, and (ii) the number of Shares and/or the number of
Preferred Shares such shareholder desires to tender pursuant to the Canadian
Newco Offer in exchange for Exchangeable Shares. A shareholder who tenders
Shares (and the associated Rights) or Preferred Shares, as the case may be, and
fails to make an Election with respect to such tender shall be deemed to have
tendered such Shares (and the associated Rights) or Preferred Shares, as the
case may be, pursuant to the Canadian Newco Offer in exchange for Exchangeable
Shares.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT OR THE CANADIAN
FORWARDING AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Certain U.S. and Canadian Federal Tax Consequences
Shareholders should read carefully the information under "Certain U.S. and
Canadian Federal Tax Consequences of the Acquisition" which qualifies the
information set forth below, and should consult their tax advisors. No advance
income tax rulings have been sought or obtained with respect to any of the
transactions described herein.
Canada. A shareholder of the Company who is a resident of Canada, who holds
Shares or Preferred Shares as capital property and who elects to receive Buyer
Common Stock pursuant to the Buyer Offer or the
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<PAGE> 22
Second Step Transaction will realize a capital gain (or a capital loss) equal to
the amount by which the fair market value of the Buyer Common Stock received by
such shareholder, net of any reasonable costs of disposition, exceeds (or is
less than) the adjusted cost base to the shareholder of such shareholder's
Shares or Preferred Shares, as the case may be. A shareholder of the Company who
is a resident of Canada and exchanges Shares or Preferred Shares for
Exchangeable Shares (in either the Canadian Newco Offer or the Second Step
Transaction) will be permitted to elect with Canadian Newco in prescribed form
pursuant to section 85 of the Income Tax Act (Canada) (the "Canadian Tax Act"),
so as generally to be treated as having engaged in a tax-deferred rollover for
Canadian federal income tax purposes.
United States. United States Holders (as defined herein) of Shares or
Preferred Shares generally will not recognize gain or loss upon the exchange of
such Shares or Preferred Shares for Buyer Common Stock pursuant to the Buyer
Offer. United States Holders of Shares or Preferred Shares who exchange such
shares for Buyer Common Stock in the Second Step Transaction, however, may be
required to recognize gain or loss on such exchange.
A United States Holder who exchanges Shares or Preferred Shares for
Exchangeable Shares pursuant to the Canadian Newco Offer will likely recognize
capital gain or loss on such exchange unless such exchange, when considered in
conjunction with Buyer's activities with respect to and ownership interest in
Canadian Newco, falls within the purview of Code Section 351, in which event
such exchange would be tax-free. If the exchange is taxable, the amount of gain
or loss recognized will be equal to the difference between the fair market value
of the Exchangeable Shares received by such shareholder and such shareholder's
tax basis in the Shares or Preferred Shares so exchanged.
As used herein, a "United States Holder" includes a shareholder of the
Company who is a citizen or individual resident of the United States, a
corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, or an estate or trust the
income of which is included in its gross income for United States income tax
purposes without regard to its source, but excludes persons subject to special
provisions of United States federal income tax law, such as tax-exempt
organizations, financial institutions, insurance companies, broker-dealers,
persons having a "functional currency" other than the United States dollar,
shareholders of the Company who hold Shares or Preferred Shares as part of a
straddle, wash sale, hedging or conversion transaction and holders of Shares or
Preferred Shares who acquired such shares through the exercise of employee stock
options or otherwise as compensation for services.
Accounting Treatment
The Purchasers intend to account for the acquisition of the Shares and the
Preferred Shares pursuant to the Offers and the Second Step Transaction
(collectively, the "Acquisition") using the pooling-of-interests method of
accounting in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). The occurrence of certain events outside the control
of Buyer, SCI, Canadian Newco or the Company may preclude accounting for the
Acquisition as a pooling-of-interests. In the event that the Acquisition may not
be accounted for as a pooling-of-interests, the Purchasers intend to account for
the Acquisition using the purchase method of accounting in accordance with U.S.
GAAP. See "The Offers -- Accounting Treatment" and the "Unaudited Pro Forma
Combined Financial Information" contained in this Prospectus.
Effect of Offers on Market for Shares and Preferred Shares; Registration Under
the Exchange Act
The exchange of Shares and Preferred Shares pursuant to the Offers will
reduce the number of holders of Shares and Preferred Shares and the number of
Shares and Preferred Shares that might otherwise trade publicly and, depending
upon the number of Shares and Preferred Shares so purchased, could adversely
affect the liquidity and market value of the remaining Shares and Preferred
Shares held by the public.
The Shares are listed and principally traded on the NYSE and are also
listed on the TSE and the ME. The Preferred Shares are listed and principally
traded on the TSE and the ME. Depending upon the number of Shares and Preferred
Shares acquired pursuant to the Offers, following consummation of the Offers,
the Shares or the Preferred Shares, as the case may be, may no longer meet the
requirements of such exchanges
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<PAGE> 23
for continued listing and the Shares may no longer constitute "margin
securities" for the purposes of the Federal Reserve Board's margin regulations,
in which event the Shares or the Preferred Shares, as the case may be, would be
ineligible as collateral for margin loans made by brokers. For a description of
the treatment of Shares and Preferred Shares in the Second Step Transaction, see
"The Offers -- Purpose of the Offers; the Transactions."
See "The Offers -- Effect of Offers on Market for Shares and Preferred
Shares; Registration Under the Exchange Act and Reporting Issuer Status Under
Applicable Canadian Securities Laws."
Dissent Rights
The Purchasers intend that the Second Step Transaction be effected pursuant
to an arrangement which will not contemplate dissent rights to shareholders. The
BC Court has jurisdiction to order that the statutory dissent rights specified
in the BCCA shall be available to shareholders who do not vote in favor of the
arrangement or to provide such other dissent or appraisal rights as the BC Court
in its discretion may determine.
The BCCA provides that shareholders of a company who exercise statutory
dissent rights with respect to any of their shares shall be paid the fair value
of those shares as of the day before the resolution giving rise to the dissent
rights is passed (including any appreciation or depreciation in anticipation of
the vote). See "The Offers -- Dissent Rights."
DESCRIPTION OF CAPITAL STOCK OF BUYER AND CANADIAN NEWCO
Buyer
The authorized capital stock of Buyer will consist of 500,000,000 shares of
Buyer Common Stock, par value $0.01 per share, one share of Special Voting
Stock, par value $0.01 per share and 1,000,000 shares of preferred stock, par
value $0.01 per share ("Buyer Preferred Stock"), of which will be
designated Series A Preferred Shares ("Buyer Series A Preferred Shares") in
connection with the Buyer Rights (as defined below). As of August 5, 1996, there
were 235,718,534 shares of SCI Common Stock issued and outstanding, each of
which will be converted, in the Holding Company Merger, into one share of Buyer
Common Stock. SCI has no shares of preferred stock outstanding.
A single share (the "Special Voting Share") of Buyer Special Voting Stock
(the "Special Voting Stock") will be authorized for issuance and will be
outstanding having a par value of $0.01 per share. Except as otherwise required
by law or the articles of incorporation of Buyer (the "Buyer Articles"), the
Special Voting Share will be entitled to a number of votes equal to the number
of outstanding Exchangeable Shares from time to time not owned by Buyer or
certain subsidiaries of Buyer, and may be voted in the election of directors and
on all other matters submitted to a vote of stockholders of Buyer. The holders
of Buyer Common Stock and the holder of the Special Voting Share will vote
together as a single class on all matters, except to the extent voting as a
separate class is required by applicable law or the Restated Certificate of
Incorporation of Buyer (the "Buyer Charter"). In the event of any liquidation,
dissolution or winding up of Buyer, the holder of the Special Voting Share will
not be entitled to receive any assets of Buyer available for distribution to its
stockholders. The holder of the Special Voting Share will not be entitled to
receive dividends. The Special Voting Share will be issued to the Trustee
appointed under the Voting, Support and Exchange Trust Agreement (the "Voting,
Support and Exchange Trust Agreement") that will be entered into upon
consummation of the Offers by Buyer, Canadian Newco and the Trustee. See
"-- Voting, Support and Exchange Trust Agreement." At such time following
consummation of the Offers and the Holding Company Merger as the Special Voting
Share has no votes attached to it because there are no Exchangeable Shares
outstanding not owned by Buyer or subsidiaries of Buyer, and there are no
shares, debt, options or other agreements of Canadian Newco that could give rise
to the issuance of any Exchangeable Shares to any person (other than Buyer or
certain subsidiaries of Buyer), the Special Voting Share will be cancelled.
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Canadian Newco
The authorized capital of Canadian Newco will consist of 10,000 Common
Shares, par value C$0.01 per share ("Canadian Newco Common Shares"), and
Exchangeable Shares. As of October 1, 1996, there were 100 Canadian
Newco Common Shares issued and outstanding, and no Exchangeable Shares were
issued or outstanding. All of the outstanding Canadian Newco Common Shares are
owned by Buyer.
The Exchangeable Shares
The Exchangeable Shares will be exchangeable, at any time at the option of
the holder, on a one-for-one basis for shares of Buyer Common Stock. Pursuant to
the Voting, Support and Exchange Trust Agreement, the Trustee, as holder of the
only outstanding Special Voting Share, will be entitled to a number of votes on
all matters on which holders of Buyer Common Stock are entitled to vote equal to
the number of Exchangeable Shares outstanding from time to time that are not
held by Buyer or certain subsidiaries of Buyer. By furnishing instructions to
the Trustee, such holders of Exchangeable Shares will be able to exercise the
same voting rights with respect to Buyer as they would have after exchange of
their Exchangeable Shares for Buyer Common Stock. Holders of Exchangeable Shares
will also be entitled to receive dividends (payable in Canadian dollars)
economically equivalent to any dividends paid on an equal number of shares of
Buyer Common Stock. The Trust Agreement will restrict Buyer from paying
dividends on the Buyer Common Stock unless equivalent dividends are paid on the
Exchangeable Shares. Holders of Exchangeable Shares will also be entitled to
participate in any liquidation of Buyer on the same basis as holders of Buyer
Common Stock.
Exchange of Exchangeable Shares for Buyer Common Stock
Holders of the Exchangeable Shares will be entitled at any time following
the consummation of the Offers and the effective time of the Holding Company
Merger, upon delivery of a certificate representing Exchangeable Shares and a
duly executed notice of retraction (a "Retraction Request"), to require Canadian
Newco to redeem such Exchangeable Shares in exchange for an equivalent number of
shares of Buyer Common Stock. However, Canadian Newco must deliver all
Retraction Requests to Buyer, whereupon Buyer, instead of Canadian Newco, will
have the right to purchase the Exchangeable Shares that are the subject of the
Retraction Request in exchange for an equivalent number of shares of Buyer
Common Stock. If this right is not exercised, Canadian Newco is required to
effect the requested redemption. On any date on or after , 2007
(subject to acceleration in certain circumstances), Canadian Newco will have the
right, but not the obligation, to redeem all outstanding Exchangeable Shares in
exchange for an equivalent number of shares of Buyer Common Stock. Buyer will
have the overriding right, but not the obligation, to acquire the outstanding
Exchangeable Shares in exchange for an equivalent number of shares of Buyer
Common Stock on the last business day prior to the relevant Optional Redemption
Date (as defined below). In exercising such overriding right, Buyer will not be
required to purchase Exchangeable Shares from itself. If Buyer exercises the
overriding right, Canadian Newco's right to redeem the Exchangeable Shares on
the relevant Optional Redemption Date will terminate. "Optional Redemption Date"
means a date, if any, established by the Canadian Newco Board of Directors for
the redemption of Exchangeable Shares pursuant to the provisions of the
Exchangeable Shares, provided that such date will not be earlier than
, 2007 unless there are less than ,000,000 Exchangeable Shares outstanding
(other than Exchangeable Shares held by Buyer and its direct and indirect
subsidiaries and subject to adjustment to such number of shares to reflect
permitted changes to the Exchangeable Shares).
Eligibility for Investment of Exchangeable Shares
The Exchangeable Shares will be, on the date of issue, eligible investments
under certain Canadian federal and provincial statutes. So long as they are
listed on a prescribed stock exchange in Canada (which currently includes the
TSE and the ME), the Exchangeable Shares will not be foreign property under the
Canadian Tax Act for trusts governed by registered pension plans, registered
retirement savings plans, registered retirement income funds and deferred profit
sharing plans or for certain other tax-exempt persons. The Ancillary Rights (as
defined below) will not be qualified investments for such purposes and will be
foreign property under the Canadian Tax Act. SCI and the Purchasers are of the
view, however, that the fair market
12
<PAGE> 25
value of these rights is generally nominal. "Ancillary Rights" means any and all
rights granted by Buyer to holders of Exchangeable Shares (including voting
rights and exchange rights). See "The Offers -- Eligibility for Investment in
Canada."
For additional information concerning the capital stock of the Purchasers,
see "Description of Capital Stock of Buyer and Canadian Newco."
THE EXCHANGE AGENT AND THE CANADIAN FORWARDING AGENT
IBJ Schroder Bank & Trust Company has been appointed exchange agent (the
"Exchange Agent") and has been appointed the Canadian forwarding agent
(the "Canadian Forwarding Agent") in connection with the Offers. The Letter of
Transmittal (or facsimile copies thereof) and certificates for Shares and
Preferred Shares should be sent by each tendering holder of Shares or Preferred
Shares, as the case may be, or his broker, dealer, bank or other nominee to the
Exchange Agent or the Canadian Forwarding Agent at the addresses set forth on
the back cover of this Prospectus.
REQUEST FOR ASSISTANCE AND ADDITIONAL COPIES
Requests for information or assistance concerning the Offers may be
directed to the Dealer Managers or the Information Agent at their addresses set
forth on the back cover of this Prospectus. Requests for additional copies of
this Prospectus and the Letter of Transmittal should be directed to the
Information Agent.
13
<PAGE> 26
CAPITALIZATION OF SCI, THE COMPANY AND BUYER
The following tables set forth the capitalization of SCI and the Company at
June 30, 1996 and the unaudited pro forma combined capitalization of Buyer at
June 30, 1996 after giving effect to the Offers and the Second Step Transaction
(and assuming that all holders of Shares and Preferred Shares elect to receive
Buyer Common Stock in the Offers and the Second Step Transaction). The
Purchasers intend to account for the acquisition of the Shares and the Preferred
Shares using the pooling-of-interests method of accounting in accordance with
U.S. GAAP. The occurrence of certain events outside the Purchasers' control may
preclude accounting for the Acquisition as a pooling-of-interests. In the event
that the Acquisition may not be accounted for as a pooling-of-interests, the
Purchasers intend to account for the Acquisition using the purchase method of
accounting in accordance with U.S. GAAP. Therefore, the following unaudited pro
forma combined capitalization tables have been prepared using both the
pooling-of-interests and purchase method of accounting. Share data for SCI has
been restated to reflect the August 1996 two-for-one common stock split.
UNAUDITED PRO FORMA COMBINED CAPITALIZATION TABLE
AS OF JUNE 30, 1996
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ ----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Current maturities of long-term debt...... $ 42,658 $ 68,041 $ -- $ 110,699
========== ========== ========= ==========
Long-term debt............................ $2,122,614 $1,027,334 $ -- $3,149,948
SCI obligated, mandatorily redeemable,
convertible preferred securities........ 172,500 -- -- 172,500
Preferred securities of subsidiary........ -- 75,000 -- 75,000
Stockholders' equity
Common stock............................ 235,318 -- 97,456(A) 332,774
Capital in excess of par value.......... 1,222,678 -- 850,141(A) 2,072,819
Share capital........................... -- 790,451 (790,451)(A) --
Preferred stock......................... -- 157,146 (157,146)(A) --
Retained earnings....................... 624,490 62,497 (50,000)(B) 636,987
Foreign translation adjustment and
other................................ 11,479 15,874 -- 27,353
---------- ---------- --------- ----------
Total stockholders' equity...... 2,093,965 1,025,968 (50,000) 3,069,933
---------- ---------- --------- ----------
Total capitalization............ $4,389,079 $2,128,302 $ (50,000) $6,467,381
========== ========== ========= ==========
</TABLE>
- ---------------
(A) Pro forma adjustments to stockholder's equity reflect the Buyer Common Stock
and Exchangeable Shares issued in exchange for Shares and Preferred Shares.
(B) Pro forma adjustment to record estimated transaction costs which include
legal, printing, accounting, financial advisory services and other related
expenses for both SCI and the Company.
14
<PAGE> 27
UNAUDITED PRO FORMA COMBINED CAPITALIZATION TABLE
AS OF JUNE 30, 1996
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ ----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Current maturities of long-term debt...... $ 42,658 $ 68,041 $ -- $ 110,699
========== ========== ========== ==========
Long-term debt............................ $2,122,614 $1,027,334 $ 26,000(A) $3,175,948
SCI obligated, mandatorily redeemable,
convertible preferred securities........ 172,500 -- -- 172,500
Preferred securities of subsidiary........ -- 75,000 5,625(B) 80,625
Stockholders' equity
Common stock............................ 235,318 -- 97,456(C) 332,774
Capital in excess of par value.......... 1,222,678 -- 2,814,044(C) 4,036,722
Share capital........................... -- 790,451 (790,451)(D) --
Preferred stock......................... -- 157,146 (157,146)(D) --
Retained earnings....................... 624,490 62,497 (62,497)(D) 624,490
Foreign translation adjustment and
other................................ 11,479 15,874 (15,874)(D) 11,479
---------- ---------- ---------- ----------
Total stockholders' equity...... 2,093,965 1,025,968 1,885,532 5,005,465
---------- ---------- ---------- ----------
Total capitalization............ $4,389,079 $2,128,302 $ 1,917,157 $8,434,538
========== ========== ========== ==========
</TABLE>
- ---------------
(A) To adjust the Company's debt to fair value.
(B) To adjust the Company's 9.45 percent Cumulative Monthly Income Preferred
Securities to fair value.
(C) To reflect the issuance of approximately 97,456,000 shares of Buyer Common
Stock in the Buyer Offer at an assumed value of $29.875 (the closing SCI
Common Stock price on October 1, 1996).
(D) To eliminate the historical shareholders' equity of the Company.
MARKET PRICES
The following table sets forth the market price per share of SCI Common
Stock and per Share and per Preferred Share and the equivalent market price per
Share and per Preferred Share on (i) September 16, 1996, the last trading day
before public announcement of the Proposal and (ii) , 1996, the last
trading day prior to the date of this Prospectus. The historical market prices
represent the closing prices per share on such dates on the NYSE Composite Tape
and on the Nasdaq National Market. The equivalent market prices per Share
represent the closing price per share of SCI Common Stock multiplied by the
Exchange Ratio for which Offered Stock is exchangeable in the Offer for each
Share. See "Market Prices and Dividends."
<TABLE>
<CAPTION>
THE COMPANY
---------------------------
SCI EQUIVALENT AT
SHARES ACTUAL ACTUAL EXCHANGE RATIO*
------ -------- -------- ---------------
<S> <C> <C> <C>
September 16, 1996............................... $ 30.25 $ 33.75 $ 45.00
, 1996............................ -- -- --
PREFERRED SHARES**
-------------------
September 16, 1996............................... $ 30.25 $ 24.08 $ 29.51
, 1996............................ -- -- --
</TABLE>
- ---------------
* If at the time of consummation of the Offer the SCI Average Price is less
than $25.50, each Share which is validly tendered and not withdrawn on or
prior to the Expiration Date will be exchanged for less than $45.00 of Buyer
Common Stock or Exchangeable Shares, as the case may be, and each Preferred
Share which is validly tendered and not withdrawn on or prior to the
Expiration Date will be exchanged for less than $29.51 of Buyer Common Stock
or Exchangeable Shares.
** The actual market price per Preferred Share is set forth in United States
dollars based on the closing price per Preferred Share on the TSE on
September 16, 1996 of C$33.00, and the noon rate for the U.S. dollar in
Canada on such date of U.S.$1.00 = C$1.3704, and on , 1996 of
C$ , and the noon rate for the U.S. dollar on Canada on such date of
U.S.$1.00 = C$1. .
15
<PAGE> 28
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data for SCI presented below for each of
the five years ended December 31, 1995 have been derived from the audited
consolidated financial statements of SCI. The data at and for the six months
ended June 30, 1996 and June 30, 1995 have been derived from the unaudited
consolidated financial statements of SCI for those periods and, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary to state fairly the information included therein in
accordance with U.S. GAAP for interim financial information. The data should be
read in conjunction with the related notes and other financial information
included and incorporated by reference in SCI's Annual Report on Form 10-K for
the year ended December 31, 1995 and SCI's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996, incorporated by reference herein. Results
for the six months ended June 30, 1996 may not be indicative of results for any
other interim period or for the year as a whole.
SERVICE CORPORATION INTERNATIONAL
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED JUNE 30, AT OR FOR THE TWELVE MONTHS ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1996 1995 1995 1994 1993* 1992* 1991*
---------- ---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenues........................ $1,140,202 $ 701,762 $1,652,126 $1,117,175 $ 899,178 $ 772,477 $ 643,248
Income before income taxes...... 210,791 144,059 294,211 219,021 173,492 139,336 108,872
Net income...................... 134,147 88,020 183,588 131,045 101,061 86,536 73,372
Earnings per share:**
Primary....................... .56 .46 .90 .75 .61 .56 .51
Fully diluted................. .54 .43 .85 .72 .58 .53 .50
Dividends per common share**.... .12 .11 .22 .21 .20 .195 .185
BALANCE SHEET INFORMATION:
Total assets.................... 8,308,133 5,444,775 7,663,811 5,161,888 3,683,304 2,611,123 2,123,452
Long-term debt.................. 2,122,614 1,579,918 1,732,047 1,330,177 1,062,222 980,029 786,685
Convertible preferred securities
of SCI Finance LLC............ 172,500 172,500 172,500 172,500 -- -- --
Stockholders' equity............ 2,093,965 1,296,151 1,975,345 1,196,622 884,513 683,097 615,776
Shares outstanding**............ 235,318 192,643 234,542 189,714 169,718 153,810 151,962
Book value per common share**... 8.90 6.73 8.42 6.31 5.21 4.44 4.05
</TABLE>
- ---------------
* The year ended December 31, 1993 reflects a change in accounting principles
adopted January 1, 1993 in which SCI changed its method of accounting for
prearranged funeral contracts and cemetery sales. The two years ended
December 31, 1992 reflect results as historically reported.
** Share and per share data has been restated to reflect the August 1996
two-for-one common stock split.
16
<PAGE> 29
The selected historical financial data for the Company presented below for
each of the five years ended December 31, 1995 have been derived from the
audited consolidated financial statements of the Company incorporated by
reference into this document, and are presented in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"). The data for the six
months ended June 30, 1996 and June 30, 1995 have been derived from the
unaudited consolidated financial statements of the Company. The data should be
read in conjunction with the related notes and other financial information
included and incorporated by reference in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996, incorporated by
reference herein. Results for the six months ended June 30, 1996 may not be
indicative of results for any other interim period or for the year as a whole.
To date the Company has not permitted SCI or the Purchasers access to the
Company's books and records nor, to SCI's knowledge, has the Company requested
its independent accountants to provide their consent to include their respective
audit opinions in this document.
THE LOEWEN GROUP INC.
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
JUNE 30, AT OR FOR THE TWELVE MONTHS ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------
1996 1995 1995 1994(1) 1993(1) 1992(1) 1991(1)
---------- ---------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue.............................. $ 416,240 $ 268,308 $ 599,939 $ 417,328 $303,011 $218,907 $162,605
Earnings from operations............. 95,536 66,305 119,053 95,113 65,697 50,563 39,053
Net earnings (loss).................. 36,712 26,397 (76,684) 38,494 28,182 19,766 14,425
Basic earnings (loss) per share(2)... .60 .62 (1.69) .97 .77 .59 .46
Fully diluted earnings (loss) per
share(2)(3)........................ .60 .62 (1.69) .97 .76 .58 .46
Dividends declared per share......... .12 .05 .05 .07 .045 .03 .015
BALANCE SHEET INFORMATION:
Total assets......................... $2,919,639 $1,431,014 $2,262,980 $1,326,275 $913,661 $675,111 $518,492
Total long-term debt(4).............. 1,095,375 533,209 934,509 516,654 341,977 246,715 193,853
Preferred securities of subsidiary... 75,000 75,000 75,000 75,000 -- -- --
Shareholders' equity................. 1,025,968 630,944 614,682 411,139 325,890 236,317 172,394
Book value per common share.......... 14.74 14.35 12.76 10.02 8.43 6.65 5.26
</TABLE>
- ---------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1995.
(2) Earnings (loss) per share reflect the two-for-one subdivision of Shares in
June 1991.
(3) Fully diluted earnings (loss) per share figures assume exercise, if
dilutive, of employee and other stock options effective on their dates of
issue and that the funds derived therefrom were invested at annual after-tax
rates of return ranging from 5.85% to 8.49%.
(4) Total long-term debt comprises long-term debt, including current portion.
The financial results for the twelve months ended December 31, 1995
included approximately $185,000,000 in pretax provisions for the costs of
certain legal settlements, litigation-related finance costs and certain
additional legal and general and administrative costs.
- ---------------
In accordance with Canadian GAAP basic earnings (loss) per share represents the
weighted average shares outstanding divided into net income.
Under U.S. GAAP the Company disclosed the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED DECEMBER
JUNE 30, 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Net income (loss).................... $36,973 $26,644 $(75,800) $39,809 $2,052
Earnings (loss) per share:
Primary............................ .60 .61 (1.67) .98 .05
Fully diluted...................... .60 .61 (1.67) .98 .05
</TABLE>
17
<PAGE> 30
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated balance sheets and income statements of SCI and the
Company as if the Acquisition had occurred on January 1, 1993 and January 1,
1995 for pooling-of-interests and purchase income statement data, respectively
and as of the dates presented for all balance sheet data. These statements are
prepared on the basis of accounting for the merger as both a
pooling-of-interests and a purchase and are based on the assumptions set forth
in the notes thereto. See "The Offers -- Accounting Treatment" and "Unaudited
Pro Forma Combined Financial Information." The following information is not
necessarily indicative of actual results that would have occurred had the
Acquisition occurred on such date or of future expected results.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------------------------
1996 1995 1994 1993
----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................. $ 1,556,442 $2,252,065 $1,534,503 $1,202,189
Income from operations.................... 371,226 530,674 384,608 285,884
Net income................................ 170,859 106,904 169,539 103,113
Earnings per share:
Primary................................ .53 .39 .72 .46
Fully diluted.......................... .52 --* .70 .46
Dividends per share....................... .12 .22 .21 .20
Equivalent pro forma earnings per common
share(1)............................... .80 .59 1.08 .69
Equivalent pro forma dividends per common
share(1)............................... .18 .33 .32 .30
</TABLE>
- ---------------
* Anti-dilutive
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................. $11,227,772
Long-term debt................................................ 3,149,948
Stockholders' equity.......................................... 3,069,933
Book value per common share................................... 9.23 $ 9.33
Equivalent pro forma book value per common share(1)........... 13.90 14.05
</TABLE>
- ---------------
(1) Combined per Company share equivalent calculated using Share Exchange Ratio.
18
<PAGE> 31
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues......................................................... $1,556,442 $ 2,727,398
Income from operations........................................... 349,172 535,702
Net income....................................................... 141,657 69,932
Earnings per share:
Primary....................................................... .44 .24
Fully diluted................................................. .43 --*
Dividends per share.............................................. .12 .22
Equivalent pro forma earnings per common share(1)................ .66 .36
Equivalent pro forma dividends per common share(1)............... .18 .33
</TABLE>
- ---------------
* Anti-dilutive
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1996 1995
----------- ------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................. $13,499,062
Long-term debt................................................ 3,175,948
Stockholders' equity.......................................... 5,005,465
Book value per common share................................... 15.04 $13.49
Equivalent pro forma book value per common share(1)........... 22.66 20.32
</TABLE>
- ---------------
(1) Combined per Company share equivalent calculated using Share Exchange Ratio.
19
<PAGE> 32
BACKGROUND OF THE OFFERS
BUSINESS OF SCI
SCI was incorporated in Texas on July 5, 1962. SCI is the largest funeral
service and cemetery organization in the world. At June 30, 1996, SCI operated
2,832 funeral service locations, 331 cemeteries and 146 crematoria located in
North America, Europe and the Pacific Rim. In addition, SCI provides capital
financing to independent funeral home and cemetery operators through its wholly
owned subsidiary, Provident.
SCI's mission is:
- To demonstrate the highest degree of professionalism while assisting
client families at a pivotal time in their lives;
- To exercise its responsibility as industry leader by setting high
standards of service, safety, and fair business practices; and
- To increase shareholder value through sound fiscal management and
corporate development.
SCI's common stock has been traded on the NYSE since May 14, 1974, under
the ticker symbol SRV. For the period 1990 through 1995, SCI's earnings per
share growth rate of 18.6 percent compounded annually, ranks in the top two
percent of the Standard & Poor's 500 Index, excluding companies reporting loss
years or down years during this six year period.
SCI has continued to expand through the acquisition of funeral service
locations, cemeteries and crematoria, both domestically and internationally.
During the period from January 1, 1991 through June 30, 1996, SCI acquired over
2,300 funeral service locations and over 200 cemeteries with total revenues of
approximately $1.5 billion. SCI has acquired most of its present operations
through acquisitions. Additional candidates for acquisition are continually
being evaluated by SCI as well as opportunities for expansion through the
constructing of new funeral homes.
THE PROPOSAL
In June of 1996, SCI began to consider the acquisition of the Company,
which is the second largest funeral home and cemetery organization in the world,
with 909 funeral homes and 253 cemeteries throughout North America as of July
26, 1996. After a thorough review of the publicly available information with
respect to the Company and discussions with SCI's legal and financial advisors,
SCI concluded that an acquisition by SCI of the Company in a stock-for-stock
transaction, at a significant premium to the prices at which the Company's stock
was trading, would benefit the shareholders of both companies.
On September 11, 1996, L. William Heiligbrodt, President and Chief
Operating Officer of SCI, called the office of Raymond L. Loewen, Chairman and
Chief Executive Officer of the Company, to propose that Mr. Loewen and Mr.
Heiligbrodt meet to discuss a combination of the two companies. Mr. Heiligbrodt
left a message asking that Mr. Loewen return the call. Mr. Heiligbrodt left
similar messages with Mr. Loewen's office on September 12 and September 16. Mr.
Loewen did not return any of the calls. On September 16, 1996, the closing price
of the Shares on the Nasdaq National Market (on which the shares traded prior to
October 2, 1996) was $33.75.
20
<PAGE> 33
On September 17, 1996, before the opening of trading on the Nasdaq National
Market, the following letter was delivered from Mr. Heiligbrodt to Mr. Loewen,
with a copy to each of the members of the Board of Directors of the Company.
September 17, 1996
Mr. Raymond L. Loewen
Chairman of the Board and
Chief Executive Officer
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia, Canada
Dear Mr. Loewen:
As you know, I have tried to reach you several times since
September 11. While your office has assured me that you received my
messages, my calls have not been returned. In view of that, and in
view of the importance of this matter, I am sending this letter.
I would like to discuss with you a combination of our two
companies. The combination would involve a stock-for-stock exchange
accounted for as a pooling which values Loewen Group at US$43 per
share. We believe that this transaction can be structured in a manner
that is tax-free to both companies and (except for a relatively
nominal amount in the case of U.S. stockholders) to the U.S. and
Canadian stockholders of Loewen Group.
I think you and your Board and stockholders would agree that our
proposal is a generous one, resulting in the following premiums for
Loewen Group stockholders:
- 48.9 percent above the price at which Loewen Group stock traded
30 days ago;
- 39.3 percent above the price at which Loewen Group stock traded
one week ago; and
- 27.4 percent above the price at which Loewen Group stock is
currently trading.
This represents an opportunity for your stockholders to realize
excellent value, by any measure, for their shares. In addition, and
importantly, since your stockholders would be receiving stock, they
would continue to participate in Loewen Group's business as well as
share in the upside of our business.
Thus, in essence, your stockholders would:
- continue their investment in our industry;
- get an immediate, and very significant, increase in the market
value of their investment;
- get that immediate and substantial increase on an essentially
tax free basis; and
- diversify their risk by participating in a much larger number
of properties.
This is a "win-win" situation for you and your stockholders.
Finally, with respect to consideration, I would note also that
our proposal is based on public information. After a due diligence
review, we may be in a position to increase the consideration that
your stockholders would receive.
We, of course, recognize that our businesses overlap in various
locations. We have carefully reviewed this matter and are convinced
that competition issues can be cured by selected divestitures without
impairment of the values that a combination would achieve for the
stockholders of our two companies.
I would very much like to discuss any and all aspects of our
proposal directly with you and your Board of Directors. We believe you
and they will recognize the tremendous benefit to your stockholders of
our proposal. Our proposal is conditioned upon approval of our Board
and upon negotiation of mutually satisfactory agreements providing for
a combination on a pooling basis.
21
<PAGE> 34
We hope that after you meet with us, you will similarly determine
that the transaction should be pursued. We look forward to hearing
from you.
In view of the importance of this matter, we are simultaneously
releasing this letter to the press.
Sincerely,
L. William Heiligbrodt
cc: Board of Directors of
The Loewen Group Inc.
The letter was released to the public at the same time that it was sent to
Mr. Loewen. The closing price of the Shares on the Nasdaq National Market (on
which the Shares traded prior to October 2, 1996) on September 17 was $40.00.
On September 17, 1996, the Company issued the following press release.
LOEWEN TO REVIEW UNSOLICITED PROPOSAL IN DUE COURSE
VANCOUVER, BRITISH COLUMBIA, SEPTEMBER 17, 1996 -- The Loewen
Group Inc. announced that the Company's Board of Directors will review
the proposal received today from Service Corporation International and
will respond in due course.
On September 18, 1996, the Board of Directors of SCI ratified the proposal
that had been made the day before. Mr. Heiligbrodt sent the following letter to
Mr. Loewen, with a copy to each of the members of the Company Board.
September 18, 1996
Mr. Raymond L. Loewen
Chairman and Chief Executive Officer
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia, Canada
Dear Ray:
We are pleased to confirm to you that the Board of Directors of
Service Corporation International today approved the proposal that we
made to you yesterday. Our Board is enthusiastic about this
transaction, and firmly believes that a combination of our two
businesses in the manner that we proposed is in the best interests of
your and our stockholders. We believe that after consideration, you
and your Board will reach the same conclusion.
In this regard, we note the enthusiastic reaction of your
stockholders to our proposal, reflected in both the post-announcement
price of your stock and the comments of stockholders and analysts. We
agree with Greg Capelli of Chicago Corp.: "This is a real winner for
both companies' shareholders." In the words of Todd Richter of Dean
Witter Reynolds: "It's a perfect strategic fit."
Ray, we at SCI would strongly prefer to communicate with you and
your team in person, rather than by letter. We believe that much more
can be accomplished through forthright dialogue.
We remind you that our valuation is based on public information,
and we may be able to increase our offer after a review of non-public
information.
22
<PAGE> 35
Please give me a call. I look forward to hearing from you.
Sincerely,
L. William Heiligbrodt
cc: Board of Directors
of The Loewen Group Inc.
On September 24, 1996, Mr. Loewen sent the following letter to Mr.
Heiligbrodt:
Mr. L. William Heiligbrodt
President
Service Corporation International
1929 Allen Parkway
Houston, TX 77219-0548
Dear Mr. Heiligbrodt:
The Board of Directors of The Loewen Group Inc. has asked me to
advise you of the decision that the Loewen Board has made in response
to the unsolicited takeover proposal that we received from Service
Corporation International on Tuesday, September 17, 1996.
The Loewen Board has unanimously rejected the SCI proposal. SCI
should understand that the Loewen Board of Directors takes its
fiduciary duty to act in the best interests of the Company and our
shareholders very seriously. We are fully committed to maximizing
long-term value for our shareholders. After extensive review of our
business and financial plans, as well as a thorough and careful study
of our excellent prospects for significant continued growth in
revenues and profitability in the future, the Loewen Board of
Directors has unanimously concluded that the best way to maximize
value for our shareholders is through the continued implementation of
the Company's long-term business plan as an independent company.
Sincerely,
Raymond L. Loewen
Chairman and Chief Executive
Officer
To date, Mr. Loewen has not made any attempts to discuss the Proposal with
Mr. Heiligbrodt and, except as set forth in the letter of September 24, 1996,
has not responded to Mr. Heiligbrodt's letters. In light of the significant
benefit to the stockholders of both companies that SCI believes this transaction
would achieve, the Board of Directors of SCI determined to proceed with the
Offers.
As indicated above, SCI intends to account for the Offers and the
transactions contemplated hereby as a pooling-of-interests. However, there is no
assurance that such transactions, if consummated, can be accounted for in such a
manner. See "The Offers -- Accounting Treatment." The Purchasers would be
willing to increase the consideration payable pursuant to the Offers if SCI and
the Company were to enter into a negotiated agreement providing for a business
combination on the basis of pooling-of-interests accounting. The amount of any
such increase would depend upon discussions among the parties.
ADVANTAGES TO SHAREHOLDERS
Significant Premium. The Offers and the Transactions provide shareholders
of the Company an opportunity to receive a significant premium for their Shares
and Preferred Shares. The Share Exchange Ratio
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<PAGE> 36
represents a 55.8 percent premium above the price at which the Shares traded one
month prior to the announcement of the Proposal, a 45.7 percent premium above
the price at which the Shares traded one week prior to the Proposal, a 33.3
percent premium above the price at which the Shares traded the day before the
Proposal and a 49.4 percent premium above that average price of the Shares
during the 30 day period prior to the announcement of the Proposal.
Based on the noon rate for U.S. dollars in Canada as reported by the Bank
of Canada on October 1, 1996, the Preferred Share Exchange Ratio represents a
34.0 percent premium above the price at which the Preferred Shares traded one
month prior to the announcement of the Proposal, a 27.6 percent premium above
the price at which the Preferred Shares traded one week prior to the Proposal, a
21.8 percent premium above the price at which the Preferred Shares traded the
day before the Proposal and a 27.2 percent premium above the average price of
the Preferred Shares during the 30-day period prior to the announcement of the
Proposal.
Tax Free Exchange. The Offers provide all of the Company's shareholders the
ability to receive this premium on a basis that is tax-free for United States
and Canadian federal income tax purposes. As discussed below under "Certain U.S.
and Canadian Federal Tax Consequences of the Acquisition," the receipt by United
States Holders of Buyer Shares pursuant to the Buyer Offer does not trigger
recognition of gain or loss for U.S. federal income tax purposes and the receipt
by Canadian residents of Exchangeable Shares pursuant to the Canadian Newco
Offer will not trigger gain for Canadian federal income tax purposes if the
appropriate election is filed. The redemption of the Exchangeable Shares by
Canadian Newco or the exercise by Buyer of either the Liquidation Call Right or
the Redemption Call Right will be a taxable event under the Canadian Tax Act. In
the Second Step Transaction, the receipt by Canadian residents of Exchangeable
Shares will not trigger gain for Canadian federal income tax purposes if the
appropriate election is filed. However, the receipt by U.S. citizens or
residents of any Offered Stock in the Second Step Transaction may require the
recognition of gain or loss. Shareholders of the Company that are United States
Holders are urged to consider the potentially significant difference in tax
consequences of exchanging their Shares and Preferred Shares pursuant to the
Buyer Offer and the Second Step Transaction. See "Certain U.S. and Canadian
Federal Tax Consequences of the Acquisition."
Opportunity to Receive Canadian Property. The Canadian Newco Offer provides
all of the Company's Canadian shareholders with the ability to receive
Exchangeable Shares. Canadian Newco intends to apply for the listing of the
Exchangeable Shares on the TSE and the ME which will qualify the Exchangeable
Shares to be treated as not being "foreign property" under the Canadian Tax Act
for trusts governed by registered pension plans, registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans or
for certain other tax-exempt persons.
Continued funeral services investment opportunity. If the Offers and the
Transactions are consummated, the Company's current operations will be combined
with SCI's and the Company's existing shareholders will become shareholders of
Buyer and Canadian Newco. The former Company shareholders will continue to
participate in the funeral services industry.
- Diverse Portfolio of Properties. If the Acquisition is consummated,
Buyer will hold, subject to any divestitures required to alleviate
competition issues, approximately 3,750 funeral service locations and
600 cemeteries operating in 13 countries in North America, Europe and
the Pacific Rim. SCI holds a geographically diverse portfolio of
properties. In 1993, SCI made its first acquisition outside North
America, entering Australia with its acquisition of The Pine Grove
Funeral Group and in 1994 it acquired LePine Holdings Proprietary
Limited, which together consisted of 77 funeral service locations and
8 cemeteries. In 1994, SCI also acquired the two largest publicly-
traded funeral service companies in the United Kingdom, GSG and PG
which together consisted of 517 funeral service locations and 2
cemeteries. In 1995, SCI acquired PFG, the largest funeral service
provider in Europe. The PFG transaction included operations in six
European and two Pacific Rim countries. In total, 36 percent of SCI's
total revenues for the first six months of 1996 were derived from
locations outside of North America.
- International Opportunities. SCI perceives significant opportunities
for future growth and expansion overseas. SCI has been able to improve
the operating margins of the properties acquired
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<PAGE> 37
through international acquisitions by introducing its management
techniques, merchandise and service options and its cluster approach.
SCI also believes significant opportunities exist for additional
international acquisitions. With its strong international base and
established management and operating infrastructure, SCI believes that
it enjoys a strategic advantage for further expansion.
- Management. SCI believes that a significant portion of its success is
attributable to its strong management and dedicated employees. As the
oldest and most established consolidator in the industry, SCI has
assembled a quality management team from the local level to senior
management. SCI's senior management has been stable and consistent
over the last several years and has contributed significantly to SCI's
record-breaking results in every year since 1990. The current officers
of SCI have an average of 18 years of experience in the industry and
an average of over 12 years of experience with SCI.
- Superior Stock Performance. Over the last three years, SCI has
produced share price appreciation in excess of that of the Company,
despite the fact that SCI is substantially larger. SCI's share price
growth for the three years ended June 1996 was 40.7 percent versus the
Company's 12.5 percent for the same period. Past stock price
performance is not necessarily indicative of likely future stock price
performance.
Risks of Failure to Tender. Shareholders of the Company now have the
opportunity to receive a significant premium for their Shares and Preferred
Shares, and to participate in the benefits of SCI's operating capabilities and
financial results, by participating in the Offers. By declining an opportunity
to exchange Shares and Preferred Shares for Buyer Common Stock and Exchangeable
Shares, and choosing instead to continue with an investment in the Company,
shareholders are assuming the risk that the value of the Shares and Preferred
Shares may not appreciate to the value being offered by the Purchasers in the
Offers. This risk may be intensified by the following issues:
- Disclosure of Material Information. The Company has recently announced
two transactions (the acquisitions of Prime Succession, which has been
consummated, and Rose Hills, which has not yet been consummated) in
conjunction with a third party investor. The agreement related to
Prime Succession permit that investor to require the Company to
purchase the investor's ownership in Prime Succession, and permits the
Company to require that investor to sell its interest in Prime
Succession to the Company for undisclosed prices. According to press
reports, the agreement related to Rose Hills has similar "put" and
"call" rights. In view of the Company's failure to disclose the put
and call prices in the Prime Succession transaction and, assuming the
accuracy of such press reports, the put and call prices in the Rose
Hills transaction, SCI believes that shareholders are unable to assess
the attractiveness of these commitments.
- Uncertainty of Future Tax Rate. SCI believes that the Company's
earnings currently benefit from a lower than normal effective tax rate
based upon a financing strategy whereby the Company reduces U.S.
withholding taxes from 30 percent to 10 percent on U.S. source
interest income paid to Canadian residents who are affiliates of the
Company. Proposed IRS withholding tax regulations, issued in April of
1996, which have a stated effective date of January 1, 1998, may, if
adopted, eliminate this tax savings technique which could have a
material impact on the Company's earnings.
25
<PAGE> 38
THE OFFERS
GENERAL
Rights are presently evidenced by the certificates for the Shares and the
tender by a shareholder of his Shares prior to the Separation Time will also
constitute a tender of the associated Rights. No separate payment will be made
by the Purchasers for the Rights pursuant to the Offers.
If the Separation Time occurs and separate certificates representing the
Rights are distributed by the Company or the Rights Agent to holders of Shares
prior to the time a holder's Shares are tendered pursuant to the Offers,
certificates representing a number of Rights equal to the number of Shares
tendered must be delivered to the Exchange Agent or the Canadian Forwarding
Agent, or, if available, a book-entry confirmation received by the Exchange
Agent or the Canadian Forwarding Agent with respect thereto, in order for such
Shares to be validly tendered. If the Separation Time occurs and separate
certificates representing the Rights are not distributed prior to the time
Shares are tendered pursuant to the Offer, Rights may be tendered prior to a
shareholder receiving the certificates for Rights by use of the guaranteed
delivery procedure described under "-- Procedure for Tendering" below.
According to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1996, (i) as of August 9, 1996, there were 58,933,380 Shares
outstanding and (ii) as of June 1996, there were 8,800,000 Preferred Shares
outstanding. As of October 1, 1996, SCI owned beneficially 500 Shares and no
Preferred Shares. The Purchasers disclaim beneficial ownership of any Shares or
Preferred Shares held by any pension plan of the Purchasers or any affiliates of
the Purchasers.
Requests will be made to the Company for use of the Company's shareholder
list and security position listings for the purpose of communications with
shareholders and disseminating the Offers to holders of Shares and Preferred
Shares. The Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed to record holders of Shares and Preferred Shares and
will be furnished to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
shareholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of Shares or Preferred Shares by the Purchasers following receipt of such
list or listings from the Company.
PURPOSE OF THE OFFERS; THE TRANSACTIONS
The purpose of the Offers is to enable Buyer to acquire control of, and the
entire common equity interest in, the Company. The Offers, as the first step in
the acquisition of the Company, are intended to facilitate the acquisition of
all Shares and Preferred Shares. The purpose of the Second Step Transaction is
to acquire all Shares and Preferred Shares not acquired pursuant to the Offers
or otherwise.
Immediately prior to the consummation of the Offers, SCI and Merger Sub
will effect the Holding Company Merger. Pursuant to the Holding Company Merger,
each outstanding share of SCI Common Stock (except for shares of SCI Common
Stock owned by SCI or Buyer) will be converted into one share of Buyer Common
Stock and SCI will become a wholly owned subsidiary of Buyer. The Purchasers
will not consummate the Offers unless the Holding Company Merger has been
effected.
SCI and the Purchasers currently intend, as soon as reasonably practicable
after the consummation of the Offers and the Holding Company Merger, to seek to
have the Company and Canadian Newco consummate the Second Step Transaction,
pursuant to which (i) each outstanding Share (except for treasury shares of the
Company and Shares held by the Purchasers or any subsidiary of the Purchasers)
will be exchanged for, at the election of the holder of such Share, a number of
shares of Buyer Common Stock or Exchangeable Shares equal to the Share Exchange
Ratio, (ii) each outstanding Preferred Share (except for treasury shares of the
Company and Preferred Shares held by the Purchasers or any subsidiary of the
Purchasers) will be exchanged for, at the election of the holder of such
Preferred Share, a number of shares of Buyer Common Stock or Exchangeable Shares
equal to the Preferred Share Exchange Ratio, (iii) the MEIP will be affected in
the manner described below and (iv) the Company will become a direct and
indirect subsidiary of Buyer and all of the outstanding Shares and Preferred
Shares will be owned by either Buyer or Canadian Newco.
26
<PAGE> 39
According to publicly available information, under the MEIP, a new issue of
Debentures of LGII, a wholly owned subsidiary of the Company, was issued to a
wholly owned SPS of LGII. The Debentures are exchangeable for the Company's
Series B Shares. At any time before July 15, 2011, each of the Series B Shares
may be converted at the option of the holder into 10 Shares, subject to certain
anti-dilution adjustments. There are currently no Series B Shares outstanding.
The SPS, acting as the agent of LGII, financed approximately 95 percent of the
purchase price of the Debentures through third-party financing (guaranteed by
the Company and LGII). The remaining purchase price of the Debentures
(approximately 5 percent) was financed through the sale to certain key employees
of LGII's direct and indirect U.S. subsidiaries of Investment Option Agreements
and a Purchase Agreement to purchase the Debentures. No Investment Option
Agreement or Purchase Agreement has been publicly filed and, accordingly, the
terms thereof are not known to SCI or the Purchasers. The Company has reserved
for issuance, upon exchange of the Debentures, 425,000 Series B Shares. The
maximum number of Shares which may be issued under the MEIP, upon conversion of
the Series B Shares, is limited to 4,250,000. The aggregate principal amount of
Debentures which may be sold to participants pursuant to the MEIP is limited to
$128 million.
Based upon the information contained in publicly filed documents, SCI and
the Purchasers believe that (i) all the Debentures are currently owned by the
SPS, and (ii) certain Investment Option Agreements are, and a Purchase Agreement
are outstanding but not currently exercisable and do not become exercisable by
their terms until at the earliest 1999. Pursuant to the special rights and
restrictions attached to the Series B Shares, as a result of the Second Step
Transaction, a holder of Series B Shares would no longer have the right to
receive Shares upon conversion of the Series B Shares but instead would have the
right to receive, at the election of such holder, the number of shares of Buyer
Common Stock or Exchangeable Shares to which such holder would have been
entitled if such holder had converted such Series B Shares immediately prior to
the consummation of the Second Step Transaction.
The Purchasers intend that the Second Step Transaction be effected pursuant
to an arrangement under the laws of the Province of British Columbia. After
consummation of the Offers, the Purchasers intend to cause the Company to apply
to the BC Court for an interim order convening the Shareholders' Meeting to
consider an arrangement which would have the effects described above, and which
would become effective if (x) approved by (i) if so ordered by the BC Court, at
least three-quarters of the votes cast at the Shareholders' Meeting by the
holders of the outstanding Shares and the holders of the outstanding Preferred
Shares voting as separate classes, and (ii) the BC Court in a final order, and
(y) accepted for filing by the British Columbia Registrar of Companies. If the
Offers are consummated and the Minimum Tender Condition is met, the Purchasers
will own a sufficient number of Shares and Preferred Shares to approve the
arrangement at the Shareholders' Meeting without the vote of any additional
shareholders of the Company. The level of shareholder approval is in the
discretion of the BC Court. It is possible that no separate approval of the
holders of outstanding Preferred Shares will be required depending upon the
proposed terms of the arrangement. At the hearing of the motion for the final
order, the BC Court will consider, among other things, the fairness and
reasonableness of the arrangement. It is intended that the arrangement to be put
before the Shareholders' Meeting will not provide for dissent or appraisal
rights to any shareholders who vote against the arrangement.
There can be no assurance that the BC Court will approve the arrangement on
the terms described above or that the BC Court will not require that
shareholders of the Company that do not vote in favor of the Second Step
Transaction be granted dissent or appraisal rights. See "The Offers -- Dissent
Rights." In the event that the BC Court does not approve the arrangement on the
terms described above, SCI and the Purchasers intend to seek to acquire the
remaining Shares and Preferred Shares pursuant to an amalgamation, a revised
arrangement or another transaction permitted under applicable law.
Subject to such regulatory approvals as may be necessary, it is the
intention of SCI and the Purchasers that, at the effective time of the Second
Step Transaction, each outstanding Company Option will become a New Option to
purchase a number of shares of Buyer Common Stock (in the case of U.S. Options)
or a number of Exchangeable Shares (in the case of Canadian Options), equal in
either case to (x) the number of Shares subject to such Company Option at the
effective time of the Second Step Transaction multiplied by (y) the Share
Exchange Ratio, and the exercise price of such New Option (per share of Buyer
Common Stock or per Exchangeable Share, as applicable) will be equal to (a) the
exercise price per Share of such
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<PAGE> 40
Company Option immediately prior to the effective time of the Second Step
Transaction divided by (b) the Share Exchange Ratio.
As soon as reasonably practicable after the consummation of the Second Step
Transaction, SCI and the Purchasers intend to consummate the Buyer
Reorganization, pursuant to which SCI and the Purchasers would contribute
certain of their assets (which may include equity interests of the Company) to
LGII in exchange for at least 80 percent of the outstanding LGII Common Stock
and at least 80 percent of each class of nonvoting stock of LGII. It is intended
that the Buyer Reorganization qualify as a tax-free transaction pursuant to the
provisions of Section 351 of the Code.
In addition, the Purchasers reserve the right to acquire, following the
consummation or termination of the Offers, subject to any limitations imposed by
Applicable Canadian Securities Laws, additional Shares and Preferred Shares
through open market purchases, privately negotiated transactions, a tender offer
or exchange offer, or otherwise, upon such terms and at such prices as it shall
determine, which may be more or less favorable than those of the Offers,
provided that no such acquisition, other than an acquisition pursuant to a
tender or exchange offer, shall occur until after the day which is 20 business
days after the expiry of the Offers. The Purchasers and their affiliates also
reserve the right to dispose of any or all Shares or Preferred Shares acquired
by them pursuant to the Offers or otherwise, upon such terms and at such prices
as they shall determine, provided that no such dispositions shall occur until
after the expiry of the Offers.
If the Purchasers acquire less than 75 percent of the outstanding Shares
and Preferred Shares pursuant to the Offers or if the Offers are not consummated
prior to the Company's next annual general meeting of shareholders, SCI could
seek to acquire control of the Company's Board through the election of directors
at such and succeeding meetings (if necessary) in order to facilitate the
Company's Shareholders' ability to take advantage of the Offers and the Second
Step Transaction or another proposal similar to the Offers.
Rule 13e-3 of the General Rules and Regulations under the Exchange Act,
which the Purchasers do not believe would be applicable to the Second Step
Transaction if the Second Step Transaction occurs within one year of
consummation of the Offers, would require, among other things, that certain
financial information concerning the Company, and certain information relating
to the fairness of the proposed transaction and the consideration offered to
shareholders of the Company in such transaction, be filed with the Commission
and disclosed to shareholders of the Company prior to consummation of the Second
Step Transaction.
The regulations to the Securities Act (Ontario) (the "Regulation"), Ontario
Securities Commission Policy Statement No. 9.1, as amended ("Policy 9.1") and
Policy Q-27 of the Commission des valeurs mobilieres du Quebec ("Policy Q-27")
may deem the Second Step Transaction to be a "going private transaction" if such
Second Step Transaction would result in the interest of a holder of Shares or
Preferred Shares (the "affected securities") being terminated without the
consent of the holder and without the substitution therefor of an interest of
equivalent value in a participating security of the Company, a successor to the
business of the Company or a person who controls the Company or a person who
controls a successor to the business of the Company. In certain circumstances,
the provisions of Policy 9.1 and Policy Q-27 may also deem the Second Step
Transaction to be a "related party transaction."
Policy 9.1 and Policy Q-27 provide that, unless exempted, a corporation
proposing to carry out a going private transaction is required to prepare a
valuation of the affected securities (and any non-cash consideration being
offered therefor) and provide to the holders of the affected securities a
summary of such valuation. Policy 9.1 and Policy Q-27 also have similar
requirements for related party transactions.
Policy 9.1 and Policy Q-27 would also require that, in addition to any
other required security holder approval, in order to complete a going private
transaction, the approval of a simple or two-thirds majority (depending on the
nature of the transaction) of the votes cast by "minority" shareholders of the
affected securities be obtained. Policy 9.1 and Policy Q-27 also contain similar
minority approval requirements for related party transactions. Except as
described below, in relation to the Offers and any subsequent related party or
going private transaction, the "minority" shareholders are all holders of each
of the Shares and the Preferred Shares, other than the Purchasers, their
directors and senior officers or any associate or affiliate of the Purchasers or
their directors or senior officers or any person or company acting jointly or in
concert with
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<PAGE> 41
the Purchasers or any of their directors or senior officers in connection with
the Offers or any going private or related party transaction. Policy 9.1 and
Policy Q-27 provide that the Purchasers may treat the Shares and the Preferred
Shares acquired pursuant to the Offers as "minority" shares and to vote them, or
to consider them voted, in favour of such going private transaction or related
party transaction if the consideration per security in the going private
transaction or related party transaction is at least equal in value to the
consideration paid under the Offers and if the intent to effect the going
private transaction or related party transaction was disclosed at the time of
the Offers.
If the Purchasers propose a subsequent transaction to the Offers (such as
the Second Step Transaction) under which holders of Shares and Preferred Shares
who did not tender their Shares or Preferred Shares, as the case may be, under
the Offers would, at their option, receive, directly or indirectly, the
consideration provided for under the Offers, such a subsequent transaction would
ordinarily not be a going private transaction. In the event that the Purchasers
propose a subsequent transaction to the Offers which would be subject to Policy
9.1 and Policy Q-27, the Purchasers would seek waivers pursuant to those
policies exempting the Purchasers and the Company, as appropriate, from any
requirement to prepare a valuation in connection with such transaction.
In connection with the Offers, SCI and the Purchasers have reviewed, and
will continue to review, on the basis of available information, various possible
business strategies that they might consider in the event that all or
substantially all of the common equity interest in the Company is acquired
pursuant to the Offers and the Second Step Transaction. Upon the completion of
the Offers, the Purchasers intend to elect nominees of their choice to the
Company Board and to integrate efficiently the managements of the two
businesses. The Purchasers also intend to conduct a detailed review of the
Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel and consider what, if any,
changes would be desirable in light of the circumstances which then exist. Such
strategies could include, among other things, changes in the Company's business,
corporate structure, certificate of incorporation, bylaws, capitalization,
Company Board or management, and consideration of disposition of certain assets
of the Company.
According to publicly available information, the Company's general and
administrative expenses were approximately 8 percent of revenues during the six
months ended June 30, 1996. While certain items included in general and
administrative expenses by the Company are included in different expense
categories by SCI, SCI believes, based on publicly available information, its
knowledge of the industry generally and the ratio of its own general and
administrative expenses to revenues, that there are likely opportunities for
meaningful savings in the Company's general and administrative expenses. If the
Offers are consummated, SCI intends to seek additional information about the
Company's general and administrative expenses and to make such eliminations, if
any, as it determines to be in the best interests of the shareholders of the
combined company. In addition, SCI intends to review the Company's expense
structure generally as well as its own and to eliminate such duplications as it
determines will serve the best interests of the shareholders of the combined
company.
Except as noted herein, the Purchasers do not have any present plans or
proposals that would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, or sale or transfer of a material amount
of assets, involving the Company or any of its subsidiaries, or any material
changes in the Company's corporate structure or business or any change in its
management. However, because the Purchasers have not had access to the Company's
books and records, additional changes may be made after a full review of the
Company's operations is completed.
EXTENSION, TERMINATION AND AMENDMENT
The Purchasers expressly reserve the right, in their sole discretion, at
any time or from time to time, to extend the period of time during which the
Offers are to remain open by giving written notice or other communication
confirmed in writing of such extension to the Exchange Agent, and by causing the
Exchange Agent to provide as soon as practicable thereafter a copy of such
notice to all Canadian Holders and by making a public announcement thereof.
There can be no assurance that the Purchasers will exercise their right to
extend the Offers. However, it is the Purchasers' current intention to extend
the Offers until all conditions
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<PAGE> 42
have been satisfied or waived. During any such extension, all Shares and
Preferred Shares previously tendered and not withdrawn will remain subject to
the Offers, subject to the right of a tendering shareholder to withdraw his
Shares or Preferred Shares, as the case may be. See "-- Withdrawal Rights."
Subject to the applicable rules and regulations of the Commission and the
Canadian Securities Regulatory Authorities, the Purchasers also reserve the
right, in their sole discretion, at any time or from time to time, (i) to delay
acceptance for exchange of any Shares or Preferred Shares, as the case may be,
pursuant to the Offers or to terminate the Offers and not accept for exchange
any Shares or Preferred Shares, as the case may be, upon the failure of any of
the conditions of the Offers to be satisfied and (ii) to waive any condition
other than the Regulatory Condition and the Holding Company Merger Condition or
otherwise amend the Offers in any respect, by giving written notice or other
communication confirmed in writing of such delay, termination or amendment to
the Exchange Agent and by causing the Exchange Agent to provide as soon as
practicable thereafter a copy of such notice to all Canadian Holders and by
making a public announcement thereof.
Any such extension, termination, amendment or delay will be followed as
promptly as practicable, but not later than the time required by applicable law,
by public announcement thereof, such announcement in the case of an extension to
be issued no later than 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date. Any notice of extension,
termination, amendment or delay will be deemed to have been given and effective
on the day on which it is delivered or otherwise communicated to the Exchange
Agent. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under
the Exchange Act, which require that any material change in the information
published, sent or given to shareholders in connection with the Offers be
promptly disseminated to shareholders in a manner reasonably designed to inform
shareholders of such change, and Applicable Canadian Securities Laws) and
without limiting the manner in which the Purchasers may choose to make any
public announcement, the Purchasers shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
The Purchasers confirm that if they make a change in the terms of the
Offers or if there is a material change in the information concerning the Offers
(other than a change in information outside the control of the Purchasers or
their affiliates which is unrelated to the Offered Stock), or if they waive a
condition of the Offers, the Purchasers will extend the Offers for ten days
after the notice of variation in respect of such variation has been given to
holders of Shares and Preferred Shares or such longer period if and to the
extent required under the Exchange Act or Applicable Canadian Securities Laws,
unless otherwise permitted by applicable law. If, prior to the Expiration Date,
the Purchasers shall increase or decrease the percentage of Shares or Preferred
Shares being sought or the consideration offered to holders of Shares or
Preferred Shares, such increase or decrease shall be applicable to all holders
whose Shares or Preferred Shares, as the case may be, are accepted for exchange
pursuant to the Offers, and, if at the time notice of any such increase or
decrease is first given to holders of Shares or Preferred Shares, the Offers are
scheduled to expire at any time earlier than the tenth business day from and
including the date that such notice is first so given, the Offers will be
extended until the expiration of such ten business-day period. For purposes of
the Offers, a "business day" means any day other than a Saturday, Sunday or any
provincial or Canadian or U.S. federal holiday and consists of the time period
from 12:01 A.M. through 12:00 midnight, New York City time.
EXCHANGE OF SHARES; DELIVERY OF OFFERED STOCK
Upon the terms and subject to the conditions of the Offers (including, if
the Offers are extended or amended, the terms and conditions of any such
extension or amendment) and if the conditions of the Offers have been fulfilled
or waived at the Expiration Date, the Purchasers will be obligated to accept for
exchange and to exchange Buyer Common Stock and Exchangeable Shares, as the case
may be, for Shares and Preferred Shares validly tendered and not withdrawn as
promptly as practicable after the Expiration Date. Such acceptance shall occur
not later than ten days after the Expiration Date and such exchange shall occur
not later than three days after acceptance of such Shares and Preferred Shares
for exchange. In addition, subject to applicable rules of the Commission and the
Applicable Canadian Securities Laws, the Purchasers expressly reserve the right
to delay acceptance for exchange of Shares or Preferred Shares in order to
comply
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<PAGE> 43
with any applicable law. For the purposes of the Offers, the Purchasers will be
deemed to have accepted for exchange Shares or Preferred Shares, as the case may
be, validly tendered and not withdrawn as, if and when the Purchasers give oral
or written notice to the Exchange Agent of their acceptance of the tenders of
such Shares or Preferred Shares, as the case may be, pursuant to the Offers.
Delivery of Offered Stock in exchange for Shares or Preferred Shares pursuant to
the Offers and cash in lieu of fractional shares of Offered Stock will be made
by the Exchange Agent as soon as practicable after receipt of such notice.
The Purchasers will pay for Shares and Preferred Shares validly deposited
pursuant to the Offers and not withdrawn by providing the Exchange Agent with
one or more certificates for Buyer Common Stock and Exchangeable Shares, as
applicable, and cash in lieu of fractional shares with instructions to transmit
such Buyer Common Stock and Exchangeable Shares, and cash in lieu of fractional
shares, to depositing holders of Shares and Preferred Shares, as appropriate.
The Exchange Agent will act as agent for tendering shareholders for the
purpose of receiving Buyer Common Stock or Exchangeable Shares, as the case may
be, and cash to be paid in lieu of fractional shares from the Purchasers and
transmitting such shares to such persons, and the receipt of Buyer Common Stock
or Exchangeable Shares and cash in lieu of fractional shares by the Exchange
Agent will be deemed to constitute contemporaneous receipt of Buyer Common Stock
or Exchangeable Shares and cash in lieu of fractional shares by persons
depositing and not withdrawing Shares or Preferred Shares. In all cases,
exchange of Shares or Preferred Shares tendered and accepted for exchange
pursuant to the Offers will be made only after timely receipt by the Exchange
Agent or the Canadian Forwarding Agent of certificates for such Shares or
Preferred Shares (or a confirmation of a book-entry transfer of such Shares or
Preferred Shares in the Exchange Agent's account at The Depository Trust Company
or the Philadelphia Depository Trust Company or the Canadian Forwarding Agent's
account at the Canadian Depository for Securities Limited (collectively, the
"Book-Entry Transfer Facilities")), a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) and any other required documents.
Unless otherwise directed in the Letter of Transmittal, the certificates for
Buyer Common Stock and Exchangeable Shares will be issued in the name of
depositing shareholders. The Exchange Agent will forward certificates to persons
depositing Shares or Preferred Shares at the address specified in the Letter of
Transmittal unless the depositing shareholders instruct the Exchange Agent to
hold certificates for pick up. Under no circumstances will interest with respect
to fractional shares be paid by the Purchasers by reason of any delay in making
such exchange.
If any tendered Shares or Preferred Shares are not accepted for exchange
pursuant to the terms and conditions of the Offers for any reason, or if
certificates are submitted for more Shares or Preferred Shares than are
tendered, certificates for such unexchanged Shares or Preferred Shares, as the
case may be, will be returned without expense to the tendering shareholder or,
in the case of Shares or Preferred Shares tendered by book-entry transfer of
such Shares or Preferred Shares into the Exchange Agent's account at a
Book-Entry Transfer Facility pursuant to the procedures set forth below under
"-- Procedure for Tendering," such Shares or Preferred Shares, as the case may
be, will be credited to an account maintained within such Book-Entry Transfer
Facility, as soon as practicable following expiration or termination of the
Offers.
Tendering shareholders will not be obligated to pay any charges or expenses
of the Exchange Agent or the Canadian Forwarding Agent or any brokerage
commissions. Except as set forth in the Instructions to the Letter of
Transmittal, transfer taxes, if any, on the exchange of Shares or Preferred
Shares, as the case may be, pursuant to the Offers will be paid by or on behalf
of the Purchasers.
CASH IN LIEU OF FRACTIONAL SHARES OF OFFERED STOCK
No certificates representing fractional shares of Offered Stock will be
issued pursuant to the Offers. In lieu thereof, each tendering shareholder who
would otherwise be entitled to a fractional share of Offered Stock will receive
cash in an amount equal to such fraction (expressed as a decimal and rounded to
the nearest 0.01 of a share) times the closing price for shares of SCI Common
Stock on the NYSE Composite Tape on the date such shareholder's Shares or
Preferred Shares, as the case may be, are accepted for exchange by the
respective Purchaser.
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<PAGE> 44
WITHDRAWAL RIGHTS
Tenders of Shares or Preferred Shares, as the case may be, made pursuant to
the Offers are irrevocable, except that Shares or Preferred Shares, as the case
may be, tendered pursuant to the Offers may be withdrawn at any time prior to
the Expiration Date, and, unless theretofore accepted for exchange and exchanged
by the Purchasers pursuant to the Offers, may also be withdrawn at any time
after , 199 .
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent or the Canadian Forwarding Agent, as the case may be, at the
place of deposit of such Shares or Preferred Shares and must specify the name of
the person having tendered the Shares or the Preferred Shares, as the case may
be, to be withdrawn, the number of Shares or Preferred Shares, as the case may
be, to be withdrawn and the name of the registered holder, if different from
that of the person who tendered such Shares or Preferred Shares, as the case may
be.
The signature(s) on the notice of withdrawal must be guaranteed by a
financial institution (including most banks, savings and loan associations and
brokerage houses) which is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program or, with respect to holders through the
Canadian Forwarding Agent, is a Canadian chartered bank or trust company in
Canada or a member of the TSE or the ME (an "Eligible Institution") unless such
Shares or Preferred Shares, as the case may be, have been tendered for the
account of any Eligible Institution. If Shares or Preferred Shares have been
tendered pursuant to the procedures for book-entry tender as set forth below
under "-- Procedure for Tendering," 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 Shares and must otherwise comply with such
Book-Entry Transfer Facility's procedures. If certificates have been delivered
or otherwise identified to the Exchange Agent or the Canadian Forwarding Agent,
as the case may be, the name of the registered holder and the serial numbers of
the particular certificates evidencing the Shares or Preferred Shares withdrawn
must also be furnished to the Exchange Agent or the Canadian Forwarding Agent,
as the case may be, as aforesaid prior to the physical release of such
certificates. All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by the Purchasers, in
their sole discretion, which determination shall be final and binding. Neither
the Purchasers, the Exchange Agent, the Canadian Forwarding Agent, the
Information Agent, the Dealer Managers nor any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give any such
notification. Any Shares or Preferred Shares properly withdrawn will be deemed
not to have been validly tendered for purposes of the Offers. However, withdrawn
Shares and Preferred Shares may be retendered by following one of the procedures
described under "-- Procedure for Tendering" at any time prior to the Expiration
Date.
A withdrawal of Shares shall also constitute a withdrawal of the associated
Rights. Rights may not be withdrawn unless the associated Shares are also
withdrawn.
NOTICE TO CANADIAN HOLDERS
Any notice to be given by or on behalf of the Purchasers or the Exchange
Agent to Canadian Holders pursuant to the Offers will be deemed to have been
properly given if it is mailed by first class mail, postage prepaid, to the
Canadian Holders at their addresses as shown on the register of the Shares and
Preferred Shares at the Company. These provisions apply notwithstanding any
accidental omission to give notice to any one or more holders of Shares or
Preferred Shares and not withstanding any interruption of mail services
following mailing. In the event of any interruption of mail service following
mailing, the Purchasers intend to make reasonable efforts to disseminate the
notice by other means, such as publication. Except as otherwise required or
permitted by law, if post offices in Canada are not open for the deposit of
mail, any notice which the Purchasers or the Exchange Agent may give or cause to
be given to Canadian Holders under the Offers will be deemed to have been
properly given and to have been received by holders of Shares and Preferred
Shares if it is given to the TSE and ME for dissemination and if it is (a)
published (i) once in the National Edition of The Globe and Mail and (ii) once,
if possible, in daily newspapers of general circulation in each of the French
and English languages in the City of Montreal, provided that if the national
Edition of The Globe and Mail is not being generally circulated, publication
thereof shall be made in The Financial Post or any
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<PAGE> 45
other daily newspaper of general circulation published in the City of Toronto
and (b) given to the Dow Jones News Service.
PROCEDURE FOR TENDERING
For a shareholder to validly tender Shares or Preferred Shares, as the case
may be, pursuant to the Offers, (i) a properly completed and duly executed
Letter of Transmittal (or manually executed facsimile thereof), together with
any required signature guarantees and any other required documents, must be
transmitted to and received by the Exchange Agent or the Canadian Forwarding
Agent at one of their addresses set forth on the back cover of this Prospectus
and certificates for tendered Shares or Preferred Shares, as the case may be,
must be received by the Exchange Agent or the Canadian Forwarding Agent at such
address or such Shares or Preferred Shares, as the case may be, must be tendered
pursuant to the procedures for book-entry tender set forth below (and a
confirmation of receipt of such tender received (such confirmation, a
"Book-Entry Confirmation")), in each case prior to the Expiration Date, or (ii)
such shareholder must comply with the guaranteed delivery procedure set forth
below.
Any shareholder desiring to tender Shares or Preferred Shares, as the case
may be, pursuant to either the Buyer Offer or the Canadian Newco Offer, must
make an Election by indicating in the appropriate space provided on the Letter
of Transmittal, (i) the number of Shares and/or the number of Preferred Shares
such shareholder desires to tender pursuant to the Buyer Offer in exchange for
shares of Buyer Common Stock, and (ii) the number of Shares and/or the number of
Preferred Shares such shareholder desires to tender pursuant to the Canadian
Newco Offer in exchange for Exchangeable Shares. A shareholder who tenders
Shares (and the associated Rights) or Preferred Shares, as the case may, and
fails to make an Election with respect to such tender shall be deemed to have
tendered such Shares (and the associated Rights) or Preferred Shares, as the
case may be, pursuant to the Buyer Offer in exchange for SCI Common Stock.
Shareholders will be required to tender one Right for each Share tendered
in order to effect a valid tender of shares, unless the Rights Plan Condition
has been satisfied or waived. Unless the Separation Time occurs, a tender of
Shares will constitute a tender of the associated Rights. If the Separation Time
occurs and separate certificates representing the Rights are distributed by the
Company or the Rights Agent to holders of Shares prior to the time a holder's
Shares are tendered pursuant to the Offers, certificates representing a number
of Rights equal to the number of Shares tendered must be delivered to the
Exchange Agent or the Canadian Forwarding Agent, or, if available, a Book-Entry
Confirmation received by the Exchange Agent or the Canadian Forwarding Agent
with respect thereto, in order for such Shares to be validly tendered. If the
Separation Time occurs and separate certificates representing the Rights are not
distributed prior to the time Shares are tendered pursuant to the Offers, Rights
may be tendered prior to a shareholder receiving the certificates for Rights by
use of the guaranteed delivery procedure described below. If Rights certificates
are distributed but are not available to a shareholder prior to the time Shares
are tendered pursuant to the Offers, a tender of Shares constitutes an agreement
by the tendering shareholder to deliver to the Exchange Agent or the Canadian
Forwarding Agent pursuant to the guaranteed delivery procedure described below,
prior to the expiration of the period to be specified in the Notice of
Guaranteed Delivery and the related Letter of Transmittal for delivery of Rights
certificates or a Book-Entry Confirmation for Rights (the "Rights Delivery
Period"), Rights certificates representing a number of Rights equal to the
number of Shares tendered. If Rights certificates are distributed, the
Purchasers will distribute a separate letter of transmittal for such Rights
certificates. If Rights certificates are tendered separately from Shares, then a
properly completed letter of transmittal for Rights certificates (or manually
executed facsimile thereof) must be submitted with respect to such Rights. The
Purchasers reserve the right to require that it receive such Rights certificates
(or a Book-Entry Confirmation with respect to such Rights) prior to accepting
Shares for exchange.
Nevertheless, the Purchasers will be entitled to accept for exchange Shares
tendered by a shareholder prior to receipt of the Rights certificates required
to be tendered with such Shares or a Book-Entry Confirmation with respect to
such Rights and either (i) subject to complying with applicable rules and
regulations of the Commission and Applicable Canadian Securities Laws, withhold
payment for such Shares pending receipt of the Rights certificates or a
Book-Entry Confirmation for such Rights or (ii) exchange Shares accepted for
exchange pending receipt of the Rights certificates or a Book-Entry Confirmation
for such
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<PAGE> 46
Rights in reliance upon the guaranteed delivery procedure described below. In
addition, after expiration of the Rights Delivery Period, the Purchasers may
instead elect to reject as invalid a tender of Shares with respect to which
Rights certificates or a Book-Entry Confirmation for an equal number of Rights
have not been received by the Exchange Agent or the Canadian Forwarding Agent.
Any determination by the Purchasers to make payment for Shares in reliance upon
such guaranteed delivery procedure or, after expiration of the Rights Delivery
Period, to reject a tender as invalid, shall be made, subject to applicable law,
in the sole and absolute discretion of the Purchasers.
The Exchange Agent and the Canadian Forwarding Agent will establish
accounts with respect to the Shares and the Preferred Shares at the Book-Entry
Transfer Facilities in the United States and Canada, respectively, for purposes
of the Offers within two business days after the date of this Prospectus, and
any financial institution that is a participant in any of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of the Shares or the
Preferred Shares, as the case may be, by causing such Book-Entry Transfer
Facility to transfer such Shares or Preferred Shares, as the case may be, into
the Exchange Agent's account or the Canadian Forwarding Agent's account, as the
case may be, in accordance with such Book-Entry Transfer Facility's procedure
for such transfer. However, although delivery of Shares and Preferred Shares may
be effected through book-entry at the Book-Entry Transfer Facilities, the Letter
of Transmittal (or facsimile thereof), with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent (in the case of transfers to the Exchange Agent's
account at the Book-Entry Transfer Facilities) or the Canadian Forwarding Agent
(in the case of transfers to the Canadian Forwarding Agent's account at the
Book-Entry Transfer Facilities), as the case may be, at one or more of its
addresses set forth on the back cover of this Prospectus prior to the Expiration
Date, or the guaranteed delivery procedure described below must be complied
with. No assurance can be given, however, that book-entry delivery of Rights
will be available. If book-entry delivery is not available, a tendering
shareholder will be required to tender Rights by means of delivery of Rights
certificates or pursuant to the guaranteed delivery procedure set forth below.
Signatures on all Letters of Transmittal must be guaranteed by an Eligible
Institution, except in cases in which Shares or Preferred Shares, as the case
may be, are tendered (i) by a registered holder of Shares or Preferred Shares,
as the case may be, who has not completed either the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution. If the
certificates for Shares, Preferred Shares or Rights (if any) are registered in
the name of a person other than the signer of the Letter of Transmittal, or if
certificates for unexchanged Shares or Rights (if any) are to be issued to a
person other than the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates, with
the signature(s) on the certificates or stock powers guaranteed as aforesaid.
THE METHOD OF DELIVERY OF SHARE AND PREFERRED SHARE CERTIFICATES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT
OR THE CANADIAN FORWARDING AGENT IN ACCORDANCE WITH THE REQUIREMENTS OF THE
LETTER OF TRANSMITTAL. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH
RECEIVED FROM BUYER IN LIEU OF FRACTIONAL SHARES THEREOF, A SHAREHOLDER MUST
PROVIDE THE EXCHANGE AGENT OR THE CANADIAN FORWARDING AGENT WITH HIS CORRECT
TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER SUCH SHAREHOLDER IS SUBJECT
TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM
W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. CERTAIN SHAREHOLDERS (INCLUDING,
AMONG OTHERS, ALL COR-
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<PAGE> 47
PORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP
WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO
QUALIFY AS AN EXEMPT RECIPIENT, THE SHAREHOLDER MUST SUBMIT A FORM W-8, SIGNED
UNDER PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS.
If a shareholder desires to tender Shares or Preferred Shares, as the case
may be, pursuant to the Offers and such shareholder's certificates are not
immediately available or such shareholder cannot deliver the certificates and
all other required documents to the Exchange Agent or the Canadian Forwarding
Agent prior to the Expiration Date or such shareholder cannot complete the
procedure for book-entry transfer on a timely basis, such Shares or Preferred
Shares, as the case may be, may nevertheless be tendered, provided that all of
the following conditions are satisfied:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchasers, is
received by the Exchange Agent or the Canadian Forwarding Agent as provided
below on or prior to the Expiration Date; and
(c) the certificates for all tendered Shares or Preferred Shares, as
the case may be (or a confirmation of a book-entry transfer of such
securities into the Exchange Agent's account or the Canadian Forwarding
Agent's account at the relevant Book-Entry Transfer Facility as described
above), in proper form for transfer, together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent or the Canadian Forwarding Agent within three NYSE trading
days after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Exchange Agent or the
Canadian Forwarding Agent and must include a guarantee by an Eligible
Institution in the form set forth in such Notice.
In all cases, exchanges of Shares or Preferred Shares, as the case may be,
tendered and accepted for exchange pursuant to the Offers will be made only
after timely receipt by the Exchange Agent or the Canadian Forwarding Agent of
certificates for Shares or Preferred Shares, as the case may be (or timely
confirmation of a book-entry transfer of such securities into the Exchange
Agent's account or the Canadian Forwarding Agent's account at the relevant
Book-Entry Transfer Facility as described above), properly completed and duly
executed Letter(s) of Transmittal (or facsimile(s) thereof) and any other
required documents. Accordingly, tendering shareholders may be paid at different
times depending upon when certificates for Shares or Preferred Shares, as the
case may be, or confirmations of book-entry transfers of such Shares or
Preferred Shares, as the case may be, are actually received by the Exchange
Agent or the Canadian Forwarding Agent.
By executing a Letter of Transmittal as set forth above, the tendering
shareholder irrevocably appoints designees of the Purchasers as such
shareholder's attorneys-in-fact and proxies, each with full power of
substitution, to the full extent of such shareholder's rights with respect to
the Shares or Preferred Shares, as the case may be, tendered by such shareholder
and accepted for exchange by the Purchasers and with respect to any and all
other Shares and Preferred Shares and other securities issued or issuable in
respect of the Shares or Preferred Shares on or after October 1, 1996. Such
appointment is effective, and voting rights will be affected, when and only to
the extent that the Purchasers deposit the shares of Buyer Common Stock and
Exchangeable Shares for Shares or Preferred Shares, as the case may be, tendered
by such shareholder with the Exchange Agent or the Canadian Forwarding Agent.
All such proxies shall be considered coupled with an interest in the tendered
Shares or Preferred Shares, as the case may be, and therefore shall not be
revocable. Upon the effectiveness of such appointment, all prior proxies given
by such shareholder will be revoked, and no subsequent proxies may be given
(and, if given, will not be deemed effective). The Purchasers' designees will,
with respect to the Shares or Preferred Shares, as the case may be, for which
the appointment is effective, be empowered, among other things, to exercise all
voting and other rights of such shareholder as they, in their
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<PAGE> 48
sole discretion, deem proper at any annual, special or adjourned meeting of the
Company's shareholders, by written consent in lieu of any such meeting or
otherwise. The Purchasers reserve the right to require that, in order for Shares
or Preferred Shares, as the case may be, to be deemed validly tendered,
immediately upon the Purchasers' exchange of such Shares or Preferred Shares, as
the case may be, the Purchasers must be able to exercise full voting rights with
respect to such Shares or Preferred Shares, as the case may be.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Shares, Preferred Shares
or Rights, as the case may be, will be determined by the Purchasers, in their
sole discretion, which determination shall be final and binding. The Purchasers
reserve the absolute right to reject any and all tenders of Shares, Preferred
Shares or Rights, as the case may be, determined by them not to be in proper
form or the acceptance of or exchange for which may, in the opinion of
Purchasers' counsel, be unlawful. The Purchasers also reserve the absolute right
to waive any of the conditions of the Offers, other than the Regulatory
Condition and the Holding Company Merger Condition, or any defect or
irregularity in the tender of any Shares, Preferred Shares or Rights, as the
case may be. No tender of Shares, Preferred Shares or Rights, as the case may
be, will be deemed to have been validly made until all defects and
irregularities in tenders of those Shares, Preferred Shares or Rights, as the
case may be, have been cured or waived. None of the Purchasers, the Exchange
Agent, the Canadian Forwarding Agent, the Information Agent, the Dealer Managers
or any other person will be under any duty to give notification of any defects
or irregularities in the tender of any Shares, Preferred Shares or Rights, as
the case may be, or will incur any liability for failure to give any such
notification. The Purchasers' interpretation of the terms and conditions of the
Offers (including the Letter of Transmittal and instructions thereto) will be
final and binding.
The tender of Shares, Preferred Shares and Rights (if any) pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering shareholder and the Purchasers upon the terms and subject to the
conditions of the Offers.
EFFECT OF OFFERS ON MARKET FOR SHARES AND PREFERRED SHARES; REGISTRATION UNDER
THE EXCHANGE ACT AND REPORTING ISSUER STATUS UNDER APPLICABLE CANADIAN
SECURITIES LAWS
The exchange of Shares and Preferred Shares pursuant to the Offers will
reduce the number of holders of Shares and Preferred Shares and the number of
Shares and Preferred Shares that might otherwise trade publicly and, depending
upon the number of Shares and Preferred Shares so purchased, could adversely
affect the liquidity and market value of the remaining Shares and Preferred
Shares held by the public.
The Shares are listed and principally traded on the NYSE and are also
listed on the TSE and the ME. The Preferred Shares are listed and principally
traded on the TSE and the ME. Depending upon the number of Shares and Preferred
Shares acquired pursuant to the Offers, following consummation of the Offers,
the Shares or the Preferred Shares may no longer meet the requirements of such
respective exchanges for continued listing.
According to publicly available information, there were, (i) as of August
9, 1996, 58,933,380 Shares outstanding and (ii) as of June 1996, 8,800,000
Preferred Shares (convertible into 5,770,492 Shares) outstanding. According to
the 1995 Company 10-K, there were, as of March 15, 1996, 1,834 holders of record
of Shares.
If such exchanges were to delist the Shares or the Preferred Shares, as the
case may be, the respective markets therefor could be adversely affected. It is
possible that the Shares or the Preferred Shares, as the case may be, would be
traded on other securities exchanges or in the over-the-counter market, and that
price quotations would be reported by such exchanges, or through the National
Association of Securities Dealers, Inc., Automated Quotations System ("Nasdaq")
or by other sources. The extent of the public market for the Shares and the
Preferred Shares, as the case may be, and the availability of such quotations
would, however, depend upon the number of holders and/or the aggregate market
value of the Shares and the Preferred Shares, as the case may be, remaining at
such time, the interest in maintaining a market in the Shares and the Preferred
Shares, as the case may be, on the part of securities firms, the possible
termination of registration of Shares under the Exchange Act, as described
below, and other factors.
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<PAGE> 49
The Shares are presently "margin securities" under the regulations of the
Federal Reserve Board, which has the effect, among other things, of allowing
brokers to extend credit on the collateral of such Shares and Preferred Shares.
Depending on factors similar to those described above with respect to listing
and market quotations, following consummation of the Offers, the Shares may no
longer constitute "margin securities" for the purposes of the Federal Reserve
Board's margin regulations, in which event the Shares would be ineligible as
collateral for margin loans made by brokers. For a description of the treatment
of Shares in the Second Step Transaction, see "-- Purpose of the Offers; the
Transactions."
The Shares are currently registered under the Exchange Act. Such
registration may be terminated by the Company upon application to the Commission
if the outstanding Shares are not listed on a national securities exchange and
if there are fewer than 300 holders of record of Shares. Termination of
registration of the Shares under the Exchange Act would reduce the information
required to be furnished by the Company to its shareholders and to the
Commission and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy statement in connection with shareholders' meetings pursuant
to Section 14(a) and the related requirement of furnishing an annual report to
shareholders, no longer applicable with respect to the Shares. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
under the Securities Act may be impaired or eliminated. If registration of the
Shares under the Exchange Act were terminated, the Shares would no longer be
eligible for Nasdaq reporting or for continued inclusion on the Federal Reserve
Board's list of "margin securities."
In addition, after the exchange of the Shares and Preferred Shares pursuant
to the Offers, the Company may cease to be subject to the public reporting and
proxy solicitation requirements of the Applicable Canadian Securities Laws and
the British Columbia Company Act ("BCCA"). If permitted by applicable law,
subsequent to the completion of the Offers and the Second Step Transaction, it
is the intention of the Purchasers to cause the Company to cease to be a
reporting issuer under, or otherwise cease to be subject to, the public
reporting and proxy solicitation requirements of the Applicable Canadian
Securities Laws.
MINIMUM TENDER CONDITION
The Offers are conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (i) a number of Shares
which, together with the Shares beneficially owned by the Purchasers and SCI for
their own respective accounts, will constitute at least 75 percent of the total
number of outstanding Shares on a fully diluted basis (i.e., as though all
options or other securities convertible into or exercisable or exchangeable for
Shares, other than the Rights, the Preferred Shares and the Debentures, had been
so converted, exercised or exchanged) as of the date the Shares are accepted by
the Purchasers pursuant to the Offers, and (ii) a number of Preferred Shares
which, together with the Preferred Shares beneficially owned by the Purchasers
and SCI for their own respective accounts, will constitute at least 75 percent
of the total number of outstanding Preferred Shares on a fully diluted basis
(i.e., as though all options or other securities convertible into or exercisable
or exchangeable for Preferred Shares had been so converted, exercised or
exchanged) as of the date the Preferred Shares are accepted by the Purchasers
pursuant to the Offers. According to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996, there were 58,933,380 Shares outstanding as
of August 9, 1996. According to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1996, there were 8,800,000 Preferred Shares
outstanding as of June 1996 each of which is convertible into .65574 of a Share.
According to the Company 1995 10-K, Company Options were outstanding in respect
of 2,861,664 Shares as of December 31, 1995. According to the Company 1995 10-K,
there were 4,250,000 Shares reserved for issuance pursuant to the MEIP as of
December 31, 1995. Assuming no options, warrants, rights or other securities
convertible into or exercisable or exchangeable for Shares were issued or
granted after December 31, 1995, the Purchasers believe there would be
61,795,044 Shares outstanding on a fully diluted basis (i.e., as though all
options or other securities convertible into or exercisable or exchangeable for
Shares, other than the Rights, the Preferred Shares and the Debentures, had been
so converted, exercised or exchanged) and 8,800,000 Preferred Shares outstanding
on a fully diluted basis (i.e., as though all options or other securities
convertible into or exercisable or exchangeable for Preferred Shares had been so
converted, exercised or exchanged). Accordingly, the Purchasers believe that
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<PAGE> 50
the Minimum Tender Condition would be satisfied if at least an aggregate of
46,346,283 Shares and 6,600,000 Preferred Shares are validly tendered pursuant
to the Offers and not withdrawn, assuming no Preferred Shares are converted to
Shares. The Purchasers reserve the right (but shall not be obligated), subject
to the rules and regulations of the Commission, to waive or amend the Minimum
Tender Condition and to purchase fewer than such number of Shares and/or
Preferred Shares as would satisfy the Minimum Tender Condition pursuant to the
Offers and to waive the Minimum Tender Condition with respect to only the Shares
or only the Preferred Shares.
SCI SHAREHOLDER APPROVAL CONDITION
The Offers are conditioned upon, among other things, the satisfaction of
the SCI Shareholder Approval Condition. Pursuant to the rules of the NYSE (on
which the SCI Common Stock is listed and the Buyer Common Stock will be listed
if the Holding Company Merger is consummated), the issuance of Buyer Common
Stock and/or securities exchangeable for Buyer Common Stock must be approved by
a majority vote of the holders of SCI Common Stock voting at a meeting of such
holders if the number of shares of Buyer Common Stock to be issued or issuable
will be equal to or in excess of 20 percent of the shares of Buyer Common Stock
outstanding prior to such issuance. Pursuant to the provisions of Texas law, the
consummation of the Holding Company Merger must be approved by a vote of
two-thirds of the holders of SCI Common Stock eligible to vote at a meeting of
such holders. The Purchasers intend to seek such approvals at a special meeting
of shareholders to be held promptly.
RIGHTS PLAN CONDITION
The Offers are conditioned upon, among other things, the satisfaction of
the Rights Plan Condition.
Under the Rights Agreement, one Right was issued for each Share outstanding
at the close of business on May 9, 1990 and one Right is to be issued for each
additional Share issued thereafter but before the Separation Time (as defined in
the Rights Agreement). By creating the potential for substantial dilution of a
bidder's position, the Rights Agreement encourages an offeror to proceed by way
of a Permitted Bid (as defined in the Rights Agreement) or to approach the Board
of Directors of the Company with a view to negotiation. The Rights Agreement's
Permitted Bid provision allows bidders to take bids directly to all shareholders
of the Company.
Each Right will entitle the registered holder, after the Separation Time,
to purchase from the Company one Share at an exercise price (the "Exercise
Price") of C$125. In addition, if a Flip-In Event (as defined in the Rights
Agreement) or a Flip-over Transaction or Event (as defined in the Rights
Agreement) occurs, each Right will entitle the registered holder to receive,
upon payment of the Exercise Price (or in certain circumstances without charge),
Shares or other equity securities, debt or other assets of the Company or shares
of common stock of another person into which the Company has been merged or
amalgamated as a result of the Flip-over Transaction or Event having an
aggregate value equal to two times the Exercise Price, subject to certain
anti-dilution adjustments. The Rights are not exercisable until the Separation
Time.
On April 7, 1994, the Board of Directors of the Company amended the Rights
Agreement to provide that "Inherited Acquisitions", being "acquisitions of
Common Shares or Voting Shares made as a result of the death of the Beneficial
Owner of such Common Shares or Voting Shares of the Company" will be treated in
the same way as Exempt Acquisitions and Permitted Bid Acquisitions in
determining the status of a shareholder as an Acquiring Person, a Grandfathered
Person, a Grandfathered Person Transferee and a Grandfathered Bidder (as all
those terms are defined in the Rights Agreement).
Under the terms of the Rights Agreement, if the Purchasers were to take up
and pay for the Shares under the Offers without the Rights Plan Condition being
satisfied, they could suffer significant dilution as a result of the operation
of the Rights Agreement.
The Purchasers believe that the Offers are in the best interests of the
Shareholders and that Shareholders should be free to make their own investment
decisions whether or not to accept either of the Offers without hindrance. If
the Board of Directors of the Company does not waive the application of the
Rights Agreement
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<PAGE> 51
to the Offers and the Second Step Transaction, the Purchasers intend to take
legal action that may include applications to the relevant securities
authorities to obtain orders to cease trade the Rights and permit the Purchasers
to take up and pay for Shares and Preferred Shares tendered pursuant to the
Offers and to consummate the Second Step Transaction. The Purchasers believe
that the Offers are not a type of offer against which the Rights Agreement was
designed to protect as stated in the information circular mailed to shareholders
of the Company in connection with the meeting of shareholders held on May 17,
1995 called to reconfirm the Rights Agreement and, accordingly, that a
continuing refusal by the Board of Directors of the Company to waive the Rights
Agreement in respect of the Offer would be a breach of their fiduciary duties to
shareholders.
The Rights Plan Condition may be satisfied in a number of ways, including
the Purchasers determining in their sole discretion that (i) the Board of
Directors of the Company has redeemed all outstanding Rights or waived the
application of the Rights Agreement to the purchase of the Shares and Preferred
Shares by the Purchasers pursuant to the Offers and the Second Step Transaction;
(ii) a cease trading order or an injunction shall have been issued and shall
continue in effect that prohibits or prevents the exercise of the Rights or the
issue of Shares or other securities or property upon the exercise of the Rights,
(iii) a court of competent jurisdiction shall have made a binding and final
order that the Rights are illegal, of no force or effect or may not be exercised
in relation to the Offers and the Second Step Transaction, (iv) the Rights and
the Rights Agreement shall otherwise have been held unexercisable or
unenforceable in relation to the Shares and Preferred Shares pursuant to the
Offers and the Second Step Transaction, or (v) the Rights Agreement does not
affect the Offers or the Transactions.
COMPANY BOARD CONDITION
The Offers are conditioned upon, among other things, the satisfaction of
the Company Board Condition. This condition may be satisfied by the resignation
of at least a majority of the incumbent members of the Board of Directors of the
Company and the election of designees of the Purchasers to constitute a majority
of the Board of Directors of the Company, in each case in form and substance
satisfactory to Purchasers and prior to the consummation of the Offers. Such
actions may be conditioned upon the acceptance by the Purchasers of a majority
of the Shares (on a fully diluted basis, including for these purposes Shares
issuable upon conversion of Preferred Shares) pursuant to the Offers. If a
majority of such incumbent members did not resign and a corresponding number of
designees of the Purchasers were not elected prior to consummation of the Offers
it would be necessary for the Purchasers to requisition a meeting of the
Company's shareholders to effect such changes to the Board. It is possible that
the Company could take as long as four months from the date of the requisition
to hold such a meeting.
REGULATORY CONDITION
The Offers are conditioned upon, among other things, the satisfaction of
the Regulatory Condition.
HSR Act
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and the rules and regulations promulgated thereunder, certain
transactions, including the Offers, may not be consummated unless certain
waiting period requirements have been satisfied. On October 3, 1996, the
Purchasers filed Premerger Notification and Report Forms pursuant to the HSR Act
with the Department of Justice (the "DOJ") and the Federal Trade Commission (the
"FTC"). Under the HSR Act, the Offer may not be consummated until expiration of
a 30-day waiting period, which may be extended by a request for additional
information issued by the FTC or the DOJ. A request for additional information
extends the waiting period applicable to consummation of the transaction by 20
days from the date of receipt by the requesting agency of a response by
Purchasers constituting substantial compliance with the request for additional
information. At any time before or after the expiration of the waiting period,
the FTC, the DOJ, State Attorneys General or others could take action under the
antitrust laws with respect to the Offers, including seeking to enjoin the
consummation of the Offers, to rescind the Offers or to require divestiture of
substantial assets of the Purchasers, the Company or their respective
affiliates. There can be no assurance that a challenge
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to the Offers on antitrust grounds will not be made or, if such a challenge is
made, that it would not be successful.
Competition Act of Canada
Under the Competition Act (Canada), unless the Director of Investigation
and Research of the Competition Branch of Industry Canada issues an advance
ruling certificate under the Competition Act in respect of a proposed
transaction, that Act requires a notification filing to be submitted to the
Director in respect of a transaction that surpasses certain prescribed size and
other thresholds. The combination of Purchasers and the Company exceeds the
relevant thresholds.
Under the Competition Act, a notifiable transaction may not be completed
prior to the expiration or earlier termination of the applicable waiting period
prescribed under that Act. The waiting period in respect of the filing made in
connection with the Offers is 21 days after the day on which a complete
notification filing is received by the Director. The waiting period is intended
to afford the Director an opportunity to review a proposed transaction in order
to determine whether it gives rise to substantive competition law concerns.
On October , 1996, the Purchasers made a prenotification filing with the
Director pursuant to the Competition Act. That prenotification filing and
supporting material provided by the Purchasers is still being reviewed. The
Director may apply to the Competition Tribunal (the "Tribunal") to challenge the
transactions contemplated by the Offers under the merger provisions of the
Competition Act prior to the completion of the transactions contemplated by the
Offers or within three years of completion of the transactions contemplated by
the Offers if the Director determines that it prevents or lessens or is likely
to prevent or lessen competition substantially. The relief that may be ordered
by the Tribunal includes, in the case of a completed merger, ordering a
dissolution of the merger or a disposition of assets or shares and, in the case
of a proposed merger, prohibiting completion of the transaction.
Investment Canada Act
The Investment Canada Act is Canada's statute of general application
governing the acquisition of control of Canadian businesses by non-Canadians. An
acquisition of a Canadian business by an offeror is reviewable if it exceeds
certain size thresholds. The transactions contemplated by the Offers exceed
these thresholds and are, therefore, reviewable. A reviewable investment is one
for which the acquiror must submit an application for review with prescribed
information to Investment Canada.
Before a reviewable investment may be completed, the Minister of the
federal Cabinet responsible for the Investment Canada Act (the "Minister") must
determine that the investment is likely to be of "net benefit to Canada." The
Minister has an initial 45-day period to make his determination. The Minister
may extend the period for a further 30 days by giving notice to the prospective
acquiror or for such longer period as is agreed upon between the prospective
acquiror and the Minister. If the Minister is not satisfied that the investment
is likely to be of net benefit to Canada, he must send a notice to that effect
to the prospective acquiror, who has 30 days, or an agreed longer period, to
make representations and submit undertakings to the Minister in an attempt to
change his decision. On the expiration of the 30-day period (or such longer
period as has been agreed to), the Minister must notify the prospective acquiror
whether he is or is not satisfied that the acquisition is likely to be of net
benefit to Canada.
If the Minister is unable to complete his review or no decision has been
taken within the prescribed or agreed upon time, the Minister is deemed to be
satisfied that the acquisition is likely to be of net benefit to Canada.
An application for review of the Offers under the Investment Canada Act was
filed on 1996. The initial 45-day review period will expire on
1996. Although Buyer believes that the approval of the Minister
will be obtained, there can be no assurance of this result.
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HOLDING COMPANY MERGER CONDITION
The Offers are conditioned upon, among other things, the satisfaction of
the Holding Company Merger Condition. This condition will be satisfied upon the
consummation of the Holding Company Merger by the filing of a certificate of
merger with the Secretary of State of the State of Texas, after receipt of the
requisite approval of the shareholders of SCI. See "-- SCI Shareholder Approval
Condition." The Purchasers will not waive this condition.
CERTAIN OTHER CONDITIONS OF THE OFFERS
Notwithstanding any other provision of the Offers, the Purchasers shall not
be required to accept for exchange any Shares and/or Preferred Shares, may delay
the acceptance for exchange of Shares and/or Preferred Shares, and may, in their
sole discretion, terminate or amend (including to reduce the consideration
payable pursuant to the Offers) the Offers as to any Shares and/or Preferred
Shares not then accepted for exchange if, at the Expiration Date, any of the
Minimum Tender Condition, the SCI Shareholder Approval Condition, the Rights
Plan Condition, the Company Board Condition, the Regulatory Condition or the
Holding Company Merger Condition (in each case as defined on the cover pages of
this Prospectus) has not been satisfied or, with respect to the Minimum Tender
Condition, the SCI Shareholder Approval Condition, the Rights Plan Condition and
the Company Board Condition, waived, or if on or after October 1, 1996 and at or
prior to the time of the acceptance for exchange of any such Shares or Preferred
Shares, any of the following events shall have occurred:
(a) The shares of Buyer Common Stock which shall be issuable to the
shareholders of the Company in the Buyer Offer shall not have been
authorized for listing on the NYSE, or the Exchangeable Shares which shall
be issuable to the shareholders of the Company in the Canadian Newco Offer
shall not have been authorized for listing on the TSE or the ME (in each
case subject to official notice of issuance);
(b) A stop order suspending the effectiveness of the Registration
Statement shall have been issued or proceedings for that purpose shall have
been initiated or threatened by the Commission;
(c) There shall be threatened, instituted or pending any action,
proceeding, application, claim or counterclaim by any government or
governmental, regulatory or administrative authority or agency, domestic,
foreign or supranational (each, a "Governmental Entity"), or by any other
person, domestic or foreign, before any court or Governmental Entity,
(i)(A) challenging or seeking to, or which is reasonably likely to, make
illegal, delay or otherwise directly or indirectly restrain or prohibit, or
seeking to, or which is reasonably likely to, impose voting, procedural,
price or other requirements, in addition to those required by United States
federal securities laws and Applicable Canadian Securities Laws (each as in
effect on October 1, 1996), in connection with, the making of the Offers,
the acceptance for exchange of, or exchange of, some of or all the Shares
and/or the Preferred Shares by the Purchasers, or the consummation of the
Second Step Transaction or any other transaction contemplated hereby, (B)
seeking to obtain, or which is reasonably likely to result in, material
damages or (C) otherwise directly or indirectly relating to the
transactions contemplated by the Offers, the Second Step Transaction or any
other similar business combination, (ii) seeking to, or which is reasonably
likely to, restrain, prohibit or limit the ownership or operation by the
Purchasers, SCI or any other affiliate of SCI of all or any portion of the
business or assets of the Company and its subsidiaries or of the
Purchasers, SCI or any other affiliate of SCI or to compel the Purchasers,
SCI or any other affiliate of SCI to dispose of or hold separate all or any
portion of the business or assets of the Company or any of its subsidiaries
or of the Purchasers, SCI or any other affiliate of SCI or seeking to
impose, or which is reasonably likely to result in, any limitation on the
ability of the Purchasers, SCI or any other affiliate of SCI to conduct
such business or own such assets, (iii) seeking to, or which is reasonably
likely to, impose limitations on the ability of the Purchasers, SCI or any
other affiliate of SCI effectively to acquire or hold or exercise full
rights of ownership of the Shares and/or the Preferred Shares, including,
without limitation, the right to vote any Shares and/or Preferred Shares
acquired or owned by the Purchasers, SCI or any other affiliate of SCI on
all matters properly presented to the Company's shareholders or the right
to vote any shares of
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<PAGE> 54
capital stock of any subsidiary directly or indirectly owned by the
Company, (iv) seeking to, or which is reasonably likely to, require
divestiture by the Purchasers, SCI or any other affiliate of SCI of any
Shares and/or Preferred Shares, (v) seeking, or which is reasonably likely
to result in, any material diminution in the benefits expected to be
derived by the Purchasers, SCI or any other affiliate of SCI as a result of
the transactions contemplated by the Offers, the Second Step Transaction or
any other similar business combination with the Company, (vi) otherwise
directly or indirectly relating to the Offers or which otherwise, in the
sole judgment of the Purchasers, might materially adversely affect the
Company or any of its subsidiaries or the Purchasers, SCI or any other
affiliate of SCI or the value of the Shares and/or the Preferred Shares or
(vii) in the sole judgment of the Purchasers, adversely affecting the
business, properties, assets, liabilities, capitalization, shareholders'
equity, condition (financial or otherwise), operations, licenses or
franchises, results of operations or prospects of the Company or any of its
subsidiaries;
(d) There shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction proposed,
enacted, enforced, promulgated, amended, issued or deemed applicable to (i)
the Purchasers, SCI or any other affiliate of SCI or the Company or any of
its subsidiaries or (ii) the Offers, the Second Step Transaction or other
similar business combination by the Purchasers, SCI or any other affiliate
of SCI with the Company, by any government, legislative body or court,
domestic, foreign or supranational, or Governmental Entity, other than the
routine application of the waiting period provisions of the HSR Act, the
Competition Act (Canada) and the Investment Canada Act to the Offers, that,
in the sole judgment of the Purchasers, might, directly or indirectly,
result in any of the consequences referred to in clauses (i) through (vii)
of paragraph (c) above;
(e) Any change (or any condition, event or development involving a
prospective change) shall have occurred or be threatened in the business,
properties, assets, liabilities, capitalization, shareholders' equity,
condition (financial or otherwise), operations, licenses or franchises,
results of operations or prospects of the Company or any of its
subsidiaries, or in general economic or financial market conditions in the
United States, Canada or elsewhere, which is or may be materially adverse
to the Company or any of its subsidiaries or its shareholders, or the
market price of, or trading in, the Shares or the Preferred Shares, or SCI
or Purchasers shall have become aware of any facts which are or may be
materially adverse with respect to the value of the Company or any of its
subsidiaries or the value of the Shares or the Preferred Shares to the
Purchasers or any of their affiliates;
(f) There shall have occurred or been threatened (i) any general
suspension of trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in the
United States or Canada, (ii) the declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States or
Canada, (iii) any material adverse change (or any existing or threatened
condition, event or development involving a prospective material adverse
change) in United States, Canadian or any other currency exchange rates or
a suspension of, or a limitation on, the markets therefor, (iv) the
commencement of a war, armed hostilities or other international or national
calamity, directly or indirectly involving the United States or Canada, (v)
any limitations (whether or not mandatory) imposed by any governmental
authority on, or any event which might have material adverse significance
with respect to, the nature or extension of credit or further extension of
credit by banks or other lending institutions, (vi) any significant adverse
change in securities or financial markets in the United States, Canada or
elsewhere, including, without limitation, a decline of at least 15 percent
in either the Dow Jones Average of Industrial Stocks or the Standard &
Poor's 500 Index from that existing at the close of business on October 1,
1996, or (vii) in the case of any of the foregoing, a material acceleration
or worsening thereof;
(g) The Company or any of its subsidiaries shall have, directly or
indirectly, (i) split, combined, subdivided, consolidated or otherwise
changed, or authorized or proposed a split, combination, subdivision,
consolidation or other change of, the Shares and/or the Preferred Shares or
otherwise changed its capitalization, (ii) acquired or otherwise caused a
reduction in the number of, or authorized or proposed the acquisition or
other reduction in the number of, outstanding Shares and/or Preferred
Shares or other securities, other than a redemption of the Rights in
accordance with the terms of the Rights Agreement
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or the conversion of Preferred Shares into Shares in accordance with the
special rights and preferences relating to such Preferred Shares, in each
case as publicly disclosed to be in effect on October 1, 1996, (iii)
issued, distributed or sold, or authorized, proposed or announced the
issuance, distribution or sale of, additional Shares and/or Preferred
Shares (other than the issuance of Shares under options outstanding prior
to October 1, 1996 in accordance with the terms of such options as publicly
disclosed prior to October 1, 1996 or in accordance with the conversion of
Preferred Shares into Shares as described above), shares of any other class
of capital stock, other voting securities or any securities convertible
into or exchangeable for, or rights, warrants or options, conditional or
otherwise, to acquire, any of the foregoing, (iv) declared or paid, or
proposed to declare or pay, any dividend (other than regular quarterly cash
dividends not to exceed $.05 per Share and C$0.375 per Preferred Share, in
each case, having customary and usual record and payment dates) or other
distribution, whether payable in cash, securities or other property, on or
with respect to any shares in the capital of the Company (other than a
distribution in respect of a redemption of the Rights in accordance with
the Rights Agreement as publicly disclosed to be in effect on October 1,
1996), (v) altered or proposed to alter any material term of any
outstanding security (including the Rights) other than to amend the Rights
Agreement to make the Rights inapplicable to the Offers and the Second Step
Transaction, (vi) issued, distributed or sold, or authorized or proposed
the issuance, distribution or sale of, any debt securities or any
securities convertible into or exchangeable for debt securities or any
rights, warrants or options entitling the holder thereof to purchase or
otherwise acquire any debt securities or incurred, or authorized or
proposed the incurrence of, any debt other than in the ordinary course of
business or any debt containing burdensome covenants, (vii) authorized,
recommended, proposed, entered into or announced its intention to enter
into an agreement with respect to, or to cause, any merger, consolidation,
liquidation, dissolution, business combination, acquisition of assets or
securities, disposition of assets or securities, release or relinquishment
of any material contractual or other right of the Company or any of its
subsidiaries or any comparable event (other than the Second Step
Transaction), (viii) authorized, recommended, proposed or entered into, or
announced its intention to authorize, recommend, propose or enter into, any
agreement or arrangement with any person or group that in the sole judgment
of the Purchasers could adversely affect either the value of the Company or
any of its subsidiaries or the value of the Shares and/or the Preferred
Shares to the Purchasers, SCI or any other affiliate of SCI, (ix) entered
into any employment, severance or similar agreement, arrangement or plan
with or for the benefit of any of its employees other than in the ordinary
course of business in accordance with past practice or entered into or
amended any agreements, arrangements or plans or exercised any discretion
conferred on the Company's or any subsidiary's board of directors or any
committee thereof so as to provide for increased or accelerated benefits to
any employees as a result of or in connection with the transactions
contemplated by the Offers, the Second Step Transaction or any other
business combination or otherwise amended any such agreement, arrangement
or plan to make the same more favorable to any such employee, or SCI or the
Purchasers shall have learned about any such action which shall not have
been previously publicly disclosed by the Company, (x) except as may be
required by law, taken any action to terminate or amend any employee
benefit plan (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended) of the Company or any of its
subsidiaries, or the Purchasers or SCI shall have become aware of any such
action that was not disclosed in publicly available filings prior to
October 1, 1996, (xi) amended, or authorized or proposed any amendment to,
its articles or memorandum or any other material agreement (other than any
amendment which provides that the Rights are inapplicable to the Offers and
the Second Step Transaction), or SCI or the Purchasers shall become aware
that the Company or any of its subsidiaries shall have proposed or adopted
any such amendment that was not disclosed in publicly available filings
prior to October 1, 1996 or (xii) otherwise acted out of the ordinary
course of business, consistent with past practice;
(h) A tender or exchange offer, takeover bid or insider bid for some
portion or all of any outstanding securities of the Company or any of its
subsidiaries (including the Shares, Preferred Shares or Rights) shall have
been publicly proposed to be made or shall have been made by another person
(including the Company or any of its subsidiaries or affiliates), or it
shall have been publicly disclosed or SCI or the Purchasers shall have
learned that (i) any person, entity or "group" (as defined in Section
13(d)(3) of
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<PAGE> 56
the Exchange Act) shall have acquired or proposed to acquire securities
such that it would beneficially own more than 5 percent of any class or
series of capital stock of the Company (including the Shares, Preferred
Shares or Rights) or its subsidiaries or shall have been granted any option
or right to acquire securities such that it would beneficially own more
than 5 percent of any class or series of capital stock of the Company
(including the Shares, Preferred Shares or Rights) or its subsidiaries,
other than acquisitions of Shares for bona fide arbitrage positions, or
(ii) any such person, entity or group which has publicly disclosed any such
ownership of more than 5 percent of any class or series of capital stock of
the Company (including the Shares, Preferred Shares or Rights) or its
subsidiaries prior to October 1, 1996 shall have acquired or proposed to
acquire additional shares of any class or series of capital stock of the
Company (including the Shares, Preferred Shares or Rights) or its
subsidiaries constituting more than 1 percent of such class or series or
shall have been granted any option or right to acquire more than 1 percent
of such class or series of capital stock of the Company (including the
Shares, Preferred Shares or Rights) or its subsidiaries, (iii) any group
shall have been formed which beneficially owns more than 5 percent of any
class or series of capital stock of the Company (including the Shares,
Preferred Shares or Rights) or its subsidiaries, (iv) any person, entity or
group shall have entered into a definite agreement or an agreement in
principle or made a proposal with respect to a tender offer or exchange
offer for the Shares, Preferred Shares or Rights or a merger, consolidation
or other business combination with or involving the Company or its
subsidiaries, or (v) any person, entity or group shall have filed a
Premerger Notification and Report Form under the HSR Act in order to, or
made a public announcement reflecting an intent to, acquire the Company or
assets or securities of the Company or its subsidiaries;
(i) (i) the Company, SCI and the Purchasers shall have reached an
agreement or understanding that the Offers be terminated or amended or the
exchange of Buyer Common Stock and/or Exchangeable Shares for Shares or
Preferred Shares be postponed pursuant thereto, or (ii) SCI, the
Purchasers, or any of their affiliates shall have entered into a definitive
agreement or announced an agreement in principle with respect to the Second
Step Transaction or any other business combination with the Company or any
of its affiliates or the purchase of any material portion of the securities
or assets of the Company or any of its subsidiaries;
(j) SCI or the Purchasers shall become aware (i) that any material
contractual right of the Company or any of its subsidiaries shall be
impaired or otherwise adversely affected or that any material amount of
indebtedness of the Company or any of its subsidiaries shall become
accelerated or otherwise become due or become subject to acceleration prior
to its stated due date, in any case with or without notice or the lapse of
time or both as a result of or in connection with the transactions
contemplated by the Offers or the Second Step Transaction or (ii) of any
covenant, term or condition in any of the Company's or any of its
subsidiaries' instruments or agreements that has or may have (whether
considered alone or in the aggregate with other covenants, terms or
conditions), a material adverse effect on (x) the business, properties,
assets, liabilities, capitalization, stockholders' equity, condition
(financial or otherwise), operations, licenses or franchises, results of
operations or prospects of the Company or any of its subsidiaries
(including, but not limited to, any event of default that may ensue as a
result of the consummation of the Offers or the Second Step Transaction or
the acquisition of control of the Company or any of its subsidiaries) or
(y) the value of the Shares or the Preferred Shares in the hands of the
Purchasers or any other affiliate of SCI or (z) the consummation by the
Purchasers or any of their affiliates of the Second Step Transaction or any
other business combination involving the Company; or
(k) Any approval, permit, authorization, favorable review or consent
of any Governmental Entity shall not have been obtained on terms
satisfactory to the Purchasers in their sole discretion;
which, in the sole judgment of the Purchasers in any such case, and regardless
of the circumstances (including any action or inaction by the Purchasers, SCI or
any other affiliate of SCI) giving rise to any such event or condition, makes it
inadvisable to proceed with the Offers and/or with such acceptance for exchange
of Shares and/or Preferred Shares.
While the Acquisition will require certain approvals, notices or exemptions
in certain states and foreign jurisdictions where SCI, the Purchasers, the
Company and their respective affiliates are engaged in business,
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the Purchasers do not currently anticipate any significant difficulties in
obtaining such approvals or any material impact on the operations of the
combined entity if any such approvals are not obtained.
The foregoing conditions are for the sole benefit of the Purchasers and may
be asserted by the Purchasers regardless of the circumstances giving rise to any
such conditions (including any action or inaction by the Purchasers) or may be
waived by the Purchasers in whole or in part and with respect to either Offer or
such Offers and with respect to the Shares and/or the Preferred Shares. The
determination as to whether any condition has been satisfied shall be in the
sole judgment of the Purchasers and will be final and binding on all parties.
The failure by the Purchasers at any time prior to acceptance of Shares and/or
Preferred Shares pursuant to the Offers to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed a continuing right which may be asserted at any time and from time to
time prior to acceptance of Shares and/or Preferred Shares pursuant to the
Offers. The waiver of a condition as to a particular Purchaser or a particular
class of securities will not be deemed a waiver of any condition by the other
Purchaser or with respect to any other class of security.
RELATIONSHIPS WITH THE COMPANY
In 1996, SCI acquired from a third party properties in Bellevue,
Washington, on which are situated three funeral homes leased by the Company.
Pursuant to the lease, the Company pays to SCI annual rentals, including
percentage rent, of approximately $140,000. The lease expires in January 2005.
SCI's Provident subsidiary provides capital financing to independent
funeral home and cemetery operators. From time to time, Provident has had loans
outstanding to certain borrowers who sold their businesses to the Company or its
affiliates. In such cases, Provident's loans were fully repaid in connection
with the sales of such businesses except for one loan which remains outstanding.
At August 30, 1996, this loan had an outstanding balance of $1,319,882, an
interest rate of 9.25 percent, and a maturity date of May 1, 1998. The obligor
on the loan is 50 percent owned by a corporation in which the Company has an
equity interest. The Company also has an equity interest in a guarantor of the
loan.
Except as set forth herein, none of SCI, the Purchasers or, to the best of
their knowledge, any of the persons listed in Schedule A hereto has any
contract, arrangement, understanding or relationship with any other person with
respect to any securities of the Company, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as described herein, there have been no contacts,
negotiations or transactions since January 1, 1994, between the Purchasers or,
to the best of their knowledge, any of the persons listed in Schedule A hereto,
on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale or other transfer
of a material amount of assets. None of SCI, the Purchasers, or, to the best of
their knowledge, any of the persons listed in Schedule A hereto, has since
January 1, 1994 had any transaction with the Company or any of its executive
officers, directors or affiliates that would require disclosure under the rules
and regulations of the Commission or the Canadian Securities Regulatory
Authorities applicable to the Offers. Schedule B herein lists the Share and
Preferred Share ownership of and recent trading in such securities by, SCI and
its subsidiaries and the Dealer Managers.
FEES AND EXPENSES
J.P. Morgan Securities Inc. ("J.P. Morgan") and TD Securities Inc. ("TD
Securities") are acting as financial advisors and Dealer Managers in connection
with the Offers pursuant to financial advisory and Dealer Manager Agreements.
SCI has agreed to pay J.P. Morgan, as compensation for its financial advisory
services (including services as Dealer Manager) in connection with the Offers, a
fee of $500,000 (the "Announcement Fee"), which became payable upon the public
announcement by SCI of its intention to seek a business combination with the
Company, and an additional fee of $12,000,000 (the "Success Fee"), against which
the Announcement Fee will be credited, which will be payable upon consummation
of the Offers. SCI has agreed to pay TD Securities, as compensation for its
financial advisory services (including services as
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Dealer Manager) in connection with the Offers, a fee of $150,000 (the "TD
Initial Fee") which became payable upon the execution of the engagement
agreement between the parties, and an additional fee of $2,000,000 against which
the TD Initial Fee will be credited, which will be payable upon the consummation
of the Offers. In addition, SCI has agreed to reimburse each of J.P. Morgan and
TD Securities for their expenses, including the fees and expenses of their
counsel, in connection with the Offers, and has agreed to indemnify each of J.P.
Morgan and TD Securities against certain liabilities and expenses in connection
with the Offers, including liabilities under the Applicable Canadian Securities
Laws and the federal securities laws of the United States.
In addition to the fees to be received by J.P. Morgan in connection with
its engagement as financial advisor to SCI, J.P. Morgan has in the past rendered
various investment banking and financial advisory services for SCI for which it
has received customary compensation.
The Purchasers will pay a solicitation fee of $0.35 for each Share and
$0.23 for each Preferred Share for any Shares or Preferred Shares tendered and
accepted for exchange pursuant to the Offers, covered by a Letter of Transmittal
which designates as having solicited and obtained the tender, the name of (A)
with respect to Shares and Preferred Shares tendered by a person other than a
Canadian Holder (i) any broker or dealer in securities, including J.P. Morgan in
its capacity as a broker or dealer, who is a member of any U.S. national
securities exchange or of the National Association of Securities Dealers, Inc.
(the "NASD"), (ii) any foreign broker or dealer not eligible for membership in
the NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as though it
were an NASD member, and (iii) any bank or trust company, and (B) with respect
to Shares and Preferred Shares tendered by Canadian Holders, any Canadian broker
or dealer in securities, including TD Securities in its capacity as a broker or
dealer in securities, which is part of the Canadian Soliciting Dealer Group (as
defined below) (each of which is referred to herein as a "Soliciting Dealer").
No such fee shall be payable to a Soliciting Dealer with respect to the tender
of Shares or Preferred Shares by a shareholder unless the Letter of Transmittal
accompanying such tender designates such Soliciting Dealer. No such fee shall be
payable to a Soliciting Dealer if such Soliciting Dealer is required for any
reason to transfer the amount of such fee to a depositing holder and no such fee
shall be payable with respect to Shares or Preferred Shares owned and tendered
by a Soliciting Dealer for its own account. No broker, dealer, bank, trust
company or fiduciary shall be deemed to be the agent of the Purchasers, SCI, the
Exchange Agent, the Canadian Forwarding Agent or the Dealer Managers for
purposes of the Offers. The aggregate amount payable to all Soliciting Dealers
with respect to any one beneficial owner will be a minimum of $100 and a maximum
of $1500. Where Shares or Preferred Shares deposited and registered in a single
name are beneficially owned by more than one person, the minimum and maximum
amounts will be applied separately in respect of each such beneficial owner. The
Purchasers may require the Soliciting Dealer to furnish evidence of beneficial
ownership satisfactory to the Purchasers. When a single beneficial owner
deposits Shares or Preferred Shares, as the case may be, all such securities
will be aggregated in determining whether the maximum applies.
TD Securities has undertaken to form a soliciting dealer group (the
"Canadian Soliciting Dealer Group") comprised of members of the Investment
Dealers Association of Canada and members of the stock exchanges in Canada to
solicit acceptances of the Offers in Canada. Members of the Canadian Soliciting
Dealer Group shall be eligible to receive the soliciting dealer's fees as
aforesaid.
SCI has also retained MacKenzie Partners, Inc. to act as Information Agent
in connection with the Offers. The Information Agent may contact holders of
Shares and Preferred Shares by mail, telephone, telex, telegraph and personal
interviews and may request brokers, dealers and other nominee stockholders to
forward the materials relating to the Offers to beneficial owners of Shares and
Preferred Shares. The Information Agent will receive a fee estimated not to
exceed $ for such services, plus reimbursement of out-of-pocket
expenses and SCI will indemnify the Information Agent against certain
liabilities and expenses in connection with the Offers, including liabilities
under Applicable Canadian Securities Laws and United States federal securities
laws.
SCI will pay the Exchange Agent and the Canadian Forwarding Agent
reasonable and customary compensation for its services in connection with the
Offers, plus reimbursement for out-of-pocket expenses, and will indemnify the
Exchange Agent against certain liabilities and expenses in connection therewith,
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including liabilities under the Applicable Canadian Securities Laws and United
States federal securities laws. Brokers, dealers, commercial banks and trust
companies will be reimbursed by SCI for customary mailing and handling expenses
incurred by them in forwarding material to their customers.
ACCOUNTING TREATMENT
The Purchasers intend to account for the Acquisition using the
pooling-of-interests method of accounting in accordance with U.S. GAAP. In order
to account for the Acquisition as a pooling-of-interests, the combining
companies must meet certain specified criteria including among other things, (i)
Buyer must acquire the Company within one year of "initiation" of the
Acquisition, and at least 90 percent of the Shares must be acquired in exchange
for Buyer Common Stock or Exchangeable Shares or any combination thereof (the
"Pooling Percentage Requirement"), and (ii) no affiliate of the Company may
dispose of his stock of the Company or Buyer during the period (the "Pooling
Period") beginning 30 days prior to consummation of the Second Step Transaction
and ending upon the date of publication of financial statements of Buyer
covering operations of Buyer for at least 30 days following consummation of the
Second Step Transaction (the "Pooling Period Requirement").
The occurrence of certain events may preclude accounting for the
Acquisition as a pooling-of-interests. Among other things, (i) if (a)
shareholders of the Company are afforded dissent rights in the Second Step
Transaction and (b) holders of more than 10 percent of the aggregate of the
outstanding Shares and Preferred Shares dissent to the Second Step Transaction
and receive cash for their Shares, the Pooling Percentage Requirement would be
violated, and (ii) if one or more affiliates of the Company were to dispose of
or otherwise reduce his or her risk with respect to all or some portion of such
affiliate's Shares or shares of Buyer Common Stock or Exchangeable Shares during
the Pooling Period, the Pooling Period Requirement would be violated. The events
described above are not within the control of Buyer, SCI, Canadian Newco or the
Company.
Under the pooling-of-interests method of accounting, the recorded assets
and liabilities of the Company and SCI will be carried forward to Buyer at their
recorded amounts, income of Buyer for the fiscal year in which the Second Step
Transaction occurs will include income of the Company and SCI for such fiscal
year and the reported income of the separate companies for prior periods will be
combined and restated as income of Buyer. No recognition of purchase price in
excess of the carrying value of the net assets of the Company is required of
Buyer.
In the event that the Acquisition may not be accounted for as a
pooling-of-interests, the Purchasers intend to account for the Acquisition using
the purchase method of accounting in accordance with U.S. GAAP. See "Unaudited
Pro Forma Combined Financial Information."
STOCK EXCHANGE LISTING
The SCI Common Stock is listed on the NYSE. Application will be made (i) to
list the Buyer Common Stock to be issued pursuant to the Buyer Offer on the
NYSE, and (ii) to list the Exchangeable Shares to be issued pursuant to the
Canadian Newco Offer on the TSE and the ME.
DISSENT RIGHTS
The Purchasers intend that the Second Step Transaction be effected pursuant
to an arrangement which will not contemplate dissent rights to shareholders. The
BC Court has jurisdiction to order that the statutory dissent rights specified
in the BCCA shall be available to shareholders who do not vote in favor of the
arrangement or to provide such other dissent or appraisal rights as the BC Court
in its discretion may determine.
The BCCA provides that shareholders of a company who exercise statutory
dissent rights with respect to any of their shares shall be paid the fair value
(as determined by the BC Court) of those shares as of the day before the
resolution giving rise to the dissent rights is passed (including any
appreciation or depreciation in anticipation of the vote).
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ELIGIBILITY FOR INVESTMENT IN CANADA
In the opinion of Tory Tory DesLauriers & Binnington, Canadian counsel to
SCI and the Purchasers, the Exchangeable Shares offered hereby will be, if the
Offers and the Second Step Transaction were consummated on the date hereof,
eligible investments or will not be precluded as investments, in each case
subject to general investment provisions and in certain cases subject to prudent
investment requirements and additional requirements relating to investment or
lending policies or goals under the following statutes and regulations
thereunder:
Insurance Companies Act (Canada)
Loan and Trust Corporations Act (Ontario)
Pension Benefits Standards Act, 1985 (Canada)
Supplemental Pensions Plans Act (Quebec)
Trust and Loan Companies Act (Canada)
an Act respecting insurance (Quebec)
Pension Benefits Act (Ontario)
Provided they are listed on a prescribed stock exchange in Canada (which
currently includes the TSE and the ME), the Exchangeable Shares will not be
foreign property under the Canadian Tax Act for trusts governed by registered
pension plans, registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans or for certain other tax-exempt persons.
The Ancillary Rights will be foreign property under the Canadian Tax Act.
However, SCI and the Purchasers are of the view that the fair market value of
such rights is generally nominal. Buyer Common Stock will be foreign property
under the Canadian Tax Act.
Provided they are listed on a prescribed stock exchange in Canada (which
currently includes the TSE and the ME), the Exchangeable Shares will be a
qualified investment under the Canadian Tax Act for trusts governed by
registered retirement savings plans, registered retirement income funds and
deferred profit sharing plans. Buyer Common Stock will be a qualified investment
under the Canadian Tax Act for such plans provided such shares remain listed on
the NYSE (or are listed on another prescribed stock exchange). The Ancillary
Rights will not be qualified investments under the Canadian Tax Act. However,
SCI and the Purchasers are of the view that the fair market value of such rights
is generally nominal.
CERTAIN U.S. AND CANADIAN FEDERAL TAX
CONSEQUENCES OF THE ACQUISITION
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO SHAREHOLDERS OF THE COMPANY
In the opinion of Tory Tory DesLauriers & Binnington, Canadian counsel for
SCI and the Purchasers, the following is an accurate summary of the principal
Canadian federal income tax considerations under the Canadian Tax Act generally
applicable to shareholders of the Company who, for purposes of the Canadian Tax
Act, hold their Shares or Preferred Shares and will hold their Exchangeable
Shares and Buyer Common Stock as capital property and deal at arm's length with
the Company, Buyer and Canadian Newco. This summary does not apply to a
shareholder with respect to whom Buyer is or will be a foreign affiliate within
the meaning of the Canadian Tax Act.
The Shares and Preferred Shares will generally be considered to be capital
property to a shareholder unless held in the course of carrying on a business,
in an adventure in the nature of trade or as "mark-to-market" property for
purposes of the Canadian Tax Act. Shareholders who are resident in Canada and
whose Shares or Preferred Shares might not otherwise qualify as capital property
may be entitled to obtain such qualification by making the irrevocable election
provided by subsection 39(4) of the Canadian Tax Act. Shareholders who do not
hold their shares as capital property should consult their own tax advisers
regarding their particular circumstances and, in the case of certain "financial
institutions" (as defined in the Canadian Tax Act), the potential application to
them of the "mark-to-market" rules in the Canadian Tax Act, as the following
summary does not apply to such shareholders.
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This summary is based on the Canadian Tax Act, the regulations thereunder,
the Canada-United States Income Tax Convention (the "Tax Treaty") and counsel's
understanding of the administrative practices published by Revenue Canada,
Customs, Excise and Taxation ("Revenue Canada"), all in effect as of the date of
this Registration Statement. This summary takes into account all specific
proposals to amend the Canadian Tax Act and regulations publicly announced by
the Minister of Finance (Canada) prior to the date hereof (the "Tax Proposals"),
although no assurances can be given that the Tax Proposals will be enacted in
the form presented, or at all. This summary does not take into account or
anticipate any other changes in law, whether by judicial, governmental or
legislative action or decision, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein. No
advance income tax ruling has been sought or obtained from Revenue Canada to
confirm the tax consequences of any of the transactions described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE DESCRIBED TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.
In computing a shareholder's liability for tax under the Canadian Tax Act,
any cash amounts received by the shareholder in U.S. dollars must be converted
into the Canadian dollar equivalent, and the amount of any non-cash
consideration received by the shareholder must be expressed in Canadian dollars,
generally determined at the time such consideration is received.
The following summary (including the ability to make an election to obtain
a rollover) is equally applicable whether a shareholder exchanges Shares or
Preferred Shares in the Buyer Offer or the Canadian Newco Offer, as the case may
be, or in the Second Step Transaction where the Second Step Transaction is
effected in the manner currently intended by the Purchasers. See "The
Offers -- Purpose of the Offers; the Transactions." Different tax consequences
could apply if the Second Step Transaction is effected in a different manner.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to shareholders of the
Company who, for purposes of the Canadian Tax Act, are resident or deemed to be
resident in Canada.
Exchange of Shares or Preferred Shares for Exchangeable Shares and Ancillary
Rights
(i)Non-Rollover Transaction. A holder who exchanges Shares (including any
related Rights) or Preferred Shares for Exchangeable Shares (including any
related Exchangeable Share Rights) and Ancillary Rights will, unless such holder
makes a joint election under subsection 85(1) or 85(2) of the Canadian Tax Act
as discussed below, be considered to have disposed of such shares for proceeds
of disposition equal to the sum of (i) any cash received by such holder in
respect of a fractional Exchangeable Share, (ii) the fair market value of the
Exchangeable Shares acquired by such holder on the exchange and (iii) the fair
market value of the Ancillary Rights and Exchangeable Share Rights acquired by
such holder on the exchange, and, as a result, the holder will in general
realize a capital gain (or capital loss) to the extent that such proceeds of
disposition, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base to the holder of such shares. The cost to a holder
of Exchangeable Shares, Ancillary Rights and Exchangeable Share Rights acquired
on the exchange will be equal to the fair market value of such shares and rights
at the time of the exchange.
(ii)Rollover Transaction. An Eligible Holder, as defined below, who
exchanges Shares (including any related Rights) or Preferred Shares for
Exchangeable Shares and Ancillary Rights may make a joint election with Canadian
Newco pursuant to subsection 85(1) of the Canadian Tax Act (or, in the case of a
holder that is a partnership, pursuant to subsection 85(2) of the Canadian Tax
Act) and thereby obtain a full or partial tax deferred "rollover" for Canadian
income tax purposes, depending on the amount selected in the election to be the
proceeds of disposition of the shares (the "Elected Amount") and the adjusted
cost base to the holder
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of the shares at the time of the exchange. So long as, at the time of the
exchange, the aggregate adjusted cost base to an Eligible Holder of the holder's
Shares (including any related Rights) or Preferred Shares exceeds the sum of (i)
any cash received in respect of a fractional Exchangeable Share and (ii) the
fair market value of the Ancillary Rights acquired by such holder on the
exchange, the holder may elect so as to not realize a capital gain for the
purposes of the Canadian Tax Act on the exchange.
IN ORDER TO MAKE AN ELECTION, AN ELIGIBLE HOLDER MUST ENSURE THAT A DULY
COMPLETED AND SIGNED TAX ELECTION PACKAGE IS RECEIVED BY THE CANADIAN FORWARDING
AGENT AT ITS PRINCIPAL OFFICE ON OR BEFORE THE EARLIER OF (A) THE DAY WHICH IS
30 DAYS PRIOR TO THE DATE ON WHICH THE ELECTION IS DUE TO BE FILED WITH THE
RELEVANT TAX AUTHORITIES, AND (B) MARCH 31 FOR EXECUTION AND FILING BY CANADIAN
NEWCO OTHERWISE, THEY (I) WILL NOT BE ABLE TO BENEFIT AT ALL FROM THE ROLLOVER
PROVISIONS IF RECEIVED BY THE CANADIAN FORWARDING AGENT AFTER MARCH 31, AND (II)
MAY NOT BE ABLE TO BENEFIT FROM THE MAKING OF AN ELECTION WITHOUT APPLICABLE
LATE FILING PENALTIES IF RECEIVED BY THE CANADIAN FORWARDING AGENT AFTER THE DAY
WHICH IS 30 DAYS PRIOR TO THE DATE ON WHICH THE ELECTION IS DUE, IN THAT
CANADIAN NEWCO HAS AGREED TO EXECUTE ANY PROPERLY COMPLETED TAX ELECTION
PACKAGES WHICH THE CANADIAN FORWARDING AGENT RECEIVED ON OR BEFORE MARCH 31 AND
TO FORWARD SUCH TAX ELECTION PACKAGES BY MAIL TO THE APPROPRIATE TAX AUTHORITIES
WITHIN THIRTY DAYS OF THE CANADIAN FORWARDING AGENT'S RECEIPT. ACCORDINGLY,
ELIGIBLE HOLDERS THAT ARE INDIVIDUALS SHOULD ENSURE THAT PROPERLY COMPLETED TAX
ELECTION PACKAGES ARE RECEIVED BY THE CANADIAN FORWARDING AGENT ON OR BEFORE
MARCH 31, 1997. ELIGIBLE HOLDERS SHOULD BE AWARE THAT CANADIAN NEWCO WILL NOT
EXECUTE ANY ELECTIONS RECEIVED BY THE CANADIAN FORWARDING AGENT AFTER MARCH 31
AND THUS ANY SHAREHOLDER WHO DOES NOT ENSURE THAT THE CANADIAN FORWARDING AGENT
HAS RECEIVED A DULY COMPLETED TAX ELECTION PACKAGE ON OR BEFORE MARCH 31 WILL
NOT BE ABLE TO BENEFIT AT ALL FROM THE ELECTION.
The tax election package consists of: (a) two copies of Revenue Canada
election form T2057 (or, in the event that the Shares or Preferred Shares are
held as partnership property, Revenue Canada election form T2058); (b) for
shareholders required to file in Quebec, two copies of Quebec election form
TP-518V (or, in the event that the Shares or Preferred Shares are held as
partnership property, three copies of form TP-529V); and (c) a tax election
filing authorization letter (in duplicate if the Eligible Holder is required to
file in Quebec). The tax election package also will include a letter of
instructions and will provide additional rules regarding the rights and
obligations of Canadian Newco and shareholders in respect of the making and
filing of elections. The tax election package may be obtained from the Canadian
Forwarding Agent. An Eligible Holder interested in obtaining a tax election
package should indicate same on the Letter of Transmittal accompanying this
Prospectus in the space provided therein.
Where Shares or Preferred Shares are held in joint ownership and two or
more of the co-owners wish to elect, one of the co-owners designated for such
purpose should file the designation and a copy of the Revenue Canada election
form T2057 (and where applicable, the corresponding Quebec form) for each
co-owner along with a list of all co-owners electing, which list should contain
the address and social insurance number or tax account number of each co-owner.
Where the Shares or Preferred Shares are held as partnership property, a partner
designated by the partnership must file one copy of Revenue Canada election form
T2058 on behalf of all members of the partnership (and where applicable, the
corresponding form in duplicate with the Quebec taxation authorities). Such
Revenue Canada election form T2058 (and Quebec form, if applicable) must be
accompanied by a list containing the name, address, social insurance number or
account number of each partner as well as the letter signed by each partner
authorizing the designated partner to complete and file the form.
In general, where an election is made, the Elected Amount must comply with
the following rules:
1. The Elected Amount may not be less than the sum of (i) any cash
received in respect of a fractional Exchangeable Share and (ii) the fair
market value of the Ancillary Rights acquired on the exchange.
2. The Elected Amount may not be less than the lesser of the adjusted
cost base to the holder of the holder's Shares (including any related
Rights) or Preferred Shares exchanged, determined immediately before the
time of the exchange, and the fair market value of the Shares (including
any related Rights) or Preferred Shares at that time.
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3. The Elected Amount may not exceed the fair market value of the
Shares (including any related Rights) or Preferred Shares at the time of
the exchange.
Where a holder and Canadian Newco make an election, the tax treatment to
the holder generally will be as follows:
1. The holder's Shares (including any related Rights) or Preferred
Shares will be deemed to have been disposed of for proceeds of disposition
equal to the Elected Amount.
2. If the proceeds of disposition of the Shares (including any related
Rights) or Preferred Shares are equal to the aggregate of the adjusted cost
base to the holder of the holder's shares, determined immediately before
the exchange, and any costs of disposition, no capital gain or capital loss
will be realized by the holder.
3. To the extent that the proceeds of disposition of the Shares
(including any related Rights) or Preferred Shares exceed (or are less
than) the aggregate of the adjusted cost base thereof to the holder and any
costs of disposition, the holder will in general realize a capital gain (or
capital loss).
4. The cost to a holder of Ancillary Rights received on the exchange
will be equal to the fair market value thereof at that time and the cost to
a holder of Exchangeable Shares received on the exchange will be equal to
the amount by which the proceeds of disposition of the Shares (including
any related Rights) or Preferred Shares exchanged by the holder exceeds the
amount of any cash received in respect of a fractional Exchangeable Share
and the fair market value of the Ancillary Rights received on the exchange.
An "Eligible Holder" is a holder of Shares or Preferred Shares (i) who is
resident in Canada for the purposes of the Canadian Tax Act, other than any such
holder who is exempt from tax thereunder, (ii) who is not resident in Canada for
the purposes of the Canadian Tax Act and whose Shares or Preferred Shares
constitute taxable Canadian property (as defined in the Canadian Tax Act),
provided that any gain realized by such non-resident holder from the disposition
of such shares would not be exempt from Canadian tax by virtue of an applicable
income tax convention, or (iii) which is a partnership that owns Shares or
Preferred Shares if one or more of its members would be an Eligible Holder if
such member held directly such shares.
Compliance with the requirements for a valid election will be the sole
responsibility of the Eligible Holder making the election. Canadian Newco will
not be responsible for the proper completion of such election and such Eligible
Holder will be solely responsible for the payment of any late filing penalties.
Canadian Newco will not execute or file tax election packages received by the
Canadian Fowarding Agent after March 31, 1997.
In order for Revenue Canada (and where applicable the Ministere du Revenu
du Quebec) to accept the tax election packages without a late filing penalty
being paid by an Eligible Holder, the tax election package, duly completed and
executed by both the Eligible Holder and Canadian Newco, must be received by
such Revenue authorities on or before the day that is the earliest of the days
on or before which either Canadian Newco or the Eligible Holder is required to
file an income tax return for the taxation year in which the exchange occurs.
Thus, where the exchange occurs in 1996, the tax election package will, in the
case of individuals, have to be received by the Canadian Fowarding Agent no
later than March 31, 1997 in order to ensure that if Canadian Newco mails the
tax election package to the Revenue authorities thirty days after the receipt by
the Canadian Fowarding Agent it is received by the Revenue authorities by April
30, 1997 (being generally the last day for filing the tax returns for the 1996
taxation year of individuals). Eligible Holders other than individuals are urged
to consult their own advisors as soon as possible respecting the deadlines
applicable to their own particular circumstances. Canadian Newco's taxation year
is scheduled to end December 31, 1996.
It is therefore recommended to all Eligible Holders who wish to make the
election that they give their immediate attention to this matter. Eligible
Holders are referred to Information Circular 76-19R3 and Interpretation Bulletin
IT-291R2 issued by Revenue Canada for further information respecting the
election. Eligible Holders wishing to make the election should consult their own
tax advisors. The comments herein
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with respect to such elections are provided for general assistance only. The law
in this area is complex and contains numerous technical requirements. Compliance
with such requirements to ensure the validity of the election will be the sole
responsibility of the Eligible Holder.
For these purposes, a holder of Shares or Preferred Shares will be required
to determine the fair market value of the Ancillary Rights received on the
exchange on a reasonable basis for purposes of the Canadian Tax Act. Buyer is of
the view and has advised counsel that the Ancillary Rights have only nominal
value. The tax election forms will be executed by Canadian Newco on the basis
that the fair market value of the Ancillary Rights is a nominal amount per
Exchangeable Share issued on the exchange, to be determined by Canadian Newco.
Such amount will be provided to shareholders in the letter of instructions
included in the tax election package. Such determinations of value are not
binding on Revenue Canada and counsel can express no opinion on matters of
factual determination such as this.
Exchange of Shares or Preferred Shares for Buyer Common Stock.
A holder who exchanges Shares (including any related Rights) or Preferred
Shares for Buyer Common Stock (including any related Buyer Rights) will be
considered to have disposed of such shares for proceeds of disposition equal to
the sum of (i) the fair market value of the Buyer Common Stock (including any
related Buyer Rights) acquired by such holder on the exchange and (ii) any cash
received by such holder in respect of a fractional share of Buyer Common Stock,
and, as a result, the holder will in general realize a capital gain (or capital
loss) to the extent that such proceeds of disposition, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted cost base to the
holder of such shares. The cost to a holder of Buyer Common Stock acquired on
the exchange will be equal to the fair market value of such shares at the time
of the exchange, to be averaged with the adjusted cost base of any other Buyer
Common Stock held by the holder as capital property.
Call Rights
SCI is of the view and has advised counsel that the Liquidation Call Right,
the Redemption Call Right and the Retraction Call Right (each as defined herein)
have nominal value and that accordingly, no amount should be allocated to the
Call Rights. On this basis, no shareholder should realize a gain at the time
that any of such rights are granted to Buyer. Such determinations of value are
not binding on Revenue Canada and counsel can express no opinion on matters of
factual determination such as this.
Dividends
Dividends on Exchangeable Shares. In the case of a shareholder who is an
individual, dividends received or deemed to be received on the Exchangeable
Shares will be included in computing the shareholder's income and will be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from taxable Canadian corporations.
Subject to the discussion below as to the denial of the dividend deduction,
in the case of a shareholder that is a corporation, other than a "specified
financial institution" as defined in the Canadian Tax Act, dividends received or
deemed to be received on the Exchangeable Shares will be included in computing
the corporation's income and will normally be deductible in computing its
taxable income. Buyer is a specified financial institution for purposes of the
Canadian Tax Act; where Buyer (or any person with whom Buyer does not deal at
arm's length) is a specified financial institution at the time a dividend is
received or deemed to be received, the dividend deduction for a corporate
shareholder will not apply unless at that time, the Exchangeable Shares are
listed on a prescribed stock exchange (which currently includes the TSE and the
ME), Buyer controls Canadian Newco, and the recipient (together with persons
with whom the recipient does not deal at arm's length or any partnership or
trust of which the recipient or person is a member or beneficiary, respectively)
does not receive dividends on more than 10 percent of the issued and outstanding
Exchangeable Shares.
In the case of a shareholder that is a specified financial institution,
such a dividend also will not be deductible in computing its taxable income
unless either: (i) the specified financial institution did not acquire
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the Exchangeable Shares in the ordinary course of the business carried on by
such institution; or (ii) at the time of the receipt of the dividend by the
specified financial institution, the Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE and the
ME) and the specified financial institution, either alone or together with
persons with whom it does not deal at arm's length, does not receive (or is not
deemed to receive) dividends in respect of more than 10 percent of the issued
and outstanding Exchangeable Shares. A corporation is a specified financial
institution for purposes of the Canadian Tax Act if it is a bank, a trust
company, a credit union, an insurance corporation or a corporation whose
principal business is the lending of money to persons with whom the corporation
is dealing at arm's length or the purchasing of debt obligations issued by such
persons or a combination thereof, and corporations controlled by or related to
such entities.
A shareholder that is a "private corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3 percent on dividends received or deemed to be received
on the Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income. A shareholder that is a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3 percent on dividends
or deemed dividends that are not deductible in computing taxable income.
The Exchangeable Shares will be "taxable preferred shares" and "short-term
preferred shares" for purposes of the Canadian Tax Act. Accordingly, Canadian
Newco will be subject to a 66 2/3 percent tax under Part VI.1 of the Canadian
Tax Act on dividends paid or deemed to be paid on the Exchangeable Shares and
will be entitled to deduct 9/4 of the tax payable in computing its taxable
income under Part I of the Canadian Tax Act.
Dividends on Buyer Common Stock. Dividends on Buyer Common Stock will be
included in the recipient's income for the purposes of the Canadian Tax Act.
Such dividends received by an individual shareholder will not be subject to the
gross-up and dividend tax credit rules in the Canadian Tax Act. A corporation
that is a shareholder will include such dividends in computing its income and
generally will not be entitled to deduct the amount of such dividends in
computing its taxable income. A shareholder that is a Canadian-controlled
private corporation may be liable to pay an additional refundable tax of 6 2/3
percent on such dividends. United States non-resident withholding tax on such
dividends will be eligible for foreign tax credit or deduction treatment where
applicable under the Canadian Tax Act.
Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by
Canadian Newco, the holder of an Exchangeable Share will be deemed to have
received a dividend equal to the amount, if any, by which the redemption
proceeds (the fair market value at that time of Buyer Common Stock received by
the shareholder from Canadian Newco on the redemption plus the amount of any
accrued but unpaid dividends on the Exchangeable Share) exceeds the paid-up
capital (for purposes of the Canadian Tax Act) at that time of the Exchangeable
Share so redeemed. The amount of any such deemed dividend will be subject to the
tax treatment described above under "-- Dividends -- Dividends on Exchangeable
Shares." On the redemption, the holder of an Exchangeable Share will also be
considered to have disposed of the Exchangeable Share for proceeds of
disposition equal to the redemption proceeds less the amount of such deemed
dividend. A holder will in general realize a capital gain (or a capital loss)
equal to the amount by which the adjusted cost base to the holder of the
Exchangeable Share is less than (or exceeds) such proceeds of disposition. See
"-- Taxation of Capital Gain or Capital Loss" below. In the case of a
shareholder that is a corporation, in some circumstances the amount of any such
deemed dividend may be treated as proceeds of disposition and not as a dividend.
On the exchange of an Exchangeable Share by the holder thereof with Buyer
for Buyer Common Stock, the holder will in general realize a capital gain (or a
capital loss) to the extent the proceeds of disposition of the Exchangeable
Share, net of any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to the holder of the Exchangeable Share. For these purposes,
the proceeds of disposition will be the fair
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market value of Buyer Common Stock at the time of the exchange plus the sum of
the amount of any accrued but unpaid dividends on the Exchangeable Share
received by the holder as part of the exchange consideration and the amount of
any cash received in lieu of a fractional share. See "-- Taxation of Capital
Gain or Capital Loss" below.
Taxation of Capital Gain or Capital Loss
Three-quarters of any such capital gain (the "taxable capital gain")
realized on an exchange of Shares (including any related Rights) or Preferred
Shares on a retraction, redemption or exchange of Exchangeable Shares or on a
disposition of Buyer Common Stock will be included in the shareholder's income
for the year of disposition. Three-quarters of any capital loss so realized (the
"allowable capital loss") may be deducted by the holder against taxable capital
gains for the year of disposition. Any excess of allowable capital losses over
taxable capital gains of the shareholder for the year of disposition may be
carried back up to three taxation years or forward indefinitely and deducted
against net taxable capital gains in those other years.
Capital gains realized by an individual or trust, other than certain
specified trusts, may give rise to alternative minimum tax under the Canadian
Tax Act. A shareholder that is a Canadian-controlled private corporation may be
liable to pay an additional refundable tax of 6 2/3 percent on taxable capital
gains.
If the holder of a Share, Preferred Share or Exchangeable Share is a
corporation, the amount of any capital loss arising from a disposition or deemed
disposition of any such share may be reduced by the amount of dividends received
or deemed to have been received by it on such share to the extent and under
circumstances prescribed by the Canadian Tax Act. Similar rules may apply where
a corporation is a member of a partnership or a beneficiary of a trust that owns
Shares, Preferred Shares or Exchangeable Shares or where a trust or partnership
of which a corporation is a beneficiary or a member is a member of a partnership
or a beneficiary of a trust that owns any such shares.
Acquisition and Disposition of Buyer Common Stock
The cost of Buyer Common Stock received on the retraction, redemption or
exchange of an Exchangeable Share will be equal to the fair market value of such
Buyer Common Stock at the time of such event.
A disposition or deemed disposition of Buyer Common Stock by a holder will
generally result in a capital gain (or capital loss) to the extent that the
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the holder of Buyer Common Stock
immediately before the disposition.
Foreign Property Information Reporting
A holder of Buyer Common Stock who is a "specified Canadian entity" (as
defined in the Tax Proposals) and whose cost amount for such shares at any time
in a year or fiscal period exceeds C$100,000 will be required to file an
information return in respect of such shares disclosing the holder's cost
amount, any dividends received in the year and any gains or losses realized in
the year in respect of such shares. A specified Canadian entity means a taxpayer
resident in Canada in the year, other than a corporation or a trust exempt from
tax under Part I of the Canadian Tax Act, a non-resident-owned investment
corporation, a mutual fund corporation, a mutual fund trust and certain other
trusts and partnerships.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is applicable to holders of Shares or
Preferred Shares who, for purposes of the Canadian Tax Act, have not been and
will not be resident or deemed to be resident in Canada at any time while they
have held Shares or Preferred Shares or will hold Exchangeable Shares or Buyer
Common Stock and to whom such shares are not "taxable Canadian property" (as
defined in the Canadian Tax Act) and who do not use or hold and are not deemed
to use or hold such shares in connection with carrying on a business in Canada.
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Generally, Shares, Preferred Shares, Exchangeable Shares and Buyer Common
Stock will not be taxable Canadian property provided that such shares are listed
on a prescribed stock exchange (which currently includes the TSE, the ME and the
NYSE), the holder does not use or hold, and is not deemed to use or hold, such
shares in connection with carrying on a business in Canada and the holder, alone
or together with persons with whom such holder does not deal at arm's length,
has not owned (or had under option) 25 percent or more of the issued shares of
any class or series of the capital stock of the Company, Buyer, SCI or Canadian
Newco any time within five years preceding the date of disposition. Canadian
Newco has applied for the listing of the Exchangeable Shares on the TSE and the
ME and Buyer has indicated that it intends to use its best efforts to cause
Canadian Newco to maintain such listing. Buyer has indicated that it will cause
itself to be listed and will maintain the listing of Buyer Common Stock on the
NYSE or another prescribed stock exchange.
A holder of Shares or Preferred Shares will not be subject to tax under the
Canadian Tax Act on the exchange of Shares or Preferred Shares for Exchangeable
Shares, on the exchange of an Exchangeable Share for Buyer Common Stock (except
if the exchange results from a redemption of an Exchangeable Share) or on the
sale or other disposition of an Exchangeable Share or Buyer Common Stock. A
holder whose Exchangeable Shares are redeemed (either under Canadian Newco's
redemption right or pursuant to the holder's retraction rights) will be deemed
to receive a dividend as described above for shareholders resident in Canada
under "-- Redemption or Exchange of Exchangeable Shares." The amount of such
deemed dividend will be subject to the tax treatment accorded to dividends
described below.
Dividends paid or deemed to be paid on the Exchangeable Shares are subject
to non-resident withholding tax under the Canadian Tax Act at the rate of 25
percent, although such rate may be reduced under the provisions of an applicable
income tax treaty. Under the Tax Treaty, the rate is generally reduced to 15
percent in respect of dividends paid to a person who is the beneficial owner and
who is resident in the United States for purposes of the Tax Treaty.
UNITED STATES FEDERAL TAX CONSIDERATIONS TO SHAREHOLDERS OF THE COMPANY
In the opinion of Wachtell, Lipton, Rosen & Katz, United States counsel to
Buyer and SCI, the following is an accurate summary of (1) the principal United
States federal income tax considerations generally applicable to a United States
Holder and to a non-United States Holder who is a resident of Canada arising
from the exchange of Shares or Preferred Shares for either Buyer Common Stock or
Exchangeable Shares of Canadian Newco, insofar as it relates to matters of
United States federal income tax law and legal conclusions with respect thereto,
and (2) the principal United States estate tax consequences to individual
Canadian residents holding Buyer Common Stock.
As used herein, a United States Holder includes a shareholder of the
Company who is a citizen or individual resident of the United States, a
corporation or partnership created or organized in or under the laws of the
United States, or of any political subdivision thereof, or an estate or trust
the income of which is includible in its gross income for United States federal
income tax purposes without regard to its source, but excludes persons subject
to special provisions of United States federal income tax law, such as
tax-exempt organizations, financial institutions, insurance companies,
broker-dealers, persons having a "functional currency" other than the United
States dollar, shareholders who hold Shares or Preferred Shares as part of a
straddle, wash sale, hedging or conversion transaction (other than by virtue of
their participation in the Offers) and shareholders who acquired their Shares or
Preferred Shares through the exercise of employee stock options or otherwise as
compensation for services.
This summary is based on United States federal tax law in effect as of the
date of this Registration Statement. No advance tax ruling has been or will be
either sought or obtained from the United States Internal Revenue Service
("IRS") regarding the tax consequences of any of the transactions described
herein.
This summary does not address all aspects of United States federal taxation
that may be applicable to a particular shareholder of the Company in light of
such shareholder's particular circumstances. In addition, this summary does not
address the United States state or local tax consequences or the foreign tax
consequences of the receipt and ownership of the Exchangeable Shares or Buyer
Common Stock.
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UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN TO THEM IN CONNECTION WITH
THEIR SPECIFIC FACTS AND CIRCUMSTANCES.
Receipt of Buyer Common Stock
Shareholders of the Company who are United States Holders and who exchange
Shares or Preferred Shares for Buyer Common Stock pursuant to the Buyer Offer
will not recognize either gain or loss on such exchange pursuant to the
provisions of Code Section 351. The aggregate basis of the Buyer Common Stock so
received will be the same as the basis in the Shares or Preferred Shares, as the
case may be, so exchanged, and the holding period of the Buyer Common Stock will
include such shareholder's holding period in the Shares or Preferred Shares
exchanged. A holder of Shares or Preferred Shares who receives cash in lieu of a
fractional share of Buyer Common Stock will recognize gain or loss equal to the
difference between such Shareholder's basis in the fractional share and the
amount of such cash received.
Company shareholders who exchange Shares or Preferred Shares for Buyer
Common Stock in the Second Step Transaction (the "Second Step Transfer") may not
be eligible for tax-free treatment with respect to such exchanges because such
shareholders may not be considered to be transferors for purposes of Code
Section 351. If the Second Step Transfer is determined not to be within the
scope of Code Section 351, transfers pursuant thereto will constitute taxable
exchanges. In that event, a Company shareholder who is a United States Holder
and participates in the Second Step Transfer will recognize gain or loss on such
exchange in an amount equal to the difference between such shareholder's basis
in the Shares or Preferred Shares surrendered and the sum of (i) the fair market
value of the Buyer Common Stock received pursuant to such exchange, and (ii) the
amount of cash received in lieu of fractional shares. Such gain or loss will
constitute capital gain or loss if the Shares or Preferred Shares are held by
such shareholder as a capital asset and such capital gain or loss will
constitute long-term capital gain or loss if the Shares or Preferred Shares will
have been held for more than one year at the date of such exchange. The tax
basis of the Buyer Common Stock received by a United States Holder in such a
taxable exchange will be equal to its fair market value on the date of the
exchange.
Receipt of Exchangeable Shares
Shareholders of the Company who are United States Holders and who receive
Exchangeable Shares pursuant to the Offers may not be considered to have
participated in a Code Section 351 transaction, in which event such shareholders
will recognize gain or loss on such exchange in an amount equal to the
difference between such shareholders' basis in the Shares or Preferred Shares
surrendered and the sum of (i) the amount of cash received in lieu of fractional
shares and (ii) the fair market value of the Exchangeable Shares received. Such
gain or loss will constitute capital gain or loss if the Shares or Preferred
Shares are held by such shareholder as a capital asset and such capital gain or
loss will constitute long-term capital gain or loss if the Shares or Preferred
Shares will have been held for more than one year at the Expiration Date. The
tax basis of the Exchangeable Shares received by a United States Holder will be
equal to their fair market value on the Expiration Date.
If the exchange of Shares or Preferred Shares by United States Holders for
Exchangeable Shares in the Offer is within the scope of Code Section 351, the
United States income tax consequences will be as set forth in the immediately
preceding section entitled Receipt of Buyer Common Stock.
United States Holders should be aware that if their receipt of Exchangeable
Shares pursuant to the Offers is considered to be tax-free pursuant to the
provisions of Code Section 351, the subsequent exchange of such Exchangeable
Shares for Buyer Common Stock will constitute taxable dispositions for United
States income tax purposes on which gain or loss will be recognized.
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Exchange of Exchangeable Shares
As noted above, a United States Holder that exercises such holder's right
to exchange its Exchangeable Shares for Buyer Common Stock generally will
recognize gain or loss on such exchange. Such gain or loss will be equal to the
difference between the fair market value of the shares of Buyer Common Stock
received at the time of the exchange and the United States Holder's tax basis in
the Exchangeable Shares surrendered. The gain or loss will generally be capital
gain or loss, except that, with respect to any declared but unpaid dividends on
the Exchangeable Shares, ordinary income may be recognized. Capital gain or loss
will generally be long-term capital gain or loss if the Exchangeable Shares have
been held for more than one year at the time of the exchange. A United States
Holder will have a tax basis in the shares of Buyer Common Stock received equal
to the fair market value of such shares at the time of the exchange. The holding
period for such shares will begin on the day after the exchange.
Distributions on the Exchangeable Shares
A United States Holder of Exchangeable Shares generally will be required to
include in gross income as ordinary income dividends paid on the Exchangeable
Shares to the extent such dividends are paid out of the earnings and profits of
Canadian Newco, as determined under United States federal income tax principles.
Such dividends paid in Canadian dollars will be includible in the income of a
United States Holder in a United States dollar amount calculated by reference to
the exchange rate in effect on the date the dividends are deemed received.
United States Holders should consult their own tax advisors regarding the
treatment of any foreign currency gain or loss on any Canadian dollars received
which are not converted into United States dollars on such date. Dividends
should generally be treated as foreign source passive income for foreign tax
credit limitation purposes, except, however, that a portion of dividends paid by
Canadian Newco equal to the ratio of which Canadian Newco's earnings and profits
from sources within the United States for the year such dividends are paid bears
to Canadian Newco's earnings and profits for such year from all sources (if such
ratio is 10 percent or greater) will be treated as derived from sources within
the United States, unless the taxpayer elects to have such dividend treated as
foreign source income by electing to have the Tax Treaty source rules apply by
making the election permitted by Code Section 904(g)(10). In that event the
dividends received on the Exchangeable Shares will be deemed to be separate
basket foreign source income. Under the current Tax Treaty, such distributions
will be subject to Canadian withholding tax at a maximum rate of 15 percent.
Subject to certain limitations of United States federal income tax law, a United
States Holder should generally be entitled to either a credit against such
holder's United States federal income tax liability or a deduction in computing
United States taxable income for Canadian income taxes withheld from
distributions with respect to the Exchangeable Shares.
Canadian Residents Not Resident in or Citizens of the United States
The following summary is generally applicable to Canadian residents who are
not resident in or citizens of the United States ("Canadian Residents" or a
"Canadian Resident"), but excludes Company shareholders who acquired their
Shares or Preferred Shares through the exercise of employee stock options or
otherwise as compensation for services. Canadian Residents seeking benefits
under the Tax Treaty or an exemption from United States withholding tax for
"effectively connected" income, as described below, are required to comply with
additional certification and other requirements in order to establish the
holder's entitlement to such benefits or exemption. This summary is limited to
Canadian Residents who hold Shares or Preferred Shares as capital assets and who
will hold Exchangeable Shares and shares of Buyer Common Stock as capital
assets.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular Canadian Resident, including whether such Canadian
Resident is a United States expatriate.
Dividends received by a Canadian Resident with respect to the Exchangeable
Shares should not be subject to United States withholding tax, and Canadian
Newco and Buyer do not intend that Canadian Newco or Buyer will withhold any
amounts in respect of such tax from such dividends. There is some possibility,
however, that the IRS may assert that United States withholding tax is payable
with respect to dividends paid
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on the Exchangeable Shares to Canadian Residents. In such case, Canadian
Resident holders of Exchangeable Shares could be subject to United States
withholding tax at the Tax Treaty rate of 15 percent.
Dividends received by a Canadian Resident with respect to Buyer Common
Stock that is not effectively connected with the conduct by such person of a
trade or business in the United States will generally be subject to United
States withholding tax at the Tax Treaty rate of 15 percent.
Subject to the discussion below, Canadian Residents generally will not be
subject to United States federal income tax on gain (if any) recognized on the
receipt of either Buyer Common Stock or Exchangeable Shares pursuant to the
Offers or in the Second Step Transaction, or on the sale or exchange of shares
of either Buyer Common Stock or Exchangeable Shares, unless such gain is
effectively connected with a trade or business of such Canadian Resident, or is
attributable to a permanent establishment maintained in the United States by
such Canadian Resident.
Notwithstanding the general rule set forth in the preceding paragraph,
under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), gain
or loss recognized by a nonresident alien individual or foreign corporation
(each a "Foreign Holder") on the sale or exchange of shares of Buyer Common
Stock will be subject to regular United States federal income tax, as if such
gain or loss were effectively connected with a United States trade or business,
if (a) Buyer is a "United States real property holding corporation" ("USRPHC")
(as defined below) and (b) such Foreign Holder is a "greater than 5 percent
shareholder" of Buyer. Generally, a Foreign Holder will be a greater than 5
percent shareholder of Buyer if such person owns, or is deemed to own after
application of the constructive ownership rules of Code Section 318, more than 5
percent of the outstanding shares of Buyer Common Stock.
Buyer will be a USRPHC with respect to any greater than 5 percent
shareholder if at any time during the shorter of (x) the five-year period ending
on the date of the sale or exchange of Buyer Common Stock, or (y) the period
during which such greater than 5 percent shareholder held Buyer Common Stock
(such period being the "FIRPTA holding period"), the fair market value of
Buyer's interests in United States real property equaled or exceeded 50 percent
of the sum of the fair market values of all of its interests in real property
and all of its other assets used or held for use in a trade or business (as
defined in applicable regulations). Buyer does not believe that it is, or that
it has been at any time since January 1991, a USRPHC. However, Buyer is
presently unable to determine whether it will become a USRPHC if the Offers are
consummated and it acquires the Company as set forth herein. Furthermore, there
can be no assurance that Buyer will not in any event become a USRPHC in the
future.
Any person other than a United States Holder, including any Foreign Holder
who believe they may be greater than 5 percent shareholders of Buyer, including
as a result of owning only Exchangeable Shares, are particularly urged to
consult their own tax advisors to determine the possible application of FIRPTA
and related United States withholding tax rules to them, and, if appropriate, to
consider entering into a tax cooperation agreement.
Estate Taxes
Buyer Common Stock (or a previously triggered obligation of Buyer or
Canadian Newco to deliver Buyer Common Stock along with unpaid dividends) will
be deemed to be a United States situs asset for purposes of United States
federal estate tax law and, therefore, Buyer Common Stock (or a previously
triggered obligation of Buyer or Canadian Newco to deliver Buyer Common Stock
along with unpaid dividends) held by an individual non-United States Holder at
the time of his or her death will generally be subject to the United States
federal estate tax, except as may otherwise be provided by an applicable tax or
estate tax treaty with the United States.
The Exchangeable Shares should not be considered United States situs assets
for purposes of United States federal estate tax law. However, as there is no
direct authority addressing the proper treatment of the Exchangeable Shares for
United States federal estate tax purposes, this conclusion is subject to
uncertainty, and there can be no assurance that the IRS would not take a
contrary position.
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The Tax Treaty provides that United States federal estate tax paid by a
resident of Canada will generally be allowed as a deduction from the amount of
any Canadian tax otherwise payable by the individual for the year in which the
individual died on the total of (a) any income, profits or gains of the
individual arising in the United States in that year and (b) where the value at
the time of the individual's death of the individual's entire gross estate
wherever situated exceeds $1.2 million, any income, profits or gains of the
individual for that year from property situated in the United States at that
time. This summary does not purport to be a complete description of all of the
provisions of the Tax Treaty that may affect the taxation of Canadian residents.
Non-United States Holders should consult their tax advisors as to the tax
consequences to them of the Tax Treaty or another applicable tax or estate tax
treaty with the United States.
LEGAL PROCEEDINGS
SHAREHOLDER ACTION AGAINST THE COMPANY AND ITS DIRECTORS
On September 26, 1996, a shareholder of the Company commenced a class and
derivative action (the "Action") in the Superior Court of the State of
California for the County of Los Angeles, Southeast District, against the
Company and each of its directors. The complaint filed in the Action alleges
that the directors and officers of the Company have breached their fiduciary
duty "by rejecting the [SCI] offer, refusing to negotiate with [SCI], and
agreeing to pay an inflated price of $240 million for property in Los Angeles"
and that such "action and inaction represent an effort by [the directors of the
Company to] entrench themselves in office so that they may continue to receive
the substantial salaries, compensation and other benefits and perquisites of
their offices." The complaint seeks a court order requiring the Company and its
directors to negotiate with any entity, including SCI, "having a bona fide
interest in proposing a transaction which would maximize shareholder value" and
enjoining the implementation of the Company's Rights Agreement and
"supermajority voting requirement" and enjoining the consummation of any
extraordinary corporate transactions pending the compliance by the directors of
the Company with their fiduciary duty to maximize shareholder value.
TEXAS FEDERAL ACTION AGAINST THE COMPANY
On October 1, 1996, SCI filed an action against the Company and certain of
its subsidiaries in the United States District Court for the Southern District
of Texas, Houston Division entitled Service Corporation International v. The
Loewen Group, Inc., et al., Civil Action No. H-96-3269 (S.D. Tex.) (the "Texas
Federal Action"). The Complaint in the Texas Federal Action seeks a declaration
that the Company does not have standing to institute an action under the Federal
antitrust laws to block or impede the Offers. The Complaint also alleges that
the Company has tortiously interfered with SCI's prospective business relations
by intentionally misrepresenting the business practices of SCI and by failing to
disclose, among other things, material facts concerning the Company's business
combinations with Rose Hills and Prime Succession.
INFORMATION REQUESTS
On September 27, 1996, SCI received an antitrust civil investigative demand
from the Office of the Attorney General of the State of Florida which seeks
information concerning SCI's ownership interests in funeral homes and cemeteries
within the state, along with certain information concerning funeral and cemetery
operations in Florida generally.
On October 1, 1996, the Company issued a press release stating that its
attorneys have been contacted by the FTC in connection with an investigation of
the proposed acquisition of the Company by SCI. According to such press release,
the FTC has requested data on all of the Company's funeral homes and cemeteries,
including all properties in which the Company has a financial interest.
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<PAGE> 72
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Purchasers intend to account for the Acquisition using the
pooling-of-interests method of accounting in accordance with U.S. GAAP. The
occurrence of certain events outside the control of Buyer, SCI, Canadian Newco
or the Company may preclude the use of pooling-of-interests accounting. In that
event the Purchasers intend to use the purchase method of accounting in
accordance with U.S. GAAP. Therefore, the unaudited pro forma combined financial
information has been provided under both the pooling-of-interests and the
purchase methods of accounting.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
The following unaudited pro forma combined financial statements have been
prepared using the pooling-of-interests method of accounting. See "The
Offers -- Accounting Treatment" and "-- Unaudited Pro Forma Combined Financial
Information Accounted for Under the Purchase Method of Accounting."
The unaudited pro forma combined financial statements reflect a 100 percent
tender of the outstanding Shares and the Preferred Shares of the Company,
pursuant to the Buyer Offer, in exchange for the issuance of approximately
97,456,000 shares of Buyer Common Stock valued at approximately $2.9 billion
(assuming a $29.875 per share price which was the closing price of SCI Common
Stock on October 1, 1996). Outstanding options to purchase Shares pursuant to
the Company's employee stock option plans (including those outstanding under the
MEIP) are considered exchanged for options to purchase Buyer Common Stock and
therefore are not reflected in these unaudited pro forma combined financial
statements. In addition, the Company has outstanding $1.1 billion of
indebtedness as of June 30, 1996.
The unaudited pro forma combined balance sheet as of June 30, 1996, gives
effect to the combination as if it had occurred on June 30, 1996 and combines
the unaudited historical balance sheets of SCI and the Company as of June 30,
1996.
The unaudited pro forma combined statement of income for the six months
ended June 30, 1996 combines the unaudited historical statements of income for
the six month period ended June 30, 1996 for both SCI and the Company. The
unaudited pro forma combined statements of income for the three years ended
December 31, 1995 combine the historical audited statements of income of SCI and
the Company for each of the three years then ended. These combined statements of
income give effect to the combination as if it had occurred on January 1, 1993.
The pro forma number of shares of Buyer Common Stock used in computing
earnings per share for the unaudited combined pro forma statements of income are
based upon the weighted average number of shares of SCI Common Stock and common
share equivalents outstanding during the applicable period and for each such pro
forma combined presentation gives effect to the proposed issuance of 1.50628
shares of Buyer Common Stock or 1.50628 Exchangeable Shares (which for this
purpose are included as Buyer Common Stock) for each Share and Preferred Share
included in the Company's weighted average number of shares for each period
presented.
The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations which would have actually been reported had
the transaction occurred at the beginning of the periods presented, nor is it
indicative of future financial position or results of operations. These
unaudited pro forma combined financial statements should be read in conjunction
with the respective historical financial statements and notes thereto of SCI and
the Company, which are incorporated by reference into this document.
60
<PAGE> 73
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
----------------------- ----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................. $ 98,823 $ 36,521 $ -- $ 135,344
Receivables, net of allowances............ 461,578 158,346 -- 619,924
Inventories and other..................... 171,530 41,538 -- 213,068
---------- ---------- ------- -----------
Total current assets.............. 731,931 236,405 -- 968,336
Investments -- insurance subsidiary......... 557,591 286,587 -- 844,178
Prearranged funeral contracts............... 1,996,192 257,487 -- 2,253,679
Long-term receivables....................... 841,412 209,944 -- 1,051,356
Cemetery property, at cost.................. 1,251,490 493,023 -- 1,744,513
Property, plant and equipment, at cost
(net)..................................... 1,342,610 635,972 -- 1,978,582
Deferred charges and other assets........... 355,943 278,973 -- 634,916
Names and reputations, net.................. 1,230,964 521,248 -- 1,752,212
---------- ---------- ------- -----------
Total assets...................... $8,308,133 $2,919,639 $ -- $11,227,772
========== ========== ======= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities............................ $ 343,618 $ 94,151 $ 50,000(A) $ 487,769
Income taxes.............................. 69,748 -- -- 69,748
Current maturities of long-term debt...... 42,658 68,041 -- 110,699
---------- ---------- ------- -----------
Total current liabilities......... 456,024 162,192 50,000 668,216
Long-term debt.............................. 2,122,614 1,027,334 -- 3,149,948
Deferred income taxes....................... 447,957 -- -- 447,957
Other liabilities........................... 461,756 371,658 -- 833,414
Deferred prearranged funeral contract
revenues.................................. 2,553,317 257,487 -- 2,810,804
Preferred securities of subsidiary.......... -- 75,000 -- 75,000
SCI obligated, mandatorily redeemable,
convertible preferred securities of SCI
Finance LLC, whose principal asset is a
6.25 percent, $215,315 note from SCI...... 172,500 -- -- 172,500
Stockholders' equity........................ 2,093,965 1,025,968 (50,000)(A) 3,069,933
---------- ---------- ------- -----------
Total liabilities and
stockholders' equity............ $8,308,133 $2,919,639 $ -- $11,227,772
========== ========== ======= ===========
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements.
61
<PAGE> 74
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ ---------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $1,140,202 $ 416,240 $ -- $ 1,556,442
Costs and expenses...................... (835,971) (286,845) -- (1,122,816)
---------- --------- ------- -----------
Gross profit............................ 304,231 129,395 -- 433,626
General and administrative expense...... (28,541) (33,859) -- (62,400)
---------- --------- ------- -----------
Income from operations.................. 275,690 95,536 -- 371,226
Interest expense........................ (66,931) (39,546) -- (106,477)
Dividends on preferred securities of
subsidiary............................ -- (3,544) -- (3,544)
Dividends on preferred securities of SCI
Finance LLC........................... (5,391) -- -- (5,391)
Other income............................ 7,423 -- -- 7,423
---------- --------- ------- -----------
(64,899) (43,090) -- (107,989)
Income before income taxes.............. 210,791 52,446 -- 263,237
Provision for income taxes.............. (76,644) (15,734) -- (92,378)
---------- --------- ------- -----------
Net income.............................. $ 134,147 $ 36,712 $ -- $ 170,859
========== ========= ======= ===========
Earnings per share:
Primary............................... $ 0.56 $ 0.53
Fully diluted......................... $ 0.54 $ 0.52
Primary weighted average shares......... 240,294 82,885(B) 323,179
Fully diluted weighted average shares... 254,508 82,885(B) 337,393
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements.
62
<PAGE> 75
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1995
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ -----------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- --------- ------- -----------
<S> <C> <C> <C> <C>
Revenues.................................. $1,652,126 $ 599,939 $ -- $ 2,252,065
Costs and expenses........................ (1,186,905) (413,234) -- (1,600,139)
---------- --------- ------- -----------
Gross profit.............................. 465,221 186,705 -- 651,926
General and administrative expense........ (53,600) (67,652) -- (121,252)
---------- --------- ------- -----------
Income from operations.................... 411,621 119,053 -- 530,674
Interest expense.......................... (118,148) (50,913) -- (169,061)
Dividends on preferred securities of
subsidiary.............................. -- (7,088) -- (7,088)
Dividends on preferred securities of SCI
Finance LLC............................. (10,781) -- -- (10,781)
Other income.............................. 11,519 -- -- 11,519
Legal settlements and related finance
costs................................... -- (184,914)(C) -- (184,914)
---------- --------- ------- -----------
(117,410) (242,915) -- (360,325)
Income (loss) before income taxes......... 294,211 (123,862) -- 170,349
(Provision) benefit for income taxes...... (110,623) 47,178 -- (63,445)
---------- --------- ------- -----------
Net income (loss)......................... $ 183,588 $ (76,684) $ -- $ 106,904
========= ========= ======= ==========
Earnings per share:
Primary................................. $ 0.90 $ 0.39
Fully diluted........................... $ 0.85 $ --*
Primary weighted average shares........... 204,148 68,221(B) 272,369
Fully diluted weighted average shares..... 231,306 68,221(B) 299,527
</TABLE>
- ---------------
* Anti-dilutive
See accompanying notes to the unaudited pro forma combined financial statements.
63
<PAGE> 76
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1994
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ ----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................. $1,117,175 $ 417,328 $ -- $ 1,534,503
Costs and expenses....................... (775,980) (287,464) -- (1,063,444)
---------- --------- ----------- -----------
Gross profit............................. 341,195 129,864 -- 471,059
General and administrative expense....... (51,700) (34,751) -- (86,451)
---------- --------- ----------- -----------
Income from operations................... 289,495 95,113 -- 384,608
Interest expense......................... (80,123) (34,203) -- (114,326)
Dividends on preferred securities of
subsidiary............................. -- (2,678) -- (2,678)
Dividends on preferred securities of SCI
Finance LLC............................ (539) -- -- (539)
Other income............................. 10,188 -- -- 10,188
---------- --------- ----------- -----------
(70,474) (36,881) -- (107,355)
Income before income taxes............... 219,021 58,232 -- 277,253
Provision for income taxes............... (87,976) (19,738) -- (107,714)
---------- --------- ----------- -----------
Net income............................... $ 131,045 $ 38,494 $ -- $ 169,539
========= ========= ========= ==========
Earnings per share:
Primary................................ $ 0.75 $ 0.72
Fully diluted.......................... $ 0.72 $ 0.70
Primary weighted average shares.......... 173,852 61,078(B) 234,930
Fully diluted weighted average shares.... 194,816 61,078(B) 255,894
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements.
64
<PAGE> 77
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1993
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ -----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 899,178 $ 303,011 $ -- $ 1,202,189
Costs and expenses...................... (635,858) (208,516) -- (844,374)
---------- --------- ----------- -----------
Gross profit............................ 263,320 94,495 -- 357,815
General and administrative expense...... (43,706) (28,225) -- (71,931)
---------- --------- ----------- -----------
Income from operations.................. 219,614 66,270 -- 285,884
Interest expense........................ (59,631) (21,801) -- (81,432)
Other income............................ 13,509 -- -- 13,509
---------- --------- ----------- -----------
(46,122) (21,801) -- (67,923)
Income before income taxes.............. 173,492 44,469 -- 217,961
Provision for income taxes.............. (70,400) (15,714) -- (86,114)
---------- --------- ----------- -----------
Income before cumulative effect of
change in accounting principles....... 103,092 28,755 -- 131,847
Cumulative effect of change in
accounting principles (net of income
taxes)................................ (2,031) (26,703) -- (28,734)
---------- --------- ----------- -----------
Net income.............................. $ 101,061 $ 2,052 $ -- $ 103,113
========= ========= ========= ==========
Earnings per share:
Primary:
Income before cumulative effect of
change in accounting
principles....................... $ 0.62 $ 0.59
Cumulative effect of change in
accounting principles (net of
income taxes).................... (0.01) (0.13)
---------- -----------
Net income.................... $ 0.61 $ 0.46
========= ==========
Fully diluted:
Income before cumulative effect of
change in accounting
principles....................... $ 0.59 $ 0.58
Cumulative effect of change in
accounting principles (net of
income taxes).................... (0.01) (0.12)
---------- -----------
Net income.................... $ 0.58 $ 0.46
========= ==========
Primary weighted average shares......... 166,744 56,282(B) 223,026
Fully diluted weighted average shares... 187,756 56,282(B) 244,038
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements.
65
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING
The financial information relating to the Company has been adjusted where
significant for differences between U.S. and Canadian generally accepted
accounting principles. All share data and per share data for SCI has been
restated to reflect the August 1996 two-for-one common stock split.
A. To record estimated transaction costs which include legal, printing,
accounting, financial advisory services and other related expenses for both SCI
and the Company.
B. To reflect the issuance of shares of Buyer Common Stock in connection
with the transaction. The adjustment for shares issued was computed as follows:
<TABLE>
<CAPTION>
**WEIGHTED AVERAGE
SHARES OUTSTANDING EXCHANGE BUYER
OF THE COMPANY RATIO* COMMON STOCK
------------------ -------- -------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
Six Months Ended June 30, 1996.............. 55,026 1.50628 82,885
Twelve months ended December 31:
1995...................................... 45,291 1.50628 68,221
1994...................................... 40,549 1.50628 61,078
1993...................................... 37,365 1.50628 56,282
</TABLE>
- ---------------
* The exchange ratio assumes the Buyer Offer price of $45 per share and a price
of the SCI Common Stock of $29.875 per share (the closing price of SCI Common
Stock on October 1, 1996).
** The Company's weighted average shares used in the table above were derived
from the Company's historical financial statements for the applicable period
presented. For pro forma purposes all outstanding Shares and Preferred Shares
are assumed to participate in the Buyer Offer. No incremental dilutive shares
or applicable interest addback has been assumed for the Company's fully
diluted earnings per share calculation in the combined earnings per share
totals as additional dilutive shares for each period were de minimus and
interest addback amounts are believed to be immaterial.
C. The Company recorded an after tax charge to income of approximately
$115,000,000 during the twelve months ended December 31, 1995 related to legal
settlements and related finance costs. This reduced the unaudited pro forma
combined statement of income earnings per share by $.42 for primary and $.38 for
fully diluted.
66
<PAGE> 79
D. The following tables reflect the pro forma effect of certain SCI 1995
and 1994 transactions described below, combined with the Buyer Pro Forma
Combined results for the twelve months ended December 31, 1995 and 1994. These
adjustments record the historical results of the acquired companies prior to the
acquisition of the respective companies by SCI as well as certain pro forma
adjustments under the purchase method of accounting.
TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SCI
SCI 1995
BUYER 1995 ACQUISITIONS
PRO FORMA ACQUISITIONS/ PRO FORMA COMBINED
COMBINED HISTORICAL ADJUSTMENTS TOTAL
----------- ------------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................... $ 2,252,065 $ 481,261 $ (5,928) $ 2,727,398
Costs and expenses......................... (1,600,139) (443,178) 16,981 (2,026,336)
----------- -------- -------- -----------
Gross profit............................... 651,926 38,083 11,053 701,062
General and administrative expenses........ (121,252) -- -- (121,252)
----------- -------- -------- -----------
Income from operations..................... 530,674 38,083 11,053 579,810
Interest expense........................... (169,061) (6,766) (11,758) (187,585)
Dividends on preferred securities of
subsidiary............................... (7,088) -- -- (7,088)
Dividends on preferred securities of SCI
Finance LLC.............................. (10,781) -- -- (10,781)
Other income (expense)..................... 11,519 7,009 (6,415) 12,113
Legal settlements and related finance
costs.................................... (184,914) -- -- (184,914)
----------- -------- -------- -----------
Income before income taxes................. 170,349 38,326 (7,120) 201,555
Provision for income taxes................. (63,445) (16,892) 2,678 (77,659)
----------- -------- -------- -----------
Net income................................. $ 106,904 $ 21,434 $ (4,442) $ 123,896
=========== ======== ======== ===========
Earnings per share:
Primary.................................. $ 0.39 $ 0.43
Fully diluted............................ $ --* $ 0.43
Primary weighted average shares............ 272,369 18,220 290,589
Fully diluted weighted average shares...... 299,527 18,220 317,747
</TABLE>
The SCI 1995 Acquisitions/Historical and SCI 1995 Acquisitions Pro Forma
Adjustments columns shown above represent a summary of the detailed pro forma
information presented in SCI's Form 8-K filed April 16, 1996, which is
incorporated by reference into this document. The summarized pro forma
information reflects SCI's August 1995 acquisition of Omnium de Gestion et de
Financement S.A. (OGF) and PFG and the October 1995 acquisition of Gibraltar
Mausoleum Corporation (Gibraltar). In addition to the OGF, PFG and Gibraltar
acquisitions, during 1995, SCI acquired other funeral and cemetery operations
which are also reflected in the SCI 1995 Acquisitions/Historical and SCI 1995
Acquisitions Pro Forma Adjustments columns shown above. As part of the financing
of the above 1995 acquisitions, during October 1995, SCI completed underwritten
public offerings of 16,790,000 shares of SCI Common Stock and $300,000,000 of
notes. These public offerings are reflected in the above SCI 1995 Acquisitions
Pro Forma Adjustments column.
- ---------------
* Anti-dilutive
67
<PAGE> 80
TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
SCI
1994 AND
SCI 1995
BUYER 1994 AND 1995 ACQUISITIONS
PRO FORMA ACQUISITIONS/ PRO FORMA COMBINED
COMBINED HISTORICAL ADJUSTMENTS TOTAL
----------- ------------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................... $ 1,534,503 $ 832,713 $ (6,525) $ 2,360,691
Costs and expenses......................... (1,063,444) (747,947) 31,126 (1,780,265)
----------- --------- -------- -----------
Gross profit............................... 471,059 84,766 24,601 580,426
General and administrative expenses........ (86,451) -- -- (86,451)
----------- --------- -------- -----------
Income from operations..................... 384,608 84,766 24,601 493,975
Interest expense........................... (114,326) (12,966) (31,699) (158,991)
Dividends on preferred securities of
subsidiary............................... (2,678) -- -- (2,678)
Dividends on preferred securities of
SCI Finance LLC.......................... (539) -- (10,242) (10,781)
Other income (expense)..................... 10,188 45,184 (41,529) 13,843
----------- --------- -------- -----------
Income before income taxes................. 277,253 116,984 (58,869) 335,368
Provision for income taxes................. (107,714) (36,237) 14,767 (129,184)
----------- --------- -------- -----------
Net income................................. $ 169,539 $ 80,747 $ (44,102) $ 206,184
=========== ========= ======== ===========
Earnings per share:
Primary.................................. $ 0.72 $ 0.74
Fully diluted............................ $ 0.70 $ 0.72
Primary weighted average shares............ 234,930 41,840 276,770
Fully diluted weighted average shares...... 255,894 53,048 308,942
</TABLE>
The SCI 1994 and 1995 Acquisitions/Historical and the SCI 1994 and 1995
Acquisitions Pro Forma Adjustments columns shown above represent a summary of
the detailed pro forma information presented in SCI's Form 8-K filed December 4,
1995, which is incorporated by reference into this document. The summarized pro
forma information reflects the 1994 pro forma results of operations of the 1995
acquisitions and underwritten public offerings described above. The SCI 1994 and
1995 Acquisitions/Historical and the SCI 1994 and 1995 Acquisitions Pro Forma
Adjustments columns also reflect the third quarter 1994 acquisition of GSG and
PG. In addition to the GSG and PG acquisitions during 1994, SCI acquired other
funeral and cemetery operations which are also reflected in the SCI 1994 and
1995 Acquisitions/Historical and the SCI 1994 and 1995 Acquisitions Pro Forma
Adjustments columns.
68
<PAGE> 81
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
The following unaudited pro forma combined financial statements have been
prepared to give effect to the Acquisition using the purchase method of
accounting. See "The Offers -- Accounting Treatment" and "-- Unaudited Pro Forma
Combined Financial Information Accounted For Under the Pooling-of-Interests
Method of Accounting."
The unaudited pro forma combined financial statements reflect the
acquisition by Buyer of 100 percent of the outstanding Shares and Preferred
Shares, pursuant to the Buyer Offer, through the issuance of approximately
97,456,000 shares of Buyer Common Stock valued at approximately $2.9 billion
(assuming a $29.875 per share price which was the closing price of SCI Common
Stock on October 1, 1996). Outstanding options to purchase Shares pursuant to
the Company's employee stock option plans (including those outstanding under the
MEIP) are considered exchanged for options to purchase Buyer Common Stock and
therefore are not reflected in these unaudited pro forma combined financial
statements. In addition, the Company has outstanding approximately $1.1 billion
of indebtedness as of June 30, 1996.
The unaudited pro forma combined balance sheet as of June 30, 1996, gives
effect to the proposed Acquisition as if it had occurred on June 30, 1996 and
combines the unaudited historical balance sheets of SCI and the Company as of
June 30, 1996.
The unaudited pro forma combined statements of income for the six months
ended June 30, 1996 and the year ended December 31, 1995 have been prepared as
if the proposed Acquisition occurred as of January 1, 1995. The unaudited pro
forma combined statement of income for the six months ended June 30, 1996
combines the unaudited historical statements of income for the six months ended
June 30, 1996 of both SCI and the Company. The unaudited pro forma combined
statement of income for the year ended December 31, 1995 combines the total from
the pro forma combined statement of income for the year ended December 31, 1995
included in SCI's Form 8-K filed April 16, 1996 which is incorporated by
reference into this document and the historical statement of income of the
Company for the year ended December 31, 1995. The unaudited pro forma combined
statement of income for the year ended December 31, 1995 included in SCI's Form
8-K dated April 16, 1996 includes the pro forma results of SCI's 1995
acquisitions (see note E to the unaudited pro forma combined statement of income
for the year ended December 31, 1995).
The pro forma number of shares of Buyer Common Stock used in computing
earnings per share for the unaudited combined pro forma statements of income is
based upon the weighted average number of shares of SCI Common Stock and common
share equivalents outstanding during the applicable period and for each such pro
forma combined presentation gives effect to the proposed issuance of 1.50628
shares of Buyer Common Stock or 1.50628 Exchangeable Shares (which for this
purpose are included as Buyer Common Stock) for each Share and Preferred Share
included in the Company's weighted average number of shares calculation for each
period presented.
The Company has not provided SCI with non-public financial information
related to the Company for use in preparation of this unaudited pro forma
combined financial information. The final determination of purchase accounting
adjustments, including a complete allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values, has not
yet been made. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma combined financial
statements are preliminary and have been made solely for purposes of developing
such unaudited pro forma combined financial information. SCI is not aware of any
significant accounting policy differences between SCI and the Company. This
unaudited pro forma combined financial information does not incorporate any
benefits from cost savings or synergies of operations of the combined company.
Upon consummation of the Transactions, the actual financial position and results
of operations of SCI, Buyer and the Company will differ, perhaps significantly,
from the pro forma amounts reflected herein because of a variety of factors,
including access to additional information, changes in value and changes in
operating results between the dates of the unaudited pro forma combined
financial information and the dates on which the Acquisition takes place. This
unaudited pro forma combined financial information is not indicative of actual
operating results or financial position had the Transactions occurred as of the
dates indicated above, nor do they purport to indicate operating results or
financial position which will be attained in the future. These unaudited pro
forma combined financial statements should be read in conjunction with the
respective historical financial statements and notes thereto of SCI and the
Company, which are incorporated by reference into this document.
69
<PAGE> 82
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
------------------------ -----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $ 98,823 $ 36,521 $ -- $ 135,344
Receivables, net of allowances........ 461,578 158,346 -- 619,924
Inventories and other................. 171,530 41,538 -- 213,068
---------- ---------- ----------- -----------
Total current assets.......... 731,931 236,405 -- 968,336
Investments -- insurance subsidiary..... 557,591 286,587 -- 844,178
Prearranged funeral contracts........... 1,996,192 257,487 -- 2,253,679
Long-term receivables................... 841,412 209,944 -- 1,051,356
Cemetery property, at cost.............. 1,251,490 493,023 506,977(A) 2,251,490
Property, plant and equipment, at cost
(net)................................. 1,342,610 635,972 -- 1,978,582
Deferred charges and other assets....... 355,943 278,973 -- 634,916
Names and reputations, net.............. 1,230,964 521,248 1,764,313(B) 3,516,525
---------- ---------- ----------- -----------
Total assets.................. $8,308,133 $2,919,639 $ 2,271,290 $13,499,062
========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 343,618 $ 94,151 $ 30,000(C) $ 467,769
Income taxes.......................... 69,748 -- -- 69,748
Current maturities of long-term
debt............................... 42,658 68,041 -- 110,699
---------- ---------- ----------- -----------
Total current liabilities..... 456,024 162,192 30,000 648,216
Long-term debt.......................... 2,122,614 1,027,334 26,000(D) 3,175,948
Deferred income taxes................... 447,957 -- 324,133(E) 772,090
Other liabilities....................... 461,756 371,658 -- 833,414
Deferred prearranged funeral contract
revenues.............................. 2,553,317 257,487 -- 2,810,804
Preferred securities of subsidiary...... -- 75,000 5,625(F) 80,625
SCI obligated, mandatorily redeemable,
convertible preferred securities of
SCI Finance LLC, whose principal asset
is a 6.25 percent, $215,315 note from
SCI................................... 172,500 -- -- 172,500
Stockholders' equity.................... 2,093,965 1,025,968 (1,025,968)(G) 5,005,465
2,911,500(H)
---------- ---------- ----------- -----------
Total liabilities and
stockholders' equity........ $8,308,133 $2,919,639 $ 2,271,290 $13,499,062
========== ========== =========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements.
70
<PAGE> 83
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
----------------------- ----------------------------
THE ACQUISITION COMBINED
SCI COMPANY ADJUSTMENTS TOTAL
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................................... $1,140,202 $ 416,240 $ -- $1,556,442
Costs and expenses......................... (835,971) (286,845) (22,054)(A) (1,144,870)
---------- --------- -------- -----------
Gross profit............................... 304,231 129,395 (22,054) 411,572
General and administrative expense......... (28,541) (33,859) -- (62,400)
---------- --------- -------- -----------
Income from operations..................... 275,690 95,536 (22,054) 349,172
Interest expense........................... (66,931) (39,546) (106,477)
Dividends on preferred securities of
subsidiary............................... -- (3,544) -- (3,544)
Dividends on preferred securities of SCI
Finance LLC.............................. (5,391) -- -- (5,391)
Other income............................... 7,423 -- -- 7,423
---------- --------- -------- -----------
(64,899) (43,090) -- (107,989)
Income before income taxes................. 210,791 52,446 (22,054) 241,183
Provision for income taxes................. (76,644) (15,734) (7,148)(B) (99,526)
---------- --------- -------- -----------
Net income................................. $ 134,147 $ 36,712 $ (29,202) $ 141,657
========== ========= ======== ===========
Earnings per share:
Primary.................................. $ 0.56 $ 0.44
Fully diluted............................ $ 0.54 $ 0.43
Primary weighted average shares............ 240,294 82,885(C) 323,179
Fully diluted weighted average shares...... 254,508 82,885(C) 337,393
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements.
71
<PAGE> 84
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1995
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL BUYER PRO FORMA
PRO FORMA ---------- ----------------------------
------------ THE ACQUISITION COMBINED
SCI(E) COMPANY ADJUSTMENTS TOTAL
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 2,127,459 $ 599,939 $ -- $ 2,727,398
Costs and expenses...................... (1,613,102) (413,234) (44,108)(A) (2,070,444)
----------- --------- -------- -----------
Gross profit............................ 514,357 186,705 (44,108) 656,954
General and administrative expense...... (53,600) (67,652) -- (121,252)
----------- --------- -------- -----------
Income from operations.................. 460,757 119,053 (44,108) 535,702
Interest expense........................ (136,672) (50,913) (187,585)
Dividends on preferred securities of
subsidiary............................ -- (7,088) -- (7,088)
Dividends on preferred securities of SCI
Finance LLC........................... (10,781) -- -- (10,781)
Other income............................ 12,113 -- -- 12,113
Legal settlements and related finance
costs................................. -- (184,914)(D) -- (184,914)
----------- --------- -------- -----------
(135,340) (242,915) -- (378,255)
Income (loss) before income taxes....... 325,417 (123,862) (44,108) 157,447
(Provision) benefit for income taxes.... (124,837) 47,178 (9,856)(B) (87,515)
----------- --------- -------- -----------
Net income (loss)....................... $ 200,580 $ (76,684) $ (53,964) $ 69,932
=========== ========= ======== ===========
Earnings per share:
Primary............................... $ 0.90 $ 0.24
Fully diluted......................... $ 0.86 $ --*
Primary weighted average shares......... 222,368 68,221(C) 290,589
Fully diluted weighted average shares... 249,526 68,221(C) 317,747
</TABLE>
- ---------------
* Anti-dilutive
See accompanying notes to the unaudited pro forma combined financial statements.
72
<PAGE> 85
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING
The financial information relating to the Company has been adjusted where
significant for differences between U.S. and Canadian generally accepted
accounting principles. All share data and per share data for SCI has been
restated to reflect the August 1996 two-for-one common stock split. Upon
consummation of the Transactions, Buyer intends to refinance certain of the
Company's debt obligations. This refinancing is expected to result in lowering
the Company's ongoing interest cost as SCI has historically had a lower weighted
average borrowing rate.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1996
A. To increase the Company's cemetery property to estimated fair value.
B. To allocate the excess of the purchase price over the estimated fair
value of the Company's net assets acquired to names and reputations. This
adjustment is net of the amounts previously recorded on the Company's historical
balance sheet as names and reputations.
C. To accrue estimated costs anticipated to be incurred by SCI in
connection with the Acquisition.
D. To increase the Company's debt to fair value.
E. To provide for additional deferred income taxes for the Company
resulting from differences in the carrying values of net assets for financial
statement and tax purposes.
F. To adjust the Company's 9.45 percent Cumulative Monthly Income Preferred
Securities to fair value.
G. To eliminate the historical shareholders' equity of the Company.
H. To reflect the issuance of approximately 97,456,000 shares of Buyer
Common Stock in the Buyer Offer at an assumed value of $29.875 per share (the
closing price of the SCI Common Stock on October 1, 1996).
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE
30, 1996
A. To record the amortization of names and reputations (based on a 40-year
straight-line amortization) created from the acquisition of the Company by
Buyer.
B. To eliminate certain tax benefits of the Company relating to financing
structures that SCI believes will not be available after the Acquisition.
C. To reflect the issuance of 82,885,000 shares of Buyer Common Stock in
the Buyer Offer by multiplying the primary weighted average shares for the
period by the Share Exchange Ratio.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995
A. To record the amortization of names and reputations (based on a 40-year
straight-line amortization) created from the acquisition of the Company by
Buyer.
B. To eliminate certain tax benefits of the Company relating to financing
structures that SCI believes will not be available after the Acquisition.
C. To reflect the issuance of 68,221,000 shares of Buyer Common Stock in
the Buyer Offer by multiplying the primary weighted average shares for the
period by the Share Exchange Ratio.
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<PAGE> 86
D. The Company recorded an after tax charge to income of approximately
$115,000,000 during the twelve months ended December 31, 1995 related to legal
settlements and related finance costs. This reduced the unaudited pro forma
combined statement of income earnings per share by $.40 for primary and $.36 for
fully diluted.
E. The following adjustments were made to the historical income statement
of SCI for the twelve months ended December 31, 1995 to reflect the pro forma
effect of certain 1995 transactions described below:
<TABLE>
<CAPTION>
SCI PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS SCI
----------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues..................................... $ 1,652,126 $ 475,333 $ 2,127,459
Cost and expenses............................ (1,186,905) (426,197) (1,613,102)
----------- --------- -----------
Gross profit................................. 465,221 49,136 514,357
General and administrative expenses.......... (53,600) -- (53,600)
----------- --------- -----------
Income from operations....................... 411,621 49,136 460,757
Interest expense............................. (118,148) (18,524) (136,672)
Dividends on preferred securities of SCI
Finance LLC................................ (10,781) -- (10,781)
Other income................................. 11,519 594 12,113
----------- --------- -----------
Income before income taxes................... 294,211 31,206 325,417
Provision for income taxes................... (110,623) (14,214) (124,837)
----------- --------- -----------
Net income................................... $ 183,588 $ 16,992 $ 200,580
=========== ========= ===========
Earnings per share:
Primary.................................... $ .90 $ .90
Fully diluted.............................. $ .85 $ .86
Primary weighted average shares.............. 204,148 18,220 222,368
Fully diluted weighted average shares........ 231,306 18,220 249,526
</TABLE>
The pro forma adjustments shown above represent a summary of the detailed
pro forma adjustments presented in SCI's Form 8-K filed April 16, 1996, which is
incorporated by reference into this document. The summarized pro forma
adjustments reflect SCI's August 1995 acquisition of OGF and PFG and the October
1995 acquisition of Gibraltar Mausoleum Corporation (Gibraltar). In addition to
the OGF, PFG and Gibraltar acquisitions, during 1995, SCI acquired other funeral
and cemetery operations which are also reflected in the pro forma adjustments
shown above. In addition and as part of the financing of the above 1995
acquisitions, during October 1995, SCI completed underwritten public offerings
of 16,790,000 shares of SCI Common Stock and $300,000,000 of notes. These public
offerings are reflected in the above pro forma adjustments. The above pro forma
adjustments attempt to reflect a full year's results of operations of the above
transactions on SCI's historical income statement.
74
<PAGE> 87
DESCRIPTION OF CAPITAL STOCK OF BUYER AND CANADIAN NEWCO
BUYER
The authorized capital stock of Buyer will consist of 500,000,000 shares of
Buyer Common Stock, par value $0.01 per share, one share of Special Voting
Stock, par value $0.01 per share and 1,000,000 shares of Buyer Preferred Stock,
par value $0.01 per share, of which will be designated Buyer Series
A Preferred Shares in connection with the Buyer Rights. As of August 5, 1996,
there were 235,718,534 shares of SCI Common Stock issued and outstanding, each
of which will be converted, in the Holding Company Merger, into one share of
Buyer Common Stock. SCI has no shares of preferred stock outstanding.
Buyer Common Stock
Subject to the prior rights of any shares of Buyer Preferred Stock that may
from time to time be outstanding, holders of Buyer Common Stock are entitled to
share ratably in such dividends as may be lawfully declared by the Board of
Directors and paid by Buyer and, in the event of liquidation, dissolution or
winding up of Buyer are entitled to share ratably in all assets available for
distribution.
Holders of Buyer Common Stock are entitled to one vote per share held of
record on each matter submitted to a vote of stockholders. The holders of Buyer
Common Stock have no preemptive rights to purchase any securities of Buyer or
cumulative voting rights. Preferred stock purchase rights will be issuable in
respect of all shares of Buyer Common Stock issued prior to certain events. See
"-- Buyer Rights." All outstanding shares of Buyer Common Stock will be validly
issued, fully paid and nonassessable. Buyer is not prohibited by the Buyer
Articles from repurchasing shares of its Common Stock. Any such repurchases
would be subject to any limitations on the amount available for such purchase
under applicable corporate law, any applicable restrictions under the terms of
any outstanding Buyer Preferred Stock or indebtedness and, in the case of market
purchases, such restrictions on the timing, manner and amount of such purchases
as might apply in the circumstances under applicable securities laws.
Buyer Special Voting Stock
A single Special Voting Share of Buyer Special Voting Stock will be
authorized for issuance and will be outstanding having a par value of $0.01 per
share. Except as otherwise required by law or the Buyer Articles, the Special
Voting Share will be entitled to a number of votes equal to the number of
outstanding Exchangeable Shares from time to time not owned by Buyer or
subsidiaries of Buyer, and may be voted in the election of directors and on all
other matters submitted to a vote of shareholders of Buyer. The holders of Buyer
Common Stock and the holder of the Special Voting Share will vote together as a
single class on all matters, except to the extent voting as a separate class is
required by applicable law or the Buyer Articles. In the event of any
liquidation, dissolution or winding up of Buyer, the holder of the Special
Voting Share will not be entitled to receive any assets of Buyer available for
distribution to its stockholders. The holder of the Special Voting Share will
not be entitled to receive dividends. The Special Voting Share will be issued to
the Trustee appointed under the Voting, Support and Exchange Trust Agreement.
See "-- Voting, Support and Exchange Trust Agreement." At such time as the
Special Voting Share has no votes attached to it because there are no
Exchangeable Shares outstanding not owned by Buyer or subsidiaries of Buyer, and
there are no shares of stock, debt, options or other agreements of Canadian
Newco that could give rise to the issuance of any Exchangeable Shares to any
person (other than Buyer or certain subsidiaries of Buyer), the Special Voting
Share will be cancelled.
Buyer Preferred Stock
Buyer's Board of Directors will be authorized, without any further vote or
action by Buyer's shareholders, to divide the Buyer Preferred Stock into series
and, with respect to each series, to determine the dividend rights, dividend
rates, conversion rights, voting rights (which may be greater or lesser than the
voting rights of the Buyer Common Stock), redemption rights and terms,
liquidation preferences, sinking fund rights and terms, the number of shares
constituting the series and the designation of each series.
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<PAGE> 88
Buyer Rights
Each share of Buyer Common Stock will have attached to it one preferred
share purchase right (a "Buyer Right"). Each Buyer Right will entitle the
registered holder to purchase from Buyer one one-thousandth of a share of a
Buyer Series A Preferred Share at a price of $ per one one-thousandth of a
Buyer Series A Preferred Share (the "Buyer Rights Purchase Price"), subject to
adjustment. The description and terms of the Buyer Rights will be set forth in a
Rights Agreement (the "Buyer Rights Agreement") which will be entered into prior
to consummation of the Offers by Buyer and AmeriTrust Company National
Association, as Rights Agent (the "Buyer Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (other than SCI) (a
"Buyer Acquiring Person") have acquired beneficial ownership of 20 percent or
more of the outstanding Buyer Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors of Buyer
prior to such time as any person or group of affiliated persons becomes a Buyer
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 20 percent or more of the
outstanding Buyer Common Stock (the earlier of such dates being called the
"Buyer Distribution Date"), the Buyer Rights will be evidenced, with respect to
any of the Buyer Common Stock certificates outstanding as of the Buyer Rights
Record Date, by such Buyer Common Stock certificate with a copy of a summary of
Buyer Rights (the "Summary of Buyer Rights") attached thereto. For the purposes
of the Buyer Rights, beneficial ownership of Exchangeable Shares will be treated
as beneficial ownership of Buyer Common Shares.
The Buyer Rights Agreement will provide that, until the Buyer Distribution
Date (or earlier redemption or expiration of the Buyer Rights), the Buyer Rights
will be transferred with and only with the Buyer Common Stock. Until the Buyer
Distribution Date (or earlier redemption or expiration of the Buyer Rights), new
Buyer Common Stock certificates issued after the Buyer Rights Record Date upon
transfer or new issuance of Common Stock will contain a notation incorporating
the Buyer Rights Agreement by reference. Until the Buyer Distribution Date (or
earlier redemption or expiration of the Buyer Rights), the surrender for
transfer of any certificates for Buyer Common Stock outstanding as of the Buyer
Rights Record Date, even without such notation or a copy of the Summary of Buyer
Rights being attached thereto, will also constitute the transfer of the Buyer
Rights associated with the Buyer Common Stock represented by such certificate.
As soon as practicable following the Buyer Distribution Date, separate
certificates evidencing the Buyer Rights ("Buyer Right Certificates") will be
mailed to holders of record of the Buyer Common Stock as of the close of
business on the Buyer Distribution Date and such separate Buyer Right
Certificates alone will evidence the Buyer Rights.
The Buyer Rights will not be exercisable until the Buyer Distribution Date.
The Buyer Rights will expire on , (the " Buyer Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Buyer Rights are earlier redeemed or exchanged by Buyer, in each case, as
described below.
The Buyer Rights Purchase Price payable, and the number of Buyer Series A
Preferred Shares or other securities or property issuable, upon exercise of the
Buyer Rights will be subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Buyer Series A Preferred Shares, (ii) upon the grant to
holders of the Buyer Series A Preferred Shares of certain rights or warrants to
subscribe for or purchase Buyer Series A Preferred Shares at a price, or
securities convertible into Buyer Series A Preferred Shares with a conversion
price, less than the then current market price of the Buyer Series A Preferred
Shares or (iii) upon the distribution to holders of the Buyer Series A Preferred
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable in
Buyer Series A Preferred Shares) or of subscription rights or warrants (other
than those referred to above).
The number of outstanding Buyer Rights and the number of one
one-thousandths of a Buyer Series A Preferred Share issuable upon exercise of
each Buyer Right will also be subject to adjustment in the event of a stock
split of the Buyer Common Stock or a stock dividend on the Buyer Common Stock
payable in Buyer
76
<PAGE> 89
Common Stock or subdivisions, consolidations or combinations of the Buyer Common
Stock occurring, in any such case, prior to the Buyer Distribution Date.
Buyer Series A Preferred Shares purchasable upon exercise of the Buyer
Rights will not be redeemable. Each Buyer Series A Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of $1 per share
but will be entitled to an aggregate dividend of 1,000 times the dividend
declared per share of Buyer Common Stock. In the event of liquidation, the
holders of the Buyer Series A Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 1,000 times the payment made per share of Buyer Common
Stock. Each Buyer Series A Preferred Share will have 1,000 votes, voting
together with the Buyer Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which Buyer Common Stock are exchanged,
each Buyer Series A Preferred Share will be entitled to receive 1,000 times the
amount received per share of Buyer Common Stock. These rights will be protected
by customary antidilution provisions.
Because of the nature of the Buyer Series A Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
Buyer Series A Preferred Share purchasable upon exercise of each Buyer Right
should approximate the value of one share of Buyer Common Stock.
In the event that Buyer is acquired in a merger or other business
combination transaction or 50 percent or more of its consolidated assets or
earning power are sold after a person or group has become a Buyer Acquiring
Person, proper provision will be made so that each holder of a Buyer Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Buyer Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Buyer Right. In the event
that any person or group of affiliated or associated persons becomes a Buyer
Acquiring Person, proper provision shall be made so that each holder of a Buyer
Right, other than Buyer Rights beneficially owned by the Buyer Acquiring Person
(which will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Buyer Common Stock having a market value of
two times the exercise price of the Buyer Right.
At any time after any person or group becomes a Buyer Acquiring Person and
prior to the acquisition by such person or group of 50 percent or more of the
outstanding Buyer Common Stock, the Board of Directors of Buyer may exchange the
Buyer Rights (other than Buyer Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one share of
Buyer Common Stock, or one one-hundredth of a Buyer Series A Preferred Share (or
of a share of a class or series of Buyer's preferred stock having equivalent
rights, preferences and privileges), per Buyer Right (subject to adjustment).
With certain exceptions, no adjustment in the Buyer Rights Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1 percent in such Buyer Rights Purchase Price. No fractional Buyer Series A
Preferred Shares will be issued (other than fractions which are integral
multiples of one one-hundredth of a Buyer Series A Preferred Share, which may,
at the election of Buyer, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Buyer Series A Preferred Shares on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20 percent or more of the
outstanding Buyer Common Stock the Board of Directors of Buyer may redeem the
Buyer Rights in whole, but not in part, at a price of $.01 per Buyer Right (the
"Buyer Redemption Price"). The redemption of the Buyer Rights may be made
effective at such time on such basis with such conditions as the Board of
Directors of Buyer in its sole discretion may establish. Immediately upon any
redemption of the Buyer Rights, the right to exercise the Buyer Rights will
terminate and the only right of the holders of Buyer Rights will be to receive
the Buyer Redemption Price.
The terms of the Buyer Rights may be amended by the Board of Directors of
Buyer without the consent of the holders of the Buyer Rights, except that from
and after such time as any person or group of affiliated or associated persons
becomes a Buyer Acquiring Person no such amendment may adversely affect the
interests of the holders of the Buyer Rights.
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<PAGE> 90
Until a Buyer Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of Buyer, including, without limitation, the right to
vote or to receive dividends.
CANADIAN NEWCO
The authorized capital of Canadian Newco will consist of 10,000 Canadian
Newco Common Shares and Exchangeable Shares. As of October 1, 1996,
there were 100 Canadian Newco Common Shares issued and outstanding, and no
Exchangeable Shares were at that date authorized or issued and outstanding. All
of the outstanding Canadian Newco Common Shares are owned by Buyer.
Exchangeable Shares
Ranking. The Exchangeable Shares will rank prior to the Canadian Newco
Common Shares and any other shares ranking junior to the Exchangeable Shares
with respect to the payment of dividends and with respect to the distribution of
assets of Canadian Newco in the event of liquidation, dissolution or winding up
or any other proposed distribution of the assets of Canadian Newco among its
shareholders for the purpose of winding up its affairs (a "Liquidation").
Dividends. Holders of Exchangeable Shares will be entitled to receive
dividends, payable in Canadian dollars, equivalent to dividends paid from time
to time by Buyer on shares of Buyer Common Stock. The declaration date, record
date and payment date for dividends on the Exchangeable Shares will be the same
as that for the corresponding dividends on the Buyer Common Stock and the
Canadian dollar equivalent of the U.S. dollar dividends declared by Buyer will
be determined based upon the noon spot rate, quoted by for
purchases of Canadian dollars using U.S. dollars, as of the fifth business day
prior to the payment date for such dividends.
Certain Restrictions. Except as provided in the next sentence, Canadian
Newco will not without the approval of the holders of the Exchangeable Shares as
set forth below under "-- Amendment and Approval":
(a) pay any dividend on the Canadian Newco Common Shares or any other
shares ranking junior to the Exchangeable Shares with respect to the
payment of dividends or on Liquidation, other than stock dividends payable
in Canadian Newco Common Shares or any such other shares ranking junior to
the Exchangeable Shares, as the case may be;
(b) redeem, purchase or make any capital distribution in respect of
Canadian Newco Common Shares or any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends or on
Liquidation;
(c) redeem or purchase any other shares of Canadian Newco ranking
equally with the Exchangeable Shares with respect to the payment of
dividends or on Liquidation; or
(d) issue any shares other than Exchangeable Shares or Canadian Newco
Common Shares.
The restrictions in clauses (a), (b) and (c) above will not apply at any
time when the dividends on the outstanding Exchangeable Shares corresponding to
dividends declared on the Buyer Common Stock have been declared and paid in
full.
Liquidation of Canadian Newco. In the event of a Liquidation, a holder of
Exchangeable Shares will be entitled to receive for each Exchangeable Share held
by him on the effective date of such Liquidation (the "Liquidation Date") an
amount to be satisfied by issuance of one share of Buyer Common Stock, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on the Exchangeable Share (together, the "Liquidation Amount").
On or after the Liquidation Date, a holder of Exchangeable Shares may
surrender certificates representing such Exchangeable Shares, together with such
other documents as may be required, to Canadian Newco's registered office or the
office of the transfer agent. Upon receipt of the certificates and other
documents and subject to the exercise by Buyer of its Liquidation Call Right (as
defined below), Canadian Newco will deliver the Liquidation Amount to such
holder at the address recorded in the share register or by
78
<PAGE> 91
holding the Liquidation Amount for pick up by the holder at Canadian Newco's
registered office or the office of the transfer agent, as specified by Canadian
Newco in a notice to such holders.
"Liquidation Call Right" means the overriding right of Buyer, in the event
of a proposed Liquidation of Canadian Newco, to purchase all of the outstanding
Exchangeable Shares (other than Exchangeable Shares held by Buyer and its
subsidiaries) from the holders thereof on the Liquidation Date in exchange for
shares of Buyer Common Stock, plus an additional amount equivalent to all
declared and unpaid dividends on such Exchangeable Shares, pursuant to the
special rights and restrictions attached to the Exchangeable Shares.
Upon the occurrence of a Liquidation, Buyer will have the right to purchase
all but not less than all of the Exchangeable Shares then outstanding (other
than Exchangeable Shares held by Buyer and its subsidiaries) at a purchase price
per share equal to the Liquidation Amount and, upon the exercise of the
Liquidation Call Right, the holders thereof will be obligated to sell such
shares to Buyer. The purchase by Buyer of all of the outstanding Exchangeable
Shares upon the exercise of the Liquidation Call Right will occur on the
Liquidation Date.
Upon the occurrence of a Canadian Newco Insolvency Event (as defined
below), the trustee under the Voting, Support and Exchange Trust Agreement on
behalf of the holders of Exchangeable Shares will have the right to require
Buyer to purchase any or all of the Exchangeable Shares then outstanding (other
than Exchangeable Shares held by Buyer and its subsidiaries) for the Liquidation
Amount as described under "-- Voting, Support and Exchange Trust Agreement" and
"-- Optional Exchange Right in Case of a Canadian Newco Insolvency Event."
"Canadian Newco Insolvency Event" means the institution by Canadian Newco
of any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of Canadian Newco to the institution of bankruptcy,
insolvency, dissolution or winding up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding up under any
bankruptcy, insolvency or analogous laws, including without limitation the
Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and Insolvency
Act (Canada), and the failure by Canadian Newco to contest in good faith any
such proceedings commenced in respect of Canadian Newco within 15 days of
becoming aware thereof, or the consent by Canadian Newco to the filing of any
such petition or to the appointment of a receiver, or the making by Canadian
Newco of a general assignment for the benefit of creditors, or the inability of
Canadian Newco to pay its debts generally as they become due, or Canadian Newco
not being permitted, pursuant to solvency requirements or provisions of
applicable law, to redeem any Exchangeable Shares pursuant to the special rights
and restrictions attached to the Exchangeable Shares.
Automatic Exchange on Liquidation of Buyer. In the event of a Buyer
Liquidation Event (as defined below), Buyer will be required to purchase each
outstanding Exchangeable Share (other than Exchangeable Shares held by Buyer and
its subsidiaries) and holders of Exchangeable Shares will be required to sell
the Exchangeable Shares held by them at that time, by exchanging one share of
Buyer Common Stock for each such Exchangeable Share, plus an additional amount
equivalent to the full amount of all declared and unpaid dividends on the
Exchangeable Share.
"Buyer Liquidation Event" means (i) any determination by Buyer's Board of
Directors to institute voluntary liquidation proceedings (not including a
reorganization under applicable bankruptcy laws) with respect to Buyer or (ii)
receipt by Buyer of notice of, or Buyer otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceeding with respect
to the involuntary liquidation (not including a reorganization under applicable
bankruptcy laws) of Buyer.
Upon a holder's request and surrender of Exchangeable Share certificates,
duly endorsed in blank and accompanied by such instrument of transfer as Buyer
may reasonably require, Buyer will deliver to such holder certificates
representing an equivalent number of shares of Buyer Common Stock plus a check
in the amount equivalent to the full amount of all declared and unpaid dividends
on the Exchangeable Shares.
Retraction of Exchangeable Shares by Holders. A holder of Exchangeable
Shares will be entitled at any time to require Canadian Newco to redeem any or
all of the Exchangeable Shares held by such holder for a retraction price per
share to be satisfied by issuance of a share of Buyer Common Stock, plus an
additional
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amount equivalent to the full amount of all declared and unpaid dividends on the
Exchangeable Share, subject to the Retraction Call Rights (as defined below) of
Buyer described below. Holders of the Exchangeable Shares may effect such
retraction by presenting a certificate or certificates to Canadian Newco or its
transfer agent representing the number of Exchangeable Shares the holder desires
to retract, together with a duly executed Retraction Request specifying the
number of Exchangeable Shares the holder wishes to retract and such other
documents as may be required to effect the retraction of the Exchangeable
Shares. The retraction will become effective three business days after the date
on which Canadian Newco receives the Retraction Request from the holder (such
third business day being hereinafter referred to as the "Retraction Date").
"Retraction Call Rights" means the overriding right of Buyer, in the event
of a proposed retraction of Exchangeable Shares by a holder thereof, to purchase
from such holder on the Retraction Date all of the Exchangeable Shares tendered
for redemption in exchange for shares of Buyer Common Stock, plus an additional
amount equivalent to all declared and unpaid dividends on such Exchangeable
Shares, pursuant to the special rights and restrictions attached to the
Exchangeable Shares.
Upon receipt of a Retraction Request and other required documentation,
Canadian Newco will immediately notify Buyer. Buyer must then advise Canadian
Newco within two business days as to whether the Retraction Call Right will be
exercised. If Buyer so advises Canadian Newco within such two business day
period, Canadian Newco will notify the holder as soon as possible thereafter
that the Retraction Call Right will be exercised. A holder may revoke his or her
Retraction Request at any time prior to the close of business on the business
day preceding the Retraction Date, in which case the holder's Exchangeable
Shares will neither be purchased by Buyer nor redeemed by Canadian Newco. If the
holder does not revoke his or her Retraction Request, on the Retraction Date the
Exchangeable Shares that the holder has requested Canadian Newco to redeem will
be purchased by Buyer or redeemed by Canadian Newco, as the case may be, in each
case at a price per share equal to one share of Buyer Common Stock, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on the Exchangeable Share.
If, as a result of solvency requirements or provisions of applicable law,
Canadian Newco is not permitted to redeem all Exchangeable Shares tendered by a
retracting holder, Canadian Newco will redeem only those Exchangeable Shares
tendered by the holder (rounded down to a whole number of shares) as would not
be contrary to such provisions of applicable law. The holder of any Exchangeable
Shares not redeemed by Canadian Newco will be deemed to have required Buyer to
purchase such unretracted shares in exchange for Buyer Common Stock on the
Retraction Date pursuant to the optional Exchange Right. See "-- Optional
Exchange Right in case of a Canadian Newco Insolvency Event."
Redemption of Exchangeable Shares. Subject to applicable law and the
Redemption Call Right (as defined below) of Buyer, on any Optional Redemption
Date, Canadian Newco will redeem all but not less than all of the then
outstanding Exchangeable Shares for a redemption price per share equal to a
share of Buyer Common Stock, plus an additional amount equivalent to the full
amount of all declared and unpaid dividends on the Exchangeable Shares
(together, the "Redemption Price"). Canadian Newco will, at least 120 days prior
to the relevant Optional Redemption Date, provide the registered holders of the
Exchangeable Shares with written notice of the proposed redemption of the
Exchangeable Shares by Canadian Newco. On or after the date any such redemption
is effected, upon the holder's presentation and surrender of the certificates
representing the Exchangeable Shares and such other documents as may be required
at the office of the transfer agent or the registered office of Canadian Newco,
Canadian Newco will deliver the Redemption Price to the holder at the address of
the holder recorded in the share register or by holding the Redemption Price for
pick up by the holder at the registered office of Canadian Newco or the office
of the transfer agent as specified in the written notice.
"Redemption Call Right" means the overriding right of Buyer to purchase all
of the outstanding Exchangeable Shares (other than Exchangeable Shares held by
Buyer or its subsidiaries) from the holders thereof on the Optional Redemption
Date, pursuant to the special rights and restrictions attached to the
Exchangeable Shares. Buyer will have a Redemption Call Right, notwithstanding a
proposed redemption of the Exchangeable Shares by Canadian Newco on the Optional
Redemption Date, to purchase on such Optional Redemption Date all but not less
than all of the Exchangeable Shares then outstanding (other than
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Exchangeable Shares held by Buyer or its subsidiaries) in exchange for the
Redemption Price and, upon the exercise of the Redemption Call Right, the
holders thereof will be obligated to sell such shares to Buyer. If Buyer
exercises the Redemption Call Right, Canadian Newco's right to redeem the
Exchangeable Shares on such Optional Redemption Date will terminate.
Voting Rights. Except as required by applicable law, the holders of the
Exchangeable Shares are not entitled as such to receive notice of or attend any
meeting of the shareholders of Canadian Newco or to vote at any such meeting.
Amendment and Approval. The special rights and restrictions attached to the
Exchangeable Shares may be changed only with the approval of the holders
thereof. Any such approval or any other approval or consent to be given by the
holders of the Exchangeable Shares will be sufficiently given if given in
accordance with applicable law and subject to a minimum requirement that such
approval or consent be evidenced by a resolution passed by not less than
three-quarters of the votes cast thereon (other than shares beneficially owned
by Buyer or its subsidiaries) at a meeting of the holders of Exchangeable Shares
duly called and held at which holders of at least one-third of the then
outstanding Exchangeable Shares are present in person or represented by proxy.
In the event that no such quorum is present at such meeting within one-half hour
after the time appointed therefor, then the meeting will be adjourned to such
place and time (not less than 10 days later) as may be determined at the
original meeting and the holders of Exchangeable Shares present in person or
represented by proxy at the adjourned meeting will constitute a quorum thereat
and may transact the business for which the meeting was originally called. At
the adjourned meeting, a resolution passed by the affirmative vote of not less
than three-quarters of the votes cast thereon will constitute the approval or
consent of the holders of the Exchangeable Shares.
Actions by Canadian Newco under Voting, Support and Exchange Trust
Agreement. Canadian Newco will agree to take all such actions and do all such
things as are necessary or advisable to perform and comply with its obligations
under, and to ensure the performance and compliance by Buyer with its
obligations under, the Voting, Support and Exchange Trust Agreement.
Associated Rights
Each issued Exchangeable Share will have an associated right (an
"Exchangeable Share Right") entitling the holder of such Exchangeable Share
Right to acquire additional Exchangeable Shares on terms substantially the same
as the terms and conditions upon which the Buyer Rights entitle a holder of a
Buyer Right to acquire either one one-thousandth of a Buyer Series A Preferred
Share (essentially the economic equivalent of a share of Buyer Common Stock) or,
in certain circumstances, shares of Buyer Common Stock (with the definitions of
beneficial ownership, the calculation of percentage ownership and the number of
shares outstanding and related provisions applying, as appropriate, to shares of
Buyer Common Stock and Exchangeable Shares as though they were the same
security). The Exchangeable Share Rights are intended to have characteristics
essentially equivalent in economic effect to the Buyer Rights.
Voting, Support and Exchange Trust Agreement
Voting Rights. Pursuant to the Voting, Support and Exchange Trust
Agreement, Buyer will issue the Special Voting Share to the Trustee for the
benefit of the holders (other than Buyer and certain subsidiaries of Buyer) of
the Exchangeable Shares. The Special Voting Share will have a number of votes,
which may be cast at any meeting at which Buyer stockholders are entitled to
vote, equal to the number of outstanding Exchangeable Shares (other than shares
held by Buyer and certain subsidiaries of Buyer). With respect to any written
consent sought from the Buyer stockholders, the Special Voting Share will have a
like number of votes.
Each such holder of an Exchangeable Share on the record date for any
meeting at which Buyer stockholders are entitled to vote will be entitled to
instruct the Trustee to exercise one of the votes attached to the Special Voting
Share for such Exchangeable Share. The Trustee will exercise each vote attached
to the Special Voting Share only as directed by the relevant holder and, in the
absence of instructions from a holder as to voting, will not exercise such
votes. A holder may, upon instructing the Trustee, obtain a proxy from the
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Trustee entitling the holder to vote directly at the relevant meeting the votes
attached to the Special Voting Share to which the holder is entitled.
The Trustee will send to the holders of the Exchangeable Shares the notice
of each meeting at which the Buyer stockholders are entitled to vote, together
with the related meeting materials and a statement as to the manner in which the
holder may instruct the Trustee to exercise the votes attaching to the Special
Voting Share, at the same time as Buyer sends such notice and materials to the
Buyer shareholders. The Trustee will also send to the holders copies of all
information statements, interim and annual financial statements, reports and
other materials sent by Buyer to the Buyer shareholders at the same time as such
materials are sent to the Buyer shareholders. To the extent such materials are
provided to the Trustee by Buyer, the Trustee will also send to the holders all
materials sent by third parties to Buyer shareholders, including dissident proxy
circulars and tender and exchange offer circulars, as soon as possible after
such materials are first sent to Buyer shareholders.
All rights of a holder of Exchangeable Shares to exercise votes attached to
the Special Voting Share will cease upon the exchange of all of such holder's
Exchangeable Shares for shares of Buyer Common Stock.
Optional Exchange Right in case of a Canadian Newco Insolvency Event. Upon
the occurrence and during the continuance of a Canadian Newco Insolvency Event,
a holder of Exchangeable Shares will be entitled to instruct the Trustee to
exercise the optional Exchange Right (as defined below) with respect to any or
all of the Exchangeable Shares held by such holder, thereby requiring Buyer to
purchase such Exchangeable Shares from the holder. Immediately upon the
occurrence of a Canadian Newco Insolvency Event or any event which may, with the
passage of time or the giving of notice, become a Canadian Newco Insolvency
Event, Canadian Newco and Buyer will give written notice thereof to the Trustee.
As soon as practicable thereafter, the Trustee will then notify each holder of
Exchangeable Shares of such event or potential event and will advise the holder
of its rights with respect to the optional Exchange Right.
The purchase price payable by Buyer for each Exchangeable Share to be
purchased under the optional Exchange Right will be satisfied by issuance of one
share of Buyer Common Stock plus an additional amount equivalent to the full
amount of all declared and unpaid dividends on the Exchangeable Share.
If, as a result of solvency provisions of applicable law, Canadian Newco is
unable to redeem all of the Exchangeable Shares tendered for retraction by a
holder in accordance with the special rights and restrictions attached to the
Exchangeable Shares, the holder will be deemed to have exercised the optional
Exchange Right with respect to the unredeemed Exchangeable Shares and Buyer will
be required to purchase such shares from the holder in the manner set forth
above. "Exchange Right" means the optional exchange right granted to the Trustee
for the use and benefit of the holders of the Exchangeable Shares pursuant to
the Voting, Support and Exchange Trust Agreement to require Buyer to exchange
Exchangeable Shares for shares of Buyer Common Stock, plus an additional amount
equivalent to any declared and unpaid dividends on such Exchangeable Shares,
upon the occurrence of a Canadian Newco Insolvency Event.
Buyer Support Obligation. Under the Voting, Support and Exchange Trust
Agreement, Buyer will agree that: (i) it will not declare or pay dividends on
the Buyer Common Stock unless Canadian Newco is able to and simultaneously pays
an equivalent dividend on the Exchangeable Shares; (ii) it will advise Canadian
Newco in advance of the declaration of any dividend on the Buyer Common Stock
and ensure that the declaration date, record date and payment date for dividends
on the Exchangeable Shares are the same as that for the Buyer Common Stock and
that such dates will correspond with any requirement of each stock exchange on
which the Exchangeable Shares are then listed; (iii) it will ensure that the
record date for any dividend declared on the Buyer Common Stock is not less than
10 business days after the declaration date for such dividend or such shorter
period within which applicable law may be complied with; (iv) it will take all
actions and do all things necessary to ensure that Canadian Newco is able to pay
to the holders of the Exchangeable Shares the equivalent number of shares of
Buyer Common Stock plus any additional amount equivalent to the full amount of
all unpaid dividends on the Exchangeable Shares in the event of a Liquidation, a
retraction of Exchangeable Shares by a holder thereof or a redemption of
Exchangeable Shares by Canadian Newco; (v) it will not vote or otherwise take
any action or omit to take any action causing a
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Liquidation; and (vi) it will enable Canadian Newco to maintain a listing for
the Exchangeable Shares on a Canadian stock exchange.
The Voting, Support and Exchange Trust Agreement also provides that,
without the prior approval of Canadian Newco and the holders of the Exchangeable
Shares as set forth under "-- Amendment and Approval," Buyer will not distribute
additional shares of Buyer Common Stock or rights to subscribe therefor or other
property or assets to all or substantially all holders of shares of Buyer Common
Stock, nor change the Buyer Common Stock, unless the same or an economically
equivalent distribution on, change to or offer for the Exchangeable Shares (or
in the rights of the holders thereof) is made simultaneously. The Canadian Newco
board of directors is conclusively empowered to determine in good faith and in
its sole discretion whether any corresponding distribution on or change to the
Exchangeable Shares is the same as or economically equivalent to any proposed
distribution on or change to the Buyer Common Stock. In the event of any
proposed tender offer, share exchange offer, issuer bid, take-over bid or
similar transaction affecting the Buyer Common Stock, Buyer will use reasonable
efforts to take all actions necessary or desirable to enable holders of
Exchangeable Shares to participate in such transaction to the same extent and on
an economically equivalent basis as the holders of Buyer Common Stock.
The Voting, Support and Exchange Trust Agreement also provides that, as
long as any outstanding Exchangeable Shares are owned by any person or entity
other than Buyer or any of its subsidiaries, Buyer will, unless approval to do
otherwise is obtained from the holders of the Exchangeable Shares, remain the
direct or indirect beneficial owner of at least 50.1 percent of all issued and
outstanding securities of Canadian Newco having voting rights (excluding the
Exchangeable Shares).
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the Exchangeable Shares, making
certain necessary amendments or curing ambiguities or clerical errors (in each
case provided that the board of directors of each of Buyer, Canadian Newco and
the Trustee and its counsel are of the opinion that such amendments are not
prejudicial to the interests of the holders of the Exchangeable Shares), the
Voting, Support and Exchange Trust Agreement may not be amended without the
approval of the holders of the Exchangeable Shares as set forth under
"-- Amendment and Approval."
Under the Voting, Support and Exchange Trust Agreement, Buyer has agreed
not to exercise any voting rights attached to the Exchangeable Shares owned by
it or any of its subsidiaries on any matter considered at meetings of holders of
Exchangeable Shares (including any approval sought from such holders in respect
of matters arising under the Voting, Support and Exchange Trust Agreement).
Delivery of Buyer Common Stock. Buyer will ensure that all shares of Buyer
Common Stock to be delivered by it under the Voting, Support and Exchange Trust
Agreement or the Second Step Transaction are duly registered, qualified or
approved under applicable Canadian and United States securities laws, if
required, so that such shares may be freely traded by the holders thereof (other
than any restriction on transfer by reason of a holder being a "control person"
of Canadian Newco for purposes of Canadian law or an "affiliate" of Buyer or of
the Company for purposes of United States law). In addition, Buyer will take all
actions necessary to cause all such shares of Buyer Common Stock to be listed or
quoted for trading on all stock exchanges or quotation systems on which
outstanding shares of Buyer Common Stock are then listed or quoted for trading.
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COMPARISON OF RIGHTS OF HOLDERS OF SHARES AND
PREFERRED SHARES AND BUYER COMMON STOCK
AND EXCHANGEABLE SHARES
GENERAL
The rights of holders of the Shares and the Preferred Shares are governed
by the Company's altered memorandum (the "Company Memorandum") and articles,
including all amendments and schedules thereto (the "Company Articles," and
together with the Company Memorandum, the "Company Charter Documents") and the
BCCA. Following consummation of the Offers, the rights of Company shareholders
who become holders of Buyer Common Stock will be governed by Buyer's Amended and
Restated Certificate of Incorporation (the "Buyer Certificate") and bylaws (the
"Buyer Bylaws", and together with the Buyer Certificate, the "Buyer Charter
Documents") and the General Corporation Law of the State of Delaware (the
"DGCL"), and the rights of Company shareholders who become holders of
Exchangeable Shares will be governed by Canadian Newco's altered Memorandum (the
"Canadian Newco Memorandum") and articles, including all amendments and
schedules thereto (the "Canadian Newco Articles", and together with the Canadian
Newco Memorandum, the "Canadian Newco Charter Documents") and the BCCA. The
following is a summary of the material differences between the rights of Company
shareholders, on the one hand, and those of Buyer stockholders or Canadian Newco
shareholders, on the other. The following does not purport to be a complete
description of the differences among such rights. Such differences may be
determined in full by reference to the DGCL, the BCCA, the Buyer Charter
Documents, the Canadian Newco Charter Documents, and the Company Charter
Documents.
SCI intends to cause the Buyer Charter Documents and the Canadian Newco
Charter Documents to be amended prior to the consummation of the Offers. The
following discussion reflects the Buyer Charter Documents and the Canadian Newco
Charter Documents as such are expected to be in effect at the time the Offers
are consummated, and not as in effect as of the date hereof.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company
Pursuant to the Company Articles, the Board of Directors of the Company
(the "Company Board") is divided into four classes and directors are elected to
serve staggered four-year terms, except that, in connection with any election or
appointment of a director, the directors then in office are entitled to
stipulate a shorter term. The Company Articles provide that the number of
directors may be set from time to time by the Company Board, provided that the
number of directors may not be more than 20 or less than three.
Buyer
The Buyer Bylaws provide that the Board of Directors of Buyer (the "Buyer
Board") will be divided into three classes, with directors elected to serve
staggered three-year terms. The Buyer Bylaws provide that, subject to the right
of the holders of any class or series of preferred stock of Buyer ("Buyer
Preferred Stock") under specified circumstances, the number of directors of
Buyer may be fixed from time to time by the Buyer Board, but may not be less
than three.
Canadian Newco
The Canadian Newco Articles will provide for a board of three or more
directors (the "Canadian Newco Board"), as fixed from time to time by the
shareholders holding shares of Canadian Newco which are entitled to be voted at
an annual general meeting of Canadian Newco. Holders of Exchangeable Shares will
have no right to vote for the election or appointment of directors or the
alteration of the number of directors of Canadian Newco.
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REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
The Company
Under the BCCA, Company directors may be removed by the affirmative vote of
at least three-quarters of the votes cast by shareholders entitled to vote at a
general meeting at which, under the Company Articles, a quorum of at least 50
percent of the shares entitled to vote thereon are present. Shareholders may, by
an ordinary resolution of a majority of votes cast at such a meeting, appoint a
new director to serve in the removed director's stead. In addition, the Company
Articles provide that the Company Board may remove any director by the
affirmative vote of three-quarters of the incumbent Company Board. The Company
Articles provide that any vacancy on the Company Board resulting from an
increase in the number of directors or the removal of a director by the Company
Board, and any casual vacancies, may be filled by action of the directors
remaining in office, provided that the necessary quorum for directors exists.
According to the Company Charter Documents, any director appointed to serve due
to an increase in the number of directors shall, unless the directors specify a
shorter term, serve for a term expiring at the fourth annual general meeting of
the Company following such appointment, and any director appointed to fill any
other vacancy in the Company Board shall serve for the unexpired portion of the
term of the preceding director.
Buyer
The Buyer Bylaws provide that directors may be removed with or without
cause, but only by vote of 80 percent (or, if removal has been approved by at
least 80 percent of the directors then in office, by vote of at least a
majority) of the combined voting power of the then outstanding shares of capital
stock entitled to vote at an election of directors, voting together as a class.
The Buyer Bylaws will provide that, subject to the right of the holders of Buyer
Preferred Stock under specified circumstances, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Buyer Board resulting from death, resignation, disqualification, removal or
other cause may be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board.
Any newly created directorships will be apportioned among the classes of
directors so that the classes are as nearly equal in number as possible. Any
director so elected will hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Buyer Board
may shorten the term of any incumbent director.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to the appointment and removal of directors as is the Company. However, the
quorum for a general meeting of shareholders of Canadian Newco is only two
shareholders holding in the aggregate 5 percent of the shares entitled to be
voted at the meeting (and only one shareholder if one shareholder holds all of
the shares entitled to be voted at the meeting). Holders of Exchangeable Shares
will have no right to remove directors or to fill vacancies on the Canadian
Newco Board.
EXTRAORDINARY OR SPECIAL MEETINGS OF SHAREHOLDERS
The Company
Pursuant to the BCCA, extraordinary general meetings of Company
shareholders may be called by the Company Board (on not less than 21 days'
notice to shareholders) or upon request of shareholders holding an aggregate of
at least one-twentieth of the outstanding Company shares entitled to vote
thereat (a "Request"). The Company is required to call, within 21 days of
receiving a proper Request, an extraordinary general meeting, which meeting must
be held within four months after the date the Request for such meeting was
delivered. The Company Articles require that notice for any meeting called
pursuant to a Request must be given not less than 45 days prior to the date of
such meeting. The business to be conducted at any meeting of Company
shareholders is limited to the business brought before the meeting pursuant to
Company's notice of meeting.
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A quorum for a meeting of the shareholders of the Company generally is two
shareholders holding one-twentieth of the outstanding shares of the Company
entitled to vote at such meeting. However, the Company Articles provide that,
unless the action has been approved by a majority of the directors who are not
nominees of an "intervening shareholder", a quorum consisting of two
shareholders holding not less than 50 percent of the voting shares is required
before action can be taken with respect to amalgamations, reorganizations and
other business combinations, the removal of directors, the amendment, alteration
or repeal of certain provisions of the Company Articles and certain other
matters. The increased quorum requirement for business combinations is
restricted to those cases in which the combination involves an "intervening
shareholder." An "intervening shareholder", under the Company Articles, is a
shareholder who beneficially owns 10 percent or more of the shares entitled to
vote in the election of directors (other than Raymond L. Loewen and certain of
his associates and subsidiaries of the Company).
Under the BCCA and the Company Articles, a majority of the votes cast is
generally required for an action by the shareholders of the Company, except that
only a plurality of the votes cast is required for the election of directors.
Buyer
The Buyer Bylaws provide that special meetings of the shareholders may be
called for any purpose by the Chairman of the Buyer Board or the Buyer Board
(pursuant to a resolution approved by a majority of the entire Buyer Board). The
Buyer Bylaws also provide that the business permitted to be conducted at any
special meeting of shareholders will be limited to the business brought before
the meeting pursuant to the Buyer's notice of meeting.
Holders of a majority of the outstanding shares of Buyer capital stock
entitled to vote generally in the election of directors will constitute a quorum
for any annual or special meeting of the shareholders. A majority of the votes
cast will generally be required for any action by the shareholders of Buyer,
except that only a plurality of the votes cast is required for elections of
directors. The DGCL provides that these quorum and voting requirements may be
increased or decreased by a change to the Buyer Charter Documents (which may be
effected by the Buyer Board), so long as the requirement for a quorum does not
fall below one-third of the shares entitled to vote and subject to provisions of
the DGCL in respect of the vote required for certain specified actions, such as
mergers.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to meetings of shareholders as is the Company. However, the quorum for a general
meeting of shareholders of Canadian Newco is only two shareholders holding in
the aggregate 5 percent of the shares entitled to be voted at the meeting (and
only one shareholder if one shareholder holds all of the shares entitled to be
voted at the meeting). Holders of Exchangeable Shares will have no right to call
meetings of Canadian Newco shareholders or, other than at a class meeting of
holders of Exchangeable Shares required by the BCCA or the special rights and
restrictions attached to the Exchangeable Shares, to vote on any matter brought
before a meeting of Canadian Newco shareholders.
SHAREHOLDER NOMINATIONS
The Company
The Company Articles provide that shareholders together holding an
aggregate of not less than 10 percent of the shares entitled to vote in
elections of directors may nominate directors for election at an annual general
meeting of the Company shareholders. The Company Articles require any such
shareholders seeking to make a nomination to notify the Company of such
nomination not less than 35 days prior to the date of such meeting and to
provide certain information concerning the nominee. Under the BCCA, the Company
is required to publish notice of any general meeting at which directors are to
be elected not less than 56 days prior to such meeting and thereby invite
written nominations for directors to be submitted by holders of not less than 10
percent of the outstanding Shares.
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Buyer
Neither the DGCL nor the Buyer Bylaws contain any specific procedures that
must be followed for shareholders to nominate individuals for election to the
Buyer Board.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to the nomination of directors as is the Company. The Canadian Newco Articles
make no additional provisions. Holders of Exchangeable Shares will have no right
to nominate directors for election to the Canadian Newco Board.
SHAREHOLDER PROPOSALS
The Company
Neither the BCCA nor the Company Articles provide for the proposing of
business by shareholders other than in connection with a Request as described
above. See "-- Extraordinary or Special Meetings of Shareholders -- The
Company."
Buyer
Neither the DGCL nor the Buyer Bylaws contain any specific procedures that
must be followed for a shareholder to submit a proposal to a vote of Buyer
shareholders at an annual meeting of shareholders.
Canadian Newco
Neither the BCCA, nor the Canadian Newco Articles provide for the proposing
of business by shareholders other than in connection with a Request as described
under "-- Extraordinary or Special Meetings of Shareholders -- The Company."
Holders of Exchangeable Shares will have no right to propose business to be
acted upon at meetings of Canadian Newco shareholders.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The Company
The BCCA provides that amalgamations involving any company must be approved
(1) by holders of each class of shares of such company by the affirmative vote
of three-quarters of the votes cast, and (2) by the Supreme Court of British
Columbia, "having regard to the rights and interests of every person affected."
The BCCA also provides that certain other extraordinary matters, such as
continuation under the laws of another jurisdiction, sale, lease or other
disposition of substantially all of the undertaking of the company, or
liquidation, also require approval by the affirmative vote of three-quarters of
the votes cast by holders of shares entitled to vote thereon. In addition, the
Company Articles provide that the following transactions must be approved by at
least three-quarters of the votes cast by holders of shares entitled to vote
thereon at a general meeting of Company shareholders (unless approved by a
majority of directors who are not nominees of a party interested in the
transaction): (1) a sale or transfer to an intervening shareholder (see
"-- Extraordinary or Special Meetings of Stockholders -- The Company"), or its
associate or affiliate, of assets of the Company or a subsidiary having an
aggregate fair market value of not less than C$10,000,000; and (2) the issuance
or transfer of shares or other securities in the Company or a subsidiary to an
"intervening shareholder" or its associate or affiliate in exchange for assets
having an aggregate fair market value of not less than C$10,000,000.
Buyer
Under the DGCL, the recommendation of the board of directors and the
approval of a simple majority of the outstanding shares of Buyer entitled to
vote thereon are required to effect a merger or consolidation or to sell, lease
or exchange substantially all of Buyer's assets. Subject to Section 203 of the
DGCL described below under "-- State Antitakeover Statutes," no vote of Buyer
shareholders would be required if Buyer were the surviving corporation and (i)
the related agreement of merger did not amend the Buyer Certificate, (ii) each
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<PAGE> 100
share of stock of Buyer outstanding immediately before the merger was an
identical outstanding or treasury share of Buyer after the merger and (iii) the
number of shares of Buyer Common Stock to be issued in the merger (or to be
issuable upon conversion of any convertible instruments to be issued in the
merger) did not exceed 20 percent of the shares of Buyer Common Stock
outstanding immediately before the merger.
Canadian Newco
Other than pursuant to the requirements of the BCCA, as referred to above
under "-- The Company" and below under "-- Amendment of Corporate Charter and
Bylaws" and as prescribed by the special rights and restrictions attached to the
Exchangeable Shares, holders of Exchangeable Shares will have no special voting
rights with respect to Canadian Newco.
ACTION BY WRITTEN CONSENT
The Company
Under the BCCA, shareholders may act without a general meeting upon an
ordinary resolution submitted to all shareholders entitled to vote thereon and
consented to in writing by shareholders holding not less than three-quarters of
the votes entitled to be cast with respect to such matter, except that, with
respect to certain extraordinary matters, such as an amalgamation or removal of
a director, shareholders may act without a general meeting only upon a special
resolution consented to in writing by all of the shareholders entitled to vote
with respect to such matters.
Buyer
The Buyer Certificate provides that any action required or permitted to be
taken by the shareholders must be effected at an annual or special meeting of
the shareholders and may not be effected by written consent.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to the taking of action by written consent as is the Company.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
The Company
Pursuant to the BCCA, a company's memorandum or articles may generally be
amended only upon approval given by holders of not less than three-quarters of
the votes cast at a general meeting of the company's shareholders, and by
otherwise complying with its memorandum and articles; provided, however, that
(a) if rights attached to a class or series are prejudiced, interfered with, or
affected differently from rights attached to other classes or series, a separate
resolution of shareholders of that class or series may be required, (b)
alteration of the memorandum as to part only of the issued shares of a class or
series may require consent of holders of three-quarters of the shares of such
class or series not to be changed, and (c) if the articles authorize the board
of directors to fix the number of shares in a series of a class of shares, and
to determine the designation of the shares or to create, define and attach
special rights and restrictions to the shares of each series of a class of
shares, the board may amend the articles to accomplish the foregoing without
shareholder approval.
Buyer
Under the DGCL and the Buyer Certificate, an amendment to the Buyer
Certificate generally requires the recommendation of the Buyer Board, the
approval of a majority of all shares entitled to vote thereon, voting together
as a single class and the majority of the outstanding stock of each class
entitled to vote thereon. However, the Buyer Certificate provides that the
affirmative vote of the holders of at least 80 percent of the voting power of
the outstanding shares of Buyer entitled to vote generally in the election of
directors, voting
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<PAGE> 101
together as a single class, is required to amend provisions of the Buyer
Certificate relating to the prohibition of shareholder action without a meeting
and to the amendment of the Buyer Bylaws.
The Buyer Bylaws provide that the Buyer Bylaws may be amended by the Buyer
Board (except so far as Bylaws adopted by shareholders otherwise provide) or by
the majority vote of shareholders entitled to vote thereon; provided, however,
that the provisions of the Buyer Bylaws relating to the calling of special
meetings of shareholders, the prohibition on action by written consent, the
removal of directors and the filling of vacancies, the nomination of directors
by shareholders and the removal of directors will not be amendable or repealable
without the affirmative vote of the holders of at least 80 percent of the shares
entitled to vote for the election of directors, voting together as a single
class.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to the amendment of its memorandum and articles as is the Company. Holders of
Exchangeable Shares will have no power to make, alter, amend, or repeal
provisions of Canadian Newco's Charter Documents, but may be entitled to vote as
a class with respect to certain amendments, as described above under "-- The
Company."
APPRAISAL RIGHTS
The Company
The BCCA provides procedures by which shareholders may dissent from certain
transactions, including amalgamations, continuations, sale, lease or other
disposition of substantially all of the undertaking of the company, provision by
the company of otherwise prohibited financial assistance, certain amendments to
the articles, and liquidation, and may require the company (or the amalgamated
company in an amalgamation) to purchase such dissenting holder's shares for
their "fair value" (as determined by the BC Court) as of the day before the date
on which the resolution authorizing the action from which such holder has
dissented is adopted by the shareholders. Dissent rights are not available to
any shareholder who consents to or votes in favor of the resolution to which
such holder is dissenting (except where such consent or vote is given only as a
proxy for a person whose proxy required an affirmative vote).
Buyer
The DGCL provides procedures by which shareholders may dissent from certain
transactions, including mergers and consolidations, and to receive the appraised
fair value of their stock. Appraisal rights are not available to holders of (i)
shares listed on a national securities exchange or held of record by more than
2,000 shareholders or (ii) shares of the surviving corporation of the merger, if
the merger did not require the approval of the shareholders of such corporation,
unless in either case, the holders of such stock are required pursuant to the
merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which are also listed on
a national securities exchange or held by more than 2,000 holders or (C) cash in
lieu of fractional shares of such stock. Appraisal rights are not available for
a sale of assets or an amendment to the certificate of incorporation.
Canadian Newco
Holders of Canadian Newco stock are entitled to dissent rights under the
BCCA as described above.
OPPRESSION REMEDY
The Company
The BCCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of, on the
ground that (i) the affairs of the company are being conducted, or the powers of
the directors of the company are being exercised, in a manner oppressive to one
or more of the shareholders; or (ii) some act of the company has been done, or
is threatened, or that some resolution of the shareholders or any class of
shareholders has been passed or is proposed, that is unfairly
89
<PAGE> 102
prejudicial to one or more of the shareholders. A complainant may be a
registered or beneficial shareholder or any other person who in the discretion
of the court is a proper person to make such application.
Because of the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, the oppression remedy is frequently relied
upon to safeguard the interest of shareholders and other complainants with a
substantial interest in the company. Under the BCCA, it is not necessary to
prove that the directors of a company acted in bad faith in order to seek an
oppression remedy.
Buyer
The DGCL does not provide for a similar remedy.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to the oppression remedy as is the Company. Holders of shares of Canadian Newco,
including holders of Exchangeable Shares, are entitled to seek the benefit of
the oppression remedy, as described under "-- The Company."
DERIVATIVE ACTION
Company
Under the BCCA, a shareholder or director (or other appropriate person, in
the view of the court) may bring an action in the name of and on behalf of a
company (i) to enforce a right, duty or obligation owed to the company that
could be enforced by the company itself or to obtain damages for any breach of
such a right, duty or obligation; or (ii) to defend an action brought against
the company. Under the BCCA, no action may be brought and no intervention in an
action may be made unless the court is satisfied that (a) the complainant has
made reasonable efforts to cause the directors of the company to commence or
diligently prosecute or defend the action; (b) the complainant is acting in good
faith; (c) it appears to be in the interests of the company that the action be
brought or defended; and (d) in the case of an application by a shareholder, he
was a shareholder at the time of the transaction or other event giving rise to
the cause of action. A complainant is not required to give security for costs in
a derivative action.
Buyer
Derivative actions may be brought in Delaware by a shareholder on behalf
of, and for the benefit of, the corporation. The DGCL provides that a
shareholder must aver in the complaint that he or she was a shareholder of the
corporation at the time of the transaction of which he or she complains. A
shareholder may not sue derivatively unless he or she first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to derivative actions as is the Company.
RIGHTS PLAN
The Company
The Company has adopted the Rights Agreement pursuant to which one Right is
attached to each outstanding Share. In the event a third party acquires in
excess of 20 percent of the Shares, the Rights will entitle the holder to
purchase additional Shares at a 50 percent discount, or, on the occurrence of
certain events, to purchase common stock of the acquiring party at a 50 percent
discount. The Rights may have certain anti-takeover effects.
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<PAGE> 103
Buyer
See "Description of Capital Stock of Buyer and Canadian Newco."
Canadian Newco
See "Description of Capital Stock of Buyer and Canadian Newco."
STATE/PROVINCE ANTITAKEOVER STATUTES
The Company and Canadian Newco
Other than the provisions relating to the shareholder vote required to
approve amalgamations, alterations of articles and certain other transactions,
the BCCA has no specific antitakeover provisions. See "-- Required Vote for
Authorization of Certain Actions" and "-- Amendment of Corporate Charter and
Bylaws."
Buyer
Section 203 of the DGCL would prohibit a "business combination" (as defined
in Section 203, generally including mergers, sales and leases of assets,
issuances of securities and similar transactions) by Buyer or a subsidiary with
an "interested stockholder" (as defined in Section 203, generally the beneficial
owner of 15 percent or more of Buyer's voting stock) within three years after
the person or entity becomes an interested stockholder, unless (i) prior to the
person or entity becoming an interested stockholder, the business combination or
the transaction pursuant to which such person or entity became an interested
stockholder shall have been approved by the Buyer Board, (ii) upon the
consummation of the transaction in which the person or entity became an
interested stockholder, the interested stockholder holds at least 85 percent of
the voting stock of Buyer (excluding for purposes of determining the number of
shares outstanding, shares held by persons who are both officers and directors
of Buyer and shares held by certain employee benefit plans) or (iii) the
business combination is approved by the Buyer Board and by the holders of at
least two-thirds of the outstanding voting stock of Buyer, excluding shares held
by the interested stockholder.
LIMITATION ON DIRECTORS' LIABILITY
The Company
Section 143 of the BCCA provides that neither the provisions of the
memorandum, the articles nor any contract of a company nor the circumstances of
a director's appointment shall relieve a director from the duty to act in
accordance with the BCCA, or from any liability that arises in respect of any
negligence, default, breach of duty or breach of trust of which such director
may be guilty in relation to the company.
Buyer
Section 102 of the DGCL permits a corporation to limit or eliminate the
personal liability of directors to the corporation and its stockholders for
monetary damages for breach of fiduciary duty as a director. However, this
provision excludes any limitation on liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for intentional or negligent payment of unlawful
dividends or stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. The Buyer Certificate
provides for the maximum limitation on directors' liability permitted by the
DGCL.
Canadian Newco
Canadian Newco is subject to the same provisions of the BCCA with respect
to directors' liability as is the Company.
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<PAGE> 104
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company
Section 152 of the BCCA provides that a company may, with court approval,
indemnify a current or former director or officer of the company or a
corporation of which the company is or was a shareholder, in respect of a civil,
criminal or administrative action or proceeding to which such director or
officer was made a party by reason of being or having been a director or
officer, provided that such director or officer (1) acted honestly and in good
faith with a view to the best interest of the company, and (2) in the case of a
criminal or administrative action or proceeding, such director or officer had
reasonable grounds for believing that his conduct was lawful. The Company
Articles require the indemnification of directors and the Secretary of the
Company as provided for in Section 152 of the BCCA and permit similar
indemnification of other officers of the Company in the discretion of its
directors.
Buyer
Section 145 of the DGCL provides that a corporation may indemnify its
officers and directors party to any action, suit or proceeding by reason of the
fact that he or she was a director, officer or employee of the corporation by,
among other things, a majority vote of a quorum consisting of directors who were
not parties to such action, suit, or proceeding provided that such officers and
directors acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation. The Buyer Bylaws
provide for the maximum indemnification of officers and directors as permitted
by this statute.
Canadian Newco
The Canadian Newco Articles provide for indemnification of officers and
directors to the fullest extent permitted under Section 152 of the BCCA.
PREFERRED SHARES
The Company
Pursuant to the Company Articles, holders of Preferred Shares are entitled
to cumulative dividends at an annual rate of 6.00 percent payable quarterly on
the first business day of January, April, July and October of each year. Holders
of Preferred Shares have the right, at any time prior to January 1, 2003, to
convert each Preferred Share into that number of Shares determined by dividing
C$25.00 by C$38.125, subject to adjustment in certain circumstances. Thereafter,
a holder of Preferred Shares will have the right on January 1, 2003, and on the
first business day of each quarter thereafter, to convert all or a part of such
Preferred Shares into that number of Shares determined by dividing C$25.00 plus
accrued and unpaid dividends by the greater of C$3.00 and 95 percent of the
then-current market price on the date of conversion. The Preferred Shares are
redeemable after July 1, 1999, at a redemption price equal to C$25.00 plus
accrued and unpaid dividends. Prior to July 1, 2001, the redemption may only be
effected by the issuance of Shares, determined by dividing the redemption price
by the greater of C$3.00 and 95 percent of the then-current market price at the
date of redemption. On or after July 1, 2001, the redemption may be effected by
the issuance of Shares or payment of cash. In the event of the liquidation,
dissolution or winding up of the Company or other distribution of assets of the
Company among its shareholders for the purpose of winding up its affairs, the
holders of Preferred Shares shall be entitled to receive the redemption price
before any amounts are paid to the holders of Shares or any other class of
shares ranking junior to the Preferred Shares. Except as otherwise specifically
provided in the BCCA, the holders of Preferred Shares are not entitled to notice
of or to attend or to vote at any meeting of shareholders of the Company, except
that, in the event that the Company shall have failed to pay in full at least
six quarterly dividends on the Preferred Shares, whether or not consecutive, and
only for so long as any dividends on such shares remain in arrears, the holders
of Preferred Shares will be entitled to notice of, and to attend all meetings of
the Company's shareholders and to cast one vote for each Preferred Share held.
After the consummation of the Offers, holders of Preferred Shares who have
become holders of Buyer Common Stock shall have only the rights of holders of
Buyer Common Stock as described in this section and above under "Description of
Capital Stock of Buyer and Canadian Newco" and as set forth in the Buyer
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<PAGE> 105
Charter Documents and the DGCL, and holders of Preferred Shares who have become
holders of Exchangeable Shares shall have only the rights of holders of
Exchangeable Shares as described above in this section and above under
"Description of Capital Stock of Buyer and Canadian Newco" and as set forth in
the Canadian Newco Charter Documents and the BCCA.
Buyer
Buyer has no shares of preferred stock outstanding. The terms of the shares
of preferred stock that Buyer is authorized to issue are described above under
"Description of Capital Stock of Buyer and Canadian Newco."
Canadian Newco
Canadian Newco has no shares authorized for issuance, other than the
Canadian Newco Common Shares and the Exchangeable Shares.
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<PAGE> 106
MARKET PRICES AND DIVIDENDS
SCI
The SCI Common Stock is listed and principally traded on the NYSE. The
following table sets forth the range of high and low sales prices as reported on
the NYSE Composite Tape, together with the per share dividends declared by SCI,
during the periods indicated. SCI per share data has been restated to reflect
the August 1996 two-for-one common stock split.
<TABLE>
<CAPTION>
PRICE RANGE
-------------------
QUARTER HIGH LOW DIVIDENDS
------------------------------------------------------- ------- ------- ---------
<S> <C> <C> <C>
1994:
First................................................ $14.000 $12.375 $0.0525
Second............................................... 12.938 11.250 0.0525
Third................................................ 13.313 12.438 0.0525
Fourth............................................... 13.875 12.063 0.0525
1995:
First................................................ $14.563 $13.125 $ 0.055
Second............................................... 15.813 13.438 0.055
Third................................................ 19.750 15.188 0.055
Fourth............................................... 22.000 18.813 0.055
1996:
First................................................ $24.750 $19.438 $ 0.06
Second............................................... 30.125 24.125 0.06
Third................................................ 31.750 24.25 0.06
Fourth (through , 1996)...............
</TABLE>
On September 16, 1996, the last trading day prior to public announcement of
SCI's interest in acquiring the Company, the closing sales price per share of
SCI Common Stock was $30.25. On , 1996, the last full trading day
prior to the date of this Prospectus, such price was $ . Past price
performance is not necessarily indicative of likely future price performance.
Holders of Shares and Preferred Shares are urged to obtain current market
quotations for shares of SCI Common Stock.
Holders of SCI Common Stock are entitled to receive dividends from funds
legally available therefor when, as and if declared by the Board of Directors of
SCI. Future dividends of Buyer and Canadian Newco will depend upon the earnings
of Buyer and its subsidiaries, their financial condition and other factors
including applicable governmental regulations and policies.
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<PAGE> 107
THE COMPANY
Shares
The Shares are listed and principally traded on the NYSE (and prior to
October 2, 1996 the Nasdaq National Market) and are also listed on the TSE and
the ME. The following table sets forth the range of high and low sales prices as
reported on the NYSE and the Nasdaq National Market, together with the per Share
dividends declared by the Company, during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
-------------------
QUARTER HIGH LOW DIVIDENDS
--------------------------------------------------------- ------- ------- ---------
<S> <C> <C> <C>
1994:
First.................................................. $27.375 $24.125 $0.00
Second................................................. 25.750 22.00 0.03
Third.................................................. 25.375 22.688 0.00
Fourth................................................. 26.500 22.750 0.04
1995:
First.................................................. $29.125 $24.703 $0.00
Second................................................. 36.500 26.625 0.05
Third.................................................. 41.750 33.875 0.00
Fourth................................................. 41.625 23.125 0.00
1996:
First.................................................. $29.875 $16.375 $0.05
Second................................................. 31.125 26.125 0.07
Third.................................................. 42.75 26.625 0.00
Fourth (through , 1996).................
</TABLE>
On September 16, 1996, the last trading day prior to public announcement of
SCI's interest in acquiring the Company, the closing sales prices per Share was
$33.75. On , 1996, the last full trading day prior to the date of
this Prospectus, such price was $ . Past price performance is not
necessarily indicative of likely future price performance. Holders of Shares are
urged to obtain current market quotations for Shares.
Holders of Shares are entitled to receive dividends from funds legally
available therefor when, as and if declared by the Board of Directors of the
Company. Future dividends of the Company will depend upon the earnings of the
Company and its subsidiaries, their financial condition and other factors
including applicable governmental regulations and policies.
Preferred Shares
The Preferred Shares are listed and principally traded on the TSE and the
ME. The following table sets forth the range of high and low sales prices as
reported on the TSE, together with the per Preferred Share dividends declared by
the Company, during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
---------------------
QUARTER HIGH LOW DIVIDENDS
---------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
1996:
First............................................. C$31.895 C$22.625 C$0.375
Second............................................ 32.00 29.50 0.375
Third............................................. 40.50 25.30 0.375
Fourth (through , 1996)............
</TABLE>
On September 16, 1996, the last trading day prior to public announcement of
SCI's interest in acquiring the Company, the closing sales price per Preferred
Share was $31.50. On , 1996, the last full trading day prior to the
date of this Prospectus, such price was C$ . Past price performance is
not
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<PAGE> 108
necessarily indicative of likely future price performance. Holders of Preferred
Shares are urged to obtain current market quotations for Preferred Shares.
Holders of Preferred Shares are entitled to receive dividends from funds
legally available therefor when, as and if declared by the Board of Directors of
the Company.
VALIDITY OF BUYER COMMON STOCK
AND EXCHANGEABLE SHARES
The validity of the shares of Buyer Common Stock offered hereby will be
passed upon for the Purchasers by Wachtell, Lipton, Rosen & Katz, 51 West 52nd
Street, New York, New York 10019. The validity of the Exchangeable Shares
offered hereby will be passed upon for the Purchasers by Lawson Lundell Lawson &
McIntosh, 1600 Cathedral Place, 925 West Georgia Street, Vancouver, British
Columbia V6C 3L2.
STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of
Canada provides holders of Shares and Preferred Shares with, in addition to any
other rights they may have at law, rights of rescission or to damages, or both,
if there is a misrepresentation in a circular (which this prospectus constitutes
for the purposes of such legislation) or a notice that is required to be
delivered to the holders of Shares and Preferred Shares. However, such rights
must be exercised within prescribed time limits. Holders of Shares and Preferred
Shares should refer to the applicable provisions of the securities legislation
of their province or territory for particulars of those rights or consult with a
lawyer.
ENFORCEMENT OF CIVIL LIABILITY AGAINST
U.S. PERSONS
All of the directors and officers of the Buyer and certain of the directors
and officers of Canadian Newco and certain of the experts named herein reside
outside of Canada. Substantially all of the assets of these persons and a
significant portion of the assets of the Purchasers may be located outside of
Canada. The Buyer has appointed Tory Tory DesLauriers & Binnington, Suite 3000,
Aetna Tower P.O. Box 270, Toronto-Dominion Centre, Toronto, Ontario, Canada M5K
1N2, as its agent for service of process in Canada, but it may not be possible
for persons who acquire Buyer Common Stock or Exchangeable Shares under the
Offers to effect service of process within Canada upon the directors, officers
and experts referred to above. It may also not be possible to enforce against
the Buyer, its directors and officers, certain directors and officers of
Canadian Newco and certain of the experts named herein judgments obtained in
Canadian courts predicated upon the civil liability provisions of applicable
securities laws in Canada. An alternative remedy would be to bring proceedings
in the United States under United States securities laws.
EXPERTS
The consolidated financial statements of SCI as of December 31, 1995 and
1994, and for each of the years in the three-year period ended December 31,
1995, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report, which includes an explanatory paragraph
pertaining to accounting changes, of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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<PAGE> 109
[ALTERNATE PAGE -- CANADIAN OFFER ONLY]
APPROVAL AND CERTIFICATE
The contents of this Prospectus have been approved, and the sending,
communication or delivery thereof to the shareholders of the Company has been
authorized by, the boards of directors of the Purchasers. The foregoing,
together with the documents incorporated herein by reference, or for the
purposes of the Province of Quebec, as supplemented by the permanent information
record, (i) constitutes full, true and plain disclosure of all material facts
relating to the securities to be issued pursuant to the Offers as required by
the securities laws of all the provinces and territories of Canada, (ii)
contains no untrue statement of a material fact and does not omit to state a
material fact that is required to be stated or that is necessary to make a
statement not misleading in the light of the circumstances in which it was made,
and (iii) does not contain any misrepresentation likely to affect the value or
the market price of the shares which are the subject to the Offers.
DATE:
NEW SERVICE CORPORATION INTERNATIONAL
<TABLE>
<S> <C> <C> <C>
(Signed) * (Signed) *
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) * (Signed) *
Director Director
SCI HOLDINGS CANADA, INC.
(Signed) * (Signed) *
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) * (Signed) *
Director Director
</TABLE>
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<PAGE> 110
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and Rights and
Preferred Shares, as the case may be, and any other required documents should be
sent or delivered by each shareholder of the Company or his broker, dealer,
commercial bank, trust company or other nominee to the Exchange Agent or the
Canadian Forwarding Agent at one of their addresses set forth below.
THE EXCHANGE AGENT:
IBJ SCHRODER BANK AND TRUST COMPANY
TELEPHONE NUMBER:
(212) 858-2103
(call collect)
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand or
P.O. Box 84 Copy Number: Overnight Courier:
Bowling Green Station (212) 858-2611 One State Street
New York, New York 10274-0004 Attn: Reorganization New York, New York 10004
Attn: Reorganization Operations Department Attn: Securities Transfer
Operations Department Window,
Subcellar One
</TABLE>
Confirm Facsimile by Telephone:
(212) 858-2103
Any questions or requests for assistance or additional copies of the
Prospectus, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Information Agent or the Dealer Managers at their respective
telephone numbers and locations listed below. You may also contact your local
broker, commercial bank, trust company or nominee for assistance concerning the
Offers.
The Information Agent for the Offers is:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
Banks and Brokers Call Collect: ( ) -
All Others Call Toll-Free: 1-800- -
The Dealer Managers for the Offers are:
<TABLE>
<S> <C>
J.P. MORGAN SECURITIES INC. TD SECURITIES INC.
60 WALL STREET 7TH FLOOR, TD BANK TOWER
NEW YORK, NEW YORK 10260-0060 66 WELLINGTON ST. WEST
TORONTO, ONTARIO
M5K 1A1
(IN CANADA)
</TABLE>
<PAGE> 111
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS
OF SCI AND THE PURCHASERS
SCI
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last five
years, and the name and principal business of any corporation or other
organization in which such employment is conducted or was conducted of each
director and executive officer of SCI. Each of SCI's directors and executive
officers is a citizen of the United States. The business address of each
executive officer of SCI is 1929 Allen Parkway, Houston, Texas 77219. Each
occupation set forth opposite a person's name, unless otherwise indicated,
refers to employment with SCI.
Directors
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS (B) OR RESIDENCE AND
(R) MATERIAL OCCUPATIONS FOR PAST FIVE
NAME ADDRESS YEARS
- ----------------------- ---------------------------- ------------------------------------
<S> <C> <C> <C>
A. J. Foyt, Jr. (b) A.J. Foyt, Jr. Enterprises President, A.J. Foyt Enterprises,
6415 Toledo Inc. (designer, manufacturer and
Houston, Texas 77008 exhibitor of high-speed engines and
racing vehicles and marketer of
automotive vehicles).
E. H. Thornton, Jr. (b) Thornton & Burnett Attorney, Thornton & Burnett,
1775 St. James Place Attorneys at Law.
Suite 120
Houston, Texas 77056
R. L. Waltrip Chairman of the Board and Chief
Executive Officer.
Edward E. Williams (r) 7602 Wilton Park Henry Gardiner Symonds Professor and
Spring, Texas 77379 Director of the Entrepreneurship
Program at the Jesse H. Jones
Graduate School of Administration at
Rice University, and Managing
Director of First Texas Venture
Capital (investment company).
Douglas M. Conway (r) HCR4 Anchor Point Road Retired.
Box 172
Crosslake, Minnesota 56442
James J. Gavin, Jr. (r) 161 Thorntree Lane Retired.
Winnetka, Illinois 60093
B. D. Hunter (b) Huntco Inc. Chairman of the Board and Chief
14323 So. Outer 40 Road Executive Officer of Huntco Inc.
Suite 600 North (intermediate steel processor).
Town & Country, Missouri
63017
John W. Mecom, Jr. (b) 4544 Post Oak Place Dr. Chairman of the Board of Directors,
Suite 270 The John W. Mecom Company (personal
Houston, Texas 77027 and family investments).
Jack Finkelstein (b) 4635 Southwest Freeway Personal and family trust
Suite 635 West investments.
Houston, Texas 77027
James H. Greer (r) 108 Timberwilde Chairman, Shelton W. Greer Co., Inc.
Houston, Texas 77024 (engineering, manufacturing,
fabrication and installation of
building specialty products).
L. William Heiligbrodt President and Chief Operating
Officer.
</TABLE>
A-1
<PAGE> 112
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
BUSINESS (B) OR RESIDENCE AND
(R) MATERIAL OCCUPATIONS FOR PAST FIVE
NAME ADDRESS YEARS
- ----------------------- ---------------------------- ------------------------------------
<S> <C> <C> <C>
Clifton H. Morris, Jr. (b) AmeriCredit Corp. Chairman, President and Chief
200 Bailey Avenue Executive Officer of AmeriCredit
Ft. Worth, TX 76107 Corp. (financing of automotive
vehicles) since July 1, 1988.
W. Blair Waltrip Executive Vice President Operations.
Anthony L. Coelho (b) Coelho & Associates Chairman and Chief Executive Officer
1325 Avenue of the Americas of Coelho Associates, LLC
26th Floor (investment consulting and
New York, New York 10019 brokerage) since July 1995, and
Chairman and Chief Executive Officer
of ETC (training and communication
firm) since October 1995. Prior
thereto, from January 1990 to July
1995, Mr. Coelho was President and
Chief Executive Officer, Wertheim
Schroder Investment Services, Inc.
(asset management firm) and from
October 1989 to July 1995, Managing
Director, Wertheim Schroder & Co.,
Inc. (investment banking firm).
John W. Morrow, Jr. Executive Vice President Corporate
Development.
</TABLE>
Officers
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------ -----------------------------------------------------------
<S> <C>
R.L. Waltrip Chairman of the Board and Chief Executive Officer
L. William Heiligbrodt President and Chief Operating Officer
W. Blair Waltrip Executive Vice President Operations
John W. Morrow, Jr. Executive Vice President Corporate Development
Jerald L. Pullins Executive Vice President European Operations
George R. Champagne Senior Vice President Chief Financial Officer
Glenn G. McMillen Senior Vice President Operations
Richard T. Sells Senior Vice President Prearranged Sales
James M. Shelger Senior Vice President General Counsel and Secretary
Jack L. Stoner Senior Vice President Administration
T. Craig Benson Vice President Operations
Gregory L. Cauthen Vice President Treasurer
W. Mark Hamilton Vice President Finance European Operations
Lowell A. Kirkpatrick, Jr. Vice President Corporate Development
Todd A. Matherne Vice President Investor Relations
Vincent L. Visosky Vice President Operational Controller
Henry M. Nelly, III President -- Provident Services, Inc., a subsidiary of the
Company
</TABLE>
Unless otherwise indicated below, the persons listed above have been
executive officers or employees for more than five years.
Mr. Matherne joined SCI in April 1995 as Managing Director Investor
Relations and was promoted in May 1996 to Vice President Investor Relations.
Prior to joining SCI, Mr. Matherne was Vice President General Manager of Baker
Hughes Treatment Services, an environmental services business.
W. Blair Waltrip is a son of R.L. Waltrip, T. Craig Benson is a son-in-law
of R.L. Waltrip and T. Craig Benson and W. Blair Waltrip are brothers-in-law.
A-2
<PAGE> 113
BUYER
The current directors of Buyer are Curtis G. Briggs and Wesley T. McRae.
Currently, Mr. R.L. Waltrip is the Chief Executive Officer, Mr. Champagne is the
Senior Vice President and Chief Financial Officer, and Mr. McRae is Principal
Accounting Officer of Buyer. All of such persons are citizens of the United
States. The business address of Messrs. Briggs and McRae is 1929 Allen Parkway,
Houston, Texas 77219. Mr. Briggs is currently a Senior Attorney of a subsidiary
of SCI and Mr. McRae is the Corporate Controller of a subsidiary of SCI. Each
has been an employee of SCI or its subsidiaries for more than five years. The
following officers of SCI also serve as officers of Buyer in the positions set
forth below:
<TABLE>
<CAPTION>
NAME POSITION
- -------------------------------------------------------------------------------------
<S> <C>
L. William Heiligbrodt President and Chief Operating Officer
W. Blair Waltrip Executive Vice President Operations
John W. Morrow, Jr. Executive Vice President Corporate Development
Jerald L. Pullins Executive Vice President European Operations
Glenn G. McMillen Senior Vice President Operations
Richard T. Sells Senior Vice President Prearranged Sales
James M. Shelger Senior Vice President General Counsel and Secretary
Jack L. Stoner Senior Vice President Administration
T. Craig Benson Vice President Operations
Gregory L. Cauthen Vice President Treasurer
W. Mark Hamilton Vice President Finance European Operations
Lowell A. Kirkpatrick, Jr. Vice President Corporate Development
Todd A. Matherne Vice President Investor Relations
Vincent L. Visosky Vice President Operational Controller
</TABLE>
It is anticipated that upon consummation of the Holding Company Merger, the
directors of SCI, listed above, will become the directors of Buyer.
CANADIAN NEWCO
The current directors of Canadian Newco are John A. Gordon, Jon M. Beenken
and Curtis G. Briggs. Mr. Gordon serves as President and Chairman of Canadian
Newco, Mr. Beenken serves as Vice President, Mr. Briggs serves as Secretary,
Melisa L. Chow serves as Controller and John H. Lohman serves as Treasurer.
Messrs. Gordon and Beenken and Ms. Chow are citizens of Canada. Messrs. Briggs
and Lohman are citizens of the United States. Set forth below is the business
address and occupation or employment at the present time and (except with
respect to Ms. Chow and Mr. Lohman, whose occupational histories are described
below) during the last five years.
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS OCCUPATION
- ---------------- -------------------------- -----------------------
<S> <C> <C>
John A. Gordon 3789 Royal Oak Avenue President of Service
Burnaby, British Columbia Corporation
V5G 3M1 International (Canada)
Limited. (subsidiary of
SCI)
Jon M. Beenken 3789 Royal Oak Avenue Regional President,
Burnaby, British Columbia Canada/Alaska Region,
V5G 3M1 of SCI Northwest
Division, Inc.
(subsidiary of SCI)
</TABLE>
A-3
<PAGE> 114
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS OCCUPATION
- ---------------- -------------------------- -----------------------
<S> <C> <C>
Melisa Chow 3789 Royal Oak Avenue Vice President Finance
Burnaby, British Columbia of SCI Northwest
V5G 3M1 Division, Inc.
(subsidiary of SCI)
Curtis G. Briggs 1929 Allen Parkway Senior Attorney of a
Houston, Texas 77019 subsidiary of SCI
John H. Lohman 1929 Allen Parkway Managing Director --
Houston, Texas 77019 Taxation of a
subsidiary of SCI
</TABLE>
Ms. Chow joined SCI Northwest Division, Inc. in March 1996 as Vice
President Finance. From May 1992 to March 1996, Ms. Chow served as Controller of
Service Corporation International (Canada) Limited. From September 1988 to May
1992, Ms. Chow served as a Chartered Accountant at Ernst & Young.
Mr. Lohman became Managing Director -- Taxation of SCI Management
Corporation in February 1995. From November 1993 to February 1995, Mr. Lohman
served as Director -- Federal Taxation for SCI Management Corporation. From
August 1982 to October 1993, Mr. Lohman was a Certified Public Accountant in the
tax department of Ernst & Young.
A-4
<PAGE> 115
SCHEDULE B
SHARES HELD BY SCI AND THE PURCHASERS
As of the date hereof, SCI holds of record 500 Shares and no Preferred
Shares, and neither the Purchasers and, to their knowledge, any person listed on
Schedule A hereto beneficially owns any Shares or Preferred Shares. None of SCI,
the Purchasers or, to their knowledge, any of the persons listed on Schedule A
hereto have effected any transactions in the Shares or the Preferred Shares
during the last 60 days.
In the ordinary course of their businesses, JP Morgan and TD Securities may
trade the securities of the Company for their own accounts and the accounts of
its customers and accordingly may hold a net long or short position in such
securities. As of , 1996, each of JP Morgan and TD Securities
held a net long position of [less than 1/2 of 1%] of the Shares.
B-1
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
NEW SERVICE CORPORATION INTERNATIONAL
As permitted by Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL"), Article of the Buyer Certificate (Exhibit 3.1 hereto)
eliminates the monetary liability of a director to the corporation or its
stockholders for breach of fiduciary duty as a director, with the following
exceptions, as required by Delaware law: (i) breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) payment of unlawful dividends or the making of unlawful stock
purchases or redemptions; or (iv) any transaction from which the director
derived an improper personal benefit.
In addition, under Section 145 of the DGCL, a corporation may indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed proceeding (other than an action by or in the right of the
corporation) if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In the case of an action brought by or in the
right of the corporation, the corporation may indemnify a director, officer,
employee or agent of the corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of any threatened, pending or completed action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that a
court determines upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. Article of the Buyer By-laws (Exhibit
3.2 hereto) provides for indemnification of its directors, officers, employees,
and other agents to the fullest extent permitted by the DGCL.
SCI HOLDINGS CANADA, INC.
Section 143 of the British Columbia Company Act (the "BCCA") provides that
neither the articles nor any contract of a company shall relieve a director from
any liability that arises out of any negligence, default, breach of duty or
breach of trust of which such director may be guilty in relation to the company.
Section 152 of the BCCA provides that a company may, with court approval,
indemnify a current or former director or officer of the company or a
corporation of which the company is or was a shareholder in respect of a civil,
criminal or administrative action or proceeding to which such director or
officer was made a party by reason of being or having been a director or
officer, provided that such director or officer (1) acted honestly and in good
faith with a view to the best interest of the company, and (2) in the case of a
criminal or administrative action or proceeding, such director or officer had
reasonable grounds for believing that his conduct was lawful. The Canadian Newco
Articles (Exhibit 3.5 hereto) provide for the maximum indemnification of
officers and directors permitted by the BCCA.
II-1
<PAGE> 117
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
3.1 -- Certificate of Incorporation of New Service Corporation
International.**
3.2 -- Form of Amended and Restated Certificate of Incorporation of New
Service Corporation International.**
3.3 -- Bylaws of New Service Corporation International.**
3.4 -- Memorandum of SCI Holdings Canada, Inc.**
3.5 -- Articles of SCI Holdings Canada, Inc.**
3.6 -- Restated Articles of Incorporation of Service Corporation
International, as amended. (Incorporated by reference to Exhibit 3.1
to Registration Statement No. 333-10867 on Form S-3).*
3.7 -- Statement of Resolution Establishing Series of Shares of Series C
Junior Participating Preferred Stock of Service Corporation
International, dated August 5, 1988. (Incorporated by reference to
Exhibit 3.1 to Form 10-Q of Service Corporation International for the
fiscal quarter ended July 31, 1988).*
3.8 -- Bylaws of Service Corporation International, as amended.
(Incorporated by reference to Exhibit 3.7 to Form 10-K of Service
Corporation International for the fiscal year ended December 31,
1991).*
4.1 -- Rights Agreement dated as of July 18, 1988 between Service
Corporation International and Texas Commerce Bank National
Association. (Incorporated by reference to Exhibit 1 to Form 8-K of
Service Corporation International dated July 18, 1988).*
4.2 -- Amendment, dated as of May 10, 1990, to the Rights Agreement, dated
as of July 18, 1988, between Service Corporation International and
Texas Commerce Bank National Association. (Incorporated by reference
to Exhibit 1 to Form 8-K of Service Corporation International dated
May 10, 1990).*
4.3 -- Agreement Appointing a Successor Rights Agent under Rights Agreement,
dated as of June 1, 1990, by Service Corporation International and
Ameritrust Company National Association. (Incorporated by reference
to Exhibit 4.1 to Form 10-Q of Service Corporation International for
the fiscal quarter ended June 30, 1990).*
4.4 -- Undertaking to furnish instruments related to long-term debt of
Service Corporation international. (Incorporated by reference to
Exhibit 4.4 to Form 10-K of Service Corporation International for the
fiscal year ended December 31, 1995).*
4.5 -- Form of Rights Agreement between New Service Corporation
International and AmeriTrust Company National Association.**
4.6 -- Form of Rights Agreement between SCI Holdings Canada, Inc. and
.**
5.1 -- Opinion of Wachtell, Lipton, Rosen & Katz.**
5.2 -- Opinion of Lawson Lundell Lawson & McIntosh.**
5.3 -- Opinion of Tory Tory DesLauriers & Binnington.**
8.1 -- Tax opinion of Wachtell, Lipton, Rosen & Katz.**
8.2 -- Tax Opinion of Tory Tory DesLauriers & Binnington.**
10.1 -- Form of Voting, Support and Exchange Trust Agreement between New
Service Corporation International and the Trustee thereunder.**
10.2 -- Retirement Plan For Non-Employee Directors of Service Corporation
International. (Incorporated by reference to Exhibit 10.1 to Form
10-K of Service Corporation International for the fiscal year ended
December 31, 1991).*
</TABLE>
II-2
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.3 -- Supplemental Executive Retirement Plan of Service Corporation
International, and form of Supplemental Executive Retirement Plan
Trust of Service Corporation International. (Incorporated by
reference to Exhibit 19.1 to Form 10-Q of Service Corporation
International for the fiscal quarter ended March 31, 1989).*
10.4 -- First Amendment to the Supplemental Executive Retirement Plan of
Service Corporation International; Second Amendment to the
Supplemental Executive Retirement Plan of Service Corporation
International; and Third Amendment to the Supplemental Executive
Retirement Plan of Service Corporation International. (Incorporated
by reference to Exhibit 10.3 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1991).*
10.5 -- Agreement dated May 14, 1992 between Service Corporation
International, R. L. Waltrip and related parties relating to life
insurance. (Incorporated by reference to Exhibit 10.4 to Form 10-K of
Service Corporation International for the fiscal year ended December
31, 1992).*
10.6 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between Service Corporation International and R. L. Waltrip.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q of Service
Corporation International for the fiscal quarter ended September 30,
1993).*
10.7 -- Non-Competition Agreement and Amendment to Employment Agreement,
dated November 11, 1991, among Service Corporation International, R.
L. Waltrip and Claire Waltrip. (Incorporated by reference to Exhibit
10.9 to Form 10-K of Service Corporation International for the fiscal
year ended December 31, 1992).*
10.8 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between Service Corporation International and L. William
Heiligbrodt. (Incorporated by reference to Exhibit 10.2 to Form 10-Q
of Service Corporation International for the fiscal quarter ended
September 30, 1993).*
10.9 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between Service Corporation International and Samuel W. Rizzo,
(Incorporated by reference to Exhibit 10.3 to Form 10-Q of Service
Corporation International for the fiscal quarter ended September 30,
1993).*
10.10 -- Supplemental Agreement, dated February 16, 1995, between Service
Corporation International and Samuel W. Rizzo. (Incorporated by
reference to Exhibit 10.9 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1994).*
10.11 -- Termination Agreement, dated October 6, 1995, between Service
Corporation International and Samuel W. Rizzo; Consultation
Agreement, dated October 6, 1995, between Service Corporation
International and Samuel W. Rizzo. (Incorporated by reference to
Exhibit 10.10 to Form 10-K of Service Corporation International for
the fiscal year ended December 31, 1995).*
10.12 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between Service Corporation International and W. Blair Waltrip.
(Incorporated by reference to Exhibit 10.4 to Form 10-Q of Service
Corporation International for the fiscal quarter ended September 30,
1993).*
10.13 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between Service Corporation International and John W. Morrow,
Jr. (Incorporated by reference to Exhibit 10.5 to Form 10-Q of
Service Corporation International for the fiscal quarter ended
September 30, 1993).*
</TABLE>
II-3
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.14 -- Employment Agreement, dated December 1, 1991, as amended and restated
as of August 12, 1992, and further amended as of May 12, 1993 and
further amended and restated as of January 1, 1995, between Service
Corporation International and Jerald L. Pullins. (Incorporated by
reference to Exhibit 10.13 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1995).*
10.15 -- Form of Employment Agreement pertaining to officers of Service
Corporation International (other than the officers identified in the
preceding exhibits), (Incorporated by reference to Exhibit 10.6 to
Form 10-Q of Service Corporation International for the fiscal quarter
ended September 30, 1993).*
10.16 -- Salary Continuation Agreement dated April 1, 1991 between Service
Corporation International and Robert L. Waltrip. (Incorporated by
reference to Exhibit 10.17 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1991).*
10.17 -- Forms of two Salary Continuation Agreements applicable to officers of
Service Corporation International (other than the officer referenced
in the preceding exhibit). (Incorporated by reference to Exhibit
10.19 to Form 10-K of Service Corporation International for the
fiscal year ended December 31, 1991).*
10.18 -- Form of First Amendment to Salary Continuation Agreement of Service
Corporation International (amending the Salary Continuation
Agreements of L. William Heiligbrodt, W. Blair Waltrip, Samuel W.
Rizzo and John W. Morrow). (Incorporated by reference to Exhibit 10.2
to Form 10-Q of Service Corporation International for the fiscal
quarter ended September 30, 1994).*
10.19 -- Form of 1986 Stock Option Plan of Service Corporation International.
(Incorporated by reference to Exhibit 10.21 to Form 10-K of Service
Corporation International for the fiscal year ended December 31,
1991).*
10.20 -- Amended 1987 Stock Plan of Service Corporation International.
(Incorporated by reference to Appendix A to Proxy Statement of
Service Corporation International dated April 1, 1991).*
10.21 -- First Amendment to Amended 1987 Stock Plan of Service Corporation
International (Incorporated by reference to Exhibit 10.23 to Form
10-K of Service Corporation International for the fiscal year ended
December 31, 1993).*
10.22 -- Service Corporation International (Canada) Limited Stock Option Plan.
(Incorporated by reference to Exhibit 10.17 to Form 10-K of Service
Corporation International for the fiscal year ended December 31,
1993).*
10.23 -- 1993 Long-Term Incentive Stock Option Plan of Service Corporation
International. (Incorporated by reference to Exhibit 4.12 to
Registration Statement No. 333-00179 on Form S-8).*
10.24 -- Service Corporation International ECI Stock Option Plan.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q of Service
Corporation International for the fiscal quarter ended September 30,
1994).*
10.25 -- 1995 Incentive Equity Plan of Service Corporation International.
(Incorporated by reference to Annex B to Proxy Statement of Service
Corporation International dated April 17, 1995).*
10.26 -- 1995 Stock Plan for Non-Employee Directors of Service Corporation
International. (Incorporated by reference to Annex A to Proxy
Statement of Service Corporation International dated April 17,
1995).*
10.27 -- Summary of 1995 Long Term Cash Performance Plan of Service
Corporation International. (Incorporated by reference to Exhibit
10.22 to Form 10-K of Service Corporation International for the
fiscal year ended December 31, 1994).*
</TABLE>
II-4
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.28 -- Agreement for Reorganization, dated August 15, 1989 among Morrow
Partners, Inc., J.W. Morrow Investment Company, John W. Morrow, Jr.,
Billy Dee Davis and Service Corporation International;
Agreement-Not-To-Compete, dated August 15, 1989, between John W.
Morrow, Jr., Morrow Partners, Inc. and Service Corporation
International, and Lease dated August 15, 1989, by John W. Morrow,
Jr. and Crawford-A. Crim Funeral Home, Inc. (Incorporated by
reference to Exhibit 10.27 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1989).*
10.29 -- Casket Supply and Requirements Agreement, dated October 31, 1990,
between York Acquisition Corp. and SCI Funeral Services, Inc., and
First Amendment to Casket Supply and Requirements Agreement, dated
December 30, 1992. (Incorporated by reference to Exhibit 10.27 to
Form 10-K of Service Corporation International for the fiscal year
ended December 31, 1992).*
10.30 -- Supplemental Executive Retirement Plan for Senior Officers of Service
Corporation International (as Amended and Restated Effective as of
December 31, 1993). (Incorporated by reference to Exhibit 10.21 to
Form 10-K of Service Corporation International for the fiscal year
ended December 31, 1993).*
10.31 -- First Amendment to Supplemental Executive Retirement Plan for Senior
Officers of Service Corporation International. (Incorporated by
reference to Exhibit 10.26 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1994).*
10.32 -- ISDA Master Agreement dated February 4, 1993; Amendment to the Master
Agreement dated August 12, 1993; Confirmation dated August 13, 1993;
Confirmation dated November 1, 1993 and Notice of Exercise; all of
which are between Morgan Guaranty Trust Company of New York
("Morgan") and Service Corporation International, (Incorporated by
reference to Exhibit 10.22 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1993).*
10.33 -- Sterling Note, dated September 2, 1994, issued by Service Corporation
International plc to Morgan; guaranty, dated September 2, 1994,
between Service Corporation International and Morgan. (Incorporated
by reference to Exhibit 10.28 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1994).*
10.34 -- Letter, dated December 2, 1994 amending the ISDA Master Agreement
(filed in Exhibit 10.31 above) and the Sterling Note and guaranty
(filed as Exhibit 10.32 above), between Service Corporation
International and Morgan; Letter dated December 13, 1994 regarding
the ISDA Master Agreement (filed in Exhibit 10.31 above).
(Incorporated by reference to Exhibit 10.29 to Form 10-K of Service
Corporation International for the fiscal year ended December 31,
1994).*
10.35 -- Confirmation dated May 18, 1994; Confirmation dated January 18, 1995;
Confirmation dated January 18, 1995; Confirmation dated January 18,
1995; all of which are between Morgan and Service Corporation
International. (Incorporated by reference to Exhibit 10.30 to Form
10-K of Service Corporation International for the fiscal year ended
December 31, 1994).*
10.36 -- Confirmation dated September 14, 1995; and Confirmation dated January
12, 1996, between Morgan and Service Corporation International;
Confirmation dated January 18, 1996 between J P Morgan Canada and
Service Corporation International (Canada) Limited. (Incorporated by
reference to Exhibit 10.35 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1995).*
10.37 -- Split Dollar Life Insurance Plan of Service Corporation
International. (Incorporated by reference to Exhibit 10.36 to Form
10-K of Service Corporation International for the fiscal year ended
December 31, 1995).*
</TABLE>
II-5
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.38 -- 1996 Incentive Plan (Incorporated by reference to Annex A to Proxy
Statement of Service Corporation International dated April 15,
1996).*
11.1 -- Computation of Earnings Per Share of Service Corporation
International. (Incorporated by reference to Exhibit 11.1 to Form
10-K of Service Corporation International for the fiscal year ended
December 31, 1995).*
11.2 -- Computation of Earnings Per Share of Service Corporation
International. (Incorporated by reference to Exhibit 11.1 to Form
10-Q of Service Corporation International for the fiscal quarter
ended June 30, 1996).*
12.1 -- Ratio of Earnings to Fixed Charges of Service Corporation
International. (Incorporated by reference to Exhibit 12.1 to Form
10-Q of Service Corporation International for the fiscal quarter
ended June 30, 1996).*
12.2 -- Ratio of Earnings to Fixed Charges of Service Corporation
International. (Incorporated by reference to Exhibit 12.1 to Form
10-K of Service Corporation International for the fiscal year ended
December 31, 1995).*
21.1 -- Subsidiaries of Service Corporation International. (Incorporated by
reference to Exhibit 21.1 to Form 10-K of Service Corporation
International for the fiscal year ended December 31, 1995).*
23.1 -- Consent of Independent Accountants (Coopers & Lybrand L.L.P.).
23.2 -- Consents of Wachtell, Lipton, Rosen & Katz (Included in Exhibit 5.1
and Exhibit 8.1).**
23.3 -- Consent of Lawson Lundell Lawson & McIntosh (Included in Exhibit
5.2).**
23.4 -- Consents of Tory Tory DesLauriers & Binnington (Included in Exhibit
5.3 and Exhibit 8.2).**
25.1 -- Statement of Eligibility and Qualification Under the Trust Indenture
Act of 1939 of a Corporation Designated to Act as Trustee on Form T-1
with respect to the Service Corporation International Senior Debt
Securities to be issued pursuant to the Senior Debt Indenture between
Service Corporation International and The Bank of New York, as
Trustee. (Incorporated by reference to Exhibit 25.1 to Registration
Statement No. 333-10867 on Form S-3).*
27.1 -- Financial Data Schedule of Service Corporation International.
(Incorporated by reference to Exhibit 27.1 to Form 10-K of Service
Corporation International for the fiscal year ended December 31,
1995).*
99.1 -- Form of Letter of Transmittal.**
99.2 -- Form of Notice of Guaranteed Delivery.**
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.**
99.4 -- Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.**
99.5 -- Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.**
99.6 -- Summary Advertisement.**
99.7 -- Complaint filed by Service Corporation International in Service
Corporation International v. The Loewen Group Inc., et al., Civil
Action No. H-96-3269 (S.D. Texas).
</TABLE>
- ---------------
* Incorporated by reference.
** To be filed by amendment.
II-6
<PAGE> 122
ITEM 22. UNDERTAKINGS
The Undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers 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;
(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;
(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 of 1933, 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.
The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
The undersigned registrant hereby undertakes to supply by means of a
posteffective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 123
SIGNATURES
NEW SERVICE CORPORATION INTERNATIONAL
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston and
County of Harris, State of Texas on October 3, 1996.
NEW SERVICE CORPORATION
INTERNATIONAL
By /s/ R.L. WALTRIP
--------------------------------
R.L. Waltrip
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ R.L. WALTRIP Chief Executive Officer October 3, 1996
- --------------------------------------------- (Principal Executive
R.L. Waltrip Officer)
/s/ CURTIS G. BRIGGS Director October 3, 1996
- ---------------------------------------------
Curtis G. Briggs
/s/ GEORGE R. CHAMPAGNE Senior Vice President and October 3, 1996
- --------------------------------------------- Chief Financial Officer
George R. Champagne (Principal Financial
Officer)
/s/ WESLEY T. McRAE Corporate Controller of SCI October 3, 1996
- --------------------------------------------- Management Corporation, an
Wesley T. McRae affiliate of New Service
Corporation International
(Principal Accounting
Officer), Director
</TABLE>
II-8
<PAGE> 124
SCI HOLDINGS CANADA, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston and
County of Harris, State of Texas on October 3, 1996.
SCI HOLDINGS CANADA, INC.
By /s/ CURTIS G. BRIGGS
------------------------------------
Curtis G. Briggs
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ JOHN A. GORDON President (Principal Executive October 3, 1996
- --------------------------------------------- Officer), Director
John A. Gordon
/s/ JON M. BEENKEN Director October 3, 1996
- ---------------------------------------------
Jon M. Beenken
/s/ CURTIS G. BRIGGS Secretary, Director October 3, 1996
- --------------------------------------------- (Registrant's Authorized
Curtis G. Briggs Representative in the United
States)
/s/ MELISA L. CHOW Controller (Principal October 3, 1996
- --------------------------------------------- Financial Officer, Principal
Melisa L. Chow Accounting Officer)
</TABLE>
II-9
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ---------- -----------------------------------------------------------------------------------
<C> <S> <C>
3.1 -- Certificate of Incorporation of New Service Corporation
International.*
3.2 -- Form of Amended and Restated Certificate of Incorporation of New
Service Corporation International.*
3.3 -- Bylaws of New Service Corporation International.*
3.4 -- Memorandum of SCI Holdings Canada, Inc.*
3.5 -- Articles of SCI Holdings Canada, Inc.*
4.5 -- Form of Rights Agreement between New Service Corporation
International and AmeriTrust Company National Association.*
4.6 -- Form of Rights Agreement between SCI Holdings Canada, Inc. and
.*
5.1 -- Opinion of Wachtell, Lipton, Rosen & Katz.*
5.2 -- Opinion of Lawson Lundell Lawson & McIntosh.*
5.3 -- Opinion of Tory Tory DesLauriers & Binnington.*
8.1 -- Tax opinion of Wachtell, Lipton, Rosen & Katz.*
8.2 -- Tax Opinion of Tory Tory DesLauriers & Binnington.*
10.1 -- Form of Voting, Support and Exchange Trust Agreement between New
Service Corporation International and the Trustee thereunder.*
23.1 -- Consent of Independent Accountants (Coopers & Lybrand L.L.P.).
23.2 -- Consents of Wachtell, Lipton, Rosen & Katz (Included In Exhibit 5.1
and Exhibit 8.1).*
23.3 -- Consent of Lawson Lundell Lawson & McIntosh (Included in Exhibit
5.2).*
23.4 -- Consents of Tory Tory DesLauriers & Binnington (Included in Exhibit
5.3 and Exhibit 8.2).*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.*
99.4 -- Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.*
99.5 -- Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.*
99.6 -- Summary Advertisement.*
99.7 -- Complaint filed by Service Corporation International in Service
Corporation International v. The Loewen Group Inc., et al., Civil
Action No. H-96-3269 (S.D. Texas).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our report, which includes an explanatory paragraph pertaining to
accounting changes, dated March 11, 1996 on our audits of the consolidated
financial statements and financial statement schedule of Service Corporation
International as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, which report is included in the Annual
Report on Form 10-K for the year ended December 31, 1995. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
October 3, 1996
<PAGE> 1
EXHIBIT 99.7
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
SERVICE CORPORATION )
INTERNATIONAL, )
)
Plaintiff, )
)
V. )
) CIVIL ACTION NO. H-96-3269
)
THE LOEWEN GROUP INC., )
LOEWEN GROUP, INC., AND )
LOEWEN GROUP INTERNATIONAL, )
INC. )
Defendants. )
COMPLAINT
Plaintiff Service Corporation International ("SCI"), by its attorneys,
alleges upon knowledge with respect to itself and its own acts, and upon
information and belief as to all other matters, as follows:
NATURE OF THE ACTION
1. This action for declaratory relief and damages is brought to
forestall efforts by Defendants The Loewen Group Inc., Loewen Group, Inc. and
Loewen Group International, Inc., (collectively "the Loewen Defendants") to
injure SCI by disseminating false and misleading information to The Loewen
Group Inc. ("Loewen") shareholders, who are considering whether to participate
in a business combination of Loewen and SCI. Further, SCI seeks monetary
relief for the damages it has incurred as a result of the Loewen Defendants'
tortious interference with its prospective business relationships. As alleged
in detail below, since SCI initially proposed a business combination with
Loewen, the Loewen Defendants have embarked on an ongoing
<PAGE> 2
campaign to create the impression that they can block or impede any such
business combination under the federal antitrust laws. The purpose of this
campaign is to thwart or hamper, through prohibited or illegal means, SCI's
consummation of a business combination with Loewen by causing Loewen
shareholders to make ill-informed decisions with respect to any SCI exchange
offer and influence them not to participate in such an offer. Accordingly, SCI
seeks a declaratory judgment pursuant to the Declaratory Judgment Act, 28
U.S.C. Sections 2201 et seq., that the Loewen Defendants in fact have no
standing to institute any federal antitrust action seeking to block or impede
SCI's offer. Further, SCI seeks monetary relief for the damages it has
suffered as a result of the Loewen Defendants' tortious interference with SCI's
prospective business relationships.
PARTIES AND SERVICE
2. Plaintiff SCI is a Texas corporation with its corporate
offices in Houston, Texas. SCI is an owner and operator of funeral homes,
cemeteries, and crematoria.
3. Defendant The Loewen Group Inc. is a British Columbia (Canada)
corporation with its principal executive offices in Burnaby, British Columbia.
Loewen is also an owner and operator of funeral homes and cemeteries, some 27
of which are located in this District. Service may be made on Loewen by
international registered mail and under the terms of the Hague Convention for
Service Abroad of Extrajudicial Documents. The recipient central authority for
such service request is: Ministry of the Attorney General for British
Columbia, Office of the Deputy Minister, Fifth Floor, 910 Government Street,
Victoria, British Columbia, Canada, V8V 1X4. The address for The Loewen Group
Inc. is: 4126 Norland Avenue, Burnaby, British Columbia, Canada, V5G 3S8. The
appropriate fees for affecting such service have been
<PAGE> 3
tendered by SCI, and SCI requests that return of service be implemented on SCI
at its address: 1929 Allen Parkway, Houston, Texas, 77019, U.S.A.
4. Defendant Loewen Group, Inc. is a Kentucky corporation doing
business in the State of Texas. It does not maintain a registered office or
agent and it can be served with process by serving the Secretary of State for
the State of Texas at the Capitol Building, 1019 Brazos, Room 105, Austin,
Texas 78701.
5. Defendant Loewen Group International, Inc. is a Delaware
corporation doing business in the State of Texas. It does not maintain a
registered office or agent and it can be served with process by serving the
Secretary of State for the State of Texas at the Capitol Building, 1019 Brazos,
Room 105, Austin, Texas 78701.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this action pursuant to 15
U.S.C. Section 4, 15 U.S.C. Section 25, 28 U.S.C. Section 1331, and 28
U.S.C. Section 1332.
7. Venue is proper in this District under 15 U.S.C. Section 15,
15 U.S.C. Section 22, and 28 U.S.C. Section 1391(b).
8. The amount in controversy exceeds the jurisdictional minimum
amount for this Court.
9. This District is a particularly appropriate forum for this
action. Among other things: SCI is a Texas corporation with its corporate
headquarters and significant business operations in this District; the Loewen
Defendants conduct business in this District; SCI's proposed business
combination with Loewen was conceived and planned in this District; a majority
of the books, records, and documents that are relevant to any antitrust
objections to the
-3-
<PAGE> 4
SCI offer that the Loewen Defendants might attempt to raise are located in this
District; and a majority of the likely witnesses with respect to any such
objections are likewise located in this District.
SCI'S OFFER TO ACQUIRE LOEWEN STOCK
10. On September 17, 1996, SCI proposed to Loewen a combination of
the two companies by means of a stock-for-stock exchange that would value
Loewen's stock at $43 per share -- a value approximately 49% above the price of
Loewen stock the month before the offer was announced.
11. On September 24, 1996, Loewen's Chairman, Raymond L. Loewen,
wrote to SCI, stating that the Loewen board had rejected SCI's offer and
contending that Loewen shareholders would receive "maximize[d]" value for their
investment through implementation of Loewen's "long-term business plan as an
independent company" rather than through acceptance of SCI's offer.
12. Following the rejection of its proposal, on October 1, 1996,
the SCI Board of Directors authorized the commencement of an exchange offer for
all outstanding shares of Loewen at an exchange ratio that would value Loewen
stock at $45.00 per share.
LOEWEN'S CAMPAIGN TO MISLEAD ITS
SHAREHOLDERS AS TO THE VALIDITY AND ADEQUACY OF SCI'S OFFER
13. Not content to allow its shareholders to decide for themselves
whether they wish to participate in SCI's premium offer for Loewen stock,
Loewen immediately set out to thwart, through prohibited or illegal means,
SCI's consummation of a business combination with Loewen. As set forth below,
Loewen has repeatedly insinuated that there are federal antitrust
-4-
<PAGE> 5
objections to a combination between SCI and Loewen, and that Loewen could take
action to block or impede SCI's offer on the basis of those purported
objections.
14. On September 24, 1996, in announcing the Loewen board's
rejection of SCI's offer, Mr. Loewen was quoted on the PR Newswire as stating
that "SCI clearly intends to eliminate its most formidable competitor in the
North American marketplace, diminishing the opportunities for independent
funeral home and cemetery operators."
15. That same day, Loewen sent a letter to its shareholders,
characterizing SCI's offer as an "attempt[] to . . . eliminate [Loewen] as its
most formidable competitor in the North American markets" and stating that the
Loewen board has "serious questions about SCI's motives."
16. On September 25, 1996, in a conference call on the Dow Jones
Investor Network, Mr. Loewen continued, asserting that "I honestly can't
believe that our Federal Trade Commission . . . would allow this kind of a
transaction to take place, to take a major competitor out of the business. I
can't believe it." Mr. Loewen then concluded the call by stating that "[i]f
they were to eliminate us, clearly the price of acquisitions would go down
significantly; I am sure the regulators would take that into consideration" and
that "I'm sure the industry . . . would rise up in arms before it would ever
get to that point."
17. Mr. Loewen reiterated these insinuations in the September 26,
1996 edition of the Financial Post, claiming yet again that "SCI is trying to
eliminate a competitor" and asserting that, "if the U.S. Federal Trade
Commission has any teeth at all, it will not allow SCI to gobble up its major
competitor."
-5-
<PAGE> 6
18. Loewen's campaign has since become even more transparent: on
September 27, 1996, Reuters reported Loewen as stating that "it believes
antitrust concerns would be a major obstacle to the takeover"; and The New York
Times quoted Mr. Loewen to the effect that "[i]t is clear that our competitors
out of Texas do not like competition."
19. Two days later, on September 29, 1996, both Reuters and the PR
Newswire published references by Mr. Loewen to the purported "anticompetitive
effects of the proposed acquisition," and a spokesman for Loewen was quoted by
Bloomberg as saying that "a combination of the two companies would limit the
number of acquirers" of cemeteries and funeral homes.
20. Mr. Loewen has also stated that the Loewen board did not
merely reject the SCI offer, but "passionately rejected" the offer, indicating
that Loewen intends to engage in a vigorous effort to block or impede the
proposed business combination.
21. Among other things, these statements were designed and
intended to create the impression among Loewen shareholders and the public that
the Loewen Defendants have the ability to institute an action to block or
impede SCI's offer as in claimed violation of the federal antitrust laws under
any number of potential theories, including the theory that the acquisition
would eliminate competition in a "market" for control of independently owned
funeral homes and cemeteries. And the statements have in fact had this effect:
at least one financial analyst has expressed the view that he "would not be
surprised to see Loewen attempt . . . legal road blocks" (First Call Research
Network, September 30, 1996).
22. In fact, however, the Loewen Defendants have no ability to
institute any action seeking to block or impede SCI's offer as in claimed
violation of the federal antitrust laws.
-6-
<PAGE> 7
Relying on the Supreme Court's decision in Cargill v. Monfort of Colorado,
Inc., 479 U.S. 104 (1986), a number of courts, including the United States
Court of Appeals for the Fifth Circuit, have expressly held that a target
company does not suffer "antitrust injury" sufficient to confer standing to sue
under the federal antitrust laws, because the target company will suffer a loss
of independence whether or not the takeover violates antitrust principles.
Moreover, the principal antitrust theory that Loewen has advanced is entirely
without merit, because, among other things, "the death care industry
acquisition market is extremely competitive" (Loewen 10-Q, for quarter ending
June 30, 1996), there are no barriers to entry to any such "market," and the
"market" for the acquisition of funeral homes and cemeteries is not a relevant
market for purposes of antitrust law.
23. Further, Loewen has intentionally misrepresented the business
practices of SCI. Mr. Loewen was quoted: "It would be very hard for me to sell
to a company that has a history of slashing and burning." He has referred to
SCI in a manner designed to depict SCI as a cold, mirthless scavenger.
Simultaneously, the Loewen Defendants have intentionally failed to disclose
material facts to Loewen shareholders, including material facts relating to
Loewen's recently announced business combinations with The Rose Hills Memorial
Park Association and Roses, Inc., and Prime Succession Inc., so as to
artificially inflate the value of Loewen stock and mislead Loewen shareholders
with respect to the financial condition and prospects of Loewen.
INJURY TO SCI CAUSED BY LOEWEN'S CAMPAIGN
24. SCI does not know whether -- notwithstanding their lack of
standing to sue -- the Loewen Defendants in fact intend to attempt to institute
an action to block or impede SCI's offer
-7-
<PAGE> 8
under the federal antitrust laws. Loewen's efforts to create the impression
that the Loewen Defendants can do so, however, have injured and continue to
threaten to injure SCI even apart from any actual attempt by the Loewen
Defendants to institute such an action:
(a) In order to be successful, SCI's offer will have to
be accepted by a substantial majority of the holders of Loewen's stock.
Loewen's efforts to call into question the ability of SCI to consummate a
business combination with Loewen by creating the impression that the Loewen
Defendants have the capacity to block it under the federal antitrust laws have
created, and threaten to continue to create, confusion, cause Loewen
shareholders to make ill-informed decisions, and influence them not to
participate in SCI's offer, thereby preventing SCI from gaining the necessary
acceptances.
(b) Loewen's shareholders, moreover, are especially
susceptible to Loewen's misinformation campaign. Loewen -- as a Canadian
company -- has many shareholders who are not located in the United States and
who are consequently particularly unfamiliar with the intricacies of American
antitrust laws.
(c) Indeed, the press has already reported that "some
concern" has been raised "on Wall Street about potential antitrust issues"
regarding an SCI-Loewen combination (Reuters, September 20, 1996) and that
"[t]raders" have "cited potential antitrust issues" as grounds for uncertainty
about the SCI offer (Reuters, September 17, 1996).
(d) Loewen is aware of the foregoing, and the desire to
create confusion and misinformation, and thereby influence its shareholders to
decline to participate in SCI's offer, has been its principal motivation for
engaging in the conduct described above.
-8-
<PAGE> 9
25. SCI accordingly needs declaratory relief from this Court
making clear that the Loewen Defendants in fact do not have standing to
institute any federal antitrust action to block or impede SCI's offer, in order
to dispel the false contrary impression sought to be created by the Loewen
Defendants and to reassure Loewen shareholders that the Loewen Defendants do
not have standing to institute such an action.
26. Further, by its campaign of misinformation, Loewen has
unlawfully interfered with SCI's ability to acquire Loewen stock through the
exchange offer and consummate the proposed business combination.
FIRST CLAIM FOR RELIEF
27. Plaintiff repeats and realleges paragraphs 1 through 26 as if
set forth herein.
28. The SCI Board of Directors has authorized the commencement of
an exchange offer for all shares of Loewen stock.
29. Loewen has undertaken, and is continuing to undertake, efforts
to create the impression among Loewen shareholders that the Loewen Defendants
have standing to bring an action to block or impede SCI's exchange offer under
the federal antitrust laws.
30. Contrary to the impression Loewen seeks to create, the Loewen
Defendants do not have standing to institute any action seeking to block or
impede a business combination of SCI and Loewen under any antitrust theory.
31. Whether or not the Loewen Defendants actually intend to
attempt to institute such action, their efforts to create the impression that
they have the ability to do so threatens SCI with immediate irreparable injury
by misleading Loewen shareholders about the validity and legality
-9-
<PAGE> 10
of the SCI offer, thereby causing them to make ill-informed decisions with
respect to that offer and discouraging them from participating in it.
32. By reason of the foregoing, an actual controversy exists
between SCI and the Loewen Defendants regarding the conduct set forth above.
33. Pursuant to 28 U.S.C. Section 2201, SCI is therefore entitled
to declaratory relief from this Court.
SECOND CLAIM FOR RELIEF
34. SCI repeats and realleges paragraphs 1 through 33 as if set
forth herein.
35. Loewen's actions and efforts have been designed to thwart or
hamper, through prohibited and illegal means, SCI's consummation of reasonably
probable stock purchases from individual Loewen stockholders. These actions
have not been taken for the purpose of enhancing the value of Loewen's stock;
to the contrary, these actions have been taken to entrench the position and
prestige of Mr. Loewen and Loewen management.
36. Loewen's actions and statements were made knowingly and with
the intent to interfere with the prospective business relations between SCI and
individual Loewen stockholders.
37. Loewen can offer no legal justification for its actions.
38. SCI has been damaged by the Loewen Defendants' tortious
interference with SCI's prospective business relations with individual Loewen
stockholders.
-10-
<PAGE> 11
WHEREFORE, Plaintiff SCI seeks judgment as follows:
A. Declaring that the Loewen Defendants lack standing to
institute, and accordingly may not institute, any action seeking to block or
impede any SCI exchange offer for Loewen stock under any theory of federal
antitrust law;
B. Damages related to tortious interference claims.
C. Awarding plaintiff its costs of suit, including reasonable
attorneys' fees; and
D. Granting plaintiff such other and further relief as the Court
may deem just and proper.
DATED: October 1, 1996
Respectfully submitted,
/s/ JOHN L. HILL, JR.
----------------------------------------
John L. Hill, Jr.
State Bar No. 00000027
3400 Texas Commerce Tower
Houston, Texas 77002
(713) 226-1200
(713) 223-3717 (Fax)
ATTORNEY-IN-CHARGE FOR PLAINTIFF
SERVICE CORPORATION INTERNATIONAL
-11-
<PAGE> 12
OF COUNSEL:
LIDDELL, SAPP, ZIVLEY,
HILL & LaBOON, L.L.P.
Jess H. Hall, Jr.
State Bar No. 08783000
D. Mitchell McFarland
State Bar No. 13597700
Harold K. Watson
State Bar No. 20938500
Jeff Weems
State Bar No. 21072600
James E. Essig
State Bar No. 06671900
3400 Texas Commerce Tower
Houston, Texas 77002
(713) 226-1200
(713) 223-3717 - facsimile
WACHTELL, LIPTON, ROSEN & KATZ
Bernard W. Nussbaum
Marc Wolinsky
51 West 52nd Street
New York, New York 10019
(212) 403-1000
(212) 403-2000 - facsimile
-12-
