<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROSE HILLS COMPANY
(FORMERLY KNOWN AS ROSE HILLS ACQUISITION CORP.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7261 13-3915765
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
3888 SOUTH WORKMAN MILL ROAD
WHITTIER, CALIFORNIA 90601
(310) 692-1212
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENDALL E. NUNGESSER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROSE HILLS COMPANY
3888 SOUTH WORKMAN MILL ROAD
WHITTIER, CALIFORNIA 90601
(310) 692-1212
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
WILSON S. NEELY, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated
Notes due 2004................ $80,000,000 100% $80,000,000 $24,242.42
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1997
PROSPECTUS
ROSE HILLS COMPANY
(FORMERLY KNOWN AS ROSE HILLS ACQUISITION CORP.)
OFFER TO EXCHANGE $80,000,000 OF ITS 9 1/2% SENIOR SUBORDINATED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR $80,000,000 OF ITS
OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED
(THE 'EXPIRATION DATE').
------------------------
Rose Hills Company (formerly known as Rose Hills Acquisition Corp.) (the
'Issuer') hereby offers to exchange (the 'Exchange Offer') up to $80,000,000
aggregate principal amount of its new 9 1/2% Senior Subordinated Notes due 2004
(the 'Exchange Notes') for $80,000,000 aggregate principal amount of its
outstanding 9 1/2% Senior Subordinated Notes due 2004 (the 'Notes').
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to this offer, except that the
Exchange Notes will be freely transferable by holders thereof (other than as
provided below) and are issued free from any covenant regarding registration.
The Exchange Notes will evidence the same indebtedness as the Notes and contain
terms which are identical in all material respects to the terms of the Notes
that are to be exchanged therefor. The Notes were sold by the Issuer to finance,
in part, the Issuer's acquisition (the 'Acquisition') of the cemetery related
assets and liabilities of Rose Hills Memorial Park Association (the
'Association') which represent the largest single location cemetery in the
United States (the 'Cemetery'), as well as the separately owned mortuary
operations of Roses, Inc. and its subsidiaries located on the grounds of the
Cemetery in Los Angeles County, California (the 'Mortuary'; together with the
Cemetery, 'Rose Hills'). The Issuer is indirectly owned by Blackstone Capital
Partners II Merchant Banking Fund L.P. and its affiliates (collectively,
'Blackstone') and by affiliates of The Loewen Group Inc. (The Loewen Group Inc.,
collectively with its affiliates, 'Loewen'). In connection with the Acquisition,
which was consummated on November 19, 1996, 14 additional funeral homes and two
combination funeral home and cemetery properties previously owned or leased by
Loewen and located in Los Angeles, San Bernardino and northern Orange Counties
(the 'Satellite Properties') were contributed to subsidiaries of the Issuer.
Interest on the Exchange Notes will be payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1997. The Exchange Notes will
mature on November 15, 2004. The Exchange Notes will be unsecured senior
subordinated obligations of the Issuer, will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined herein) of the Issuer
(which includes all indebtedness of the Issuer under the Bank Credit Facilities
(as defined herein)) and effectively subordinated to all existing and future
liabilities of the Issuer's subsidiaries and will rank senior in right of
payment to all other subordinated indebtedness of the Issuer.
The Exchange Notes will be redeemable in cash at the option of the Issuer, in
whole or in part, at any time on or after November 15, 2000 at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the
redemption date. Subject to certain conditions and limitations, in the event of
a Change of Control (as defined herein), the Issuer will be obligated to make an
offer to purchase all of the then outstanding Exchange Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the purchase date. There can be no assurance that the Issuer will
have sufficient funds to purchase all such Exchange Notes upon a Change of
Control. In addition, the Issuer will be obligated to make an offer to purchase
Exchange Notes in the event of certain asset sales. See 'Description of Exchange
Notes.'
The Notes were issued and sold on November 19, 1996 in transactions not
registered under the Securities Act of 1933, as amended (the 'Securities Act'),
in reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereunder in order to satisfy
certain of the obligations of the Issuer under a registration rights agreement
relating to the Notes. See 'The Exchange Offer--Purpose of the Exchange Offer.'
The Issuer is making the Exchange Offer in reliance upon an interpretation by
the staff of the Securities and Exchange Commission set forth in a series of
no-action letters issued to third parties. See Exxon Capital Holdings Corp.
(available April 13, 1989), Morgan Stanley & Co. Incorporated (available June 5,
1991) and Shearman & Sterling (available July 2, 1993). Based on such
interpretation, the Issuer believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an 'affiliate' of the Issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business, such holder has no arrangement with
any person to participate in the distribution of such Exchange Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. However, the Issuer has not sought, and
does not intend to seek, its own no-action letter, and there can be no assurance
that the staff of the Securities and Exchange Commission would make a similar
determination with respect to the Exchange Offer. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal relating to the Exchange Offer
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an 'underwriter' within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. Each broker-dealer that received Notes from the Issuer in the
offering of the Notes and not as a result of market-making or other trading
activities, in the absence of an exemption, must comply with the registration
requirements of the Securities Act. The Issuer will, for a period of 180 days
after the Expiration Date (as defined herein), make copies of this Prospectus
available to any broker-dealer for use in connection with any such resale. See
'Plan of Distribution.'
The Notes are designated for trading in the Private Offerings, Resales and
Trading through Automated Linkages ('PORTAL') market. The Exchange Notes
constitute securities for which there is no established trading market. Any
Notes not tendered and accepted in the Exchange Offer will remain outstanding.
The Issuer does not currently intend to list the Exchange Notes on any
securities exchange. To the extent that any Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Notes could be
adversely affected. No assurance can be given as to the liquidity of the trading
market for either the Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes being tendered for exchange. The date of acceptance and exchange
of the Notes (the 'Exchange Date') will be the first business day following the
Expiration Date. Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. The Issuer will pay all expenses
incident to the Exchange Offer. The Issuer will not receive any proceeds from
the Exchange Offer.
SEE 'RISK FACTORS' BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
, 1997
<PAGE>
ADDITIONAL INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the 'Registration
Statement') under the Securities Act with respect to the Exchange Notes being
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. For further information with respect to the Issuer and the Exchange
Notes, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions in such exhibit, to which reference is hereby made. Copies of
the Registration Statement may be examined without charge at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Commission's Regional Offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the Registration Statement can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of certain fees prescribed by the Commission. The
Registration Statement has been and will be filed through the Electronic Data
Gathering, Analysis and Retrieval ('EDGAR') system. Electronic registration
statements filed through the EDGAR system are publicly available through the
Commission Web Site (http://www.sec.gov).
The Issuer is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the 'Exchange Act'). Upon
completion of the Exchange Offer, the Issuer will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file periodic reports and other information with the Commision at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of any material so filed can be
obtained from the Public Reference Section of the Commission, upon payment of
certain fees prescribed by the Commission. In addition, pursuant to the
Indenture covering the Notes and the Exchange Notes, the Issuer has agreed to
file with the Commission and provide to the Noteholders the annual reports and
the information, documents and other reports otherwise required pursuant to
Section 13 of the Exchange Act.
------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes 'forward-looking statements.' All statements other
than statements of historical facts included in this Prospectus, including,
without limitation, the statements under 'Summary--The Company,' and
'--Business Strategy,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Mortuary and the Cemetery,' and
'Business--Company Overview,' '--The Funeral Service and Cemetery Industry,'
'--Business Strategy,' '--Environmental Matters,' '--Employees,' and
'--Litigation,' and 'Management--Compensation of Executive Officers,' and
located elsewhere herein regarding the Company's financial position, plans to
increase revenues, reduce general and administrative expense and take advantage
of synergies and regarding other future events or future prospects of the
Company, are forward-looking statements. Although Management believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Important
factors that could cause actual results to differ materially from Management's
expectations ('Cautionary Statements') are disclosed in this Prospectus,
including, without limitation, in conjunction with the forward-looking
statements included in this Prospectus and under 'Risk Factors.' All subsequent
written and oral forward-looking statements attributable to the Issuer or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
2
<PAGE>
SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. Unless the context otherwise requires, all references to the
'Company' shall mean, collectively, the Issuer and its subsidiaries and, prior
to the Acquisition Transaction, the Mortuary, the Cemetery and the Satellite
Properties. All references to the 'Acquisition Transaction' shall mean the
collective reference to the Acquisition and the related uses of proceeds, the
capitalization of the Company as described herein, including the contribution to
the Company of the Satellite Properties, the initial borrowing by the Company
under the Bank Credit Facilities and the offering of the Notes. All references
to 'Management' shall mean the new management of the Company following the
Acquisition Transaction.
THE COMPANY
The Issuer was formed to acquire Rose Hills, which is the largest single
location cemetery and funeral home combination in the United States. As a result
of the acquisition of Rose Hills and the Satellite Properties, which was
consummated on November 19, 1996, the Company owns a strategic assembly of
cemeteries and funeral homes in the greater Los Angeles area that, in addition
to Rose Hills, includes a group of 14 surrounding funeral homes and two cemetery
and funeral home combination properties located in Los Angeles, San Bernardino
and northern Orange Counties. Rose Hills is situated less than 14 miles from
downtown Los Angeles on approximately 1,418 acres of permitted cemetery land
near Whittier, California. The Cemetery and Mortuary have been continuously
operating since 1914 and 1956, respectively. During the period from 1990 until
the closing of the Acquisition Transaction, the Cemetery and Mortuary functioned
as separate entities, with the Cemetery owned by a not-for-profit association
and the Mortuary owned by a closely held corporation controlled by management.
In 1995, the Cemetery sold approximately 8,400 pre-need and 1,400 at-need
cemetery grave sites and performed approximately 9,000 interments.* In 1995, the
Mortuary performed approximately 5,500 funeral calls and sold approximately
3,300 funeral services on a pre-need basis. Since its founding, Rose Hills has
performed more than 300,000 interments at the Cemetery, and has the capacity to
provide more than one million additional interments (without taking into account
measures that might be undertaken to increase capacity). The Satellite
Properties, which were acquired by Loewen between 1990 and 1995, were
contributed to the Company as part of the Acquisition Transaction. In 1995, the
Satellite Properties performed approximately 3,800 funeral calls and 500
interments. For a discussion of the funeral service industry, see 'Business--The
Funeral Service Industry.'
Since the Acquisition Transaction, the Company has been managed by a single
management team which includes certain members of the previous management of
Rose Hills, a newly hired senior sales executive with over 25 years of
experience in the industry and a new Chief Financial Officer with over 30 years
of finance and accounting experience. The Company also benefits from the
strength of Loewen's management team through an administrative services
agreement with Loewen (the 'Administrative Services Agreement').
Management believes that the integration of the Satellite Properties with
Rose Hills effected through the Acquisition Transaction will enable the Company
to take advantage of the benefits of 'hub and spoke clustering,' including
opportunities to share personnel, vehicles and other key resources, and
implement revenue enhancing cross-marketing programs. In addition, the Company
intends to leverage Rose Hills' outstanding reputation in the region by using
the Rose Hills name at many of the Satellite Properties. Management also expects
to generate significant additional cost-savings through the implementation of
the Administrative Services Agreement.
BUSINESS STRATEGY
Management believes that, when measured by such factors as tradition,
heritage, reputation, physical size, volume of business, name recognition,
aesthetics and potential for development or expansion, Rose Hills is one of the
country's premier cemetery and funeral home facilities. Management's strategy is
to build market share, enhance revenue and maximize profitability by leveraging
these qualities with the additional opportunities made
- ------------------
* The services offered by funeral homes and cemeteries can be purchased at the
time of death ('at-need') or in advance through a prearranged contract
('pre-need'). Generally, the pre-need sale of cemetery property and
merchandise is financed on an installment basis according to credit terms
offered by the Cemetery. Pre-need sales of funeral services, on the other
hand, are generally financed using an insurance policy purchased by the
customer at the time the arrangements are made, which names the funeral home
as the beneficiary.
3
<PAGE>
available by the clustering of the Satellite Properties. The principal
components of the Company's growth strategy consist of the following: (i)
continue Rose Hills' tradition of providing high quality funeral and cemetery
services; (ii) significantly enlarge Rose Hills' commission-based cemetery
pre-need sales force and implement programs to increase revenues per pre-need
sale; (iii) introduce a focused effort to provide existing pre-need Cemetery
customers an opportunity to purchase additional and/or improved merchandise and
services; (iv) increase funeral market share through the integration of and
cross-marketing with the Satellite Properties; (v) capitalize on the clustering
advantages available through the integration of the Satellite Properties; (vi)
reallocate the assets of the Cemetery's endowment care fund from equities to
fixed income securities in order to increase the income from such fund available
to be paid to the Company; and (vii) implement other profit enhancing measures,
including the use of Loewen's proven merchandising and cost reduction programs
through the Administrative Services Agreement.
CONTINUE ROSE HILLS' TRADITION OF QUALITY SERVICE: Rose Hills has served the
greater Los Angeles area since 1914 and has built a favorable reputation within
its surrounding communities. In 1995, Rose Hills performed approximately 9,000
interments, a volume equal to more than 14% of all deaths recorded in Los
Angeles County in that year. Despite its strong market position, Rose Hills has
continued to develop its infrastructure in order to improve its ability to serve
the diverse population of the greater Los Angeles area. In early 1997,
Management expects to complete the construction of SkyRose Chapel (the
'Chapel'), a 350 seat chapel and mausoleum designed by award-winning architect
Fay Jones. Management intends to market use of the Chapel to the upper-income
segment of its customer base and, in conjunction with this effort, is developing
premium burial lawns on approximately 15 acres immediately surrounding the
Chapel. In cooperation with the Company, the International Buddhist Progress
Society ('IBPS') is developing a pagoda-style columbarium and stupa gardens on
Cemetery grounds. The columbarium is expected to be the largest of its kind in
the United States, and Management believes the columbarium will significantly
increase Rose Hills' appeal to the large Asian population in the Los Angeles
area.
EXPAND CEMETERY PRE-NEED SALES: Management believes that the Company can
realize significant near-term revenue growth through an increased emphasis on
the sale of Cemetery pre-need arrangements. Management also believes that
Cemetery pre-need sales not only secure additional Cemetery market share, but
also considerably enhance the long-term revenue potential of its properties.
Management plans to increase revenues per pre-need sale through a combination of
selling Cemetery merchandise and services along with grave sites (prior to the
Acquisition Transaction, it was Rose Hills' policy to sell only grave sites on a
pre-need basis), expanding the range of higher margin product offerings and
selectively increasing prices to competitive levels. In addition, Management
intends to increase the volume of pre-need sales by expanding the Company's
pre-need cemetery salesforce from approximately 120 prior to the Acquisition
Transaction to approximately 140 persons.
Since joining Loewen in early 1995, Loewen's cemetery management team has
increased same-store revenue and gross margin at Loewen's cemeteries. Loewen
cemetery revenue and gross margin for the nine months ended September 30, 1996
in comparison to the nine months ended September 30, 1994, for locations in
operation for all of the nine months ended September 30, 1996 and 1994,
increased by 50% and 122.3%, respectively. Management plans to employ a variety
of sales management techniques currently utilized at Loewen to enhance
salesforce productivity. Since the Acquisition, the Company has been managed by
a single management team which includes certain members of the previous
management of Rose Hills, a newly hired senior sales executive with over 25
years of experience in the industry and a new Chief Financial Officer with over
30 years of finance and accounting experience. The Company also benefits from
the strength of Loewen's cemetery management team through the Administrative
Services Agreement entered into in connection with the Acquisition.
PROVIDE EXISTING CEMETERY PRE-NEED CUSTOMER BASE WITH ADDITIONAL BUYING
OPPORTUNITIES: Rose Hills has been marketing pre-need cemetery property since
1930 and currently has approximately 255,000 individual lots which have been
sold to customers on a pre-need basis but have not yet been utilized.
Historically, the Cemetery's pre-need focus has been almost exclusively on the
sale of grave sites, such as cemetery plots, niches or crypts. Management
estimates that approximately 85% of the Cemetery's pre-need customers have
completed payments on their grave sites but have not yet purchased pre-need
cemetery merchandise such as vaults or markers or interment services from Rose
Hills. As a result, Management believes that there is a significant opportunity
to provide existing pre-need Cemetery customers, who are already committed to
Rose Hills, with the opportunity to purchase such additional merchandise and
interment services on a pre-need basis. The Company will hire and train
approximately 30 salespersons (in addition to the increase of 20 salespersons
described above) who will focus on selling pre-need cemetery merchandise and
interment services to Rose Hills' existing Cemetery pre-need customer base.
4
<PAGE>
INCREASE FUNERAL MARKET SHARE: Historically, the Cemetery has been competitive
over a broader geographic area than the Mortuary. While Management considers the
Cemetery to be very competitive within a 20 mile radius of the site, the
Mortuary's customer base is drawn primarily from within a 10 mile radius. The
Mortuary's narrower geographic reach reflects the different customer selection
criteria for funeral homes and cemeteries. Industry research indicates that
proximity is much more important in consumer selection of a funeral home than a
cemetery, and lack of proximity is a key reason given by Cemetery customers of
Rose Hills for selecting a funeral services provider other than the Mortuary.
Management intends to leverage Rose Hills' strong heritage and name recognition
by incorporating the Rose Hills name into certain of the Satellite Properties.
In addition, Management intends to utilize the existing Cemetery pre-need
customer base as a source of leads for the Satellite Properties' funeral
pre-need marketing efforts. Management believes that this strategic integration
of the Satellite Properties with Rose Hills will broaden the geographic scope of
the Company's funeral home operations and thereby increase the Company's ability
to capture the funeral business of Cemetery customers who do not live in close
proximity to Rose Hills but do reside in an area served by one of the Satellite
Properties.
In addition, Management believes that an increased emphasis on pre-need
sales of funeral services can enhance the Company's revenues and market share.
In 1995, the Mortuary performed approximately 5,500 funeral calls, which is
equal to approximately 60% of the approximately 9,000 interments performed at
the Cemetery, compared to an industry average of 80%. Enhanced pre-need selling
efforts for the Mortuary are designed to significantly improve the productivity
of its sales force and bring the 60% ratio closer to the industry average.
CAPITALIZE ON CLUSTERING OPPORTUNITIES: The proximity of the Satellite
Properties to Rose Hills will enable the facilities to create a 'cluster'
capable of sharing resources and facilities. The Company's new operating
structure is designed to maximize such sharing opportunities between the
Satellite Properties and Rose Hills. Operating as a cluster will enable many of
the Company's facilities to share vehicles, equipment and employees, to reduce
administrative expense, to centralize embalming, staffing and other services and
to pool inventories of caskets and other merchandise. The Company will also
initiate cross-marketing programs such as advertising and merchandising programs
to increase market share. Management believes it can significantly reduce the
Company's operating expenses and increase cash flow by implementing these
cross-marketing and cost-saving initiatives. In the future, the Company will
also pursue an opportunistic acquisitions strategy in order to expand the
benefits of its clustered operation.
REALLOCATE THE ASSETS OF THE ENDOWMENT CARE FUND: The Company expects to
increase revenue derived from the Cemetery's endowment care fund (the 'Fund') by
changing the Fund's investment policies. In accordance with California State
regulations, the Cemetery collects and deposits into the Fund a required amount
of cash from every grave site sold for the continued maintenance of the
Cemetery. By law, up to 100% of the investment income from the Fund may be
distributed for the development, improvement, embellishment and maintenance of
the Cemetery. The Fund trustees appointed by the Association have from time to
time invested the majority of the Fund in equity securities. This investment
strategy limited the Fund's distributable income to the dividend yield of its
portfolio. The Company has recently begun to pursue a more conservative policy
by generally limiting the investments of the Fund's portfolio to fixed income
securities with at least investment grade credit ratings. Management believes
that this change in investment strategy will maximize the Fund's distributable
income. By way of illustration, if the Fund were to realize a return on its
income generating assets with a fair market value of $53.0 million as of
September 30, 1996 equivalent to the current return on five-year U.S. Treasury
Securities (6.39% per annum as of January 14, 1997) plus 75 basis points, the
Cemetery would recognize annual Fund investment income of approximately $3.5
million, as compared to the $1.3 million it actually generated in 1995, an
increase of $2.2 million.
LOEWEN ADMINISTRATIVE SERVICES AGREEMENT AND OTHER PROFIT ENHANCEMENTS: Since
the Acquisition, pursuant to the Administrative Services Agreement, Loewen has
undertaken some of the Company's administrative functions including: accounting
services, computer, telecommunications, general operations support, legal
services, environmental compliance, regulatory compliance, employee training and
corporate development. In addition, Loewen provides management expertise in
planning MIS, sales, tax, and fund management strategy. The Company also
benefits under the Administrative Services Agreement from access to some of
Loewen's vendor agreements. Management believes that the Administrative Services
Agreement will provide considerable savings in terms of administrative personnel
at Rose Hills and should further decrease the Company's ongoing operating
expenses. By leveraging the Loewen corporate infrastructure, Management believes
the Company will gain advantages in terms of operating and sales expertise.
5
<PAGE>
THE ACQUISITION TRANSACTION
The Notes were sold by the Issuer to finance, in part, the Issuer's
Acquisition of Rose Hills. In addition to the sale of the Notes, the principal
components of the Acquisition Transaction, which was consummated on November 19,
1996, included the following:
o The contribution by Blackstone, Loewen and RHI Management Direct L.P., a
Delaware limited partnership ('RHIMD') to Rose Hills Holdings Corp., the
Issuer's parent company ('RH Holdings'), in exchange for all the equity
of RH Holdings, and by RH Holdings to the Company, of $106.6 million in
cash ($107.0 million less $0.4 million advanced by the Company to RHIMD
to finance its purchase of common stock of RH Holdings).
o The contribution by Loewen to RH Holdings of the Satellite Properties,
which were valued at $23.0 million and which were in turn contributed to
the Company.
o The acquisition by a subsidiary of the Issuer of the Mortuary in
consideration of the payment of approximately $59.9 million in cash,
after giving effect to the payment of outstanding indebtedness carried by
the Mortuary at closing.
o The acquisition by a subsidiary of the Issuer of the Cemetery in
consideration of the payment of approximately $166.3 million in cash
(including repayment of approximately $1.0 million of outstanding
intercompany indebtedness owed by the Mortuary to the Cemetery).
o The establishment of new senior secured credit facilities (the 'Bank
Credit Facilities') between the Issuer and a syndicate of financial
institutions (the 'Bank Lenders'), with Goldman Sachs Credit Partners
L.P. ('GSCP'), an affiliate of Goldman, Sachs & Co. ('Goldman Sachs'), as
arranging agent. The Bank Credit Facilities provided the Company with a
$75.0 million term loan facility (the 'Bank Term Facility'), the proceeds
of which were used to finance, in part, the Acquisition and related
transaction costs, to repay approximately $15.1 million of existing debt
of the Mortuary and to pre-fund approximately $0.5 million of
restructuring costs of the Company, and a $25.0 million revolving credit
facility (the 'Revolving Credit Facility'), the proceeds of which are
available for general corporate purposes. RH Holdings and each of the
Issuer's subsidiaries (collectively, the 'Bank Guarantors') have
guaranteed (the 'Bank Guarantees') all obligations of the Issuer under
the Bank Credit Facilities. The Bank Credit Facilities and the Bank
Guarantees are secured by substantially all of the assets of the Issuer
and the Bank Guarantors (including the real property at Rose Hills but
excluding other real property and certificates of title on vehicles),
100% of the capital stock of the Issuer and each of the Issuer's
subsidiaries and all intercompany receivables.
See 'Certain Related Transactions--Acquisition Transaction' and
'Description of Credit Facilities.'
6
<PAGE>
The following table sets forth a summary of the sources and uses of funds
and other capital contributions associated with the Acquisition Transaction:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES:
Bank Term Facility............................................................. $ 75.0
Senior Subordinated Notes...................................................... 80.0
Blackstone/Loewen Contribution................................................. 129.6
Existing cash.................................................................. 0.2
-------------
Total....................................................................... $ 284.8
-------------
-------------
USES:
Payment for the Mortuary....................................................... $ 59.9
Repayment of existing indebtedness (other than intercompany indebtedness) of
the Mortuary................................................................ 15.1
Payment for the Cemetery (including repayment of intercompany indebtedness).... 166.3
Pre-funding of certain restructuring expenses of the Company................... 0.5
Receipt of Satellite Properties................................................ 23.0
Payment of fees and expenses related to the Acquisition Transaction............ 20.0
-------------
$ 284.8
-------------
-------------
</TABLE>
See 'Certain Related Transactions--Acquisition Transaction.'
PUT/CALL AND OTHER ARRANGEMENTS
Pursuant to an agreement (the 'Put/Call Agreement') executed by Blackstone,
The Loewen Group Inc. ('LWN') and Loewen Group International Inc. ('LGII') in
connection with the Acquisition Transaction, (i) LGII has a call option,
exercisable from and after the fourth anniversary of the closing date of the
Acquisition Transaction (the 'Acquisition Closing Date') until but excluding the
sixth anniversary of the Acquisition Closing Date, to purchase the shares of
common stock of RH Holdings held by Blackstone and (ii) Blackstone has a put
option, exercisable from and after the sixth anniversary of the Acquisition
Closing Date until but excluding the eighth anniversary of the Acquisition
Closing Date, to sell such shares of common stock of RH Holdings held by
Blackstone to LGII. The option price in either case is derived from a formula
based on income (loss) before interest, taxes, depreciation, and amortization.
In addition, pursuant to the terms of a shareholders' agreement entered into by
Blackstone, LWN and LGII, neither Blackstone nor LGII is permitted to transfer
its shares without the prior written consent of the other party, subject to
certain exceptions. See 'Certain Related Transactions.'
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer...... The Issuer is offering to exchange pursuant to the
Exchange Offer up to $80,000,000 aggregate principal
amount of its new 9 1/2% Senior Subordinated Notes due
2004 (the 'Exchange Notes'), for $80,000,000 aggregate
principal amount of its outstanding 9 1/2% Senior
Subordinated Notes due 2004 (the 'Notes'). The Notes
were issued and sold on November 19, 1996, in
transactions not registered under the Securities Act,
to Smith Barney Inc. (the 'Initial Purchaser'), in
reliance upon the exemption provided in Section 4(2) of
the Securities Act. The terms of the Exchange Notes are
identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (other than as
provided herein), and are not subject to any covenant
regarding registration under the Securities Act. See
'The Exchange Offer--Terms of the Exchange' and
'--Terms and Conditions of the Letter of Transmittal'
and 'Description of Exchange Notes.'
Interest Payments....... Interest on the Exchange Notes shall accrue from the
last Interest Payment Date (May 15 or November 15) on
which interest was paid on the Notes so surrendered or,
if no interest has been paid on such Notes, from
November 19, 1996.
Minimum Condition....... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Notes being tendered for
exchange.
Expiration Date......... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, unless extended
(the 'Expiration Date'). Any Note not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
Exchange Date........... The date of acceptance for exchange of the Notes will
be the first business day following the Expiration
Date.
Conditions of the
Exchange Offer........ The Issuer's obligation to consummate the Exchange
Offer will be subject to certain conditions. See
'The Exchange Offer--Conditions to the Exchange
Offer.' The Issuer reserves the right to terminate or
amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition.
Withdrawal Rights....... The tender of Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration Date.
Procedures for Tendering
Notes................. See 'The Exchange Offer--Tender Procedure.'
Federal Income Tax
Consequences.......... The exchange of Notes for Exchange Notes will not be a
taxable exchange for federal income tax purposes. See
'United States Federal Income Tax Consequences.'
Effect on Holders of
Notes................. As a result of the making of, and upon acceptance or
exchange of all validly tendered Notes pursuant to the
terms of, this Exchange Offer, the Issuer will have
fulfilled a covenant contained in the Registration
Rights Agreement (the 'Registration Rights Agreement')
dated as of November 15, 1996 between the Issuer and
the Initial Purchaser and, accordingly, there will be
no increase in the interest rate on the Notes pursuant
to the terms of the Registration Rights Agreement, and
the holders of the Notes will
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
have no further registration or other rights under the
Registration Rights Agreement. Holders of the Notes who
do not tender their Notes in the Exchange Offer will
continue to hold such Notes and will be entitled to all
the rights and subject to all the limitations
applicable thereto (including the restrictions on
transfer thereof) under the Indenture, dated as of
November 15, 1996, between the Issuer and United States
Trust Company of New York, as Trustee, relating to the
Notes and the Exchange Notes (the 'Indenture'), except
for any such rights under the Registration Rights
Agreement that by their terms terminate or cease to
have further effectiveness as a result of the making
of, and the acceptance for exchange of all validly
tendered Notes pursuant to, the Exchange Offer. Except
for the restrictions on registrations and transfers,
all untendered Notes and the Exchange Notes will be
treated as one class of securities for purposes of the
covenants and the other terms contained in the
Indenture.
Use of Proceeds......... There will be no cash proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
Exchange Agent.......... United States Trust Company of New York is serving as
Exchange Agent in connection with the Exchange Offer.
</TABLE>
9
<PAGE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer.................................... Rose Hills Company (formerly known as Rose Hills Acquisition Corp.).
Notes Offered............................. $80 million principal amount of 9 1/2% Senior Subordinated Notes due
2004.
Maturity Date............................. November 15, 2004.
Interest Payment Dates.................... May 15 and November 15 of each year, commencing May 15, 1997.
Ranking................................... The Exchange Notes will be unsecured senior subordinated obligations
of the Issuer, will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Issuer (which includes
all indebtedness of the Issuer under the Bank Credit Facilities) and
effectively subordinated to all existing and future liabilities of
its subsidiaries and will rank senior in right of payment to all
other subordinated indebtedness of the Issuer. On a pro forma basis
after giving effect to the Acquisition Transaction, the Issuer would
have had $75.0 million of Senior Indebtedness outstanding as of
September 30, 1996, and its subsidiaries would have had $20.4 million
of liabilities outstanding as of that date. The Company had no
subordinated indebtedness outstanding as of that date and had no firm
arrangements to issue any significant subordinated indebtedness as of
that date. See 'Description of Exchange Notes--Subordination.'
Optional Redemption....................... The Exchange Notes will be redeemable at the option of the Issuer, in
whole or in part, at any time on or after November 15, 2000 at a
premium declining to par in 2003, plus accrued and unpaid interest,
if any, to the redemption date. See 'Description of Exchange
Notes--Redemption--Optional Redemption.'
Change of Control......................... In the event of a Change of Control (as defined herein), the Issuer
will be obligated to make an offer to purchase the then outstanding
Exchange Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the
purchase date. The Issuer's ability to purchase the Exchange Notes if
a Change of Control occurs will be dependent upon obtaining
third-party financing to the extent it does not have available funds
to meet its purchase obligations. There can be no assurance that the
Issuer will be able to obtain such financing. The term 'Change of
Control' is limited to certain specified transactions (which do not
include the purchase by Loewen of the shares of RH Holdings held by
Blackstone) and may not include other events that might adversely
affect the financial condition of the Issuer or result in a downgrade
of the credit rating of the Exchange Notes. Pursuant to the Bank
Credit Facilities, the Company would be required to satisfy its
obligations thereunder prior to its purchase of the Exchange Notes
upon a Change of Control. See 'Description of Exchange Notes--Certain
Covenants--Change of Control.'
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Certain Covenants......................... The Indenture contains certain covenants by the Issuer and its
Subsidiaries (as defined herein), including, but not limited to,
covenants with respect to limitations on the following matters: (i)
the incurrence of additional indebtedness, (ii) certain payments,
including dividends and investments, (iii) the creation of liens,
(iv) sales of assets and preferred stock, (v) transactions with
interested persons, (vi) payment restrictions affecting subsidiaries,
(vii) sale-leaseback transactions and (viii) mergers and
consolidations. See 'Description of Exchange Notes--Certain
Covenants.' In addition, the Bank Credit Agreement (as defined
herein) contains certain covenants that, among other things, restrict
the ability of the Issuer and its subsidiaries to dispose of assets,
incur additional indebtedness, prepay other indebtedness (including
the Exchange Notes), pay dividends or make certain restricted
payments, create liens on assets, engage in mergers or acquisitions
or enter into leases or transactions with affiliates. See
'Description of Bank Credit Facilities.' Immediately after giving
effect to the Acquisition Transaction, the Company was in material
compliance with all financial and operating covenants contained in
the Indenture and the Bank Credit Agreement.
Absence of a Public Market for the
Exchange Notes.......................... The Exchange Notes are new securities, and there is currently no
established market for the Exchange Notes. The Exchange Notes will
generally be freely transferable (subject to the restrictions
discussed elsewhere herein) but will be new securities for which
there will not initially be a market. Accordingly, there can be no
assurance as to the development or liquidity of any market for the
Exchange Notes. The Initial Purchaser has advised the Issuer that it
currently intends to make a market in the Exchange Notes. However,
the Initial Purchaser is not obligated to do so, and any market
making with respect to the Exchange Notes may be discontinued at any
time without notice. The Issuer does not intend to apply for a
listing of the Exchange Notes on a securities exchange.
</TABLE>
RISK FACTORS
Holders of Notes should consider carefully the information set forth in
this Prospectus and, in particular, should evaluate the specific factors set
forth under 'Risk Factors' before tendering Notes in exchange for Exchange
Notes.
11
<PAGE>
SUMMARY PRO FORMA AND OTHER FINANCIAL INFORMATION
The following table presents unaudited pro forma statements of operations
and other unaudited financial information for the year ended December 31, 1995
and the nine months ended September 30, 1996 and gives effect to the following
transactions as if they had occurred on January 1, 1995: (i) the Acquisition;
(ii) the contribution to the Company of the Satellite Properties; (iii) the
termination of certain contractual arrangements; (iv) new contractual
arrangements between the Company, Management, Blackstone and Loewen; (v) the
change in status of the Cemetery from a not-for-profit association to a taxable
entity; and (vi) the sale of the Notes, the borrowing under the Bank Term
Facility and the application of the net proceeds therefrom. The pro forma
balance sheet as of September 30, 1996 has been prepared as if such transactions
had occurred on that date. The adjustments, which are based upon available
information and upon certain assumptions that Management believes are
reasonable, are described in the notes accompanying the Unaudited Pro Forma
Financial Information. The pro forma financial information should be read in
conjunction with 'Unaudited Pro Forma Financial Information,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Mortuary and the Cemetery' and the Consolidated Financial Statements, including
the notes thereto, and the other financial information included elsewhere in
this Prospectus.
The pro forma financial information is not necessarily indicative of either
future results of operations or the results that might have occurred if the
foregoing transactions had been consummated on the indicated dates.
12
<PAGE>
SUMMARY PRO FORMA AND OTHER FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(IN MILLIONS)
<S> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Revenues:
Funeral sales and services..................................................... $ 28.5 $ 22.2
Cemetery sales and services.................................................... 24.4 19.4
Other.......................................................................... 4.7 3.3
------------ -------------
57.6 44.9
------------ -------------
Cost of sales:
Funeral sales and services..................................................... 12.9 9.9
Cemetery sales and services.................................................... 5.9 4.6
------------ -------------
18.8 14.5
------------ -------------
Selling, general and administrative expenses...................................... 27.7 20.9
Amortization of goodwill and other intangibles.................................... 3.8 2.9
------------ -------------
Operating income.................................................................. 7.3 6.6
------------ -------------
Other income and expense:
Interest expense............................................................... 16.4 12.3
Interest income................................................................ -- (0.2)
------------ -------------
16.4 12.1
------------ -------------
Loss before taxes................................................................. (9.1) (5.5)
Income tax benefit................................................................ (2.8) (1.7)
------------ -------------
Net loss.......................................................................... $ (6.3) $ (3.8)
------------ -------------
------------ -------------
PRO FORMA OTHER FINANCIAL DATA AND RATIOS:
EBITDA(1)......................................................................... $ 15.5 $ 12.7
Capital expenditures.............................................................. 4.6 4.1
Depreciation and amortization(2).................................................. 7.1 5.4
Cash interest expense(3).......................................................... 14.6 10.9
Ratio of EBITDA to cash interest expense.......................................... 1.1x 1.2x
Ratio of earnings to fixed charges(4)............................................. -- --
OTHER FINANCIAL INFORMATION:
Adjusted
EBITDA(5)................................................................ 18.0 15.8
Ratio of adjusted EBITDA to cash interest expense................................. 1.2x 1.5x
<CAPTION>
AS AT
SEPTEMBER 30,
1996
-------------
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Total assets...................................................................... $ 305.0
Total debt(6)..................................................................... $ 156.7
Shareholder's equity.............................................................. 129.6
Percentage of total debt to total capitalization.................................. 54.7%
</TABLE>
(Footnotes on next page)
13
<PAGE>
(Footnotes from previous page)
- ------------------
(1) EBITDA is defined as income (loss) before income taxes plus interest
expense, depreciation and amortization and the non-cash portion of cemetery
cost of sales. EBITDA is presented because Management believes that EBITDA
provides relevant and useful information and it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation, as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. Also, this measure of EBITDA may not be comparable to similar
measures reported by other companies.
The calculation of EBITDA is shown below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Loss before taxes..................................... $ (9.1) $ (5.5)
Net interest.......................................... 16.4 12.1
Depreciation.......................................... 3.3 2.5
Amortization.......................................... 3.8 2.9
Noncash portion of cemetery cost of sales............. 1.1 0.7
-------- -------
$ 15.5 $ 12.7
-------- -------
-------- -------
</TABLE>
(2) Depreciation and amortization includes the non-cash cost of grave sites,
crypts and niches sold. The amount does not include amortization of deferred
financing costs, which are included in interest expense.
(3) Cash interest expense is defined as interest expense less amortization of
deferred financing costs.
(4) Earnings used in computing the ratio of earnings to fixed charges consist of
loss before provision for income taxes plus fixed charges. Fixed charges
consist of interest expense, including amortization of debt issuance costs,
and a portion of operating lease rental expense deemed to be representative
of the interest factor. Earnings were insufficient to cover fixed charges in
the year ended December 31, 1995 and the nine months ended September 30,
1996 by $9.1 million and $5.5 million, respectively.
(5) Adjusted EBITDA is defined as EBITDA plus (i) the revenue impact of a change
in the investment strategy of the Fund, which the Company expects to
increase from $1.3 million actually generated in 1995 to $3.5 million on an
illustrative basis (see 'Business--Business Strategy Following
Acquisition--Reallocate the Assets of the Endowment Care Fund') and (ii)
non-recurring transaction-related expenses for legal, accounting and
investment banking services which amounted to $0.3 million and $1.4 million
for the year ended December 31, 1995 and the nine months ended September 30,
1996, respectively. (See 'Unaudited Pro Forma Financial Information').
(6) Total debt is defined as funded debt comprising the Bank Term Facility and
the Notes.
14
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
THE MORTUARY
The following table sets forth certain selected historical consolidated
financial data for the Mortuary for and at the end of each of the years in the
five-year period ended December 31, 1995 and the nine-month periods ended
September 30, 1995 and 1996. The selected historical financial data for the five
years ended December 31, 1995 were derived from the Mortuary's financial
statements for the three years ended December 31, 1995, which statements have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report included elsewhere herein, and the unaudited financial
statements for the two years ended December 31, 1992. The selected historical
financial data for the nine months ended September 30, 1995 and 1996 were
derived from the unaudited financial statements of the Mortuary which, in the
opinion of Management, include all adjustments (consisting only of usual
recurring adjustments) necessary for a fair presentation of such data. The
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results for the full fiscal year.
The following table should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Mortuary and the Cemetery--The Mortuary' and the Consolidated Financial
Statements of the Mortuary, including the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................................... $18.3 $19.6 $20.1 $22.1 $22.4 $16.7 $17.4
Cost of sales................................. 5.1 5.6 5.6 6.0 6.0 4.4 4.7
Selling, general and administrative expenses.. 9.1 9.9 10.4 10.7 11.2 7.9 8.7
Amortization of goodwill and other
intangibles................................. 1.6 1.8 1.2 1.2 0.5 0.4 0.1
----- ----- ----- ----- ----- ----- -----
Operating income.............................. 2.5 2.3 2.9 4.2 4.7 4.0 3.9
----- ----- ----- ----- ----- ----- -----
Other expense................................. 2.7 2.4 2.1 2.0 2.4 1.9 1.1
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes............. (0.2) (0.1) 0.8 2.2 2.3 2.1 2.8
Income tax expense............................ -- -- -- -- 1.1 1.0 1.2
----- ----- ----- ----- ----- ----- -----
Net income (loss)............................. $(0.2) $(0.1) $ 0.8 $ 2.2 $ 1.2 $ 1.1 $ 1.6
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(1)..................................... 5.0 5.0 5.0 6.4 6.3 5.2 4.8
Cash flows from:
Operating activities........................ 4.6 6.7 1.4 4.6 2.9 1.8 1.5
Investing activities........................ (1.4) (1.1) (0.9) (0.7) (0.4) (0.1) --
Financing activities........................ (1.8) (5.0) (0.8) (4.9) (2.1) (1.1) (2.3)
Ratio of earnings to fixed charges(2)......... -- -- 1.4x 2.1x 2.0x 2.1x 3.2x
<CAPTION>
AS AT
AS AT DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................................. $29.8 $28.2 $28.4 $27.8 $26.6 $26.0 $26.1
Total debt(3)................................. 10.9 13.0 11.0 22.0 19.5 20.1 17.6
Shareholders' equity (deficiency)............. 1.4 1.8 2.0 (5.1) (3.9) (4.0) (2.3)
</TABLE>
- ------------------
(1) EBITDA is defined as income (loss) before income taxes plus interest
expense, depreciation and amortization. EBITDA is presented because
Management believes that EBITDA provides relevant and useful information and
it is a widely accepted financial indicator of a company's ability to incur
and service debt. However, EBITDA should not be considered in isolation, as
a substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. Also, this measure of EBITDA may not be
comparable to similar measures reported by other companies.
(2) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before provision for income taxes plus fixed charges. Fixed
charges consist of interest expense, including amortization of debt issuance
costs, and a portion of operating lease rental expense deemed to be
representative of the interest factor. Earnings were insufficient to cover
fixed charges in the years ended December 31, 1991 and 1992 by $0.2 million
and $0.1 million, respectively.
(3) Total debt is defined as funded debt comprising bank borrowings.
15
<PAGE>
THE CEMETERY
The following table sets forth certain selected historical consolidated
financial data with respect to the Cemetery for and at the end of each of the
years in the five-year period ended December 31, 1995 and the nine-month periods
ended September 30, 1995 and 1996. The selected historical financial data for
the five years ended December 31, 1995 were derived from the Cemetery's
financial statements for the three years ended December 31, 1995, which have
been audited by KPMG Peat Marwick LLP, independent auditors, and the financial
statements for the two years ended December 31, 1992. The selected historical
financial data for the nine-months ended September 30, 1995 and 1996 were
derived from the unaudited financial statements of the Cemetery which, in the
opinion of Management, include all adjustments (consisting only of usual
recurring adjustments) necessary for a fair presentation of such data. The
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results for the full fiscal year.
The following table should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Mortuary and the Cemetery--The Cemetery' and the Consolidated Financial
Statements of the Cemetery, including the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................................... $28.2 $22.1 $21.6 $22.3 $24.4 $18.2 $19.1
Cost of sales................................. 6.3 5.1 5.3 5.5 4.4 3.3 3.3
Selling, general and administrative expenses.. 21.8 17.4 17.9 18.6 17.9 13.4 13.0
Amortization of goodwill and other
intangibles................................. (0.8) (0.8) (0.8) (2.0) (0.3) (0.3) --
----- ----- ----- ----- ----- ----- -----
Operating income (loss)....................... 0.9 0.4 (0.8) 0.2 2.4 1.8 2.8
----- ----- ----- ----- ----- ----- -----
Other (income) and expense.................... (3.0) (1.2) (1.0) (0.5) 0.1 -- --
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes............. 3.9 1.6 0.2 0.7 2.3 1.8 2.8
Income tax expense............................ -- -- 0.3 1.2 -- -- --
----- ----- ----- ----- ----- ----- -----
Net income (loss)............................. $ 3.9 $ 1.6 $(0.1) $(0.5) $ 2.3 $ 1.8 $ 2.8
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(1)..................................... 3.2 2.4 1.1 1.4 4.6 3.3 4.6
Cash flows from:
Operating activities........................ 10.4 (8.3) 5.7 1.0 (0.9) (4.2) 5.5
Investing activities........................ (3.3) 1.6 (1.5) (4.7) (3.7) (0.3) (2.2)
Financing activities........................ (3.1) 6.0 (4.8) 6.5 (0.1) (0.2) 0.2
Ratio of earnings to fixed charges(2)......... 4.6x 4.2x -- 4.5x 12.5x 19.0x 29.0x
<CAPTION>
AS AT
AS AT DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................................. $62.5 $46.6 $47.3 $44.2 $49.2 $46.3 $54.5
Total debt(3)................................. -- -- -- -- -- -- --
Net assets.................................... 49.1 36.9 37.3 34.0 40.9 40.3 46.0
</TABLE>
- ------------------
(1) EBITDA is defined as income (loss) before income taxes plus interest
expense, depreciation and amortization and the non-cash portion of cemetery
cost of sales. EBITDA is presented because Management believes that EBITDA
provides relevant and useful information and it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation, as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. Also, this measure of EBITDA may not be comparable to similar
measures reported by other companies.
(2) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before provision for income taxes plus fixed charges. Fixed
charges consist of interest expense, including amortization of debt issuance
costs, and a portion of operating lease rental expense deemed to be
representative of the interest factor.
(3) Total debt is defined as funded debt comprising bank borrowings.
16
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, holders of Notes
should consider carefully the following factors before tendering their Notes for
Exchange Notes offered hereby. The risk factors set forth below are generally
applicable to the Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE; ABILITY TO SURVIVE INDEBTEDNESS
The Issuer has incurred substantial indebtedness in connection with the
Acquisition Transaction and is highly leveraged. At September 30, 1996, the
Issuer's pro forma total indebtedness after giving effect to the Acquisition
Transaction would have been $156.7 million, its debt to total capitalization
ratio would have been 54.7% and the Company would have had consolidated
liabilities (including indebtedness) of approximately $175.4 million. In the
ordinary course of business, the Company has incurred and, subject to certain
covenants and financial tests set out in the Bank Credit Agreement (as defined
herein) and the Indenture, will continue to incur additional indebtedness to
fund working capital requirements and for other corporate purposes, including to
finance acquisitions. See 'Capitalization,' 'Description of Bank Credit
Facilities,' 'Description of Exchange Notes' and the Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including: (i) the Company's
ability to obtain financing in the future for working capital or other purposes
may be impaired; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness; (iii) the indebtedness outstanding under the Bank Credit
Facilities is secured and will mature prior to the maturity of the Exchange
Notes; (iv) certain of the Company's borrowings are at variable rates of
interest, which could result in higher interest expense in the event of
increases in interest rates; and (v) the Company's high degree of leverage makes
it more vulnerable to economic downturns and may limit its ability to withstand
competitive pressures.
The Company believes that, based upon current levels of operations and
anticipated growth and availability under the Revolving Credit Facility, it will
be able to meet its principal and interest payment obligations. There can be no
assurance, however, that the Company's business will generate sufficient cash
flow from operations or that future working capital borrowings will be available
in an amount sufficient to enable the Company to service its indebtedness,
including the Exchange Notes. If the Company cannot generate sufficient cash
flow from operations or borrow under the Revolving Credit Facility to meet such
obligations, then the Company may be required to take certain actions, including
reducing capital expenditures, restructuring its debt, selling assets or seeking
additional equity in order to avoid an Event of Default (as defined herein).
There can be no assurance that such actions could be effected or would be
effective in allowing the Company to meet such obligations. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Mortuary and the Cemetery--Liquidity and Capital Resources.'
EXCHANGE NOTES REPRESENT UNSECURED, SUBORDINATED CLAIMS; NO LIMITATION ON
ADDITIONAL INDEBTEDNESS
The Exchange Notes will be unsecured obligations of the Issuer that are
subordinated in right of payment to all Senior Indebtedness of the Issuer,
including all indebtedness under the Bank Credit Facilities. As of September 30,
1996, giving pro forma effect to the Acquisition Transaction and the application
of the net proceeds therefrom, approximately $75.0 million of Senior
Indebtedness would have been outstanding and the Issuer would have had borrowing
availability of approximately $25.0 million under the Revolving Credit Facility.
The Indenture and the Bank Credit Facilities permit the Company to incur
additional Senior Indebtedness, provided that certain conditions are met, and
the Company expects from time to time to incur additional Senior Indebtedness.
Furthermore, the Indenture does not limit the Issuer's ability to secure
additional or replacement Senior Indebtedness. In the event of the insolvency,
liquidation, reorganization, dissolution or other winding up of the Issuer or
upon a default in payment with respect to, or the acceleration of, or if a
judicial proceeding is pending with respect to any default under, any Senior
Indebtedness, the Bank Lenders and any other creditors who are holders of Senior
Indebtedness must be paid in full before a holder of the Exchange Notes may be
paid. Accordingly, there may be insufficient assets remaining after such
payments to pay principal or
17
<PAGE>
interest on the Exchange Notes. See 'Description of Exchange
Notes--Subordination.' In addition, the Exchange Notes will be structurally
subordinated to any liabilities or obligations of the Issuer's subsidiaries as
described below under '--Holding Company Structure.'
The Issuer's obligations under the Bank Credit Facilities are secured by
substantially all of the assets of the Issuer and its subsidiaries. If a default
occurs under the Bank Credit Agreement and the Issuer is unable to repay such
borrowings, the Bank Lenders would have the right to exercise the remedies
available to secured creditors under applicable law and pursuant to the Bank
Credit Agreement. Accordingly, the Bank Lenders would be entitled to payment in
full out of the assets securing such indebtedness prior to payment to holders of
the Exchange Notes. If the Bank Lenders or the holders of any other secured
indebtedness were to foreclose on the collateral securing the Issuer's
obligations to them, it is possible that there would be insufficient assets
remaining after satisfaction in full of all such indebtedness to satisfy in full
the claims of holders of the Exchange Notes.
RESTRICTIVE DEBT COVENANTS; CONSEQUENCES OF FAILURE TO COMPLY WITH DEBT
COVENANTS
The Bank Credit Agreement and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, pay dividends, prepay
subordinated indebtedness (including, in the case of the Bank Credit Agreement,
the Exchange Notes), enter into sale and leaseback transactions, create liens,
make capital expenditures and make certain investments or acquisitions and
otherwise restrict corporate activities. In addition, under the Bank Credit
Agreement, the Company is required to satisfy specified financial ratios and
tests, including, without limitation, minimum fixed charge coverage, minimum
interest coverage, minimum net worth, maximum senior debt leverage and maximum
total debt leverage tests. The ability of the Company to comply with such
provisions may be affected by events beyond the Company's control. To the extent
that the Company does not achieve the pro forma estimates with respect to its
operations, it may not be in compliance with certain of the covenants included
in the Bank Credit Agreement. See 'Unaudited Pro Forma Financial Information.'
The breach of any of these covenants could result in a default under the Bank
Credit Agreement. See 'Description of Bank Credit Facilities.' In the event of
any such default, depending upon the actions taken by the Lenders, the Company
could be prohibited from making any payments of principal or interest on the
Exchange Notes. See 'Description of Exchange Notes--Subordination.' In
addition, the Bank Lenders could elect to declare all amounts borrowed under the
Bank Credit Facilities, together with accrued interest, to be due and payable or
could proceed against the collateral securing such indebtedness.
POTENTIAL ADVERSE CONSEQUENCES IN IMPLEMENTING BUSINESS STRATEGY
The Company's business strategy involves a number of elements which
Management may not be able to implement successfully. For example, the enactment
of price increases may result in a reduction in market share, and the
implementation of staff reductions intended to decrease general and
administrative expenses may lead to low morale and the further loss of
personnel. The strategic integration of the Satellite Properties with Rose Hills
may not result in the increase in market share hoped for, and efforts to sell
additional pre-need services and merchandise to Rose Hills' existing customer
base may not be successful. The implementation of the Administrative Services
Agreement and the clustering of Rose Hills and the Satellite Properties may
encounter operational difficulties such that the expected savings are not
realized. There can be no assurance that these adverse consequences will not
occur and, if they occur, there can be no assurance that they will not result in
a material adverse effect on the Company's results of operations.
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES TO SERVICE INDEBTEDNESS;
EXCHANGE NOTES SUBORDINATED TO SUBSIDIARY LIABILITIES
The Issuer is a holding company with no significant independent business
operations. Accordingly, its primary sources of cash to meet debt service and
other obligations (including payments on the Exchange Notes) are dividends and
other payments from its subsidiaries. Consequently, obligations of the Issuer to
its creditors, including holders of the Exchange Notes, are effectively
subordinated in right of payment and junior to all liabilities (including trade
payables) of the Issuer's subsidiaries. The Bank Credit Facilities are
guaranteed by
18
<PAGE>
each of the Issuer's subsidiaries. As of September 30, 1996 and on a pro forma
basis giving effect to the Acquisition Transaction, the aggregate amount of
liabilities of the Issuer's subsidiaries (excluding intercompany indebtedness)
was approximately $20.4 million.
CONSEQUENCES OF FRAUDULENT TRANSFER
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Issuer, at the time it issued the Notes in exchange for which the Exchange Notes
will be issued, (a) incurred such indebtedness with the intent to hinder, delay
or defraud creditors, or (b)(i) received less than reasonably equivalent value
or fair consideration and (ii)(A) was insolvent at the time of such incurrence,
(B) was rendered insolvent by reason of such incurrence (and the application of
the proceeds thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Issuer constituted
unreasonably small capital to carry on its business, or (D) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they mature, then, in each such case, a court of competent jurisdiction could
avoid, in whole or in part, the Exchange Notes or, in the alternative,
subordinate the Exchange Notes to existing and future indebtedness of the
Issuer. The measure of insolvency for purposes of the foregoing would likely
vary depending upon the law applied in such case. Generally, however, the Issuer
would be considered insolvent if the sum of its debts, including contingent
liabilities, were greater than all of its assets at a fair valuation, or if the
present fair saleable value of its assets were less than the amount that would
be required to pay the probable liabilities on its existing debts, including
contingent liabilities, as such debts became absolute and matured. The Issuer
believes that, for purposes of the United States Bankruptcy Code and state
fraudulent transfer or conveyance laws, the Notes were issued without the intent
to hinder, delay or defraud creditors and for proper purposes and in good faith,
and that the Issuer received a reasonably equivalent value or fair consideration
therefor. In addition, the Issuer believes that it (i) is not and will not be
insolvent, (ii) has and will have sufficient capital for carrying on its
business and (iii) is and will be able to pay its debts as they mature. However,
there can be no assurance that a court passing on such issues would agree with
the determination of the Issuer.
In rendering their opinions in connection with the offering of the Notes,
counsel for the Issuer and counsel for the Initial Purchaser did not express any
opinion as to the applicability of federal or state fraudulent transfer laws.
CONTROL BY BLACKSTONE; POSSIBLE FUTURE CONTROL BY LOEWEN; POTENTIAL CONFLICTS OF
INTEREST
Blackstone owns, on a fully diluted basis, approximately 80% of the issued
and outstanding common stock of RH Holdings, which in turn owns 100% of the
issued and outstanding common stock of the Issuer. Accordingly, Blackstone,
subject to certain exceptions described in the Shareholders' Agreement (as
defined herein), effectively exercises control over the election of a majority
of the Issuer's directors, the appointment of its management and decisions
concerning any action requiring the approval of the Issuer's shareholders,
including adopting amendments to the Issuer's Certificate of Incorporation and
approving mergers or sales of substantially all of the Issuer's assets. There
can be no assurance that the interests of Blackstone will not conflict with the
interests of holders of the Exchange Notes. Loewen may acquire control of RH
Holdings after the fourth anniversary of the Acquisition Closing Date pursuant
to an option contained in the Put/Call Agreement. There can be no assurance that
such option will be exercised or, if Loewen does acquire control of RH Holdings,
that its interests will not conflict with the interests of the holders of the
Exchange Notes. See 'Principal Shareholders' and 'Certain Related
Transactions--Put/Call Arrangement.'
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Notes. The Notes
were offered and sold in November 1996 to a small number of institutional
investors and are eligible for trading in the National Association of Securities
Dealers, Inc.'s PORTAL market.
There is currently no established market for the Exchange Notes and there
can be no assurance that a public market will develop or, if such a market
develops, as to the liquidity of such market, nor can there be any
19
<PAGE>
assurance as to the ability of the holders of the Exchange Notes to sell their
Exchange Notes or the price at which such holders would be able to sell their
Exchange Notes. The Exchange Notes will not be listed on any securities
exchange. If the Exchange Notes are traded after their initial issuance, they
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the performance of
the Company and other factors. Although there is currently no market for the
Exchange Notes, the Initial Purchaser has advised the Company that it intends to
make a market in the Exchange Notes after consummation of the Exchange Offer, as
permitted by applicable laws and regulations; however, the Initial Purchaser is
not obligated to do so and any such market-making activity may be discontinued
at any time without notice.
USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer. The net proceeds from the offering of the Notes were used, together with
the proceeds of the Bank Term Facility and the cash contributions by Blackstone
and Loewen, as follows: (i) approximately $166.3 million was used to acquire the
Cemetery (including repayment of approximately $1.0 million of outstanding
intercompany indebtedness owed by the Mortuary to the Cemetery), (ii)
approximately $59.9 million was used to acquire the Mortuary, (iii)
approximately $15.1 million was used to repay outstanding indebtedness of the
Mortuary owed to Wells Fargo Bank, N.A., (iv) approximately $0.5 million was
used to pre-fund certain restructuring costs of the Company; and (v)
approximately $20.0 million was used to pay other fees and expenses related to
the Acquisition Transaction. See 'Summary--The Acquisition Transaction,'
'Capitalization' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Mortuary and the Cemetery--Liquidity
and Capital Resources'.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Notes were originally issued and sold on November 19, 1996. The offer
and sale of the Notes was not required to be registered under the Securities Act
in reliance upon the exemption provided by Section 4(2) of the Securities Act.
In connection with the sale of the Notes, the Issuer agreed to use its best
efforts to cause to be filed with the Commission a registration statement
relating to an exchange offer pursuant to which new senior subordinated notes of
the Issuer covered by such registration statement and containing terms
indentical in all material respects to the terms of the Notes would be offered
in exchange for Notes tendered at the option of the holders thereof, or, if
applicable interpretations of the staff of the Commission did not permit the
Issuer to effect such an Exchange Offer, the Issuer agreed to file a shelf
registration statement covering resales of the Notes (the 'Shelf Registration
Statement') and use its best efforts to have such Shelf Registration Statement
become effective under the Securities Act and to keep effective the Shelf
Registration Statement for 180 days after the effective date thereof or such
shorter period ending when all Notes covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement.
The purpose of the Exchange Offer is to fulfill certain of the Issuer's
obligations under the Registration Rights Agreement. Except as otherwise
expressly set forth herein, this Prospectus may not be used by any holder of the
Notes or any holder of the Exchange Notes to satisfy the registration and
prospectus delivery requirements under the Securities Act that may apply in
connection with any resale of such Notes or Exchange Notes. See '--Terms of the
Exchange.'
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See 'Plan of Distribution.'
20
<PAGE>
TERMS OF THE EXCHANGE
The Issuer hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of Notes.
The terms of the Exchange Notes are identical in all material respects to the
terms of the Notes for which they may be exchanged pursuant to this Exchange
Offer, except that the Exchange Notes will generally be freely transferable by
holders thereof and will not be subject to any covenant regarding registration.
The Exchange Notes will evidence the same indebtedness as the Notes and will be
entitled to the benefits of the Indenture. See 'Description of Exchange Notes.'
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes being tendered for exchange.
The Issuer has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Notes
may be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties
(see Exxon Capital Holdings Corp. (available April 13, 1989), Morgan Stanley &
Co. Incorporated (available June 5, 1991) and Shearman & Sterling (available
July 2, 1993)), the Issuer believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by any holder of such Exchange Notes (other than any such
holder that is an 'affiliate' of the Issuer within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any other such person is
engaging in or intends to engage in the distribution of such Exchange Notes.
Since the Commission has not considered the Exchange Offer in the context of a
no-action letter, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer. Any
holder who is an affiliate of the Company or who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes cannot
rely on such interpretation by the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each holder must acknowledge that it has
no arrangement or understanding with any person to participate in the
distribution of Exchange Notes. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Notes, where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See '--Terms and Conditions of the
Letter of Transmittal' and 'Plan of Distribution.'
Interest on the Exchange Notes shall accrue from the last Interest Payment
Date on which interest was paid on the Notes so surrendered or, if no interest
has been paid on such Notes, from November 19, 1996.
Tendering holders of the Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Notes pursuant
to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term
'Expiration Date' means 5:00 p.m., New York City time, on , 1997,
unless the Issuer in its sole discretion extends the period during which the
Exchange Offer is open, in which event the term 'Expiration Date' shall mean the
latest time and date on which the Exchange Offer, as so extended by the Company,
shall expire. The Issuer reserves the right to extend the Exchange Offer at any
time and from time to time by giving oral or written notice to United States
Trust Company of New York (the 'Exchange Agent') and by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service.
21
<PAGE>
During any extension of the Exchange Offer, all Notes previously tendered and
not withdrawn pursuant to the Exchange Offer will remain subject to the Exchange
Offer.
The term 'Exchange Date' means the first business day following the
Expiration Date. The Issuer expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Notes if any of the events set
forth below under 'Conditions to the Exchange Offer' shall have occurred and
shall not have been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is advantageous
to the holders of the Notes, whether before or after any tender of the Notes.
Unless the Issuer terminates the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date, the Issuer will exchange the Exchange Notes
for the Notes on the Exchange Date.
TENDER PROCEDURE
The tender to the Issuer of Notes by a holder thereof pursuant to one of
the procedures set forth below and the acceptance thereof by the Issuer will
constitute a binding agreement between such holder and the Issuer in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent out on or about , 1997, to all holders of Notes
known to the Issuer and the Exchange Agent.
A holder of Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Notes being tendered and any required signature guarantees and
any other documents required by the Letter of Transmittal, to the Exchange Agent
at its address set forth on the Letter of Transmittal on or prior to the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Notes are registered in the name of the signer of the Letter of
Transmittal and the Exchange Notes to be issued in exchange therefor are to be
issued (and any untendered Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
'book-entry transfer facility') whose name appears on a security listing as the
owner of Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Issuer and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office, branch, agency or correspondent in the United States, or by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. (any of the foregoing hereinafter
referred to as an 'Eligible Institution'). If the Exchange Notes and/or Notes
not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Notes, the signature in
the Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE OBTAINED, AND THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR
NOTES SHOULD BE SENT TO THE ISSUER.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Notes at the book-entry
transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the book-entry transfer facility system may make book-entry
delivery of Notes by causing such book-entry transfer facility to transfer such
Notes into the Exchange Agent's account with respect to the Notes in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Notes may be effected through book-entry transfer into the Exchange
Agent's accounts at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and
22
<PAGE>
received or confirmed by the Exchange Agent at its address set forth on the
Letter of Transmittal on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Notes to reach the Exchange Agent before the Expiration
Date or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if the Exchange Agent has received at its office
listed on the Letter of Transmittal on or prior to the Expiration Date a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Notes are registered and, if possible, the certificate numbers of the Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that three New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Notes, in proper form for transfer (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at the
book-entry facility), will be delivered by such Eligible Institution together
with a properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Notes being tendered by the above-described method
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Notes (or a confirmation of book-entry transfer of such Notes
into the Exchange Agent's account at the book-entry transfer facility) is
received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Notes will be determined
by the Issuer, whose determination will be final and binding. The Issuer
reserves the absolute right to reject any Notes not properly tendered or the
acceptance for exchange of which may, in the opinion of the Issuer's counsel, be
unlawful. The Issuer also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Notes. Unless waived, any defects or irregularities in connection with
tenders of Notes for exchange must be cured within such reasonable period of
time as the Company shall determine. None of the Issuer, the Exchange Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See 'Plan of Distribution.'
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the 'Transferor') exchanges,
assigns and transfers the Notes to the Issuer and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Notes and to acquire Exchange Notes issuable
upon the exchange of such tendered Notes, and that, when the same are accepted
for exchange, the Issuer
23
<PAGE>
will acquire good and unencumbered title to the tendered Notes, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The Transferor also warrants that it will, upon request, execute
and deliver any additional documents deemed by the Exchange Agent or the Issuer
to be necessary or desirable to complete the exchange, assignment and transfer
of tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The Transferor further agrees that
acceptance of any tendered Notes by the Issuer and the issuance of Exchange
Notes in exchange therefor shall constitute performance in full by the Issuer of
certain of its obligations under the Registration Rights Agreement. All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
By tendering, each holder of Notes will represent to the Issuer that, among
other things, (i) such Holder is not an 'affiliate' of the Issuer within the
meaning of Rule 405 under the Securities Act, (ii) Exchange Notes to be acquired
by such holder of Notes in connection with the Exchange Offer are being acquired
by such holder in the ordinary course of business of such holder and (iii) such
holder has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes. If the holder is a broker-dealer that will
receive Exchange Notes for such holder's own account in exchange for Notes that
were acquired as a result of market-making activities or other trading
activities, such holder will be required to acknowledge in the Letter of
Transmittal that such holder will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, such holder will not be deemed to admit that it is an 'underwriter'
within the meaning of the Securities Act. See 'Plan of Distribution.' This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Issuer will,
for a period of 180 days after the Expiration Date, make copies of this
Prospectus available to any broker-dealer for use in connection with any such
resale.
WITHDRAWAL RIGHTS
Tenders of Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the Letter of Transmittal, and with respect to a facsimile
transmission, must be confirmed by telephone and an original delivered by
guaranteed overnight delivery. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered Notes to be
withdrawn, the certificate numbers of Notes to be withdrawn, the principal
amount of Notes to be withdrawn, a statement that such holder is withdrawing his
election to have such Notes exchanged, and the name of the registered holder of
such Notes, and must be signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Issuer that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Notes promptly following receipt of notice of withdrawal. If Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Notes or otherwise comply
with the book-entry transfer procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Issuer and such determination will be final and binding on all parties.
Any Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Notes tendered by
book-entry transfer into the Exchange Agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described above, such
Notes will be credited to an account with such book-entry transfer facility
specified by the holder) as soon as practicable after withdrawal, rejection of
tender or termination of the
24
<PAGE>
Exchange Offer. Properly withdrawn Notes may be retendered by following one of
the procedures described under '--Tender Procedure' above, at any time on or
prior to the Expiration Date.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the satisfaction or waiver, prior to the Expiration Date, of all the
terms and conditions of the Exchange Offer, the acceptance for exchange of Notes
validly tendered and not withdrawn and issuance of the Exchange Notes will be
made on the Exchange Date. For the purposes of the Exchange Offer, the Issuer
shall be deemed to have accepted for exchange validly tendered Notes when, as
and if the Issuer has given oral or written notice thereof to the Exchange
Agent.
The Exchange Agent will act as agent for the tendering holders of Notes for
the purposes of receiving Exchange Notes from the Issuer and causing the Notes
to be assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Notes will be made by the Exchange Agent promptly after
acceptance of the tendered Notes. Tendered Notes not accepted for exchange by
the Issuer will be returned without expense to the tendering holders promptly
following the Expiration Date or, if the Issuer terminated the Exchange Offer
prior to the Expiration Date, promptly after the Exchange Offer is so
terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuer will not be required to issue Exchange Notes
in respect of any properly tendered Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News
Service), or, at its option, modify or otherwise amend the Exchange Offer, if
any of the following events occur:
(a) any law, rule or regulation or applicable interpretations of the
staff of the Commission which, in the good faith determination of the
Issuer, do not permit the Issuer to effect the Exchange Offer; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
that is an 'affiliate' of the Issuer within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangements with any person to participate in the
distribution of such Exchange Notes; or
(c) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(d) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Issuer that is or may be adverse to the Issuer, or the
Issuer shall have become aware of facts that have or may have adverse
significance with respect to the value of the Notes or the Exchange Notes;
25
<PAGE>
which, in the reasonable judgment of the Issuer in any case, and regardless of
the circumstances (including any action by the Issuer) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The Issuer expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Notes upon the occurrence of any of the foregoing
conditions (which represent all of the material conditions to the acceptance by
the Issuer of properly tendered Notes). In addition, the Issuer may amend the
Exchange Offer at any time prior to the Expiration Date if any of the conditions
set forth above occur. Moreover, regardless of whether any of such conditions
has occurred, the Issuer may amend the Exchange Offer in any manner which, in
its good faith judgment, is advantageous to holders of the Notes.
The foregoing conditions are for the sole benefit of the Issuer and may be
waived by the Issuer, in whole or in part, in the reasonable judgment of the
Issuer. Any determination made by the Issuer concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
The Issuer is not aware of the existence of any of the foregoing events.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the Letter of Transmittal. United
States Trust Company of New York also acts as Trustee and Registrar (the
'Registrar') under the Indenture.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
The Issuer has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Issuer
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Issuer will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and related documents to the
beneficial owners of the Notes and in handling or forwarding tenders for their
customers.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuer. Neither the delivery
of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuer since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuer may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Notes in
such jurisdiction. In any jurisdiction in which the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Issuer by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
26
<PAGE>
TRANSFER TAXES
Holders who tender their Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Issuer to register Exchange Notes in the name of, or request that Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
EFFECTS OF TENDERING ON HOLDERS OF NOTES
Participation in the Exchange Offer is voluntary, and holders of Notes
should carefully consider whether to participate. Holders of the Notes are urged
to consult their financial and tax advisors in making their own decisions on
which action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Notes pursuant to the terms of, this Exchange Offer, the Issuer
will have fulfilled certain covenants contained in the Registration Rights
Agreement. Holders of Notes who do not tender their Notes in the Exchange Offer
will continue to hold such Notes and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture, except for such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effectiveness as a result of the making of this Exchange Offer.
See 'Description of Exchange Notes.' All untendered Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture. In general,
the Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Notes under the Securities Act.
To the extent that Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Notes could be adversely affected.
The Issuer may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Issuer has no present plan to acquire any Notes which are not
tendered in the Exchange Offer.
27
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
after giving effect to the Acquisition Transaction. This table should be read in
conjunction with 'Unaudited Pro Forma Financial Information' and the
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
AS AT SEPTEMBER 30,
1996
-------------------
(IN MILLIONS)
<S> <C>
Bank Term Facility (1):
Current..................................................................................... $ 1.0
Non-current................................................................................. 74.0
Senior Subordinated Notes..................................................................... 80.0
Other long term debt:
Current..................................................................................... 0.2
Non-current................................................................................. 1.5
-------
Total debt (2)........................................................................... 156.7
Total shareholders' equity.................................................................... 129.6
-------
Total capitalization..................................................................... $ 286.3
-------
-------
</TABLE>
- ------------------------
(1) The Company has the right under the Bank Credit Facilities to increase the
amount of the Bank Term Facility by $25.0 million if certain performance
criteria are met.
(2) The Company has the ability, subject to customary borrowing conditions, to
borrow up to $25.0 million for general corporate purposes pursuant to the
Revolving Credit Facility.
28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following presents unaudited pro forma statements of operations for the
year ended December 31, 1995 and the nine months ended September 30, 1996 and
gives effect to the following transactions as if they had occurred on January 1,
1995: (i) the Acquisition; (ii) the contribution to the Issuer of the Satellite
Properties; (iii) the termination of certain contractual arrangements; (iv) new
contractual arrangements between the Company, Management, Blackstone and Loewen;
(v) the change in status of the Cemetery from a not-for-profit association to a
taxable entity; and (vi) the sale of the Notes, the borrowing under the Bank
Term Facility and the application of the net proceeds therefrom. The pro forma
balance sheet as of September 30, 1996 has been prepared as if such transactions
had occurred on that date. The adjustments, which are based upon available
information and upon certain assumptions that Management believes are
reasonable, are described in the accompanying notes. The pro forma financial
information should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Mortuary and
the Cemetery' and the Consolidated Financial Statements and the accompanying
notes thereto and the other financial information included elsewhere in this
Prospectus.
The Acquisition and the contribution of the Satellite Properties were
accounted for using the purchase method of accounting. The total purchase cost
was allocated to the tangible and intangible assets acquired and liabilities
assumed based on their respective fair values. The excess of purchase cost over
the historical basis of the net assets acquired has been allocated in the
accompanying pro forma financial information based upon preliminary appraisal
estimates and other valuation studies which are in process and certain
assumptions that Management believes are reasonable. The actual allocation is
subject to the finalization of these studies; however, Management does not
expect that the difference between the preliminary and final allocations will
have a material impact on the Company's financial position or results of
operations.
The pro forma financial information is not necessarily indicative of either
future results of operations or the results that might have occurred if the
foregoing transactions had been consummated on the indicated dates.
29
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------------------------------- ----------- ----------
SATELLITE
MORTUARY CEMETERY PROPERTIES
-------- -------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Funeral sales and services..................... $ 18.7 $ -- $9.8 $ -- $ 28.5
Cemetery sales and services.................... -- 23.0 1.4 -- 24.4
Other.......................................... 3.7 1.4(A) -- (0.4)(B) 4.7
-------- -------- ----- ----------- ----------
22.4 24.4 11.2 (0.4) 57.6
-------- -------- ----- ----------- ----------
Cost of sales and services:
Funeral sales and services..................... 6.0 -- 6.9 -- 12.9
Cemetery sales and services.................... -- 4.4 1.2 0.3(C) 5.9
-------- -------- ----- ----------- ----------
6.0 4.4 8.1 0.3 18.8
-------- -------- ----- ----------- ----------
Selling, general and administrative
expenses....................................... 11.2 17.9 1.6 (3.0)(D) 27.7
Amortization of goodwill and other
intangibles.................................... 0.5 (0.3) 0.2 3.4(E) 3.8
-------- -------- ----- ----------- ----------
Operating income.................................. 4.7 2.4 1.3 (1.1) 7.3
-------- -------- ----- ----------- ----------
Other income and expense:
Interest expense............................... 2.4 0.2 0.9 12.9(F) 16.4
Other income................................... -- (0.1) -- 0.1(B) --
-------- -------- ----- ----------- ----------
2.4 0.1 0.9 13.0 16.4
-------- -------- ----- ----------- ----------
Income (loss) before taxes........................ 2.3 2.3 0.4 (14.1) (9.1)
Income tax expense (benefit)...................... 1.1 -- 0.2 (4.1)(G) (2.8)
-------- -------- ----- ----------- ----------
Net income (loss)................................. $ 1.2 $ 2.3 $0.2 $ (10.0) $ (6.3)
-------- -------- ----- ----------- ----------
-------- -------- ----- ----------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Financial Information
30
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS--(CONTINUED)
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
--------------------------------- ----------- ----------
SATELLITE
MORTUARY CEMETERY PROPERTIES
-------- -------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Funeral sales and services..................... $ 15.1 $ -- $7.1 $ -- $ 22.2
Cemetery sales and services.................... -- 17.8 1.6 -- 19.4
Other.......................................... 2.3 1.3(A) -- (0.3)(B) 3.3
-------- -------- ----- ----------- ----------
17.4 19.1 8.7 (0.3) 44.9
-------- -------- ----- ----------- ----------
Cost of sales and services:
Funeral sales and services..................... 4.7 -- 5.2 -- 9.9
Cemetery sales and services.................... -- 3.3 1.1 0.2(C) 4.6
-------- -------- ----- ----------- ----------
4.7 3.3 6.3 0.2 14.5
-------- -------- ----- ----------- ----------
Selling, general and administrative
expenses....................................... 8.7 13.0 1.1 (1.9)(D) 20.9
Amortization of goodwill and other
intangibles.................................... 0.1 -- 0.2 2.6(E) 2.9
-------- -------- ----- ----------- ----------
Operating income.................................. 3.9 2.8 1.1 (1.2) 6.6
-------- -------- ----- ----------- ----------
Other income and expenses:
Interest expense............................... 1.3 0.1 0.9 10.0(F) 12.3
Other income................................... (0.2) (0.1) -- 0.1(B) (0.2)
-------- -------- ----- ----------- ----------
1.1 -- 0.9 10.1 12.1
-------- -------- ----- ----------- ----------
Income (loss) before taxes........................ 2.8 2.8 0.2 (11.3) (5.5)
Income tax expense (benefit)...................... 1.2 -- 0.1 (3.0)(G) (1.7)
-------- -------- ----- ----------- ----------
Net income (loss)................................. $ 1.6 $ 2.8 $0.1 $ (8.3) $ (3.8)
-------- -------- ----- ----------- ----------
-------- -------- ----- ----------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Financial Information
31
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
--------------------------------- ----------- ----------
SATELLITE
MORTUARY CEMETERY PROPERTIES
-------- -------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and investments............................... $ 1.5 $ -- $ 0.2 $ (0.1)(H,I) $ 1.6
Customer accounts receivable, net.................. 1.7 3.3 1.4 -- 6.4
Due from cemetery.................................. 4.1 -- -- (4.1)(J) --
Other receivables.................................. 1.9 0.5 -- (0.3)(B) 2.1
Inventories........................................ 0.4 4.9 0.5 (4.9)(K) 0.9
Prepaids and other current assets.................. 0.9 -- 0.1 -- 1.0
-------- -------- ---------- ----------- ---------
Total current assets................................. 10.5 8.7 2.2 (9.4) 12.0
Property and equipment, net.......................... 12.9 38.8 13.6 (7.5)(K) 57.8
Cemetery properties.................................. -- -- 1.8 79.9(J,K) 81.7
Long-term receivables................................ -- 5.2 1.1 -- 6.3
Notes receivable from mortuary....................... -- 0.8 -- (0.8)(B) --
Covenants not to compete............................. -- -- 0.9 2.0(J) 2.9
Deferred financing and organization costs............ -- -- -- 13.0(L) 13.0
Goodwill and other intangibles....................... 2.7 -- 4.1 123.8(J) 130.6
Other assets......................................... -- 1.0 -- (0.3)(J) 0.7
-------- -------- ---------- ----------- ---------
$ 26.1 $ 54.5 $ 23.7 $ 200.7 $ 305.0
-------- -------- ---------- ----------- ---------
-------- -------- ---------- ----------- ---------
LIABILITIES
Current Liabilities:
Current portion of long-term debt.................. $ 17.6 $ -- $ 0.2 $ (16.6)(L) $ 1.2
Current portion of capital lease obligations....... -- 0.2 -- -- 0.2
Current portion of obligation under covenants not
to compete...................................... -- -- 0.1 0.6(J) 0.7
Accounts payable and accrued expenses.............. 3.1 1.4 0.6 -- 5.1
Due to mortuary.................................... -- 4.0 -- (4.0)(J) --
Other liabilities.................................. 1.2 -- -- -- 1.2
-------- -------- ---------- ----------- ---------
Total current liabilities............................ 21.9 5.6 0.9 (20.0) 8.4
Long-term debt....................................... -- -- 1.5 -- 1.5
Notes payable to cemetery............................ 1.1 -- -- (1.1)(B) --
Bank term loan....................................... -- -- -- 74.0(L) 74.0
Subordinated debt.................................... -- -- -- 80.0(L) 80.0
Capital lease obligations............................ 0.2 0.2 -- -- 0.4
Retirement plan liabilities.......................... 4.9 2.7 -- (0.2)(I,J) 7.4
Obligation under covenants not to compete............ -- -- 0.6 1.4(J) 2.0
Deferred income taxes................................ 0.3 -- 0.7 -- 1.0
Other long-term liabilities.......................... -- -- 0.7 -- 0.7
-------- -------- ---------- ----------- ---------
Total liabilities.................................... 28.4 8.5 4.4 134.1 175.4
-------- -------- ---------- ----------- ---------
SHAREHOLDER'S EQUITY
Common stock......................................... -- -- -- -- --
Additional paid in capital........................... -- -- -- 129.6(M) 129.6
Retained earnings (deficiency)....................... (2.3) 46.0 19.3 (63.0)(J) --
-------- -------- ---------- ----------- ---------
(2.3) 46.0 19.3 66.6 129.6
-------- -------- ---------- ----------- ---------
$ 26.1 $ 54.5 $ 23.7 $ 200.7 $ 305.0
-------- -------- ---------- ----------- ---------
-------- -------- ---------- ----------- ---------
</TABLE>
See Notes to Unaudited Pro Forma Financial Information
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
A) Other cemetery revenues principally relate to investment income on the
Fund. During 1996 the Association changed its investment strategy from capital
growth to current income. The impact of a 1.0% change in the investment return
over a full year, based on the Fund balance in marketable securities of $53.0
million at September 30, 1996, is an increase or decrease in investment income
of $0.5 million before taxation.
B) Represents the elimination of intercompany balances and income between
the Mortuary and the Cemetery as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Elimination of cemetery management fee:
Other revenue.................................... $ (0.4) $ (0.3)
------- -------
------- -------
Elimination of interest on intercompany notes:
Interest income.................................. 0.1 0.1
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30
1996
------------------
(IN MILLIONS)
<S> <C>
Elimination of intercompany notes:
Other receivables.................................................... $ (0.3)
Notes receivable from Mortuary....................................... (0.8)
-------
$ (1.1)
-------
-------
Notes payable to Cemetery............................................ $ (1.1)
-------
-------
</TABLE>
C) Represents the incremental non-cash cost of cemetery sales of grave
sites, crypts and niches based on preliminary appraisals and Management's final
evaluation of the fair value of cemetery property. See Note (J). Such final
allocation and the resulting effect on net income is not expected to differ
significantly from the pro forma amounts included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Non-cash cost of grave sites, crypts and niches sold:
Pro forma cost................................... $ 1.1 $ 0.7
Less historical cost............................. (0.8) (0.5)
------- -------
Net adjustment to cemetery cost of sales......... $ 0.3 $ 0.2
------- -------
------- -------
</TABLE>
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
D) Represents the net reduction in selling, general and administrative
expenses resulting from (i) the termination of certain contractual arrangements
with executive management and between the Mortuary and the Cemetery, (ii) new
contractual arrangements involving Rose Hills, Management, Blackstone and
Loewen, (iii) the change in status of the Cemetery from a not-for-profit
association to a taxable entity, and (iv) the application of purchase accounting
adjustments. The Unaudited Pro Forma Statements of Operations do not reflect
certain additional cost savings expected to be achieved from the changes in
operating strategy described under 'Business Strategy Following Acquisition' or
$0.5 million relating to certain other one-time costs.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Salaries and benefits(1).............................. $ 2.1 $ 1.6
Employee and trustee benefits plans(2)................ 1.2 0.5
Overhead allocation(3)................................ 0.9 0.7
Cemetery management fees(4)........................... 0.4 0.3
Real estate and personal property taxes(5)............ (1.0) (0.8)
Administrative Services Agreement(6).................. (0.3) (0.2)
Monitoring fee(7)..................................... (0.3) (0.2)
------- -------
Net reduction......................................... $ 3.0 $ 1.9
------- -------
------- -------
</TABLE>
--------------------------
(1) Represents the reduction of executive/owner salaries and benefits
from historic levels to new contractual amounts and the reduction of
salaries and benefits related to specifically identified job
positions that were or will be eliminated and replaced, in part, by
the Administrative Services Agreement that was entered into on the
Acquisition Closing Date. See 'Certain Related
Transactions--Administrative Services Agreement' and 'Management.'
(2) Represents the effect of applying purchase accounting to historical
benefits plan expense after taking into account that certain plans
were or will be terminated, frozen, or otherwise discontinued after
the Acquisition Closing Date in accordance with the terms of the
definitive agreements relating to the Acquisition. See 'Certain
Related Transactions--The Acquisition.'
(3) Represents the elimination of overhead charges allocated by Loewen
to the Satellite Properties that were or will be replaced by the
Administrative Services Agreement. See 'Certain Related
Transactions--Administrative Services Agreement.'
(4) Represents the termination of fees payable to trustees and the
elimination of cemetery management fees charged by the Mortuary to
the Cemetery pursuant to the Operating and Management Agreement that
was terminated as of the Acquisition Closing Date. See
'Business--Company Overview.'
(5) Represents estimated incremental real estate and personal property
taxes that will be incurred as a result of the change in status of
the Cemetery from a not-for-profit association to a taxable entity.
(6) Represents fees payable to Loewen pursuant to the Administrative
Services Agreement. See 'Certain Related
Transactions--Administrative Services Agreement.'
(7) Represents monitoring fees payable to an affiliate of Blackstone
pursuant to the Shareholder's Agreement that was entered into on the
Acquisition Closing Date. See 'Certain Related Transactions--Payment
of Certain Fees and Expenses.'
Both historical and pro forma selling, general and administrative expenses
include non-recurring transaction-related expenses for legal, accounting and
investment banking services which amounted to $0.3 million and $1.4 million for
the year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
E) Represents the incremental amortization of goodwill resulting from the
preliminary allocation of the purchase cost.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Pro forma amortization:
Goodwill(1)......................................... $ 3.3 $ 2.5
Covenants not to compete(2)......................... 0.6 0.4
Less historical amortization.......................... (0.5) (0.3)
------- -------
Net adjustment........................................ $ 3.4 $ 2.6
------- -------
------- -------
</TABLE>
--------------------------
(1) Represents total pro forma goodwill amortization based upon goodwill
of $130.6 million and an amortization period of 40 years.
(2) Represents total pro forma amortization of covenants not to compete
based upon a preliminary capitalized valuation of $2.9 million and
average term of 5 years.
F) Interest expense based on the pro forma capitalization of the Company is
summarized in the table below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Notes(1).............................................. $ 7.6 $ 5.7
Bank Term Facility(2)................................. 6.4 4.7
Commitment fees(3).................................... 0.1 0.1
Interest on covenants not to compete(4)............... 0.2 0.1
Less historical interest on debt repaid............... (2.3) (1.1)
Less intercompany interest expense(5)................. (0.7) (0.7)
-------- -------
Increase in cash interest expense..................... 11.3 8.8
Amortization of deferred financing costs(6)........... 1.7 1.3
Less historical amortization of deferred financing
costs............................................... (0.1) (0.1)
-------- -------
Total increase in interest expense.................... $ 12.9 $ 10.0
-------- -------
-------- -------
</TABLE>
--------------------------
(1) Assumes an interest rate of 9.5%.
(2) Pro forma average balances for the Bank Term Facility were
determined based on the scheduled maturities. The pro forma average
balance for the Bank Term Facility was $74.8 million for the year
ended December 31, 1995 and $73.8 million for the nine months ended
September 30, 1996. Assumes an interest rate of 8.60%.
(3) Represents a commitment fee of 0.5% applied to the $25.0 million
unused portion of the Revolving Credit Facility. The pro forma
average balance drawn-down was nil.
(4) Represents interest at 10% on covenants not to compete.
(5) Represents the elimination of interest expense on intercompany notes
and the interest expense charged by Loewen to the Satellite
Properties.
(6) Deferred financing costs are amortized over the life of the related
debt, seven years for the Revolving Credit Facility and the Bank
Term Facility and eight years for the Notes.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
A change of 0.125% in the interest rate shown above would change interest
expense on the Bank Credit Facilities by $93,500 and $69,200 for the year ended
December 31, 1995 and the nine months ended September 30, 1996, respectively.
G) Represents the adjustment required to record income taxes on the pro
forma results of operations assuming a 41% combined federal and state income tax
rate. Based on estimates of future taxable income, it is Management's opinion
that the realization of such tax benefits is more likely than not; however, no
assurance can be given as to the levels of taxable income in the future, if any.
H) The adjustment gives effect to $0.5 million of cash raised to fund
certain one time expenditures, net of $0.3 million of cash used to finance the
Acquisition and $0.3 million used to pay certain retirement plan liabilities.
See Note (I).
I) The adjustment reflects the payout of certain retirement plan
liabilities of $0.3 million in accordance with the terms of the agreement
relating to the acquisition of the Mortuary. See 'Certain Related Transactions.'
J) Reflects adjustments to assets acquired and liabilities assumed based on
their estimated fair values under the purchase method of accounting. The
allocation of the aggregate purchase cost below is based on preliminary
appraisals and other studies that are currently in process and management's
final evaluation of such assets and liabilities. The actual allocation is
subject to finalization of these studies; however, Management does not expect
that the difference between the preliminary and final allocations will have a
material impact on the Company's financial position or results of operations.
The preliminary adjustments are summarized in the table below:
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30, 1996
--------------------------------------------
(IN MILLIONS)
SATELLITE
MORTUARY CEMETERY PROPERTIES TOTAL
-------- -------- ---------- ------
<S> <C> <C> <C> <C>
Purchase price.................................... $ 57.4 $166.4 $ 23.0 $246.8
Direct acquisition costs........................ 1.6 4.7 0.7 7.0
-------- -------- ---------- ------
Total consideration and direct acquisition
costs...................................... 59.0 171.1 23.7 253.8
Less: historical cost of (net assets)
shareholders' deficit acquired.................. 2.3 (46.0) (19.3) (63.0)
-------- -------- ---------- ------
Net adjustment.................................... $ 61.3 $125.1 $ 4.4 $190.8
-------- -------- ---------- ------
-------- -------- ---------- ------
Allocation of net adjustment:
Due from Cemetery(1)............................ $ (4.1) $ -- $ -- $ (4.1)
Covenants not to compete(2)..................... 2.0 -- -- 2.0
Goodwill(3)..................................... 64.8 54.6 4.4 123.8
Cemetery properties(4).......................... -- 67.5 -- 67.5
Other assets(5)................................. -- (0.3) -- (0.3)
Due to Mortuary(1).............................. -- 4.0 -- 4.0
Retirement plan liabilities(5).................. 0.6 (0.7) -- (0.1)
Obligations under covenants not to compete(2):
Current...................................... (0.6) -- -- (0.6)
Noncurrent................................... (1.4) -- -- (1.4)
-------- -------- ---------- ------
Total allocated.............................. $ 61.3 $125.1 $ 4.4 $190.8
-------- -------- ---------- ------
-------- -------- ---------- ------
</TABLE>
(Footnotes on next page)
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
(Footnotes from previous page)
--------------------------
(1) Represents the settlement of intercompany balances between the
Mortuary and the Cemetery in accordance with the terms of the
relevant Acquisition agreements.
(2) Represents the present value of cash payments due under
non-competition agreements computed at a 10% discount rate.
(3) Represents incremental goodwill.
(4) Represents the adjustment required to record cemetery land at its
estimated fair value of $75.0 million.
(5) Represents the adjustments required to record retirement plan
liabilities at their actuarially determined values, after taking
into account that certain plans were frozen, terminated or
otherwise discontinued after the Acquisition Closing Date.
K) Represents the reclassification of cemetery property balances for
consistency of accounting purposes as follows:
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30,
1996
-------------------
(IN MILLIONS)
<S> <C>
Inventories............................................................... $ (4.9)
Property and equipment.................................................... (7.5)
Cemetery properties....................................................... 12.4
</TABLE>
L) These adjustments record (i) the issuance of the Notes ($80.0 million),
(ii) new borrowing under the Bank Term Facility ($75.0 million), (iii) the use
of a portion of the net proceeds to repay existing indebtedness ($17.6 million),
and (iv) the capitalization of deferred financing costs of $13.0 million. See
'Use of Proceeds.' The table below reflects the financing transactions.
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30,
1996
-------------------
(IN MILLIONS)
<S> <C>
Issuance of Notes......................................................... $ 80.0
Borrowing under Bank Term Facility(1):
Current.............................................................. 1.0
Non-current.......................................................... 74.0
Deferred financing costs.................................................. 13.0
-------
$ 168.0
-------
-------
Repayment of existing indebtedness:
Long-term debt:
Current............................................................ $ 17.6
Non-current........................................................ --
-------
$ 17.6
-------
-------
</TABLE>
--------------------------
(1) The Company has the right under the Bank Credit Facilities to
increase the amount of the Bank Term Facility by $25.0 million if
certain performance critera are met. The Company has the ability,
subject to customary borrowing conditions, to borrow $25.0 million
for general corporate purposes pursuant to the Revolving Credit
Facility.
M) Represents the contribution by RH Holdings to the Company of cash of
$107.0 million and the Satellite Properties with a fair value of $23.0 million
net of $0.4 million advanced to RHIMD to finance its purchase of RH Holdings
Common Stock. See 'Summary--The Acquisition Transaction' and 'Use of Proceeds.'
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE MORTUARY AND THE CEMETERY
THE MORTUARY
GENERAL
The Mortuary is the largest single location mortuary in the United States.
In 1995, the Mortuary performed approximately 5,500 funeral calls and has a
current capacity to provide over 30 funeral services per day. The
Mortuary provides a complete range of funeral services, including collection of
remains, certification of death, embalming, sale of caskets and related
merchandise, sale of flowers, visitation facilities and transportation to place
of services and to burial site. All funeral arrangements provided to each of the
Mortuary's customers are delivered by experienced counselors with the assistance
of a centralized computer system.
The Mortuary began operations in 1956, when the Association recognized that
additional revenue opportunities existed in funeral services. The Mortuary was
spun off in 1976 as a taxable, for profit, wholly-owned subsidiary of the
Association. In 1990, the Association sold the Mortuary business to senior
management in a leveraged buyout transaction. During the period from 1990 until
the closing of the Acquisition Transaction, the Mortuary operated the Cemetery
pursuant to a management agreement between the Mortuary and the Association. In
conjunction with the sale of the Mortuary, the Cemetery entered into a covenant
not to compete which generated expense to the Mortuary (and income to the
Cemetery) through May 1995.
The Mortuary provides funeral services on both an at-need and pre-need
basis. Since 1987, all pre-need funeral services have been funded through the
sale by the Mortuary to its customers of a life insurance product provided by
ForeThought, a subsidiary of Hillenbrand Industries. Under the ForeThought Plan,
the Mortuary is named the beneficiary of the insurance policy but does not
recognize funeral service revenue related to the contracted services until such
services are provided, although it does recognize commission income upon the
sale of such policies. On the date of performance of the prearranged funeral
service, the Mortuary recognizes funeral service income and the proceeds
received under the policy are applied against the contract. Prior to 1987, the
Mortuary also offered trust-backed and debenture-backed pre-need products.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues increased 4.2% to $17.4 million for the nine months ended
September 30, 1996, from $16.7 million for the same period in 1995, primarily
due to increased funeral service revenues. The increased revenue resulted from
routine service price increases offset by a 1.7% decrease in funeral call
volume. Cost of sales and services for the two respective periods remained
approximately the same as a percent of revenues, and gross profit margins
remained unchanged at approximately 73.0%. Gross profit rose from $12.3
million to $12.7 million in 1996 primarily as a result of increased revenues.
Selling, general and administrative expense increased to $8.7 million in
the first nine months of 1996 from $7.9 million in the same period in 1995,
primarily attributable to $0.7 million in professional services relating to the
sale of the Mortuary. As a percentage of revenue, selling, general and
administrative expense increased from 47.3% during the first nine months of 1995
to 50.0% during the same period in 1996 primarily due to the increase in
professional expenses. Amortization of goodwill and other intangibles in the
first nine months of 1995 exceeded those incurred in the same period in 1996
primarily as a result of a $0.4 million covenant not to compete amortization
charge which expired in 1995.
Net interest expense decreased $0.7 million in 1996 as a result of lower
average debt balances and lower interest rates in 1996 compared to 1995. Reduced
net interest expense increased operating profit to $2.8 million in the nine
months ended September 30, 1996, compared to $2.1 million for the same period in
1995. Net income increased 45.5% to $1.6 million in the nine months ended
September 30, 1996, from $1.1 million in the comparable period in 1995.
38
<PAGE>
1995 COMPARED WITH 1994
Revenues increased 1.4% to $22.4 million in 1995 from $22.1 million in
1994, primarily due to increased funeral service, casket and flower revenues.
The increased funeral revenues resulted from routine service and casket price
increases, which more than offset a 1.5% decrease in funeral call volume. Cost
of sales and services for the two respective periods, although constant,
decreased slightly as a percent of sales reflecting decreased funeral service
margins offset by increased casket margins due to a change in the product mix of
caskets offered. As a result, gross profit margins were essentially unchanged at
approximately 73.0%. Gross profit rose from $16.1 million to $16.4 million
primarily as a result of an increase in revenues.
Selling, general and administrative expense increased 4.7% to $11.2 million
in 1995 from $10.7 million in 1994, primarily due to an increase in personnel
expenses and pension costs, partially offset by decreases in advertising and
selling expenses and professional services. As a percentage of revenue, selling,
general and administrative expense increased from 48.4% to 50.0% during the
period from 1994 to 1995. The expiration of the covenant not to compete during
the first half of 1995 resulted in a $0.7 million reduction in amortization of
goodwill and other intangibles, as compared to the same period in 1994.
Operating income increased 11.9% to $4.7 million in 1995 from $4.2 million
in 1994. Net income decreased 45.5% to $1.2 million in 1995 from $2.2 million in
1994. The primary reasons for the decrease in net income relative to the
increase in income from operations were $1.1 million of income tax expense
following the Mortuary's restructuring in early 1995 and $0.4 million of
additional interest expense as a result of a higher average debt balance related
to that restructuring. Prior to the restructuring, the Mortuary was operated as
a limited partnership and had no entity tax charge.
1994 COMPARED WITH 1993
Revenues increased 10.0% to $22.1 million in 1994 from $20.1 million in
1993, primarily due to increased funeral service, casket and flower revenues and
increased commission income. The increased revenues resulted from routine
service and casket price increases coupled with a 3.4% increase in service call
volume. Commissions earned on pre-need funeral insurance arrangements increased
approximately $0.5 million or 20.8%. Gross profit margins increased to 72.9% in
1994 from 72.1% in 1993 largely as a result of an increase in the pricing of
funeral services and a slight reduction in the cost of providing such services.
As a result of the above, gross profit increased from $14.5 million in 1993 to
$16.1 million in 1994.
Selling, general and administrative expense increased 2.9% to $10.7 million
in 1994 from $10.4 million in 1993. As a percentage of revenue, selling, general
and administrative expense decreased from 51.7% to 48.4% during the period from
1993 to 1994, primarily as a result of increased sales. The $0.3 million
increase in total selling, general and administrative expense was largely
attributable to an increase in professional service expenses. These expenses
consisted of extraordinary accounting and tax services rendered in connection
with a special assignment. Expenses related to the covenant not to compete were
unchanged at $1.2 million.
Income from operations increased 44.8% to $4.2 million in 1994 from $2.9
million in 1993. Net income increased 175.0% to $2.2 million in 1994 from $0.8
million in 1993 due to relatively unchanged interest expense of $2.1 million in
1993 compared to $2.0 million in 1994 and the absence of any entity tax charge
because of the Mortuary's limited partnership structure.
THE CEMETERY
GENERAL
The Cemetery is the largest single location cemetery in the United States,
consisting of approximately 1,418 acres, 698 of which are developed cemetery
property and the remaining 720 of which have been permitted as cemetery
property. Since its founding in 1914, the Cemetery has performed over 300,000
interments, approximately 9,000 of which were performed in fiscal 1995. The
Cemetery provides a complete line of cemetery products, including a selection of
grave sites, crypts and niches (sold on both an at-need and pre-need basis) as
well as vaults, memorials and burial and cremation services on an at-need basis.
The sale of pre-need property accounted for approximately 46% of the Cemetery's
revenues during the 1995 fiscal year.
39
<PAGE>
Although the Cemetery is non-sectarian, in order to better serve its
diverse customer base it has developed many lawn areas for use by particular
ethnic, religious or fraternal organizations. The Cemetery also has eight
non-denominational chapels, eight mausoleums and a crematory. In addition, the
construction of the Chapel, a 350 seat chapel and mausoleum designed by
award-winning architect Fay Jones, is scheduled to be completed in early 1997.
Construction has also commenced on a pagoda-style columbarium and stupa garden
which is expected to be completed within eighteen months. In conjunction with
the sale of the Mortuary in 1990, the Cemetery entered into a covenant not to
compete which generated income to the Cemetery (and expense to the Mortuary)
through May 1995.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues increased 4.9% to $19.1 million for the nine months ended
September 30, 1996, from $18.2 million for the nine months ended September 30,
1995. Property sales increased 1.1% from $9.5 million for the first nine months
in 1995 to $9.6 million for the same period in 1996. This increase was amplified
by a 7.2% increase in other cemetery sales and services, consisting of revenues
relating to the opening and closing of graves, markers and vaults to $7.4
million in the nine months ended September 30, 1996, from $6.9 million during
the same period of the prior year. Property sales and other cemetery sales and
services increased primarily as a result of an increase of 1.6% in the number of
interments at the Cemetery coupled with routine price increases in both services
and commodities. Earnings on the Endowment Care Fund and interest income earned
on financial contracts increased from $1.9 million to $2.1 million from the
first nine months of 1995 to the comparable period in 1996. Gross profit margins
increased from 81.9% for the first nine months of 1995 to 82.7% for the same
period in 1996.
Selling, general and administrative expense decreased to $13.0 million from
$13.4 million, a decrease of 3.0%. Reduced personnel expenses and reduced levels
of advertising, selling and public relations related expenses more than
compensated for a one-time increase in professional services related to
corporate restructuring in 1996. As a percentage of revenue, selling, general
and administrative expense declined from 73.6% to 68.1%. The covenant not to
compete, which terminated in May 1995, generated $0.3 million in income for the
first nine months of 1995.
Operating income increased by 55.6% from $1.8 million in the period ending
September 30, 1995, to $2.8 million for the corresponding period in 1996. Net
income increased 55.6% to $2.8 million in the nine months ended September 30,
1996, from $1.8 million in the comparable period in 1995.
1995 COMPARED WITH 1994
Revenues increased 9.4% to $24.4 million in 1995 from $22.3 million in
1994. Cemetery property revenue increased 15.5% from $11.0 million to $12.7
million. The increase in cemetery property sales resulted primarily from a
higher number of group and premium property sales than in 1994. Other cemetery
sales and services increased 3.4% from $8.8 million in 1994 to $9.1 million in
1995. Although the actual number of burials at the Cemetery declined in 1995
relative to 1994, by approximately 3%, the increase in the prices of cemetery
services and commodities more than offset the reduction in the number of
burials. Cemetery property and other cemetery sales and services revenues
increased primarily as a result of a number of large group and premium sales and
routine price increases. Revenues from the Fund and interest income earned on
financed contracts decreased from $2.6 million to $2.5 million. Fund income
decreased 6.1% primarily due to a higher percentage of the portfolio being
invested in equity securities at lower dividend yields than the fixed income
securities formerly held by the Fund. Gross profit margins increased from 75.3%
in 1994 to 82.0% in 1995. Gross profit increased from $16.8 million to $20.0
million in 1995 primarily as a result of an increase in revenues derived from
significant premium property sales.
Selling, general and administrative expense decreased to $17.9 million in
1995 from $18.6 million in 1994, a decrease of 3.8%. The decrease was primarily
due to a non-recurring charge of approximately $0.9 million in 1994 related to a
writedown of property, plant and equipment. As a percentage of revenue, selling,
general and administrative expense decreased to 73.4% in 1995 from 83.4% in
1994. The significant decrease in selling, general and administrative expense as
a percentage of revenues was due to a nonrecurring charge, referred to
40
<PAGE>
above, in 1994 and higher revenue in 1995. The termination of the covenant not
to compete with the Mortuary in May 1995 resulted in a $1.7 million reduction in
operating income from 1994 to 1995.
Operating income was $2.4 million in 1995, an increase of $2.2 million
compared with operating income during 1994 of $0.2 million. As noted above, this
increase was primarily attributable to the increase in sales and gross profit in
1995 as well as the absence of the non-recurring charge incurred in 1994 being
partially offset by the loss of $1.7 million of covenant not to compete income.
A decrease of $0.6 million in other income and a decrease of $1.2 million in
income tax payments on income earned under the covenant not to compete resulted
in a net increase in 1995 income relative to 1994 of $0.6 million. Consequently,
net income increased to $2.3 million in 1995 compared to a net loss of $0.5
million in 1994.
1994 COMPARED WITH 1993
Revenues increased 3.2% to $22.3 million in 1994 from $21.6 million in
1993. Cemetery property sales were unchanged between the two years. However,
other cemetery sales and services increased 8.6% to $8.8 million in 1994 from
$8.1 million in 1993. These other cemetery sales and services revenues increased
primarily as a result of routine service and merchandise price increases. The
number of burials in 1994 was unchanged from the number in 1993. Similarly,
other revenue derived from earnings on trust funds and interest income earned on
financed contracts remained unchanged between the two years. Although the gross
profit margins remained unchanged at approximately 75.5% for each of the two
years, gross profit increased from $16.3 million in 1993 to $16.8 million in
1994 primarily as a result of the increased prices relating to cemetery sales
and services.
Selling, general and administrative expense increased 3.9% to $18.6 million
in 1994 from $17.9 million in 1993. As a percentage of revenue, selling, general
and administrative expense increased from 82.9% in 1993 to 83.4% in 1994. The
increase was primarily attributable to the $0.9 million non-recurring charge
relating to the writedown of property, plant and equipment and an increase in
professional service expenses relating to extraordinary accounting services
rendered in connection with a special assignment. Income received under the
covenant not to compete increased by $1.2 million from $0.8 million in 1993 to
$2.0 million in 1994, reflecting additional income arising from payment of tax
liabilities for which the Cemetery was previously indemnified by the Mortuary.
Operating income improved $1.0 million to $0.2 million in 1994 from an
operating loss of $0.8 million in 1993, largely as a result of the additional
income received under the covenant not to compete. Other income decreased $0.5
million in 1994 from 1993, primarily as a result of the Company having a lower
average outstanding receivable balance relating to the leveraged buyout
transaction due from the Mortuary. In accordance with an audit of the leveraged
buyout transaction and in accordance with a settlement and closing agreement
with the IRS, the Company agreed to pay to the IRS $1.2 million, which amount is
reflected as income tax expense in 1994 even though the Cemetery's operations
are generally exempt from taxation. The tax payment resulting from the IRS
settlement described above reduced income before taxes from $0.7 million in 1994
to a $0.5 million after tax loss in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of cash for the Mortuary and the Cemetery since 1993 has
been funds provided by operating activities and the proceeds of refinancing
long-term indebtedness. For the nine months ended September 30, 1996, operating
activities generated $7.0 million of cash, while using $2.4 million of cash in
the comparable period in 1995. For the full years, operating activities
generated $2.0 million of cash in 1995 compared with $5.6 million in 1994 and
$7.1 million in 1993.
The primary uses of cash since 1993 have been for principal payments on
long-term debt, capital expenditures and distributions, as permitted by the
terms of a bank agreement.
For the nine months ended September 30, 1996 and 1995, principal payments
on long-term debt amounted to $2.3 million and $1.1 million respectively.
Reductions of long-term debt amounted to $1.9 million in 1995 and $1.5 million
in 1993. In 1994, the Company's net borrowing amounted to $4.6 million.
41
<PAGE>
For the nine months ended September 30, 1996 and 1995, the Mortuary and
Cemetery used $7.2 million and $0.3 million respectively for capital
expenditures. In 1995, 1994 and 1993, the Mortuary and the Cemetery used $4.2
million, $5.5 million and $2.4 million for capital expenditures and
improvements, respectively. As a result of the corporate restructuring of the
Mortuary, for the nine months ended September 30, 1996 and for the full year of
1995, the Mortuary did not make any distributions. In 1994 and 1993, the
Mortuary paid $9.3 million and $0.7 million, respectively, in distributions. Of
the $9.3 million, $6.9 million was distributed in 1994 in connection with
restructuring of corporate ownership.
The Company estimates capital expenditures of approximately $1.4 million in
the first year following the Acquisition to be used in part for the repair and
improvement of existing infrastructure and cemetery grounds, as well as the
additional rolling stock.
After giving effect to the Acquisition Transaction and the application of
the net proceeds therefrom, the Company would have had $156.7 million of
indebtedness outstanding and $25.0 million of borrowing capacity available under
the Revolving Credit Facility as of September 30, 1996. Management believes
that, based upon current levels of operations and anticipated growth and the
availability under the Revolving Credit Facility, it can adequately service its
indebtedness. If the Company cannot generate sufficient cash flow from
operations or borrow under the Revolving Credit Facility to meet such
obligations, the company may be required to take certain actions, including
reducing capital expenditures, restructuring its debt, selling assets or seeking
additional equity in order to avoid an Event of Default. There can be no
assurance that such actions could be effected or would be effective in allowing
the Company to meet such obligations.
42
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Issuer, a Delaware corporation, was formed in 1996 to acquire Rose
Hills, which is the largest single location cemetery and funeral home
combination in the United States. As a result of the Acquisition of Rose Hills
and the Satellite Properties, the Company owns a strategic assembly of
cemeteries and funeral homes in the greater Los Angeles area that, in addition
to Rose Hills, includes a group of 14 surrounding funeral homes and two cemetery
and funeral home combination properties located in Los Angeles, San Bernardino
and northern Orange Counties. Rose Hills is situated less than 14 miles from
downtown Los Angeles on approximately 1,418 acres of permitted cemetery land
near Whittier, California. The Cemetery and Mortuary have been continuously
operating since 1914 and 1956, respectively. During the period from 1990 until
the Acquisition Closing Date, the Cemetery and Mortuary functioned as separate
entities, with the Cemetery owned by a not-for-profit association and the
Mortuary owned by a closely held corporation controlled by previous management.
Pursuant to an Operation and Management Agreement (the 'Management
Agreement'), during the period commencing October 1989 until the Acquisition
Closing Date, the Mortuary operated and managed the Cemetery for the
Association. In connection with the Management Agreement, certain senior
officers of the Mortuary agreed to work exclusively for the Association. The
Association paid the Mortuary certain management fees and other incentive based
fees in payment for services provided by the Mortuary under the Management
Agreement.
In 1995, the Cemetery sold approximately 8,400 pre-need and approximately
1,400 at-need cemetery grave sites and performed approximately 9,000 interments.
In 1995, the Mortuary performed approximately 5,500 funeral calls and sold
approximately 3,300 funeral services on a pre-need basis. Since its founding,
Rose Hills has performed more than 300,000 interments at the Cemetery, and has
the capacity to provide more than one million additional interments (without
taking into account measures that might be undertaken to increase capacity). The
Satellite Properties, which were acquired by Loewen between 1990 and 1995, were
contributed to the Company as part of the Acquisition Transaction. In 1995, the
Satellite Properties performed approximately 3,800 funeral calls and 500
interments. Since the Acquisition Transaction, the Company has been managed by a
single management team which includes certain members of the previous management
of Rose Hills, a newly hired senior sales executive with over 25 years of
experience in the industry and a new Chief Financial Officer with over 30 years
of finance and accounting experience. The Company also benefits from the
strength of Loewen's management team through the Administrative Services
Agreement.
Management believes that the integration of the Satellite Properties with
Rose Hills effected through the Acquisition Transaction will enable the Company
to take advantage of the benefits of 'hub and spoke clustering,' including
opportunities to share personnel, vehicles and other key resources, and
implement revenue enhancing cross-marketing programs. Management anticipates
that such an integration will create a group of funeral homes and cemeteries
capable of serving the majority of the greater Los Angeles metropolitan area, a
region with a population of more than 9.2 million. In addition, the Company
intends to leverage Rose Hills' outstanding reputation in the region by using
the Rose Hills name at many of the Satellite Properties. Management also expects
to generate significant additional cost-savings through the implementation of
the Administrative Services Agreement.
The principal executive offices of the Company are located at 3888 South
Workman Mill Road, Whittier, California 90601 and its telephone number is (310)
692-1212.
THE FUNERAL SERVICE AND CEMETERY INDUSTRY AND LOCAL CHARACTERISTICS
The funeral service and cemetery industry historically has been
characterized by low business risk compared with most other businesses.
According to the Business Failure Record published by The Dun & Bradstreet
Corporation, the average business failure rate in the United States in 1994 was
86 per 10,000. The 1994 failure rate of the funeral service and crematoria
industry was only eight per 10,000, less than one-tenth the average rate and
among the lowest of all industries. This low failure rate can be attributed to a
number of factors, including stable demand in the industry, positive demographic
trends and the low rate of new market entrants due to the length of time
required to establish community acceptance.
43
<PAGE>
In the last 15 years, demand has grown steadily at a 1% compound annual
growth rate while the aggregate number of funeral homes has remained relatively
constant. Future demographic trends are expected to contribute to the continued
stability of the funeral service industry. The first members of the 'Baby Boom'
generation began to turn 50 in 1996 and are advancing into the prime savings and
planning phases of their lives. The Census Bureau projects that the segment of
the United States population over 65 years old, which presently totals 33
million, will double in size over the next 35 years. Over the next 15 years, the
aging of this population is expected to outweigh the effects of increased life
expectancies. The Census Bureau projects that the number of deaths in the United
States will grow at approximately 1% annually through 2010.
A Wirthlin Group study conducted in 1995 concluded that the three most
important factors in selecting a funeral home are that it had previously served
the family, was close to the respondent's residence and had a strong reputation
in the community. Fewer than 5% of the respondents to the Wirthlin study
specified price as an important factor in selecting a funeral home. The
relationship between reputation and market share is an important competitive
advantage for existing funeral homes in that until a new market entrant is able
to establish the community reputation necessary to gain market share, existing
homes will retain considerable pricing flexibility.
The Company attracts customers from a geographic region encompassing
substantially all of Los Angeles County and the northern portion of Orange
County. According to statistics compiled by the State of California Department
of Health Services and the Census Bureau, the estimated population of Los
Angeles County was approximately 9.3 million people (3.1 million households) in
1995. Approximately 17.6% of this population was age 55 or older. The death rate
in Los Angeles County (approximately 62,000 in 1995) has demonstrated stability
from year to year over the last decade and is expected to increase in step with
the 1% annual projected population growth in Los Angeles County over the next
five years.
BUSINESS OPERATIONS
Mortuary Operations
The Mortuary is the largest single location mortuary in the United States.
In 1995, the Mortuary performed approximately 5,500 funeral calls and has a
current capacity to provide over 30 funeral services per day. The Mortuary
provides a complete range of funeral services, including collection of remains,
certification of death, embalming, sale of caskets and related merchandise, sale
of flowers, visitation facilities and transportation to place of services and to
burial site. All funeral arrangements provided to each of the Mortuary's
customers are provided by an experienced counselor with the assistance of a
centralized computer system.
The Mortuary began operations in 1956, when the Association recognized that
additional revenue opportunities existed in funeral operations. As the
division's success continued, the Mortuary was spun off in 1976 as a taxable,
for profit, wholly-owned subsidiary of the Association. In 1990, the Association
sold the Mortuary business to senior management in a leveraged buyout
transaction. During the period from October 1989 through the Acquisition Closing
Date, pursuant to the Management Agreement, the Mortuary also operated the
Cemetery.
The Mortuary provides funeral services on both an at-need and a pre-need
basis. Since 1987, all pre-need funeral services have been funded through the
sale by the Mortuary to its customers of a life insurance product called
ForeThought. Under the ForeThought Plan, the Mortuary is named the beneficiary
of the insurance policy but does not recognize funeral service revenue related
to the contracted services until such services are provided, although it does
recognize commission income upon the sale of such policies. On the date of
performance of the prearranged funeral service, the Mortuary recognizes funeral
service income and the proceeds received under the policy are applied against
the contract. Prior to 1987, the Mortuary also offered trust-backed and
debenture-backed pre-need products.
The Satellite Properties consist of 14 funeral homes and two combination
properties located in Los Angeles, San Bernardino and northern Orange Counties
which provide a wide variety of funeral services to various communities in such
counties. While the demographics of the population served by the Satellite
Properties, taken as a whole, are generally similar to that of Rose Hills'
clients, the smaller size and long-standing local reputations of the various
Satellite Properties have led each of such properties to develop a
demographically unique client base within its particular community. Therefore,
as a result of this extended cluster of funeral service providers as
44
<PAGE>
well as the ability of particular Satellite Properties to meet special needs of
local communities, Management believes that the acquisition of the Satellite
Properties will permit the Company to access a base of mortuary clients that it
was previously unable to develop solely from its location near Whittier.
Cemetery Operations
The Cemetery is the largest single location cemetery in the United States.
The Cemetery consists of approximately 1,418 acres, 401 of which have been
developed and sold, 297 of which are developed unsold cemetery property and the
remaining 720 of which have been permitted as cemetery property. Since its
founding in 1914, the Cemetery has performed over 300,000 interments, of which
approximately 9,000 were performed in 1995. The Cemetery provides a complete
line of cemetery products (including a selection of burial spaces, vaults,
crypts, memorials and niches) and burial and cremation services on both an
at-need and pre-need basis. The sale of pre-need property arrangements accounted
for approximately 52% of the Cemetery's total revenues during 1995.
Although the Cemetery is non-sectarian, in order to better serve an
increasingly diverse customer base, the Cemetery has developed and offers many
lawn areas for use by particular ethnic, religious and fraternal organizations
in addition to its eight non-denominational chapels, eight mausoleums and
crematory. The Cemetery has also begun construction of the Chapel, a 350 seat
chapel and mausoleum designed by architect Fay Jones that is scheduled to be
completed in early 1997 and, in cooperation with the Company, IBPS is developing
a pagoda-style columbarium and stupa gardens.
PROPERTIES
The property on which the Cemetery is located, and which the Company
acquired in the Acquisition, consists of approximately 1,418 acres, 401 of which
have been developed and sold as Cemetery properties, 297 of which are developed
unsold cemetery property and the remaining 720 of which have been permitted as
cemetery property. Also located on the grounds of Rose Hills are eight chapels
which seat over 1,100 people in the aggregate, eight mausoleums, 39 visitation
rooms, a crematory and a 43,460 square foot administrative building. In addition
to the above facilities the Company is currently constructing the Chapel, a
26,490 square foot chapel and mausoleum facility, expected to be completed in
early 1997, and has commenced construction pursuant to a development agreement
with IBPS pursuant to which the Company (i) granted IBPS the interment rights
with respect to 4.5 acres of Cemetery property and agreed to contribute to
IBPS's development of a 16,000 square foot columbarium and surrounding stupa
gardens and (ii) granted IBPS a seven-year option to build a second columbarium
on an adjacent 2.7 acre site. In exchange for these rights, IBPS agreed to pay
the Company approximately $1.4 million. IBPS paid $160,000 upon execution of the
development agreement and will pay 10% of the gross revenues received by IBPS
from the sale of niches for seven years, and any remaining balance will be paid
on January 1, 2003. In addition, IBPS will pay to Rose Hills $75 per lot on the
first 5,000 cemetery lots sold and $50 per lot thereafter.
In connection with the Acquisition, the Company was granted an option,
exercisable for a period of three years after the Acquisition Closing Date, to
purchase from the Association an additional 75 acres of permitted cemetery
property located in Los Angeles County, for an aggregate price of $18.2 million.
The Mortuary's facilities consist of 6.2 acres of land, a two-story, 74,000
(inclusive of relevant properties above) square foot mortuary and administrative
building, an adjacent flower shop and storage facilities.
The Satellite Properties, which were conveyed by Loewen to the Company in
the Acquisition Transaction, consist of the funeral homes and combination
properties located in the cities listed below.
<TABLE>
<CAPTION>
NAME LOCATION
- ---- --------
<S> <C>
Custer Christiansen (five funeral homes) West Covina, Covina, Glendora, LaPuente (two locations)
White's Funeral Home Bellflower
Neels-Brea Funeral Home Brea
Dimond & Sons-Mettlor Chapel Garden Grove
Shannon-Donegan Chapel Orange
</TABLE>
45
<PAGE>
<TABLE>
NAME LOCATION
- ---- --------
<S> <C>
San Fernando Mortuary San Fernando
Glasband-Willen Mortuaries(1) West Hollywood
Colton Funeral Chapel Colton
Grove Colonial Mortuary San Bernardino
Richardson-Peterson Mortuary Ontario
Harbor Lawn(2) Costa Mesa
Melrose Abbey (including Angels Lawn Cemetery)(3) Anaheim
</TABLE>
- ------------------
(1) 95% owned by the Company.
(2) Combination property located on 28 acres; includes a cemetery and crematory.
(3) Combination property located on 20 acres; includes a cemetery.
The facilities of ten of the Satellite Properties are owned by the Company
and the facilities of the remaining six Satellite Properties are leased by the
Company.
BUSINESS STRATEGY
Management believes that, when measured by such factors as tradition,
heritage, reputation, physical size, volume of business, name recognition,
aesthetics and potential for development or expansion, Rose Hills is one of the
country's premier cemetery and funeral home facilities. Management's strategy is
to build market share, enhance revenue and maximize profitability by leveraging
these qualities with the additional opportunities made available by the
clustering of the Satellite Properties. The principal components of the
Company's growth strategy consist of the following: (i) continue Rose Hills'
tradition of providing high quality funeral and cemetery services; (ii)
significantly enlarge Rose Hills' commission-based cemetery pre-need sales force
and implement programs to increase revenues per pre-need sale; (iii) introduce a
focused effort to provide existing pre-need Cemetery customers an opportunity to
purchase additional and/or improved merchandise and services; (iv) increase
funeral market share through the integration of and cross-marketing with the
Satellite Properties; (v) capitalize on the clustering advantages available
through the integration of the Satellite Properties; (vi) reallocate the assets
of the Fund from equities to fixed income securities in order to increase the
income from such fund available to be paid to the Company; and (vii) implement
other profit enhancing measures, including the use of Loewen's proven
merchandising and cost reduction programs through the Administrative Services
Agreement.
CONTINUE ROSE HILLS' TRADITION OF QUALITY SERVICE: Rose Hills has served the
greater Los Angeles area since 1914 and has built a favorable reputation within
its surrounding communities. In 1995, Rose Hills performed approximately 9,000
interments, a volume equal to more than 14% of all deaths recorded in Los
Angeles County in that year. Despite its strong market position, Rose Hills has
continued to develop its infrastructure in order to improve its ability to serve
the diverse population of the greater Los Angeles area. In early 1997,
Management expects to complete the construction of the Chapel, a 350 seat chapel
and mausoleum designed by award-winning architect Fay Jones. Management intends
to market use of the Chapel to the upper-income segment of its customer base
and, in conjunction with this effort, is developing premium burial lawns on
approximately 15 acres immediately surrounding the Chapel. In cooperation with
the Company, IBPS is developing a pagoda-style columbarium and stupa gardens on
Cemetery grounds. The columbarium is expected to be the largest of its kind in
the United States, and Management believes the columbarium will significantly
increase Rose Hills' appeal to the large Asian population in the Los Angeles
area.
EXPAND CEMETERY PRE-NEED SALES: Management believes that the Company can
realize significant near-term revenue growth through an increased emphasis on
the sale of Cemetery pre-need arrangements. Management also believes that
Cemetery pre-need sales not only secure additional Cemetery market share, but
also considerably enhance the long term revenue potential of its properties.
Management plans to increase revenues per pre-need sale through a combination of
selling Cemetery merchandise and services along with grave sites (prior to the
Acquisition, it was Rose Hills' policy to sell only grave sites on a pre-need
basis), expanding the range of higher margin product offerings and selectively
increasing prices to competitive levels. In addition, Management intends to
increase the volume of pre-need sales by expanding the Company's pre-need
cemetery salesforce from approximately 120 prior to the Acquisition to
approximately 140 persons.
46
<PAGE>
Since joining Loewen in early 1995, Loewen's cemetery management team has
increased same-store revenue and gross margin at Loewen's cemeteries. Loewen
cemetery revenue and gross margin for the nine months ended September 30, 1996
in comparison to the nine months ended September 30, 1994, for locations in
operation for all of the nine months ended September 30, 1996 and 1994,
increased by 50% and 122.3%, respectively. Management plans to employ a variety
of sales management techniques currently utilized at Loewen to enhance
salesforce productivity. Since the Acquisition, the Company has been managed by
a single management team which includes certain members of the previous
management of Rose Hills and a newly hired senior sales executive with over 25
years of experience in the industry. The Company also benefits from the strength
of Loewen's cemetery management team through the Administrative Services
Agreement.
PROVIDE EXISTING CEMETERY PRE-NEED CUSTOMER BASE WITH ADDITIONAL BUYING
OPPORTUNITIES: Rose Hills has been marketing pre-need cemetery property since
1930 and currently has approximately 255,000 individual lots which have been
sold to customers on a pre-need basis but have not yet been utilized.
Historically, the Cemetery's pre-need focus has been almost exclusively on the
sale of grave sites, such as cemetery plots, niches or crypts. Management
estimates that approximately 85% of the Cemetery's pre-need customers have
completed payments on their grave sites but have not yet purchased pre-need
cemetery merchandise such as vaults or markers or interment services from Rose
Hills. As a result, Management believes that there is a significant opportunity
to provide existing pre-need Cemetery customers, who are already committed to
Rose Hills, with the opportunity to purchase such additional merchandise and
interment services on a pre-need basis. The Company will hire and train
approximately 30 salespersons (in addition to the increase of 20 salespersons
described above) who will focus on selling pre-need cemetery merchandise and
interment services to Rose Hills' existing Cemetery pre-need customer base.
INCREASE FUNERAL MARKET SHARE: Historically, the Cemetery has been competitive
over a broader geographic area than the Mortuary. While Management considers the
Cemetery to be very competitive within a 20 mile radius of the site, the
Mortuary's customer base is drawn primarily from within a 10 mile radius. The
Mortuary's narrower geographic reach reflects the different customer selection
criteria for funeral homes and cemeteries. Industry research indicates that
proximity is much more important in consumer selection of a funeral home than a
cemetery, and lack of proximity is a key reason given by Cemetery customers of
Rose Hills for selecting a funeral services provider other than the Mortuary.
Management intends to leverage Rose Hills' strong heritage and name recognition
by incorporating the Rose Hills name into certain of the Satellite Properties.
In addition, Management intends to utilize the existing Cemetery pre-need
customer base as a source of leads for the Satellite Properties' funeral
pre-need marketing efforts. Management believes that this strategic integration
of the Satellite Properties with Rose Hills will broaden the geographic scope of
the Company's funeral home operations and thereby increase the Company's ability
to capture the funeral business of Cemetery customers who do not live in close
proximity to Rose Hills but do reside in an area served by one of the Satellite
Properties.
In addition, Management believes that an increased emphasis on pre-need
sales of funeral services can enhance the Company's revenues and market share.
In 1995, the Mortuary performed approximately 5,500 funeral calls, which is
equal to approximately 60% of the approximately 9,000 interments performed at
the Cemetery, compared to an industry average of 80%. Enhanced pre-need selling
efforts for the Mortuary are designed to significantly improve the productivity
of its sales force and bring the 60% ratio closer to the industry average.
CAPITALIZE ON CLUSTERING OPPORTUNITIES: The proximity of the Satellite
Properties to Rose Hills will enable the facilities to create a 'cluster'
capable of sharing resources and facilities. The Company's new operating
structure is designed to maximize such sharing opportunities between the
Satellite Properties and Rose Hills. Operating as a cluster will enable many of
the Company's facilities to share vehicles, equipment and employees, to reduce
administrative expense, to centralize embalming, staffing and other services and
to pool inventories of caskets and other merchandise. The Company will also
initiate cross-marketing programs such as advertising and merchandising programs
to increase market share. Management believes it can significantly reduce the
Company's operating expenses and increase cash flow by implementing these
cross-marketing and cost-saving initiatives. In the future, the Company will
also pursue an opportunistic acquisitions strategy in order to expand the
benefits of its clustered operation.
47
<PAGE>
REALLOCATE THE ASSETS OF THE ENDOWMENT CARE FUND: The Company expects to
increase revenue derived from the Fund by changing the Fund's investment
policies. In accordance with California State regulations, the Cemetery collects
and deposits into the Fund a required amount of cash from every grave site sold
for the continued maintenance of the Cemetery. As of September 30, 1996, the
Fund had total assets of approximately $58.1 million. By law, up to 100% of the
investment income from the Fund may be distributed for the development,
improvement, embellishment and maintenance of the Cemetery. The Fund trustees
appointed by the Association have from time to time invested the majority of the
Fund in equity securities. This investment strategy limited the Fund's
distributable income to the dividend yield of its portfolio. The Company has
recently begun to pursue a more conservative policy by generally limiting the
investments of the Fund's portfolio to fixed income securities with at least
investment grade credit ratings. Management believes that this change in
investment strategy will maximize the Fund's distributable income. By way of
illustration, if the Fund were to realize a return on its income generating
assets with a fair market value of $53.0 million as of September 30, 1996
equivalent to the current return on five-year U.S. Treasury Securities (6.39%
per annum as of January 14, 1997) plus 75 basis points, the Cemetery would
recognize annual Fund investment income of approximately $3.5 million, as
compared to the $1.3 million it actually generated in 1995, an increase of $2.2
million.
LOEWEN ADMINISTRATIVE SERVICES AGREEMENT AND OTHER PROFIT ENHANCEMENTS: Since
the Acquisition, pursuant to the Administrative Services Agreement, Loewen has
undertaken some of the Company's administrative functions including: accounting
services, computer, telecommunications, general operations support, legal
services, environmental compliance, regulatory compliance, employee training and
corporate development. In addition, Loewen provides management expertise in
planning MIS, sales, tax, and fund management strategy. In addition, the Company
also benefits under the Administrative Services Agreement from access to some of
Loewen's vendor agreements. Management believes that the Administrative Services
Agreement will provide considerable savings in terms of administrative personnel
at Rose Hills and further decrease the Company's ongoing operating expenses. By
leveraging the Loewen corporate infrastructure, Management believes the Company
will gain competitive advantages in terms of operating and sales expertise.
COMPETITION
The Company competes with a number of sectarian and nonsectarian mortuaries
and cemeteries in the greater Los Angeles area. Mortuary competition is
primarily from small, local mortuaries that attract customers through the
personal reputation of the funeral director and their ability to tailor their
services to their local ethnic, religious or fraternal communities. Cemetery
competition comes primarily from Forest Lawn, Inglewood, Oakdale, Live Oak and
Memory Gardens cemeteries, as well as a number of cemeteries owned by the
Catholic Church. The Company also faces competition from large 'consolidators'
in the industry which seek to reap profits from an acquisition and consolidation
strategy. Such competitors include several large, publicly-traded funeral
services companies, including Service Corporation International, Stewart
Enterprises, Inc. and Equity Corporation International.
REGULATION
The Company's funeral home operations are regulated by the Federal Trade
Commission ('FTC'), which administers the Trade Regulation Rule on Funeral
Industry Practices (the 'Funeral Rule'), which became effective on April 30,
1984, and was revised as of July 19, 1994. The Funeral Rule defines certain acts
and practices in connection with the provision of funeral goods or services as
unfair or deceptive and sets forth various requirements intended to prevent such
unfair or deceptive acts and practices. The Company also must comply with other
federal legislation, including the Americans with Disabilities Act and
regulations administered by the Occupational Safety and Health Administration.
The Company's operations also are regulated by the State of California,
which regulates the sale of pre-need cemetery and funeral services, and at the
local level. California state regulations require, among other things, that a
portion of the funds received by the Company in connection with all cemetery
sales be deposited in an endowment care fund. The principal of such endowment
care fund must be invested and the income from such investment may be used only
for the development, improvement, embellishment and maintenance of the cemetery.
California state regulations also require that money received from the sale of
pre-need funeral service contracts be held in trust until the services are
delivered, that such contracts may be cancelled by the customer at
48
<PAGE>
any time prior to the delivery of such services and that upon any such
cancellation the principal and interest of such trust (less, in certain cases, a
revocation fee) be repaid to the customer.
The Company believes that it is currently in substantial compliance with
the Funeral Rule and all other applicable federal, state and local laws and
regulations.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
environmental laws and regulations, including those pertaining to remediation of
hazardous substances and protection of endangered or threatened species. These
laws and regulations may require the Company to incur compliance, remediation
and other costs from time to time or restrict development in certain
environmentally sensitive areas.
Environmental audits of the Company's various properties were conducted in
connection with the Acquisition Transaction. In connection with the Cemetery and
Mortuary, Management is aware of certain areas, including certain solid waste
disposal areas, that will require remediation. However, pursuant to an
Environmental Compliance Agreement entered into between the Association and the
Company, the Association has agreed to pay or indemnify the Company for certain
costs relating to such remediation at some of these areas. In connection with
the Satellite Properties, Management is also aware of certain areas which may
have been contaminated from former or adjacent underground storage tanks.
In addition, two of the Company's properties are located in or near areas
of regional groundwater contamination. Although the Company has been requested
to submit information in connection with contamination at one of these areas,
the Company believes its operations have not contributed to the regional
groundwater contamination in either of these areas.
Although there can be no assurance, Management does not believe that the
above or other environmental matters affecting the Company will have a material
adverse effect on the Company's financial condition.
EMPLOYEES
The Company currently employs approximately 585 people. Management believes
that the Company's relationship with employees is good.
In December 1993 the National Labor Relations Board ('NLRB') certified the
Teamsters Union as the collective bargaining representative of 57 employees in
the Company's Park Department. In December 1994, certain of these employees
petitioned the NLRB to hold an election regarding decertifying the union. During
the same period the Teamsters filed numerous unfair labor practice charges
against the Company with the NLRB. On April 29, 1996, the NLRB General Counsel
issued a Consolidated Amended Complaint and Notice of Hearing on certain of the
union's charges, which Complaint is currently pending before an Administrative
Law Judge for determination. Those allegations include a claimed unlawful
termination of two employees and an alleged failure to recognize and bargain
with the union in good faith. In accordance with its normal practice, the NLRB
has not acted on the employees' petition for a decertification election because
of the pending unfair labor practice charges. The Company believes that these
charges are without merit and intends to contest them vigorously. Although there
can be no assurances, the Company does not believe that the outcome of the
proceeding with regard to these charges will have a material adverse effect on
the Company's financial condition.
LITIGATION
The Company is a party to certain legal proceedings in the ordinary course
of its business. Management does not expect that the outcome of any such
proceedings will have a material adverse effect on the Company's financial
condition or results of operations.
49
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers directors, and their ages as of January 1,
1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Chinh E. Chu.................................... 30 Director
David I. Foley.................................. 29 Director
Mark Helmintoller............................... 47 Regional Vice President, Sales
Thomas J. Kelleher.............................. 54 Chief Financial Officer
Howard A. Lipson................................ 32 Director
Douglas McKinnon................................ 52 Director
Lawrence Miller................................. 47 Director; Chairman Elect
Kendall E. Nungesser............................ 49 Director; President; Chief Executive Officer
Dennis C. Poulsen............................... 54 Director; Chairman
</TABLE>
The business experience of each of such executive officers and directors is
set forth below.
Chinh E. Chu is a Vice President of The Blackstone Group L.P., which he
joined in 1990. Prior to joining Blackstone, Mr. Chu was a member of the Mergers
and Acquisitions Group of Salomon Brothers Inc. from 1988 to 1990. He currently
serves on the Board of Directors of Prime Succession Inc.
David Foley is an Associate at The Blackstone Group L.P., which he joined
in 1995. Prior to joining Blackstone, Mr. Foley was a member of AEA Investors,
Inc. and The Monitor Company.
Mark Helmintoller became Regional Vice President, Sales of the Issuer upon
consummation of the Acquisition. He has spent his entire professional career in
the deathcare industry. Prior to joining Rose Hills, Mr. Helmintoller worked for
Service Corporation International as its regional sales manager for Brevard
County, Florida. Mr. Helmintoller joined Service Corporation International in
1995 when it acquired his previous employer, Gibralter Mausoleum, where he had
worked in various positions since 1985.
Thomas J. Kelleher became Chief Financial Officer of the Issuer on January
1, 1997. Mr. Kelleher previously served in senior financial positions at CalMat
(NYSE, 'CZM'), a major producer of construction materials and real estate
developer in the Pacific-Southwest, including terms as Corporate Treasurer and
Corporate Controller. Mr. Kelleher is a member of the California Society, the
American Institute of Certified Public Accountants and a former member of the
Board of Directors of California Taxpayers Association.
Howard A. Lipson is Senior Managing Director of The Blackstone Group L.P.,
which he joined in 1988. Prior to joining Blackstone, Mr. Lipson was a member of
the Mergers and Acquisitions Group of Salomon Brothers Inc. He currently serves
on the Board of Directors of UCAR International Inc., Volume Services, Inc., AMF
Group Inc., Ritvik Holdings, Inc., and Prime Succession Inc.
Douglas McKinnon joined Loewen in April 1996 and as Executive Vice
President is responsible for overseeing Loewen's organizational structure and
providing direction and support to senior management. Mr. McKinnon has over 20
years of experience in senior executive roles, including the position of
President of Paperboard Industries Corporation in Mississauga, Ontario.
Lawrence Miller is Executive Vice President, Operations for Loewen. Mr.
Miller was President of Osiris Holding Corporation from 1988 to 1995 when Osiris
joined Loewen. From 1972 to 1988 Mr. Miller was President of Morlan
International, a cemetery and funeral service company.
Kendall E. Nungesser became President and Chief Executive Officer of the
Issuer upon consummation of the Acquisition. He joined Rose Hills in 1987 and
has extensive experience at both operational and financial levels. Prior to
joining Rose Hills, he functioned as the Executive Manager, Chief Financial
Officer and a Director of Los Alamitos Race Course. He successfully managed the
merger of Los Alamitos Race Course with Hollywood Park Race Course and was named
Vice President and Chief Financial Officer of Hollywood Park Race Course.
50
<PAGE>
Dennis C. Poulsen became the Chairman of the Issuer upon consummation of
the Acquisition. Mr. Poulsen joined Rose Hills in 1981 and became President in
1984. Prior to joining the Company, Mr. Poulsen was employed by INA Corporation
and Transamerica Corporation, and is a past director of the American Cemetery
Association. Mr. Poulsen is a member of the American, California and Los Angeles
Bar Associations. His community activities include serving as a director and
Chairman of the Los Angeles Chamber of Commerce in 1997.
Under the Shareholders' Agreement described below (see 'Certain Related
Transactions--Shareholders' Agreement'), Blackstone and Loewen have the right to
designate five and three nominees, respectively, to the Board of Directors of RH
Holdings. Blackstone designated Messrs. Chu, Foley, Lipson and Nungesser and has
the right to designate one other person and Loewen designated Messrs. McKinnon,
Miller and Poulsen. Each of Blackstone's and Loewen's nominees to the Board of
Directors are also members of the Board of Directors of the Issuer.
Directors of the Company will receive no compensation for their service as
Directors or for service on committees of the Board except for the reimbursement
of expenses.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth for the fiscal year ended December 31, 1996
the compensation paid by the Company to its Chief Executive Officer and each of
the other most highly compensated executive officers of the Company:
<TABLE>
<CAPTION>
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ------ ------- ------- ------------
<S> <C> <C> <C> <C>
Kendall E. Nungesser
President & Chief Executive Officer (after the
Acquisition)............................................. 1996 420,061 0 $6,348(a)
Dennis C. Poulsen
President & Chief Executive Officer (before
Acquisition)............................................. 1996 500,796 0 6,576(a)
G. Dan Barefoot
Vice President of MIS.................................... 1996 129,520 20,000 288(b)
</TABLE>
- ------------------
(a) These amounts consist primarily of taxable automobile allowances.
(b) This figure represents excess life insurance premiums paid on behalf of Mr.
Barefoot.
Employment Agreements
The Issuer has entered into employment agreements with Messrs. Nungesser,
Poulsen and Helmintoller.
The agreement with Mr. Nungesser has an initial term of three years and
provides that Mr. Nungesser be paid a base salary of $250,000 per year (subject
to cost of living adjustments) plus an annual cash bonus. In 1997, such bonus
will be determined by the Board of Directors based on whether the Issuer
achieves projected EBITDA and other financial criteria and thereafter will be
based on a formula agreed to by Mr. Nungesser and the Board of Directors based
on achievement of levels of EBITDA in excess of budgeted EBITDA.
Mr. Poulsen's agreement provides that Mr. Poulsen be employed by the
Company through 1997 and be paid an annual salary of $420,000.
Mr. Helmintoller's agreement provides that Mr. Helmintoller be paid an
annual salary of $250,000 and a monthly override based on gross sales.
In connection with the Acquisition, Messrs. Nungesser and Poulsen and one
other shareholder of Roses, Inc. entered into noncompetition agreements pursuant
to which the Company agreed to pay such shareholders, during each of the three
calendar years following the Acquisition Closing Date, an aggregate annual
amount for all three persons equal to $1,040,000 minus the aggregate amount paid
to such persons in the form of annual salary for
51
<PAGE>
each such year. Such payments will be allocated among the three shareholders in
accordance with instructions provided by them.
PRINCIPAL SHAREHOLDERS
The Company is a direct, wholly-owned subsidiary of RH Holdings. The
following table sets forth certain information regarding the beneficial
ownership of the common stock of RH Holdings:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF OWNER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES COMMON STOCK
- ------------------------------------ --------- ------------
<S> <C> <C>
Blackstone entities(1)...................................................... 795.455 79.55%
Loewen Group International, Inc.(2)......................................... 204.545 20.45%
Chinh E. Chu(3)............................................................. -- --
David Foley(3).............................................................. -- --
Howard A. Lipson(3)......................................................... -- --
Douglas McKinnon(4)......................................................... -- --
Lawrence Miller(5).......................................................... -- --
Kendall E. Nungesser(6)..................................................... -- --
Dennis C. Poulsen(7)........................................................ -- --
</TABLE>
- ------------------
(1) The 795.455 shares are held collectively by Blackstone Capital Partners II
Merchant Banking Fund L.P., Blackstone Rose Hills Offshore Capital Partners
L.P., and Blackstone Family Investment Partnership II L.P. The address for
the Blackstone entities is c/o Blackstone Group L.P., 345 Park Avenue, New
York, N.Y. 10154.
(2) The address for LGII is 50 River Center Boulevard, Covington, Kentucky
41011. LGII is a directly and indirectly wholly-owned subsidiary of LWN.
(3) Messrs. Chu, Foley and Lipson are affiliated with Blackstone in the
capacities described under 'Management--Executive Officers and Directors.'
Each such person's business address is c/o The Blackstone Group L.P., 345
Park Avenue, New York, NY 10154.
(4) Mr. McKinnon is affiliated with Loewen in the capacity described under
'Management--Executive Officers and Directors.' Mr. McKinnon's business
address is c/o The Loewen Group Inc., 4126 Norland Avenue, Burnaby, British
Columbia, V5G 358. Canada.
(5) Mr. Miller is affiliated with Loewen in the capacity described under
'Management--Executive Officers and Directors.' Mr. Miller's business
address is c/o The Loewen Group Inc., 3190 Tremont Avenue, Trevose, PA
19053.
(6) Mr. Nungesser owns no shares of RH Holdings common stock. Certain officers
of the Issuer hold a limited partnership interest in RHIMD, the holder of
10.2273 shares (approximately 1.02%) of RH Holdings common stock; however,
such officers do not have voting or dispositive power with respect to such
shares.
(7) Mr. Poulsen's business address is c/o Rose Hills Company, 3888 South Workman
Mill Road, Whittier, CA 90601.
In the event that Management is permitted and elects to invest in shares of
RH Holdings common stock as described under 'Management--Compensation of
Executive Officers,' the number and percentage set forth above for the
Blackstone entities will be proportionately reduced.
52
<PAGE>
CERTAIN RELATED TRANSACTIONS
The summaries set forth below of the Acquisition Transaction agreements
referred to below, the Shareholders' Agreement, the Put/Call Agreement and the
Administrative Services Agreement do not purport to be complete and are
qualified in their entirety by reference to all the provisions of the Merger
Agreement, the Asset Purchase Agreement, the Shareholders' Agreement, the
Put/Call Agreement and the Administrative Services Agreement, respectively,
copies of which are available upon request from the Issuer.
ACQUISITION TRANSACTION
On September 19, 1996, the Issuer entered into an Agreement and Plan of
Merger with Roses, Inc. (the 'Merger Agreement') providing for the acquisition
of the Mortuary through the merger of the Issuer with and into Roses, Inc., with
Roses, Inc. (to be renamed RH Mortuary Corporation) being the surviving
corporation in the merger. At the Acquisition Closing Date, the Issuer assigned
all of its rights and obligations under the Merger Agreement to a newly-created
subsidiary of the Issuer, so that following the merger, the Mortuary became a
wholly-owned subsidiary of the Issuer).
On September 19, 1996, the Issuer and the Association also entered into an
Asset Purchase Agreement (the 'Asset Purchase Agreement') pursuant to which the
Issuer agreed to purchase from the Association the assets and assume the
liabilities constituting the Cemetery. At the Acquisition Closing Date, the
Issuer's rights under such Agreement were assigned to a newly created
wholly-owned subsidiary of the Issuer, and, accordingly, on the Acquisition
Closing Date, the Cemetery became a wholly-owned subsidiary of the Issuer.
In connection with the Acquisition, RH Holdings, Blackstone, a subsidiary
of Loewen ('LN Sub'), LGII and LWN entered into a subscription agreement (the
'Subscription Agreement') pursuant to which (i) Blackstone subscribed for common
stock of RH Holdings in exchange for a cash contribution to RH Holdings, (ii)
LGII subscribed for common stock and preferred stock of RH Holdings in exchange
for a cash contribution to RH Holdings and (iii) LN Sub subscribed for shares of
preferred stock of RH Holdings in exchange for the contribution by LN Sub of the
Satellite Properties.
In connection with the Acquisition Transaction, (i) Blackstone and Loewen
contributed to RH Holdings and RH Holdings contributed to the Company $107.0
million in cash; (ii) the Company acquired the Mortuary in consideration of the
payment of $59.9 million in cash (subject to downward adjustment under certain
circumstances) after giving effect to the repayment of outstanding debt of the
Mortuary; (iii) the Company paid a cash purchase price for the Cemetery in the
amount of $166.3 million in cash (subject to downward adjustment under certain
circumstances); (iv) LN Sub contributed the Satellite Properties to RH Holdings
which contributed such properties to the Company; (v) the Bank Credit Agreement
was entered into (see 'Description of Bank Credit Facilities'); and (vi) the
sale of the Notes was consummated.
SHAREHOLDERS' AGREEMENT
In connection with the Acquisition Transaction, Blackstone, LGII and LN Sub
entered into an agreement (the 'Shareholders' Agreement') setting forth certain
of their rights and obligations as shareholders of RH Holdings.
The Shareholders' Agreement provides that, subject to the Put/Call
Agreement referred to below, none of the shareholders is permitted to transfer
any of its respective shares of common or preferred stock of RH Holdings ('RH
Holdings Common Stock') without the others' prior written consent, subject to
certain exceptions.
Under the terms of the Shareholders' Agreement, Blackstone and LGII have
the right to designate five and three nominees as directors, respectively, to
the Board of Directors of RH Holdings (the 'Board'). Each of Blackstone and LGII
further agreed (i) to vote all of its shares of RH Holdings Common Stock to
ratify and adopt any and all actions adopted or approved by the Board and (ii)
subject to certain exceptions related to the election and removal of directors,
not to vote any of its shares of RH Holdings Common Stock in favor of any
resolution, give any consent with respect to any matter or take any other action
as a stockholder of RH Holdings unless such resolution, matter or other action
first shall have been adopted or approved by the Board and recommended by it for
adoption, approval or consent by the shareholders. In addition, the By-Laws of
RH Holdings provide that
53
<PAGE>
certain actions by or with respect to RH Holdings will require the unanimous
consent of the Board. See '--Certain Matters Subject to Supermajority Vote.'
In addition, in the event that Loewen owns, operates or controls any
funeral home or cemetery within 20 miles of any other funeral home or cemetery
owned by the Company, Loewen has an option, exercisable for the succeeding 12
months, to either sell such properties to a third party or transfer such
properties to the Company (free of indebtedness for borrowed money) in exchange
for additional equity in RH Holdings.
The Shareholders' Agreement will terminate following the exercise by either
Blackstone or LGII of its option pursuant to the Put/Call Agreement or on such
other date as the parties may agree.
PUT/CALL ARRANGEMENT
Pursuant to a separate agreement among Blackstone, LWN, LGII and LN Sub
(the 'Put/Call Agreement'), (i) LGII has a call option, exercisable from and
after the fourth anniversary of the Acquisition Closing Date until but excluding
the sixth anniversary of the Acquisition Closing Date, to purchase all of
Blackstone's shares of RH Holdings Common Stock (the 'Call Option') and (ii)
Blackstone has a put option, exercisable from and after the sixth anniversary of
the Acquisition Closing Date until but excluding the eighth anniversary of the
Acquisition Closing Date, to require LGII to purchase Blackstone's shares of RH
Holdings Common Stock (the 'Put Option'). The option price in either case is
derived from a formula based on EBITDA. The performance by LGII of its
obligations under the Put/Call Agreement is guaranteed by LWN.
By virtue of the Put/Call Agreement, it is likely that the Company will
eventually become a wholly-owned subsidiary of Loewen. See 'Risk
Factors--Control by Blackstone; Possible Future Control by Loewen: Potential
Conflicts of Interest.' There can be no assurance, however, that either the Call
Option or the Put Option will be exercised.
The exercise of either the Call Option or the Put Option will not give rise
to a Change of Control under the Indenture. See 'Description of Notes.'
CERTAIN MATTERS SUBJECT TO SUPERMAJORITY VOTE
The By-Laws of RH Holdings provide that the following matters require the
unanimous approval of the Board of Directors: (1) amendments to the Certificate
of Incorporation or By-Laws of RH Holdings; (2) transactions involving the
merger, consolidation or sale of substantially all of the assets of RH Holdings;
(3) the declaration or payment of any cash dividend or other distribution to the
shareholders of RH Holdings (other than payments pursuant to the Administrative
Services Agreement or payment of the monitoring fee to Blackstone described
below under '--Payment of Certain Fees and Expenses;'); and (4) issuances of
additional shares of capital stock, except for issuances to third parties and
issuances of additional shares of capital stock to the extent they are required
to be issued to cure or prevent an event of default or failure of any financial
covenants under the Bank Credit Agreement.
ADMINISTRATIVE SERVICES AGREEMENT
In connection with the Acquisition, the Company engaged Loewen to provide
certain administrative services and share certain resources (Loewen, in such
capacity, being the 'Administrative Services Provider') pursuant to the
Administrative Services Agreement. Pursuant to the Administrative Services
Agreement, Loewen has undertaken some of the Company's administrative functions,
including: accounting services, computer, telecommunications, general operations
support, legal services, environmental compliance, regulatory compliance,
employee training and corporate development. In addition, Loewen currently
provides management expertise in planning MIS, sales, tax, and fund management
strategy. The Company also benefits under the Administrative Services Agreement
from access to some of Loewen's vendor agreements.
As compensation for services provided under the Administrative Services
Agreement, the Administrative Services Provider is entitled to receive from the
Company, a fee (the 'Administrative Services Fee') payable monthly in arrears
and in an aggregate annual amount equal to $334,000 for the first year following
the Acquisition Closing Date and $250,000 for the second year following the
Acquisition Closing Date, to be increased by 2.5% for each year thereafter until
the termination of the Administration Services Agreement. The Company is also
generally required to reimburse the Administrative Services Provider for all
out-of-pocket costs
54
<PAGE>
and expenses incurred by it from third parties in connection with performing the
administrative services described in the Administrative Services Agreement.
The Administrative Services Agreement is subject to termination
automatically upon closing following the exercise of the Call Option or the Put
Option and at the option of the Company under certain other circumstances,
including the failure of Loewen to fully exercise the options set forth in the
fourth paragraph under 'Shareholders' Agreement' above.
PAYMENT OF CERTAIN FEES AND EXPENSES
In connection with the Acquisition, on the Acquisition Closing Date, an
affiliate of Blackstone received a fee of approximately $3.0 million and the
Company reimbursed Loewen and Blackstone for all out-of-pocket expenses incurred
in connection with the Acquisition. In addition, from the Acquisition Closing
Date until the date on which Loewen or Blackstone exercises the Call Option or
the Put Option, respectively, pursuant to the Put/Call Agreement, an affiliate
of Blackstone will receive a monitoring fee equal to $250,000 per annum (as such
fee may be increased to account for inflation) from the Company.
FORMATION OF RHIMD; LOANS TO MANAGEMENT
In connection with the Acquisition, on the Acquisition Closing Date,
Messrs. Nungesser and Helmintoller and certain other officers of the Issuer (the
'RHIMD Limited Partners') subscribed for limited partnership interests in RHIMD
and PSI P&S susbscribed for a general partnership interest in RHIMD, the
proceeds of which subscriptions RHIMD used to purchase approximately 1.02% of
the RH Holdings common stock (the 'RHIMD-Owned Stock').
In order to effect such purchase, on the Acquisition Closing Date, the
Issuer made a loan to RHIMD which was evidenced by a note bearing interest at an
annual rate of 9% and secured by the RHIMD-Owned Stock, the proceeds of which
loan RHIMD used to make a loan to each of the RHIMD Limited Partners. The loan
to each of Messrs. Nungesser and Helmintoller was evidenced by a note bearing
interest at an annual rate of 9% and secured by his limited partnership interest
in RHIMD.
DESCRIPTION OF BANK CREDIT FACILITIES
The summary of the Bank Credit Facilities set forth below does not purport
to be complete and is qualified in its entirety by reference to all the
provisions of the credit agreement governing the Bank Credit Facilities, which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
General. Contemporaneously with the consummation of the Acquisition, the
Company entered into a credit agreement (the 'Bank Credit Agreement') with the
Bank Lenders and the Bank of Nova Scotia, as administrative agent (in such
capacity, the 'Bank Agent'), in order to effect the Bank Credit Facilities,
under which GSCP acted as arranging agent and Goldman Sachs as syndication agent
and under which the Company is the sole borrower.
Commitments. The Bank Credit Facilities provided the Company with senior
secured amortization extended term loan facilities in an aggregate principal
amount of $75.0 million, the proceeds of which were used to finance the
Acquisition and related transaction costs, to pre-fund certain capital
expenditures and to refinance existing indebtedness of the Company, and a senior
secured revolving credit facility in an aggregate principal amount of $25.0
million, the proceeds of which are available for general corporate purposes and
a portion of which may be extended (as agreed upon) in the form of swing line
loans or letters of credit for the account of the Company. In addition, the
Company has the right, subject to certain conditions and performance tests, to
increase the amount of term loan borrowings by up to $25.0 million.
Maturities; Amortization. The Bank Term Facility will mature seven years
after the Acquisition Closing Date, and the Bank Revolving Facility will mature
five years after the Acquisition Closing Date. The Bank Term Facility is subject
to amortization, subject to certain conditions, in semi-annual installments in
the amounts of $1 million in each of the first three years after the Acquisition
Closing Date; $3 million in the fourth year after the Acquisition Closing Date;
$7 million in the fifth year after the Acquisition Closing Date; $9 million in
the sixth year after the Acquisition Closing Date; and $53 million in the
seventh year after the Acquisition Closing Date. The Revolving Credit Facility
is payable in full at maturity, with no prior amortization.
55
<PAGE>
Interest. Borrowings (i) under the Bank Term Facility bear interest at a
rate per annum equal to, at the option of the Company (subject to certain
conditions), either (A) the Bank Agent's customary Base Rate (the 'Base Rate')
plus 2.00% or (B) a reserve-adjusted Eurodollar Rate (the 'Adjusted Eurodollar
Rate') plus 3.00% and (ii) under the Revolving Credit Facility bear interest at
a rate per annum equal to, at the option of the Company (subject to certain
conditions), either (A) the Base Rate plus 1.75% or (B) the Adjusted Eurodollar
Rate plus 2.75%; provided, in each case, that, at the end of any quarter
commencing with the quarter ending June 30, 1997, the applicable margin over the
Base Rate or Adjusted Eurodollar Rate, as the case may be, is subject to an
increase of .25%, in the event that the ratio of EBITDA to interest for the four
quarters (or, if less, the period from the Acquisition Closing Date) then ended
is less than 1.50:1.00. The applicable margins are subject to reduction of 0.25%
per annum after the first anniversary of the Acquisition Closing Date and 0.50%
per annum after the second anniversary of the Acquisition Closing Date, in each
case, based on certain performance criteria. Overdue principal and interest bear
interest at the applicable rate on loans bearing interest at the rate determined
by reference to the Base Rate plus 2.00% per annum.
Fees. The Bank Lenders under the Bank Revolving Facility are paid
commitment fees at a rate of 0.50% per annum on unused commitments. In addition,
the Bank Agent and the Bank Lenders received and/or will receive such other fees
as have been separately agreed upon.
Mandatory Prepayments. The Company is required to prepay the loans made to
it under the Bank Credit Facilities, in the amounts and as otherwise set forth
in the Bank Credit Agreement, in the event of certain asset sales, certain
issuances of equity securities of (or capital contributions made to) the Company
or RH Holdings or the generation of excess cash flow, proceeds from pension plan
revisions or certain proceeds of insurance or condemnation awards.
Call Premium. In the event that all or any portion of the Bank Term
Facility is repaid for any reason within two years following the Acquisition
Closing Date (other than pursuant to a scheduled amortization payment, certain
acceleration events or a mandatory prepayment from excess cash flow), the
Company will be required to make any such repayment (i) on or before the first
anniversary of the Acquisition Closing Date, at 102.75% of the amount of loans
so repaid and (ii) after the first anniversary of the Acquisition Closing Date
but on or before the second anniversary of the Acquisition Closing Date, at
101.75% of the amount of loans so repaid.
Guarantees. All obligations under the Bank Credit Facilities and any
interest rate hedging agreements entered into with the Bank Lenders or their
affiliates in connection therewith are unconditionally guaranteed, jointly and
severally, by RH Holdings and each of the Company's existing and future domestic
subsidiaries.
Security. All obligations of the Company and the Bank Guarantors under the
Bank Credit Facilities and the Bank Guarantees are secured by first priority
security interests in substantially all existing and future assets (including
the real property located at Rose Hills but excluding other real property and
vehicles covered by certificates of title) of the Company and the Bank
Guarantors. In addition, the Bank Credit Facilities are secured by a first
priority security interest in 100% of the capital stock of the Company and each
subsidiary thereof and all intercompany receivables.
Covenants. The Bank Credit Agreement contains a number of affirmative
covenants, and negative covenants that, among other things, restrict the ability
of RH Holdings, the Company and its subsidiaries to dispose of assets, incur
additional indebtedness, prepay other indebtedness (including the Notes), pay
dividends or make other payments on subordinated debt or on equity, create liens
on assets, make investments, capital expenditures or guarantees, engage in
mergers or acquisitions, enter into leases or transactions with affiliates, and
otherwise restrict corporate activities. In addition, the Company is required to
maintain a minimum fixed charge coverage ratio, a minimum interest coverage
ratio and a minimum net worth and to meet maximum senior and total debt leverage
tests.
Events of Default. Events of default under the Bank Credit Agreement
include, among other things: (i) failure to make payment when due; (ii) breaches
of representations and warranties; (iii) default in the performance of
covenants; (iv) default under certain other agreements governing indebtedness
(including the Indenture); (v) certain events of bankruptcy; (vi) failure to
satisfy certain material ERISA requirements; (vii) certain material impairments
of security interests in collateral; (viii) invalidity of the guarantees; and
(ix) the occurrence of a Change of Control (as defined therein) of the Company.
56
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an indenture dated as of November
15, 1996 (the 'Indenture') between the Issuer and United States Trust Company of
New York as trustee (the 'Trustee'). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Indenture
(which is incorporated herein by reference and a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part),
including the definitions of certain terms contained therein and those terms
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, as in effect on the date of the Indenture. The definitions of certain
capitalized terms used in the following summary are set forth below under
'--Certain Definitions.'
GENERAL
The Exchange Notes will be unsecured senior subordinated obligations of the
Issuer limited to $80,000,000 aggregate principal amount. Except for the
restrictions on registrations and transfers, all untendered Notes and the
Exchange Notes will be treated as one class of securities for purposes of the
covenants and the other terms contained in the Indenture.
Except as described under the heading 'Book Entry; Delivery and Form,' the
Exchange Notes initially will be represented by a single, permanent global
certificate in definitive, fully registered form (the 'Global Note'). The Global
Note will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ('DTC'), and registered in the name of a nominee of DTC or will
remain in the custody of the Trustee pursuant to the FAST Balance Certificate
Agreement between the Depository and the Trustee.
MATURITY, INTEREST AND PRINCIPAL
The Exchange Notes will mature on November 15, 2004. Interest on the
Exchange Notes will accrue at the rate of 9 1/2% per annum and will be payable
semiannually on each May 15 and November 15, commencing May 15, 1997, to the
holders of record of Exchange Notes at the close of business on the May 1 or
November 1 immediately preceding such interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the original date of issuance (the
'Issue Date'). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
Optional Redemption. The Exchange Notes will be redeemable at the option
of the Issuer, in whole or in part, at any time on or after November 15, 2000,
on not less than 30 nor more than 60 days' prior notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest, if any, to the redemption date, if redeemed during
the 12-month period beginning on or after November 15 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2000......................................................... 104.750%
2001......................................................... 103.167%
2002......................................................... 101.583%
2003 and thereafter.......................................... 100.000%
</TABLE>
Purchase at Option of Holders. As described below, the Issuer is obligated
(a) upon the occurrence of a Change of Control, to make an offer to purchase all
outstanding Exchange Notes at a purchase price of 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase, and
(b) upon the occurrence of certain sales or dispositions of assets, to make an
offer to purchase Exchange Notes with a portion of the net cash proceeds
thereof, at a purchase price of 100% of the principal amount thereof, plus
accrued
and unpaid interest, if any, to the date of purchase. See '--Certain
Covenants--Change of Control' and
'--Disposition of Proceeds of Asset Sales.'
57
<PAGE>
SUBORDINATION
The indebtedness evidenced by the Exchange Notes will be subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
existing and future Senior Indebtedness of the Issuer. The Indenture contains
certain limitations with respect to the amount of additional indebtedness
(including Indebtedness which may rank senior in right of payment to or pari
passu in right of payment with the Exchange Notes) that may be incurred by the
Issuer and/or any of its Subsidiaries.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Issuer or
its assets, or any liquidation, dissolution or other winding-up of the Issuer,
whether voluntary or involuntary, and whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or other marshalling
of assets or liabilities of the Issuer, all Senior Indebtedness of the Issuer
(including, in the case of Designated Senior Indebtedness, any interest accruing
subsequent to the filing of a petition for bankruptcy whether or not such
interest is an allowed claim) must be paid in full in cash or Cash Equivalents
before any payment or distribution (excluding certain permitted equity or
subordinated securities) is made on account of the principal of, premium, if
any, or interest on, or any other obligations to the holders of the Exchange
Notes in respect of, the Exchange Notes.
During the continuance of any default in the payment of principal, premium,
if any, or interest on any Senior Indebtedness, when the same becomes due, no
direct or indirect payment (other than payments previously made pursuant to the
provisions described under '--Defeasance or Covenant Defeasance of Indenture')
by or on behalf of the Issuer of any kind or character (excluding certain
permitted equity or subordinated securities) may be made on account of the
principal of, premium, if any, or interest on, or other obligations to the
holders of the Exchange Notes in respect of, or the purchase, redemption or
other acquisition of, the Exchange Notes unless and until such default has been
cured or waived or has ceased to exist or such Senior Indebtedness shall have
been discharged or paid in full in cash or Cash Equivalents.
In addition, during the continuance of any other default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a 'Non-payment Default') and upon the earlier to occur of (a)
receipt by the Trustee from the representatives of holders of such Designated
Senior Indebtedness of a written notice of such Non-payment Default or (b) if
such Non-payment Default results from the acceleration of the Exchange Notes,
the date of such acceleration, no payment (other than payments previously made
pursuant to the provisions described under '--Defeasance or Covenant Defeasance
of Indenture') of any kind or character (excluding certain permitted equity or
subordinated securities) may be made by the Issuer on account of the principal
of, premium, if any, or interest on, or the purchase, redemption, or other
acquisition of, the Exchange Notes for the period specified below (the 'Payment
Blockage Period').
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness or the date of the acceleration referred to in
clause (b) of the preceding paragraph, as the case may be, and shall end on the
earliest to occur of the following events: (i) 179 days has elapsed since the
receipt of such notice or the date of such acceleration (provided such
Designated Senior Indebtedness shall not theretofore have been accelerated),
(ii) such default is cured or waived or ceases to exist or such Designated
Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents,
or (iii) such Payment Blockage Period shall have been terminated by written
notice to the Issuer or the Trustee from the representatives of holders of
Designated Senior Indebtedness initiating such Payment Blockage Period, after
which the Issuer shall promptly resume making any and all required payments in
respect of the Exchange Notes, including any missed payments. Notwithstanding
anything in the foregoing to the contrary, a Payment Blockage Notice may only be
given and therefore shall only be effective in respect of the Issuer and the
Trustee if given by, (i) the Bank Agent as long as any Senior Indebtedness
remains outstanding under the Bank Credit Agreement and (ii) if no Senior
Indebtedness remains outstanding under the Bank Credit Agreement, any other
representative of outstanding Designated Senior Indebtedness. Only one Payment
Blockage Period with respect to the Exchange Notes may be commenced within any
365 consecutive day period. No Non-payment Default with respect to Designated
Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period will be, or can be,
made the basis for the commencement of a second
58
<PAGE>
Payment Blockage Period, whether or not within a period of 365 consecutive days,
unless such default has been cured or waived for a period of not less than 180
consecutive days. In no event will a Payment Blockage Period extend beyond 179
days from the receipt by the Trustee of the notice or the date of the
acceleration initiating such Payment Blockage Period and there must be a 186
consecutive day period in any 365 day period during which no Payment Blockage
Period is in effect.
If the Issuer fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Exchange Notes
to accelerate the maturity thereof. See '--Events of Default.'
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Issuer who are holders of Senior Indebtedness may recover more,
ratably, than the holders of the Exchange Notes and funds which would be
otherwise payable to the holders of the Exchange Notes will be paid to the
holders of the Senior Indebtedness to the extent necessary to pay the Senior
Indebtedness in full, and the Issuer may be unable to meet its obligations fully
with respect to the Exchange Notes.
On a pro forma basis after giving effect to the Acquisition Transaction,
the Issuer would have had $75 million of Senior Indebtedness outstanding as of
September 30, 1996 and would have had $25 million available to be borrowed under
the Revolving Credit Facility. The Indenture limits, but does not prohibit, the
incurrence by the Issuer of additional Indebtedness which is senior to the
Exchange Notes, and limits the incurrence by the Issuer of Indebtedness which is
subordinated in right of payment to any other Indebtedness of the Issuer.
HOLDING COMPANY STRUCTURE
The Issuer is a holding company for its Subsidiaries, with no material
operations of its own and only limited assets. Accordingly, the Issuer is
dependent upon the distribution of the earnings of its Subsidiaries, whether in
the form of dividends, advances or payments on account of intercompany
obligations, to service its debt obligations. In addition, the claims of the
holders of the Exchange Notes are subject to the prior payment of all
liabilities (whether or not for borrowed money) and to any preferred stock
interest of such Subsidiaries. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets available from the Issuer
and its Subsidiaries to satisfy the claims of the holders of the Exchange Notes.
See 'Risk Factors--Holding Company Structure; Reliance on Subsidiaries to
Service Indebtedness; Exchange Notes Subordinated to Subsidiary Liabilities.'
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Issuer will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable, contingently or
otherwise, for the payment of (in each case, to 'incur') any Indebtedness
(including, without limitation, any Acquired Indebtedness); provided, however,
that the Issuer and any of its Subsidiaries will be permitted to incur
Indebtedness (including, without limitation, Acquired Indebtedness) if at the
time of such incurrence, and after giving pro forma effect thereto, the
Consolidated Fixed Charge Coverage Ratio of the Issuer is at least equal to
2.00:1.
Notwithstanding the foregoing, the Issuer and its Subsidiaries may, to the
extent specifically set forth below, incur each and all of the following:
(a) Indebtedness of the Issuer evidenced by the Notes and the Exchange
Notes;
(b) Indebtedness of the Issuer and its Subsidiaries outstanding on the
Issue Date;
(c) Indebtedness of the Issuer and its Subsidiaries (i) under the Bank
Term Facility, (ii) under the Revolving Credit Facility (including with
respect to letters of credit issued thereunder), (iii) under any other
revolving credit facility, or (iv) under any other credit facility provided
by a bank or other financial
59
<PAGE>
institution in an aggregate principal amount for clauses (i) through (iv)
at any one time outstanding not to exceed $125,000,000;
(d) (i) Interest Rate Protection Obligations of the Issuer covering
Indebtedness of the Issuer or a Subsidiary of the Issuer and (ii) Interest
Rate Protection Obligations of any Subsidiary of the Issuer covering
Indebtedness of the Issuer or such Subsidiary; provided, however, that, in
the case of either clause (i) or (ii), (x) any Indebtedness to which any
such Interest Rate Protection Obligations relate bears interest at
fluctuating interest rates and is otherwise permitted to be incurred under
this covenant and (y) the notional principal amount of any such Interest
Rate Protection Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations relate;
(e) Indebtedness of a Wholly-Owned Subsidiary owed to and held by the
Issuer or another Wholly-Owned Subsidiary, in each case which is not
subordinated in right of payment to any Indebtedness of such Subsidiary
(other than Indebtedness under its guaranty of the Bank Credit Facilities),
except that (i) any transfer of such Indebtedness by the Issuer or a
Wholly-Owned Subsidiary (other than to the Issuer or to a Wholly-Owned
Subsidiary) and (ii) the sale, transfer or other disposition by the Issuer
or any Subsidiary of the Issuer of Capital Stock of a Wholly-Owned
Subsidiary which is owed Indebtedness of another Wholly-Owned Subsidiary
such that it ceases to be a Wholly-Owned Subsidiary of the Issuer shall, in
each case, be an incurrence of Indebtedness by such Subsidiary subject to
the other provisions of this covenant;
(f) Indebtedness of the Issuer owed to and held by a Wholly-Owned
Subsidiary of the Issuer which is unsecured and subordinated in right of
payment to the payment and performance of the Issuer's obligations under
the Bank Credit Facilities and the Indenture, the Notes and the Exchange
Notes except that (i) any transfer of such Indebtedness by a Wholly-Owned
Subsidiary of the Issuer (other than to another Wholly-Owned Subsidiary of
the Issuer) and (ii) the sale, transfer or other disposition by the Issuer
or any Subsidiary of the Issuer of Capital Stock of a Wholly-Owned
Subsidiary which holds Indebtedness of the Issuer such that it ceases to be
a Wholly-Owned Subsidiary shall, in each case, be an incurrence of
Indebtedness by the Issuer, subject to the other provisions of this
covenant;
(g) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Issuer and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(i) Indebtedness of the Issuer or any of its Subsidiaries represented
by letters of credit for the account of the Issuer or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
(j) Indebtedness of the Issuer or any Subsidiary of the Issuer in
addition to that described in clauses (a) through (i) above, in an
aggregate principal amount outstanding at any time not exceeding
$5,000,000; provided, that if, at the time of incurrence of Indebtedness,
the ratio of the aggregate principal amount of Indebtedness on a pro forma
basis after giving effect to the Indebtedness then being incurred to
Consolidated Cash Flow for the four full fiscal quarters immediately
preceding the date of such incurrence is less than or equal to 6.00:1, then
such amount shall be an aggregate principal amount not exceeding
$10,000,000; and
(k) (i) Indebtedness of the Issuer (including any Indebtedness
incurred in connection with a Sale-Leaseback Transaction permitted pursuant
to the covenant described under '--Limitation on Sale-- Leaseback
Transactions') the proceeds of which are used solely to refinance (whether
by amendment, renewal, extension or refunding) Indebtedness of the Issuer
or any of its Subsidiaries and (ii) Indebtedness of any Subsidiary of the
Issuer the proceeds of which are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of such
Subsidiary, in each case other than the Indebtedness
60
<PAGE>
refinanced, redeemed or retired as described under 'Use of Proceeds'
herein; provided, however, that (x) the principal amount of Indebtedness
incurred pursuant to this clause (k) (or, if such Indebtedness provides for
an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of the principal
amount of Indebtedness so refinanced, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of such Indebtedness or the amount of any premium reasonably
determined by the Board of Directors of the Issuer as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated purchase, plus the amount of expenses in connection therewith,
(y) in the case of Indebtedness incurred by the Issuer pursuant to this
clause (k) to refinance Subordinated Indebtedness, such Indebtedness (A)
does not have a Stated Maturity prior to the Maturity of the Subordinated
Indebtedness being refinanced, (B) has an Average Life to Stated Maturity
equal to or greater than the remaining Average Life to Stated Maturity of
the Subordinated Indebtedness being refinanced and (C) is subordinated to
the Exchange Notes in the same manner and to the same extent that the
Subordinated Indebtedness being refinanced is subordinated to the Exchange
Notes and (z) in the case of Indebtedness incurred by the Issuer pursuant
to this clause (k) to refinance Pari Passu Indebtedness, such Indebtedness
(A) does not have a Stated Maturity prior to the Stated Maturity of the
Pari Passu Indebtedness being refinanced, (B) has an Average Life to Stated
Maturity equal to or greater than the remaining Average Life to Stated
Maturity of the Pari Passu Indebtedness being refinanced and (C)
constitutes Pari Passu Indebtedness or Subordinated Indebtedness.
Limitation on Restricted Payments. The Issuer will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Issuer or any of its
Subsidiaries or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Issuer or any of its
Subsidiaries (other than (x) dividends or distributions payable solely in
Capital Stock of the Issuer (other than Redeemable Capital Stock) or in
options, warrants or other rights to purchase Capital Stock of the Issuer
(other than Redeemable Capital Stock), (y) the declaration or payment of
dividends or other distributions to the extent declared or paid to the
Issuer or any Subsidiary of the Issuer and (z) the declaration or payment
of dividends or other distributions by any Subsidiary of the Issuer to all
holders of Common Stock of such Subsidiary on a pro rata basis);
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Issuer or any of its Subsidiaries (other than any
such Capital Stock owned by the Issuer or a Wholly-Owned Subsidiary of the
Issuer (in each case other than in exchange for its Capital Stock (other
than Redeemable Capital Stock));
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness or Pari Passu Indebtedness
other than any such Indebtedness owed by the Issuer or a Wholly-Owned
Subsidiary of the Issuer; or
(d) make any Investment (other than any Permitted Investment) in any
Person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as 'Restricted Payments'), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Issuer or such Subsidiary, as the case may be, pursuant to
such Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Issuer would be able to incur $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described under
'--Limitation on Indebtedness' above (assuming a market rate of interest with
respect to such additional Indebtedness) and (C) the aggregate amount of all
Restricted Payments declared or made from and after the Issue Date would not
exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the Issuer
accrued on a cumulative basis during the period beginning on the first day of
the fiscal quarter of the Issuer following the fiscal quarter during which the
Issue Date occurs and ending on the last day of the fiscal quarter of the Issuer
immediately preceding the date of such proposed Restricted Payment, which period
shall be treated as a single accounting period (or, if
61
<PAGE>
such aggregate cumulative Consolidated Net Income of the Issuer for such period
shall be a deficit, minus 100% of such deficit) plus (2) the aggregate net cash
proceeds received by the Issuer either (x) as capital contributions to the
Issuer after the Issue Date from any Person (other than a Subsidiary of the
Issuer) or any dividend or distribution from an Unrestricted Subsidiary to the
Issuer to the extent not otherwise included in Consolidated Net Income of the
Issuer or (y) from the issuance or sale of Capital Stock (excluding Redeemable
Capital Stock, but including Capital Stock issued upon the conversion of
convertible Indebtedness or from the exercise of options, warrants or rights to
purchase Capital Stock (other than Redeemable Capital Stock)) of the Issuer to
any Person (other than to a Subsidiary of the Issuer) after the Issue Date plus
(3) in the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date (excluding any Investment described
in clause (v) of the following paragraph), including the redesignation of an
Unrestricted Subsidiary as a Subsidiary in accordance with the definition
thereof, an amount equal to the lesser of the return of capital with respect to
such Investment and the cost of such Investment, in either case, less the cost
of the disposition of such Investment, or, in the case of a redesignation of an
Unrestricted Subsidiary as a Subsidiary, an amount equal to the lesser of the
amount of the Investment previously deemed to have been made in connection with
the designation of such Subsidiary as an Unrestricted Subsidiary and the Fair
Market Value of the assets of such Unrestricted Subsidiary at the time it is
redesignated as a Subsidiary. For purposes of the preceding clause (C)(2), the
value of the aggregate net proceeds received by the Issuer upon the issuance of
Capital Stock upon the conversion of convertible Indebtedness or upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such Indebtedness, options, warrants or rights plus the
incremental cash amount received by the Issuer upon the conversion or exercise
thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Issuer or any Subsidiary of the Issuer in
exchange for, or out of the net cash proceeds of, a substantially concurrent (x)
capital contribution to the Issuer from any Person (other than a Subsidiary of
the Issuer) or (y) issue and sale of other shares of Capital Stock (other than
Redeemable Capital Stock) of the Issuer to any Person (other than to a
Subsidiary of the Issuer); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; (iii) so long as no Default or Event of Default shall have occurred
and be continuing, any redemption, repurchase or other acquisition or retirement
of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of
a substantially concurrent (x) capital contribution to the Issuer from any
Person (other than a Subsidiary of the Issuer) or (y) issue and sale of (1)
Capital Stock (other than Redeemable Capital Stock) of the Issuer to any Person
(other than to a Subsidiary of the Issuer); provided, however, that the amount
of any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement shall be excluded from clause
(C)(2) of the preceding paragraph; or (2) Indebtedness of the Issuer issued to
any Person (other than a Subsidiary of the Issuer), so long as such Indebtedness
is Subordinated Indebtedness which (x) has no Stated Maturity earlier than the
Stated Maturity of the Subordinated Indebtedness so purchased, exchanged,
redeemed, acquired or retired, (y) has an Average Life to Stated Maturity equal
to or greater than the remaining Average Life to Stated Maturity of the
Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired, and (z) is subordinated to the Exchange Notes in the same manner and at
least to the same extent as the Subordinated Indebtedness so purchased,
exchanged, redeemed, acquired or retired; (iv) so long as no Default or Event of
Default shall have occurred and be continuing, any redemption, repurchase or
other acquisition or retirement of Pari Passu Indebtedness by exchange for, or
out of the net cash proceeds of, a substantially concurrent (x) capital
contribution to the Issuer from any Person (other than a Subsidiary of the
Issuer) or (y) issue and sale of (1) Capital Stock (other than Redeemable
Capital Stock) of the Issuer to any Person (other than to a Subsidiary of the
Issuer); provided, however, that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase or other acquisition or
retirement is excluded from clause (C)(2) of the preceding paragraph; or (2)
Indebtedness of the Issuer issued to any Person (other than a Subsidiary of the
Issuer), so long as such Indebtedness is Subordinated Indebtedness or Pari Passu
Indebtedness which (x) has no Stated Maturity earlier than the Stated Maturity
of the Pari Passu Indebtedness so purchased, exchanged, redeemed, acquired or
retired and (y) has an Average Life to Stated Maturity equal to or greater than
the remaining Average Life to Stated Maturity of the Pari Passu Indebtedness so
purchased, exchanged, redeemed,
62
<PAGE>
acquired or retired; (v) Investments constituting Restricted Payments made as a
result of the receipt of non-cash consideration from any Asset Sale made
pursuant to and in compliance with the covenant described under '--Disposition
of Proceeds of Asset Sales' below or any transaction excepted from the
definition of Asset Sale pursuant to the last sentence of such definition; (vi)
so long as no Default or Event of Default has occurred and is continuing,
repurchases by the Issuer, or the declaration and payment of a dividend to RH
Holdings, the proceeds of which are to be used for the purchase of, Common Stock
of RH Holdings (or of limited partnership interests in a partnership holding
such Common Stock) from employees of the Issuer or any of its Subsidiaries or
their authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not exceeding $500,000 in
any calendar year; (vii) other Restricted Payments not to exceed $2,500,000;
provided that at the time such Restricted Payment is made, the ratio of the
aggregate principal amount of Indebtedness on a pro forma basis after giving
effect to any Indebtedness incurred in connection with such Restricted Payment
to Consolidated Cash Flow for the four full fiscal quarters immediately
preceding the date of such Restricted Payment shall be less than or equal to
6.00:1; (viii) any payments permitted to be made pursuant to clauses (ii)
through (vi) of the proviso set forth in the covenant described under
'--Limitation on Transactions with Interested Persons' below; (ix) payments to
RH Holdings in an amount sufficient to pay (a) director's fees and the
reasonable expenses of directors, (b) accounting, legal or other administrative
expenses incurred by RH Holdings relating to the operations of the Issuer in the
ordinary course of business and (c) so long as RH Holdings files consolidated
income tax returns which include the Issuer, payments to RH Holdings in an
amount equal to the amount of income tax that the Issuer would have paid if it
had filed consolidated tax returns on a separate-company basis or (x) payments
to RH Holdings in an amount sufficient to consummate the Acquisition
Transaction. In computing the amount of Restricted Payments previously made for
purposes of clause (C) of the preceding paragraph, Restricted Payments made
under the preceding clauses (v) and (vi) shall be included and clauses (i),
(ii), (iii), (iv), (vii), (viii), (ix) and (x) shall not be so included.
Limitation on Liens. The Issuer will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
(x) in the case of Liens securing Subordinated Indebtedness, the Exchange Notes
are secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (y) in all other cases, the Exchange Notes are
equally and ratably secured, except for (a) Liens existing as of the Issue Date;
(b) Liens securing the Exchange Notes; (c) Liens on assets of the Issuer
securing Senior Indebtedness and Liens on assets of Subsidiaries of the Issuer
securing indebtedness permitted to be incurred by them under the Indenture; (d)
Liens in favor of the Issuer; (e) Liens securing Indebtedness which is incurred
to refinance Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens do not extend to or cover any
property or assets of the Issuer or any of its Subsidiaries not securing the
Indebtedness so refinanced; and (f) Permitted Liens.
Change of Control. Upon the occurrence of a Change of Control, the Issuer
shall be obligated to make an offer to purchase (a 'Change of Control Offer'),
and shall purchase all Notes and Exchange Notes properly tendered into the
Change of Control Offer and not withdrawn, on a business day (the 'Change of
Control Purchase Date') not more than 60 nor less than 30 days following the
date the notice described below is mailed to holders of the Notes and Exchange
Notes, all of the then outstanding Notes and Exchange Notes at a purchase price
(the 'Change of Control Purchase Price') equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Issuer shall be required to purchase all Notes and Exchange
Notes properly tendered into the Change of Control Offer and not withdrawn. The
Change of Control Offer is required to remain open for at least 20 business days
and until the close of business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Issuer shall, not
later than the 30th day after the occurrence of the Change of Control, mail to
each holder of Notes and Exchange Notes notice of the Change of Control Offer,
which notice shall govern the terms of the Change of Control Offer and shall
state, among other things, the procedures that holders of Notes and Exchange
Notes must follow to accept the Change of Control Offer.
The occurrence of the events constituting a Change of Control under the
Indenture will result in an event of default under the Bank Credit Agreement
and, thereafter, the Bank Lenders will have the right to require repayment of
the borrowings thereunder in full. The Issuer's obligations under the Bank
Credit Facilities will
63
<PAGE>
constitute Designated Senior Indebtedness and will represent obligations senior
in right of payment to the Notes and Exchange Notes. Consequently, the
subordination provisions of the Indenture will have the effect of precluding the
purchase of the Notes and Exchange Notes by the Issuer in the event of a Change
of Control, absent consent of the Bank Lenders under the Bank Credit Facilities
or repayment of all amounts outstanding thereunder (although the failure by the
Issuer to comply with its obligations in the event of a Change of Control will
constitute a default under the Notes and Exchange Notes). There can be no
assurance that the Issuer will have adequate resources to repay or refinance all
Indebtedness owing under the Bank Credit Facilities or to fund the purchase of
the Notes and Exchange Notes upon a Change of Control.
The Issuer shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Issuer and purchases all
Exchange Notes validly tendered and not withdrawn under such Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the Change of Control provisions under the Indenture, the Issuer
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the Indenture by virtue
thereof.
Disposition of Proceeds of Asset Sales. The Issuer will not, and will not
permit any of its Subsidiaries to, make any Asset Sale unless (a) the Issuer or
such Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or assets sold
or otherwise disposed of and (b) at least 75% of such consideration consists of
cash or Cash Equivalents. To the extent the Net Cash Proceeds of any Asset Sale
are not applied to repay the Bank Term Facility or any other Senior Indebtedness
or permanently reduce the commitments under the Revolving Credit Facility, the
Issuer or such Subsidiary, as the case may be, may, within 365 days from the
receipt of the Net Cash Proceeds, apply such Net Cash Proceeds to an investment
in properties and assets that replace the properties and assets that were the
subject of such Asset Sale or in properties and assets that will be used in the
business of the Issuer and its Subsidiaries existing on the Issue Date or in
businesses reasonably related thereto ('Replacement Assets'). Any Net Cash
Proceeds from any Asset Sale that are neither used to repay the Bank Term
Facility or any other Senior Indebtedness, or permanently reduce the commitments
under the Revolving Credit Facility, nor invested in Replacement Assets within
the 365-day period described above constitute 'Excess Proceeds' subject to
disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $5,000,000,
the Issuer shall not more than 40 Business Days thereafter make an offer to
purchase (an 'Asset Sale Offer'), from all holders of the Notes and Exchange
Notes, not less than 20 Business Days nor more than 40 Business Days after the
date of notice of such Asset Sale Offer, an aggregate principal amount of Notes
and Exchange Notes equal to such Excess Proceeds, at a price in cash equal to
100% of the outstanding principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date. To the extent that the aggregate
principal amount of Notes and Exchange Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Issuer may use such deficiency for
general corporate purposes. If the aggregate principal amount of Notes and
Exchange Notes validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds, Notes and Exchange Notes to be purchased will be selected on a
pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero.
The Issuer will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Issuer is required to purchase Notes and Exchange Notes as described above.
Limitation on Issuances and Sale of Preferred Stock by Subsidiaries. The
Issuer (a) will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to the Issuer or a Wholly-Owned Subsidiary of the Issuer) and (b)
will not permit any Person (other than the Issuer or a Wholly-Owned Subsidiary
of the Issuer) to own any Preferred Stock of any Subsidiary of the Issuer;
provided, however, that this covenant shall not prohibit the issuance and sale
of (x) all, but not less than all, of the issued and outstanding Capital Stock
of any Subsidiary of the Issuer owned by the Issuer or any of its Subsidiaries
in compliance with the other provisions of the Indenture, (y) directors'
qualifying shares or investments by foreign nationals mandated by applicable law
or (z) issuances of Preferred Stock to former owners of funeral homes acquired
by the Issuer or any Subsidiary of the Issuer; provided that the sum of (i) the
aggregate Fair Market Value of such Preferred Stock and (ii) the
64
<PAGE>
aggregate Fair Market Value of all Investments permitted under clause (vi) of
the definition of 'Permitted Investments' shall not exceed $5,000,000 at any
time outstanding.
Limitation on Transactions with Interested Persons. The Issuer will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, transfer, disposition, purchase,
exchange or lease of assets, property or services) with, or for the benefit of,
any Affiliate of the Issuer or any beneficial owner (determined in accordance
with the Indenture) of 5% or more of RH Holdings' Common Stock at any time
outstanding ('Interested Persons'), unless (a) such transaction or series of
related transactions is on terms that are no less favorable to the Issuer or
such Subsidiary, as the case may be, than those which could have been obtained
in a comparable transaction at such time from Persons who are not Affiliates of
the Issuer or Interested Persons, (b) with respect to a transaction or series of
transactions (other than commercial arrangements with any limited partner of
Blackstone Capital Partners II Merchant Banking Fund L.P. or any Affiliate of
such limited partners) involving aggregate payments or value equal to or greater
than $5,000,000, the Issuer has obtained a written opinion from an Independent
Financial Advisor stating that the terms of such transaction or series of
transactions are fair to the Issuer or its Subsidiary, as the case may be, from
a financial point of view and (c) with respect to a transaction or series of
transactions (other than commercial arrangements with any limited partner of
Blackstone Capital Partners II Merchant Banking Fund L.P. or any Affiliate of
such limited partners) involving aggregate payments or value equal to or greater
than $1,000,000, the Issuer shall have delivered an officer's certificate to the
Trustee certifying that such transaction or series of transactions complies with
the preceding clause (a) and, if applicable, certifying that the opinion
referred to in the preceding clause (b) has been delivered and that such
transaction or series of transactions has been approved by a majority of the
Board of Directors of the Issuer; provided, however, that this covenant will not
restrict the Issuer from (i) paying dividends in respect of its Capital Stock
permitted under the covenant described under '--Limitation on Restricted
Payments' above, (ii) paying reasonable and customary fees and indemnities to
directors of the Issuer who are not employees of the Issuer, (iii) making loans
or advances to, or providing indemnities of, officers, employees or consultants
of the Issuer and its Subsidiaries (including travel and moving expenses) in the
ordinary course of business for bona fide business purposes of the Issuer or
such Subsidiary not in excess of $1,000,000 in the aggregate at any one time
outstanding, (iv) making loans to officers (or a partnership comprised of such
officers) for the purpose of purchasing common stock of RH Holdings and making
any payment required or specifically permitted by the terms of the
Administrative Services Agreement, (v) paying an annual monitoring fee of
$250,000 (plus any increase thereof which may be made to account for inflation)
to Blackstone Management Partners L.P. or any of its Affiliates designated by
Blackstone Management Partners L.P., (vi) making any payment to RH Holdings
permitted by the covenant described under '--Limitations on Restricted Payments'
above or (vii) entering into any transaction with any of its Wholly-Owned
Subsidiaries or restricting any Subsidiary from entering into any transaction
with any other Wholly-Owned Subsidiary.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Issuer will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Issuer to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or any other interest or
participation in, or measured by, its profits, (b) pay any Indebtedness owed to
the Issuer or any other Subsidiary of the Issuer, (c) make loans or advances to,
or any investment in, the Issuer or any other Subsidiary of the Issuer, (d)
transfer any of its properties or assets to the Issuer or any other Subsidiary
of the Issuer or (e) guarantee any Indebtedness of the Issuer or any other
Subsidiary of the Issuer, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of the
Issuer or any Subsidiary of the Issuer, (iii) customary restrictions on
transfers of property subject to a Lien permitted under the Indenture, (iv) any
agreement or other instrument of a Person acquired by the Issuer or any
Subsidiary of the Issuer (or a Subsidiary of such Person) in existence at the
time of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the properties or assets of the
Person, so acquired, (v) provisions contained in agreements or instruments
relating to Indebtedness which prohibit the transfer of all or substantially all
of the assets of the obligor thereunder unless the transferee shall assume the
obligations of the obligor under such agreement or instrument, (vi) any
restriction with respect to a Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or
65
<PAGE>
substantially all of the Capital Stock or assets of such Subsidiary pending the
closing of such sale or disposition, (vii) any encumbrance or restriction
arising or agreed to in the ordinary course of business and that does not,
individually or in the aggregate, detract from the value of the property or
assets of the Issuer or any Subsidiary in any manner material to the Issuer or
such Subsidiary and (viii) encumbrances and restrictions under agreements in
effect on the Issue Date, including the Bank Credit Agreement, and encumbrances
and restrictions in permitted refinancings or replacements of Indebtedness
evidenced by the agreements referred to in this clause (viii) which are no less
favorable to the holders of the Exchange Notes than those contained in the
Indebtedness so refinanced or replaced.
Limitation on the Issuance of Other Senior Subordinated Indebtedness. The
Issuer will not, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Issuer, unless such Indebtedness (x) is pari passu with or
(y) is subordinate in right of payment to the Exchange Notes in the same manner
and at least to the same extent as the Exchange Notes are subordinated to Senior
Indebtedness.
Limitation on Sale-Leaseback Transactions. The Issuer will not, and will
not permit any of its Subsidiaries to, enter into any Sale-Leaseback Transaction
with respect to any property of the Issuer or any of its Subsidiaries.
Notwithstanding the foregoing, the Issuer and its Subsidiaries may enter into
Sale-Leaseback Transactions; provided that (a) the Attributable Value of such
Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Issuer or
such Subsidiary, as the case may be, and (b) either (i) after giving pro forma
effect to any such Sale-Leaseback Transaction and the foregoing clause (a), the
Issuer would be able to incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under '--Limitation on Indebtedness'
above (assuming a market rate of interest with respect to such additional
Indebtedness) or (ii) the proceeds of such Sale-Leaseback Transaction are
applied to repay existing Indebtedness (other than Indebtedness outstanding
under any revolving credit facility).
Reporting Requirements. The Issuer will file with the Commission or if not
permitted, deliver to the Trustee, the annual reports, quarterly reports and
other documents required to be filed with the Commission pursuant to Sections 13
and 15(d) of the Exchange Act, whether or not the Issuer has a class of
securities registered under the Exchange Act. In the event that The Loewen Group
Inc. fully and unconditionally guarantees the obligations of the Issuer under
the Exchange Notes, the reporting requirements may be satisfied through the
filing and provisions of the annual reports, quarterly reports and other
documents in respect of The Loewen Group Inc. Such requirements may also be
satisfied prior to the 180th day after the Closing Date, with the filing with
the Commission of the Exchange Offer Registration Statement. The Issuer will be
required to file with the Trustee and provide to each Noteholder within 15 days
after it files them with the Commission (or if any such filing is not permitted
under the Exchange Act, 15 days after the Issuer would have been required to
make such filing) copies of such reports and documents.
MERGER, SALE OF ASSETS, ETC.
The Issuer will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets as an entirety
to, any Person or Persons, and the Issuer will not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Issuer or the Issuer and
its Subsidiaries, taken as a whole, to any other Person or Persons, unless at
the time of and after giving effect thereto (a) either (i) if the transaction or
series of transactions is a merger or consolidation, the Issuer shall be the
surviving Person of such merger or consolidation, or (ii) the Person formed by
such consolidation or into which the Issuer or such Subsidiary is merged or to
which the properties and assets of the Issuer or such Subsidiary, as the case
may be, are transferred (any such surviving Person or transferee Person being
the 'Surviving Entity') shall be a corporation organized and existing under the
laws of the United States of America, any state thereof, the District of
Columbia, Canada or any province thereof and shall expressly assume by a
supplemental indenture executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, all the obligations of the Issuer under the
Exchange Notes and the Indenture, and in each case, the Indenture shall remain
in full force and effect; (b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred
66
<PAGE>
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (c) the Issuer or the Surviving Entity, as the
case may be, after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), could incur $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described under
'--Certain Covenants--Limitation on Indebtedness' above (assuming a market rate
of interest with respect to such additional Indebtedness); and (d) immediately
after giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series of
transactions), the Consolidated Net Worth of the Issuer or the Surviving Entity,
as the case may be, is at least equal to the Consolidated Net Worth of the
Issuer immediately before such transaction or series of transactions.
Notwithstanding the foregoing clauses (b), (c) and (d), (i) any Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Issuer and (ii) the Issuer may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Issuer in another
jurisdiction to realize tax or other benefits.
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Issuer shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officer's certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture; provided, however, that solely for purposes of
computing amounts described in subclause (C) of the covenant described under
'--Certain Covenants--Limitation on Restricted Payments' above, any such
successor Person shall only be deemed to have succeeded to and be substituted
for the Issuer with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Issuer in accordance with the foregoing, in which the
Issuer is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Issuer is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Issuer under the Indenture with the same effect as
if such successor corporation had been named as the Issuer therein.
67
<PAGE>
EVENTS OF DEFAULT
The following are 'Events of Default' under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any Exchange Note when the same becomes due and payable (upon Stated
Maturity, acceleration, optional redemption, required purchase, scheduled
principal payment or otherwise); or
(ii) default in the payment of an installment of interest on any of
the Exchange Notes, when the same becomes due and payable, which default
continues for a period of 30 days; or
(iii) failure to perform or observe any other term, covenant or
agreement contained in the Exchange Notes or the Indenture (other than a
default specified in clause (i) or (ii) above) and such default continues
for a period of 30 days after written notice of such default requiring the
Issuer to remedy the same shall have been given (x) to the Issuer by the
Trustee or (y) to the Issuer and the Trustee by holders of 25% in aggregate
principal amount of the Notes and Exchange Notes then outstanding; or
(iv) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Issuer or any Subsidiary of the Issuer then has outstanding
Indebtedness in excess of $5,000,000, individually or in the aggregate, and
either (a) such Indebtedness has not been paid at final maturity or (b)
such default or defaults have resulted in the acceleration of the maturity
of such Indebtedness; or
(v) one or more judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, either individually or in the
aggregate, shall be entered against the Issuer or any Subsidiary of the
Issuer or any of their respective properties and shall not be discharged or
fully bonded and there shall have been a period of 60 days after the date
on which any period for appeal has expired and during which a stay of
enforcement of such judgment, order or decree shall not be in effect; or
(vi) certain events of bankruptcy, insolvency or reorganization with
respect to the Issuer or any Significant Subsidiary of the Issuer shall
have occurred.
If an Event of Default (other than as specified in clause (vi) above with
respect to the Issuer) shall occur and be continuing, the Trustee, by notice to
the Issuer, or the holders of at least 25% in aggregate principal amount of the
Notes and Exchange Notes then outstanding, by written notice to the Trustee and
the Issuer, may declare the principal of, premium, if any, and accrued and
unpaid interest, if any, on all of the outstanding Notes and Exchange Notes due
and payable immediately, upon which declaration, all amounts payable in respect
of the Notes and Exchange Notes shall be immediately due and payable; provided,
however, that so long as the Bank Credit Agreement shall be in force and effect,
if an Event of Default shall have occurred and be continuing (other than an
Event of Default under clause (vi) with respect to the Issuer), any such
acceleration shall not be effective until the earlier to occur of (x) five
business days following delivery of a notice of such acceleration to the Bank
Agent under the Bank Credit Agreement and (y) the acceleration of any
Indebtedness under the Bank Credit Facilities. If an Event of Default specified
in clause (vi) above with respect to the Issuer occurs and is continuing, then
the principal of, premium, if any, and accrued and unpaid interest, if any, on
all of the outstanding Notes and Exchange Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes or Exchange Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes and Exchange Notes, by written notice to the Issuer and the
Trustee, may rescind such declaration if (a) the Issuer has paid or deposited
with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Notes andExchange Notes, (iii) the principal of and
premium, if any, on any Notes and Exchange Notes which have become due otherwise
than by such declaration of acceleration and interest thereon at the rate borne
by the Notes and Exchange Notes, and (iv) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal at the
rate borne by the Notes and Exchange Notes which has become due otherwise than
by such declaration of
68
<PAGE>
acceleration; (b) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and (c) all Events of Default, other than
the non-payment of principal of, premium, if any, and interest on the Notes and
Exchange Notes that have become due solely by such declaration of acceleration,
have been cured or waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes and Exchange Notes may by notice to the Trustee on behalf
of the holders of all the Notes and Exchange Notes waive any defaults under the
Indenture, except a default in the payment of the principal of, premium, if any,
or interest on any Note or Exchange Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note and Exchange Note outstanding.
No holder of any of the Exchange Notes has any right to institute any
proceeding with respect to the Indenture or the Exchange Notes or any remedy
thereunder, unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes and Exchange Notes have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee
under the Exchange Notes and the Indenture, the Trustee has failed to institute
such proceeding within 30 days after receipt of such notice and the Trustee,
within such 30-day period, has not received directions inconsistent with such
written request by holders of a majority in aggregate principal amount of the
outstanding Notes and Exchange Notes. Such limitations do not apply, however, to
a suit instituted by a holder of an Exchange Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Exchange Note
on or after the respective due dates expressed in such Exchange Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, whether or not an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of not less than a majority in aggregate principal
amount of the outstanding Notes and Exchange Notes have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee under the
Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Exchange Notes
notice of the Default or Event of Default within 30 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Exchange Notes, the
Trustee may withhold the notice to the holders of such Exchange Notes if a
committee of its board of directors or trust officers in good faith determines
that withholding the notice is in the interest of the holders of the Exchange
Notes.
The Issuer is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Issuer of its obligations under the
Indenture and as to any default in such performance. The Issuer is also required
to notify the Trustee within ten days after the Issuer becomes aware of any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Issuer may, at its option and at any time, terminate the obligations of
the Issuer with respect to the outstanding Exchange Notes ('defeasance'). Such
defeasance means that the Issuer shall be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Exchange Notes, except for
(i) the rights of holders of outstanding Exchange Notes to receive payment in
respect of the principal of, premium if any, and interest on such Exchange Notes
when such payments are due, (ii) the Issuer's obligations to issue temporary
Exchange Notes, register the transfer or exchange of any Exchange Notes, replace
mutilated, destroyed, lost or stolen Exchange Notes, to maintain an office or
agency for payments in respect of the Exchange Notes and to compensate the
Trustee, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and (iv) the defeasance provisions of the Indenture. In addition, the Issuer
may, at its option and at any time, elect to terminate the obligations of the
Issuer with respect to certain covenants that are set forth in the
69
<PAGE>
Indenture, some of which are described under '--Certain Covenants' above
(including the covenant described under '--Certain Covenants--Change of Control'
above) and any subsequent failure to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Exchange Notes
('covenant defeasance').
In order to exercise either defeasance or covenant defeasance, (i) the
Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Exchange Notes, cash in United States dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding Exchange Notes to redemption or maturity
(except lost, stolen or destroyed Exchange Notes which have been replaced or
paid); (ii) the Issuer shall have delivered to the Trustee an opinion of counsel
to the effect that the holders of the outstanding Exchange Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred (in the case
of defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit; (iv) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest with respect to any securities
of the Issuer; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument to which the Issuer is a party or by which it is bound; (vi) the
Issuer shall have delivered to the Trustee an opinion of counsel to the effect
that (A) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and (B) the trust funds
will not be subject to the rights of holders of Senior Indebtedness, including,
without limitation, those rights arising under the Indenture; and (vii) the
Issuer shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the
Indenture to either defeasance or covenant defeasance, as the case may be, have
been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when (i) either (a) all the Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or repaid and Exchange Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Issuer and thereafter repaid to the Issuer or discharged from such
trust) have been delivered to the Trustee for cancellation or (b) all Exchange
Notes not theretofore delivered to the Trustee for cancellation (except lost,
stolen or destroyed Exchange Notes which have been replaced or paid) have been
called for redemption pursuant to the terms of the Exchange Notes or have
otherwise become due and payable and the Issuer has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Exchange Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if any,
and interest on the Exchange Notes to the date of deposit together with
irrevocable instructions from the Issuer directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Issuer has paid all other sums payable under the Indenture by the Issuer;
(iii) there exists no Default or Event of Default under the Indenture; and (iv)
the Issuer has delivered to the Trustee an officers' certificate and an opinion
of counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Issuer, when authorized by a resolution of its Board
of Directors, and the Trustee may, without the consent of the holders of any
outstanding Exchange Notes, amend, waive or supplement the Indenture or the
Exchange Notes for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act of 1939,
evidencing the acceptance and appointment of a successor trustee, providing for
the
70
<PAGE>
guarantee of the Exchange Notes by The Loewen Group Inc. or making any other
change that does not adversely affect the rights of any holder of Exchange
Notes; provided, however, that, in the case of certain of such amendments,
waivers or supplements, the Issuer has delivered to the Trustee an opinion of
counsel stating that such change does not adversely affect the rights of any
holder of Exchange Notes. Other amendments and modifications of the Indenture or
the Exchange Notes may be made by the Issuer and the Trustee with the consent of
the holders of not less than a majority of the aggregate principal amount of the
outstanding Notes and Exchange Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Exchange Note affected thereby, (i) reduce the principal amount of,
extend the fixed maturity of or alter the redemption provisions of, the Exchange
Notes, (ii) change the currency in which any Exchange Note or any premium or the
interest thereon is payable or make the principal of, premium, if any, or
interest on any Exchange Note payable in money other than that stated in the
Exchange Note, (iii) reduce the percentage in principal amount of outstanding
Notes and Exchange Notes that must consent to an amendment, supplement or waiver
or consent to take any action under the Indenture or the Exchange Notes, (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to the Exchange Notes, (v) waive a default in payment with respect to
the Exchange Notes, (vi) amend, change or modify the obligations of the Issuer
to make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate the offer with respect to any Asset Sale or
modify any of the provisions or definitions with respect thereto, (vii) reduce
or change the rate or time for payment of interest on the Exchange Notes or
(viii) modify or change any provision of the Indenture affecting the
subordination or ranking of the Exchange Notes in a manner adverse to the
holders of the Exchange Notes.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement between the Issuer and the
Initial Purchaser, the Issuer agreed to file with the Commission and use its
best efforts to cause to become effective a registration statement (the
'Exchange Offer Registration Statement') with respect to the Exchange Notes and,
upon becoming effective, to offer the holders of the Notes the opportunity to
exchange their Notes for the Exchange Notes of the corresponding series (the
'Exchange Offer'). Under existing Commission interpretations contained in
no-action letters to third parties, the Exchange Notes would in general be
freely transferable after the Exchange Offer by the holders thereof, other than
affiliates of the Issuer, without further registration under the Securities Act
(subject to certain representations required to be made by each such holder);
provided that in the case of broker-dealers ('Participating Broker-Dealers'), a
prospectus meeting the requirements of the Securities Act is delivered as
required. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Notes) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, the Issuer is
required to allow Participating Broker-Dealers and any other persons, if any,
with similar prospectus delivery requirements, to use the prospectus contained
in the Exchange Offer Registration Statement in connection with the resale of
the Exchange Notes. A Participating Broker-Dealer or any other person that
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations thereunder).
The Registration Statement of which this Prospectus is a part constitutes
the Exchange Offer Registration Statement for the Exchange Offer.
In the event that (i) due to a change in current interpretations by the
Commission, the Issuer is not permitted to effect the Exchange Offer, (ii) the
Exchange Offer is not for any other reason consummated within 210 days after the
later of (x) the date on which the Issuer delivers the Notes to the Initial
Purchaser and (y) the Acquisition Closing Date (hereinafter, such later date
shall be referred to as the 'Closing Date') or (iii) under certain
circumstances, if the Initial Purchaser shall so request, it is contemplated
that the Issuer will file a registration statement (a 'Shelf Registration
Statement') covering resales (a) by the holders of the Notes in the event the
Issuer is not permitted to effect the Exchange Offer pursuant to the foregoing
clause (i) or the Exchange Offer is not consummated within 210 days after the
Closing Date pursuant to the foregoing clause (ii) or (b) by the holders of
Notes with respect to which the Issuer receives notice pursuant to the foregoing
clause (iii), and will
71
<PAGE>
use its best efforts to cause any such Shelf Registration Statement to become
effective and to keep such Shelf Registration Statement effective for 180 days
from the effective date thereof. The Issuer shall, if it files a Shelf
Registration Statement, provide to each holder of the Notes copies of the
prospectus and notify each such holder when the Shelf Registration Statement has
become effective. A holder that sells Notes pursuant to a Shelf Registration
Statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a current prospectus to purchasers, and
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales.
Under the Registration Rights Agreement, the Issuer has agreed to: (i) file
the Exchange Offer Registration Statement or a Shelf Registration Statement with
the Commission within 60 days after the Closing Date, (ii) use its best efforts
to have such Exchange Offer Registration Statement or Shelf Registration
Statement declared effective by the Commission within 180 days after the Closing
Date, and (iii) use its best efforts to consummate the Exchange Offer within 210
days after the Closing Date. Each holder of Notes, by virtue of becoming so,
will be bound by the provisions of the Registration Rights Agreement that may
require the holder to furnish notice or other information to the Issuer as a
condition to certain obligations of the Issuer to file a Shelf Registration
Statement by a particular date or to maintain its effectiveness for the
prescribed 180-day period.
If the Issuer fails to comply with the above provisions, additional
interest (the 'Additional Interest') shall be assessed on the Notes as follows:
(i) (A) if an Exchange Offer Registration Statement or, in the event
that due to a change in current interpretations by the Commission the
Issuer is not permitted to effect the Exchange Offer, a Shelf Registration
Statement is not filed within 60 days following the Closing Date or (B) in
the event that within the time period prescribed in the Registration Rights
Agreement, any holder or holders of Notes shall notify the Issuer that such
holders (x) are prohibited by applicable law or Commission policy from
participating in the Exchange Offer, (y) may not resell Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by
such holder or (z) are broker-dealers and hold Notes acquired directly from
the Issuer or an 'affiliate' of the Issuer, if a Shelf Registration
Statement is not filed within 45 days after expiration of the prescribed
time period, then commencing on the 61st day after the Closing Date or the
46th day after expiration of the prescribed time period, as the case may
be, Additional Interest shall be accrued on the Notes (or, in the case of
clause (B), those Notes held by holders within the scope of subclause (x),
(y) or (z)) over and above the accrued interest at a rate of .50% per annum
for the first 90 days immediately following the 61st day after the Closing
Date or the 46th day after expiration of the prescribed time period, as the
case may be, such Additional Interest rate increasing by an additional .25%
per annum at the beginning of each subsequent 90-day period;
(ii) if an Exchange Offer Registration Statement or a Shelf
Registration Statement is filed pursuant to clause (i) of the preceding
full paragraph and is not declared effective within 180 days following
either the Closing Date or the expiration of the prescribed time period, as
the case may be, then commencing on the 181st day after either the Closing
Date or the expiration of the prescribed time period, as the case may be,
Additional Interest shall be accrued on the Notes affected by such failure
over and above the accrued interest at a rate of .50% per annum for the
first 90 days immediately following the 181st day after either the Closing
Date or the expiration of the prescribed time period, as the case may be,
such Additional Interest rate increasing by an additional .25% per annum at
the beginning of each subsequent 90-day period; and
(iii) if either (A) the Issuer has not exchanged Exchange Notes for
all Notes validly tendered and not withdrawn in accordance with the terms
of the Exchange Offer on or prior to 30 days after the date on which the
Exchange Offer Registration Statement was declared effective, or (B) if
applicable, a Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective prior to 180 days
from its original effective date, then Additional Interest shall be accrued
on the Notes affected thereby over and above the accrued interest at a rate
of .50% per annum for the first 60 days immediately following the (x) 31st
day after such effective date, in the case of (A) above, or (y) the day
such Shelf Registration Statement ceases to be effective in the case of (B)
above, such Additional Interest rate increasing by an additional .25% per
annum at the beginning of each subsequent 60-day period;
72
<PAGE>
provided, however, that the Additional Interest rate on the Notes may not exceed
1.5% per annum; and provided further that (1) upon the filing of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
(i) above), (2) upon the effectiveness of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of (ii) above), or (3)
upon the exchange of Exchange Notes for all Notes validly tendered in the
Exchange Offer or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective prior to 180 days from its original
effective date (in the case of (iii) above), Additional Interest on the Notes as
a result of such clause (i), (ii) or (iii) shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on the interest payment dates of the Notes.
The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Notes,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period, and the denominator
of which is 360.
If the Issuer effects the Exchange Offer, the Issuer will be entitled to
close the Exchange Offer provided that it has accepted all Notes theretofore
validly tendered in accordance with the terms of the Exchange Offer. Notes not
tendered in the Exchange Offer shall bear interest at the same rate as in effect
at the time of issuance of the Notes.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Notes pursuant to the terms of, the Exchange Offer, the Company
will have fulfilled certain of its obligations under the Registration Rights
Agreement and, accordingly, there will be no increase in the interest rate on
the Notes and the holders of the Notes will have no further registration or
other rights under such agreement.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Issuer, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined in such Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture is, and the Exchange Notes will be, governed by the laws of
the State of New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
'Acquisition Transaction' means, collectively, the acquisition of Roses,
Inc. and its Subsidiaries through the merger of a Subsidiary of the Issuer with
and into Roses, Inc., the acquisition of the cemetery related assets and
liabilities of Rose Hills Memorial Park Association by a Subsidiary of the
Issuer, the contribution by a Subsidiary of LGII to RH Holdings, by RH Holdings
to the Issuer, and by the Issuer to certain of its Subsidiaries, of 14
additional funeral homes and two combination funeral home and cemetery
properties previously owned or leased by LGII or its affiliates, the initial
borrowing under the Bank Credit Facilities and the issuance and sale of the
Notes.
73
<PAGE>
'Acquired Indebtedness' means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a Subsidiary of any other Person.
'Administrative Services Agreement' means the Administrative Services
Agreement, dated as of November 19, 1996, between the Issuer and LGII as the
same may be amended, supplemented or otherwise modified from time to time.
'Affiliate' means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person.
'Asset Acquisition' means (a) an Investment by the Issuer or any Subsidiary
of the Issuer in any other Person pursuant to which such Person shall become a
Subsidiary of the Issuer or any Subsidiary of the Issuer, or shall be merged
with or into the Issuer or any Subsidiary of the Issuer, (b) the acquisition by
the Issuer or any Subsidiary of the Issuer of the assets of any Person (other
than a Subsidiary of the Issuer) which constitute all or substantially all of
the assets of such Person or (c) the acquisition by the Issuer or any Subsidiary
of the Issuer of any division or line of business of any Person (other than a
Subsidiary of the Issuer).
'Asset Sale' means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any Person other than the Issuer or a
Subsidiary of the Issuer, in one or a series of related transactions, of (a) any
Capital Stock of any Subsidiary of the Issuer (other than in respect of
director's qualifying shares or investments by foreign nationals mandated by
applicable law); (b) all or substantially all of the properties and assets of
any division or line of business of the Issuer or any Subsidiary of the Issuer;
or (c) any other properties or assets of the Issuer or any Subsidiary of the
Issuer other than in the ordinary course of business. For the purposes of this
definition, the term 'Asset Sale' shall not include (i) any sale, transfer or
other disposition of equipment, tools or other assets (including Capital Stock
of any Subsidiary of the Issuer) by the Issuer or any of its Subsidiaries in one
or a series of related transactions in respect of which the Issuer or such
Subsidiary receives cash or property with an aggregate Fair Market Value of
$10,000,000 or less; (ii) a disposition by a Subsidiary to the Issuer or a
Wholly-Owned Subsidiary of the Issuer; and (iii) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets that is governed by
the provisions described under '--Merger, Sale of Assets, Etc.' above.
'Attributable Value' means, as to any particular lease under which any
Person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as determined in accordance with GAAP, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of rent payable by the lessee with respect to such period after
excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the case
of any lease which is terminable by the lessee upon the payment of a penalty,
such net amount shall also include the amount of such penalty, but no rent shall
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated. 'Attributable Value' means, as to a
Capitalized Lease Obligation under which any Person is at the time liable and at
any date as of which the amount thereof is to be determined, the capitalized
amount thereof that would appear on the face of a balance sheet of such Person
in accordance with GAAP.
'Average Life to Stated Maturity' means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
'Bank Agent' means The Bank of Nova Scotia, as administrative agent under
the Bank Credit Agreement and any successor agent.
'Bank Credit Agreement' means the Credit Agreement, dated as of November
19, 1996, among the Issuer, as borrower, RH Holdings, as guarantor, the Bank
Lenders referred to therein, the Bank Agent, and GSCP, as arranging agent, and
Goldman, Sachs & Co., as syndication agent, and all promissory notes,
guarantees, security
74
<PAGE>
agreements, pledge agreements, deeds of trust, mortgages, letters of credit and
other instruments, agreements and documents executed pursuant thereto or in
connection therewith, in each case as the same may be amended, supplemented,
restated, renewed, refinanced, replaced or otherwise modified (in whole or in
part and without limitation as to amount, terms, conditions, covenants or other
provisions) from time to time.
'Bank Credit Facilities' means collectively, the Bank Term Facility and the
Revolving Credit Facility under the Bank Credit Agreement.
'Bank Term Facility' means the $75.0 million senior secured term loan
facility under the Bank Credit Agreement, which may be increased by up to $25.0
million in accordance with the terms of the Bank Credit Agreement.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
'Capitalized Lease Obligation' means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
'Cash Equivalents' means, at any time, (i) any evidence of Indebtedness
with a maturity of 365 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 365 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) certificates of deposit with a
maturity of 365 days or less of any financial institution that is not organized
under the laws of the United States, any state thereof or the District of
Columbia that are rated at least A-2 by S&P or at least P-2 by Moody's or at
least an equivalent rating category of another nationally recognized securities
rating agency; (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
in each case maturing within 365 days from the date of acquisition; provided
that the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985;
and (v) other than with respect to the subordination provisions set forth above,
notes held by the Issuer or any Subsidiary which were obtained by the Issuer or
such Subsidiary in connection with Asset Sales (x) in the ordinary course of its
funeral home, cemetery or cremation businesses or (y) which were required to be
made pursuant to applicable federal or state law.
'Change of Control' means the occurrence of any of the following events:
(a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), excluding Permitted Holders, is or becomes the 'beneficial
owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have 'beneficial ownership' of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of more than 35% of the total Voting Stock
of RH Holdings, under circumstances where the Permitted Holders (i)
'beneficially own' (as so defined) in the aggregate a lower percentage of the
Voting Stock than such other Person or 'group' and (ii) do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of RH Holdings; (b) RH Holdings
consolidates with, or merges with or into, another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to another Person, or another Person consolidates with, or merges
with or into, RH Holdings, in any such event pursuant to a transaction in which
the outstanding Voting Stock of RH Holdings is converted into or exchanged for
cash, securities or other property, other than any such transaction where (i)
the outstanding Voting Stock of RH Holdings is converted into or exchanged for
(1) Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (2) cash, securities and other property in an amount
which could then be paid by the Issuer as a Restricted Payment under the
Indenture, or a combination thereof, and (ii) immediately after such transaction
no 'person'
75
<PAGE>
or 'group' (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), excluding Permitted Holders, is the 'beneficial owner' (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have 'beneficial ownership' of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation; (c) at any time during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of RH Holdings (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of RH
Holdings was approved by a vote of 66-2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of RH Holdings then in office;
or (d) RH Holdings is liquidated or dissolved or adopts a plan of liquidation.
'Common Stock' means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
'Consolidated Cash Flow' means, with respect to any Person for any period,
the sum of, without duplication, the amounts for such period, taken as a single
accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash
Charges, (c) Consolidated Interest Expense and (d) Consolidated Income Tax
Expense.
'Consolidated Fixed Charge Coverage Ratio' means, with respect to any
Person, the ratio of the aggregate amount of Consolidated Cash Flow of such
Person for the four full fiscal quarters immediately preceding the date of the
transaction (the 'Transaction Date') giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the 'Four Quarter Period') to the aggregate amount
of Consolidated Fixed Charges of such Person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, 'Consolidated Cash Flow' and 'Consolidated Fixed Charges' shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence of any Indebtedness of
such Person or any of its Subsidiaries (and the application of the net proceeds
thereof) during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the 'Reference Period'),
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation (and the application of the net proceeds
thereof), as if such incurrence (and application) occurred on the first day of
the Reference Period, and (b) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period. In calculating the incremental 'Consolidated
Cash Flow' attributable to Asset Acquisitions occurring during the Reference
Period, pro forma effect will be given to (i) adjustments which, on the basis of
written advice provided to the Issuer by a 'big six' accounting firm, should be
permitted by Article 11 of Regulation S-X of the Commission and (ii) incremental
revenue resulting from changes in the investment strategy with respect to any
related endowment care fund which, in the case of both clause (i) and (ii), are
part of the Issuer's good faith business plan for such Asset Acquisition.
Furthermore, in calculating 'Consolidated Fixed Charges' for purposes of
determining the denominator (but not the numerator) of this 'Consolidated Fixed
Charge Coverage Ratio,' (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date (taking into account any Interest Rate Protection Agreement applicable to
such Indebtedness if such Interest Rate Protection Agreement has a remaining
term in excess of 12 months); and (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Reference
Period. If such Person or any of its Subsidiaries directly or indirectly
guarantees Indebtedness of a
76
<PAGE>
third Person, the above clause shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or such Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness.
'Consolidated Fixed Charges' means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the product of (a) the aggregate amount
of dividends and other distributions paid or accrued during such period in
respect of Preferred Stock and Redeemable Capital Stock (other than dividends
and distributions on Preferred Stock and Redeemable Capital Stock that are
non-cash through the Final Maturity Date) of such Person and its Subsidiaries on
a consolidated basis times (b) a fraction, the numerator which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal; provided,
however, that the denominator in clause (b) shall be one if such dividend or
other distribution is fully tax deductible.
'Consolidated Income Tax Expense' means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
'Consolidated Interest Expense' means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations, (c)
the interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and (e) all accrued interest and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such Person and its Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
'Consolidated Net Income' means, with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses or any unusual or
nonrecurring noncash charge which is not, under GAAP, an extraordinary item,
(ii) the portion of net income (but not losses) of such Person and its
Subsidiaries allocable to minority interests in unconsolidated Persons to the
extent that cash dividends or distributions have not actually been received by
such Person or one of its Subsidiaries, (iii) net income (or loss) of any Person
combined with such Person or one of its Subsidiaries on a 'pooling of interests'
basis attributable to any period prior to the date of combination, (iv) any gain
or loss realized upon the termination of any employee pension benefit plan, on
an after-tax basis, (v) gains or losses in respect of any Asset Sales by such
Person or one of its Subsidiaries, (vi) the net income of any Subsidiary of such
Person to the extent that the declaration of dividends or similar distributions
by that Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its shareholders and (vii) any closing costs
associated with the Acquisition Transaction and the financing thereof,
restructuring costs and costs related to the closing of facilities.
'Consolidated Net Worth' means, with respect to any Person at any date, the
consolidated shareholders' equity of such Person less the amount of such
shareholders' equity attributable to Redeemable Capital Stock of such Person and
its Subsidiaries, as determined in accordance with GAAP.
'Consolidated Non-cash Charges' means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Subsidiaries reducing Consolidated Net Income of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which required an accrual of or a reserve for
cash charges for any future period).
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any of its Subsidiaries against fluctuations in currency values.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
77
<PAGE>
'Designated Senior Indebtedness' means (i) all Senior Indebtedness under
the Bank Credit Agreement and (ii) any other Senior Indebtedness which (a) at
the time of the determination exceeds $5,000,000 in aggregate principal amount
and (b) is specifically designated in the instrument evidencing such Senior
Indebtedness as 'Designated Senior Indebtedness' by the Issuer.
'Event of Default' has the meaning set forth under 'Events of Default'
herein.
'Fair Market Value' means, with respect to any assets, the price, as
determined by the Issuer, acting in good faith which could be negotiated in an
arm's-length free market transaction, for cash, between a willing seller and a
willing buyer, neither of which is under pressure or compulsion to complete the
transaction; provided, however, that, with respect to any transaction which
involves an asset or assets in excess of $250,000, such determination shall be
evidenced by resolutions of the Board of Directors of the Issuer delivered to
the Trustee.
'Final Maturity Date' means November 15, 2004.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable on the date of
the Indenture and are consistently applied.
'Guarantee' means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
'Indebtedness' means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 90 days, and excluding all obligations, contingent or
otherwise, of such Person in connection with any undrawn letters of credit,
banker's acceptance or other similar credit transaction, (b) all obligations of
such Person evidenced by bonds, notes, debentures or other similar instruments,
(c) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person (even
if the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in the preceding clauses of other Persons and all dividends of other Persons,
the payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the Fair Market value of such property or asset or the amount of
the obligation so secured), (f) all guarantees of Indebtedness referred to in
this definition by such Person, (g) all Redeemable Capital Stock of such Person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends, (h) all obligations under or in respect of
Currency Agreements and Interest Rate Protection Obligations of such Person, (i)
any Preferred Stock of any Subsidiary of such Person valued at the sum of
(without duplication) (A) the liquidation preference thereof, (B) any mandatory
redemption payment obligations in respect thereof and (C) accrued cash dividends
thereon, and (j) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (a)
through (i) above. For purposes hereof, the 'maximum fixed repurchase price' of
any Redeemable Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Capital Stock as
if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital Stock.
78
<PAGE>
'Independent Financial Advisor' means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Issuer and (ii) which, in the judgment of the
Board of Directors of the Issuer, is otherwise independent and qualified to
perform the task for which it is to be engaged.
'Interest Rate Protection Agreement' means, with respect to any person, any
arrangement with any other Person whereby, directly or indirectly, such Person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
'Interest Rate Protection Obligations' means the obligations of any Person
pursuant to an Interest Rate Protection Agreement.
'Investment' means, with respect to any Person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person. In addition, the Fair
Market Value of the assets of any Subsidiary of the Issuer at the time that such
Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to be an
Investment made by the Issuer in such Unrestricted Subsidiary at such time.
'Investments' shall exclude extensions of trade credit by the Issuer and its
Subsidiaries in the ordinary course of business in accordance with normal trade
practices of the Issuer or such Subsidiary, as the case may be.
'Issue Date' means the date on which the Notes are originally issued.
'Lien' means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
'Maturity Date' means, with respect to any security, the date on which any
principal of such security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Issuer or any Subsidiary of the Issuer) net of (i)
brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any Person (other than the
Issuer or any Subsidiary of the Issuer) owning a beneficial interest in the
assets subject to the Asset Sale, (iv) all payments made on any Indebtedness
which is secured by any assets subject to such Asset Sale, in accordance with
the terms of any Lien upon such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Sale, or by applicable law, be
repaid out of the proceeds from such Asset Sale and (v) appropriate amounts to
be provided by the Issuer or any Subsidiary of the Issuer, as the case may be,
as a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Issuer or any Subsidiary of the Issuer,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an officers' certificate
delivered to the Trustee.
'Pari Passu Indebtedness' means Indebtedness of the Issuer which ranks pari
passu in right of payment with the Exchange Notes.
79
<PAGE>
'Permitted Holder' means Blackstone Capital Partners II Merchant Banking
Fund L.P. or Loewen Group International, Inc., or any Affiliate of either.
'Permitted Investments' means any of the following:
(i) Investments in any Wholly-Owned Subsidiary of the Issuer
(including any Person that pursuant to such Investment becomes a
Wholly-Owned Subsidiary of the Issuer) and any Person that is merged or
consolidated with or into, or transfers or conveys all or substantially all
of its assets to, the Issuer or any Wholly-Owned Subsidiary of the Issuer
at the time such Investment is made and thereafter remains a Subsidiary;
(ii) Investments in Cash Equivalents;
(iii) loans or advances to officers, employees or consultants of the
Issuer and its Subsidiaries in the ordinary course of business for bona
fide business purposes of the Issuer and its Subsidiaries (including travel
and moving expenses) not in excess of $1,000,000 in the aggregate at any
one time outstanding;
(iv) Investments in evidences of Indebtedness, securities or other
property received from another Person by the Issuer or any of its
Subsidiaries in connection with any bankruptcy proceeding or by reason of a
composition or readjustment of debt or a reorganization of such Person or
as a result of foreclosure, perfection or enforcement of any Lien in
exchange for evidences of Indebtedness, securities or other property of
such Person held by the Issuer or any of its Subsidiaries, or for other
liabilities or obligations of such other Person to the Issuer or any of its
Subsidiaries that were created, in accordance with the terms of the
Indenture;
(v) Investments of funds received by the Issuer or its Subsidiaries in
the ordinary course of business, which funds are required to be held in
trust for the benefit of others by the Issuer or such Subsidiary, as the
case may be, and which funds do not constitute assets or liabilities of the
Issuer or such Subsidiary;
(vi) Investments in Related Businesses; provided that the sum of (i)
the aggregate Fair Market Value of all such Investments and (ii) the
aggregate Fair Market Value of all Preferred Stock permitted to be issued
pursuant to clause (z) of the covenant described under '--Certain
Covenants--Limitation on Issuances and Sale of Preferred Stock by
Subsidiaries' shall not exceed $5,000,000 at any time outstanding;
(vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Issuer or any
Subsidiary or in satisfaction of judgments;
(viii) Investments in Persons to the extent such Investment represents
the non-cash consideration otherwise permitted to be received by the Issuer
or its Subsidiaries in connection with an Asset Sale or in connection with
a transaction excepted from the definition of Asset Sale pursuant to the
last sentence of such definition; and
(ix) Investments existing on the Issue Date.
'Permitted Liens' means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Issuer or any of its Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, governmental
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
80
<PAGE>
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Issuer or
any of its Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(g) purchase money Liens to finance the acquisition of property or
assets of the Issuer or any Subsidiary of the Issuer acquired in the
ordinary course of business; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any property or assets
of the Issuer or any Subsidiary of the Issuer other than the property and
assets so acquired and (ii) the Lien securing such Indebtedness either (x)
exists at the time of such acquisition or (y) shall be created within 90
days of such acquisition;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(i) Liens with respect to Acquired Indebtedness incurred in accordance
with the covenant described under '--Certain Covenants--Limitation on
Indebtedness'.
'Person' means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
'Preferred Stock' means, with respect to any Person, any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
'Redeemable Capital Stock' means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any
Exchange Note or is redeemable at the option of the holder thereof at any time
prior to any such Stated Maturity Date, or is convertible into or exchangeable
for debt securities at any time prior to any such Stated Maturity.
'Related Business' means any business, the majority of whose revenues are
derived from providing funeral or cemetery products or services or any business
or activity that is reasonably similar thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
'Revolving Credit Facility' means the $25 million senior secured revolving
credit facility under the Bank Credit Agreement.
'RH Holdings' means Rose Hills Holdings Corp., a Delaware corporation and
the parent of the Issuer.
'Sale-Leaseback Transaction' of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset.
The stated maturity of such arrangement shall be the date of the last payment of
rent or any other amount due under such arrangement prior to the first date on
which such arrangement may be terminated by the lessee without payment of a
penalty.
'S&P' means Standard & Poor's Ratings Group and its successors.
'Senior Indebtedness' means the principal of, premium, if any, and interest
on any Indebtedness of the Issuer, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, 'Senior Indebtedness' shall include all obligations of the
Issuer
81
<PAGE>
now or hereafter existing under the Bank Credit Agreement, including without
limitation principal of, premium, and interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Issuer whether or not such post-petition interest is allowed as a claim
in such proceeding) on Indebtedness outstanding under the Bank Credit Agreement,
reimbursement obligations of the Issuer with respect to any letters of credit
outstanding under the Bank Credit Agreement and any obligation for fees,
expenses and indemnities. Notwithstanding the foregoing, 'Senior Indebtedness'
shall not include (a) Indebtedness evidenced by the Notes and Exchange Notes,
(b) Indebtedness that is expressly subordinate or junior in right of payment to
any Indebtedness of the Issuer, (c) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to the Issuer, (d) Indebtedness which is represented
by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services
purchased in the ordinary course of business or Indebtedness consisting of trade
payables or other current liabilities (other than any current liabilities owing
under the Bank Credit Facilities or the current portion of any long-term
Indebtedness which would constitute Senior Indebtedness but for the operation of
this clause (e)), (f) Indebtedness of or amounts owed by the Issuer for
compensation to employees or for services rendered to the Issuer, (g) any
liability for federal, state, local or other taxes owed or owing by the Issuer,
(h) Indebtedness of the Issuer to a Subsidiary of the Issuer or any other
Affiliate of the Issuer or any of such Affiliate's Subsidiaries, (i) that
portion of any Indebtedness which is incurred by the Issuer in violation of the
Indenture and (j) amounts owing under leases (other than Capitalized Lease
Obligations).
'Significant Subsidiary' shall mean a Subsidiary which is a 'Significant
Subsidiary' as defined in Rule 1.02(w) of Regulation S-X under the Securities
Act.
'Stated Maturity' means, when used with respect to any Exchange Note or any
installment of interest thereon, the date specified in such Exchange Note as the
fixed date on which the principal of such Exchange Note or such installment of
interest is due and payable, and when used with respect to any other
Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.
'Subordinated Indebtedness' means Indebtedness of the Issuer or a
Subsidiary which is expressly subordinated in right of payment to the Exchange
Notes.
'Subsidiary' means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof and (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions). For purposes of this definition, any directors' qualifying
shares or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary. Notwithstanding the
foregoing, an Unrestricted Subsidiary shall not be deemed a Subsidiary of the
Issuer under the Indenture, other than for purposes of the definition of an
Unrestricted Subsidiary, unless the Issuer shall have designated an Unrestricted
Subsidiary as a 'Subsidiary' by written notice to the Trustee under the
Indenture, accompanied by an Officers' Certificate as to compliance with the
Indenture; provided, however, that the Issuer shall not be permitted to
designate any Unrestricted Subsidiary as a Subsidiary unless, after giving pro
forma effect to such designation, (i) the Issuer would be permitted to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under the
first paragraph of the covenant described under '--Certain Covenants--
Limitation on Indebtedness' above (assuming a market rate of interest with
respect to such Indebtedness) and (ii) all Indebtedness and Liens of such
Unrestricted Subsidiary would be permitted to be incurred by a Subsidiary of the
Issuer under the Indenture. A designation of an Unrestricted Subsidiary as a
Subsidiary may not thereafter be rescinded.
'Unrestricted Subsidiary' means a Subsidiary of the Issuer (i) none of
whose properties or assets were owned by the Issuer or any of its Subsidiaries
prior to the Issue Date, other than any such assets as are transferred to such
Unrestricted Subsidiary in accordance with the covenant described under
'--Certain Covenants-- Limitation on Restricted Payments' above, (ii) whose
properties and assets, to the extent that they secure Indebtedness, secure only
Non-Recourse Indebtedness and (iii) which has no Indebtedness other than Non-
82
<PAGE>
Recourse Indebtedness. As used above, 'Non-Recourse Indebtedness' means
Indebtedness as to which (i) neither the Issuer nor any of its Subsidiaries
(other than the relevant Unrestricted Subsidiary or another Unrestricted
Subsidiary) (1) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness), (2) guarantees or is otherwise
directly or indirectly liable or (3) constitutes the lender (in each case, other
than pursuant to and in compliance with the covenant described under '--Certain
Covenants--Limitation on Restricted Payments') and (ii) no default with respect
to such Indebtedness (including any rights which the holders thereof may have to
take enforcement action against the relevant Unrestricted Subsidiary or its
assets) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Issuer or its Subsidiaries (other than Unrestricted
Subsidiaries) to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
Subject to the foregoing, a Subsidiary may be designated as an Unrestricted
Subsidiary by written notice to the Trustee under the Indenture accompanied by
an Officers' Certificate as to compliance with the Indenture.
'Voting Stock' means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, Capital
Stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
'Wholly-Owned Subsidiary' means any Subsidiary of the Issuer of which 100%
of the outstanding Capital Stock is owned by one or more Wholly-Owned
Subsidiaries of the Issuer or by the Issuer and one or more Wholly-Owned
Subsidiaries of the Issuer. For purposes of this definition, any directors'
qualifying shares or investments by foreign nationals mandated by applicable law
shall be disregarded in determining the ownership of a Subsidiary.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by one or more permanent global certificates in definitive,
fully registered form (each a 'Global Exchange Note'). Each Global Exchange Note
will be deposited on the date of original issuance thereof with, or on behalf
of, The Depository Trust Company, New York, New York ('DTC') and registered in
the name of a nominee of DTC.
Exchange Notes held by persons who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(and which are thus ineligible to trade through DTC) (collectively referred to
herein as the 'Non-Global Purchasers') will be issued in registered certificated
form ('Certificated Exchange Notes'). Upon the transfer of any Certificated
Exchange Note initially issued to a Non-Global Purchaser, such Certificated
Exchange Note will, unless the transferee requests otherwise or the Global
Exchange Note has previously been exchanged in whole for Certificated Exchange
Notes, be exchanged for an interest in the Global Exchange Note.
The Exchange Notes issued to Non-Global Purchasers will be issued only in
registered form without coupons, in denominations of $1,000 and integral
multiples thereof. Principal of and premium, if any, and interest on such
Exchange Notes will be payable, and such Notes will be transferable, at the
office of the Issuer's agent in the City of New York located at the corporate
trust office of the Trustee. In addition, interest may be paid, at the option of
the Issuer, by check mailed to the person entitled thereto as shown on the
security register. No service charge will be made for any transfer or exchange
of such Exchange Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
THE GLOBAL EXCHANGE NOTE
The Issuer expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Exchange Note, DTC or its custodian will credit, on
its internal system, the principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Exchange Note to the respective
accounts for persons who have accounts with DTC and (ii) ownership of beneficial
interest in the Global Exchange Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of persons who have accounts with DTC
('participants')) and the records of participants (with respect to interests of
persons other than participants). Ownership of beneficial interests in the
83
<PAGE>
Global Exchange Note will be limited to persons who have accounts with DTC
participants or persons who hold interests through participants.
So long as DTC or its nominee is the registered owner or holder of Exchange
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Exchange Notes represented by such Global Exchange Note
for all purposes under the Indenture. No beneficial owner of an interest in the
Global Exchange Note will be able to transfer that interest except in accordance
with DTC's procedures, in addition to those provided for under the Indenture
with respect to the Exchange Notes.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on, the Global Exchange Note will be made to DTC or its
nominee, as the case may be, as the registered owner thereof. None of the
Issuer, the Trustee or any paying agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising, or reviewing any records relating
to such beneficial ownership interest.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Exchange Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the Global Exchange Note as shown on the records of DTC
or its nominee. The Issuer also expects that payments by participants to owners
of beneficial interest in the Global Exchange Note held through such
participants will be governed by standing instructions and customary practice,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Exchange Note for any
reason, including to sell Exchange Notes to persons in states that require
physical delivery of the Certificated Exchange Notes, or to pledge such
securities, such holder must transfer its interest in the Global Exchange Note
in accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants, to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant or participants has or have given
such direction. However, if there is continuing an Event of Default under the
Indenture and a holder so requests, DTC will exchange the Global Exchange Note
for Certificated Exchange Notes, which it will distribute to its participants.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a 'clearing corporation' within the meaning of the
Uniform Commercial Code and a 'clearing agency' registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants through electronic book entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ('indirect
participants').
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Exchange Note among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
84
<PAGE>
CERTIFICATED EXCHANGE NOTES
If (i) the Issuer notifies the Trustee in writing that DTC is at any time
unwilling or unable to continue as a depository for the Global Exchange Note and
a successor depository is not appointed by the Issuer within 90 days or (ii) the
Issuer, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Exchange Notes in definitive form under the Indenture, then,
upon surrender by DTC of the Global Exchange Note, Certificated Exchange Notes
will be issued to each person that DTC identifies as the beneficial owner of the
Exchange Notes represented by the Global Exchange Note.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is the opinion of Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York, relating to
certain United States federal income tax consequences of the exchange of Notes
for Exchange Notes as of the date hereof. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed below.
The exchange of Notes for Exchange Notes in the Exchange Offer will not
constitute a taxable event to holders for United States federal income tax
purposes. Consequently, no gain or loss will be recognized by a holder upon
receipt of an Exchange Note, the holding period of the Exchange Note will
include the holding period of the Note and the basis of the Exchange Note will
be the same as the basis of the Note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF NOTES FOR EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTIONS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 1997, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an 'underwriter' within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Exchange Date the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuer has agreed to pay all expenses incident to the
Exchange Offer
85
<PAGE>
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Issuer by
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York.
EXPERTS
The consolidated balance sheets of Roses, Inc. as of December 31, 1994 and
1995, and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995 included in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The combined financial statements of Rose Hills Memorial Park Association
and Workman Mill Investment Company as of December 31, 1994 and 1995, and for
each of the years in the three-year period ended December 31, 1995, have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined financial statements of Certain Subsidiaries of the Loewen
Group International, Inc. as of December 31, 1995 and for the year then ended
have been included herein and in the registration statement in reliance upon the
report of KPMG, chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ROSES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of independent public accountants................................................................... F-2
Consolidated balance sheets as of December 31, 1994 and 1995............................................... F-3
Consolidated statements of income for the years ended December 31, 1993, 1994 and 1995..................... F-4
Consolidated statements of cash flows for the years ended December 31, 1993, 1994 and 1995................. F-5
Consolidated statements of shareholders' equity (deficit) for the years ended December 31, 1993, 1994 and
1995..................................................................................................... F-6
Notes to consolidated financial statements................................................................. F-7
Unaudited consolidated balance sheet as of September 30, 1996.............................................. F-19
Unaudited consolidated statements of income for the nine months ended September 30, 1995 and 1996.......... F-20
Unaudited consolidated statements of cash flows for the nine months ended September 30, 1995 and 1996...... F-21
Unaudited consolidated statements of shareholders' deficit for the nine months ended September 30, 1996.... F-22
Notes to unaudited consolidated financial statements....................................................... F-23
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY COMBINED FINANCIAL STATEMENTS
Independent auditors' report............................................................................... F-24
Combined statements of financial position as at December 31, 1994 and 1995................................. F-25
Combined statements of activities for the years ended December 31, 1993, 1994 and 1995..................... F-26
Combined statements of cash flows for the years ended December 31, 1993, 1994 and 1995..................... F-27
Combined statements of changes in net assets for the years ended December 31, 1993, 1994
and 1995................................................................................................. F-28
Notes to combined financial statements..................................................................... F-29
Unaudited combined statement of financial position as of September 30, 1996................................ F-40
Unaudited combined statements of activities for the nine months ended September 30, 1995 and 1996.......... F-41
Unaudited combined statements of cash flows for the nine months ended September 30, 1995 and 1996.......... F-42
Unaudited combined statements of changes in net assets for the nine months ended September 30, 1995 and
1996..................................................................................................... F-43
Notes to unaudited combined financial statements........................................................... F-44
COMBINED FINANCIAL STATEMENTS OF CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
Auditors' report to the directors.......................................................................... F-46
Combined balance sheet as at December 31, 1995............................................................. F-47
Combined statement of operations for the year ended December 31, 1995...................................... F-48
Combined statement of cash flows for the year ended December 31, 1995...................................... F-49
Notes to combined financial statements..................................................................... F-50
Unaudited combined balance sheet as at September 30, 1996.................................................. F-58
Unaudited combined statements of operations for the nine months ended September 30, 1995 and 1996.......... F-59
Unaudited combined statements of cash flows for the nine months ended September 30, 1995 and 1996.......... F-60
Notes to unaudited combined financial statements........................................................... F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Roses, Inc.:
We have audited the accompanying consolidated balance sheets of Roses, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of income, shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roses, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
LOS ANGELES, CALIFORNIA
OCTOBER 25, 1996
F-2
<PAGE>
ROSES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995
(000'S)
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
ASSETS
Cash and marketable securities:
Cash and cash equivalents...................................................................... $ 927 $ 1,269
Marketable securities (market value of $66 and $142 at December 31, 1994 and 1995)............. 75 112
------- -------
Total cash and marketable securities......................................................... 1,002 1,381
------- -------
Receivables:
Customer accounts receivable, net.............................................................. 1,939 1,831
Due from Rose Hills Memorial Park Association.................................................. 4,715 3,786
Other.......................................................................................... 1,145 1,328
------- -------
Total receivables............................................................................ 7,799 6,945
------- -------
Other current assets:
Prepaid expenses, deferred charges and deposits................................................ 549 237
Prepaid taxes.................................................................................. -- 726
Casket and other inventories................................................................... 426 472
Other.......................................................................................... 104 207
------- -------
Total other current assets................................................................... 1,079 1,642
------- -------
Total current assets............................................................................. 9,880 9,968
------- -------
Property, plant and equipment, net............................................................... 14,428 13,784
------- -------
Intangible assets:
Goodwill....................................................................................... 2,811 2,732
Covenant not to compete........................................................................ 427 --
Other.......................................................................................... 251 121
------- -------
Total intangible assets...................................................................... 3,489 2,853
------- -------
Total assets................................................................................. $27,797 $26,605
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued liabilities:
Accounts payable............................................................................... $ 635 $ 1,113
Accrued expenses............................................................................... 657 702
Accrued compensation........................................................................... 1,601 1,468
Other current liabilities...................................................................... 1,306 372
------- -------
Total accounts payable and accrued liabilities............................................... 4,199 3,655
Current portion of debt:
Bank senior term loan.......................................................................... 2,525 2,500
Rose Hills Memorial Park Association--computer note............................................ 289 313
Obligation under financing lease............................................................... 81 91
------- -------
Total current liabilities.................................................................... 7,094 6,559
------- -------
Other long-term liabilities:
Accrued pension cost of supplemental employee retirement plan.................................. 2,952 3,528
Accrued pension cost of defined benefit plan................................................... 2,317 1,452
Retirement plan liability...................................................................... 252 366
Deferred tax liability......................................................................... -- 260
------- -------
Total other long-term liabilities............................................................ 5,521 5,606
Long-term debt:
Bank senior term loan.......................................................................... 19,475 16,975
Rose Hills Memorial Park Association loans:
Promissory note.............................................................................. -- 835
Computer note................................................................................ 478 300
Obligation under financing lease............................................................... 341 250
------- -------
Total long-term liabilities.................................................................. 25,815 23,966
------- -------
Commitments and contingencies.................................................................... -- --
------- -------
Total liabilities............................................................................ 32,909 30,525
------- -------
Shareholders' deficit:
Common stock--($1 par value, authorized 1,000,000 shares, issued 100,000 shares)............... 100 100
Accumulated deficit............................................................................ (5,212) (4,020)
------- -------
Total shareholders' deficit.................................................................. (5,112) (3,920)
------- -------
Total liabilities and shareholders' deficit.................................................. $27,797 $26,605
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
ROSES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Sales and services:
Caskets........................................................................ $ 7,896 $ 8,693 $ 8,757
Funeral services............................................................... 7,177 7,958 8,183
Insurance commissions.......................................................... 2,422 2,922 2,857
Flowers........................................................................ 1,568 1,717 1,796
Management fee and other....................................................... 1,045 768 841
------- ------- -------
Total sales and services.................................................... 20,108 22,058 22,434
------- ------- -------
Cost of sales and services:
Caskets........................................................................ 2,370 2,699 2,488
Funeral services............................................................... 2,623 2,548 2,765
Flowers........................................................................ 580 715 758
------- ------- -------
Total cost of sales and services............................................ 5,573 5,962 6,011
------- ------- -------
Gross profit................................................................ 14,535 16,096 16,423
------- ------- -------
Selling, general and
administrative expenses........................................................ 10,411 10,719 11,229
Amortization of purchase related assets.......................................... 1,211 1,211 518
------- ------- -------
Income from operations...................................................... 2,913 4,166 4,676
------- ------- -------
Interest income (expense):
Interest income................................................................ 53 64 39
Interest expense............................................................... (2,116) (2,053) (2,429)
------- ------- -------
Total net interest expense.................................................. (2,063) (1,989) (2,390)
------- ------- -------
Income before tax provision................................................. 850 2,177 2,286
Tax provision.................................................................... 41 34 1,094
------- ------- -------
Net income.................................................................. $ 809 $ 2,143 $ 1,192
------- ------- -------
------- ------- -------
Net income per common share................................................. $ 8.09 $ 21.43 $ 11.92
------- ------- -------
------- ------- -------
Weighted number of outstanding shares....................................... 100,000 100,000 100,000
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ROSES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(000'S)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income................................................................... $ 809 $ 2,143 $ 1,192
Adjustments to reconcile net income to net cash provided by operating
activities:...............................................................
Amortization of purchase related assets................................... 1211 1,211 518
Depreciation.............................................................. 877 930 1,075
Net loss on disposal of property, plant and equipment..................... 59 2 --
Provision for bad debts................................................... 268 200 100
Provision for deferred income taxes....................................... -- -- 260
Changes in assets and liabilities associated with operating activities:
(Increase) decrease in customer accounts receivable....................... (475) (204) 8
(Increase) decrease in due from Rose Hills Memorial Park Association...... (1,636) (1,405) 929
(Increase) decrease in other receivables.................................. 185 (369) (183)
Increase in other current assets.......................................... (167) (111) (600)
Increase in accounts payable and accrued expenses......................... 27 449 522
Increase (decrease) in other current liabilities.......................... 112 1,486 (1,066)
Other, net................................................................ 162 304 119
-------- -------- --------
Net cash provided by operating activities............................... 1,432 4,636 2,874
-------- -------- --------
Cash flow from investing activities--capital expenditures...................... (906) (681) (432)
-------- -------- --------
Cash flow from financing activities:
Financing costs.............................................................. (72) (244) --
Dividend distributions....................................................... (679) (9,320) --
Reduction of long-term debt.................................................. (1,493) (18,372) (1,924)
Proceeds from issuance of long-term debt..................................... -- 23,000 --
Increase (decrease) in other long-term liabilities........................... 1,399 59 (176)
-------- -------- --------
Net cash used in financing activities................................... (845) (4,877) (2,100)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........................... (319) (922) 342
Cash and cash equivalents at beginning of period............................... 2,168 1,849 927
-------- -------- --------
Cash and cash equivalents at end of period.............................. $ 1,849 $ 927 $ 1,269
-------- -------- --------
-------- -------- --------
Supplemental cash flow information:
Interest paid................................................................ $ 2,116 $ 2,053 $ 2,429
-------- -------- --------
-------- -------- --------
Taxes paid................................................................... $ 34 $ 49 $ 1,565
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ROSES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(000'S EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
RETAINED EARNINGS/ TOTAL
SHARES COMMON (ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK DEFICIT) EQUITY (DEFICIT)
----------- ------- ------------------ ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992............................ 1000 $ 1 $ 1,835 $ 1,836
Net income.......................................... -- -- 809 809
Distributions to shareholders....................... -- -- (679) (679)
----------- ------- ---------- ----------------
Balance, December 31, 1993............................ 1000 1 1,965 1,966
Net income.......................................... -- -- 2,143 2,143
Distributions to shareholders....................... -- -- (2,401) (2,401)
Issuance of stock................................... 99,000 99 -- 99
Special distribution to shareholders................ -- -- (6,919) (6,919)
----------- ------- ---------- ----------------
Balance, December 31, 1994............................ 100,000 100 (5,212) (5,112)
Net income.......................................... -- -- 1,192 1,192
----------- ------- ---------- ----------------
Balance, December 31, 1995............................ 100,000 $ 100 $ (4,020) $ (3,920)
----------- ------- ---------- ----------------
----------- ------- ---------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. BASIS OF PRESENTATION
The December 31, 1995 consolidated financial statements of Roses, Inc. and
subsidiaries include the accounts of Roses, Inc., Rose Hills Mortuary, Inc.
('RHMI') and Rose Hills Mortuary, L.P. ('RHMLP'). Effective January 1, 1995 the
consolidated financial statements include tax accounts as if Roses, Inc. adopted
Statement of Financial Accounting Standards No. 109 ('SFAS No. 109'), Accounting
for Income Taxes, on that date. The December 31, 1994 and 1993, consolidated
financial statements of Roses, Inc. and subsidiaries include the accounts of
RHMI and RHMLP only, as predecessor companies. Through December 31, 1994, RHMI,
the general partner of RHMLP, had elected treatment as an S-Corporation,
accordingly RHMI's income, whether distributed or not, was taxed at the
shareholder level for income tax purposes. Therefore, the accompanying
consolidated financial statements as of December 31, 1994 and 1993 do not
include a provision for income taxes. For California franchise tax purposes,
S-Corporations were taxed at 2.5% of taxable income through 1993 and 1.5% of
taxable income in 1994. Deferred taxes are not provided for these years as the
amounts were immaterial.
The accounting and reporting policies of Roses conform to generally
accepted accounting principles ('GAAP') and the prevailing practices within the
mortuary industry. All significant inter-company accounts and transactions have
been eliminated.
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Roses, Inc., a California corporation, was formed in December 1994 and,
effective January 1, 1995, became the limited partner of RHMLP, replacing the
predecessor limited partner, and parent corporation of RHMI, California
corporation, (collectively 'Roses' or the 'Company'). As part of this
restructuring, the predecessor limited partner exchanged its partnership
interest in RHMLP for shares of stock in the newly formed Roses, Inc.
Additionally, the three shareholders of RHMI, the general partner of RHMLP, all
exchanged their share holdings for shares in the newly formed Roses, Inc. As a
result of this exchange, Roses, Inc. became both the parent corporation to RHMI
and the new limited partner of RHMLP.
Roses, Inc. has no other business interests or operations other than to
manage a 12.5% limited partnership interest in RHMLP and a 100% wholly owned
subsidiary RHMI, which as the general partner, has an 87.5% partnership interest
in RHMLP.
RHMLP was formed in 1990 for the purpose of owning and managing the funeral
operations and managing the cemetery operations of Rose Hills Memorial Park
Association (the 'Association').
RHMLP's business is segmented into five main areas which include
professional mortuary services, casket sales, flower shop sales, sales of
pre-need funeral insurance products from which commissions are earned, and
management services from which fees are earned in accordance with an agreement
with the Association.
Use of Estimates
The preparation of consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and short term certificates
of deposit.
Receivables
Receivables due from customers for mortuary services and merchandise are
generally due at the time services are rendered. However, financing arrangements
are available over a period of three to five years. Such financial contracts
bear interest at the rate of 12% per annum. An allowance for doubtful accounts
has been
F-7
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
established to recognize that a portion of these receivables may not be
collectible. As of December 31, 1995 and 1994, the allowance for doubtful
accounts was $287 thousand and $331 thousand, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
Property, plant and equipment are valued at its fair market value at the
acquisition date. Additions subsequent to the acquisition date are recorded at
cost.
Depreciation and Amortization
Depreciation and amortization are computed using the straight-line method
over the estimated useful life of the asset, ranging from 5 to 25 years.
Expenditures for maintenance and repairs are charged to operations as
incurred and expenditures for replacements and betterments are capitalized.
Goodwill
Goodwill is being amortized using the straight-line method over a 40 year
period. As of December 31, 1995 and 1994, accumulated amortization of goodwill
was $459 thousand and $379 thousand, respectively.
Covenant Not to Compete
The Covenant Not to Compete ('Covenant') is being amortized on a
straight-line basis over its five year term, which ended in May of 1995. As of
December 31, 1994, accumulated amortization of the Covenant was $5.2 million.
Deferred Financing Costs
Deferred financing costs relating to the Bank Senior Term Loan entered into
in July 1994 and amended in December 1994 (see Note 6) are being amortized over
the life of the loan based on the effective interest method. As of December 31,
1995 and 1994, accumulated amortization of these costs was $142 thousand and
$17 thousand, respectively.
Income Taxes
Effective January 1, 1995, RHMI became a C-Corporation, which together with
its parent, Roses, Inc., also a C-Corporation, became obligated to file
consolidated federal and state tax returns. Beginning in 1995, RHMLP makes cash
distributions to Roses and RHMI in their respective interests for the payment of
federal and state taxes.
During 1993, the IRS began an examination of federal income tax returns
filed for the tax year ended 1990 by both RHMI and RHMI's predecessor and its
subsidiaries, whose liabilities generally were assumed by RHMI. The IRS also
commenced examinations of the Association and its affiliated entities for 1990.
In December 1994, the Company agreed to certain adjustments proposed by the
IRS relating to both RHMLP and RHMLP's predecessor and its subsidiaries for the
tax years through December 31, 1992. In connection with this agreement RHMLP
paid approximately $294 thousand, consisting of tax and interest in the
approximate amounts of $201 thousand and $93 thousand, respectively. Of the
amount paid, approximately $212 thousand was allocated to the Association, for
its share of the tax adjustments. In June 1995, the Association reached an
agreement (the 'Closing Agreement') with the IRS relating to its outstanding tax
issues. The Closing
F-8
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Agreement required the Association to pay $1.2 million to the IRS. Due to the
resolution of the Association's tax issues with the IRS and in accordance with
an agreement between the Company and the Association executed in May 1990, the
Company incurred an obligation to pay the Association additional consideration
for the covenant not to compete in the amount of $1.1 million. The net result of
the obligations, arising from these IRS audits to RHMLP was financed by the
Association as explained in Note 6.
Special Distribution
In December 1994, RHMLP redeemed one-half of the predecessor's limited
partner's interest and their priority capital account for $6.9 million. In
accordance with the Partnership Agreement, this redemption and distribution to
the predecessor limited partner eliminated their priority capital account, the
accruing of a guaranteed return and changed the net income allocation to the
limited partner from 25% to 12.5% effective January 1, 1995. In addition, the
predecessor limited partner exchanged its partnership interest in RHMLP for
shares of stock in newly formed Roses, which became the new limited partner on
January 1, 1995.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, receivables and payable
approximate carrying value because of the short maturity of these instruments.
New Accounting Pronouncement
In 1995, Roses adopted SFAS No. 121, 'Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ', which requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment loss is
measured by comparing the fair value of the assets to its carrying amount. At
this time, Roses' management does not foresee an impairment of Roses' long-lived
assets.
Earnings Per Share
Earnings per share are computed based on the weighted average number of
shares outstanding during each year. The Company has no stock options or
warrants outstanding at December 31, 1995. Weighted average shares outstanding
at December 31, 1995 are 100,000 shares on a historical basis, weighted average
shares outstanding during 1993 and 1994 are presented on a pro forma basis as if
Roses, Inc. were in existence during those years.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
(000'S)
<S> <C> <C>
Land.................................................................... $ 3,276 $ 3,275
Buildings and improvements.............................................. 9,353 9,419
Furniture, fixtures and equipment....................................... 1,951 2,141
Vehicles................................................................ 290 398
Computer software....................................................... 3,376 3,375
Construction in progress................................................ 12 81
------- -------
Total property, plant and equipment..................................... 18,258 18,689
Less: accumulated depreciation.......................................... (3,830) (4,905)
------- -------
Property, plant and equipment, net...................................... $14,428 $13,784
------- -------
------- -------
</TABLE>
F-9
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
4. PRE-NEED FUNERAL INSURANCE
The pre-need funeral insurance policies sold by the Company are whole-life
policies sold on a pre-need basis to pay for the cost of funeral services.
Commissions earned varies based on a combination of factors, such as the amount
of funeral cost coverage sold, the age of the insured and the volume of monthly
sales activity. In addition, an annual profit-sharing commission is received
based upon the number of policies written. Insurance commissions earned on
individual policies, as well as commissions based on monthly volume activity and
annual profit-sharing arrangements, are recognized as income when the policies
are accepted by the insurance company.
RHMI, the general partner of RHMLP, holds the license to sell the pre-need
insurance as the general agent for RHMLP. However, pursuant to an assignment
agreement with RHMLP and RHMI, RHMLP receives the insurance commissions as
income for its efforts for managing, operating and employing the personnel
involved with the pre-need funeral insurance program.
5. INCOME TAXES
The provision for income taxes follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
(000'S)
<S> <C>
Federal current............................................. $ 653
State current............................................... 181
------------
Total current.......................................... 834
------------
Federal deferred............................................ 190
State deferred.............................................. 70
------------
Total deferred......................................... 260
------------
Total income tax expense.......................... $1,094
------------
------------
</TABLE>
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Federal tax rate............................................ 34%
Net tax effects of:
Goodwill amortization..................................... 1
State taxes, net of federal benefit....................... 7
Nondeductible expenses.................................... 2
Other..................................................... 4
--
48%
--
--
</TABLE>
As discussed in Note 1, Roses adopted SFAS No. 109 on January 1, 1995.
Under SFAS No. 109, deferred income tax assets or liabilities are computed based
on temporary differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate in effect for
the year in which differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period. The effect of adopting SFAS No. 109 was
not material to the financial position of Roses.
F-10
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
5. INCOME TAXES--(CONTINUED)
The components of the net deferred tax balances are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
(000'S)
<S> <C>
Deferred tax assets:
Operating reserves........................................ $ 231
Retirement benefits....................................... 197
Supplemental employee retirement plan..................... 892
Amortization.............................................. 16
State taxes............................................... 61
Other..................................................... 84
------------
Total deferred tax assets.............................. 1,481
------------
Deferred tax liabilities:
Depreciation.............................................. 876
Land...................................................... 809
Other..................................................... 56
------------
Total deferred tax liability........................... 1,741
------------
Net deferred tax liability............................. $ 260
------------
------------
</TABLE>
6. LONG TERM DEBT
In July 1994, the Company entered into a loan agreement, which provided for
a new senior term loan in the amount of $16.5 million, a revolving facility
available up to $1 million and an acquisition facility available up to $2.5
million. The proceeds from the senior term loan coupled with cash from
operations were used to repay the outstanding balance due under an existing
senior term loan with another bank in the amount of $11 million and the
outstanding balance due under the Association's subordinated note, which
included accrued interest, in the amount of $6.6 million.
In December 1994, the Company negotiated a modification to the existing
senior term loan agreement for an additional borrowing of $6.5 million. These
proceeds provided the funds to enable RHMLP to redeem one-half of the limited
partner interest in RHMLP and make the redemption and distribution payment in
the amount of $6.9 million. As a condition of this incremental borrowing, the
bank eliminated the availability of the revolving and acquisition facilities
previously approved by them in July 1994.
Although the initial term of the senior loan provided for it to be
amortized over a seven year period, the bank modified the loan agreement to
provide that the then outstanding balance would all become due and payable as of
December 31, 1996. Subsequent to the balance sheet date the Company requested
and received from its lender an extension of the maturity date of the loan to
June 30, 1997. Until December 1996, principal payments are payable quarterly, as
is the interest. The aggregate quarterly principal reduction payments from
December 31, 1995 through December 31, 1996 is $625 thousand. Interest on the
outstanding balance as of December 31, 1995 is calculated at various rates
ranging from fixed rates of 7.50% and 7.75% to a maximum variable rate of prime
plus .25%. Interest expense for December 31, 1995 and 1994 was $2.0 million and
$598 thousand, respectively, with no interest expense incurred for the year
ended December 31, 1993. The senior term loan agreement contains certain
financial covenants, the most significant of which is the maintenance of minimum
levels of partnership equity, a cash flow coverage ratio and a leverage ratio.
At December 31, 1995, the Company was in compliance with all of these covenants.
F-11
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
6. LONG TERM DEBT--(CONTINUED)
During 1993, as described in Note 11, the Company executed an unsecured
promissory note made payable to the Association for its share of computer
software. The promissory note, in the original amount of $1.2 million, matures
on June 30, 1997, and interest accrues at the rate of eight percent (8%) per
annum. The balance due on this note at December 31, 1995 and 1994 was $613
thousand and $767 thousand, respectively. An installment payment of $28 thousand
including principal and interest is made monthly and the total installment
amounts payable for 1997 and 1996 is $170 thousand and $340 thousand,
respectively. Interest expense for 1995, 1994 and 1993 with respect to the
promissory note was $51 thousand, $73 thousand and $113 thousand, respectively.
As referred to in Note 2 and resulting from the settlement and Closing
Agreement between the Association and the IRS, the Association agreed to pay
$1.2 million to the IRS. Due to previous agreements between the Company and the
Association, the Company's net share of the settlement was $835 thousand. The
Association agreed to finance this amount in the form of an unsecured promissory
note due November 30, 2000, bearing interest at eight percent (8%) per annum.
Only the interest is payable monthly through June 1997. Beginning on July 31,
1997 the Company shall pay monthly installments of $28 thousand until the
maturity date at which time any remaining interest and principal shall be due
and payable.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the long term debt
approximates its carrying value as of December 31, 1995.
7. OPERATION AND MANAGEMENT AGREEMENTS
The businesses of the Company and the Association are complementary.
Effective October 1, 1989, and in conjunction with the Acquisition, the Company
and the Association entered into an Operation and Management Agreement ('O & M
Agreement'), whereby RHMLP manages the Association's cemetery operations for a
ten-year term, subject to two additional five-year periods at the option of
either the Company or the Association. Under the terms of the O & M Agreement,
common costs, including but not limited to general and administrative payroll,
advertising, utilities and selling expenses, are allocated between the Company
and the Association at agreed upon percentages. In the opinion of Roses
management, these allocation percentages are reasonable. Although most of the
common costs are paid by the Company, the accompanying Statements of Income
reflect the net expenses of the Company. However, the accompanying Balance
Sheets include accounts payable and accrued liabilities associated with the
common costs and as of December 31, 1995 and 1994 reflect a net receivable from
the Association in the amount of $3.8 million and $4.7 million respectively. A
portion of the amount due from the Association reflects the Association's share
of the common costs payable at year end. General and administrative payroll and
other employee benefit expenses such as retirement plan costs, as noted in Note
8, are generally paid by the Company and then allocated and shared between RHMLP
and the Association.
Effective January 1, 1993, RHMI, employed the senior managers of RHMLP.
Accordingly, RHMI has adopted the retirement plan, the 401(k) savings plan, and
the various other welfare and benefit plans for this group of administrative
employees, for whom the accrued benefits are guaranteed by RHMLP. The wages and
benefits for these senior managers are charged to RHMLP and a portion then
allocated to the Association as they are for all other employees.
8. RETIREMENT PLANS
Defined Benefit Plan
As a result of the formation of the Company, all employees of the
Association became employees of the Company on or before October 1, 1990. Prior
to the Acquisition, all employees of the Association were participants in the
Retirement Plan for Employees of Rose Hills Memorial Park Association (the
'Association
F-12
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
8. RETIREMENT PLANS--(CONTINUED)
Plan'). In conjunction with the Acquisition, however, the Association Plan was
terminated in September 1990 and assets sufficient to cover the projected
benefit obligations for all currently active participants in the Association
Plan were transferred to the Retirement Plan for Employees of Rose Hills
Mortuary, L.P. (the 'Company Plan'). As more fully explained in Note 7, the
expense of the Company Plan is shared between the Company and the Association.
Although the information presented below represents the net pension cost and
funded status for the Company Plan, the accompanying Income Statements of the
Company reflect RHMLP's expenses only, whereas the Balance Sheets reflect the
total Company Plan obligation as well as the receivable attributable to the
Company Plan due from the Association.
Participants are entitled to monthly pension benefits beginning at normal
retirement after age 65 equal to the product of the number of years of credited
service times a percentage of the employee's highest five-year monthly
compensation of the last ten years, computed in accordance with the provisions
of the Company Plan. Participants are fully vested after completing five years
of service. Employees may elect to receive their pension benefits in the form of
a single-life annuity or a qualified joint and contingent annuity.
Employees with ten or more years of credited service are permitted early
retirement at age 55. However, if such participants terminate their employment
before completing ten years of service, they forfeit the right to receive early
retirement benefits.
Roses has funded or accrued the present value of these benefits. The
Company Plan is subject to, and in compliance with, the provisions of the
Employee Retirement Income Security Act of 1974 ('ERISA'). During 1995, the
Company Plan received a favorable letter of determination from the IRS.
The net pension cost included the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ------
(000'S)
<S> <C> <C> <C>
Service cost--benefits earned during the period................................ $571 $622 $ 647
Interest cost on projected benefit obligation.................................. 501 662 735
Actual (earnings) loss on company plan assets.................................. (448) 286 (2,353)
Net amortization and deferral.................................................. (98) (793) 1,878
---- ---- ------
Total net periodic pension cost........................................... $526 $777 $ 907
---- ---- ------
---- ---- ------
</TABLE>
F-13
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
8. RETIREMENT PLANS--(CONTINUED)
The following table sets forth the Company Plan's funded status and the
amounts recognized in the accompanying financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- --------
(000'S)
<S> <C> <C>
Actual present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $8,925
for 1995 and $7,706 for 1994....................................... $(8,126) $ (9,328)
------- --------
------- --------
Projected benefit obligation for services rendered to date............ $(9,676) $(10,660)
Plan assets at fair market value, primarily listed stocks, bonds and
U.S. Government obligations........................................... 5,809 9,266
------- --------
Plan assets less than projected benefit obligations..................... (3,867) (1,394)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions................................. 2,208 225
Unrecognized net asset being recognized over 15 years................... (346) (283)
Additional liability.................................................... (312) --
------- --------
Accrued pension costs.............................................. $(2,317) $ (1,452)
------- --------
------- --------
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 7.75% and 4.50%, respectively. The expected
long-term rate of return on assets was 8.00%.
As stated in Note 7 above, the common costs are shared between the
Association and Roses. The amounts for the Company Plan noted above are for all
participants before such costs are allocated between the Association and Roses.
However, the accompanying Statements of Income reflect only the net pension plan
expenses for Roses share of such expenses. Although the accompanying Balance
Sheets reflect the total Plan's assets and liabilities, the total amount of
these assets and liabilities is offset by the Association's share of such
amounts, including the expense of the Plan, which are included in the net
receivable from the Association. The Company's share of the net periodic pension
cost was $254 thousand and $487 thousand for the years 1995 and 1994,
respectively. The Company's share of the accumulated benefit obligation was $4.4
million and $3.7 million for the years 1995 and 1994, respectively and its share
of the projected benefit obligation was $5.0 million and $4.4 million for the
years ended December 31,1995 and 1994, respectively.
The balance between the amounts disclosed above in the tables and the
amounts noted in the foregoing two sentences represent the amounts allocated to
the Association and included along with prior years' corresponding amounts, in
the net receivable due from the Association.
Defined Contribution Plan
The Company also has a defined contribution plan, which has been qualified
under section 401(k) of the Internal Revenue Service Code (the 'Savings Plan').
During 1995 RHMLP received a favorable letter of determination from the Internal
Revenue Service regarding the Savings Plan. The Savings Plan permits
participation by all employees of the Company who have completed six months of
continuous service, subject also to their entry into the Savings Plan on
enrollment dates of January 1 or July 1 of each year. Participants may defer up
to 15% of their compensation (subject to certain limitations). In addition to
the amount of compensation deferred by participants, the Company matches up to a
maximum of $2 thousand per year per participant. During 1995 and 1994, the
Company's contribution to this Savings Plan on behalf of the participants
amounted to $270
F-14
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
8. RETIREMENT PLANS--(CONTINUED)
thousand and $292 thousand, respectively. Of these amounts $98 thousand and $105
thousand reflected the amount expensed by the Company for its share of the total
contributions in 1995 and 1994, respectively, and the balance of the expense was
borne by the Association.
Supplemental Employee Retirement Plan
At the time of the Acquisition, the three senior officers executed
employment agreements, which obligated the Company to provide these three
employees with a supplemental employee retirement plan ('SERP'). This
non-qualified supplemental pension plan covering certain employees provides for
incremental pension payments from the Company's funds so that the total pension
payments would more realistically approximate amounts that would have been
payable from the Company's principal pension plans if it were not for
limitations imposed by income tax regulations. The annual lifetime benefit is
based upon a percentage of salary during the final five years of employment,
offset by several other sources of income, up to age 62 at which time the
benefit becomes payable to the participant. The expenses of the SERP are
allocated between Roses and the Association as discussed in Note 7.
The SERP net pension cost included the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
(000'S)
<S> <C> <C> <C>
Service cost-benefits earned during the period............................. $ 968 $ 234 $ 248
Interest cost on projected benefit obligation.............................. 156 234 266
Net amortization and deferral.............................................. 62 62 62
------ ------ ------
Total net periodic pension cost............................................ 1,186 530 576
Less: Association's share of net periodic pension cost..................... 439 196 213
------ ------ ------
Roses share of net periodic pension cost.............................. $ 747 $ 334 $ 363
------ ------ ------
------ ------ ------
</TABLE>
The following table sets forth the SERP funded status and the amounts
recognized in the accompanying financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
(000'S)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $2,920 for
1995 and $2,166 for 1994............................................ $(2,166) $(2,920)
------- -------
------- -------
Projected benefit obligation for services rendered to date............. $(3,667) $(4,703)
Plan assets at fair market value....................................... -- --
------- -------
Plan assets in less than projected benefit obligations................. (3,667) (4,703)
Unrecognized net (gain) loss from past experience different from that
assumed and effects of changes in assumptions.......................... (110) 411
Unrecognized net asset being amortized over 15 years................... 825 764
------- -------
Accrued pension costs.................................................... (2,952) (3,528)
Less: Association's share of accrued pension cost........................ 1,093 1,305
------- -------
Roses share of accrued pension cost................................. $(1,859) $(2,223)
------- -------
------- -------
</TABLE>
F-15
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
8. RETIREMENT PLANS--(CONTINUED)
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.25% and 4.00%, respectively. The expected
long term rate of return on assets was 8.00%.
To fund the SERP obligations the Company has procured whole life insurance
policies. The Company is the owner and beneficiary of these policies with an
aggregate face amount of $7 million. The insurance premiums, like other common
costs, are allocated between the Company and the Association and are charged to
expense, net of the annual increase in the cash surrender value of the policies.
The net premiums expensed by the Company for 1995 and 1994 amounted to $75
thousand and $68 thousand, respectively, with no expense for the year ended
December 31, 1993. The cash surrender value of the Company's share of the
policies is reflected in the Balance Sheets under Other Current Assets and
amounted to $207 thousand and $104 thousand as of December 31, 1995 and 1994,
respectively. The Association's share of the premiums and cash surrender value
of the policies is reflected in the net receivable due from the Association.
9. FUNERAL SERVICE TRUST AGREEMENTS
The Company sells, on a limited basis, Funeral Service Trust Agreements.
These trust agreements are sold generally on an installment basis and funds
derived therefrom earn income subject to certain limitations. Trusts may be
terminated at any time with all principal and accumulated net income being
distributed to the Trustor. Trustors may at any time apply the trust amount to
the purchase price of funeral services and arrangements furnished by the Company
and/or to cemetery property, services and commodities provided by the
Association. The amounts relating to these trusts are not included in the
accompanying financial statements, however, administration fees earned by the
Company are reflected in the Statements of Income.
10. COMMITMENTS UNDER LEASE AGREEMENTS
The Company and the Association jointly operate computer hardware and
software, which are used in the operation of their businesses. The understanding
of this joint ownership is captured in a separate agreement, which was executed
at the time of the Acquisition. Under this separate agreement, the Company
agreed to assume 32% of the liability for both the computer hardware and
software. The computer hardware is leased under a capital lease, which was
amended in 1994 and now extends to April 1999. The computer software was leased
under a financing lease until April 1993 at which time the Association paid off
the remaining balance. The Association and the Company then executed a
promissory note for the Company's remaining share of the software financing
lease, as described in Note 6. Roses interest in the assets relating to these
agreements is included in property, plant and equipment and the related
liability for the hardware is reflected as obligations under financing leases.
F-16
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
10. COMMITMENTS UNDER LEASE AGREEMENTS--(CONTINUED)
As of December 31, 1995, the future minimum lease obligation pursuant to
the joint and several operating lease agreement is summarized as follows:
<TABLE>
<CAPTION>
COMPUTER HARDWARE
YEAR ENDING DECEMBER 31, OPERATING LEASE
- ------------------------ -----------------
(000'S)
<S> <C>
1996................................................. $ 123
1997................................................. 123
1998................................................. 123
1999................................................. 38
------
Total minimum lease obligations...................... 407
Less: interest....................................... 65
------
Total present value of lease obligation.............. $ 342
------
------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Roses is involved in certain matters of litigation, none of which, in the
judgment of management, will have a material impact on its financial position or
results of operations.
During 1995, Roses along with the Association settled all outstanding tax
issues that had arisen in connection with audits conducted by the IRS of RHMLP,
its predecessor and the predecessor's subsidiary companies, the Association and
its affiliated entities for the tax year ended 1990. Roses maintains a reserve
for future taxes and interest that may arise in relation to the Acquisition of
RHMLP in May 1990. In the opinion of management, this reserve is adequate to
cover any future tax liability related to the Acquisition.
Subsequent to the issuance of RHMLP's 1995 financial statements it was
determined that the actuarial report for the SERP used incorrect amounts for the
service period, salary rates of the senior officers and discount rate. A
corrected actuarial report was obtained from the actuary and these calculations
are reflected in Note 8. The effect of these corrections results in an overall
increase in the Accumulated Benefit Obligation ('ABO') from $3.7 million to $4.7
million at December 31, 1995 and an increase in pension cost from approximately
$800,000 to $3,500,000 over the period of May 1990 through December 31, 1995.
Accordingly, these increases are shared between Roses and the Association as
defined in the O&M Agreement. To date, the Association has not disputed the
existence and related liability for their share of the plan obligation and
costs. Management of Roses has asserted that the revised actuarial calculations
are appropriate and the allocations to the Association are in accordance with
the O&M Agreement. If the Association was to dispute the existence of the SERP,
the Company would be fully liable for the benefit obligation and related plan
costs, the effect of which would increase liabilities of Roses by approximately
$3.2 million and increase plan costs to Roses of approximately $2.3 million
since SERP's inception in May 1990.
Subsequent to the issuance of the Association's 1994 financial statements,
it was determined that a sale of exclusive interment rights on an undeveloped
parcel of land located on the Association's property was erroneously recorded as
a sale. Accordingly, the 1994 consolidated financial statements of the
Association have been restated to exclude this transaction.
The effect of this restatement, as it relates to Roses, could cause Roses
to be in noncompliance with certain provisions of the O & M Agreement. Due to
this potential noncompliance with certain provisions of the O & M Agreement, the
Association may have the right to terminate the agreement. At this time no
decision has been made as to whether, or under what circumstances, the
Association would seek to enforce a possible right to terminate. Roses' position
is that any effect of a termination would be accounted for prospectively with no
effect on the historical financial position or results of operations. Based on
these circumstances, Roses cannot make an
F-17
<PAGE>
ROSES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
assessment as to the effect of an early termination of the O & M Agreement on
the financial position or results of operations. Additionally, due to the
potential sale of Roses and the Association this issue would irrelevant as the
Company and Association have entered into a Mutual General Release agreement,
which is effective as of the closing date of the sale transaction (see footnote
12).
12. SUBSEQUENT EVENT
On September 19, 1996, Roses entered into a purchase agreement whereby all
shares of the common stock of Roses will be sold to a new company formed by
Blackstone Capital Partners II Merchant Banking Fund L.P. and The Loewen Group
Inc. (the 'Buyers') for approximately $75 million. In connection with this
transaction, the Association is also selling most of it's assets and operations
to the Buyers. The sale of Roses is expected to be completed by the end of 1996,
and is subject to a number of conditions, including regulatory approvals and
financing.
F-18
<PAGE>
ROSES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(000'S)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
<S> <C>
ASSETS
Cash and marketable securities:
Cash and cash equivalents.......................................................................... $ 450
Marketable securities.............................................................................. 1,000
-------
Total cash and marketable securities............................................................. 1,450
-------
Receivables:
Customer accounts receivable, net.................................................................. 1,695
Due from Rose Hills Memorial Park Association...................................................... 4,079
Other.............................................................................................. 1,926
-------
Total receivables................................................................................ 7,700
-------
Other current assets.................................................................................
Casket and other inventories....................................................................... 362
Prepaid expenses, deferred charges and deposits.................................................... 717
Other.............................................................................................. 207
-------
Total other current assets....................................................................... 1,286
-------
Total current assets................................................................................. 10,436
-------
Property, plant and equipment, net................................................................... 12,947
-------
Intangible assets:
Goodwill........................................................................................... 2,679
Other intangible assets............................................................................ 36
-------
Total intangible assets.......................................................................... 2,715
-------
Total assets..................................................................................... $ 26,098
-------
-------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued liabilities:
Accounts payable and accrued expenses.............................................................. $ 2,048
Accrued compensation............................................................................... 979
Other current liabilities.......................................................................... 1,187
-------
4,214
Current portion of debt:
Bank senior term loan.............................................................................. 17,600
Rose Hills Memorial Park Association--computer loan................................................ 246
Obligation under financing lease................................................................... 91
-------
Total current liabilities........................................................................ 22,151
-------
Other long-term liabilities:
Accrued pension cost of supplemental employee retirement plan...................................... 3,730
Accrued pension cost of defined benefit plan....................................................... 981
Retirement plan liability.......................................................................... 240
Deferred tax liability............................................................................. 260
-------
Total other long-term liabilities................................................................ 5,211
Long-term debt:
Rose Hills Memorial Park Association loans:
Promissory note.................................................................................. 835
Obligation under financing lease................................................................... 188
-------
Total long-term liabilities...................................................................... 6,234
-------
Total liabilities................................................................................ 28,385
-------
Shareholders' deficit:
Common stock--($1 par value, authorized 1,000,000 shares, issued 100,000 shares)................... 100
Accumulated deficit................................................................................ (2,387)
-------
Total shareholders' deficit........................................................................ (2,287)
-------
Total liabilities and shareholders' deficit...................................................... $ 26,098
-------
-------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-19
<PAGE>
ROSES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Sales and services:
Caskets................................................................. $ 6,757 $ 6,774
Funeral services........................................................ 6,213 6,995
Insurance commissions................................................... 2,249 2,040
Flowers................................................................. 1,345 1,296
Management fee and other................................................ 117 298
------------------ ------------------
Total sales and services............................................. 16,681 17,403
Cost of sales and services:
Caskets................................................................. 1,981 2,046
Funeral services........................................................ 1,936 2,062
Flowers................................................................. 541 566
------------------ ------------------
Total cost of sales and services..................................... 4,458 4,674
------------------ ------------------
Gross profit......................................................... 12,223 12,729
------------------ ------------------
Selling, general and administrative expenses.............................. 7,875 8,715
Amortization of purchase related assets................................... 372 85
------------------ ------------------
Income from operations............................................... 3,976 3,929
------------------ ------------------
Interest income (expense):
Interest income......................................................... 80 173
Interest expense........................................................ (1,974) (1,319)
------------------ ------------------
Net interest expense................................................. (1,894) (1,146)
------------------ ------------------
Income before tax provision.......................................... 2,082 2,783
Tax provision............................................................. 999 1,150
------------------ ------------------
Net income........................................................... $ 1,083 $ 1,633
------------------ ------------------
------------------ ------------------
Net income per common share.......................................... $ 10.83 $ 16.33
------------------ ------------------
------------------ ------------------
Weighted number of outstanding shares................................ 100,000 100,000
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
ROSES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(000'S)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities:
Net income.............................................................. $ 1,083 $ 1,633
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of purchase related assets.............................. 372 85
Depreciation......................................................... 776 843
Changes in assets and liabilities associated with operating activities:
Increase in customer accounts receivable............................. (62) 137
(Increase) decrease in due from Rose Hills Memorial Park
Association........................................................ 2,428 (293)
Increase in other receivables........................................ (582) (598)
Decrease in other current assets..................................... (878) (480)
Decrease in accounts payable and accrued expenses.................... 8 (256)
Increase (decrease) in other current liabilities..................... (713) 814
Other, net........................................................... (607) (395)
-------- --------
Net cash provided by operating activities.......................... 1,825 1,490
-------- --------
Cash flow from investing activities--capital expenditures................. (74) (5)
-------- --------
Cash flow from financing activities:
Reduction of long-term debt............................................. (1,135) (2,304)
-------- --------
Net cash used in financing activities.............................. (1,135) (2,304)
-------- --------
Net increase (decrease) in cash and cash equivalents...................... 616 (819)
Cash and cash equivalents at beginning of period.......................... 927 1,269
-------- --------
Cash and cash equivalents at end of period......................... $ 1,543 $ 450
-------- --------
-------- --------
Supplemental cash flow information:
Interest paid........................................................... 1,974 1,319
-------- --------
-------- --------
Taxes paid.............................................................. 1,941 405
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
ROSES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(000'S EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
TOTAL
SHARES COMMON ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK DEFICIT DEFICIT
----------- ------ ------------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995............................. 100,000 $100 $ (4,020) $(3,920)
Net income........................................... -- -- 1,633 1,633
----------- ------ -------- -------------
Balance, September 30, 1996............................ 100,000 $100 $ (2,387) $(2,287)
----------- ------ -------- -------------
----------- ------ -------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
ROSES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Roses,
Inc. and subsidiaries ('Roses') have been prepared in accordance with generally
accepted accounting principles ('GAAP') for interim financial reporting.
Accordingly, they do not include all of the information and footnote disclosures
necessary for complete financial statements in conformity with GAAP. These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements included herein. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments considered necessary for a fair presentation of the financial
condition as of September 30, 1995 and 1996, the results of operations for the
nine months ended September 30, 1995 and 1996 and the statements of cash flows
for the nine months ended September 30, 1995 and 1996. Certain reclassifications
to prior period financial statements have been made in order to conform to the
current period presentation.
2. SUBSEQUENT EVENT
On September 19, 1996, Roses entered into an agreement and plan of merger
whereby all shares of the common stock of Roses will be sold to a new company
formed by Blackstone Capital Partners II Merchant Banking Fund L.P. and The
Loewen Group Inc. (the 'Buyers') for approximately $75 million. In connection
with this transaction, the Association is also selling most of its assets and
operations to the Buyers. The sale was consummated on November 19, 1996. As a
result, on November 19, 1996, Roses became a wholly owned subsidiary of the
Issuer. Operations of Roses from November 19, 1996 will be included in the
consolidated financial statement of the Issuer.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
Rose Hills Memorial Park Association:
We have audited the accompanying combined statements of financial position of
Rose Hills Memorial Park Association and Workman Mill Investment Company as of
December 31, 1994 and 1995 and the related combined statements of activities,
changes in net assets and cash flows for each of the years in the three-year
period ended December 31, 1995. These combined financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying combined financial statements were prepared to present the
combined assets and liabilities and related operations of Rose Hills Memorial
Park Association and Workman Mill Investment Company that are to be sold and
assumed, respectively, pursuant to the purchase agreement described in note 1,
and are not intended to be a complete presentation of the consolidated financial
statements of Rose Hills Memorial Park Association and its wholly owned
subsidiary, Murrieta Hills Holding Company, or its subsidiaries, Murietta Hills,
Inc. and Workman Mill Investment Company.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Rose Hills
Memorial Park Association and Workman Mill Investment Company as of December 31,
1994 and 1995 and the changes in their net assets and their cash flows for each
of the years in the three-year period ended December 31, 1995, pursuant to the
purchase agreement described in note 1, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 19, 1996,
except for note 1,
which is as of
September 19, 1996
F-24
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Receivables:
Customer accounts receivable, net...................................................... $ 5,427 $ 5,335
Less endowment care charges............................................................ (1,860) (1,778)
Due from Endowment Care Fund........................................................... 208 180
Rose Hills Company--computer note...................................................... 289 311
Other receivables...................................................................... 115 129
------- -------
Total current receivables...................................................... 4,179 4,177
------- -------
Inventories:
Cemetery property...................................................................... 2,132 5,329
Investment, funeral and other inventories.............................................. 110 72
------- -------
Total inventories.............................................................. 2,242 5,401
------- -------
Total current assets........................................................... 6,421 9,578
------- -------
Other assets:
Notes receivable from Rose Hills Compny:
Unsecured note...................................................................... 835 835
Computer note....................................................................... 479 192
Customer accounts receivable, net...................................................... 5,693 5,516
Prepaid expenses and other assets...................................................... 1,264 989
------- -------
Total other assests............................................................ 8,271 7,532
------- -------
Property, plant and equipment, net....................................................... 29,529 32,130
------- -------
Total assets................................................................... $44,221 $49,240
------- -------
------- -------
LIABILITIES AND NET ASSETS
Accounts payable......................................................................... $ 804 $ 518
Accrued expenses......................................................................... 1,191 964
Due to Rose Hills Company................................................................ 2,782 3,382
Due to Endowment Care Fund............................................................... 105 63
Other liabilities........................................................................ 1,432 160
Covenant not to compete.................................................................. 266 --
------- -------
Total current liabilities...................................................... 6,580 5,087
Retirement plan liabilities.............................................................. 2,744 2,744
Obligations under capital leases, net.................................................... 910 496
Pre-need funeral service debentures:
Issued and outstanding................................................................. 1,393 1,180
Less amounts on deposit with Trustee................................................... (1,393) (1,180)
------- -------
Net pre-need funeral service debentures........................................ -- --
Total liabilities.............................................................. 10,234 8,327
Commitment and contingencies............................................................. -- --
Net assets............................................................................... 33,987 40,913
------- -------
Total liabilities and net assets............................................... $44,221 $49,240
------- -------
------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF ACTIVITIES
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales and services:
Cemetery property, net of cancellations....................................... $ 10,934 $10,984 $12,711
Other cemetery sales and services............................................. 8,096 8,756 9,104
-------- ------- -------
Total sales and services................................................... 19,030 19,740 21,815
-------- ------- -------
Cost of sales and services:
Cemetery property............................................................. 1,222 1,539 749
Other cemetery sales and services............................................. 4,057 3,997 3,609
-------- ------- -------
Total cost of sales and services........................................... 5,279 5,536 4,358
-------- ------- -------
Gross profit............................................................... 13,751 14,204 17,457
-------- ------- -------
Other revenue:
Endowment Care Fund income.................................................... 1,459 1,439 1,351
Finance income................................................................ 1,154 1,167 1,169
-------- ------- -------
Total other revenue........................................................ 2,613 2,606 2,520
-------- ------- -------
16,364 16,810 19,977
Selling, general and administrative expenses.................................... 17,934 18,595 17,911
-------- ------- -------
Operating income (loss).................................................... (1,570) (1,785) 2,066
Other income (expense):
Covenant not to compete....................................................... 800 1,955 266
Income tax expense resulting from IRS settlements............................. (250) (1,226) --
Interest expense.............................................................. (28) (155) (201)
Other income, net............................................................. 972 671 113
-------- ------- -------
Net income (loss).......................................................... $ (76) $ (540) $ 2,244
-------- ------- -------
-------- ------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ (76) $ (540) $ 2,244
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 1,536 1,676 1,668
Net gain on sale of property, plant and equipment............................. -- -- (18)
Provision for sales cancellations............................................. 1,673 2,122 1,647
Provision for bad debts....................................................... 30 120 60
Covenant not to compete....................................................... (800) (1,955) (266)
Changes in operating assets and liabilities:
Customer accounts receivable................................................ (780) (1,950) (2,112)
Other receivables........................................................... 152 (20) (15)
Due from Endowment Care Fund, net........................................... 435 (537) (14)
Inventories................................................................. 334 (92) (3,157)
Prepaid expenses and other assets........................................... 314 (445) 275
Interest receivable on note from Rose Hills Company......................... -- (537) --
Accounts payable, accrued expenses and other liabilities.................... 1,236 1,571 (1,785)
Due to Rose Hills Company................................................... 1,053 1,961 600
Retirement plan liabilities................................................. 631 (380) (1)
------ ------- -------
Net cash provided by (used in) operating activities...................... 5,738 994 (874)
Cash flows from investing activities:
Purchases of property, plant and equipment....................................... (1,499) (4,833) (3,759)
Proceeds from dispositions of property, plant and equipment...................... -- 152 99
------ ------- -------
Net cash used in investing activities.................................... (1,499) (4,681) (3,660)
------ ------- -------
Cash flows from financing activities:
Payments received on notes receivable from Rose Hills Company, net............... (1,877) 6,949 264
Issuance of unsecured note to Rose Hills Company................................. -- (835) --
Increase (decrease) in obligations under capital leases, net..................... (2,898) 372 (412)
------ ------- -------
Net cash provided by (used in) financing activities...................... (4,775) 6,486 (148)
------ ------- -------
Increase (decrease) in cash and cash equivalents......................... (536) 2,799 (4,682)
Adjustments for exclusion of cash and cash equivalents pursuant to the Asset
Purchase Agreement discussed in note 1........................................... 536 (2,799) 4,682
Cash and cash equivalents at beginning of year..................................... -- -- --
------ ------- -------
Cash and cash equivalents at end of year........................................... $ -- $ -- $ --
------ ------- -------
------ ------- -------
Cash paid during the year for interest............................................. $ 166 $ 163 $ 202
------ ------- -------
------ ------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net assets at beginning of year.................................................. $36,866 $37,326 $33,987
Net income (loss)................................................................ (76) (540) 2,244
Adjustments for exclusion of cash and cash equivalents pursuant to the Asset
Purchase Agreement described in note 1......................................... 536 (2,799) 4,682
------- ------- -------
Net assets at end of year........................................................ $37,326 $33,987 $40,913
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
Rose Hills Memorial Park Association (the Association) is a California
nonprofit mutual benefit corporation which is exempt from Federal and state
income taxes. The Association owns property located in Los Angeles County, near
Whittier, California which it develops as cemetery plots and in which it sells
rights to inter remains to the surrounding community. The operations of the
Association are managed on a day-to-day basis by Rose Hills Mortuary, L.P. (Rose
Hills Company or the Company) pursuant to a Management Agreement as discussed in
note 8.
The Association has a wholly owned subsidiary, Murrieta Hills Holdings,
Inc. (Holdings), which owns Murrieta Hills, Inc. (Hills) and Workman Mill
Investment Company (Workman Mill). All three companies have been organized under
the laws of the state of California. Holdings and Hills were formed for the
purpose of holding the investment in and managing the entitlement and future
development of approximately 1,000 acres of real property located in Riverside
County, California. Workman Mill was formed for the purpose of holding water
rights and the operation of water distribution systems used primarily by the
Association in its cemetery operations.
Sale of Cemetery Business
On September 19, 1996, the Association entered into an Asset Purchase
Agreement (the Agreement) with an unrelated buyer to sell certain assets which
it uses in the conduct of the Association's business of managing, operating,
developing and selling of cemetery-related services. The purchase price for the
assets and operations of the business totals $166.3 million, and the closing of
the transaction is currently anticipated to occur in November 1996 and is
subject to a number of conditions, including regulatory approvals and financing
arrangements. The assets and operations of the Association that are not being
sold in this transaction will remain with the Association and will be used to
fund the operations of a charitable foundation which will be formed concurrently
with the closing of this transaction.
Basis of Presentation
The accompanying combined financial statements were prepared to present the
combined assets and liabilities and related operations of Rose Hills Memorial
Park Association and Workman Mill Investment Company (collectively referred to
herein as the Association) that are to be sold and assumed, respectively,
pursuant to the Agreement. Certain assets of the Association which are not used
in the conduct of the Association's business, such as cash, investments,
undeveloped property, all assets of Holdings and Hills, with the exception of
certain of Workman Mill's assets, and other such assets not being sold, have
been excluded from the assets presented in the accompanying combined financial
statements. Similarly, pursuant to the Agreement, liabilities of the Association
arising out of assets that are not being sold and other liabilities related to
completion of certain of the Association's construction projects, as more fully
described in note 13, have been excluded from the accompanying combined
financial statements. Revenue and expense items that relate to any of the
Association's assets or liabilities that have been excluded from sale or
assumption have likewise been excluded from the accompanying combined financial
statements. As further discussed in note 4, the accounts of the Endowment Care
Fund are not included in the accompanying combined financial statements. All
significant intercompany accounts and transactions among and between the
Association and Workman Mill have been eliminated.
F-29
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue related to cemetery interment rights are recognized as revenue when
the associated contract is signed by the customer. Allowances for anticipated
customer cancellations are provided for at the date of sale at estimated amounts
based on historical trends. A portion of the proceeds from the sale of interment
rights is required by state law to be paid into the Endowment Care Fund to
provide for the perpetual care of the Association properties. Cemetery revenue
is recorded net of these amounts.
Receivables
Receivables due from customers for cemetery property sold in advance of
need are generally collected over one to seven years and bear interest at the
rate of 9.6% per annum. An allowance for sales cancellations has been
established to recognize that cemetery property sold in advance of need, for
which a minimum down payment is received, may be subsequently canceled.
Accordingly, as of December 31, 1994 and 1995, the allowance for sales
cancellations totaled $1,758,000 and $1,480,000, respectively. A provision of
$1,673,000, $2,122,000 and $1,647,000 was charged to cemetery sales to provide
for estimated future cancellations for the years ended December 31, 1993, 1994
and 1995, respectively.
In addition to the receivables due from customers for cemetery property,
receivables from customers for cemetery goods and services sold and provided in
funeral arrangements are generally collected over a period of one to three years
bearing interest at the rate of 12.0% per annum. An allowance for doubtful
accounts has been established to recognize that a portion of both of these types
of receivables may not ultimately be collectible. As of December 31, 1994 and
1995, the allowance for doubtful accounts totaled $247,000 and $312,000,
respectively.
Inventories
Inventories are stated at the lower of actual cost (determined on a
first-in, first-out basis) or market value.
Property, Plant and Equipment
Property is recorded at historical cost, net of accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of 5 to 30 years for buildings and water systems, 5
to 12 years for furniture, fixtures and equipment and 7 to 12 years (not to
exceed the lease term) for computer hardware and software. Expenditures for
maintenance and repairs are charged to operations as incurred and expenditures
for replacements and improvements are capitalized.
Use of Estimates
Management of the Association has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these combined
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
3. NOTES RECEIVABLE
In May 1990, the Association sold its wholly owned mortuary subsidiary
company to the Company (see note 8). Of the total original consideration,
$4,000,000 related to a Covenant Not to Compete (Covenant). The Covenant was
increased to $5,155,000 during 1994 in connection with the IRS settlement
discussed in note 11.
F-30
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
3. NOTES RECEIVABLE--(CONTINUED)
The original amount received relating to the Covenant was recognized as income
on a straight-line basis over its five-year term. Income recognized for the
years ended December 31, 1993, 1994 and 1995 totaled $800,000, $1,955,000 and
$266,000, respectively.
As payment for the sale of the Mortuary, the Association received primarily
cash and assumed a secured but subordinated note receivable amounting to
$8,000,000 from the Company. In July 1994, the Company paid off its note
receivable to the Association in the amount of $6,670,000 which constituted the
balance due, including accrued but unpaid interest.
As described further in note 7, during 1993, the Association paid off a
financing lease relating to computer software used in operations. Due to its
cost-sharing arrangement with the Company, the Association received a promissory
note from the Company for its share of the financing lease. This promissory note
in the original amount of $1,200,000 matures on June 30, 1997 and interest
accrues at the rate of 8% per annum. The outstanding principal on this note at
December 31, 1994 and 1995 totaled $768,000 and $505,000, respectively. An
installment payment of $28,000 including principal and interest is due monthly
and future payments on the promissory note total approximately $313,000 for 1996
and $191,000 for 1997.
As described further in note 11, in June 1995, the Association and the
Company settled their outstanding affairs with the Internal Revenue Service and
the Association received a promissory note from the Company for the Company's
additional consideration for the Covenant reduced by $320,000 settlement paid
for by the Company on behalf of the Association. This promissory note in the
original amount of $835,000 matures on November 30, 2000 and interest accrues at
the rate of 8% per annum. Interest is payable monthly until July 1997, at which
time monthly principal and interest payments of $28,000 begin.
4. ENDOWMENT CARE FUND
The Association, pursuant to state law, has placed the cemetery under
endowment care. Therefore, when cemetery property is sold by the Association, an
endowment care charge is made for which a minimum amount is statutory. Charges
are payable to the Endowment Care Fund (the Fund), a separate 501(c)(13)
organization, when the total sales contract amount has been collected. Since a
substantial portion of pre-need cemetery property sales is made on an
installment basis, many of the charges are not due currently. Generally, the
installment receivables, including late charges, are collectible within one to
seven years. As of December 31, 1994 and 1995, amounts owed to the Fund but not
yet due or collected from customers amounted to $1,860,000 and $1,778,000,
respectively. The Fund's assets are invested under the direction of the Board of
Trustees of the Association, who also serve as Trustees of the Fund. The change
in net assets of the Fund, net of amounts permitted to be withheld under state
law, is paid by the Fund to the Association and is used for the care,
maintenance and embellishment of the cemetery. As allowable by state law, a
portion of the undistributed capital gains of the Fund have been reserved and
are available to the Association at the discretion of the Trustees to fund
certain capital expenditures. The amounts earned by the Fund and transferred to
the Association are reported in the combined statements of activities and
amounted to $1,459,000, $1,439,000 and $1,351,000 for the years ended December
31, 1993, 1994 and 1995, respectively.
Total assets of the Fund are $49,282,000 and $54,948,000 at December 31,
1994 and 1995, respectively, and consist primarily of cash and investments
carried at cost. Total liabilities of the Fund are $208,000 and $180,000 at
December 31, 1994 and 1995, respectively, and consist of amounts payable to the
Association. Total net assets of $49,075,000 and $54,768,000 at December 31,
1994 and 1995, respectively, resulted primarily from Fund deposits received or
receivable from customers and capital gains (net of transfers to reserves)
earned by the Fund.
F-31
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
4. ENDOWMENT CARE FUND--(CONTINUED)
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 124, 'Accounting for Certain Investments Held
by Not-for-Profit Organizations.' This standard requires that investments in
equity securities with readily determinable fair value and all investments in
debt securities be measured at fair value in the statements of financial
position. This statement is effective for the year ended December 31, 1996, but
earlier application is permitted. If the Fund had implemented this standard in
1995, assets and net assets as of December 31, 1995 would have increased by
$5,344,000.
The American Institute of Certified Public Accountants recently issued
Statement of Position 94-3, 'Reporting of Related Entities by Not-for-Profit
Organizations,' which is effective for fiscal years beginning after December 15,
1994. This statement requires consolidation of affiliated organizations when the
not-for-profit reporting entity has both control of such organization and an
economic interest therein. Since the Fund and the Association meet these
criteria, it would be required that the activities and financial position of the
Fund be included in the consolidated financial statements of Rose Hills Memorial
Park Association and its wholly owned subsidiary. However, in connection with
the sale of certain assets and operations of the Association, discussed in note
1, management considers these special purpose combined financial statements to
be that of a commercial enterprise. In accordance with commercial cemetery
industry practice and given that the accompanying combined financial statements
have been prepared in connection with the sale of assets, as discussed in note
1, such combined financial statements are not intended to present a complete
presentation of the combined financial position or changes in net assets of the
Association as a not-for-profit organization, and accordingly, management has
not consolidated the Endowment Care Fund with the accompanying combined
financial statements.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31
(dollars in thousands):
<TABLE>
<S> <C> <C>
1994 1995
------- -------
Land and improvements................................................... $ 7,517 7,520
Buildings and improvements.............................................. 11,561 11,857
Furniture, fixtures and equipment....................................... 4,099 4,292
Vehicles................................................................ 1,378 1,269
Water systems........................................................... 2,091 1,935
Streets, roads and parking lots......................................... 2,162 2,178
Computers and software.................................................. 5,146 5,212
Construction in progress................................................ 5,036 8,837
Other................................................................... 3,080 3,183
Assets under capital leases (computer hardware)......................... 1,562 1,451
------- -------
Total property, plant and equipment................................... 43,632 47,734
Less accumulated depreciation, including accumulated amortization of
assets under leases of $641 and $896, respectively.................... (14,103) (15,604)
------- -------
Property, plant and equipment, net.................................... $29,529 $32,130
------- -------
------- -------
</TABLE>
Construction-in-progress encompasses various projects not yet completed,
including cemetery property being developed for inventory. See further
discussion at note 13.
F-32
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
6. PRE-NEED FUNERAL SERVICE DEBENTURES
From 1960 to 1975, the Association sold pre-need funeral service debentures
at face amounts under subscription agreements which provided for the collection
of the amount on an installment basis. Debentures were issued in denominations
of $125 each when installments of the amount were collected. As of December 31,
1994 and 1995, the debentures subscribed pursuant to the subscription agreements
amounted to less than $10,000. The Association may redeem the debentures at any
time prior to maturity at the face amount or the holders thereof may at any time
apply the debentures to the purchase price of funeral services and arrangements
furnished by the Association or the Company.
Additionally, the subscription agreements may be canceled at any time by
either the Association or the subscriber. Interest on the debentures is
calculated at the rate of 3% per annum, is payable semiannually and continues to
accrue on debentures not presented for payment on their maturity date.
Under the indenture and supplemental indentures, as amended, the
Association is required to make payments to a trustee of the fund to be used for
the retirement of the debentures at maturity or upon their application to the
purchase price of funeral services. Initial funding payments in amounts equal to
25% of the face amount of debentures being issued were required at the time of
issuance.
The issued and outstanding debentures at December 31, 1995 mature as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DATE AMOUNT
- ---------------------------------------------------------------- ------
<S> <C>
Prior to February 1, 1996....................................... $ 682
February 1, 1996................................................ 102
February 1, 1997................................................ 112
February 1, 1998................................................ 82
February 1, 1999................................................ 106
February 1, 2000................................................ 96
------
Total $1,180
------
------
</TABLE>
7. LEASE AGREEMENTS
During 1990, the Association initiated a plan to modernize its computer
equipment, convert old software programs and automate systems that were
previously handled manually. As a result of this plan, several customized
computer software developmental projects were completed. The Association and the
Company jointly made arrangements with a lessor for the financing of these
software developmental projects and for computer hardware equipment over
seven-year terms. The Association's interest in the assets relating to these
lease agreements is included in property, plant and equipment (see note 5) and
the related liability is reflected in the combined statements of financial
position as obligations under capital leases.
In April 1993, the Association paid off the remaining balance of the
financing lease relating to the computer software. The Association and the
Company then executed a promissory note for the Company's remaining share of the
software financing lease, as described in note 3.
Under a separate agreement executed at the time of the 1990 sale of the
mortuary operations, the Company agreed to assume the liability for 32% of the
commitments under these leases. Under terms of the agreement, the Company and
the Association will jointly own the software at the termination of the lease.
With respect to the computer hardware equipment, the companies have the option
at the end of the equipment lease to purchase or release the same equipment or
terminate the lease. The Association has included its 68% share of the software
costs and computer hardware equipment costs in property, plant and equipment.
F-33
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
7. LEASE AGREEMENTS--(CONTINUED)
As of December 31, 1995, the future minimum lease obligation pursuant to
the joint and several operating lease agreement is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
- ------------
<S> <C>
1996........................................................ $ 384
1997........................................................ 384
1998........................................................ 359
1999........................................................ 140
------------
Total of all lease payments............................... 1,267
Less amounts representing interest.......................... (202)
------------
Present value of minimum lease payments................... 1,065
Less amount to be collected from Rose Hills Company......... (569)
------------
Lease obligations of the Association...................... $ 496
------------
------------
</TABLE>
8. OPERATION AND MANAGEMENT AGREEMENT
The Operation and Management Agreement (Management Agreement) executed by
the Association with the Company in connection with the 1990 sale of the
mortuary operations provides for the on-site management of the cemetery
operations by the Company for a ten-year term expiring September 30, 1999. The
Management Agreement further provides for two renewal options of five years
each, exercisable by either the Association or the Company.
Under the terms of the Management Agreement, the Association receives
reimbursement from the Company for certain allocated costs and expenses, such as
utilities, insurance, operating supplies and other expenses based on
contractually agreed upon percentages, which vary according to the nature of the
cost or expense incurred. Likewise, the Association must reimburse the Company
pursuant to that same contractually agreed upon percentage formula for similarly
allocable costs and expenses, including payroll and related payroll costs. The
selling, general and administrative expenses presented in the combined
statements of activities reflect the net allocated expenses between the
Association and the Company. As of December 31, 1994 and 1995, the Association
was indebted to Rose Hills Company in the amount of $2,782,000 and $3,382,000,
respectively, for expenses allocated pursuant to the Management Agreement.
Amounts owed to Rose Hills Company are paid pursuant to the Management Agreement
but no later than December 31, 1996.
For services provided to the Association, the Association has agreed to pay
a management fee comprised of three elements. The three elements include: (1)
the reimbursement of compensation, including fringe benefits, of certain
management personnel at 110%; (2) an incentive sales fee based upon and to the
extent of achievement of targeted levels of total cemetery sales above threshold
levels; and (3) an expense savings fee based upon the achievement of managing
the Association's selling, general and administrative expenses as a percent of
total sales below a specified percentage. The expense savings fee also provides
for a reduction in the total management fee liability, if management causes the
selling, general and administrative expenses to exceed a specified percentage of
sales calculated as described above. During the years ended December 31, 1993,
1994 and 1995, the Association incurred management fees totaling $353,000,
$171,000 and $183,000, respectively.
The operator has allocated certain costs to the Association that may not be
in compliance with the Management Agreement. These costs totaled $341,000 in
1994 and $50,000 in 1995 and together with an adjustment to the management fee
retroactive to 1994 of $591,000, as discussed in note 13 have been recorded as a
receivable in the accompanying combined statements of financial position with a
corresponding allowance to
F-34
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
8. OPERATION AND MANAGEMENT AGREEMENT--(CONTINUED)
recognize that the amounts may not be collected. These amounts have been
included on a net basis in amounts due to Rose Hills Company in the accompanying
combined financial statements.
The Trustees have not asserted the Association's position with respect to
the Company's potential noncompliance of certain operating requirements under
the Management Agreement. Certain noncompliance with other provisions of the
Management Agreement provides that the Association has the right to terminate
the Management Agreement. At this time, no decision has been made as to whether
or under what circumstances the Association would seek to enforce a possible
right to terminate, but the Trustees do not believe that a termination
thereunder would have an adverse effect on the operations or financial position
of the Association.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
As a result of the sale of the Company and execution of the Management
Agreement, all employees of the Mortuary and the Association became employees of
the Company on or before October 1, 1990. Prior to the sale, all employees of
the Mortuary and the Association were participants in the Retirement Plan for
Employees of Rose Hills Memorial Park Association (the Association Plan).
The Association Plan was terminated in September 1990. Assets sufficient to
cover the projected benefit obligations for all currently active participants in
the Association Plan totaling $4,743,000 were transferred to the Retirement Plan
for Employees of Rose Hills Mortuary, L.P. (the Company Plan).
The Company has funded or accrued the present value of these benefits, a
portion of which has been allocated to and funded by the Association. The
Company Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and the funding of the pension costs complies with
ERISA. During the years ended December 31, 1993, 1994 and 1995, the Association
recognized the allocated expense amounts totaling $348,000, $525,000 and
$328,000, respectively, in connection with this plan. The Association's
liability for this plan totaled $613,000 and $527,000 at December 31, 1994 and
1995, respectively, and is included in retirement plan liabilities in the
accompanying combined statements of financial position.
Defined Contribution Plan
The Company also has a defined contribution plan, which has been qualified
under Section 401(k) of the Internal Revenue Service Code (the Savings Plan).
The appropriate percentage costs of the Savings Plan are allocated to and funded
by the Association. During 1995, the Company received a favorable letter of
determination from the Internal Revenue Service regarding the Savings Plan. The
Savings Plan permits participation by all employees of the Company who have
completed six months of continuous service, subject also to their entry into the
Savings Plan on enrollment dates of January 1 or July 1 of each year.
Participants may defer up to 15% of their compensation allowing participants a
pretax savings on their deferrals. The Company matches 100% of a participant's
first $300 deferred and 50% thereafter up to a maximum Company match of $2,000
per year. All participants become vested upon entry into the Savings Plan. Each
participant directs his own investments among a variety of up to six options,
which are managed by professional investment managers. During 1993, 1994 and
1995, the amounts expensed by the Association for its share of contributions
totaled $200,000, $187,000 and $178,000, respectively.
F-35
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Board of Trustees' Plan
The Association has a retirement plan (Trustees' Plan) covering each
eligible member of the Association's Board of Trustees (Trustee). A Trustee is
eligible to participate in this plan if such Trustee has completed at least five
years of service on the Board. Each eligible Trustee is entitled to receive an
annual retirement benefit equivalent to the annual Board meeting fees. The
benefit is paid for a period equal to the number of years that the eligible
Trustee served on the Board. Upon the death of an eligible Trustee, the
benefits, to which the eligible Trustee had been entitled, shall be payable to
such eligible Trustee's spouse, until receipt of the maximum benefit to which
the eligible Trustee would have been entitled, had he or she survived, or until
the death of the spouse, whichever first occurs, has been paid.
The Trustees' Plan is a noncontributory, nonqualified and unfunded plan and
represents only an unsecured general obligation of the Association. The Board of
Trustees has full and final authority to interpret the plan and to make
determinations which it believes advisable for the administration of the plan,
and all such determinations and decisions by the Board are binding upon all
parties. Net pension cost included the following components for the years ended
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period................................. $ 74 $ 78 $ 84
Interest cost on projected benefit obligation................................... 164 161 161
Net amortization and deferral................................................... 430 126 162
---- ---- ----
Net pension cost.............................................................. $668 $365 $407
---- ---- ----
---- ---- ----
</TABLE>
The following table sets forth the Trustees' Plan's funded status and
amounts recognized in the Association's combined balance sheets at December 31
(dollars in thousands):
<TABLE>
<S> <C> <C>
1994 1995
------- -------
Actuarial present value of benefit obligations:
Vested benefit obligation........................................................ $ 2,131 $ 2,217
------- -------
------- -------
Accumulated benefit obligation................................................... $ 2,131 $ 2,217
------- -------
------- -------
Projected benefit obligation..................................................... $ 2,131 $ 2,217
------- -------
------- -------
Plan assets at fair value........................................................ -- --
------- -------
------- -------
Projected benefit obligation in excess of plan assets.............................. $(2,131) $(2,217)
Unrecognized net loss.............................................................. 550 551
Prior service cost not yet recognized in net periodic pension cost................. 194 143
Adjustment required to recognize additional liability.............................. (924) (847)
Unrecognized net obligation at January 1, 1986 being recognized over 15 years...... 180 153
------- -------
Accrued pension liability included in the combined statements of financial
position...................................................................... $(2,131) $(2,217)
------- -------
------- -------
</TABLE>
The present value of the projected benefit obligation was determined using
an assumed discount rate of 7.25%. Since the Trustees' Plan is unfunded, the
Association is required, under the provisions of Statement of Financial
Accounting Standards No. 87 (SFAS 87), to reflect an additional retirement plan
liability of $924,000 and $847,000 as of December 31, 1994 and 1995,
respectively. This additional liability is offset by an intangible asset of
$374,000 and $296,000 at December 31, 1994 and 1995, respectively, which is
included in other assets in the combined statements of financial position.
F-36
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Supplemental Employee Retirement Plan
The Senior Executive officers of the Company have a Supplemental Employee
Retirement Plan (SERP). The Association expenses its share of the costs
associated with the SERP based on predetermined allocation percentages. The
liability of the SERP is actuarially determined under the provisions of
Statement of Financial Accounting Standards No. 87 (SFAS 87). Amounts allocated
to the Association totaled $393,000, $196,000 and $259,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Association's debt instruments (capital leases)
approximates fair value which is based on the quoted market prices for the same
or similar issues or on the current rates offered to the Company for debt of the
same remaining maturities.
The fair values of the Association's accounts and notes receivable
approximate carrying values and are determined as the present value of expected
future cash flows discounted at the interest rate currently offered by the
Association, which approximates rates currently offered by local lending
institutions for loans of similar terms to companies with comparable credit
risk.
The carrying amounts of short-term accounts receivable, due from Endowment
Care Fund, prepaid expenses, other assets, trade accounts payable, due to Rose
Hills Company, due to Endowment Care Fund, other liabilities and accrued
expenses approximate fair value because of the short-term nature of those
instruments.
11. INCOME TAX SETTLEMENTS
During 1993, the Internal Revenue Service (IRS) began an examination of
Federal income tax returns filed by the Association, the Company and the
Company's predecessor and its subsidiaries for the 1990 tax year. The IRS
proposed multiple positions and tax adjustments for all of these entities. In
December 1994, the Company, with the consent of the Association, agreed to
certain adjustments proposed by the IRS relating to both the Company and the
Company's predecessor and its subsidiaries for the tax years through December
31, 1992. A significant portion of this settlement amount totaling $320,000 was
agreed to in December 1994 and was attributable to the Association in accordance
with an Indemnity Agreement between the Association and the Company executed in
May 1990. Such amount was paid by the Company on behalf of the Association.
In June 1995, the Association and the IRS entered into a Closing Agreement
settling all outstanding issues of the Association and the Endowment Care Fund
for $1,155,000. In accordance with the Indemnity Agreement, the settlement made
by the Association is reimbursable by the Company as additional covenant not to
compete consideration. After offsetting the Association's liability to the
Company for the $320,000 settlement of tax issues with the IRS in 1994, the
Association agreed to finance the Company's share of the settlement, which
financing terms are further described in note 3. Such adjustments are reflected
in the 1994 accompanying combined financial statements.
12. PURCHASE COMMITMENT
In September 1992, the Association and the local County Sanitation District
(the District) entered into an agreement (the Agreement) whereby the Association
agreed to construct a reclaimed water storage reservoir (the Reservoir) with a
capacity of 1.2 million gallons, one-half of which would be made available to
the District for its use at a site located adjacent to the cemetery. The cost of
the Reservoir, which was completed during 1994, totaled $471,000.
F-37
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
12. PURCHASE COMMITMENT--(CONTINUED)
Similarly, the District agreed to construct a reclaimed water transmission
system to transport reclaimed water from its existing water reclamation plant to
the Association's Reservoir. It is anticipated that the reclaimed water
transmission system will be completed late in 1996 or 1997.
In connection with this Agreement, the Association is obligated to purchase
initially 500 acre feet per year of reclaimed water from the District, with such
amount increasing by 50 acre feet per year, up to a maximum of 3,200 acre feet
per year. The annual price to be paid by the Association for the reclaimed water
shall be the greater of (a) one-half of the unit price in effect at the
beginning of the applicable fiscal year, currently estimated at $220 per acre
foot per year, multiplied by the amount of reclaimed water delivered to the
Association, less one-half of the annual payment made by the Association for the
reclaimed water transmission system, as discussed further below, and (b)
one-fifth of the unit cost of operation and maintenance of the Inland
Reclamation Plants multiplied by the amount of reclaimed water delivered. Such
costs are currently estimated at $105 per acre foot.
The Association has agreed to pay its proportionate share of the capital
costs incurred by the District in constructing the reclaimed water transmission
system. Such proportionate share will be determined based on the percentage of
peak flow design capacity required by the Association to the total peak flow
design capacity of the transmission facilities. The Association's proportionate
share was initially estimated to total approximately $1,500,000. The
Association's share may exceed this estimate since such costs are based on
current anticipated demand for transporting reclaimed water. Actual costs and
demand could vary significantly from these estimates.
The Association's annual payment of such costs is to be equal to 1/20th of
its proportionate share of the capital costs or approximately $108,000, as
originally estimated.
The District has agreed to pay its proportionate share of the capital costs
associated with the Association's construction of the Reservoir. The District's
share of such costs is based on the proportion of the Reservoir's designed
capacity required for the Association to provide reclaimed water storage for the
District. Annual payment of such amounts will be equal to 1/20th of the
District's share and will reduce the annual payment made by the Association to
the District for its share of the reclaimed water transmission system described
above.
The Association and the District have also agreed to reimburse the other
for operating and maintenance costs associated with the Reservoir and the
reclaimed water transmission system based on criteria outlined in the Agreement.
13. COMMITMENTS AND OTHER MATTERS
Transaction with the International Buddhist Progress Society
During 1994, the Association sold the exclusive interment rights on an
undeveloped parcel of land located on the Association's property to the
International Buddhist Progress Society (IBPS), an unrelated organization. In
exchange for the interment rights, IBPS agreed to pay the Association
$1,375,000, of which $160,000 was received as a deposit during 1994 and the
remaining amount of $1,215,000 was recorded as a receivable. Sales commissions
totaled $206,000 in connection with this transaction. It was determined that
because, among other matters, an adequate down payment was not received and the
interment rights were sold on a parcel of land that was not ready for the
purpose for which it was sold, the earnings process was not complete and revenue
and expense recognition relating to the transaction should be deferred until
such time IBPS has completed a significant portion of the project. The
incremental management fee paid to the Company during 1994 resulting from the
transaction totaled $591,000 and has been recorded as a receivable from the
Company, with an allowance in a corresponding amount to recognize that the
amount may not be collected. These amounts have been included on a net basis in
amounts due to Rose Hills Company in the accompanying combined financial
F-38
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION
AND WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
13. COMMITMENTS AND OTHER MATTERS--(CONTINUED)
statements. IBPS plans to build a columbarium on the developed parcel and IBPS
will sell the niches therein on an at-need and pre-need basis. The remaining
unpaid portion of the sales price is to be repaid after construction of the
Temple is completed, based on a percentage of niches sales, but in no event
later than January 1, 2003. IBPS has agreed to reimburse the Association up to
$1,150,000 for the costs it will incur to ready the undeveloped parcel of land
for construction of the columbarium. Pursuant to the agreement with IBPS, the
Association will hold title to land and improvements and the completed building.
These costs are expected to total approximately $1,750,000. As of December 31,
1995, costs expended by the Association in connection with this project totaled
$592,000 and are included in construction in progress at December 31, 1995.
Amounts payable at December 31, 1995 in connection with improving and readying
the land for construction of the building have been excluded from the
accompanying combined financial statements pursuant to the Asset Purchase
Agreement.
Sky Rose Chapel
During 1995, the Association entered into an agreement with a building
contractor for the construction of a new funeral chapel, which has become known
as Sky Rose Chapel. The project is currently expected to cost $15.3 million and
is scheduled for completion in Spring 1997. As of December 31, 1995, costs
incurred in connection with this project totaled approximately $6,000,000.
Pursuant to the Asset Purchase Agreement discussed in Note 1, amounts payable at
December 31, 1995 relating to this project have been excluded from the
accompanying combined financial statements.
14. CONTINGENCIES
The Association is involved in certain matters of litigation, none of
which, in the opinion of management, will have a material impact on its combined
financial position or changes in net assets.
F-39
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Receivables:
Customer accounts receivable, net...................................................... $ 5,042
Less endowment care charges............................................................ (1,731)
Due from Endowment Care Fund........................................................... 101
Rose Hills Company--computer note...................................................... 273
Other receivables...................................................................... 52
----------
Total current receivables........................................................... 3,737
----------
Inventories:
Cemetery property...................................................................... 4,812
Interment, funeral and other inventories............................................... 99
----------
Total inventories................................................................... 4,911
----------
Total current assets................................................................ 8,648
----------
Other assets:
Unsecured notes receivable from Rose Hills Company..................................... 835
Customer accounts receivable, net...................................................... 5,149
Prepaid expense and other assets....................................................... 1,002
----------
Total other assets.................................................................. 6,986
----------
Property, plant and equipment, net....................................................... 38,828
----------
Total Assets........................................................................ $ 54,462
----------
----------
LIABILITIES AND NET ASSETS
Accounts payable......................................................................... $ 821
Accrued expenses......................................................................... 498
Due to Rose Hills Company................................................................ 3,957
Due to Endowment Care Fund............................................................... 65
Obligations under capital leases--current portion........................................ 220
Other liabilities........................................................................ 2
----------
Total current liabilities........................................................... 5,563
Retirement plan liabilities.............................................................. 2,678
Obligations under capital leases, net.................................................... 214
Preneed funeral service debentures:
Issued and outstanding................................................................. 1,037
Less amounts on deposit with Trustee................................................... (1,037)
----------
Net preneed funeral service debentures.............................................. --
----------
Total liabilities................................................................... 8,455
Commitments and contingencies............................................................ --
Net assets............................................................................... 46,007
----------
Total liabilities and net assets.................................................... $ 54,462
----------
----------
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF ACTIVITIES
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Sales and services:
Cemetery property, net of cancellations................................................ $ 9,453 $ 9,590
Other cemetery sales and services...................................................... 6,889 7,419
------- -------
Total sales and services............................................................ 16,342 17,009
------- -------
Cost of sales and services:
Cemetery property...................................................................... 540 516
Other cemetery sales and services...................................................... 2,742 2,779
------- -------
Total cost of sales................................................................. 3,282 3,295
------- -------
Gross profit........................................................................ 13,060 13,714
------- -------
Other revenue:
Endowment Care Fund income............................................................. 995 1,294
Finance income......................................................................... 882 789
------- -------
Total other revenue................................................................. 1,877 2,083
------- -------
14,937 15,797
Selling, general and administrative expenses............................................. 13,441 13,048
------- -------
Operating income.................................................................... 1,496 2,749
Other income (expense):
Covenant not to compete................................................................ 267 --
Interest expense....................................................................... (92) (96)
Other income, net...................................................................... 99 136
------- -------
Net income.......................................................................... $ 1,770 $ 2,789
------- -------
------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 1,770 $ 2,789
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................................ 1,252 1,275
Provision for bad debts.............................................................. 45 45
Provision for sales cancellations.................................................... 1,622 497
Covenant not to compete.............................................................. (267) --
Changes in operating assets and liabilities:
Customer accounts receivable....................................................... (2,357) 71
Other receivables.................................................................. 88 77
Due from Endowment Care Fund, net.................................................. 58 80
Inventories........................................................................ (3,266) 489
Prepaid expenses and other assets 497 (12)
Accounts payable, accrued expenses and other liabilities........................... (2,470) (322)
Due to Rose Hills Company.......................................................... (1,089) 575
Retirement plan liabilities........................................................ (40) (65)
------- -------
Net cash (used in) provided by operating activities............................. (4,157) 5,499
------- -------
Cash flows used in investing activities:
Purchases of property, plant and equipment.............................................. (269) (7,203)
Distribution received from Endowment Care Fund for capital expenditures................. -- 5,000
------- -------
Net cash used in investing activities........................................... (269) (2,203)
------- -------
Cash flows used in financing activities:
Payments received on notes receivable from Rose Hills Company........................... 190 231
Principal payments on capital leases.................................................... (346) (62)
------- -------
Net cash provided by (used in) financing activities............................. (156) 169
------- -------
Increase (decrease) in cash and cash equivalents................................ (4,582) 3,465
Adjustments for exclusion of cash and cash equivalents pursuant to the Asset Purchase
Agreement discussed in note 1........................................................... 4,582 (3,465)
Cash and cash equivalents at beginning of period.......................................... -- --
------- -------
Cash and cash equivalents at end of period................................................ $ -- $ --
------- -------
------- -------
Cash paid during the year for interest.................................................... $ 92 $ 96
------- -------
------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-42
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net assets at beginning of period.......................................................... $33,987 $ 40,913
Net income................................................................................. 1,770 2,789
Adjustment for exclusion of cash and cash equivalents pursuant to the
Asset Purchase Agreement Described in note 1........................................... 4,582 (3,465)
Distribution received from Endowment Care Fund for capital expenditures.................... -- 5,770
------- --------
Net assets at end of period................................................................ $40,339 $ 46,007
------- --------
------- --------
</TABLE>
See accompanying notes to combined financial statements.
F-43
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying combined financial statements are unaudited and were
prepared pursuant to the Asset Purchase Agreement discussed further below, and
include the accounts of Rose Hills Memorial Park Association and Workman Mill
Investment Company (the Association) as of September 30, 1996 and for each of
the nine-month periods ended September 30, 1995 and 1996. In the opinion of
management of the Association, such unaudited combined financial statements
contain all adjustments of a normal, recurring nature necessary for a fair
presentation of interim financial position and changes in net assets. These
unaudited combined financial statements should be read in conjunction with the
combined financial statements of the Association as of December 31, 1994 and
December 31, 1995 and for each of the years in the three-year period ended
December 31, 1995.
Due to many factors, the results of activities for the nine months ended
September 30, 1996 should not be considered as indicative of the results to be
expected of a full year of operations.
Sale of Cemetery Business
On September 19, 1996, the Association entered into an Asset Purchase
Agreement (the Agreement) with an unrelated buyer to sell certain assets which
it uses in the conduct of the Association's business of managing, operating,
developing and selling of cemetery-related services. The purchase price for the
assets and operations of the business totals $166.3 million. The closing of the
transaction occurred on November 19, 1996. The assets and operations of the
Association that were not sold in this transaction have remained with the
Association and are being used to fund the operations of a charitable foundation
which was formed concurrently with the closing of this transaction.
The accompanying combined financial statements were prepared to present the
combined assets and liabilities and related operations of Rose Hills Memorial
Park Association and Workman Mill Investment Company (collectively referred to
herein as the Association) that are to be sold and assumed, respectively,
pursuant to the Agreement. Certain assets of the Association which are not used
in the conduct of the Association's business, such as cash investments,
undeveloped property, all assets of Holdings and Hills, with the exception of
certain of Workman Mill's assets, and other such assets not being sold have been
excluded from the assets presented in the accompanying unaudited combined
financial statements. Similarly, pursuant to the Agreement, liabilities of the
Association arising out of assets that are not being sold and other liabilities
related to completion of certain of the Association's construction projects and
this transaction have been excluded from the accompanying unaudited combined
financial statements (see note 3). Revenue and expense items that relate to any
of the Association's assets or liabilities that have been excluded from sale or
assumption and expenses related to this transaction have likewise been excluded
from the accompanying combined financial statements.
2. ENDOWMENT CARE FUND
Assets of the Endowment Care Fund (the Fund) at September 30, 1996 totaled
$58,135,000 and consisted primarily of cash and investments carried at market
value. Total liabilities of the Fund of $101,000 at September 30, 1996 consist
of amounts payable to the Association. Total net assets of $58,034,000 at
September 30, 1996 resulted primarily from Fund deposits received or receivable
from customers and capital gains (net of transfers to reserves) earned by the
Fund. As allowable by state law, a portion of the undistributed capital gains of
the Fund have been reserved and are available to the Association at the
discretion of the Trustees to fund capital expenditures. Distributions totaling
$5,770,000 have been recorded as an increase to net assets in the accompanying
combined statement of financial position. Actual cash distributions during 1996
amounted to $5,000,000.
F-44
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
The American Institute of Certified Public Accountants recently issued
Statement of Position 94-3, 'Reporting of Related Entities by Not-for-Profit
Organizations,' which is effective for fiscal years beginning after December 15,
1994. This statement requires consolidation of affiliated organizations when the
not-for-profit reporting entity has both control of such organization and an
economic interest therein. Since the Endowment Care Fund and the Association
meet these criteria, it would be required that the activities and financial
position of the Endowment Care Fund be included in the consolidated financial
statements of Rose Hills Memorial Park Association and its wholly owned
subsidiary. However, in connection with the sale of certain assets and
operations of the Association, discussed in note 1, management considers these
special purpose unaudited combined financial statements to be that of a
commercial enterprise. In accordance with commercial cemetery industry practice
and given that the accompanying unaudited combined financial statements have
been prepared in connection with the sale of assets, as discussed in note 1,
such unaudited combined financial statements are not intended to present a
complete presentation of the unaudited combined financial position or changes in
net assets of the Association as a not-for-profit organization, and accordingly,
management has not consolidated the Endowment Care Fund with the accompanying
unaudited combined financial statements.
3. COMMITMENTS AND OTHER MATTERS
International Buddhist Progress Society Transaction
During 1994, the Association sold the exclusive interment rights on an
undeveloped parcel of land to the International Buddhist Progress Society
(IBPS), who plans to build a columbarium on the developed parcel. IBPS has
agreed to reimburse the Association up to $1,150,000 for the costs it will incur
to ready the undeveloped parcel of land for construction of the columbarium.
Pursuant to the agreement with IBPS, the Association will hold title to land and
improvements and the completed building. These development costs are expected to
total approximately $1,900,000. As of September 30, 1996, development costs
expended by the Association in connection with this project totaled $1,874,000,
of which $739,000 is included in construction in progress. The remaining
$1,135,000 has been excluded because it is anticipated that this reimbursement
will be made by the IBPS prior to the closing date of the Asset Purchase
Agreement. Amounts payable at September 30, 1996 in connection with improving
and readying the land for construction of the building have been excluded from
the accompanying unaudited combined financial statements pursuant to the Asset
Purchase Agreement.
SkyRose Chapel
During 1995, the Association entered into an agreement with a building
contractor for the construction of a new funeral chapel, which has become known
as SkyRose Chapel. The project is currently expected to cost $15.3 million, and
is scheduled for completion in Spring 1997. As of September 30, 1996, costs
incurred in connection with this project totaled approximately $12.1 million.
Pursuant to the Asset Purchase Agreement discussed in Note 1, amounts payable at
September 30, 1996 of approximately $105,000 relating to this project have been
excluded from the accompanying unaudited combined financial statements.
F-45
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the accompanying combined balance sheet of certain subsidiaries
(as defined in note 1) of Loewen Group International, Inc. as of December 31,
1995 and the combined statements of operations and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the financial position of certain subsidiaries of Loewen
Group International, Inc. as at December 31, 1995, and the results of their
operations and their cash flows for the year then ended in accordance with
generally accepted accounting principles in the United States.
KPMG
Chartered Accountants
Vancouver, Canada
October 25, 1996
F-46
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 36,757
Receivables, net of allowances (note 5).......................................................... 1,343,438
Inventories...................................................................................... 457,025
Prepaid expenses................................................................................. 132,472
-----------
1,969,692
Long-term receivables, net of allowances (note 5).................................................. 641,432
Cemetery property, at cost (note 7)................................................................ 1,776,926
Property and equipment (note 8).................................................................... 12,101,134
Covenants not to compete (note 9).................................................................. 949,104
Names and reputations (note 10).................................................................... 4,064,811
-----------
$21,503,099
-----------
-----------
LIABILITIES AND PARENT COMPANY'S INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities......................................................... $ 551,716
Long-term debt, current portion (note 12)........................................................ 133,151
Other liabilities, current portion (note 13)..................................................... 93,482
-----------
778,349
Long-term debt (note 12)........................................................................... 1,600,014
Other liabilities (note 13)........................................................................ 569,382
Cemetery long-term liabilities..................................................................... 444,527
Deferred income taxes (note 14).................................................................... 763,141
Parent company's investment (note 16).............................................................. 17,347,686
Commitments and contingencies (note 17)............................................................ --
-----------
$21,503,099
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenue:
Funeral.......................................................................................... $ 9,763,992
Cemetery......................................................................................... 1,462,932
-----------
11,226,924
Cost and expenses:
Funeral.......................................................................................... 6,860,088
Cemetery......................................................................................... 1,251,972
-----------
8,112,060
-----------
3,114,864
Expenses:
General and administrative....................................................................... 1,094,510
Depreciation and amortization.................................................................... 688,608
-----------
1,783,118
-----------
Earnings from operations........................................................................... 1,331,746
Interest expense................................................................................... 905,479
-----------
Earnings before income taxes....................................................................... 426,267
Income taxes (note 14):
Current.......................................................................................... 213,543
Deferred......................................................................................... (10,869)
-----------
202,674
-----------
Net earnings for the year.......................................................................... $ 223,593
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
CASH PROVIDED BY (USED IN)
Operations
Net earnings..................................................................................... $ 223,593
Item not affecting cash
Depreciation and amortization................................................................. 688,608
Deferred income taxes......................................................................... (10,869)
Changes in operating assets and liabilities
Receivables................................................................................... (321,431)
Inventories................................................................................... (102,402)
Prepaid expenses.............................................................................. (7,101)
Accounts payable and accrued liabilities...................................................... 79,448
Other......................................................................................... 16,768
-----------
566,614
Investments
Business acquisitions............................................................................ (2,900,518)
Purchase of property and equipment............................................................... (391,255)
Development of cemetery property................................................................. (92,206)
-----------
(3,383,979)
Financing
Contributions from parent and affiliates......................................................... 2,612,438
Decrease in long-term debt....................................................................... (84,175)
Decrease in other liabilities.................................................................... (86,454)
-----------
2,441,809
-----------
Decrease in cash during the year................................................................... (375,556)
Cash, beginning of year............................................................................ 412,313
-----------
Cash, end of year.................................................................................. $ 36,757
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
1. GENERAL
These financial statements present the combined financial position and
results of operations and cash flows of certain direct or indirect subsidiaries
('Companies') of Loewen Group International, Inc. ('Parent Company') which are
to be sold (see Note 19(b)). The companies that are combined in the preparation
of these statements are:
<TABLE>
<S> <C>
Harbor Lawn Memorial Park, Inc. A.L. Cemetery
Dimond Service Corporation Custer Christiansen Covina Mortuary, Inc.
Neel Funeral Directors, Inc. Colton Funeral Chapel, Inc.
Richardson-Peterson Mortuary, Inc. Glasband-Willen Mortuaries
Grove Colonial Funeral Chapel, Inc. San Fernando Mortuary, Inc.
White Funeral Home, Inc.
</TABLE>
The Companies were acquired directly or indirectly by Loewen Group
International, Inc. prior to January 1, 1995 with the exception of A.L. Cemetery
and San Fernando Mortuary, Inc. which were acquired in fiscal year 1995. The
Combined Statements of Operations and Cash Flows reflect the operations of the
Companies from their dates of acquisition and incorporate push-down accounting.
All significant intercompany balances and transactions have been eliminated in
the combined financial statements. The Companies are principally engaged in the
operation of cemetery facilities and funeral services.
2. BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared in
accordance with principles of accounting generally accepted in the United
States.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Prearranged funeral services
Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract are either placed in trust or are used to pay the
premiums of life insurance policies under which the Companies will be designated
as beneficiary. Except for amounts not required to be trusted which are used to
defray costs of administration, no income is recognized until the performance of
a specific funeral.
Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Companies estimate that trust
fund investment earnings and annual insurance benefits exceed the increase in
cost over time of providing the related services. Upon performance of the
specific funeral service, the Companies will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Indirect obtaining costs
relating to the sale of prearranged funeral services are expensed in the period
incurred.
(b) Cemetery operations
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of estimated related costs. Allowances for customer
cancellations and refunds are provided at the date of sale based on management's
estimates of expected cancellations. Actual cancellation rates in the future may
result in a change in estimate.
A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to state law, a
portion of the proceeds from the sale of
F-50
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
pre-need merchandise and services may also be required to be paid into trust
funds which are recorded as long-term receivables.
(c) Inventories
Inventories are valued at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.
(d) Property and equipment
Property and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements 10 to 40 years
Automobiles 6 years
Computer hardware and software 6 to 10 years
Leasehold improvements over the term of the lease plus one renewal
Furniture, fixtures and equipment 6 to 10 years
</TABLE>
(e) Covenants not to compete
Covenants not to compete carried on the combined balance sheet represent
amounts prepaid or the present value of future payments under non-competition
agreements between the parent company directly or indirectly and certain key
management personnel of the Companies. For financial statement presentation
purposes, covenants not to compete have been recorded in these combined
financial statements. Amortization of such covenants not to compete is provided
on a straight-line basis over the terms of the relevant agreements, typically
ten years.
(f) Names and reputations
The amount paid by the parent company, directly or indirectly, for the
names and reputations of operations acquired is equivalent to the excess of the
purchase price over the fair value of identifiable net assets of the Companies
acquired, as determined by management. For financial statement presentation
purposes, names and reputations have been recorded in these combined financial
statements. Amortization is provided on a straight-line basis over 40 years.
(g) Deferred income taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Temporary differences are
tax effected at current rates. There was no effect of changes in tax rates
during 1995.
(h) Parent Company's investment
Parent Company's investment consists of contributions to the Companies
directly or indirectly by the parent company plus current earnings and losses of
the Companies from the date of their acquisition.
(i) Impairment of long-lived assets
Effective December 15, 1995, the Companies adopted FAS121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
FAS121 requires the recognition of impairment losses on long-lived assets used
in operations and intangible assets whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable. The
Companies monitor the recoverability of long-lived assets based upon projections
of future undiscounted cash flows and recognize losses if carrying value is in
excess of future cash flows.
F-51
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(j) Use of Estimates
Management of the Companies has made a number of estimates and assumptions
that affect the amounts reported in the accompanying combined financial
statements in accordance with generally accepted accounting principles. Actual
results could differ from these estimates.
4. ACQUISITIONS
During fiscal year 1995, the parent company, Loewen Group International,
Inc. directly or indirectly acquired A.L. Cemetery and San Fernando Mortuary,
Inc. which represent two funeral homes and one cemetery, which are included in
the accompanying financial statements. The effect of these acquisitions at dates
of purchase on the Combined Balance Sheet is as follows:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Current assets................................................................. $ 34,692
Long-term receivables, net of allowances....................................... 167,557
Cemetery property.............................................................. 1,280,184
Property and equipment......................................................... 1,235,611
Covenants not to compete....................................................... 150,000
Names and reputations.......................................................... 580,474
-----------
3,448,518
Current liabilities............................................................ (190,000)
Cemetery long-term liabilities................................................. (358,000)
-----------
$ 2,900,518
-----------
-----------
Consideration
Cash advance directly or indirectly by parent company........................ $ 2,900,518
-----------
-----------
</TABLE>
The following table reflects, on an unaudited pro-forma basis, the combined
results of the operations for the year ended December 31, 1995 as if both
acquisitions had taken place at January 1, 1995. Appropriate adjustments have
been made to reflect the accounting basis used in recording these acquisitions.
This pro-forma information does not purport to be indicative of the results of
operations that would have resulted had the acquisitions been in effect for the
entire year presented, and is not intended to be a projection of future results
or trends.
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenues....................................................................... $11,318,893
Net earnings................................................................... 235,345
</TABLE>
F-52
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
5. RECEIVABLES, NET OF ALLOWANCES
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Receivables, net of allowances
Trade accounts................................................................ $1,361,887
Instalment contracts.......................................................... 209,565
Notes receivable and other.................................................... 69,267
Unearned finance income....................................................... (41,472)
Allowance for contract cancellation and doubtful accounts..................... (255,809)
----------
$1,343,438
----------
----------
</TABLE>
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Long-term receivables, net of allowances
Instalment contracts.......................................................... $ 596,456
Notes receivable and other.................................................... 337,114
Unearned finance income....................................................... (199,421)
Allowance for contract cancellation and doubtful accounts..................... (92,717)
----------
$ 641,432
----------
----------
</TABLE>
6. PREARRANGED FUNERAL SERVICES
Prearranged funeral services are amounts in short-term interest bearing
deposits made in accordance with state trusting laws with various financial
institutions together with accrued earnings. The Companies will receive the
prearranged funeral trust amounts when the funeral services are performed.
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Short-term investments.......................................................... $ 922,455
Fixed maturities................................................................ 2,640,346
----------
Prearranged funeral trust assets................................................ 3,562,801
Prearranged funeral trust liabilities........................................... 3,712,801
----------
Net prearranged funeral trust liabilities....................................... $ 150,000
----------
----------
</TABLE>
Net prearranged funeral trust liabilities have been included in accounts
payable and accrued liabilities as at December 31, 1995. As at December 31,
1995, the total carrying value of prearranged funeral trust assets were
approximately equal to market value. The weighted average rate of return on the
above prearranged funeral trust assets for the year ended December 31, 1995 was
4.18%.
7. CEMETERY PROPERTY, AT COST
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Cemetery undeveloped land....................................................... $ 400,560
Developed land and lawn crypts.................................................. 1,376,366
----------
$1,776,926
----------
----------
</TABLE>
F-53
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
8. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED 1995 NET
COST DEPRECIATION BOOK VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Land............................................. $ 4,059,991 $ -- $ 4,059,991
Building and improvements........................ 6,506,638 479,495 6,027,143
Automobiles...................................... 637,329 362,104 275,225
Computer hardware and software................... 132,976 24,892 108,084
Leasehold improvements........................... 157,449 50,716 106,733
Furniture, fixtures and equipment................ 1,985,668 461,710 1,523,958
----------- ----------- -----------
$13,480,051 $1,378,917 $12,101,134
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
9. COVENANTS NOT TO COMPETE
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Covenants not to compete....................................................... $ 1,627,806
Less: accumulated amortization................................................. 678,702
-----------
$ 949,104
-----------
-----------
</TABLE>
10. NAMES AND REPUTATIONS
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Names and reputations.......................................................... $ 4,319,059
Less: accumulated amortization................................................. 254,248
-----------
$ 4,064,811
-----------
-----------
</TABLE>
11. RELATED PARTY TRANSACTIONS
General and administrative expenses of the parent representing accounting,
treasury, regulatory compliance and management advisory services which are not
specifically identifiable to a particular subsidiary, have been allocated to
subsidiaries proportionately using revenue as the base. During the year, the
parent company charged the Companies approximately $1,094,000 for these services
which are included in general and administrative expenses in these financial
statements.
Included in interest expense is approximately $719,000 in interest charges
on intercompany loans and advances from the parent company and affiliates.
During the year, the Companies obtained automobile, general liability and
other insurance through an affiliated company.
12. LONG-TERM DEBT
The notes payable relating to White Funeral Home, Inc. totalling
approximately $1,630,000, are secured by land and are guaranteed by an
affiliated company. The notes bear interest at rates ranging from 7.46% to 8.00%
per annum and are repayable in equal annual instalments. The notes payable
agreements are between the sellers and the parent company or a subsidiary of the
parent company. For financial statement presentation purposes, these notes have
been recorded in these combined financial statements.
F-54
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
12. LONG-TERM DEBT--(CONTINUED)
Principal repayments are to be made as follows:
<TABLE>
<S> <C>
1996............................................................................ $ 133,151
1997............................................................................ 143,097
1998............................................................................ 153,784
1999............................................................................ 165,271
2000............................................................................ 177,616
Thereafter...................................................................... 960,246
----------
$1,733,165
----------
----------
</TABLE>
13. OTHER LIABILITIES
Other liabilities consist of the net present value of future covenant not
to compete payments discounted at 9% per annum. Payments under agreements may be
made variously at closing or over future periods.
Future payments under these agreements are to be made as follows:
<TABLE>
<S> <C>
1996............................................................................ $ 93,482
1997............................................................................ 114,539
1998............................................................................ 118,254
1999............................................................................ 139,487
2000............................................................................ 120,468
Thereafter...................................................................... 76,634
----------
$ 662,864
----------
----------
</TABLE>
14. INCOME TAXES
The Companies' parent files consolidated federal and state income tax
returns and pays all related income taxes on behalf of the Companies. The
Companies' income tax expense and income taxes are computed as if the Companies
joined in filing consolidated federal, and to the extent applicable, state
income tax returns and reported only the Companies' taxable income.
F-55
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
14. INCOME TAXES--(CONTINUED)
A reconciliation between the Companies' income tax expense and income taxes
computed by applying the statutory federal income tax rate to earnings before
income taxes is as follows for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Expected federal income tax at statutory rate................................... $ 144,931
Increase in taxes resulting from:
Non-deductible goodwill amortization arising from acquisitions................ 26,962
State income tax expense, net of federal taxes................................ 26,130
Other, net.................................................................... 4,651
----------
Income tax expense............................................................ $ 202,674
----------
----------
</TABLE>
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
The Companies' net deferred tax liability at December 31, 1995 is
as follows:
Deferred tax liabilities
Property and equipment and cemetery property.............................. $ 863,350
-----------
Deferred tax assets
Allowance for contract cancellation and doubtful accounts................. 55,343
Intangibles............................................................... 44,866
Valuation allowance for deferred tax assets............................... --
-----------
Total deferred tax assets.................................................... 100,209
-----------
Net deferred tax liability..................................................... $ 763,141
-----------
-----------
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- -----------
<S> <C> <C>
Financial Asset
Long-term receivables
Practicable to estimate fair market......................... $ 337,114 $ 329,329
Not practicable............................................. 304,318 --
Financial Liability
Long-term debt................................................. $1,733,165 $ 1,513,917
Other liabilities.............................................. 662,864 686,090
</TABLE>
The carrying amount of cash, receivables, accounts payable and accrued
liabilities approximate fair value due to the short-term maturities of these
instruments. The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest payments,
using rates currently available for debt of similar terms and maturity, based
upon credit standing and other market factors. Similarly, the fair value of
other liabilities is estimated by discounting the cash flows using the current
borrowing rate. The long-term receivables for which it is not practicable to
estimate fair value comprise primarily of instalment contracts receivable on
cemetery sales which generally have terms of three to seven years and bear
interest ranging from 7% to 11%.
F-56
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
16. PARENT COMPANY'S INVESTMENT
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Balance, beginning of year..................................................... $14,511,655
Net earnings for the year...................................................... 223,593
Net contributions from parent company and affiliates........................... 2,612,438
-----------
Balance, end of year........................................................... $17,347,686
-----------
-----------
</TABLE>
For financial statement presentation purposes, the intercompany loans and
advances from the Parent Company and affiliates have been classified as an
investment in the Companies pursuant to the terms of the definitive sale
agreement referred to in Note 19(b).
17. COMMITMENTS AND CONTINGENCIES
(a) Leases
At December 31, 1995, the Companies were committed to operating lease
payments under agreements with terms ranging from 3 to 10 years for premises,
automobiles and office equipment in the following approximate amounts:
<TABLE>
<S> <C>
1996.............................................................................. $464,000
1997.............................................................................. 444,000
1998.............................................................................. 250,000
1999.............................................................................. 110,000
2000.............................................................................. 72,000
Thereafter........................................................................ 129,000
</TABLE>
(b) Other
The Companies are party to legal proceedings in the ordinary course of
their business but they do not expect the outcome of any such proceedings to
have a material adverse effect on the Companies' financial condition.
The State of California Dupartment of Consumer Affairs ('DCA') is currently
reviewing the funding levels of the endowment care trust fund at A.L. Cemetery.
As of October 25, 1996, the DCA has not made a determination of whether
additional funding is required, if any, to the above noted trust.
Management is aware that some of their properties may have been
contaminated from former or adjacent underground storage tanks. Management does
not believe that these environmental matters will have a material adverse effect
on the Companies' financial condition.
Two liens totalling approximately $500,000 are registered against the
property of A.L. Cemetery. The holders of these liens have not exercised any
right, if any, they may have on these liens.
18. RETIREMENT PLAN
Certain employees are members of the parent company's 401(k) defined
contribution retirement plan. There are no required future contributions under
these plans in respect of past or current service.
19. SUBSEQUENT EVENTS
(a) On May 31, 1996, the Companies' parent placed the shares of these
Companies with a trustee to be held under a trust indenture as security for its
lenders.
(b) On September 20, 1996, the Companies' parent entered into a definitive
agreement to sell its interest in the Companies to an entity in which the parent
company will retain an equity investment in. The transaction is expected to be
completed before January, 1997.
F-57
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 181,947
Receivables, net of allowances................................................................... 1,432,514
Inventories...................................................................................... 458,951
Prepaid expenses................................................................................. 141,856
-----------
2,215,268
Long-term receivables, net of allowances........................................................... 1,123,260
Cemetery property, at cost......................................................................... 1,787,702
Property and equipment............................................................................. 13,565,286
Covenants not to compete........................................................................... 845,795
Names and reputations.............................................................................. 4,114,448
-----------
$23,651,759
-----------
-----------
LIABILITIES AND PARENT COMPANY'S INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities......................................................... $ 619,674
Long-term debt, current portion.................................................................. 149,917
Other liabilities, current portion............................................................... 129,500
-----------
899,091
Long-term debt..................................................................................... 1,518,146
Other liabilities.................................................................................. 695,452
Cemetery long-term liabilities..................................................................... 560,866
Deferred income taxes.............................................................................. 685,907
Parent company's investment........................................................................ 19,292,297
-----------
$23,651,759
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
F-58
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenue:
Funeral............................................................................. $7,202,551 $7,145,539
Cemetery............................................................................ 1,044,566 1,566,286
---------- ----------
8,247,117 8,711,825
Cost and expenses:
Funeral............................................................................. 4,919,665 5,217,824
Cemetery............................................................................ 877,758 1,145,630
---------- ----------
5,797,423 6,363,454
---------- ----------
2,449,694 2,348,371
Expenses:
General and administrative.......................................................... 683,500 680,880
Depreciation and amortization....................................................... 505,453 597,951
---------- ----------
1,188,953 1,278,831
---------- ----------
Earnings from operations.............................................................. 1,260,741 1,069,540
Interest expense...................................................................... 681,499 887,495
---------- ----------
Earnings before income taxes.......................................................... 579,242 182,045
Income taxes
Current............................................................................. 260,919 170,528
Deferred............................................................................ (8,247) (77,234)
---------- ----------
252,672 93,294
---------- ----------
Net earnings.......................................................................... $ 326,570 $ 88,751
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-59
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operations:
Net earnings...................................................................... $ 326,570 $ 88,751
Items not affecting cash:
Depreciation and amortization.................................................. 505,453 597,951
Deferred income taxes.......................................................... (8,247) (77,234)
Changes in operating assets and liabilities:
Receivables.................................................................... 64,780 (570,904)
Inventories.................................................................... (89,942) (1,926)
Prepaid expenses............................................................... 28,723 (9,384)
Accounts payable and accrued liabilities....................................... (54,764) 94,494
Other.......................................................................... 39,700 116,339
----------- -----------
Net cash provided from operating activities.................................. 812,273 238,087
Investments:
Business acquisitions............................................................. (2,900,518) --
Purchase of property and equipment................................................ (166,403) (1,860,117)
Development of cemetery property.................................................. (76,682) (10,776)
Other............................................................................. (3,479) (43,385)
----------- -----------
Net cash used in investing activities........................................ (3,147,082) (1,914,278)
Financing:
Payment of long-term debt......................................................... (111,821) (170,031)
Increase in other liabilities..................................................... -- 174,590
Payment of other liabilities...................................................... (17,683) (39,038)
Contributions from parent and affiliates.......................................... 2,123,852 1,855,860
----------- -----------
Net cash provided from financing activities.................................. 1,994,348 1,821,381
----------- -----------
(Decrease) increase in cash during the period....................................... (340,461) 145,190
Cash, beginning of period........................................................... 412,312 36,757
----------- -----------
Cash, end of period................................................................. $ 71,851 $ 181,947
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-60
<PAGE>
CERTAIN SUBSIDIARIES OF LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of certain
subsidiaries of Loewen Group International, Inc. ('Loewen') have been
prepared in accordance with generally accepted accounting principles. These
unaudited combined financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1995
included herein.
In the opinion of management, the accompanying unaudited combined financial
statements contain all adjustments of a normal recurring nature necessary for
a fair presentation of the financial position as of September 30, 1996 and
results of operations for the nine months ended September 30, 1995 and 1996.
2. SUBSEQUENT EVENT
On November 19, 1996, Loewen sold its interest in the subsidiaries to an
entity in which Loewen will retain an equity investment.
See accompanying notes to combined financial statements.
F-61
<PAGE>
[This page intentionally left blank]
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE EXCHANGE
NOTES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE EXCHANGE NOTES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information......................... 2
Disclosure Regarding Forward-Looking
Statements................................... 2
Summary........................................ 3
Risk Factors................................... 18
Use of Proceeds................................ 21
The Exchange Offer............................. 21
Capitalization................................. 29
Unaudited Pro Forma Consolidated Financial
Information.................................. 30
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of the Mortuary and the Cemetery............. 39
Business....................................... 44
Management..................................... 51
Principal Shareholders......................... 53
Certain Related Transactions................... 54
Description of Bank Credit Facilities.......... 56
Description of Exchange Notes.................. 58
Book Entry; Delivery and Form.................. 84
United States Federal Income Tax
Consequences................................. 86
Plan of Distribution........................... 86
Legal Matters.................................. 87
Experts........................................ 87
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------
Until , 1997 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PROSPECTUS
ROSE HILLS COMPANY
(FORMERLY KNOWN AS ROSE HILLS
ACQUISITION CORP.)
OFFER TO EXCHANGE
$80,000,000 OF ITS 9 1/2%
SENIOR SUBORDINATED NOTES DUE
2004 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES
ACT FOR $80,000,000 OF ITS
OUTSTANDING 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2004
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the 'DGCL') provides
for, among other things:
a. permissive indemnification for expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by designated
persons, including directors and officers of a corporation, in the event
such persons are parties to litigation other than stockholder derivative
actions if certain conditions are met;
b. permissive indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to stockholder
derivative actions if certain conditions are met;
c. mandatory indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are successful on the merits or
otherwise in litigation covered by a. and b. above; and
d. that the indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights which may be provided under any
by-law, agreement, stockholder or disinterested director vote, or
otherwise.
The Company's By-Laws provide that:
'Section 1. Indemnity Undertaking. To the fullest extent permitted by
law (including, without limitation, Section 145 of the General Corporation
Law of the State of Delaware (as amended from time to time, the 'General
Corporation Law')), the Corporation shall indemnify any person who is or
was made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding (a 'Proceeding'), whether civil,
criminal, administrative or investigative, including, without limitation,
an action by or in the right of the Corporation to procure a judgment in
its favor, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a Director or officer of the
Corporation, or is or was serving in any capacity at the request of the
Corporation for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise (an 'Other Entity'), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements).
Persons who are not Directors or officers of the Corporation may be
similarly indemnified in respect of service to the Corporation or to an
Other Entity at the request of the Corporation to the extent the Board of
Directors at any time specifies that such persons are entitled to the
benefits of this [Article].
Section 2. Advancement of Expenses. The Corporation shall, from time
to time, reimburse or advance to any Director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in
connection with any Proceeding, in advance of the final disposition of such
Proceeding; provided, however, that, if required by the General Corporation
Law, such expenses incurred by or on behalf of any such Director, officer
or other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Corporation of an undertaking, by or on
behalf of such Director, officer or other person indemnified hereunder, to
repay any such amount so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right of appeal that
such Director, officer or other person is not entitled to be indemnified
for such expenses.
Section 3. Rights Not Exclusive. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant
to, this [Article] shall not be deemed exclusive of any other rights which
a person seeking indemnification or reimbursement or advancement of
expenses may have or to which such person hereafter may be entitled under
any statute, the Restated Certificate of Incorporation, these By-Laws, any
agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office.
II-1
<PAGE>
Section 4. Continuation of Benefits. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted
pursuant to, this [Article] shall continue as to a person who has ceased to
be a Director or officer (or other person indemnified hereunder) and shall
inure to the benefit of the executors, administrators, legatees and
distributees of any such person.
Section 5. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee
or agent of an Other Entity, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions
of this [Article] or the Restated Certificate of Incorporation or under
Section 145 of the General Corporation Law or any other provision of law.
Section 6. Binding Effect. The provisions of this [Article] shall be
a contract between the Corporation, on the one hand, and each Director and
officer who serves in such capacity at any time while this [Article] is in
effect and/or any other person indemnified hereunder, on the other hand,
pursuant to which the Corporation and each such Director, officer or other
person intend to be legally bound. No repeal or modification of this
[Article] shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon any such state of facts.
Section 7. Procedural Rights. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant
to, this [Article] shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of providing that such indemnification
or reimbursement or advancement of expenses is not appropriate shall be on
the Corporation. Neither the failure of the Corporation (including its
Board of Directors, its independent legal counsel and its stockholders) to
have made a determination prior to the commencement of such action that
such indemnification or reimbursement or advancement of expenses is proper
in the circumstances nor an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel and its
stockholders) that such person is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses incurred in connection
with successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
Section 8. Service Deemed at Corporation's Request. Any Director or
officer of the Corporation serving in any capacity (a) another corporation
of which a majority of the shares entitled to vote in the election of its
directors is held, directly or indirectly, by the Corporation or (b) any
employee benefit plan of the Corporation or any corporation referred to in
clause (a) shall be deemed, in each case, to be doing so at the request of
the Corporation.
Section 9. Election of Applicable Law. Any person entitled to be
indemnified or to receive reimbursement or advancement of expenses as a
matter of right pursuant to this [Article] may elect to have the right to
indemnification or reimbursement or advancement of expenses interpreted on
the basis of the applicable law in effect at the time of the occurrence of
the event or events giving rise to the applicable Proceeding, to the extent
permitted by law, or on the basis of the applicable law in effect at the
time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the
Corporation, at the time indemnification or reimbursement or advancement of
expenses is sought; provided, however, that if not such notice is given,
the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.'
The directors and officers of the Company are insured against certain civil
liabilities, including liabilities under federal securities laws, which might be
incurred by them in such capacity.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) See Index to Exhibits.
(b) All schedules are omitted as the required information is presented in
the registrants' consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the 'Securities Act');
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the 'Calculation of Registration
Fee' in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request; and
(5) To supply by means of a post-effective amendment all information
concerning the Exchange Offer that was not the subject of and included in
the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Whittier, California, on
February 7, 1997.
ROSE HILLS COMPANY
(formerly known as Rose Hills
Acquisition Corp.)
By: /s/ Kendall E. Nungesser
------------------------------------
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes
Kendall E. Nungesser and Chinh E. Chu, and each of them, with full power of
substitution and full power to act without the other, his or her true and lawful
attorney-in-fact and agent in his or her name, place and stead, to execute in
the name and on behalf of such person, individually and in each capacity stated
below, any and all amendments (including post-effective amendments) to this
Registration Statement and all documents relating thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and generally to do all such things in his
or her name and on his or her behalf in his or her respective capacities as
officers or directors of Rose Hills Company to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ------------------------------------------ ------------------
<S> <C> <C>
/s/ Kendall E. Nungeser President, Chief Executive Officer February 7, 1997
- ------------------------ (principal executive officer) and Director
Kendall E. Nungesser
/s/ Thomas J. Kelleher Chief Financial Officer (principal February 7, 1997
- ------------------------ financial officer; principal accounting
Thomas J. Kelleher officer)
/s/ Chinh E. Chu Secretary and Director February 7, 1997
- ------------------------
Chinh E. Chu
/s/ David I. Foley Director February 7, 1997
- ------------------------
David I. Foley
/s/ Howard A. Lipson Director February 7, 1997
- ------------------------
Howard A. Lipson
/s/ Douglas McKinnon Director February 7, 1997
- ------------------------
Douglas McKinnon
/s/ Lawrence Miller Director February 7, 1997
- ------------------------
Lawrence Miller
/s/ Dennis C. Poulsen Chairman and Director February 7, 1997
- ------------------------
Dennis C. Poulsen
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
2.1 -- Asset Purchase Agreement, dated as of September 19, 1996, by and between Rose Hills
Memorial Park Association and Tudor Acquisition Corp. (now known as the Rose Hills
Company).
2.2 -- Agreement and Plan of Merger, dated as of September 19, 1996, by and among the
Stockholders of Roses, Inc. and Tudor Acquisition Corp. (now known as the Rose Hills
Company).
2.3 -- Amendment to the Agreement and Plan of Merger dated as of November 18, 1996 by and
among Rose Hills Acquisition Corp. (now known as Rose Hills Company), Roses Inc., the
Stockholders of Roses Inc., and RH Mortuary Corporation.
3.1 -- Restated Certificate of Incorporation of Tudor Acquisition Corp. changing its name to
Rose Hills Acquisition Corp.
3.2 -- Certificate of Amendment of Certificate of Incorporation of Rose Hills Acquisition
Corp. changing its name to Rose Hills Company.
3.3 -- Amended and Restated By-Laws of Rose Hills Company.
4.1 -- Indenture dated as of November 15, 1996 between Rose Hills Acquisition Corp. and
United States Trust Company of New York, as Trustee.
4.2 -- Form of 9 1/2% Senior Subordinated Note due 2004 (included in Exhibit 4.1).
5 -- Opinion of Simpson Thacher & Bartlett regarding the legality of the Exchange Notes.
8 -- Opinion of Simpson Thacher & Bartlett regarding certain tax matters.
10.1 -- Stockholders' Agreement dated as of November 19, 1996 among Rose Hills Holdings Corp.,
Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Rose Hills
Offshore Capital Partners L.P., Blackstone Family Investment Partnership II L.P.,
Roses Delaware, Inc., Loewen Group International, Inc., and RHI Management Direct L.P.
10.2 -- Administrative Services Agreement dated as of November 19, 1996 between Rose Hills
Acquisition Corp. (now known as Rose Hills Company), The Loewen Group, Inc., and
Loewen Group International Inc.
10.3 -- Credit Agreement dated as of November 19, 1996 among Rose Hills Company, Rose Hills
Holdings Corp., Goldman, Sachs & Co., as syndication agent and arranging agent, the
financial institutions from time to time parties thereto as lenders and The Bank of
Nova Scotia, as administrative agent for such lenders.
10.4 -- Put/Call Agreement, dated as of November 19, 1996 among Blackstone Capital Partners II
Merchant Banking Fund L.P., Blackstone Rose Hills Offshore Capital Partners L.P.,
Blackstone Family Investment Partnership II L.P., Roses Delaware, Inc., Loewen Group
International, Inc., The Loewen Group Inc., and RHI Management Direct L.P.
10.5* -- Development and Use Agreement, as amended, dated as of March 1, 1994 between Rose
Hills Memorial Park Association and International Buddhist Progress Society.
10.6* -- Amended and Restated Employment Agreement dated December , 1996 by and between Rose
Hills Company and Kendall E. Nungesser.
10.7* -- Employment Agreement dated November 19, 1996 by and between RH Mortuary Corporation
and Dennis C. Poulsen.
10.8* -- Employment Agreement dated November , 1996 by and between Rose Hills Company and
Mark Helmintoller.
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
10.9* -- Non-Competition Agreement dated as of November 19, 1996, between RH Mortuary
Corporation and Kendall E. Nungesser.
10.10* -- Non-Competition Agreement dated as of November 19, 1996 between RH Mortuary
Corporation and Dennis C. Poulsen.
10.11* -- Non-Competition Agreement dated as of November 19, 1996 between RH Mortuary
Corporation and Sandy V. Durko.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of Rose Hills Company (formerly known as Rose Hills Acquisition Corp.).
23.1 -- Consent of Simpson Thacher & Bartlett (included in Exhibits 5 and 8).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of KPMG.
24 -- Power of Attorney (included on page II-4 of the Registration Statement).
25 -- Statement of Eligibility on Form T-1 of United States Trust Company of New York.
27 -- Financial Data Schedule.
99.1 -- Registration Rights Agreement dated as of November 15, 1996 between Rose Hills
Acquisition Corp. and Smith Barney Inc.
99.2 -- Form of Letter of Transmittal.
99.3 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
ASSET PURCHASE AGREEMENT
by and between
Rose Hills Memorial Park Association
as "Seller,"
and
Tudor Acquisition Corp.
as "Buyer"
Dated: September , 1996
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
........................................................................... 1
1.1 Defined Terms................................................. 1
ARTICLE II
PURCHASE AND SALE OF ASSETS
........................................................................... 11
2.1 Transfer of Assets............................................ 11
2.2 Assumption of Liabilities..................................... 11
2.3 Excluded Liabilities.......................................... 12
2.4 Deposit; Purchase Price....................................... 12
2.5 Prorations.................................................... 14
2.6 Closing Costs; Transfer Taxes and Fees........................ 14
ARTICLE III
CLOSING............................... 15
3.1 Closing....................................................... 15
3.2 Conveyances at Closing........................................ 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
........................................................................... 16
4.1 Organization of Seller........................................ 16
4.2 Authorization................................................. 17
4.3 No Brokers.................................................... 17
4.4 No Other Agreements to Sell the Assets........................ 17
4.5 No Breach..................................................... 17
4.6 Title and Condition of Assets................................. 17
4.7 Real Property................................................. 18
4.8 Workman Mill Investment Company............................... 18
4.9 Environmental Issues.......................................... 19
4.10 Contracts..................................................... 19
4.11 Cemetery Preneed Accounts and Trust Funds..................... 20
i
<PAGE>
Page
4.12 Permits....................................................... 20
4.13 Consents...................................................... 20
4.14 Compliance with Regulations................................... 20
4.15 OSHA, ADA and FTC............................................. 20
4.16 Political Contributions and Other Payments.................... 21
4.17 Ordinary Course of Business................................... 21
4.18 Litigation.................................................... 21
4.19 Financial Statements.......................................... 21
4.20 Accounts Receivable........................................... 21
4.21 Inventory..................................................... 21
4.22 Employee Benefits and Plans................................... 22
4.23 Insurance..................................................... 22
4.24 Grave Spaces.................................................. 22
4.25 Taxes......................................................... 22
4.26 Rights and Titles to Water Rights............................. 22
4.27 Reclaimed Water Agreement..................................... 22
4.28 Compliance with the Adjudication.............................. 22
4.29 Pre-Existing Entity........................................... 23
4.30 Beneficial Ownership.......................................... 23
4.31 Acquisition Without View to Distribute........................ 23
4.32 Access to Information......................................... 23
4.33 Additional Representations of Seller.......................... 23
4.34 Condemnation.................................................. 23
4.35 Deferred Merchandise Liability................................ 23
4.36 No Employees.................................................. 23
4.37 Full Disclosure............................................... 23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER........... 24
5.1 Organization of Buyer......................................... 24
5.2 Authorization................................................. 24
5.3 No Breach..................................................... 24
5.4 Consents and Approvals........................................ 24
5.5 No Brokers.................................................... 25
5.6 [Reserved].................................................... 25
5.7 Regulatory Authority.......................................... 25
5.8 [Reserved].................................................... 25
5.9 No Opposition to Development.................................. 25
5.10 No Litigation................................................. 25
5.11 Business Experience, Investigation and Access to Data......... 25
5.12 Roses, Inc. Agreement......................................... 25
5.13 Financing Commitments......................................... 26
ARTICLE VI
ii
<PAGE>
Page
COVENANTS OF SELLER AND BUYER............... 26
6.1 Further Assurances............................................ 26
6.2 HSR........................................................... 26
6.3 Notification of Certain Matters............................... 27
6.4 Investigation by Buyer........................................ 27
6.5 Conduct of Business........................................... 28
6.6 Endowment Care Fund........................................... 29
6.7 Maintenance of the Cemetery................................... 29
6.8 [Reserved].................................................... 29
6.9 Completion of Construction of Sky Rose Chapel and
Buddhist Pagoda Infrastructure................................ 29
6.10 Title Insurance............................................... 29
6.11 Preneed Contracts and Trust Funds............................. 30
6.12 Letter of Credit.............................................. 30
6.13 Satisfaction of Conditions.................................... 31
6.14 Assistance in Financing....................................... 31
6.15 [Reserved].................................................... 31
6.16 Resignation and Replacement of Trustees of Endowment Care Fund 32
6.17 Restrictions on Transfer of the Loewen Shares................. 32
6.18 Restrictive Legend............................................ 32
6.19 Termination of Restrictions on Transferability................ 33
6.20 Waiver of Right of First Refusal.............................. 33
6.21 Additional Options to Purchase................................ 33
6.22 Preneed Contracts and Trust Funds............................. 33
6.23 Trustees' and Executives' Retirements......................... 34
6.24 "Top-Hat" Statements.......................................... 34
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS................ 34
7.1 Representations, Warranties and Covenants..................... 34
7.2 Consents; Regulatory Compliance and Approval.................. 34
7.3 No Actions or Court Orders.................................... 35
7.4 Opinion of Counsel............................................ 35
7.5 Certificates.................................................. 35
7.6 Corporate Documents........................................... 35
7.7 Assumption Document........................................... 35
7.8 Ancillary Agreements.......................................... 35
7.9 The Roses, Inc. Agreement..................................... 35
7.10 Ability to Establish Charitable Foundation.................... 35
7.11 [Reserved].................................................... 35
7.12 Share Issuance and Registration Rights Agreement.............. 35
7.13 Loewen Guaranty............................................... 35
ARTICLE VIII........................................................... 36
8.1 Representations, Warranties and Covenants..................... 36
iii
<PAGE>
Page
8.2 Consents; Regulatory Compliance and Approval................. 36
8.3 No Actions or Court Orders.................................... 36
8.4 Opinion of Counsel to Seller.................................. 36
8.5 Certificates.................................................. 36
8.6 No Material Adverse Change.................................... 37
8.7 Corporate Documents........................................... 37
8.8 Conveyancing Documents; Release of Encumbrances............... 37
8.9 Ancillary Agreements.......................................... 37
8.10 Tax Clearance Certificate..................................... 37
8.11 Nonforeign Affidavit.......................................... 37
8.12 Roses, Inc. Agreement......................................... 37
8.13 Financing..................................................... 37
8.14 No Other Obligations.......................................... 37
8.15 Title Policy.................................................. 37
8.16 Resignation and Replacement of Trustees of
Endowment Care Fund........................................... 37
8.17 Certificate................................................... 38
8.18 Retirement of Trustees........................................ 38
ARTICLE IX
RISK OF LOSS; CONSENTS TO ASSIGNMENT
........................................................................... 38
9.1 Damage or Destruction Prior to Closing........................ 38
9.2 Consents to Assignment........................................ 38
ARTICLE X
ACTIONS BY SELLER AND BUYER
AFTER THE CLOSING
........................................................................... 39
10.1 Use of Rose Hills Name........................................ 39
10.2 Books and Records............................................. 39
10.3 Survival of Representations and Warranties.................... 39
10.4 Indemnification............................................... 39
ARTICLE XI
MISCELLANEOUS
........................................................................... 43
11.1 Termination................................................... 44
11.2 Assignment.................................................... 44
11.3 Notices; Transfer of Funds.................................... 44
11.4 Choice of Law................................................. 46
iv
<PAGE>
11.5 Entire Agreement; Amendments and Waivers...................... 46
11.6 Multiple Counterparts......................................... 46
11.7 Expenses...................................................... 46
11.8 Invalidity.................................................... 46
11.9 Titles; Gender................................................ 46
11.10 Publicity..................................................... 46
11.11 Confidential Information...................................... 47
11.12 Bulk Sales Law................................................ 48
11.13 Cumulative Remedies........................................... 48
11.14 Other Agreements.............................................. 48
11.16 Non-Foreign Status and California Residency................... 50
11.17 Tank 7 Parcel................................................. 50
v
<PAGE>
Exhibits
A - License Agreement
B - Transition Services Agreement
C - Option Agreement
D - Water Rights Agreement
E - Easement Agreement
F - Grave Dirt Storage LicenseAgreement
G - Share Purchase and Registration Rights Agreement
H - Title Commitments
I - IRS Form 8594 J - Deed K - Bills of Sale
J - Deed
K - Bills of Sale
L - Assignments of Leases
M - Assignments of Contract Rights
N - Assignments of Patents and Trademarks, etc.
O - Assumption Agreement
P - Future Development Memorandum
vi
<PAGE>
Schedules
1.1 Buddhist Pagoda Infrastructure
1.2 Sky Rose Chapel Project
4.1 Subsidiaries
4.2 Authorization
4.6 Fixtures and Equipment and Excluded Fixtures and Equipment
4.7 Real Properties
4.8 Workman Investment Company Liabilities
4.9 Environmental Issues
4.10 Contracts/Rights/Leases
4.11 Cemetery Preneed Accounts
4.12 Permits
4.13 Consents
4.15 OSHA, ADA and FTC Compliance
4.18 Litigation
4.20 Variations in Accounts Receivable
4.21 Variations in Inventory
4.23 Insurance
4.26 Water Well Rights
4.28 Water Rights
5.5 Brokers
vii
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of September , 1996, is by
and between Tudor Acquisition Corp., a Delaware corporation ("Buyer"), and Rose
Hills Memorial Park Association, a California nonprofit mutual benefit
corporation ("Seller").
RECITALS
A. Seller owns certain assets which it uses in the conduct of the
Business (as defined below).
B. Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, such assets upon the terms and subject to the conditions of this
Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Action" shall mean any action, claim, suit, litigation, proceeding,
labor dispute, arbitral action, governmental audit, inquiry, criminal
prosecution, investigation, or suit.
"Adjudication" means that certain Amended Judgment dated August 24,
1989 in the matter entitled Upper San Gabriel Valley Municipal Water District
vs. City of Alhambra, et al, Docket No. 924128 in the Superior Court of the
State of California, for the County of Los Angeles, as to which Seller and
Workman Mill Investment Company are parties, and the rules and regulations of
the Watermaster established pursuant thereto.
"Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"Ancillary Agreements" shall mean (a) the License Agreement for Use
of the Name "Rose Hills," (b) the Transition Services Agreement, (c) the Option
Agreement, (d) the Water Rights Agreement, (e) the Easement Agreement and (f)
the Grave Dirt Storage License Agreement, substantially in the forms attached
hereto as Exhibits A, B, C, D, E and F respectively.
<PAGE>
"Assets" shall mean all of the right, title and interest in and to
the properties, assets and rights of any kind, wheresoever located,whether
tangible or intangible, real or personal, and shall be limited to those
properties, assets and rights constituting, or used in connection with, or
related to, the Business and owned by Seller or in which Seller has any
interest, including, but not limited to, all of Seller's right, title and
interest in the following:
(a) accounts and notes receivable (whether current or noncurrent),
refunds, deposits, prepayments or prepaid expenses and unbilled costs and fees
(including without limitation any prepaid insurance premiums other than for
directors and officers' insurance policies) of Seller;
(b) Seller's interest in the Endowment Care Fund;
(c) the names "Rose Hills Memorial Park", "Rose Hills" and the
corresponding logos and all trade names under which Seller does business in
connection with the Cemetery, together with the goodwill of the Business
appertaining thereto;
(d) all Contract Rights, to the extent transferable;
(e) all Leases;
(f) all Real Property;
(g) all Facilities;
(h) all Fixtures and Equipment;
(i) all Inventory;
(j) all Books and Records;
(k) all Proprietary Rights relating to the Business;
(l) all Permits to the extent transferable;
(m) all computer hardware and, to the extent transferable, computer
software;
(n) all insurance policies other than the Directors and Officers'
policy;
(o) all (100%) of the capital stock of Workman Mill Investment
Company;
(p) all Water Rights;
(q) all available supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units, telephone and
fax numbers and purchasing records related to the Business;
2
<PAGE>
(r) all rights under, or pursuant to, all warranties, representations
and guarantees made by third parties in connection with the Assets or services
furnished to Seller pertaining to the Business or affecting the Assets, to the
extent such warranties, representations and guarantees are assignable;
(s) subject to Section 2.5, all deposits and prepaid expenses of the
Business paid by Seller;
(t) the Sky Rose Chapel;
(u) the Buddhist Pagoda Infrastructure; and
(v) all claims, causes of action, rights of recovery and rights of
set-off of any kind, against any person or entity, including, but not limited
to, any liens, security interests, pledges or other rights to payment or to
enforce payment in connection with products delivered or services provided by
Seller on or prior to the Closing Date, but excluding therefrom the Excluded
Assets; and
(w) Seller's rights in the Industry Wide Funeral Service Trust and
Sinking Fund.
"Audited Financial Statements" shall mean the consolidated financial
statements of Seller for the years ended December 31, 1994, (the "1994 Financial
Statements"), and December 31, 1995 (the "1995 Financial Statements"), both as
audited by KPMG Peat Marwick LLP ("KPMG"), which include balance sheets as of
such dates and related statements of income, net assets and cash flows for the
fiscal years then ended, the notes thereto, and the audit reports of KPMG with
respect thereto, prepared in accordance with generally accepted accounting
principles ("GAAP").
"Sinking Fund" shall mean the bond sinking fund established pursuant
to that certain Indenture by and between Seller and Title Insurance and Trust
Company, dated as of June 15, 1960, as amended and supplemented.
"Books and Records" shall mean (a) all records and lists of Seller
pertaining to the Assets, (b) all records and lists pertaining to the Business,
customers, suppliers or personnel of Seller, (c) all product, business and
marketing plans of Seller pertaining to the Business and (d) all books, ledgers,
files, reports, plans, drawings and operating records of Seller pertaining to
the business, but excluding the originals of Seller's minute books and tax
returns.
"Buddhist Pagoda Infrastructure" shall mean that project described on
Schedule 1.1 hereto.
"Building and Related Contracts" shall mean the construction,
engineering, architectural and other contracts for the Sky Rose Chapel and the
Buddhist Pagoda Infrastructure and change orders related thereto, all as
identified on Schedule 4.10.
"Business" shall mean only the Seller's business of the management,
operations, development and sales of the Cemetery as heretofore conducted by
Seller or on Seller's behalf. All other business of Seller conducted by or
through any of the Excluded Assets or operations relating thereto shall be
excluded from this Agreement.
3
<PAGE>
"Cemetery" shall mean Rose Hills Memorial Park in Whittier,
California comprised of all Real Property as herein defined, together with all
the Assets used in the conduct of the Business.
"Closing Date" shall mean Tuesday, November 26, 1996 or such other
date as Buyer and Seller shall mutually agree upon.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
"Confidentiality Agreement" shall mean that certain Confidentiality
Agreement dated July 25, 1995, as amended February 1, 1996 by and among Seller,
Loewen and Operator.
"Consent" shall mean any consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
governmental authority or other Person.
"Contract" shall mean any agreement, contract, note, loan, evidence
of indebtedness, purchase order, letter of credit, indenture, security or pledge
agreement, franchise agreement, undertaking, practice, covenant not to compete,
employment agreement, license, instrument, obligation or commitment to which
Seller is a party or by which Seller is bound and which relates to the Business
or the Assets, whether oral or written, including, in particular, but without
limitation, the Building and Related Contracts and all Leases.
"Contract Rights" shall mean all of Seller's rights and obligations
under the Contracts listed on Schedule 4.10 and under any contracts or
agreements not so listed which Buyer shall assume pursuant to this Agreement.
"Copyrights" shall mean registered copyrights, copyright applications
and unregistered copyrights.
"Court Order" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"Default" shall mean a breach of or default under any Contract or
Lease.
"Development Fund" shall mean that fund of Seller established in
connection with the sale of Operator in 1990 as described in the 1995 Financial
Statements under the captions "Cash"; "Cash Equivalents" and "Marketable
Securities", which at December 31, 1995 was, in the aggregate, approximately
$45,000,000.00
"Disclosure Schedule" shall mean a schedule executed and delivered by
Seller to Buyer as of the date hereof which sets forth the exceptions to the
representations and warranties contained in Article IV hereof and certain other
information called for by this Agreement. Unless otherwise specified, each
reference in this Agreement to any numbered schedule is a reference to that
numbered schedule which is included in the Disclosure Schedule.
4
<PAGE>
"Easement Agreement" shall mean the agreement between Seller and
Buyer whereby Seller shall grant to Buyer an easement for maintenance of
underground water facilities under and across a portion of the Gate Two Property
in the form attached hereto and Exhibit E.
"Employee Plans" shall mean all employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
and all severance, bonus, retirement, pension, profit sharing and deferred
compensation plans and other similar fringe or employee benefit plans, programs
or arrangements, and all employment or compensation agreements, written or
otherwise, for the benefit of or relating to any employee or former employee of
Seller.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"Endowment Care Fund" shall mean that legal entity formed pursuant to
applicable California Regulation which holds cash and cash equivalents and
marketable securities which are segregated and maintained by Seller as reflected
in the Books and Records, and as required by California law to provide for the
continuing care and maintenance of the Cemetery.
"Environmental Damages" shall mean any and all losses which are
incurred at any time as a result of the existence at or prior to the Closing
Date of Hazardous Materials upon, about or beneath the Real Property or
migrating to or from the Real Property, or the existence of a violation of
Environmental Requirements pertaining to the Real Property, regardless of
whether the existence of such Hazardous Materials or the violation of
Environmental Requirements arose prior to the present ownership or operation of
the Real Property.
"Environmental Requirements" shall mean all applicable Regulations of
any governmental authority relating to the protection of human health or the
environment, including (a) all requirements pertaining to reporting, licensing,
permitting, investigation, and remediation of emissions, discharges, releases or
threatened releases of Hazardous Materials; (b) all requirements pertaining to
the protection of the health and safety of employees or the public; and (c) all
other limitations, restrictions, conditions, standards, prohibitions,
obligations, schedules and timetables contained therein or in any notice or
demand letter issued, entered, promulgated or approved thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Excluded Assets," which are not to be acquired by Buyer hereunder,
notwithstanding any other provision of this Agreement, shall mean (i) all assets
of the Seller specifically excluded herein and (ii) all assets of the Seller not
related to the Business, including, but not limited to, the following:
(a) the stock and assets (except for the stock of Workman Mill
Investment Company which is being acquired by Buyer) of Murrieta Hills, Inc.
including the Murrieta Property;
5
<PAGE>
(b) Turnbull Canyon Property;
(c) Sun City Property;
(d) Gate Two Property, subject to the Gate Two Property Option;
(e) all real estate holdings of Seller not specifically described on
Schedule 4.7 hereto;
(f) all securities held for investment, cash and cash equivalents
owned by Seller and Workman Mill Investment Company, including, but not limited
to, the Development Fund, but excluding the Endowment Care Fund, the Industry
Wide Funeral Service Trust and Sinking Fund;
(g) all Permits, to the extent not transferable;
(h) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind against any person or entity arising
out of or relating to the Assets to the extent related to the Excluded
Liabilities or other Excluded Assets;
(i) the Murrieta Hills Note Receivable;
(j) the Fixtures and Equipment described on Schedule 4.6 hereto,
specifically identified as Excluded Assets;
(k) the Directors and Officers' insurance policy of the Seller; and
(l) all other personal property, books and records specifically
identifiable to and specifically related to the foregoing assets.
"Facilities" shall mean all offices, stores, chapels, mausoleums,
crematories, warehouses, administration buildings, and all other improvements of
any kind located on or attached to the Real Property.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment,
molds, patterns and other tangible personal property owned by Seller and used in
connection with the Business or owned by Workman Mill Investment Company,
wherever located and including any such Fixtures and Equipment in the possession
of any of Seller's suppliers, including all warranty rights, if any, with
respect thereto.
"Gate Two Property" shall mean the approximately seventy and one half
(70-1/2) acres of land owned by Seller located north of Workman Mill Road in
Whittier, California, as more particularly described in the Option Agreement.
"Gate Two Property Option" shall mean the option granted by Seller to
Buyer to purchase the Gate Two Property as more fully set forth in the Option
Agreement.
6
<PAGE>
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
"Hazardous Materials" shall mean any substances (a) classified as
"hazardous" pursuant to (i) the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 USC 9601, et seq., the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and
Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 et seq., the Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC
1251 et seq., the Clean Air Act of 1966, as amended, 42 USC 7401 et seq., the
Toxic Substances Control Act of 1976, 15 USC 2601 et seq., or the Hazardous
Materials Transportation Act, 49 USC 5101 et seq., and (ii) the California
Health and Safety Code, ss.25100, et seq. and ss.39000, et seq.; (b)
asbestos-containing construction materials; (c) polychlorinated biphenyls; and
(d) petroleum, including crude oil or any fraction thereof, natural gas, natural
gas liquids, liquified natural gas or synthetic gas usable for fuel.
"Industry Wide Funeral Service Trust" shall mean the funeral service
trust fund established pursuant to that certain Funeral Service Trust Agreement
by and among certain cemetery and/or mortuary companies (including Seller) and
R.L. McNitt, Jr, Frederick E. Llewellyn, Theodore Kimche, John C. Gordon and
John W. Morrow, dated as of November 11, 1977.
"Interim Financial Statements" shall mean the unaudited consolidated
financial statements of Seller for the five (5) month period ended May 31, 1996,
comprised of a balance sheet as at such date and related statement of income and
cash flows for the period then ended, prepared by Seller in accordance with
GAAP.
"Inventory" shall mean all markers, crypts, vaults, monuments and
other inventory used in the conduct of the Business and owned by Seller.
"LGII" shall mean Loewen Group International, Inc., a Delaware
corporation.
"Leases" shall mean all of the existing leases with respect to the
real or personal property of Seller and Workman Mill Investment Company listed
on Schedule 4.10.
"Liabilities" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"License Agreement" shall mean the agreement pursuant to which Buyer
shall enable Seller to use the name "Rose Hills" and all logos in connection
therewith as a private foundation, except in connection with the ownership, use
and operation of the Murrieta Hills Property.
"LOC Payment" shall mean the $16,100,000.00 proceeds of a drawing on
the Letter of Credit as defined in Section 6.12 hereof.
"Loewen" shall mean The Loewen Group, Inc., a British Columbia
corporation.
7
<PAGE>
"Loewen Shares" shall mean the shares of the common capital stock of
Loewen provided for in Section 2.4(a)(ii) hereof.
"Material Adverse Effect" or "Material Adverse Change" shall mean,
individually or in the aggregate, any material adverse effect upon or material
adverse change in the following items, in either case taken as a whole: (a) the
financial condition or results of operations of Seller and the Operator and/or
its Affiliates, or (b) the condition or going concern value of (i) the Business
and the Assets (other than the Excluded Assets) of Seller, and (ii) the Business
and the Assets of the Operator and/or its Affiliates.
"Mortgages" shall mean all deeds of trust, mortgages or other debt
encumbrances on the Real Property.
"Murrieta Hills" shall mean Seller's wholly-owned subsidiary,
Murrieta Hills Holdings, Inc., a California corporation which holds title
through Murrieta Hills, Inc., a California corporation, to real property in
Riverside County, California and all other assets associated with such real
property.
"Murrieta Hills Cemetery Property" shall mean the 185 acres (more or
less) of land owned by Seller and located in Riverside County, California.
"Murrieta Hills Note Receivable" shall mean all amounts owed by
Murrieta Hills to Seller in connection with the Promissory Note dated
___________, 199_, in the original principal amount of $13,000,000, issued by
Murrieta Hills in favor of Seller.
"Net Operating Capital" shall mean as of any date, the difference
between (a) the sum of (i) Total Receivables (comprised of short term and long
term Customers Accounts Receivables, less the Allowance for Sales Cancellations,
Allowance for Doubtful Accounts and Endowment Care Charges, plus Due from
Endowment Care Fund and Other Receivables but excluding any Accounts Receivable
from (A) Roses, Inc. or any of its Affiliates, (B) any affiliates of the Seller,
(C) Latham & Watkins, and (D) the International Buddhist Protective Society) and
(ii) Inventories - Interment, Funeral and Other and (b) the sum of (x) Accounts
Payable, (y) Accrued Expenses but excluding any deferred income from Latham &
Watkins and any accrual for income taxes, and (z) Due to Endowment Care Fund, as
reflected on the balance sheet of Seller.
"No Shop Payment" shall mean the $1.0 million consideration paid to
Seller by LGII pursuant to that certain No Solicitation Agreement, dated July
15, 1996, among LGII, Seller and Operator.
"Operator" shall mean Rose Hills Mortuary, L.P., a Delaware limited
partnership.
"Option Agreement" shall mean the agreement between Seller and Buyer
relating to the Gate Two Property Option attached hereto as Exhibit C.
"Ordinary Course of Business" or "Ordinary Course" or any similar
phrase shall mean the ordinary course of the Business and consistent with
Seller's past custom and practice.
8
<PAGE>
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of the Business.
"Permitted Encumbrances" shall mean (a) with respect to the Real
Property (i) those exceptions shown on the Title Commitment(s) and all matters
reflected on the Survey(s), and (ii) all other exceptions approved or deemed
approved by Buyer pursuant to Section 6.10 below, and (b) with respect to all
other Assets (i.e., other than the Real Property), minor liens which in the
aggregate are not substantial in amount, do not materially detract from the
value or transferability of the property or assets subject thereto or interfere
with the present use thereof and have not arisen other than in the ordinary
course of business.
"Person" shall mean any individual, firm, corporation, partnership,
trust, estate, association or other entity.
"Preneed Contracts" shall mean all express written contracts and
commitments (including debentures) relating to the provision or sale of preneed
cemetery merchandise, properties or services (including but not limited to
burials, openings and closings, and perpetual care services) and any insurance
policy, plan, deposit, prepaid amount, trust fund, endowment care or trust
agreement or sinking fund relating to such contracts and commitments and any
similar items entered into or obtained by the Seller in the ordinary and usual
course of the conduct of the Business.
"Proprietary Rights" shall mean all of Seller's Copyrights,
Trademarks, technology rights and licenses, computer software (including without
limitation any source or object codes therefor or documentation relating
thereto), trade secrets, franchises, know-how, inventions, designs,
specifications, plans, drawings and intellectual property rights, including all
registrations, applications and common-law rights related thereto, all rights to
obtain renewals, reissues and extensions of registrations or other legal
protections related thereto, and all rights to sue at law or in equity for any
infringement, misappropriation or other impairment or violation thereof
occurring prior to the Closing Date.
"Real Property" shall mean that real property of Seller and Workman
Mill Investment Company subject of this Agreement as described and depicted on
Schedule 4.7 hereto.
"Reclaimed Water Agreement" shall mean that certain agreement dated
September 9, 1992 between Seller and County Sanitation District No. 2 of Los
Angeles County.
"Registration Rights Agreement" shall mean that certain agreement
between Buyer and the Seller relating to the Loewen Shares attached hereto as
Exhibit "G"
"Regulations" shall mean any laws, statutes, ordinances, regulations,
court decisions, principles of law and orders of any foreign, federal, state or
local government and any other governmental department or agency, including
without limitation Environmental Requirements, those governing the use,
operation and disposition of cemeteries, the establishment of trust funds, the
withholding of funds to be placed in escrow or trust with respect to pre-need
contracts, or otherwise, energy, motor vehicle safety, public utility, zoning,
subdivision, building and health codes, occupational safety and health and laws
9
<PAGE>
respecting employment practices, employee documentation, terms and conditions of
employment and wages and hours.
"Representative" shall mean any officer, director, trustee,
principal, attorney, agent, employee or other representative.
"Roses, Inc." shall mean Roses, Inc., a California corporation.
"Roses, Inc. Agreement" shall mean that certain Agreement and Plan of
Merger between Roses, Inc., the Shareholders of Roses, Inc. and Buyer dated
September 17, 1996.
"Securities Act" shall mean the Securities Act of 1933, as amended
and the general rules and regulations thereunder.
"Shared Facilities Agreement" shall mean that Shared Facilities
Agreement by and among PDN, Inc., a California corporation, Seller and Operator,
effective May 2, 1990.
"Sky Rose Chapel" shall mean that project described on Schedule 1.2
hereto.
"Sun City Property" shall mean the 7.8 acres (more or less) of land
owned by Seller and located in Sun City, California.
"Surveys" shall mean those certain surveys with respect to the Real
Property and prepared by Psomas and Associates and Salit and Associates in
compliance with all applicable ALTA requirements and as may otherwise be
required to enable the Title Company to issue the Title Commitments without the
so-called standard printed exceptions for matters disclosed by an accurate
survey.
"Tax" shall mean any federal, state, local, foreign or other tax,
levy, impost, fee, assessment or other government charge, including without
limitation income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any premium, including without
limitation interest, penalties and additions in connection therewith.
"Tax Returns" shall mean all returns, reports, declarations, and
information returns and statements relating to Taxes, including any amendments
thereto.
"Title Company" shall mean First American Title Company of Los
Angeles or such other title insurance company as may hereafter be acceptable to
both Buyer and Seller.
"Title Commitments" shall mean those certain binding commitments from
the Title Company in the form attached hereto as Exhibit H, pursuant to which
Title Company agrees to issue to Buyer on the Closing Date an ALTA Extended
Coverage Owner's Policy(ies) of Title Insurance (in current form), insuring that
fee simple title to the Real Property is vested in Buyer or Workman Mill, as the
case may be, in the full amount of the Purchase Price allocated to the Real
Property.
10
<PAGE>
"Trademarks" shall mean all trademarks, service marks, trade names,
service names, corporate names, logos, trade dress, and other words,
designations, labels, symbols or designs, including the names "Rose Hills
Memorial Park" and "Rose Hills" and related logos, together with the good will
of Seller's business appertaining thereto.
"Transition Services Agreement" shall mean that certain instrument
defining the rights, duties and obligations of Buyer and Seller in connection
with certain services to be provided by Buyer for the benefit of Seller
following the Closing Date.
"Turnbull Canyon Property" shall mean the real estate owned by Seller
consisting of all of the land to the east/northeast of the Cemetery, which is
not included in the Real Property and which has been dedicated for cemetery
purposes under California law but is not covered by a conditional use permit
allowing it to be used as a cemetery.
"Trustees' and Executives' Pension Plans" shall mean those pension
plans covering the present and retired members of Seller's board of trustees and
retired executives of the Seller and their respective spouses, as the case may
be, which are currently maintained and contributed to by Seller.
"Water Rights" shall mean all of the right, title and interest of (a)
Seller and/or Workman Mill Investment Company in the Adjudication and to those
certain four (4) wells located on or adjacent to the Real Property, and (b)
Seller under and pursuant to the Reclaimed Water Agreement.
"Water Rights Agreement" shall mean the agreement between Buyer and
Seller pursuant to which Buyer shall provide water to Seller following the
Closing.
"Workman Mill Investment Company" shall mean Workman Mill Investment
Company, a California corporation, and wholly-owned water company subsidiary of
Murrieta Hills.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Transfer of Assets. Upon the terms and subject to the conditions
contained herein, at the Closing Date, Seller will sell, convey, transfer,
assign and deliver to Buyer, and Buyer will acquire from Seller, the Assets,
free and clear of all Encumbrances other than Permitted Encumbrances.
2.2 Assumption of Liabilities. Upon the terms and subject to the conditions
contained herein, at the Closing Date, Buyer shall assume all liabilities of
Seller in existence as of the Closing Date relating to the Assets and the
Business, except for the Excluded Liabilities (defined in Section 2.3 below),
including without limitation, the following liabilities of Seller;
(a) All Liabilities of the Business asserted after the Closing Date
and arising out of the operation of the Business conducted by Buyer after the
Closing Date;
11
<PAGE>
(b) All Liabilities accruing, arising out of, or relating to events
or occurrences happening before or after the Closing Date under the Contracts
and Leases listed on Schedule 4.10;
(c) Subject to Section 2.5, all of Seller's accounts payable set
forth on the Interim Financial Statement or incurred after the date of the
Interim Financial Statement (i) in the ordinary course of business, (ii)
consistent with amounts historically incurred and (iii) in compliance with the
terms of this Agreement; and
(d) All Liabilities relating to the Trustees' and Executives' Pension
Plans.
All of the foregoing are referred to in this Agreement as the "Assumed
Liabilities".
2.3 Excluded Liabilities. Notwithstanding any other provision of this
Agreement, Buyer shall not assume, or otherwise be responsible for any Liability
to the extent such Liability (a) is related to or arises out of the Excluded
Assets, (b) involves the costs and expenses incurred in completing the Sky Rose
Chapel and the Buddhist Pagoda Infrastructure in compliance with the Building
and Related Contracts and Section 6.9, (c) is in the nature of a fee to a
broker, investment banker, attorney or other professional hired or retained by
Seller related to the sale of the Assets and the Business or other matters
relating to Seller's relationship with the Operator and its Affiliates, (d) is
in the nature of a Tax imposed against Seller, Workman Mill Investment Company
or the Endowment Care Fund, (e) is any indebtedness for borrowed money
(including associated accrued interest or prepayment penalties), (f) arises out
of any agreement, oral or written, between the Operator or any Affiliate and
Seller, (g) arises out of any pledge or similar commitment to a charitable
organization, or (h) is a liability of the Seller as set forth in Section 2.5
below (collectively the "Excluded Liabilities").
2.4 Deposit; Purchase Price.
(a) The purchase price for the sale, transfer, assignment, conveyance
and delivery of the Assets shall be an aggregate amount of $165.3 million plus
an amount equal to the principal balance as of the Closing Date of (A) the
Promissory Note from the Operator to Seller dated June 30, 1995 and (B) the
Promissory Note from the Operator to Seller dated April 29, 1993, subject to
adjustment as provided for in Section 2.4(b) (the "Purchase Price"). At the
Closing, upon the terms and subject to the conditions set forth herein, Buyer
shall pay the Purchase Price as follows:
(i) A credit equal to the sum of the cash actually
received by Seller from (x) the LOC Payment
and (y) the No Shop Payment.
(ii) Up to [$ ] million in the form of Loewen
Shares consisting of that number of Loewen
Shares which shall be equal to the greater of
[A] the result obtained by dividing the dollar
amount of the Purchase Price to be paid in
Loewen Shares by the average (mathematical
mean) of the last sale price (regular way) of
a share of Loewen Stock in the NASDAQ National
Market System (or the United States stock
exchange on which the Loewen Shares are then
traded) as reported in The Wall Street Journal
on each of the twenty (20) consecutive trading
days commencing October
12
<PAGE>
1, 1996, or [B] the dollar amount of the
Purchase Price to be paid in Loewen Shares
divided by [$32].
(iii) Cash in an amount equal to the difference
between the Purchase Price and paragraphs (i)
and (ii) above.
(b) The Purchase Price shall be decreased by an amount equal to the
amount, if any, by which Net Operating Capital on the Closing Date is less than
$6.55 million (the "Adjustment"). For purposes of the calculations in this
Section 2.4(b), each item comprising Net Operating Capital shall be determined
using the same methodology as was used to determine such item on the Interim
Financial Statements. The Adjustment shall consist of an Interim Adjustment and
a Post-Closing Adjustment as set forth below:
(i) The Interim Adjustment shall be the amount, if
any, by which the Net Operating Capital is
less than $6.55 million on the date of the
most recently available balance sheet (the
"Pre-Closing Balance Sheet") and shall reduce
the amount of the cash consideration payable
on the Closing Date pursuant to Section
2.4(a)(iii). Seller shall provide a copy of
the Pre-Closing Balance Sheet to Buyer no
later than five (5) business days prior to the
Closing Date which shall serve as the basis
for the calculation of the Interim Adjustment;
(ii) The Post-Closing Adjustment shall be the
amount, if any, by which the Adjustment
exceeds the Interim Adjustment. As promptly as
practicable but no later than thirty (30) days
after the Closing Date, Buyer shall cause to
be prepared a calculation as of the Closing
Date (the "Closing Date Calculation") which
shall serve as the basis for the calculation
of the Adjustment and the Post-Closing
Adjustment. Upon the availability of the
Closing Date Calculation, Buyer shall deliver
the Closing Date Calculation to Seller,
together with a certificate of the President
of Buyer to the effect that, to the best of
his knowledge, such Closing Date Calculation
is true and correct and has been prepared in a
manner consistent with the Interim Financial
Statements. Within five (5) days of delivering
the Closing Date Calculation, Seller shall pay
Buyer the Post- Closing Adjustment, if any.
(iii) In the event of any disagreement concerning
the Post-Closing Adjustment, each party shall
make available to the other such books and
records as are relevant to such disagreement
and are in the possession of such party, and
the parties shall work together in good faith
to resolve such disagreement. The portion of
the Post-Closing Adjustment, if any, as to
which the parties are unable to agree after
sixty (60) days shall be referred for
resolution to a nationally recognized
accounting firm, mutually and reasonably
acceptable to both parties. The determination
of such third party, whose costs and expenses
shall be borne equally by Seller and Buyer,
shall be final and determinative. Upon such
determination, Seller
13
<PAGE>
shall make any additional payment required to
be made, together with interest thereon.
(c) The Purchase Price and Assumed Liabilities shall be allocated
among the Assets in the manner required by Section 1060 of the Code and
regulations thereunder as determined by Buyer and Seller. Buyer and Seller agree
to each prepare and file on a timely basis with the Internal Revenue Service
substantially identical initial and supplemental Internal Revenue Service Forms
8594 "Asset Acquisition Statements Under Section 1060" consistent with Exhibit
I. Buyer and Seller agree to use such allocation for all purposes and shall not
make any inconsistent statement or adjustment on any Tax return or during the
course of any Tax audit.
2.5 Prorations.
Utilities and Taxes. On the Closing Date, or as promptly as
practicable following the Closing Date, but in no event later than sixty (60)
calendar days thereafter, the real and personal property taxes, water, gas,
electricity and other utilities, local business or other license fees or taxes,
if any, periodic charges payable with respect to the Assets or the Business
shall be prorated between Buyer and Seller effective as of 11:59 p.m. on the day
prior to the Closing Date. To the extent practicable, utility meter readings for
the Facilities shall be determined as of the Closing Date. If the real property
tax rate for the current tax year is not established by the Closing Date, the
prorations shall be made on the basis of the rate in effect for the preceding
tax year and shall be adjusted when the exact amounts are determined. All such
prorations shall be based upon the most recent available assessed value of any
Facility prior to the Closing Date. Seller shall be responsible for all charges
described in this Section 2.5 prior to the Closing Date, if any, and Buyer shall
be responsible for all such costs on and after the Closing Date.
2.6 Closing Costs; Transfer Taxes and Fees. Buyer shall be responsible for
one hundred percent (100%) of any documentary and transfer taxes and any sales,
use or other taxes imposed by reason of the transfers of Assets (except for
Taxes relating to Seller's gain, if any, on the sale of the Assets) provided
hereunder and any deficiency, interest or penalty asserted with respect thereto
and for fees and costs of recording or filing all applicable conveyancing
instruments described in Section 3.2(a). Buyer shall also pay all costs of
applying for new Permits and obtaining the transfer of existing Permits which
may be lawfully transferred. Except as otherwise provided for in Section 6.10,
(a) Buyer and Seller shall each pay one-half (1/2) of the (i) the costs,
expenses and premium for the ALTA Extended Coverage Owner's Policy(ies) of Title
Insurance to be issued by the Title Company at the Closing in accordance with
the Title Commitments and (ii) the cost of zoning, subdivision and map act,
non-imputation and comprehensive affirmative coverage endorsements relating to
the Real Property; provided, however, that the cost of all other affirmative
coverage endorsements to be issued in connection therewith shall be the sole
responsibility of Buyer, and (b) Buyer shall pay the costs and expenses related
to preparation of the Surveys.
14
<PAGE>
ARTICLE III
CLOSING
3.1 Closing. The Closing of the transactions contemplated herein (the
"Closing") shall be held at 9:00 a.m. local time on Tuesday November 26, 1996,
at the offices of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los
Angeles, California 90071 or as promptly as practicable thereafter following the
satisfaction of the conditions set forth in Sections 7.2, 8.2 and 8.13 (and
subject to the other conditions of Article VIII), provided, that any deferral of
the Closing Date beyond November 26, 1996 shall not affect Seller's rights under
Section 6.12 to draw upon the Letter of Credit in accordance with its terms, and
provided further, that any deferral of the Closing Date beyond December 13, 1996
shall not affect any party's rights to terminate this Agreement pursuant to
Section 11.1, unless the parties hereto otherwise agree. Notwithstanding
anything to the contrary in this Agreement, Buyer shall have the right, at its
sole and absolute discretion, to extend the Closing Date until December 13, 1996
without further cost, expense or other consideration.
3.2 Conveyances at Closing.
(a) Instruments and Possession. To effect the sale and transfer
referred to in Section 2.1 hereof, Seller will, at the Closing, execute and
deliver to Buyer:
(i) one or more deeds, in the form attached hereto as
Exhibit J, conveying fee simple title to all Real Property included in the
Assets to Buyer or its designee subject to the Permitted Encumbrances;
(ii) one or more bills of sale, in the form attached
hereto as Exhibit K, conveying in the aggregate all of Seller's owned personal
property included in the Assets;
(iii) [Reserved];
(iv) subject to Section 9.2, Assignments of Leases in the
form attached hereto as Exhibit L with respect to the Leases;
(v) subject to Section 9.2, Assignments of Contract
Rights, each in the form of Exhibit M attached hereto, with respect to the
Contract Rights;
(vi) Assignments of Patents and Trademarks and other
Proprietary Rights each in the form attached hereto as Exhibit N, in recordable
form to the extent necessary to assign such rights;
(vii) the Ancillary Agreements, substantially in the forms
attached hereto as Exhibits A, B, C, D, E and F;
(viii) such grant deeds, bills of sale, assignments and
other instruments as may be necessary in order to transfer and convey the Water
Rights from Seller and Workman Mill Investment Company to Buyer;
15
<PAGE>
(ix) stock transfer powers accompanied by certificates
representing all (100%) of the capital stock of Workman Mill Investment Company;
and
(x) such other instruments as shall be requested by Buyer
to vest in Buyer title in and to the Assets in accordance with the provisions
hereof.
(b) Assumption Document. Upon the terms and subject to the conditions
contained herein, at the Closing Buyer shall deliver to Seller an instrument of
assumption substantially in the form attached hereto as Exhibit O, evidencing
Buyer's assumption, pursuant to Section 2.2, of the Assumed Liabilities (the
"Assumption Document").
(c) Form of Instruments. To the extent that a form of any document to
be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Seller and Buyer.
(d) Certificates; Opinions. Buyer and Seller shall deliver the
certificates, opinions of counsel and other matters described in Articles VII
and VIII.
(e) Consents. Subject to Section 9.2, Seller shall deliver all
Permits and any other third party consents required for the valid transfer of
the Assets as contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
As used in this Agreement with respect to Seller, the term "best
knowledge" shall mean knowledge on the part of any trustee of the Seller after
such inquiry by them as is reasonable under the circumstances, including, but
not limited to, consultation where appropriate with the executive officers of
the Operator. In no event shall the knowledge of any employee, agent or
consultant of the Operator or of any agent or consultant of the Seller be
imputed to any trustee of the Seller unless such knowledge has been previously
communicated orally or in writing to such Trustee. "Knowledge" as used herein
with respect to Seller, shall mean the actual present knowledge of the trustees
of Seller, without investigation and without implying any duty to investigate.
Seller hereby represents and warrants to Buyer as follows, except as otherwise
set forth on the Disclosure Schedule, which representations and warranties are,
as of the date hereof, and will be, as of the Closing Date, true and correct:
4.1 Organization of Seller. Seller is a nonprofit mutual benefit corporation
duly organized, validly existing and in good standing under the laws of the
State of California with full corporate power and authority to conduct the
Business as it is presently being conducted and to own, lease and operate its
properties and assets. Copies of the Articles of Incorporation and Bylaws of
Seller, and all amendments thereto, heretofore delivered to Buyer are accurate
and complete as of the date hereof. Schedule 4.1 hereto correctly sets forth the
names, the forms of legal entity, jurisdictions of organization, and principal
places of business of all subsidiaries of the Seller.
16
<PAGE>
4.2 Authorization. Seller has all requisite corporate power and authority,
and has taken all corporate action necessary, to execute and deliver this
Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements by Seller and the consummation by Seller of the transactions
contemplated hereby and thereby have been duly approved by the board of trustees
of Seller. No other corporate proceedings on the part of Seller are necessary to
authorize this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby. Except as disclosed on Schedule 4.2, this
Agreement has been duly executed and delivered by Seller and is, and upon
execution and delivery each of the Ancillary Agreements will be, the legal,
valid and binding obligation of Seller enforceable against Seller in accordance
with its terms.
4.3 No Brokers. Except for Kerlin Capital Group, LLC (whose fees and
expenses shall be paid by Seller), which has acted as financial advisor for
Seller, neither Seller nor any of its respective trustees has employed or made
any agreement with any broker, finder or similar agent or any person or firm
which will result in the obligation of Buyer or any of its affiliates to pay any
finder's fee, brokerage fees or commission or similar payment in connection with
the transactions contemplated hereby.
4.4 No Other Agreements to Sell the Assets. Neither Seller nor any of its
respective trustees have any commitment or legal obligation, absolute or
contingent, to any other person or firm other than Buyer, to sell, assign,
transfer or effect a sale of any material amount of the Assets (other than
burial spaces, crypts or other cemetery commodities in the ordinary course of
business), to effect any merger, consolidation, liquidation, dissolution or
other reorganization of Seller, or to enter into any agreement or cause the
entering into of an agreement with respect to any of the foregoing.
4.5 No Breach. Neither the execution and delivery of this Agreement and the
Ancillary Agreements by Seller, nor the performance of Seller's obligations
hereunder or thereunder, will, in any respect, (a) violate, conflict with or
result in a breach of any Court Order, Regulation, or the Articles of
Incorporation or Bylaws of Seller, (b) violate, conflict with or result in a
breach or termination of, or otherwise give any contracting party additional
rights or compensation under, or the right to terminate or accelerate, or
constitute (with notice or lapse of time, or both) a default under the terms of,
any note, deed, lease, instrument, security agreement, mortgage, commitment,
contract, agreement, license or other instrument, whether written or oral,
express or implied, including, without limitation, the Assumed Liabilities, to
which Seller is a party or by which the Assets or Seller is bound, except where
such violation, conflict or breach would not be material, or (c) result in the
creation or imposition of any Encumbrances against the Assets other than
Permitted Encumbrances.
4.6 Title and Condition of Assets. Schedule 4.6 includes a correct and
complete list of all Fixtures and Equipment (including identification of certain
Excluded Assets owned, leased or used by Seller and Workman Mill Investment
Company where the net book value of an individual item exceeds $10,000. Seller
and/or Workman Mill Investment Company, as the case may be, has title to all of
the Fixtures and Equipment, free and clear of all Encumbrances. Seller has no
reason to believe that the Fixtures and Equipment are not (a) in good condition
and repair (subject to normal wear and tear), or (b) sufficient to permit Buyer
to conduct the Business as now conducted, subject to the performance of usual
and customary repair and maintenance and replacement in the ordinary course of
business. Other than the Real Property (which is more fully provided for in
Section 4.7), at the Closing, Buyer will acquire title to all of the Assets, in
each case free and clear of any and all Encumbrances except Permitted
Encumbrances.
17
<PAGE>
4.7 Real Property.
(a) Schedule 4.7 constitutes a complete and correct list of all Real
Property owned or used by Seller and Workman Mill Investment Company. Seller
does not lease any Real Property. Seller has delivered or caused to be delivered
to Buyer the Title Commitment representing evidence of Seller's and Workman Mill
Investment Company's ownership of the Real Property.
(b) At the Closing, Seller has and will transfer to Buyer fee simple
title to all Real Property free and clear of any Encumbrances except for
Permitted Encumbrances.
(c) Except for the Permitted Encumbrances and the Leases, there are
no contracts or agreements to which Seller or Workman Mill Investment Company is
a party granting to any Person the right of use or occupancy of any portion of
the Real Property.
(d) To Seller's best knowledge (i) the structures, improvements and
fixtures at or upon the Real Property including, but not limited to, roofs and
structural elements thereof and the electrical, plumbing, heating, ventilation,
air conditioning and similar units and systems, have to date been maintained by
Seller in a manner it considers to be reasonable for the conduct of the Business
and are in reasonable operating condition to allow the Business to continue to
be conducted as heretofore conducted, subject to the provision of usual and
customary maintenance and repair performed in the ordinary course of business
consistent with past practice; and (ii) there is no material water diffusion or
other intrusion into any buildings, structures, or other improvements included
in the Real Property which would require a material expenditure for repairs in
the next twelve (12) months.
4.8 Workman Mill Investment Company.
(a) Murrieta Hills, a wholly owned subsidiary of Seller, is the legal
and beneficial owner of all (100%) of the common capital stock of Workman Mill
Investment Company, free and clear and all Encumbrances.
(b) Seller has, or on the Closing Date will have, taken all action
necessary in order to cause Murrieta Hills, to transfer the capital stock of
Workman Mill Investment Company to Buyer, free and clear of all Encumbrances,
except Permitted Encumbrances.
(c) There are no existing agreements, options, contract rights or
rights with, of or to any person to acquire any of the capital stock of Workman
Mill Investment Company.
(d) Workman Mill Investment Company is duly organized, validly
existing and in good standing under the laws of the State of California with
full corporate power and authority to conduct its business as it is presently
being conducted and to own, lease and operate its properties and assets, except
as disclosed on Schedule 4.8. Copies of the Articles of Incorporation and Bylaws
of Workman Mill Investment Company, and all amendments thereto, heretofore
delivered to Buyer are accurate and complete as of the date thereof.
(e) Workman Mill Investment Company has (i) no assets required to be
described on Schedules 4.6 and 4.7, and (ii) no Liabilities, except as disclosed
on Schedule 4.8.
18
<PAGE>
4.9 Environmental Issues.
(a) Except as set forth in Schedule 4.9, to Seller's best knowledge,
Seller has not generated, stored, handled, manufactured, transported, disposed
of or released any Hazardous Materials on or at the Real Property, except in
material compliance with applicable Environmental Requirements.
(b) Except as set forth in Section 4.9, to Seller's best knowledge,
(i) the Real Property and the activities and operations of Seller and the prior
owners or occupants thereof comply in all material respects with all
Environmental Requirements, (ii) Seller has not received any written notice
concerning any alleged violation of Environmental Requirements, (iii) there
exists no judgment, decree, order, writ or injunction outstanding, nor any
litigation, action, suit, claim (including citation or directive) or proceeding
pending against Seller arising from the alleged violation of Environmental
Requirements, or from an alleged release of Hazardous Materials, and (iv) no
Hazardous Materials have migrated from other properties to, upon, about or
beneath the Real Property.
4.10 Contracts. Schedule 4.10 sets forth a complete and accurate list of
all Contracts relating to the Assets of the following categories:
(a) Contracts not made in the ordinary course of business;
(b) Options with respect to any property, real or personal;
(c) Contracts involving future expenditures or Liabilities, actual or
potential, in excess of $25,000 or otherwise material to the Business or the
Assets and not cancelable (without Liability) within 30 calendar days;
(d) Promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other instruments relating to an
obligation to pay money, individually in excess of $25,000, whether Seller shall
be the borrower, lender or guarantor thereunder or whereby any Assets are
pledged (excluding credit provided by Seller in the ordinary course of business
to purchasers of its products);
(e) Contracts containing covenants limiting the ability of Seller or
any trustee of Seller to engage in any line of business or compete with any
person;
(f) Any Contract with the United States, the State of California, the
County of Los Angeles, the City of Whittier or any agency or department thereof
involving expenditures or Liabilities in excess of $25,000;
(g) Leases of the Real Property or any portion thereof;
(h) Leases of personal property not cancelable (without Liability)
within ninety (90) calendar days.
4.11 Cemetery Preneed Accounts and Trust Funds. The Preneed Contracts are
the only agreements pursuant to which preneed cemetery merchandise, properties
or services have been sold by Seller. All
19
<PAGE>
monies paid to or for the benefit of Seller in respect of the Preneed Contracts
have been, and as of the Closing will be, set aside in accordance with and
subject to Regulations and Seller's ordinary and customary business practices.
The terms and conditions of the Preneed Contracts, including but not limited to
the collection of interest, comply in all material respects with all applicable
Regulations. Seller is not in breach of any Preneed Contract and, to the best of
Seller's knowledge, there is no default by or among the other parties to such
contracts which in the aggregate is material. Seller has deposited in trust with
respect to each of the Preneed Contracts and each at need sale all amounts as
are required by applicable Regulations and/or the particular underlying Preneed
Contracts or terms of the at need sale (collectively, the "Funds"), and all such
Funds have at all times been and are now held in conformity with such Preneed
Contracts, the terms of the at need sales and all applicable Regulations. All
withdrawals of and investment and other uses of the Funds (including but not
limited to payment to the trustees of the applicable trusts) have been made in
accordance with all applicable Regulations, the terms of the at need sales and
the Preneed Contracts. Seller will have paid or accrued, as of the Closing Date,
all commissions due and owing with respect to the Preneed Contracts and the at
need sales. As of August 31, 1996, the market value of the Funds, as set forth
on the written statement of Seller's trust administrator, was not less than
$__________. For those Preneed Contracts that are funded by insurance, Seller is
the beneficiary of all such insurance policies required to fully fund such
Preneed Contracts, and no future premiums remain to be paid, save and except
those instances indicated on Schedule 4.11 where, pursuant to the terms of such
insurance policies, the policies require specific payment of premiums over time.
4.12 Permits. To Seller's best knowledge, Schedule 4.12 sets forth a
complete list of all material Permits required under any applicable Regulation
to permit (a) the operation of the Business and (b) the operation of the
business of Workman Mill Investment Company, both as currently conducted, and
the current construction of buildings and improvements by Seller at the
Cemetery, including, but not limited to, the construction of the Sky Rose Chapel
and the Buddhist Pagoda Infrastructure in accordance with the Building and
Related Contracts. All Permits listed on Schedule 4.12 are in full force and
effect.
4.13 Consents. Except for those consents, approvals, authorizations or
filings heretofore obtained, satisfied or made or those set forth on Schedule
4.13 ("Required Consents"), no material Consent is required to be obtained,
satisfied or made pursuant to any Regulations, Permits, Assumed Liabilities or
other Contracts by which Seller, or any of its properties or assets, including,
without limitation, the Assets, is bound in connection with (a) the execution
and delivery of this Agreement by Seller or (b) the sale and transfer to Buyer
of the Assets, including, without limitation, the Assumed Liabilities and the
Permits, or the consummation by Seller of the other transactions contemplated by
this Agreement.
4.14 Compliance with Regulations. To Seller's best knowledge, neither Seller
(and its conduct of the Business and use of the Real Property) nor Workman Mill
Investment Company, has violated and each is in material compliance with, all
Regulations and Court Orders relating to the Assets, the Business, Seller or
Workman Mill Investment Company, except as disclosed in Schedule 4.14.
4.15 OSHA, ADA and FTC. To Seller's best knowledge, except as reflected in
Schedule 4.15, Seller is in compliance with all requirements of the Occupational
Safety and Health Act ("OSHA") and the Americans with Disabilities Act ("ADA")
pertaining to the facilities and operations of Seller, and with all requirements
of the Federal Trade Commission's Funeral Industry Practices Regulation ("FTC
Funeral Rule"). Seller has neither commissioned, nor completed nor shall Seller
be obliged to commission or complete, any study or investigation relative to
OSHA, ADA or the FTC Funeral Rule.
20
<PAGE>
4.16 Political Contributions and Other Payments. During the past five (5)
years, neither Seller nor any other Person acting on its behalf has (a) except
for lawful political contributions in the ordinary course of business, made any
payment to any governmental official, employee or agent (domestic or foreign) to
wrongfully induce the recipient or the recipient's employer to do business with,
grant favorable treatment to or compromise or forego any claim by or against
Seller, or (b) made any significant payment or conferred any significant benefit
which, Seller, in the exercise of reasonable business judgment, considers or
reasonably should consider to be improper.
4.17 Ordinary Course of Business. Since May 31, 1996, Seller has operated
and conducted the Business in the ordinary and usual course consistent with past
practices in all material respects, except as otherwise disclosed in Schedule
4.17.
4.18 Litigation. Except as disclosed on Schedule 4.18, there is no Action
pending or, to Seller's best knowledge, threatened or anticipated against
Seller, the Business, the Assets or Workman Mill Investment Company, which is
likely to be material to Seller if decided adversely. Neither Seller nor Workman
Mill Investment Company is subject to any material judgment, injunction, decree,
writ, interpretation or order of any governmental authority. Seller has no
knowledge of any facts or circumstances or other events which have occurred or
which may reasonably be excepted to occur that can be reasonably expected to
give rise to any such Action.
4.19 Financial Statements.
(a) Seller has delivered to Buyer the Audited Financial Statements
and the Interim Financial Statements. As of their respective dates, the Audited
Financial Statements and the Interim Financial Statements (i) are in accordance
with the Books and Records, (ii) were prepared in accordance with GAAP,
consistently applied, except where noted therein, and (iii) fairly present in
all material respects the financial position and results of operations of the
Seller as of the dates and for the periods covered thereby, subject in the case
of the Interim Financial Statements, to normal year-end accruals and audit
adjustments.
(b) Since May 31, 1996, no Material Adverse Change has occurred to
the operations, prospects of the Business, Assets or Liabilities of the Seller.
4.20 Accounts Receivable. All of the accounts receivable shown on the
balance sheets contained in the Financial Statements (exclusive of accounts
receivable from the Operator) as of May 31, 1996 (i) reflect actual
transactions, (ii) have risen from bona fide transactions in the ordinary and
usual course of the conduct of the Business (except as disclosed in Schedule
4.20), (iii) are not subject to any set off or counterclaim, and are fully
collectible in accordance with the terms of the underlying contracts subject to
the reserves shown on the Interim Financial Statements, which in all respects
are adequate.
4.21 Inventory. Additions to and deletions from inventory since May 31,
1996, have been only in the ordinary course of business, consistent with past
custom and practice.
4.22 Employee Benefits and Plans. Except for the Trustees' and
Executives' Pension Plans, Seller does not maintain, and for at least the last
five (5) years has not maintained, any Employee Benefit Plans.
21
<PAGE>
Amendment No. 1 to the Trustees' Plan has never been adopted, except as
otherwise disclosed in Schedule 4.22.
4.23 Insurance. Seller maintains insurance as described on Schedule 4.23.
4.24 Grave Spaces. Exhibit P (which is incorporated herein by reference) is
a memorandum to Buyer, dated March 18, 1996 (as to which no representation or
warranty is made by Seller). To Seller's best knowledge, the undeveloped
property presently contemplated as being usable as grave spaces as indicated in
Exhibit P is suitable for the future development of grave spaces without unduly
burdensome expense consistent with Seller's past practices since 1990; provided,
however, that (i) Seller makes no representation as to future changes in
regulation, the political climate for development or the absence of any
opposition to such development by private persons, groups or associations and
(ii) since 1990 Seller has not needed to engage in any significant earth-moving
activities in connection with the development of grave spaces, except as
otherwise disclosed in Schedule 4.24.
4.25 Taxes. (a) Seller is a cemetery corporation exempt from federal
taxation pursuant to Section 501(c)(13) of the Code and there is no proceeding
pending, or, to Seller's best knowledge, threatened which has as its purpose
termination of such status.
(b) The Endowment Care Fund is exempt from federal taxation pursuant
to Section 501(c)(13) of the Code and from taxation in California pursuant to
[cite statute, etc.] and there is no proceeding pending, or, to Seller's best
knowledge, threatened, which has as its purpose termination of such status.
4.26 Rights and Titles to Water Rights. Seller and/or Workman Mill
Investment Company, as the case may be, each has the legal right to and is the
holder of legal title to those certain four (4) water wells located on those
portions of the Real Property as are more fully described in Title Commitment
No. 9622423-51, and Seller and Workman Mill Investment Company, as the case may
be, has full right, power and authority to transfer and convey all of its
respective right, title and interest in such water wells to Buyer.
4.27 Reclaimed Water Agreement. The Reclaimed Water Agreement is in full
force and effect and Seller is not in default thereunder. Seller has received no
notice of, and to Seller's best knowledge, no incident has occurred which could
result in, either a substantial increase in the cost to be paid by Seller for
the water to be supplied thereby or the loss or impairment of Seller's right to
purchase water thereunder.
4.28 Compliance with the Adjudication. Seller and Workman Mill Investment
Company are in compliance in all material respects with the Adjudication; no
portion of the Prescriptive Pumping Right and Pumper's Share % (as defined
therein) allocable to each of Seller and Workman Mill Investment Company under
and pursuant to the Adjudication has been rescinded or amended or modified in
any respect other than as set forth in the Adjudication; and neither Seller nor
Workman Mill Investment Company has sold or otherwise transferred all or any
portion of its Prescriptive Pumping Right and Pumper's Share % to any party,
except for (a) the prior temporary assignment or lease of water rights owned by
Seller and/or Workman Mill Investment Company to San Gabriel Valley Water
District, and (b) the prior or current assignment or lease of water rights owned
by Seller and/or Workman Mill
22
<PAGE>
Investment Company as disclosed on Schedule 4.28, in each instance otherwise
reflected in the main San Gabriel Basin Water Master Status of Water Production
Rights for the applicable year.
4.29 Pre-Existing Entity. Seller has not been organized for the specific
purpose of acquiring the Loewen Shares.
4.30 Beneficial Ownership. As of the date hereof and prior to the
acquisition of the Loewen Shares as contemplated hereunder, Seller is not (i)
the "beneficial owner" of any securities of Loewen, as such term is defined in
Rule 13d-3 promulgated under the Exchange Act, or (ii) a member of a group which
has acquired beneficial ownership of securities of Loewen for purposes of
Sections 13(d) and 13(g) of the Exchange Act.
4.31 Acquisition Without View to Distribute. The Loewen Shares to be
acquired by Seller are being acquired by Seller for its own account, not as a
nominee or agent, and not with a view to the resale or distribution thereof
within the meaning of the Securities Act and Seller will not distribute the
Loewen Shares in violation of the Securities Act or any applicable state
securities laws.
4.32 Access to Information. Seller acknowledges that Loewen has made
available to it the opportunity to ask questions of and receive answers from
Loewen's officers and directors concerning the business and financial condition
of Loewen, and Seller has received to its satisfaction such information about
the business and financial condition of Loewen as it has requested.
4.33 Additional Representations of Seller. (i) Seller is an "accredited
investor" as such term is defined in Rule 501 promulgated under the Securities
Act, (ii) Seller's financial situation is such that it can afford to bear the
economic risk of holding the Loewen Shares for an indefinite period of time and
suffer complete loss of its investment in the Loewen Shares, (iii) Seller's
knowledge and experience in financial and business matters are such that it is
capable of evaluating the merits and risks of its acquisition of the Loewen
Shares as contemplated by this Agreement, (iv) Seller has no contract,
arrangement or understanding with any broker, finder of similar agent with
respect to the transactions contemplated by this Agreement respecting the Loewen
Shares (except for investment banking fees disclosed elsewhere in this Agreement
and for which Seller shall be liable).
4.34 Condemnation. There is no pending or, to Seller's best knowledge,
threatened condemnation, expropriation or eminent domain proceeding affecting
all or any part of the Real Property, and Seller has not received any written
notice of any of the same.
4.35 Deferred Merchandise Liability. All payments received for all cemetery
merchandise which has not yet been personally delivered to the purchaser is held
in trust in accordance with applicable Regulations and Seller has no net
deferred merchandise liability relating thereto.
4.36 No Employees. Except as set forth in Schedule 4.36(i), Seller does not
have, nor has it in the last five years had, any employees and (ii) in the last
five years no complaint has been lodged against Seller in any forum by an
employee or former employee.
4.37 Full Disclosure. None of the representations and warranties made by
Seller in this Agreement
23
<PAGE>
(including the Exhibits and Schedules hereto) or made in any certificate
furnished by Seller or on Seller's behalf, contains or will contain any untrue
statement of a material fact, or to Seller's best knowledge, omits or will omit
any material fact the omission of which would be misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows, which
representations and warranties are, as of the date hereof, and will be, as of
the Closing Date, true and correct, as follows:
5.1 Organization of Buyer. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.2 Authorization. Buyer has all requisite corporate power and authority,
and has taken all corporate action necessary, to execute and deliver this
Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements by Buyer and the consummation by Buyer of the transactions
contemplated hereby and thereby have been duly approved by the board of
directors of Buyer and the shareholders of Buyer. No other corporate proceedings
on the part of Buyer are necessary to authorize this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Buyer and is, and upon execution and
delivery the Ancillary Agreements will be, legal, valid and binding obligations
of Buyer, enforceable against Buyer in accordance with their terms, except as
enforcement may be limited by debtor relief laws or equitable principles
relating to the granting of specific performance and other equitable remedies as
a matter of judicial discretion.
5.3 No Breach. Neither the execution and delivery of this Agreement and the
Ancillary Agreements by Buyer, nor the performance of Buyer's obligations
hereunder or thereunder, will (a) violate, conflict with or result in a breach
of any Court Order, Regulation, or the Articles of Incorporation or Bylaws of
Buyer, or (b) violate, conflict with or result in a breach or termination of, or
otherwise give any contracting party additional rights or compensation under, or
the right to terminate or accelerate, or constitute (with notice or lapse of
time, or both) a default under the terms of, any note, deed, lease, instrument,
security agreement, mortgage, commitment, contract, agreement, license or other
instrument, whether written or oral, express or implied, to which Buyer is a
party or by which Buyer is bound except where such violation, conflict or breach
would not have a material adverse effect on Buyer's ability to perform its
obligations under this Agreement.
5.4 Consents and Approvals. Other than in connection with or in compliance
with the provisions of the HSR Act and filings required by the California
Department of Consumer Affairs or any other regulatory agency governing
cemeteries in California, no notice to, declaration, filing or registration
with, or authorization, consent or approval of, or permit from, any domestic or
foreign governmental or regulatory body or authority, or any other person or
entity, is required to be made or obtained by Buyer in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
24
<PAGE>
5.5 No Brokers. Except as set forth in Schedule 5.5, neither Buyer nor any
of its officers, directors, employees, shareholders or affiliates has employed
or made any agreement with any broker, finder or similar agent or any person or
firm which will result in the obligation of Seller or any of its affiliates to
pay any finder's fee, brokerage fees or commission or similar payment in
connection with the transactions contemplated hereby.
5.6 [Reserved].
5.7 Regulatory Authority. Buyer is not subject to any Court Order with
respect to Buyer's existing operation of its business, and no Court Order will
prohibit the transactions contemplated by this Agreement or the operation of the
Business by Buyer after the Closing.
5.8 [Reserved].
5.9 No Opposition to Development. Buyer will not oppose in any manner
Seller's future use or development of the Gate Two Property and/or the Murrieta
Hills Cemetery Property, in each instance after the expiration of any option to
purchase either of such properties provided by Seller to Buyer, except in the
event that any such intended use or development would have the effect of
materially adversely affecting the Assets or the Business.
5.10 No Litigation. There is no Action pending, affecting or, to the best
knowledge of Buyer, threatened against Buyer or its Affiliates, that could
singly or in the aggregate, act to materially impair or affect Buyer's ability
to consummate the transactions contemplated by this Agreement.
5.11 Business Experience, Investigation and Access to Data.
(a) Acquisition acknowledges that an Affiliate of Loewen is one of
Acquisition's stockholders. Acquisition also acknowledges that such Affiliate
has the experience and ability necessary to evaluate the merits and risks of its
purchase of the Assets and the Business.
(b) It is expressly understood and agreed that Seller is not making,
and has not made, any representation or warranty of any kind, express or
implied, except for those specifically provided in Article IV of this Agreement.
Except for matters which are expressly covered by such representations and
warranties, and upon which Acquisition intends to justifiably rely, Acquisition
is relying on its own investigation and analysis in entering into this Agreement
and consummating the transactions contemplated hereby. Nothing contained in the
foregoing Provisions of this Section 5.11, however, shall limit or modify the
representations and warranties of Seller as contained in this Agreement.
(c) At the time of the execution and delivery of this Agreement,
based solely upon the actual and direct knowledge of Lawrence Miller, G. Scott
Mindrum, Paul J. Hart and Charles Kizina, after such investigation and inquiry
as is reasonable under the circumstances, no material breach of any
representation or warranty made by Seller in this Agreement has occurred.
5.12 Roses, Inc. Agreement. The Roses, Inc. Agreement, together with all
Exhibits, Schedules and other attachments thereto constitutes the entire
understanding between Buyer and Roses, Inc. and the stockholders of Roses, Inc.
(the "Roses Stockholders") and (except for certain Employment and Consulting
25
<PAGE>
Agreements as described in the Roses, Inc. Agreement) sets forth the total
consideration to be paid to Roses, Inc. and each of the Roses Stockholders in
connection with the transfer of the business of Roses, Inc. Except for this
Agreement, there are no further agreements or understandings of any kind between
Roses, Inc. and Buyer, nor between Buyer and any Roses Stockholder or member of
the management of Roses, Inc., or any affiliate of Roses, Inc., which relate in
any manner to the sale of either the Cemetery or the business of Roses, Inc.,
and no Roses Stockholder or member of the management of Roses, Inc. will receive
any consideration other than as set forth in the Roses, Inc. Agreement for the
sale of the Cemetery or the business of Roses, Inc.
5.13 Financing Commitments. Buyer has received letters related to equity and
debt financing for the transactions subject of this Agreement and has delivered
them to Seller on the date of this Agreement. Buyer has no reason as of the date
hereof to believe that the financings referred to in such letters will not be
available to Buyer on the Closing Date.
ARTICLE VI
COVENANTS OF SELLER AND BUYER
Seller and Buyer each covenant with the other as follows:
6.1 Further Assurances. Upon the terms and subject to the conditions
contained herein, the parties agree, both before and after the Closing, (i) to
use all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, except that
Buyer shall not be required to enter into any financing arrangements on terms
not acceptable to Buyer, (ii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder, and (iii) to cooperate with
each other in connection with the foregoing. Without limiting the foregoing, the
parties agree to use their respective best efforts (A) to obtain all necessary
waivers, consents and approvals from other parties to the Contracts and Leases
to be assumed by Buyer, (B) to obtain all necessary Permits as are required to
be obtained under any Regulations, (C) to give all notices to, and make all
registrations and filings with third parties, including without limitation
submissions of information requested by governmental authorities, and (D) to
fulfill all conditions to this Agreement. As soon as practicable after the
execution and delivery of this Agreement, Buyer and Seller shall make all
filings required under the HSR Act. In addition, Buyer and Seller will commence
all action required under this Section 6.1 by a date which is early enough to
allow the transactions contemplated hereunder to be consummated by the Closing
Date and shall take all action necessary for compliance with the HSR Act.
6.2 HSR. In connection with proceedings under or relating to the HSR Act or
any other federal or state antitrust or fair trade law, all analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of Buyer or Seller shall be subject to the
joint review of Buyer and Seller, acting with the advice of their respective
counsel, it being the intent that the parties hereto will consult and cooperate
with each other, and consider in good faith the views of one another, in
connection with any such analysis, presentation, memorandum, brief, argument,
appearance, opinion or proposal; provided, that nothing herein shall prevent
Buyer or Seller from (i) making or
26
<PAGE>
submitting any such analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal in response to a subpoena or other legal process
or as otherwise required by law, or (ii) submitting factual information to the
United States Department of Justice, the Federal Trade Commission, any other
governmental agency or any court or administrative law judge in response to a
request therefor or as otherwise required by law. Seller agrees to use its best
efforts to litigate against the entry of, or to obtain the lifting of, any
temporary restraining order or preliminary or permanent injunction or other
governmental action in connection with the HSR Act or any other applicable
federal or state antitrust or fair trade law. The existence of a temporary
restraining order or the pendency of an action or proceeding described in the
preceding sentence will operate only to delay the Closing until the thirtieth
(30th) day following the lifting of such temporary restraining order or the
conclusion of such action or proceeding; provided, however, that if such matter
is not resolved by December 13, 1996, then Buyer or Seller shall have the right
to terminate this Agreement and, in either case, the Letter of Credit (or the
LOC Payment, as the case may be) and the No Shop Payment shall be returned to
Buyer and no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement.
6.3 Notification of Certain Matters. From the date hereof through the
Closing, Seller shall give prompt notice to Buyer, and Buyer shall give prompt
notice to Seller of (a) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement or in any exhibit or schedule hereto and made by
such party to be untrue or inaccurate in any respect and (b) any failure of
Seller or Buyer, as the case may be, or any of their respective affiliates,
shareholders or Representatives, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any exhibit or schedule hereto; provided, however, that such
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition. Seller shall promptly notify
Buyer of any Default by such party, the threat or commencement of any Action, or
any development that occurs before the Closing that could in any way affect
Seller, the Assets or the Business. Further, if at any time during the term of
this Agreement, Buyer shall learn that any representation or warranty contained
in this Agreement or in any exhibit or schedule hereto and made by Seller to be
untrue or inaccurate in any respect, then Buyer shall notify Seller thereof and,
if Buyer has not waived such untruth or inaccuracy, Seller shall cure the
inaccuracy, without any obligation so to do, except that if the inaccuracy can
be cured by the payment of a monetary amount, then Seller shall so do, but
Seller shall not be obligated to expend more than $1.0 million (when aggregated
with all amounts spent pursuant to Section 6.10 of this Agreement and Sections
6.10 and 6.13 of the Roses, Inc. Agreement to cure all such inaccuracies. If
Seller is not required to cure the untruth or inaccuracy as set forth in the
preceding sentence then Buyer may (a) waive such untruth or inaccuracy, or (b)
terminate this Agreement and the Roses, Inc. Agreement and, in the latter
instance, the Letter of Credit (or the LOC Payment, as the case may be) and the
No Shop Payment shall be returned to Buyer and no party hereto (or any of its
directors or officers) shall have any liability or further obligation to any
other party to this Agreement or the Roses, Inc. Agreement.
6.4 Investigation by Buyer. Subject to Section 11.11 hereof, Seller shall
allow Buyer and its Representatives and lenders, during regular business hours
after reasonable advance notice to Operator and Seller through their employees,
agents, advisors and representatives, to make such investigation of the
business, properties, books and records of and to conduct such examination of
the condition of Seller as Buyer deems necessary or advisable to familiarize
itself and its lenders with such business, properties, books, records, condition
and other matters, and to investigate the accuracy and completeness of the
representations and warranties of Seller hereunder. Such access shall include
authorizing Seller's legal,
27
<PAGE>
accounting, tax, insurance and environmental consultants and advisors to
cooperate with Buyer and its advisors.
6.5 Conduct of Business. Except as otherwise contemplated in this Agreement
or as consented to by Buyer in writing, which consent shall not be unreasonably
withheld, conditioned or delayed, from the date hereof through the Closing,
Seller shall operate the Business in the ordinary course of business and
substantially in accordance with past custom and practice and will not take any
action inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, Seller shall not, except as
specifically contemplated by this Agreement or as consented to by Buyer in
writing:
(a) change or amend Seller's Articles of Incorporation or Bylaws;
(b) withdraw any portion of the principal of the Endowment Care Fund,
including, without limitation, net realized capital gains; provided, however,
that Seller may withdraw, from time to time, and apply interest, dividends and
other earnings on the Endowment Care Fund as provided by applicable Regulations
and, provided further, Seller may affect changes in the investment strategy or
policies of the Endowment Care Fund so long as it advises Buyer with respect to
such changes;
(c) enter into, extend, modify, terminate or renew any Contract or
Lease, except in the ordinary course of business;
(d) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets, or any interests therein,
except for sales, including sales of Inventory, in the ordinary course of
business consistent with its past custom and practice;
(e) incur any Liability for long-term interest bearing indebtedness,
guarantee the obligations of others, indemnify others or, except in the ordinary
course of business, incur any other Liability;
(f) make any change in the key officers of Seller or hire any
employees in the Business;
(g) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(h) fail to conduct its cash management customs and practices
including the collection of accounts receivable, inventory control and payment
of accounts payable other than in the usual and ordinary course of business in
accordance with past custom and practice;
(i) make any loans or advances to any partnership, firm or
corporation, or, except for expenses incurred in the ordinary course of
business, any individual;
(j) intentionally do any other act which would cause any
representation or warranty of Seller in this Agreement to be or become incorrect
or untrue in any respect;
28
<PAGE>
(k) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder; or
(l) grant, create, or suffer an Encumbrance on any of the Assets
other than Permitted Encumbrances.
6.6 Endowment Care Fund. Following consummation of the transactions
contemplated by this Agreement, Buyer shall not improperly utilize or invest the
Endowment Care Fund, shall manage the same in full compliance with California
Regulations and shall not withdraw any principal from the Endowment Care Fund.
6.7 Maintenance of the Cemetery. Following consummation of the transactions
contemplated by this Agreement, Buyer will continue to operate the Cemetery as a
first class cemetery in serving its customers and property owners, and in that
regard shall avail itself (to the extent it deems necessary or advisable) of the
expertise and advice of Loewen as to cemetery maintenance and management.
6.8 [Reserved].
6.9 Completion of Construction of Sky Rose Chapel and Buddhist Pagoda
Infrastructure. Notwithstanding the assumption by Buyer of the Building and
Related Contracts at the Closing, Seller shall remain responsible and obligated
for all costs and expenses incurred in connection with completion of all work as
provided for in the Building and Related Contracts and the payment of all fees
and other compensation relating thereto, which payments shall be made by Seller
directly to the contractors, architects, engineers and other Persons who are
parties with Seller to the Building and Related Contracts, consistent with past
practice, and Seller shall not suffer or permit to be enforced against the Real
Property and shall pay or cause to be paid before any action is brought to
enforce the same against the Real Property, any mechanics', materialman's,
contractor's or subcontractor's liens claims or demands arising from the
Building and Related Contracts except insofar as Seller shall contest such
action in good faith; provided that Seller shall not be relieved of its
obligation to pay for resolution of any such action. From the date of this
Agreement until the Closing Date, Seller shall take no action as would result in
any modification to or amendment of the Building and Related Contracts,
including change order(s), which could or would result in Buyer having any
liability, responsibility, or obligation for payment of any sum(s) specified
therein. From and after the Closing Date, Buyer shall oversee and supervise
completion of the work provided for in the Building and Related Contracts until
completion and Buyer shall provide Seller with access to the Sky Rose Chapel and
the Buddhist Pagoda Infrastructure so as to allow Seller to monitor the
construction; provided, however, that any changes in, alterations to, or
directions to alter the Building and Related Contracts by Buyer which shall
increase the cost and expenses incurred in connection with the Sky Rose Chapel
and/or the Buddhist Pagoda Infrastructure shall be the sole obligation and the
sole responsibility of Buyer.
6.10 Title Insurance.
(a) The Title Company has provided Buyer with and Buyer has reviewed
and approved the Title Commitments and Surveys for the Real Property, along with
copies of all documents and instruments reflecting items noted as exceptions to
title. The Title Commitments have been appropriately
29
<PAGE>
annotated and initialled by the parties to reflect such approval and are
accompanied by copies of all endorsements which Buyer requires and the Title
Company has agreed to provide.
(b) Any liens, encumbrances, security interests, easements,
restrictions, reservations, conditions, covenants, rights, rights-of-way, and
other matters affecting title to the Real Property which are created or which
may appear of record after the date of the Title Commitment(s) and Survey(s), as
applicable, but before the Closing Date, and which are not reflected in the
Title Commitment(s) or Survey(s) (collectively, "Intervening Liens") shall be
subject to Buyer's reasonable approval. Buyer shall be deemed to have approved
each such Intervening Lien unless Buyer delivers to Seller written notice of
disapproval specifically identifying grounds for such disapproval (an
"Objection") within fifteen (15) days after Buyer's receipt of written notice
from the Title Company advising of the existence of such Intervening Lien. Buyer
shall not have the right to disapprove any Intervening Lien which has been
previously approved (or deemed approved) by Buyer, or which is caused by Buyer
or any act of Buyer, its agents, contractors, employees or invitees. If Buyer
makes an Objection to an Intervening Lien, then Seller shall elect (i) to cure
such Objection prior to the Closing Date and have the Title Commitment(s) and
Survey(s) updated to reflect such cure (to the extent applicable), whereupon it
will be deemed that such Intervening Lien is satisfactory to Buyer, or (ii) to
refuse to cure the Objection, unless the Intervening Lien shall be subject to
being reduced to an ascertainable monetary amount, which Seller shall pay, but
not greater than $1.0 million when aggregated with all amounts paid by Seller
pursuant to Section 6.3 of this Agreement and Sections 6.10 and 6.13 of the
Roses, Inc. Agreement as respects all Intervening Liens, in the aggregate, and
Buyer, if Seller is not so required to cure, shall have the right to either (x)
waive the Objection, in which case such Intervening Lien shall become an
additional Permitted Encumbrance for purposes of this Agreement, or (y)
terminate this Agreement and the Roses, Inc. Agreement by notifying Seller
thereof within fifteen (15) days after Seller notifies Buyer of Seller's
inability or election not to cure the Objection and buyer shall then be entitled
to return of the Letter of Credit (or the LOC Payment, as the case may be) and
the No Shop Payment. If Buyer does not so timely elect to terminate this
Agreement and the Roses, Inc. Agreement, then Buyer shall be deemed to have
waived the Objection and such Intervening Lien shall become an additional
Permitted Encumbrance for purposes of this Agreement. A commitment of the Title
Company to insure over any Intervening Lien shall constitute cure by Seller of
the Objection so long as Seller shall pay all additional title and Survey
Charges with respect thereto. Notwithstanding the foregoing, Seller shall not
cause, create or permit the creation of any Intervening Lien unless such
Intervening Lien is required by law.
6.11 Preneed Contracts and Trust Funds. At the Closing Seller will assign to
Buyer any trust funds, accounts, debenture sinking fund and insurance policies
relating to the Preneed Contracts, and will execute all necessary documentation
that Buyer may reasonably require with respect to such assignment. In the event
it is necessary to notify the beneficiaries of the Preneed Contracts respecting
this assignment or the assignment of the Preneed Contracts, Buyer will, with
Seller's full cooperation, make all arrangements respecting the delivery and
content of the notices.
6.12 Letter of Credit. Concurrently with the execution of this Agreement,
Loewen has delivered to Seller on behalf of Buyer an irrevocable letter of
credit drawn on The Bank of Montreal ("Bank") in the amount of $16.1 million,
having a maturity date of December 12, 1996 (the "Letter of Credit"). At the
Closing, the Letter of Credit shall be returned to Buyer as against delivery by
Buyer of the cash portion of the Purchase Price; provided, however, that if the
Closing occurs after November 26, 1996, but prior to December 14, 1996, and
Seller has drawn against the Letter of Credit, the proceeds of the Letter of
30
<PAGE>
Credit shall be applied against the Purchase Price. In the event that Seller
shall commit a material breach of this Agreement, the Letter of Credit, or if
the Letter of Credit has been drawn against, the proceeds of the Letter of
Credit, shall be returned or paid to Buyer. Seller may draw upon the Letter of
Credit upon delivery to the Bank of a certificate executed by a duly authorized
officer of Seller which states as follows:
(a) I am duly sworn according to law; (b) I am the duly
elected and incumbent [officer] of Seller; (c) as of
November 26, 1996, no Closing (as defined in that
certain Asset Purchase Agreement dated September 17,
1996 between Rose Hills Memorial Park Association and
Tudor Acquisition Corp. [the "Agreement"]) has
occurred; (d) all conditions to Buyer's obligations to
close (other than the conditions specified in the first
two sentences of Section 8.2, Section 8.4, Section 8.5,
Section 8.12, Section 8.13, Section 8.14, Section 8.15.
Section 8.16 and Section 8.18 of the Agreement) have
been fulfilled; (e) the Association has delivered to
Buyer not later than three (3) days prior to the
Association's draw on the Letter of Credit a notice
stating that with respect to the conditions set forth
in Section 8.15 and Section 8.18 of the Agreement, the
Association has no reason to believe that such
conditions would not be satisfied if the Closing Date
had occurred on the date of the draw of this Letter of
Credit; and (f) Roses, Inc. has delivered to the Bank
its certificate pursuant to Section 8.6 of the Roses,
Inc. Agreement.
6.13 Satisfaction of Conditions. Seller shall use its best efforts to
satisfy promptly all conditions precedent to the obligations of Buyer to
consummate the transactions contemplated by this Agreement.
6.14 Assistance in Financing. Seller acknowledges that Buyer currently
intends that payment of the Purchase Price pursuant to Section 2.4 will be
financed, in part, by an offering of securities and the arranging of senior bank
debt financing. Seller will provide customary assistance in connection with
Buyer's efforts to raise such financing, including, without limitation, making
senior management reasonably available for meetings with prospective lenders and
investors and cooperating in the preparation of offering documents and necessary
financial and business information to enable documents, including the financial
statements of Seller, to comply with the rules and regulations of the Securities
and Exchange Commission, it being recognized that Seller will have no
responsibility with respect to such compliance and will be appropriately
indemnified by Buyer in connection therewith. Buyer shall reimburse Seller for
reasonable expenses incurred by Seller for preparation of financial statements
required in connection with such offering.
6.15 [Reserved].
6.16 Resignation and Replacement of Trustees of Endowment Care Fund. Between
the date of this Agreement and the Closing Date, Seller and Buyer shall
cooperate with one another to arrange for the
31
<PAGE>
resignation and replacement of all Trustees of the Endowment Care Fund to be
effective on and as of the Closing Date.
6.17 Restrictions on Transfer of the Loewen Shares.
(a) Seller (i) acknowledges that the Loewen Shares are not registered
under the Securities Act and that the Loewen Shares to be acquired by it must be
held indefinitely by it unless they are subsequently registered under the
Securities Act or an exemption from registration is available, (ii) is aware
that any routine sales under Rule 144 promulgated under the Securities Act of
Loewen Shares may be made only in limited amounts and in accordance with the
terms and conditions of Rule 144 and that in such cases where Rule 144 is not
applicable, compliance with some other registration exemption will be required,
(iii) is aware that Rule 144 may not presently be available for use by Seller
for resale of any Loewen Shares, and (iv) is aware that, except as provided in
Registration Rights Agreement, Loewen is not obligated to register under the
Securities Act any sale, transfer or other disposition of the Loewen Shares.
Seller further agrees that, notwithstanding the expiration or lapse of any
restriction(s) on its transfer of the Loewen Shares as provided in this Section
6.17 it will not transfer any of the Loewen Shares for a period of twelve (12)
months from the Effective Date.
(b) Seller acknowledges that Loewen is not required to register the
transfer of the Loewen Shares on the books of Loewen unless Loewen shall have
been provided with an opinion of counsel reasonably satisfactory to it prior to
such transfer to the effect that registration under the Securities Act or any
applicable state securities law is not required in connection with the
transaction resulting in such transfer. Each certificate for the Loewen Shares
issued upon any transfer as above provided shall bear the restrictive legend set
forth in Section 6.18, except that such restrictive legend shall not be required
if the opinion of counsel reasonably satisfactory to Loewen referred to above is
to the further effect that such legend is not required in order to establish
compliance with the provisions of the Securities Act and any applicable state
securities law.
6.18 Restrictive Legend. Each certificate representing the Loewen Shares
shall be stamped or otherwise imprinted with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM, AND ANY SALE OR OTHER TRANSFER IS FURTHER
SUBJECT TO THE RESTRICTIONS SET FORTH IN THE CERTAIN ASSET PURCHASE
AGREEMENT DATED SEPTEMBER 17, 1996 BETWEEN ROSE HILL MEMORIAL PARK
ASSOCIATION AND TUDOR ACQUISITION CORP."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
LISTED ON THE TORONTO STOCK EXCHANGE AND THE MONTREAL EXCHANGE;
HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH THE FACILITIES
OF SUCH EXCHANGES SINCE THEY ARE NOT FREELY TRANSFERABLE, AND
CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS NOT
32
<PAGE>
"GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK
EXCHANGE OR THE MONTREAL EXCHANGE."
Each share certificate to be delivered must be accompanied by a letter from The
Loewen Group Inc. stating that:
(a) The securities represented by this certificate cannot
be traded through the facilities of The Toronto Stock
Exchange or on The Montreal Exchange since the
certificate is not freely transferable and consequently
is not "good delivery" in settlement of transactions on
The Toronto Stock Exchange or on The Montreal Exchange;
and
(b) The Toronto Stock Exchange and The Montreal Exchange
would deem the security holder to be responsible for
any loss incurred on a sale made by such holder in such
securities.
6.19 Termination of Restrictions on Transferability. The conditions imposed
by Section 6.17 upon transferability of the Loewen Shares shall cease and
terminate as to any of the Loewen Shares when (i) such securities shall have
been registered under the Securities Act and sold or otherwise disposed of in
accordance with the intended method of disposition by the seller thereof set
forth in the registration statement covering such securities, or (ii) at such
time as an opinion of counsel satisfactory to Loewen shall have been rendered as
required pursuant to the second sentence of Section 6.17(b) to the effect that
the restrictive legend on such securities is no longer required (but not prior
to the expiration of one year from the Closing Date), or (iii) when such
securities are transferable in accordance with the provisions of Rule 144
promulgated under the Securities Act and Section 6.17 above. Whenever the
conditions imposed by this Section shall terminate as hereinabove provided with
respect to any of the Loewen Shares, the holder of any such securities bearing
the legend set forth Section 6.18 as to which such conditions shall have
terminated shall be entitled to receive from Loewen, without expense (except for
the payment of any applicable transfer tax) and as expeditiously as possible,
new stock certificates not bearing such legend.
6.20 Waiver of Right of First Refusal. Seller shall have waived its right
of first refusal with respect to Buyer's merger transaction with Roses, Inc.,
and any related transactions between Buyer and Rose Hills Mortuary, Inc. or the
Operator.
6.21 Additional Options to Purchase. Seller and Buyer, between the date of
this Agreement and the Closing Date, shall use their good faith best efforts to
negotiate agreements providing Buyer with options to purchase the Murrieta Hills
Cemetery Property and the Sun City Property, which agreements (but only if the
terms and conditions thereof are satisfactory to both Buyer and Seller) shall be
executed and delivered by Buyer and Seller at the Closing.
6.22 Preneed Contracts and Trust Funds. Seller shall, upon receipt of
written notice from Buyer, reimburse Buyer for the cost of fulfilling all
Preneed Contracts, whether funded by insurance or trust funds, that are not
fully identified or properly funded in accordance with Section 4.11. Upon
receipt of written notice from Buyer, Seller shall pay to Buyer, and indemnify
Buyer for, the amount of any shortfall without limitation as to amount.
"Shortfall" means the difference as of the Closing Date between all amounts
legally or contractually required to be paid for insurance policies or placed in
trust by Seller with
33
<PAGE>
respect to the Preneed Contracts or at need sales and the amounts actually paid
for insurance policies or placed in trust by Seller with respect to the Preneed
Contracts or at need sales. Seller shall not withdraw or permit the withdrawal
of any monies from the Funds before the Closing Date other than in accordance
with Regulations and the terms of the Preneed Contracts. At the Closing Date,
Seller shall assign to Buyer the Funds and any other trust funds, accounts and
insurance policies relating to the Preneed Contracts, and will execute all
necessary documentation that Buyer may require with respect to such assignment.
In the event that it is necessary to notify the beneficiaries of the Preneed
Contracts respecting this assignment or the assignment of the Preneed Contracts,
Buyer shall, with Seller's full cooperation, make all arrangements respecting
the delivery and content and the notices.
6.23 Trustees' and Executives' Retirements. All current Trustees and
Executives of Seller shall be deemed (for purposes of the Trustees' and
Executives' Pension Plan) to have retired effective the Closing Date and all
benefits available to such persons under and pursuant to the Trustees' and
Executives' Pension Plans shall cease to accrue and all such benefits shall be
deemed vested in accordance with the terms of the Trustees' and Executives'
Pension Plans.
6.24 "Top-Hat" Statements. Prior to the Closing, Seller shall submit to the
U.S. Department of Labor the documents and penalty amount prescribed for
"top-hat" plans under the Delinquent Filer Voluntary Compliance Program
("DFVCP") described in 60 FR 20874 (April 27, 1995) for the executive pension
plans referenced in Section 4.22. A true and correct copy of all such documents
that are submitted to the U.S. Department of Labor under the DFVCP will be
delivered to Buyer prior to the Closing.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions provided for
hereby are subject, in the discretion of Seller, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by Seller:
7.1 Representations, Warranties and Covenants. All representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
respects at and as of the date of this Agreement and at and as of the Closing
Date, except as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms hereof, and Buyer shall have performed and satisfied in
all respects all agreements and covenants required hereby to be performed by it
prior to or on the Closing Date.
7.2 Consents; Regulatory Compliance and Approval. All permits, consents,
approvals and waivers from governmental authorities and other parties necessary
to the consummation of the transactions contemplated hereby shall have been
obtained. Seller shall be satisfied that all approvals required under any
Regulations to carry out the transactions contemplated by this Agreement shall
have been obtained and that the parties shall have complied with all Regulations
applicable to the Acquisition. Seller shall have received such assurances as it
deems appropriate with regard to non-assertion of jurisdiction by the California
Attorney General.
34
<PAGE>
7.3 No Actions or Court Orders. No Action by any governmental authority or
other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to restrain or interfere with Seller's use of the
proceeds from the sale of the Assets for the charitable and benevolent purposes
adopted and approved by Seller's board of trustees. There shall not be any
Regulation or Court Order that makes the purchase and sale of the Business or
the Assets contemplated hereby illegal or otherwise prohibited.
7.4 Opinion of Counsel. Buyer shall have delivered to Seller an opinion of
Stradley, Ronon, Stevens & Young, counsel to Buyer, dated as of the Closing
Date, in form and substance satisfactory to Seller and its counsel.
7.5 Certificates. Buyer shall furnish Seller with such certificates of its
officers and others to evidence compliance with the conditions set forth in this
Article VII as may be reasonably requested by Seller.
7.6 Corporate Documents. Seller shall have received from Buyer resolutions
adopted by the board of directors of Buyer approving this Agreement, the
Ancillary Agreements and the transactions contemplated hereby or thereby,
certified by Buyer's corporate secretary.
7.7 Assumption Document. Buyer shall have executed the Assumption Document.
7.8 Ancillary Agreements. Buyer shall have executed and delivered the
Ancillary Agreements to which Buyer is a party.
7.9 The Roses, Inc. Agreement. The Roses, Inc. Agreement shall be
executed concurrently herewith, and the closing of the transactions contemplated
by such agreement shall be consummated concurrently with the Closing of the
transactions contemplated by this Agreement.
7.10 Ability to Establish Charitable Foundation. Seller shall have
established a tax exempt foundation to receive and use the proceeds of the sale
of Assets and shall not have received any formal or informal notice from any
federal, state, or local government agency that such agency will in the judgment
of Seller's tax counsel impose conditions on the ability of such foundation to
appoint officers or trustees of its choosing, invest or disburse funds as it
wishes, or otherwise conduct a nonprofit grantmaking organization exempt from
federal and state income taxes with the objectives established by the current
Trustees.
7.11 [Reserved].
7.12 Share Issuance and Registration Rights Agreement. Loewen shall have
executed and delivered to Seller a Share Issuance and Registration Rights
Agreement.
7.13 Loewen Guaranty. Loewen shall guarantee Buyer's obligations as set
forth in Section 2.2(d) of this Agreement.
35
<PAGE>
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided for
hereby are subject, in the discretion of Buyer, to the satisfaction, on or prior
to the Closing Date, of each of the following conditions, any of which may be
waived by Buyer:
8.1 Representations, Warranties and Covenants. All representations and
warranties of Seller contained in this Agreement shall be true and correct in
all respects at and as of the date of this Agreement and at and as of the
Closing Date, except (i) as and to the extent that the facts and conditions upon
which such representations and warranties are based are expressly required or
permitted to be changed by the terms hereof or (ii) where such untruth or
incorrectness would not have a Material Adverse Effect or result in a Material
Adverse Change, and Seller shall have performed and satisfied in all material
respects all agreements and covenants required hereby to be performed by it
prior to or on the Closing Date.
8.2 Consents; Regulatory Compliance and Approval. All Permits, Consents,
approvals and waivers from governmental authorities and other parties, including
but not limited to those items listed in Schedules 4.10, 4.12 and 4.13,
necessary to the consummation of the transactions contemplated hereby and for
the ownership, use and operation of the Business by Buyer (including, without
limitation, all required third party consents to the assignment of the Leases
and Contracts to be assumed by Buyer) shall have been obtained. Buyer shall be
satisfied that all approvals required under any Regulations to carry out the
transactions contemplated by this Agreement shall have been obtained and that
the parties shall have complied with all Regulations applicable to the
Acquisition. The applicable waiting period, including any extension thereof,
under the HSR Act shall have expired; provided, however, that Buyer shall have
complied with the provisions of Section 6.2 hereof.
8.3 No Actions or Court Orders. No Action by any governmental authority or
other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to materially damage Buyer, the Assets or the Business if
the transactions contemplated hereby are consummated, including without
limitation any substantial effect on the right or ability of Buyer to own,
operate, possess or transfer the Assets after the Closing. There shall not be
any Regulation or Court Order that makes the purchase and sale of the Business
or the Assets contemplated hereby illegal or otherwise prohibited.
8.4 Opinion of Counsel to Seller. Seller shall have delivered to Buyer an
opinion of Latham & Watkins, counsel to Seller, dated as of the Closing Date, in
form and substance satisfactory to Buyer and its counsel.
8.5 Certificates. Seller shall furnish Buyer with such certificates of its
officers and others to evidence compliance with the conditions set forth in this
Article VIII as may be reasonably requested by Buyer.
8.6 No Material Adverse Change. Since the Interim Balance Sheet Date, there
shall not have been any Material Adverse Change.
36
<PAGE>
8.7 Corporate Documents. Buyer shall have received from Seller resolutions
adopted by the board of trustees of Seller approving this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby,
certified by Seller's corporate secretary, as applicable.
8.8 Conveyancing Documents; Release of Encumbrances. Seller shall have
executed and delivered each of documents described in Section 3.2 hereof
necessary to effect the transfer and assignment to Buyer of all right, title and
interest in and to the Assets and Seller shall have filed (where necessary) and
delivered to Buyer all documents necessary to release the Assets from all
Encumbrances, which documents shall be in a form reasonably satisfactory to
Buyer's counsel.
8.9 Ancillary Agreements. Seller shall have executed and delivered the
Ancillary Agreements in the forms attached as exhibits hereto.
8.10 Tax Clearance Certificate. Seller shall provide Buyer with a clearance
certificate or similar document(s) that may be required by any state taxing
authority in order to relieve Buyer of any obligation to withhold any portion of
the Purchase Price.
8.11 Nonforeign Affidavit. Seller shall furnish Buyer an affidavit, stating,
under penalty of perjury, the transferor's United States taxpayer identification
number and that the transferor is not a foreign person, pursuant to Section
1445(b)(2) of the Code.
8.12 Roses, Inc. Agreement. The transactions contemplated by the Roses,
Inc. Agreement shall be consummated concurrently with consummation of the
transactions contemplated by this Agreement.
8.13 Financing. Buyer has secured the equity and debt financing on terms and
conditions acceptable to Buyer necessary to provide sufficient funds in order to
allow consummation of the transactions specified in this Agreement and the
Roses, Inc Agreement.
8.14 No Other Obligations. Buyer shall have received evidence in the form of
a certificate duly executed by officers of Seller and the Operator to the effect
that, on the Closing Date, no agreements or obligations exist or are in force
between Seller and the Operator or any of its Affiliates, and no amounts are due
and owing from the Operator or any of its Affiliates to Seller or from Seller to
the Operator or any of its Affiliates and Seller shall receive a release from
the Operator with respect to all claims or liabilities for events occurring
prior to the Closing Date.
8.15 Title Policy. Buyer shall have received the ALTA Extended Coverage
Owner's Policy(ies) of Title Insurance contemplated by the Title Commitment(s)
or, in substitution therefor, the Title Commitment(s) and all endorsements as
"marked", initialled and dated by the Title Company and having the same effect
as if the actual policy(ies) was then being delivered.
8.16 Resignation and Replacement of Trustees of Endowment Care Fund. The
current Trustees of the Endowment Care Fund shall have elected persons selected
by Buyer with terms effective as of the Closing Date as Trustees of the
Endowment Care Fund so that the Trustees selected by Buyer constitute at least a
majority of the Trustees of the Endowment Care Fund.
37
<PAGE>
8.17 Certificate. Buyer shall have received a certificate signed by Messrs.
Poulsen, Durko and Nungesser to the effect that they have carefully reviewed the
representations and warranties of Seller contained in this Agreement and, to the
best of their knowledge, such representations are true and correct.
8.18 Retirement of Trustees. The Association shall take such action with
respect to the Trustee's Pension Plan so that no further service, benefit or
other liability can be incurred by the Association with respect to such plan.
ARTICLE IX
RISK OF LOSS; CONSENTS TO ASSIGNMENT
9.1 Damage or Destruction Prior to Closing.
(a) Insured Casualty. In the event that any of the Assets are damaged
or destroyed prior to the Closing, and such damage or destruction is fully
covered by Seller's insurance, except for the deductible amounts thereunder,
this Agreement shall remain in full force and effect, Buyer shall purchase the
Assets upon the terms and conditions set forth herein and receive a credit as
against the Purchase Price in the amount of any deductible, and Seller shall
assign to Buyer all of Seller's right, title and interest in and to all proceeds
of insurance on account of such damage or destruction.
(b) Uninsured Casualty. In the event any of the Assets are damaged or
destroyed prior to Closing, and such damage or destruction is not fully covered
by Seller's insurance, Seller shall, within fifteen (15) business days after the
date of such damage or destruction, either (i) notify Buyer of Seller's
intention to repair such damage or destruction at Seller's sole cost and
expense, or (ii) notify Buyer of Seller's intention to provide Buyer a credit
against the Purchase Price at the Closing in an amount reasonably determined by
Buyer and Seller to be equal to the cost of repairing such damage or
destruction, and Seller, in either event, shall be entitled to any proceeds of
insurance on account of such damage or destruction. Any repairs elected to be
made by Seller pursuant to this Section 9.1(b) shall be made as soon as
reasonably practicable following such damage or destruction (whether before or
after the Closing) and the Closing shall not be extended solely on account of
any damage or destruction to the Assets.
(c) Seller shall maintain and keep in full force and effect in all
respects the existing policies of insurance covering the Assets from the date of
this Agreement through and including the Closing Date.
9.2 Consents to Assignment. Anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract, Lease, Permit or any claim or right or any benefit arising thereunder
or resulting therefrom if an attempted assignment thereof, without the consent
of a third party thereto, would constitute a Default thereof or in any way
adversely affect the rights of Buyer thereunder. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
affect the rights thereunder so that Buyer would not receive all such rights,
Seller will cooperate with Buyer, in all reasonable respects, to provide to
Buyer the benefits under any such Contract, Lease, Permit or any claim or right,
including without limitation enforcement for the benefit of Buyer of any and all
rights of Seller against a third party thereto arising out of the Default or
cancellation by such third party or otherwise. In the event that Seller and
Buyer shall determine that any Asset as to which a required Permit shall not
have been obtained is not necessary for consummation of
38
<PAGE>
the transactions contemplated by this Agreement, then such Asset may be excluded
and the Purchase Price shall be reduced by the amount which Seller and Buyer
have allocated to such Asset.
ARTICLE X
ACTIONS BY SELLER AND BUYER
AFTER THE CLOSING
10.1 Use of Rose Hills Name. Seller shall use the name "Rose Hills" in the
conduct of its affairs as a charitable foundation pursuant to the License
Agreement. Neither Buyer nor its Affiliates may represent that it is affiliated
with Seller's charitable foundation.
10.2 Books and Records. Each party agrees that it will cooperate with and
make available to the other party, during normal business hours, all Books and
Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
The party requesting any such Books and Records, information or employees shall
bear all of the out-of-pocket costs and expenses (including without limitation
attorneys' fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such Books and Records,
information or employees. All information received pursuant to this Section 10.2
shall be subject to the terms of the confidentiality provisions of Section
11.11. Buyer further agrees to retain all such Books and Records for a period of
six (6) years after the Closing Date.
10.3 Survival of Representations and Warranties. Notwithstanding any
investigations or inquiries made by Buyer or the waiver of any conditions to
Closing by Buyer, the representations, warranties, covenants and agreements of
Seller will survive the Closing and will continue in full force and effect,
except as provided in Section 10.4(d) of this Agreement, (a) with respect to the
representation or warranty set forth in Section 4.25, relating to taxes, for the
applicable statute of limitations, (b) with respect to any representation or
warranty set forth in Section 4.9, relating to Environmental Issues, for a
period of twenty-four (24) months from the Closing Date, (c) with respect to any
other representation or warranty, for a period of fifteen (15) months from the
Closing Date and (d) with respect to any covenant or agreement, for a period in
accordance with its provisions.
10.4 Indemnification.
(a) Indemnification by Seller. Seller agrees to indemnify, defend and
hold Buyer and its Affiliates harmless from and against any and all claims,
liabilities, losses and expenses, including reasonable attorney's fees
(collectively, "Losses and Expenses") incurred by Buyer or its Affiliates in
connection with or arising from:
(i) any breach by Seller of any covenant in this Agreement,
any of the Ancillary Agreements, or in any document to which Seller is a party;
39
<PAGE>
(ii) any failure by Seller to perform any of its obligations
in this Agreement, any of the Ancillary Agreements, or in any document to which
Seller is a party;
(iii) any breach of any warranty or the inaccuracy of any
representation of Seller contained in this Agreement or referred to in this
Agreement or any certificate delivered by Seller pursuant hereto; or
(iv) the Excluded Liabilities;
provided, however, that Seller shall be required to indemnify and hold Buyer
harmless under this Section 10.4 with respect to all Losses and Expenses
incurred by Buyer or its Affiliates only to the extent that the aggregate amount
of such Losses and Expenses, when combined with the aggregate amount of Losses
and Expenses as incurred by Buyer pursuant to the Roses, Inc. Agreement, taken
together, exceeds $1.0 million (the "Basket") and then only with respect to the
amount in excess of the Basket (it being understood that the Basket shall not
apply to a breach of the covenant contained in Section 11.14). In determining
whether the Basket has been attained or exceeded, all of the Losses and Expenses
of Buyer (i) pursuant to this Section 10.4 and (ii) pursuant to the Roses, Inc.
Agreement shall be aggregated, irrespective as to whether such Losses and
Expenses or any individual component thereof is or is not deemed material under
this Agreement or the Roses, Inc. Agreement or, in either case, is less than
$1.0 million. Seller shall not in any event be obligated to indemnify Buyer to
the extent that the aggregate indemnifiable claims under this Section 10.4 and
the Roses, Inc. Agreement are in excess of $50 million reduced by any amounts
paid by the Roses Stockholders under the Roses, Inc. Agreement (the "Cap").
(b) Indemnification by Buyer. Buyer agrees to indemnify and hold
Seller (and the Trustees of Seller to the extent of subsection (iv) below)
harmless from and against any and all Losses and Expenses, (including reasonable
attorney's fees) incurred by Seller (or Seller's Trustees) in connection with or
arising from:
(i) any breach by Buyer of any of its covenants or
agreements in this Agreement, any of the Ancillary Agreements, or in any other
document to which Buyer is a party;
(ii) any failure by Buyer to perform any of its obligations
in this Agreement, any of the Ancillary Agreements, or in any other document to
which Buyer is a party;
(iii) any breach of any warranty or the inaccuracy of any
representation of Buyer contained or referred to in this Agreement or in any
certificate delivered by or on behalf of Buyer pursuant hereto;
(iv) the Assumed Liabilities or the operation of the
Business after the Closing; or
(v) any tax liability assessed against Seller by the
California Franchise Tax Board with respect to issues between the Seller and the
Internal Revenue Service ("IRS") which were reserved in the Closing Agreement
between Seller and the IRS relating to Seller's tax year ended September 30,
1990 in an amount equal to such assessed tax liability plus an additional amount
so that
40
<PAGE>
on an after tax basis Seller has no cash cost for such tax liability but
in any event, not to exceed [$ ].
(c) Insurance and Tax Benefits.
(i) Notwithstanding the foregoing, in no event shall an
Indemnified Party be entitled to indemnification hereunder to the extent any
Losses and Expenses are covered by and actually paid by insurance maintained by
the Indemnified Party or any of its Affiliates (an "Insurance Benefit").
(ii) The amount of any indemnity payment otherwise required
to be made pursuant to this Agreement shall be reduced by the amount of any
directly corresponding federal, state or local income tax benefit actually
recognized and utilized to offset or reduce the tax liability of the Indemnified
Party from payment of the liability upon which the claim for indemnity is based,
but only to the extent that such income tax benefit results in an actual
reduction of income taxes due for any Tax year of payment of the claim for
indemnity or in a refund of income taxes already paid.
(d) Basket, Cap, Time Limitation Not Applicable. Notwithstanding
anything to the contrary in this Agreement, in no event shall the Basket, the
Cap or the time limitations (as provided for in Section 10.3) be applicable to
Losses and Expenses (i) arising as a result of a breach of the representations
and warranties set forth in Sections 4.1, 4.2, 4.3 or 4.4, (ii) arising out of
the Excluded Liabilities (as defined in Section 2.3), or (iii) which are
ultimately determined to be due to the actual fraud of Seller. For purposes of
this subsection (d), the term "actual fraud" shall require actual (not
constructive) intent to defraud and actual reliance on the part of Buyer.
(e) Notice of Claims. Either of Buyer or Seller, (the "Indemnified
Party") seeking indemnification hereunder shall give to the party obligated to
provide indemnification to such Indemnified Party (the "Indemnitor") a notice (a
"Claim Notice") describing in reasonable detail the facts giving rise to any
claim for indemnification hereunder and shall include in such Claim Notice (if
then known) the amount or the method of computation of the amount of such claim,
and a reference to the provision of this Agreement or any other agreement,
document or instrument executed hereunder or in connection herewith upon which
such claim is based; provided, however, that a Claim Notice in respect of any
claim, action at law or suit in equity by or against a Third Person, as defined
in subsection (h) below, as to which indemnification will be sought shall be
given promptly after the claim, action or suit is commenced; provided, further,
that failure to give such notice shall not relieve the Indemnitor of its
obligations hereunder except to the extent it shall have been materially
prejudiced by such failure.
(f) Sole Remedies of the Parties. Except for the remedies provided in
Section 11.14 hereof, which shall be in addition to the remedies contained in
this Section, the sole and exclusive remedy of the parties hereto for any claim
resulting in a breach by any of the parties hereto of their respective
representations, warranties, covenants or agreements made hereby or the failure
by any party to perform their respective obligations under this Agreement shall
be a claim under this Agreement.
(g) Third Person Claims.
(i) Subject to subsection (g)(ii), the Indemnified Party
shall have the right to conduct and control, through counsel of its choosing,
the defense, compromise or settlement of any Third
41
<PAGE>
Person claim, action or suit against such Indemnified Party as to which
indemnification will be sought by any Indemnified Party from any Indemnitor
hereunder, and in any such case the Indemnitor shall cooperate in connection
therewith and shall furnish such records, information and testimony and attend
such conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by the Indemnified Party in connection therewith; provided,
however, that the Indemnitor may participate, through counsel chosen by it and
at its own expense, in the defense of any such claim, action or suit as to which
the Indemnified Party has so elected to conduct and control the defense thereof;
and provided, further, that the Indemnified Party shall not, without the written
consent of the Indemnitor (which written consent shall not be unreasonably
withheld or conditioned), pay, compromise or settle any such claim, action or
suit, except that no such consent shall be required if, following a written
request from the Indemnified Party, the Indemnitor shall fail, within 14 days
after the making of such request, to acknowledge and agree in writing that, if
such claim, action or suit shall be adversely determined, such Indemnitor has an
obligation to provide indemnification hereunder to such Indemnified Party.
Notwithstanding the foregoing, the Indemnified Party shall have the right to
pay, settle or compromise any such claim, action or suit without such consent,
provided, however, that in such event the Indemnified Party shall waive any
right to indemnity therefor hereunder unless such consent is unreasonably
withheld.
(ii) If any Third Person claim, action or suit against any
Indemnified Party is solely for money damages or will have no continuing effect
in any material respect on the Indemnitor, the Indemnified Party, the Business
or the Assets, then the Indemnitor shall have the right to conduct and control,
through counsel of its choosing, the defense, compromise or settlement of any
such Third Person claim, action or suit against such Indemnified Party as to
which indemnification will be sought by any Indemnified Party from any
Indemnitor hereunder if the Indemnitor has acknowledged and agreed in writing
that, if the same is adversely determined, the Indemnitor has an obligation to
provide indemnification to the Indemnified Party in respect thereof, and in any
such case the Indemnified Party shall cooperate in connection therewith and
shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by the Indemnitor in connection therewith; provided,
however, that the Indemnified Party may participate, through counsel chosen by
it and at its own expense, in the defense of any such claim, action or suit, as
to which the Indemnitor has so elected to conduct and control the defense
thereof. Notwith- standing the foregoing, the Indemnified Party shall have the
right to pay, settle or compromise any such claim, action or suit, provided,
further, that in such event the Indemnified Party shall waive any right to
indemnity therefor hereunder unless the Indemnified Party shall have sought the
consent of the Indemnitor to such payment, settlement or compromise and such
consent was unreasonably withheld, in which event no claim for indemnity
therefor hereunder shall be waived.
(h) Interest, Costs and Attorneys' Fees. If Seller or Buyer shall be
in breach of any of its respective representations or warranties or in default
of and of its respective covenants, agreements or other obligations hereunder,
then in addition to any and all other rights and remedies which the non-
defaulting party may have against such defaulting party, such defaulting party
shall be liable to and shall, upon demand, pay the non-defaulting party for all
reasonable court costs and attorneys' fees incurred or sustained by the
non-defaulting party by reason thereof or in enforcing the terms and conditions
of this Agreement. Such defaulting party shall also pay to the non-defaulting
party interest from the date of notice of Claim upon any sums owing by such
defaulting party to the non-defaulting party at a rate equal to three (3)
percentage points in excess of the prime or base rate of interest announced,
from time to time, by Citibank, N.A.; the term "prime or base rate" means the
rate of interest announced, from time to time, by
42
<PAGE>
said bank as its prime or base rate of interest. For purposes of convenience,
and at the election of such non-defaulting party, interest for a calendar month,
or a portion thereof, shall be calculated as if the prime or base rate in effect
on the first banking business day for such month was in effect for the entire
month.
(i) Payment and Right of Offset. Upon the final determination of a
liability under Sections 10.4(a) or (b) hereof, whether reached by written
agreement of the parties or pursuant to arbitration pursuant to Section 10.4(j)
hereto, the appropriate party or parties shall pay to the other, within ten (10)
days after such determination, the amount so determined by agreement or by
arbitration, as the case may be. In the event that Buyer is not paid in full
pursuant to the foregoing provisions promptly after Seller's obligation to
indemnify has been determined in accordance herewith, it shall have the right,
notwithstanding any other rights that it may have against any other person, firm
or corporation, to set-off the unpaid amount of any such claim against any
amounts owed by it under this Agreement to the person so determined to be liable
to Buyer; provided, however, that in no event shall Buyer have any right of
set-off with respect to its payment of amounts due under the Trustees' and
Executives' Pension Plans. Upon the payment in full of any claim, either by
set-off or otherwise, the entity making payment shall be subrogated to the
rights of the Indemnified Party, if any, against any Third-Party, firm or
corporation with respect to the subject matter of such claim.
(j) Binding Arbitration. All disputes under this Agreement shall be
settled in Los Angeles, California, before a single arbitrator pursuant to the
rules of practice administered by Judicial Arbitration & Mediation Services,
Inc. ("JAMS"). Arbitration may be commenced at any time by any party hereto
giving written notice to the other party to the dispute that such dispute has
been referred to arbitration under this Agreement. the arbitrator shall be
selected by the joint agreement of Seller and Buyer, but if they do not agree
within twenty (20) days after the date of the notice referred to above, the
selection shall be made pursuant to the rules from the panels of arbitrators
maintained by JAMS. The arbitrator shall render his decision within 120 days of
appointment. Any award rendered by the arbitrator shall be final, conclusive and
binding upon the parties hereto; provided, however, that any such award shall be
accompanied by a written opinion of the arbitrator giving the reasons for the
award. This provision for arbitration shall be specifically enforceable by the
parties and the decision of the arbitrator in accordance herewith shall be
final, binding and conclusive and there shall be no right of appeal therefrom.
The costs and expenses of arbitration, including attorney's fees and expenses of
the arbitrator, shall be paid entirely by the non prevailing party unless the
arbitrator determines that the costs, expenses and attorney's fees should be
apportioned between the parties, then as the arbitrator may assess. The
arbitrator shall not be permitted to award punitive damages under any
circumstances.
ARTICLE XI
MISCELLANEOUS
43
<PAGE>
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) By the mutual written agreement of Seller and Buyer;
(b) By Buyer, if any of the conditions required to be performed by
Seller as specified in this Agreement shall not have been met by December 13,
1996 and shall not have been waived in writing by Buyer; provided, however, that
Buyer shall not then be in default of any of the conditions required to be
performed by Buyer as specified in this Agreement; or
(c) By Seller, if any of the conditions required to be performed by
Buyer as set forth in this Agreement shall not have been met by December 13,
1996 and shall not have been waived in writing by Seller; provided, however,
that Seller shall not then be in default of any of the conditions required to be
performed by Seller as specified in this Agreement.
(d) In the event that this Agreement shall be terminated (i) pursuant
to Section 11.1(c), then the LOC Payment and the No Shop Payment shall be
retained by Seller as liquidated damages and shall be the only amount or remedy
to which Seller is entitled as a result of termination, or (ii) in accordance
with Section 11.1(b), then the LOC Payment and the No Shop Payment shall be
returned by Seller to Buyer. In the event of termination of this Agreement, for
any of the reasons specified in this Section 11.1, provided that the retention
or return described in the immediately preceding sentence has occurred, then no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement.
11.2 Assignment. Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by any party without the prior written consent of the
other party. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, and no other person shall have any right, benefit or
obligation under this Agreement as a third party beneficiary or otherwise.
11.3 Notices; Transfer of Funds. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
44
<PAGE>
If to Seller, addressed to:
Rose Hills Memorial Park Association
Argue, Pearson, Harbison & Myers
801 South Flower Street, 5th Floor
Los Angeles, CA 90017
Attention: John C. Argue
Tel No.: (213) 622-3100
Fax No.: (213) 622-7575
With a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
Attention: John R. Light
Tel No.: (213) 891-8240
Fax No.: (213) 891-8763
If to Buyer, addressed to:
Tudor Acquisition Corp.
c/o The Blackstone Group
345 Park Avenue, 31st Floor
New York, New York 10154
Attention: Howard Lipson
Tel No.: (212) 836-9844
Fax No.: (212) 754-8703
With a copy to:
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
Attention: James M. Papada, III, Esquire
Tel No.: (215) 564-8049
Fax No.: (215) 564-8120
With a copy to:
The Blackstone Group
345 Park Avenue, 31st Floor
New York, New York 10154
Attention: Howard Lipson
Tel No.: (212) 836-9844
Fax No.: (212) 754-8703
45
<PAGE>
With a copy to:
Simpson, Thacher & Bartlett
425 Lexington Avenue, 28th Floor
New York, NY 10017
Attention: Wilson S. Neely, Esquire
Tel No.: (212) 455-7063
Fax No.: (212) 455-2502
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
California.
11.5 Entire Agreement; Amendments and Waivers. This Agreement and the
Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule) constitute the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, including, without limitation, the Confidentiality
Agreement and the No Shop Agreement. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto. No
amendment, supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
11.6 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Expenses. Except as otherwise specified in this Agreement, each party
hereto shall pay its own legal, accounting, out-of-pocket and other expenses
incident to this Agreement and to any action taken by such party in preparation
for carrying this Agreement into effect.
11.8 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
11.9 Titles; Gender. The titles, captions or headings of the Articles and
Sections herein, and the use of a particular gender, are for convenience of
reference only and are not intended to be a part of or to affect or restrict the
meaning or interpretation of this Agreement.
11.10 Publicity. Neither Buyer nor Seller shall issue any press release or
make any public statement regarding the transactions contemplated hereby or the
consummation of such transactions, without prior written approval of the other
party; provided, however, that no party shall unreasonably withhold its consent
to any press release or public statement required by law to be issued by any
other party hereto;
46
<PAGE>
and provided, further, that any press release or public statement of the Buyer
shall be subject to the review of and consultation with Seller as to content and
timing. The parties agree to cooperate fully in all press releases, public
statements or statements to employees regarding the transactions contemplated
hereby.
11.11 Confidential Information.
(a) No Disclosure. The parties acknowledge that the transaction
described herein is of a confidential nature and shall not be disclosed except
to consultants, advisors and affiliates, or as required by law, until such time
as the parties make a public announcement regarding the transaction as provided
in Section 11.10.
(b) Preservation of Confidentiality. In connection with the
negotiation of this Agreement, the preparation for the consummation of the
transactions contemplated hereby, and the performance of obligations hereunder,
Buyer acknowledges that it will have access to confidential information relating
to Seller, including technical, manufacturing or marketing information, ideas,
methods, developments, inventions, improvements, business plans, trade secrets,
scientific or statistical data, diagrams, drawings, specifications or other
proprietary information relating thereto, which confidential information,
together with all analyses, compilations, studies or other documents, records or
data prepared by Seller or Buyer or their respective Representatives which
contain or otherwise reflect or are generated from such information shall be
deemed "Confidential Information" for purposes of this Agreement.
Notwithstanding anything to the contrary herein contained, nevertheless,
"Confidential Information" shall not include information which (i) at the time
of disclosure to a party is generally available to the public, (ii) at the time
of disclosure to a party is already in that party's possession, provided that
such information is not subject to another confidentiality agreement with, or
other legal obligation of secrecy or confidentiality to, the provider of such
information, or (iii) becomes available to a party on a nonconfidential basis
from a person other than the provider of the information, so long as such source
is not otherwise subject to a confidentiality agreement with, or other legal
obligation of secrecy or confidentiality to, the provider of the information.
(c) Disclosure of Confidential Information. Buyer shall treat all
Confidential Information as confidential, preserve the confidentiality thereof
and not disclose any Confidential Information, except to its Representatives and
Affiliates who need to know such Confidential Information in connection with the
transactions contemplated hereby. Buyer shall use all reasonable efforts to
cause its Representatives to treat all Confidential Information as confidential,
preserve the confidentiality thereof and not disclose any Confidential
Information. Buyer shall be responsible for any breach of this Agreement by any
of its Representatives. If, however, Confidential Information is disclosed,
Buyer shall immediately notify Seller in writing and take all reasonable steps
required to prevent further disclosure.
(d) Ownership. Until the Closing or the termination of this
Agreement, all Confidential Information shall remain the property of the party
who originally possessed such information. In the event of the termination of
this Agreement for any reason whatsoever, Buyer shall, and shall cause its
Representatives to, return to Seller all Confidential Information (including all
copies, summaries and extracts thereof) furnished to Buyer by Seller in
connection with the transactions contemplated hereby.
(e) Legal Process. If Buyer or any of its Representatives or
Affiliates is requested or required (by oral questions, interrogatories,
requests for information or documents in legal proceedings,
47
<PAGE>
subpoena, civil investigative demand or other similar process) or is required by
operation of law to disclose any Confidential Information, Buyer shall provide
Seller with prompt written notice of such request or requirement, which notice
shall, if practicable, be at least 48 hours prior to making such disclosure, so
that Seller may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. If, in the absence of a
protective order or other remedy or the receipt of such a waiver, Buyer or any
of its Representatives are nonetheless, in the opinion of counsel, legally
compelled to disclose Confidential Information, then Buyer may disclose that
portion of the Confidential Information which such counsel advises is legally
required to be disclosed, provided that Buyer uses its reasonable efforts to
preserve the confidentiality of the Confidential Information, whereupon such
disclosure shall not constitute a breach of this Agreement.
11.12 Bulk Sales Law. The parties to this Agreement waive compliance with
any bulk sales law which may be applicable to the transactions contemplated by
this Agreement.
11.13 Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
11.14 Other Agreements.
(a) Non Competition Agreement.
(i) Non-Compete. Seller hereby and herewith covenants with
Buyer that for a period of ten (10) years from the date of the Closing, Seller
shall not (except as otherwise specifically permitted herein), directly or
indirectly, for Seller's own account, or as a partner, member, advisor or agent
of any partnership or joint venture, or as a shareholder, advisor or agent of
any corporation, trust, or other business organization or entity, own, manage,
join, participate in, finance, be engaged in, have an interest in, give
financial assistance or advice to, permit Seller's name to be used in connection
with or be concerned in any way in the ownership, management, operation or
control of, or be connected in any manner with any business which is or may be
in the funeral, mortuary, crematory, cemetery, burial or funeral or cemetery
insurance business (including pre-arrangement or pre-need), or any business
related to any of the foregoing, in each case within a 100 mile radius of any
present location of the Business. The prohibitions of this Section 11.14 shall
apply to Seller's operation of the Murrieta Hills Cemetery Property only for so
long as Seller and Buyer are parties to an option agreement providing Buyer with
the right to purchase the Murrieta Hills Cemetery Property. Under no
circumstances shall Seller use the name "Rose Hills" or any logo connected
therewith in the operation of the Murrieta Hills Cemetery Property.
(ii) Enforcement of Non-Competition Covenant. Seller
expressly acknowledges that the restrictive covenants set forth in this Non
Competition Agreement are necessary in order to protect and maintain the
proprietary interests and other legitimate business interests of Buyer and its
Affiliates. Seller also acknowledges that it is reasonable that the restrictions
set forth herein are not more limited as to geographic area than is set forth
herein. If, at the time of enforcement of any provision of this Non Competition
Agreement, a court shall hold that the period, scope or geographical area of the
restrictions stated therein are unreasonable under the circumstances then
existing, the parties
48
<PAGE>
agree that the maximum allowable period, scope or area reasonable under such
circumstances shall be substituted for the period, scope or area stated herein,
with respect to the enforcement of such provision then at issue.
(iii) Remedies for Breach. Seller further acknowledges
that the remedy at law for any breach or threatened breach of the Non
Competition Agreement will be inadequate and, accordingly, that Buyer or any of
its Affiliates shall, in addition to all other available remedies (including,
without limitation, seeking such damages as it can show it has sustained by
reason of such breach), be entitled to injunctive relief without having to prove
the inadequacy of the available remedies at law. Seller further agrees not to
plead or defend on the grounds of adequate remedy at law or any element thereof
in an action by Buyer against Seller for injunctive relief or for specific
performance of any obligation pursuant to the Non Competition Agreement.
(iv) Definitions. For purposes of this Section 11.14,
"engage directly or indirectly" shall encompass all of Seller's activities
whether on its own account or as an agent, consultant or partner of or in any
person, firm or corporation (other than Buyer or any of its Affiliates), but
will exclude ownership of shares of any company which has reporting obligations
under the Securities and Exchange Act of 1934, as amended, in which Seller shall
be permitted to own up to one percent (1%) of the issued and outstanding capital
stock.
11.15 No Solicitation.
(a) No Shop; Exclusivity. From and after the date hereof, until the
termination or expiration of this Agreement as provided for in Section 11.1,
Seller will not directly or indirectly through any trustee, director, officer,
agent, or otherwise initiate, solicit or deliberately encourage submission of
proposals or offers from any person or entity relating to any acquisition or
purchase of all or (other than burial spaces in the ordinary course of business)
a material amount of the assets of, or any equity interest of subsidiaries or
affiliates of, Seller or any merger, consolidation or business combination with
Seller; provided, however, that as may be required by its fiduciary duties under
applicable law as advised by counsel, Seller may participate in any discussions
or negotiations regarding, and may furnish to any other person information with
respect to any of the foregoing. Seller shall promptly notify Buyer if any such
proposal or offer, or any inquiry or contact with respect thereto, is made as
well as to the terms and conditions of any such proposal or offer.
(b) Exercise of Fiduciary Duty. Nothing contained in this Agreement
shall prevent the Board of Trustees of Seller from approving a transaction with
another person or entity if such Board determines that, under applicable law on
the advice of counsel, such action is required in the exercise of the fiduciary
duties of the Board. In such case, Seller may terminate this Agreement, without
any further obligation, except for (i) return of the No-Shop Payment and (ii)
the payment required by Section 11.15(c). Except for the right of termination
set forth in this Section 11.15(b), nothing shall relieve Seller and its
affiliates from complying with all other terms of this Agreement.
(c) Compensatory Fee. If Seller exercises its fiduciary duties under
Section 11.15(b) and causes termination of this Agreement, then within five (5)
business days following Buyer's written request therefor, Seller shall pay to
Buyer as liquidated damages the sum of $17,500,000, (the "Compensatory Fee") by
wire transfer of immediately available funds to an account designated by Buyer.
49
<PAGE>
Seller acknowledges that this fee is reasonable and equitable given the time,
effort and expense undertaken and incurred by Buyer in connection with the
transactions contemplated by this Agreement as well as the significant benefit
accorded Seller by the price negotiated for the transactions subject to this
Agreement. Furthermore, if (i) Roses, Inc. shall have exercised its fiduciary
duty pursuant to Section 13.2 of the Roses, Inc. Agreement (the "Exercise") and
(ii) the transactions contemplated by this agreement are not consummated and
(iii) Seller shall have entered into an agreement, or procured an option, to
sell, transfer or otherwise dispose of substantially all of its cemetery related
assets or Business to, or merge with or into, the same person ("Purchaser") that
purchases substantially all of the stock, assets or business of, or merges with
or into, Roses, Inc. (or an affiliate of Roses, Inc.) (or an affiliate of such
Purchaser or any other person with any option, arrangement or understanding with
Purchaser with respect thereto) within one year from the date of the Exercise,
then Seller shall pay Buyer the Compensatory Fee within five (5) business days
of entering into such agreement or procuring such option.
11.16 Non-Foreign Status and California Residency. In accordance with
Section 1445 of the Code and Section 18815 and 26131 of the California Revenue
and Taxation Code, Seller hereby additionally represents, warrants and certifies
to Buyer, under penalty of perjury, that (a) Seller is not now, and on the
Closing Date will not be, a "foreign person" (being a foreign corporation,
foreign partnership, foreign trust and foreign estate, as those terms are
defined in the Internal Revenue Code and income tax regulations); (b) Seller's
tax identification number is _________; (c) Seller is a California non-profit
mutual benefit corporation and a resident of California; and (d) Buyer need not
withhold tax at the Closing as a result of the transactions provided for in this
Agreement. Upon the request of Buyer, Seller shall sign and deliver on or after
the Closing Date a separate affidavit(s) confirming the foregoing information.
11.17 Tank 7 Parcel. Immediately following the execution and delivery of
this Agreement and prior to the Closing Date, Buyer shall cause Salit and
Associates to revise a portion of the Survey prepared by it on September 10,
1996 so as to reset the southeasterly most title line of the Real Property
(which is currently reflected on Sheet 11 of such Survey and is the last course
and distance set out in the legal description for Parcel 21 of Title Commitment
No. 9622451-51) in a southeasterly direction at a line to be mutually agreed
upon by Seller and Buyer and which will add approximately four (4) acres to the
Real Property. After being designated on the Survey, the legal description for
Parcel 21 of the Real Property as set forth in the Title Commitment No.
9622451-51 shall likewise be revised.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
ROSE HILLS MEMORIAL
PARK ASSOCIATION, a
California nonprofit
mutual benefit corporation
By ____________________________
Name:_______________________
Its: __________________________
TUDOR ACQUISITION CORP.,
a Delaware corporation
By /s/ Howard A. Lipson
------------------------------
Name: Howard A. Lipson
Its: President
51
<PAGE>
AGREEMENT AND PLAN OF MERGER
by and among
ROSES, INC.,
THE STOCKHOLDERS OF ROSES, INC.
and
TUDOR ACQUISITION CORP.
Dated: September , 1996
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of September , 1996 by and among Roses, Inc., a
California corporation (the "Company"), the Stockholders of the Company as
listed on Exhibit A hereof (the "Stockholders") and Tudor Acquisition Corp., a
Delaware corporation ("Acquisition").
RECITALS
A. The Company is the sole shareholder of Rose Hills Mortuary,
Inc., a California corporation (the "Mortuary"), and the Mortuary is the sole
general partner, and the Company is the only limited partner, of Rose Hills
Mortuary, L.P., a Delaware limited partnership (the "Partnership"), with all
such entities doing business under the names "Rose Hills Company", "Rose Hills
Mortuary" and "Rose Hills Insurance Services" and being engaged in the mortuary
business and the cemetery management business.
B. The Stockholders are the holders of 100% of the issued and
outstanding shares of Common Stock of the Company (the "Shares").
C. The Board of Directors of Acquisition and the Board of
Directors of the Company each has determined that it is in the best interests of
their respective stockholders for Acquisition to acquire the Company upon the
terms and subject to the conditions set forth herein.
AGREEMENT
In consideration of the representations, warranties, covenants
and agreements contained herein, the Company, the Stockholders and Acquisition
hereby agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3) Acquisition shall
be merged with and into the Company and the separate corporate existence of
Acquisition shall thereupon cease (the "Merger"). The Company shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of California. The Surviving Corporation shall have the name "Rose Hills,
Inc." and shall succeed, without other transfer, to all of the rights and
properties of Acquisition and shall be subject to all of the debts and
liabilities of Acquisition in the same manner as if the Company had itself
incurred them. The corporate existence, franchises and rights of the Company,
with its purposes, powers and objects, shall continue unaffected and unimpaired
by the Merger, and the Company shall succeed to and be fully invested insofar as
2
<PAGE>
permitted by law and not otherwise expressly provided for herein, with the
corporate existence, identity and all rights, franchises, assets, liabilities
and operations of Acquisition. The Merger shall have the effects specified in
both the Delaware General Corporation Law (the "DGCL") and the California
General Corporation Law (the "CGCL").
1.2 Closing. The closing of the Merger (the "Closing" or the
"Closing Date") shall take place (i) at the offices of Latham & Watkins, 633
West Fifth Street, Los Angeles, California 90071, at 9:00 a.m., Los Angeles
time, on November 26, 1996, or as promptly as practicable thereafter following
the satisfaction of the conditions set forth in Sections 7.1(b), 7.2(b) and
7.1(o) (and subject to the other conditions of Article VII), provided, that any
deferral of the Closing Date beyond November 26, 1996 shall not affect the
Company's or the Stockholders' rights under Section 8.6 to draw upon the Letter
of Credit in accordance with its terms, and provided further, that any deferral
of the Closing Date beyond December 13, 1996 shall not affect any party's rights
to terminate this Agreement pursuant to Section 8.2 or, at Acquisition's
election, in its sole and absolute discretion and without further cost, expense
or other consideration, on a date not later than December 13, 1996 (provided,
however, that any such extension shall not affect the Company's or the
Stockholders' rights under Section 8.6 to draw upon the Letter of Credit in
accordance with its terms,), or (ii) at such other place and time and/or on such
other date as the Company and Acquisition may agree.
1.3 Effective Time. As soon as practicable following the
Closing, and provided that this Agreement has not been terminated pursuant to
Article VIII hereof, a certificate of merger (the "Certificate of Merger") in
substantially the form attached as Exhibit B hereto, shall be prepared in
accordance with the DGCL and the CGCL, and thereafter delivered to the Secretary
of State of the State of Delaware and to the Secretary of State of the State of
California for filing as provided in both the DGCL and the CGCL. The Merger
shall become effective upon the filing of the Certificate of Merger (together
with any other documents required by law to effectuate the Merger) with both the
Secretary of State of the State of Delaware and the Secretary of State of the
State of California or at such time thereafter as is provided in the Certificate
of Merger (the "Effective Time").
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of
Incorporation of the Company in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until duly amended in
accordance with the terms thereof and both the DGCL and the CGCL.
2.2 By-Laws. The By-Laws of the Company in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until duly
amended in accordance with the terms thereof and both the DGCL and the CGCL.
3
<PAGE>
ARTICLE III
DIRECTORS
3.1 Board of Directors of the Surviving Corporation. At the
Effective Time, each of the members of the Board of Directors of the Company
immediately prior to the Effective Time shall submit their resignations and,
concurrently with such resignations, the directors of Acquisition shall become
the directors of the Surviving Corporation, each to serve until their successors
have been duly elected and appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and By-Laws. The directors of Acquisition on the date hereof
and at the Closing are identified on Schedule 3.1 hereto.
3.2 Officers of the Surviving Corporation. Except as
contemplated under the terms of the Employment and Consulting Agreements to be
entered into at the Closing pursuant to Section 7.1(h) hereof, at the Effective
Time, each of the officers of the Company immediately prior to the Effective
Time shall submit their resignations and, concurrently with such resignation,
the officers of Acquisition shall become the officers of the Surviving
Corporation, each to serve until their successors have been duly elected and
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
By-Laws.
ARTICLE IV
CONVERSION AND CANCELLATION OF SHARES IN THE MERGER
4.1 Conversion and Cancellation of Shares. The manner of
converting and canceling shares of the Company and Acquisition in the Merger
shall be as follows:
(a) At the Effective Time, the aggregate of all shares of the
Common Stock of the Company (the "Shares") issued and outstanding
immediately prior to the Effective Time (other than shares owned by
Acquisition or any subsidiary of Acquisition (collectively, the "the
Acquisition Companies"), or Shares owned directly or indirectly by the
Company as treasury stock) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the
right to receive, without interest, the following consideration,
subject to adjustment as provided for in Section 4.1(b) below (the
"Merger Consideration"):
(i) $ million, less the sum of the cash
actually received by the Stockholders
and/or the Company prior to the Effective
Time from (x) the LOC Payment and (y) the
No Shop Payment (the "Cash Consideration");
and
[(ii) Up to $ million in the form of Loewen
Shares (the "Equity Consideration")
consisting of that number of Loewen Shares
which shall be equal to the greater of [A]
the result obtained by dividing the dollar
amount of the Merger Consideration to be
paid in Loewen Shares by the average
(mathematical mean) of the last sale price
(regular way) of a share of Loewen Stock
in the NASDAQ National Market System (or
on the United States stock exchange on
which
4
<PAGE>
Loewen's shares are then listed), as
reported in the Wall Street Journal, on each
of the twenty (20) consecutive trading days
commencing October 1, 1996 or [B] the dollar
amount of the Purchase Price to be paid in
Loewen Shares divided by [$32].
(b) (i) The Cash Consideration shall be decreased by
an amount equal to the amount, if any, by
which Operating Capital on the Closing Date
is less than $180,000 (the "Adjustment").
For purposes of the calculations in this
Section 4.1(b)(i), each item comprising
Operating Capital shall be determined using
the same methodology as was used to
determine such item on the Interim Financial
Statements. The Adjustment shall consist of
an Interim Adjustment and a Post-Closing
Adjustment as set forth below:
(A) The Interim Adjustment shall be the
amount, if any, by which Operating
Capital is less than $180,000 on the
date of the most recently available
balance sheet (the "Pre-Closing
Balance Sheet") and shall reduce the
amount of the Cash Consideration
payable on the Closing Date. The
Company shall provide a copy of the
Pre-Closing Balance Sheet to the
Acquisition no later than five (5)
business days prior to the Closing
Date which shall serve as the basis
for the calculation of the Interim
Adjustment;
(B) The Post-Closing Adjustment shall be
the amount, if any, by which the
Adjustment exceeds the Interim
Adjustment. As promptly as
practicable but no later than thirty
(30) days after the Closing Date,
Acquisition shall cause to be
prepared a calculation of Operating
Capital as of the Closing Date (the
"Closing Date Calculation") which
shall serve as the basis for the
calculation of the Adjustment and
the Post-Closing Adjustment. Upon
the availability of the Closing Date
Calculation, Acquisition shall
deliver the Closing Date Calculation
to the Stockholders, together with a
certificate of the President and
Chief Financial Officer of
Acquisition to the effect that, to
the best of their knowledge, such
Closing Date Calculation is true and
correct and has been prepared in a
manner consistent with the Interim
Financial Statements. Within five
(5) days of delivering the Closing
Date Calculation, the Stockholders
shall pay Acquisition the Post-
Closing Adjustment, if any.
(C) In the event of any disagreement
concerning the Post-Closing
Adjustment, each party shall make
available to the other such books
and records as are relevant to such
disagreement and are in the
possession of such party, and the
parties shall work together in good
faith to resolve such disagreement.
The portion of the Post-Closing
Adjustment, if any, as to which the
5
<PAGE>
parties are unable to agree after
sixty (60) days shall be referred
for resolution to a nationally
recognized accounting firm, mutually
and reasonably acceptable to both
parties. The determination of such
third party, whose costs and
expenses shall be borne equally by
Acquisition and the Stockholders,
shall be final and determinative.
Upon such determination, the
Stockholders shall make any
additional payment required to be
made, together with interest thereon
at the rate set forth in Section
11.8 of this Agreement.
(ii) The Cash Consideration shall also be
decreased by an amount equal to (A) $200,000
(together with accrued interest thereon to
the Effective Date) and (B) the amount of
indebtedness for borrowed money (together
with accrued interest thereon to the
Effective Time and any prepayment penalties)
owed by the Company and its Subsidiaries on
the Closing Date to Wells Fargo Bank, N.A.
or any other entity to which the Company
owes funded debt on such date, except for
indebtedness owed to the Association under
those certain promissory notes dated
and in the original
principal amounts of $1.2 million and
$835,000, respectively, and any amounts owed
by the Company to USL Capital Corporation
under those certain Master Lease Agreements
dated December 22, 1994 and August 28, 1996.
(iii) The Cash Consideration shall also be
decreased by the amount (if any) of any and
all fees and expenses incurred and unpaid by
the Company and its subsidiaries at the
Closing Date to brokers and finders,
attorneys, accountants, appraisers and other
professional advisors, including, without
limitation, O'Melveny & Myers LLP, Grief &
Co., Kerlin Capital Group, LLC, U.S. Trust
Company of California, N.A., Arthur Anderson
& Company and Houlihan Lokey Howard & Zukin
in connection with the transactions
contemplated by this Agreement and the
Association Asset Purchase Agreement or
other matters related to the relationship
between the Company and any of its
Subsidiaries and the Association.
(c) The LOC Payment, the No Shop Payment, the Equity
Consideration and the Cash Consideration shall be distributed pro rata
to each Stockholder in the proportion (the "Ownership Percentage") that
the number of Shares issued and outstanding in the name of each such
Stockholder immediately prior to the Effective Time bears to the total
number of Shares issued and outstanding immediately prior to the
Effective Time. For income tax purposes, the fair value of the Loewen
Shares shall be the price of the Loewen Shares in the NASDAQ National
Market System (or United States stock exchange on which it is then
traded) as of the Closing Date.
(d) At the Effective Time, all Shares, by virtue of the Merger
and without any action on the part of the holders thereof, shall cease
to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such
6
<PAGE>
Shares shall thereafter cease to have any rights with respect to such
Shares, except the right of holders (other than the Acquisition
Companies) to receive the Merger Consideration upon the surrender of
such certificate in accordance with Section 4.2.
(e) At the Effective Time, each Share owned directly or
indirectly by the Company as treasury stock and each Share issued and
outstanding at the Effective Time and owned by any of the Acquisition
Companies shall, by virtue of the Merger and without any action on the
part of the holder thereof, cease to be outstanding, shall be canceled
and retired without payment of any consideration therefor and shall
cease to exist.
(f) At the Effective Time, each share of Common Stock of
Acquisition issued and outstanding immediately prior to the Effective
Time shall remain outstanding and each certificate therefor shall
continue to evidence one share of Common Stock of the Surviving
Corporation.
4.2 Payment for Shares.
(a) Immediately prior to the Effective Time, Acquisition shall
deliver to such agent as is mutually acceptable to Acquisition and the
Company (the "Exchange Agent") the Merger Consideration specified in
Section 4.1(a) hereof (the Cash Consideration component of which shall
be delivered by means of a federal wire transfer of immediately
available funds). The Exchange Agent shall hold and disburse the Merger
Consideration pursuant to the terms hereof and the terms of an Exchange
Agreement (the "Exchange Agreement") to be entered into prior to the
Effective Time among Acquisition, the Exchange Agent and the
Stockholders. At the Effective Time, and upon surrender to the Exchange
Agent of the certificate or certificates representing such
Stockholder's Shares (together with such duly executed letters of
transmittal or other similar instruments as may be required under the
Exchange Agreement or applicable law), each holder of record of Shares
shall be entitled to receive in exchange therefor its proportionate
share of the Merger Consideration as provided in Section 4.1(a) hereof,
and the certificate or certificates so surrendered shall forthwith be
canceled.
(b) Until surrendered to the Exchange Agent or the Surviving
Corporation to effect the exchange of the Shares for the Merger
Consideration as provided in the Exchange Agreement and Section 4.2(a)
hereof, each certificate evidencing the Shares shall, on or after the
Effective Time, be deemed for all corporate purposes to represent and
evidence only the right to receive the amount payable in the form of
the Merger Consideration, without interest thereon, on such terms as
are provided for in Section 4.1(a) hereof. Except as provided in
subsection (c) of this Section 4.2, until the certificate representing
the Shares shall have been so surrendered, the holder of such Shares
shall not have any right to receive any portion of the Merger
Consideration allocable to such Shares.
(c) In the event any certificate representing Shares shall
have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by
such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made
against it with respect to such certificate, the Surviving Corporation
will cause the Exchange Agent to deliver in exchange for such lost,
7
<PAGE>
stolen or destroyed certificate the Merger Consideration deliverable in
respect thereof pursuant to this Agreement and the Exchange Agreement.
(d) No interest shall be paid or shall accrue on the amount
payable upon the surrender of any certificate, whether or not such
certificate was surrendered for the Merger Consideration. If payment is
to be made to a person other than the registered holder of the
certificate surrendered, it shall be a condition of such payment that
the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer, as determined by the Surviving
Corporation, and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person
other than the registered holder of the certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such
tax has been paid or is not payable.
4.3 Transfer of Shares After the Effective Time. No transfers
of Shares shall be made on the stock transfer books of the Surviving Corporation
at or after the Effective Time. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Stockholders. Each
of the Stockholders, severally, and not jointly, hereby represents and warrants
to Acquisition that:
(a) Ownership of Shares. Except as described on Exhibit A or
on Schedule 5.1(a), (i) such Stockholder is the legal and beneficial
owner of the number of Shares listed opposite, his, hers or its name on
Exhibit A, and (ii) the Shares so listed are free and clear of all
Encumbrances.
(b) Power, Authorization and Enforceability of Agreement. Such
Stockholder has the legal capacity, and, if such Stockholder is a
corporation or partnership, the corporate or partnership power and
authority, to execute and deliver this Agreement, to perform his, hers
or its obligations hereunder and to consummate the transactions
contemplated hereby with respect to such Stockholder. If such
Stockholder is a corporation or partnership, such execution, delivery,
performance and consummation by such Stockholder has been duly
authorized by all necessary corporate or partnership action on the part
of such Stockholder. Except as described on Schedule 5.1(b), this
Agreement has been, and all other agreements, documents and instruments
required to be delivered by such Stockholder, pursuant to the
provisions hereof (the "Stockholder Documents") have been, or at the
Effective Time will be, duly executed and delivered by such Stockholder
and this Agreement constitutes, and such of the Stockholder Documents,
when executed and delivered will constitute, the legal, valid and
binding obligations of such Stockholder enforceable against such
Stockholder in accordance with its respective terms, except as
enforcement may be limited by debtor relief laws or equitable
principles relating to the granting of specific performance and other
equitable remedies as a matter of judicial discretion.
8
<PAGE>
(c) Compliance with Other Instruments and Regulations. Except
as disclosed on Schedule 5.1(c), the execution and delivery by such
Stockholder of, and the performance by such Stockholder of his, hers or
its respective obligations under, this Agreement and the Stockholder
Documents and the consummation of the transactions contemplated hereby
and thereby with respect to each such Stockholder do not violate,
conflict with, result in any breach of, or constitute a default under
(or with the giving of notice or the passage of time or both, violate,
conflict with or constitute a default under), (i) any Regulation that
is applicable to such Stockholder, (ii) any provision of the articles
or certificate of incorporation or bylaws or other organizational
documents of such Stockholder, or (iii) any mortgage, lease, indenture,
agreement, contract or other instrument, document or understanding,
oral or written, to which such Stockholder is a party or by which such
Stockholder is bound or has rights, except, in the cases of clause (i)
and clause (iii) above, for such instances as do not have, singly or in
the aggregate, a material adverse effect on such Stockholder's ability
to perform its obligations under this Agreement or the Stockholder
Documents.
(d) No Third Party Options. Except as described on Schedule
5.1(d), there are no existing agreements, options, contracts or rights
with, of or to any person to acquire any of the Shares owned by such
Stockholder from such Stockholder.
(e) Brokers and Finders. Such Stockholder has not employed any
broker or finder or incurred any liability for any fees or commissions
in connection with the transactions contemplated herein.
(f) Pre-Existing Entity. Except as set forth on Schedule
5.1(f), such Stockholder has not been organized for the specific
purpose of acquiring the Loewen Shares.
(g) Acquisition Without View to Distribute. Except as set
forth on Schedule 5.1(g), the Loewen Shares to be acquired by such
Stockholder are being acquired by such Stockholder for its own account,
not as a nominee or agent, and not with a view to the resale or
distribution thereof within the meaning of the Securities Act, and such
Stockholder will not distribute the Loewen Shares in violation of the
Securities Act or any applicable state securities laws.
(h) Additional Representations of the Stockholders. (i) Except
as set forth in Schedule 5.1(h), such Stockholder is an "accredited
investor" as such term is defined in Rule 501 promulgated under the
Securities Act, (ii) each Stockholder's financial situation is such
that it can afford to bear the economic risk of holding the Loewen
Shares for an indefinite period of time, (iii) such Stockholder's
knowledge and experience in financial and business matters are such
that it is capable of evaluating the merits and risks of its
acquisition of the Loewen Shares as contemplated by this Agreement,
(iv) such Stockholder does not have any contract, arrangement or
understanding with any broker, finder or similar agent with respect to
the transactions contemplated by this Agreement respecting the Loewen
Shares (except for such fees and compensation as may be owing by the
Company to Greif & Co. and Kerlin Capital Group, LLC under the those
certain agreements dated November 6, 1995, and January 16, 1996,
respectively.
9
<PAGE>
5.2 Representations and Warranties of the Stockholders and the
Company. The Stockholders and the Company, jointly and severally, hereby
represent and warrant to Acquisition that:
(a) Existence and Qualification; Power; Compliance With Laws.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. The Company is
duly qualified to transact business, and is in good standing, in its
jurisdiction of organization and each other jurisdiction in which the
conduct of its business or the ownership or leasing of its properties
makes such qualification necessary. The Company has all requisite
corporate power and corporate authority to conduct its business, to own
and lease its properties and to execute and deliver this Agreement and
consummate the transactions contemplated hereby; all requisite approval
from the Stockholders has been duly and legally obtained. The
Stockholders have caused the Company to deliver to Acquisition complete
and correct copies of the Company's Articles of Incorporation and
By-Laws, as amended to date. The Company's Articles of Incorporation
and By-Laws, as so delivered, are in full force and effect.
(b) Subsidiaries.
(i) Schedule 5.2(b) hereto correctly sets forth the
names, the forms of legal entity, jurisdictions of organization, chief
executive offices and principal places of business of all subsidiaries
of the Company (each a "Subsidiary" and together the "Subsidiaries").
Except as described on Schedule 5.2(b), neither the Company nor any
Subsidiary owns any capital stock or equity interest in any other
entity. All (100%) of the outstanding shares of capital stock, or all
of the units of equity interest, as the case may be, of each Subsidiary
are owned of record and beneficially by the Company, except as
described on Schedule 5.2(b), and all such shares or equity interests
so owned are duly authorized, validly issued, fully paid and, except as
described on Schedule 5.2(b), nonassessable, and were issued in
compliance with all applicable state and federal securities and other
laws, and, except as described on Schedule 5.2(b), are owned free and
clear of all Encumbrances. No Subsidiary has any shares of capital
stock or units of equity interest reserved for issuance. Except as set
forth in Schedule 5.2(b), there are no shares of capital stock of any
corporate Subsidiary or any units of equity interest in any partnership
Subsidiary authorized, issued or outstanding, and no preemptive rights
or any outstanding subscriptions, options, warrants, rights (including
any form of "poison pill" rights), convertible securities or other
agreements or commitments of any character to which any Subsidiary is a
party relating to the issued or unissued capital stock, units of equity
interest or other securities of any Subsidiary.
(ii) Each Subsidiary is a legal entity of the form
described for that Subsidiary on Schedule 5.2(b), duly organized,
validly existing, and in good standing under the laws of its
jurisdiction of organization, is duly qualified to do business as a
foreign organization and is in good standing as such in each
jurisdiction in which the conduct of its business or the ownership or
leasing of its properties makes such qualification necessary except
where the failure to be so duly qualified and in good standing does not
result in a Material Adverse Effect or Material Adverse Change, and has
all requisite power and authority to conduct its business and to own
and lease its properties.
(iii) Each Subsidiary has all requisite corporate or
partnership, as the case may be, power and authority to conduct its
business and to own and lease its properties. The
10
<PAGE>
Stockholders have caused the Company to deliver to Acquisition complete
and correct copies of the Articles of Incorporation and By-laws,
Partnership Agreements and other similar organizational documents, as
amended to date, respecting each Subsidiary. The Articles of
Incorporation and By-laws, Partnership Agreements and other
organizational documents of the Subsidiaries, as so delivered, are in
full force and effect.
(c) Authorized Capital. The authorized capital stock of the
Company consists of: 1,000,000 Shares of Common Stock, constituting the
only capital stock of the Company, of which 100,000 Shares are issued
and outstanding on the date of this Agreement. All of the outstanding
Shares of Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable. The Company has no Shares
reserved for future issuance. Except as set forth above and in Schedule
5.2(c), there are no preemptive rights or any outstanding
subscriptions, options, warrants, rights (including any form of "poison
pill" rights), convertible securities or other agreements or
commitments of any character to which the Company is a party relating
to the issued or unissued Common Stock or other securities of the
Company or any of its Subsidiaries. After the Effective Time, the
Surviving Corporation shall have no obligation to issue, transfer or
sell any shares of Common Stock of the Surviving Corporation pursuant
to any Employee Plans of the Company which are in effect on the date
hereof.
(d) Authority; Compliance With Other Agreements and
Instruments and Government Regulations. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby by the Company have been duly authorized by all necessary
corporate and shareholder action, and do not:
(i) except as set forth on Schedule 5.2(d), require any
consent or approval not heretofore obtained of any director,
stockholder, security holder or creditor of the Company or any other
entity;
(ii) violate or conflict with any provision of the
Company's Articles of Incorporation or By-Laws;
(iii) except as set forth on Schedule 5.2(d), result in
a breach of, constitute a default under or cause or permit the
triggering of any payment or obligations pursuant to, any of the
Company's Employee Plans existing on the date of this Agreement or any
grant or award made under any of the foregoing;
(iv) except as set forth on Schedule 5.2(d), result in
or require the creation or imposition of any Encumbrance upon or with
respect to any property now owned or leased by the Company, except for
Permitted Encumbrances;
(v) except as set forth on Schedule 5.2(d), violate in
any material respect any requirement of any Regulation applicable to
the Company;
(vi) except as set forth on Schedule 5.2(d), result in a
material breach of, constitute a material default under, or otherwise
give any contracting party, in any material respect, additional rights
or compensation under, or cause or permit the acceleration of any
material obligation owed under, any indenture or loan or credit
agreement, note, deed,
11
<PAGE>
instrument, lease, security agreement, mortgage, commitment or any
other contract to which the Company is a party or by which the Company
or any of its property is bound or affected.
(e) No Governmental Approvals Required. Other than the filings
provided for in Section 1.3, under the HSR Act, those as are set forth
on Schedule 5.2(e) and those which are not material to the operation of
the Business (collectively, the "Company Regulatory Filings"), no
authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, any governmental agency is
required to authorize or permit under applicable Regulations the
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby.
(f) Financial Statements. The Stockholders have caused the
Company to furnish to Acquisition the Balance Sheets, Statements of
Income and Statements of Cash Flow for the years ended December 31,
1994 and December 31, 1995 (collectively the "Audited Financial
Statements") and unaudited statements for the five (5) month period
ended May 31, 1996 (the "Interim Financial Statements"), for the
Partnership (the Audited Financial Statements and the Interim Financial
Statements, including the notes thereto, are sometimes collectively
referred to as the "Financial Statements"). Except as described on
Schedule 5.2(f), or as disclosed in the Financial Statements, as of
their respective dates, the Financial Statements (i) are in accordance
with the Books and Records of the Partnership, (ii) were prepared in
accordance with generally accepted accounting principles ("GAAP"),
consistently applied from period to period (except for changes, if any,
permitted by GAAP and disclosed therein), and (iii) fairly present in
all material respects in accordance with GAAP, the financial position,
results of operations and cash flows of the Partnership as of the dates
and for the periods covered thereby, subject, in the case of the
Interim Financial Statements, to normal year-end accruals and audit
adjustments, none of which are expected to be material, and the absence
of footnotes. As of the date of this Agreement, except as set forth on
Schedule 5.2(f), neither the Company nor the Mortuary has any Assets or
Liabilities whatsoever.
(g) Absence of Certain Changes; No Other Liabilities. Except
as disclosed on Schedule 5.2(g), from May 31, 1996 to the date hereof,
the Company and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any transaction other than
according to, the ordinary and usual course of such businesses
consistent with past practice, and there has not been (i) any Material
Adverse Effect or Material Adverse Change; (ii) any declaration,
setting aside or payment of any dividend or other distribution with
respect to the Common Stock of the Company, or (ii) any material change
by Partnership in the accounting principles, practices or methods
applicable to it. As of the date of this Agreement, the Partnership
does not have any Liability which is required to be reflected in the
Financial Statements in accordance with GAAP and which is not so
reflected or disclosed in the Financial Statements, except for (i) any
Liability incurred after May 31, 1996 in the ordinary course of
business and which is substantially offset in amount by rights or
assets relating to such Liability, (ii) Liabilities which are covered
in full by insurance, and (iii) any Liability that is set forth on
Schedule 5.2(g).
(h) Brokers and Finders, Attorneys, Accountants and Other
Professionals. Except as disclosed on Schedule 5.2(h), neither the
Company nor any of its Subsidiaries have employed any broker or finder,
attorneys, accountants, appraisers or other professional
12
<PAGE>
advisors, or incurred any liability for any fees, commissions or other
compensation to any such Persons in connection with the transactions
contemplated herein.
(i) Actions. Except for those matters set forth on Schedule
5.2(i) (i) there are no Actions [A] pending as to which the Company or
any of its Subsidiaries have been served or have received notice, or
[B] to the knowledge of the Stockholders and the Company, threatened in
writing against or affecting the Company or any of its Subsidiaries or
any property of any of them, and (ii) there is no reasonable basis, to
the knowledge of the Stockholders and the Company, for any Action
against or affecting the Company or any of its Subsidiaries or any
property of any of them, which would constitute a Material Adverse
Effect or result in a Material Adverse Change.
(j) Binding Obligations. This Agreement will, when executed
and delivered by the Company, constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement may be limited by
debtor relief laws or equitable principles relating to the granting of
specific performance and other equitable remedies as a matter of
judicial discretion.
(k) Material Contracts. Schedule 5.2(k) lists each Contract to
which the Company or any Subsidiary is a party or to which the Company,
any Subsidiary, or any of their respective properties is subject or by
which any thereof is bound, that is deemed a Material Contract (as
defined in the next succeeding sentence) under this Agreement and
unless otherwise so noted on Schedule 5.2(k), each such Contract was
entered into in the ordinary course of business. A Material Contract
for the purposes of this subsection (k) is each contract that (a) after
May 31, 1996 obligates the Company or any Subsidiary to pay an amount
of $25,000 or more, (b) has a term expiring beyond May 31, 1997, (c)
contains a covenant not to compete, (d) provides for the extension of
credit other than in the ordinary course of business and other than
consistent with normal credit terms, (e) limits the ability of the
Company or any Subsidiary to conduct its business, including as to
manner or place, (f) provides for a guaranty or indemnity by the
Company or any Subsidiary, (g) grants a power of attorney, agency or
similar authority to another person or entity, (h) contains an option
or a right of first refusal, (i) contains a right or obligation other
than in the ordinary course of business of or to any Affiliate, officer
or director, of the Company or any Subsidiary, (j) constitutes a
collective bargaining agreement or provides for severance benefits to
any officer, director or employee of the Company or any Subsidiary, (k)
represents a contract upon which the business of the Company or any
Subsidiary is materially dependent, (l) requires the Company or any
Subsidiary to buy or sell goods or services with respect to which there
reasonably could be expected to be material losses or will be costs and
expenses materially in excess of expected receipts (other than as
provided for or otherwise reserved against on the balance sheets
contained in the Interim Financial Statements), or (m) was not made in
the ordinary course of business and consistent with the Company's past
custom and practices. True, correct and complete copies of the
Contracts appearing on Schedule 5.2(k), including all amendments and
supplements, have been delivered to Acquisition. Each Contract is valid
and subsisting; the Company or the applicable Subsidiary has duly
performed all its obligations thereunder to the extent that such
obligations to perform have accrued; and no breach or default, alleged
breach or default, or event which would (with the passage of time,
notice or both) constitute a breach or default thereunder by the
Company or any Subsidiary, as the case may be (or, to the knowledge of
the Stockholders or the Company, any other party or obligor with
respect
13
<PAGE>
thereto), has occurred or as a result of this Agreement or its
performance will occur. Except as set forth on Schedule 5.2(k),
consummation of the transactions contemplated by this Agreement will
not (and will not give any person a right to) terminate or modify any
rights of, or accelerate or augment any obligation of the Company or
any Subsidiary under any of the Material Contracts so listed.
(l) No Other Agreements to Sell the Shares or Assets. Except
as described on Schedule 5.2(l), neither the Company nor any Subsidiary
has any legally enforceable commitment or legal obligation, absolute or
contingent, to any other person or firm other than Acquisition, to
sell, assign, transfer or effect a sale of any of the Shares, any
capital stock or equity investment in any Subsidiary, or any material
amount of the Assets of the Company or any Subsidiary (other than
Inventory in the ordinary course of business or fixed assets which are
no longer necessary to the operation of the Business as heretofore
conducted), to effect any merger, consolidation, liquidation,
dissolution or other reorganization of the Company or any Subsidiary,
or to enter into any agreement or cause the entering into of an
agreement with respect to any of the foregoing.
(m) Title and Condition of Assets. Schedule 5.2(m) includes a
correct and complete list of all Fixtures and Equipment owned, leased
or used by the Company and its Subsidiaries on the date of this
Agreement in connection with the Business and where the net book value
of an individual item exceeds $10,000.00. Except as described in
Schedule 5.2(m), (i) the Company and its Subsidiaries have title to (or
are the lessees or the licensees of) all of the Fixtures and Equipment
identified on Schedule 5.2(m), free and clear of all Encumbrances
(other than Permitted Encumbrances), and (ii) the Fixtures and
Equipment identified on Schedule 5.2(m) are in reasonable operating
condition and repair (subject to normal wear and tear and except for
items that are undergoing repair or refurbishment in the ordinary
course of business) and are sufficient (together with working capital
and the other Assets of the Company and its Subsidiaries) to permit the
Surviving Corporation to conduct the Business as now conducted.
(n) Real Property. Schedule 5.2(n) constitutes a complete and
correct list of all Real Properties owned by the Company and its
Subsidiaries. The Company is not a tenant or lessee of nor does it hold
any leasehold interest in any of the Real Property pursuant to any
lease or other agreement. The Company and its Subsidiaries hold fee
simple title to all of the Real Property, free and clear of any
Encumbrances except for Permitted Encumbrance. Except as described on
Schedule 5.2(n), to the knowledge of the Stockholders and the Company:
(i) the structures, improvements and fixtures at or
upon the Real Property, including, but not limited to, roofs and
structural elements thereof and the electrical, plumbing, heating,
ventilation, air conditioning and similar units and systems, have to
date been maintained by the Company in a manner it considers to be
reasonable for the conduct of the Business and are in reasonable
operating condition to allow the Business to continue to be conducted
as heretofore conducted, subject to the provision of usual and
customary maintenance and repair performed in the ordinary course of
business consistent with past practice; and
14
<PAGE>
(ii) there is no material water diffusion or other
intrusion into any buildings, structures or other improvements included
in the Real Property which would require a material expenditure for
repairs in the next twelve (12) months;
(o) Trademark and Trade Names. Except as described on Schedule
5.2(o), the Company owns or has the right to use all Proprietary Rights
which are necessary or required for the operation of the Business, (a
true and complete list of which is included in Schedule 5.2(o)), and
with respect to all Trademarks, to the knowledge of the Stockholders
and the Company, the Company has the right to bring actions for the
infringement thereof.
(p) [Reserved]
(q) Environmental Issues.
(i) Except as described on Schedule 5.2(q), neither
the Company nor any of its Subsidiaries has generated, stored, handled,
manufactured, transported, disposed of or released any Hazardous
Materials on or at the Real Property, except in substantial compliance
with all applicable Environmental Requirements pertaining to the
Company and each of its Subsidiaries.
(ii) Except as described on Schedule 5.2(q), to the
knowledge of the Stockholders and the Company [A] the Real Property and
the activities and operations of the Company and its Subsidiaries and
the prior owners or occupants of the Real Property, comply in all
material respects with all Environmental Requirements pertaining to the
Company and each of its Subsidiaries, [B] neither the Company nor any
of its Subsidiaries has received any written notice or other
communication concerning any alleged material violation of
Environmental Requirements pertaining to the Company and each of its
Subsidiaries, [C] there exists no judgment, decree, order, writ or
injunction outstanding, nor any litigation, action, suit, claim
(including citation or directive) or proceeding pending against the
Company, any of its Subsidiaries, or any of the Real Property arising
from the alleged violation of Environmental Requirements pertaining to
the Company and each of its Subsidiaries, or from an alleged release of
Hazardous Materials, and [D] no Hazardous Materials have migrated from
other properties to, upon, about or beneath the Real Property.
(r) Preneed Contracts. Prior to the date hereof, all monies
paid to or for the benefit of the Company and its Subsidiaries in
respect of the Preneed Contracts have been set aside as described in
Schedule 5.2(r). The terms and conditions of the Preneed Contracts,
including but not limited to the collection of interest, comply with
applicable Regulations (including but not limited to full disclosure to
customers of all funeral and finance charges and other fees associated
with multi-payment plans for Preneed Contracts). Neither the Company
nor any of its Subsidiaries nor, to the knowledge of the Stockholders
and the Company, any other party to any Preneed Contract, is in default
or breach of any Preneed Contract. Other than as indicated on Schedule
5.2(r), the Preneed Contracts are the only agreements pursuant to which
caskets, funeral commodities and other inventory or funeral services
are sold by the Company or its Subsidiaries on a pre-need basis.
The Company and its Subsidiaries have deposited in
trust in respect of each of the Preneed Contracts all amounts as are
required by all applicable Regulations and/or the
15
<PAGE>
particular underlying Preneed Contracts (collectively, the "Funds"),
and all such Funds have at all times been and are now held in all
material respects in conformity with all such Preneed Contracts and
applicable Regulations. All withdrawals of and investment and other
uses of the Funds (including but not limited to payment to the trustees
of the applicable trusts) have been made in accordance with all
applicable Regulations and the Preneed Contracts. The Company and its
Subsidiaries have paid or accrued, as of the respective dates of the
Financial Statements, and will have paid or accrued, as of the
Effective Time, all commissions due and owing with respect to the
Preneed Contracts.
For those Preneed Contracts that are funded by
insurance, the Company or its Subsidiaries are the current named
beneficiaries of all such insurance policies required to fund all such
Preneed Contracts in accordance with their respective terms.
(s) Permits. Schedule 5.2(s) sets forth a full and complete
list of all material Permits required as of the date of this Agreement
to allow the present operations, planned expansion of operations set
forth on Schedule 5.2(s), and any past or ongoing alterations of the
operations of the Company and its Subsidiaries under any applicable
Regulation. Except as set forth on Schedule 5.2(s), (i) all Permits
identified on Schedule 5.2(s) (the "Existing Permits") are in full
force and effect, and (ii) the consummation of the transactions
contemplated by this Agreement will not conflict with the terms of,
result in default under, or violate the terms of, any Existing Permit
or result in the termination of, or, require Consent or other action
pursuant to, any of the Existing Permits. Except as set forth on
Schedule 5.2(s), the Company and its Subsidiaries are in full
compliance with all Existing Permits.
(t) [Reserved].
(u) Compliance with Regulations. Except as disclosed in
Schedule 5.2(u), the Company and each of its Subsidiaries are now
operating and conducting the Business, and have been operating and
conducting the Business, in all material respects in compliance with
applicable Regulations, excluding, however, for purposes of this
Section 5.2(u), the Code, OSHA, ADA, Environmental Requirements and
other Regulations which are the subject of or are referred to in
specific representations and warranties contained in this Section 5.2
(it being the understanding of the parties that any representations and
warranties with respect to compliance with such Regulations are limited
to the specific representations and warranties set forth in such
Section).
(v) OSHA, ADA and FTC. The Company and each of its
Subsidiaries are, except as set forth Schedule 5.2(v), in compliance in
all material respects with all requirements of the Occupational Safety
and Health Act ("OSHA") and the Americans with Disabilities Act ("ADA")
pertaining to the facilities and operations of the Company and its
Subsidiaries, and with all requirements of the Federal Trade
Commission's Funeral Industry Practices Regulation ("FTC Funeral
Rule"),.
(w) [Reserved]
(x) Political Contributions and Other Payments. None of the
Company, any of its Subsidiaries, nor any Person acting on their behalf
has, during the past five (5) years (i) except for lawful political
contributions in the ordinary course of business, made any
16
<PAGE>
payment to any governmental official, employee or agent (domestic or
foreign) to wrongfully induce the recipient or the recipient's employer
to do business with, grant favorable treatment to or compromise or
forego any claim by or against the Company or any of its Subsidiaries,
or (ii) made any significant payment or conferred any significant
benefit which the Company or the Stockholders, in the exercise of
reasonable business judgment, considers or reasonably should consider
to be improper.
(y) Tax Matters.
(i) Except as disclosed on Schedule 5.2(y), the Company
and its Subsidiaries have, as of the date hereof, correctly and
properly prepared, and duly and timely filed, all Tax Returns required
to be filed by them and each of them prior to such dates and have duly
and timely paid, or will prior to the Effective Time duly and timely
pay, all Taxes shown as due on such Tax Returns, including all
withholding or other payroll related taxes shown as due on such Tax
Returns (other than taxes being contested in good faith). The federal
income tax basis of the Assets as reflected in the Tax Returns and
related work papers of the Company and its Subsidiaries is correct and
accurate in all material respects. Except as described on Schedule
5.2(y) to this Agreement, neither the Company nor any of its
Subsidiaries is, nor will they become, subject to any additional Taxes
with respect to taxable periods (or partial periods) of the Company or
its Subsidiaries which end on or before the Effective Time. No
assessments or written notices of deficiency have been received by the
Company or any of its Subsidiaries with respect to any Tax Returns
which the Company and its Subsidiaries have filed which have not been
paid in full, completely discharged or fully reserved in accordance
with GAAP in the Financial Statements or disclosed on Schedule 5.2(y).
Except as disclosed on Section 5.2(y), the statute of limitations for
assessment of Taxes for all taxable years of the Company and each of
its Subsidiaries on or before December 31, 1992 have expired, and there
are no agreements between the Company or its Subsidiaries and any
taxing authority, including, without limitation, the Internal Revenue
Service or the Franchise Tax Board of the State of California, waiving
or extending any statute of limitations for assessment or collection of
any Tax which the Company or any of its Subsidiaries have filed which
remain in effect as of the date hereof. Neither the Company nor any of
its Subsidiaries has filed any consent, statement or election with the
Internal Revenue Service under Section 341(f) of the Code or any
corresponding provision of state or local income Tax law.
(ii) Except as described on Schedule 5.2(y), the
Company and its Subsidiaries [A] have timely withheld proper and
correct amounts in compliance with the Tax withholding provisions of
all applicable Regulations for all compensation paid to the officers
and employees of the Company and its Subsidiaries, [B] have correctly
and properly prepared and duly and timely filed all Tax Returns
relating to such amounts withheld from its officers and employees and
to their employer liability for employment Taxes under the Code and
applicable state and local Regulations, and [C] have duly and timely
paid and remitted to the appropriate taxing authorities the amounts
withheld from their officers and employees and any additional amounts
that represent their employer liability under applicable Regulations
for employment Taxes.
(iii) Except as indicated on Schedule 5.2(y), the
income tax returns of the Company and its Subsidiaries have been
audited by the Internal Revenue Service and the
17
<PAGE>
Franchise Tax Board of the State of California for all taxable years of
the Company through the year ended December 31, 1992.
(iv) Except as disclosed on Schedule 5.2(y) the
Company and its Subsidiaries have paid, have duly reserved for in the
Financial Statements in accordance with GAAP, or, as reflected on
Schedule 5.2(y), are contesting in good faith, all Taxes required by
applicable Regulations to have been paid prior to the date hereof.
(v) Except as described in Schedule 5.2(y), no issue
has been raised in writing by the Internal Revenue Service or any state
or local taxing authority in connection with any audit of any Tax
Return which the Company or its Subsidiaries have filed that will have,
or which the Company reasonably believes may have, a significant effect
for any taxable year of the Company or its Subsidiaries which, as of
the date hereof, remains open for assessment.
(vi) The Financial Statements include and Schedule
5.2(y) discloses, for all periods up to and including the Effective
Time (including the final partial period of the Company and its
Subsidiaries which ends on such date), adequate provision for all
unpaid applicable Taxes relating to the Company and its Subsidiaries.
(vii) None of the Company or any of its Affiliates is a
"United States real property holding corporation" as defined in Section
897(c)(2) of the Code.
(viii) Except as reflected on Schedule 5.2(y), none of
the Company or any of its Affiliates is a party to any Tax sharing or
Tax allocation agreement.
(z) Reserved.
(aa) Accounts Receivable. All of the accounts receivable shown
on the balance sheets contained in the Interim Financial Statements
(exclusive of accounts receivable from the Association) [A] reflect
actual transactions, [B] have arisen from bona fide transactions in the
ordinary and usual course of the conduct of the Business (except as
disclosed on Schedule 5.2(aa)), and [C] to the knowledge of the
Stockholders and the Company, are not subject to any setoff or
counterclaim and are fully collectible in accordance with the terms of
the underlying contracts, subject to the reserve(s) shown on the
Interim Financial Statements, which in all respects is (are) adequate.
(bb) Inventory. The values at which Inventory is shown on the
Interim Financial Statements have been determined in accordance with
the normal valuation policies of the Company and its Subsidiaries,
consistently applied. The Inventory as of the date of this Agreement
consists only of items of a quality and quantity commercially usable or
saleable in the ordinary course of business.
(cc) Labor Relations. Except as described on Schedule 5.2(cc)
(i) the Company is not a party to any collective bargaining or union
contract and is not aware of any current union organization effort or
campaign with respect to its employees, and (ii) during the most recent
five-year period, neither the Company nor any of its Subsidiaries has
received [A] any written notice of any pending or threatened unfair
labor practice complaints, and [B] any notice of, and there have not
been, any strikes, slowdowns, work stoppages, lockouts, material
18
<PAGE>
labor disputes or other material labor controversy, or threats thereof,
by or with respect to any of its employees.
(dd) Insurance. Schedule 5.2(dd) to this Agreement constitutes
a full and complete list of all insurance policies maintained by the
Company and its Subsidiaries necessary or required for the operation of
their respective businesses, properties and employees. Except as
reflected on Schedule 5.2(dd), all such policies are in full force and
effect and, to the knowledge of the Stockholders and the Company, no
event has occurred that would give any insurance carrier a right to
terminate any such policy. The Company has received no written notice
of any default, cancellation or non-renewal with respect to any of such
policies. Except as disclosed on Schedule 5.2(dd), all premiums due on
such policies have been paid in full or have been duly accrued for in
the Interim Financial Statements in accordance with GAAP and, other
than as set forth in Schedule 5.2(dd), none of such policies provides
for retrospective premium adjustments.
(ee) Bank Accounts. Since May 31, 1996, and except for changes
incident to the merger of First Interstate Bank with Wells Fargo Bank,
there has been no change in the banking or safe deposit arrangements of
the Company and its Subsidiaries and none of them have granted any
powers of attorney. A list of all bank accounts, safe deposit boxes and
powers of attorney of the Company and its Subsidiaries and of all
Persons authorized to act with respect thereto is set forth on Schedule
5.2(ee).
(ff) Employee Benefits and Plans.
(i) Schedule 5.2(ff) to this Agreement lists all Employee
Plans of the Company and its Subsidiaries. Neither the Company nor any
of its Subsidiaries is obligated to adopt any additional Employee
Plans. True, correct and complete copies of all Employee Plans and
related documents, including amendments thereto, any related trust
agreements, any documents setting out the Company's and its
Subsidiaries' personnel policies and procedures, any insurance
contracts under which benefits are provided, as currently in effect,
and descriptions of any such plan that is not written, have been
supplied to Acquisition. Acquisition has also been provided with a copy
of the Summary Plan Description, if any, for each Employee Plan, as
well as copies of any other summaries or descriptions of any such
Employee Plans that are currently provided to employees or other
beneficiaries.
(ii) The Company and its Subsidiaries have fulfilled
their respective obligations, to the extent applicable, under the
minimum funding requirements of Section 302 of the Employee Retirement
Insurance Security Act, as amended and the regulations thereunder
("ERISA") and Section 412 of the Code, with respect to each "employee
benefit plan" (as defined in Section 3(3) of ERISA) which is subject to
such requirements. Except as disclosed on Schedule 5.2(ff), each
Employee Plan is in compliance in all material respects with, and has
been administered in all material respects consistent with, the
applicable provisions of ERISA, the Code and state Regulations
including, but not limited to, all applicable reporting and disclosure
requirements under the Code, ERISA and state Regulations. The Company
and its Subsidiaries have made all payments to all Employee Plans as
required by the terms of each such plan in accordance, if applicable,
with the actuarial and funding assumptions in effect as of the most
recent actuarial valuation of such plans. All required actuarial
valuations and reports relating to said plans have been prepared,
and a copy of the
19
<PAGE>
most recent actuarial valuation and report for each pension plan, as
defined in Section 3(2) of ERISA, has been provided to Acquisition, if
applicable. The Company or its Subsidiaries, as the case may be, have
filed or caused to be filed with the Internal Revenue Service annual
reports on Form 5500 for each Employee Plan attributable to them for
all years and periods for which such reports were required and within
the time period required by ERISA and the Code, and true, correct and
complete copies of such reports for the past three (3) years are
attached hereto as a part of Schedule 5.2(ff). The foregoing
representations and warranties regarding reporting and disclosure
obligations under ERISA shall not apply to the Employee Plans described
in Section 5.2(ff)(xi). The Company and its Subsidiaries have funded or
will fund each Employee Plan attributable to it in accordance with and
to the extent required by its terms through the Effective Time,
including the payment of applicable premiums on any insurance contract
funding an Employee Plan for coverage provided through the Effective
Time. The Partnership has made all contributions for the current year
for all Employee Plans as are required to be made by applicable
Regulation or the terms of such Employee Plans and consistent with past
practice, and will make all contributions for the current year for all
Employee Plans as are required to be made by applicable Regulation or
the terms of such Employee Plans and consistent with past practice for
the period between the date of this Agreement and the Effective Time.
(iii) No "prohibited transaction", as defined in
Section 406 of ERISA and Section 4975 of the Code, has occurred in
respect of any such Employee Plan, and no civil or criminal action
brought pursuant to Part 5 of Title I of ERISA is pending or, to the
knowledge of the Stockholders or the Company threatened in writing
against any fiduciary of any such plan with respect to such plan,
which, in either of such events, which would result in a Material
Adverse Effect or Material Adverse Change.
(iv) The Internal Revenue Service has issued a letter
for each employee pension benefit plan, as defined in Section 3(2) of
ERISA, which is intended to be a qualified plan under Section 401(a) of
the Code (copies of which Stockholders have caused the Company to
deliver to Acquisition), determining that such plan is a qualified plan
under Section 401(a) of the Code, and, except as described on Schedule
5.2(ff), there has been no occurrence since the date of any such
determination letter that has adversely affected such qualification and
each plan is so qualified. In addition, neither the Company nor any of
its Subsidiaries maintains any plan or arrangement intended to qualify
under Section 501(c)(9) of the Code. Furthermore, neither the Internal
Revenue Service nor the Department of Labor, to the knowledge of the
Stockholders and the Company, is currently auditing any tax qualified
plan of the Company and its Subsidiaries, and the Company and its
Subsidiaries have not received any written notice, of an impending
audit or review of any such arrangements from the Internal Revenue
Service or the Department of Labor.
(v) Each Employee Plan that provides medical benefits
has been operated in compliance with all requirements of Section
4980B(f) of the Code and Sections 601 through 608 of ERISA relating to
continuation of coverage under certain circumstances in which coverage
would otherwise cease, except where non-compliance would not result in
a Material Adverse Effect or Material Adverse Change.
(vi) Except as described on Schedule 5.2(ff),
neither the Company, its Subsidiaries, nor any entity that is treated
as a single employer with the Company pursuant to
20
<PAGE>
Section 414(b), (c), (m) or (o) of the Code, currently maintains any
Employee Plan that is subject to Title IV of ERISA, nor has the Company
or any of its Subsidiaries previously maintained any such plan that has
resulted in any liability or potential liability for the Company or any
of its Subsidiaries under said Title IV. In the case of any Employee
Plan that is subject to Title IV of ERISA, the Company or its
Subsidiaries, as the case may be, has paid all premium payments
required to be made to the Pension Benefit Guaranty Corporation or will
make such payments by the Effective Time. There shall not be as of the
Effective Time any outstanding unpaid waived funding deficiency within
the meaning of Section 412(d) of the Code. No reportable event, as
defined in Section 4043 of ERISA, other than a reportable event for
which the 30-day notice requirement has been waived, or which results
solely from the transactions contemplated by this Agreement, or which
results from transactions described on Schedule 5.2(ff), has occurred
with respect to any Employee Plan that is subject to Title IV of ERISA.
Except as described on Schedule 5.2(ff), in the case of any such plan,
the assets of such plan are at least sufficient to satisfy all benefit
liabilities of the plan, within the meaning of Section 4001(a)(16) of
ERISA.
(vii) Attached hereto as a part of Schedule 5.2(ff)
is a two-year contribution history indicating the dollar amount
contributed and the level of contribution as a percentage of
compensation of covered participants for each profit sharing plan,
stock bonus plan or other retirement plan to which the Company or any
of its Subsidiaries makes discretionary contributions.
(viii) Except as described on Schedule 5.2(ff),
neither the Company nor any of its Subsidiaries maintain any plan or
program, nor is any a party to any agreement providing post-retirement
medical benefits (other than benefits described in this Section 5.2(ff)
or those required by Law), death benefits or other post retirement
welfare benefits. A copy of any written description of post-retirement
welfare benefits that has been provided to employees is attached hereto
as a part of Schedule 5.2(ff). A list of each plan document, insurance
contract or other written instrument providing for post retirement
welfare benefits, together with a description of any advance funding
arrangement that has been established to fund post retirement welfare
benefits, are attached hereto as part of Schedule 5.2(ff). Schedule
5.2(ff) contains a list of those persons who are currently retired with
a right to future post-retirement welfare benefits and also contains a
list of employees who would be currently eligible for post retirement
welfare benefits if they retired and satisfied any waiting period
provided for under the applicable plan.
(ix) Neither the Company, its Subsidiaries, nor any
employer referred to in this Section 5.2 maintains, or has ever
contributed to or been required to contribute to, any multiemployer
plan within the meaning of Sections 3(37) or 4001(a)(3) of ERISA.
(x) Except as reflected on Schedule 5.2(ff) (i) all
Employee Plans have been operated and administered in all material
respects in accordance with their respective terms and no materially
inconsistent representation or interpretation has been made to any plan
participant, and (ii) no lawsuit or written complaint (including any
dispute of which the Company has received written notice that might
reasonably be expected to result in a lawsuit or complaint against, by
or relating to any Employee Plan or any fiduciary, as defined in
Section 3(21) of ERISA) respecting or concerning an Employee Plan has
been filed or is pending.
21
<PAGE>
(xi) Prior to the Effective Time, the Company or its
Subsidiaries, as the case may be, [A] shall submit to the U.S.
Department of Labor the documents and penalty amount prescribed for
"top-hat" plans under the Delinquent Filer Voluntary Compliance Program
("DFVCP") described in 60 FR 20874 (April 27, 1995) for each employee
pension benefit plan, as defined in Section 3(2) of ERISA, which is
unfunded and maintained for a select group of management or highly
compensated employees, for which the Company or its Subsidiaries, as
the case may be, has not timely filed with the Department of Labor a
statement meeting the requirements of 29 C.F.R. 2520.104-23; and [B]
shall file with the Internal Revenue Service all late Form 5500s for
the severance/separation pay plan and any other Employee Plan which are
due for plan years beginning on or after January 1, 1988 and submit to
the U.S. Department of Labor the documents and penalty amount under the
Delinquent Filer Voluntary Compliance Program ("DFVCP") for each Form
5500 which is past due for plan years beginning on or after January 1,
1988. A true and correct copy of all Form 5500s and documents which are
submitted to the Internal Revenue Service and U.S. Department of Labor
under the DFVCP pursuant to this Section 5.2(ff)(xi) will be delivered
to Acquisition prior to the Effective Time.
(xii) Attached to Schedule 5.2(ff) is a list of all
employees of the Company and each of its Subsidiaries whose salary
exceeds $50,000 per year.
(xiii) Except as described on Schedule 5.2(ff), no
Employee Plan exists that could result in the payment to any present or
former employee of the Company or its Subsidiaries of any money or
other property or accelerate or provide any other rights or benefits to
any present or former employee of the Company or its Subsidiaries as a
result of the transactions contemplated by this Agreement, whether or
not such payment would constitute a parachute payment within the
meaning of Code Section 280G. No payment under any Employee Plan or
otherwise contemplated to be made by the Company or its Subsidiaries
constitutes a parachute payment within the meaning of Section 280G of
the Code.
(gg) Condemnation. There is no pending or, to the knowledge of
the Stockholders or the Company, threatened, condemnation, separation,
or eminent domain proceeding affecting all or any part of the Real
Property, and neither the Stockholders nor the Company have received
any written notice of the same.
(hh) Payment of Wages. Except as described on Schedule
5.2(hh), the Company and each of its Subsidiaries has paid or accrued
in full to all employees all wages, salaries, commissions, bonuses,
benefits and other compensation due to such employees irrespective of
the basis under which such obligation arose.
(ii) Full Disclosure. None of the representations and
warranties made by the Stockholders or the Company in this Agreement
(including the Exhibits and Schedules hereto) or made in any
certificate furnished by any Stockholder or the Company, contains any
untrue statement of a material fact, or, to the knowledge of the
Stockholders or the Company, omits to state any material fact the
omission of which would be misleading.
5.3 Representations and Warranties of Acquisition.
Acquisition hereby represents and warrants to the Company and the Stockholders
that:
22
<PAGE>
(a) Existence and Qualification; Power; Compliance With Laws.
Acquisition is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Acquisition is
duly qualified to transact business, and is in good standing, in its
jurisdiction of organization and each other jurisdiction in which the
conduct of its business or the ownership or leasing of its properties
makes such qualification necessary, except where the failure to so
qualify and to be in good standing will not act to materially impair
the enforceability of Acquisition's obligations, or Acquisition's
ability to perform its obligations under this Agreement. Acquisition
has all requisite corporate power and authority to conduct its
business, to own and lease its properties and, subject only to approval
of this Agreement by the Board of Directors of Acquisition, to execute
and deliver this Agreement and consummate the transactions contemplated
hereby.
(b) Compliance with Laws. Acquisition is in compliance with
all laws and other legal requirements applicable to its business, has
obtained all material authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings,
registrations and qualifications with, or has obtained exemptions from
any of the foregoing from, any governmental agency that are necessary
for the transaction of its business or the execution and delivery of
this Agreement and the performance of its obligations hereunder, except
where the failure so to comply, file, register, qualify or obtain
exemptions will not act to materially impair Acquisition's ability to
perform its obligations under this Agreement.
(c) Authority; Compliance With Other Agreements and
Instruments and Government Regulations. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby by Acquisition have been duly authorized by all necessary
corporate action, and do not:
(i) Except as set forth on Schedule 5.3(c), require any
consent or approval not heretofore obtained of any director,
stockholder, security holder or creditor of Acquisition or any other
entity;
(ii) Violate or conflict with any provision of
Acquisition's Certificate of Incorporation or By-Laws;
(iii) Except as set forth on Schedule 5.3(c) result in
or require the creation or imposition of any Encumbrance upon or with
respect to any property now owned or leased by Acquisition, except as
may relate to Acquisition's obtaining financing in connection with the
transactions contemplated by this Agreement;
(iv) Except as set forth on Schedule 5.3(c), or as
would not act to materially impair Acquisition's ability to perform its
obligations under this Agreement, violate any requirement of
Regulations applicable to Acquisition;
(v) Except as set forth on Schedule 5.3(c), or as would
not act to materially impair Acquisition's ability to perform its
obligations under this Agreement, result in a breach of, constitute a
default under, or cause or permit the acceleration of any obligation
owed under, any indenture or loan or credit agreement or any material
contract to which Acquisition is a party or by which Acquisition, or
any of its property is bound or affected. Acquisition is not in
violation of, or default under, any requirement of law or material
contract, or any
23
<PAGE>
indenture, loan or credit agreement described on Section 5.3(c)(v), in
any respect that will act to materially impair Acquisition's ability to
perform its obligations under this Agreement.
(d) No Governmental Approvals Required. Other than the filings
provided for in Section 1.3 and those as set forth on Schedule 5.3(d)
(together, the Acquisition Regulatory Filings"), no authorization,
consent, approval, order, license or permit from, or filing,
registration or qualification with, any governmental agency is required
to authorize or permit under applicable laws the execution and delivery
of this Agreement by Acquisition and the consummation by Acquisition of
the transactions contemplated hereby.
(e) Brokers and Finders. Except as set forth on Schedule
5.3(e), Acquisition has not employed any broker or finder or incurred
any liability for any brokerage, finder's, or similar fees or
commissions in connection with the transactions contemplated herein.
(f) Actions. Except for those matters set forth on Schedule
5.3(k), (i) there are no Actions pending as to which Acquisition, or
any of its Subsidiaries have been served or have received written
notice or, to the knowledge of Acquisition, threatened in writing
against or affecting Acquisition or any of its property, and (ii) there
is no reasonable basis, to the knowledge of Acquisition, for any Action
against or affecting Acquisition or any of its property which in either
of (i) or (ii) above would have the effect of prohibiting, preventing
or impairing consummation of the transactions specified in this
Agreement by Acquisition.
(g) Binding Obligations. This Agreement will, when executed
and delivered by Acquisition, constitute the legal, valid and binding
obligation of Acquisition, enforceable against Acquisition in
accordance with its terms, except as enforcement may be limited by
debtor relief laws or equitable principles relating to the granting of
specific performance and other equitable remedies as a matter of
judicial discretion.
(h) Business Experience, Investigation and Access to Data.
(i) Acquisition acknowledges that an Affiliate of
Loewen will be one of Acquisition's stockholders. Acquisition also
acknowledges that such Affiliate has the experience and ability
necessary to evaluate the merits and risks of its acquisition of the
Company.
(ii) It is expressly understood and agreed that none
of the Company or the Stockholders are making, and none have made, any
representation or warranty of any kind, express or implied, except for
those specifically provided in Sections 5.1 and 5.2 of this Agreement.
Except for the matters which are expressly covered by such
representations and warranties, and upon which Acquisition intends to
justifiably rely, Acquisition is relying on its own investigation and
analysis in entering into this Agreement and consummating the
transactions contemplated hereby. Nothing contained in the foregoing
provisions of this Section 5.3(h), however, shall limit or modify the
representations and warranties of the Company and/or the Stockholders
as contained in this Agreement.
(iii) At the time of the execution and delivery of
this Agreement, based solely upon the actual and direct knowledge of
Lawrence Miller, G. Scott Mindrum, Paul J. Hart and Charles Kizina,
after such inquiry and investigation as is reasonable under the
circumstances,
24
<PAGE>
no breach of any representation or warranty made by the Stockholders
and/or the Company in this Agreement has occurred.
(i) Financing Letters. Acquisition has received letters
relating to equity and debt financing for the transactions subject to
this Agreement and has delivered copies of the letters to the Company
on the date of this Agreement. Acquisition has no reason to believe
that the financings referred to in such letters will not be available
to Acquisition at the Effective Time.
ARTICLE VI
COVENANTS
6.1 Interim Operations of the Company. The Company covenants
and agrees that, after the date hereof and prior to the Effective Time, unless
Acquisition shall have consented in writing thereto:
(a) except as set forth on Schedule 6.1(a), the business of
the Company and its Subsidiaries shall be conducted only in the
ordinary and usual course and substantially in accordance with past
custom and practice, and only to the extent consistent therewith, each
of the Company and its Subsidiaries shall use its reasonable best
efforts to preserve its business organization intact, keep available
the services of its officers and employees, and maintain its existing
relations with customers, suppliers and business associates;
(b) the Company shall not (i) amend its Certificate of
Incorporation or By-Laws or those of any of its Subsidiaries; (ii)
split, combine or reclassify the outstanding Shares or capital stock or
equity interest in any Subsidiary; or (iii) declare, set aside or pay
any dividend payable in cash, stock or property with respect to the
Shares or capital stock or equity interest in any Subsidiary;
(c) except as indicated on Schedule 6.1(c), neither the
Company nor any of its Subsidiaries shall (i) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities
convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of Common
Stock of any class of the Company or capital stock or equity interest
in any Subsidiary, other than additional purchases of securities from
wholly-owned Subsidiaries of the Company and, in the case of the
Company; (ii) acquire directly or indirectly by redemption or otherwise
any shares of the Common Stock of the Company; or (iii) acquire or make
any material investment, whether by purchase, contributions to capital,
property transfers or otherwise, in any other entity;
(d) Except as set forth on Schedule 6.1(d), neither the
Company nor any of its Subsidiaries shall (i) grant any severance or
termination pay to (except in accordance with existing Company
policies), or enter into any employment or severance agreement with,
any director, officer or other employee of the Company or its
Subsidiaries, (ii) establish, adopt, enter into or amend any Employee
Plan, (iii) grant any general or uniform increase in the rates of pay
or benefits to officers, directors or employees (or a class thereof),
or (iv) grant any increase in the compensation or benefits of any
director, officer or employee not required by the terms of any Employee
Plan; and
25
<PAGE>
(e) neither the Company nor any of its Subsidiaries shall
authorize or enter into an agreement to do any of the foregoing.
(f) neither the Company nor any of its Subsidiaries shall,
after the date hereof and prior to the Effective Time, effectuate a
"plant closing" or "mass layoff" as those terms are defined in the
Worker Adjustment and Retraining Notification Act of 1988 ("WARN"),
affecting in whole or in part any site of employment facility,
operating unit or employee of the Company or any of its Subsidiaries.
6.2 Covenants of Acquisition. Acquisition covenants and agrees
that, after the date hereof and prior to the Effective Time, unless the Company
shall have consented in writing thereto, each of Acquisition and its Affiliates
shall use its reasonable best efforts to preserve its corporate organization
intact and keep available the services of its officers.
6.3 Filings; Consents; Other Action. Subject to the terms and
conditions herein provided, the Company and Acquisition shall (a) promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act and other Company Regulatory Filings and Acquisition
Regulatory Filings, and (b) use their commercially reasonable best efforts to
promptly take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement as soon as
practicable, including using their reasonable best efforts to obtain the
consents referred to on Schedules 5.2(d) and 5.3(c) (provided that Acquisition
shall not be obligated to enter into any financing arrangement on terms not
acceptable to Acquisition). Each party shall promptly provide the other (or its
counsel) copies of all filings in connection with the Merger made by such party
under the HSR Act, Company Regulatory Filings and Acquisition Regulatory Filings
in connection with this Agreement and the transactions contemplated hereby and
thereby. In connection with proceedings under or relating to the HSR Act or any
other federal or state antitrust or fair trade law, all analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of Acquisition or the Company shall be subject to the
joint review of Acquisition and the Company, acting with the advice of their
respective counsel, it being the intent that the parties hereto will consult and
cooperate with each other, and consider in good faith the views of one another,
in connection with any such analysis, presentation, memorandum, brief, argument,
appearance, opinion or proposal; provided, however, that nothing herein shall
prevent Acquisition or the Company from (i) making or submitting any such
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal in response to a subpoena or other legal process or as otherwise
required by Regulation, or (ii) submitting factual information to the United
States Department of Justice, the Federal Trade Commission, any other
governmental agency or any court or administrative law judge in response to a
request therefor or as otherwise required by Regulation. The Company and
Acquisition each agrees to use its best efforts to litigate against the entry
of, or to obtain the lifting of, any temporary restraining order or preliminary
or permanent injunction or other governmental action in connection with the HSR
Act or any other applicable federal or state antitrust or fair trade law. The
existence of a temporary restraining order or the pendency of an action or
proceeding described in the preceding sentence will operate only to delay the
Effective Time until the thirtieth (30th) day following the lifting of such
temporary restraining order or the conclusion of such action or proceeding;
provided, however, that if such matter is not resolved by December 13, 1996,
then Acquisition or the Company shall have the right to terminate this
Agreement, as provided in Article VIII, and, in either case, the Letter of
Credit (or the LOC Payment, as the case may be) and
26
<PAGE>
the No Shop Payment shall be returned to Acquisition, and no party hereto
(or any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement.
6.4 Access. Upon reasonable notice, the Company shall (and
shall cause each of its Subsidiaries to) afford Acquisition's Representatives
access, during normal business hours and upon reasonable request throughout the
period prior to the Effective Time, to its Business, Assets, Books, Contracts
and Records of itself and its Subsidiaries and to allow the conduct of such
examination of the condition of the Company and its Subsidiaries, as Acquisition
deems necessary or advisable to familiarize itself and its lenders with such
Business, Assets, Books, Records, condition and other matters, and to
investigate the accuracy and completeness of the representations and warranties
of the Company hereunder and, during such period, the Company shall (and shall
cause each of its Subsidiaries to) furnish promptly to Acquisition all
information concerning the Business, Assets and personnel of itself and its
Subsidiaries as Acquisition or its Representatives may reasonably request,
provided that such access shall not unreasonably interfere with the conduct by
the Company of the Business. Except as provided for in Sections 5.3(h) and 8.7,
no investigation pursuant to this Section 6.4 shall affect or be deemed to
modify any representation or warranty made by the Company or the Stockholders.
All information so obtained shall be subject to the Confidentiality Agreement.
6.5 Publicity. Neither Acquisition nor the Company shall issue
any press release after the date hereof or otherwise make any public statement
with respect to the transactions contemplated hereby without the consent of the
other (which shall not be unreasonably withheld, conditioned or delayed), except
to the extent that the disclosing party is advised by its counsel that such a
press release or statement is required by applicable Regulations, and then only
after consultation with the other party. The Company and Acquisition shall
consult with each other prior to making any filings with any federal or state
governmental or regulatory agency with respect to the Merger.
6.6 Further Assurances. Upon the terms and subject to the
conditions contained herein, the parties agree, both before and after the
Effective Time (a) to use all commercially reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement (except that Acquisition shall not be required to
enter into any financing arrangements on terms not acceptable to Acquisition,
although any such determination shall not impact on the Company's rights to draw
on the Letter of Credit pursuant to Section 8.6(a)), (b) to execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (c) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective reasonable best efforts (i) to obtain all necessary waivers, consents
and approvals from other parties to the Contracts and Leases, (ii) to obtain all
necessary Permits as are required to be obtained under any Regulations, (iii) to
give all notices to, and make all registrations and filings with, third parties,
including without limitation submissions of information requested by
governmental authorities, and (iv) to fulfill all conditions to this Agreement.
As soon as practicable after the execution and delivery of this Agreement,
Acquisition and the Company shall make all filings required under the HSR Act.
6.7 Benefits.
(a) Employment Agreements. The employment agreements in effect
on the date hereof between the Company and the Persons set forth on
Schedule 6.7(a) shall be terminated
27
<PAGE>
at and as of the Effective Time with no liability to the Company or
Acquisition and shall be replaced by the Employment and Consulting
Agreements provided for in Section 7.1(h).
(b) Indemnification. After the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless, each present and
former director and officer of the Company and each such person's
personal representative, estate, testator or intestate successors (the
"Indemnified Parties") against any and all losses, claims, damages,
liabilities, costs, expenses, judgments and amounts paid in settlement
with the approval of the Surviving Corporation (which approval shall
not be unreasonably withheld) in connection with any actual or
threatened claim, action, suit, proceeding or investigation arising out
of or pertaining to any act or omission occurring prior to the
Effective Time (including without limitation, any which arise out of or
relate to the transactions contemplated by this Agreement, other than
any which arise out of or relate to a breach of this Agreement),
whether asserted or claimed prior to, or on or after, the Effective
Time, to the full extent the Company would be permitted under
California Law to indemnify its own directors and officers. In
addition, the Surviving Corporation shall pay expenses incurred by an
Indemnified Party in advance of the final disposition of any such
action or proceeding upon receipt of an undertaking by or on behalf of
such Indemnified Party to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified. Without limiting
the foregoing, in the event any claim, action, suit, proceeding or
investigation is brought against any Indemnified Party, the Surviving
Corporation shall be entitled to assume the defense of any such action
or proceeding. Upon assumption by the Surviving Corporation of the
defense of any such action or proceeding, the Indemnified Party shall
have the right to participate in such action or proceeding and to
retain its own counsel, but the Surviving Corporation shall not be
liable for any legal fees or expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof unless (i)
Surviving Corporation has agreed to pay such fees and expenses, (ii)
representation of the Indemnified Party by counsel provided by the
Surviving Corporation would be inappropriate due to a conflict of
interest between the Surviving Corporation and the Indemnified Party,
or (iii) the Surviving Corporation shall have failed in a timely manner
to assume the defense of the matter. The Surviving Corporation shall
not be liable for any settlement of any claim effected without its
written consent, which consent shall not be unreasonably withheld. The
Surviving Corporation shall not, except with the written consent of the
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include, as an unconditional term, the
release by the claimant or plaintiff of such Indemnified Party from all
further liability in respect of such claim. Any Indemnified Party
wishing to claim indemnification under this Section 6.7(b), upon
learning of any such claim, action, suit, proceeding or investigation,
shall notify the Surviving Corporation (but the failure so to notify
the Surviving Corporation shall not relieve it from any liability which
it may have under this Section 6.7(b) except to the extent such failure
materially prejudices the Surviving Corporation). From and after the
Effective Time, the Surviving Corporation shall make no amendment(s) or
modification(s) to its Certificate of Incorporation and By-Laws which
would impair, lessen or reduce in any material manner the directors and
officers indemnification provisions contained in the Certificate of
Incorporation and By-Laws of the Company as of the Effective Time.
Acquisition shall cause to be maintained in effect for not less than
twenty-four (24) months from the Effective Time, policies of directors'
and officers' liability insurance to cover those persons who are or
were directors and/or officers of the Company with respect to matters
occurring prior to the Effective Time. Such insurance policies shall
provide coverage in the aggregate amount of not less than $10 million
and shall include terms
28
<PAGE>
and conditions which are no less advantageous to such directors and
officers as those contained in the policies currently maintained by the
Company. This Section 6.7(b) shall survive the consummation of the
Merger and the Effective Time, is intended to benefit each present and
former director and officer of the Company and their respective heirs
and legal representatives (who shall be entitled to enforce the
provisions hereof),and shall be binding upon all successors and assigns
of Acquisition.
(c) Retention of Benefit Plan. Until December 31, 1997,
Acquisition shall maintain and keep in full force and effect that
certain 401(k) Savings Plan for Employees of Rose Hills Mortuary, Inc.,
adopted on September 23, 1987, as amended on December 22, 1989,
February 22, 1993, November 1, 1993, December 21, 1994 and December 5,
1995.
6.8 Phantom 401(K) Plan. The Partnership shall terminate its
Deferred Compensation Plan for Selected Executives of Rose Hills Mortuary, L.P.
(the "Phantom 401(k) Plan") prior to the Effective Time. In terminating the
Phantom 401(k) Plan the Partnership shall pay to the participants of such plan
an amount equal to, in the aggregate, approximately, $ , representing the sum
total of all the participants' account balances in the Phantom 401(k) Plan. Such
payments shall be made prior to the Effective Time, and each participant shall,
upon receiving such payment, grant a release from any and all liabilities
relating to the Phantom 401(k) Plan in favor of any person or entity who may
have any liability relating to the Phantom 401(k) Plan, including, but not
limited to, the Company, the Mortuary and the Partnership. The release shall be
in a form and content acceptable to Acquisition.
[6.9 Reserved.
6.10 Title Insurance.
(a) The Title Company has provided Acquisition with and
Acquisition has reviewed and approved the Title Commitment and Survey
for the Real Property, along with copies of all documents and
instruments reflecting items noted as exceptions to title. The Title
Commitment(s) have been appropriately annotated and initialled by the
parties to reflect such approvals and are accompanied by copies of all
endorsements which Acquisition requires and the Title Company has
agreed to provide.
(b) Any liens, encumbrances, security interests, easements,
restrictions, reservations, conditions, covenants, rights,
rights-of-way, and other matters affecting title to the Real Property
which are created or which may appear of record after the date of the
Title Commitment(s) and Survey(s), as applicable, but before the
Effective Time, and which are not reflected in the Title Commitment(s)
or Survey(s) (collectively, "Intervening Liens") shall be subject to
Acquisition's reasonable approval. Acquisition shall be deemed to have
approved each such Intervening Lien unless it delivers to the Company
written notice of disapproval specifically identifying grounds for such
disapproval (an "Objection") within fifteen (15) days after
Acquisition's receipt of written notice from the Title Company advising
of the existence of such Intervening Lien. Acquisition shall not have
the right to disapprove any Intervening Lien which has been previously
approved (or deemed approved) by Acquisition, or which has been caused
by Acquisition or any act of Acquisition, its agents, contractors,
employees or invitees. If Acquisition makes an Objection to an
Intervening Lien, then the Company and the Stockholders shall elect (i)
to cure such Objection prior to the Effective Time and have the
29
<PAGE>
Title Commitment(s) and Survey(s) updated to reflect such cure (to the
extent applicable), whereupon it will be deemed that such Intervening
Lien is satisfactory to Acquisition, or (ii) to refuse to cure the
Objection, unless the Intervening Lien shall be subject to being
reduced to an ascertainable monetary amount, which the Company or the
Stockholders shall pay, but not greater than $1 million (when
aggregated with all amounts spent pursuant to Section 6.13 of this
Agreement and Sections 6.3 and 6.10(b) of the Association Asset
Purchase Agreement) as respects all Intervening Liens, in the
aggregate, and Acquisition, if the Company and the Stockholders are not
so required to cure, shall then have the right to either (x) waive the
Objection, in which case such Intervening Lien shall become an
additional Permitted Encumbrance for purposes of this Agreement, or (y)
terminate this Agreement (and the Association Asset Purchase Agreement)
by notifying the Company thereof within fifteen (15) days after the
Company notifies Acquisition of the Company's and the Stockholders'
inability or election not to cure the Objection and Acquisition shall
then be entitled to return of the Letter of Credit (or the LOC Payment,
as the case may be) and the No Shop Payment. If Acquisition does not so
timely elect to terminate this Agreement, then Acquisition shall be
deemed to have waived the Objection and such Intervening Lien shall
become an additional Permitted Encumbrance for purposes of this
Agreement. A commitment of the Title Company to insure over any
Intervening Lien constitutes cure by the Company and the Stockholders
of the Objection so long as the Company shall pay all additional title
and survey charges with respect thereto. Notwithstanding the foregoing,
the Company shall not cause, create, allow or permit the creation of
any Intervening Lien unless such Intervening Lien is required by law.
6.11 Preneed Contracts and Trust Funds. The Stockholders will,
upon receipt of written notice from Acquisition, reimburse Acquisition for the
cost of fulfilling all Preneed Contracts, funded by trust funds that are not
properly funded in accordance with Section 5.2(r). Upon receipt of written
notice from Acquisition, the Stockholders shall pay to Acquisition, and
indemnify Acquisition for, the amount of any shortfall without limit as to
amount. "Shortfall" means the difference as of the Effective Time between all
amounts legally or contractually required to be placed in trust by the Company
with respect to the Preneed Contracts and the amounts placed in trust by the
Company with respect to the Preneed Contracts. The Company will not withdraw or
permit the withdrawal of any monies from the Funds before the Effective Time
other than in accordance with Regulations and the terms of the Preneed
Contracts. At the Effective Time, the Company will take all such action as may
be required by applicable Regulations and otherwise in order for Acquisition to
replace the trustees and other fiduciaries of the Funds and any other trust
funds and accounts relating to the Preneed Contracts, and will execute all
necessary documentation that Acquisition may require with respect thereto.
6.12 Resignation/Election of Trustees. The Company and
Acquisition shall arrange for replacement of all persons presently serving as
trustees or other fiduciaries of funeral service and other similar type trusts
and plans currently maintained by the Company, with persons selected by
Acquisition, which shall be effective at the Closing.
6.13 Notification of Certain Matters. From the date hereof
through the Effective Date, the Company and the Stockholders shall give prompt
notice to Acquisition , and Acquisition shall give prompt notice to the Company
and the Stockholders, of (a) the occurrence, or failure to occur, of any event,
which would be likely to cause any representation or warranty contained in this
Agreement, or in any exhibit or schedule hereto, and made by such party, to be
untrue or inaccurate in any respect, and (b) any failure of the Company and the
Stockholders or Acquisition, as the case may
30
<PAGE>
be, or any of their respective Affiliates or Representatives, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement or any exhibit or schedule hereto; provided, however,
that such disclosure shall not be deemed to cure any breach of a representation,
warranty, covenant or agreement or to satisfy any condition. The Company and the
Stockholders shall promptly notify Acquisition of any Default by such party, the
written threat or commencement of any Action, or any development that occurs
before the Effective Time that could in any way affect the Company and the
Stockholders, the Assets or the Business. Further, if at any time prior to the
Effective Time, Acquisition shall learn (which, for the purposes of this Section
6.13, consists of the actual and direct knowledge of any of Lawrence Miller,
Paul J. Hart, Charles Kizina and G. Scott Mindrum) that any representation or
warranty contained in this Agreement or in any exhibit or schedule hereto and
made by the Company or the Stockholders is untrue or inaccurate in any respect,
Acquisition shall notify the Company and the Stockholders thereof and, if
Acquisition has not waived such untruth or inaccuracy, the Company and the
Stockholders shall cure the untruth or inaccuracy, without any obligation so to
do, except that if the untruth or inaccuracy can be cured by the payment of a
monetary amount, then the Company and the Stockholders shall so do, but the
Company and the Stockholders shall not be obligated to expend more than $1
million (when aggregated with all amounts spent pursuant to Section 6.10 of this
Agreement and Sections 6.3 and 6.10(b) of the Association Asset Purchase
Agreement) to cure all such untruths or inaccuracies. If the Company or the
Stockholders are not required to cure the untruth or inaccuracy as set forth in
the preceding sentence, Acquisition may (a) waive such untruth or inaccuracy, or
(b) to terminate this Agreement (and the Association Asset Purchase Agreement)
and, in the later instance, the Letter of Credit (or the LOC Payment, as the
case may be) and the No Shop Payment shall be returned to Acquisition and no
party hereto or any of its directors or officers shall have any liability or
further obligation to any other party to this Agreement, other than as provided
for in Article XII.
6.14 Supplemental Employee Retirement Plan. The Company,
Acquisition and the Persons identified on Schedule 6.7(a), shall arrange for the
transfer of the whole life insurance policies described on Schedule 5.2(dd),
relating to the Rose Hills Mortuary, LP Supplemental Employee Retirement Plan
(the "SERP") to a Rabbi Trust, having terms acceptable to all of them and
becoming effective at the Closing.
6.15 Assistance in Financing. The Company acknowledges that
Acquisition currently intends that payment of the Cash Consideration pursuant to
Section 4.1 will be financed, in part, by an offering of securities and the
arranging of senior bank debt financing. The Company will provide customary
assistance in connection with Acquisition's efforts to raise such financing,
including, without limitation, making senior management reasonably available for
meetings with prospective lenders and investors and cooperating in the
preparation of offering documents and necessary financial and business
information to enable documents, including the financial statements of the
Company, to comply with the rules and regulations of the Securities and Exchange
Commission, it being recognized that (a) neither the Company (prior to Closing)
nor the Stockholders will have any responsibility with respect to such
compliance, (b) the Company and the Stockholders and members of the Company's
management will be appropriately indemnified by Acquisition and/or Loewen in
connection therewith, and (c) Acquisition and/or Loewen will pay any travel
expenses incurred by the Company's executive officers in connection therewith.
6.16 Restrictions on Transfer.
31
<PAGE>
(a) Each Stockholder (i) acknowledges that the Loewen Shares
are not registered under the Securities Act and that the Loewen Shares
to be acquired by such Stockholder must be held indefinitely by such
Stockholder unless they are subsequently registered under the
Securities Act or an exemption from registration is available, (ii) is
aware that any routine sales under Rule 144 under the Securities Act of
Loewen Shares may be made only in limited amounts and in accordance
with the terms and conditions of Rule 144 and that in such cases where
Rule 144 is not applicable, compliance with some other registration
exemption will be required, (iii) is aware that Rule 144 may not
presently be available for use by such Stockholder for resale of any
Loewen Shares, and (iv) is aware that, except as provided in the Share
Insurance and Registration Rights Agreement, Loewen is not obligated to
register under the Securities Act any sale, transfer or other
disposition of the Loewen Shares..
(b) Each Stockholder acknowledges that Loewen is not required
to register the transfer of the Loewen Shares on the books of Loewen
unless Loewen shall have been provided with an opinion of counsel
reasonably satisfactory to it prior to such transfer to the effect that
registration under the Securities Act or any applicable state
securities law is not required in connection with the transaction
resulting in such transfer. Each certificate for the Loewen Shares
issued upon any transfer as above provided shall bear the restrictive
legend set forth in Section 6.17, except that such restrictive legend
shall not be required if the opinion of counsel reasonably satisfactory
to Loewen referred to above is to the further effect that such legend
is not required in order to establish compliance with the provisions of
the Securities Act and any applicable state securities law.
6.17 Restrictive Legend. Each certificate representing the
Loewen Shares shall be stamped or otherwise imprinted with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM, AND ANY SALE OR OTHER TRANSFER
IS FURTHER SUBJECT TO THE RESTRICTIONS SET FORTH IN THE
CERTAIN AGREEMENT AND PLAN OF MERGER DATED SEPTEMBER , 1996
BETWEEN ROSES, INC. AND ITS STOCKHOLDERS AND TUDOR ACQUISITION
CORP.]"
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
LISTED ON THE TORONTO STOCK EXCHANGE AND THE MONTREAL
EXCHANGE; HOWEVER, THE SAID SECURITIES CANNOT BE TRADED
THROUGH THE FACILITIES OF SUCH EXCHANGES SINCE THEY ARE NOT
FREELY TRANSFERABLE, AND CONSEQUENTLY ANY CERTIFICATE
REPRESENTING SUCH SECURITIES IS NOT "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE OR
THE MONTREAL EXCHANGE."
32
Each share certificate to be delivered must be accompanied by a letter from The
Loewen Group Inc. stating that:
(a) The securities represented by this certificate cannot be
traded through the facilities of The Toronto Stock Exchange or
on The Montreal Exchange since the certificate is not freely
transferrable and consequently is not "good delivery" in
settlement of transactions on The Toronto Stock Exchange or on
The Montreal Exchange; and
(b) The Toronto Stock Exchange and The Montreal Exchange would
deem the security holder to be responsible for any loss
incurred on a sale made by such holder in such securities.
6.18 Termination of Restrictions on Transferability. The
conditions imposed by Section 6.16 upon transferability of the Loewen Shares
shall cease and terminate as to any of the Loewen Shares when (i) such
securities shall have been registered under the Securities Act and sold or
otherwise disposed of in accordance with the intended method of disposition by
the seller thereof set forth in the registration statement covering such
securities, or (ii) at such time as an opinion of counsel satisfactory to Loewen
shall have been rendered as required pursuant to the second sentence of Section
6.16(b) to the effect that the restrictive legend on such securities is no
longer required, but in any event not prior to one year from the Effective Time,
or (iii) when such securities are transferable in accordance with the provisions
of Rule 144 promulgated under the Securities Act and Section 6.16(b) above.
Whenever the conditions imposed by Section 6.16 shall terminate as hereinabove
provided with respect to any of the Loewen Shares, the holder of any such
securities bearing the legend set forth Section 6.17 as to which such conditions
shall have terminated shall be entitled to receive from Loewen, without expense
(except for the payment of any applicable transfer tax) and as expeditiously as
possible, new stock certificates not bearing such legend.
6.19 Rights of First Refusal. Each Stockholder hereby waives
any and all rights it may have pursuant to any written or oral agreement or
otherwise to purchase or restrict the transfer of the stock, assets or any other
interest in the Company (or any of its Affiliates) or the Association (or any of
its Affiliates) as may arise due to the execution and delivery of this Agreement
by the Company and Stockholders.
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Acquisition. The obligation
of Acquisition to consummate the Merger is subject to the fulfillment of each of
the following conditions, any or all of which may be waived in whole or in part
by Acquisition, as the case may be, to the extent permitted by applicable law:
(a) Stockholder Approval. This Agreement shall have been duly
approved by (i) the requisite number of stockholders and the Board of
Directors of Acquisition and (ii) the requisite number of the
Stockholders and the Board of Directors of the Company, in each case in
accordance with the charter and by-laws provisions of such entity and,
in the case of (ii),
33
<PAGE>
the Company, so as to make the transactions contemplated by this
Agreement binding on Acquisition, the Company and the Stockholders.
(b) Governmental and Regulatory Consents. The waiting period
applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated. Except for the filings provided for in
Section 1.3, the Company Regulatory Filings, Acquisition Regulatory
Filings and all other filings required to be made prior to the
Effective Time by Acquisition or the Company with, and all consents,
approvals, orders, registrations and authorizations required to be
obtained prior to the Effective Time by Acquisition or the Company
from, governmental and regulatory authorities in connection with the
execution and delivery of this Agreement by the Company or Acquisition
and the consummation of the transactions contemplated hereby by the
Company and Acquisition shall have been made or obtained (as the case
may be), except where the failure to have obtained or made such
consent, filing, authorization, order, approvals or registration would
not have a Material Adverse Effect or Material Adverse Change or
materially impair the ability of Acquisition to perform its obligations
under this Agreement.
(c) Actions. No court or governmental or regulatory authority
of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent)
(collectively, an "Order") which is in effect and makes illegal or
prohibits consummation of the transactions contemplated by this
Agreement; provided that Acquisition shall have used reasonable efforts
to obtain the removal of any Order.
(d) Continuing Warranties; Certificate. The representations
and warranties of the Stockholders and the Company contained in Section
5.2 shall be true and correct in all respects on and as of the
Effective Time as though made on and as of the Effective Time, except
for (i) changes contemplated by this Agreement or in the Disclosure
Schedule, or (ii) where such untruth or incorrectness would not have a
Material Adverse Effect or result in a Material Adverse Change, and the
Company shall have performed in all material respects all of its
obligations hereunder theretofore to be performed, and Acquisition
shall have received at the Effective Time certificates to the foregoing
effect, dated the Effective Time, and executed by the Stockholders and
on behalf of the Company by an executive officer of the Company.
(e) Certain Authorizations and Consents. All Consents,
including, without limitation, those items referred to in Schedule
5.2(d), shall have been obtained by (i) the Company or (ii)
Acquisition, as the case may be, (or, if such consent relates to
indebtedness of the Company and such consent has not been obtained,
provision for the discharge of such indebtedness has been made), except
where the failure to obtain any such consent would not have a Material
Adverse Effect or result in a Material Adverse Change or materially
impair the ability of Acquisition to perform its obligations under this
Agreement.
(f) No Material Adverse Change. From and including the date
hereof, there shall not have occurred any event which has had a
Material Adverse Effect or Material Adverse Change.
34
<PAGE>
(g) Opinion of Counsel to the Company. The Company shall have
delivered to Acquisition an Opinion of O'Melveny & Myers LLP, counsel
to the Company, dated the Effective Time, in form and substance
acceptable to Acquisition and its counsel.
(h) Employment and Consulting Agreements. Each of the Persons
identified on Schedule 6.7(a), shall have executed and delivered
employment or consulting agreements with the Company, effective at the
Effective Time, substantially in the form appended hereto as Exhibit E.
(i) Resignations, etc. Resignations executed by each officer
and director of the Company and each of its Subsidiaries effective as
of the Effective Time, except as contemplated by the Employment
Agreements, and the resignations of those trustees and other
fiduciaries as contemplated by Section 6.12, shall have been delivered
to Acquisition.
(j) Other Agreements. The Stockholders and Company shall have
executed and delivered any and all other agreements as may reasonably
be necessary, appropriate and/or desirable in order to consummate the
transaction subject of this Agreement, including, without limitation,
all documents necessary to cancel and terminate, effective as of the
Effective Time, the following agreements: Shareholders Agreement dated
December 30, 1994, Option Agreement dated May 2, 1990, Operation and
Management Agreement dated October 1, 1989, Shared Facilities Contract
dated May 2, 1990, Tax Matters Agreement dated May 2, 1990, Murrieta
Management Agreement dated December 30, 1992, Assignment, Assumption
and Amendment Agreement dated May 2, 1990 and any other agreements
between the Stockholders, the Company or its Subsidiaries and the
Association.
(k) Outstanding Checks. Funds shall remain on deposit at the
Effective Time in each checking account maintained by the Company and
each of its Subsidiaries sufficient in amount to cover all outstanding
checks or drafts drawn against such accounts.
(l) Satisfaction of Indebtedness. At or prior to the Effective
Time, Acquisition shall have received reasonable assurances from Wells
Fargo Bank, N.A. ("Wells Fargo") that promptly following repayment of
the indebtedness owed by the Company or any of its Subsidiaries to
Wells Fargo at or after the Effective Time, Wells Fargo will release
all Encumbrances collateralizing such indebtedness.
(m) Title Policy. Acquisition shall have received the ALTA
Extended Owner's Policy of Title Insurance contemplated by the Title
Commitment, or, in substitution therefor,the Title Commitment and all
endorsements as "marked", initialed and dated by the Title Company,
having the same affect as if the actual policy was then being
delivered.
(n) Association Asset Purchase Agreement. The transactions
contemplated by the Association Asset Purchase Agreement shall be
consummated concurrently with consummation of the transactions
contemplated by this Agreement.
(o) Financing. Acquisition shall have secured the equity and
debt financing on terms and conditions acceptable to Acquisition
necessary to provide sufficient funds in order to allow consummation of
the transactions specified in this Agreement, the Association Asset
35
<PAGE>
Purchase Agreement and repayment of the Company's indebtedness to Wells
Fargo and to the Association.
(p) [Reserved]
(q) Nine Months Financial Statements. The Stockholders and the
Company shall have delivered the unaudited Balance Sheet, Statement of
Income and Statement of Cash Flow of the Partnership for the nine (9)
month period ending September 30, 1996, which shall fairly present in
all material respects in accordance with GAAP, the financial condition,
results of operations and cash flows of the Partnership as of such date
and for the period covered thereby, subject to normal year end accruals
and audit adjustments, none of which are expected to be material, and
the absence of footnotes.
(r) Title to Assets Other than Real Property. The Company and
its Subsidiaries shall have title to all of the Assets consisting of
tangible and intangible personal property which are necessary or
required for the conduct of the Business, in each case free and clear
of any and all Encumbrances, except Permitted Encumbrances.
(s) Preneed Contracts. The Company and its Subsidiaries shall
have deposited in trust in respect of all Preneed Contracts arising on
or before the Effective Date all amounts as are required by all
applicable Regulations and/or the underlying Preneed Contracts in
accordance with their respective terms.
(t) Covenants Not to Compete. Each of the Persons identified
in Schedule 6.7(a) shall have executed and delivered a Covenant Not to
Compete in favor of Acquisition and Parent at the Effective Time in the
form appended hereto as Exhibit F.
(u) No Indebtedness. At the Effective Time, there shall be no
items of indebtedness (i) owing by the Company or any of its
Subsidiaries to the Association or any subsidiary of the Association or
by the Association or any subsidiary of the Association to the Company
or any of its Subsidiaries and the Company shall have received a
Release from the Association, effective as of the Effective Time, with
respect to all liabilities or claims relating to matters occurring
prior to the Effective Date, or (ii) owing by the Company or any of its
Subsidiaries to the Stockholders or any of them.
7.2 Conditions to Obligations of the Stockholders and the
Company. The obligations of the Company to consummate the Merger and the
obligations of the Stockholders hereunder, are subject to the fulfillment of
each of the following conditions, any or all of which may be waived in whole or
in part by the Company or the Stockholders to the extent permitted by applicable
law:
(a) Stockholder Approval. This Agreement shall have been duly
approved by the requisite number of stockholders and the Board of
Directors of Acquisition and the requisite number of the Stockholders
and the Board of Directors of the Company, in each case in accordance
with applicable law and the charter and by-laws provisions of
Acquisition and the Company necessary in order to make the transactions
contemplated herein binding on the Company and the Stockholders and
Acquisition.
36
<PAGE>
(b) Governmental and Regulatory Consents. (i) The waiting
period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated and, (ii) except for the filings
provided for in Section 1.3, the Company Regulatory Filings,
Acquisition Regulatory Filings and all other filings required to be
made prior to the Effective Time by Acquisition or the Company with,
and all consents, approvals, orders, registrations and authorizations
required to be obtained prior to the Effective Time by Acquisition or
the Company from governmental and regulatory authorities in connection
with the execution and delivery of this Agreement by Acquisition or the
Company and the consummation of the transactions contemplated hereby by
the Company and Acquisition shall have been made or obtained (as the
case may be), except where the failure to have obtained or made such
consent, filing, authorization, order, approvals or registration would
not have a Material Adverse Effect or Material Adverse Change.
(c) Order. There shall be in effect no Order which makes
illegal or prohibits consummation of the transactions contemplated by
this Agreement; provided, however, that the Company shall have used its
reasonable efforts to obtain the removal of any Order.
(d) Continuing Warranties; Certificate. The representations
and warranties of Acquisition contained in Section 5.2 shall be true
and correct in all material respects on and as of the Effective Time as
though made on and as of the Effective Time, except for the changes
contemplated by this Agreement, and Acquisition shall have performed in
all material respects all of its obligations hereunder theretofore to
be performed, and the Company shall have received at the Effective Time
certificates to the foregoing effect, dated the Effective Time, and
executed on behalf of Acquisition by an executive officer of
Acquisition.
(e) Certain Authorizations and Consents. All Consents referred
to in Schedule 5.3(d) shall have been obtained by Acquisition, except
to the extent that the failure to obtain such consents would not act to
materially impair Acquisition's ability to perform its obligations
under this Agreement.
(f) No Material Adverse Effect. From and including the date
hereof, there shall not have occurred any event which has had a
material adverse effect on the ability of Acquisition to perform its
obligations under this Agreement.
(g) Opinion of Counsel to Acquisition. Acquisition shall have
delivered to the Company and the Stockholders an Opinion of Stradley,
Ronon, Stevens & Young, counsel to Acquisition, dated the Effective
Time, in form and substance acceptable to the Company and its counsel.
(h) Employment and Consulting Agreements. Acquisition shall
have executed and delivered to each of the Persons identified on
Schedule 6.7(a) and each such Persons shall have entered into, an
Employment or Consulting Agreement with Acquisition in the form
appended hereto as Exhibit E.
(i) Other Agreements. Acquisition shall have executed and
delivered any and all other agreements as may be necessary, appropriate
and/or desirable in order to consummate the transaction subject of this
Agreement.
37
<PAGE>
(j) Association Asset Purchase Agreement. The Association
Asset Purchase Agreement shall be consummated concurrently with
consummation of the transactions contemplated by this Agreement.
(k) Due Diligence Certificate. Acquisition shall deliver to
the Stockholders a certificate based solely upon the actual and direct
knowledge of Lawrence Miller, Paul J. Hart, Charles Kizina and G. Scott
Mindrum (after such inquiry and investigation as is reasonable under
the circumstances), indicating that, at the Effective Time, no breach
of any representation or warranty by the Stockholders and/or the
Company has occurred.
(l) Share Issuance and Registration Rights Agreement. Loewen
shall execute and deliver to the Stockholders the Share Issuance and
Registration Rights Agreement.
(m) Guaranty of SERP and Employment and Consulting Agreements.
Loewen shall have issued its written guaranty of the obligations of
Acquisition under and pursuant to the SERP and the Employment and
Consulting Agreements referred to in Section 7.1(h), in form and
substance reasonably acceptable to the Persons described in Section
6.7(a).
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after the approval by holders of Acquisition's Common Stock or
the Shares, by the mutual written consent of Acquisition and the Company by
action of their respective Boards of Directors.
8.2 Termination by Either Acquisition or the Company. This
Agreement may be terminated and the Merger may be abandoned by action of the
Board of Directors of either Acquisition or the Company (and by written notice
to the other party) if the Merger shall not have been consummated by December
13, 1996, provided that the terminating party shall not have breached its
obligations hereunder in any manner that shall have contributed materially to
the failure to consummate the Merger.
8.3 Termination by Acquisition. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by action of the Board of Directors of Acquisition (with written notice to
the Stockholders and the Company), if (i) the Company or any of the Stockholders
shall have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by the
Company or any of the Stockholders at the time of such termination and such
failure has not been cured within fifteen (15) days of notice to the Company and
the Stockholders from Acquisition, provided that such time shall not extend
beyond December 13, 1996, or (ii) any representation or warranty by the Company
or any of the Stockholders contained in this Agreement shall be incorrect or
untrue except where such incorrectness or untruth would not have a Material
Adverse Effect or result in a Material Adverse Change.
38
<PAGE>
8.4 Termination by the Company or the Stockholders. This
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time by action of the Board of Directors of the Company or by
unanimous action of the Stockholders, acting as a whole (with written notice to
Acquisition), if (i) Acquisition shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement to
be complied with or performed by Acquisition at the time of such termination and
such failure has not been cured within fifteen (15) days of notice to
Acquisition from the Company, provided that such time shall not extend beyond
December 13, 1996 or (ii) any representation or warranty by Acquisition
contained in this Agreement shall be incorrect or untrue, except where such
incorrectness or untruth would not have a material adverse effect on
Acquisition's ability to perform its obligations under this Agreement.
8.5 Effect of Termination and Abandonment. Subject to the
provisions of Section 8.6(c), in the event of termination of this Agreement and
abandonment of the Merger pursuant to this Article VIII, no party hereto (or any
of its directors or officers) shall have any liability or further obligation to
any other party to this Agreement except for such obligations as are set forth
in Article XII hereof.
8.6 Deposits.
(a) Concurrently with the execution of this Agreement,
Acquisition has delivered to the Company and/ or the Stockholders an
irrevocable letter of credit drawn on Bank of Montreal ("Bank") in the
amount of $6.9 million having a maturity date of December 12, 1996 (the
"Letter of Credit"). At the Effective Time, the Letter of Credit shall
be returned to Acquisition as against delivery by Acquisition of the
amount represented thereby; provided, however, that if the Effective
Time occurs after November 26, 1996, but prior to December 13, 1996,
and the Company has drawn against the Letter of Credit, the proceeds of
the Letter of Credit shall be applied as provided in Section 4.1(a)(i).
In the event that the Stockholders and the Company shall commit a
breach of this Agreement, and, as a consequence thereof, Acquisition
has elected to terminate this Agreement pursuant to Section 8.3, the
Letter of Credit or, if the Letter of Credit has been drawn against,
the proceeds of the Letter of Credit, shall be returned or paid to
Acquisition. The Company and/or the Stockholders may draw upon the
Letter of Credit upon delivery to the Bank of a certificate executed by
a duly authorized officer of the Company which states as follows:
(i) I am duly sworn according to law; (ii) I
am the duly elected and incumbent [officer] of the Company;
(iii) as of November 26, 1996, no Closing (as defined in that
certain Agreement and Plan of Merger dated September , 1996,
as to which Roses, Inc., the Stockholders of Roses, Inc., and
Tudor Acquisition Corp. are parties [the "Agreement"]) has
occurred; (iv) all conditions to Acquisition's obligations to
close (other than the conditions specified in Section
7.1(a)(i), the second sentence of Section 7.1(b) and Sections
7.1(e)(ii), 7.1(g), 7.1(j), 7.1(k), 7.1(l), 7.1(m), 7.1(n),
7.1(o) and 7.1(u) of the Agreement) have been fulfilled; the
Company has delivered to Acquisition not later than three (3)
days prior to the Company's draw on the Letter of Credit a
notice stating that with respect to those conditions set forth
in Sections 7.1(e)(ii), 7.1(g), 7.1(j), 7.1(k), 7.1(m) and
7.1(u) of the Agreement, none of the Company nor the
Stockholders has any reason to believe that such conditions
would not be satisfied if the Effective Time had
39
<PAGE>
occurred on the date of the draw of this Letter of Credit; and
(vi) the Association has delivered to the Bank its certificate
pursuant to Section 6.12 of the Association Asset Purchase
Agreement.
(b) Pursuant to that certain No Solicitation Agreement dated
July 15, 1996 between LGII, the Association, the Company and the
Stockholders (the "No Shop Agreement"), the sum of $1.0 million has
been paid to the Company (the "No Shop Payment") (the Letter of Credit,
or proceeds thereof, and the No Shop Payment are sometimes collectively
referred to herein as the "Deposits").
(c) If this Agreement shall be terminated by the Company
pursuant to Section 8.2 (so long as the Company is in compliance with
the proviso of that Section) or by the Company or the Stockholders
pursuant to Section 8.4, then the Company and the Stockholders shall be
entitled to retain the Deposits as liquidated damages which shall be
their sole and exclusive remedy; otherwise, the Deposits shall be paid
to Acquisition.
8.7 Effect of Closing Over Known Unsatisfied Conditions. If,
with actual knowledge of the failure of any condition, any of the Company, the
Stockholders or Acquisition elects to proceed with the Closing, the condition
that is unsatisfied at the Closing Date shall be deemed to be waived and, if
required by the other parties, the electing party shall so acknowledge by a
writing delivered at the Closing.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1 Payment of Expenses. Irrespective of whether or not the
Merger shall be consummated, each party hereto shall pay its own legal,
accounting, investment banking, consulting, valuation and other advisory fees
and out of pocket expenses incident to preparing for, entering into and carrying
out this Agreement. Notwithstanding the foregoing sentence, nevertheless, except
to the extent otherwise provided for in Section 6.10, the Stockholders and
Acquisition shall each bear one-half (1/2) of (a) the costs, expenses and
premium for the ALTA Extended Coverage Owner's Policy of Title Insurance to be
issued by the Title Company at the Effective Time in accordance with the Title
Commitment and the cost of zoning, subdivision and map act, non-imputation and
comprehensive affirmative coverage endorsements relating to the Real Property;
provided, however, that the cost of all other affirmative coverage endorsements
to be issued in connection therewith shall be the sole responsibility of
Acquisition, and (b) the costs, expenses, or other charges of the Exchange Agent
and under the Exchange Agreement. In addition, Acquisition shall pay for the
costs and expenses connected with preparation of the Survey, except as otherwise
provided for in Section 6.10.
9.2 Modification or Amendment. Subject to the applicable
provisions of both the DGCL and the CGCL, at any time prior to the Effective
Time, the parties hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other parties thereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. Prior to the Effective Time, this
Agreement may be amended only with the written consent of all of the parties
hereto.
40
<PAGE>
9.3 Waiver of Conditions. The conditions to each party's
obligation to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute one and the same agreement.
9.5 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without giving effect to conflicts of law principles.
9.6 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received, if
personally delivered; when transmitted, if transmitted by telecopy, electronic
or digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized a overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested.
In each case notice shall be sent to:
if to Acquisition:
Tudor Acquisition Company
c/o Loewen Group International, Inc.
3190 Tremont Road
Trevose, PA 19053
Attention: Lawrence S. Miller
By Fax: (215) 396-3654
with copies to:
Paul Hart, Esquire
The Loewen Group, Inc.
3190 Tremont Road
Tremont, PA 19053
By Fax: (215) 396-3470
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attention: James M. Papada, III, Esquire
By Fax: (215) 564-8120
The Blackstone Group
345 Park Avenue, 31st Floor
New York, NY 10154
Attention: Howard Lipson
By Fax: (212) 754-8703
41
<PAGE>
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Wilson Neely
By Fax: (212) 455-2502
if to the Company
Roses, Inc.
3888 South Workman Mill Road
Whittier, California 90601
Attention: Kendall E. Nungesser
Executive Vice President and
Chief Financial Officer
By Fax: (310) 692-1412
with a copy to:
James R. Ukropina, Esq.
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, California 90071
By Fax: (213) 669-6407
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
9.8 Entire Agreement. This Agreement (including all schedules
and any exhibits or annexes hereto), (a) constitutes the entire agreement, and
supersedes all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties, with respect to the
subject matter hereof, including, in particular but without limitation, the
Confidentiality Agreement and the No Shop Agreement, and (b) shall not be
assignable by operation of law or otherwise; provided, however, that (i)
Acquisition may assign its rights under this Agreement to one or more third
parties (and any such third party transferrees may further so assign) provided
that any such assignee or reassignee is Blackstone Capital Partners II Merchant
Banking Fund L.P. ("Blackstone") or Loewen or an Affiliate of Blackstone or
Loewen, provided that the assignee shall execute a counterpart of this Agreement
agreeing to be bound by the terms hereof as "Acquisition" and provided further
that any such assignment shall not impair the Company's and/or the Stockholders'
rights or ability to draw on the Letter of Credit in accordance with its terms.
Except for the provisions contained in Sections 6.14 and 7.2(h), nothing in this
Agreement express or implied, is intended to confer upon any person (including,
in particular, but without limitation, the employees of the Company) other than
the parties hereto any rights or remedies under or by reason of this Agreement.
9.9 Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
9.10 Knowledge. As used in this Agreement, "knowledge" and
terms of similar import shall mean (a) with respect to the Company and its
Subsidiaries, the actual and direct
42
<PAGE>
knowledge of Dennis C. Poulsen, Kendall E. Nungesser and Sandy V. Durko, after
such inquiry and investigation as is reasonable under the circumstances, and (b)
with respect to each of the Stockholders, the actual and direct knowledge of
such Stockholder, after such inquiry and investigation as is reasonable under
the circumstances, except that the knowledge of each Stockholder may be imputed
one to the other among them.
9.11 Representation By Counsel, Interpretation. The parties
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law, including but not limited to Section
1654 of the California Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it, has no application and is expressly waived.
9.12 Severability. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable by any governmental entity,
the remaining provisions of this Agreement, to the extent permitted by law,
shall remain in full force and effect provided that the essential terms and
conditions of this Agreement for all parties remain valid, binding and
enforceable.
ARTICLE X
DEFINITIONS
As used herein, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise requires, may be used
in the singular or plural, depending upon the reference.
"Action" shall mean any action, claim, suit, litigation,
proceeding, arbitration, or governmental audit, inquiry, or investigation.
"Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"Assets" shall mean all of the right, title and interest in
and to the properties, assets and rights of any kind, wheresoever located and
whether or not reflected in the Books and Records, whether tangible or
intangible, real or personal, used in connection with, or related to, the
Business owned by the Company and each of its Subsidiaries or, in which the
Company and each of its Subsidiaries has any interest.
"Association" shall mean Rose Hills Memorial Park Association,
a California non-profit mutual benefit corporation.
"Association Asset Purchase Agreement" shall mean that certain
Asset Purchase Agreement dated of even date herewith, between Acquisition and
the Association.
"Books and Records" shall mean (a) all records and lists of
the Company and each of its Subsidiaries pertaining to the Assets, (b) all
records and lists pertaining to the Business, customers, suppliers or personnel
of the Company and each of its Subsidiaries, (c) all product, business and
43
<PAGE>
marketing plans of the Company and each of its Subsidiaries pertaining to the
Business and (d) all books, ledgers, files, reports, plans, drawings and
operating records of the Company and each of its Subsidiaries pertaining to the
Business, but excluding the originals of the Company's and all of each of its
Subsidiaries minute books, stock books and tax returns.
"Business" shall mean the Company's and each of its
Subsidiary's business of the ownership, management and operation of the Mortuary
and the management of the Cemetery (including, without limitation, the sale as
agent of insurance relating to Preneed Contracts).
"Cemetery" shall mean Rose Hills Memorial Park in the County
of Los Angeles, California.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder.
"Confidentiality Agreement" shall mean that certain
Confidentiality Agreement dated July 25, 1995, as amended January 1, 1996 by and
among the Company, Loewen and the Association.
"Consent" shall mean any consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
governmental authority or other Person.
"Contract" shall mean any agreement, contract, note, loan,
evidence of indebtedness, purchase order, letter of credit, indenture, security
or pledge agreement, franchise agreement, covenant not to compete, employment
agreement, license, instrument, obligation or commitment to which the Company
and each of its Subsidiaries is a party or by which the Company and each of its
Subsidiaries is bound and which relates to the Business or the Assets, whether
oral or written, but excluding all Leases.
"Contract Rights" shall mean all of the rights and obligations
of the Company and each of its Subsidiaries under the Contracts listed on
Schedule 5.2(k).
"Copyrights" shall mean registered copyrights, copyright
applications and unregistered copyrights.
"Court Order" shall mean any judgment, decision, consent
decree, injunction, ruling or order of any federal, state or local court or
governmental agency, department or authority that is binding on any person or
its property under applicable law.
"Default" shall mean a breach of or default under any Contract
or Lease.
"Disclosure Schedule" shall mean the collection of schedules
executed and delivered by the Company and Acquisition as of the date hereof
which sets forth the exceptions to the representations and warranties and
covenants contained in this Agreement and certain other information called for
by this Agreement. Unless otherwise specified, each reference in this Agreement
to any numbered schedule is a reference to that numbered schedule which is
included in the Disclosure Schedule, and disclosure on any Schedule attached to
this Agreement or to the Association Asset Purchase Agreement shall constitute
disclosure on all Schedules for purposes of this Agreement.
44
<PAGE>
"Employee Plans" shall mean all employee benefit plans as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA") and all severance, bonus, employment, stock option, stock purchase,
change-in-control, collective bargaining, incentive, retirement, pension, profit
sharing and deferred compensation plans and other similar fringe or employee
benefit plans, programs or arrangements, and all employment or compensation
agreements, written or otherwise, for the benefit of or relating to any employee
or former employee of, and related to employment by, the Company and each of its
Subsidiaries whether or not subject to ERISA.
"Encumbrance" shall mean any claim, lien, pledge, option,
charge, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"Environmental Damages" shall mean any and all losses which
are incurred at any time as a result of the existence at or prior to the
Effective Time of Hazardous Materials upon, about or beneath the Real Property
or migrating to or from the Real Property, or the existence of a violation of
Environmental Requirements pertaining to the Real Property, regardless of
whether the existence of such Hazardous Materials or the violation of
Environmental Requirements arose prior to the present ownership or operation of
the Real Property. Notwithstanding the foregoing, Environmental Damages shall
not include consequential damages or damages comprised of lost income or
profits.
"Environmental Requirements" shall mean all applicable
Regulations of any governmental authority in effect on the date of this
Agreement relating to the protection of human health or the environment,
including (a) all requirements pertaining to reporting, licensing, permitting,
investigation, and remediation of emissions, discharges, releases or threatened
releases of Hazardous Materials, or (b) all requirements pertaining to the
protection of the health and safety of employees or the public.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the Rules and Regulations thereunder.
"Fixtures and Equipment" shall mean all of the furniture,
fixtures, furnishings, machinery, automobiles, trucks, equipment, molds,
patterns, and other tangible personal property owned by the Company and each of
its Subsidiaries and used in connection with the Business, wherever located, and
including any such Fixtures and Equipment in the possession of any of the
Company's suppliers, including all warranty rights with respect thereto, all as
are described on Schedule 5.2(m).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder.
"Hazardous Materials" shall mean (a) any substances classified
as of the date of this Agreement as "hazardous" pursuant to (i) the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC
9601, et seq., the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste
Amendments of 1984, 42 USC 6901 et seq., the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, 33 USC
45
<PAGE>
1251 et seq., the Clean Air Act of 1966, as amended, 42 USC 7401 et seq., the
Toxic Substances Control Act of 1976, 15 USC 2601 et seq., or the Hazardous
Materials Transportation Act, 49 USC 5101 et seq., and (ii) the California
Health and Safety Code, ss.25100, et seq. and ss.3900, et seq.; (b)
asbestos-containing construction material; (c) polychorinated biphenls; and (d)
petroleum, including crude oil or any fracture thereof, natural gas, natural gas
liquids, liquified natural gas or synthetic gas usable for fuel.
"Inventory" shall mean all caskets, funeral commodities and
other inventory used in the conduct of the Business and owned by the Company and
its Subsidiaries.
"LGII" shall mean Loewen Group International, Inc., a Delaware
corporation.
"Liabilities" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency or guaranty of
or by any person of any type, whether accrued, absolute, contingent, matured,
unmatured or other.
"LOC Payment" shall mean the proceeds of a drawing on the
Letter of Credit as defined in Section 8.6.
"Loewen" shall mean The Loewen Group, Inc., a British Columbia
corporation, whose stock is presently quoted on the NASDAQ National Market
System.
"Loewen Shares" shall mean the shares of the common capital
stock of Loewen provided for in Section 4.1 hereof.
"Material Adverse Effect or "Material Adverse Change" shall
mean, individually or in the aggregate, any material adverse effect upon or
material adverse change in the following items, in either case with respect to
the Company and each of its Subsidiaries and the Association taken as a whole:
(a) the financial condition or results of operations of the Company and/or each
of its Subsidiaries and the Association; or (b) the condition or going concern
value of (i) the Business and the Assets of the Company and/or its Subsidiaries,
and (ii) the Business and the Assets (other than the Excluded Assets) of the
Association to be purchased by Acquisition pursuant to the Association Asset
Purchase Agreement.
"Operating Capital" shall mean, as of any date, the difference
between (a) the sum of Customer Accounts Receivable less Allowance for Doubtful
Accounts, plus Other Receivables (but excluding any (i) Accounts Receivable or
Accounts Payable from the Association or any of its Affiliates or any affiliates
of the Company and (ii) any Accounts Receivable from Latham & Watkins) plus
Casket and Other Inventories, and (b) the sum of Accounts Payable, Accrued
Expenses and Accrued Compensation, all as reflected on the balance sheet of the
Partnership.
"Ordinary Course of Business" or "Ordinary Course" or any
similar phrase shall mean the ordinary course of the Business and consistent
with the past custom and practice of the Company and each of its Subsidiaries.
"Parent" shall mean Tudor Acquisition Holding Corp., a
Delaware corporation.
46
<PAGE>
"Permits" shall mean all licenses, permits, franchises,
approvals, authorizations, consents or orders of, or filings with, any
governmental authority, whether foreign, federal, state or local, or any other
person, necessary for the past or present conduct of, or relating to the
operation of the Business.
"Permitted Encumbrances" shall mean (a) with respect to the
Real Property, (i) those exceptions shown on the Title Commitment and the
Survey, and (ii) all other exceptions approved or deemed approved by Acquisition
pursuant to Section 6.10, and (b) with respect to all other Assets (i.e. other
than the Real Property), minor liens which in the aggregate are not substantial
in amount, do not materially detract from the value or transferability of the
property or assets subject thereto or interfere with the present use thereof.
"Person" shall mean any individual, firm, corporation,
partnership, trust, estate, association or other entity.
"Preneed Contracts" shall mean all written contracts and
commitments relating to the provision or sale of preneed funeral merchandise,
properties or services and any debenture, insurance policy, plan, deposit,
prepaid amount, trust fund or trust agreement relating to such contracts and
commitments, and any similar items entered into or obtained by the Company or
any of its Subsidiaries in the ordinary and usual course of the conduct of the
Business.
"Proprietary Rights" shall mean all of the Company and each of
its Subsidiary's Copyrights, Trademarks, technology rights and licenses,
computer software (including without limitation any source or object codes
therefor or documentation relating thereto), trade secrets, franchises,
know-how, inventions, designs, specifications, plans, drawings and intellectual
property rights.
"Real Property" shall mean that real property of the Company
and its Subsidiaries as described on Schedule 5.2(n) hereto.
"Share Issuance and Registration Rights Agreement" shall mean
that certain agreement between Loewen and the Stockholders relating to the
Loewen Shares attached hereto as Exhibit D.
"Regulations" shall mean any laws, statutes, codes,
ordinances, regulations, rules, court decisions, and orders of any federal,
state or local government and any other governmental department or agency,
including without limitation, those governing the use, operation and disposition
of mortuaries and the withholding of funds to be placed in trust with respect to
Preneed Contracts.
"Representative" shall mean any officer, director, trustee,
principal, attorney, agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the general Rules and Regulations thereunder.
"Survey" shall mean that certain survey with respect to the
Real Property dated , 1996, and prepared by Salit and Associates
in compliance with all applicable ALTA requirements and as may otherwise be
required to enable the Title Company to issue the Title Commitment without the
so-called standard printed exceptions for matters disclosed by an accurate 47
<PAGE>
survey.
"Tax" shall mean any federal, state, local, foreign or other
tax, levy, impost, fee, assessment or other government charge, including without
limitation income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any premium, including without
limitation interest, penalties and additions in connection therewith.
"Tax Returns" shall mean all returns, reports, declarations,
and information returns and statements relating to Taxes, including any
amendments thereto.
"Title Company" shall mean First American Title Company of Los
Angeles or such other title insurance company as may hereafter be acceptable to
both the Stockholders and Acquisition.
"Title Commitment" shall mean that certain binding commitment
from the Title Company in the form attached hereto as Exhibit C, pursuant to
which Title Company agrees to issue to Acquisition at the Effective Time an ALTA
Extended Coverage Owner's Policy of Title Insurance (in current form), insuring
that fee simple title to the Real Property is vested in Acquisition in the full
amount of the Merger Consideration allocated to the Real Property.
"Trademarks" shall mean all trademarks, service marks, trade
names, service names, corporate names, logos, trade dress, and other words,
designations, labels, symbols or designs, together with the goodwill of the
Company's business appertaining thereto.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by the Stockholders. Each Stockholder,
severally and not jointly, agrees to indemnify, defend and hold Acquisition and
its Affiliates harmless from and against any and all claims, liabilities, losses
and expenses, including reasonable attorney's fees, on an after tax basis
(collectively, "Losses and Expenses") actually incurred by Acquisition or its
Affiliates in connection with or arising from:
(a) any material breach by such Stockholder and/or the Company
of any covenant in this Agreement or in any agreement or instrument
referenced in this Agreement or contemplated hereby to which such
Stockholder and/or the Company is a party;
(b) any material failure by such Stockholder and/or the
Company to perform any of its obligations in this Agreement or in any
agreement or instrument referenced in this Agreement or contemplated
hereby to which such Stockholder and/or the Company is a party and;
48
<PAGE>
(c) any breach of any warranty or the inaccuracy of any
representation of such Stockholder and/or the Company contained in this
Agreement or referred to in this Agreement or any certificate delivered
by such Stockholder and/or the Company pursuant hereto.
provided, however, that except as set forth in Section 11.4 of this Agreement,
with respect to (i) any breach or failure to perform specified in this Section
11.1 on the part of the Company or (ii) any breach by the Stockholders of any
representation or warranty contained in Section 5.2 hereof; the liability of
each Stockholder under this Section 11.1 shall be several in proportion to its
respective Ownership Percentage and provided further, that the Stockholders
shall be required to indemnify and hold Acquisition and its Affiliates harmless
under this Section 11.1 with respect to any Losses and Expenses incurred by
Acquisition or its Affiliates only to the extent that the aggregate amount of
such Losses and Expenses for which Acquisition or any such Affiliate is entitled
to indemnification under the preceding provisions of this Section 11.1, when
combined with the aggregate amount of Losses and Expenses for which Acquisition
or any such Affiliate is entitled to indemnification under Section 10.4 of the
Association Asset Purchase Agreement, taken together, exceeds $1 million (the
"Basket"), and then only with respect to the amount in excess of the Basket. In
determining the Basket, all of the Losses and Expenses for which Acquisition or
any such Affiliate would otherwise be entitled, but for the Basket, to receive
indemnification pursuant to this Section 11.1 and Section 10.4 of the
Association Asset Purchase Agreement shall be aggregated, irrespective of
whether such Losses and Expenses or any individual component thereof is less
than $1 million. Notwithstanding the foregoing, [A] the maximum liability of any
Stockholder to Acquisition and its Affiliates under this Section 11.1 shall not
exceed the amount of Merger Consideration received by such Stockholder on the
Closing Date, [B] the maximum liability of all of the Stockholders as a group to
Acquisition and its Affiliates under this Section 11.1 shall not exceed $15
million in the aggregate (the limitations contained in clauses [A] and [B] are
collectively referred to herein as the "Cap"), and [C] the Stockholders shall
not be required to indemnify Acquisition and its Affiliates under this Section
11.1 for any Losses and Expenses resulting or arising from or based upon any
inaccuracy or breach of any representation or warranty of the Stockholders or of
the Company contained in this Agreement to the extent that such inaccuracy or
breach was actually known to Acquisition on or as of the Closing Date.
11.2 Indemnification by Acquisition. Acquisition agrees to
indemnify, defend and hold the Stockholders and their respective Affiliates and
beneficiaries harmless from and against any and all Losses and Expenses actually
incurred by them in connection with or arising from:
(i) any material breach by Acquisition of any of its
covenants or agreements in this Agreement or in any other document to
which Acquisition is a party;
(ii) any material failure by Acquisition to perform any
of its obligations in this Agreement or in any other document to which
Acquisition is a party; or
(iii) any breach of any warranty or the inaccuracy of
any representation of Acquisition contained or referred to in this
Agreement or in any certificate delivered by or on behalf of the
Acquisition pursuant hereto.
11.3 Insurance and Tax Benefits.
(a) Nothwithstanding the foregoing, in no event shall an
Indemnified Party be entitled to indemnification hereunder to the
extent any Losses and Expenses are covered by and actually
49
<PAGE>
paid by insurance maintained by the Indemnified Party or any of its
Affiliates (an "Insurance Benefit").
(b) The amount of any indemnity payment otherwise required to
be made pursuant to this Agreement shall be reduced by the amount of
any directly corresponding federal, state or local income tax benefit
actually realized by the Indemnified Party or an Affiliate thereof from
payment of the liability upon which the claim for indemnity is based,
but only to the extent that such income tax benefit results in an
actual reduction of income taxes due in the year of payment of the
claim for indemnity or in a refund of taxes already paid.
11.4 Basket, Cap, Time Limitation Not Applicable.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall the Basket, the Cap or the time limitations (as provided for in
Section 11.11) be applicable to Losses and Expenses (a) arising as a result of a
breach of the representations and warranties set forth in Sections 5.1(a),
5.1(b), 5.1(d), 5.1(e), 5.2(a), 5.2(b), 5.2(h) or 5.2(l), (b) which relate to a
payment of Taxes as set forth in Article XIV of this Agreement, or (c) which may
ultimately be determined pursuant to Section 11.10 to be due to the actual fraud
by the Company. For purposes of this Section 11.4, the term "actual fraud" shall
require actual (not constructive) intent to defraud and actual reliance on the
part of Acquisition.
11.5 Notice of Claims. Either of Acquisition or a Stockholder,
(the "Indemnified Party") seeking indemnification hereunder shall give to the
party obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim (and, if applicable, the Basket), and a reference to
the provision of this Agreement or any other agreement, document or instrument
executed hereunder or in connection herewith upon which such claim is based;
provided, however, that a Claim Notice in respect of any claim, action at law or
suit in equity by or against a Third Person, as defined in Section 11.7 below,
as to which indemnification will be sought shall be given promptly after the
claim, action or suit is commenced; provided, further, that failure to give such
notice shall not relieve the Indemnitor of its obligations hereunder except to
the extent it shall have been materially prejudiced by such failure.
11.6 Sole Remedies of the Parties; Limit on Indemnifiable
Claims.
(a) The sole and exclusive remedy of the parties hereto for
any claim resulting in a breach by any of the parties hereto of their
respective representations, warranties, covenants or agreements made
hereby or the failure by any party to perform their respective
obligations under this Agreement shall be a claim under Article XI of
this Agreement. The parties hereby waive any provision of law,
including, without limitation, any provision of Section 1542 of the
California Civil Code, to the extent that it would limit or restrict
the agreement contained in this Section.
(b) Any indemnifiable claim with respect to any breach or
nonperformance by any party of a representation, warranty, covenant or
agreement shall be limited to the amount of actual damages sustained by
the Indemnified Party by reason of such breach or nonperformance.
Notwithstanding anything to the contrary elsewhere in this Agreement,
no party or its Affiliates shall in any event be liable to any other
party or its Affiliates for any consequential damages, including, but
not limited to, loss of future revenue or income, cost of
50
<PAGE>
capital, or loss of business reputation or opportunity. Each party
further agrees that it shall not seek punitive damages as to any matter
relating to this Agreement or the transactions contemplated by it.
(c) U.S. Trust Company of California, N.A. is executing this
Agreement solely in its capacity as Trustee of the Trusts whose names
appear as parties hereto and not in its individual or corporate
capacity. U.S. Trust Company of California, N.A. shall have no
individual or corporate liability or financial responsibility, and only
the assets that are owned by those Trusts, respectively, shall be
available to respond to claims of breach of warranty or for
indemnification or otherwise.
11.7 Third Person Claims.
(a) Subject to Section 11.7(b), the Indemnified Party shall
have the right to conduct and control, through counsel of its choosing,
the defense, compromise or settlement of any Third Person claim, action
or suit against such Indemnified Party as to which indemnification will
be sought by any Indemnified Party from any Indemnitor hereunder, and
in any such case the Indemnitor shall cooperate in connection therewith
and shall furnish such records, information and testimony and attend
such conferences, discovery proceedings, hearings, trials and appeals
as may be reasonably requested by the Indemnified Party in connection
therewith; provided, however, that the Indemnitor may participate,
through counsel chosen by it and at its own expense, in the defense of
any such claim, action or suit as to which the Indemnified Party has so
elected to conduct and control the defense thereof; and provided,
further, that the Indemnified Party shall not, without the written
consent of the Indemnitor (which written consent shall not be
unreasonably withheld, conditioned or delayed), pay, compromise or
settle any such claim, action or suit, except that no such consent
shall be required if, following a written request from the Indemnified
Party, the Indemnitor shall fail, within 14 days after the making of
such request, to acknowledge and agree in writing that, if such claim,
action or suit shall be adversely determined, such Indemnitor has an
obligation to provide indemnification hereunder to such Indemnified
Party. Notwithstanding the foregoing, the Indemnified Party shall have
the right to pay, settle or compromise any such claim, action or suit
without such consent, provided, however, that in such event the
Indemnified Party shall waive any right to indemnity therefor hereunder
unless such consent is unreasonably withheld.
(b) If any Third Person claim, action or suit against any
Indemnified Party is solely for money damages or, where a Stockholder
is the Indemnitor, will have no continuing effect in any material
respect on the Stockholder, the Indemnified Party, the Business or the
Assets, then the Indemnitor shall have the right to conduct and
control, through counsel of its choosing, the defense, compromise or
settlement of any such Third Person claim, action or suit against such
Indemnified Party as to which indemnification will be sought by any
Indemnified Party from any Indemnitor hereunder if the Indemnitor has
acknowledged and agreed in writing that, if the same is adversely
determined, Indemnitor has an obligation to provide indemnification to
the Indemnified Party in respect thereof, and in any such case the
Indemnified Party shall cooperate in connection therewith and shall
furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may
be reasonably requested by Indemnitor in connection therewith;
provided, however, that the Indemnified Party may participate, through
counsel chosen by it and at its own expense, in the defense of any such
claim, action or suit, as to which Indemnitor has so
51
<PAGE>
elected to conduct and control the defense thereof. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit, provided, further, that in
such event the Indemnified Party shall waive any right to indemnity
therefor hereunder unless the Indemnified Party shall have sought the
consent of Indemnitor to such payment, settlement or compromise and
such consent was unreasonably withheld, conditioned or delayed in which
event no claim for indemnity therefor hereunder shall be waived.
11.8 Interest, Costs and Attorneys' Fees. If any of Acquisition or the
Stockholders shall be in breach of any of its respective representations or
warranties or in default of its respective covenants, agreements or other
obligations hereunder, then in addition to any and all other rights and remedies
which the non-defaulting party may have against such defaulting party, the
defaulting party shall be liable to and shall, upon demand, pay the
non-defaulting party for all reasonable court costs and attorneys' fees incurred
or sustained by the non-defaulting party by reason thereof or in enforcing the
terms and conditions of this Agreement. Such defaulting party shall also pay to
the non-defaulting party interest, from the date of notice of the claim upon any
sums owing by such defaulting party to the non-defaulting party, at a rate equal
to three (3) percentage points in excess of the prime or base rate of interest
announced, from time to time, by Citibank, N.A.; the term "prime or base rate"
means the rate of interest announced, from time to time, by said bank as its
prime or base rate of interest. For purposes of convenience, and at the election
of such non-defaulting party, interest for a calendar month, or portion thereof,
shall be calculated as if the prime or base rate in effect on the first banking
business day for such month was in effect for the entire month.
11.9 Payment and Right of Offset. Upon the final determination of a
liability under Section 11.1 or 11.2 hereof, whether reached by written
agreement of the parties or pursuant to arbitration pursuant to Section 11.10
hereto, the appropriate party or parties shall pay to the other, within ten (10)
days after such determination, the amount so determined by agreement or by
arbitration, as the case may be. In the event that Acquisition is not paid in
full pursuant to the foregoing provisions promptly after Stockholders'
obligation to indemnify has been determined in accordance herewith, it shall
have the right, notwithstanding any other rights that it may have against any
other person, firm or corporation, to set-off the unpaid amount of any such
claim against any amounts owed by it under this Agreement to the person so
determined to be liable to Acquisition. Upon the payment in full of any claim,
either by set-off or otherwise, the entity making payment shall be subrogated to
the rights of the Indemnified Party, if any, against any Third-Party, firm or
corporation with respect to the subject matter of such claim.
11.10 Binding Arbitration. All disputes under this Agreement shall be
settled in Los Angeles, California, before a single arbitrator pursuant to the
rules of practice administered by the Judicial Arbitration & Mediation Services,
Inc. ("JAMS"). Arbitration may be commenced at any time by any party hereto
giving written notice to the other party to the dispute that such dispute has
been referred to arbitration under this Agreement. The arbitrator shall be
selected by the joint agreement of the Stockholder and Acquisition, but if they
do not so agree within twenty (20) days after the date of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by such JAMS. The arbitrator shall render his decision
within 120 days of appointment. Any award rendered by the arbitrator shall be
final, conclusive and binding upon the parties hereto; provided, however, that
any such award shall be accompanied by a written opinion of the arbitrator
giving the reasons for the award. This provision for arbitration shall be
specifically enforceable by the parties and the decision of the arbitrator in
accordance herewith shall be final,
52
<PAGE>
binding and conclusive and there shall be no right of appeal therefrom. The
costs and expenses of arbitration, including attorney's fees and expenses of the
arbitrator, shall be paid entirely by the non-prevailing party unless the
arbitrator determines that the costs, expenses and attorney' fees should be
apportioned between the parties, then as the arbitrator may assess. The
arbitrator shall not be permitted to award punitive damages under any
circumstances.
11.11 Survival of Representations. Except as otherwise
provided for in Sections 5.3(h), 8.7, 11.1, and 11.4 and except for the
representation and warranty contained in the third sentence of Section 5.2(n) of
the Agreement (with respect to title to the Real Property), which shall expire
at the Effective Time, notwithstanding any investigations or inquiries made by
Acquisition, (a) the representations and warranties of the Stockholders and the
Company shall survive the Closing and shall continue in full force and effect
(i) with respect to any representation or warranty contained in Section 5.2(y)
relating to tax issues, for the applicable statute of limitations, (ii) with
respect to any representation or warranty contained in Section 5.2(r) relating
to any insurance, trust or fund relating to preneed funeral merchandise or
services, for a period of fifteen (15) months from the Effective Time, (iii)
with respect to any representation or warranty contained in Section 5.2(q)
relating to environmental issues, for a period of twenty-four (24) months from
the Effective Time, and (iv) with respect to any other representation or
warranty, for a period of fifteen (15) months from the Effective Time, and (b)
the covenants and agreements of the Stockholders and the Company shall survive
the Closing.
11.12 Maintenance of Existence and Liquid Assets. From and after the
Effective Time, each of the Stockholders agrees as follows:
(a) If such Stockholder is a trust, it shall maintain its
existence in accordance with its organizational documents for a period
of not less than 48 months after the Effective Time;
(b) For a period of 36 months from the Effective Time, each
Stockholder shall maintain aggregate liquid assets (as defined below)
as follows:
(i) for the period from the Effective Time until
12 months after the Effective Date, liquid
assets of not less than such Stockholder's
pro rata share (determined on the basis of
its Ownership Percentage immediately prior
to the Effective Time) of $15 million;
(ii) for the period from 12 months after the
Effective Time to 24 months after the
Effective Date, liquid assets of not less
than such Stockholder's pro rata share
(determined on the basis of its Ownership
Percentage immediately prior to the
Effective Time) of $10 million; and
(iii) for the period from 24 months after the
Effective Time until 36 months after the
Effective Date, liquid assets of not less
than such Stockholder's pro rata share
(determined on the basis of its Ownership
Percentage immediately prior to the
Effective Time) of $5 million.
provided, however, that in the event that a claim or claims are made by
Acquisition pursuant to Section 11.1 of this Agreement, there shall be
no further diminution in the aggregate liquid
53
<PAGE>
assets required pursuant to subparagraphs (b)(i), (ii) and (iii) above
until such claim has been resolved and paid in full or withdrawn;
(c) For purposes of this Section 11.12, the term "liquid
assets" means one or more of the following obligations, securities or
investments;
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America
or any agency or instrumentality of the
United States of America, the obligations of
which are backed by the full faith and
credit of the United States of America,
other than obligations of the Federal Home
Loan Mortgage Corporation; provided,
however, that in the case of obligations
that are rated, each such obligation shall
have a credit rating of "Aa3" or better or
"P-1" or better, as applicable, by the
rating agency;
(ii) demand and time deposits in, certificates of
deposit of, or money market accounts in any
depository institution or trust company
incorporated under the laws of the United
States of America or any state thereof and
subject to supervision and examination by
federal and/or state banking authorities so
long as the commercial paper and/or the debt
obligations of such depository institution
or trust company (or, in the case of the
principal depository institution in a
holding company system, the commercial paper
or debt obligations of such holding company)
at the time of such investment or
contractual commitment providing for such
investment have a credit rating of "Aa3" or
better, in the case of debt obligations, or
"P-1" or better, in the case of commercial
paper, by the rating agency
(iii) commercial paper having at the time of such
investment a credit rating of "P-1" or
better by the rating agency and that either
is registered or that is sold at a discount
from the face amount thereof and has a
maturity of not more than 183 days from its
date of issuance;
(iv) money market funds or money market mutual
funds (other than closed-end funds) which
(A) maintain a constant net asset value, (B)
have at the time of such investment a rating
by the rating agency of "P-1", if such fund
invests in securities that mature more than
183 days from the date of issuance thereof,
or "Aa3" or better if such fund invests in
securities that mature not more than 91 days
from the date of issuance thereof, (C)
invest primarily in the types of securities
described in clauses (i) and (ii) above, and
(D) are not obligations of an investment
company registered under Section 8 of the
Investment Company Act;
(v) shares of the Common Stock of The Loewen
Group, Inc. or any successor thereto; and
(vi) any other debt, equity or derivative
security (including without limit mutual
fund shares) which is listed or otherwise
authorized for trading
54
<PAGE>
on any national, local or foreign exchange
or is quoted on the NASDAQ National Market
System and for which quotations are
routinely available in the Wall Street
Journal and the London Financial Times.
(d) For so long as the requirements of this Section 11.12
shall be in effect, to provide a certificate to Acquisition no later
than February 15 and August 15 of each calendar year following the
Effective Time to the effect that such Stockholder is and continues to
be in compliance with the requirements of this Section 11.12 in all
respects.
ARTICLE XII
CONFIDENTIALITY
12.1 Confidential Information.
(a) No Disclosure. The parties acknowledge that the
transactions described herein is of a confidential nature and shall not
be disclosed except to consultants, advisors and Affiliates, or as
required by law, until such time as the parties make a public
announcement regarding the transaction as provided in Section 6.5.
(b) Preservation of Confidentiality. In connection with the
negotiation of this Agreement, the preparation for the consummation of
the transactions contemplated hereby, and the performance of
obligations hereunder, Acquisition acknowledges that it will have
access to confidential information relating to the Company, including
technical, manufacturing or marketing information, ideas, methods,
developments, inventions, improvements, business plans, trade secrets,
scientific or statistical data, diagrams, drawings, specifications or
other proprietary information relating thereto, which confidential
information, together with all analyses, compilations, studies or other
documents, records or data prepared by the Company or Acquisition or
their respective Representatives which contain or otherwise reflect or
are generated from such information shall be deemed "Confidential
Information" for purposes of this Agreement. Notwithstanding anything
to the contrary herein contained, nevertheless, "Confidential
Information" shall not include information which (i) at the time of
disclosure to a party is generally available to the public, (ii) at the
time of disclosure to a party is already in that party's possession,
provided that such information is not subject to another
confidentiality agreement with, or other legal obligation of secrecy or
confidentiality to, the provider of such information, or (iii) becomes
available to a party on a nonconfidential basis from a person other
than the provider of the information, so long as such source is not
otherwise subject to a confidentiality agreement with, or other legal
obligation of secrecy or confidentiality to, the provider of the
information.
(c) Disclosure of Confidential Information. Acquisition shall
treat all Confidential Information as confidential, preserve the
confidentiality thereof and not disclose any Confidential Information,
except to its Representatives and Affiliates who need to know such
Confidential Information in connection with the transactions
contemplated hereby. Acquisition
55
<PAGE>
shall use all reasonable efforts to cause its Representatives to treat
all Confidential Information as confidential, preserve the
confidentiality thereof and not disclose any Confidential Information.
Acquisition shall be responsible for any breach of this Agreement by
any of its Representatives. If, however, Confidential Information is
disclosed, Acquisition shall immediately notify the Company in writing
and take all reasonable steps required to prevent further disclosure.
(d) Ownership. Until the Effective Time or the termination of
this Agreement, all Confidential Information shall remain the property
of the party who originally possessed such information. In the event of
the termination of this Agreement for any reason whatsoever,
Acquisition shall, and shall cause its Representatives to, return to
the Company all Confidential Information (including all copies,
summaries and extracts thereof) furnished to Acquisition by the Company
in connection with the transactions contemplated hereby.
(e) Legal Process. If Acquisition or any of its
Representatives or Affiliates is requested or required (by oral
questions, interrogatories, requests for information or documents in
legal proceedings, subpoena, civil investigative demand or other
similar process) or is required by operation of law to disclose any
Confidential Information, Acquisition shall provide the Company with
prompt written notice of such request or requirement, which notice
shall, if practicable, be at least 48 hours prior to making such
disclosure, so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or
the receipt of such a waiver, Acquisition or any of its Representatives
are nonetheless, in the opinion of counsel, legally compelled to
disclose Confidential Information, then Acquisition may disclose that
portion of the Confidential Information which such counsel advises is
legally required to be disclosed, provided that Acquisition uses its
reasonable efforts to preserve the confidentiality of the Confidential
Information, whereupon such disclosure shall not constitute a breach of
this Agreement.
(f) Notwithstanding anything to the contrary herein contained,
nevertheless, the provisions of this Article XII shall survive any
termination of this Agreement.
ARTICLE XIII
NO SOLICITATION
13.1 No-Shop Exclusivity. From and after the date hereof,
until the termination or expiration of this Agreement as provided for in Article
VIII hereof, neither the Company nor any of the Stockholders, will directly or
indirectly through any trustee, director, officer, agent, or otherwise,
initiate, solicit or deliberately encourage submission of proposals or offers
from any person or entity relating to any acquisition or purchase of all or
(other than funeral commodities in the ordinary course of business) a material
amount of the assets or the shares of the Company, or any merger, consolidation
or business combination with the Company; provided, however, that as may be
required by the Company's fiduciary duties under applicable law as advised by
counsel, the Company may participate in any discussions or negotiations
regarding, and may furnish to any other person information with respect to any
of the foregoing. The Company shall promptly notify Acquisition if
56
<PAGE>
any such proposal or offer, or any inquiry or contact with respect thereto, is
made as well as the terms and conditions of any such proposal or offer.
13.2 Exercise of Fiduciary Duty. Nothing contained in this
Agreement shall prevent the Board of Directors of the Company, from approving a
transaction with another person or entity if the Board determines that, under
applicable law on the advice of counsel, such action is required in the exercise
of the fiduciary duties of the Board. The Company may terminate this Agreement,
without any further obligation, except for (i) return of the No-Shop Payment and
(ii) the payment required by Section 13.3. Except for the right of termination
set forth in this Section 13.2, nothing shall relieve the Company and its
Affiliates, from complying with all other terms of this Agreement.
13.3 Compensatory Fee. If the Company exercises its duty under
Section 13.2 and causes termination of this Agreement, then within five (5)
business days following Acquisition's written request therefor, the Company
shall pay to Acquisition, as liquidated damages, the sum of $7.5 Million (the
"Compensatory Fee"), by wire transfer of immediately available funds to an
account designated by Acquisition. Furthermore, if (i) the Association shall
have exercised its fiduciary duty pursuant to Section 11.15(b) of the
Association Asset Purchase Agreement (the "Exercise"), and (ii) the transactions
contemplated by this Agreement are not consummated, and (iii) the Company shall
have entered into an agreement, or procured an option to sell, transfer or
otherwise dispose of substantially all of its stock, Assets or Business to, or
merge with or into, the same person ("Purchaser") that purchases substantially
all of the cemetery related assets or business of, or merges with or into, the
Association (or an Affiliate of the Association) (or an Affiliate of such
Purchaser or any other person with any option, arrangement or understanding with
Purchaser with respect thereto) within one year from the date of the Exercise,
then the Company shall pay Acquisition the Compensatory Fee within five (5) days
of entering into such agreement or procuring such option.
The Company acknowledges that this fee is reasonable and equitable
given the time, effort and expense undertaken and incurred by Acquisition in
connection with the transactions contemplated by this Agreement as well as the
significant benefit accorded the Company by the price negotiated for the
transactions subject to this Agreement.
ARTICLE XIV
TAX MATTERS
14.1 Tax Matters.
(a) Parent shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company and its Subsidiaries
for all periods ending on or prior to the Closing Date which are due
after the Closing Date. The Stockholders shall reimburse Parent for
Taxes of the Company and its Subsidiaries with respect to such periods
within fifteen (15) days after payment by Parent or the Company of such
Taxes.
(b) Parent shall prepare or cause to be prepared and file or
cause to be filed any Tax Returns of the Company and its Subsidiaries
for Tax periods which begin before the Closing Date and end after the
Closing Date. The Stockholders shall pay to Parent within fifteen (15)
days after the date on which Taxes are paid with respect to such
periods an
57
<PAGE>
amount equal to the portion of such Taxes which relates to the portion
of such Tax period ending on the Closing Date. To the extent that
Parent receives a refund(s) of Taxes paid with respect to a Tax period
described in the preceding sentence, then within fifteen (15) days of
Parent's receipt of such refund, the refund shall be paid over to the
Stockholders. For purposes of this Section, in the case of any Taxes
that are imposed on a periodic basis and are payable for a taxable
period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such taxable period
ending on the Closing Date shall (x) in the case of any Taxes other
than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire taxable period multiplied by a
fraction of the numerator of which is the number of days in the taxable
period ending on the Closing Date and the denominator of which is the
number of days in the entire taxable period, and (y) in the case of any
Tax based upon or related to income or receipts, be deemed equal to the
amount which would be payable if the relevant taxable period ended on
the Closing Date. Any credits relating to a taxable period that begins
before and ends after the Closing Date shall be taken into account as
though the relevant taxable period ended on the Closing Date. All
determinations necessary to given effect to the foregoing allocations
shall be made in a manner consistent with prior practice of the Company
and its Subsidiaries.
(c) Parent, the Company and its Subsidiaries and the
Stockholders shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax
Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. In the event of any disagreement
concerning matters subject of this subsection (c), each party shall
make available to the other such books and records as are relevant to
such disagreement and are in the possession of such party, and the
parties shall work together in good faith to resolve such disagreement.
Those matters as to which the parties are unable to agree after sixty
(60) days shall be referred for resolution to a nationally recognized
accounting firm, mutually and reasonably acceptable to both parties.
The determination of such third party, whose costs and expenses shall
be borne equally by Parent and the Stockholders, shall be final and
determinative.
(d) All Tax sharing agreements or similar agreements with
respect to or involving the Company and its Subsidiaries or the
Association shall be terminated as of the Closing
Date and, after the Closing Date, the Company and its Subsidiaries
shall not be bound thereby or have any liability thereunder.
(e) All documentary and Transfer Taxes and Fees (including any
penalties and interests) incurred in connection with this Agreement
shall be paid for by the Stockholders when due, and the Stockholders
will, at their cost and expense, file all necessary Tax Returns and
other documentation with respect to all such documentary and Transfer
Taxes and fees, and, if required by applicable law, Parent will, and
will cause its Affiliates to, join in the execution of any such Tax
Returns and other documentation.
58
<PAGE>
Each of the parties has duly executed and delivered this
Agreement on the date first hereinabove written.
Tudor Acquisition Corp.
By: /s/ Howard A. Lipson
-----------------------------------
Name: Howard A. Lipson
Title: President
By: /s/ Chinh Chu
-----------------------------------
Name: Chinh Chu
Title: Secretary
ROSES, INC.
By: /s/ Dennis c. Poulsen
-----------------------------------
Name: Dennis c. Poulsen
Title:
By: /s/ Kendall E. Nusgensser
-----------------------------------
Name: Kendall E. Nusgensser
Title:
<PAGE>
STOCKHOLDERS:
Dennis C. and Suzanne M. Poulsen Living Trust
V/D/T
By: /s/ Dennis C. Poulsen
-------------------------
Name: Dennis C. Poulsen
Title: Trustee
By: /s/ Suzanne M. Poulsen
-------------------------
Name: Suzanne M. Poulsen
Title: Trustee
Sandy V. Durko Family Trust V/D/T
By: /s/ Sandy V. Durko
-------------------------
Name: Sandy V. Durko
Title: Trustee
By: /s/ Teresa N. Durko
-------------------------
Name: Teresa N. Durko
Title: Trustee
/s/ Kendall E. Nungesser
----------------------------
Kendall E. Nungesser
/s/ Allene L. Nungesser
----------------------------
Allene L. Nungesser
BT Capital Partners, Inc.
By: /s/ Robert Marakovits
-------------------------
Name: Robert Marakovits
Title:
<PAGE>
STOCKHOLDERS:
Cinco Pinos Unitrust
Rose and Elephant Unitrust
JANSU Unitrust
Durko Charitable Remainder Unitrust #1
Durko Charitable Remainder Unitrust #2
Durko Charitable Remainder Unitrust #3
Durko Charitable Remainder Unitrust for "'Lil Dirk"
Sandy V. Durko Charitable Remainder Unitrust for "The
Kids"
Sandy V. Durko Charitable Remainder Unitrust for "T"
KAN Family Partnership Unitrust
Allene L. Nungesser Unitrust
Kendall E. Nungesser Unitrust
K/A Nungesser Charitable Remainder Unitrust
Ponderay Partners Unitrust
By: U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee for each of the above-referenced trusts:
By: /s/ John C. Westwater
-------------------------
Name: John C. Westwater
Title: Senior Vice President
By: /s/ Maxine E. Harris
-------------------------
Name: Maxine E. Harris
Title: Vice President
<PAGE>
ROSES, INC.
AGREEMENT AND PLAN OF MERGER
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME................. 2
1.1 The Merger............................................... 2
1.2 Closing.................................................. 3
1.3 Effective Time........................................... 3
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION..................... 3
2.1 Certificate of Incorporation............................. 3
2.2 By-Laws.................................................. 3
ARTICLE III
DIRECTORS.............................. 4
3.1 Board of Directors of the Surviving Corporation.......... 4
3.2 Officers of the Surviving Corporation.................... 4
ARTICLE IV
CONVERSION AND CANCELLATION OF SHARES IN THE MERGER......... 4
4.1 Conversion and Cancellation of Shares.................... 4
4.2 Payment for Shares....................................... 6
4.3 Transfer of Shares After the Effective Time.............. 7
ARTICLE V
REPRESENTATIONS AND WARRANTIES.................... 8
5.1 Representations and Warranties of the Stockholders....... 8
5.2 Representations and Warranties of the Stockholders
and the Company........................................ 9
5.3 Representations and Warranties of Acquisition............ 22
ARTICLE VI
COVENANTS.............................. 24
6.1 Interim Operations of the Company........................ 24
6.2 Covenants of Acquisition................................. 25
6.3 Filings; Consents; Other Action.......................... 25
6.4 Access................................................... 26
6.5 Publicity................................................ 26
6.6 Further Assurances....................................... 27
6.7 Benefits................................................. 27
i
<PAGE>
6.8 Phantom 401(K) Plan...................................... 28
6.9 Reserved................................................. 29
6.10 Title Insurance.......................................... 29
6.11 Preneed Contracts and Trust Funds........................ 30
6.12 Resignation/Election of Trustees......................... 30
6.13 Notification of Certain Matters.......................... 30
6.14 Supplemental Employee Retirement Plan.................... 31
6.15 Assistance in Financing.................................. 31
6.16 Restrictions on Transfer................................. 31
6.17 Restrictive Legend....................................... 32
6.18 Termination of Restrictions on Transferability........... 32
6.19 Rights of First Refusal.................................. 33
ARTICLE VII................................................................ 33
CONDITIONS................................................................. 33
7.1 Conditions to Obligations of Acquisition................. 33
7.2 Conditions to Obligations of the Stockholders and
the Company............................................ 36
ARTICLE VIII
TERMINATION............................. 38
8.1 Termination by Mutual Consent............................ 38
8.2 Termination by Either Acquisition or the Company......... 38
8.3 Termination by Acquisition............................... 38
8.4 Termination by the Company or the Stockholders........... 38
8.5 Effect of Termination and Abandonment.................... 38
8.6 Deposits................................................. 38
8.7 Effect of Closing Over Known Unsatisfied Conditions...... 39
ARTICLE IX
MISCELLANEOUS AND GENERAL...................... 40
9.1 Payment of Expenses...................................... 40
9.2 Modification or Amendment................................ 40
9.3 Waiver of Conditions..................................... 40
9.4 Counterparts............................................. 40
9.5 Governing Law............................................ 40
9.6 Notices.................................................. 40
9.8 Entire Agreement......................................... 42
9.9 Captions................................................. 42
9.10 Knowledge................................................ 42
9.11 Representation By Counsel, Interpretation................ 42
9.12 Severability............................................. 42
ARTICLE X
DEFINITIONS............................. 43
ii
<PAGE>
ARTICLE XI
INDEMNIFICATION........................... 48
11.1 Indemnification by the Stockholders...................... 48
11.2 Indemnification by Acquisition........................... 49
11.3 Insurance and Tax Benefits............................... 49
11.4 Basket, Cap, Time Limitation Not Applicable.............. 49
11.5 Notice of Claims......................................... 49
11.6 Sole Remedies of the Parties; Limit on Indemnifiable
Claims................................................. 50
11.7 Third Person Claims...................................... 50
11.8 Reserved................................................. 51
11.9 Payment and Right of Offset.............................. 51
11.10 Binding Arbitration...................................... 52
11.11 Survival of Representations.............................. 52
11.12 Maintenance of Existence and Liquid Assets............... 52
ARTICLE XII
CONFIDENTIALITY
12.1 Confidential Information................................. 54
ARTICLE XIII
NO SOLICITATION........................... 55
13.1 No-Shop Exclusivity...................................... 55
13.2 Exercise of Fiduciary Duty............................... 55
13.3 Compensatory Fee......................................... 56
ARTICLE XIV
TAX MATTERS............................. 56
14.1 Tax Matters.............................................. 56
iii
<PAGE>
SCHEDULES
Schedule 3.1 Acquisition Directors
Schedule 5.1(a) Encumbrances on Shares
Schedule 5.1(b) Power, Authorization and Enforceability of Agreement
Schedule 5.1(c) Compliance with Other Instruments and Regulations
Schedule 5.1(d) No Third Party Options
Schedule 5.1(f) Pre-Existing Entity
Schedule 5.1(g) Acquisition Without View to Distribute
Schedule 5.1(h) Additional Representations of the Stockholders
Schedule 5.2(b) Company Subsidiaries
Schedule 5.2(c) Company Capital Stock
Schedule 5.2(d) Company Consents, Breaches, Defaults, Violations and Liens
Schedule 5.2(e) Company Governmental Approvals
Schedule 5.2(f) Exceptions to Book and Records; GAAP
Schedule 5.2(g) Material Changes
Schedule 5.2(h) Company Brokers and Finders
Schedule 5.2(i) Company Actions
Schedule 5.2(k) Company Material Contracts, Including Employment Agreements
Schedule 5.2(l) Company Agreements to Sell Shares or Assets
Schedule 5.2(m) Fixtures and Equipment
Schedule 5.2(n) Company Real Property
Schedule 5.2(o) Trademarks and Tradenames
Schedule 5.2(q) Environmental Matters
Schedule 5.2(r) Funeral or Cemetery Contracts
iv
<PAGE>
Schedule 5.2(s) Permits
Schedule 5.2(u) Compliance with Regulations
Schedule 5.2(v) OSHA, ADA and FTC
Schedule 5.2(y) Tax Matters
Schedule 5.2(aa) Accounts Receivable
Schedule 5.2(cc) Labor Relations
Schedule 5.2(dd) Insurance
Schedule 5.2(ee) Bank Accounts
Schedule 5.2(ff) Employee Benefits and Plans
Schedule 5.3(c) Acquisition Consents, Breaches, Defaults, Violations and Liens
Schedule 5.3(d) Acquisition Governmental Approvals
Schedule 5.3(e) Acquisition Brokers and Finders
Schedule 5.3(f) Acquisition Actions
Schedule 6.1(a) Changes Regarding Conduct of Company Business
Schedule 6.1(c) Encumbrances on Shares owned by Company
Schedule 6.1(d) Actions Regarding Company Stocks
Schedule 6.7(a) Company Employment Agreements
v
<PAGE>
EXHIBITS
Exhibit A List of Stockholders
Exhibit B Certificate of Merger
Exhibit C Title Commitment(s)
Exhibit D Registration Rights Agreements
Exhibit E Employment and Consulting Agreements
Exhibit F Covenants Not to Compete
vi
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as
of November 18, 1996 (this "Amendment"), is among Rose Hills Acquisition Corp.,
a Delaware corporation formerly known as Tudor Acquisition Corp.
("Acquisition"), Roses, Inc. a California corporation ("RI"), the stockholders
of Roses, Inc. (the "Stockholders"), and RH Mortuary Corporation, a Delaware
corporation ("RH Mortuary").
W I T N E S S E T H :
WHEREAS, Acquisition, RI and the Stockholders are parties to
that certain Agreement and Plan of Merger dated as of September 19, 1996 (the
"Merger Agreement"); and
WHEREAS, Acquisition desires to assign its rights and delegate
its obligations under the Merger Agreement to its wholly-owned subsidiary, RH
Mortuary, and RH Mortuary desires to accept and assume all such rights and
obligations; and
WHEREAS, the parties desire to substitute RH Mortuary for
Acquisition for all purposes under the Merger Agreement and to amend certain
other provisions of the Merger Agreement as set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined
in the Merger Agreement are used herein as therein defined.
2. Substitution of RH Mortuary for Acquisition. The Merger
Agreement is hereby amended to substitute RH Mortuary for Acquisition for all
purposes of the Merger Agreement, and RH Mortuary hereby affirms and agrees to
be bound by the terms of the Merger Agreement as if it were Acquisition. The
parties agree that such substitution shall not impair RI's or the Stockholders'
rights or ability to draw on the Letter of Credit in accordance with its terms.
3. Amendment to Section 1.1. Section 1.1 of the Merger
Agreement is hereby amended by deleting therefrom the phrase "the Surviving
Corporation shall have the name Rose Hills, Inc." and substituting in lieu
thereof the phrase "the Surviving Corporation shall have the name RH Mortuary
Corporation".
<PAGE>
2
4. Amendment to Section 2.1. Section 2.1 of the Merger
Agreement is hereby amended by deleting it in its entirety and replacing it with
the following:
2.1 Certificate of Incorporation. The Articles of
Incorporation of RH Mortuary Corporation, a
California corporation attached as Exhibit A
hereto shall be the Articles of Incorporation of
the Surviving Corporation until duly amended in
accordance with the terms thereof and the CGCL.
5. Amendment to Section 2.2. Section 2.2 of the Merger
Agreement is hereby amended by deleting it in its entirety and replacing it with
the following:
2.1 By-Laws. The By-Laws of RH Mortuary Corporation,
a California corporation attached as Exhibit B
hereto shall be the ByLaws of the Surviving
Corporation until duly amended in accordance with
the terms thereof and the CGCL.
6. Amendment to Section 11.4. Section 11.4 of the Merger
Agreement is hereby amended by adding the following to the end of such Section:
"Notwithstanding the foregoing, in the case of Losses and Expenses
which are ultimately determined pursuant to Section 11.10 to be due to
actual fraud by the Company:
(a) the liability of BT Capital Partners, Inc.
under Section 11.1 for such Losses and Expenses shall
be subject to the Basket, the Cap and the time
limitations (as provided in Section 11.11); and
(b) in addition to any other liability the
Stockholders (other than BT Capital Partners, Inc.) may have
for such Losses and Expenses under Section 11.1 hereof, the
Stockholders (other than BT Capital Partners, Inc.), severally
in proportion to their respective Ownership Percentages, shall
be liable for the amount of such Losses and Expenses (if any)
for which BT Capital Partners, Inc. would otherwise be liable
under Section 11.1 but for application of the Basket, the Cap
and the time limitations as provided in the preceding clause
(a).
7. Amendment to Exhibit B. Exhibit B attached to the Merger
Agreement is hereby deleted in its entirety and replaced by Exhibit B attached
hereto.
8. No Other Amendments or Waivers. Except as expressly amended
hereby, the Merger Agreement shall continue to
<PAGE>
3
be, and shall remain, in full force and effect in accordance with its terms.
9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
DELAWARE.
10. This Amendment may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute one and the same agreement.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the date set forth above.
ROSE HILLS ACQUISITION CORP.,
a Delaware corporation
By: /s/ Howard A. Lipson
------------------------------
Name: Howard A. Lipson
Title: President
By: /s/ Chinh Chu
------------------------------
Name: Chinh Chu
Title: Secretary
RH MORTUARY CORPORATION,
a Delaware corporation
By: /s/ Howard A. Lipson
------------------------------
Name: Howard A. Lipson
Title: President
By: /s/ Chinh Chu
------------------------------
Name: Chinh Chu
Title: Secretary
ROSES, INC., a California corporation
By: /s/ Dennis C. Poulsen
------------------------------
Name: Dennis C. Poulsen
Title: Chief Executive Officer
<PAGE>
5
By: /s/ Kendall E. Nungesser
------------------------------
Name: Kendall E. Nungesser
Title: Secretary
THE STOCKHOLDERS OF ROSES, INC.
Cinco Pinos Unitrust
Rose and Elephant Unitrust
JANSU Unitrust
Durko Charitable Remainder Unitrust #1
Durko Charitable Remainder Unitrust #2
Durko Charitable Remainder Unitrust #3
Durko Charitable Remainder Unitrust for
"'Lil Dirk"
Sandy V. Durko Charitable Remainder
Unitrust for "T"
Sandy V. Durko Charitable Remainder
Unitrust for "Kids"
KAN Family Partnership Unitrust
Allene L. Nungesser Unitrust
Kendall E. Nungesser Unitrust
K/A Nungesser Charitable Reminder
Unitrust
Ponderay Partners Unitrust
By: U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee for each of the
above-referenced trusts:
By: /s/ John C. Westwater
------------------------------
Name: John C. Westwater
Title: Senior Vice President
Dennis C. and Suzanne M. Poulsen Living
Trust V/D/T
By: /s/ Dennis C. Poulsen
------------------------------
Name: Dennis C. Poulsen
Title: Trustee
By: / /Suzanne M. Poulsen
------------------------------
Name: Suzanne M. Poulsen
Title: Trustee
<PAGE>
6
Sandy V. Durko Family Trust V/D/T
By: /s/ Sandy V. Durko
------------------------------
Name: Sandy V. Durko
Title: Trustee
By: /s/ Teresa N. Durko
------------------------------
Name: Teresa N. Durko
Title: Trustee
/s/ Kendall E. Nungesser
---------------------------------
Kendall E. Nungesser
/s/ Allene L. Nungesser
---------------------------------
Allene L. Nungesser
BT Capital Partners, Inc.
By: /s/ Robert Marakovits
------------------------------
Name: Robert Marakovits
Title: Managing Director
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
TUDOR ACQUISITION CORP.
Tudor Acquisition Corp., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
I. The name of the Corporation is "Tudor Acquisition Corp."
The original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on August 28, 1996.
II. The text of the Certificate of Incorporation is hereby
amended and restated to read as herein set forth in full:
FIRST. The name of the Corporation is: Rose Hills
Acquisition Corp.
SECOND. The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.
THIRD. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH. The aggregate number of shares which the
corporation shall have the authority to issue is One Thousand (1,000) shares of
Common Stock, par value $.01 per share.
FIFTH: The Board of Directors of the Corporation,
acting by majority vote, may adopt, amend or repeal the By-Laws of the
Corporation.
SIXTH: Except as otherwise provided by the Delaware
General Corporation Law as the same exists or may hereafter be amended, no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article SIXTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
<PAGE>
2
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
which restates, integrates and amends the provisions of the Certificate of
Incorporation of the Corporation, having been duly adopted in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware, has been executed by its duly authorized directors this
__ day of November 1996.
TUDOR ACQUISITION CORP.
/s/ Howard Lipson
----------------------------
Howard Lipson
/s/ Chinh Chu
----------------------------
Chinh Chu
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ROSE HILLS ACQUISITION CORP.
-----------------------------------------
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
-----------------------------------------
ROSE HILLS ACQUISITION CORP., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST. Article FIRST of the Certificate of Incorporation
of the Corporation shall be amended to read in its entirety as follows:
"FIRST: The name of the Corporation is Rose Hills Company."
SECOND. The Board of Directors of the Corporation, through
an unanimous written consent, adopted a resolution proposing and declaring
advisable the foregoing amendment, and said amendment has been adopted by the
sole stockholder of the Corporation in accordance with the provisions of
Sections 242 and 228 of the General Corporation Law of the State of Delaware.
<PAGE>
2
IN WITNESS WHEREOF, Rose Hills Acquisition Corp. has caused
this Certificate to be signed by its President, Howard A. Lipson, and attested
by its Secretary, Chinh Chu, this __ day of November, 1996.
ROSE HILLS ACQUISITION CORP.
/s/ Howard A. Lipson
---------------------------
Howard A. Lipson
President
Attest:
- --------------------------
Chinh Chu
Secretary
<PAGE>
AMENDED AND RESTATED BY-LAWS
of
ROSE HILLS COMPANY
(hereinafter called the "Corporation")
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the
stockholders of the Corporation shall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders, written
notice of the time, date and place of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have power to adjourn the meeting from time to time until a quorum
is present.
Section 5. Voting. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The
number of Directors that shall constitute the Board of Directors shall not be
less than one or more than fifteen. The initial Board of Directors shall consist
of two Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders. The
Directors shall be elected by stockholders at their annual meeting. Vacancies
and newly created directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director or by the stockholders. A
Director may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Section 3. Quorum. One-third of the total number of Directors
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation or these By-Laws, the
act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors.
Section 4. Committees. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
committees, including, without limitation, an Executive Committee, to have and
exercise such power and authority as the Board of Directors shall specify. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another Director
to act as the absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President,
a Vice President, a Secretary, a Treasurer, and such other additional officers
with such titles as the Board of Directors shall determine, all of which shall
be chosen by and shall serve at the pleasure of the Board of Directors. Such
officers shall have the usual powers and shall perform all the usual duties
incident to their respective offices. All officers shall be subject to the
supervision and direction of the Board of Directors. The authority, duties or
responsibilities of any officer of the Corporation may be suspended by the
President with or without cause.
<PAGE>
3
Any officer elected or appointed by the Board of Directors may be removed by the
Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
Section 1. Indemnity Undertaking. To the fullest extent
permitted by law (including, without limitation, Section 145 of the General
Corporation Law of the State of Delaware (as amended from time to time, the
"General Corporation Law")), the Corporation shall indemnify any person who is
or was made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding (a "Proceeding"), whether civil, criminal,
administrative or investigative, including, without limitation, an action by or
in the right of the Corporation to procure a judgment in its favor, by reason of
the fact that such person, or a person of whom such person is the legal
representative, is or was a Director or officer of the Corporation, or is or was
serving in any capacity at the request of the Corporation for any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise (an "Other Entity"), against judgments, fines, penalties, excise
taxes, amounts paid in settlement and costs, charges and expenses (including
attorneys' fees and disbursements). Persons who are not Directors or officers of
the Corporation may be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request of the Corporation to the
extent the Board of Directors at any time specifies that such persons are
entitled to the benefits of this Article IV.
Section 2. Advancement of Expenses. The Corporation shall,
from time to time, reimburse or advance to any Director or officer or other
person entitled to indemnification hereunder the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with any Proceeding, in advance of the final disposition of such Proceeding;
provided, however, that, if required by the General Corporation Law, such
expenses incurred by or on behalf of any such Director, officer or other person
may be paid in advance of the final disposition of a Proceeding only upon
receipt by the Corporation of an undertaking, by or on behalf of such Director,
officer or other person indemnified hereunder, to repay any such amount so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right of appeal that such Director, officer or other
person is not entitled to be indemnified for such expenses.
Section 3. Rights Not Exclusive. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article IV shall not be deemed exclusive of any other rights which a
person seeking indemnification or reimbursement or advancement of expenses may
have or to which such person hereafter may be entitled under any statute, the
Restated Certificate of Incorporation, these By-Laws, any agreement, any vote of
stockholders or disinterested Directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
<PAGE>
4
Section 4. Continuation of Benefits. The rights to
indemnification and reimbursement or advancement of expenses provided by, or
granted pursuant to, this Article IV shall continue as to a person who has
ceased to be a Director or officer (or other person indemnified hereunder) and
shall inure to the benefit of the executors, administrators, legatees and
distributees of any such person.
Section 5. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of an
Other Entity, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article IV or the
Restated Certificate of Incorporation or under Section 145 of the General
Corporation Law or any other provision of law.
Section 6. Binding Effect. The provisions of this Article IV
shall be a contract between the Corporation, on the one hand, and each Director
and officer who serves in such capacity at any time while this Article IV is in
effect and/or any other person indemnified hereunder, on the other hand,
pursuant to which the Corporation and each such Director, officer or other
person intend to be legally bound. No repeal or modification of this Article IV
shall affect any rights or obligations with respect to any state of facts then
or theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
Section 7. Procedural Rights. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article IV shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or reimbursement or advancement of expenses is proper in the circumstances nor
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel and its stockholders) that such person is not
entitled to such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption that such
person is not so entitled. Such a person shall also be indemnified for any
expenses incurred in connection with successfully establishing his or her right
to such indemnification or reimbursement or advancement of expenses, in whole or
in part, in any such proceeding.
Section 8. Service Deemed at Corporation's Request. Any
Director or officer of the Corporation serving in any capacity (a) another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held, directly or indirectly, by the Corporation or (b) any
employee benefit plan of the Corporation or any corporation referred
<PAGE>
5
to in clause (a) shall be deemed, in each case, to be doing so at the request of
the Corporation.
Section 9. Election of Applicable Law. Any person entitled to
be indemnified or to receive reimbursement or advancement of expenses as a
matter of right pursuant to this Article IV may elect to have the right to
indemnification or reimbursement or advancement of expenses interpreted on the
basis of the applicable law in effect at the time of the occurrence of the event
or events giving rise to the applicable Proceeding, to the extent permitted by
law, or on the basis of the applicable law in effect at the time such
indemnification or reimbursement or advancement of expenses is sought. Such
election shall be made, by a notice in writing to the Corporation, at the time
indemnification or reimbursement or advancement of expenses is sought; provided,
however, that if no such notice is given, the right to indemnification or
reimbursement or advancement of expenses shall be determined by the law in
effect at the time indemnification or reimbursement or advancement of expenses
is sought.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors.
Dated: November 14, 1996
<PAGE>
Exhibit 4.1
Rose Hills Acquisition Corp., as Issuer
and
United States Trust Company of New York, as Trustee
INDENTURE
Dated as of November 15, 1996
$80,000,000
9 1/2% Senior Subordinated Notes due 2004
<PAGE>
TABLE OF CONTENTS
----------------------
Page
----
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions.....................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act..............23
SECTION 1.03. Rules of Construction..........................................24
ARTICLE 2
THE NOTES
SECTION 2.01. Forms and Dating...............................................24
SECTION 2.02. Execution and Authentication...................................26
SECTION 2.03. Registrar and Paying Agent.....................................26
SECTION 2.04. Paying Agent to Hold Money in Trust............................27
SECTION 2.05. Noteholder Lists...............................................27
SECTION 2.06. Transfer and Exchange..........................................28
SECTION 2.07. Replacement Notes..............................................28
SECTION 2.08. Outstanding Notes..............................................29
SECTION 2.09. Book-Entry Provisions for Global Note..........................29
SECTION 2.10. Restrictive Legends............................................31
SECTION 2.11. Special Transfer Provisions....................................33
SECTION 2.12. Treasury Notes.................................................35
SECTION 2.13. Temporary Notes................................................35
SECTION 2.14. Cancellation...................................................35
SECTION 2.15. Defaulted Interest.............................................36
SECTION 2.16. Cusip Number...................................................36
SECTION 2.17. Deposit of Moneys..............................................36
SECTION 2.18. Form of Certificate to Be Delivered............................37
ARTICLE 3
SECTION 3.01. Notices to the Trustee.........................................40
SECTION 3.02. Selection of Notes to Be Redeemed..............................40
SECTION 3.03. Notice of Redemption...........................................41
SECTION 3.04. Effect of Notice of Redemption.................................42
SECTION 3.05. Deposit of Redemption Price....................................42
SECTION 3.06. Notes Redeemed or Purchased in Part............................42
SECTION 3.07. Special Redemption.............................................42
ARTICLE 4
COVENANTS
i
<PAGE>
Page
----
SECTION 4.01. Payment of Notes...............................................43
SECTION 4.02. Maintenance of Office or Agency................................43
SECTION 4.03. Corporate Existence............................................44
SECTION 4.04. Payment of Taxes and Other Claims..............................44
SECTION 4.05. Maintenance of Properties; Books and Records;
Compliance with Law...........................................................45
SECTION 4.06. Compliance Certificate.........................................45
SECTION 4.07. SEC Reports....................................................46
SECTION 4.08. Limitation on Indebtedness.....................................46
SECTION 4.09. Limitation on Restricted Payments..............................49
SECTION 4.10. Limitation on Issuances and Sale of Preferred Stock by
Subsidiaries..................................................................53
SECTION 4.11. Limitation on Liens............................................54
SECTION 4.12. Change of Control..............................................54
SECTION 4.13. Disposition of Proceeds of Asset Sales.........................56
SECTION 4.14. Limitation on Transactions with Interested Persons.............59
SECTION 4.15. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries........................................................61
SECTION 4.16. Limitation on the Issuance of Other Senior Subordinated
Indebtedness..................................................................62
SECTION 4.17. Limitations on Sale-Leaseback Transactions.....................62
SECTION 4.18. Waiver of Stay, Extension or Usury Laws........................62
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc....................................63
SECTION 5.02. Successor Substituted..........................................64
ARTICLE 6
REMEDIES
SECTION 6.01. Events of Default..............................................65
SECTION 6.02. Acceleration...................................................66
SECTION 6.03. Other Remedies.................................................67
SECTION 6.04. Waiver of Past Defaults........................................68
SECTION 6.05. Control by Majority............................................68
SECTION 6.06. Limitation on Suits............................................68
SECTION 6.07. Right of Holders to Receive Payment............................69
SECTION 6.08. Collection Suit by Trustee.....................................69
SECTION 6.09. Trustee May File Proofs of Claims..............................69
SECTION 6.10. Priorities.....................................................70
SECTION 6.11. Undertaking for Costs..........................................70
ii
<PAGE>
Page
----
SECTION 6.12. Restoration of Rights and Remedies.............................71
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties.........................................................71
SECTION 7.02. Rights of Trustee..............................................72
SECTION 7.03. Individual Rights of Trustee...................................73
SECTION 7.04. Trustee's Disclaimer...........................................73
SECTION 7.05. Notice of Default..............................................74
SECTION 7.06. Money Held in Trust............................................74
SECTION 7.07. Reports by Trustee to Holders..................................74
SECTION 7.08. Compensation and Indemnity.....................................74
SECTION 7.09. Replacement of Trustee.........................................75
SECTION 7.10. Successor Trustee by Merger, Etc...............................77
SECTION 7.11. Eligibility; Disqualification..................................77
SECTION 7.12. Preferential Collection of Claims Against Company..............77
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Termination of the Company's Obligations.......................77
SECTION 8.02. Legal Defeasance and Covenant Defeasance.......................79
SECTION 8.03. Application of Trust Money.....................................83
SECTION 8.04. Repayment to Company...........................................83
SECTION 8.05. Reinstatement..................................................83
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.....................................84
SECTION 9.02. With Consent of Holders........................................84
SECTION 9.03. Compliance with Trust Indenture Act............................86
SECTION 9.04. Revocation and Effect of Consents..............................86
SECTION 9.05. Notation on or Exchange of Notes...............................87
SECTION 9.06. Trustee May Sign Amendments, Etc...............................87
ARTICLE 10
SUBORDINATION OF NOTES
SECTION 10.01. Notes Subordinate to Senior Indebtedness......................87
SECTION 10.02. Payment over of Proceeds upon Dissolution.....................88
SECTION 10.03. Suspension of Payment When Senior Indebtedness
in Default....................................................................89
SECTION 10.04. Trustee's Relation to Senior Indebtedness.....................91
iii
<PAGE>
SECTION 10.05. Subrogation to Rights of Holders of Senior Indebtedness.......91
SECTION 10.06. Provisions Solely to Define Relative Rights...................92
SECTION 10.07. Trustee to Effectuate Subordination...........................92
SECTION 10.08. No Waiver of Subordination Provisions.........................93
SECTION 10.09. Notice to Trustee.............................................93
SECTION 10.10. Reliance on Judicial Order or Certificate of Liquidating
Agent.........................................................................94
SECTION 10.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights..............................................95
SECTION 10.12. Article Applicable to Paying Agents...........................95
SECTION 10.13. No Suspension of Remedies.....................................95
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939...................................96
SECTION 11.02. Notices.......................................................96
SECTION 11.03. Communication by Holders with Other Holders...................97
SECTION 11.04. Certificate and Opinion as to Conditions Precedent............97
SECTION 11.05. Statements Required in Certificate or Opinion.................98
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.....................98
SECTION 11.07. Governing Law.................................................98
SECTION 11.08. No Interpretation of Other Agreements.........................99
SECTION 11.09. No Recourse Against Others....................................99
SECTION 11.10. Successors....................................................99
SECTION 11.11. Duplicate Originals...........................................99
SECTION 11.12. Separability..................................................99
SECTION 11.13. Table of Contents, Headings, Etc..............................99
SECTION 11.14. Benefits of Indenture........................................100
EXHIBIT A Form of Global Note
EXHIBIT B Form of Physical Note
EXHIBIT C Option of Holder to Elect Purchase Form
iv
<PAGE>
INDENTURE, dated as of November 15, 1996 between Rose Hills Acquisition
Corp. (to be renamed Rose Hills Company), a corporation incorporated under the
laws of the State of Delaware ("the Company"), and United States Trust Company
of New York, a New York corporation, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other party
and for the equal and ratable benefit of the Holders of the Company's 9 1/2%
Senior Subordinated Notes due 2004 (including the Initial Notes and the Exchange
Notes (as hereinafter defined), the "Notes").
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions.
"Accredited Investor" shall have the meaning set forth in Section 2.10.
"Acquisition Transaction" shall refer collectively to the acquisition
of Roses, Inc. and its Subsidiaries through the merger of a Subsidiary of the
Company with and into Roses, Inc., the acquisition of the cemetery related
assets and liabilities of Rose Hills Memorial Park Association by a Subsidiary
of the Company, the contribution by a Subsidiary of Loewen Group International
Inc. ("LGII") to Rose Hills Holdings Corp. ("RH Holdings"), the parent of the
Company, by RH Holdings to the Company, and by the Company to certain of its
Subsidiaries, of 14 additional funeral homes and two combination funeral home
and cemetery properties currently owned or leased by LGII or its Affiliates, the
initial borrowing under the Bank Credit Facilities (as defined in this
Indenture) and the issuance and sale of the Notes.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a Subsidiary of any other Person.
"Acquisition Closing Date" means the closing date of the Acquisition
Transaction.
"Administrative Services Agreement" means the Administrative Services
Agreement, to be dated on or about the Acquisition Closing Date, between the
Company and Loewen Group International, Inc., as the same may be amended,
supplemented or otherwise modified from time to time.
<PAGE>
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person.
"Agent" means any Registrar or Paying Agent of the Notes.
"Agent Members" has the meaning set forth in Section 2.09.
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any Subsidiary of the Company, or
shall be merged with or into the Company or any Subsidiary of the Company, (b)
the acquisition by the Company or any Subsidiary of the Company of the assets of
any Person (other than a Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or (c) the acquisition by the
Company or any Subsidiary of the Company of any division or line of business of
any Person (other than a Subsidiary of the Company).
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any Person other than the Company or a
Subsidiary of the Company, in one or a series of related transactions, of (a)
any Capital Stock of any Subsidiary of the Company (other than in respect of
director's qualifying shares or investments by foreign nationals mandated by
applicable law); (b) all or substantially all of the properties and assets of
any division or line of business of the Company or any Subsidiary of the
Company; or (c) any other properties or assets of the Company or any Subsidiary
of the Company other than in the ordinary course of business. For the purposes
of this definition, the term "Asset Sale" shall not include (i) any sale,
transfer or other disposition of equipment, tools or other assets (including
Capital Stock of any Subsidiary of the Company) by the Company or any of its
Subsidiaries in one or a series of related transactions in respect of which the
Company or such Subsidiary receives cash or property with an aggregate Fair
Market Value of $10,000,000 or less; (ii) a disposition by a Subsidiary to the
Company or a Wholly-Owned Subsidiary of the Company and (iii) any sale,
issuance, conveyance, transfer, lease or other disposition of properties or
assets that is governed by the provisions of Article 5 hereof.
"Asset Sale Offer" shall have the meaning set forth in Section
4.13.
"Asset Sale Offer Price" shall have the meaning set forth in Section
4.13.
"Asset Sale Purchase Date" shall have the meaning set forth in Section
4.13.
2
<PAGE>
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as determined in accordance with GAAP, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of rent payable by the lessee with respect to such period after
excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the case
of any lease which is terminable by the lessee upon the payment of a penalty,
such net amount shall also include the amount of such penalty, but no rent shall
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated. "Attributable Value" means, as to a
Capitalized Lease Obligation under which any Person is at the time liable and at
any date as of which the amount thereof is to be determined, the capitalized
amount thereof that would appear on the face of a balance sheet of such Person
in accordance with GAAP.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by dividing
(i) the sum of the products of (a) the number of years (or any fraction thereof)
from such date to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Agent" means The Bank of Nova Scotia, as administrative agent
under the Bank Credit Agreement and any successor agent.
"Bank Credit Agreement" means the Credit Agreement, to be dated on or
about the Acquisition Closing Date, among the Company, as borrower, RH Holdings
as guarantor, the Lenders referred to therein, the Bank Agent, and Goldman,
Sachs & Co., as arranging agent and syndication agent, and all promissory notes,
guarantees, security agreements, pledge agreements, deeds of trust, mortgages,
letters of credit and other instruments, agreements and documents executed
pursuant thereto or in connection therewith, in each case as the same may be
amended, supplemented, restated, renewed, refinanced, replaced or otherwise
modified (in whole or in part and without limitation as to amount, terms,
conditions, covenants or other provisions) from time to time.
3
<PAGE>
"Bank Credit Facilities" means, collectively, the Bank Term Facility
and the Revolving Credit Facility under the Bank Credit Agreement.
"Bankruptcy Law" means Title 11, United States Code or any similar law
for the relief of debtors.
"Bank Term Facility" means the $75.0 million senior secured term loan
facility under the Bank Credit Agreement, which may be increased by up to $25.0
million in accordance with the terms of the Bank Credit Agreement.
"Board of Directors" means the board of directors of the Company or any
duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York,
State of New York, are authorized or obligated by law, regulation or executive
order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of this Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of 365 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 365 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not
4
<PAGE>
less than $500,000,000; (iii) certificates of deposit with a maturity of 365
days or less of any financial institution that is not organized under the laws
of the United States, any state thereof or the District of Columbia that are
rated at least A-2 by S&P or at least P-2 by Moody's or at least an equivalent
rating category of another nationally recognized securities rating agency; (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
365 days from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; (v) other than
with respect to the subordination provisions contained in Article 10, notes held
by the Company or any Subsidiary which were obtained by the Company or such
Subsidiary in connection with Asset Sales (x) in the ordinary course of its
funeral home, cemetery or cremation businesses or (y) which were required to be
made pursuant to applicable federal or state law and (vi) with respect to moneys
held in the escrow account pursuant to the Escrow Agreement, Eligible
Investments (as defined in the Escrow Agreement).
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), excluding Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 35% of the total
Voting Stock of RH Holdings, under circumstances where the Permitted Holders (i)
"beneficially own" (as so defined) in the aggregate a lower percentage of the
Voting Stock than such other Person or "group" and (ii) do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of RH Holdings; (b) RH Holdings
consolidates with, or merges with or into, another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to another Person, or another Person consolidates with, or merges
with or into, RH Holdings, in any such event pursuant to a transaction in which
the outstanding Voting Stock of RH Holdings is converted into or exchanged for
cash, securities or other property, other than any such transaction where (i)
the outstanding Voting Stock of RH Holdings is converted into or exchanged for
(1) Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (2) cash, securities and other property in an amount
which could then be paid by the Company as a Restricted
5
<PAGE>
Payment under this Indenture, or a combination thereof, and (ii) immediately
after such transaction no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 50% of the total
Voting Stock of the surviving or transferee corporation; (c) at any time during
any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of RH Holdings (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of RH Holdings was approved by a vote of 66-2/3% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of RH Holdings then in office; or (d) RH Holdings is liquidated or
dissolved or adopts a plan of liquidation.
"Change of Control Date" shall have the meaning set forth in Section
4.12.
"Change of Control Offer" shall have the meaning set forth in Section
4.12.
"Change of Control Purchase Date" shall have the meaning set forth in
Section 4.12.
"Closing Date" means the later of the Issue Date and the Acquisition
Closing Date.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means such
successor.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Vice-Chairman, its Chief Executive Officer, its President, an Executive Vice
6
<PAGE>
President or a Vice President, and by any one of its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) Consolidated
Non-cash Charges, (c) Consolidated Interest Expense and (d) Consolidated Income
Tax Expense.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of the aggregate amount of Consolidated Cash Flow of such
Person for the four full fiscal quarters immediately preceding the date of the
transaction (the "Transaction Date") giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period") to the aggregate amount
of Consolidated Fixed Charges of such Person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated Cash Flow" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence of any Indebtedness of
such Person or any of its Subsidiaries (and the application of the net proceeds
thereof) during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the "Reference Period"),
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation (and the application of the net proceeds
thereof), as if such incurrence (and application) occurred on the first day of
the Reference Period, and (b) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period. In calculating the incremental "Consolidated
Cash Flow" attributable to Asset Acquisitions occurring during the Reference
Period, pro forma effect will be given to (i) adjustments which, on the basis of
written advice provided to the Company by a "big six" accounting firm, should be
permitted by Article 11 of Regulation S-X of the Commission (provided, however,
that the Company shall deliver to the Trustee an Officers' Certificate
certifying the receipt of such written advice and summarizing the adjustments
permitted under this clause (i)) and (ii) incremental revenue resulting from
changes in the investment strategy with respect to any related endowment care
fund which, in the case of both clause (i) and (ii), are part of the Company's
good faith business plan for such Asset Acquisition. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of
7
<PAGE>
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date (taking into account any Interest Rate Protection Agreement applicable to
such Indebtedness if such Interest Rate Protection Agreement has a remaining
term in excess of 12 months); and (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Reference
Period. If such Person or any of its Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the above clause shall give effect to
the incurrence of such guaranteed Indebtedness as if such Person or such
Subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the product of (a) the aggregate amount
of dividends and other distributions paid or accrued during such period in
respect of Preferred Stock and Redeemable Capital Stock (other than dividends
and distributions on Preferred Stock and Redeemable Capital Stock that are
non-cash through the Final Maturity Date) of such Person and its Subsidiaries on
a consolidated basis times (b) a fraction, the numerator which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal; provided,
however, that the denominator in clause (b) shall be one if such dividend or
other distribution is fully tax deductible.
"Consolidated Income Tax Expense" means, with respect to any Person for
any period, the provision for federal, state, local and foreign income taxes of
such Person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication, the sum of (i) the interest expense of such
Person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations, (c) the interest portion of any deferred payment obligation, (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and (e) all accrued interest
and (ii) the interest
8
<PAGE>
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such Person and its Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses or any unusual or
nonrecurring noncash charge which is not, under GAAP, an extraordinary item,
(ii) the portion of net income (but not losses) of such Person and its
Subsidiaries allocable to minority interests in unconsolidated Persons to the
extent that cash dividends or distributions have not actually been received by
such Person or one of its Subsidiaries, (iii) net income (or loss) of any Person
combined with such Person or one of its Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) any gain
or loss realized upon the termination of any employee pension benefit plan, on
an after-tax basis, (v) gains or losses in respect of any Asset Sales by such
Person or one of its Subsidiaries, (vi) the net income of any Subsidiary of such
Person to the extent that the declaration of dividends or similar distributions
by that Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its shareholders and (vii) any closing costs
associated with the Acquisition Transaction and the financing thereof,
restructuring costs and costs related to the closing of facilities.
"Consolidated Net Worth" means, with respect to any Person at any date,
the consolidated shareholders' equity of such Person less the amount of such
shareholders' equity attributable to Redeemable Capital Stock of such Person and
its Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person for
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Subsidiaries reducing Consolidated Net Income of such
Person and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP (excluding any such charges constituting an
extraordinary item or loss or any such charge which required an accrual of or a
reserve for cash charges for any future period).
"consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person and each of its Subsidiaries if and to the extent
the accounts of such Person and each of its Subsidiaries would normally be
9
<PAGE>
consolidated with those of such Person, all in accordance with GAAP. The term
"consolidated" has a meaning correlative to the foregoing.
"control" means, with respect to any specified person, the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Corporate Trust Office" means the corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which on the date hereof is located in New York City.
"covenant defeasance" shall have the meaning set forth in Section 8.02.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under the Bank Credit Agreement and (ii) any other Senior Indebtedness which (a)
at the time of the determination exceeds $5,000,000 in aggregate principal
amount and (b) is specifically designated in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" by the Company.
"Escrow Agreement" means the Escrow Agreement, dated as of November 18,
1996 between the Company and United States Trust Company of New York as escrow
agent.
"Event of Default" has the meaning set forth under Section 6.01.
"Excess Proceeds" shall have the meaning set forth in Section 4.13.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
10
<PAGE>
"Exchange Notes" refers to any Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms or legends with respect to transfer restrictions under the
Securities Act and shall be registered under the Securities Act, and (ii) all
provisions relating to an increase in the stated rate of interest thereon shall
be eliminated) that are issued and exchanged for the Initial Notes in accordance
with the Exchange Offer, as provided for in the Registration Rights Agreement.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Fair Market Value" means, with respect to any assets, the price, as
determined by the Company, acting in good faith which could be negotiated in an
arm's-length free market transaction, for cash, between a willing seller and a
willing buyer, neither of which is under pressure or compulsion to complete the
transaction; provided, however, that, with respect to any transaction which
involves an asset or assets in excess of $250,000, such determination shall be
evidenced by Board Resolutions delivered to the Trustee.
"Final Maturity Date" means November 15, 2004.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable on the date of
this Indenture and are consistently applied.
"Global Note" has the meaning set forth in Section 2.01.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
11
<PAGE>
"Holder" or "Noteholder" means the person in whose name a Note is
registered on the Registrar's books.
"incur" has the meaning set forth in Section 4.08.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities incurred in the ordinary course of business and
which are not overdue by more than 90 days, and excluding all obligations,
contingent or otherwise, of such Person in connection with any undrawn letters
of credit, banker's acceptance or other similar credit transaction, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (d) all Capitalized Lease Obligations of such Person, (e)
all Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the Fair Market Value of such
property or asset or the amount of the obligation so secured), (f) all
guarantees of Indebtedness referred to in this definition by such Person, (g)
all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued dividends,
(h) all obligations under or in respect of Currency Agreements and Interest Rate
Protection Obligations of such Person, (i) any Preferred Stock of any Subsidiary
of such Person valued at the sum of (without duplication) (A) the liquidation
preference thereof, (B) any mandatory redemption payment obligations in respect
thereof and (C) accrued cash dividends thereon, and (j) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) through (i) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
12
<PAGE>
market value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.
"Indenture" means this Indenture, as amended, modified or supplemented
from time to time.
"Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Notes" refers to Notes initially issued under this Indenture
and distributed in transactions exempt from registration under the Securities
Act prior to the exchange of such Notes for Exchange Notes.
"interest" means, with respect to any Note, the amount of all interest
accruing on such Note, including all interest accruing subsequent to the
occurrence of any events specified in Sections 6.01(f) or (g) or which would
have accrued but for any such event, whether or not such claims are allowable
under applicable law.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes, as set forth therein.
"Interest Rate Protection Agreement" means, with respect to any Person,
any arrangement wit any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to an Interest Rate Protection Agreement.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person. In addition, the Fair
Market Value of
13
<PAGE>
the assets of any Subsidiary of the Company at the time that such Subsidiary is
designated as an Unrestricted Subsidiary shall be deemed to be an Investment
made by the Company in such Unrestricted Subsidiary at such time. "Investments"
shall exclude extensions of trade credit by the Company and its Subsidiaries in
the ordinary course of business in accordance with normal trade practices of the
Company or such Subsidiary, as the case may be.
"Issue Date" means the date on which the Notes are originally issued.
"legal defeasance" shall have the meaning set forth in Section 8.02.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
"Maturity Date" means, with respect to any security, the date on which
any principal of such security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when rece ved in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed by or sold
with recourse to the Company or any Subsidiary of the Company) net of (i)
brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any Person (other than the
Company or any Subsidiary of the Company) owning a beneficial interest in the
assets subject to such Asset Sale, (iv) all payments made on any Indebtedness
which is secured by any assets subject to such Asset Sale, in accordance with
the terms of any Lien upon such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Sale, or by applicable law, be
repaid out of the proceeds from such Asset Sale and (v) appropriate amounts to
be provided by the Company or any Subsidiary of the Company, as the case may be,
as a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Subsidiary of the
Company, as the case may be,
14
<PAGE>
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.
"Non-payment Default" means any event (other than a Payment Default)
the occurrence of which entitles one or more persons to act to accelerate the
maturity of any Designated Senior Indebtedness.
"Non-U.S. Person" means a person other than a U.S. Person.
"Notes" has the meaning set forth in the preamble hereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the President, any Executive Vice President, any Vice President, the Chief
Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary, an
Assistant Secretary or the Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, only one of whom can be a Secretary or an Assistant Secretary and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company.
"Pari Passu Indebtedness" means Indebtedness of the Company which ranks
pari passu in right of payment with the Notes.
"Paying Agent" has the meaning set forth in Section 2.03, except that,
for the purposes of Section 4.12 and Section 4.13 and Articles Three and Eight,
the Paying Agent shall not be the Company or a Subsidiary of the Company or any
of their respective Affiliates.
"Payment Bloackage Notice" has the meaning set forth in Section 10.03.
"Payment Bloackage Period" has the meaning set forth in Section 10.03.
"Payment Default" means any default in the payment of principal,
premium, if any, or interest on any Senior Indebtedness.
"Permitted Holder" means Blackstone Capital Partners II Merchant
Banking Fund L.P. or Loewen Group International, Inc., or any Affiliate of
either.
15
<PAGE>
"Permitted Investments" means any of the following:
(i) Investments in any Wholly-Owned Subsidiary of the Company
(including any Person that pursuant to such Investment becomes a Wholly-Owned
Subsidiary of the Company) and any Person that is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to, the
Company or any Wholly-Owned Subsidiary of the Company at the time such
Investment is made and thereafter remains a Subsidiary;
(ii) Investments in Cash Equivalents;
(iii) loans or advances to officers, employees or consultants of the
Company and its Subsidiaries in the ordinary course of business for bona fide
business purposes of the Company and its Subsidiaries (including travel and
moving expenses) not in excess of $1,000,000 in the aggregate at any one time
outstanding;
(iv) Investments in evidences of Indebtedness, securities or other
property received from another Person by the Company or any of its Subsidiaries
in connection with any bankruptcy proceeding or by reason of a composition or
readjustment of debt or a reorganization of such Person or as a result of
foreclosure, perfection or enforcement of any Lien in exchange for evidences of
Indebtedness, securities or other property of such Person held by the Company or
any of its Subsidiaries, or for other liabilities or obligations of such other
Person to the Company or any of its Subsidiaries that were created, in
accordance with the terms of this Indenture;
(v) Investments of funds received by the Company or its Subsidiaries in
the ordinary course of business, which funds are required to be held in trust
for the benefit of others by the Company or such Subsidiary, as the case may be,
and which funds do not constitute assets or liabilities of the Company or such
Subsidiary;
(vi) Investments in Related Businesses; provided that the sum of (i)
the aggregate Fair Market Value of all such Investments and (ii) the aggregate
Fair Market Value of all Preferred Stock permitted to be issued pursuant to
clause (z) of Section 4.10 shall not exceed $5,000,000 at any time outstanding;
(vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Subsidiary or in satisfaction of judgments;
16
<PAGE>
(viii) Investments in Persons to the extent such Investment represents
the non-cash consideration otherwise permitted to be received by the Company or
its Subsidiaries in connection with an Asset Sale or in connection with a
transaction excepted from the definition of Asset Sale pursuant to the last
sentence of such definition; and
(ix) Investments existing on the Issue Date.
"Permitted Junior Notes" shall have the meaning set forth in Section
10.02
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall have
set aside on its books such reserves as may be required pursuant to GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, governmental contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be initiated
shall not have expired;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
17
<PAGE>
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(g) purchase money Liens to finance the acquisition of property or
assets of the Company or any Subsidiary of the Company acquired in the ordinary
course of business; provided, however, that (i) the related purchase money
Indebtedness shall not be secured by any property or assets of the Company or
any Subsidiary of the Company other than the property and assets so acquired and
(ii) the Lien securing such Indebtedness either (x) exists at the time of such
acquisition or (y) shall be created within 90 days of such acquisition;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(i) Liens with respect to Acquired Indebtedness incurred in accordance
with Section 4.08.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Physical Notes" has the meaning set forth in Section 2.01.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.06 hereof in exchange for a
mutilated Note or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any Capital Stock
of such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
"principal" means, with respect to any debt security, the principal of
the security plus, when appropriate, the premium, if any, on the security and
any interest on overdue principal.
"Private Placement Legend" has the meaning set forth in Section 2.10.
"QIB" has the meaning set forth in Section 2.09.
18
<PAGE>
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity, or is convertible into or exchangeable for debt securities
at any time prior to any such Stated Maturity.
"Redemption Date" means, with respect to any Note to be redeemed, each
such date fixed by the Company for redemption pursuant to this Indenture and the
Notes.
"Redemption Price" means, with respect to any Note to be redeemed, the
price fixed for such redemption pursuant to the terms of this Indenture and the
Notes.
"Regulation S" means Regulation S under the Securities Act or any
uccessor thereto.
"Registrar" has the meaning set forth in Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of November 15, 1996 by and between the Company and Smith Barney Inc.
"Related Business" means any business, the majority of whose revenues
are derived from providing funeral or cemetery products or services or any
business or activity that is reasonably similar thereto or a reasonable
extension, development or expansion thereof or ancillary thereto.
"Replacement Assets" has the meaning set forth in Section 4.13.
"Restricted Payment" has the meaning set forth in Section 4.09.
"Revolving Credit Facility" means the $25 million senior secured
revolving credit facility under the Bank Credit Agreement.
"RH Holdings" means Rose Hills Holdings Corp., a Delaware corporation
and the parent of the Company.
"Rule 144A" means Rule 144A under the Securities Act or any successor
thereto.
19
<PAGE>
"Sale-Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset.
The stated maturity of such arrangement shall be the date of the last payment of
rent or any other amount due under such arrangement prior to the first date on
which such arrangement may be terminated by the lessee without payment of a
penalty.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of this Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"S&P means Standard & Poor's Ratings Group and its successors.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
all obligations of the Company now or hereafter existing under the Bank Credit
Agreement, including without limitation principal of, premium, and interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
post-petition interest is allowed as a claim in such proceeding) on Indebtedness
outstanding under the Bank Credit Agreement, reimbursement obligations of the
Company with respect to any letters of credit outstanding under the Bank Credit
Agreement and any obligation for fees, expenses and indemnities. Notwithstanding
the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness
evidenced by the Notes, (b) Indebtedness that is expressly subordinate or junior
in right of payment to any Indebtedness of the Company, (c) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of the
Bankruptcy Law, is without recourse to the Company, (d) Indebtedness which is
represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials
or services purchased in the ordinary course of business or Indebtedness
consisting of trade payables or other
20
<PAGE>
current liabilities (other than any current liabilities owing under the Bank
Credit Facilities or the current portion of any long-term Indebtedness which
would constitute Senior Indebtedness but for the operation of this clause (e)),
(f) Indebtedness of or amounts owed by the Company for compensation to employees
or for services rendered to the Company, (g) any liability for federal, state,
local or other taxes owed or owing by the Company, (h) Indebtedness of the
Company to a Subsidiary of the Company or any other Affiliate of the Company or
any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which
is incurred by the Company in violation of this Indenture and (j) amounts owing
under leases (other than Capitalized Lease Obligations).
"Senior Representative" means the Bank Agent or any other
representatives designated in writing to the Trustee of the holders of any class
or issue of Designated Senior Indebtedness.
"Significant Subsidiary" shall mean a Subsidiary which is a
"Significant Subsidiary" as defined in Rule 1.02(w) of Regulation S-X under the
Securities Act.
"Special Redemption Date" means the date, if any, on which the Notes
are redeemed pursuant to Clause 3(b) of the Notes.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary which is expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof and (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions). For purposes of this definition, any directors' qualifying
shares or investments by foreign nationals
21
<PAGE>
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary. Notwithstanding the foregoing, an Unrestricted Subsidiary shall
not be deemed a Subsidiary of the Company under this Indenture, other than for
purposes of the definition of an Unrestricted Subsidiary, unless the Company
shall have designated an Unrestricted Subsidiary as a "Subsidiary" by written
notice to the Trustee under the Indenture, accompanied by an Officers'
Certificate as to compliance with this Indenture; provided, however, that the
Company shall not be permitted to designate any Unrestricted Subsidiary as a
Subsidiary unless, after giving pro forma effect to such designation, (i) the
Company would be permitted to incur $1.00 of additional Indebtedness (other than
Indebtedness permitted under Clauses (a)-(k) of the second paragraph of Section
4.08) under the first paragraph of Section 4.08 hereof (assuming a market rate
of interest with respect to such Indebtedness) and (ii) all Indebtedness and
Liens of such Unrestricted Subsidiary would be permitted to be incurred by a
Subsidiary of the Company under this Indenture. A designation of an Unrestricted
Subsidiary as a Subsidiary may not thereafter be rescinded and shall contain the
Board Resolution as to the Fair Market Value of the assets of such Unrestricted
Subsidiary for purposes of Clause (C)(2) of Section 4.09.
"Surviving Entity" shall have the meaning set forth in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the Issue Date.
"Trust Officer" means any officer or assistant officer in the Corporate
Trust Administration department or similar department performing corporate trust
work of the Trustee or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces such party in accordance with the provisions of this
Indenture, and thereafter means such successor.
"United States" has the meaning given to it in Regulation S.
"Unrestricted Subsidiary" means a Subsidiary of the Company (i) none of
whose properties or assets were owned by the Company or any of its Subsidiaries
prior to the Issue Date, other than any such assets as are transferred to such
Unrestricted Subsidiary in accordance with Section 4.09 hereof, (ii) whose
properties and assets, to the extent that they secure Indebtedness, secure only
Non-
22
<PAGE>
Recourse Indebtedness and (iii) which has no Indebtedness other than Non-
Recourse Indebtedness. As used above, "Non-Recourse Indebtedness" means
Indebtedness as to which (i) neither the Company nor any of its Subsidiaries
(other than the relevant Unrestricted Subsidiary or another Unrestricted
Subsidiary) (1) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness), (2) guarantees or is otherwise
directly or indirectly liable or (3) constitutes the lender (in each case, other
than pursuant to and in compliance with Section 4.09 hereof) and (ii) no default
with respect to such Indebtedness (including any rights which the holders
thereof may have to take enforcement action against the relevant Unrestricted
Subsidiary or its assets) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or its Subsidiaries (other than
Unrestricted Subsidiaries) to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity. Subject to the foregoing, a Subsidiary may be designated as an
Unrestricted Subsidiary by written notice to the Trustee under this Indenture
accompanied by an Officers' Certificate as to compliance with this Indenture.
"U.S. Government Obligations" shall have the meaning set forth in
Section 8.02.
"U.S. Person" has the meaning given to it in Regulation S.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, Capital
Stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
"Wholly-Owned Subsidiary" means any Subsidiary of the Company of which
100% of the outstanding Capital Stock is owned by one or more Wholly-Owned
Subsidiaries of the Company or by the Company and one or more Wholly-Owned
Subsidiaries of the Company. For purposes of this definition, any directors'
qualifying shares or investments by foreign nationals mandated by applicable law
shall be disregarded in determining the ownership of a Subsidiary.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
23
<PAGE>
"Commission" means the SEC;
"indenture securities" means the Notes;
"indenture security holder" means a Noteholder or Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securites means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
1. a term has the meaning assigned to it;
2. words in the singular include the plural, and words in the plural
include the singular;
3. "or" is not exclusive;
4. provisions apply to successive events and transactions;
5. all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
6. the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
7. all references to $ or dollars shall refer to the lawful currency of
the United States of America.
24
<PAGE>
ARTICLE 2
THE NOTES
SECTION 2.01. Forms and Dating.
The Notes and the Trustee's certificate of authentication thereon shall
be in substantially the form of Exhibit A and Exhibit B hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with any applicable law or with the rules of any
securities exchange or as may, consistently herewith, be determined by the
Officers executing such Notes, as evidenced by their execution thereof. The
Notes shall be issuable only in registered form without coupons and only in
denominations of $1,000 and integral multiples thereof.
The definitive Notes shall be printed, typewritten, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes. Each Note shall be dated the date of
its authentication.
Initial Notes offered and sold in reliance on Rule 144A shall, except
as described in the following paragraph, and, unless the Global Note
representing the Initial Notes has theretofore been exchanged for Physical Notes
and except as described in the following paragraph, the Exchange Notes shall, be
issued initially in the form of one or more permanent global Notes substantially
in the form set forth in Exhibit A hereto, each such Note containing the legend
relating to global securities set forth in Section 2.09 and, in the case of the
Initial Notes, the Private Placement Legend set forth in Section 2.09 (each a
"Global Note") deposited with, or on behalf of, the Depositary or with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Global Note may from time to time be increased or decreased by
adjustments made on the records, in the form of Schedule A to the Global Note,
of the Depositary or its nominee, or of the Trustee, as custodian for the
Depositary or its nominee, as hereinafter provided.
Initial Notes offered and sold other than as described in the preceding
paragraph, and any Physical Notes issued in exchange for all or a portion of an
Exchange Note that is a Global Note, shall be issued in the form of permanent
25
<PAGE>
certificated Notes in registered form in substantially the form set forth in
Exhibit B hereto (the "Physical Notes"). Notes issued pursuant to Section 2.09
in exchange for interests in the Global Note shall be in the form of Physical
Notes.
The terms and provisions contained in the form of the Notes, annexed
hereto as Exhibits A and B shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
SECTION 2.02. Execution and Authentication.
Two Officers shall execute the Notes on behalf of the Company by either
manual or facsimile signature. The Company's seal shall be impressed, affixed,
imprinted or reproduced on the Notes.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note or at any time thereafter, the
Note shall be valid nevertheless.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. Such signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in
an aggregate principal amount not to exceed $80,000,000 and (ii) Exchange Notes
for issue only in the Exchange offer, pursuant to the Registration Rights
Agreement, for a like principal amount of Initial Notes exchanged in such
Exchange Offer, in each case upon receipt of an Officers' Certificate signed by
two Officers of the Company directing the Trustee to authenticate such Notes and
certifying that all conditions precedent to the issuance of the relevant Notes
contained herein have been complied with. The aggregate principal amount of
Notes outstanding at any time may not exceed $80,000,000, except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. Such authenticating agent shall have the same
rights as the Trustee in any dealings hereunder with the Company or with any of
the Company's Affiliates.
26
<PAGE>
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan, The City of New York, State of New York) where
Notes may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, The City of New York, State of New York) where Notes may be presented
for payment of principal, premium, if any, and interest (the "Paying Agent") and
an office or agency where notices and demands to or upon the Company in respect
of the Notes and this Indenture may be served. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may have
one or more co-Registrars and one or more additional paying agents. The term
"Paying Agent" includes any additional paying agent. Except as otherwise
expressly provided in this Indenture, the Company or any Affiliate thereof may
act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture, which shall incorporate
the provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Registrar or Paying Agent. The Company shall
notify the Trustee of the name and address of any such Registrar or Paying
Agent. If the Company fails to maintain a Registrar, Paying Agent or agent for
service of notices and demands, or fails to give the foregoing notice, the
Trustee shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.08.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Notes.
SECTION 2.04. Paying Agent to Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of Holders or the
Trustee all money held by the Paying Agent for the payment of principal of, or
interest on, the Notes (whether such money has been distributed to it by the
Company or any other obligor on the Notes), and the Company (or any other
obligor on the Notes) and the Paying Agent shall notify the Trustee of any
default by the Company (or any other obligor on the Notes) in making any such
payment. If the Company or an Affiliate of the Company acts as Paying Agent, it
shall segregate the money and hold it as a separate trust fund. The Company at
any time may require a Paying Agent to distribute all money held by it
to the Trustee and account for any funds disbursed and the Trustee may at any
time during the continuance of any Payment Default with respect to the Notes,
upon written request to a Paying Agent, require such Paying Agent to pay all
money held by it
27
<PAGE>
to the Trustee and to account for any funds distributed. Upon doing so, the
Paying Agent (other than an obligor on the Notes) shall have no further
liability for the money so paid over to the Trustee.
SECTION 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least ten
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, including
the aggregate principal amount of Notes held by each such Holder, which list may
be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to Section 2.11, when Notes are presented to the Registrar or a
co-Registrar with a request to register the transfer of such Notes or to
exchange such Notes for an equal principal amount of Notes of other authorized
denominations, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Notes surrendered for transfer or exchange shall be
duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing and shall be
accompanied by such other documents or instruments, if any, as are required by
Sections 2.09 through 2.11. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Notes at the
Registrar's or co-Registrar's request. No service charge shall be made for any
transfer, exchange or redemption, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar governmental
charge payable upon exchange pursuant to Sections 2.02, 2.07, 2.13, 3.06, 4.12,
4.13 or 9.05 or the Exchange Offer without transfer to another person). The
Registrar or co-Registrar shall not be required to register the transfer of or
exchange of any Note (i) during a period beginning at the opening of business 15
days before the mailing of a notice of redemption of Notes and ending at the
close of business on the day of such mailing and (ii) selected for redemption in
whole or in part pursuant to Article 3, except the unredeemed portion of any
Note being redeemed in part.
28
<PAGE>
Any Holder of the Global Note shall, by acceptance of such Global Note,
agree that transfers of beneficial interests in such Global Note may be effected
only through a book-entry system maintained by the Holder of such Global Note
(or its agent), and that ownership of a beneficial interest in the Note shall be
required to be reflected in a book entry.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of a
Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note of
like tenor and amount if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Paying Agent or Registrar from any loss
which any of them may suffer if a Note is replaced. The Company may charge such
Holder for its reasonable, out-of-pocket expenses in replacing a Note, including
reasonable fees and expenses of counsel. Every replacement Note is an additional
obligation of the Company.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. A Note
does not cease to be outstanding because the Company or any of its Affiliates
holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of
such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or a Maturity Date the Paying Agent (other than
the Company or an Affiliate of the Company) holds cash or U.S. Government
Obligations sufficient to pay all of the principal and interest due on the Notes
payable on that date, and is not prohibited from paying such cash or U.S.
Government Obligations to the Holders of such Notes pursuant to the terms of
this Indenture, then on and after that date such Notes cease to be outstanding
and interest on them shall cease to accrue.
29
<PAGE>
SECTION 2.09. Book-Entry Provisions for Global Note. (a) Each Global
Note initially shall (i) be registered in the name of the Depositary for such
Global Note or the nominee of such Depositary, (ii) be deposited with, or on
behalf of, the Depositary or with the Trustee, as custodian for such Depositary,
and (iii) bear the legends as set forth in Section 2.10 except a Global Note
representing the Exchange Notes shall not bear the Private Placement Legend set
forth in Section 2.10. Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in the Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.11. In addition, Physical Notes shall be issued to
all beneficial owners in exchange for their beneficial interests in the Global
Note if (i) the Company notifies the Trustee in writing that the Depositary is
at any time unwilling or unable to continue as a depository for the Global Note
and a successor depository is not appointed by the Company within 90 days or
(ii) the Company, at its option, notifies the Trustee in writing that it elects
to cause the issuance of Notes in definitive form under this Indenture.
(c) In connection with any transfer of a portion of the beneficial
interest in the Global Note pursuant to Section 2.09(b) to beneficial owners who
are required to hold Physical Notes, the Registrar shall reflect on its books
and records the date and a decrease in the principal amount of the Global Note
in an amount equal to the principal amount of the beneficial interest in the
Global Note to be transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Physical Notes of like tenor and
amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to Section 2.09(b), the Global Note shall be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depositary in
30
<PAGE>
exchange for its beneficial interest in the Global Note an equal aggregate
principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note delivered in exchange for an interest in the
Global Note constituting an Initial Note pursuant to subsection (c) or
subsection (d) of this Section shall bear the applicable legend regarding
transfer restrictions set forth in Section 2.10.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.10. Restrictive Legends.
Upon the registration of transfer, exchange or replacement of Notes not
bearing the legend substantially in the form set forth below (the "Private
Placement Legend"), the Registrar shall deliver Notes that do not bear the
Private Placement Legend. Upon the registration of transfer, exchange or
replacement of Notes bearing a legend substantially in the form of the Private
Placement Legend, the Registrar shall deliver only Notes that bear a legend
substantially in the form of the Private Placement Legend unless (i) the
condition of paragraph (a)(i)(x) of Section 2.11 exists or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) Initial Notes are validly tendered in
the Exchange Offer for Exchange Notes or sold under an effective registration
statement.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEF NED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR
(C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT
31
<PAGE>
WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT UPON FURNISHING TO THE TRUSTEE A LETTER SIGNED BY THE
TRANSFEROR CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER
THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED TRANSFEREE IS AN
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM IN
REGULATION S UNDER THE SECURITIES ACT.
Each Global Note, whether or not an Initial Note, shall also bear a
legend substantially to the following effect on the face thereof:
32
<PAGE>
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY GLOBAL
NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 2.09 AND 2.11 OF THE INDENTURE.
SECTION 2.11. Special Transfer Provisions. Unless and until (i) an
Initial Note is sold under an effective registration statement, or (ii) an
Initial Note is exchanged for an Exchange Note in connection with the
Exchange Offer, in each case pursuant to the Registration Rights Agreement,
the following provisions shall apply:
(a) Transfers to Non-QIB Accredited Investors. The following provisions
shall apply with respect to the registration of any proposed transfer of an
Initial Note to any Accredited Investor that is not a QIB (excluding
Non-U.S. Persons) in a minimum principal amount of $250,000:
(i) The Registrar shall register the transfer of any Initial
Note, whether or not such Initial Note bears the Private
Placement Legend, if (x) the requested transfer is at least
three years after the Issue Date or (y) the proposed transferee
has delivered to the Registrar a certificate substantially in
the form set forth in Section 2.18(a); and, if the Company so
requests, an opinion of counsel reasonably acceptable to the
Company and the Trustee to the effect that such transfer is in
compliance with the Securities Act; and
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the
Registrar of (x) the certificate and opinion, if any, required
by paragraph (i) above
33
<PAGE>
and (y) instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (A) Physical
Notes, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked
the box provided for on the form of Initial Note stating, or has
otherwise advised the Company and the Registrar in writing, that
the sale has been made in compliance with the provisions of Rule
144A to a transferee who has advised the Company and the
Registrar in writing, that it is a QIB, that it is purchasing the
Note for its own account or an account with respect to which it
exercises sole investment discretion (the beneficial owner of
which is a QIB) and that it and any such sale to it is being made
in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying
upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A or (B) an
interest in the Global Note, the transfer of such interest may be
affected only through the book entry system maintained by the
Depositary.
(ii) If the proposed transferor is an Agent Member, and the
Initial Note to be transferred consists of Physical Notes, which
after transfer are to be evidenced by an interest in the Global
Note, upon receipt by the Registrar of the documents referred to
in clause (i) and instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount at maturity of the Global Note in an amount
equal to the principal amount at maturity of the Physical Notes
to be transferred, and the Trustee shall cancel the Physical Note
so transferred.
34
<PAGE>
(c) Transfers to Non-U.S. Persons. The following provisions
shall apply with respect to any registration of transfer of an Initial Note to
a Non-U.S. Person:
(i) No transfer shall be made prior to expiration of 40 days
from the Issue Date.
(ii) The Registrar shall register any proposed transfer to any
Non-U.S. Person only upon receipt of a certificate substantially in the form
set forth in Section 2.18(b) from the proposed transferor.
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of (x) the
certificate required by paragraph (ii) above and (y) instructions given in
accordance with the Depositary's and the Registrar's procedures therefor, the
Registrar shall reflect on its books and records the date and a decrease in the
principal amount at maturity of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred. The Company shall execute, and the Trustee shall authenticate and
deliver, one or more Physical Notes in the principal amount of the Physical Note
or interest in the Global Note being transferred.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain until such time as no Notes remain
Outstanding copies of all letters, notices and other written communications
received pursuant to Section 2.09 or this Section 2.11. The Company shall have
the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Registrar.
SECTION 2.12. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company or any of its Affiliates shall be disregarded, except that, for
the purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Notes that to the actual knowledge
of the Trustee are so owned shall be disregarded.
SECTION 2.13. Temporary Notes.
35
<PAGE>
Until definitive Notes are prepared and ready for delivery,
the Company may prepare and the Trustee shall authenticate temporary Notes.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
SECTION 2.14. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent (other than
the Company or an Affiliate of the Company), and no one else, shall promptly
cancel and retain or, at the written request of the Company, may, dispose of
(subject to the record retention requirements of the Exchange Act), or return to
the Company in accordance with its normal practice, all Notes surrendered for
transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Notes to replace Notes that it has paid or delivered
to the Trustee for cancellation. If the Company shall acquire any of the Notes,
such acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Notes unless and until the same are surrendered
to the Trustee for cancellation pursuant to this Section 2.14.
SECTION 2.15. Defaulted Interest.
If the Company defaults on a payment of interest on the Notes,
it shall pay the defaulted interest, plus (to the extent permitted by law) any
interest payable on the defaulted interest, in accordance with the terms hereof,
to the persons who are Holders on a subsequent special record date, which date
shall be at least five Business Days prior to the payment date, or may be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed. The Company shall fix
such special record date and payment date in a manner satisfactory to the
Trustee. At least 15 days before such special record date, the Company shall
mail to each Holder a notice that states the special record date, the payment
date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
36
<PAGE>
SECTION 2.16. Cusip Number.
The Company in issuing the Notes may use a "CUSIP" number (if then
generally in use), and if so, the Trustee may use the CUSIP numbers in notices
of redemption or exchange as a convenience to Holders; provided, however, that
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company will promptly notify the Trustee of any change in the CUSIP
number.
SECTION 2.17. Deposit of Moneys.
On or before 10:00 a.m., New York City Time, on each Interest Payment
Date and Maturity Date, the Company shall deposit with the Trustee or Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date or Maturity Date, as the case may be, in
a timely manner which permits the Paying Agent to remit payment to the Holders
on such Interest Payment Date or Special Redemption Date or Maturity Date, as
the case may be. The principal and interest on Global Notes shall be payable to
the Depositary or its nominee, as the case may be, as the sole registered owner
and the sole Holder of the Global Notes represented thereby. Principal and
interest on Physical Notes shall be payable at the office of the Paying Agent.
SECTION 2.18. Form of Certificate to Be Delivered.
(a) The following is the form of certificate to be delivered in
connection with transfers to non-QIB Accredited Investors.
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Ladies and Gentlemen:
In connection with our proposed purchase of 9 1/2% Senior Subordinated
Notes due 2004 (the "Notes") of Rose Hills Acquisition Corp., a Delaware
corporation ("the Company"), we hereby confirm that:
1. We have received a copy of certain portions of the Offering
Memorandum (the "Offering Memorandum"), dated November 14, 1996, relating to the
Notes and such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agree to the matters
stated in pages 2 through 3 of the Offering Memorandum and in the section titled
"Transfer Restrictions" in the Offering Memorandum, including the restrictions
on duplication and circulation of the Offering Memorandum.
37
<PAGE>
2. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture relating to
the Notes (as described in the Offering Memorandum) and the undersigned agrees
to be bound by, and not to resell, pledge or otherwise transfer the Notes except
in compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold within the United States or to or for the account or benefit of U.S.
persons, except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the Company
or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes to the Trustee (as defined in the Indenture relating to the
Notes) a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes (the form of which letter
can be obtained from the Trustee), (D) outside the United States in accordance
with Regulation S under the Securities Act (if available) upon furnishing the
Trustee a letter signed by the transferor containing certain representations and
agreements relating to transfer of the Notes (the form of which letter can be
obtained from the Trustee), (E) pursuant to an exemption from registration
provided by Rule 144 under the Securities Act (if available) or (F) pursuant to
an effective registration statement under the Securities Act. We further agree
to provide any person purchasing Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
4. We understand that, on any proposed resale of Notes, we will be
required to furnish to the Trustee and the Company such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
5. We are an institutional "accredited investor" within the meaning of
Rule 501(a)(1),(2),(3) or (7) under Regulation D of the Securities Act and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of purchasing Notes and we and any accounts
for which we are acting are able to bear the economic risks of and an entire
loss of our or their investment in the Notes.
6. We are acquiring the Notes purchased by us for our own account or
for the account of one or more other accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion and for each of which we are acquiring not less than $250,000 total
principal amount.
We acknowledge that you, the Company and the Trustee and others will
rely upon our acknowledgments, representations, and agreements set forth herein,
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. We agree to notify you promptly in
writing if any of our acknowledgments, representations or agreements herein
cease to be accurate and complete.
38
<PAGE>
We represent to you that we have full power to make the foregoing
acknowledgments, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as fiduciary or agent.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
- --------------------------------------------------
(Name of Purchaser)
By:______________________________________________
Name:
Title:
Address:
(b) The following is the form of certificate to be delivered in
connection with transfers pursuant to Regulation S.
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed sale of $_________ aggregate principal
amount of the 9 1/2% Senior Subordinated Notes due 2004 (the "Notes") of Rose
Hills Acquisition Corp., we confirm that such sale has been effected pursuant to
and in accordance with Regulation S under the United States Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a U.S. person or a person
in the United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States or
(b) the transaction as executed in, on or through the facilities of a designated
offshore securities market and neither we nor any person acting on our behalf
knows the transaction has been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable; and
39
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this letter have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________
Authorized Signature
ARTICLE 3
REDEMPTION OF NOTES
SECTION 3.01. Notices to the Trustee.
If the Company is permitted to, and elects to or is mandatorily
obligated to, redeem Notes pursuant to Paragraph 3(a) or 3(b) of the Notes, it
shall notify the Trustee of the Redemption Date and principal amount of Notes to
be redeemed.
The Company shall notify the Trustee by an Officers' Certificate,
stating that such redemption will comply with the provisions hereof and of the
Notes, of any redemption at least 45 days before the Redemption Date or, 60 days
before the Redemption Date in the case of a partial redemption or, in the case
of a redemption pursuant to Paragraph 3(b) of the Notes, such lesser number of
days as the Company and the Trustee may agree.
SECTION 3.02. Selection of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes or
portions thereof to be redeemed shall be selected from the outstanding Notes not
previously called for redemption either (x) pro rata, by lot or by such other
method as the Trustee considers to be fair and appropriate or (y) in such manner
as complies with the requirements of the principal national securities exchange,
if any, on which the Notes being redeemed are listed. The amounts to be redeemed
shall be equal to $1,000 or any integral multiple thereof.
40
<PAGE>
The Trustee shall promptly notify the Company and the Registrar in
writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 3.03. Notice of Redemption.
Subject to Section 3.07, notice of redemption shall be given by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date, to each Holder of Notes to be redeemed, at the
address of such Holder appearing in the Note register maintained by the
Registrar.
All notices of redemption shall identify the Notes to be redeemed and
shall state:
(i) the Redemption Date;
(ii) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(iii) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date, and the only remaining right
of the Holders of such Notes is to receive payment of the Redemption
Price upon surrender to the Paying Agent of the Notes redeemed;
(iv) if any Note is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of
such Note to be redeemed and that on and after the Redemption Date,
upon surrender for cancellation of such original Note to the Paying
Agent, a new Note or Notes in the aggregate principal amount equal to
the unredeemed portion thereof will be issued without charge to the
Holder;
(v) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price and the name and
address of the Paying Agent;
41
<PAGE>
(vi) the CUSIP number, if any, relating to such Notes, but no
representation is made as to the correctness or accuracy of any such
CUSIP numbers; and
(vii) the paragraph of the Notes pursuant to which the Notes
are being redeemed.
Notice of redemption of Notes to be redeemed shall be given by the
Company or, at the Company's written request, by the Trustee in the name and at
the sole expense of the Company.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for redemption
become due and payable on the Redemption Date and at the Redemption Price. Upon
surrender to the Paying Agent, such Notes called for redemption shall be paid at
the Redemption Price plus accrued interest to the Redemption Date, but interest
installments whose maturity is on or prior to such Redemption Date will be
payable on the relevant Interest Payment Dates to the Holders of record at the
close of business on the relevant record dates referred to in the Notes. Failure
to give notice or any defect in the notice to any Holder shall not affect the
validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price.
On or prior to 10:00 a.m., New York City time, on any Redemption Date,
the Company shall deposit with the Paying Agent an amount of money in same day
funds sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes or portions thereof which are to be redeemed on that date, other than
Notes or portions thereof called for redemption on that date which have been
delivered by the Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price and accrued and unpaid
interest on the Notes to be redeemed, interest on the Notes to be redeemed will
cease to accrue on and after the applicable Redemption Date, whether or not such
Notes are presented for payment. If any Note called for redemption shall not be
so paid upon surrender thereof for redemption, the principal, premium, if any,
and, to the extent lawful, accrued interest thereon shall, until paid, bear
interest from the Redemption Date at the rate provided in the Notes.
42
<PAGE>
SECTION 3.06. Notes Redeemed or Purchased in Part.
Upon surrender to the Paying Agent of a Note which is to be redeemed
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or Notes
of like tenor, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to, and in exchange for, the unredeemed portion
of the principal of the Note so surrendered that is not redeemed.
SECTION 3.07. Special Redemption.
(a) Notice of a Special Redemption shall be mailed at least three
Business Days prior to the Special Redemption Date. Any redemption pursuant to
this Section 3.07 shall be consistent with the provisions of the Escrow
Agreement. In the event that the special redemption price is greater than the
Escrowed Amounts, the Company shall not be under an obligation to pay, or
deposit with the Escrow Agent, the difference.
(b) The Company shall promptly notify the Trustee and the Escrow Agent
by means of an Officers' Certificate of the consummation of the Acquisition
Transaction.
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes.
The Company will pay, or cause to be paid, the principal of and
interest on the Notes on the dates and in the manner provided in the Notes and
this Indenture. An installment of principal or interest shall be considered paid
on the date due if the Trustee or Paying Agent (other than the Company, a
Subsidiary of the Company or any Affiliate thereof) holds on that date money
designated and set aside for and sufficient to pay the installment in a timely
manner and is not prohibited from paying such money to the Holders of the Notes
pursuant to the terms of this Indenture.
43
<PAGE>
The Company will pay interest on overdue principal at the rate and in
the manner provided in the Notes; it shall pay interest on overdue installments
of interest at the same rate and in the same manner, to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Notes may be surrendered for registration of
transfer or exchange or for presentation for payment and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee as set forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the office of the Trustee
located at 114 West 47th Street, in the Borough of Manhattan, City of New York
10036-1532, as such office of the Company in accordance with this Section 4.02.
SECTION 4.03. Corporate Existence.
Subject to Article 5, the Company shall do or cause to be done all
things necessary to and will cause each of its Subsidiaries to, preserve and
keep in full force and effect the corporate or partnership existence and rights
(charter and statutory), licenses and/or franchises of the Company and each of
its Subsidiaries; provided, however, that the Company or any of its Subsidiaries
shall not be required to preserve any such rights, licenses or franchises, and
the Company shall not be required to maintain the existence of a Subsidiary, if
the Board of Directors of the Company shall reasonably determine that (x) the
preservation or maintenance thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole and (y) the loss
thereof is not
44
<PAGE>
materially adverse to either the Company and its Subsidiaries taken as a whole
or to the ability of the Company to otherwise satisfy its obligations hereunder.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (b) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon the property of the Company or
any Subsidiary of the Company; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
provision has been made or where the failure to effect such payment or discharge
is not adverse in any material respect to the Company and its Subsidiaries taken
as a whole.
SECTION 4.05. Maintenance of Properties; Books and Records; Compliance
with Law.
(a) The Company shall, and shall cause each of its Subsidiaries to,
cause all properties and assets to be maintained and kept in good condition,
repair and working order (reasonable wear and tear excepted) and supplied with
all necessary equipment, and shall cause to be made all necessary repairs,
renewals, replacements, additions, betterments and improvements thereto, as
shall be reasonably necessary for the proper conduct of its business; provided,
however, that nothing in this Section 4.05(a) shall prevent the Company or any
of its Subsidiaries from discontinuing the operation and maintenance of any of
its properties or assets if such discontinuance is, in the judgment of the Board
of Directors of the Company or such Subsidiary, desirable in the conduct of its
business and if such discontinuance is not materially adverse to the Company and
its Subsidiaries taken as a whole.
(b) The Company shall, and shall cause each of its Subsidiaries to,
keep proper books of record and account, in which full and correct entries shall
be made of all business and financial transactions of the Company and each
Subsidiary of the Company and reflect on its financial statements adequate
accruals and appropriations to reserves, all in accordance with GAAP
consistently applied to the Company and its Subsidiaries taken as a whole.
45
<PAGE>
(c) The Company shall and shall cause each of its Subsidiaries to
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would materially adversely
affect the business, earnings, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole.
SECTION 4.06. Compliance Certificate.
(a) The Company will deliver to the Trustee within 105 days after the
end of the Company's fiscal year an Officers' Certificate stating whether or not
the signers know of any Default or Event of Default under this Indenture by the
Company. If they do know of such a Default or Event of Default, the certificate
shall describe any such Default or Event of Default and its status. The Company
shall also deliver a certificate to the Trustee at least annually from its
principal executive, financial or accounting officer as to his or her knowledge
of the Company's compliance with all conditions and covenants under this
Indenture, such compliance to be determined without regard to any period of
grace or requirement of notice provided herein or therein.
(b) The Company will deliver to the Trustee as soon as possible, and
in any event within 10 days after the Company becomes aware of the occurrence of
any Default, Event of Default or an event of default by the Company under any
Senior Indebtedness, an Officers' Certificate specifying such Default, Event of
Default or such event of default and what action the Company is taking or
proposes to take with respect thereto.
SECTION 4.07. SEC Reports.
The Company shall file with the SEC or, if not permitted, deliver to
the Trustee the annual reports, quarterly reports and the information, documents
and other reports required to be filed with the SEC pursuant to Sections 13 and
15(d) of the Exchange Act, whether or not the Company has a class of securities
registered under the Exchange Act. In the event that The Loewen Group Inc. fully
and unconditionally guarantees the obligations of the Company under the Notes,
the requirements hereunder may be satisfied through the filing and provision of
such information, documents and reports which would otherwise be required
pursuant to said sections in respect of The Loewen Group Inc. Such requirements
may also be satisfied prior to the 180th day after the Closing Date, with the
filing with the SEC of the Exchange Offer Registration Statement or the Shelf
Registration Statement. In accordance with the provisions of TIA Section
314(a), the Company shall file with the Trustee and provide to each Holder,
within 15 days after it files them with the SEC (or if such filing is not
permitted under the Exchange Act, 15 days after the Company would have been
required to make such
46
<PAGE>
filing), copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which the Company (or The Loewen Group Inc.,
if applicable) is required to file with the SEC pursuant to Section 13 or 15 of
the Exchange Act. The Company also shall comply with the other provisions of TIA
Section 314(a). In addition, following the registration of the common stock of
the Company pursuant to Section 12(b) or 12(g) of the Exchange Act, the Company
shall cause its annual reports to stockholders and any quarterly or other
financial reports furnished by it to stockholders generally to be filed with the
Trustee and mailed no later than the date such materials are mailed or made
available to the Company's stockholders, to the Holders at their addresses as
set forth in the register of securities maintained by the Registrar.
SECTION 4.08. Limitation on Indebtedness.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or in any manner
become directly or indirectly liable, contingently or otherwise, with respect to
(in each case, "incur") any Indebtedness (including, without limitation, any
Acquired Indebtedness); provided, however, that the Company and any of its
Subsidiaries will be permitted to incur Indebtedness (including, without
limitation, Acquired Indebtedness) if at the time of such incurrence, and after
giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of
the Company is at least equal to 2.00:1.
Notwithstanding the foregoing, the Company and its Subsidiaries may,
to the extent specifically set forth below, incur each and all of the following:
(a) Indebtedness of the Company evidenced by the Notes;
(b) Indebtedness of the Company and its Subsidiaries outstanding
on the Issue Date;
(c) Indebtedness of the Company and its Subsidiaries (i) under the
Bank Credit Agreement (including with respect to letters of credit issued
thereunder); (ii) under any other revolving credit facility or (iii) under any
other credit facility provided by a bank or other financial institution in an
aggregate principal amount for clauses (i) through (iii) at any one time
outstanding not to exceed $125,000,000;
(d) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company or a Subsidiary of the Company and (ii) Interest
Rate Protection Obligations of any Subsidiary of the Company covering
47
<PAGE>
Indebtedness of the Company or such Subsidiary; provided, however, that, in the
case of either clause (i) or (ii), (x) any Indebtedness to which any such
Interest Rate Protection Obligations relate bears interest at fluctuating
interest rates and is otherwise permitted to be incurred under the provisions of
this Section 4.08 and (y) the notional principal amount of any such Interest
Rate Protection Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations relate;
(e) Indebtedness of a Wholly-Owned Subsidiary owed to and held by the
Company or another Wholly-Owned Subsidiary, in each case which is not
subordinated in right of payment to any Indebtedness of such Subsidiary (other
than Indebtedness under its guaranty of the Bank Credit Facilities), except that
(i) any transfer of such Indebtedness by the Company or a Wholly-Owned
Subsidiary (other than to the Company or to a Wholly-Owned Subsidiary) and (ii)
the sale, transfer or other disposition by the Company or any Subsidiary of the
Company of Capital Stock of a Wholly-Owned Subsidiary which is owed Indebtedness
of another Wholly-Owned Subsidiary such that it ceases to be a Wholly-Owned
Subsidiary of the Company shall, in each case, be an incurrence of Indebtedness
by such Subsidiary subject to the other provisions of this Section 4.08;
(f) Indebtedness of the Company owed to and held by a Wholly-Owned
Subsidiary of the Company which is unsecured and subordinated in right of
payment to the payment and performance of the Company's obligations under the
Bank Credit Facilities, this Indenture and the Notes except that (i) any
transfer of such Indebtedness by a Wholly-Owned Subsidiary of the Company (other
than to another Wholly-Owned Subsidiary of the Company) and (ii) the sale,
transfer or other disposition by the Company or any Subsidiary of the Company of
Capital Stock of a Wholly-Owned Subsidiary which holds Indebtedness of the
Company such that it ceases to be a Wholly-Owned Subsidiary shall, in each case,
be an incurrence of Indebtedness by the Company, subject to the other provisions
of this Section 4.08;
(g) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency Agreements do
not increase the Indebtedness of the Company and its Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange rates or by
reason of fees, indemnities and compensation payable thereunder;
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that such Indebtedness is
extinguished within two Business Days of incurrence;
48
<PAGE>
(i) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as the
case may be, in order to provide security for workers' compensation claims,
payment obligations in connection with self-insurance or similar requirements in
the ordinary course of business;
(j) Indebtedness of the Company or any Subsidiary of the Company in
addition to that described in clauses (a) through (i) above, in an aggregate
principal amount outstanding at any time not exceeding $5,000,000; provided,
that if, at the time of incurrence of Indebtedness, the ratio of the aggregate
principal amount of Indebtedness on a pro forma basis after giving effect to the
Indebtedness then being incurred to Consolidated Cash Flow for the four full
fiscal quarters immediately preceding the date of such incurrence is less than
or equal to 6.00:1, then such amount shall be an aggregate principal amount not
exceeding $10,000,000; and
(k) (i) Indebtedness of the Company (including any Indebtedness
incurred in connection with a Sale-Leaseback Transaction permitted pursuant to
Section 4.17) the proceeds of which are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of the Company or any
of its Subsidiaries and (ii) Indebtedness of any Subsidiary of the Company the
proceeds of which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of such Subsidiary, in each case other than
the Indebtedness refinanced, redeemed or retired on the Issue Date; provided,
however, that (x) the principal amount of Indebtedness incurred pursuant to this
clause (k) (or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the original issue price of such
Indebtedness) shall not exceed the sum of the principal amount of Indebtedness
so refinanced, plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of such Indebtedness or the amount
of any premium reasonably determined by the Board of Directors of the Company as
necessary to accomplish such refinancing by means of a tender offer or privately
negotiated purchase, plus the amount of expenses in connection therewith, (y) in
the case of Indebtedness incurred by the Company pursuant to this clause (k) to
refinance Subordinated Indebtedness, such Indebtedness (A) does not have a
Stated Maturity prior to the Maturity of the Subordinated Indebtedness being
refinanced, (B) has an Average Life to Stated Maturity equal to or greater than
the remaining Average Life to Stated Maturity of the Subordinated Indebtedness
being refinanced and (C) is subordinated to the Notes in the same manner and to
the same extent that the Subordinated Indebtedness being refinanced is
subordinated to the Notes and (z) in the case of Indebtedness incurred by the
Company pursuant to this clause
49
<PAGE>
(k) to refinance Pari Passu Indebtedness, such Indebtedness (A) does not have a
Stated Maturity prior to the Stated Maturity of the Pari Passu Indebtedness
being refinanced, (B) has an Average Life to Stated Maturity equal to or greater
than the remaining Average Life to Stated Maturity of the Pari Passu
Indebtedness being refinanced and (C) constitutes Pari Passu Indebtedness or
Subordinated Indebtedness.
The Company shall promptly notify the Trustee, by means of an
Officers' Certificate, of the closing of the Bank Credit Agreement and any
replacement, refunding, restructuring or refinancing of any or all of the Bank
Credit Facilities.
SECTION 4.09. Limitation on Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly:
(a) declare or pay any dividend or make any other distribution
or payment on or in respect of Capital Stock of the Company or
any of its Subsidiaries or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock
of the Company or any of its Subsidiaries (other than (x)
dividends or distributions payable solely in Capital Stock of
the Company (other than Redeemable Capital Stock) or in options,
warrants or other rights to purchase Capital Stock of the
Company (other than Redeemable Capital Stock), (y) the
declaration or payment of dividends or other distributions to the
extent declared or paid to the Company or any Subsidiary of the
Company and (z) the declaration or payment of dividends or other
distributions by any Subsidiary of the Company to all holders of
Common Stock of such Subsidiary on a pro rata basis),
(b) purchase, redeem, defease or otherwise acquire or retire for
value any Capital Stock of the Company or any of its Subsidiaries
(other than any such Capital Stock owned by the Company or a
Wholly-Owned Subsidiary of the Company (in each case other than
in exchange for its Capital Stock (other than Redeemable Capital
Stock)),
(c) make any principal payment on, or purchase, defease,
repurchase, redeem or otherwise acquire or retire for value,
prior to any scheduled maturity, scheduled repayment, scheduled
sinking fund payment or other Stated Maturity, any Subordinated
Indebtedness or Pari Passu Indebtedness other than any such
Indebtedness owned by the Company or a Wholly-Owned Subsidiary of
the Company, or
50
<PAGE>
(d) make any Investment (other than any Permitted Investment) in
any Person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
such Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.08 (assuming a market
rate of interest with respect to such additional Indebtedness) and (C) the
aggregate amount of all Restricted Payments declared or made from and after the
Issue Date would not exceed the sum of (1) 50% of the aggregate Consolidated Net
Income of the Company accrued on a cumulative basis during the period beginning
on the first day of the fiscal quarter of the Company following the fiscal
quarter during which the Issue Date occurs and ending on the last day of the
fiscal quarter of the Company immediately preceding the date of such proposed
Restricted Payment, which period shall be treated as a single accounting period
(or, if such aggregate cumulative Consolidated Net Income of the Company for
such period shall be a deficit, minus 100% of such deficit) plus (2) the
aggregate net cash proceeds received by the Company either (x) as capital
contributions to the Company after the Issue Date from any Person (other than a
Subsidiary of the Company) or any dividend or distribution from an Unrestricted
Subsidiary of the Company to the extent not otherwise included in Consolidated
Net Income of the Company or (y) from the issuance or sale of Capital Stock
(excluding Redeemable Capital Stock, but including Capital Stock issued upon the
conversion of convertible Indebtedness or from the exercise of options, warrants
or rights to purchase Capital Stock (other than Redeemable Capital Stock)) of
the Company to any Person (other than to a Subsidiary of the Company) after the
Issue Date plus (3) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date
(excluding any Investment described in clause (v) of the following paragraph),
including the redesignation of an Unrestricted Subsidiary as a Subsidiary in
accordance with the definition thereof,.an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such Investment,
or, in the case of a redesignation of an Unrestricted Subsidiary as a
Subsidiary, an amount equal to the lesser of the amount of the Investment
previously deemed to have been made in connection with the designation of such
Subsidiary as an Unrestricted Subsidiary and the Fair Market Value of the assets
of such Unrestricted Subsidiary at the time it is
51
<PAGE>
redesignated as a Subsidiary. For purposes of the preceding clause (C)(2), the
value of the aggregate net proceeds received by the Company upon the issuance of
Capital Stock upon the conversion of convertible Indebtedness or upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such Indebtedness, options, warrants or rights plus the
incremental cash amount received by the Company upon the conversion or exercise
thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Company or any Subsidiary of the Company in
exchange for, or out of the net cash proceeds of, a substantially concurrent (x)
capital contribution to the Company from any Person (other than a Subsidiary of
the Company) or (y) issue and sale of other shares of Capital Stock (other than
Redeemable Capital Stock) of the Company to any Person (other than to a
Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; (iii) so long as no Default or Event of Default shall have occurred
and be continuing, any redemption, repurchase or other acquisition or retirement
of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of
a substantially concurrent (x) capital contribution to the Company from any
Person (other than a Subsidiary of the Company) or (y) issue and sale of (1)
Capital Stock (other than Redeemable Capital Stock) of the Company to any
Person (other than to a Subsidiary of the Company); provided, however, that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement shall be excluded from clause
(C)(2) of the preceding paragraph; or (2) Indebtedness of the Company issued to
any Person (other than a Subsidiary of the Company), so long as such
Indebtedness is Subordinated Indebtedness which (x) has no Stated Maturity
earlier than the Stated Maturity of the Subordinated Indebtedness so purchased,
exchanged, redeemed, acquired or retired, (y) has an Average Life to Stated
Maturity equal to or greater than the remaining Average Life to Stated Maturity
of the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired, and (z) is subordinated to the Notes in the same manner and at least to
the same extent as the Subordinated Indebtedness so purchased, exchanged,
redeemed, acquired or retired; (iv) so long as no Default or Event of Default
shall have occurred and be continuing, any redemption, repurchase or other
acquisition or retirement of Pari Passu Indebtedness by exchange for, or out of
the net cash proceeds of, a substantially concurrent (x) capital contribution to
the Company from any Person (other than a Subsidiary of the Company) or (y)
issue and sale of (1) Capital Stock (other than
52
<PAGE>
Redeemable Capital Stock) of the Company to any Person (other than to a
Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement is excluded from clause (C)(2) of the preceding
paragraph; or (2) Indebtedness of the Company issued to any Person (other than a
Subsidiary of the Company), so long as such Indebtedness is Subordinated
Indebtedness or Pari Passu Indebtedness which (x) has no Stated Maturity earlier
than the Stated Maturity of the Pari Passu Indebtedness so purchased, exchanged,
redeemed, acquired or retired and (y) has an Average Life to Stated Maturity
equal to or greater than the remaining Average Life to Stated Maturity of the
Pari Passu Indebtedness so purchased, exchanged, redeemed, acquired or retired;
(v) Investments constituting Restricted Payments made as a result of the receipt
of non-cash consideration from any Asset Sale made pursuant to and in compliance
with Section 4.13 or any transaction excepted from the definition of Asset Sale
pursuant to the last sentence of such definition; (vi) so long as no Default or
Event of Default has occurred and is continuing, repurchases by the Company, or
the declaration and payment of a dividend to RH Holdings, the proceeds of which
are to be used for the purchase of Common Stock of RH Holdings or of limited
partnership interests in a partnership holding such Common Stock) from employees
of the Company or any of its Subsidiaries or their authorized representatives
upon the death, disability or termination of employment of such employees, in an
aggregate amount not exceeding $500,000 in any calendar year; (vii) other
Restricted Payments not to exceed $2,500,000; provided that at the time such
Restricted Payment is made, the ratio of the aggregate principal amount of
Indebtedness on a pro forma basis after giving effect to any Indebtedness
incurred in connection with such Restricted Payment to Consolidated Cash Flow
for the four full fiscal quarters immediately preceding the date of such
Restricted Payment shall be less than or equal to 6.00:1; (viii) any payments
permitted to be made pursuant to clauses (ii) through (vi) of the proviso set
forth in Section 4.14, (ix) payments to RH Holdings in an amount sufficient to
pay (a) director's fees and the reasonable expenses of directors, (b)
accounting, legal or other administrative expenses incurred by RH Holdings
relating to the operations of the Company in the ordinary course of business and
(c) so long as RH Holdings files consolidated income tax returns which include
the Company, payments to RH Holdings in an amount equal to the amount of income
tax that the Company would have paid if it had filed consolidated tax returns on
a separate-company basis or (x) payments to RH Holdings in an amount sufficient
to consummate the Acquisition Transaction; provided that, subsequent to the
consummation of the Acquisition Transaction, the Company shall deliver to the
Trustee an Officers' Certificate setting forth the amount of any payments made
pursuant to clause (x). In computing the amount of Restricted Payments
previously made for purposes of clause (C) of the preceding paragraph,
Restricted Payments made under the
53
<PAGE>
preceding clauses (v) and (vi) shall be included and clauses (i), (ii), (iii),
(iv), (vii), (viii), (ix) and (x) shall not be so included.
SECTION 4.10. Limitation on Issuances and Sale of Preferred Stock
by Subsidiaries.
The Company (a) will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or a Wholly-Owned Subsidiary of the
Company) and (b) will not permit any Person (other than the Company or a
Wholly-Owned Subsidiary of the Company) to own any Preferred Stock of any
Subsidiary of the Company; provided, however, that this covenant shall not
prohibit the issuance and sale of (x) all, but not less than all, of the issued
and outstanding Capital Stock of any Subsidiary of the Company owned by the
Company or any of its Subsidiaries in compliance with the other provisions of
this Indenture (including, without limitation, Section 4.13); (y) directors'
qualifying shares or investments by foreign nationals mandated by applicable law
or (z) issuances of Preferred Stock to former owners of funeral homes acquired
by the Company or any Subsidiary of the Company; provided that the sum of (i)
the aggregate Fair Market Value of such Preferred Stock and (ii) the aggregate
Fair Market Value of all Investments permitted under clause (vi) of the
definition of "Permitted Investments" shall not exceed $5,000,000 at any time
outstanding.
SECTION 4.11. Limitation on Liens.
The Company will not, and will not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any Liens of any kind against or upon
any of its property or assets, or any proceeds therefrom, unless (x) in the case
of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Liens and
(y) in all other cases, the Notes are equally and ratably secured, except for
(a) Liens existing as of the Issue Date; (b) Liens securing the Notes; (c) Liens
on assets of the Company securing Senior Indebtedness and Liens on assets of
Subsidiaries of the Company securing Indebtedness permitted to be incurred by
them under this Indenture; (d) Liens in favor of the Company; (e) Liens securing
Indebtedness which is incurred to refinance Indebtedness which has been secured
by a Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; provided, however, that such
Liens do not extend to or cover any property or assets of the Company or any of
its Subsidiaries not securing the Indebtedness so refinanced; and (f) Permitted
Liens.
SECTION 4.12. Change of Control.
54
<PAGE>
Upon the occurrence of a Change of Control (the date of such
occurrence, the "Change of Control Date"), the Company shall make an offer to
purchase (the "Change of Control Offer") and shall purchase all Notes properly
tendered into the Change of Control Offer and not withdrawn, on a Business Day
(the "Change of Control Purchase Date") not more than 60 nor less than 30 days
following the date the notice of a Change of Control Offer is mailed to holders
of the Notes, all Notes then outstanding at a purchase price ("Change of Control
Purchase Price") equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the Change of Control Purchase Date.
Notice of a Change of Control Offer shall be mailed by the Company not
later than the 30th day after the Change of Control Date to the Holders of Notes
at their last registered addresses with a copy to the Trustee and the Paying
Agent. The Change of Control Offer shall remain open from the time of mailing
for at least 20 Business Days and until 5:00 p.m., New York City time, on the
Change of Control Purchase Date. The notice, which shall govern the terms of the
Change of Control Offer, shall include such disclosures as are required by law
and shall state:
(a) that the Change of Control Offer is being made pursuant to this
Section 4.12 and that all Notes validly tendered in connection with the Change
of Control Offer and not withdrawn will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Note, the Change of Control Purchase Date and the date on which
the Change of Control Offer expires;
(c) that any Note not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment of the
purchase price, any Note accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control Purchase Date;
(e) that Holders electing to have Notes purchased pursuant to a Change
of Control Offer will be required to surrender their Notes, together with a duly
completed "Option of Holder to Elect Purchase" notice substantially in the form
of Exhibit C hereto, to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the third Business Day prior to the
Change of Control Purchase Date and must complete any form of letter of
transmittal proposed by the Company and reasonably acceptable to the Trustee and
the Paying Agent;
55
<PAGE>
(f) that Holders of Notes will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City time, on
the first Business Day immediately prior to the Change of Control Purchase Date,
a tested telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes the Holder delivered for purchase, the
Note certificate number (if any) and a statement that such Holder is withdrawing
its election to have such Notes purchased;
(g) that Holders whose Notes are purchased only in part will be issued
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered;
(h) the instructions that Holders must follow in order to tender their
Notes; and
(i) information concerning the business of the Company, information
with respect to pro forma historical financial information after giving effect
to such Change of Control and such other information concerning the
circumstances and relevant facts regarding such Change of Control Offer as would
be material to a Holder of Notes in connection with the decision of such Holder
as to whether or not it should tender Notes pursuant to the Change of Control
Offer.
On the Change of Control Purchase Date, the Company shall (i) accept for
payment Notes or portions thereof validly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Notes or portions
thereof so tendered and accepted and (iii) deliver to the Trustee the Notes so
accepted together with an Officers' Certificate setting forth the Notes or
portions thereof tendered to and accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Change of Control
Offer not later than the first Business Day following the Change of Control
Purchase Date.
The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in a
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
56
<PAGE>
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to a Change
of Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.13. Disposition of Proceeds of Asset Sales.
(a) The Company will not, and will not permit any of its Subsidiaries
to, make any Asset Sale unless (i) the Company or such Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the Fair Market Value of the shares or assets sold or otherwise disposed of and
(ii) at least 75% of such consideration consists of cash or Cash Equivalents. To
the extent the Net Cash Proceeds of any Asset Sale are not applied to repay the
Bank Term Facility or any other Senior Indebtedness or permanently reduce the
commitments under the Revolving Credit Facility, the Company or such Subsidiary,
as the case may be, may, within 365 days from the receipt of the Net Cash
Proceeds, apply such Net Cash Proceeds to an investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the business of the Company and
its Subsidiaries existing on the Issue Date or in businesses related thereto
("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are
neither used to repay the Bank Term Facility or any other Senior Indebtedness,
or permanently reduce the commitments under the Revolving Credit Facility, nor
invested in Replacement Assets within the 365-day period described above
constitute "Excess Proceeds" subject to disposition as provided below.
(b) When the aggregate amount of Excess Proceeds equals or exceeds
$5,000,000, the Company shall, not more than 40 Business Days thereafter, make
an offer to purchase (an "Asset Sale Offer") from all Holders, on a date (the
"Asset Sale Purchase Date") which is not less than 20 Business Days nor more
than 40 Business Days after the date of notice of such Asset Sale Offer
delivered pursuant to Section 4.13(d), an aggregate principal amount of Notes
equal to such Excess Proceeds, at a price payable in cash equal to 100% of the
outstanding principal amount thereof plus accrued and unpaid interest, if any,
to the Asset Sale Purchase Date (the "Asset Sale Offer Price").
(c) Whenever Excess Proceeds received by the Company and its
Subsidiaries exceed $5,000,000, such Excess Proceeds shall, prior to the
purchase of Notes, be set aside by the Company or such Subsidiary, as the case
may be, in a separate account pending (i) deposit with the depositary of the
amount required to
57
<PAGE>
purchase the Notes tendered or (ii) delivery by the Company of the Asset Sale
Offer Price to the Holders of the Notes pursuant to an Asset Sale Offer. Such
Excess Proceeds may be invested in Cash Equivalents, as directed by the Company,
having a maturity date which is not later than the earliest possible date for
purchase or redemption of Securities pursuant to the Asset Sale Offer. The
Company shall be entitled to any interest or dividends accrued, earned or paid
on such Cash Equivalents.
(d) Notice of an Asset Sale Offer shall be mailed by the Company to
all Holders of Notes not less than 20 Business Days nor more than 40 Business
Days before the Asset Sale Purchase Date at their last registered address with a
copy to the Trustee and the Paying Agent. The Asset Sale Offer shall remain open
from the time of mailing until at least 5:00 p.m., New York City time, on the
third Business Day prior to the Asset Sale Purchase Date. The notice, which
shall govern the terms of the Asset Sale Offer, shall include such disclosures
as are required by law and shall state:
(1) that the Asset Sale Offer is being made pursuant to this
Section 4.13;
(2) the Asset Sale Offer Price (including the amount of accrued
interest, if any) for each Note, the Asset Sale Purchase Date and the date on
which the Asset Sale Offer expires;
(3) that any Note not tendered or accepted for payment will continue
to accrue interest in accordance with the terms thereof;
(4) that, unless the Company shall default in the payment of the Asset
Sale Offer Price, any Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest after the Asset Sale Purchase Date;
(5) that Holders electing to have Notes purchased pursuant to an Asset
Sale Offer will be required to surrender their Notes, together with a duly
completed "Option of Holder to Elect Purchase" notice substantially in the form
of Exhibit C hereto, to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the third Business Day prior to the
Asset Sale Purchase Date and must complete any form of letter of transmittal
proposed by the Company and reasonably acceptable to the Trustee and the Paying
Agent;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than 5:00 p.m., New York City time, on the
first Business Day immediately prior to the Asset Sale Purchase Date, a tested
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal
58
<PAGE>
amount of Notes the Holder delivered for purchase, the Note certificate number
(if any) and a statement that such Holder is withdrawing its election to have
such Notes purchased;
(7) that if the aggregate principal amount of Notes validly tendered
and not withdrawn by the Holders exceeds the Excess Proceeds, the Company shall
purchase Notes on a pro rata basis among the Notes tendered (with such
adjustments as may be deemed appropriate by the Company so that only Notes in
denominations of $1,000 or integral multiples of $1,000 shall be acquired);
(8) that Holders whose Notes are purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered;
(9) the instructions that Holders must follow in order to tender their
Notes; and
(10) information concerning the business of the Company, information
with respect to pro forma historical financial information after giving effect
to such Asset Sale and Asset Sale Offer and such other information concerning
the circumstances and relevant facts regarding such Asset Sale Offer as would be
material to a Holder of Notes in connection with the decision of such Holder as
to whether or not it should tender Notes pursuant to the Asset Sale Offer.
(e) On the Asset Sale Purchase Date, the Company shall (i) accept for
payment, on a pro rata basis, Notes or portions thereof validly tendered
pursuant to the Asset Sale Offer, (ii) deposit with the Paying Agent money, in
immediately available funds, in an amount sufficient to pay the Asset Sale Offer
Price of all Notes or portions thereof so tendered and accepted and (iii)
deliver to the Trustee the Notes so accepted together with an Officers'
Certificate setting forth the Notes or portions thereof tendered to and accepted
for payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Notes so accepted payment in an amount equal to the Asset Sale Offer
Price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered. Any Notes not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Asset Sale Offer not later than the first Business
Day following the Asset Sale Purchase Date. To the extent that the aggregate
principal amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use such deficiency for general corporate
purposes. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero. For purposes of this Section 4.13, the Trustee
shall act as Paying Agent.
60
<PAGE>
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations thereunder, in the event that the Company is required to
repurchase Notes pursuant to the Asset Sale Offer.
SECTION 4.14. Limitation on Transactions with Interested Persons.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, transfer,
disposition, purchase, exchange or lease of assets, property or services) with,
or for the benefit of, any Affiliate of the Company or any beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable immediately,
after the passage of time or upon the happening of an event) of 5% or more of RH
Holdings' Common Stock at any time outstanding ("Interested Persons"), unless
(a) such transaction or series of related transactions is on terms that are no
less favorable to the Company or such Subsidiary, as the case may be, than those
which could have been obtained in a comparable transaction at such time from
Persons who are not Affiliates of the Company or Interested Persons, (b) with
respect to a transaction or series of transactions (other than commercial
arrangements with any limited partner of Blackstone Capital Partners II Merchant
Banking Fund L.P. or any Affiliate of such limited partners) involving aggregate
payments or value equal to or greater than $5,000,000, the Company has obtained
a written opinion from an Independent Financial Advisor stating that the terms
of such transaction or series of transactions are fair to the Company or its
Subsidiary, as the case may be, from a financial point of view and (c) with
respect to a transaction or series of transactions (other than commercial
arrangements with any limited partner of Blackstone Capital Partners II Merchant
Banking Fund L.P. or any Affiliate of such limited partners) involving aggregate
payments or value equal to or greater than $1,000,000, the Company shall have
delivered an Officers' Certificate to the Trustee certifying that such
transaction or series of transactions complies with the preceding clause (a)
and, if applicable, certifying that the opinion referred to in the preceding
clause (b) has been delivered and that such transaction or series of
transactions has been approved by a majority of the Board of Directors of the
Company; provided, however, that this Section 4.14 will not restrict the Company
from (i) paying dividends in respect of its Capital Stock permitted under
Section 4.09, (ii) paying reasonable and customary fees and indemnities to
directors of the Company who are not employees of the Company, (iii) making
loans or advances to, or providing indemnities of, officers, employees or
consultants of the Company and its subsidiaries (including travel and moving
expenses) in the ordinary course of business for bona fide business purposes of
the Company or
60
<PAGE>
such Subsidiary not in excess of $1,000,000 in the aggregate at any one time
outstanding, (iv) making loans to officers (or a partnership comprised of such
officers) for the purpose of purchasing common stock of RH Holdings and making
any payment required or specifically permitted by the terms of the
Administrative Services Agreement, (v) paying an annual monitoring fee of
$250,000 (plus any increase thereof which may be made to account for inflation)
to Blackstone Management Partners L.P. or any of its Affiliates designated by
Blackstone Management Partners L.P., (vi) making any payment to RH Holdings
permitted by Section 4.09 or (vii) entering into any transaction with any of its
Wholly-Owned Subsidiaries or restrict any Subsidiary from entering into any
transaction with any other Wholly-Owned Subsidiary.
SECTION 4.15. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary of the
Company to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or any other interest or
participation in, or measured by, its profits, (b) pay any Indebtedness owed to
the Company or any other Subsidiary of the Company, (c) make loans or advances
to, or any other Investment in, the Company or any other Subsidiary of the
Company, (d) transfer any of its properties or assets to the Company or any
other Subsidiary of the Company or (e) guarantee any Indebtedness of the Company
or any other Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Subsidiary of the Company, (iii) customary
restrictions on transfers of property subject to a Lien permitted under this
Indenture, (iv) any agreement or other instrument of a Person acquired by the
Company or any Subsidiary of the Company (or a Subsidiary of such Person) in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the properties
or assets of the Person, so acquired, (v) provisions contained in agreements or
instruments relating to Indebtedness which prohibit the transfer of all or
substantially all of the assets of the obligor thereunder unless the transferee
shall assume the obligations of the obligor under such agreement or instrument,
(vi) any restriction with respect to a Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Subsidiary pending the closing of such
sale or disposition, (vii) any encumbrance or restriction arising or agreed to
in the ordinary course of business and that does
61
<PAGE>
not, individually or in the aggregate, detract from the value of the property or
assets of the Company or any Subsidiary in any manner material to the Company or
such Subsidiary and (viii) encumbrances and restrictions under agreements in
effect on the Issue Date, including the Bank Credit Agreement, and encumbrances
and restrictions in permitted refinancings or replacements of Indebtedness
evidenced by the agreements referred to in this clause (viii) which are no less
favorable to the Holders than those contained in the Indebtedness so refinanced
or replaced.
SECTION 4.16. Limitation on the Issuance of Other Senior Subordinated
Indebtedness.
The Company will not, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company, unless such Indebtedness (x) is pari passu with or
(y) is subordinate in right of payment to the Notes in the same manner and at
least to the same extent as the Notes are subordinated to Senior Indebtedness.
SECTION 4.17. Limitations on Sale-Leaseback Transactions.
The Company will not, and will not permit any of its Subsidiaries to,
enter into any Sale-Leaseback Transaction with respect to any property of the
Company or any of its Subsidiaries. Notwithstanding the foregoing, the Company
and its Subsidiaries may enter into Sale-Leaseback Transactions; provided that
(a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to
be Indebtedness of the Company or such Subsidiary, as the case may be, and (b)
either (i) after giving pro forma effect to any such Sale-Leaseback Transaction
and the foregoing clause (a), the Company would be able to incur $1.00 of
additional Indebtedness pursuant to the first paragraph of Section 4.08
(assuming a market rate of interest with respect to such additional
Indebtedness) or (ii) the proceeds of such Sale-Leaseback Transaction are
applied to repay existing Indebtedness (other than Indebtedness outstanding
under any revolving credit facility).
SECTION 4.18. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other law which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium, if any, or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
62
<PAGE>
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc..
The Company will not, in any transaction or series of
transactions, merge or consolidate with or into, or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any Person or Persons, and the Company
will not permit any of its Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company or the Company and its Subsidiaries, taken as a whole, to any other
Person or Persons, unless at the time of and after giving effect thereto (a)
either (i) if the transaction or series of transactions is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person formed by such consolidation or into which the
Company or such Subsidiary is merged or to which the properties and assets of
the Company or such Subsidiary, as the case may be, are transferred (any such
surviving Person or transferee Person being the "Surviving Entity") shall be a
corporation organized and existing under the laws of the United States of
America, any state thereof, the District of Columbia, Canada or any province
thereof and shall expressly assume by a supplemental indenture executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee, all
the obligations of the Company under the Notes and this Indenture, and in each
case, this Indenture shall remain in full force and effect; (b) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing; (c) the Company or the Surviving
Entity, as the case may be, after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such
63
<PAGE>
transaction or series of transactions), could incur $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.08 (assuming a market
rate of interest with respect to such additional Indebtedness); and (d)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such transaction
or series of transactions), the Consolidated Net Worth of the Company or the
Surviving Entity, as the case may be, is at least equal to the Consolidated Net
Worth of the Company immediately before such transaction or series of
transactions.
Notwithstanding the foregoing clauses (b), (c) and (d), (i) any
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (ii) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction to realize tax or other benefits.
In connection with any consolidation, merger, transfer, lease,
assignment or other disposition contemplated hereby, the Company shall deliver,
or cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, transfer, lease, assignment or
other disposition and any supplemental indenture in respect thereof comply with
the requirements under the foregoing clause (a) of this Section 5.01 and that
all conditions precedent provided for in this Indenture relating to the
transaction or series of transactions have been complied with, provided,
however, that solely for purposes of computing amounts described in subclause
(C) of Section 4.09, any such successor Person shall only be deemed to have
succeeded to and be substituted for the Company with respect to periods
subsequent to the effective time of such merger, consolidation or transfer of
assets.
SECTION 5.02. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with Section 5.01 hereof, the successor
person or persons formed by such consolidation or into which the Company is
merged or the successor person to which such sale, assignment, conveyance,
transfer, lease or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Notes with the same effect as if such successor had been
named as the Company herein; provided, however, that solely for purposes of
computing amounts described in subclause (C) of Section 4.09, any such successor
Person shall only be deemed to have succeeded to and be substituted for the
Company with respect
64
<PAGE>
to periods subsequent to the effective time of such merger, consolidation or
transfer of assets.
ARTICLE 6
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) default in the payment of the principal of or premium, if any, on
any Note when the same becomes due and payable (upon Stated Maturity,
acceleration, optional redemption, required purchase, scheduled principal
payment or otherwise); or
(b) default in the payment of an installment of interest on any of the
Notes, when the same becomes due and payable, and any such Default continues for
a period of 30 days; or
(c) failure to perform or observe any other term, covenant or agreement
contained in the Notes or this Indenture (other than a Default specified in
clause (a) or (b) above) and such Default continues for a period of 30 days
after written notice of such Default requiring the Company to remedy the same
shall have been given (i) to the Company by the Trustee or (ii) to the Company
and the Trustee by Holders of at least 25% in aggregate principal amount of the
Notes then outstanding; or
(d) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which the
Company or any Subsidiary of the Company then has outstanding Indebtedness in
excess of $5,000,000, individually or in the aggregate, and either (i) such
Indebtedness has not been paid at final maturity or (ii) such default or
defaults have resulted in the acceleration of the maturity of such Indebtedness;
or
(e) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money in
excess of $5,000,000, either individually or in the aggregate, shall be entered
against the Company or any Subsidiary of the Company or any of their respective
properties and shall not be discharged or fully bonded and there shall have been
a period of 60 days after the date on which any period for appeal has expired
and
65
<PAGE>
during which a stay of enforcement of such judgment, order or decree, shall
not be in effect; or
(f) the Company or any Significant Subsidiary of the Company pursuant to
or under or within the meaning of any Bankruptcy Law:
(1) commences a voluntary case or proceeding;
(2) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
(3) consents to the appointment of a Custodian of it or for all or
substantially all of its property;
(4) makes a general assignment for the benefit of its creditors; or
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(1) is for relief against the Company or any Significant Subsidiary of
the Company in an involuntary case or proceeding,
(2) appoints a Custodian of the Company or any Significant Subsidiary
of the Company for all or substantially all of its properties, or
(3) orders the liquidation of the Company or any Significant Subsidiary
of the Company,
and in each case the order or decree remains unstayed and in effect for 60 days.
Subject to the provisions of Sections 7.01 and 7.02, the Trustee shall
not be charged with knowledge of any Default or Event of Default unless written
notice thereof shall have been given to a Trust Officer at the Corporate Trust
Office of the Trustee by the Company, the Paying Agent, any Holder, any holder
of Senior Indebtedness or any of their respective agents.
SECTION 6.02. Acceleration.
If an Event of Default (other than as specified in Sections 6.01(f)and
(g) with respect to the Company) shall occur and be continuing, the Trustee, by
written notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding, by written notice to the Trustee
and the Company, may declare the principal of, premium, if any, and accrued and
66
<PAGE>
unpaid interest, if any, on all of the Notes then outstanding to be due and
payable immediately, upon which declaration, all amounts payable in respect of
the Notes shall be immediately due and payable; provided, however, that so long
as the Bank Credit Agreement shall be in force and effect, if an Event of
Default shall have occurred and be continuing (other than an Event of Default
specified in Sections 6.01(f) and (g) with respect to the Company), any such
acceleration shall not be effective until the earlier to occur of (a) five
Business Days following delivery of a notice of such acceleration to the Bank
Agent under the Bank Credit Agreement and (b) the acceleration of any
Indebtedness (or other amounts) under the Bank Credit Agreement. If an Event of
Default specified in Sections 6.01(f) and (g) with respect to the Company occurs
and is continuing, then the principal of, premium, if any, and accrued and
unpaid interest, if any, on all of the outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder of Notes.
After a declaration of acceleration under this Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by the Notes, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue principal at the rate borne
by the Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and (c) all Events of Default, other than
the non-payment of principal of, premium, if any, and interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 6.04.
No such rescission shall affect any subsequent Default or Event of
Default or impair any right subsequent therein.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of
67
<PAGE>
principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
All rights of action and claims under this Indenture or the Notes may be
enforced by the Trustee even if it does not possess any of the Notes or does not
produce any of them in the proceeding. A delay or omission by the Trustee or any
Holder in exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to the provisions of Section 6.07 and 9.02, the Holders of not
less than a majority in aggregate principal amount of the outstanding Notes by
notice to the Trustee may, on behalf of the Holders of all the Notes, waive any
existing Default or Event of Default and its consequences, except a Default or
Event of Default specified in Section 6.01(a) or 6.01(b) or in respect of any
provision hereof which cannot be modified or amended without the consent of each
Holder so affected pursuant to Section 9.02. When a Default or Event of Default
is so waived, it shall be deemed cured and shall cease to exist.
SECTION 6.05. Control by Majority.
The Holders of not less than a majority in aggregate principal amount
of the outstanding Notes shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided, however, that
the Trustee may refuse to follow any direction (a) that conflicts with any rule
of law or this Indenture, (b) that the Trustee determines may be unduly
prejudicial to the rights of another Noteholder, or (c) that may expose the
Trustee to personal liability unless the Trustee has been provided reasonable
indemnity against any loss or expense caused by its following such direction;
and provided, further, that the Trustee may take any other action deemed proper
by the Trustee that is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any proceeding
or pursue any remedy with respect to this Indenture or the Notes unless:
(a) the Holder gives written notice to the Trustee of a continuing
Event of Default;
68
<PAGE>
(b) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer and, if requested, provide to the
Trustee reasonable indemnity against any loss, liability or expense;
(d) the Trustee does not comply with the request within 30 days after
receipt of the request and the offer and, if requested, provision of indemnity;
and
(e) during such 30-day period the Holders of a majority in aggregate
principal amount of the outstanding Notes do not give the Trustee a direction
which is inconsistent with the request.
The foregoing limitations shall not apply to a suit instituted by a
Holder for the enforcement of the payment of principal of, premium, if any, or
accrued interest on, such Note on or after the respective due dates set forth in
such Note.
A Holder may not use this Indenture to prejudice the rights of any
other Holders or to obtain priority or preference over such other Holders.
SECTION 6.07. Right of Holders to Receive Payment.
Notwithstanding any other provision in this Indenture, the right of any
Holder of a Note to receive payment of the principal of, premium, if any, and
interest on such Note, on or after the respective Stated Maturities expressed in
such Note, or to bring suit for the enforcement of any such payment on or after
the respective Stated Maturities, is absolute and unconditional and shall not be
impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of Section 6.01
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company, or any other obligor on the
Notes, for the whole amount of principal of, premium, if any, and accrued
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the Notes
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel and any other amounts due
the Trustee under Section 7.08.
69
<PAGE>
SECTION 6.09. Trustee May File Proofs of Claims.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relative to the Company or the Subsidiaries of the
Company (or any other obligor upon the Notes), their creditors or their property
and shall be entitled and empowered to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute the same,
and any Custodian in any such judicial proceedings is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.08. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.08.
Second: subject to Article 10, to Holders for interest accrued on the
Notes, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for interest;
Third: subject to Article 10, to Holders for principal amounts
(including any premium) owing under the Notes, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
70
<PAGE>
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court may in its discretion require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to any suit by the Trustee, any suit by a
Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in
aggregate principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Note and such proceeding has
been discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties.
(a) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default,
(1) the Trustee need perform only such duties as are specifically set
forth in this Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
71
<PAGE>
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture, but need not investigate the accuracy of mathematical
calculations or other facts stated therein.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01 hereof and the provisions of TIA Section 315:
(a) the Trustee may rely on any document reasonably believed by it to
be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
which
72
<PAGE>
shall conform to Sections 11.04 and 11.05. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) the Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) the Trustee shall not be liable for any action taken or omitted by
it in good faith and reasonably believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of its own negligence.
(e) the Trustee may consult with counsel of its own choosing and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(g) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
SECTION 7.03. Individual Rights of Trustee.
The Trustee, any Paying Agent, Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and, subject to Sections 7.11 and 7.12 and TIA Sections 310
and 311, may otherwise deal with the Company and its Subsidiaries with the same
rights it would have if it were not the Trustee, Paying Agent, Registrar or such
other agent; provided that there shall be excluded from the operation of TIA
Section 310(b), any indenture or indentures under which other securities, or
certificates of interest or participations in other securities, of the Company
are outstanding if the requirements for exclusion set forth in TIA
Section 310(b)(i) are met.
73
<PAGE>
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Notes, it shall not be accountable for the Company's
use or application of the proceeds from the Notes, it shall not be responsible
for the use or application of any money received by any Paying Agent other than
the Trustee and it shall not be responsible for any statement in the Notes other
than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Holder notice of the
Default or Event of Default within 30 days after obtaining knowledge thereof;
provided, however, that, except in the case of a Default or an Event of Default
in the payment of the principal of, premium, if any, or interest on any Note,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee of the board of directors or a
committee of the directors of the Trustee and/or Trust Officers in good faith
determines that the withholding of such notice is in the interest of the
Holders.
SECTION 7.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required herein
or by law. The Trustee shall not be under any liability for interest on any
moneys received by it hereunder, except as the Trustee may agree with the
Company.
SECTION 7.07. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, to the extent that any of the
events described in TIA Section 313(a) shall have occurred within the previous
twelve months, but not otherwise, mail to each Holder a brief report dated as of
such May 15 that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the SEC and each securities exchange, if
any, on which the Notes are listed.
74
<PAGE>
The Company shall notify the Trustee in writing if the Notes become
listed on any securities exchange.
SECTION 7.08. Compensation and Indemnity.
The Company covenants and agrees to pay the Trustee from time to time
reasonable compensation for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, damage, claim or liability incurred by it arising out of or
in connection with the administration of this trust and its rights or duties
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity; however, the
failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company need not reimburse any expense or
indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.08, the
Trustee shall have a Lien prior to the Notes on all assets held or collected by
the Trustee, in its capacity as Trustee, except assets held in trust to pay
principal of, premium, if any, or interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Sections 6.01(f) or (g), the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.08 and any Lien arising
hereunder shall survive the resignation or removal of any trustee, the discharge
of the Company's obligations pursuant to Article 8 and/or the termination of
this Indenture, including the termination and rejection hereof in any bankruptcy
proceedings to the extent permitted by applicable law.
SECTION 7.09. Replacement of Trustee.
75
<PAGE>
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee by
so notifying the Company and the Trustee and may appoint a successor trustee
with the Company's prior written consent. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.11;
(b) the Trustee is adjudged a bankrupt or an insolvent or an or
der for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or (d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. The Trustee shall be
entitled to payment of its fees and reimbursement of its expenses while acting
as Trustee, and to the extent such amounts remain unpaid, the Trustee that has
resigned or has been removed shall retain the Lien afforded by Section 7.08.
Within one year after the successor Trustee takes office, the Holders of a
majority in principal amount of the outstanding Notes may, with the Company's
prior written consent, appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.08, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Noteholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.11, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
76
<PAGE>
Notwithstanding replacement of the Trustee pursuant to this
Section 7.09, the Company's obligations under Section 7.08 shall continue for
the benefit of the retiring Trustee.
SECTION 7.10. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another corporation
or national banking association, the resulting, surviving or transferee
corporation or national banking association without any further act shall, if
such resulting, surviving or transferee corporation or national banking
association is otherwise eligible hereunder, be the successor Trustee.
SECTION 7.11. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under TIA Sections 310(a)(1) and 310(a)(5) and which shall
have a combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of federal, state, territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Trustee shall resign immediately in the
manner and with the effect hereinafter specified in this Article.
SECTION 7.12. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). If the present or any future Trustee
shall resign or be removed, it shall be subject to TIA Section 311(a) to the
extent provided therein.
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Termination of the Company's Obligations.
77
<PAGE>
The Company may terminate its obligations under the Notes and this
Indenture, except those obligations referred to in the penultimate paragraph of
this Section 8.01, if all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes which have been replaced or paid or Notes
for whose payment money has theretofore been deposited with the Trustee or the
Paying Agent in trust or segregated and held in trust by the Company and
thereafter repaid to the Company, as provided in Section 8.04) have been
delivered to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder, or if:
(a) either (i) pursuant to Article 3, the Company shall have given
notice to the Trustee and mailed a notice of redemption to each Holder of the
redemption of all of the Notes under arrangements satisfactory to the Trustee
for the giving of such notice or (ii) all Notes have otherwise become due and
payable hereunder;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee reasonably satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit of
the Holders for that purpose, money in such amount as is sufficient without
consideration of reinvestment of such interest, to pay principal of, premium, if
any, and interest on the outstanding Notes to maturity or redemption, as
certified in a certificate of a nationally recognized firm of independent public
accountants; provided that the Trustee shall have been irrevocably instructed to
apply such money to the payment of said principal, premium, if any, and interest
with respect to the Notes and, provided, further, that from and after the time
of deposit, the money deposited shall not be subject to the rights of holders of
Senior Indebtedness pursuant to the provisions of Article 10;
(c) no Default or Event of Default with respect to this Indenture or the
Notes shall have occurred and be continuing on the date of such deposit or shall
occur as a result of such deposit and such deposit will not result in a breach
or violation of, or constitute a default under, any other instrument to which
the Company is a party or by which it is bound;
(d) the Company shall have paid all other sums payable by it hereunder;
and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligation under the
Notes and this Indenture have been complied with.
78
<PAGE>
Notwithstanding the foregoing paragraph, the Company's
obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02 and 7.08 shall
survive until the Notes are no longer outstanding pursuant to the last paragraph
of Section 2.08. After the Notes are no longer outstanding, the Company's
obligations in Sections 7.08, 8.03, 8.04 and 8.05 shall survive.
After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Notes and this Indenture except for those surviving obligations specified
above.
SECTION 8.02. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution of the Board of
Directors of the Company, at any time, with respect to the Notes, elect to have
either paragraph (b) or paragraph (c) below be applied to the outstanding Notes
upon compliance with the conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Notes on the date the conditions set forth below are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of paragraph (e) below and the other
Sections of and matters under this Indenture referred to in (i) and (ii) below,
and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), and
Holders of the Notes and any amounts deposited under paragraph (d) below shall
cease to be subject to any obligations to, or the rights of, any holder of
Senior Indebtedness under Article 10 or otherwise, except for the following
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Notes to receive solely from the trust fund
described in paragraph (d) below and as more fully set forth in such paragraph,
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations with respect to
such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07 and 4.02, and, with
respect to the Trustee, under Section 7.08, (iii) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (iv) this Article 8. Subject
to compliance with this Section 8.02, the Company may exercise its option under
this paragraph (b) notwithstanding the prior exercise of its option under
paragraph (c) below with respect to the Notes.
79
<PAGE>
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Articles Five and Ten and
in Sections 4.07 through 4.17 with respect to the outstanding Notes on and after
the date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Notes shall thereafter be deemed to be not "outstanding"
for the purpose of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
and Holders of the Notes and any amounts deposited under paragraph (d) below
shall cease to be subject to any obligations to, or the rights of, any holder of
Senior Indebtedness under Article 10 or otherwise. For this purpose, such
covenant defeasance means that, with respect to the outstanding Notes, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01(c), but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Notes:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 7.11 who shall agree to comply with the provisions of this Section 8.02
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Notes, (x) cash, in United States
dollars, in an amount or (y) direct non-callable obligations of, or non-callable
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligation the full faith and credit of the United States is
pledged ("U.S. Government Obligations") maturing as to principal, premium, if
any, and interest in such amounts of cash, in United States dollars, and at such
times as are sufficient without consideration of any reinvestment of such
interest, to pay principal of, premium, if any, and interest on the outstanding
Notes not later than one day before the due date of any payment, or (z) a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge principal of,
premium, if any, and interest on the outstanding Notes (except lost, stolen or
destroyed Notes which have been replaced or paid)
80
<PAGE>
on the Final Maturity Date or otherwise in accordance with the terms of this
Indenture and of such Notes; provided, however, that the Trustee (or other
qualifying trustee) shall have received an irrevocable written order from the
Company instructing the Trustee (or other qualifying trustee) to apply such
money or the proceeds of such U.S. Government Obligations to said payments with
respect to the Notes;
(2) no Default or Event of Default or event which with notice or lapse
of time or both would become a Default or an Event of Default with respect to
the Notes shall have occurred and be continuing on the date of such deposit or,
insofar as Section 6.01(a) is concerned, at any time during the period ending on
the 91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such period);
(3) such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest with respect to any securities of the
Company;
(4) such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under, this
Indenture or any other material agreement or instrument to which the Company is
a party or by which it is bound;
(5) in the case of an election under paragraph (b) above, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (y) since the date of this Indenture, there has been a
change in the applicable Federal income tax law, in either case to the effect
that, and based thereon such opinion shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such legal defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance had not occurred;
(6) in the case of an election under paragraph (c) above, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant defeasance
had not occurred;
81
<PAGE>
(7) in the case of an election under either paragraph (b) or (c) above,
an Opinion of Counsel to the effect that, (x) the trust funds will not be
subject to any rights of any holders of Senior Indebtedness, including, without
limitation, those rights arising under this Indenture, and (y) after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable Bankruptcy Law; provided, however, that if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, no opinion needs to be given as to the effect of such
laws on the trust funds except the following: (A) assuming such trust funds
remained in the Trustee's possession prior to such court ruling to the extent
not paid to Holders of Notes, the Trustee will hold, for the benefit of the
Holders of Notes, a valid and enforceable security interest in such trust funds
that is not avoidable in bankruptcy or otherwise, subject only to principles of
equitable subordination, (B) the Holders of Notes will be entitled to receive
adequate protection of their interests in such trust funds if such trust funds
are used, and (C) no property, rights in property or other interests granted to
the Trustee or the Holders of Notes in exchange for or with respect to any of
such funds will be subject to any prior rights of any other person, subject only
to prior Liens granted under Section 364 of Title 11 of the U.S. Bankruptcy Code
(or any section of any other Bankruptcy Law having the same effect), but still
subject to the foregoing clause (B); and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the legal defeasance under paragraph
(b) above or the covenant defeasance under paragraph (c) above, as the case may
be, have been complied with.
(e) All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d)
above in respect of the outstanding Notes shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Notes and this Indenture,
to the payment, either directly or through any Paying Agent (other than the
Company or any Affiliate of the Company) as the Trustee may determine, to the
Holders of such Notes of all sums due and to become due thereon in respect of
principal, premium and interest, but such money need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
duty to invest such funds or U.S. Government Obligations.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to paragraph (d) above or the principal, premium, if any,
and
82
<PAGE>
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Section 8.02 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
SECTION 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Sections 8.01 and 8.02, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of, premium, if any, and
interest on the Notes.
SECTION 8.04. Repayment to Company.
Subject to Sections 7.08, 8.01 and 8.02, the Trustee shall promptly pay
to the Company, upon receipt by the Trustee of an Officers' Certificate, any
excess money, determined in accordance with Section 8.02, held by it at any
time; provided that the Trustee shall, upon payment of all obligations under
this Indenture and upon request of the Company, pay to the Company any excess
money held by it. The Trustee and the Paying Agent shall pay to the Company,
upon request of the Company, any money held by it for the payment of principal,
premium, if any, or interest that remains unclaimed for two years after payment
to the Holders is required. After payment to the Company, Holders entitled to
money must look solely to the Company for payment as general creditors unless an
applicable abandoned property law designates another person, and all liability
of the Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 8.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
and only then the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had been made pursuant to this
83
<PAGE>
Indenture until such time as the Trustee is permitted to apply all such money or
U.S. Government Obligations in accordance with this Indenture; provided,
however, that if the Company has made any payment of principal of, premium, if
any, or interest on any Notes because of the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution of its Board of
Directors, and the Trustee may amend, waive or supplement this Indenture or the
Notes without notice to or consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article 5;
(c) to provide for uncertificated Notes in addition to certificated
Notes;
(d) to comply with any requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(e) to provide for the issuance of the Exchange Notes, which will have
terms substantially identical in all respects to the Initial Notes (except that
the transfer restrictions under the Securities Act contained in the Initial
Notes will be modified or eliminated, as appropriate), and which will be
treated, together with any outstanding Initial Notes, as a single issue of
securities;
(f) to provide for the guarantee of the Notes by The Loewen Group
Inc.;
(g) to make any change that would provide any additional benefit or
rights to the Holders or that does not adversely affect the rights of any
Holder; or
(h) to evidence and provide for the acceptance and appointment
hereunder by a successor Trustee with respect to the Notes.
84
<PAGE>
Notwithstanding the above, the Trustee and the Company may not make any
change that adversely affects the rights of any Holders hereunder. The Company
shall be required to deliver to the Trustee an Opinion of Counsel stating that
any such change made pursuant to paragraph (a) or (g) of this Section 9.01 does
not adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.04, the Company, when authorized by a Board
Resolution of its Board of Directors, and the Trustee may amend this Indenture
or the Notes with the written consent of the Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding, and the Holders of
not less than a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may waive future compliance by the
Company with any provision of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without the consent
of each Holder affected, an amendment or waiver, including a waiver pursuant to
Section 6.04, may not:
(a) reduce the percentage in outstanding aggregate principal amount of
Notes the Holders of which must consent to an amendment, supplement or waiver of
any provision of this Indenture or the Notes;
(b) reduce or change the rate or time for payment of interest on any
Note;
(c) change the currency in which any Note, or any premium or interest
thereon, is payable;
(d) reduce the principal amount outstanding of or extend the Stated
Maturity of any Note or alter the redemption provisions with respect thereto;
(e) waive a default in the payment of the principal of, premium, if any,
or interest on, or redemption or an offer to purchase required hereunder with
respect to, any Note;
(f) make the principal of, premium, if any, or interest on any Note
payable in money other than that stated in the Note;
(g) modify this Section 9.02 or Section 6.07;
85
<PAGE>
(h) amend, alter, change or modify the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate the offer with respect to any Asset Sale or modify any of
the provisions or definitions with respect thereto;
(i) modify or change any provision of this Indenture affecting the
subordination or ranking of the Notes in a manner adverse to the Holders; or
(j) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holder of each Note affected thereby,
with a copy to the Trustee, a notice briefly describing the amendment,
supplement or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any amendment, supplement or waiver.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment of or supplement to this Indenture or the Notes shall
comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder is a continuing consent by such Holder and every subsequent
Holder of that Note or portion of that Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as to
his Note or portion of a Note prior to such amendment, supplement or waiver
becoming effective. Such revocation shall be effective only if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver becomes effective. Notwithstanding the above, nothing in this paragraph
shall impair the right of any Holder under Section 316(b) of the TIA.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the second
86
<PAGE>
and third sentences of the immediately preceding paragraph, those persons who
were Holders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Holders after such record date. Such consent shall be effective
only for actions taken within 120 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder; unless it makes a change described in any of clauses (a)
through (j) of Section 9.02; if it makes such a change, the amendment,
supplement or waiver shall bind every subsequent Holder of a Note or portion of
a Note that evidences the same debt as the consenting Holder's Note.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee shall (in accordance with the specific direction of the Company) request
the Holder of the Note to deliver it to the Trustee. The Trustee shall (in
accordance with the specific direction of the Company) place an appropriate
notation on the Note about the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms. Failure to make the appropriate notation or
issue a new Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06. Trustee May Sign Amendments, Etc.
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article 9 if the amendment, supplement or waiver does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, sign it. In signing or refusing to
sign such amendment, supplement or waiver, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Officers' Certificate
and an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver is authorized or permitted by this Indenture, that it is
not inconsistent herewith and that it will be valid and binding upon the Company
enforceable against the Company in accordance with its terms.
87
<PAGE>
ARTICLE 10
SUBORDINATION OF NOTES
SECTION 10.01. Notes Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Note, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article 10, the Indebtedness
represented by the Notes is hereby expressly made subordinate and subject in
right of payment as provided in this Article to the prior payment in full in
cash or Cash Equivalents of all amounts payable under all existing and future
Senior Indebtedness.
This Article 10 shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold Senior
Indebtedness; and such provisions are made for the benefit of the holders of
Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
SECTION 10.02. Payment over of Proceeds upon Dissolution.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Company or to its assets, or
(b) any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or any other marshaling of
assets or liabilities of the Company, then and in any such event:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or Cash Equivalents of all Senior Indebtedness
(including, in the case of Designated Senior Indebtedness, any interest accruing
subsequent to the filing of a petition for bankruptcy at the rate provided for
in the documentation governing such Designated Senior Indebtedness, whether or
not such interest is an allowed claim under applicable law) before the Holders
of the Notes are entitled to receive any payment or distribution of any kind or
character (excluding securities of the Company that are equity securities or are
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding to substantially the same extent as, or to a greater extent than,
the Notes as provided in this Article; such securities are hereinafter
collectively referred to as "Permitted Junior Notes") on account of principal
of, premium, if any, or interest on, or any other obligations to the Holders in
respect of, the Notes; and
88
<PAGE>
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (excluding Permitted Junior
Notes), by set-off or otherwise, to which the Holders or the Trustee would be
entitled but for the provisions of this Article shall be paid by the liquidating
trustee or agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly
to the holders of Senior Indebtedness or their representative or representatives
or to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full in cash or Cash Equivalents of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of this
Section 10.02, the Trustee or the Holder of any Note shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, in respect of principal of, premium, if
any, or interest on or other obligations with respect to, the Notes before all
Senior Indebtedness is paid in full in cash or Cash Equivalents, then and in
such event such payment or distribution (excluding Permitted Junior Notes) shall
be paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other person making payment
or distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full in cash or Cash Equivalents or in any other manner, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company with
or into, another Person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another person upon the terms and conditions set
forth in Article 5 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Article if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article 5.
89
<PAGE>
SECTION 10.03. Suspension of Payment When Senior Indebtedness in
Default.
(a) Unless Section 10.02 shall be applicable, upon the occurrence of a
Payment Default, no payment or distribution of any assets of the Company of any
kind or character (excluding Permitted Junior Notes) shall be made by or on
behalf of the Company on account of principal of, premium, if any, or interest
on or other obligations to the holders of the Notes in respect of the Notes or
on account of the purchase, redemption or other acquisition of any Notes (other
than payments previously made pursuant to Article 8) unless and until such
Payment Default shall have been cured or waived or shall have ceased to exist or
such Senior Indebtedness as to which such Payment Default relates shall have
been discharged or paid in full in cash or Cash Equivalents, after which,
subject to Section 10.02 (if applicable), the Company shall resume making any
and all required payments in respect of the Notes, including any missed
payments.
(b) Unless Section 10.02 shall be applicable, upon the occurrence of a
Non-payment Default and upon the earlier to occur of (1) receipt by the Trustee
from a Senior Representative of written notice of such occurrence stating that
such notice is a Payment Blockage notice ("Payment Blockage Notice") pursuant to
Section 10.03(b) of this Indenture, or (2) if such Non-payment Default results
from acceleration of the Notes, the date of such acceleration, no direct or
indirect payment or distribution of any assets of the Company of any kind or
character (excluding Permitted Junior Notes and other than payments previously
made pursuant to Article 8) shall be made by or on behalf of the Company on
account of principal of, premium, if any, or interest on or other obligations
with respect to the Notes or on account of the purchase, redemption or other
acquisition of Notes for a period ("Payment Blockage Period") commencing upon
receipt by the Trustee of such notice or the date of acceleration referred to in
clause (2) above, as the case may be, unless and until the earliest to occur of
the following events: (w) 179 days shall have elapsed since receipt of such
written notice by the Trustee or the date of such acceleration (provided such
Designated Senior Indebtedness shall not theretofore have been accelerated), (x)
such Non-payment Default shall have been cured or waived or shall have ceased to
exist, (y) such Designated Senior Indebtedness shall have been discharged or
paid in full in cash or Cash Equivalents or (z) such Payment Blockage Period
shall have been terminated by written notice to the Company or the Trustee from
the Senior Representative initiating such Payment Blockage Period, after which,
in each case, the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments. Notwithstanding anything in
the foregoing to the contrary, a Payment Blockage Notice may only be given and
therefore shall only be effective in respect of the Company and the Trustee if
given by, (i) the Bank Agent as long as any Senior Indebtedness remains
outstanding under the Bank
90
<PAGE>
Credit Agreement and (ii) if no Senior Indebtedness remains outstanding under
the Bank Credit Agreement, any other representative of outstanding Designated
Senior Indebtedness. Only one Payment Blockage Period with respect to the Notes
may be commenced within any consecutive 365-day period. No Non-payment Default
with respect to Designated Senior Indebtedness which existed or was continuing
on the date of the commencement of any Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period,
whether or not within a period of 365 consecutive days, unless such default
shall have been cured or waived for a period of not less than 180 consecutive
days. In no event shall a Payment Blockage Period extend beyond 179 days from
the receipt by the Trustee of the notice referred to in clause (1) of this
Section 10.03(b) or the date of the acceleration referred to in clause (2) of
this Section 10.03(b) and there must be a 186 consecutive day period in any 365
consecutive day period during which no Payment Blockage Period is in effect.
(c) In the event that, notwithstanding the foregoing, the Trustee or the
Holder of any Note shall have received any payment prohibited by the foregoing
provisions of this Section 10.03, then and in such event such payment shall be
paid over and delivered forthwith to the Senior Representatives or as a court of
competent jurisdiction shall direct for application to the payment of any due
and unpaid Senior Indebtedness, to the extent necessary to pay all such due and
unpaid Senior Indebtedness in cash or Cash Equivalents, after giving effect to
any concurrent payment to or for the holders of Senior Indebtedness.
SECTION 10.04. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall, in good faith,
mistakenly pay over or deliver to Holders, the Company or any other person
moneys or assets to which any holder of Senior Indebtedness shall be entitled by
virtue of this Article 10 or otherwise (although such mistaken payment shall not
otherwise affect the subordination provisions of this Article 10).
91
<PAGE>
SECTION 10.05. Subrogation to Rights of Holders of Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness in cash or Cash
Equivalents, the Holders of the Notes shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on the Notes shall be paid in full.
For purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or securities to which the Holders of
the Notes or the Trustee would be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article 10 to
the holders of Senior Indebtedness by Holders of the Notes or the Trustee shall,
as among the Company, its creditors other than holders of Senior Indebtedness,
and the Holders of the Notes, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article 10 shall have been applied,
pursuant to the provisions of this Article 10, to the payment of all amounts
payable under the Senior Indebtedness of the Company, then and in such case the
Holders shall be entitled to receive from the holders of such Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of such Senior Indebtedness in excess of the amount sufficient to
pay all amounts payable under or in respect of such Senior Indebtedness in full
in cash or Cash Equivalents.
SECTION 10.06. Provisions Solely to Define Relative Rights.
The provisions of this Article 10 are and are intended solely for the
purpose of defining the relative rights of the Holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing contained
in this Article 10 or elsewhere in this Indenture or in the Notes is intended to
or shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Notes, the obligation of the Company,
which is absolute and unconditional, to pay to the Holders of the Notes the
principal of, premium, if any, and interest on the Notes as and when the same
shall become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Notes and creditors of
the Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Note from exercising all remedies otherwise
permitted by applicable law upon a Default or an Event of Default under this
Indenture, subject to the rights, if any, under this Article 10 of the holders
of Senior Indebtedness (1) in any case,
92
<PAGE>
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 10.02, to receive, pursuant to and in accordance
with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 10.03, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 10.03(c).
The failure to make a payment on account of principal of, premium, if
any, or interest on the Notes by reason of any provision of this Article 10
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
SECTION 10.07. Trustee to Effectuate Subordination.
Each Holder of a Note by such Holder's acceptance thereof authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 10 and appoints the Trustee his attorney-in-fact for any and all such
purposes, including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the Indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file such a claim prior to 30 days before the expiration of the time to
file such a claim, the holders of Senior Indebtedness, or any Senior
Representative, may file such a claim on behalf of Holders of the Notes.
SECTION 10.08. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of Section 10.08(a), the holders of
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Trustee or the Holders of the Notes, without incurring
responsibility to the Holders of the Notes and without impairing or releasing
the subordination provided in this Article 10 or the obligations hereunder of
the
93
<PAGE>
Holders of the Notes to the holders of Senior Indebtedness, do any one or
more of the following: (1) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any
person liable in any manner for the collection or payment of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Company and any other person; provided, however, that in no event shall any such
actions limit the right of the Holders of the Notes to take any action to
accelerate the maturity of the Notes pursuant to Article 6 hereof or to pursue
any rights or remedies hereunder or under applicable laws if the taking of such
action does not otherwise violate the terms of this Indenture.
SECTION 10.09. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes. Notwithstanding the provisions of this
Article 10 or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company or
a holder of Senior Indebtedness or from any trustee, fiduciary or agent
therefor; and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of this Section 10.09, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 10.09 at
least three Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose under this Indenture (including,
without limitation, the payment of the principal of, premium, if any, or
interest on any Note), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of the holders of
Senior Indebtedness or any trustee, fiduciary or agent thereof, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within three Business
Days prior to such date; nor shall the Trustee be charged with knowledge of the
curing of any such default or the elimination of the act or condition preventing
any such payment unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) Subject to the provisions of Section 7.01, the Trustee shall be
entitled to rely on the delivery to it of a written notice to the Trustee and
the
94
<PAGE>
Company by a person representing himself to be a holder of Senior Indebtedness
(or a trustee, fiduciary or agent therefor) to establish that such notice has
been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent
therefor). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 10, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article 10, and if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
SECTION 10.10. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee, subject to the provisions of Section 7.01, and the
Holders, shall be entitled to rely upon any order or decree entered by any court
of competent jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding-up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other person making such payment or distribution, delivered to the Trustee or to
the Holders, for the purpose of ascertaining the persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
SECTION 10.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 10 with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article 10 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.08.
SECTION 10.12. Article Applicable to Paying Agents.
95
<PAGE>
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 10 in addition to or in place of the Trustee; provided,
however, that Section 10.11 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 10.13. No Suspension of Remedies.
Nothing contained in this Article 10 shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article 10 of
the holders, from time to time, of Senior Indebtedness.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939.
This Indenture is subject to the provisions of the TIA that are required
to be a part of this Indenture, and shall, to the extent applicable, be governed
by such provisions.
If any provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
SECTION 11.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first class mail, postage prepaid,
addressed as follows:
If to the Company to:
Rose Hills Acquisition Corp.
96
<PAGE>
3888 Workman Mill Road
Whittier, CA 90601
Attention: Chief Executive Officer
With copies to:
The Blackstone Group
345 Park Avenue
New York, NY 10154
Attention: Howard A. Lipson
Loewen Group International, Inc.
50 River Center Blvd.
Covington, KY 41011
Attention: Randy Walters
97
<PAGE>
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Wilson S. Neely
If to the Trustee to:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Administration
The parties hereto by notice to the other parties may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, postage prepaid, to a Holder,
including any notice delivered in connection with TIA Section 310(b), TIA
Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed by
first class mail to such Holder at the address of such Holder as it appears on
the Notes register maintained by the Registrar and shall be sufficiently given
to such Holder if so mailed within the time prescribed. Copies of any such
communication or notice to a Holder shall also be mailed to the Trustee.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other Holders.
Except for a notice to the Trustee, which is deemed given only when received, if
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
obligors, the Trustee, the Registrar and any other person shall have the
protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, such obligor shall furnish to the Trustee:
98
<PAGE>
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(a) a statement that the person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statement or opinions contained in such certificate
or opinion are based;
(c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an opinion
as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Noteholders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 11.07. Governing Law.
The laws of the State of New York shall govern this Indenture and the
Notes without regard to principles of conflicts of law. The Trustee, the Company
and the Holders agree to submit to the jurisdiction of the courts of the State
of New York in any action or proceeding arising out of or relating to this
Indenture or the Notes.
99
<PAGE>
SECTION 11.08. No Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others.
A director, officer, employee, stockholder or Affiliate, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or this Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability.
SECTION 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 11.11. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all such executed copies together represent the
same agreement.
SECTION 11.12. Separability.
In case any provision in this Indenture or the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby, and a
Holder shall have no claim therefor against any party hereto.
SECTION 11.13. Table of Contents, Headings, Etc.
The Table of Contents and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
100
<PAGE>
SECTION 11.14. Benefits of Indenture.
Except as provided in Article 10, nothing in this Indenture or in the
Notes, express or implied, shall give to any person, other than the parties
hereto and their successors hereunder, and the Holders, any benefit or any legal
or equitable right, remedy or claim under this Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ROSE HILLS ACQUISITION CORP.
By: /s/ Chinh Chu
-------------------------------------
Name: Chinh Chu
Title: Director
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ Christine C. Collins
-------------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
101
<PAGE>
EXHIBIT A
THIS GLOBAL NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
GLOBAL NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS GLOBAL NOTE RESELL OR OTHERWISE
TRANSFER THIS GLOBAL NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS GLOBAL NOTE (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT UPON FURNISHING THE TRUSTEE A LETTER SIGNED BY THE TRANSFEROR
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF
THIS GLOBAL NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE),
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS GLOBAL NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS GLOBAL NOTE
WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
A-1
<PAGE>
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES
ACT.
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY GLOBAL NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 2.09 AND 2.11 OF THE
INDENTURE.
ROSE HILLS ACQUISITION CORP.
9 1/2% SENIOR SUBORDINATED NOTE DUE 2004
No. ______ $[ ]
CUSIP No. ________
Rose Hills Acquisition Corp. (to be renamed Rose Hills Company), a
corporation incorporated under the laws of the State of Delaware (herein called
the "Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to [ ], or
registered assigns, the principal sum of [ ] on November 15, 2004, at the office
or agency of the Company referred to below,
A-2
<PAGE>
and to pay interest thereon on May 15 and November 15, in each year, commencing
on May 15, 1997, accruing from the most recent Interest Payment Date to which
interest has been paid or duly provided for or, if no interest has been paid,
from the original date of issuance, at the rate of 9 1/2% per annum (subject to
adjustment as hereinafter provided), until the principal hereof is paid or duly
provided for. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Global Note (or one or
more Predecessor Notes) is registered at the close of business on the Regular
Record Date for such interest, which shall be May 1 or November 1 (whether or
not a Business Day), as the case may be, immediately preceding such Interest
Payment Date (each a "Regular Record Date"). Any such interest not so punctually
paid, or duly provided for, and interest on such defaulted interest at the rate
borne by the Global Note, to the extent lawful, shall forthwith cease to be
payable to the Holder on such Regular Record Date, and may be paid to the person
in whose name this Global Note (or one or more Predecessor Notes) is registered
at the close of business on a special record date for the payment of such
defaulted interest to be fixed by the Company in a manner satisfactory to the
Trustee, which date in any event shall be at least five Business Days prior to
the payment date and notice of which shall be given to the Holder of this Global
Note not less than 15 days prior to such special record date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which this Global Note may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in such
Indenture.
The Holder of this Global Note is entitled to the benefits of a Registration
Rights Agreement, dated as of November 15, 1996, between the Company and the
Initial Purchaser named therein (the "Registration Rights Agreement"). The
Registration Rights Agreement contains provisions permitting an increase in the
interest rate borne by this Global Note in the event of the failure to file or
to have declared effective an Exchange Offer Registration Statement or Shelf
Registration Statement (as such terms are defined in the Registration Rights
Agreement), or to consummate an Exchange Offer within prescribed time periods
specified in such Registration Rights Agreement.
Payment of the principal of, premium, if any, and interest on this Global
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal
A-3
<PAGE>
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
address of the person entitled thereto as such address shall appear on the Note
register maintained by the Registrar.
Reference is hereby made to the further provisions of this Global Note
set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, and a seal
has been affixed hereon, this Global Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by its duly authorized officer.
Dated: , 199 Rose Hills Acquisition Corp.
By: ___________________________
Name:
Title:
[SEAL]
Attest:
_____________________
Authorized Signature
A-5
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned Indenture.
United States Trust Company of New York,
as Trustee
By: _______________________________________
Authorized Signatory
A-6
<PAGE>
(Reverse of Global Note)
1. Indenture. This Global Note is one of a duly authorized issue of
Notes of the Company designated as its 9 1/2% Senior Subordinated Notes due
2004, limited (except as otherwise provided in the Indenture referred to below)
in aggregate principal amount to $80,000,000 (the "Notes"), which may be issued
under an indenture (herein called the "Indenture") dated as of November 15, 1996
between Rose Hills Acquisition Corp., a Delaware corporation, as issuer (the
"Company"), and United States Trust Company of New York, a New York corporation,
as trustee (herein called the "Trustee," which term includes any successor
Trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Trustee, and the Holder of the Global Note and of the terms upon
which this Global Note is, and is to be, authenticated and delivered.
All capitalized terms used in this Global Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
No reference herein to the Indenture and no provisions of this Global
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Global Note at the times, place and rate, and in the coin
or currency, herein prescribed.
2. Subordination. The Indebtedness evidenced by this Global Note is,
to the extent and in the manner provided in the Indenture, subordinate and
subject in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness (including in the case of Designated
Senior Indebtedness, any interest accruing subsequent to the filing of a
petition for bankruptcy of the Company at the rate provided for in the
documentation governing such Designated Senior Indebtedness of the Company,
whether or not such interest is an allowed claim under applicable law) as
defined in the Indenture, and this Global Note is issued subject to such
provisions. The Holder of this Global Note, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and directs the Trustee,
on behalf of such Holder, to take such action as may be necessary or appropriate
to effectuate the subordination as provided in the Indenture and (c) appoints
the Trustee attorney-in-fact of such Holder for such purpose; provided, however,
that the Indebtedness evidenced by this Global Note shall cease to be so
subordinate and subject in right of payment upon any defeasance of this Global
Note referred to in Paragraph 6 below.
A-7
<PAGE>
3. Redemption.
(a) Optional Redemption. This Global Note will be redeemable at the
option of the Company, in whole or in part, in principal amounts of $1,000 or
any integral multiple of $1,000, at any time on or after November 15, 2000, on
not less than 30 nor more than 60 days' prior notice at the Redemption Prices
(expressed as percentages of the principal amount) set forth below, plus accrued
and unpaid interest, if any, to the Redemption Date, if redeemed during the
12-month period beginning on or after November 15 of the years indicated below:
Redemption
Year Price
---- -----------
2000. . . . . . . . . . . . . . . . . 104.750%
2001. . . . . . . . . . . . . . . . . 103.167%
2002. . . . . . . . . . . . . . . . . 101.583%
2003 and thereafter. . . . . . . . . 100.000%
(b) Special Redemption. The Notes may be redeemed at the option of the
Company, in whole but not in part, at any time prior to February 28, 1997 at
101% of the principal amount thereof, plus accrued interest to the date of
redemption, if, in the sole judgment of the Company, the Acquisition Transaction
will not be consummated by February 21, 1997. In addition, such special
redemption shall mandatorily occur on February 28, 1997 if the Acquisition
Transaction has not been consummated by February 21, 1997.
(c) Interest Payments. In the case of any redemption of this Note,
interest installments whose Stated Maturity is on or prior to the Redemption
Date will be payable to the Holder of this Global Note, or one or more
Predecessor Notes, of record at the close of business on the relevant Record
Date referred to on the face hereof. This Global Note (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
(d) Partial Redemption. In the event of redemption of this Note in
part only, a new Note or Notes for the unredeemed portion hereof shall be
issued in the name of the Holder hereof upon the cancellation hereof.
4. Offers to Purchase. Sections 4.12 and 4.13 of the Indenture provide
that upon the occurrence of a Change of Control and following certain Asset
Sales, and subject to further limitations contained therein, the Company shall
make an offer to purchase certain amounts of this Global Note in accordance with
the procedures set forth in the Indenture.
A-8
<PAGE>
5. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of all of the outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared or may become due and payable in the manner and with the effect
provided in the Indenture.
6. Defeasance. The Indenture contains provisions (which provisions
apply to this Global Note) for defeasance at any time of (a) the entire
indebtedness of the Company under this Global Note and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance by the Company with certain conditions set forth therein.
7. Amendments and Waivers. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past Defaults under the Indenture and this Global Note and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Global Note
shall be conclusive and binding upon such Holder and upon all future Holders of
this Global Note and of any Global Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Global Note.
8. Denominations, Transfer and Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Global Note is registrable on the Note
register of the Company, upon surrender of this Global Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York or at such other office or
agency of the Company as may be maintained for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
A-9
<PAGE>
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
9. Persons Deemed Owners. Prior to and at the time of due presentment
of this Global Note for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the person in whose name this
Global Note is registered as the owner hereof for all purposes, whether or not
this Global Note shall be overdue, and neither the Company, the Trustee nor any
agent shall be affected by notice to the contrary.
10. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of law principles.
A-10
<PAGE>
Schedule A
Exchange of (a) portions of this Global Note for
Physical Notes or (b) Physical Notes
for an interest in this Global Note.
Principal Amount of
Physical Notes
Issued in Exchange
for, or Exchanged for Remaining Principal
an Interest in, the Amount of Notation
Date Global Note this Global Note Made By
- ---- --------------------- -------------------- --------
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
____________ _________________ _______________ _______
A-11
<PAGE>
EXHIBIT B
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER
IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT UPON FURNISHING THE TRUSTEE A LETTER
SIGNED BY THE TRANSFEROR CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE
WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
B-1
<PAGE>
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT.
ROSE HILLS ACQUISITION CORP.
[ ]% SENIOR SUBORDINATED NOTE DUE 2004
No. ______
$[ ]
CUSIP No. ________
Rose Hills Acquisition Corp. (to be renamed Rose Hills Company), a
corporation incorporated under the laws of the State of Delaware (herein called
the "Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to [ ], or
its registered assigns the principal sum of [ ] on November 15, 2004, at the
office or agency of the Company referred to below, and to pay interest thereon
on May 15 and November 15, in each year, commencing on May 15, 1997, accruing
from the most recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid, from the original date of
issuance, at the rate of 9 1/2% per annum (subject to adjustment as hereinafter
provided), until the principal hereof is paid or duly provided for. Interest
shall be computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be May 1 or November 1 (whether or not a
Business Day), as the case may be, immediately preceding such Interest Payment
Date (each a "Regular Record Date"). Any such interest not so punctually paid,
or duly provided for, and interest on such defaulted interest at the rate borne
by the Note, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may be paid to the person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a special
B-2
<PAGE>
record date for the payment of such defaulted interest to be fixed by the
Company in a manner satisfactory to the Trustee, which date in any event shall
be at least five Business Days prior to the payment date and notice of which
shall be given to the Holders of the Notes not less than 15 days prior to such
special record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which this Note
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in such Indenture.
The Holder of this Note is entitled to the benefits of a Registration
Rights Agreement, dated as of November 15, 1996, between the Company and the
Initial Purchaser named therein (the "Registration Rights Agreement"). The
Registration Rights Agreement contains provisions permitting an increase in the
interest rate borne by this Note in the event of the failure to file or to have
declared effective an Exchange Offer Registration Statement or Shelf
Registration Statement (as such terms are defined in the Registration Rights
Agreement), or to consummate an Exchange Offer within prescribed time periods
specified in such Registration Rights Agreement.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the person entitled thereto as such address shall appear on the
Note register maintained by the Registrar.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, and a seal
has been affixed hereon, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
B-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by its duly authorized officer.
Dated: , 199 Rose Hills Acquisition Corp.
By: ________________________________
Name:
Title:
[SEAL]
Attest:
_______________________
Authorized Signature
B-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned Indenture.
United States Trust Company of New York,
as Trustee
By: ______________________________________
Authorized Signatory
B-5
<PAGE>
(Reverse of Note)
1. Indenture. This Note is one of a duly authorized issue of Notes of
the Company designated as its 9 1/2% Senior Subordinated Notes due 2004, limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to $80,000,000 (the "Notes"), which may be issued under an
indenture (herein called the "Indenture") dated as of November 15, 1996 between
Rose Hills Acquisition Corp., a Delaware corporation, as issuer (the "Company"),
and United States Trust Company of New York, a New York corporation, as trustee
(herein called the "Trustee," which term includes any successor Trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee, and the Holders of the Notes and of the terms upon which the Notes are,
and are to be, authenticated and delivered.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.
2. Subordination. The Indebtedness evidenced by this Note is, to the
extent and in the manner provided in the Indenture, subordinate and subject in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness (including in the case of Designated Senior Indebtedness,
any interest accruing subsequent to the filing of a petition for bankruptcy of
the Company at the rate provided for in the documentation governing such
Designated Senior Indebtedness of the Company, whether or not such interest is
an allowed claim under applicable law) as defined in the Indenture, and this
Note is issued subject to such provisions. The Holder of this Note, by accepting
the same, (a) agrees to and shall be bound by such provisions, (b) authorizes
and directs the Trustee, on behalf of such Holder, to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such
purpose; provided, however, that the Indebtedness evidenced by this Note shall
cease to be so subordinate and subject in right of payment upon any defeasance
of the Notes referred to in Paragraph 6 below.
B-6
<PAGE>
3. Redemption.
(a) Optional Redemption. The Notes will be redeemable at the option of
the Company, in whole or in part, in principal amounts of $1,000 or any integral
multiple of $1,000, at any time on or after 2000, on not less than 30 nor more
than 60 days' prior notice at the Redemption Prices (expressed as percentages of
the principal amount) set forth below, plus accrued and unpaid interest, if any,
to the Redemption Date, if redeemed during the 12-month period beginning on or
after November 15 of the years indicated below:
Redemption
Year Price
---- -----------
2000. . . . . . . . . . . . . . . . . 104.750%
2001. . . . . . . . . . . . . . . . . 103.167%
2002. . . . . . . . . . . . . . . . . 101.583%
2003 and thereafter . . . . . . . . . 100.000%
(b) Special Redemption. The Notes may be redeemed at the option of the
Company, in whole but not in part, at any time prior to February 28, 1997 at
101% of the principal amount thereof, plus accrued interest to the date of
redemption, if, in the sole judgment of the Company, the Acquisition Transaction
will not be consummated by February 21, 1997. In addition, such special
redemption shall mandatorily occur on February 28, 1997 if the Acquisition
Transaction has not been consummated by February 21, 1997.
(c) Interest Payments. In the case of any redemption of this Note,
interest installments whose Stated Maturity is on or prior to the Redemption
Date will be payable to the Holder of this Note, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Date referred
to on the face hereof. This Note (or portions thereof) for whose redemption and
payment provision is made in accordance with the Indenture shall cease to bear
interest from and after the Redemption Date.
(d) Partial Redemption. In the event of redemption of this Note in
part only, a new Note or Notes for the unredeemed portion hereof shall be issued
in the name of the Holder hereof upon the cancellation hereof.
4. Offers to Purchase. Sections 4.12 and 4.13 of the Indenture provide
that upon the occurrence of a Change of Control and following certain Asset
Sales, and subject to further limitations contained therein, the Company shall
make an offer to purchase certain amounts of Notes in accordance with the
procedures set forth in the Indenture.
B-7
<PAGE>
5. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of all of the outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared or may become due and payable in the manner and with the effect
provided in the Indenture.
6. Defeasance. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company under this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
7. Amendments and Waivers. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past Defaults under the Indenture and this Note and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Note shall be conclusive
and binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
8. Denominations, Transfer and Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable on the Note register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York or at such other office or agency of the Company as may
be maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar
duly executed by, the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Notes, of authorized denominations and for the
same
B-8
<PAGE>
aggregate principal amount, will be issued to the designated transferee or
transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
9. Persons Deemed Owners. Prior to and at the time of due presentment
of this Note for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the person in whose name this Note
is registered as the owner hereof for all purposes, whether or not this Note
shall be overdue, and neither the Company, the Trustee nor any agent shall be
affected by notice to the contrary.
10. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of law principles.
B-9
<PAGE>
EXHIBIT C
[To be inserted at end of Exhibits A and B]
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.12 or 4.13 of the Indenture, check the appropriate box:
Section 4.12 / /
Section 4.13 / /
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.12 or 4.13 of the Indenture, state the amount:
$______
Date:__________ Your Signature: ______________________
(Sign exactly as your name
appears on the other
side of this Note)
Signature Guarantee: ___________________
C-1
<PAGE>
[To be inserted at end of Exhibits A and B]
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________
_________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
___________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
____________________________________________________________________________
attorney to transfer said Note on the books of the Issuer with full power of
substitution in the premises.
[To be inserted at end of Exhibits A and B for Initial Notes only]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of an effective registration or (ii) three
years after the later of the original issuance of this Note or the last date on
which this Note was held by an Affiliate of the Issuer, the undersigned confirms
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
C-2
<PAGE>
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.06 of the Indenture shall have
been satisfied.
Dated: _____________________ ___________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional Buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ______________________ ____________________________________
NOTICE: To be executed by an
executive officer
C-3
<PAGE>
(212) 455-2000
January 31, 1997
Rose Hills Company
3888 South Workman Mill Road
Whittier, California 90601
Ladies and Gentlemen:
We have acted as special counsel for Rose Hills Company (formerly
known as Rose Hills Acquisition Corp.), a Delaware corporation (the "Company"),
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the issuance by the Company of $80,000,000 aggregate
principal amount of its 9 1/2% Senior Subordinated Notes due 2004 (the "Exchange
Notes"), which are to be offered by the Company in exchange for $80,000,000
aggregate principal amount of its outstanding 9 1/2% Senior Subordinated Notes
due 2004 (the "Notes").
We have examined the Registration Statement and the Indenture
dated as of November 15, 1996 (the "Indenture") between the Company and United
States Trust Company of New York, as Trustee (the "Trustee"), which has been
filed with the Commission as an Exhibit to the Registration Statement. In
addition, we have examined, and have relied as to matters of fact upon, the
originals or copies, certified or otherwise
<PAGE>
Rose Hills Company -2- January 31, 1997
identified to our satisfaction, of such corporate records, agreements, documents
and other instruments and such certificates or comparable documents of public
officials and of officers and representatives of the Company, and have made such
other and further investigations, as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.
We have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to us
as originals and the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we hereby advise you that the statements made in the
Registration Statement under the caption "Federal Income Tax Consequences,"
insofar as they purport to constitute summaries of matters of United States
federal income tax law and regulations or legal conclusions with respect
thereto, constitute accurate summaries of the matters described therein in all
material respects.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the federal law of the
United States.
<PAGE>
Rose Hills Company -3- January 31, 1997
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Federal Income Tax Consequences" in the Prospectus included therein.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
<PAGE>
January 31, 1997
Rose Hills Company
3888 South Workman Mill Road
Whittier, California 90601
Ladies and Gentlemen:
We have acted as special counsel for Rose Hills Company (formerly
known as Rose Hills Acquisition Corp.), a Delaware corporation (the "Company"),
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the issuance by the Company of $80,000,000 aggregate
principal amount of its 9 1/2% Senior Subordinated Notes due 2004 (the "Exchange
Notes"), which are to be offered by the Company in exchange for $80,000,000
aggregate principal amount of its outstanding 9 1/2% Senior Subordinated Notes
due 2004 (the "Notes").
We have examined the Registration Statement and the Indenture
dated as of November 15, 1996 (the "Indenture") between the Company and United
States Trust Company of New York, as Trustee (the "Trustee"), which has been
filed with the Commission as an Exhibit to the Registration Statement. In
addition, we have examined,
<PAGE>
Rose Hills Company -2- January 31, 1997
and have relied as to matters of fact upon, the originals or copies, certified
or otherwise identified to our satisfaction, of such corporate records,
agreements, documents and other instruments and such certificates or comparable
documents of public officials and of officers and representatives of the
Company, and have made such other and further investigations, as we have deemed
relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed that the Indenture has been
duly authorized, executed and delivered by the Trustee. In addition, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, and the authenticity of the originals of such latter
documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we hereby advise you that in our opinion the Exchange
Notes, when executed and authenticated in accordance with the provisions of the
Indenture and delivered in exchange for the Notes as contemplated in the
Registration Statement and the Indenture, will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms.
Our opinion set forth above is subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
<PAGE>
Rose Hills Company -3- January 31, 1997
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York and the federal law of the United States. This opinion is rendered to
you solely in connection with the above-described transaction and may not be
relied upon for any other purpose without our prior written consent.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
SIMPSON THACHER & BARTLETT
<PAGE>
STOCKHOLDERS' AGREEMENT
Among
ROSE HILLS HOLDINGS CORP.,
BLACKSTONE CAPITAL PARTNERS II MERCHANT BANKING FUND L.P.,
BLACKSTONE ROSE HILLS OFFSHORE CAPITAL PARTNERS L.P.,
BLACKSTONE FAMILY INVESTMENT PARTNERSHIP II L.P.,
ROSES DELAWARE, INC.,
LOEWEN GROUP INTERNATIONAL, INC.
And
RHI MANAGEMENT DIRECT L.P.
--------------------------------
Dated as of November 19, 1996
--------------------------------
-----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS............................... 2
Section 1.1 Certain Defined Terms.................................. 2
ARTICLE II
SUBSCRIPTION; FINANCINGS; ....................... 3
Section 2.1 Subscriptions for Common Stock and Preferred Stock..... 3
Section 2.2 Debt Financing.
(a) High Yield Financing......................... 3
(b) Bank Financing............................... 4
Section 2.3 RHAC................................................... 4
Section 2.4 Payment of Expenses.................................... 4
ARTICLE III
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK............... 4
Section 3.1 BCP, RHIM.............................................. 4
Section 3.2 Loewen................................................. 4
Section 3.3 Transfers Void; Conditions to Permitted Transfers...... 4
Section 3.4 Put and Call Options................................... 5
Section 3.5 Redemption of Preferred Stock.......................... 5
Section 3.6 Additional Issuance of Capital Stock................... 5
ARTICLE IV
GOVERNANCE................................ 5
Section 4.1 Election of the Board of Directors..................... 5
Section 4.2 RHAC Board of Directors................................ 6
Section 4.3 Declaration and Payment of Dividends................... 6
ARTICLE V
OTHER ARRANGEMENTS........................... 6
Section 5.1 Transaction Fees....................................... 6
Section 5.3 Other Expenses......................................... 6
Section 5.4 Additional Equity...................................... 7
Section 5.5 Contribution of Nearby Properties...................... 8
Section 5.6 Capital Stock of Subsidiaries.......................... 9
-1-
<PAGE>
Page
ARTICLE VI
MISCELLANEOUS.............................. 9
Section 6.1 Legend................................................. 9
Section 6.2 Notices................................................ 10
Section 6.3 Severability........................................... 11
Section 6.4 Entire Agreement....................................... 11
Section 6.5 Amendment and Waiver................................... 11
Section 6.6 Consent to Specific Performance........................ 11
Section 6.7 Assignment............................................. 11
Section 6.8 Variations in Pronouns................................. 12
Section 6.9 Term................................................... 12
Section 6.10 Governing Law......................................... 12
Section 6.11 Further Assurances.................................... 12
Section 6.12 Headings.............................................. 12
Section 6.13 Counterparts.......................................... 12
Schedule 1 - Funds Flow Memorandum
Exhibit A - Subscription Agreement
Exhibit B - Nearby Property Contribution Agreement
-2-
<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of November 19, 1996 (this
"Agreement"), among Rose Hills Holdings Corp., a Delaware corporation formerly
known as Tudor Holding Company ("Holdings"); Blackstone Capital Partners II
Merchant Banking Fund L.P., a Delaware limited partnership ("BCPII"); Blackstone
Rose Hills Offshore Capital Partners L.P., a Delaware limited partnership
("BROCP"); Blackstone Family Investment Partnership II L.P., a Delaware limited
partnership ("BFIP" and, together with BCPII, BROCP and each of their respective
permitted assigns and transferees as provided herein, "BCP"); Roses Delaware,
Inc., a Delaware corporation ("RDI"), Loewen Group International, Inc., a
Delaware corporation ("LGII"), The Loewen Group Inc., a British Columbia
corporation (together with its successors, "LWN"; and together with LGII, RDI,
any Contributor (as defined below) and each of their respective permitted
assigns and transferees as provided herein, "Loewen") and RHI Management Direct
L.P., a Delaware limited partnership ("RHIM"). BCP, Loewen and RHIM are herein
collectively referred to as the "Stockholders" and individually as a
"Stockholder."
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of September 19, 1996 as amended by the amendment thereto dated November 19,
1996 (the "Merger Agreement"), among Roses, Inc., the stockholders of Roses,
Inc., Tudor Acquisition Corp. (which was previously renamed Rose Hills
Acquisition Corp. and which has been renamed Rose Hills Company), a wholly owned
subsidiary of Holdings ("RHAC"), and RH Mortuary Corporation, a Delaware
corporation and a wholly-owned subsidiary of RHAC ("Mortuary"), Mortuary is
merging with and into Roses, Inc.;
WHEREAS, pursuant to an Asset Purchase Agreement, dated
September 19, 1996 (the "Asset Purchase Agreement" and, together with the Merger
Agreement, the "Rose Hills Agreements"), between Rose Hills Memorial Park
Association (the "Association") and RHAC, Rose Hills, Inc., a Delaware
corporation and a wholly owned subsidiary of RHAC, as assignee of RHAC's right
and obligations under the Asset Purchase Agreement, is purchasing certain assets
and assuming certain liabilities of the Association;
WHEREAS, at the Closing the Stockholders will subscribe for
newly issued shares of capital stock of Holdings, such that upon the
consummation of such subscription the Stockholders will hold all of the then
issued and outstanding shares of capital stock of Holdings;
WHEREAS, the parties hereto desire to enter into this
Agreement for the purpose of setting forth certain agreements regarding future
relationships among them;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions as hereinafter set forth, the parties hereto do hereby agree as
follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. Capitalized terms used
herein and not otherwise defined herein shall have the following meanings:
"Affiliate" of any Person means any other Person that directly
or indirectly controls, is controlled by, or is under common control with, such
Person, and "Affiliation" shall have a correlative meaning.
"ASA" means the Administrative Services Agreement dated as of
November 19, 1996 among RHAC, LWN and LGII.
"Board of Directors" means the Board of Directors of Holdings.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to close.
"Closing" means the consummation of the transactions described
in Article II hereof.
"Closing Date" means the date on which the Closing pursuant to
the Rose Hills Agreements occurs.
"Common Stock" means the common stock, par value $.01 per
share, of Holdings, including shares of non-voting Common Stock.
"Contribution Price" means, with respect to a Nearby Property
or Nearby Properties conveyed to Holdings pursuant to a Nearby Property
Contribution Agreement, the relevant Acquisition Creation Price calculated with
respect thereto pursuant to the Put/Call Agreement.
"Contributor" means LWN or any of its Affiliates that is
designated as the Contributor under a Nearby Property Contribution Agreement and
which acquires shares of Non-Voting Common Stock or Preferred Stock in
accordance with the terms thereof.
"Nearby Property Contribution Agreement" means an agreement in
the form of Exhibit B hereto with respect to the transfer of a Nearby Property
or Nearby Properties as to which the option set forth in Section 5.5 hereof has
been effectively exercised.
"Nearby Property" means any funeral home or cemetery that is
located within a 20 mile radius of any funeral home or cemetery then owned,
operated or controlled by RHAC.
"Non-Voting-Common Stock" means the non-voting common stock,
par value $0.01 per share, of Holdings issued pursuant to Section 5.5 hereof in
connection with the
<PAGE>
3
acquisition of a funeral home or cemetery pursuant to a Nearby Property
Contribution Agreement. Such stock shall be identical in all respects to the
regular Common Stock of Holdings except that it shall have no voting rights.
"Offering Memorandum" means the offering memorandum dated
November 14, 1996 relating to the offering of RHAC's 9 1/2% Senior Subordinated
Notes due 2004.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or other entity or a country or
government or any agency or political subdivision or instrumentality thereof or
of such subdivision.
"Put/Call Agreement" means the Put/Call Agreement dated as of
November 19, 1996 among LWN and the Stockholders.
"Preferred Stock" means the 10% Paid-in-Kind Cumulative
Preferred Stock, par value $.01 per share, of Holdings.
"Securities Act" means the Securities Act of 1933, as amended.
"Transaction" means the transactions, contemplated by the Rose
Hills Agreements together with the other transactions described in Article II
hereof.
"Transfer" means to directly or indirectly sell, give,
transfer, assign, pledge, hypothecate or otherwise dispose of, or to contract or
agree to do any of the foregoing.
ARTICLE II
SUBSCRIPTION; FINANCINGS; ACQUISITIONS
Section 2.1 Subscriptions for Common Stock and Preferred
Stock. At the Closing, the Stockholders named therein will enter into a
subscription agreement substantially in the form of Exhibit A (the "Subscription
Agreement"), pursuant to which such parties will subscribe for newly issued
shares of capital stock of Holdings, such that such Stockholders will hold all
of the then issued and outstanding shares of capital stock of Holdings.
Section 2.2 Debt Financing.
(a) High Yield Financing. Prior to the Closing Date, RHAC
issued $80 million aggregate principal amount of its 9 1/2% Senior Subordinated
Notes Due 2004 (the "Notes"), the proceeds of which (after deducting the initial
purchaser's discount) are being made available to RHAC on the Closing Date.
(b) Bank Financing. On the Closing Date, RHAC will obtain a
term loan in a principal amount of $75 million (the "Term Loan"), pursuant to an
agreement among RHAC and a syndicate of financial institutions, which agreement
shall also provide for a $25 million revolving credit facility to be made
available to RHAC.
<PAGE>
4
Section 2.3 RHAC. At the Closing, Holdings shall contribute
the proceeds from the subscription of shares to RHAC and will cause RHAC to make
appropriate contributions of capital and intercompany loans to its subsidiaries
in order for those subsidiaries to pay the amounts called for in the Rose Hills
Agreements.
Section 2.4 Payment of Expenses. Holdings shall cause RHAC to
use the aggregate net proceeds of the high yield financing described in
subsection 2.2(a) hereof and the Term Loan held by it to (i) discharge the
liabilities described on Schedule 1 attached hereto and (ii) for general
corporate purposes including, but not limited to, payment in accordance with
Sections 5.1, 5.2 and 5.3 hereof of the fees and expenses described therein.
ARTICLE III
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
Section 3.1 BCP, RHIM. Each of BCPII, BROCP and BFIP may,
subject to the last sentence of Section 3.3 hereof, Transfer all or part of its
shares of Common Stock to any of such Person's Affiliates, but may not Transfer
such shares to any other Person without the prior written consent of Loewen,
provided, that if Loewen fails to comply with its obligations under Section 4.1
or Article VIII of the Put/Call Agreement (as defined below) or has otherwise
breached the Put/Call Agreement such restriction shall lapse. Without the
consent of BCP and LGII, RHIM may not transfer shares of Common Stock to any
other Person.
Section 3.2 Loewen. Loewen may, subject to the last sentence
of Section 3.3 hereof, Transfer its shares of Common Stock or Preferred Stock to
any Affiliate of Loewen, but may not Transfer such shares to any other Person
without the prior written consent of BCP, provided, that Loewen may and shall
effect the Transfer of such shares if so directed by BCP in accordance with
Section 7.4 of the Put/Call Agreement.
Section 3.3 Transfers Void; Conditions to Permitted Transfers.
Each Stockholder agrees that it will not Transfer any Common Stock or Preferred
Stock that such Stockholder now owns or hereafter acquires without complying
with the terms and conditions of this Agreement. Any Transfer of Common Stock or
Preferred Stock in violation of this Agreement shall be void ab initio. No
Stockholder may do indirectly, through a sale of its capital stock or otherwise,
that which is not permitted by this Section 3. No shares of Common Stock or
Preferred Stock may be Transferred or issued to any Person unless such Person,
prior to or concurrently with such Transfer or issuance, undertakes by a written
supplemental agreement to be bound by the terms of this Agreement and the
Put/Call Agreement to the same extent and in the same manner as the other
Stockholders.
Section 3.4 Put and Call Options. Notwithstanding the
foregoing provisions of this Article III, pursuant to a separate put and call
agreement entered into concurrently herewith (the "Put/Call Agreement"), Loewen
shall have an option to purchase the shares of Common Stock held by BCP and
RHIM, and BCP and RHIM shall have an option to require Loewen to purchase the
shares of Common Stock held by BCP and RHIM, subject, in each
<PAGE>
5
case, to the provisions of the Put/Call Agreement. Transfers of Common Stock in
accordance with the exercise of the Options described in the Put/Call Agreement
shall be permitted notwithstanding anything to the contrary in Sections 3.1, 3.2
or 3.3 hereof.
Section 3.5 Redemption of Preferred Stock. Notwithstanding the
provisions of paragraphs 5 and 6 of Article Fifth of the restated Certificate of
Incorporation of Holdings, there shall be no redemption of Preferred Stock held
by Loewen or its Affiliates without the consent of Loewen and BCP.
Section 3.6 Additional Issuance of Capital Stock. Except as
provided in Section 5.4 and 5.5 hereof, subsequent to the Closing Date, Holdings
will not issue additional shares of Common Stock or Preferred Stock without the
consent of BCP and Loewen, and any Contributor to which such shares are issued
shall, as a condition to such issuance, execute and deliver to the parties
hereto a counterpart of the Agreement.
ARTICLE IV
GOVERNANCE
Section 4.1 Election of the Board of Directors. (a) Except as
provided below, each Stockholder shall vote all of the shares of voting Common
Stock owned or held of record by it so as to elect and continue in office a
Board of Directors comprised of eight directors, five of whom BCPII shall have
the right to designate (the "BCP Directors") and three of whom LGII shall have
the right to designate (the "LGII Directors").
(b) If at any time that this Agreement is in effect BCP or
LGII shall notify the other of its desire to remove, with or without cause, any
director of Holdings previously designated by it, each Stockholder shall vote
all of the shares of voting Common Stock owned or held of record by it so as to
remove such director.
(c) If at any time that this Agreement is in effect any
director previously designated by BCP or LGII ceases to serve on the Board of
Directors (whether by reason of death, resignation, removal or otherwise), the
Stockholder who designated such director shall be entitled to designate a
successor director to fill the vacancy created thereby. Each Stockholder agrees
that it will vote all of the shares of voting Common Stock owned or held of
record by it so as to elect such director.
(d) The provisions of this Section 4.1 shall terminate upon a
sale of Common Stock pursuant to Section 7.4 of the Put/Call Agreement.
Section 4.2 RHAC Board of Directors. Each party to this
Agreement agrees that Holdings shall cause the board of directors of RHAC to at
all times consist of the same individuals who comprise the Board of Directors of
Holdings.
Section 4.3 Declaration and Payment of Dividends. The parties
hereto agree to cause the Board of Directors to declare on a quarterly basis,
subject to their fiduciary
<PAGE>
6
duties and the provisions of the General Corporation Law of the State of
Delaware (the "GCL"), and Holdings to pay on a quarterly basis, subject to the
provisions of the GCL, dividends on the Preferred Stock in accordance with
Holdings' Certificate of Incorporation.
Section 4.4 Certain Business Practices. Holdings shall not,
and shall cause each of its direct and indirect subsidiaries not to, make any
(i) significant changes in its current preneed cemetery or preneed funeral sales
policies or practices or its trusting, insurance or sales commission practices
other than as set forth in the Confidential Information Memorandum, dated
October 1996, prepared by Goldman Sachs or (ii) sale or related series of sales
of cemetery lots or grave sites (collectively, "Sites") in excess of $250,000 or
100 Sites to any one person or group of related persons without, in each case,
the approval of RHAC's Board of Directors.
ARTICLE V
OTHER ARRANGEMENTS
Section 5.1 Transaction Fees. If the Transaction is
consummated, Holdings shall pay on the Closing Date (a) a fee equal to 1% of the
Creation Price (as defined in the Put/Call Agreement) to Blackstone Management
Partners L.P. ("Blackstone") and (b) a consulting fee equal to $1,500,000 and a
reimbursement of expenses in the amount of $1,000,000 to Loewen. Holdings shall
pay Blackstone $2,964,800 at Closing and shall pay the remainder of such fee to
Blackstone after the final calculation of such Creation Price.
Section 5.2 Monitoring Fees. The Stockholders shall each vote
their shares of Voting Common Stock and take such other action as may be
reasonably necessary so as to cause an annual monitoring fee in the amount of
$250,000 to be paid by Holdings or one of its subsidiaries, annually in advance,
to Blackstone Management Partners L.P. from the Closing Date through the date on
which the option of either of BCP or Loewen is exercised pursuant to the
Put/Call Agreement. Holdings shall reimburse BCP for all of its expenses
incurred in monitoring.
Section 5.3 Other Expenses. (a) If the Transaction is
consummated, Holdings shall reimburse (i) BCP for (or otherwise pay on behalf of
BCP) all out-of-pocket expenses (including amounts paid by BCP to its
professional advisors) incurred in connection with the Transaction and (ii)
Loewen for amounts payable to Loewen's professional advisors in connection with
the Transaction and paid by Loewen.
(b) Loewen shall reimburse Holdings for any withholding taxes
incurred by Holdings in respect of, or related to, the dividends payable on the
Preferred Stock at the time such liabilities are incurred.
Section 5.4 Additional Equity. (a) Following the Closing Date,
if an additional equity contribution to Holdings is necessary to either cure or
prevent an event of default under or breach of any financial covenant contained
in the credit agreement relating to RHAC's Term Loan or the Notes, BCP shall
have the right to contribute 100% of such
<PAGE>
7
additional equity. If BCP elects to make such a contribution, it shall give
Loewen written notice (the "BCP Additional Equity Notice") to such effect and
Loewen shall have the right, exercisable by written notice to BCP within five
Business Days from receipt of the BCP Additional Equity Notice, to replace
(prior to BCP's making such contribution) a portion of BCP's contribution with a
contribution by Loewen up to an amount equal to the ratio (before such
contributions) of the Loewen Contribution to the BCP Contribution (each as
defined in the Put/Call Agreement). If BCP elects not to make such a
contribution, it shall give Loewen written notice to such effect and Loewen
shall have the right to contribute 100% of such additional equity. If Loewen
elects to make such 100% contribution, it shall give BCP written notice (the
"Loewen Additional Equity Notice") to such effect and BCP shall have the right,
exercisable by written notice to Loewen within five Business Days from receipt
of the Loewen Additional Equity Notice, to replace (prior to Loewen's making
such contribution) a portion of Loewen's contribution with a contribution by BCP
up to an amount equal to the ratio (before such contributions) of the BCP
Contribution to the Loewen Contribution. Such capital contributions will involve
the purchase of additional shares of Common Stock or Preferred Stock, as the
case may be, and the purchase price shall be the same price per share paid by
BCP and Loewen on the Closing Date.
(b) Following the Closing Date, if additional equity is
required (the determination that such additional equity is required to be made
by the Board of Directors) to make acquisitions of new properties which
acquisitions have been approved by the Board of Directors, Loewen will have the
right to contribute 100% of such additional equity which shall be, at the option
of Loewen, in the form of Common Stock or Preferred Stock and the purchase price
shall be the same price per share paid by Loewen on the Closing Date.
(c) In the event an additional equity contribution is required
to be made pursuant to subparagraph (a) or (b) of this Section 5.4, the
Stockholders hereby agree to vote the shares of voting Common Stock held by each
of them to authorize the filing of an amendment to Holdings' Certificate of
Incorporation and to take all such other actions required in order to authorize
and consummate the issuance of the relevant number of additional shares of
capital stock of Holdings in connection with such additional equity
contribution.
(d) Each party electing to make an additional equity
contribution pursuant to subparagraph (a) of this Section 5.4, whether
individually or on a pro rata basis, shall contribute such additional equity to
Holdings no later than ten Business Days from the date the BCP Additional Equity
Notice or the Loewen Additional Equity Notice, as the case may be, was given
and, in any event, simultaneously with the making of the contribution by the
other party electing to make such contribution (the "Additional Equity Closing
Date").
(e) As of each Additional Equity Closing Date, Holdings hereby
reaffirms to BCP and/or Loewen, as the case may be, that the representations and
warranties contained in Article II of the Subscription Agreement are true and
correct on such Additional Equity Closing Date in all material respects as if
made on and as of such Additional Equity Closing Date.
<PAGE>
8
Section 5.5 Contribution of Nearby Properties. (a) In the
event that prior to the Exit Relevant Period Loewen acquires, operates or
controls, directly or through a wholly owned subsidiary, or otherwise becomes an
Affiliate of, any Person that owns, operates or controls, directly or
indirectly, a Nearby Property or Nearby Properties, then LWN and LGII and any
Affiliate designated by them as "Contributor" for purposes of the relevant
Nearby Property Contribution Agreement shall have the option, exercisable in
their sole discretion and subject to the terms and conditions set forth herein,
to execute and deliver to Holdings a Nearby Property Contribution Agreement
covering such Nearby Property or Nearby Properties, which Holdings shall
promptly execute and deliver to LWN, LGII and the designated Contributor,
pursuant to which Nearby Property Contribution Agreement the relevant
Contributor, shall, subject to the terms and on the conditions of such Nearby
Property Contribution Agreement, convey all of such Nearby Property(ies) to
Holdings in exchange for newly issued shares of Non-Voting Common Stock or
Preferred Stock of Holdings (or a combination thereof as selected by the
relevant Contributor) having an aggregate value equal to the Contribution Price
as therein provided.
(b) (i) Subject to clause (ii) below, the option provided by
this Section 5.5 is exercisable only with respect to Nearby Properties (A)
acquired by LWN directly or through a wholly owned subsidiary, or (B) owned,
operated or controlled directly or indirectly by a Person who becomes an
Affiliate of LWN; provided, that such option is exercisable in the case of
either clause (A) or (B) only if the revenues attributable to the Nearby
Properties, during the most recently calculated quarterly accounting period
prior to consummation of such acquisition transaction or series of transactions
or the date of such Affiliation, as the case may be, constitute less than 30% of
the total revenues during the same period of all the funeral homes and
cemeteries being acquired from such seller in such transaction or series of
transactions or owned by the Person that becomes an Affiliate of LWN, as the
case may be.
(ii) This option may not be exercised with respect to any
Nearby Property that was identified by Loewen as an acquisition candidate and as
to which Loewen has provided an appropriately complete description to RHAC, but
which has been declined to be considered or has been otherwise rejected by
RHAC's Board of Directors as a potential acquisition. In addition, this option
may not be exercised with respect to any Nearby Property that was identified by
Loewen as an acquisition candidate and that, pursuant to Loewen's exclusive
engagement under Section 1.3 b. of the ASA, should have been appropriately
presented and described to RHAC but which was not so presented and described.
(c) The execution and delivery to Holdings of a Nearby
Property Contribution Agreement by LWN, LGII and the relevant Contributor with
respect to any Nearby Property must occur no later than ten months after the
relevant Affiliation Date (as defined in the ASA) in order for this option to be
effective.
Section 5.6 Capital Stock of Subsidiaries. Notwithstanding the
foregoing, the parties hereby agree that, except for the issuance to Robert
Malinow of common stock of Glasband-Willen Mortuary ("Glasband") representing 5%
of Glasband's issued and outstanding Common Stock, Holdings shall not permit any
of its direct or indirect subsidiaries directly or indirectly, to issue any
shares of capital stock to any entity or person other than a wholly-owned
subsidiary of Holdings.
<PAGE>
9
ARTICLE VI
MISCELLANEOUS
Section 6.1 Legend. Each certificate representing shares of
Common Stock or Preferred Stock now held or hereafter acquired by any
Stockholder shall bear the following legend (until such time as subsequent
transfers thereof are no longer restricted in accordance with the Securities Act
of 1933, as amended or this Agreement):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
GIVEN, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED, OR
OTHERWISE DISPOSED OF UNLESS SUCH GIFT, SALE, ASSIGNMENT,
TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES
WITH THE PROVISIONS OF THE STOCKHOLDERS' AGREEMENT (THE
"STOCKHOLDERS' AGREEMENT"), DATED AS OF NOVEMBER 19, 1996,
AMONG ROSE HILLS HOLDINGS CORP., BLACKSTONE CAPITAL PARTNERS
II MERCHANT BANKING FUND L.P., BLACKSTONE ROSE HILLS OFFSHORE
CAPITAL PARTNERS II L.P., BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP II L.P., ROSES DELAWARE, INC., LOEWEN GROUP
INTERNATIONAL INC. AND RHI MANAGEMENT DIRECT L.P. A COPY OF
THE STOCKHOLDERS' AGREEMENT IS ON FILE WITH THE SECRETARY OF
THE COMPANY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND
EXCEPT AS OTHERWISE PROVIDED IN THE STOCKHOLDERS' AGREEMENT,
NO SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ALL APPLICABLE STATE SECURITIES OR
"BLUE SKY" LAWS OR (B) TO THE EXTENT REQUESTED BY THE COMPANY,
IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
WHICH SHALL BE REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE
PROVISIONS OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER AND IS NOT IN VIOLATION OF APPLICABLE STATE
SECURITIES LAWS. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE
OF THIS CERTIFICATE, ACKNOWLEDGES THAT IT IS BOUND BY THE
PROVISIONS OF THE STOCKHOLDERS' AGREEMENT TO THE EXTENT
PROVIDED THEREIN."
Section 6.2 Notices. Notices hereunder shall be given only by
personal delivery, registered or certified mail, return receipt requested,
overnight courier service, or
<PAGE>
10
telex, telegram or other form of electronic mail or by telecopy (and
subsequently confirmed by any other permitted means hereunder) and shall be
deemed transmitted when personally delivered or deposited in the mail or
delivered to a courier service or a carrier for electronic transmittal (as the
case may be), postage or charges prepaid, and addressed to the particular party
to whom the notice is to be sent as follows:
(a) in the case of Holdings:
Rose Hills Holdings Corp.
c/o The Blackstone Group
345 Park Avenue, 31st Floor
New York, New York 10154
Telecopier No.: (212) 754-8725
Attention: Howard A. Lipson
(b) in the case of BCP AND RHIM:
c/o The Blackstone Group
345 Park Avenue, 31st Floor
New York, New York 10154
Telecopier No.: (212) 754-8725
Attention: Howard A. Lipson
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 455-2502
Attention: Wilson S. Neely, Esq.
(c) in the case of Loewen:
Loewen Group International, Inc.
50 East River Center Boulevard
Covington, Kentucky 41011
Telecopier No.: (606) 655-7154
Attention: Legal Department
with a copy to:
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia
Canada V5G 358
<PAGE>
11
Telecopier No.: (604) 473-7305
Attention: Senior Vice President and Chief Financial Officer
or to such address as a party may instruct by notice hereunder.
Section 6.3 Severability. In the event any provision hereof is
held void or unenforceable by any court, then such provisions shall be severable
and shall not affect the remaining provisions hereof.
Section 6.4 Entire Agreement. This Agreement, together with
the other agreements referred to herein, is the entire Agreement among the
parties, and, when executed by the parties hereto, supersedes all prior
agreements and communications, either verbal or in writing (including the Term
Sheet dated September 18, 1996, as amended on November 13, 1996), between the
parties hereto with respect to the subject matter contained herein.
Section 6.5 Amendment and Waiver. This Agreement may not be
amended, modified or supplemented unless consented to in writing by the parties
hereto. Any failure by a party hereto to comply with any obligation, agreement
or condition herein may be expressly waived in writing by each of the other
parties hereto, but such waiver or failure to insist upon strict compliance with
such obligation, agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any such subsequent or other failure.
Section 6.6 Consent to Specific Performance. The parties
hereto declare that it is impossible to measure in money the damages which would
accrue to a party by reason of failure to perform any of the obligations
hereunder. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the other party has
an adequate remedy at law.
Section 6.7 Assignment. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided, no Stockholder may assign to any
Person any of its rights hereunder other than in connection with a Transfer to
such Person of shares of Common Stock or Preferred Stock in accordance with all
the provisions of this Agreement.
Section 6.8 Variations in Pronouns. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the antecedent person or persons
or entity or entities may require.
Section 6.9 Term. This Agreement shall terminate upon the
earlier to occur of (i) consummation of the exercise of the Option (as defined
in the Put/Call Agreement) pursuant to the Put/Call Agreement, without any
default in connection therewith and (ii) any date agreed upon in writing by BCP
and Loewen.
Section 6.10 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
<PAGE>
12
Section 6.11 Further Assurances. Each of the parties shall
execute such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
Section 6.12 Headings. The headings in this Agreement are
intended solely for convenience of reference and shall be given no effect in the
interpretation of this Agreement.
Section 6.13 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
13
IN WITNESS WHEREOF, the undersigned have executed this
Agreement on the date first above written.
ROSE HILLS HOLDINGS CORP.
By: /s/ Howard A. Lipson
______________________________
Name: Howard A. Lipson
Title:
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ F. Andrew Scott
______________________________
Name: F. Andrew Scott
Title:
ROSES DELAWARE, INC.
By: /s/ F. Andrew Scott
______________________________
Name: F. Andrew Scott
Title:
BLACKSTONE CAPITAL PARTNERS II
MERCHANT BANKING FUND L.P.
By: BLACKSTONE MANAGEMENT
ASSOCIATES II L.L.C.
General Partner
By: /s/ Howard A. Lipson
_____________________
Name: Howard A. Lipson
Title:
<PAGE>
14
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP II L.P.
By: BLACKSTONE MANAGEMENT
ASSOCIATES II L.L.C.
General Partner
By: /s/ Howard A. Lipson
_____________________
Name: Howard A. Lipson
Title:
BLACKSTONE ROSE HILLS OFFSHORE
CAPITAL PARTNERS L.P.
By: BLACKSTONE MANAGEMENT
ASSOCIATES II L.L.C.
General Partner
By: /s/ Howard A. Lipson
_____________________
Name: Howard A. Lipson
Title:
RHI MANAGEMENT DIRECT L.P.
By: PSI P&S CORP.
General Partner
By: /s/ Stephen A. Schwarzman
-------------------------
Name: Stephen A. Schwarzman
Title:
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement") is
made and entered into as of November 19, 1996 (the "Effective Date") by and
among Rose Hills Acquisition Corp., a Delaware corporation which is being
renamed Rose Hills Company (together with its current and future subsidiaries,
"RHAC"), The Loewen Group Inc., a British Columbia corporation ("LWN"), and
Loewen Group International, Inc., a Delaware corporation ("LGII" and, together
with LWN, "Loewen").
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and an
Asset Purchase Agreement, each dated as of September 19, 1996 and as amended,
wholly owned assignees of RHAC will, concurrent with the execution and delivery
of this Agreement, have acquired (the "Acquisition") the Cemetery and the
Mortuary (such terms, as well as the other capitalized terms not otherwise
defined herein, having the respective meanings ascribed thereto in RHAC's
Offering Memorandum dated November 14, 1996);
WHEREAS, LGII owns and operates funeral homes and cemeteries
throughout the United States and pursuant to a Subscription Agreement dated as
of November 19, 1996, Roses Delaware, Inc., an affiliate of LGII, has
transferred to the parent of RHAC the capital stock of certain subsidiaries
which own the Satellite Properties, which capital stock has in turn been
contributed to RHAC for further contribution to its subsidiaries;
WHEREAS, RHAC and its parent and subsidiaries may from time to
time acquire additional funeral homes and/or cemeteries (together with the
Satellite Properties, "Acquired Properties"), whether by purchase or shareholder
contribution;
WHEREAS, in order to enable RHAC (i) to effect at Rose Hills
and the Satellite Properties as of the Closing Date the head count reductions
set forth in Exhibit A, (ii) to terminate or freeze the defined benefit plan of
the Mortuary and (iii) to achieve additional cost efficiencies, RHAC seeks to
have Loewen provide certain administrative services and support to Rose Hills
and the Acquired Properties as described herein; and
WHEREAS, it is a condition to the capitalization of the parent
of RHAC, which is necessary to consummate the Acquisition, that this Agreement
be entered into in order that the services described herein may be provided;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
<PAGE>
2
ARTICLE 1: SERVICES AND SUPPORT TO BE PROVIDED
1.1 The Services. Loewen will furnish or cause one of its
affiliates to furnish to RHAC and RHAC may use such of the following
administrative services and support (individually, and including those services
to be provided pursuant to Sections 1.2 or 1.3, a "Service" and collectively,
the "Services") as RHAC may request from time to time:
a. Accounting and Tax Services.
(i) During each Transition Period (as defined below),
accounting services for the Acquired Properties, including maintenance
of appropriate books and records and preparation of consolidated
financial statements (with all intercompany transactions, if any,
between the Acquired Properties and Rose Hills being separately
identifiable so as to facilitate the preparation of consolidated
financial statements in sufficient detail and timeliness to meet SEC
reporting requirements for RHAC and its subsidiaries) and such other
reports as may be reasonably requested by RHAC;
(ii) Tax planning and advice for RHAC; and
(iii) During each Transition Period, preparation and filing of
all state and Federal tax returns for RHAC any consolidated group of
which it is a part and during and following such Transition Period,
assistance with any tax audits and appeals;
b. Hardware, Software and Telecommunications Support.
(i) Maintenance and servicing of computer hardware located at
the Acquired Properties;
(ii) Telecommunications services, including electronic mail,
voice mail and ancillary services, and technical support with respect
to such services;
(iii) Consultation and support on overall management
information systems planning and strategy; and
(iv) Subject to any incremental third party licensing fees,
licenses to use any or all of the software packages and any
enhancements thereto listed on Exhibit B together with the necessary
information systems support to ensure that such licensed software
functions appropriately, and maintenance support for the hardware
necessary to operate the licensed software;
c. Credit and Collections Support. During the Satellite
Properties Transition Period, credit analysis with respect to customers of the
Satellite Properties and collection activities with respect to accounts
receivable owing from customers of the Satellite Properties; following the
Satellite Properties Transition Period, Loewen staff will provide on site
<PAGE>
3
supervisory credit and collections services for RHAC with no additional fee or
reimbursement by RHAC to Loewen;
d. Employee Training and Support.
(i) Employee training and support services relating to
regulatory compliance in the following areas: (1) Occupational Safety and Health
Administration Standards, including an annual on-site safety survey to be
conducted by Loewen staff at each location; (2) Americans with Disabilities Act,
Title III, Physical Accommodations by Public Entities; (3) licensing; (4)
environmental; (5) employment law, including wage and hour, sexual harassment,
employment discrimination, the Fair Labor Standards Act, the Family and Medical
Leave Act, employee discipline, employee termination, and employment
applications; (6) funeral, cemetery, crematory services and advanced planning
procedural issues; (7) the Federal Trade Commission's Funeral Services Practices
Rule; and (8) the Federal Truth in Lending Act; such training shall include but
not be limited to two half-day staff seminars per annum covering recent
developments and issues;
(ii) Two on-site training seminars per annum for RHAC
employees to maintain and improve high standards of funeral and cemetery
services; and
(iii) Sales, merchandise and general operations support,
including access to standardized merchandise displays and access to marketing
and telemarketing tools and programs;
e. Legal and Similar Services.
(i) All legal services of a nature customarily performed by
the in-house legal staff of Loewen for its own business, including regular and
periodic assistance with the preparation and filing of, and general guidance
with respect to, federal, state or local governmental reports, case management
of the defense or prosecution of litigation, the procurement, retention,
management and coordination of legal services furnished by independent counsel
and the defense of substantive claims brought against RHAC or Rose Hills
Holdings Corp. ("RH Holdings");
(ii) Environmental support for general regulatory, compliance
and remedial purposes and quality assurance to engender strict regulatory
compliance and adherence to company environmental policy; oversight and
consultation relating to all remedial efforts to be undertaken; and
(iii) Advice in connection with freezing or terminating the
defined benefit plan of the Mortuary; and
<PAGE>
4
f. Miscellaneous.
(i) Corporate travel Services from Loewen Travel for RHAC
employees;
(ii) At RHAC's option, access to Loewen's funds management
systems and assistance with arrangements for RHAC's endowment care fund,
pre-need cemetery trust funds and pre-need funeral trust funds; and
(iii) Other related or similar Services to which the parties
mutually agree.
For the avoidance of any doubt, except for reasonable out-of-pocket expenses
incurred in the performance of such Services RHAC shall not reimburse Loewen for
any costs or expenses incurred in this Section 1.1 other than those expressly
provided for in Section 3.2 hereof.
1.2 Integration of Accounting and Management Information
Systems. Loewen will develop as promptly as practicable, but in no event later
than the last day of the applicable Transition Period, a system interface so
that all accounting data relating to the relevant Acquired Properties may be
conveyed directly to the Rose Hills accounting system, thereby enabling RHAC's
systems to generate consolidated financial statements and reports for Rose Hills
and the Acquired Properties on a combined basis. The "Satellite Properties
Transition Period" shall mean the period from the date on which the Acquisition
closes to the date on which such interface is completely effective (which date
shall be no later than March 31, 1997), and the "Acquired Property Transition
Period" shall mean the period from the closing date of any subsequent
acquisition of Acquired Properties to the date on which such interface is
completely effective with respect to any such subsequently acquired Acquired
Properties (which date shall not be later than the date six months from the date
the acquisition of such Acquired Properties is consummated (each, a "Transition
Period"). In lieu of effecting such interface, RHAC may at any time upon 90 days
notice to Loewen instead elect to have the accounting, payroll, tax and credit
and collection functions for Rose Hills (as well as the relevant Satellite
Properties) administered by Loewen. If such decision is made, Loewen is
obligated to provide such services and the administrative fee paid to LGII
pursuant to Section 3.1 hereof shall be increased by the incremental cost to
Loewen of providing such services.
1.3 Additional Services.
a. In addition to the Services listed above, Loewen hereby
agrees that where possible it will exercise its best efforts to provide RHAC
with the ability to purchase services, equipment and supplies at the most
favorable prices paid by Loewen under Loewen's service, equipment and supply
agreements with third parties including, without limitation, its agreements with
casket vendors, ForeThought, cemetery and funeral merchandise vendors,
telecommunications vendors and providers of construction services.
b. At the request of RHAC or RH Holdings, Loewen will provide
full corporate development support for potential acquisitions. Loewen will be
reimbursed by
<PAGE>
5
RHAC for the reasonable portion of salaries of personnel providing such services
and for reasonable out-of-pocket expenses relating to contemplated or
consummated transactions. RHAC and Loewen agree that Loewen shall be RHAC's and
RH Holdings' exclusive agent in sourcing potential acquisitions of Nearby
Properties (as hereinafter defined), and Loewen shall regularly advise RHAC and
RH Holdings of such acquisition candidates of which Loewen becomes aware and, if
requested by RHAC, make a presentation to RHAC's Board of Directors in respect
thereof. If RHAC's Board of Directors decides within a reasonable period of time
after being advised by Loewen of a prospective acquisition not to pursue such
acquisition, then Loewen shall be free to refer such prospective acquisition to
any other person or entity or, alternatively, to consummate such acquisition for
their own account. RHAC agrees that it will not solicit transactions through
third parties acting as agents for others; provided, the foregoing shall not
limit the ability of RHAC to source potential acquisitions directly or to
compensate third parties who are not engaged by RHAC as agent but who have
referred unsolicited acquisitions of funeral homes or cemeteries to RHAC.
Loewen's obligation as exclusive agent is to refer all potential acquisitions of
Nearby Properties to RHAC for due consideration prior to (i) referring such
acquisitions to any other company in the death care business, or (ii) attempting
to acquire such property for its own account.
c. Loewen and RHAC agree that to the extent it is feasible and
cost effective they shall provide to each other:
(i) Access to each other's embalming facilities; and
(ii) Access to each other's automobile fleets where
appropriate.
The costs associated with any shared goods or services under this Section (c)
shall be allocated between Loewen and RHAC on a mutually agreeable basis based
on relative usage.
ARTICLE 2: CONDITIONS RELATING TO SERVICES
2.1 Standard of Care. The Services provided by Loewen to Rose
Hills and the Acquired Properties shall be provided on a basis comparable to the
manner in which such services are provided to Loewen's own affiliates. Neither
RHAC nor Loewen shall take any action in connection with the provision of the
Services which would tend to materially injure, diminish the value of, or
reflect adversely upon Loewen or RHAC.
2.2 Independent Contractor. Notwithstanding any other
provision of this Agreement to the contrary, the parties acknowledge and
expressly agree that Loewen shall be an independent contractor of RHAC while
providing the Services. Nothing herein shall be construed to establish a
partnership, a joint venture or an agency relationship between or among the
parties.
<PAGE>
6
2.3 Personnel Providing Services. The Services shall be
provided by, or under the supervision of, qualified personnel of Loewen or one
or more of its affiliates as designated by Loewen, the agreement of the parties
being that the Services shall be provided by the Loewen affiliate best able to
provide the maximum benefit to RHAC hereunder. The employees of Loewen providing
Services hereunder shall be, during the term of this Agreement, employees of or
consultants to Loewen and not employees of RHAC, and shall be under the direct
supervision of Loewen. Loewen shall have full control over and full
responsibility for the assignment of employees providing the Services and for
the terms and conditions of employment of such employees including hiring,
discharging, disciplining, scheduling and all other matters relating to the
terms and conditions of employment.
2.4 Notice of Impairment. The parties agree to advise each
other if they acquire a funeral home or cemetery whose proximity to a funeral
home a cemetery owned by it could impair their ability to accept or receive any
of the Services.
ARTICLE 3: COMPENSATION
3.1 Administrative Fee. In consideration for the provision of
the Services, RHAC agrees to pay LGII monthly in arrears an annual
administrative fee equal to $334,000 during the year ending on the first
anniversary of the closing date of the Acquisition and $250,000 during each year
thereafter, subject to an annual 2.5% increase of such $250,000 fee beginning on
the second anniversary of such closing date. LGII shall allocate such fee to LWN
or its other affiliates providing such Services as appropriate. Such fee shall
be increased by a mutually agreed amount determined in accordance with Section
1.2 if RHAC elects to have all of the finance and accounting functions of Rose
Hills and the Acquired Properties administered by Loewen. If during the term of
this Agreement, the scope of the Services provided is reduced, then the parties
agree to negotiate in good faith to determine an appropriate reduction in the
administrative fee payable to LGII. If such reduction in scope of Services
provided is related to RHAC's good faith determination that it is legally
disabled from accepting such Services, then Loewen agrees to reimburse RHAC for
the incremental costs incurred in procuring substantially similar services
elsewhere.
3.2 Expenses. RHAC shall also reimburse Loewen for all
reasonable out-of-pocket costs, up to a maximum of $50,000 per annum or such
amount as may be determined by the Board of Directors of RHAC from time to time,
in connection with the provision of Services described in Article 1 hereof
including, but not limited to, reimbursement for travel expenses. In addition,
RHAC shall reimburse Loewen for all reasonable out-of-pocket costs and expenses
incurred from third party vendors of services, provided, however that Loewen has
secured the prior approval of the President of RHAC and a designee of Blackstone
Capital Partners II Merchant Banking Fund L.P. for each such cost or expense in
excess of $5,000. Loewen shall use its reasonable business judgment in engaging
and contracting with third parties pursuant to the immediately preceding
sentence (including the decision as to whether such services are performed by
Loewen or by a third party provider) as if Loewen was engaging and contracting
with third parties for its own benefit. All such transactions
<PAGE>
7
with third party providers shall be conducted on an arm's length basis. From
time to time Loewen shall report to and consult with the Board of Directors of
RHAC with respect to the services provided hereunder directly by Loewen
personnel and the services provided by third party providers and the costs
therefor.
ARTICLE 4: TERM AND TERMINATION
4.1 Term and Termination. The term of this Agreement shall be
eight years, subject to earlier termination or extension as provided below
("Term"). This Agreement shall be terminated as follows (the date of any such
termination referred to as the "Termination Date"):
a. Automatically on the eighth anniversary of the date
hereof without any notice or other action required (subject to the last
sentence of this Section 4.1);
b. By RHAC if pursuant to a final, nonappealable order of a
court or other governmental agency having jurisdiction over RHAC or Loewen, it
is determined that Loewen is not legally able to provide, or RHAC is not legally
able to accept, those Services described herein which generally involve access
to competitive or strategic data;
c. By Loewen or RHAC in the event of a material breach by the
other party of any provision of this Agreement including, without limitation,
rejection of this Agreement in a proceeding under the Bankruptcy Act of 1978, as
amended (or any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up or composition or
readjustment of debts), which breach is not remedied by the breaching party
within 30 days after receipt of written notice thereof (a "Notice of Breach")
from the terminating party;
d. Automatically upon closing following the exercise of the
Option as such term is defined in that certain Put/Call Agreement of even date
herewith (the "Put/Call Agreement");
e. At the option of RHAC, upon transfer of beneficial
ownership of or control over any shares of common stock or preferred stock of RH
Holdings (or any immediate or remote parent entity holding such shares) held by
Loewen or its affiliates to any person other than Loewen or its affiliates; and
f. At the option of RHAC, if Loewen or any of its current or
future Affiliates (as hereinafter defined) or successors owns, operates or
controls any Nearby Property (as hereinafter defined) on or after the date that
is twelve months after the Affiliation Date (as hereinafter defined).
<PAGE>
8
Notwithstanding the foregoing, this Agreement shall not automatically terminate
pursuant to clause a. above and shall continue indefinitely until terminated by
RHAC if there shall have been a default by Loewen of its obligations under the
Put/Call Agreement.
4.2 Effect of Termination.
a. Termination of this Agreement in accordance with this
Article 4 shall not affect the rights of any party hereto to recover any damages
either shall have suffered as a result of any breach of this Agreement, nor
shall it affect the rights of any party accruing during the Term of this
Agreement.
b. If this Agreement is terminated, then effective as of the
Termination Date Loewen's right to provide and RHAC's right to request Services
shall terminate immediately and Loewen and RHAC hereby agree to such termination
of rights.
4.3 Definitions. A "Nearby Property" is any funeral home or
cemetery located within a 20 mile radius of any funeral home or cemetery then
owned, operated or controlled directly or indirectly by RH Holdings. The
"Affiliation Date" is the date on which LWN, LGII or their respective successors
and assigns first acquires or otherwise becomes an Affiliate of a Nearby
Property. "Affiliate" shall have the meaning set forth in the Stockholders'
Agreement of even date herewith among Rose Hills Holdings Corp., LWN, LGII and
the other parties thereto.
ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF THE PARTIES
5.1 Representations of Loewen. LWN and LGII each hereby
represents and warrants, on a joint and several basis, to RHAC as follows:
a. Authorization and Binding Obligation. LWN and LGII each
have full corporate power and authority to enter into, deliver and
perform fully its obligations under this Agreement. This Agreement has
been duly executed and delivered by each of LWN and LGII, and
constitutes the valid and binding obligation of each of LWN and LGII,
enforceable against them in accordance with its terms.
b. No Conflict. The execution, delivery and performance by
each of LWN and LGII of their respective obligations under this
Agreement does not conflict with or result in a breach of, or require
any consent under, their respective charter or by-laws or any
applicable law or regulation, or any order, writ, injunction or decree
of any court of governmental authority or agency, or any agreement or
instrument to which either is a party or by which it is bound or to
which it is subject, or constitute a default under any such agreement
or instrument.
<PAGE>
9
c. No Nearby Properties. Upon consummation of the
Acquisition and the receipt by RH Holdings of the Satellite Properties on the
Closing Date, neither Loewen nor any of its affiliates owns, operates or
controls any Nearby Property.
5.2 Representations and Warranties of RHAC. RHAC hereby
represents and warrants to Loewen as follows:
a. Authorization and Binding Obligation. RHAC has full
corporate power and authority to enter into, deliver and perform fully
its obligations under this Agreement. This Agreement has been duly
executed and delivered by RHAC and constitutes the valid and binding
obligation thereof, enforceable against RHAC in accordance with its
terms.
b. No Conflict. The execution, delivery and performance by
RHAC of its obligations under this Agreement does not conflict with or
result in a breach of, or require any consent under, the charter or
by-laws of RHAC or any applicable law or regulation, or any order,
writ, injunction or decree of any court of governmental authority or
agency, or any agreement or instrument to which RHAC is a party or by
which it is bound or to which it is subject, or constitute a default
under any such agreement or instrument.
ARTICLE 6: MISCELLANEOUS
6.1 Notices. All notices, demands, and requests required or
permitted to be given under this Agreement shall be in writing and shall be
deemed duly given if (i) personally delivered, (ii) sent by confirmed facsimile
transmission to the facsimile numbers provided below, (iii) sent by registered
or certified mail, postage prepaid, return receipt requested, or (iv)
transmitted by a recognized overnight courier service, addressed as follows:
a. in the case of Loewen:
Loewen Group International, Inc.
3190 Tremont Avenue
Trevose, Pennsylvania 19053
Attention: Legal Department
with a copy to:
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia, Canada V5G 358
Attention: Senior Vice President and Chief
Financial Officer
b. in the case of RHAC:
<PAGE>
10
Rose Hills Corporation
3888 South Workman Mill Road
Whittier, California 90601
Attention: Chief Executive Officer
with a copy to:
The Blackstone Group
345 Park Avenue
31st Floor
New York, New York 10154
Attention: Howard A. Lipson
or to any such other or additional persons and addresses as the parties may from
time to time designate in a writing delivered in accordance with this Section
6.1.
6.2 Benefit and Binding Effect. No party hereto may assign
this Agreement without the prior written consent of the other parties, provided,
however, that RHAC may collaterally assign this Agreement to the Bank of Nova
Scotia as security for its obligations under the Credit Agreement dated the date
hereof. Any attempt to assign this Agreement or any part hereof in violation of
this Section 6.2 shall be null and void and of no effect whatsoever. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
6.3 Governing Law. This Agreement shall be governed by the
laws of the State of California as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies (without
giving effect to the principles of conflicts or law).
6.4 Headings. The headings preceding the text of sections and
subsections of this Agreement are included for ease of reference only and shall
not be deemed part of this Agreement.
6.5 Gender and Number. Words used herein, regardless of the
gender and number specifically used, shall be deemed and construed to include
any other gender, masculine, feminine or neuter, and any other number, singular
or plural, as the context requires.
6.6 Entire Agreement. This Agreement, all exhibits hereto, and
all documents, certificates, and the like to be delivered by the parties
pursuant hereto, collectively represent the entire understanding and agreement
between the parties hereto with respect to the specific subject matter hereof.
All exhibits attached to this Agreement shall be deemed part of this Agreement
and incorporated herein, where applicable, as if fully set forth herein. This
Agreement supersedes all prior negotiations between the parties and cannot be
amended, supplemented or changed except by an agreement in writing which makes
specific reference
<PAGE>
11
to this Agreement or an agreement delivered pursuant hereto, as the case may be,
and which is signed by the party against which enforcement of any such
amendment, supplement or modification is sought.
6.7 Further Assurances. The parties shall take any actions and
execute any other documents that may be necessary or desirable for the
implementation and consummation of this Agreement or which may be reasonably
requested by any other party hereto. Each party will cooperate with the other
parties and provide any assistance reasonably requested by any other party to
effectuate the terms of this Agreement.
6.8 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be held invalid or
unenforceable to any extent by any court of competent jurisdiction, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
6.9 Counterparts. This Agreement may be signed in
counterparts, each of which shall be deemed to be an original but which, when
taken together, shall constitute one and the same instrument.
6.10 Third-Party Beneficiaries. No provision of this Agreement
shall create any third-party beneficiary rights in any Person, including,
without limitation, employees or former employees of RHAC or Rose Hills or any
Acquired Property and no provisions of this Agreement shall create such
third-party beneficiary rights in any such person.
6.11 Cooperation. In the event and for so long as either party
is investigating, contesting or defending against any claim involving RHAC or RH
Holdings, each of the other parties hereto will, to the extent requested by the
investigating, contesting or defending party, make available its personnel, and
provide such testimony and access to its books and records as shall be necessary
in connection with the investigation, contest or defense, and provide such other
cooperation as the other party may reasonably request in connection with the
investigation, contest or defense.
6.12 Amendments, Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements executed by all of the
parties hereto, as may mutually be determined by such parties to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto.
6.13 Submission to Jurisdiction; Waivers. Each of the parties
hereto hereby irrevocably submits in any legal action or proceeding relating to
or arising out of this Agreement, or for recognition and enforcement of any
judgment in respect thereof, to the jurisdiction of the United States District
Court for the Central District of California, and appellate courts thereof. Each
of the parties hereto further (i) consents that any such action or proceeding
may be brought in such court and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in such court or
that such action
<PAGE>
12
or proceeding was brought in an inconvenient court and agrees not to plead or
claim the same; (ii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to such party
at its address set forth in Section 6.1 or at such other address of which such
party shall have given notice pursuant thereto; (iii) agrees that nothing herein
shall affect the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction; and
(iv) waives, to the maximum extent not prohibited by law, any right it may have
to claim or recover in any legal action or proceeding referred to in this
subsection any special, exemplary, punitive or consequential damages.
6.14 WAIVERS OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
13
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the date first above written.
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ F. Andrew Scott
---------------------------------
Name: F. Andrew Scott
Title:
THE LOEWEN GROUP INC.
By: /s/ F. Andrew Scott
---------------------------------
Name: F. Andrew Scott
Title:
ROSE HILLS ACQUISITION CORP.
By: /s/ Howard A. Lipson
---------------------------------
Name: Howard A. Lipson
Title:
<PAGE>
14
Exhibit B
Software
The following is a list of all the software owned by Loewen that will be
available to RHAC:
ALPHA LIST APPLICATION
The Alpha List is a list of all locations within the company. Primarily, it
includes address and contact information.
PRICE LIST APPLICATION
The Price List application contains pricing for service and merchandise
items at each funeral home within the company. This information will be used
to track pricing trends and update prices at the homes if necessary.
EIS DISTRIBUTION MANAGER
Lotus Notes is the current tool used to distribute EIS data to remote users.
In this case, Notes is only used for its communications features.
INVESTOR/ANALYST TRACKING
The Investor/Analyst Tracking application is used by senior staff to track
communications with Investors and Analysts. It maintains a history of
conversations, tracks material faxed or mailed out to investors as well as
earnings estimates and reports from analysts.
CONTACTS
Miscellaneous databases used for contact management.
EMPLOYEE PHONE BOOK
The Employee Phone Book lists all employee telephone locals and fax numbers
for each of the Loewen offices.
PROPERTY INVENTORY
This Risk Management application is used to maintain a list of properties
for insurance purposes.
VEHICLE INVENTORY
<PAGE>
15
Similar to the Property Inventory database, the Vehicle Inventory
application is used to maintain a list of company vehicles, both leased and
owned, for insurance purposes.
INCIDENT TRACKING
The Incident Tracking application is used to track all insurance claims at
the funeral homes. It is used in each location to fill out claim
information.
PAYROLL HOMES LIST
This database is used by the Payroll department to manage the Payroll
application installed at the funeral homes.
PROJECT TRACKING
The Project Tracking database is used to manage all in progress MIS
projects. It contains summary and detail level information, project
milestones and deliverable dates.
TELECOMM TRACKING SYSTEM
This application is used by the Telecomm department to maintain phone, fax,
pager, cellular and modem number information. Additional data tracked in
this database includes long distance service provider, cellular and pager
provider contact information.
TELEMARKETING LEAD TRACKING
The Telemarketing Lead Tracking database is used in the Cemetery Combo
division. The database tracks every call made by each of 12 telemarketing
offices across the United States. Each call is tracked to its result. Sales
information is tracked and the database is used to perform sales analysis.
PRENEED TRUST MANAGEMENT
Preneed - centralized trust administration system for multiple funeral home
locations. The system tracks Preneed Trust contracts and their associated
payments and withdrawals. A complete audit trail of all transactions is
generated. Preneed provides a selection of activity reports.
Full state statutory reporting is being prepared as the system is installed
in the various locations.
CALLIN
Custom-written module providing weekly sales reports. Some input from
budgets; most via direct data input.
<PAGE>
16
PAYROLL DATA CAPTURE
Payroll Data Capture is a Windows front end application installed in Funeral
Homes. It captures overtime, regular hours, piecework, vacation, sick leave
hours and transmits the data to Home Office every Monday. The accumulated
data is then sent to ADP for payroll processing.
EXPENSES TRACKING SYSTEM
This application loads American Express and diners information
electronically. It provides the A/P department with meaningful expense
analysis reports.
<PAGE>
CREDIT AGREEMENT
DATED AS OF NOVEMBER 19, 1996
AMONG
ROSE HILLS COMPANY,
AS BORROWER,
ROSE HILLS HOLDINGS CORP.,
AS GUARANTOR,
THE LENDERS FROM TIME TO TIME PARTIES HERETO,
AS LENDERS,
GOLDMAN, SACHS & CO.,
AS SYNDICATION AGENT
AND ARRANGING AGENT,
AND
THE BANK OF NOVA SCOTIA,
AS ADMINISTRATIVE AGENT
<PAGE>
ROSE HILLS CORPORATION
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1.
DEFINITIONS......................................................... 3
1.1 Certain Defined Terms.............................................................. 3
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement....................................................... 39
1.3 Other Definitional Provisions and Rules of Construction............................ 40
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS............................ 40
2.1 Commitments; Making of Loans; the Register; Notes.................................. 40
2.2 Interest on the Loans.............................................................. 48
2.3 Fees............................................................................... 52
2.4 Repayments, Prepayments and Reductions in Revolving Loan
Commitments; General Provisions Regarding Payments;
Application of Proceeds of Collateral and Payments Under Guaranties................ 53
2.5 Use of Proceeds.................................................................... 63
2.6 Special Provisions Governing Eurodollar Rate Loans................................. 64
2.7 Increased Costs; Taxes; Capital Adequacy........................................... 66
2.8 Obligation of Lenders and Issuing Lender to Mitigate............................... 72
SECTION 3.
LETTERS OF CREDIT....................................... 73
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein...... 73
3.2 Letter of Credit Fees.............................................................. 75
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of
Credit............................................................................. 76
3.4 Obligations Absolute............................................................... 79
3.5 Indemnification; Nature of Issuing Lender's Duties................................. 80
3.6 Increased Costs and Taxes Relating to Letters of Credit............................ 81
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT............................ 83
4.1 Conditions to AXELs and Initial Revolving Loans and Swing Line Loans............... 83
4.2 Conditions to All Loans............................................................ 90
4.3 Conditions to Letters of Credit.................................................... 92
SECTION 5.
REPRESENTATIONS AND WARRANTIES.................................. 92
5.1 Organization, Powers, Qualification, Good Standing, Business
and Subsidiaries................................................................... 92
5.2 Authorization of Borrowing, etc.................................................... 93
5.3 Financial Condition................................................................ 95
5.4 No Material Adverse Change; No Restricted Junior Payments.......................... 96
5.5 Title to Properties; Liens......................................................... 96
5.6 Litigation; Adverse Facts.......................................................... 96
5.7 Payment of Taxes................................................................... 97
5.8 Performance of Agreements; Materially Adverse Agreements; Material Contracts....... 97
5.9 Governmental Regulation............................................................ 97
5.10 Securities Activities.............................................................. 98
5.11 Employee Benefit Plans............................................................. 98
5.12 Certain Fees....................................................................... 99
5.13 Environmental Protection........................................................... 99
5.14 Employee Matters...................................................................100
5.15 Solvency...........................................................................100
5.16 Matters Relating to Collateral.....................................................100
5.17 Representations and Warranties in Acquisition Agreement............................101
5.18 Disclosure.........................................................................102
SECTION 6.
AFFIRMATIVE COVENANTS......................................102
6.1 Financial Statements and Other Reports.............................................102
6.2 Corporate Existence, etc...........................................................108
6.3 Payment of Taxes and Claims; Tax Consolidation.....................................108
6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds....................................................109
6.5 Inspection Rights..................................................................111
6.6 Compliance with Laws, etc..........................................................111
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.7 Environmental Review and Investigation, Disclosure, Etc.; Borrower's Actions
Regarding Hazardous Materials Activities, Environmental Claims and Violations
of Environmental Laws..............................................................111
6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents
by Certain Subsidiaries and Future Subsidiaries....................................115
6.9 Interest Rate Protection...........................................................116
6.10 Future Capital Contributions.......................................................116
...................................................................................116
SECTION 7.
NEGATIVE COVENANTS........................................116
7.1 Indebtedness.......................................................................117
7.2 Liens and Related Matters..........................................................119
7.3 Investments; Joint Ventures........................................................121
7.4 Contingent Obligations.............................................................122
7.5 Restricted Junior Payments.........................................................123
7.6 Financial Covenants................................................................123
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions...................128
7.8 Consolidated Adjusted Capital Expenditures.........................................130
7.9 Sales and Lease-Backs..............................................................130
7.10 Transactions with Shareholders and Affiliates......................................131
7.11 Disposal of Subsidiary Stock.......................................................131
7.12 Conduct of Business................................................................132
7.13 Amendments or Waivers of Certain Related Agreements; Designation of
"Senior Indebtedness ".............................................................132
7.14 Fiscal Year........................................................................133
SECTION 8.
EVENTS OF DEFAULT........................................133
8.1 Failure to Make Payments When Due..................................................133
8.2 Default in Other Agreements........................................................133
8.3 Breach of Certain Covenants........................................................134
8.4 Breach of Warranty.................................................................134
8.5 Other Defaults Under Loan Documents................................................134
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc...............................134
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.................................135
8.8 Judgments and Attachments..........................................................135
8.9 Dissolution........................................................................135
8.10 Employee Benefit Plans.............................................................136
8.11 Change in Control.................................................................136
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
8.12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations.........136
8.13 Subordinated Indebtedness.........................................................137
SECTION 9.
AGENTS..............................................138
9.1 Appointment........................................................................138
9.2 Powers and Duties; General Immunity................................................139
9.3 Representations and Warranties; No Responsibility For Appraisal
of Creditworthiness................................................................141
9.4 Right to Indemnity.................................................................142
9.5 Successor Administrative Agent and Swing Line Lender...............................142
9.6 Collateral Documents and Guaranties................................................143
SECTION 10.
MISCELLANEOUS..........................................144
10.1 Assignments and Participations in Loans and Letters of Credit......................144
10.2 Expenses...........................................................................147
10.3 Indemnity..........................................................................148
10.4 Set-Off; Security Interest in Deposit Accounts.....................................149
10.5 Ratable Sharing....................................................................150
10.6 Amendments and Waivers.............................................................151
10.7 Independence of Covenants..........................................................153
10.8 Notices............................................................................154
10.9 Survival of Representations, Warranties and Agreements.............................154
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative..............................154
10.11 Marshalling; Payments Set Aside....................................................155
10.12 Severability.......................................................................155
10.13 Obligations Several; Independent Nature of Lenders' Rights.........................155
10.14 Headings...........................................................................156
10.15 Applicable Law.....................................................................156
10.16 Successors and Assigns.............................................................156
10.17 Consent to Jurisdiction and Service of Process.....................................156
10.18 Waiver of Jury Trial...............................................................157
10.19 Confidentiality....................................................................158
10.20 Maximum Amount.....................................................................158
10.21 Counterparts; Effectiveness........................................................159
</TABLE>
(iv)
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV FORM OF AXEL NOTE
V FORM OF REVOLVING NOTE
VI FORM OF SWING LINE NOTE
VII FORM OF COMPLIANCE CERTIFICATE
VIII-A FORM OF OPINION OF SIMPSON THACHER & BARTLETT
VIII-B FORM OF OPINION OF COX, CASTLE & NICHOLSON, LLP
IX FORM OF OPINION OF WHITE & CASE
X FORM OF ASSIGNMENT AGREEMENT
XI FORM OF CERTIFICATE RE NON-BANK STATUS
XII FORM OF COLLATERAL ACCOUNT AGREEMENT
XIII FORM OF BORROWER PLEDGE AGREEMENT
XIV FORM OF BORROWER SECURITY AGREEMENT
XV FORM OF SUBSIDIARY GUARANTY
XVI FORM OF SUBSIDIARY PLEDGE AGREEMENT
XVII FORM OF SUBSIDIARY SECURITY AGREEMENT
XVIII FORM OF HOLDINGS GUARANTY
XIX FORM OF HOLDINGS PLEDGE AGREEMENT
XX FORM OF INTERCOMPANY NOTE
XXI FORM OF MORTGAGE
XXII FORM OF ENVIRONMENTAL INDEMNITY AGREEMENT
XXIII FORM OF ACKNOWLEDGEMENT OF ADDITIONAL TERM LOANS
(v)
<PAGE>
SCHEDULES
1.1A EXISTING INDEBTEDNESS
1.1B PRO FORMA EBITDA ADJUSTMENT
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1G GOVERNMENTAL AUTHORIZATIONS AND CONSENTS
5.1 SUBSIDIARIES OF HOLDINGS
5.3 CONTINGENT OBLIGATIONS
5.6 CERTAIN LITIGATION
5.8 MATERIAL CONTRACTS
5.11 CERTAIN EMPLOYEE BENEFIT PLANS
5.13 ENVIRONMENTAL MATTERS
5.14 EMPLOYEE MATTERS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2A CERTAIN EXISTING LIENS
7.2D PERMITTED RESTRICTIONS ON SUBSIDIARIES
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
(vi)
<PAGE>
ROSE HILLS CORPORATION
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of November 19, 1996 and entered into
by and among ROSE HILLS HOLDINGS CORP., a Delaware corporation (formerly known
as Tudor Holding Company) ("Holdings"), ROSE HILLS COMPANY, a Delaware
corporation (formerly known as Tudor Acquisition Corp.) ("Borrower"), GOLDMAN,
SACHS & CO., as syndication agent and arranging agent (in such capacities,
"Syndication Agent" and "Arranging Agent", respectively), THE FINANCIAL
INSTITUTIONS FROM TIME TO TIME PARTIES HERETO (each individually referred to
herein as a "Lender" and collectively as "Lenders"), and THE BANK OF NOVA SCOTIA
("Scotiabank"), as administrative agent for Lenders (in such capacity,
"Administrative Agent").
R E C I T A L S
WHEREAS, Holdings, a corporation newly formed by the Investors (this
and other capitalized terms used in these recitals without definition being used
as defined in subsection 1.1), was formed to own all of the capital stock of
Borrower;
WHEREAS, Borrower has entered into the Acquisition Agreement with
Association, pursuant to which Borrower has agreed to acquire the assets and
liabilities relating to the ownership and operation of the Cemetery;
WHEREAS, on or before the Closing Date, Borrower will assign to Rose
Hills, Inc., a newly formed Wholly Owned Subsidiary of Borrower ("RH Cemetery"),
all of Borrower's rights and obligations under the Acquisition Agreement;
WHEREAS, Borrower has entered into the Merger Agreement with Roses,
Inc., a California corporation ("Rose Hills") and the stockholders of Rose
Hills;
WHEREAS, on or before the Closing Date, Borrower will assign to RH
Mortuary Corp., a newly formed Wholly-Owned Subsidiary of Borrower ("RH
Mortuary"), all of Borrower's rights and obligations under the Merger Agreement,
<PAGE>
pursuant to which RH Mortuary will merge with and into Rose Hills with Rose
Hills (which will renamed RH Mortuary Corporation) being the surviving
corporation of such Merger.
WHEREAS, on the Closing Date, (i) Loewen and the Blackstone Investors
will purchase $130,000,000 in the aggregate of Holdings Preferred Stock and
Holdings Common Stock, of which $107,000,000 will consist of Cash proceeds and
$23,000,000 will consist of the value of the Satellite Properties, (ii) Holdings
will contribute all of the cash and the Satellite Properties received from the
Investors to Borrower, and after giving effect to the foregoing transactions,
Holdings shall have no material assets or liabilities other than the capital
stock of Borrower, and (iii) Borrower will contribute (x) to RH Properties
Corp., a newly formed Wholly Owned Subsidiary of Borrower ("RH Properties"), all
of the Satellite Properties other than two combination funeral home cemeteries
and (y) to RH Cemetery Cash in an amount necessary for RH Cemetery to effect the
acquisition of the Cemetery pursuant to the Acquisition Agreement and two
combination funeral home cemeteries included in the Satellite Properties and (z)
to RH Mortuary Cash in an amount necessary for RH Mortuary to effect the Merger
(all of the foregoing herein referred to collectively as the "Contribution");
WHEREAS, on or before the Closing Date, Borrower will issue and sell
the Senior Subordinated Notes for gross proceeds of not less than $80,000,000;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Borrower, the proceeds of which will be used, together with the proceeds of the
issuance and sale of the Senior Subordinated Notes and the Cash proceeds
received from the Contribution, (i) to fund the purchase price under the
Acquisition Agreement and under the Merger Agreement, (ii) to prepay the
Existing Indebtedness, (iii) to prefund certain capital expenditures and
severance costs in an aggregate amount not to exceed $2,000,000, (iv) to pay
fees and expenses in connection with the Transaction in an aggregate amount not
to exceed $20,000,000 and (v) to provide financing for working capital and other
general corporate purposes of Borrower and its Subsidiaries;
WHEREAS, Borrower desires to secure all of the Obligations hereunder
and under the other Loan Documents by granting to Administrative Agent, on
behalf of Lenders, a First Priority Lien on substantially all of its personal
property including a pledge of all of the capital stock of each of its domestic
Subsidiaries, 65% of the capital stock of each direct foreign Subsidiary and a
pledge of all Intercompany Notes; and
WHEREAS, Holdings and all of the domestic Subsidiaries of Borrower have
agreed to guarantee the Obligations hereunder and under the other Loan Documents
and to secure their guaranties by granting to Administrative Agent, on behalf of
Lenders, a First Priority Lien on the real property constituting the Cemetery,
and on substantially all
-2-
<PAGE>
of their respective personal property, including a pledge of all of the capital
stock of each of their respective domestic Subsidiaries and 65% of the capital
stock of each direct foreign Subsidiary owned by such Loan Parties and a
pledge of all Intercompany Notes:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Holdings, Borrower, Lenders and
Agents agree as follows:
SECTION 1.
DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Acknowledgement of Additional Term Loans" means an
Acknowledgement in the form of Exhibit XXIII annexed hereto
(appropriately completed) and executed by Borrower, Administrative
Agent and Lender or Lenders making the Additional Term Loans.
"Acquired Business" has the meaning assigned to that term in
the definition of "Business Acquisition".
"Acquisition" means the transactions contemplated by the
Acquisition Agreement.
"Acquisition Agreement" means that certain Asset Purchase
Agreement by and between the Association and Borrower (whose rights and
obligations thereunder have been assigned to RH Cemetery), dated as of
September 19, 1996, in the form delivered to Arranging Agent prior to
the execution of this Agreement and as such agreement may be amended
from time to time thereafter to the extent permitted under subsection
7.13A.
"Additional Term Loans" has the meaning assigned to that term
in subsection 10.6C.
"Additional Term Loan Exposure" means with respect to any
Lender at any date of determination, the outstanding principal amount
the Additional Term Loans of that Lender.
-3-
<PAGE>
"Additional Term Notes" means promissory notes evidencing the
Additional Term Loans in substantially the form of the AXEL Notes with
such modifications thereto as are appropriate to reflect the specific
terms of the Additional Term Loans.
"Adjusted Eurodollar Rate" means, for any Interest Rate
Determination Date with respect to an Interest Period for a Eurodollar
Rate Loan, the rate per annum obtained by dividing (i) (a) the per
annum rate for deposits in Dollars for a period corresponding to the
duration of the relevant Interest Period which appears on Telerate Page
3750 at approximately 11:00 a.m. (London time) on such Interest Rate
Determination Date or (b) if such rate does not appear on Telerate Page
3750 on such Interest Rate Determination Date, the per annum rate
(rounded upward to the nearest 1/16 of one percent) at which deposits
in Dollars are offered by Administrative Agent to first-class banks in
the London interbank market, in the approximate amount of
Administrative Agent's relevant Eurodollar Loan and having a maturity
approximately equal to such Interest Period, at approximately 11:00
a.m. (London time) on such Interest Rate Determination Date by (ii) one
minus the Reserve Requirement (expressed as a decimal) applicable on
such Interest Rate Determination Date. The reference to Telerate Page
3750 in this definition shall be construed to be a reference to the
relevant page or any other page that may replace such page on the
Telerate service or any other service that may be nominated by the
British Bankers' Association as the information vendor for the purpose
of displaying British Bankers' Association Interest Settlement Rates
for deposits in Dollars.
"Administrative Agent" has the meaning assigned to that term
in the introduction to this Agreement and also means and includes any
successor Administrative Agent appointed pursuant to subsection 9.5A.
"Administrative Agreement" means the Administrative Services
Agreement dated as of November 19, 1996, by and between Borrower and
Loewen, as such agreement may be amended from time to time to the
extent permitted under subsection 7.13A.
"Affected Lender" has the meaning assigned to that term in
subsection 2.6C.
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common
control with, that Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
-4-
<PAGE>
the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agent" means, individually, each of Arranging Agent,
Syndication Agent and Administrative Agent and "Agents" means Arranging
Agent, Syndication Agent and Administrative Agent, collectively.
"Agreement" means this Credit Agreement dated as of November
19, 1996, as it may be amended, supplemented or otherwise modified from
time to time.
"Applicable Margin" means, (i) for each AXEL and Revolving
Loan, as of any date of determination, a percentage per annum as set
forth below plus the Pricing Premium, if any, less the Pricing
Reduction, if any:
<TABLE>
<CAPTION>
==================================================================================================================
AXELs Revolving Loans
==================================================================================================================
Base Rate Eurodollar Base Eurodollar
Rate Loans Rate Loans Rate Loans Rate Loans
==================================================================================================================
<S> <C> <C> <C>
2.00% 3.00% 1.75% 2.75%
==================================================================================================================
</TABLE>
; and (ii) for each Additional Term Loan, as of any date of
determination, a percentage per annum as has been agreed to by Borrower
and Lender or Lenders extending such Additional Term Loans as set forth
in the respective Acknowledgement of Additional Term Loans plus any
pricing premium, if any applicable thereto, less any pricing reduction,
if any applicable thereto.
"Arranging Agent" has the meaning assigned to that term in the
introduction to this Agreement.
"Asset Sale" means the sale by Holdings or any of its
Subsidiaries to any Person other than Holdings or any of its Wholly
Owned Subsidiaries of (i) any of the stock of any of Holdings'
Subsidiaries, (ii) substantially all of the assets of any division or
line of business of Holdings or any of its Subsidiaries, or (iii) any
other assets (whether tangible or intangible) of Holdings or any of its
Subsidiaries (other than (a) inventory (including group sales of land
plots and grave sites and sales of undeveloped inventory property) sold
in the ordinary course of business and (b) any such other assets to the
extent that the aggregate value of such assets sold in any single
transaction or related series of transactions is equal to or less
than $500,000).
-5-
<PAGE>
"Assignment Agreement" means an Assignment Agreement in
substantially the form of Exhibit X annexed hereto.
"Association" means Rose Hills Memorial Park Association, a
California nonprofit mutual benefit corporation.
"Available Excess Consolidated Capital Expenditure Amount"
means, as of any date of determination, the Excess Consolidated Capital
Expenditure Amount as of the date of determination minus the aggregate
portion of the Excess Consolidated Capital Expenditure Amount used to
make Consolidated Adjusted Capital Expenditures pursuant to subsection
7.8 as of the date of determination. For purposes of calculating the
Available Excess Consolidated Capital Expenditure Amount, Consolidated
Adjusted Capital Expenditures for each Fiscal Year shall be deemed to
have been made first from any carry forward of the Maximum Consolidated
Capital Expenditures Amount from the previous Fiscal Year permitted
pursuant to subsection 7.8, second from the Maximum Consolidated
Capital Expenditures Amount for such Fiscal Year, and third from the
Available Excess Consolidated Capital Expenditure Amount.
"AXEL" means a Loan made by a Lender to Borrower as an
amortization extended loan pursuant to subsection 2.1A(i), and "AXELs"
means any such Loan or Loans, collectively.
"AXEL Commitment" means the commitment of a Lender to make an
AXEL to Borrower pursuant to subsection 2.1A(i), and "AXEL Commitments"
means such commitments of all Lenders in the aggregate.
"AXEL Exposure" means, with respect to any Lender as of any
date of determination (i) prior to the funding of the AXELs, that
Lender's AXEL Commitment and (ii) after the funding of the AXELs, the
outstanding principal amount of the AXEL of that Lender.
"AXEL Notes" means (i) the promissory notes of Borrower issued
pursuant to subsection 2.1E(i)(a) on the Closing Date and (ii) any
promissory notes issued by Borrower pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the AXEL
Commitments or AXELs of any Lenders, in each case substantially in the
form of Exhibit IV annexed hereto, as they may be amended, supplemented
or otherwise modified from time to time.
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor
statute.
-6-
<PAGE>
"Base Rate" means, at any time, the higher of (i) the Prime
Rate or (ii) the rate which is 1/2 of 1% in excess of the Federal Funds
Effective Rate.
"Base Rate Loans" means Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection
2.2A.
"Blackstone Investors" means Blackstone Capital Partners II
Merchant Banking Fund L.P. and its Affiliates.
"Borrower" has the meaning assigned to that term in the
introduction to this Agreement.
"Borrower Pledge Agreement" means the Borrower Pledge
Agreement executed and delivered by Borrower and Administrative Agent
on the Closing Date, substantially in the form of Exhibit XIII annexed
hereto, as such Borrower Pledge Agreement may thereafter be amended,
supplemented or otherwise modified from time to time.
"Borrower Security Agreement" means the Borrower Security
Agreement executed and delivered by Borrower and Administrative Agent
on the Closing Date, substantially in the form of Exhibit XIV annexed
hereto, as such Borrower Security Agreement may thereafter be amended,
supplemented or otherwise modified from time to time.
"Business Acquisition" means any acquisition by Borrower or
any of its Subsidiaries (whether by purchase of assets or stock or by
merger, consolidation or otherwise) of any funeral home and/or cemetery
(including any peripheral business relating to the death care industry
such as monument companies, flower shops or vault companies) (each, an
"Acquired Business") in a single transaction or series of related
transactions.
"Business Day" means (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such state
are authorized or required by law or other governmental action to
close, and (ii) with respect to all notices, determinations, fundings
and payments in connection with the Adjusted Eurodollar Rate or any
Eurodollar Rate Loans, any day that is a Business Day described in
clause (i) above and that is also a day for trading by and between
banks in Dollar deposits in the interbank Eurodollar market.
-7-
<PAGE>
"Capital Lease", as applied to any Person, means any lease of
any property (whether real, personal or mixed) by that Person as lessee
that, in conformity with GAAP, is accounted for as a capital lease on
the balance sheet of that Person.
"Cash" means money, currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally
guaranteed as to interest and principal by the United States Government
or (b) issued by any agency of the United States the obligations of
which are backed by the full faith and credit of the United States, in
each case maturing within one year after such date; (ii) marketable
direct obligations issued by any state of the United States of America
or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after
such date and having, at the time of the acquisition thereof, the
highest rating obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii)
commercial paper maturing no more than one year from the date of
creation thereof and having, at the time of the acquisition thereof, a
rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one
year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia that (a) is at
least "adequately capitalized" (as defined in the regulations of its
primary Federal banking regulator) and (b) has Tier 1 capital (as
defined in such regulations) of not less than $100,000,000; and (v)
shares of any money market mutual fund that (a) has at least 95% of its
assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either S&P
or Moody's.
"Cemetery" means Rose Hills Memorial Park in Whittier,
California comprised of all the real property and the other assets
purchased by RH Cemetery pursuant to the Acquisition Agreement.
"Certificate re Non-Bank Status" means a certificate
substantially in the form of Exhibit XI annexed hereto delivered by a
Lender to Administrative Agent pursuant to subsection 2.7B(iii).
-8-
<PAGE>
"Class" means, as applied to Lenders, each of the following
classes of Lenders: (i) Lenders having AXEL Exposure and Additional
Term Loan Exposure and (ii) Lenders having Revolving Loan Exposure.
"Clean-Down Period" means a period of thirty consecutive days
during which no more than $15,000,000 in aggregate principal amount of
the sum of Revolving Loans, Swing Line Loans and Letter of Credit Usage
is outstanding at any time during such period. A Clean-Down Period
shall be deemed to have occurred on the last day of any such period.
"Closing Date" means the date on or before February 28, 1997,
on which the initial Loans are made.
"Collateral" means, collectively, all of the real and personal
property (including capital stock) in which Liens are purported to be
granted pursuant to the Collateral Documents as security for the
Obligations.
"Collateral Account" has the meaning assigned to that term
in the Collateral Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement executed and delivered by Borrower and Administrative Agent
on the Closing Date, substantially in the form of Exhibit XII annexed
hereto, as such Collateral Account Agreement may hereafter be amended,
supplemented or otherwise modified from time to time.
"Collateral Documents" means the Holdings Pledge Agreement,
the Borrower Pledge Agreement, the Borrower Security Agreement, the
Collateral Account Agreement, the Subsidiary Pledge Agreement, the
Subsidiary Security Agreement, the Mortgage, and all other instruments
or documents delivered by any Loan Party pursuant to this Agreement or
any of the other Loan Documents in order to grant to Administrative
Agent, on behalf of Lenders, a Lien on any real or personal property of
that Loan Party as security for the Obligations.
"Commercial Letter of Credit" means any letter of credit or
similar instrument issued for the purpose of providing the primary
payment mechanism in connection with the purchase of any materials,
goods or services by Borrower or any of its Subsidiaries.
"Commitments" means the commitments of Lenders to make Loans
as set forth in subsection 2.1A.
-9-
<PAGE>
"Compliance Certificate" means a certificate substantially in
the form of Exhibit VII annexed hereto delivered to Administrative
Agent and Lenders by Borrower pursuant to subsection 6.1(iv).
"Confidential Information Memorandum" means that certain
Confidential Information Memorandum prepared by Borrower relating to
the AXELs and Revolving Loans dated October 1996, together with any
supplements thereto.
"Consolidated Adjusted Capital Expenditures" means, for any
period, Consolidated Capital Expenditures made pursuant to subsection
7.8 for that period minus any portion of such Consolidated Capital
Expenditures financed with insurance or condemnation proceeds.
"Consolidated Adjusted EBITDA" means, for any period, the sum
(without duplication) for such period of (i) Consolidated Net Income,
(ii) Consolidated Interest Expense, (iii) provisions for taxes, (iv)
total depreciation expense, (v) total amortization expense (including,
to the extent not already included therein, amortization of grave sites
included in cost of sales), (vi) Management Fees, (vii) (a) other
non-cash items reducing Consolidated Net Income less (b) non-cash items
(other than non-cash items included as installment revenues) increasing
Consolidated Net Income, (viii) any draw of the reserve of any
endowment care fund and (ix) (a) non-recurring items reducing
Consolidated Net Income less (b) non-recurring items (other than
non-recurring items attributable to revenue from any endowment care
fund) increasing Consolidated Net Income, all of the foregoing as
determined on a consolidated basis for Holdings and its Subsidiaries in
conformity with GAAP.
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all expenditures (whether paid in Cash or other
consideration or accrued as a liability and including that portion of
Capital Leases which is capitalized on the consolidated balance sheet
of Holdings and its Subsidiaries) by Holdings and its Subsidiaries
during that period that, in conformity with GAAP, (i) are included in
"additions to property, plant or equipment" or comparable items
reflected in the consolidated statement of cash flows of Holdings and
its Subsidiaries or (ii) were incurred in developing cemetery land,
niches, mausolea and other property which is reflected in "long-term
inventory" or "cemetery properties" on the consolidated balance sheet
of Holdings and its Subsidiaries.
"Consolidated Cash Interest Expense" means, for any period,
Consolidated Interest Expense, but excluding, interest expense
(including
-10-
<PAGE>
amortization of financing fees) not payable in Cash plus, without
duplication, the amount of any capitalized interest that is paid in
Cash during such period.
"Consolidated Current Assets" means, as at any date of
determination, the total assets of Holdings and its Subsidiaries on a
consolidated basis which may properly be classified as current assets
in conformity with GAAP, excluding Cash and Cash Equivalents.
"Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of Holdings and its Subsidiaries
on a consolidated basis which may properly be classified as current
liabilities in conformity with GAAP.
"Consolidated Excess Cash Flow" means, for any period, an
amount (if positive) equal to (i) the sum, without duplication, of the
amounts for such period of (a) Consolidated Adjusted EBITDA, (b) the
Consolidated Working Capital Adjustment and (c) the Deferred
Merchandising Adjustment minus (ii) the sum, without duplication, of
the amounts for such period of (a) voluntary and scheduled repayments
of Consolidated Total Debt (excluding repayments of Revolving Loans
except to the extent the Revolving Loan Commitments are permanently
reduced in connection with such repayments), (b) Consolidated Adjusted
Capital Expenditures minus any portion of Consolidated Adjusted Capital
Expenditures financed during such period with the proceeds of
Indebtedness permitted under subsection 7.1(vi), (c) Consolidated Cash
Interest Expense, (d) the provision for current taxes of Holdings and
its Subsidiaries payable in cash with respect to such period, (e) to
the extent not included in Consolidated Interest Expense, Cash payments
in respect of Covenants not to Compete, and (f) to the extent not
included in the determination of Consolidated Adjusted EBITDA, (1)
non-recurring Cash charges, (2) Management Fees and (3) Cash costs of
purchasing Hedge Agreements during such period.
"Consolidated Fixed Charges" means, for any period, the sum
(without duplication) of the amounts for such period of (i)
Consolidated Cash Interest Expense, (ii) scheduled repayments of
Indebtedness included in Consolidated Total Debt and (iii) taxes based
on income actually paid by Holdings and its Subsidiaries during such
period, all of the foregoing as determined on a consolidated basis for
Holdings and its Subsidiaries.
"Consolidated Interest Expense" means, for any period, total
interest expense (including that portion attributable to Capital Leases
and Covenants not to Compete in accordance with GAAP) of Holdings and
its Subsidiaries on a consolidated basis with respect to all
outstanding Indebtedness of Holdings and
-11-
<PAGE>
its Subsidiaries, including all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements, but
excluding, however, any amounts referred to in subsection 2.3 payable
to Agents and Lenders on or before the Closing Date.
"Consolidated Net Income" means, for any period, the net
income (or loss) of Holdings and its Subsidiaries on a consolidated
basis for such period taken as a single accounting period determined in
conformity with GAAP; provided that there shall be excluded (i) the
income (or loss) of any Person (other than a Subsidiary of Holdings) in
which any other Person (other than Holdings or any of its Subsidiaries)
has a joint interest, except to the extent of the amount of dividends
or other distributions actually paid to Holdings or any of its
Subsidiaries by such Person during such period, (ii) the income (or
loss) of any Person accrued prior to the date it becomes a Subsidiary
of Holdings or is merged into or consolidated with Holdings or any of
its Subsidiaries or that Person's assets are acquired by Holdings or
any of its Subsidiaries, (iii) the income of any Subsidiary of Holdings
to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (iv) any after-tax gains or
losses attributable to Asset Sales or returned surplus assets of any
Pension Plan, and (v) (to the extent not included in clauses (i)
through (iv) above) any net extra-ordinary gains or net non-cash
extraordinary losses.
"Consolidated Total Debt" means, as at any date of
determination, the aggregate stated balance sheet amount of all
Indebtedness and Contingent Obligations of Holdings and its
Subsidiaries in respect of Indebtedness determined on a consolidated
basis in accordance with GAAP, in each case other than Indebtedness in
respect of Covenants not to Compete and the Existing Sellers Notes.
"Consolidated Working Capital" means, as at any date of
determination, the excess of Consolidated Current Assets over
Consolidated Current Liabilities.
"Consolidated Working Capital Adjustment" means, for any
period on a consolidated basis, the amount (which may be a negative
number) by which Consolidated Working Capital as of the beginning of
such period exceeds (or is less than) Consolidated Working Capital as
of the end of such period.
-12-
<PAGE>
"Contingent Obligation", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that Person
(i) with respect to any Indebtedness, lease, dividend or other
obligation of another if the primary purpose or intent thereof by the
Person incurring the Contingent Obligation is to provide assurance to
the obligee of such obligation of another that such obligation of
another will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable
for reimbursement of drawings, or (iii) under Hedge Agreements.
Contingent Obligations shall include (a) the direct or indirect
guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or
sale with recourse by such Person of the obligation of another, (b) the
obligation to make take-or-pay or similar payments if required
regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of such Person for the obligation of
another through any agreement (contingent or otherwise) (1) to
purchase, repurchase or otherwise acquire such obligation or any
security therefor, or to provide funds for the payment or discharge of
such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise) or (2) to maintain the
solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under
subclauses (1) or (2) of this sentence, the primary purpose or intent
thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"Contractual Obligation", as applied to any Person, means any
provision of any Security issued by that Person or of any material
indenture, mortgage, deed of trust, contract, undertaking, agreement or
other instrument to which that Person is a party or by which it or any
of its properties is bound or to which it or any of its properties is
subject.
"Contribution" has the meaning assigned to that term in the
Recitals.
"Covenants not to Compete" means any covenants not to compete,
consulting agreements, former owner agreements (including employment
agreements) or other similar arrangements pursuant to which Holdings or
any of its Subsidiaries agree to make periodic payments to certain
Persons in connection with the acquisition of funeral homes and
cemeteries.
-13-
<PAGE>
"Cumulative Consolidated Adjusted EBITDA" means, at any date
of determination, Consolidated Adjusted EBITDA for the period from
January 1, 1997 through such date.
"Cure Amount" means the amount of Cash received by Holdings
and contributed to Borrower from the issuance of Permitted Cure
Securities by Holdings or from other contributions to the capital of
Holdings pursuant to the exercise by Holdings of any Cure Right.
"Cure Right" has the meaning assigned to that term in
subsection 7.6G.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic
cap or other similar agreement or arrangement to which Holdings or any
of its Subsidiaries is a party.
"Deferred Merchandising Adjustment" means, for any period, the
increase (or decrease) in the net deferred merchandise liability during
such period, in each case determined pursuant to the calculations set
forth in the form of the Compliance Certificate.
"Deposit Account" means a demand, time, savings, passbook or
like account with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a negotiable
certificate of deposit.
"Dollars" and the sign "$" mean the lawful money of the
United States of America.
"Eligible Assignee" means (i)(a) a commercial bank organized
under the laws of the United States or any state thereof; (b) a savings
and loan association or savings bank organized under the laws of the
United States or any state thereof; (c) a commercial bank organized
under the laws of any other country or a political subdivision thereof;
provided that (1) such bank is acting through a branch or agency
located in the United States or (2) such bank is organized under the
laws of, and acting through a branch or agency located in, a country
that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (d) any
finance company, insurance company, or other financial institution or
fund (whether a corporation, partnership, trust or other entity) that
is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business and having a combined
capital and surplus or net assets of at least $100,000,000; and (ii)
any Lender and any Affiliate of any Lender; provided that no
Affiliate of Borrower shall be an Eligible Assignee.
-14-
<PAGE>
"Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA which is or was maintained or
contributed to by Holdings, any of its Subsidiaries or any of their
respective ERISA Affiliates.
"Environmental Claim" means any investigation, written notice,
written notice of violation, claim, action, suit, proceeding, written
demand, written abatement order or other written order or directive
(conditional or otherwise), by any governmental authority or any other
Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law, (ii) in connection with any
Hazardous Materials or any actual or alleged Hazardous Materials
Activity, or (iii) in connection with any actual or alleged damage,
injury, threat or harm to health, safety, natural resources or the
environment.
"Environmental Indemnity Agreement" means the Environmental
Indemnity Agreement executed and delivered by the Loan Parties
signatory thereto on the Closing Date, substantially in the form of
Exhibit XXII annexed hereto, as such Environmental Indemnity Agreement
may thereafter be amended, supplemented or otherwise modified from time
to time.
"Environmental Laws" means any and all applicable statutes,
ordinances, orders, rules, regulations, judgments, Governmental
Authorizations, or any other binding requirements of governmental
authorities relating to (i) environmental matters, including those
relating to any Hazardous Materials Activity, (ii) the generation,
use, storage, transportation or disposal of Hazardous Materials, or
(iii) occupational safety and health, industrial hygiene, land use or
the protection of human, plant or animal health or welfare as relating
to the environment, in any manner applicable to Holdings or any of its
Subsidiaries or any Facility, including the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.
9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
ss. 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control Act (33
U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.),
the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
ss.136 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss.
651 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and
the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss.
11001 et seq.), each as amended or supplemented, any analogous state
or local statutes or laws, and any regulations promulgated pursuant
to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor thereto.
-15-
<PAGE>
"ERISA Affiliate" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of
which that Person is a member; (ii) any trade or business (whether or
not incorporated) which is a member of a group of trades or businesses
under common control within the meaning of Section 414(c) of the
Internal Revenue Code of which that Person is a member; and (iii) any
member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any
corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member. Any former ERISA Affiliate
of Holdings or any of its Subsidiaries shall continue to be considered
an ERISA Affiliate of Holdings or such Subsidiary within the meaning of
this definition with respect to the period such entity was an ERISA
Affiliate of Holdings or such Subsidiary and with respect to
liabilities arising after such period for which Holdings or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder
with respect to any Pension Plan (excluding those for which the
provision for 30-day notice to the PBGC has been waived by regulation);
(ii) the failure to meet the minimum funding standard of Section 412 of
the Internal Revenue Code with respect to any Pension Plan (whether or
not waived in accordance with Section 412(d) of the Internal Revenue
Code) or the failure to make by its due date a required installment
under Section 412(m) of the Internal Revenue Code with respect to any
Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any
Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of
intent to terminate such plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its
Subsidiaries or any of their respective ERISA Affiliates from any
Pension Plan with two or more contributing sponsors or the termination
of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings
to terminate any Pension Plan, or the occurrence of any event or
condition which could reasonably be expected to constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (vi) the imposition of material liability
on Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason
of the application of Section 4212(c) of ERISA; (vii) the withdrawal
of Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates in a complete or partial withdrawal (within the meaning of
Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there
could reasonably be expected to be any material liability therefor, or
the receipt by
-16-
<PAGE>
Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA, or that it intends to terminate or has terminated under Section
4041A or 4042 of ERISA; (viii) the occurrence of an act or omission
which could give rise to the imposition on Holdings, any of its
Subsidiaries or any of their respective ERISA Affiliates of material
fines, material penalties, material taxes or material related charges
under Chapter 43 of the Internal Revenue Code or under Section 409,
Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any
Employee Benefit Plan; (ix) the assertion of a material claim (other
than routine claims for benefits) against any Employee Benefit Plan
other than a Multiemployer Plan or the assets thereof, or against
Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates in connection with any Employee Benefit Plan; (x) receipt
from the Internal Revenue Service of notice of the failure of any
Pension Plan (or any other Employee Benefit Plan intended to be
qualified under Section 401(a) of the Internal Revenue Code) to
qualify under Section 401(a) of the Internal Revenue Code, or the
failure of any trust forming part of any Pension Plan to qualify for
exemption from taxation under Section 501(a) of the Internal Revenue
Code; or (xi) the imposition of a material Lien pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA
with respect to any Pension Plan.
"Eurodollar Rate Loans" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"Event of Default" means each of the events set forth in
Section 8.
"Excess Consolidated Capital Expenditure Amount" means, as of
any date of determination, the sum of the Yearly Excess Cash Flow
Amounts for each Fiscal Year ending after the Closing Date and on or
prior to the date of determination. As used in this definition, "Yearly
Excess Cash Flow Amount" means, for each Fiscal Year, the lesser of (i)
Consolidated Excess Cash Flow for such Fiscal Year and (ii) (x) in the
case of each of Fiscal Year 1997 and Fiscal Year 1998, the sum of
$10,000,000 and 50% of Consolidated Excess Cash Flow in excess of
$10,000,000 for each such Fiscal Year and (y) in the case of each
Fiscal Year thereafter, the sum of $7,500,000 and 50% of Consolidated
Excess Cash Flow in excess of $7,500,000 for each such Fiscal Year;
provided in no event shall the Yearly Excess Cash Flow Amount be less
than zero in any Fiscal Year, and provided further, that at any time
that the proviso to subsection 2.4B(iii)(d) is applicable, the
foregoing percentage of Consolidated Excess Cash Flow in clauses
(ii)(x) and (y) above in this definition shall instead be 75%.
-17-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
"Existing Indebtedness" means the Indebtedness set forth on
Schedule 1.1A annexed hereto which shall be repaid in full on the
Closing Date provided, however, that the Existing Indebtedness shall
not include up to $3,000,000 of Covenants not to Compete assumed by the
Borrower as part of the Transaction and the Existing Sellers Notes.
"Existing Sellers Notes" means up to $2,000,000 of sellers
notes issued to certain former owners of the Satellite Properties.
"Facilities" means any and all real property (including all
buildings, fixtures or other improvements located thereon) now,
hereafter or heretofore owned, leased, operated or used by Holdings or
any of its Subsidiaries or any of their respective predecessors or
Affiliates.
"Federal Funds Effective Rate" means, for any period, a
fluctuating interest rate equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by Administrative Agent from three Federal funds
brokers of recognized standing selected by Administrative Agent.
"Financial Performance Covenants" means the covenants of
Holdings and Borrower set forth in subsections 7.6A, 7.6B, 7.6C, 7.6D
and 7.6E.
"Financial Plan" has the meaning assigned to that term in
subsection 6.1(xiii).
"First Priority" means, with respect to any Lien purported to
be created in any Collateral pursuant to any Collateral Document, that
(i) such Lien has priority over any other Lien on such Collateral
(other than Liens permitted pursuant to subsection 7.2A) and (ii) such
Lien is the only Lien (other than Permitted Encumbrances and Liens
permitted pursuant to subsection 7.2) to which such Collateral is
subject.
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year.
-18-
<PAGE>
"Fiscal Year" means the fiscal year of Holdings and its
Subsidiaries ending on December 31 of each calendar year.
"Funding and Payment Office" means (i) the office of
Administrative Agent and Swing Line Lender located at One Liberty
Plaza, New York, New York 10006 or (ii) such other office of
Administrative Agent and Swing Line Lender located in the United States
as may from time to time hereafter be designated as such in a written
notice delivered by Administrative Agent and Swing Line Lender to
Borrower and each Lender.
"Funding Date" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application
thereof set forth in subsection 1.2, generally accepted accounting
principles set forth in opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting
profession, in each case as the same are applicable to the
circumstances as of the date of determination.
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or
from any federal, state or local governmental authority, agency or
court.
"Guaranties" means the Holdings Guaranty and the Subsidiary
Guaranty.
"Hazardous Materials" means (i) any chemical, material or
substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous waste", "acutely hazardous waste", "radioactive
waste", "biohazardous waste", "pollutant", "toxic pollutant",
"contaminant", "restricted hazardous waste", "infectious waste", "toxic
substances", or any other term or expression intended to define, list
or classify substances by reason of properties harmful to
health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or
"EP toxicity" or words of similar import under any applicable
Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced
waters and other wastes associated with the exploration, development
or production of crude oil, natural gas or geothermal resources; (iv)
any explosives; (v) any radioactive
-19-
<PAGE>
materials; (vi) any asbestos-containing materials; (vii) urea
formaldehyde foam insulation; (viii) electrical equipment which
contains any oil or dielectric fluid containing polychlorinated
biphenyls; (ix) pesticides; and (x) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by
any governmental authority or which may or could pose a hazard to the
health and safety of the owners, occupants or any Persons in the
vicinity of any Facility or to the indoor or outdoor environment.
"Hazardous Materials Activity" means any past, current,
proposed or threatened activity, event or occurrence involving any
Hazardous Materials, including the use, manufacture, possession,
storage, holding, presence, existence, location, Release, threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal,
disposition or handling of any Hazardous Materials, and any corrective
action or response action with respect to any of the foregoing.
"Hedge Agreement" means an Interest Rate Agreement or a
Currency Agreement designed to hedge against fluctuations in interest
rates or currency values, respectively.
"Holdings" has the meaning assigned to that term in the
introduction to this Agreement.
"Holdings Certificate of Designations" means the provisions of
Holdings' Certificate of Incorporation relating to the Holdings
Preferred Stock, in the form delivered to Arranging Agent, prior to the
execution of this Agreement and as such provisions may be amended from
time to time thereafter to the extent permitted under subsection 7.13A.
"Holdings Common Stock" means the common stock of Holdings,
par value $.01 per share.
"Holdings Guaranty" means the Holdings Guaranty executed and
delivered by Holdings on the Closing Date, substantially in the form of
Exhibit XVIII annexed hereto, as such Holdings Guaranty may thereafter
be amended, supplemented or otherwise modified from time to time.
"Holdings Pledge Agreement" means the Holdings Pledge
Agreement executed and delivered by Holdings and Administrative Agent
on the Closing Date, substantially in the form of Exhibit XIX annexed
hereto, as such Holdings Pledge Agreement may thereafter be amended,
supplemented or otherwise modified from time to time.
-20-
<PAGE>
"Holdings Preferred Stock" means the Preferred Stock of
Holdings, with a liquidation preference of $10.00 per share and with
the other terms set forth in the Holdings Certificate of Designations.
"Indebtedness", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations with
respect to Capital Leases that is properly classified as a liability on
a balance sheet in conformity with GAAP, (iii) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, (iv) any obligation owed for all or any
part of the deferred purchase price of property or services (including
those portions of obligations with respect to Covenants not to Compete
that are properly classified as liabilities on a balance sheet in
conformity with GAAP, but excluding any such obligations incurred under
ERISA), which purchase price is (a) due more than six months from the
date of incurrence of the obligation in respect thereof or (b)
evidenced by a note or similar written instrument, (v) all indebtedness
secured by any Lien on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is nonrecourse to the credit of
that Person and (vi) any reimbursement obligations of that Person in
respect of letters of credit. Obligations under Interest Rate
Agreements and Currency Agreements constitute (1) in the case of Hedge
Agreements, Contingent Obligations, and (2) in all other cases,
Investments, and in neither case constitute Indebtedness.
"Indemnitee" has the meaning assigned to that term in
subsection 10.3.
"Intellectual Property" means all patents, trademarks,
tradenames, copyrights, technology, know-how and processes used in or
necessary for the conduct of the business of Borrower and its
Subsidiaries as currently conducted that are material to the condition
(financial or otherwise), business or operations of Borrower and its
Subsidiaries, taken as a whole.
"Intercompany Note" means a promissory note executed by a Loan
Party or any of its Subsidiaries evidencing intercompany Indebtedness
substantially in the form of Exhibit XX annexed hereto.
"Interest Payment Date" means (i) with respect to any Base
Rate Loan, each February 1, May 1, August 1 and November 1 of each
year, commencing on the first such date to occur after the Closing
Date, and (ii) with respect to any Eurodollar Rate Loan, the last day
of each Interest Period applicable to such Loan; provided that in the
case of each Interest Period of longer than three months "Interest
Payment Date" shall also include each date that is three
-21-
<PAGE>
months, or an integral multiple thereof, after the commencement
of such Interest Period.
"Interest Period" has the meaning assigned to that term in
subsection 2.2B.
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement or arrangement to which Borrower or any of
its Subsidiaries is a party.
"Interest Rate Determination Date" means, with respect to any
Interest Period, the second Business Day prior to the first day of such
Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended to the date hereof and from time to time hereafter,
and any successor statute.
"Inventory" means, with respect to any Person as of any date
of determination, all goods, merchandise and other personal property
which are then held by such Person for sale or lease, including raw
materials and work in process.
"Investment" means (i) any direct or indirect purchase or
other acquisition by Holdings or any of its Subsidiaries of, or of a
beneficial interest in, any Securities of any other Person (including
any Subsidiary of Holdings), (ii) any direct or indirect redemption,
retirement, purchase or other acquisition for value, by any Subsidiary
of Holdings from any Person other than Holdings or any of its
Subsidiaries, of any equity Securities of such Subsidiary, (iii) any
direct or indirect loan, advance (other than advances to employees for
moving, entertainment and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital
contribution by Holdings or any of its Subsidiaries to any other Person
(other than a Wholly Owned Subsidiary of Holdings), including all
indebtedness and accounts receivable from that other Person that are
not current assets or did not arise from sales to that other Person in
the ordinary course of business, or (iv) Interest Rate Agreements or
Currency Agreements not constituting Hedge Agreements. The amount of
any Investment shall be (a) the original cost of such Investment plus
(b) the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write- ups, write-downs or
write-offs with respect to such Investment minus (c) the lesser of (1)
the aggregate amount of any repayments, redemptions, dividends or
distributions thereon or proceeds from the sale thereof, in each case
to the extent of any Cash payments (including any Cash received by way
of deferred payment
-22-
<PAGE>
pursuant to, or by monetization of, a note receivable or otherwise,
but only as and when so received) actually received by Borrower or any
of its Subsidiaries in connection therewith, and (2) the aggregate
amount described in the immediately preceding clauses (a) and (b).
"Investors" means collectively Loewen and the Blackstone
Investors.
"Issuing Lender" means, Scotiabank, or any Person serving as
successor Administrative Agent hereunder, in its capacity as Issuing
Lender.
"Joint Venture" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal
form; provided that in no event shall any corporate Subsidiary of any
Person be considered to be a Joint Venture to which such Person is a
party.
"Lender" and "Lenders" means the persons identified as
"Lenders" and listed on the signature pages of this Agreement and the
Persons making the Additional Term Loans, together with their
successors and permitted assigns pursuant to subsection 10.1, and the
term "Lenders" shall include Swing Line Lender unless the context
otherwise requires; provided that the term "Lenders", when used in the
context of a particular Commitment, shall mean Lenders having that
Commitment.
"Letter of Credit" or "Letters of Credit" means Commercial
Letters of Credit and Standby Letters of Credit issued or to be issued
by Issuing Lender for the account of Borrower pursuant to subsection
3.1.
"Letter of Credit Usage" means, as at any date of
determination, the sum of (i) the maximum aggregate amount which is or
at any time thereafter may become available for drawing under all
Letters of Credit then outstanding plus (ii) the aggregate amount of
all drawings under Letters of Credit honored by Issuing Lender and not
theretofore reimbursed by Borrower (including any such reimbursement
out of the proceeds of Revolving Loans pursuant to subsection 3.3B).
"Leverage Ratio" means the ratio of (i) Consolidated Total
Debt as of the last day of any Fiscal Quarter to (ii) Consolidated
Adjusted EBITDA for the four-Fiscal Quarter period then ended, in each
case as set forth in the most recent Compliance Certificate delivered
by Borrower to Administrative Agent and Lenders pursuant to clause
(iii) of subsection 6.1.
-23-
<PAGE>
"Lien" means any lien, mortgage, pledge, collateral
assignment, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security
interest) and any option or trust having the practical effect of any of
the foregoing.
"Loan" or "Loans" means one or more of the AXELs, Revolving
Loans, Swing Line Loans or Additional Term Loans or any combination
thereof.
"Loan Documents" means this Agreement, the Notes, any
applications for, or reimbursement agreements or other documents or
certificates executed by Borrower in favor of Issuing Lender relating
to, the Letters of Credit, the Guaranties, the Collateral Documents,
the Environmental Indemnity Agreement, each Acknowledgement of
Additional Term Loans and any Hedge Agreements entered into with
Lenders or their Affiliates.
"Loan Party" means each of Holdings, Borrower and any of
Holdings' Subsidiaries from time to time executing a Loan Document, and
"Loan Parties" means all such Persons, collectively.
"Loewen" means Loewen Group International Inc., a Delaware
corporation and a Wholly Owned Subsidiary of Loewen Group, and its
Affiliates.
"Loewen Group" means The Loewen Group, Inc., a corporation
organized under the laws of British Columbia.
"Management Fees" means fees payable to Affiliates of the
Blackstone Investors in an aggregate amount not to exceed $250,000 per
annum, as adjusted for inflation.
"Margin Stock" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System as
in effect from time to time.
"Material Adverse Effect" means (i) any material adverse
effect on or affecting the financial position, prospects or results of
operations of Holdings and its Subsidiaries, taken as a whole, or (ii)
the impairment of the ability of Holdings, Borrower or the Loan
Parties, taken as a whole, to perform, or of Administrative Agent or
Lenders to enforce, the Obligations.
"Material Contract" means any contract or other arrangement to
which Holdings or any of its Subsidiaries is a party (other than the
Loan Documents)
-24-
<PAGE>
for which breach, nonperformance, cancellation or failure to renew
could have a Material Adverse Effect.
"Maximum Consolidated Capital Expenditures Amount" has the
meaning assigned to that term in subsection 7.8.
"Merger" means the merger of RH Mortuary with and into Rose
Hills pursuant to the terms and conditions of the Merger Agreement and
as a result of which Rose Hills shall be the surviving corporation and
a Wholly Owned Subsidiary of Holdings named RH Mortuary.
"Merger Agreement" means that certain Agreement and Plan of
Merger by and among Rose Hills, the existing stockholders of Rose
Hills, and the Borrower (whose rights and obligations thereunder have
been assigned to RH Mortuary), dated as of September 19, 1996, in the
form delivered to Arranging Agent prior to the execution of this
Agreement and as such agreement may be amended from time to time
thereafter to the extent permitted under subsection 7.13A.
"Mortgage" means the Mortgage executed and delivered by RH
Cemetery on the Closing Date, substantially in the form of Exhibit XXI
annexed hereto, as such Mortgage may thereafter be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan" means any Employee Benefit Plan which is
a "multiemployer plan" as defined in Section 3(37) of ERISA.
"Net Asset Sale Proceeds" means, with respect to any Asset
Sale, Cash payments (including any Cash received by way of deferred
payment pursuant to, or by monetization of, a note receivable or
otherwise, but only as and when so received) received from such Asset
Sale, net of any bona fide direct costs incurred in connection with
such Asset Sale, including (i) taxes reasonably estimated to be
actually payable within two years of the date of such Asset Sale as a
result of any gain recognized in connection with such Asset Sale and
(ii) payment of the outstanding principal amount of, interest on, and
premium or penalty, if any, with respect to any Indebtedness (other
than the Loans) that is secured by a Lien on the stock or assets in
question and that is required to be repaid under the terms thereof as
a result of such Asset Sale.
"Net Insurance/Condemnation Proceeds" means any Cash payments
or proceeds received by Holdings or any of its Subsidiaries (i) under
any business interruption or casualty insurance policy in respect of a
covered loss thereunder
-25-
<PAGE>
or (ii) as a result of the taking of any assets of Holdings or any of
its Subsidiaries by any Person pursuant to the power of eminent
domain, condemnation or otherwise, or pursuant to a sale of any such
assets to a purchaser with such power under threat of such a taking (a
"Condemnation"), in each case net of (a) any actual and reasonable
documented costs incurred by Holdings or any of its Subsidiaries in
connection with the adjustment or settlement of any claims of Holdings
or such Subsidiary in respect thereof and (b) any bona fide direct
costs incurred in connection with such Condemnation or casualty,
including (1) taxes reasonably estimated to be actually payable within
two years of the date of such Condemnation or casualty as a result of
any gain recognized in connection with such Condemnation or casualty
and (2) payment of the outstanding principal amount of, interest on,
and premium or penalty, if any, with respect to any Indebtedness
(other than the Loans) that is secured by a Lien on the assets in
question and that is required to be repaid under the terms thereof as
a result of such Condemnation or casualty.
"Notes" means one or more of the AXEL Notes, Revolving Notes,
Additional Term Notes or Swing Line Note or any combination thereof.
"Notice of Borrowing" means a notice substantially in the form
of Exhibit I annexed hereto delivered by Borrower to Administrative
Agent pursuant to subsection 2.1B with respect to a proposed borrowing,
or in the case of a proposed borrowing of Additional Term Loans, the
notice information set forth in the respective Acknowledgement of
Additional Term Loans for such proposed borrowing.
"Notice of Conversion/Continuation" means a notice
substantially in the form of Exhibit II annexed hereto delivered by
Borrower to Administrative Agent pursuant to subsection 2.2D with
respect to a proposed conversion or basis for determining the
interest rate with respect to the Loans specified therein.
"Notice of Issuance of Letter of Credit" means a notice
substantially in the form of Exhibit III annexed hereto delivered by
Borrower to Administrative Agent pursuant to subsection 3.1B(i) with
respect to the proposed issuance of a Letter of Credit.
"Obligations" means all obligations of every nature of each
Loan Party from time to time owed to Agents, Lenders or their
respective Affiliates or any of them under the Loan Documents, whether
for principal, interest, reimbursement of amounts drawn under Letters
of Credit, fees, expenses, indemnification or otherwise.
-26-
<PAGE>
"Officers' Certificate" means, as applied to any corporation,
a certificate executed on behalf of such corporation by its chairman of
the board (if an officer) or its chief executive officer or its
president or one of its vice presidents and by its chief financial
officer or its treasurer; provided that any Officers' Certificate with
respect to compliance with a condition precedent to the making of the
initial Loans hereunder shall include (i) a statement that the officer
or officers making or giving such Officers' Certificate have read such
condition and any definitions or other provisions contained in this
Agreement relating thereto, (ii) a statement that, in the opinion of
the signers, they have made or have caused to be made such examination
or investigation as is necessary to enable them to express an informed
opinion as to whether or not such condition has been complied with, and
(iii) a statement as to whether, in the opinion of the signers, such
condition has been complied with.
"Operating Lease" means, as applied to any Person, any lease
(including leases that may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) that is not a Capital
Lease other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multi- employer Plan, which is subject to Section 412 of the Internal
Revenue Code or Section 302 of ERISA.
"Permitted Acquisition" means a Business Acquisition effected
in accordance with the terms and conditions of this Agreement.
"Permitted Cure Security" means an equity Security of Holdings
having no mandatory redemption, repurchase or similar requirements
prior to June 1, 2004 and upon which all dividends, at the election of
Holdings, may be payable in additional shares of such equity Security.
"Permitted Encumbrances" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or
412(n) of the Internal Revenue Code or by ERISA, any such Lien relating
to or imposed in connection with any Environmental Claim, and any such
Lien expressly prohibited by any applicable terms of any of the
Collateral Documents):
-27-
<PAGE>
(i) Liens for taxes, assessments or governmental
charges or claims the payment of which is not, at the time,
required by subsection 6.3;
(ii) statutory Liens of landlords, statutory Liens
of banks and rights of set-off, statutory Liens of carriers,
warehousemen, mechanics, repairmen, workmen and materialmen,
and other Liens imposed by law, in each case incurred in the
ordinary course of business (a) for amounts not yet overdue or
(b) for amounts that are overdue and that are being contested
in good faith by appropriate proceedings, so long as (1) such
reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made for any such contested
amounts, and (2) in the case of a Lien with respect to any
material portion of the Collateral, such contest proceedings
conclusively operate to stay the sale of any portion of the
Collateral on account of such Lien;
(iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the
payment of borrowed money), so long as no foreclosure, sale or
similar proceedings have been commenced with respect to any
material portion of the Collateral on account thereof;
(iv) any attachment or judgment Lien not
constituting an Event of Default under subsection 8.8;
(v) leases or subleases granted to third
parties in accordance with any applicable terms of the
Collateral Documents and not interfering in any material
respect with the ordinary conduct of the business of
Borrower or any of its Subsidiaries or resulting in a
material diminution in the value of any Collateral as
security for the Obligations;
(vi) easements, rights-of-way, restrictions,
encroachments, and other minor defects or irregularities in
title, in each case which do not and will not interfere in any
material respect with the ordinary conduct of the business of
Borrower or any of its Subsidiaries or result in a material
diminution in the value of any Collateral as security for the
Obligations;
-28-
<PAGE>
(vii) any (a) interest or title of a lessor or
sublessor under any lease, (b) restriction or encumbrance that
the interest or title of such lessor or sublessor may be
subject to, or (c) subordination of the interest of the lessee
or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (b), so long
as the holder of such restriction or encumbrance agrees to
recognize the rights of such lessee or sublessee under such
lease;
(viii) Liens arising from filing UCC financing
statements relating solely to leases permitted by this
Agreement;
(ix) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods;
(x) any zoning or similar law or right reserved
to or vested in any governmental office or agency to control
or regulate the use of any real property; and
(xi) Liens securing obligations (other than
obligations representing Indebtedness for borrowed money)
under operating, reciprocal easement or similar agreements
entered into in the ordinary course of business of Borrower
and its Subsidiaries.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, limited liability
companies, limited liability partnerships, joint stock companies, Joint
Ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal
entities, and governments (whether federal, state or local, domestic or
foreign, and including political subdivisions thereof) and agencies or
other administrative or regulatory bodies thereof.
"Pledged Collateral" means, collectively, the "Pledged
Collateral" as defined in the Holdings Pledge Agreement, the Borrower
Pledge Agreement and the Subsidiary Pledge Agreement.
"Potential Event of Default" means a condition or event that,
after notice or lapse of time or both, would constitute an Event of
Default.
"Pricing Premium" means, if as of the end of any Fiscal
Quarter, commencing with the Fiscal Quarter ending June 30, 1997, the
ratio of Consolidated Adjusted EBITDA to Consolidated Interest Expense
(excluding
-29-
<PAGE>
Premium Interest, as hereinafter defined) for the four Fiscal Quarter
period then ended is less than 1.50:1.00, then the Applicable Margin
set forth in the chart in clause (i) of the definition of "Applicable
Margin" (and clause (ii) thereof, except to the extent set forth in
the respective Acknowledgement of Additional Term Loans) shall be
increased by 0.25% per annum (such additional .25% referred to herein
as "Premium Interest") on all Loans (other than Additional Term Loans
except to the extent set forth in the respective Acknowledgment of
Additional Term Loans) outstanding during such Fiscal Quarter (or with
respect to the initial test on June 30, 1997, on all Loans (other than
Additional Term Loans except to the extent set forth in the respective
Acknowledgment of Additional Term Loans) at any time outstanding
during the period from the Closing Date through June 30, 1997). The
Pricing Premium shall be determined on the basis of the financial
statements and Compliance Certificates delivered by Borrower to
Administrative Agent and Lenders pursuant to clauses (i) , (ii), (iii)
or (iv) of subsection 6.1, as applicable.
"Pricing Reduction" means (i) if at any time after the first
anniversary of the Closing Date as of the end of any Fiscal Quarter,
the Leverage Ratio is equal to or less than 5.75:1.00, a pricing
reduction equal to .25% and (ii) if at any time after the second
anniversary of the Closing Date, as of the end of any Fiscal Quarter,
the Leverage Ratio is equal to or less than 5.00:1.00, a pricing
reduction equal to .50%, provided, that any pricing reduction for the
Additional Term Loans shall be as set forth in the respective
Acknowledgement of Additional Term Loans. The Pricing Reduction shall
be determined by reference to the Leverage Ratio set forth in the most
recent financial statements delivered by Borrower to Administrative
Agent and Lenders pursuant to clause (i) or (ii) of subsection 6.1
(accompanied by a Compliance Certificate delivered by Borrower pursuant
to clause (iii) of subsection 6.1). Any changes in the Pricing
Reduction shall become effective on the day following delivery of the
relevant Compliance Certificate to Administrative Agent and Lenders and
shall remain in effect through the next scheduled date for delivery of
a Compliance Certificate. It is understood and agreed that the Pricing
Reductions set forth in clause (i) and (ii) are not cumulative.
Notwithstanding anything herein to the contrary, (a) from the Closing
Date to and including the date of the first anniversary of the Closing
Date, the Pricing Reduction shall be zero and (b) at any time an Event
of Default shall have occurred and be continuing, the Pricing
Reduction shall be zero.
"Prime Rate" means the rate that Administrative Agent
announces from time to time as its prime lending rate for Dollars at
its Funding and Payment Office, as in effect from time to time. The
Prime Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any
-30-
<PAGE>
customer. Administrative Agent or any other Lender may make commercial
loans or other loans at rates of interest at, above or below the Prime
Rate.
"Pro Forma EBITDA Adjustment" means, as of any date of
determination commencing on December 31, 1996 and ending on December
31, 1997 the sum of (i) the pro forma cost savings set forth on
Schedule 1.1B annexed hereto multiplied by a fraction, the numerator of
which is 365 minus the number of days elapsed since December 31, 1996
and the denominator of which is 365 and (ii) an adjustment to
Consolidated Adjusted EBITDA to reflect the annual effect of Borrower's
investment policy realignment for the endowment care fund acquired as
part of the Transaction as such annual effect is described on Schedule
1.1B annexed hereto.
"Pro Forma Projected EBITDA" means, with respect to any
Acquired Business to be acquired in a Permitted Acquisition, the net
income attributable to the Acquired Business for the most recently
ended four quarter period of the Acquired Business, after giving effect
on a pro forma basis to (i) the elimination of any expense items
attributable to the Acquired Business which will not be assumed by
Borrower in connection with the proposed acquisition of the Acquired
Business, (ii) any projected cost savings reasonably projected by
Borrower and reasonably acceptable to Administrative Agent in
connection with the proposed acquisition of the Acquired Business and
(iii) any adjustment attributable to Borrower's investment policy
realignment for any endowment care fund acquired as part of the
Acquired Business and with such adjustment to be made on a basis
reasonably acceptable to Administrative Agent plus, (A) without
duplication, any draw on the reserve of any endowment care fund and any
revenues earned on any endowment care fund and (B) to the extent
deducted in computing the net income attributable to the Acquired
Business, the sum of (a) interest expense, (b) provisions for taxes
based on income attributable to the Acquired Business, (c) depreciation
and amortization expenses (including, to the extent not already
included therein, amortization of grave sites included in cost of
sales) and (d) any other non-cash items reducing net income less, to
the extent added in calculating net income attributable to the
Acquired Business (e) any non-cash items (other than non-cash items
included as installment revenues) increasing net income and (f) any
extraordinary gains, all as determined with respect to the Acquired
Business in conformity with GAAP and as set forth in reasonable detail
in an Officers' Certificate delivered by Borrower to Administrative
Agent, accompanied by the financial statements of the Acquired
Business for the periods covered by the Officers' Certificate and
accompanied by such other supporting documentation as may be
reasonably requested by Administrative Agent.
-31-
<PAGE>
"Pro Rata Share" means (i) with respect to all payments,
computations and other matters relating to the AXEL Commitment or the
AXEL of any Lender, the percentage obtained by dividing (a) the AXEL
Exposure of that Lender by (b) the aggregate AXEL Exposure of all
Lenders, (ii) with respect to all payments, computations and other
matters relating to the Additional Term Loans of any Lender, the
percentage obtained by dividing (a) the Additional Term Loan Exposure
of that Lender by (b) the aggregate Additional Term Loan Exposure of
all Lenders, (iii) with respect to all payments, computations and other
matters relating to the Revolving Loan Commitment or the Revolving
Loans of any Lender or any Letters of Credit issued or participations
therein purchased by any Lender or any participations in any Swing Line
Loans purchased by any Lender, the percentage obtained by dividing (a)
the Revolving Loan Exposure of that Lender by (b) the aggregate
Revolving Loan Exposure of all Lenders, and (iv) for all other purposes
with respect to each Lender, the percentage obtained by dividing (a)
the sum of the AXEL Exposure of that Lender plus the Additional Term
Loan Exposure of that Lender plus the Revolving Loan Exposure of that
Lender by (b) the sum of the aggregate AXEL Exposure of all Lenders
plus the aggregate Additional Term Loan Exposure of all Lenders plus
the aggregate Revolving Loan Exposure of all Lenders, in any such case
as the applicable percentage may be adjusted by assignments permitted
pursuant to subsection 10.1. The initial Pro Rata Share of each Lender
for purposes of each of clauses (i), (iii) and (iv) of the preceding
sentence is set forth opposite the name of that Lender in Schedule 2.1
annexed hereto.
"Refunded Swing Line Loans" has the meaning assigned to that
term in subsection 2.1A(iii).
"Register" has the meaning assigned to that term in
subsection 2.1D.
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Reimbursement Date" has the meaning assigned to that term in
subsection 3.3B.
"Related Agreements" means, collectively, the Acquisition
Agreement, the Merger Agreement, the Subscription Agreement, the
Holdings Certificate of Designations, the Senior Subordinated Note
Indenture and the Administrative Agreement.
"Release" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge,
dispersal, dumping, leaching or
-32-
<PAGE>
migration of Hazardous Materials into the indoor or outdoor
environment (including the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous
Materials), including the movement of any Hazardous Materials through
the air, soil, surface water or groundwater.
"Requisite Class Lenders" means, at any time of determination
(i) for the Class of Lenders having AXEL Exposure and Additional Term
Loan Exposure, Lenders having or holding more than 50% of the sum of
the aggregate AXEL Exposure and Additional Term Loan Exposure of all
Lenders, and (ii) for the Class of Lenders having Revolving Loan
Exposure, Lenders having or holding more than 50% of the sum of the
aggregate Revolving Loan Exposure of all Lenders.
"Requisite Lenders" means Lenders having or holding more than
50% of the sum of the aggregate AXEL Exposure of all Lenders plus the
aggregate Additional Term Loan Exposure of all Lenders plus the
aggregate Revolving Loan Exposure of all Lenders.
"Reserve Requirement" means, for any Interest Rate
Determination Date, the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which
is imposed under Regulation D on such Interest Rate Determination Date.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of stock of Holdings or Borrower now or hereafter outstanding, except a
dividend payable solely in shares of that class of stock to the holders
of that class, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect,
of any shares of any class of stock of Borrower or Holdings now or
hereafter outstanding, (iii) any payment made to retire, or to obtain
the surrender of, any outstanding warrants, options or other
rights to acquire shares of any class of stock of Borrower or Holdings
now or hereafter outstanding, and (iv) any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance),
sinking fund or similar payment with respect to, any Subordinated
Indebtedness.
"Revolving Loan Commitment" means the commitment of a Lender
to make Revolving Loans to Borrower pursuant to subsection 2.1A(ii),
and "Revolving Loan Commitments" means such commitments of all Lenders
in the aggregate.
-33-
<PAGE>
"Revolving Loan Commitment Termination Date" means November
1, 2001.
"Revolving Loan Exposure" means, with respect to any Lender as
of any date of determination (i) prior to the termination of the
Revolving Loan Commitments, that Lender's Revolving Loan Commitment and
(ii) after the termination of the Revolving Loan Commitments, the sum
of (a) the aggregate outstanding principal amount of the Revolving
Loans of that Lender plus (b) in the event that Lender is Issuing
Lender, the aggregate Letter of Credit Usage in respect of all Letters
of Credit issued by that Lender (in each case net of any participations
purchased by other Lenders in such Letters of Credit or any
unreimbursed drawings thereunder) plus (c) the aggregate amount of all
participations purchased by that Lender in any outstanding Letters of
Credit or any unreimbursed drawings under any Letters of Credit plus
(d) in the case of Swing Line Lender, the aggregate outstanding
principal amount of all Swing Line Loans (net of any participations
therein purchased by other Lenders) plus (e) the aggregate amount of
all participations purchased by that Lender in any outstanding Swing
Line Loans.
"Revolving Loans" means the Loans made by Lenders to Borrower
pursuant to subsection 2.1A(ii).
"Revolving Notes" means (i) the promissory notes of Borrower
issued pursuant to subsection 2.1E(i)(b) on the Closing Date and (ii)
any promissory notes issued by Borrower pursuant to the last sentence
of subsection 10.1B(i) in connection with assignments of the Revolving
Loan Commitments and Revolving Loans of any Lenders, in each case
substantially in the form of Exhibit V annexed hereto, as they may be
amended, supplemented or otherwise modified from time to time.
"Revolving Outstandings" means, at any time, the sum of (1)
the aggregate principal amount of Revolving Loans and Swing Line Loans
then outstanding plus (2) the aggregate amount of Letter of Credit
Usage at such time.
"RH Cemetery" has the meaning assigned to that term in the
Recitals.
"RH Mortuary" has the meaning assigned to that term in the
Recitals.
"RH Properties" has the meaning assigned to that term in the
Recitals.
"Rose Hills" has the meaning assigned to that term in the
Recitals.
-34-
<PAGE>
"Satellite Properties" means the fourteen funeral homes and
two combination funeral home and cemetery properties contributed to RH
Holdings as part of the Contribution and pursuant to the terms and
conditions of the Subscription Agreement.
"Securities" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in
any profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of
interest, shares or participations in temporary or interim certificates
for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and any successor statute.
"Senior Subordinated Note Indenture" means the indenture
pursuant to which the Senior Subordinated Notes are issued, as such
indenture may be amended from time to time to the extent permitted
under subsection 7.13A.
"Senior Subordinated Notes" means the $80,000,000 in aggregate
principal amount of 9-1/2% Senior Subordinated Notes due 2004 of
Borrower issued pursuant to the Senior Subordinated Note Indenture.
"Solvent" means, with respect to any Person, that as of the
date of determination both (i)(a) the then fair saleable value of the
property of such Person is (1) greater than the total amount of
liabilities (including contingent liabilities) of such Person and (2)
not less than the amount that will be required to pay the probable
liabilities on such Person's then existing debts as they become
absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (b) such
Person's capital is not unreasonably small in relation to its business
or any contemplated or undertaken transaction; and (c) such Person does
not intend to incur, or believe (nor should it reasonably believe) that
it will incur, debts beyond its ability to pay such debts as they
become due; and (ii) such Person is "solvent" within the meaning given
that term and similar terms under applicable laws relating to
fraudulent transfers and conveyances. For purposes of this definition,
the amount of any contingent liability at any time shall be computed as
the amount that, in light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.
-35-
<PAGE>
"Standby Letter of Credit" means any standby letter of credit
or similar instrument issued for the purpose of supporting (i)
Indebtedness of Borrower or any of its Subsidiaries in respect of
industrial revenue or development bonds or financings, (ii) workers'
compensation liabilities of Borrower or any of its Subsidiaries, (iii)
the obligations of third party insurers of Borrower or any of its
Subsidiaries arising by virtue of the laws of any jurisdiction
requiring third party insurers, (iv) obligations with respect to
Capital Leases or Operating Leases of Borrower or any of its
Subsidiaries, (v) performance, payment, deposit or surety obligations
of Borrower or any of its Subsidiaries, in any case if required by law
or governmental rule or regulation or in accordance with custom and
practice in the industry and (vi) other obligations of Borrower and its
Subsidiaries permitted hereunder; provided that Standby Letters of
Credit may not be issued without the consent of Issuing Lender (which
consent may be withheld in the sole discretion of Issuing Lender) for
the purpose of supporting (a) trade payables or (b) any Indebtedness
constituting "antecedent debt" (as that term is used in Section 547 of
the Bankruptcy Code).
"Subordinated Indebtedness" means (i) Indebtedness of Borrower
evidenced by the Senior Subordinated Notes and (ii) any other
Indebtedness of Borrower subordinated in right of payment to the
Obligations pursuant to documentation containing maturities,
amortization schedules, covenants, defaults, remedies, subordination
provisions and other material terms in form and substance satisfactory
to Administrative Agent and Requisite Lenders.
"Subscription Agreement" means that certain Subscription
Agreement by and among Investors and RH Holdings, dated as of November
19, 1996, in the form delivered to Arranging Agent prior to the
execution of this Agreement.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association, joint
venture or other business entity of which more than 50% of the total
voting power of shares of stock or other ownership interests entitled
(without regard to the occurrence of any contingency) to vote in the
election of the Person or Persons (whether directors, managers,
trustees or other Persons performing similar functions) having the
power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or
a combination thereof.
"Subsidiary Guarantor" means any Subsidiary of Borrower that
executes and delivers a counterpart of the Subsidiary Guaranty on the
Closing Date or from time to time thereafter pursuant to subsection
6.8.
-36-
<PAGE>
"Subsidiary Guaranty" means the Subsidiary Guaranty executed
and delivered by existing domestic Subsidiaries of Borrower on the
Closing Date and to be executed and delivered by additional domestic
Subsidiaries of Borrower from time to time thereafter in accordance
with subsection 6.8, substantially in the form of Exhibit XV annexed
hereto, as such Subsidiary Guaranty may hereafter be amended,
supplemented or otherwise modified from time to time.
"Subsidiary Pledge Agreement" means the Subsidiary Pledge
Agreement executed and delivered by existing Subsidiary Guarantors and
Administrative Agent on the Closing Date and to be executed and
delivered by any additional Subsidiary Guarantors from time to time
thereafter in accordance with subsection 6.8, substantially in the form
of Exhibit XVI annexed hereto, as such Subsidiary Pledge Agreement may
be amended, supplemented or otherwise modified from time to time.
"Subsidiary Security Agreement" means the Subsidiary Security
Agreement executed and delivered by existing Subsidiary Guarantors and
Administrative Agent on the Closing Date and to be executed and
delivered by any additional Subsidiary Guarantors from time to time
thereafter in accordance with subsection 6.8, substantially in the form
of Exhibit XVII annexed hereto, as such Subsidiary Security Agreement
may be amended, supplemented or otherwise modified from time to time.
"Supplemental Collateral Agent" has the meaning assigned to
that term in subsection 9.1D.
"Swing Line Lender" means Scotiabank, or any Person serving as
a successor Administrative Agent hereunder, in its capacity as Swing
Line Lender hereunder.
"Swing Line Loan Commitment" means the commitment of Swing
Line Lender to make Swing Line Loans to Borrower pursuant to subsection
2.1A(iii).
"Swing Line Loans" means the Loans made by Swing Line Lender
to Borrower pursuant to subsection 2.1A(iii).
"Swing Line Note" means (i) the promissory note of Borrower
issued pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any
promissory note issued by Borrower to any successor Administrative
Agent and Swing Line Lender pursuant to the last sentence of subsection
9.5B, in each case substantially
-37-
<PAGE>
in the form of Exhibit VI annexed hereto, as it may be amended,
supplemented or otherwise modified from time to time.
"Syndication Agent" has the meaning assigned to that term in
the introduction to this Agreement.
"Tax" or "Taxes" means any present or future tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature and
whatever called, by whomsoever, on whomsoever and wherever imposed,
levied, collected, withheld or assessed; provided that "Tax on the
overall net income" of a Person shall be construed as a reference to a
tax imposed by the jurisdiction in which that Person is organized or in
which that Person's principal office (and/or, in the case of a Lender,
its lending office) is located or in which that Person (and/or, in the
case of a Lender, its lending office) is deemed to be doing business on
all or part of the net income, profits or gains (whether worldwide, or
only insofar as such income, profits or gains are considered to arise
in or to relate to a particular jurisdiction, or otherwise) of that
Person (and/or, in the case of a Lender, its lending office).
"Total Modified Senior Debt" means, as at any date of
determination, the aggregate amount of Total Senior Debt at such date
less the aggregate amount of all Revolving Outstandings at such date.
"Total Senior Debt" means, as at any date of determination,
the aggregate stated balance sheet amount of all Indebtedness and
Contingent Obligations of Holdings and its Subsidiaries in respect of
Indebtedness, in each case other than Indebtedness evidenced by the
Senior Subordinated Notes, Covenants not to Compete and the Existing
Sellers Notes, all as determined on a consolidated basis in accordance
with GAAP.
"Total Utilization of Revolving Loan Commitments" means, as at
any date of determination, the sum of (i) the aggregate principal
amount of all outstanding Revolving Loans (other than Revolving Loans
made for the purpose of repaying any Refunded Swing Line Loans or
reimbursing Issuing Lender for any amount drawn under any Letter of
Credit but not yet so applied) plus (ii) the aggregate principal amount
of all outstanding Swing Line Loans plus (iii) the Letter of Credit
Usage.
"Transaction" means, collectively, (i) the execution and
delivery of this Agreement and the incurrence of Loans on the Closing
Date, (ii) the consummation of the Acquisition, (iii) the consummation
of the Merger, (iv) the issuance of the Senior Subordinated Notes, (v)
the consummation of the
-38-
<PAGE>
Contribution and (vi) the consummation of the other transactions
contemplated by the other Related Agreements.
"Transaction Costs" means the fees, costs and expenses payable
by Borrower on or before the Closing Date in connection with the
Transaction.
"UCC" means the Uniform Commercial Code (or any similar or
equivalent legislation) as in effect in any applicable jurisdiction.
"Wholly Owned Subsidiary" means, with respect to any Person,
any Subsidiary of such Person of which such Person owns, directly or
indirectly, 90% or more of all classes of the capital stock.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement.
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Borrower to Lenders pursuant to clauses (i), (ii),
and (xi) of subsection 6.1 shall be prepared in accordance with GAAP as in
effect at the time of such preparation (and delivered together with the
reconciliation statements provided for in subsection 6.1(iv)). Calculations in
connection with the definitions, covenants and other provisions of this
Agreement shall utilize accounting principles and policies in conformity with
those used to prepare the financial statements referred to in subsection 5.3;
provided that the purchase accounting adjustments made in connection with the
Acquisition and the Merger and the Contribution shall be included; and provided
further, that if Borrower notifies Lenders that Borrower wishes to amend any
covenant in subsection 2.4B(iii)(d), 7.6 or 7.8 or any related definition to
eliminate the effect of any change in GAAP occurring after the date of this
Agreement on the operation of such covenant (or if Administrative Agent
notifies Borrower that Lenders wish to amend subsection 2.4B(iii)(d), 7.6 or
7.8 or any related definition for such purpose), then Borrower and Lenders
hereby agree to negotiate in good faith to agree upon an appropriate amendment
to such covenant.
1.3 Other Definitional Provisions and Rules of Construction.
Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
References to "Sections" and "subsections" shall be to Sections and subsections,
respectively, of this Agreement unless otherwise specifically provided. The use
herein of the word "include" or "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific items or matters set forth
-39-
<PAGE>
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as "without limitation" or "but not limited to" or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that fall within the broadest
possible scope of such general statement, term or matter.
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; the Register; Notes.
A. Commitments. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, each Lender hereby severally agrees to make the Loans
described in subsections 2.1A(i) and 2.1A(ii) and Swing Line Lender hereby
agrees to make the Loans described in subsection 2.1A(iii).
(i) AXELs. Each Lender severally agrees to lend to Borrower
on the Closing Date an amount not exceeding its Pro Rata Share of the
aggregate amount of the AXEL Commitments to be used for the purposes
identified in subsection 2.5A. The amount of each Lender's AXEL
Commitment is set forth opposite its name on Schedule 2.1 annexed
hereto and the aggregate amount of the AXEL Commitments is $75,000,000;
provided that the AXEL Commitments of Lenders shall be adjusted to give
effect to any assignments of the AXEL Commitments pursuant to
subsection 10.1B. Each Lender's AXEL Commitment shall expire
immediately and without further action on February 28, 1997 if the
AXELs are not made on or before that date. Borrower may make only one
borrowing under the AXEL Commitments. Amounts borrowed under this
subsection 2.1A(i) and subsequently repaid or prepaid may not be
reborrowed.
(ii) Revolving Loans. Each Lender severally agrees, subject
to the limitations set forth below with respect to the maximum amount
of Revolving Loans permitted to be outstanding from time to time, to
lend to Borrower from time to time during the period from the Closing
Date to but excluding the Revolving Loan Commitment Termination Date an
aggregate amount not exceeding its Pro Rata Share of the aggregate
amount of the Revolving Loan Commitments to be used for the purposes
identified in subsection 2.5B. The original amount of each Lender's
Revolving Loan Commitment is set forth opposite its name on Schedule
2.1 annexed hereto and the aggregate original amount of the Revolving
Loan Commitments is $25,000,000; provided that the Revolving Loan
Commitments of Lenders shall be adjusted to give effect to any
-40-
<PAGE>
assignments of the Revolving Loan Commitments pursuant to subsection
10.1B; and provided further, that the amount of the Revolving Loan
Commitments shall be reduced from time to time by the amount of any
reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii).
Each Lender's Revolving Loan Commitment shall expire on the Revolving
Loan Commitment Termination Date and all Revolving Loans and all other
amounts owed hereunder with respect to the Revolving Loans and the
Revolving Loan Commitments shall be paid in full no later than that
date; provided that each Lender's Revolving Loan Commitment shall
expire immediately and without further action on February 28, 1997 if
the AXELs are not made on or before that date. Amounts borrowed under
this subsection 2.1A(ii) may be repaid and reborrowed to but excluding
the Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary
notwithstanding, the Revolving Loans and the Revolving Loan Commitments
shall be subject to the limitations that (i) in no event shall the
Total Utilization of Revolving Loan Commitments at any time exceed the
Revolving Loan Commitments then in effect and (ii) no Revolving Loans
shall be made on the Closing Date.
(iii) Swing Line Loans. Swing Line Lender hereby agrees,
subject to the limitations set forth below with respect to the maximum
amount of Swing Line Loans permitted to be outstanding from time to
time, to make a portion of the Revolving Loan Commitments available to
Borrower from time to time during the period from the Closing Date to
but excluding the Revolving Loan Commitment Termination Date by making
Swing Line Loans to Borrower in an aggregate amount not exceeding the
amount of the Swing Line Loan Commitment to be used for the purposes
identified in subsection 2.5B, notwithstanding the fact that such
Swing Line Loans, when aggregated with Swing Line Lender's outstanding
Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter
of Credit Usage then in effect, may exceed Swing Line Lender's
Revolving Loan Commitment. The original amount of the Swing Line Loan
Commitment is $5,000,000; provided that any reduction of the Revolving
Loan Commitments made pursuant to subsection 2.4B(ii) or 2.4B(iii)
which reduces the aggregate Revolving Loan Commitments to an amount
less than the then current amount of the Swing Line Loan Commitment
shall result in an automatic corresponding reduction of the Swing Line
Loan Commitment to the amount of the Revolving Loan Commitments, as so
reduced, without any further action on the part of Borrower,
Administrative Agent or Swing Line Lender. The Swing Line Loan
Commitment shall expire on the Revolving Loan Commitment Termination
Date and all Swing Line Loans and all other amounts owed hereunder
with respect to the Swing Line Loans shall be paid in full no later
than that date; provided that the Swing Line Loan Commitment shall
expire
-41-
<PAGE>
immediately and without further action on February 28, 1997 if the
AXELs are not made on or before that date. Amounts borrowed under this
subsection 2.1A(iii) may be repaid and reborrowed to but excluding the
Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary
notwithstanding, the Swing Line Loans and the Swing Line Loan
Commitment shall be subject to the limitations that (i) in no event
shall the Total Utilization of Revolving Loan Commitments at any time
exceed the Revolving Loan Commitments then in effect and (ii) no Swing
Line Loans shall be made on the Closing Date.
With respect to any Swing Line Loans which have not been
voluntarily prepaid by Borrower pursuant to subsection 2.4B(i), Swing
Line Lender may, at any time in its sole and absolute discretion,
deliver to Administrative Agent (with a copy to Borrower), no later
than 10:00 A.M. (New York City time) on the first Business Day in
advance of the proposed Funding Date, a notice requesting Lenders to
make Revolving Loans that are Base Rate Loans on such Funding Date in
an amount equal to the amount of such Swing Line Loans (the "Refunded
Swing Line Loans") outstanding on the date such notice is given which
Swing Line Lender requests Lenders to prepay (which request shall be
deemed to have also been made by Borrower). Anything contained in this
Agreement to the contrary notwithstanding, (i) the proceeds of such
Revolving Loans made by Lenders other than Swing Line Lender shall be
immediately delivered by Administrative Agent to Swing Line Lender (and
not to Borrower) and applied to repay a corresponding portion of the
Refunded Swing Line Loans and (ii) on the day such Revolving Loans are
made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line
Loans shall be deemed to be paid with the proceeds of a Revolving Loan
made by Swing Line Lender, and such portion of the Swing Line Loans
deemed to be so paid shall no longer be outstanding as Swing Line
Loans and shall no longer be due under the Swing Line Note of Swing
Line Lender but shall instead constitute part of Swing Line Lender's
outstanding Revolving Loans and shall be due under the Revolving Note
of Swing Line Lender. Borrower hereby authorizes Administrative Agent
and Swing Line Lender to charge Borrower's accounts with
Administrative Agent and Swing Line Lender (up to the amount available
in each such account) one Business Day after requesting Borrower to
repay the Refunded Swing Line Loans in order to pay Swing Line Lender
the amount of the Refunded Swing Line Loans to the extent the proceeds
of such Revolving Loans made by Lenders, including the Revolving Loan
deemed to be made by Swing Line Lender, are not sufficient to repay in
full the Refunded Swing Line Loans. If any portion of any such amount
paid (or deemed to be paid) to Swing Line Lender should be recovered
by or on behalf of Borrower from Swing Line Lender in bankruptcy,
-42-
<PAGE>
by assignment for the benefit of creditors or otherwise, the loss of
the amount so recovered shall be ratably shared among all Lenders in
the manner contemplated by subsection 10.5.
If for any reason (a) Revolving Loans are not made upon the
request of Swing Line Lender as provided in the immediately preceding
paragraph in an amount sufficient to repay any amounts owed to Swing
Line Lender in respect of any outstanding Swing Line Loans or (b) the
Revolving Loan Commitments are terminated at a time when any Swing Line
Loans are outstanding, each Lender shall be deemed to, and hereby
agrees to, have purchased a participation in such outstanding Swing
Line Loans in an amount equal to its Pro Rata Share (calculated, in the
case of the foregoing clause (b), immediately prior to such termination
of the Revolving Loan Commitments) of the unpaid amount of such Swing
Line Loans together with accrued interest thereon. Upon one Business
Day's notice from Swing Line Lender, each Lender shall deliver to Swing
Line Lender an amount equal to its respective participation in same day
funds at the Funding and Payment Office. In order to further evidence
such participation (and without prejudice to the effectiveness of the
participation provisions set forth above), each Lender agrees to enter
into a separate participation agreement at the request of Swing Line
Lender in form and substance reasonably satisfactory to Swing Line
Lender. In the event any Lender fails to make available to Swing Line
Lender the amount of such Lender's participation as provided in this
paragraph, Swing Line Lender shall be entitled to recover such amount
on demand from such Lender together with interest thereon at the rate
customarily used by Swing Line Lender for the correction of errors
among banks for three Business Days and thereafter at the Base Rate. In
the event Swing Line Lender receives a payment of any amount in which
other Lenders have purchased participations as provided in this
paragraph, Swing Line Lender shall promptly distribute to each such
other Lender its Pro Rata Share of such payment.
Anything contained herein to the contrary notwithstanding,
each Lender's obligation to make Revolving Loans for the purpose of
repaying any Refunded Swing Line Loans pursuant to the second preceding
paragraph and each Lender's obligation to purchase a participation in
any unpaid Swing Line Loans pursuant to the immediately preceding
paragraph shall be absolute and unconditional and shall not be affected
by any circumstance, including (a) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against
Swing Line Lender, Borrower or any other Person for any reason
whatsoever; (b) the occurrence or continuation of an Event of Default
or a Potential Event of Default; (c) any adverse change in the
business, operations, properties, assets, condition (financial or
otherwise) or prospects of Borrower or any of its Subsidiaries; (d) any
breach of this Agreement or any other Loan Document by any party
-43-
<PAGE>
thereto; or (e) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing; provided that such
obligations of each Lender are subject to the condition that (1) Swing
Line Lender believed in good faith that all conditions under Section 4
to the making of the applicable Refunded Swing Line Loans or other
unpaid Swing Line Loans, as the case may be, were satisfied at the time
such Refunded Swing Line Loans or unpaid Swing Line Loans were made or
(2) the satisfaction of any such condition not satisfied had been
waived in accordance with subsection 10.6 prior to or at the time such
Refunded Swing Line Loans or other unpaid Swing Line Loans were made.
(iv) Additional Term Loans. Borrower acknowledges that each
Lender that has agreed to make Additional Term Loans is making such
Additional Term Loans on the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower herein
set forth. In addition, Additional Term Loans once borrowed and
subsequently repaid or prepaid may not be reborrowed.
B. Borrowing Mechanics. AXELs or Revolving Loans made on any
Funding Date (other than Revolving Loans made pursuant to a request by Swing
Line Lender pursuant to subsection 2.1A(iii) for the purpose of repaying any
Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B
for the purpose of reimbursing Issuing Lender for the amount of a drawing under
a Letter of Credit issued by it) shall be in an aggregate minimum amount of
$1,000,000. Swing Line Loans made on any Funding Date shall be in an aggregate
minimum amount of $100,000. Whenever Borrower desires that Lenders make AXELs or
Revolving Loans it shall deliver to Administrative Agent a Notice of Borrowing
no later than 10:00 A.M. (New York City time) at least three Business Days in
advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan) or
at least one Business Day in advance of the proposed Funding Date (in the case
of a Base Rate Loan). Whenever Borrower desires that Swing Line Lender make a
Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing
no later than 12:00 Noon (New York City time) on the proposed Funding Date. The
Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be
a Business Day), (ii) the amount and type of Loans requested, (iii) in the case
of Swing Line Loans, that such Loans shall be Base Rate Loans, (iv) in the case
of AXELs, Additional Term Loans and Revolving Loans, whether such Loans shall be
Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans
requested to be made as Eurodollar Rate Loans, the initial Interest Period
requested therefor. Additional Term Loans shall be made in coordination with
Borrower, Lender or Lenders making such Additional Term Loans and Administrative
Agent. AXELs, Additional Term Loans and Revolving Loans may be continued as or
converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided
in subsection 2.2D. In lieu of delivering the above-described Notice of
Borrowing, Borrower may give Administrative Agent telephonic
-44-
<PAGE>
notice by the required time of any proposed borrowing under this subsection
2.1B; provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Borrowing to Administrative Agent on or before the
applicable Funding Date.
Neither Administrative Agent nor any Lender shall incur any liability
to Borrower in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Borrower or
for otherwise acting in good faith under this subsection 2.1B, and upon funding
of Loans by Lenders in accordance with this Agreement pursuant to any such
telephonic notice Borrower shall have effected Loans hereunder.
Borrower shall notify Administrative Agent prior to the funding of any
Loans in the event that any of the matters to which Borrower has certified in
the applicable Notice of Borrowing is no longer true and correct as of the
applicable Funding Date, and the acceptance by Borrower of the proceeds of any
Loans shall constitute a re-certi- fication by Borrower, as of the applicable
Funding Date, as to the matters to which Borrower is required to certify in the
applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B and 2.6C, a Notice of
Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and Borrower shall be bound to make a borrowing in accordance therewith.
C. Disbursement of Funds. All AXELs and Revolving Loans under this
Agreement shall be made by Lenders simultaneously and proportionately to their
respective Pro Rata Shares, it being understood that no Lender shall be
responsible for any default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder nor shall the Commitment of any
Lender to make the particular type of Loan requested be increased or decreased
as a result of a default by any other Lender in that other Lender's obligation
to make a Loan requested hereunder. Promptly after receipt by Administrative
Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice
in lieu thereof), Administrative Agent shall notify each Lender or Swing Line
Lender, as the case may be, of the proposed borrowing. Each Lender shall make
the amount of its Loan available to Administrative Agent not later than 12:00
Noon (New York City time) on the applicable Funding Date, and Swing Line Lender
shall make the amount of its Swing Line Loan available to Administrative Agent
not later than 12:00 Noon (New York City time) on the applicable Funding Date,
in each case in same day funds in Dollars, at the Funding and Payment Office.
Except as provided in subsection 2.1A(iii) or subsection 3.3B with respect to
Revolving Loans used to repay Refunded Swing Line Loans or to reimburse Issuing
Lender for the amount of a drawing under a Letter of Credit issued by it, upon
satisfaction or waiver of the
-45-
<PAGE>
conditions precedent specified in subsections 4.1 (in the case of Loans made on
the Closing Date) and 4.2 (in the case of all Loans), Administrative Agent
shall make the proceeds of such Loans available to Borrower on the applicable
Funding Date by causing an amount of same day funds in Dollars equal to the
proceeds of all such Loans received by Administrative Agent from Lenders or
Swing Line Lender, as the case may be, to be credited to the account of
Borrower at the Funding and Payment Office. Notwithstanding anything to the
contrary contained above in this subsection 2.1C, all Additional Term Loans
under this Agreement shall be made in Dollars and in coordination with
Borrower, Lender or Lenders making such Additional Term Loans and
Administrative Agent.
Unless Administrative Agent shall have been notified by any Lender
prior to the Funding Date for any Loans that such Lender does not intend to make
available to Administrative Agent the amount of such Lender's Loan requested on
such Funding Date, Administrative Agent may assume that such Lender has made
such amount available to Administrative Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to Borrower a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Administrative Agent by
such Lender, Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon,
for each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the customary rate set by Administrative Agent for the
correction of errors among banks for three Business Days and thereafter at the
Base Rate. If such Lender does not pay such corresponding amount forthwith upon
Administrative Agent's demand therefor, Administrative Agent shall promptly
notify Borrower and Borrower shall immediately pay such corresponding amount to
Administrative Agent together with interest thereon, for each day from such
Funding Date until the date such amount is paid to Administrative Agent, at the
rate payable under this Agreement for Base Rate Loans. Nothing in this
subsection 2.1C shall be deemed to relieve any Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that Borrower may
have against any Lender as a result of any default by such Lender hereunder.
D. The Register.
(i) Administrative Agent shall maintain, at its address
referred to in subsection 10.8, a register for the recordation of the
names and addresses of Lenders and the Commitments and Loans of each
Lender from time to time (the "Register"). The Register shall be
available for inspection by Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice.
-46-
<PAGE>
(ii) Administrative Agent shall record in the Register the
AXEL Commitment and Revolving Loan Commitment and the AXEL, Additional
Term Loans and Revolving Loans from time to time of each Lender, the
Swing Line Loan Commitment and the Swing Line Loans from time to time
of Swing Line Lender, and each repayment or prepayment in respect of
the principal amount of the AXEL, Additional Term Loans or Revolving
Loans of each Lender or the Swing Line Loans of Swing Line Lender. Any
such recordation shall be conclusive and binding on Borrower and each
Lender, absent demonstrable error; provided that failure to make any
such recordation, or any error in such recorda- tion, shall not affect
any Lender's Commitments or Borrower's Obligations in respect of any
applicable Loans.
(iii) Each Lender shall record on its internal records
(including the Notes held by such Lender) the amount of the AXEL, the
Additional Term Loans and each Revolving Loan made by it and each
payment in respect thereof. Any such recordation shall be conclusive
and binding on Borrower, absent demonstrable error; provided that
failure to make any such recordation, or any error in such recordation,
shall not affect any Lender's Commitments or Borrower's Obligations in
respect of any applicable Loans; and provided further, that in the
event of any inconsistency between the Register and any Lender's
records, the recordations in the Register shall govern.
(iv) Borrower, Administrative Agent and Lenders shall deem
and treat the Persons listed as Lenders in the Register as the holders
and owners of the corresponding Commitments and Loans listed therein
for all purposes hereof, and no assignment or transfer of any such
Commitment or Loan shall be effective, in each case unless and until
an Assignment Agreement effecting the assignment or transfer thereof
shall have been accepted by Administrative Agent and recorded in the
Register as provided in subsection 10.1B(ii). Prior to such
recordation, all amounts owed with respect to the applicable
Commitment or Loan shall be owed to the Lender listed in the Register
as the owner thereof, and any request, authority or consent of any
Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be
conclusive and binding on any subsequent holder, assignee or
transferee of the corresponding Commitments or Loans.
(v) Borrower hereby designates Administrative Agent to serve
as Borrower's agent solely for purposes of maintaining the Register as
provided in this subsection 2.1D, and Borrower hereby agrees that, to
the extent Administrative Agent serves in such capacity, Administrative
Agent and its officers, directors, employees, agents and affiliates
shall constitute Indemnitees for all purposes under subsection 10.3.
-47-
<PAGE>
E. Notes. Borrower shall execute and deliver on the Closing
Date (i) to each Lender (or to Administrative Agent for that Lender) (a) an
AXEL Note substantially in the form of Exhibit IV annexed hereto to evidence
that Lender's AXEL, in the principal amount of that Lender's AXEL and with
other appropriate insertions, and (b) a Revolving Note substantially in the
form of Exhibit V annexed hereto to evidence that Lender's Revolving Loans, in
the principal amount of that Lender's Revolving Loan Commitment and with other
appropriate insertions, and (ii) to Swing Line Lender (or to Administrative
Agent for Swing Line Lender) a Swing Line Note substantially in the form of
Exhibit VI annexed hereto to evidence Swing Line Lender's Swing Line Loans, in
the principal amount of the Swing Line Loan Commitment and with other
appropriate insertions. Borrower shall execute and deliver to each Lender that
has made an Additional Term Loan an Additional Term Note at the time such
Additional Term Loan is made.
2.2 Interest on the Loans.
A. Rate of Interest. Subject to the provisions of subsections
2.6 and 2.7, each AXEL, each Additional Term Loan and each Revolving Loan shall
bear interest on the unpaid principal amount thereof from the date made through
maturity (whether by acceleration or otherwise) at a rate determined by
reference to the Base Rate or the Adjusted Eurodollar Rate. Subject to the
provisions of subsection 2.7, each Swing Line Loan shall bear interest on the
unpaid principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate determined by reference to the Base Rate.
The applicable basis for determining the rate of interest with respect to any
AXEL or any Revolving Loan shall be selected by Borrower initially at the time
a Notice of Borrowing is given with respect to such Loan pursuant to subsection
2.1B. The applicable basis for determining the rate of interest with respect to
any Additional Term Loan shall be selected by the Borrower initially at the
time a Notice of Borrowing is given with respect to such Additional Term Loan.
The basis for determining the interest rate with respect to any AXEL, any
Additional Term Loan or any Revolving Loan may be changed from time to time
pursuant to subsection 2.2D. If on any day an AXEL, an Additional Term Loan or
a Revolving Loan is outstanding with respect to which notice has not been
delivered to Administrative Agent in accordance with the terms of this
Agreement specifying the applicable basis for determining the rate of interest,
then for that day that Loan shall bear interest determined by reference to the
Base Rate.
(i) Subject to the provisions of subsections 2.2E and 2.7,
the AXELs, the Additional Term Loans and the Revolving Loans shall bear
interest through maturity as follows:
-48-
<PAGE>
(a) if a Base Rate Loan, then at the sum of
the Base Rate plus the Applicable Margin in effect from time
to time, or
(b) if a Eurodollar Rate Loan, then at the sum
of the Adjusted Eurodollar Rate plus the Applicable Margin
in effect from time to time; and
(ii) Subject to the provisions of subsections 2.2E and 2.7,
the Swing Line Loans shall bear interest through maturity at the sum of
the Base Rate plus 1.75% per annum plus the Pricing Premium, if any,
less the Pricing Reduction, if any.
B. Interest Periods. In connection with each Eurodollar Rate
Loan, Borrower may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"Interest Period") to be applicable to such Loan, which Interest Period shall
be, at Borrower's option, either a one-, two-, three- or six-month period or,
if deposits in the interbank Eurodollar market are generally available to each
Lender for such period (as determined by each Lender making, converting to or
continuing such Eurodollar Rate Loan), a nine- or twelve-month period; provided
that:
(i) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the Funding Date in respect of such Loan, in the case
of a Loan initially made as a Eurodollar Rate Loan, or on the date
specified in the applicable Notice of Conversion/Continuation, in the
case of a Loan converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest
Periods applicable to a Eurodollar Rate Loan continued as such
pursuant to a Notice of Conversion/Continuation, each successive
Interest Period shall commence on the day on which the next preceding
Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that, if any Interest Period
would otherwise expire on a day that is not a Business Day but is a day
of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day
-49-
<PAGE>
in the calendar month at the end of such Interest Period) shall,
subject to clause (v) of this subsection 2.2B, end on the last
Business Day of a calendar month;
(v) there shall be no more than six Interest Periods
outstanding at any time;
(vi) in the event Borrower fails to specify an Interest
Period for any Eurodollar Rate Loan in the applicable Notice of
Borrowing or Notice of Conversion/Continuation, Borrower shall be
deemed to have selected an Interest Period of one month; and
(vii) Borrower may not select an Interest Period in excess of
one month with respect to any Eurodollar Rate Loan until the earlier of
(a) the date the Arranging Agent advises Borrower that the AXELs have
been fully syndicated or any earlier date agreed to by Arranging Agent
and (b) the date which is 60 days after the Closing Date.
C. Interest Payments. Subject to the provisions of subsection
2.2E, interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity); provided that in the event any Swing Line Loans or any Revolving
Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i),
interest accrued on such Swing Line Loans or Revolving Loans through the date
of such prepayment shall be payable on the next succeeding Interest Payment
Date applicable to Base Rate Loans (or, if earlier, at final maturity).
D. Conversion or Continuation. Subject to the provisions of
subsection 2.6, Borrower shall have the option (i) to convert at any time all
or any part of its outstanding AXELs, Additional Term Loans or Revolving Loans
equal to at least $1,000,000 from Loans bearing interest at a rate determined
by reference to one basis to Loans bearing interest at a rate determined by
reference to an alternative basis or (ii) upon the expiration of any Interest
Period applicable to a Eurodollar Rate Loan, to continue all or any portion of
such Loan equal to at least $1,000,000 as a Eurodollar Rate Loan.
Borrower shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 10:00 A.M. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or
a continuation of, a Eurodollar Rate Loan). A Notice of
Conversion/Continuation shall specify (i) the proposed conversion/continuation
date (which shall be a Business Day), (ii) the amount and type of the Loan to
be
-50-
<PAGE>
converted/continued, (iii) the nature of the proposed conversion/continuation
and (iv) in the case of a conversion to, or a continuation of, a Eurodollar
Rate Loan, the requested Interest Period. In lieu of delivering the
above-described Notice of Conversion/Continuation, Borrower may give
Administrative Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2D; provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Administrative Agent on or before the proposed
conver- sion/continuation date. Upon receipt of written or telephonic notice of
any proposed conversion/continuation under this subsection 2.2D, Administrative
Agent shall promptly transmit such notice by telefacsimile or telephone to each
Lender.
Neither Administrative Agent nor any Lender shall incur any liability
to Borrower in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Borrower or
for otherwise acting in good faith under this subsection 2.2D, and upon
conversion or continuation of the applicable basis for determining the interest
rate with respect to any Loans in accordance with this Agreement pursuant to any
such telephonic notice Borrower shall have effected a conversion or
continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B and 2.6C, a Notice of
Conversion/Continuation for conversion to, or continuation of, a Eurodollar
Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and
after the related Interest Rate Determination Date, and Borrower shall be bound
to effect a conversion or continuation in accordance therewith.
E. Post-Maturity Interest. Any principal payments on the Loans not paid
when due and, to the extent permitted by applicable law, any interest payments
on the Loans or any fees or other amounts owed hereunder not paid when due, in
each case whether at stated maturity, by notice of prepayment, by acceleration
or otherwise, shall thereafter bear interest (including post-petition interest
in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable on demand at a rate which is 2% per annum in excess of the interest rate
otherwise payable under this Agreement with respect to the applicable Loans (or,
in the case of any such fees and other amounts, at a rate which is 2% per annum
in excess of the interest rate otherwise payable under this Agreement for Base
Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the
expiration of the Interest Period in effect at the time any such increase in
interest rate is effective, such Eurodollar Rate Loans shall thereupon become
Base Rate Loans and shall thereafter bear interest payable upon demand at a rate
which is 2% per annum in excess of the interest rate otherwise payable under
this Agreement for Base Rate Loans. Payment or acceptance of the increased rates
of interest provided for in this subsection 2.2E is not a permitted alternative
to timely
-51-
<PAGE>
payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of Agent or any Lender.
F. Computation of Interest. Interest on the Loans shall be
computed (i) in the case of Base Rate Loans, on the basis of a 365-day or
366-day year, as the case may be, and (ii) in the case of Eurodollar Rate
Loans, on the basis of a 360-day year, in each case for the actual number of
days elapsed in the period during which it accrues. In computing interest on
any Loan, the date of the making of such Loan or the first day of an Interest
Period applicable to such Loan or, with respect to a Base Rate Loan being
converted from a Eurodollar Rate Loan, the date of conversion of such
Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be
included, and the date of payment of such Loan or the expiration date of an
Interest Period applicable to such Loan or, with respect to a Base Rate Loan
being converted to a Eurodollar Rate Loan, the date of conversion of such Base
Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded;
provided that if a Loan is repaid on the same day on which it is made, one
day's interest shall be paid on that Loan.
2.3 Fees.
A. Commitment Fees. Borrower agrees to pay to Administrative
Agent, for distribution to each Lender in proportion to that Lender's Pro Rata
Share, commitment fees for the period from and including the Closing Date to
and excluding the Revolving Loan Commitment Termination Date equal to the
average of the daily excess of the Revolving Loan Commitments over the sum of
(i) the aggregate principal amount of outstanding Revolving Loans (but not any
outstanding Swing Line Loans) plus (ii) the Letter of Credit Usage multiplied
by 1/2 of 1% per annum, such commitment fees to be calculated on the basis of a
365- or 366-day year and the actual number of days elapsed and to be payable
quarterly in arrears on February 1, May 1, August 1 and November 1 of each
year, commencing on the first such date to occur after the Closing Date, and on
the Revolving Loan Commitment Termination Date.
B. Other Fees. Borrower agrees to pay to Arranging Agent and
Administrative Agent such other fees in the amounts and at the times separately
agreed upon between Borrower, Arranging Agent and Administrative Agent. Borrower
agrees to pay to each Lender making Additional Term Loans such fees in the
amounts and at the times separately agreed upon between Borrower and such
Lenders.
-52-
<PAGE>
2.4 Repayments, Prepayments and Reductions in Revolving Loan Commitments;
General Provisions Regarding Payments; Application of Proceeds of
Collateral and Payments Under Guaranties.
A. Scheduled Payments of AXELs and Additional Term Loans.
(i) Scheduled Payments of AXELs. Borrower shall make
principal payments on the AXELs in installments on the dates and in
the amounts set forth below:
===============================================================================
(A) (B)
Scheduled
Payment Repayment of
Date AXELs
===============================================================================
May 1, 1997 $500,000
- -------------------------------------------------------------------------------
November 1, 1997 $500,000
- -------------------------------------------------------------------------------
May 1, 1998 $500,000
- -------------------------------------------------------------------------------
November 1, 1998 $500,000
- -------------------------------------------------------------------------------
May 1, 1999 $500,000
- -------------------------------------------------------------------------------
November 1, 1999 $500,000
- -------------------------------------------------------------------------------
May 1, 2000 $1,500,000
- -------------------------------------------------------------------------------
November 1, 2000 $1,500,000
- -------------------------------------------------------------------------------
May 1, 2001 $3,500,000
- -------------------------------------------------------------------------------
November 1, 2001 $3,500,000
- -------------------------------------------------------------------------------
May 1, 2002 $4,500,000
- -------------------------------------------------------------------------------
November 1, 2002 $4,500,000
- -------------------------------------------------------------------------------
May 1, 2003 $26,500,000
- -------------------------------------------------------------------------------
November 1, 2003 $26,500,000
- -------------------------------------------------------------------------------
TOTAL $75,000,000
===============================================================================
; provided that the scheduled installments of principal of the AXELs
set forth above shall be reduced in connection with any voluntary or
mandatory
-53-
<PAGE>
prepayments of the AXELs in accordance with subsection 2.4B(iv); and
provided further, that the AXELs and all other amounts owed hereunder
with respect to the AXELs shall be paid in full no later than November
1, 2003, and the final installment payable by Borrower in respect of
the AXELs on such date shall be in an amount, if such amount is
different from that specified above, sufficient to repay all amounts
owing by Borrower under this Agreement with respect to the AXELs.
(ii) Scheduled Payments of Additional Term Loans. Borrower
shall make principal payments on the Additional Term Loans in
installments on the dates and in the amounts set forth in the
applicable Acknowledgement of Additional Term Loans executed by
Borrower and Lender or Lenders making such Additional Term Loans (with
such dates and amounts to be consistent with the provisions of
subsection 10.6C); provided that the scheduled installments of
principal of the Additional Term Loans set forth in such Acknowledgment
of Additional Term Loans shall be reduced in connection with any
voluntary or mandatory prepayments of the Additional Term Loans in
accordance with subsection 2.4B(iv); and provided further, that the
Additional Term Loans and all other amounts owed hereunder with respect
to the Additional Term Loans shall be paid in full no later than
November 1, 2003.
B. Prepayments and Reductions in Revolving Loan Commitments.
(i) Voluntary Prepayments.
(a) Notice of Prepayment. Borrower may, upon written
or telephonic notice to Administrative Agent on or prior to
12:00 Noon (New York City time) on the date of prepayment,
which notice, if telephonic, shall be promptly confirmed in
writing, at any time and from time to time prepay any Swing
Line Loan on any Business Day in whole or in part in an
aggregate minimum amount of $100,000. Borrower may, upon not
less than one Business Day's prior written or telephonic
notice, in the case of Base Rate Loans, and three Business
Days' prior written or telephonic notice, in the case of
Eurodollar Rate Loans, in each case given to Administrative
Agent by 12:00 Noon (New York City time) on the date required
and, if given by telephone, promptly confirmed in writing to
Administrative Agent (which original written or telephonic
notice Administrative Agent will promptly transmit by
telefacsimile or telephone to each Lender), at any time and
from time to time prepay any AXELs, Additional Term Loans or
Revolving Loans on any Business Day in whole or in part in an
aggregate minimum amount of $1,000,000; provided, however,
that with respect to any Eurodollar Rate Loan not
-54-
<PAGE>
prepaid on the expiration of the Interest Period applicable
thereto, Borrower shall pay any amounts payable pursuant to
subsection 2.6D. Notice of prepayment having been given as
aforesaid, the principal amount of the Loans specified in
such notice shall become due and payable on the prepayment
date specified therein. Any such voluntary prepayment shall
be applied as specified in subsection 2.4B(iv).
(b) Prepayment Fees. If any portion of the AXELs is
prepaid for any reason other than (1) pursuant to subsection
2.4A, (2) pursuant to subsection 2.4B(iii)(d), or (3) pursuant
to an acceleration other than an acceleration upon the
occurrence of an Event of Default under subsection 8.11, on or
prior to the second anniversary of the Closing Date, Borrower
shall pay to Administrative Agent, for distribution to Lenders
having AXELs so prepaid in accordance with their Pro Rata
Shares, a fee equal to (x) 2.75% of the principal amount of
AXELs so prepaid during the period commencing on the Closing
Date and ending on the day prior to the first anniversary of
the Closing Date and (y) 1.75% of the principal amount of
AXELs so prepaid during the period commencing on the first
anniversary of the Closing Date and ending on the second
anniversary of the Closing Date. Borrower shall pay to
Administrative Agent, for distribution to Lenders having
Additional Term Loans, such prepayment fees, if any, as may be
agreed to by Borrower and such Lenders as set forth in the
respective Acknowledgement of Additional Term Loans.
(ii) Voluntary Reductions of Revolving Loan Commitments.
Borrower may, upon not less than three Business Days' prior written or
telephonic notice confirmed in writing to Administrative Agent (which
original written or telephonic notice Administrative Agent will
promptly transmit by telefacsimile or telephone to each Lender), at any
time and from time to time terminate in whole or permanently reduce in
part, without premium or penalty, the Revolving Loan Commitments in an
amount up to the amount by which the Revolving Loan Commitments exceed
the Total Utilization of Revolving Loan Commitments at the time of such
proposed termination or reduction; provided that any such partial
reduction of the Revolving Loan Commitments shall be in an aggregate
minimum amount of $1,000,000. Borrower's notice to Administrative Agent
shall designate the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction, and
such termination or reduction of the Revolving Loan Commitments shall
be effective on the date specified in Borrower's notice and shall
reduce the Revolving Loan Commitment of each Lender proportionately to
its Pro Rata Share.
-55-
<PAGE>
(iii) Mandatory Prepayments and Mandatory Reductions of
Revolving Loan Commitments. The Loans shall be prepaid and/or the
Revolving Loan Commitments shall be permanently reduced in the amounts
and under the circumstances set forth below, all such prepayments be
applied as set forth below or as more specifically provided in
subsection 2.4B(iv):
(a) Prepayments and Reductions From Net Asset Sale
Proceeds. No later than the first Business Day following the
date of receipt by Holdings or any of its Subsidiaries of any
Net Asset Sale Proceeds in respect of any Asset Sale, Borrower
shall prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an aggregate amount equal to
such Net Asset Sale Proceeds. Notwithstanding the foregoing,
Borrower shall not be required to make a mandatory prepayment
pursuant to this subsection 2.4B(iii)(a) if the Net Asset Sale
Proceeds are reinvested in assets of substantially equivalent
value within 365 days of the receipt thereof; provided,
however, that the total Net Asset Sale Proceeds which may be
so reinvested shall not exceed $15,000,000 in the aggregate.
If upon any Asset Sale, Borrower elects to reinvest the Net
Asset Sale Proceeds as permitted under this subsection
2.4B(iii)(a), (1) no later than the First Business Day
following the consummation of such Asset Sale, Borrower shall
deliver an Officers' Certificate to Administrative Agent
indicating Borrower's election to reinvest the Net Asset
Sale Proceeds and (2) upon the expiration of 365 days
after the date of receipt of the Net Asset Sale Proceeds
of such Asset Sale, Borrower shall deliver to
Administrative Agent an Officers' Certificate indicating
the amount of Net Asset Sale Proceeds reinvested as of such
date, the assets in which such Net Asset Sale Proceeds have
been reinvested, and the amount of any remaining Net Asset
Sale Proceeds which shall be applied upon the expiration of
such 365-day period to prepay the Loans and/or reduce the
Revolving Loan Commitments as set forth in this subsection
2.4B(iii)(a).
(b) Prepayments and Reductions from Net
Insurance/Condemnation Proceeds. No later than the first
Business Day following the date of receipt by Administrative
Agent or by Holdings or any of its Subsidiaries of any Net
Insurance/Condemnation Proceeds that are required to be
applied to prepay the Loans and/or reduce the Revolving Loan
Commitments pursuant to the provisions of subsection 6.4C,
Borrower shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate
amount equal to the amount of such Net Insurance/Condemnation
Proceeds.
-56-
<PAGE>
(c) Prepayments and Reductions Due to Reversion of
Surplus Assets of Pension Plans. No later than the first
Business Day following the date of return to Holdings or any
of its Subsidiaries of any surplus assets of any pension plan
of Holdings or any of its Subsidiaries, Borrower shall prepay
the Loans and/or the Revolving Loan Commitments shall be
permanently reduced in an aggregate amount (such amount being
the "Net Pension Proceeds") equal to 100% of such returned
surplus assets, net of transaction costs and expenses incurred
in obtaining such return, including incremental taxes payable
as a result thereof.
(d) Prepayments and Reductions from Consolidated
Excess Cash Flow. In the event that there shall be
Consolidated Excess Cash Flow for any Fiscal Year (commencing
with Fiscal Year 1997) in amount greater than (x) $10,000,000
in the case of each of Fiscal Year 1997 and Fiscal Year 1998
or (y) $7,500,000 in the case of each Fiscal Year thereafter,
Borrower shall, no later than 90 days after the end of each
such Fiscal Year, prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate
amount equal to 50% of such Consolidated Excess Cash Flow in
excess of (x) $10,000,000 in the case of each of Fiscal Year
1997 and Fiscal Year 1998 or (y) $7,500,000 in the case of
each Fiscal Year thereafter; provided that if as of the last
day of any Fiscal Year the sum of (1) the outstanding
principal amount of AXELS and Additional Term Loans on the
last of such Fiscal Year plus (2) the average Revolving
Outstandings for such Fiscal Year is less than $50,000,000,
then the foregoing percentage of Consolidated Excess Cash
Flow shall instead be 25%.
(e) Prepayments Upon Receipt of Capital Contributions
from Holdings. Upon receipt by Borrower of any capital
contribution from Holdings of the Cash proceeds (any such
proceeds, net of underwriting discounts and commissions and
other reasonable costs and expenses associated therewith,
including reasonable legal fees and expenses, being "Net
Contribution Proceeds") from the issuance of any equity
Securities of Holdings (other than any Permitted Cure
Securities or any such equity Securities the proceeds of which
are contributed to Borrower to fund a Permitted Acquisition),
Borrower shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate
amount equal to 50% of such Net Contribution Proceeds.
(f) Prepayments Due to Reductions or Restrictions of
Revolving Loan Commitments. Borrower shall from time to time
prepay first the Swing Line Loans and second the Revolving
Loans to the extent
-57-
<PAGE>
necessary so that the Total Utilization of Revolving Loan
Commitments shall not at any time exceed the Revolving Loan
Commitments then in effect.
(g) Calculations of Net Proceeds Amounts; Additional
Prepayments and Reductions Based on Subsequent Calculations.
Concurrently with any prepayment of the Loans and/or reduction
of the Revolving Loan Commitments pursuant to subsections
2.4B(iii)(a)-(e), Borrower shall deliver to Administrative
Agent an Officers' Certificate demonstrating the calculation
of the amount (the "Net Proceeds Amount") of the applicable
Net Asset Sale Proceeds or Net Insurance/Condemnation
Proceeds, the applicable Net Pension Proceeds or Net
Contribution Proceeds (as such terms are defined in
subsections 2.4B(iii)(c) and (e), respectively) or the
applicable Consolidated Excess Cash Flow, as the case may be,
that gave rise to such prepayment and/or reduction. In the
event that Borrower shall subsequently determine that the
actual Net Proceeds Amount was greater than the amount set
forth in such Officers' Certificate, Borrower shall promptly
make an additional prepayment of the Loans (and/or, if
applicable, the Revolving Loan Commitments shall be
permanently reduced) in an amount equal to the amount of such
excess, and Borrower shall concurrently therewith deliver
to Administrative Agent an Officers' Certificate demonstrating
the derivation of the additional Net Proceeds Amount resulting
in such excess.
(h) Prepayments of Revolving Loans and Swing Line
Loans during a Clean-Down Period. If on December 1 of each
year commencing on December 1, 1997, a Clean-Down Period shall
not have occurred since January 30 of such year, Borrower
shall prepay Revolving Loans and/or Swing Line Loans in an
amount necessary to reduce the sum of the aggregate
outstanding principal amount of Revolving Loans and Swing Line
Loans plus the Letter of Credit Usage to no more than
$15,000,000, which amount may not be exceeded until the
Clean-Down Period for such year has ended. Borrower shall
notify Administrative Agent of the occurrence of a Clean-Down
Period.
(iv) Application of Prepayments.
(a) Application of Voluntary Prepayments by Type of
Loans and Order of Maturity. Any voluntary prepayments
pursuant to subsection 2.4B(i) shall be applied as specified
by Borrower in the applicable notice of prepayment; provided
that (i) each prepayment of AXELs or Additional Term Loans
pursuant to this subsection 2.4B(iv)
-58-
<PAGE>
must consist of a pro rata payment of outstanding AXELs and
Additional Term Loans (based upon the then outstanding
principal amount of AXELs and Additional Term Loans) and (ii)
in the event Borrower fails to specify the Loans to which any
such prepayment shall be applied, such prepayment shall be
applied first to repay outstanding Swing Line Loans to the
full extent thereof, second to repay outstanding Revolving
Loans to the full extent thereof, and third to repay
outstanding AXELs and Additional Term Loans on a pro rata
basis (based upon the then outstanding principal amount of
AXELs and Additional Term Loans) to the full extent thereof.
Any voluntary prepayments of the AXELs pursuant to subsection
2.4B(i) shall be applied to reduce the scheduled installments
of principal of the AXELs set forth in subsections 2.4A(i) on
a pro rata basis.
(b) Application of Mandatory Prepayments by Type of
Loans. Any amount (the "Applied Amount") required to be
applied as a mandatory prepayment of the Loans and/or a
reduction of the Revolving Loan Commitments pursuant to
subsections 2.4B(iii)(a)-(e) shall be applied first to prepay
the AXELs and the Additional Term Loans on a pro rata basis
(based upon the then outstanding principal amount of AXELs and
Additional Term Loans) to the full extent thereof, second, to
the extent of any remaining portion of the Applied Amount, to
prepay the Swing Line Loans to the full extent thereof and to
permanently reduce the Revolving Loan Commitments by the
amount of such prepayment, third, to the extent of any
remaining portion of the Applied Amount, to prepay the
Revolving Loans to the full extent thereof and to further
permanently reduce the Revolving Loan Commitments by the
amount of such prepayment, and fourth, to the extent of any
remaining portion of the Applied Amount, to further
permanently reduce the Revolving Loan Commitments to the full
extent thereof. Any amount required to be applied as a
mandatory prepayment of Revolving Loans and/or Swing Line
Loans pursuant to subsection 2.4B(iii)(h) shall be applied
first to prepay outstanding Swing Line Loans and second to
prepay outstanding Revolving Loans, in each case in an amount
necessary to cause a Clean-Down Period to commence.
(c) Application of Mandatory Prepayments of AXELs and
Additional Term Loans to the Scheduled Installments of
Principal Thereof. Any mandatory prepayments of the AXELs and
Additional Term Loans pursuant to subsection 2.4B(iii) shall
be applied to each scheduled installment of principal
-59-
<PAGE>
of the AXELs set forth in subsection 2.4A(i) on a pro rata
basis and to each scheduled installment of principal of the
Additional Term Loans set forth in the applicable
Acknowledgement of Additional Term Loans on a pro rata basis.
(d) Application of Prepayments to Base Rate Loans and
Eurodollar Rate Loans. Considering AXELs, Additional Term
Loans and Revolving Loans being prepaid separately, any
prepayment thereof shall be applied first to Base Rate Loans
to the full extent thereof before application to Eurodollar
Rate Loans, in each case in a manner which minimizes the
amount of any payments required to be made by Borrower
pursuant to subsection 2.6D.
(e) Prepayment of Certain Eurodollar Rate Loans. In
the event the amount of any prepayment required to be made
above shall exceed the aggregate principal amount of the Base
Rate Loans outstanding required to be prepaid (the amount of
any such excess being called the "Excess Amount"), Borrower
shall have the right, in lieu of making such prepayment in
full, to prepay all the outstanding applicable Base Rate Loans
and to deposit an amount equal to the Excess Amount with
Administrative Agent in the Collateral Account. Any amounts so
deposited shall be held by Administrative Agent as collateral
for the Obligations and applied to the prepayment of the
applicable Eurodollar Rate Loans at the end of the current
Interest Periods applicable thereto.
C. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by Borrower of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense,
setoff or counterclaim, free of any restriction or condition, and
delivered to Administrative Agent not later than 1:00 P.M. (New York
City time) on the date due at the Funding and Payment Office for the
account of Lenders; funds received by Administrative Agent after that
time on such due date shall be deemed to have been paid by Borrower on
the next succeeding Business Day. Borrower hereby authorizes
Administrative Agent to charge its accounts with Administrative Agent
in order to cause timely payment to be made to Administrative Agent of
all principal, interest, fees and expenses due hereunder (subject to
sufficient funds being available in its accounts for that purpose).
(ii) Application of Payments to Principal and Interest.
Except as provided in subsection 2.2C, all payments in respect of the
principal amount of any Loan shall include payment of accrued interest
on the principal amount being
-60-
<PAGE>
repaid or prepaid, and all such payments shall be applied to the
payment of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and
interest payments in respect of AXELs, Additional Term Loans and
Revolving Loans shall be apportioned among all outstanding Loans to
which such payments relate, in each case proportionately to Lenders'
respective Pro Rata Shares. Administrative Agent shall promptly
distribute to each Lender, at its primary address set forth below its
name on the appropriate signature page hereof or at such other address
as such Lender may request, its Pro Rata Share of all such payments
received by Administrative Agent and the commitment fees of such Lender
when received by Administrative Agent pursuant to subsection 2.3.
Notwithstanding the foregoing provisions of this subsection 2.4C(iii),
if, pursuant to the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected Lender or if
any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share
of any Eurodollar Rate Loans, Administrative Agent shall give effect
thereto in apportioning payments received thereafter.
(iv) Payments on Business Days. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a
Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the commitment
fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has
been paid; provided that the failure to make (or any error in the
making of) a notation of any Loan made under such Note shall not limit
or otherwise affect the obligations of Borrower hereunder or under such
Note with respect to any Loan or any payments of principal or interest
on such Note.
D. Application of Proceeds of Collateral and Payments Under
Guaranties:
(i) Application of Proceeds of Collateral. Except as
provided in subsection 2.4B(iii)(a) with respect to prepayments from
Net Asset Sale Proceeds, all proceeds received by Administrative Agent
in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral under any Collateral Document shall
be applied by Administrative Agent against the
-61-
<PAGE>
applicable Secured Obligations (used hereinafter as defined in such
Collateral Document) then due and owing in the following order of
priority:
(a) To the payment of all costs and expenses of such
sale, collection or other realization, including reasonable
compensation to Administrative Agent and its agents and
counsel, and all other expenses, liabilities and advances made
or incurred by Administrative Agent in connection therewith,
and all amounts for which Administrative Agent is entitled to
indemnification under such Collateral Document and all
advances made by Administrative Agent thereunder for the
account of the applicable Loan Party, and to the payment of
all costs and expenses paid or incurred by Administrative
Agent in connection with the exercise of any right or remedy
under such Collateral Document, all in accordance with the
terms of this Agreement and such Collateral Document;
(b) thereafter, to the extent of any excess such
proceeds, to the payment of all other such Secured Obligations
(as defined in such Collateral Document) for the ratable
benefit of the holders thereof; and
(c) thereafter, to the extent of any excess such
proceeds, to the payment to or upon the order of such Loan
Party or to whosoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
(ii) Application of Payments Under Guaranties. All payments
received by Administrative Agent under any Guaranty shall be applied
promptly from time to time by Administrative Agent in the following
order of priority:
(a) To the payment of the costs and expenses of any
collection or other realization under such Guaranty, including
reasonable compensation to Administrative Agent and its agents
and counsel, and all expenses, liabilities and advances made
or incurred by Administrative Agent in connection therewith,
all in accordance with the terms of this Agreement and such
Guaranty;
(b) thereafter, to the extent of any excess such
payments, to the payment of all other Guarantied Obligations
(as defined in such Guaranty) for the ratable benefit of the
holders thereof; and
(c) thereafter, to the extent of any excess such
payments, to the payment to Holdings or the applicable
Subsidiary Guarantor or to
-62-
<PAGE>
whosoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.
2.5 Use of Proceeds.
A. AXELs. The proceeds of the AXELs, together with the proceeds
of the issuance and sale of the Senior Subordinated Notes and the Cash proceeds
from the Contribution, shall be applied by Borrower and/or RH Cemetery and RH
Mortuary, as the case may be, to pay the purchase price under the Acquisition
Agreement and the Merger Agreement, to repay Existing Indebtedness, to pay
Transaction Costs in an aggregate amount not to exceed $20,000,000, to fund
working capital of Borrower and its Subsidiaries, and to prefund certain
Consolidated Capital Expenditures and severance costs in an aggregate amount not
to exceed $2,000,000.
B. Additional Term Loans. The proceeds of any Additional Term
Loans shall be applied by Borrower for general corporate purposes, which may
include the making of Permitted Acquisitions.
C. Revolving Loans; Swing Line Loans. The proceeds of any
Revolving Loans and any Swing Line Loans shall be applied by Borrower for
general corporate purposes, which may include the making of Permitted
Acquisitions.
D. Margin Regulations. No portion of the proceeds of any
borrowing under this Agreement shall be used by Borrower or any of its
Subsidiaries in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation
X of the Board of Governors of the Federal Reserve System or to violate any
other law, in each case as in effect on the date or dates of such borrowing and
such use of proceeds.
2.6 Special Provisions Governing Eurodollar Rate Loans.
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to Eurodollar Rate Loans as
to the matters covered:
A. Determination of Applicable Interest Rate. As soon as
practicable after 10:00 A.M. (New York City time) on each Interest Rate
Determination Date, Administrative Agent shall determine (which determination
shall, absent demonstrable error, be final, conclusive and binding upon all
parties) the interest rate that shall apply to the Eurodollar Rate Loans for
which an interest rate is then being determined for the applicable Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to Borrower and each Lender.
-63-
<PAGE>
B. Inability to Determine Applicable Interest Rate. In the
event that Administrative Agent shall have determined (which determination shall
be final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any Eurodollar Rate Loans, that by
reason of circumstances affecting the interbank Eurodollar market adequate and
fair means do not exist for ascertaining the interest rate applicable to such
Loans on the basis provided for in the definition of Adjusted Eurodollar Rate,
Administrative Agent shall on such date give notice (by telefacsimile or by
telephone confirmed in writing) to Borrower and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to,
Eurodollar Rate Loans until such time as Administrative Agent notifies Borrower
and Lenders that the circumstances giving rise to such notice no longer exist
(which Administrative Agent agrees to do promptly after such circumstances cease
to exist) and (ii) any Notice of Borrowing or Notice of Conversion/Continuation
given by Borrower with respect to the Loans in respect of which such
determination was made shall be deemed to be rescinded by Borrower.
C. Illegality or Impracticability of Eurodollar Rate Loans. In
the event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Borrower and Administrative Agent) that the
making, maintaining or continuation of its Eurodollar Rate Loans (i) has become
unlawful as a result of compliance by such Lender in good faith with any law,
treaty, governmental rule, regulation, guideline or order (or would conflict
with any such treaty, governmental rule, regulation, guideline or order not
having the force of law even though the failure to comply therewith would not be
unlawful) or (ii) has become impracticable, or would cause such Lender material
hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank Eurodollar market
or the position of such Lender in that market, then, and in any such event, such
Lender shall be an "Affected Lender" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to Borrower and
Administrative Agent of such determination (which notice Administrative Agent
shall promptly transmit to each other Lender). Thereafter (a) the obligation of
the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate
Loans shall be suspended until such notice shall be withdrawn by the Affected
Lender (which such Lender agrees to do promptly after such Lender ceases to be
so affected), (b) to the extent such determination by the Affected Lender
relates to a Eurodollar Rate Loan then being requested by Borrower pursuant to
a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected
Lender shall make such Loan as (or convert such Loan to, as the case may be) a
Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law, and (d) the Affected Loans shall
automatically convert into Base Rate Loans on the
-64-
<PAGE>
date of such termination. Notwithstanding the foregoing, to the extent a
determination by an Affected Lender as described above relates to a Eurodollar
Rate Loan then being requested by Borrower pursuant to a Notice of Borrowing or
a Notice of Conversion/Continuation, Borrower shall have the option, subject to
the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice
of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile
or by telephone confirmed in writing) to Administrative Agent of such rescission
on the date on which the Affected Lender gives notice of its determination as
described above (which notice of rescission Administrative Agent shall promptly
transmit to each other Lender). Except as provided in the immediately preceding
sentence, nothing in this subsection 2.6C shall affect the obligation of any
Lender other than an Affected Lender to make or maintain Loans as, or to convert
Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement.
D. Compensation For Breakage or Non-Commencement of Interest
Periods. Borrower shall compensate each Lender, upon written request by that
Lender (which request shall set forth the basis for requesting such amounts and
the calculation thereof in reasonable detail), for all reasonable losses,
expenses and liabilities (including any interest paid by that Lender to lenders
of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss,
expense or liability sustained by that Lender in connection with the liquidation
or re-employment of such funds) which that Lender may sustain: (i) if for any
reason (other than a default by that Lender) a borrowing of any Eurodollar Rate
Loan does not occur on a date specified therefor in a Notice of Borrowing or a
telephonic request for borrowing, or a conversion to or continuation of any
Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of
Conversion/Continuation or a telephonic request for conversion or continuation,
(ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i))
or other principal payment or any conversion of any of its Eurodollar Rate Loans
occurs on a date prior to the last day of an Interest Period applicable to that
Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on
any date specified in a notice of prepayment given by Borrower, or (iv) as a
consequence of any other default by Borrower in the repayment of its Eurodollar
Rate Loans when required by the terms of this Agreement.
E. Booking of Eurodollar Rate Loans. Any Lender may make,
carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its
branch offices or the office of an Affiliate of that Lender.
F. Assumptions Concerning Funding of Eurodollar Rate Loans.
Calculation of all amounts payable to a Lender under this subsection 2.6 and
under subsection 2.7A may be made as though that Lender had actually funded each
of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar
deposit bearing interest at
-65-
<PAGE>
the rate obtained pursuant to clause (i) of the definition of Adjusted
Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan
and having a maturity comparable to the relevant Interest Period and through the
transfer of such Eurodollar deposit from an offshore office of that Lender to a
domestic office of that Lender in the United States of America; provided,
however, that each Lender may fund each of its Eurodollar Rate Loans in any
manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this subsection 2.6 and under
subsection 2.7A.
2.7 Increased Costs; Taxes; Capital Adequacy.
A. Compensation for Increased Costs and Taxes. Subject to the
provisions of subsection 2.7B (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent demonstrable error, be final and conclusive and
therein or in the interpretation, administration or application thereof
(including the introduction of any new law, treaty or governmental rule,
regulation or order), or any determination of a court or governmental authority,
in each case that becomes effective after the date hereof, or compliance by such
Lender with any guideline, request or directive issued or made after the date
hereof by any central bank or other governmental or quasi-governmental authority
(whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office)
to any additional Tax (other than any Tax on the overall net income of
such Lender) with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in
or for the account of, or advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of such
Lender (other than any such reserve or other requirements with respect
to Eurodollar Rate Loans that are reflected in the definition of
Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting such Lender (or its applicable lending
office) or its obligations hereunder or the interbank Eurodollar
market;
-66-
<PAGE>
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Borrower shall within 10 days pay to
such Lender, upon receipt of the statement referred to in the next sentence,
such additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to Borrower (with a copy to Administrative
Agent) a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Lender under this subsection
2.7A, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
Promptly after any Lender has determined, in its sole judgment, that it
will make a request for increased compensation pursuant to this Section 2.7A,
such Lender will notify Borrower thereof. Failure on the part of any Lender so
to notify Borrower or to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver of such Lender's right
to demand compensation with respect to such period or any other period; provided
that Borrower shall not be under any obligation to compensate any Lender with
respect to increased costs or reductions with respect to any period prior to the
date that is six months prior to such request if such Lender knew of the
circumstances giving rise to such increased costs or reductions and of the fact
that such circumstances would in fact result in a claim for increased
compensation by reason of such increased costs or reductions; and provided
further, that the foregoing limitation shall not apply to any increased costs or
reductions arising out of the retroactive application of any law, regulation,
rule, guideline or directive as aforesaid within such six-month period.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by
Borrower under this Agreement and the other Loan Documents shall
(except to the extent required by law) be paid free and clear of, and
without any deduction or withholding on account of, any Tax (other than
a Tax on the overall net income of any Lender) imposed, levied,
collected, withheld or assessed by or within the United States of
America or any political subdivision in or of the United States of
America or any other jurisdiction from or to which a payment is made by
or on behalf of Borrower or by any federation or organization of which
the United States of America or any such jurisdiction is a member at
the time of payment.
-67-
<PAGE>
(ii) Grossing-up of Payments. If Borrower or any other Person
is required by law to make any deduction or withholding on account of
any such Tax from any sum paid or payable by Borrower to Administrative
Agent or any Lender under any of the Loan Documents:
(a) Borrower shall notify Administrative Agent
of any such requirement or any change in any such
requirement as soon as Borrower becomes aware of it;
(b) Borrower shall pay any such Tax before the
date on which penalties attach thereto, such payment to be
made (if the liability to pay is imposed on Borrower) for
its own account or (if that liability is imposed on
Administrative Agent or such Lender, as the case may be) on
behalf of and in the name of Administrative Agent or such
Lender;
(c) the sum payable by Borrower in respect of
which the relevant deduction, withholding or payment is
required shall be increased to the extent necessary to
ensure that, after the making of that deduction, withholding
or payment, Administrative Agent or such Lender, as the case
may be, receives on the due date a net sum equal to what it
would have received had no such deduction, withholding or
payment been required or made; and
(d) within 30 days after paying any sum from
which it is required by law to make any deduction or
withholding, and within 30 days after the due date of payment
of any Tax which it is required by clause (b) above to pay,
Borrower shall deliver to Administrative Agent evidence
satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the
relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to
any Lender under clause (c) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the
signature pages hereof) or after the date of the Assignment Agreement
pursuant to which such Lender became a Lender (in the case of each
other Lender) in any such requirement for a deduction, withholding or
payment as is mentioned therein shall result in an increase in the rate
of such deduction, withholding or payment from that in effect at the
date of this Agreement or at the date of such Assignment Agreement, as
the case may be, in respect of payments to such Lender.
-68-
<PAGE>
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of
any jurisdiction other than the United States or any state or
other political subdivision thereof (for purposes of this
subsection 2.7B(iii), a "Non-US Lender") shall deliver to
Administrative Agent for transmission to Borrower, on or prior
to the Closing Date (in the case of each Lender listed on the
signature pages hereof) or on or prior to the date of the
Assignment Agreement pursuant to which it becomes a Lender (in
the case of each other Lender), and at such other times as may
be necessary in the determination of Borrower or
Administrative Agent (each in the reasonable exercise of its
discretion), (1) two original copies of Internal Revenue
Service Form 1001 or 4224 (or any successor forms), properly
completed and duly executed by such Lender, together with any
other certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect
to any payments to such Lender of principal, interest,
fees or other amounts payable under any of the Loan Documents
or (2) if such Lender is not a "bank" or other Person
described in Section 881(c)(3) of the Internal Revenue Code
and cannot deliver either Internal Revenue Service Form 1001
or 4224 pursuant to clause (1) above, a Certificate re
Non-Bank Status together with two original copies of Internal
Revenue Service Form W-8 (or any successor form), properly
completed and duly executed by such Lender, together with any
other certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect
to any payments to such Lender of interest payable under any
of the Loan Documents.
(b) Each Lender required to deliver any forms,
certificates or other evidence with respect to United States
federal income tax withholding matters pursuant to subsection
2.7B(iii)(a) hereby agrees, from time to time after the
initial delivery by such Lender of such forms, certificates or
other evidence, whenever a lapse in time or change in
circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that
such Lender shall promptly (1) deliver to Administrative Agent
for transmission to Borrower two new original copies of
Internal Revenue Service Form 1001 or 4224, or a Certificate
re Non-Bank Status and two original copies of Internal Revenue
Service Form W-8, as the case may be, properly completed and
-69-
<PAGE>
duly executed by such Lender, together with any other
certificate or statement of exemption required in order to
confirm or establish that such Lender is not subject to
deduction or withholding of United States federal income tax
with respect to payments to such Lender under the Loan
Documents or (2) notify Administrative Agent and Borrower of
its inability to deliver any such forms, certificates or other
evidence.
(c) Borrower shall not be required to pay any
additional amount to any Non-US Lender under clause (c) of
subsection 2.7B(ii) if such Lender shall have failed to
satisfy the requirements of clause (a) or (b)(1) of this
subsection 2.7B(iii); provided that if such Lender shall have
satisfied the requirements of subsection 2.7B(iii)(a) on the
Closing Date (in the case of each Lender listed on the
signature pages hereof) or on the date of the Assignment
Agreement pursuant to which it became a Lender (in the case of
each other Lender), nothing in this subsection 2.7B(iii)(c)
shall relieve Borrower of its obligation to pay any additional
amounts pursuant to clause (c) of subsection 2.7B(ii) in the
event that, as a result of any change in any applicable law,
treaty or governmental rule, regulation or order, or any
change in the interpretation, administration or application
thereof, such Lender is no longer properly entitled to deliver
forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to
withholding as described in subsection 2.7B(iii)(a).
C. Capital Adequacy Adjustment. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the date
hereof of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or any change therein or in the interpretation or
administration thereof by the National Association of Insurance Commissioners,
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
applicable lending office) with any guideline, request or directive regarding
capital adequacy (whether or not having the force of law) of the National
Association of Insurance Commissioners, any such governmental authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on the capital of such Lender or any corporation controlling such Lender
as a consequence of, or with reference to, such Lender's Loans or Commitments or
Letters of Credit or participations therein or other obligations hereunder with
respect to the Loans or the Letters of Credit to a level below that which such
Lender or such controlling corporation could have achieved but for such
adoption, effectiveness, phase-in, applicability, change or compliance (taking
into consideration the policies of such Lender or such controlling corporation
with regard to capital adequacy), then from time to time, within ten Business
Days after receipt by Borrower from such Lender of the statement referred to in
the next
-70-
<PAGE>
sentence, Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender or such controlling corporation on an
after-tax basis for such reduction. Such Lender shall deliver to Borrower (with
a copy to Administrative Agent) a written statement, setting forth in reasonable
detail the basis of the calculation of such additional amounts, which statement
shall be conclusive and binding upon all parties hereto absent demonstrable
error.
D. Substitute Lenders. In the event Borrower is required under
the provisions of this subsection 2.7 or subsection 3.6 to make payments in a
material amount to any Lender or in the event any Lender fails to lend to
Borrower in accordance with this Agreement or if any Lender becomes an Affected
Lender, Borrower may, so long as no Event of Default or Potential Event of
Default shall have occurred and be continuing, elect to terminate such Lender as
a party to this Agreement; provided that, concurrently with such termination,
(i) Borrower shall pay that Lender all principal, interest and fees and other
amounts (including without limitation, amounts, if any, owed under this
subsection 2.7 or subsection 3.6) owed to such Lender through such date of
termination, (ii) another financial institution satisfactory to Borrower and
Administrative Agent (or if Administrative Agent is also the Lender to be
terminated, the successor Administrative Agent) shall agree, as of such date,
to become a Lender for all purposes under this Agreement (whether by assignment
or amendment) and to assume all obligations of the Lender to be terminated as of
such date, and (iii) all documents and supporting materials necessary, in the
judgment of Administrative Agent (or if Administrative Agent is also the Lender
to be terminated, the successor Administrative Agent), to evidence the
substitution of such Lender shall have been received and approved by
Administrative Agent as of such date.
2.8 Obligation of Lenders and Issuing Lender to Mitigate.
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may
be, becomes aware of the occurrence of an event or the existence of a condition
that would cause such Lender to become an Affected Lender or that would entitle
such Lender or Issuing Lender to receive payments under subsection 2.7 or
subsection 3.6, it will, to the extent not inconsistent with the internal
policies of such Lender or Issuing Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Commitments of such Lender or the affected Loans or Letters of Credit of such
Lender or Issuing Lender through another lending or letter of credit office of
such Lender or Issuing Lender, or (ii) take such other measures as such Lender
or Issuing Lender may deem reasonable, if as a result thereof the circumstances
which would cause such Lender to be an Affected Lender would cease to exist or
the additional amounts which would otherwise be required to be paid to such
Lender or Issuing Lender
-71-
<PAGE>
pursuant to subsection 2.7 or subsection 3.6 would be materially reduced and if,
as determined by such Lender or Issuing Lender in its sole discretion, the
making, issuing, funding or maintaining of such Commitments or Loans or Letters
of Credit through such other lending or letter of credit office or in accordance
with such other measures, as the case may be, would not otherwise materially
adversely affect such Commitments or Loans or Letters of Credit or the interests
of such Lender or Issuing Lender; provided that such Lender or Issuing Lender
will not be obligated to utilize such other lending or letter of credit office
pursuant to this subsection 2.8 unless Borrower agrees to pay all incremental
expenses incurred by such Lender or Issuing Lender as a result of utilizing such
other lending or letter of credit office as described in clause (i) above. A
certificate as to the amount of any such expenses payable by Borrower pursuant
to this subsection 2.8 (setting forth in reasonable detail the basis for
requesting such amount) submitted by such Lender or Issuing Lender to Borrower
(with a copy to Administrative Agent) shall be conclusive absent demonstrable
error.
SECTION 3.
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations
Therein.
A. Letters of Credit. In addition to Borrower requesting that Lenders
make Revolving Loans pursuant to subsection 2.1A(ii) and that Swing Line Lender
make Swing Line Loans pursuant to subsection 2.1A(iii), Borrower may request, in
accordance with the provisions of this subsection 3.1, from time to time during
the period from the Closing Date to but excluding the Revolving Loan Commitment
Termination Date, that Issuing Lender issue Letters of Credit for the account of
Borrower for the purposes specified in the definitions of Commercial Letters of
Credit and Standby Letters of Credit. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, Issuing Lender shall issue such Letters of Credit in
accordance with the provisions of this subsection 3.1; provided that Borrower
shall not request that Issuing Lender issue (and Lender shall not issue):
(i) any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Revolving Loan Commitments would
exceed the Revolving Loan Commitments then in effect; or
(ii) any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $15,000,000; or
-72-
<PAGE>
(iii) any Standby Letter of Credit having an expiration date
later than the earlier of (a) the Revolving Loan Commitment Termination
Date and (b) the date which is one year from the date of issuance of
such Standby Letter of Credit; provided that the immediately preceding
clause (b) shall not prevent Issuing Lender from agreeing that a
Standby Letter of Credit will automatically be extended for one or more
successive periods not to exceed one year each unless Issuing Lender
elects not to extend for any such additional period; and provided
further, that Issuing Lender shall elect not to extend such Standby
Letter of Credit if it has knowledge that [a Potential Event of Default
or] an Event of Default has occurred and is continuing (and has not
been waived in accordance with subsection 10.6) at the time Issuing
Lender must elect whether or not to allow such extension; or
(iv) any Commercial Letter of Credit having an expiration
date (a) later than the earlier of (a) the date which is 30 days prior
to the Revolving Loan Commitment Termination Date and (b) the date
which is 180 days from the date of issuance of such Commercial Letter
of Credit or (b) that is otherwise unacceptable to Issuing Lender in
its reasonable discretion; or
(v) any Letter of Credit denominated in a currency other
than Dollars.
B. Mechanics of Issuance.
(i) Notice of Issuance. Whenever Borrower desires the
issuance of a Letter of Credit, it shall deliver to Issuing Lender a
Notice of Issuance of Letter of Credit substantially in the form of
Exhibit III annexed hereto no later than 12:00 Noon (New York City
time) at least three Business Days, or such shorter period as may be
agreed to by Issuing Lender in any particular instance, in advance of
the proposed date of issuance. The Notice of Issuance of Letter of
Credit shall specify (a) the proposed date of issuance (which shall be
a Business Day), (b) whether the Letter of Credit is to be a Standby
Letter of Credit or a Commercial Letter of Credit, (c) the face amount
of the Letter of Credit, (d) the expiration date of the Letter of
Credit, (e) the name and address of the beneficiary, and (f) either the
verbatim text of the proposed Letter of Credit or the proposed terms
and conditions thereof, including a precise description of any
documents to be presented by the beneficiary which, if presented by the
beneficiary prior to the expiration date of the Letter of Credit, would
require Issuing Lender to make payment under the Letter of Credit;
provided that Issuing Lender, in its reasonable discretion, may require
changes in the text of the proposed Letter of Credit or any such
documents; and provided further, that, unless otherwise agreed by the
Issuing Lender, no Letter of Credit shall require payment against a
conforming draft to be made thereunder on the same business day
-73-
<PAGE>
(under the laws of the jurisdiction in which the office of Issuing
Lender to which such draft is required to be presented is located)
that such draft is presented if such presentation is made after 10:00
A.M. (in the time zone of such office of Issuing Lender) on such
business day.
Borrower shall notify Issuing Lender (and Administrative
Agent, if Administrative Agent is not Issuing Lender) prior to the
issuance of any Letter of Credit in the event that any of the matters
to which Borrower has certified in the applicable Notice of Issuance of
Letter of Credit is no longer true and correct as of the proposed date
of issuance of such Letter of Credit, and upon the issuance of any
Letter of Credit Borrower shall be deemed to have re-certified, as of
the date of such issuance, as to the matters to which Borrower is
required to certify in the applicable Notice of Issuance of Letter of
Credit.
(ii) Issuance of Letter of Credit. Upon satisfaction or
waiver (in accordance with subsection 10.6) of the conditions set forth
in subsection 4.3, Issuing Lender shall issue the requested Letter of
Credit in accordance with Issuing Lender's standard operating
procedures.
(iii) Notification to Lenders. Upon the issuance of any Letter
of Credit Issuing Lender shall promptly notify Administrative Agent (if
Issuing Lender is not Administrative Agent) and each other Lender of
such issuance, which notice shall be accompanied by a copy of such
Letter of Credit. Promptly after receipt of such notice (or, if
Administrative Agent is Issuing Lender, together with such notice),
Administrative Agent shall notify each Lender of the amount of such
Lender's respective participation in such Letter of Credit, determined
in accordance with subsection 3.1C.
(iv) Reports to Lenders. Within 30 days after the end of each
calendar quarter ending after the Closing Date, so long as any Letter
of Credit shall have been outstanding during such calendar quarter,
Issuing Lender shall deliver to each other Lender a report setting
forth for such calendar quarter the daily aggregate amount available to
be drawn under the Letters of Credit issued by Issuing Lender that were
outstanding during such calendar quarter.
C. Lenders' Purchase of Participations in Letters of Credit.
Immediately upon the issuance of each Letter of Credit, each Lender shall be
deemed to, and hereby agrees to, have irrevocably purchased from Issuing Lender
a participation in such Letter of Credit and any drawings honored thereunder in
an amount equal to such Lender's Pro Rata Share of the maximum amount which is
or at any time may become available to be drawn thereunder.
-74-
<PAGE>
3.2 Letter of Credit Fees.
Borrower agrees to pay the following amounts with respect to Letters of
Credit issued hereunder:
(i) with respect to each Letter of Credit, (a) a fronting
fee, payable directly to Issuing Lender for its own account, equal to
the greater of (1) $500 and (2) 0.25% per annum of the daily amount
available to be drawn under such Letter of Credit and (b) a letter of
credit fee, payable to Administrative Agent for the account of Lenders,
equal to the product of the Applicable Margin for Revolving Loans that
are Eurodollar Rate Loans and the daily amount available to be drawn
under such Letter of Credit, each such fronting fee or letter of credit
fee to be payable in arrears on and to (but excluding) each February 1,
May 1, August 1 and November 1 of each year and computed on the basis
of a 365-day or 366-day year, as the case may be, for the actual
number of days elapsed; and
(ii) with respect to the issuance, amendment or transfer of
each Letter of Credit and each payment of a drawing made thereunder
(without duplication of the fees payable under clause (i) above),
documentary and processing charges payable directly to Issuing Lender
for its own account in accordance with Issuing Lender's standard
schedule for such charges in effect at the time of such issuance,
amendment, transfer or payment, as the case may be.
For purposes of calculating any fees payable under clause (i) of this subsection
3.2, the daily amount available to be drawn under any Letter of Credit shall be
determined as of the close of business on any date of determination. Promptly
upon receipt by Administrative Agent of any amount described in clause (i)(b) of
this subsection 3.2, Administrative Agent shall distribute to each Lender its
Pro Rata Share of such amount.
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit.
A. Responsibility of Issuing Lender With Respect to Drawings. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in accordance with the terms
and conditions of such Letter of Credit.
B. Reimbursement by Borrower of Amounts Paid Under Letters of Credit.
In the event Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, Issuing Lender shall immediately notify Borrower and
Administrative Agent, and Borrower shall reimburse Issuing Lender on or before
the Business Day immediately following the date on which such drawing is honored
(the "Reimburse-
-75-
<PAGE>
ment Date") in an amount in Dollars and in same day funds equal to the amount of
such honored drawing; provided that, anything contained in this Agreement to the
contrary notwithstanding, (i) unless Borrower shall have notified Administrative
Agent and Issuing Lender prior to 10:00 A.M. (New York City time) on the date
such drawing is honored that Borrower intends to reimburse Issuing Lender for
the amount of such honored drawing with funds other than the proceeds of
Revolving Loans, Borrower shall be deemed to have given a timely Notice of
Borrowing to Administrative Agent requesting Lenders to make Revolving Loans
that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal
to the amount of such honored drawing and (ii) subject to satisfaction or waiver
of the conditions specified in subsection 4.2B, Lenders shall, on the
Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount
of such honored drawing, the proceeds of which shall be applied directly by
Administrative Agent to reimburse Issuing Lender for the amount of such
honored drawing; and provided further, that if for any reason proceeds of
Revolving Loans are not received by Issuing Lender on the Reimbursement Date
in an amount equal to the amount of such honored drawing, Borrower shall
reimburse Issuing Lender, on demand, in an amount in same day funds equal to
the excess of the amount of such honored drawing over the aggregate amount of
such Revolving Loans, if any, which are so received. Nothing in this
subsection 3.3B shall be deemed to relieve any Lender from its obligation to
make Revolving Loans on the terms and conditions set forth in this Agreement,
and Borrower shall retain any and all rights it may have against any Lender
resulting from the failure of such Lender to make such Revolving Loans under
this subsection 3.3B.
C. Payment by Lenders of Unreimbursed Amounts Paid Under Letters
of Credit.
(i) Payment by Lenders. In the event that Borrower shall
fail for any reason to reimburse Issuing Lender as provided in
subsection 3.3B in an amount equal to the amount of any drawing honored
by Issuing Lender under a Letter of Credit issued by it, Issuing Lender
shall promptly notify each other Lender of the unreimbursed amount of
such honored drawing and of such other Lender's respective
participation therein based on such Lender's Pro Rata Share. Each
Lender shall make available to Issuing Lender an amount equal to its
respective participation, in Dollars and in same day funds, at the
office of Issuing Lender specified in such notice, not later than 12:00
Noon (New York City time) on the first business day (under the laws of
the jurisdiction in which such office of Issuing Lender is located)
after the date notified by Issuing Lender. In the event that any Lender
fails to make available to Issuing Lender on such business day the
amount of such Lender's participation in such Letter of Credit as
provided in this subsection 3.3C, Issuing Lender shall be entitled to
recover such amount on demand from such Lender together with interest
thereon at the rate customarily
-76-
<PAGE>
used by Issuing Lender for the correction of errors among banks for
three Business Days and thereafter at the Base Rate. Nothing in this
subsection 3.3C shall be deemed to prejudice the right of any Lender to
recover from Issuing Lender any amounts made available by Lender to
Issuing Lender pursuant to this subsection 3.3C in the event that it is
determined by the final judgment of a court of competent jurisdiction
that the payment with respect to a Letter of Credit by Issuing Lender
in respect of which payment was made by Lender constituted gross
negligence or willful misconduct on the part of Issuing Lender.
(ii) Distribution to Lenders of Reimbursements Received
From Borrower. In the event Issuing Lender shall have been reimbursed
by other Lenders pursuant to subsection 3.3C(i) for all or any portion
of any drawing honored by Issuing Lender under a Letter of Credit
issued by it, Issuing Lender shall distribute to each other Lender
which has paid all amounts payable by it under subsection 3.3C(i) with
respect to such honored drawing such other Lender's Pro Rata Share of
all payments subsequently received by Issuing Lender from Borrower in
reimbursement of such honored drawing when such payments are received.
Any such distribution shall be made to a Lender at its primary address
set forth below its name on the appropriate signature page hereof or at
such other address as such Lender may request.
D. Interest on Amounts Paid Under Letters of Credit.
(i) Payment of Interest by Borrower. Borrower agrees to pay
to Issuing Lender, with respect to drawings honored under any Letters
of Credit issued by it, interest on the amount paid by Issuing Lender
in respect of each such honored drawing from the date such drawing is
honored to but excluding the date such amount is reimbursed by Borrower
(including any such reimbursement out of the proceeds of Revolving
Loans pursuant to subsection 3.3B) at a rate equal to (a) for the
period from the date such drawing is honored to but excluding the
Reimbursement Date, the rate then in effect under this Agreement with
respect to Revolving Loans that are Base Rate Loans and (b) thereafter,
a rate which is 2% per annum in excess of the rate of interest
otherwise payable under this Agreement with respect to Revolving Loans
that are Base Rate Loans. Interest payable pursuant to this subsection
3.3D(i) shall be computed on the basis of a 365-day or 366-day year, as
the case may be, for the actual number of days elapsed in the period
during which it accrues and shall be payable on demand or, if no demand
is made, on the date on which the related drawing under a Letter of
Credit is reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender.
Promptly upon receipt by Issuing Lender of any payment of interest
pursuant to subsection
-77-
<PAGE>
3.3D(i) with respect to a drawing honored under a Letter of Credit
issued by it, (a) Issuing Lender shall distribute to each other Lender,
out of the interest received by Issuing Lender in respect of the period
from the date such drawing is honored to but excluding the date on
which Issuing Lender is reimbursed for the amount of such drawing
(including any such reimbursement out of the proceeds of Revolving
Loans pursuant to subsection 3.3B), the amount that such other Lender
would have been entitled to receive in respect of the letter of credit
fee that would have been payable in respect of such Letter of Credit
for such period pursuant to subsection 3.2 if no drawing had been
honored under such Letter of Credit, and (b) in the event Issuing
Lender shall have been reimbursed by other Lenders pursuant to
subsection 3.3C(i) for all or any portion of such honored drawing,
Issuing Lender shall distribute to each other Lender which has paid all
amounts payable by it under subsection 3.3C(i) with respect to such
honored drawing such other Lender's Pro Rata Share of any interest
received by Issuing Lender in respect of that portion of such honored
drawing so reimbursed by other Lenders for the period from the date on
which Issuing Lender was so reimbursed by other Lenders to but
excluding the date on which such portion of such honored drawing is
reimbursed by Borrower. Any such distribution shall be made to a Lender
at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Lender may
request.
3.4 Obligations Absolute.
The obligation of Borrower to reimburse Issuing Lender for drawings
honored under the Letters of Credit issued by it and to repay any Revolving
Loans made by Lenders pursuant to subsection 3.3B and the obligations of Lenders
under subsection 3.3C(i) shall be unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances including any of the following circumstances:
(i) any lack of validity or enforceability of any
Letter of Credit;
(ii) the existence of any claim, set-off, defense or other
right which Borrower or any Lender may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), Issuing Lender or other
Lender or any other Person or, in the case of a Lender, against
Borrower, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or one of its Subsidiaries and
the beneficiary for which any Letter of Credit was procured);
-78-
<PAGE>
(iii) any draft or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by Issuing Lender under any Letter of Credit
against presentation of a draft or other document which does not
substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of
Holdings or any of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan
Document by any party thereto;
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential
Event of Default shall have occurred and be continuing; provided, in
each case, that payment by Issuing Lender under the applicable Letter
of Credit shall not have constituted gross negligence, willful
misconduct or bad faith of Issuing Lender under the circumstances in
question.
3.5 Indemnification; Nature of Issuing Lender's Duties.
A. Indemnification. In addition to amounts payable as provided
in subsection 3.6, Borrower hereby agrees to protect, indemnify, pay and save
harmless Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by Issuing
Lender, other than as a result of (a) the gross negligence, willful misconduct
or bad faith of Issuing Lender or (b) subject to the following clause (ii), the
wrongful dishonor by Issuing Lender of a proper demand for payment made under
any Letter of Credit issued by it or (ii) the failure of Issuing Lender to honor
a drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"Governmental Acts").
-79-
<PAGE>
B. Nature of Issuing Lender's Duties. As between Borrower and
Issuing Lender, Borrower assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by Issuing Lender by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, Issuing Lender shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of Issuing Lender, including any Governmental Acts, and none of the
above shall affect or impair, or prevent the vesting of, any of Issuing Lender's
rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by Issuing Lender under or in connection with the Letters of
Credit issued by it or any documents and certificates delivered thereunder, if
taken or omitted in good faith, shall not put Issuing Lender under any resulting
liability to Borrower.
Notwithstanding anything to the contrary contained in this subsection
3.5, Borrower shall retain any and all rights it may have against Issuing Lender
for any liability arising solely out of the gross negligence, willful misconduct
or bad faith of Issuing Lender.
3.6 Increased Costs and Taxes Relating to Letters of Credit.
Subject to the provisions of subsection 2.7B (which shall be
controlling with respect to the matters covered thereby), in the event that
Issuing Lender or any Lender shall determine (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto)
that any law, treaty or governmental rule,
-80-
<PAGE>
regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or any determination of
a court or governmental authority, in each case that becomes effective after the
date hereof, or compliance by Issuing Lender or any Lender with any guideline,
request or directive issued or made after the date hereof by any central bank or
other governmental or quasi-governmental authority (whether or not having the
force of law):
(i) subjects Issuing Lender or such Lender (or its
applicable lending or letter of credit office) to any additional Tax
(other than any Tax on the overall net income of Issuing Lender or such
Lender) with respect to the issuing or maintaining of any Letters of
Credit or the purchasing or maintaining of any participations therein
or any other obligations under this Section 3, whether directly or by
such being imposed on or suffered by Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by Issuing
Lender or participations therein purchased by such Lender; or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting Issuing Lender or Lender (or its
applicable lending or letter of credit office) regarding this Section 3
or any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to Issuing Lender
or such Lender of agreeing to issue, issuing or maintaining any Letter of Credit
or agreeing to purchase, purchasing or maintaining any participation therein or
to reduce any amount received or receivable by Issuing Lender or such Lender (or
its applicable lending or letter of credit office) with respect thereto; then,
in any case, Borrower shall promptly pay to Issuing Lender or such Lender, upon
receipt of the statement referred to in the next sentence, such additional
amount or amounts as may be necessary to compensate Issuing Lender or such
Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Issuing Lender or such Lender shall deliver to Borrower a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to Issuing Lender or such Lender under this
subsection 3.6, which statement shall be conclusive and binding upon all parties
hereto absent demonstrable error. Promptly after Issuing Lender or any Lender
has determined, in its sole judgment, that it will make a request for increased
compensation pursuant to this subsection 3.6, Issuing Lender or such Lender, as
the case may be, will notify Borrower thereof. Failure on the part of Issuing
Lender or such Lender, as the case may be, so to notify Borrower or to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any
-81-
<PAGE>
period shall not constitute a waiver of Issuing Lender's or such Lender's right
to demand compensation with respect to such period or any other period; provided
that Borrower shall not be under any obligation to compensate Issuing Lender or
any Lender with respect to increased costs or reductions with respect to any
period prior to the date that is six months prior to such request if Issuing
Lender or such Lender knew of the circumstances giving rise to such increased
costs or reductions and of the fact that such circumstances would in fact result
in a claim for increased compensation by reason of such increased costs or
reductions; provided further, that the foregoing limitation shall not apply to
any increased costs or reductions arising out of the retroactive application of
any law, regulation, rule, guideline or directive as aforesaid within such
six-month period.
SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters of
Credit hereunder are subject to the satisfaction of the following conditions.
4.1 Conditions to AXELs and Initial Revolving Loans and Swing Line Loans.
The obligations of Lenders to make the AXELs to be made on the Closing
Date are, in addition to the conditions precedent specified in subsection 4.2,
subject to prior or concurrent satisfaction of the following conditions:
A. Loan Party Documents. On or before the Closing Date, Borrower
shall, and shall cause each other Loan Party to, deliver to Lenders (or to
Administrative Agent for Lenders with sufficient originally executed copies,
where appropriate, for each Lender and its counsel) the following with respect
to Borrower or such other Loan Party, as the case may be, each, unless otherwise
noted, dated the Closing Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of such Person, together with a good standing certificate
from the Secretary of State of its jurisdiction of incorporation and
each other state in which such Person is qualified as a foreign
corporation to do business and, to the extent generally available, a
certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing
authority of each of such jurisdictions, each dated a recent date prior
to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by such Person's corporate secretary or an assistant
secretary;
-82-
<PAGE>
(iii) Resolutions of the Board of Directors of such Person
approving and authorizing the execution, delivery and performance of
the Loan Documents and Related Agreements to which it is a party,
certified as of the Closing Date by the corporate secretary or an
assistant secretary of such Person as being in full force and effect
without modification or amendment;
(iv) Signature and incumbency certificates of the officers
of such Person executing the Loan Documents to which it is a party;
and
(v) Executed originals of the Loan Documents to which such
Person is a party.
B. No Material Adverse Change. After giving effect to the
Transaction, since December 31, 1995, no event, change or development has
occurred which has a Material Adverse Effect.
C. Senior Subordinated Notes. On or prior to the Closing Date, Borrower
shall have issued and sold the Senior Subordinated Notes and received gross
proceeds of not less than $80,000,000. The Senior Subordinated Notes shall be
unsecured and shall have terms, including without limitation, maturity, interest
rates, covenants and subordination provisions in form and substance as set forth
in the Indenture dated November 15, 1996, with such changes thereto, if any,
that have been approved by Administrative Agent and Requisite Lenders or that
would otherwise have been permitted to be made pursuant to subsection 7.13A if
the Subordinated Notes were issued and outstanding at the time of any such
change. Borrower shall deliver to Arranging Agent and Administrative Agent true
and complete copies of the all documentation relating to the Senior Subordinated
Notes, all of which shall be in form and substance satisfactory to Arranging
Agent and Administrative Agent. In no event shall the maturity or the first
scheduled repayment date on the Senior Subordinated Notes be earlier than May 1,
2004.
D. Holdings Common Stock and Holdings Preferred Stock. On or prior to
the Closing Date, Holdings shall have (i) issued and sold $130,000,000 in the
aggregate of Holdings Common Stock and Holdings Preferred Stock to Loewen and
the Blackstone Investors in exchange for $107,000,000 in Cash proceeds and the
Satellite Properties valued at $23,000,000 and (ii) all of the foregoing,
including the terms and conditions thereof and all documentation executed
therewith, shall be in form and substance satisfactory to Arranging Agent and
Administrative Agent.
E. Related Agreements. (i) Administrative Agent and Arranging
Agent shall have received executed or conformed copies of each of the Related
Agreements and any amendments thereto on or before the Closing Date, the terms
are conditions of which shall be in all respects satisfactory to Administrative
Agent and Arranging Agent, (ii) the
-83-
<PAGE>
Related Agreements shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived after the execution thereof,
except as provided in a written amendment thereto delivered to and approved by
Administrative Agent and Arranging Agent, (iii) no Loan Party shall have failed
in any material respect to perform any material obligation or covenant required
by the Related Agreement to be performed with or complied with by it on or
before the Closing Date and (iv) Administrative Agent and Arranging Agent shall
have received an Officers' Certificate from Holdings and Borrower in form and
substance satisfactory to Administrative Agent and Arranging Agent to the
effects set forth in clauses (i), (ii) and (iii) above.
F. Matters Relating to Existing Indebtedness. On the Closing Date,
Borrower and its Subsidiaries shall have (i) repaid in full all Existing
Indebtedness outstanding or defeased such Existing Indebtedness pursuant to
escrow agreements or other arrangements which shall be in form and substance
satisfactory to Arranging Agent and Administrative Agent, (ii) terminated any
commitments to lend or make other extensions of credit under the documentation
governing the Existing Indebtedness, and (iii) delivered to Arranging Agent and
Administrative Agent all documents or instruments necessary (including
termination statements and discharges and releases of mortgages) to release all
Liens securing the Existing Indebtedness and release letters in form and
substance satisfactory to Arranging Agent and Administrative Agent from the
holders of the Existing Indebtedness releasing their claims and giving further
assurances as to any other actions or documents necessary to release all Liens
securing such Existing Indebtedness.
G. Necessary Governmental Authorizations and Consents;
Expiration of Waiting Periods, Etc. Except as set forth on Schedule 4.1G annexed
hereto, Holdings and Borrower shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with the Acquisition, the Merger, the
Contribution, the other transactions contemplated by the Loan Documents and the
Related Agreements, and the continued operation of the business conducted by
Holdings and its Subsidiaries in substantially the same manner as conducted by
Rose Hills, the Association, the Satellite Properties and their respective
Subsidiaries prior to the consummation of the Acquisition, the Merger and the
Contribution and each of the foregoing shall be in full force and effect, in
each case other than those the failure to obtain or maintain which, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. All applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on the
Acquisition or the financing thereof. No action, request for stay, petition for
review or rehearing, reconsideration, or appeal with respect to any of the
foregoing shall be pending, and the time for any applicable agency to take
action to set aside its consent on its own motion shall have expired.
-84-
<PAGE>
H. Consummation of Acquisition, Merger and Contribution.
(i) All conditions to the Acquisition and the Merger set
forth in the Acquisition Agreement and the Merger Agreement,
respectively, shall have been satisfied or the fulfillment of any such
conditions which shall not have been satisfied shall have been waived
with the consent of Arranging Agent, Administrative Agent and Requisite
Lenders;
(ii) Arranging Agent and Administrative Agent shall have
received evidence reasonably satisfactory to Arranging Agent and
Administrative Agent that (a) the Acquisition and the Merger shall
become effective before or concurrently with the making of the initial
Loans and (b) all of the transactions contemplated in connection with
the Contribution shall become effective before or concurrently with the
making of the initial Loans and such transactions and the documentation
entered into in connection therewith shall be in form and substance
reasonably satisfactory to Arranging Agent and Administrative Agent;
(iii) the aggregate Cash proceeds from the issuance of the
equity of Holdings to Loewen and the Blackstone Investors contemplated
by subsection 4.1D, plus the Cash proceeds of the Senior Subordinated
Notes, plus the amount of the AXELs made on the Closing Date will equal
or exceed the sum of (a) the aggregate Cash consideration paid in
connection with the Acquisition and the Merger, (b) the Transaction
Costs, (c) the amounts required to repay or defease the Existing
Indebtedness as required by subsection 4.1F and (d) the amounts
necessary to prefund up to $2,000,000 of certain capital expenditures
and severance costs; and
(iv) Arranging Agent and Administrative Agent shall have
received an Officers' Certificate of Borrower to the effect set forth
in clauses (i)-(iii) above.
I. Security Interests in the Cemetery and Personal Property.
Each of Arranging Agent and Administrative Agent shall have received evidence
satisfactory to it that each Loan Party shall have taken or caused to be taken
all such actions, executed and delivered or caused to be executed and delivered
all such agreements, documents and instruments, and made or caused to be made
all such filings and recordings (other than the filing or recording of items
described in clauses (iii), (iv) and (v) below) that may be necessary or, in the
opinion of Arranging Agent and Administrative Agent, desirable in order to
create in favor of Administrative Agent, for the benefit of Lenders, a valid and
(upon such filing and recording) perfected First Priority security interest in
the Collateral. Such actions shall include the following:
-85-
<PAGE>
(i) Schedules to Collateral Documents. Delivery to
Administrative Agent of accurate and complete schedules to all of the
applicable Collateral Documents.
(ii) Stock Certificates and Instruments. Delivery to
Administrative Agent of (a) certificates (which certificates shall be
accompanied by irrevocable undated stock powers, duly endorsed in blank
and otherwise satisfactory in form and substance to Administrative
Agent) representing all capital stock pledged pursuant to the Holdings
Pledge Agreement, the Borrower Pledge Agreement
and the Subsidiary Pledge Agreement and (b) all promissory notes or
other instruments (duly endorsed, where appropriate, in a manner
satisfactory to Administrative Agent) evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Delivery
to Arranging Agent and Administrative Agent of (a) the results of a
recent search, by a Person satisfactory to Arranging Agent and
Administrative Agent, of all effective UCC financing statements and
fixture filings and all tax lien filings which may have been made with
respect to the Cemetery or any personal or mixed property of any Loan
Party, together with copies of all such filings requested by
Administrative Agent disclosed by such search, and (b) UCC termination
statements duly executed by all applicable Persons for filing in all
applicable jurisdictions as may be necessary to terminate any effective
UCC financing statements or fixture filings disclosed in such search
(other than any such financing statements or fixture filings in respect
of Liens permitted to remain outstanding pursuant to the terms of this
Agreement);
(iv) UCC Financing Statements. Delivery to Administrative
Agent of UCC financing statements duly executed by each applicable Loan
Party with respect to all personal property Collateral of such Loan
Party, for filing in all jurisdictions as may be necessary or, in the
opinion of Arranging Agent and Administrative Agent, desirable to
perfect the security interests created in such Collateral pursuant to
the Collateral Documents; and
(v) Mortgage; Title Insurance; Survey. Delivery to Arranging
Agent and Administrative Agent of (a) a fully executed Mortgage,
together with evidence that counterparts of the Mortgage have been
delivered to the title insurance company insuring the Lien of the
Mortgage for recording in all jurisdictions as may be necessary or, in
the opinion of Arranging Agent and Administrative Agent, desirable to
perfect the security interests created in the Cemetery pursuant to the
Mortgage, (b) a mortgage title insurance policy on the Cemetery issued
by a title insurer satisfactory to Arranging Agent and Administrative
Agent in form and substance, and in an amount, satisfactory to
-86-
<PAGE>
Arranging Agent and Administrative Agent and (c) a recent survey in
form and substance satisfactory to Arranging Agent and Administrative
Agent, of the Cemetery, certified by a licensed professional surveyor
satisfactory to Arranging Agent and Administrative Agent.
J. Financial Statements; Pro Forma Balance Sheet. On or before
the Closing Date, Lenders shall have received from Borrower (i) audited
financial state- ments of Rose Hills and its Subsidiaries, the Association and
its Subsidiary and the Satellite Properties, in each case for Fiscal Year 1995,
consisting of a balance sheet and the related consolidated statements of income,
stockholders' equity and cash flows for such Fiscal Year (all as included in
Borrower's Offering Memorandum, dated November 14, 1996, prepared in connection
with the Senior Subordinated Notes), (ii) (x) unaudited financial statements of
Rose Hills and its Subsidiaries, the Association and its Subsidiary and the
Satellite Properties for the six month period ended June 30, 1996 and (y)
monthly unaudited financial statements prepared by management for internal use
of each of the Association and Rose Hills Mortuary L.P. for the monthly periods
ended July 31, 1996, August 31, 1996 and September 30, 1996, in each case (in
respect of the foregoing clause (x)) consisting of a balance sheet and the
related consolidated statements of income, stockholders' equity and cash flows
for such periods, all in reasonable detail and certified by the chief executive
officer or chief financial officer of Holdings that they fairly present in all
material respects the financial condition of respective Persons as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal year-end
adjustments, and (iii) a pro forma consolidated balance sheet of Holdings and
its Subsidiaries as of June 30, 1996 and a pro forma income statement of
Holdings and its Subsidiaries for the twelve month period ended December 31,
1995 and the six month period ended June 30, 1996, in each case prepared in
accordance with GAAP and reflecting the consummation of the Acquisition, the
Merger and the Contribution, the related financings and the other transactions
contemplated by the Loan Documents and the Related Agreements, which pro forma
financial statements shall be in form and substance consistent with the pro
forma financial statements contained in the Confidential Information Memorandum
and otherwise satisfactory to Lenders.
K. Solvency Opinion. On the Closing Date, Arranging Agent,
Administrative Agent and Lenders shall have received a letter from Murray,
Devine & Co., dated the Closing Date and addressed to Arranging Agent,
Administrative Agent and Lenders, in form and substance reasonably satisfactory
to Arranging Agent and Administrative Agent, demonstrating that, after giving
effect to the consummation of the Acquisition, the Merger, the Contribution, the
related financings and the other transactions contemplated by the Loan
Documents and the Related Agreements, Holdings and its Subsidiaries on a
consolidated basis and Borrower will be Solvent.
-87-
<PAGE>
L. Evidence of Insurance. Arranging Agent and Administrative
Agent shall have received a certificate from Borrower's insurance broker or
other evidence satisfactory to it that all insurance required to be maintained
pursuant to subsection 6.4 is in full force and effect and that Administrative
Agent on behalf of Lenders has been named as additional insured and/or loss
payee thereunder to the extent required under subsection 6.4.
M. Opinions of Counsel to Loan Parties. Lenders and their
respective counsel shall have received (i) originally executed copies of one or
more favorable written opinions of Simpson Thacher & Bartlett, counsel for Loan
Parties, dated as of the Closing Date and substantially in the form of Exhibit
VIII-A annexed hereto and as to such other matters as Administrative Agent or
Arranging Agent and acting on behalf of Lenders may reasonably request, (ii)
originally executed copies of one or more favorable written opinions of Cox,
Castle & Nicholson, LLP, counsel for Loan Parties, dated as of the Closing Date
and substantially in the form of Exhibit VIII-B annexed hereto and as to such
other matters as Administrative Agent or Arranging Agent and acting on behalf of
Lenders may reasonably request and (iii) evidence satisfactory to Arranging
Agent and Administrative Agent that Borrower has requested each such counsel to
deliver such opinions to Lenders.
N. Opinions of Agents' Counsel. Lenders shall have received originally
executed copies of one or more favorable written opinions of White & Case,
counsel to Agents, dated as of the Closing Date, substantially in the form of
Exhibit IX annexed hereto and as to such other matters as Arranging Agent may
reasonably request.
O. Opinions of Counsel Delivered Under Related Agreements.
Administrative Agent and Arranging Agent and its counsel shall have received
copies of each of the opinions of counsel delivered to the parties under the
Acquisition Agreement, the Merger Agreement and the purchase or subscription
agreements relating to the Senior Subordinated Notes and the Holdings Common
Stock and Holdings Preferred Stock, together, to the extent agreed to by such
law firm, with a letter from each such counsel authorizing Lenders to rely upon
such opinion to the same extent as though it were addressed to Lenders.
P. Fees. Borrower shall have paid to Arranging Agent and
Administrative Agent, for distribution (as appropriate) to Arranging Agent,
Administrative Agent and Lenders, the fees payable on the Closing Date referred
to in subsection 2.3 and all other compensation, fees, costs and expenses
(including fees and expenses of counsel to Arranging Agent and Administrative
Agent) and payable hereunder or in connection herewith to Arranging Agent and
Administrative Agent on or prior to the Closing Date.
-88-
<PAGE>
Q. Administrative Agreement. Administrative Agent and
Arranging Agent shall have received duly executed copies of the Administrative
Agreement, which shall be in form and substance reasonably satisfactory to
Arranging Agent and Administrative Agent.
R. Representations and Warranties; Performance of Agreements.
Holdings and Borrower shall have delivered to Arranging Agent and Administrative
Agent an Officers' Certificate, in form and substance satisfactory to Arranging
Agent and Administrative Agent, to the effect that the representations and
warranties in Section 5 are true and correct in all material respects on and as
of the Closing Date to the same extent as though made on and as of that date
(or, to the extent such representations and warranties specifically relate to an
earlier date, that such representations and warranties were true and correct in
all material respects on and as of such earlier date) and that each of Holdings
and Borrower shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed or
satisfied by it on or before the Closing Date except as otherwise disclosed to
and agreed to in writing by Arranging Agent, Administrative Agent and Requisite
Lenders.
S. Completion of Proceedings. All corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Administrative Agent, acting on behalf of Lenders, or Arranging
Agent and its counsel shall be satisfactory in form and substance to
Administrative Agent and Arranging Agent and such counsel, and Administrative
Agent, Arranging Agent and such counsel shall have received all such counterpart
originals or certified copies of such documents as Administrative Agent or
Arranging Agent may reasonably request.
Each Lender by delivering its signature page to this Agreement and
funding its AXEL Commitment on the Closing Date shall be deemed to have
acknowledged receipt of, and consented to and approved (as long as substantially
in the form delivered to Lenders including any changed pages thereto delivered
to Lenders), each Loan Document and each other document required to be approved
by Requisite Lenders or Lenders, as applicable.
4.2 Conditions to All Loans.
The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. Administrative Agent shall have received before that Funding Date,
in accordance with the provisions of subsection 2.1B, an originally executed
Notice of Borrowing, in each case signed by the chief executive officer, the
president, the chief
-89-
<PAGE>
financial officer or the treasurer of Borrower or by any executive officer of
Borrower designated by any of the above-described officers on behalf of Borrower
in a writing delivered to Administrative Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and
in the other Loan Documents shall be true and correct in all material
respects on and as of that Funding Date to the same extent as though
made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case
such representations and warranties shall have been true and correct in
all material respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such
Notice of Borrowing that would constitute an Event of Default or a
Potential Event of Default;
(iii) Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before
that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender
from making the Loans to be made by it on that Funding Date;
(v) The making of the Loans requested on such Funding Date
shall not violate any law, including Regulation G, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System; and
(vi) There shall not be pending or, to the knowledge of
Borrower, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Holdings or any of
its Subsidiaries or any property of Holdings or any of its Subsidiaries
that has not been disclosed by Borrower in writing pursuant to
subsection 6.1(viii) prior to the making of the last preceding Loans
(or, in the case of the initial Loans, prior to the execution of this
Agreement), and there shall have occurred no development not so
disclosed in any such action, suit, proceeding, governmental
investigation or arbitration so disclosed, that, in either event, in
the opinion of Administrative Agent or of Requisite Lenders, could
reasonably be expected to have a Material Adverse Effect; and no
injunction or other restraining order shall have been issued and no
hearing to cause an injunction or other restraining order to be issued
shall be
-90-
<PAGE>
pending or noticed with respect to any action, suit or
proceeding seeking to enjoin or otherwise prevent the consummation of,
or to recover any damages or obtain relief as a result of, the
transactions contemplated by this Agreement or the making of Loans
hereunder.
4.3 Conditions to Letters of Credit.
The issuance of any Letter of Credit hereunder (whether or not Issuing
Lender is obligated to issue such Letter of Credit) is subject to the following
conditions precedent:
A. On or before the date of issuance of the initial
Letter of Credit pursuant to this Agreement, the initial Loans shall
have been made.
B. Or before the date of issuance of such Letter of
it, Issuing Lender shall have received, in accordance with the
provisions of subsection 3.1B(i), an originally executed Notice of
Issuance of Letter of Credit, in each case signed by the chief
executive officer, the president, the chief financial officer or the
treasurer of Borrower or by any executive officer of Borrower
designated by any of the above-described officers on behalf of Borrower
in a writing delivered to Issuing Lender, together with all other
information specified in subsection 3.1B(i) and such other documents or
information as Issuing Lender may reasonably require in connection with
the issuance of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all
conditions precedent described in subsection 4.2B shall be satisfied to
the same extent as if the issuance of such Letter of Credit were the
making of a Loan and the date of issuance of such Letter of Credit were
a Funding Date.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make the
Loans, to induce Issuing Lender to issue Letters of Credit and to induce other
Lenders to purchase participations therein, Holdings and Borrower each represent
and warrant to each Lender, on the date of this Agreement, on each Funding Date
and on the date of issuance of each Letter of Credit, that the following
statements are true, correct and complete:
-91-
<PAGE>
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.
A. Organization and Powers. Each Loan Party is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto,
except, in the case of any Loan Party other than Holdings or Borrower, where
failure to be in good standing has not had and could not reasonably be expected
to have a Material Adverse Effect. Each Loan Party has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into the Loan
Documents and Related Agreements to which it is a party and to carry out the
transactions contemplated thereby.
B. Qualification and Good Standing. Each Loan Party is
qualified to do business and in good standing in every jurisdiction where its
assets are located and wherever necessary to carry out its business and
operations, except in jurisdictions where the failure to be so qualified or in
good standing has not had and could not reasonably be expected to have a
Material Adverse Effect.
C. Conduct of Business. Loan Parties are engaged only in the
businesses permitted to be engaged in pursuant to subsection 7.12.
D. Subsidiaries. All of the Subsidiaries of Holdings as of the
Closing Date are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1
may be supplemented from time to time pursuant to the provisions of subsection
6.1(xiv). The capital stock of each of the Subsidiaries of Holdings identified
in Schedule 5.1 annexed hereto (as so supplemented) is duly authorized, validly
issued, fully paid and nonassessable and none of such capital stock constitutes
Margin Stock. Schedule 5.1 annexed hereto (as so supplemented) correctly sets
forth the ownership interest of Borrower and each of its Subsidiaries in each of
the Subsidiaries of Borrower identified therein.
5.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and
performance of the Loan Documents and the Related Agreements have been duly
authorized by all necessary corporate action on the part of each Loan Party that
is a party thereto.
B. No Conflict. The execution, delivery and performance by
Loan Parties of the Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the Loan
Documents and such Related Agreements do not and will not (i) violate any
provision of (a) any law or any governmental rule or regulation applicable to
any Loan Party or any of its Subsidiaries
-92-
<PAGE>
except for such violations which could not reasonably be expected to have a
Material Adverse Effect, (b) the Certificate or Articles of Incorporation or
Bylaws of any Loan Party or any of its Subsidiaries or (c) any order, judgment
or decree of any court or other agency of government binding on any Loan Party
or any of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of any Loan Party or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect, (iii) result in or
require the creation or imposition of any material Lien upon any of the
properties or assets of any Loan Party or any of its Subsidiaries (other than
Permitted Encumbrances or any Liens created under any of the Loan Documents in
favor of Administrative Agent on behalf of Lenders), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of any Loan Party or any of its Subsidiaries, except for
such approvals or consents which will be obtained on or before the Closing Date
and disclosed in writing to Lenders or which could not reasonably be expected to
have a Material Adverse Effect.
C. Governmental Consents. The execution, delivery and
performance by Loan Parties of the Loan Documents and the Related Agreements to
which they are parties and the consummation of the transactions contemplated by
the Loan Documents and such Related Agreements do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body except as provided in subsection 5.16B with respect to the Collateral
Documents, except as set forth on Schedule 4.1G annexed hereto and except to the
extent the absence thereof could not reasonably be expected to have a Material
Adverse Effect.
D. Binding Obligation. Each of the Loan Documents and Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether considered
in a proceeding in equity or at law).
E. Valid Issuance of Holdings Common Stock, Holdings Preferred
Stock and Senior Subordinated Notes.
(i) Holdings Common Stock and Holdings Preferred Stock.
The Holdings Common Stock and Holdings Preferred Stock to be sold on or
before the Closing Date, when issued and delivered, will be duly and
validly issued, fully paid and nonassessable. The issuance and sale of
such Holdings Common Stock and Holdings Preferred Stock, upon such
issuance and sale, will either
-93-
<PAGE>
(a) have been registered or qualified under applicable federal and
state securities laws or (b) be exempt therefrom.
(ii) Senior Subordinated Notes. Borrower has the
corporate power and authority to issue the Senior Subordinated Notes.
The Senior Subordinated Notes when issued and paid for, will be the
legally valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether
considered in a proceeding in equity or at law). The subordination
provisions of the Senior Subordinated Notes will be
enforceable against the holders thereof and the Loans and all other
monetary Obligations hereunder are and will be within the definition of
"Senior Indebtedness" included in such provisions. The Senior
Subordinated Notes, when issued and sold, will either (a) have been
registered or qualified under applicable federal and state securities
laws or (b) be exempt therefrom.
5.3 Financial Condition.
Borrower has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited consolidated
balance sheet of Rose Hills and its Subsidiaries, the Association and its
Subsidiary and the Satellite Properties, in each case as at December 31, 1995
and the related consolidated statements of income, stockholders' equity and cash
flows of such Persons for the Fiscal Year then ended, (ii) the unaudited
consolidated balance sheet of Rose Hills and its Subsidiaries and the
Association and its Subsidiary and the unaudited balance sheets of the Satellite
Properties, in each case as at June 30, 1996 and the related unaudited
consolidated and other statements of income, stockholders' equity and cash flows
of Rose Hills and its Subsidiaries, the Association and its Subsidiary and of
the Satellite Properties for the six months then ended and (iii) the unaudited
monthly balance sheets of each of the Association and Rose Hills Mortuary L.P.
as at the monthly periods ended July 31, 1996, August 31, 1996 and September 30,
1996 and the related unaudited statements for such monthly periods, in each case
prepared by management for internal purposes. All such statements in clauses (i)
and (ii) were prepared in conformity with GAAP and fairly present, in all
material respects, the financial position (on a consolidated basis) of the
entities described in such financial statements as at the respective dates
thereof and the results of operations and cash flows (on a consolidated basis)
of the entities described therein for each of the periods then ended, subject,
in the case of any such unaudited financial statements, to changes resulting
from audit and normal year-end adjustments. Except as set forth on Schedule 5.3
annexed hereto and, in respect of the Guaranties as of the Closing Date, neither
Holdings nor any of its Subsidiaries has (and neither Holdings nor any of its
Subsidiaries will have following the funding of the initial Loans)
-94-
<PAGE>
any Contingent Obligation, contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment that is not reflected
in the foregoing financial statements or the notes thereto and which in any such
case is material in relation to the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Holdings or any of its
Subsidiaries.
5.4 No Material Adverse Change; No Restricted Junior Payments.
After giving effect to the Transaction, since December 31, 1995, no
event or change has occurred that has caused or evidences, either in any case or
in the aggregate, a Material Adverse Effect. Neither Holdings nor any of its
Subsidiaries has directly or indirectly declared, ordered, paid or made, or set
apart any sum or property for, any Restricted Junior Payment or agreed to do so
except as permitted by subsection 7.5.
5.5 Title to Properties; Liens.
Loan Parties have (i) good, sufficient and legal title to (in the case
of fee interests in real property), (ii) valid leasehold interests in (in the
case of leasehold interests in real or personal property), or (iii) good title
to (in the case of all other personal property), all of their respective
properties and assets reflected in the financial statements referred to in
subsection 5.3 or in the most recent financial statements delivered pursuant to
subsection 6.1, in each case except for Permitted Encumbrances and assets
disposed of since the date of such financial statements in the ordinary course
of business or as otherwise permitted under subsection 7.7. Except as permitted
by this Agreement, all such properties and assets are free and clear of Liens.
5.6 Litigation; Adverse Facts.
Except to the extent set forth in Schedule 5.6 annexed hereto, there
are no actions, suits, proceedings, arbitrations or governmental investigations
(whether or not purportedly on behalf of any Loan Party or any of its
Subsidiaries) at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (including any Environmental Claims) that
are pending or, to the knowledge of Holdings or Borrower, threatened against or
affecting the Transaction or any Loan Party or any of its Subsidiaries or any
property of any Loan Party or any of its Subsidiaries and that, individually or
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect. No Loan Party nor any of its Subsidiaries (i) is in violation of any
applicable laws (including Environmental Laws) that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect,
or (ii) is subject to or in default with respect to any final judgments, writs,
injunctions, decrees, rules or regulations of any court or any federal, state,
municipal or other governmental
-95-
<PAGE>
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect.
5.7 Payment of Taxes.
Except to the extent permitted by subsection 6.3, all income tax
returns and reports of Holdings and its Subsidiaries required to be filed by any
of them have been timely filed, and all taxes shown on such tax returns to be
due and payable and all assessments, fees and other governmental charges upon
Holdings and its Subsidiaries and upon their respective properties, assets,
income, businesses and franchises which are due and payable have been paid when
due and payable. No Loan Party knows of any proposed tax assessment against any
Loan Party or any of its Subsidiaries which is not being actively contested by
such Loan Party or such Subsidiary in good faith and by appropriate proceedings;
provided that such reserves or other appropriate provisions, if any, as shall be
required in conformity with GAAP shall have been made or provided therefor.
5.8 Performance of Agreements; Materially Adverse Agreements; Material
Contracts.
A. No Loan Party nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, could not reasonably be expected to have a
Material Adverse Effect.
B. No Loan Party nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
C. Schedule 5.8 annexed hereto contains a true, correct and complete
list of all the Material Contracts in effect on the Closing Date. Except as
described on Schedule 5.8, all such Material Contracts are in full force and
effect and no material defaults currently exist thereunder.
5.9 Governmental Regulation.
No Loan Party nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate
-96-
<PAGE>
Commerce Act or the Investment Company Act of 1940 or under any other federal or
state statute or regulation (other than usury laws, Regulation X and other
similar laws) which may limit its ability to incur Indebtedness or which may
otherwise render all or any portion of the Obligations unenforceable.
5.10 Securities Activities.
A. No Loan Party nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more than
25% of the value of the assets (either of Borrower only or of Borrower and its
Subsidiaries on a consolidated basis) subject to the provisions of subsection
7.2 or 7.7 or subject to any restriction contained in any agreement or
instrument, between Borrower and any Lender or any Affiliate of any Lender,
relating to Indebtedness and within the scope of subsection 8.2, will be Margin
Stock.
5.11 Employee Benefit Plans.
A. Each Loan Party and each of their respective ERISA Affiliates are in
material compliance with all applicable provisions and requirements of ERISA and
the regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all obligations under each Employee
Benefit Plan which could reasonably be expected to result in a material
liability. Each Employee Benefit Plan which is intended to qualify under Section
401(a) of the Internal Revenue Code has received a determination from the IRS
that it is so qualified.
B. No ERISA Event has occurred or is reasonably expected to occur.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code or except as set forth in Schedule 5.11 annexed hereto, no Employee
Benefit Plan provides health or welfare benefits (through the purchase of
insurance or otherwise) for any retired or former employee of any Loan Party or
any of their respective ERISA Affiliates.
D. As of the most recent valuation date for any Pension Plan, the
amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA), individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which assets
exceed benefit liabilities), does not exceed $4,000,000.
-97-
<PAGE>
E. As of the most recent valuation date for each Multiemployer
Plan for which the actuarial report is available, the potential liability of
Loan Parties and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $1,000,000.
5.12 Certain Fees.
Except to the extent included in Transaction Costs, no broker's or
finder's fee or commission will be payable by Holdings or any of its
Subsidiaries with respect to this Agreement or any of the transactions
contemplated hereby, and Holdings and Borrower hereby, jointly and severally,
indemnify Lenders against, and agrees that it will hold Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees alleged to
have been incurred in connection herewith or therewith and any expenses
(including reasonable fees, expenses and disbursements of counsel) arising in
connection with any such claim, demand or liability.
5.13 Environmental Protection.
Except as set forth in Schedule 5.13 annexed hereto,
(i) No Loan Party nor any of its Subsidiaries nor any of
their respective Facilities or operations are subject to any
outstanding written order, consent decree or settlement agreement with
any Person relating to (a) any Environmental Law, (b) any Environmental
Claim, or (c) any Hazardous Materials Activity;
(ii) No Loan Party nor any of its Subsidiaries has
received any letter or request for information under Section 104 of the
Comprehensive Environmental Response, Compensation, and Liability Act
(42 U.S.C. ss. 9604) or any comparable state law;
(iii) There are and, to Holdings' and Borrower's knowledge
have been, no conditions, occurrences, or Hazardous Materials
Activities which could reasonably be expected to form the basis of an
Environmental Claim against any Loan Party or any of its Subsidiaries
that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect;
(iv) Except as could not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect, (a) no Loan
Party nor any of its Subsidiaries nor, to Holdings' or Borrower's
knowledge, any predecessor of
-98-
<PAGE>
any Loan Party or any of its Subsidiaries has filed any notice under
any Environmental Law indicating past or present treatment of Hazardous
Materials at any Facility, and (b) no Loan Party's or any of its
Subsidiaries' operations involve the transportation, treatment, storage
or disposal of hazardous waste, as defined under 40 C.F.R. Parts
260-270 or any state equivalent; and
(v) Compliance with all current or, to the best knowledge of
each Loan Party and its Subsidiaries, future requirements pursuant to
or under Environmental Laws could not, individually or in the
aggregate, reasonably be expected to give rise to a Material Adverse
Effect.
Notwithstanding anything in this subsection 5.13 to the contrary, no
event or condition has occurred or is occurring with respect to any Loan Party
or any of its Subsidiaries relating to any Environmental Law, any Release of
Hazardous Materials, or any Hazardous Materials Activity, including any matter
disclosed on Schedule 5.13 annexed hereto, which individually or in the
aggregate has had or could reasonably be expected to have a Material Adverse
Effect.
5.14 Employee Matters.
Except as set forth on Schedule 5.14 annexed hereto, no Loan Party nor
any of its Subsidiaries is party to any collective bargaining agreement and, to
the knowledge of Holdings and Borrower, no union representation question exists
with respect to the employees of any Loan Party or any of its Subsidiaries.
There is no strike, work stoppage, slow down, lockout or other labor dispute
pending, or to the knowledge of Holdings and Borrower, threatened, involving any
Loan Party or any of its Subsidiaries that singly or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
5.15 Solvency.
Each Loan Party is and, upon the incurrence of any Obligations by such
Loan Party on any date on which this representation is made, will be, Solvent.
5.16 Matters Relating to Collateral.
A. Creation, Perfection and Priority of Liens. The execution and
delivery of the Collateral Documents by Loan Parties, together with (i) the
actions taken on or prior to the date hereof pursuant to subsections 4.1I and
6.8 and (ii) the delivery to Administrative Agent of any Pledged Collateral not
delivered to Administrative Agent at the time of execution and delivery of the
applicable Collateral Document (all of which Pledged Collateral has been so
delivered) are effective to create in favor of Adminis-
-99-
<PAGE>
trative Agent for the benefit of Lenders, as security for the respective Secured
Obligations (as defined in the applicable Collateral Document in respect of any
Collateral), a valid and perfected First Priority Lien on all of the Collateral,
and all filings and other actions necessary or desirable to perfect and maintain
the perfection and First Priority status of such Liens have been duly made or
taken and remain in full force and effect, other than the filing of any UCC
financing statements delivered to Administrative Agent for filing (but not yet
filed) and the periodic filing of UCC continuation statements in respect of UCC
financing statements filed by or on behalf of Administrative Agent.
B. Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge or grant by any Loan Party
of the Liens purported to be created in favor of Administrative Agent pursuant
to any of the Collateral Documents or (ii) the exercise by Administrative Agent
of any rights or remedies in respect of any Collateral (whether specifically
granted or created pursuant to any of the Collateral Documents or created or
provided for by applicable law), except for filings or recordings contemplated
by subsection 5.16A and except as may be required, in connection with the
disposition of any Pledged Collateral, by laws generally affecting the offering
and sale of securities or as may be required in connection with the foreclosure
of the Mortgage.
C. Absence of Third-Party Filings. Except such as may have been
filed in favor of Administrative Agent as contemplated by subsection 5.16A and
in respect of Liens permitted under subsection 7.2 hereof, following the filing
of the UCC termination statements delivered to Administrative Agent pursuant to
subsection 4.1I(iii), no effective UCC financing statement, fixture filing,
mortgage or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office.
D. Margin Regulations. The pledge of the Pledged Collateral
pursuant to the Collateral Documents does not violate Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System.
E. Information Regarding Collateral. All information supplied to
Administrative Agent by or on behalf of any Loan Party with respect to any of
the Collateral (in each case taken as a whole with respect to any particular
Collateral) is accurate and complete in all material respects.
5.17 Representations and Warranties in Acquisition Agreement.
Except to the extent otherwise set forth herein or in the Schedules
hereto, each of the representations and warranties in the Acquisition Agreement
and in the Merger Agreement is true and correct in all material respects as of
the date hereof (or as of any
-100-
<PAGE>
earlier date to which such representation and warranty specifically relates) and
will be true and correct in all material respects as of the Closing Date, or as
of such earlier date (as the case may be), in each case subject to the
qualifications set forth in the schedules to the Acquisition Agreement and in
the Merger Agreement.
5.18 Disclosure.
No representation or warranty of any Loan Party contained in the
Confidential Information Memorandum or in any Loan Document or in any other
document, certificate or written statement furnished to Lenders by any Loan
Party for use in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact (known to Holdings or Borrower, in the case of any document not furnished
by it) necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. Any
projections and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by Holdings and
Borrower to be reasonable at the time made, it being recognized by Lenders that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections will
differ from the projected results. There are no facts known (or which should
upon the reasonable exercise of diligence be known) to Holdings or Borrower
(other than matters of a general economic nature) that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
and that have not been disclosed herein or in such other documents, certificates
and statements furnished to Lenders for use in connection with the transactions
contemplated hereby.
SECTION 6.
AFFIRMATIVE COVENANTS
Each of Holdings and Borrower covenants and agrees that, so long as any
of the Commitments hereunder shall remain in effect and until payment in full of
all of the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, each of Holdings and Borrower shall perform, and shall cause each of
its Subsidiaries to perform, all covenants in this Section 6.
6.1 Financial Statements and Other Reports.
Holdings will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices
-101-
<PAGE>
to permit preparation of financial statements in conformity with GAAP, Holdings
will deliver to Administrative Agent and Lenders:
(i) Quarterly Financials: as soon as available and in any
event within 45 days (or 90 days in the case each Fiscal Quarter ending
on or before September 30, 1997) after the end of each Fiscal Quarter,
(a) the consolidated balance sheet of Holdings and its Subsidiaries as
at the end of such Fiscal Quarter and the related consolidated
statements of income, stockholders' equity and cash flows of Holdings
and its Subsidiaries for such Fiscal Quarter and for the period from
the beginning of the then current Fiscal Year to the end of such Fiscal
Quarter and, commencing March 31, 1998, setting forth in each case in
comparative form the corresponding figures for the corresponding
periods of the previous Fiscal Year and the corresponding figures from
the Financial Plan for the current Fiscal Year, all in reasonable
detail and certified by the chief financial officer of Holdings that
they fairly present, in all material respects, the financial condition
of Holdings and its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments, and (b) a narrative report describing the operations of
Holdings and its Subsidiaries in the form prepared for presentation to
senior management for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter; provided that delivery of Borrower's Form 10-Q for such Fiscal
Quarter shall be deemed to satisfy the requirements of this clause (b);
(ii) Year-End Financials: as soon as available and in any
event within 90 days (or, in the case of the Fiscal Year ending
December 31, 1996, 120 days) after the end of each Fiscal Year, (a) the
consolidated balance sheet of Holdings and its Subsidiaries as at the
end of such Fiscal Year and the related consolidated statements of
income, stockholders' equity and cash flows of Holdings and its
Subsidiaries for such Fiscal Year, setting forth in each case in
comparative form the corresponding figures for the previous Fiscal Year
(commencing with the Fiscal Year ending on December 31, 1997) and the
corresponding figures from the Financial Plan for the Fiscal Year
covered by such financial statements, all in reasonable detail and
certified by the chief financial officer of Holdings that they fairly
present, in all material respects, the financial condition of Holdings
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, (b) a
narrative report describing the operations of Holdings and its
Subsidiaries in the form prepared for presentation to senior management
for such Fiscal Year; provided that delivery of Borrower's Form 10-K
for such Fiscal Year shall be deemed to satisfy the requirements of
this clause (b), and (c) in the case of such consolidated financial
statements, a report thereon of KPMG Peat Marwick LLP or other
independent certified public
-102-
<PAGE>
accountants of recognized national standing selected by Holdings and
satisfactory to Administrative Agent, which report shall be
unqualified, shall express no doubts about the ability of Holdings and
its Subsidiaries to continue as a going concern, and shall state that
such consolidated financial statements fairly present, in all material
respects, the consolidated financial position of Holdings and its
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally
accepted auditing standards;
(iii) Officers' and Compliance Certificates: together with
each delivery of financial statements of Holdings and its Subsidiaries
pursuant to subdivisions (i) and (ii) above, (a) an Officers'
Certificate of Holdings stating that the signers have reviewed the
terms of this Agreement and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and
condition of Holdings and its Subsidiaries during the accounting period
covered by such financial statements and that such review has not
disclosed the existence during or at the end of such accounting period,
and that the signers do not have knowledge of the existence as at the
date of such Officers' Certificate, of any condition or event that
constitutes an Event of Default or Potential Event of Default, or, if
any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action Holdings has taken, is
taking and proposes to take with respect thereto; and (b) a Compliance
Certificate demonstrating in reasonable detail compliance during and at
the end of the applicable accounting periods with the restrictions
contained in Section 7, in each case to the extent compliance with such
restrictions is required to be tested at the end of the applicable
accounting period;
(iv) Reconciliation Statements: if, as a result of any change
in accounting principles and policies from those used in the
preparation of the audited financial statements referred to in
subsection 5.3, the consolidated financial statements of Holdings and
its Subsidiaries delivered pursuant to subdivisions (i), (ii) or (xi)
of this subsection 6.1 will differ in any material respect from the
consolidated financial statements that would have been delivered
pursuant to such subdivisions had no such change in accounting
principles and policies been made, then (a) together with the first
delivery of financial statements pursuant to subdivision (i), (ii) or
(xi) of this subsection 6.1 following such change to the extent
Borrower is required to prepare such pro forma financial statements
under the Securities Act or the Exchange Act or the rules and
regulations thereunder, consolidated financial statements of Holdings
and its
-103-
<PAGE>
Subsidiaries for (1) the current Fiscal Year to the effective date of
such change and (2) the two full Fiscal Years immediately preceding the
Fiscal Year in which such change is made, in each case prepared on a
pro forma basis as if such change had been in effect during such
periods, and (b) together with each delivery of financial statements
pursuant to subdivision (i), (ii) or (xi) of this subsection 6.1
following such change, a written statement of the chief accounting
officer or chief financial officer of Holdings setting forth the
material differences (including any differences that would affect any
calculations relating to the financial covenants set forth in
subsection 7.6) which would have resulted if such financial statements
had been prepared without giving effect to such change;
(v) Accountants' Certification: concurrently with any
delivery of financial statements under subdivision (ii) above, a
certificate of the accounting firm opining on or certifying such
statements on behalf of Holdings or Borrower (which certificate may be
limited to accounting matters and may disclaim responsibility for legal
interpretations) certifying that no Event of Default or Potential Event
of Default has occurred or, if such an Event of Default or Potential
Event of Default has occurred, specifying the nature and extent thereof
and any corrective action taken or proposed to be taken with respect
thereto;
(vi) SEC Filings and Press Releases: promptly upon their
becoming available, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by
Holdings to its security holders or by any Subsidiary of Holdings to
its security holders other than Holdings or another Subsidiary of
Holdings, (b) all regular and periodic reports and all registration
statements (other than on Form S-8 or a similar form) and prospectuses,
if any, filed by Holdings or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission, and
(c) all press releases and other statements made available generally by
Holdings or any of its Subsidiaries to the public concerning material
developments in the business of Holdings or any of its Subsidiaries;
(vii) Events of Default, etc.: promptly upon any officer of
Holdings or Borrower obtaining knowledge (a) of any condition or event
that constitutes an Event of Default or a Potential Event of Default,
or becoming aware that any Lender has given any notice (other than to
Administrative Agent) or taken any other action with respect to a
claimed Event of Default or Potential Event of Default, (b) that any
Person has given any notice to Holdings or Borrower or any of its
Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in subsection
8.2, (c) at any time when neither Holdings nor Borrower is required to
file such reports, of any condition or event that would be required to
be disclosed in a current report filed by
-104-
<PAGE>
Holdings or Borrower with the Securities and Exchange Commission on
Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date
hereof) if Holdings or Borrower were required to file such reports
under the Exchange Act, or (d) of the occurrence of any event or change
that has caused or evidences, either in any case or in the aggregate, a
Material Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of such condition, event or change, or
specifying the notice given or action taken by any such Person and the
nature of such claimed Event of Default, Potential Event of Default,
default, event or condition, and what action Holdings has taken, is
taking and proposes to take with respect thereto;
(viii) Litigation or Other Proceedings: promptly upon any
officer of Holdings or Borrower obtaining knowledge of (a) the
institution of, or non- frivolous threat of, any action, suit,
proceeding (whether administrative, judicial or otherwise),
governmental investigation or arbitration against or affecting Holdings
or any of its Subsidiaries or any property of Holdings or any of its
Subsidiaries (collectively, "Proceedings") not previously disclosed in
writing by Holdings to Lenders or (b) any material development in any
Proceeding that, in any case:
(1) if adversely determined, has a reasonable
possibility of giving rise to a Material Adverse
Effect; or
(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain
relief as a result of, the transactions contemplated
hereby;
written notice thereof together with such other information as may be
reasonably available to Holdings to enable Lenders and their counsel to
evaluate such matters;
(ix) ERISA Events: promptly upon becoming aware of the
occurrence of or forthcoming occurrence of any ERISA Event, a written
notice specifying the nature thereof, what action Holdings, any of its
Subsidiaries or any of their respective ERISA Affiliates has taken, is
taking or proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;
(x) ERISA Notices: with reasonable promptness, copies of (a)
if requested by Administrative Agent each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by Holdings,
any of its Subsidiaries or any of their respective ERISA Affiliates
with the Internal Revenue Service with
-105-
<PAGE>
respect to each Pension Plan; (b) all notices received by Holdings, any
of its Subsidiaries or any of their respective ERISA Affiliates from a
Multiemployer Plan sponsor concerning an ERISA Event; and (c) copies of
such other documents or governmental reports or filings relating to any
Employee Benefit Plan as Administrative Agent shall reasonably request;
(xi) Financial Plans: as soon as practicable and in any event
no later than 60 days after the beginning of each Fiscal Year, a
consolidated plan and financial forecast for such Fiscal Year (the
"Financial Plan" for such Fiscal Year), including (a) a forecasted
consolidated balance sheet and forecasted consolidated statements of
income and cash flows of Holdings and its Subsidiaries for each such
Fiscal Year, together with an explanation of the assumptions on which
such forecasts are based, (b) forecasted consolidated statements of
income and cash flows of Holdings and its Subsidiaries for each month
of the first such Fiscal Year, together with an explanation of the
assumptions on which such forecasts are based, and (c) such other
information and projections as any Lender may reasonably request;
(xii) Insurance: as soon as practicable and in any event by
the last day of each Fiscal Year, a report in form and substance
satisfactory to Administrative Agent outlining all material insurance
coverage maintained as of the date of such report by Holdings and its
Subsidiaries and all material insurance coverage planned to be
maintained by Holdings and its Subsidiaries in the immediately
succeeding Fiscal Year;
(xiii) Board of Directors: with reasonable promptness,
written notice of any change in the Board of Directors of Holdings or
Borrower;
(xiv) New Subsidiaries: promptly upon any Person becoming a
Subsidiary of Holdings, a written notice setting forth with respect to
such Person (a) the date on which such Person became a Subsidiary of
Holdings and (b) all of the data required to be set forth in Schedule
5.1 annexed hereto with respect to all Subsidiaries of Holdings (it
being understood that such written notice shall be deemed to supplement
Schedule 5.1 annexed hereto for all purposes of this Agreement);
(xv) Material Contracts: promptly, and in any event within
ten Business Days after any Material Contract of Holdings or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Holdings or such Subsidiary, as the case may be, or any new
Material Contract is entered into, a written statement describing such
event with copies of such material
-106-
<PAGE>
amendments or new contracts, and an explanation of any actions being
taken with respect thereto;
(xvi) Administrative Agreement: as promptly as practicable,
and in any event within ten Business Days prior to such termination, a
written notice of any pending termination of the Administrative
Agreement;
(xvii) UCC Search Report: as promptly as practicable after the
date of delivery to Administrative Agent of any UCC financing statement
executed by any Loan Party pursuant to subsection 4.1I(iv) or 6.8A,
copies of completed UCC searches evidencing the proper filing,
recording and indexing of all such UCC financing statement and listing
all other effective financing statements that name such Loan Party as
debtor, together with copies of all such other financing statements not
previously delivered to Administrative Agent by or on behalf of
Holdings or such Loan Party; and
(xviii) Other Information: with reasonable promptness, such
other information and data with respect to Holdings or any of its
Subsidiaries as from time to time may be reasonably requested by any
Lender.
6.2 Corporate Existence, etc.
Except as permitted under subsection 7.7, Holdings will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect (i) its corporate existence and (ii) all rights and franchises the loss
of which could reasonably be expected to have a Material Adverse Effect;
provided, however that neither Holdings nor any of its Subsidiaries shall be
required to preserve any such right or franchise if the Board of Directors of
Holdings or such Subsidiary shall determine that the preservation thereof is no
longer desirable in the conduct of the business of Holdings or such Subsidiary,
as the case may be, and that the loss thereof is not disadvantageous in any
material respect to Holdings, such Subsidiary or Lenders.
6.3 Payment of Taxes and Claims; Tax Consolidation.
A. Holdings will, and will cause each of its Subsidiaries to, pay all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and all claims (including claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; provided that no such charge or claim need be paid if it is
being contested in good faith by appropriate proceedings promptly instituted
-107-
<PAGE>
and diligently conducted, so long as (i) such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor and (ii) in the case of a charge or claim which has or may become
a Lien against any of the Collateral, such contest proceedings conclusively
operate to stay the sale of any portion of the Collateral to satisfy such
charge or claim.
B. Holdings will not, nor will it permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person (other than Holdings or any of its Subsidiaries).
6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds.
A. Maintenance of Properties. Holdings will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all properties used or
useful in the business of Holdings and its Subsidiaries (including all
Intellectual Property) that are material to Holdings and its Subsidiaries, taken
as a whole, and from time to time will make or cause to be made all appropriate
repairs, renewals and replacements thereof.
B. Insurance. Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Borrower and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by corporations
of established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry. Without limiting the generality
of the foregoing, Borrower will maintain or cause to be maintained replacement
value casualty insurance on the Collateral constituting tangible personal
property and improvements on real property under such policies of insurance,
with such insurance companies, in such amounts, with such deductibles, and
covering such risks as are at all times satisfactory to Administrative Agent in
its commercially reasonable judgment. Each such policy of insurance shall (i)
name Administrative Agent for the benefit of Lenders as an additional insured
thereunder as its interests may appear and (ii) in the case of each business
interruption and casualty insurance policy, contain a loss payable clause or
endorsement, satisfactory in form and substance to Administrative Agent, that
names Administrative Agent for the benefit of Lenders as the loss payee
thereunder for any covered loss in excess of $250,000 and provides for at least
30 days prior written notice to Administrative Agent of any modification or
cancellation of such policy.
-108-
<PAGE>
C. Application of Net Insurance/Condemnation Proceeds.
(i) Business Interruption Insurance. Upon receipt by
Holdings or any of its Subsidiaries of any business interruption
insurance proceeds constituting Net Insurance/Condemnation Proceeds,
(a) so long as no Event of Default or Potential Event of Default shall
have occurred and be continuing, Borrower or such Subsidiary may retain
and apply such Net Insurance/Condemnation Proceeds for working capital
purposes, and (b) if an Event of Default or Potential Event of Default
shall have occurred and be continuing and Administrative Agent shall so
request, Borrower shall apply an amount equal to such Net
Insurance/Condemnation Proceeds to prepay the Loans (and/or the
Revolving Loan Commitments shall be reduced) as provided in subsection
2.4B(iii)(b);
(ii) Casualty Insurance/Condemnation Proceeds. Upon receipt
by Holdings or any of its Subsidiaries of any Net
Insurance/Condemnation Proceeds other than from business interruption
insurance, (a) so long as no Event of Default or Potential Event of
Default shall have occurred and be continuing, Borrower shall, or shall
cause one or more of its Subsidiaries to, promptly and diligently apply
such Net Insurance/Condemnation Proceeds to pay or reimburse the costs
of repairing, restoring or replacing the assets in respect of which
such Net Insurance/Condemnation Proceeds were received or, to the
extent not so applied, to prepay the Loans (and/or the Revolving Loan
Commitments shall be reduced) as provided in subsection 2.4B(iii)(b),
and (b) if an Event of Default or Potential Event of Default shall have
occurred and be continuing and Administrative Agent shall so request,
Borrower shall apply an amount equal to such Net Insurance/Condemnation
Proceeds to prepay the Loans (and/or the Revolving Loan Commitments
shall be reduced) as provided in subsection 2.4B(iii)(b).
(iii) Net Insurance/Condemnation Proceeds Received by
Administrative Agent. Upon receipt by Administrative Agent of any Net
Insurance/Condemnation Proceeds as loss payee, (a) if and to the extent
Borrower would have been required to apply such Net
Insurance/Condemnation Proceeds (if it had received them directly) to
prepay the Loans and/or reduce the Revolving Loan Commitments,
Administrative Agent shall, and Borrower hereby authorizes
Administrative Agent to, apply such Net Insurance/Condemnation Proceeds
to prepay the Loans (and/or the Revolving Loan Commitments shall be
reduced) as provided in subsection 2.4B(iii)(b), and (b) to the extent
the foregoing clause (a) does not apply and, and Borrower shall deliver
written notice to Administrative Agent that it has elected to apply
such Net Insurance/Condemnation Proceeds to the costs of repairing,
restoring, or replacing the assets in respect of which such Net
Insurance/Condemnation Proceeds were received or to working capital
(but
-109-
<PAGE>
only in the case of business interruption insurance), Administrative
Agent shall deliver to Borrower and Borrower shall, or shall cause one
or more of its Subsidiaries to, promptly apply such Net
Insurance/Condemnation Proceeds to the costs of repairing, restoring or
replacing the assets in respect of which such Net
Insurance/Condemnation Proceeds were received or to working capital
(but only in the case of business interruption insurance).
6.5 Inspection Rights.
Holdings will, and will cause each of its Subsidiaries to, permit any
authorized representatives designated by any Lender to visit and inspect the
headquarters of Holdings or Borrower, to inspect its and their financial and
accounting records, and to discuss its and their affairs, finances and accounts
with its and their officers and independent public accountants (provided that
Holdings or Borrower may, if it so chooses, be present at or participate in any
such discussion), all upon reasonable notice and at such reasonable times during
normal business hours and as often as may reasonably be requested.
6.6 Compliance with Laws, etc.
Holdings will comply, and will cause each of its Subsidiaries and all
other Persons occupying any Facilities to comply, with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority
(including all applicable current and future Environmental Laws and all laws,
rules, regulations and orders relating to pre-arranged funeral products and
services and the maintenance of trust accounts in respect thereof),
noncompliance with which could reasonably be expected to cause, individually or
in the aggregate, a Material Adverse Effect.
6.7 Environmental Review and Investigation, Disclosure, Etc.; Borrower's
Actions Regarding Hazardous Materials Activities, Environmental Claims
and Violations of Environmental Laws.
A. Environmental Review and Investigation. Borrower agrees that
Administrative Agent may, from time to time and in its reasonable discretion,
(i) retain, at Borrower's reasonable expense, an independent professional
consultant to review any environmental audits, investigations, analyses and
reports relating to Hazardous Materials prepared by or for Borrower and provided
to Administrative Agent pursuant to subsection 6.7B(i) and (ii) in the event (a)
an Event of Default occurs as a result of a breach of subsection 5.6 (to the
extent relating to Environmental Laws or Environmental Claims), 5.13, 6.6 (to
the extent resulting from noncompliance with Environmental Laws) or 6.7 and is
continuing, or (b) the Loans and all other Obligations shall (automatically
or by declaration) have become immediately due and payable pursuant to
Section 8,
-110-
<PAGE>
conduct its own investigation of reasonable scope and at reasonable expense;
provided that, Borrower shall only be obligated to use commercially reasonable
efforts to obtain permission for Administrative Agent's professional consultant
to conduct an investigation of any Facility which is the basis of such Event of
Default or such acceleration of the Loans and Obligations that is (x) no longer
owned, leased, operated or used by Borrower or any of its Subsidiaries, or (y)
currently used by Borrower (but not owned, leased, or operated by Borrower) and
with respect to which Borrower has no right or authority to permit
Administrative Agent's professional consultant to conduct an investigation
thereon. For purposes of conducting such a review and/or investigation,
Borrower, to the extent that it has the power and authority to do so, hereby
grants to Administrative Agent and its agents, employees, consultants and
contractors the right to enter into or onto any Facilities currently owned,
leased, operated or used by Borrower or any of its Subsidiaries and to perform
such tests on such property (including taking samples of soil, groundwater and
suspected asbestos-containing materials) as are reasonably necessary in
connection therewith. Any such investigation of any Facility shall be conducted,
unless otherwise agreed to by Borrower and Administrative Agent, during normal
business hours and, to the extent reasonably practicable, shall be conducted so
as not to interfere with the ongoing operations at such Facility or to cause any
damage or loss to any property at such Facility. To the extent reasonably
practicable, Administrative Agent shall restore any property damaged by such
investigation to its condition immediately prior to such investigation. Borrower
and Administrative Agent hereby acknowledge and agree that any report of any
investigation conducted at the request of Administrative Agent pursuant to this
subsection 6.7A will be obtained and shall be used by Administrative Agent and
Lenders for the purposes of Lenders' internal credit decisions, to monitor and
police the Loans and to protect Lenders' security interests, if any, created by
the Loan Documents. Administrative Agent agrees to deliver a copy of any such
report to Borrower with the understanding that Borrower acknowledges and agrees
that (1) it will indemnify and hold harmless Administrative Agent and each
Lender from any costs, losses or liabilities relating to Borrower's use of or
reliance on such report, (2) neither Administrative Agent nor any Lender makes
any representation or warranty with respect to such report, and (3) by
delivering such report to Borrower, neither Administrative Agent nor any Lender
is requiring or recommending the implementation of any suggestions or
recommendations contained in such report.
B. Environmental Disclosure. Borrower will deliver to
Administrative Agent and Lenders:
(i) Environmental Audits and Reports. As soon as
practicable following receipt thereof, copies of all material and
non-privileged environmental audits, investigations, analyses and
reports of any kind or character, whether prepared by personnel of
Borrower or any of its Subsidiaries or by independent consultants,
governmental authorities or any other Persons, with respect to
-111-
<PAGE>
environmental matters at any Facility which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect or with respect to any Environmental Claims which, individually
or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect;
(ii) Notice of Certain Releases, Remedial Actions, Etc.
Promptly upon the occurrence thereof, written notice describing in
reasonable detail (a) any Release required to be reported to any
federal, state or local governmental or regulatory agency under any
applicable Environmental Laws that could reasonably be expected to have
a Material Adverse Effect, (b) any remedial action taken by Borrower or
any other Person in response to (1) any Hazardous Materials Activities
the existence of which could reasonably be expected to result in one or
more Environmental Claims having, individually or in the aggregate, a
Material Adverse Effect, or (2) any Environmental Claims that,
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect, and (c) Borrower's discovery of any
occurrence or condition on any real property adjoining or in the
vicinity of any Facility that could cause such Facility or any part
thereof to be subject to any material restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws
which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
(iii) Written Communications Regarding Environmental Claims,
Releases, Etc. As soon as practicable following the sending or receipt
thereof by Borrower or any of its Subsidiaries, a copy of any and all
material and non- privileged written communications with respect to (a)
any Environmental Claims that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (b) any
Release required to be reported to any federal, state or local
governmental or regulatory agency that could reasonably be expected to
have a Material Adverse Effect, and (c) any request for information
from any governmental agency that suggests such agency is investigating
whether Borrower or any of its Subsidiaries may be potentially
responsible for any Hazardous Materials Activity that could reasonably
be expected to have a Material Adverse Effect.
(iv) Notice of Certain Proposed Actions Having Environmental
Impact. Prompt written notice describing in reasonable detail (a) any
proposed acquisition of stock, assets, or property by Borrower or any
of its Subsidiaries that could reasonably be expected to (1) expose
Borrower or any of its Subsidiaries to, or result in, Environmental
Claims that could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect or (2) affect the ability of
Borrower or any of its Subsidiaries to maintain in full force and
effect all
-112-
<PAGE>
Governmental Authorizations required under any Environmental
Laws for their respective operations, except to the extent the failure
to maintain such Governmental Authorizations could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect, and (b) any proposed action to be taken by Borrower or any of
its Subsidiaries to commence manufacturing or other industrial
operations or to modify current operations in a manner that could
reasonably be expected to subject Borrower or any of its Subsidiaries
to any additional obligations or requirements under any Environmental
Laws which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(v) Other Information. With reasonable promptness, such
other material and non-privileged documents and information as from
time to time may be reasonably requested by Administrative Agent in
relation to any matters disclosed pursuant to this subsection 6.7.
C. Borrower's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental Laws.
(i) Remedial Actions Relating to Hazardous Materials
Activities. Borrower will promptly undertake, and will cause each of
its Subsidiaries promptly to undertake, any and all investigations,
studies, sampling, testing, abatement, cleanup, removal, remediation or
other response actions necessary to remove, remediate, clean up or
abate any Hazardous Materials Activity on, under or about any Facility
that is in violation of any Environmental Laws or that presents a risk
of giving rise to an Environmental Claim, in each case that could
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. In the event Borrower or any of its
Subsidiaries undertakes any such action with respect to any Hazardous
Materials, Borrower or such Subsidiary shall conduct and complete such
action in all material respects in compliance with all applicable
Environmental Laws and in accordance with the policies, orders and
directives of all relevant federal, state and local governmental
authorities except when, and only to the extent that, Borrower's or
such Subsidiary's liability with respect to such Hazardous Materials
Activity is being contested in good faith by Borrower or such
Subsidiary.
(ii) Actions with Respect to Environmental Claims and
Violations of Environmental Laws. Borrower will promptly take, and
will cause each of its Subsidiaries promptly to take, any and all
actions necessary to (i) cure any material violation of applicable
Environmental Laws by Borrower or its Subsidiaries where failure to do
so could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect and (ii) make an
-113-
<PAGE>
appropriate response to any Environmental Claim against Borrower or any
of its Subsidiaries and discharge any obligations it may have to any
Person thereunder where failure to do so could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.
6.8 Execution of Subsidiary Guaranty and Personal Property Collateral
Documents by Certain Subsidiaries and Future Subsidiaries.
A. Execution of Subsidiary Guaranty and Personal Property Collateral
Documents. In the event that any Person becomes a Subsidiary of Borrower after
the date hereof, Borrower will promptly notify Administrative Agent of that fact
and cause such Subsidiary to execute and deliver to Administrative Agent a
counterpart of the Subsidiary Guaranty if such Subsidiary is a domestic
Subsidiary, the Subsidiary Pledge Agreement and the Subsidiary Security
Agreement and to take all such further actions and execute all such further
documents and instruments (including actions, documents and instruments
comparable to those described in subsection 4.1I) as may be necessary or, in the
opinion of Administrative Agent, desirable to create in favor of Administrative
Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on
all of the personal assets of such Subsidiary described in the applicable forms
of Collateral Documents.
B. Subsidiary Charter Documents, Legal Opinions, Etc. Borrower will
deliver to Administrative Agent, together with such Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws,
certified by its corporate secretary or an assistant secretary as of a recent
date prior to their delivery to Administrative Agent, (iii) a certificate
executed by the secretary or an assistant secretary of such Subsidiary as to (a)
the fact that the attached resolutions of the Board of Directors of such
Subsidiary approving and authorizing the execution, delivery and performance of
such Loan Documents are in full force and effect and have not been modified or
amended and (b) the incumbency and signatures of the officers of such Subsidiary
executing such Loan Documents, and (iv) a favorable opinion of counsel to such
Subsidiary, in form and substance satisfactory to Administrative Agent and its
counsel, as to (a) the due organization and good standing of such Subsidiary,
(b) the due authorization, execution and delivery by such Subsidiary of such
Loan Documents, (c) the enforceability of such Loan Documents against such
Subsidiary, (d) such other matters (including matters relating to the creation
and perfection of Liens in any
-114-
<PAGE>
Collateral pursuant to such Loan Documents) as Administrative Agent may
reasonably request, all of the foregoing to be satisfactory in form and
substance to Administrative Agent and its counsel.
6.9 Interest Rate Protection.
Within 45 days after the Closing Date, Borrower will obtain and
maintain in effect one or more Interest Rate Agreements with respect to the
Loans, in an aggregate notional principal amount of not less than $37,500,000,
which Interest Rate Agreements shall have the effect of establishing a fixed
interest rate or capping the interest rate in a manner satisfactory to
Administrative Agent and Arranging Agent with respect to such notional principal
amount, each such Interest Rate Agreement to be in form and substance
satisfactory to Administrative Agent and Arranging Agent and with a term of not
less than two years after the Closing Date.
6.10 Future Capital Contributions.
Upon receipt by Holdings of any Cash proceeds (any such proceeds net of
underwriting discounts and commissions and other reasonable costs and expenses
associated therewith, including reasonable legal fees and expenses) from the
issuance of any equity Securities of Holdings or any other contributions to the
capital of Holdings, Holdings shall contribute such net Cash proceeds to
Borrower as a contribution to capital (provided that if Holdings receives any
capital stock of Borrower as a result of such contribution it shall be common
stock) to be used by Borrower in accordance with subsection 2.4B(iii)(e).
SECTION 7.
NEGATIVE COVENANTS
Each of Holdings and Borrower covenants and agrees that, so long as any
of the Commitments hereunder shall remain in effect and until payment in full of
all of the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, each of Holdings and Borrower shall perform, and shall cause each of
its Subsidiaries to perform, all covenants in this Section 7.
7.1 Indebtedness.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
-115-
<PAGE>
(i) Borrower may become and remain liable with respect to the
Obligations;
(ii) Holdings and its Subsidiaries may become and remain
liable with respect to Contingent Obligations permitted by subsection
7.4 and, upon any matured obligations actually arising pursuant
thereto, the Indebtedness corresponding to the Contingent Obligations
so extinguished;
(iii) Borrower or a Subsidiary of Borrower may become and
remain liable with respect to Indebtedness that represents the
assumption by Borrower or such Subsidiary of Indebtedness of a Wholly
Owned Subsidiary in connection with the permitted merger of such Wholly
Owned Subsidiary with or into the Person assuming such Indebtedness or
in connection with the permitted purchase of all or substantially all
the assets of such Wholly Owned Subsidiary by Borrower or a Subsidiary
of Borrower; provided that such Indebtedness was not incurred pursuant
to subsection 7.1(v);
(iv) Borrower and its Subsidiaries may become and remain
liable with respect to Indebtedness arising from the honoring by a bank
or other financial institution of a check, draft or similar instrument
drawn against insufficient funds in the ordinary course of business,
provided that such Indebtedness is extinguished within two Business
Days of its incurrence;
(v) a Subsidiary of Borrower acquired after the date hereof in
a Permitted Acquisition may remain liable with respect to Indebtedness
of such Subsidiary incurred prior to such Permitted Acquisition, and a
Subsidiary of Borrower formed after the date hereof for the purpose of
acquiring assets (whether by merger, consolidation or otherwise) in a
Permitted Acquisition may become and remain liable with respect to
Indebtedness assumed in such Permitted Acquisition, which Indebtedness
in each case exists at the time of such Permitted Acquisition and was
not created in contemplation of such Permitted Acquisition; provided
that the aggregate principal amount of Indebtedness with respect to
which Subsidiaries of Borrower may become and remain liable pursuant to
this subsection 7.1(v) with maturities, amortization payments or other
required payments of principal prior to January 1, 2004 shall not
exceed at any time $5,000,000;
(vi) Borrower and its Subsidiaries may become and remain
liable with respect to Indebtedness in respect of Capital Leases and
purchase money Indebtedness, in each case which is incurred in respect
of Consolidated Adjusted Capital Expenditures permitted by subsection
7.8; provided that any such purchase money Indebtedness or Indebtedness
in respect of Capital Leases is
-116-
<PAGE>
incurred by Borrower or any of its Subsidiaries prior to or within 270
days after the applicable Consolidated Adjusted Capital Expenditure;
(vii) Borrower and its Subsidiaries may become and remain
liable with respect to Indebtedness under Capital Leases of automobiles
to be used by employees and directors of Borrower and its Subsidiaries
entered into in the ordinary course of business;
(viii) Borrower may become and remain liable with respect to
Indebtedness to any of its Wholly Owned Subsidiaries, and any domestic
Wholly Owned Subsidiary of Borrower may become and remain liable with
respect to Indebtedness to Borrower or any other domestic Wholly Owned
Subsidiary of Borrower; provided that (a) all such intercompany
Indebtedness shall be evidenced by Intercompany Notes which shall be
pledged to Administrative Agent to secure the Obligations, (b) all such
intercompany Indebtedness shall be subordinated in right of payment to
the payment in full of the Obligations (and, in the case of any
intercompany Indebtedness owed by Borrower, to the Senior Subordinated
Notes) pursuant to the terms of the applicable Intercompany Notes, and
(c) any payment by any Subsidiary of Borrower under any guaranty of the
Obligations shall result in a pro tanto reduction of the amount of any
intercompany Indebtedness owed by such Subsidiary to Borrower or to any
of its Subsidiaries for whose benefit such payment is made;
(ix) Borrower and its Subsidiaries, as applicable, may remain
liable with respect to Indebtedness described in Schedule 7.1 annexed
hereto;
(x) Borrower may become and remain liable with respect to
Indebtedness evidenced by the Senior Subordinated Notes and any
refinancing Indebtedness in respect thereof; provided that the
subordination provisions, maturity, amortization, interest rates,
events of default, covenants and all other terms and conditions of such
refinancing Indebtedness are at least as favorable to Lenders and to
Borrower and its Subsidiaries as the Senior Subordinated Notes; and
provided further, that no Potential Event of Default or Event of
Default shall have occurred and be continuing at the time of any such
refinancing; and
(xi) Borrower and its Subsidiaries may become and remain
liable with respect to other Indebtedness in an aggregate principal
amount not to exceed $5,000,000 at any time outstanding.
-117-
<PAGE>
7.2 Liens and Related Matters.
A. Prohibition on Liens. Holdings shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents;
(iii) Liens described in Schedule 7.2A annexed hereto;
(iv) Liens securing Indebtedness permitted pursuant to
subsection 7.1(xi) provided that such Liens relate solely to the assets
financed with such Indebtedness;
(v) any Lien securing Indebtedness permitted by subsection
7.1(v) existing on any property or asset which is the subject of a
Permitted Acquisition; provided that (i) such Lien was not created in
contemplation of or in connection with such Permitted Acquisition and
(ii) such Lien does not apply to any other property or asset of
Borrower or any of its Subsidiaries; and provided further, that the
aggregate principal amount of Indebtedness secured by such Liens shall
not exceed $5,000,000 at any time;
(vi) purchase money security interests in real property
(other than the Cemetery), improvements thereto or equipment hereafter
acquired (or, in the case of improvements, constructed) by Borrower or
any of its Subsidiaries (including the interests of vendors and lessors
under conditional sale and title retention agreements), provided that
(a) such security interests secure Indebtedness permitted by Section
7.1(vi), (b) such security interests are created, and the Indebtedness
secured thereby is incurred, within 270 days after such acquisition (or
construction), and (c) such security interests do not encumber any
other property or assets of Borrower or any Subsidiary (other than
accessions to such real property, improvements or equipment and
provided that individual financings of equipment provided by a single
lender may be cross-collateralized to other financings of equipment
provided solely by such lender);
-118-
<PAGE>
(vii) the replacement, extension or renewal of any Lien
permitted by clause (v) or (vi) above, provided that such replacement,
extension or renewal Lien shall not encumber any property other than
the property that was subject to such Lien prior to such replacement,
extension or renewal; and provided further, that the Indebtedness and
other obligations secured by such replacement, extension or renewal
Lien are permitted by subsection 7.1; and
(viii) Liens arising by operation of law pursuant to Section
107(1) of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss. 9607(1), or pursuant to analogous state
law, (a) for costs or damages which are not yet due (by virtue of a
written demand of payment by a governmental authority), or (b) which
are being actively contested in good faith by appropriate proceedings,
or (c) on property that Borrower and its Subsidiaries have determined
to abandon if the sole recourse for such costs or damages is to such
property; provided, however, that the liability of Holdings and its
Subsidiaries with respect to the matters giving rise to all Liens
described in this subsection 7.2A(viii) shall not, in the reasonable
estimation of Borrower, exceed $1,000,000.
B. Equitable Lien in Favor of Lenders. If Holdings or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.
C. No Further Negative Pledges. Except with respect to specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale, neither
Holdings nor any of its Subsidiaries shall enter into any agreement (other than
the Senior Subordinated Note Indenture) prohibiting the creation or assumption
of any Lien upon any of its properties or assets, whether now owned or hereafter
acquired.
D. No Restrictions on Subsidiary Distributions to Borrower or Other
Subsidiaries. Except as provided herein and in the Senior Subordinated Note
Indenture or as set forth on Schedule 7.2D annexed hereto, Borrower will not,
and will not permit any of its Subsidiaries to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any such Subsidiary to (i) pay dividends or make any
other distributions on any of such
-119-
<PAGE>
Subsidiary's capital stock owned by Borrower or any other Subsidiary of
Borrower, (ii) repay or prepay any Indebtedness owed by such Subsidiary to
Borrower or any other Subsidiary of Borrower, (iii) make loans or advances to
Borrower or any other Subsidiary of Borrower, or (iv) transfer any of its
property or assets to Borrower or any other Subsidiary of Borrower, except
encumbrances or restrictions contained in agreements relating to Indebtedness of
Subsidiaries acquired after the date hereof in a Permitted Acquisition; provided
that such Indebtedness is permitted pursuant to subsection 7.1(v) and such
encumbrances or restrictions relate solely to the property or assets of such
Subsidiary.
7.3 Investments; Joint Ventures.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Borrower and its Subsidiaries may make and own Investments
in Cash and Cash Equivalents;
(ii) Borrower and its Subsidiaries may make and own
Investments in Persons that are, at the time of such Investments,
domestic Subsidiaries of Borrower;
(iii) Borrower and its Subsidiaries may make intercompany
loans to the extent permitted under subsection 7.1(viii);
(iv) Borrower and its Subsidiaries may continue to own the
Investments owned by them and described in Schedule 7.3 annexed hereto;
(v) Holdings may continue to own the Investment owned by it as
of the Closing Date in Borrower;
(vi) Borrower and its Subsidiaries may make and own
Investments which constitute Permitted Acquisitions permitted under
subsection 7.7(v);
(vii) Borrower and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time
$1,000,000;
(viii) Borrower and its Subsidiaries may make and own
Investments arising out of the receipt by Borrower or any of its
Subsidiaries of non-cash consideration for any sale of assets permitted
under subsection 7.7; provided that
-120-
<PAGE>
such consideration (if the stated amount or value thereof is in excess
of $200,000) is pledged upon receipt to Administrative Agent;
(ix) Borrower and its Subsidiaries may make loans and advances
to employees of Borrower or its Subsidiaries not to exceed $1,500,000
in the aggregate at any time outstanding; and
(x) Borrower and its Subsidiaries may make and own Investments
in respect of (a) accounts receivable arising and trade credit granted
in the ordinary course of business and any securities received in
satisfaction or partial satisfaction thereof from financially troubled
account debtors to the extent reasonably necessary in order to prevent
or limit loss and (b) prepayments and other credits to suppliers made
in the ordinary course of business consistent with the past practices
of Borrower and its Subsidiaries.
7.4 Contingent Obligations.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Holdings and any Subsidiaries of Borrower may become and
remain liable with respect to Contingent Obligations in respect of the
Holdings Guaranty and the Subsidiary Guaranty, respectively;
(ii) Borrower may become and remain liable with respect to
Contingent Obligations in respect of Letters of Credit, and Borrower
and its Subsidiaries may become and remain liable with respect to
Contingent Obligations in respect of other Commercial Letters of Credit
and Standby Letters of Credit in an aggregate amount not to exceed at
any time $5,000,000;
(iii) Borrower may become and remain liable with respect to
Contingent Obligations under Hedge Agreements;
(iv) Borrower and its Subsidiaries may become and remain
liable with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Sales or other sales of assets;
(v) Borrower and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of any Indebtedness
of Borrower or any of its Subsidiaries permitted by subsection 7.1
(other than subsection 7.1(v));
-121-
<PAGE>
(vi) Borrower and its Subsidiaries, as applicable, may remain
liable with respect to Contingent Obligations described in Schedule 7.4
annexed hereto; and
(vii) Borrower and its Subsidiaries may become and remain
liable with respect to other Contingent Obligations; provided that the
maximum aggregate liability, contingent or otherwise, of Borrower and
its Subsidiaries in respect of all such Contingent Obligations shall at
no time exceed $1,000,000.
7.5 Restricted Junior Payments.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that
(i) Borrower may make regularly scheduled payments of interest
in respect of the Senior Subordinated Notes in accordance with the
terms of, and only to the extent required by, and subject to the
subordination provisions contained in, the Senior Subordinated Note
Indenture; and
(ii) so long as no Event of Default or Potential Event of
Default shall have occurred and be continuing or shall be caused
thereby, Borrower may make Restricted Junior Payments to Holdings (a)
to the extent necessary to permit Holdings to pay general
administrative costs and expenses then due and payable in the ordinary
course of business of Holdings and (b) to the extent necessary to
permit Holdings to discharge the consolidated tax liabilities of
Holdings and its Subsidiaries, in each case so long as Holdings applies
the amount of any such Restricted Junior Payment for such purpose.
7.6 Financial Covenants.
A. Minimum Interest Coverage Ratio. Holdings and Borrower shall not
permit the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Cash
Interest Expense for any four-Fiscal Quarter period ending during any of the
periods set forth below to be less than the correlative ratio indicated:
-122-
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Minimum
Interest Coverage Ratio
Period
================================================================================
<S> <C>
06/30/97 through 12/31/97 1.00:1.00
- --------------------------------------------------------------------------------
01/01/98 through 06/30/98 1.05:1.00
- --------------------------------------------------------------------------------
07/01/98 through 03/31/99 1.25:1.00
- --------------------------------------------------------------------------------
04/01/99 through 12/31/99 1.30:1.00
- --------------------------------------------------------------------------------
01/01/00 through 12/31/00 1.40:1.00
- --------------------------------------------------------------------------------
01/01/01 and thereafter 1.60:1.00
================================================================================
</TABLE>
B. Minimum Fixed Charge Coverage Ratio. Holdings and Borrower shall not
permit the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Fixed
Charges for any four-Fiscal Quarter period ending during any of the periods set
forth below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
======================================================================================
Minimum
Period Fixed Charge
Coverage Ratio
======================================================================================
<S> <C>
06/30/98 through 09/30/98 1.00:1.00
- --------------------------------------------------------------------------------------
10/01/98 through 09/30/99 1.15:1.00
- --------------------------------------------------------------------------------------
10/01/99 through 12/31/99 1.20:1.00
- --------------------------------------------------------------------------------------
01/01/00 through 09/30/01 1.10:1.00
- --------------------------------------------------------------------------------------
10/01/01 through 09/30/02 1.05:1.00
- --------------------------------------------------------------------------------------
10/01/02 and thereafter 1.00:1.00
======================================================================================
</TABLE>
C. Maximum Total Senior Debt Leverage Ratio. Holdings and Borrower
shall not permit the ratio of (i) Total Senior Debt as of the last day of any
Fiscal Quarter
-123-
<PAGE>
to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period
then ended, during any of the periods set forth below to exceed the correlative
ratio indicated:
<TABLE>
<CAPTION>
=======================================================================================
Maximum Total
Period Senior Debt
Leverage Ratio
=======================================================================================
<S> <C>
06/30/97 through 09/30/98 5.85:1.00
- ---------------------------------------------------------------------------------------
10/01/98 through 09/30/99 4.65:1.00
- ---------------------------------------------------------------------------------------
10/01/99 through 09/30/00 4.45:1.00
- ---------------------------------------------------------------------------------------
10/01/00 through 09/30/01 4.00:1.00
- ---------------------------------------------------------------------------------------
10/01/01 through 09/30/02 3.30:1.00
- ---------------------------------------------------------------------------------------
10/01/02 and thereafter 3.25:1.00
=======================================================================================
</TABLE>
D. Maximum Total Modified Senior Debt Leverage Ratio. Holdings and
Borrower shall not permit the ratio of (i) Total Modified Senior Debt as of the
last day of any Fiscal Quarter to (ii) Consolidated Adjusted EBITDA for the
four-Fiscal Quarter period then ended, during any of the periods set forth below
to exceed the correlative ratio indicated:
<TABLE>
<CAPTION>
======================================================================================
Maximum Total
Period Modified Senior Debt
Leverage Ratio
======================================================================================
<S> <C>
06/30/97 through 09/30/98 4.85:1.00
- --------------------------------------------------------------------------------------
10/01/98 through 09/30/99 3.90:1.00
- --------------------------------------------------------------------------------------
10/01/99 through 09/30/00 3.70:1.00
- --------------------------------------------------------------------------------------
10/01/00 through 09/30/01 3.30:1.00
- --------------------------------------------------------------------------------------
10/01/01 and thereafter 3.00:1.00
======================================================================================
</TABLE>
E. Minimum Cumulative Consolidated Adjusted EBITDA. Holdings and
Borrower shall not permit Cumulative Consolidated Adjusted EBITDA as at any of
the dates set forth below to be less than the correlative amount indicated:
-124-
<PAGE>
<TABLE>
<CAPTION>
=================================================================================
Minimum
Date Cumulative Consolidated
Adjusted EBITDA
=================================================================================
<S> <C>
09/30/98 $15,000,000
- ---------------------------------------------------------------------------------
09/30/99 $34,000,000
- ---------------------------------------------------------------------------------
09/30/00 $54,000,000
- ---------------------------------------------------------------------------------
09/30/01 $75,000,000
- ---------------------------------------------------------------------------------
09/30/02 $98,000,000
- ---------------------------------------------------------------------------------
09/30/03 $123,000,000
=================================================================================
</TABLE>
F. Certain Calculations.
(i) With respect to calculations of Consolidated Adjusted
EBITDA, Consolidated Cash Interest Expense and Consolidated Fixed
Charges for any four-Fiscal Quarter period including the Closing Date,
such calculations shall be made on a pro forma basis assuming, in each
case, that the Closing Date, the Acquisition, the Merger, the issuance
and sale of the Holdings Common Stock and the Holdings Preferred Stock,
the Contribution, and the related borrowings by Borrower pursuant to
this Agreement and the Senior Subordinated Note Indenture all occurred
on the first day of the applicable four-Fiscal Quarter period and
assuming further, for purposes of calculation of the pro forma interest
accrued on Loans during any such periods prior to the Closing Date,
that all Loans outstanding were Eurodollar Rate Loans and that the
applicable reference interest rates were the average effective Adjusted
Eurodollar Rates on the Loans for the period from the Closing Date
through the date of determination, all such calculations to be in form
and substance satisfactory to Arranging Agent and Administrative Agent.
(ii) With respect to calculations of Consolidated Adjusted
EBITDA (other than for purposes of calculating Consolidated Excess Cash
Flow), Consolidated Cash Interest Expense and Consolidated Fixed
Charges for any four-Fiscal Quarter period during which any Permitted
Acquisition was consummated, such calculations shall be made on a pro
forma basis (including by giving effect to Pro Forma Projected EBITDA)
assuming, in each case, that such Permitted Acquisition was consummated
on the first day of the applicable four- Fiscal Quarter period. All
such calculations shall be in form and substance satisfactory to
Arranging Agent and Administrative Agent.
-125-
<PAGE>
(iii) With respect to calculations of Consolidated Adjusted
EBITDA (other than for purposes of calculating Consolidated Excess Cash
Flow) for any four-Fiscal Quarter Period including the Closing Date,
such calculations shall give effect to the Pro Forma EBITDA Adjustment.
G. Borrower's Right to Cure.
(i) Financial Performance Covenants. In the event that
Holdings and Borrower fail to comply with the requirements of any
Financial Performance Covenant, until the expiration of the 10th day
subsequent to the date the Compliance Certificate calculating such
Financial Performance Covenant is required to be delivered pursuant to
subsection 6.1(iv), Holdings shall have the right to issue Permitted
Cure Securities for Cash or otherwise receive Cash contributions to the
capital of Holdings and to contribute any such Cash to the capital of
Borrower (collectively, the "Cure Right"), and upon the receipt by
Borrower of such Cash pursuant to the exercise by Holdings of such Cure
Right such Financial Performance Covenant shall be recalculated giving
effect to the following pro forma adjustments:
"Consolidated Adjusted EBITDA" shall be increased,
solely for the purpose of measuring the Financial Performance
Covenants and not for any other purpose under this Agreement,
by an amount equal to the Cure Amount.
If, after giving effect to the foregoing recalculations,
Holdings and Borrower shall then be in compliance with the requirements
of all Financial Performance Covenants, Holdings and Borrower shall be
deemed to have satisfied the requirements of the Financial Performance
Covenants as of the relevant date of determination with the same effect
as though there had been no failure to comply therewith at such date,
and the applicable breach or default of the Financial Performance
Covenants which had occurred shall be deemed cured for all purposes of
this Agreement.
(ii) Limitation on Exercise of Cure Right. Notwithstanding
anything herein to the contrary, (a) in no event shall Holdings be
entitled to exercise the Cure Right in more than three consecutive
Fiscal Quarters, and (b) in any ten Fiscal Quarter period, there must
be a period of at least four consecutive Fiscal Quarters during which
Holdings has not exercised its Cure Right.
-126-
<PAGE>
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions.
Holdings shall not, and shall not permit any of its Subsidiaries to,
alter the corporate, capital or legal structure of Holdings or any of its
Subsidiaries, or enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor),
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person or any division or line of
business of any Person, or make any Business Acquisition, except:
(i) any Subsidiary of Borrower (other than a Subsidiary
which has become liable for Indebtedness permitted under subsection
7.1(v)) may be merged with or into Borrower or any Wholly Owned
Subsidiary Guarantor, or be liquidated, wound up or dissolved, or all
or any part of its business, property or assets may be conveyed, sold,
leased, transferred or otherwise disposed of, in one transaction or a
series of transactions, to Borrower or any Wholly Owned Subsidiary
Guarantor; provided that, in the case of such a merger, Borrower or
such Wholly Owned Subsidiary Guarantor shall be the continuing or
surviving corporation;
(ii) Borrower and its Subsidiaries may dispose of
obsolete, worn out or surplus property in the ordinary course of
business;
(iii) Borrower and its Subsidiaries may sell or otherwise
dispose of assets in transactions that do not constitute Asset Sales;
provided that the consideration received for such assets shall be in an
amount at least equal to the fair market value thereof as determined by
Borrower in good faith;
(iv) subject to subsection 7.11, Borrower and its
Subsidiaries may make Asset Sales of assets having a fair market value
not in excess of $5,000,000 in any Fiscal Year or $15,000,000 in the
aggregate; provided that (a) the consideration received for such assets
shall be in an amount at least equal to the fair market value thereof
as determined by Borrower in good faith; (b) except in the case of a
like kind exchange, at least 85% of the consideration received shall be
Cash, Cash Equivalents or the assumption of Indebtedness; and (c) the
proceeds of such Asset Sales shall be applied as required by subsection
2.4B(iii)(a);
-127-
<PAGE>
(v) so long as no Potential Event of Default or Event of
Default shall have occurred and be continuing or would result therefrom
and Borrower delivers an Officers' Certificate to Administrative Agent
and Lenders, in form and substance reasonably satisfactory to
Administrative Agent, confirming that it will be in compliance, on a
pro forma basis (including by giving effect to Pro Forma Projected
EBITDA) after giving effect to such Permitted Acquisition as if it had
occurred at the beginning of the period specified in the applicable
covenant, with all covenants set forth in subsection 7.6 hereof,
commencing on January 1, 1997 Borrower and its Subsidiaries may make
Permitted Acquisitions in an amount not to exceed in the aggregate
$20,000,000 (the "Permitted Acquisition Amount") in any Fiscal Year;
provided that (a) Borrower and it Subsidiaries may make Permitted
Acquisitions in excess of the Permitted Acquisition Amount in any
Fiscal Year so long as such excess is funded by Cash common equity
contributions to, or Cash purchases of common equity from, Holdings,
the Cash proceeds of which are contributed to Borrower, (b) in the
event that the Permitted Acquisition Amount in any Fiscal Year (before
giving effect to any increase in such amount pursuant to this clause
(b) but after giving effect to any reduction in such amount as a result
of Permitted Acquisitions made pursuant to succeeding clause (c) is
greater than the amount of Permitted Acquisitions made by Borrower and
its Subsidiaries during such Fiscal Year, the lesser (i) 100% of such
unutilized amount and (ii) $10,000,000 may be utilized to effect
additional Permitted Acquisitions in the immediately succeeding two
Fiscal Years, provided, that (x) any amount carried forward from an
immediately preceding Fiscal Year may not be utilized during a current
Fiscal Year unless and until the relevant Permitted Acquisition Amount
for such current Fiscal Year shall have been utilized in full to make
Permitted Acquisitions during such current Fiscal Year and (y) no
amount once carried forward to the second succeeding Fiscal Year may be
carried forward to Fiscal Years thereafter, and (c) in the event that
Borrower and its Subsidiaries have made Permitted Acquisitions in any
Fiscal Year pursuant to preceding clauses (a) and (b) in an amount
equal to the maximum amount permitted to be made in such Fiscal Year
pursuant to such clauses, Borrower and its Subsidiaries may make
additional Permitted Acquisitions in such Fiscal Year by utilizing up
to 50% of the Permitted Acquisition Amount permitted to be made in the
immediately succeeding Fiscal Year and with any Permitted Acquisitions
made pursuant to this clause (c) in such current Fiscal Year to reduce
the Permitted Acquisition Amount in the immediately succeeding Fiscal
Year;
(vi) Holdings and its Subsidiaries may make the
Acquisition, the Merger and the Contribution on the Closing Date; and
-128-
<PAGE>
(vii) Borrower and its Subsidiaries may discount or
otherwise transfer defaulted receivables in connection with the
collection thereof in the ordinary course of business.
7.8 Consolidated Adjusted Capital Expenditures.
Holdings shall not, and shall not permit its Subsidiaries to, make or
incur Consolidated Adjusted Capital Expenditures in any period indicated below
in an aggregate amount in excess of the corresponding amount (the "Maximum
Consolidated Capital Expenditures Amount") set forth below opposite such period;
provided that the Maximum Consolidated Capital Expenditures Amount for any
period shall be increased by an amount equal to 100% of the excess, if any, of
the Maximum Consolidated Capital Expenditures Amount for the previous period set
forth in the table below (as adjusted in accordance with this proviso) over the
actual amount of Consolidated Adjusted Capital Expenditures for such previous
period; and provided further, that (x) Borrower and its Subsidiaries may make
Consolidated Adjusted Capital Expenditures in excess of the Maximum Consolidated
Capital Expenditures Amount for any period set forth below to the extent (i) the
Consolidated Adjusted Capital Expenditure does not exceed the Available Excess
Consolidated Capital Expenditure Amount at the time of such expenditure and (ii)
the Consolidated Adjusted Capital Expenditures are made from funds drawn from
the reserve of any endowment care fund and (y) Borrower and its Subsidiaries may
not make Permitted Acquisitions pursuant to this subsection 7.8:
<TABLE>
<CAPTION>
===========================================================================================
Maximum Consolidated
Period Capital Expenditures
Amount
===========================================================================================
<S> <C>
Closing Date through 12/31/97 $5,000,000
- -------------------------------------------------------------------------------------------
Fiscal Year ending 12/31/98 $5,000,000
- -------------------------------------------------------------------------------------------
Fiscal Year ending 12/31/99 $5,500,000
- -------------------------------------------------------------------------------------------
Fiscal Year ending 12/31/00 $5,500,000
- -------------------------------------------------------------------------------------------
Each Fiscal Year thereafter $6,000,000
===========================================================================================
</TABLE>
7.9 Sales and Lease-Backs.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any Operating Lease of any property (whether real,
personal or mixed), whether now owned or hereafter acquired, (i) which Borrower
or any of its Subsidiaries
-129-
<PAGE>
has sold or transferred or is to sell or transfer to any other Person (other
than Borrower or any of its Subsidiaries) or (ii) which Borrower or any of its
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Borrower or any of
its Subsidiaries to any Person (other than Borrower or any of its Subsidiaries)
in connection with such lease; provided, however, that Borrower and its
Subsidiaries may become and remain liable with respect to Operating Leases so
long as the product of (a) eight times (b) consolidated annual rental payments
thereunder shall not exceed $500,000 at any time.
7.10 Transactions with Shareholders and Affiliates.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 5% or more of any class of equity Securities of
Holdings or with any Affiliate of Holdings or of any such holder, on terms that
are less favorable to Holdings or that Subsidiary, as the case may be, than
those that might be obtained at the time from Persons who are not such a holder
or Affiliate; provided that the foregoing restriction shall not apply to (i) any
transaction between Holdings and any of its Wholly Owned Subsidiaries or between
any of its Wholly Owned Subsidiaries, (ii) the transactions contemplated by the
Administrative Agreement, (iii) reasonable and customary fees paid to members of
the Boards of Directors of Holdings and its Subsidiaries or (iv) so long as no
Event of Default or Potential Event of Default has occurred and is continuing or
would be caused thereby, payment of Management Fees.
7.11 Disposal of Subsidiary Stock.
Except as permitted pursuant to subsection 7.7(i), (iii) or (iv),
neither Holdings nor any of its Subsidiaries shall:
(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors or
funeral directors if required by applicable law; or
(ii) permit any of its Subsidiaries directly or indirectly to
sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock or other equity Securities of any of its Subsidiaries
(including such Subsidiary), except to Borrower, another domestic
Wholly Owned Subsidiary of Borrower, or to qualify directors or funeral
directors if required by applicable law.
-130-
<PAGE>
7.12 Conduct of Business.
(i) From and after the Closing Date, Borrower shall not, and
shall not permit any of its Subsidiaries to, engage in any business
other than (i) the businesses engaged in by Borrower and its
Subsidiaries on the Closing Date and similar or related businesses and
(ii) such other lines of business as may be consented to by Requisite
Lenders.
(ii) Holdings shall engage in no business and have no assets
or liabilities other than (a) owning the stock of Borrower, (b) the
performance of its obligations under the Loan Documents, (c)
liabilities associated with the maintenance of its corporate existence
and with respect to consolidated tax liabilities of Holdings and its
Subsidiaries, (d) the receipt of Cash dividends or Cash distributions
from Borrower in accordance with the provisions of subsection 7.5 and
(e) the activities related to the maintenance of Permitted Cure
Securities.
7.13 Amendments or Waivers of Certain Related Agreements; Designation of
"Senior Indebtedness".
A. Amendments or Waivers of Certain Related Agreements. Neither
Holdings nor any of its Subsidiaries shall agree to any material amendment to,
request any material waiver of (other than a waiver for which no fee is paid and
no other concessions or consideration are granted by Holdings or Borrower), or
waive any of their respective rights under, any of the Related Agreements (other
than any amendment or waiver described in the next succeeding sentence) without
in each case obtaining the prior written consent of Administrative Agent and
Requisite Lenders (and giving notice to Arranging Agent) to such amendment,
request or waiver. Notwithstanding the foregoing, Holdings and its Subsidiaries
may agree to amend or waive any provisions of the Related Agreements (i) to cure
any ambiguity, to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein, or (ii) to comply
with the Trust Indenture Act of 1939, as amended, or (iii) to make modifications
of a technical or clarifying nature or which are no less favorable to the
Lenders, in the reasonable opinion of Administrative Agent and Requisite
Lenders, than the provisions of the Related Agreements as in effect on the
Closing (for the purposes of this subsection 7.13, any amendment, modification
or change which would extend the maturity or reduce the amount of any payment of
principal on the Senior Subordinated Notes or which would reduce the rate or
extend the date for payment of interest thereon, provided that no fee is payable
in connection therewith, shall be deemed to be an amendment, modification or
change that is no less favorable to the Lenders).
B. Designation of "Senior Indebtedness". Borrower shall not designate
any Indebtedness as "Designated Senior Indebtedness" (as defined in the Senior
-131-
<PAGE>
Subordinated Note Indenture) for purposes of the Senior Subordinated Note
Indenture without the prior written consent of Requisite Lenders.
7.14 Fiscal Year
Holdings shall not change its Fiscal Year-end from December 31.
SECTION 8.
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 Failure to Make Payments When Due.
Failure by Borrower to pay any installment of principal of any Loan
when due, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise; failure by Borrower to pay
when due any amount payable to Issuing Lender in reimbursement of any drawing
under a Letter of Credit; or failure by Borrower to pay any interest on any Loan
or any fee or any other amount due under this Agreement within five days after
the date due; or
8.2 Default in Other Agreements.
(i) Failure of Holdings or any of its Subsidiaries to pay when due any
principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
8.1) or Contingent Obligations in an individual principal amount of $1,000,000
or more or with an aggregate principal amount of $2,000,000 or more, in each
case beyond the end of any grace period provided therefor; or (ii) breach or
default by Holdings or any of its Subsidiaries with respect to any other
material term of (a) one or more items of Indebtedness or Contingent Obligations
in the individual or aggregate principal amounts referred to in clause (i) above
or (b) any loan agreement, mortgage, indenture or other agreement relating to
such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such
breach or default is to permit the holder or holders of that Indebtedness or
Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to
cause that Indebtedness or Contingent Obligation(s) to become or be declared due
and payable prior to its stated maturity or the stated maturity of any
underlying obligation, as the case may be (upon the giving or receiving of
notice, lapse of time, both, or otherwise); or (iii) breach or default by
Holdings or any of its Subsidiaries with respect to any term of (a) one or more
items of Indebtedness or Contingent Obligations in the individual or aggregate
principal amounts referred to in clause (i) above or (b) loan agreement,
-132-
<PAGE>
mortgage, indenture or other agreement relating to such item(s)
of Indebtedness or Contingent Obligation(s), if the effect of such breach or
default is to cause that Indebtedness or Contingent Obligation(s) to become due
or be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be (upon the giving or
receiving of notice, lapse of time, both, or otherwise) ; or
8.3 Breach of Certain Covenants.
Failure of Holdings or its Subsidiaries to perform or comply with any
term or condition contained in subsection 2.5 or 6.2 or Section 7 of this
Agreement; or
8.4 Breach of Warranty.
Any representation, warranty, certification or other statement made by
any Loan Party or any of its Subsidiaries in any Loan Document or in any
statement or certificate at any time given by any Loan Party or any of its
Subsidiaries in writing pursuant hereto or thereto or in connection herewith or
therewith shall be false in any material respect on the date as of which made
(or deemed made); or
8.5 Other Defaults Under Loan Documents.
Any Loan Party shall default in the performance of or compliance with
any term contained in this Agreement or any of the other Loan Documents, other
than any such term referred to in any other subsection of this Section 8, and
such default shall not have been remedied or waived within 30 days after the
earlier of (i) an officer of Borrower or such Loan Party becoming aware of such
default or (ii) receipt by Borrower and such Loan Party of notice from
Administrative Agent or any Lender of such default; or
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) A court having jurisdiction in the premises shall enter a decree
or order for relief in respect of Holdings or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against Holdings or any of its Subsidiaries under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Holdings or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of Holdings or
-133-
<PAGE>
any of its Subsidiaries for all or a substantial part of its property; or a
warrant of attachment, execution or similar process shall have been issued
against any substantial part of the property of Holdings or any of its
Subsidiaries, and any such event described in this clause (ii) shall continue
for 60 days unless dismissed, bonded or discharged; or
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.
(i) Holdings or any of its Subsidiaries shall have an order for relief
entered with respect to it or commence a voluntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or Holdings or any of its Subsidiaries shall make any
assignment for the benefit of creditors; or (ii) Holdings or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of Holdings or any of its Subsidiaries (or any committee thereof)
shall adopt any resolution or otherwise authorize any action to approve any of
the actions referred to in clause (i) above or this clause (ii); or
8.8 Judgments and Attachments.
Any money judgment, writ or warrant of attachment or similar process
involving in the aggregate at any time an amount in excess of $2,000,000 (in
either case not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Holdings or any of its Subsidiaries or any of their respective
assets and shall remain undischarged, unvacated, unbonded or unstayed for a
period of 60 days (or in any event later than five days prior to the date of any
proposed sale thereunder); or
8.9 Dissolution.
Any order, judgment or decree shall be entered against Holdings or any
of its Subsidiaries decreeing the dissolution or split up of Holdings or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
8.10 Employee Benefit Plans.
There shall occur one or more ERISA Events which individually or in the
aggregate results in or might reasonably be expected to result in liability of
Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in
excess of $1,000,000 during the term of this Agreement; or there shall exist an
amount of
-134-
<PAGE>
unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), which exceeds $4,000,000, and the minimum funding
standards of Section 412 of the Internal Revenue Code (whether or not waived in
accordance with Section 412(d) of the Internal Revenue Code) have not been met
with respect to any Pension Plan; or
8.11 Change in Control.
(i) The Blackstone Investors and Loewen Group and its Affiliates,
collectively, or Loewen Group and its Affiliates, individually, shall cease to
beneficially own and control 95% of the issued and outstanding shares of capital
stock of Holdings entitled (without regard to the occurrence of any contingency)
to vote for the election of members of the Board of Directors of Borrower; (ii)
Holdings shall cease to own 100% of the outstanding capital stock of Borrower;
or (iii) a "Change of Control" under the Senior Subordinated Note Indenture
shall occur; or
8.12 Invalidity of Guaranties; Failure of Security; Repudiation of
Obligations.
At any time after the execution and delivery thereof, (i) any Guaranty
for any reason, other than the satisfaction in full of all Obligations, shall
cease to be in full force and effect (other than in accordance with its terms)
or shall be declared to be null and void, (ii) any Collateral Document shall
cease to be in full force and effect (other than by reason of a release of
Collateral thereunder in accordance with the terms hereof or thereof, the
satisfaction in full of the Obligations or any other termination of such
Collateral Document in accordance with the terms hereof or thereof) or shall be
declared null and void, or Administrative Agent shall not have or shall cease to
have a valid and perfected First Priority Lien in any Collateral purported to be
covered thereby, in each case for any reason other than the failure of
Administrative Agent or any Lender to take any action within its control, or
(iii) any Loan Party shall contest the validity or enforceability of any Loan
Document in writing or deny in writing that it has any further liability,
including with respect to future advances by Lenders, under any Loan Document to
which it is a party; or
8.13 Subordinated Indebtedness.
Borrower shall fail to comply with the subordination provisions
contained in the Senior Subordinated Note Indenture or any other agreement
governing any other Subordinated Indebtedness;
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7 with respect to Borrower, each of (a) the unpaid principal amount of and
accrued
-135-
<PAGE>
interest on the Loans, (b) an amount equal to the maximum amount that
may at any time be drawn under all Letters of Credit then outstanding (whether
or not any beneficiary under any such Letter of Credit shall have presented, or
shall be entitled at such time to present, the drafts or other documents or
certificates required to draw under such Letter of Credit), and (c) all other
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which are
hereby expressly waived by Borrower, and the obligation of each Lender to make
any Loan, the obligation of Administrative Agent to issue any Letter of Credit
and the right of any Lender to issue any Letter of Credit hereunder shall
thereupon terminate, and (ii) upon the occurrence and during the continuation of
any other Event of Default, Administrative Agent shall, upon the written request
or with the written consent of Requisite Lenders, by written notice to Borrower,
declare all or any portion of the amounts described in clauses (a) through (c)
above to be, and the same shall forthwith become, immediately due and payable,
and the obligation of each Lender to make any Loan, the obligation of
Administrative Agent to issue any Letter of Credit and the right of any Lender
to issue any Letter of Credit hereunder shall thereupon terminate; provided that
the foregoing shall not affect in any way the obligations of Lenders under
subsection 3.3C(i) or the obligations of Lenders to purchase participations in
any unpaid Swing Line Loans as provided in subsection 2.1A(iii).
Any amounts described in clause (b) above, when received by
Administrative Agent, shall be held by Administrative Agent pursuant to the
terms of the Collateral Account Agreement and shall be applied as therein
provided.
Notwithstanding anything contained in the second preceding paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to
clause (ii) of such paragraph Borrower shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than as a
result of such acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Potential Events of Default (other than
non-payment of the principal of and accrued interest on the Loans, in each case
which is due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to
Borrower, may at their option rescind and annul such acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon. The
provisions of this paragraph are intended merely to bind Lenders to a decision
which may be made at the election of Requisite Lenders and are not intended,
directly or indirectly, to benefit Borrower, and such provisions shall not at
any time be construed so as to grant Borrower the right to require Lenders to
rescind or annul any acceleration hereunder or to preclude Administrative Agent
or Lenders from exercising any of the rights or remedies available
-136-
<PAGE>
to them under any of the Loan Documents, even if the conditions set forth in
this paragraph are met.
SECTION 9.
AGENTS
9.1 Appointment.
A. Appointment of Agents. Goldman, Sachs & Co. is hereby appointed
Syndication Agent and Arranging Agent hereunder, and each Lender hereby
authorizes Arranging Agent and Syndication Agent to act as its agent in
accordance with the terms of this Agreement and the other Loan Documents.
Scotiabank is hereby appointed Administrative Agent hereunder and under the
other Loan Documents and each Lender hereby authorizes Administrative Agent to
act as its agent in accordance with the terms of this Agreement and the other
Loan Documents. Each Agent hereby agrees to act upon the express conditions
contained in this Agreement and the other Loan Documents, as applicable. The
provisions of this Section 9 are solely for the benefit of Agents and Lenders
and Borrower shall have no rights as a third party beneficiary of any of the
provisions thereof. In performing its functions and duties under this Agreement,
each Agent shall act solely as an agent of Lenders and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for Borrower or any of its Subsidiaries. Each of Arranging
Agent and Syndication Agent, without consent of or notice to any party hereto,
may assign any and all of its rights or obligations hereunder to any of its
Affiliates. As of the Closing Date, all obligations of Arranging Agent and
Syndication Agent hereunder shall terminate.
B. Appointment of Supplemental Collateral Agents. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the enforcement
of any of the Loan Documents, or in case Administrative Agent deems that by
reason of any present or future law of any jurisdiction it may not exercise any
of the rights, powers or remedies granted herein orin any of the other Loan
Documents or take any other action which may be desirable or necessary in
connection therewith, it may be necessary that Administrative Agent appoint an
additional individual or institution as a separate trustee, co-trustee,
collateral agent or collateral co-agent (any such additional individual or
institution being referred to herein individually as a "Supplemental Collateral
Agent" and collectively as "Supplemental Collateral Agents").
-137-
<PAGE>
In the event that Administrative Agent appoints a Supplemental
Collateral Agent with respect to any Collateral, (i) each and every right,
power, privilege or duty expressed or intended by this Agreement or any of the
other Loan Documents to be exercised by or vested in or conveyed to
Administrative Agent with respect to such Collateral shall be exercisable by and
vest in such Supplemental Collateral Agent to the extent, and only to the
extent, necessary to enable such Supplemental Collateral Agent to exercise such
rights, powers and privileges with respect to such Collateral and to perform
such duties with respect to such Collateral, and every covenant and obligation
contained in the Loan Documents and necessary to the exercise or performance
thereof by such Supplemental Collateral Agent shall run to and be enforceable by
either Agent or such Supplemental Collateral Agent, and (ii) the provisions of
this Section 9 and of subsections 10.2 and 10.3 that refer to Administrative
Agent shall inure to the benefit of such Supplemental Collateral Agent and all
references therein to Administrative Agent shall be deemed to be references to
Administrative Agent and/or such Supplemental Collateral Agent, as the context
may require.
Should any instrument in writing from Borrower or any other Loan Party
be required by any Supplemental Collateral Agent so appointed by Administrative
Agent for more fully and certainly vesting in and confirming to him or it such
rights, powers, privileges and duties, Borrower shall, or shall cause such Loan
Party to, execute, acknowledge and deliver any and all such instruments promptly
upon request by Administrative Agent. In case any Supplemental Collateral Agent,
or a successor thereto, shall die, become incapable of acting, resign or be
removed, all the rights, powers, privileges and duties of such Supplemental
Collateral Agent, to the extent permitted by law, shall vest in and be exercised
by Administrative Agent until the appointment of a new Supplemental Collateral
Agent.
9.2 Powers and Duties; General Immunity.
A. Powers; Duties Specified. Each Lender irrevocably authorizes each
Agent to take such action on such Lender's behalf and to exercise such powers,
rights and remedies hereunder and under the other Loan Documents as are
specifically delegated or granted to such Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Each Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents. Each Agent
may exercise such powers, rights and remedies and perform such duties by or
through its agents or employees. No Agent shall have, by reason of this
Agreement or any of the other Loan Documents, a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or any of the other Loan
Documents, expressed or implied, is intended to or shall be so construed as to
impose upon any Agent any obligations in respect of this Agreement or any of the
other Loan Documents except as expressly set forth herein or therein.
-138-
<PAGE>
B. No Responsibility for Certain Matters. No Agent shall be responsible
to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished or made by any of Agent to Lenders or by or on behalf of
Holdings, Borrower or any of their respective Subsidiaries to any Agent or any
Lender in connection with the Loan Documents and the transactions contemplated
thereby or for the financial condition or business affairs of Holdings, Borrower
or any of their respective Subsidiaries or any other Person liable for the
payment of any Obligations, nor shall any Agent be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Loan Documents or as
to the use of the proceeds of the Loans or as to the existence or possible
existence of any Event of Default or Potential Event of Default. Anything
contained in this Agreement to the contrary notwithstanding, Administrative
Agent shall not have any liability arising from confirmations of the amount of
outstanding Loans or the Letter of Credit Usage or the component amounts
thereof.
C. Exculpatory Provisions. None of Agents nor any of their respective
officers, partners, directors, employees or agents shall be liable to Lenders
for any action taken or omitted by any Agent under or in connection with any of
the Loan Documents except to the extent caused by such Agent's gross negligence
or willful misconduct. Each Agent shall be entitled to refrain from any act or
the taking of any action (including the failure to take an action) in connection
with this Agreement or any of the other Loan Documents or from the exercise of
any power, discretion or authority vested in it hereunder or thereunder unless
and until such Agent shall have received instructions in respect thereof from
Requisite Lenders (or such other Lenders as may be required to give such
instructions under subsection 10.6) and, upon receipt of such instructions from
Requisite Lenders (or such other Lenders, as the case may be), such Agent shall
be entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against any Agent as a result of such Agent
acting or (where so instructed) refraining from acting under this Agreement or
any of the other Loan Documents in accordance with the instructions of Requisite
Lenders (or such other Lenders as may be required to give such instructions
under subsection 10.6).
-139-
<PAGE>
D. Agent Entitled to Act as Lender. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" or "Lenders" or any similar
term shall, unless the context clearly otherwise indicates, include each Agent
in its individual capacity. Any Agent and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with Holdings or any of its Subsidiaries or
Affiliates as if it were not performing the duties specified herein, and may
accept fees and other consideration from Holdings and its Subsidiaries for
services in connection with this Agreement and otherwise without having to
account for the same to Lenders.
9.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness.
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Holdings and
its Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent
shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter, and no Agent shall have any responsibility with
respect to the accuracy of or the completeness of any information provided to
Lenders.
9.4 Right to Indemnity.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify Administrative Agent, to the extent that Administrative Agent shall
not have been reimbursed by Borrower, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including counsel fees and disbursements) or disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
Administrative Agent in exercising its powers, rights and remedies or performing
its duties hereunder or under the other Loan Documents or otherwise in its
capacity as Administrative Agent in any way relating to or arising out of this
Agreement or the other Loan Documents; provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
Administrative Agent's gross negligence or willful misconduct.
-140-
<PAGE>
9.5 Successor Administrative Agent and Swing Line Lender.
A. Successor Administrative Agent. Administrative Agent may resign at
any time by giving 30 days' prior written notice thereof to Lenders and
Borrower. Upon any such notice of resignation, Requisite Lenders with Borrower's
consent (which may not be unreasonably withheld or delayed) shall have the
right, upon five Business Days' notice to Borrower, to appoint a successor
Administrative Agent. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, that successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent and
the retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent's
resignation hereunder as Administrative Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
B. Successor Swing Line Lender. Any resignation or removal of
Administrative Agent pursuant to subsection 9.5A shall also constitute the
resignation or removal of Scotiabank or its successor as Swing Line Lender, and
any successor Administrative Agent appointed pursuant to subsection 9.5A shall,
upon its acceptance of such appointment, become the successor Swing Line Lender
for all purposes hereunder. In such event (i) Borrower shall prepay any
outstanding Swing Line Loans made by the retiring or removed Administrative
Agent in its capacity as Swing Line Lender, (ii) upon such prepayment, the
retiring or removed Administrative Agent and Swing Line Lender shall surrender
the Swing Line Note held by it to Borrower for cancellation, and (iii) Borrower
shall issue a new Swing Line Note to the successor Administrative Agent and
Swing Line Lender substantially in the form of Exhibit VI annexed hereto, in the
principal amount of the Swing Line Loan Commitment then in effect and with other
appropriate insertions.
9.6 Collateral Documents and Guaranties.
Each Lender hereby further authorizes Administrative Agent, on behalf
of and for the benefit of Lenders, to enter into each Collateral Document as
secured party and to be the agent for and representative of Lenders under each
Guaranty, and each Lender agrees to be bound by the terms of each Collateral
Document and Guaranty; provided that Administrative Agent shall not (i) enter
into or consent to any material amendment, modification, termination or waiver
of any provision contained in any Collateral Document or Guaranty or (ii)
release any Collateral (except as otherwise expressly permitted or required
pursuant to the terms of this Agreement or the applicable Collateral Document),
in each case without the prior consent of Requisite Lenders (or, if required
pursuant to subsection 10.6, all Lenders); provided further, however, that,
without further
-141-
<PAGE>
written consent or authorization from Lenders, Administrative Agent may execute
any documents or instruments necessary to (a) release any Lien encumbering any
item of Collateral that is the subject of an Asset Sale or other sale or
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented in accordance with the provisions of this subsection
9.6 or (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all
of the capital stock of such Subsidiary Guarantor is sold to any Person (other
than an Affiliate of Borrower) pursuant to an Asset Sale or other disposition
permitted hereunder or to which Requisite Lenders have otherwise consented. In
the event Collateral is sold in such an Asset Sale or other transaction,
Administrative Agent may, without further consent or authorization from Lenders,
release the Liens granted under the Collateral Documents on the Collateral that
is the subject of such Asset Sale or other transaction concurrently with the
consummation of such Asset Sale or other transaction; provided that
Administrative Agent shall have received (i) reasonable, and in any event not
less than 30 days', prior written notice of such Asset Sale or such other
transaction from Borrower; (ii) an Officers' Certificate (1) certifying that no
Event of Default or Potential Event of Default shall have occurred and be
continuing as of the date of such release of Collateral, (2) setting forth a
detailed description of the Collateral subject to such Asset Sale or other
transaction, and (3) certifying such Asset Sale or other transaction is
permitted under this Agreement and that all conditions precedent to such Asset
Sale or other transaction under this Agreement have been met; and (iii) evidence
satisfactory to it that Administrative Agent shall have received all Net Cash
Proceeds of such Asset Sale or other transaction, if any, required to be applied
to repay Secured Obligations under this Agreement. Upon payment in full of all
of the Obligations and termination of the Commitments, Administrative Agent
shall release the Liens on such Collateral granted pursuant to the Collateral
Documents. Upon any release of Collateral pursuant to the foregoing,
Administrative Agent shall, at Borrower's expense, execute and deliver such
documents (without recourse or representation or warranty) as reasonably
requested to evidence such release. Anything contained in any of the Loan
Documents to the contrary notwithstanding, Borrower, Administrative Agent and
each Lender hereby agree that (1) no Lender shall have any right individually to
realize upon any of the Collateral under any Collateral Document or to enforce
any Guaranty, it being understood and agreed that all powers, rights and
remedies under the Collateral Documents and the Guaranties may be exercised
solely by Administrative Agent for the benefit of Lenders in accordance with the
terms thereof, and (2) in the event of a foreclosure by Administrative Agent on
any of the Collateral pursuant to a public or private sale, Administrative Agent
or any Lender may be the purchaser of any or all of such Collateral at any such
sale and Administrative Agent, as agent for and representative of Lenders (but
not any Lender or Lenders in its or their respective individual capacities
unless Requisite Lenders shall otherwise agree in writing) shall be entitled,
for the purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Collateral sold at any such public sale, to
use and
-142-
<PAGE>
apply any of the Obligations as a credit on account of the purchase price for
any collateral payable by Administrative Agent at such sale.
SECTION 10.
MISCELLANEOUS
10.1 Assignments and Participations in Loans and Letters of Credit.
A. General. Subject to subsection 10.1B, each Lender shall have the
right at any time to (i) sell, assign or transfer to any Eligible Assignee, or
(ii) sell partici- pations to any Person in, all or any part of its Commitments
or any Loan or Loans made by it or its Letters of Credit or participations
therein or any other interest herein or in any other Obligations owed to it;
provided that no such sale, assignment, transfer or participation shall require
Borrower to file a registration statement with the Securities and Exchange
Commission or apply to qualify such sale, assignment, transfer or participation
under the securities laws of any state; provided further, that no such sale,
assignment or transfer described in clause (i) above shall be effective unless
and until an Assignment Agreement effecting such sale, assignment or transfer
shall have been accepted by Administrative Agent and recorded in the Register as
provided in subsection 10.1B(ii); provided, further that no such sale,
assignment, transfer or participation of any Letter of Credit or any
participation therein may be made separately from a sale, assignment, transfer
or participation of a corresponding interest in the Revolving Loan Commitment
and the Revolving Loans of the Lender effecting such sale, assignment, transfer
or participation; and provided further, that, anything contained herein to the
contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line
Loans of Swing Line Lender may not be sold, assigned or transferred as described
in clause (i) above to any Person other than a successor Administrative Agent
and Swing Line Lender to the extent contemplated by subsection 9.5. Except as
otherwise provided in this subsection 10.1, no Lender shall, as between Borrower
and such Lender, be relieved of any of its obligations hereunder as a result of
any sale, assignment or transfer of, or any granting of participations in, all
or any part of its Commitments or the Loans, the Letters of Credit or
participations therein, or the other Obligations owed to such Lender.
B. Assignments.
(i) Amounts and Terms of Assignments. Each Commitment, Loan,
Letter of Credit or participation therein, or other Obligation may (a)
be assigned in any amount to another Lender, or to an Affiliate of the
assigning Lender or another Lender, with the giving of notice to
Borrower and Administrative Agent or (b) be assigned in an aggregate
amount of not less than $5,000,000 (or such lesser amount as shall
constitute the aggregate amount of the Commitments,
-143-
<PAGE>
Loans, Letters of Credit and participations therein, and other
Obligations of the assigning Lender) to any other Eligible Assignee
with the consent of Borrower and, in the case of assignments by Lenders
other than Goldman Sachs Credit Partners L.P., Administrative Agent
(which consent of Borrower and Administrative Agent shall not be
unreasonably withheld or delayed). To the extent of any such assignment
in accordance with either clause (a) or (b) above, the assigning Lender
shall be relieved of its obligations with respect to its Commitments,
Loans, Letters of Credit or participations therein, or other
Obligations or the portion thereof so assigned. The parties to each
such assignment shall execute and deliver to Administrative Agent, for
its acceptance and recording in the Register, an Assignment Agreement,
together with a processing and recordation fee of $3,000 and such
forms, certificates or other evidence, if any, with respect to United
States federal income tax withholding matters as the assignee under
such Assignment Agreement may be required to deliver to Administrative
Agent pursuant to subsection 2.7B(iii)(a). Upon such execution,
delivery, acceptance and recordation, from and after the effective date
specified in such Assignment Agreement, (1) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment
Agreement, shall have the rights and obligations of a Lender hereunder
and (2) the assigning Lender thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to
such Assignment Agreement, relinquish its rights (other than any rights
which survive the termination of this Agreement under subsection 10.9B)
and be released from its obligations under this Agreement (and, in the
case of an Assignment Agreement covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto; provided that, anything
contained in any of the Loan Documents to the contrary notwithstanding,
if such Lender is Issuing Lender with respect to any outstanding
Letters of Credit such Lender shall continue to have all rights and
obligations of Issuing Lender with respect to such Letters of Credit
until the cancellation or expiration of such Letters of Credit and the
reimbursement of any amounts drawn thereunder). The Commitments
hereunder shall be modified to reflect the Commitment of such assignee
and any remaining Commitment of such assigning Lender and, if any such
assignment occurs after the issuance of the Notes hereunder, the
assigning Lender shall, upon the effectiveness of such assignment or as
promptly thereafter as practicable, surrender its applicable Notes to
Administrative Agent for cancellation, and thereupon new Notes shall be
issued to the assignee and/or to the assigning Lender, substantially in
the form of Exhibit IV or Exhibit V annexed hereto or in the form of
Additional Term Notes, as the case may be, with appropriate insertions,
to reflect the new Commitments and/or outstanding AXELs or Additional
Term Loans of the assignee and/or the assigning Lender.
-144-
<PAGE>
(ii) Acceptance by Administrative Agent; Recordation in
Register. Upon its receipt of an Assignment Agreement executed by an
assigning Lender and an assignee representing that it is an Eligible
Assignee, together with the processing and recordation fee referred to
in subsection 10.1B(i) and any forms, certificates or other evidence
with respect to United States federal income tax withholding matters
that such assignee may be required to deliver to Administrative Agent
pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if
Administrative Agent and Borrower have consented to the assignment
evidenced thereby (in each case to the extent such consent is required
pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement
by executing a counterpart thereof as provided therein (which
acceptance shall evidence any required consent of Administrative Agent
to such assignment), (b) record the information contained therein in
the Register, and (c) give prompt notice thereof to Borrower.
Administrative Agent shall maintain a copy of each Assignment Agreement
delivered to and accepted by it as provided in this subsection
10.1B(ii).
C. Participations. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
Loan allocated to such participation or (ii) a reduction of the principal amount
of or the rate of interest payable on any Loan allocated to such participation,
and all amounts payable by Borrower hereunder (includ- ing amounts payable to
such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if
such Lender had not sold such participation. Borrower and each Lender hereby
acknowledge and agree that, solely for purposes of subsections 10.4 and 10.5,
(a) any participation will give rise to a direct obligation of Borrower to the
participant and (b) the participant shall be considered to be a "Lender".
D. Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
10.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between Borrower and such Lender, be
relieved of any of its obligations hereunder as a result of any such assignment
and pledge and (ii) in no event shall such Federal Reserve Bank be considered to
be a "Lender" or be entitled to require the assigning Lender to take or omit to
take any action hereunder.
E. Information. Each Lender may furnish any information concerning
Holdings and its Subsidiaries in the possession of that Lender from time to
time to
-145-
<PAGE>
assignees and participants (including prospective assignees and participants),
subject to subsection 10.19.
F. Representations of Lenders. Each Lender listed on the signature
pages hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (i) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of its business and in
accordance with all applicable laws). Each Lender that becomes a party hereto
pursuant to an Assignment Agreement shall be deemed to agree that the
representations and warranties of such Lender contained in Section 2(c) of such
Assignment Agreement are incorporated herein by this reference.
10.2 Expenses.
Whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to pay promptly (i) all the actual and reasonable
costs and expenses of Administrative Agent and Arranging Agent in connection
with the preparation of the Loan Documents and any consents, amendments, waivers
or other modifications thereto; (ii) all the costs of furnishing all opinions by
counsel for Borrower (including any opinions requested by Lenders as to any
legal matters arising hereunder) and of Borrower's performance of and compliance
with all agreements and conditions on its part to be performed or complied with
under this Agreement and the other Loan Documents including with respect to
confirming compliance with environmental, insurance and solvency requirements;
(iii) the reasonable fees, expenses and disbursements of counsel to Arranging
Agent and counsel to Administrative Agent in connection with the negotiation,
preparation, execution and administration of the Loan Documents and any
consents, amendments, waivers or other modifications thereto and any other
documents or matters requested by Borrower; (iv) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of Administrative
Agent on behalf of Lenders pursuant to any Collateral Document, including filing
and recording fees, expenses and taxes, stamp or documentary taxes, search fees,
and reasonable fees, expenses and disbursements of counsel to Arranging Agent
and counsel to Administrative Agent and of counsel providing any opinions that
Arranging Agent, Administrative Agent or Requisite Lenders may request in
respect of the Collateral Documents or the Liens created pursuant thereto; (v)
all the actual costs and reasonable expenses (including the reasonable fees,
expenses and disbursements of any auditors, accountants, appraisers,
environmental consultants or any other consultants, advisors and agents employed
or retained by Administrative Agent and its counsel) in connection with the
valuation (upon the occurrence and during the continuance of an Event of
Default), custody or preservation of any of the Collateral; (vi) all other
actual and reasonable costs and expenses incurred by Syndication Agent,
Arranging Agent or Administrative Agent in connection with the syndication of
the Commitments and the negotiation, preparation and
-146-
<PAGE>
execution of the Loan Documents and any consents, amendments, waivers or other
modifications thereto and the transactions contemplated thereby; and (vii) after
the occurrence and during the continuance of an Event of Default, all costs and
expenses, including reasonable attorneys' fees and costs of settlement, incurred
by Arranging Agent, Administrative Agent and Lenders in enforcing any
Obligations of or in collecting any payments due from any Loan Party hereunder
or under the other Loan Documents by reason of such Event of Default (including
in connection with the sale of, collection from, or other realization upon any
of the Collateral or the enforcement of the Guaranties) or in connection with
any refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings.
10.3 Indemnity.
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to indemnify, pay and hold harmless Agents and Lenders, and the
officers, partners, directors, trustees, employees, agents and affiliates of any
of Agents and Lenders (collectively called the "Indemnitees"), from and against
any and all Indemnified Liabilities (as hereinafter defined); provided that
Borrower shall not have any obligation to any Indemnitee hereunder with respect
to any Indemnified Liabilities to the extent such Indemnified Liabilities arise
solely from the gross negligence, willful misconduct or bad faith of that
Indemnitee.
As used herein, "Indemnified Liabilities" means, collectively, any and
all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the costs of any investigation, study, sampling,
testing, abatement, cleanup, removal, remediation or other response action
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or the other Loan Documents or the Related
Agreements or the transactions contemplated hereby or thereby (including
Lenders' agreement to make the Loans hereunder or the use or intended use of the
proceeds thereof or the issuance of
-147-
<PAGE>
Letters of Credit hereunder or the use or intended use of any thereof, or any
enforcement of any of the Loan Documents (including any sale of, collection
from, or other realization upon any of the Collateral or the enforcement of the
Guaranties)), (ii) the statements contained in the commitment letter delivered
by any Lender to Borrower with respect thereto, or (iii) any Environmental Claim
or any Hazardous Materials Activity relating to or arising from, directly or
indirectly, any past or present activity, operation, land ownership, or practice
of Borrower or any of its Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and hold
harmless set forth in this subsection 10.3 may be unenforceable in whole or in
part because they are violative of any law or public policy, Borrower shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
10.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence of any
Event of Default each Lender is hereby authorized by Borrower at any time or
from time to time, without notice to Borrower or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all deposits (general or special, including Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time held or owing by that Lender to
or for the credit or the account of Borrower against and on account of the
obligations and liabilities of Borrower to that Lender under this Agreement, the
Letters of Credit and participations therein and the other Loan Documents,
including all claims of any nature or description arising out of or connected
with this Agreement, the Letters of Credit and participations therein or any
other Loan Document, irrespective of whether or not (i) that Lender shall have
made any demand hereunder or (ii) the principal of or the interest on the Loans
or any amounts in respect of the Letters of Credit or any other amounts due
hereunder shall have become due and payable pursuant to Section 8 and although
said obligations and liabilities, or any of them, may be contingent or
unmatured. Notwithstanding anything to the contrary contained in this subsection
10.4, no Lender shall exercise any such right of set-off without the prior
consent of Administrative Agent or Requisite Lenders so long as the Obligations
shall be secured by any real property located in the State of California, it
being understood and agreed, however, that this sentence is for the sole benefit
of Lenders and (notwithstanding anything to the contrary contained in subsection
10.6) may be amended, modified or waived in any respect by Requisite Lenders
without the requirement of prior notice to or consent by any Loan Party and does
not constitute a waiver of any right against any Loan Party or against any
Collateral.
-148-
<PAGE>
10.5 Ratable Sharing.
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as Cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "Aggregate
Amounts Due" to such Lender) which is greater than the proportion received by
any other Lender in respect of the Aggregate Amounts Due to such other Lender,
then the Lender receiving such proportionately greater payment shall (i) notify
Administrative Agent and each other Lender of the receipt of such payment and
(ii) apply a portion of such payment to purchase participations (which it shall
be deemed to have purchased from each seller of a participation simultaneously
upon the receipt by such seller of its portion of such payment) in the Aggregate
Amounts Due to the other Lenders so that all such recoveries of Aggregate
Amounts Due shall be shared by all Lenders in proportion to the Aggregate
Amounts Due to them; provided that if all or part of such proportionately
greater payment received by such purchasing Lender is thereafter recovered from
such Lender upon the bankruptcy or reorganization of Borrower or otherwise,
those purchases shall be rescinded and the purchase prices paid for such
participations shall be returned to such purchasing Lender ratably to the extent
of such recovery, but without interest. Borrower expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Borrower to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.
10.6 Amendments and Waivers.
A. Except to the extent set forth in subsection 10.6C, no amendment,
modification, termination or waiver of any provision of this Agreement or of the
Notes, and no consent to any departure by Holdings or Borrower therefrom, shall
in any event be effective without the written concurrence of Requisite Lenders;
provided that any such amendment, modification, termination, waiver or consent
which: increases the amount of any of the Commitments or reduces the principal
amount of any of the Loans; increases the maximum amount of Letters of Credit;
changes in any manner the definition of "Class" or the definition of "Pro Rata
Share" or the definition of "Requisite Class Lenders" or the definition of
"Requisite Lenders"; changes in any manner any provision of this Agreement
which, by its terms, expressly requires the approval or
-149-
<PAGE>
concurrence of all Lenders; postpones the scheduled final maturity date; changes
any interim scheduled amortization payments on the AXELs or the Additional Term
Loans; postpones the date on which any interest or any fees are payable;
decreases the interest rate borne by any of the Loans (other than any waiver of
any increase in the interest rate applicable to any of the Loans pursuant to
subsection 2.2E) or the amount of any fees payable hereunder; increases the
maximum duration of Interest Periods permitted hereunder; reduces the amount or
postpones the due date of any amount payable in respect of, or increases the
maximum term hereunder of, any Letter of Credit; changes in any manner the
obligations of Lenders relating to the purchase of participations in Letters of
Credit; releases any Lien granted in favor of Administrative Agent with respect
to substantially all of the Collateral; releases Holdings from its obligations
under the Holdings Guaranty or releases any Subsidiary Guarantor from its
obligations under the Subsidiary Guaranty, in each case other than in accordance
with the terms of the Loan Documents; or changes in any manner the provisions
contained in subsection 8.1 or this subsection 10.6 shall be effective only if
evidenced by a writing signed by or on behalf of each Lender affected thereby.
In addition, (i) any amendment, modification, termination or waiver of any of
the provisions contained in Section 4 shall be effective only if evidenced by a
writing signed by or on behalf of Administrative Agent and Requisite Lenders,
(ii) no amendment, modification, termination or waiver of any provision of any
Note shall be effective without the written concurrence of the Lender which is
the holder of that Note, (iii) no amendment, modification, termination or waiver
of any provision of subsection 2.1A(iii) or of any other provision of this
Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans
shall be effective without the written concurrence of Swing Line Lender, (iv) no
amendment, modification, termination or waiver of any provision of Section 9 or
of any other provision of this Agreement which, by its terms, expressly requires
the approval or concurrence of any Agent shall be effective without the written
concurrence of such Agent and (v) no amendment, modification, termination or
waiver of any provision disproportionately and adversely affecting the
obligation of any Loan Party to make payments to the holders of any Class shall
be effective without the written concurrence of the applicable Requisite Class
Lenders of such Class. Administrative Agent may, but shall have no obligation
to, with the concurrence of any Lender, execute amendments, modifications,
waivers or consents on behalf of that Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Borrower in any case shall entitle
Borrower to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 10.6 shall be binding upon each
Lender at the time outstanding, each future Lender and, if signed by Borrower,
on Borrower.
B. If, in connection with any proposed change, waiver, discharge or
termination to any of the provision of this Agreement as contemplated by the
proviso in
-150-
<PAGE>
the first sentence of subsection 10.6A, the consent of Requisite Lenders is
obtained but consent of one or more of such other Lenders whose consent is
required is not obtained, then Borrower may, so long as all non-consenting
Lenders are so treated, elect to terminate such Lender as a party to this
Agreement; provided that, concurrently with such termination, (i) Borrower shall
pay that Lender all principal, interest and fees and other amounts owed to such
Lender through such date of termination, (ii) another financial institution
satisfactory to Borrower and Administrative Agent (or if Administrative Agent is
also the Lender to be terminated, the successor Administrative Agent) shall
agree, as of such date, to become a Lender for all purposes under this Agreement
(whether by assignment or amendment) and to assume all obligations of the Lender
to be terminated as of such date, and (iii) all documents and supporting
materials necessary, in the judgment of Administrative Agent (or if
Administrative Agent is also the Lender to be terminated, the successor
Administrative Agent), to evidence the substitution of such Lender shall have
been received and approved by Administrative Agent as of such date.
C. Notwithstanding anything to the contrary contained in this Agreement
(including in subsection 10.6A), Lenders have granted Borrower the right to
borrow up to an additional $25,000,000 of term loans under this Agreement (the
"Additional Term Loans") from one or more Lenders (and/or Eligible Assignees
that will become Lenders), which Additional Term Loans may be made as additional
AXELs or as additional tranche of term loans, provided however, (I) Borrower can
obtain commitments for such Additional Term Loans at any time without the
consent of Lenders, and (II) Borrower may incur such Additional Term Loans only
so long as (i) the ratio of (x) Total Senior Debt at the time of incurrence of
the Additional Term Loans to (y) Consolidated Adjusted EBITDA for the
four-Fiscal Quarter period then last ended does not exceed 4.50:1.00, (ii) the
ratio (x) Consolidated Adjusted EBITDA to (y) Consolidated Cash Interest Expense
for the four-Fiscal Quarter period then last ended is not less than 1.50:1.00
(with the calculation of Consolidated Adjusted EBITDA and Consolidated Cash
Interest Expense for purposes of foregoing clauses (i) and (ii) to be made on a
pro forma basis (including by giving effect to Pro Forma Projected EBITDA)
assuming that the incurrence of such Additional Term Loans (and the use of the
proceeds thereof) had occurred on the first day of such four-Fiscal Quarter
period and had remained outstanding throughout such period and that the interest
rate on such Additional Term Loans was the effective interest rate on the date
of incurrence thereof, and with all such calculations to be in form and
substance satisfactory to Administrative Agent), (iii) no Event of Default or
Potential Event of Default then exists or would result from the incurrence of
the Additional Term Loans, (iv) the Additional Term Loans shall (x) mature on
November 1, 2003, (y) amortize ratably with the AXELs (with each scheduled
installment of principal of the Additional Term Loans being in the same
proportion as each remaining installment of the AXELs bears to the AXEL Exposure
as determined on the date of the making of any Additional Term Loans) and (z) be
subject to mandatory
-151-
<PAGE>
and voluntary repayments and prepayments on the same basis as AXELs at such
time, provided that the Applicable Margin on the Additional Term Loans shall be
the margin agreed upon at such time by Borrower and Lenders providing the
Additional Term Loans, (v) the Additional Term Loans shall be secured by the
Collateral on a pari passu basis with the then existing Loans and Letters of
Credit and guaranteed by Holdings and the Subsidiary Guarantors pursuant to the
applicable Guaranty on the same basis as the then existing Loans and Letters of
Credit, and (vi) no Lender shall be required to provide any Additional Term
Loans without the consent of such Lender (which consent may be withheld or given
in such Lender's sole discretion). The extension of the Additional Term Loans
shall be effected in coordination with Administrative Agent and shall be
accomplished through the execution and delivery by Borrower, Administrative
Agent and Lender or Lenders providing such Additional Term Loans of an
Acknowledgement of Additional Term Loans and, to the extent necessary, through
technical amendments and modifications to this Agreement and the other Loan
Documents which have been agreed to by Administrative Agent to preserve the
intent of the parties hereto with respect to the then existing Obligations and
to provide for the Additional Term Loans, and so long as the provisions of this
subsection 10.6C are complied with, Lenders agree that they shall promptly
execute and deliver such amendments and modifications.
10.7 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
10.8 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served or sent by telefacsimile or United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service or upon receipt if sent by telefacsimile or by the United
States mail with postage prepaid and properly addressed. For the purposes
hereof, the address of each party hereto shall be as set forth under such
party's name on the signature pages hereof or (i) as to Borrower and
Administrative Agent, such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto and (ii) as to each
other party, such other address as shall be designated by such party in a
written notice delivered to Administrative Agent and Borrower.
-152-
<PAGE>
10.9 Survival of Representations, Warranties and Agreements.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Borrower set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections
9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of Administrative Agent or any Lender
in the exercise of any power, right or privilege hereunder or under any other
Loan Document shall impair such power, right or privilege or be construed to be
a waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.11 Marshalling; Payments Set Aside.
Neither Administrative Agent nor any Lender shall be under any
obligation to marshal any assets in favor of Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Administrative Agent or Lenders (or to
Administrative Agent for the benefit of Lenders), or Administrative Agent or
Lenders enforce any security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, any other state or federal law, common
law or any equitable cause, then, to the extent of such recovery, the obligation
or part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor or related thereto, shall be revived and continued in full
force and effect as if such payment or payments had not been made or such
enforcement or setoff had not occurred.
-153-
<PAGE>
10.12 Severability.
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.13 Obligations Several; Independent Nature of Lenders' Rights.
The obligations of Lenders hereunder are several and no Lender shall be
responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
10.14 Headings.
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 Applicable Law.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
10.16 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither Holdings
nor Borrower's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Holdings or Borrower without the prior written consent
of all Lenders.
-154-
<PAGE>
10.17 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST HOLDINGS OR BORROWER ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH OF HOLDINGS AND BORROWER, FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II)
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO HOLDINGS OR BORROWER AT ITS ADDRESS
PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREES THAT SERVICE AS
PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION
OVER HOLDINGS OR BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND
OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES
THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO BRING PROCEEDINGS AGAINST HOLDINGS OR BORROWER IN THE COURTS OF ANY
OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE
FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
10.18 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be filed
in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party hereto acknowledges that this waiver
is a material inducement to enter into a business relationship, that each
-155-
<PAGE>
has already relied on this waiver in entering into this Agreement, and that each
will continue to rely on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has reviewed this waiver
with its legal counsel and that it knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION
10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
10.19 Confidentiality.
Each Lender shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential by
Borrower in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with prudent lending
or investing practices, it being understood and agreed by Borrower that in any
event a Lender shall be permitted to disclose such information (a) to Affiliates
of such Lender or disclosures reasonably required by any bona fide assignee,
transferee or participant in connection with the contemplated assignment or
transfer by such Lender of its Loan or any participations therein, (b) to such
of its respective officers, directors, trustees, employees, agents, affiliates
and representatives as need to know such information, (c) to the extent
requested by any regulatory authority, (d) to the extent otherwise required by
applicable laws and regulations or by any subpoena or similar legal process or
disclosures required by the National Association of Insurance Commissioners, (e)
in connection with any suit, action or proceeding relating to the enforcement of
its rights hereunder or under the other Loan Documents or (f) to the extent such
information (i) publicly available other than as a result of a breach of this
Section 10.19 or (ii) becomes available to an Agent or any Lender on a
nonconfidential basis from a source other than Borrower.
10.20 Maximum Amount.
A. It is the intention of Borrower and Lenders to conform strictly to
the usury and similar laws relating to interest from time to time in force, and
all agreements between Borrower, Administrative Agent and Lenders, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever, whether by acceleration
of maturity hereof or otherwise, shall
-156-
<PAGE>
the amount paid or agreed to be paid in the aggregate to Lenders or to
Administrative Agent on behalf of Lenders as interest hereunder or under the
other Loan Documents or in any other security agreement given to secure the
Obligations, or in any other document evidencing, securing or pertaining to the
Indebtedness evidenced hereby or thereby, exceed the maximum amount permissible
under applicable usury or such other laws (the "Maximum Amount"). If under any
circumstances whatsoever fulfillment of any provision hereof, or of any of the
other Loan Documents, at the time performance of such provision shall be due,
shall involve exceeding the Maximum Amount, then, ipso facto, the obligation to
be fulfilled shall be reduced to the Maximum Amount. For the purposes of
calculating the actual amount of interest paid and/or payable hereunder in
respect of laws pertaining to usury or such other laws, all sums paid or agreed
to be paid to Lenders for the use, forbearance or detention of the Indebtedness
of Borrower evidenced hereby, outstanding from time to time shall, to the extent
permitted by applicable law, be amortized, pro rated, allocated and spread from
the date of disbursement of the proceeds of the Loans until payment in full of
all of such Indebtedness, so that the actual rate of interest on account of such
Indebtedness is uniform throughout the term hereof. The terms and provisions of
this subsection shall control and supersede every other provision of all
agreements between Borrower, Administrative Agent and Lenders.
B. If under any circumstances Lenders shall receive an amount which
would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loans and shall be treated as a
voluntary prepayment under subsection 2.4B(i), and shall be so applied in
accordance with subsection 2.4B(iv) hereof, or if such amount exceeds the unpaid
balance of the Loans and any other Indebtedness of Borrower in favor of Lenders,
the excess shall be deemed to have been a payment made by mistake and shall be
refunded to Borrower.
10.21 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by Borrower and
Administrative Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
-157-
<PAGE>
[Remainder of page intentionally left blank]
-158-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWER:
ROSE HILLS COMPANY
By: /s/ Kendall E. Nungesser
----------------------------------
Name: Kendall E. Nungesser
Title:
Notice Address:
3888 South Workman Mill Road
Whittier, California 90601
Attention: Chief Executive Officer
Telephone: (310) 692-1212
Facsimile: (310) 692-3842
with a copy to each of the following:
The Blackstone Group
31st Floor
345 Park Avenue
New York, New York 10154
Attention: Howard A. Lipson
Telephone: (212) 836-9844
Facsimile: (212) 754-8725
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia
V5G 3S8 Canada
Attention: Chief Financial Officer
Telephone: (604) 293-9277
Facsimile: (604) 473-7305
<PAGE>
GUARANTOR:
ROSE HILLS HOLDINGS CORP.
By: /s/ Kendall E. Nungesser
---------------------------
Name: Kendall E. Nungesser
Title:
Notice Address:
3888 South Workman Mill Road
Whittier, California 90601
Attention: Chief Executive Officer
Telephone: (310) 692-1212
Facsimile: (310) 692-3842
with a copy to each of the following:
The Blackstone Group
31st Floor
345 Park Avenue
New York, New York 10154
Attention: Howard A. Lipson
Telephone: (212) 836-9844
Facsimile: (212) 754-8725
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia
V5G 3S8 Canada
Attention: Chief Financial Officer
Telephone: (604) 293-9277
Facsimile: (604) 473-7305
S-2
<PAGE>
AGENTS AND LENDERS:
GOLDMAN, SACHS & CO.,
as Syndication Agent and as
Arranging Agent
By: /s/ GOLDMAN, SACHS & CO.,
---------------------------------
Notice Address:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Kathy King
Telephone: (212) 902-4425
Facsimile: (212) 902-3757
S-3
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ Edward C. Forst
--------------------------------
Notice Address:
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Kathy King
Telephone: (212) 902-4425
Facsimile: (212) 902-3757
with a copy to:
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: James Roberts
Telephone: (212) 902-9981
Facsimile: (212) 902-2417
S-4
<PAGE>
THE BANK OF NOVA SCOTIA,
Individually and as Administrative
Agent
By: /s/ Terry K. Fryett
--------------------------------
Name: Terry K. Fryett
Title:
Notice Address:
The Bank of Nova Scotia
New York Agency
One Liberty Plaza
26th Floor
New York, New York 10006
Attention: Jerome Noto
Telephone: (212) 225-5146
Facsimile: (212) 225-5090
S-5
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ Anthony R. Clemente
--------------------------------
Name:
Title:
S-6
<PAGE>
SENIOR DEBT PORTFOLIO, INC.
By:
------------------------------
Name:
Title:
S-7
<PAGE>
BANQUE INDOSUEZ
By: /s/ Murray Kennedy
------------------------------
Name: Murray Kennedy
Title:
Notice Address:
Bank Indosuez
Grand Cayman Island Branch
1211 Avenue of the Americas
New York, NY 10036-8701
Attention: Francoise Berthelot
Telephone: (212) 278-2213
Facsimile: (212) 278-2254
S-8
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Steven M. Benevento
------------------------------
Name: Steven M. Benevento
Title:
Notice Address:
New York Life Insurance
51 Madison Avenue
New York, New York 10010
Attention: Investment
Facsimile: (212) 447-4122
S-9
<PAGE>
PRIME INCOME TRUST
By:
-----------------------------
Name:
Title:
Notice Address:
Prime Income Trust
c/o Dean Witter InterCapital
2 World Trade Center --72nd Fl.
New York, New York 10048
Attention: April Chrysostomas
Telephone: (212) 392-5709
Facsimile: (212) 392-5345
S-10
<PAGE>
SCHEDULE 2.1
LENDERS' COMMITMENTS AND PRO RATA SHARES
----------------------------------------
<TABLE>
<CAPTION>
Revolving
AXEL Loan
Lender Commitment Commitment
------ ---------- ----------
<S> <C> <C>
GSCP $32,000,000.00 $0
The Bank of
Nova Scotia 5,000,000.00 25,000,000.00
Merrill Lynch Senior
Floating Rate Fund, Inc. 7,000,000.00 0
Prime Income Trust 10,000,000.00 0
Banque Indosuez 10,000,000.00 0
New York Life 11,000,000.00 0
Total: $75,000,000.00 $25,000,000.00
============== ==============
</TABLE>
<PAGE>
=====================================
PUT/CALL AGREEMENT
Among
BLACKSTONE CAPITAL PARTNERS II
MERCHANT BANKING FUND L.P.,
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP II L.P.,
BLACKSTONE ROSE HILLS OFFSHORE
CAPITAL PARTNERS L.P.,
LOEWEN GROUP INTERNATIONAL, INC.
ROSES DELAWARE, INC.
THE LOEWEN GROUP INC.
And
RHI MANAGEMENT DIRECT L.P.
--------------------------------
Dated as of: November 19, 1996
--------------------------------
====================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS................................................. 2
1.1 Certain Defined Terms............................................................................. 2
ARTICLE II
CALL AND PUT OPTIONS............................................. 16
2.1 Call Option....................................................................................... 16
2.2 Put Option........................................................................................ 16
2.3 Call Option Exercise Price........................................................................ 17
2.4 Put Option Exercise Price......................................................................... 17
ARTICLE III
CALCULATION OF OPTION PRICE......................................... 18
3.1 Calculation of Creation Price and Acquisition Creation Price...................................... 18
3.2 Calculation of Pro Forma EBITDA for the Entry Relevant Period and
Creation Multiple............................................................................ 19
3.3 Calculation of Pro Forma Acquisition EBITDA for the Entry Relevant
Period....................................................................................... 20
3.4 Calculation of EBITDA for the Exit Relevant Period................................................ 20
3.5 Access to Information; Resolution of Disputes; Miscellaneous...................................... 20
ARTICLE IV
DETERMINATION OF OPTION CONSIDERATION; CERTAIN CONDITIONS.......................... 21
4.1 Option Consideration.............................................................................. 21
4.2 Conditions to Issuance of Loewen Common Stock..................................................... 23
ARTICLE V
REGISTRATION RIGHTS............................................. 24
5.1 Incidental Registration........................................................................... 24
5.2 Registration on Request........................................................................... 25
5.3 Registration Procedures .......................................................................... 27
5.4 Indemnification .................................................................................. 29
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES........................................ 32
6.1 Representations and Warranties of All Parties..................................................... 32
6.2 Representations and Warranties of LGII, RDI and LWN............................................... 32
6.3 Representations and Warranties of BCP and RHIM.................................................... 33
ARTICLE VII
ADDITIONAL AGREEMENTS............................................ 34
7.1 Calculation of EBITDA............................................................................. 34
7.2 Further Assurances................................................................................ 35
7.3 LWN Guarantee..................................................................................... 35
7.4 Drag-Along Rights................................................................................. 36
ARTICLE VIII
CLOSINGS................................................... 37
8.1 Payment of the Option Price in Cash or Loewen Common Stock........................................ 37
8.2 Exercise of the BCP Liquidity Right............................................................... 37
8.3 Default By LGII or LWN............................................................................ 38
8.4 Time and Place of Closing......................................................................... 38
ARTICLE IX
MISCELLANEOUS................................................ 38
9.1 Notices........................................................................................... 38
9.2 Severability; Mutuality of Options................................................................ 39
9.3 Entire Agreement.................................................................................. 39
9.4 Amendment and Waiver.............................................................................. 39
9.5 Assignment; Binding on Transferees................................................................ 39
9.6 Variations in Pronouns............................................................................ 40
9.7 Governing Law..................................................................................... 40
9.8 Further Assurances................................................................................ 40
9.9 Headings.......................................................................................... 40
9.10 Counterparts..................................................................................... 40
9.11 Submission to Jurisdiction; Waivers.............................................................. 40
9.12 WAIVERS OF JURY TRIAL............................................................................ 40
</TABLE>
-2-
<PAGE>
PUT/CALL AGREEMENT
PUT/CALL AGREEMENT, dated as of November 19, 1996 (this "Agreement"),
among Blackstone Capital Partners II Merchant Banking Fund L.P., a Delaware
limited partnership ("BCPII"), Blackstone Rose Hills Offshore Capital Partners
L.P., a Delaware limited partnership ("BROCP"), Blackstone Family Investment
Partnership II L.P., a Delaware limited partnership ("BFIP" and, together with
BCPII, BROCP and each of their respective permitted assigns and transferees as
provided herein, and together with any Affiliate thereof that acquires shares of
the capital stock of Rose Hills Holdings Corp., a Delaware corporation formerly
known as Tuder Holding Company ("Holdings"), as contemplated by Section 5.4 of
the Stockholders' Agreement referred to below, "BCP" or the "BCP Entities"),
Loewen Group International Inc., a Delaware corporation (together with its
permitted assigns and transferees as provided herein, "LGII"), Roses Delaware,
Inc., a Delaware corporation (together with its permitted assigns and
transferees as provided herein, "RDI"), The Loewen Group Inc., a British
Columbia corporation ("LWN") and RHI Management Direct L.P., a Delaware limited
partnership ("RHIM"). BCP, LGII, RDI and RHIM are herein collectively referred
to as the "Stockholders" and individually as a "Stockholder."
WHEREAS, Tudor Acquisition Corp., a Delaware corporation which has
been renamed Rose Hills Acquisition Corp. ("RHAC"), has agreed to (i) merge into
Roses, Inc., a California corporation ("RI"), pursuant to an Agreement and Plan
of Merger dated September 19, 1996 (the "Merger Agreement") among RI, the
stockholders of RI and RHAC (which is assigning its rights under the Merger
Agreement to its wholly owned subsidiary RH Mortuary Corporation) and (ii)
acquire substantially all of the cemetery related assets and liabilities of Rose
Hills Memorial Park Association (the "Association") pursuant to an Asset
Purchase Agreement dated September 19, 1996 (the "Asset Purchase Agreement", and
together with the Merger Agreement, the "Agreements") between the Association
and RHAC (which is assigning its rights under the Asset Purchase Agreement to
its wholly owned subsidiary Rose Hills, Inc.);
WHEREAS, such transactions are being consummated concurrently
with the execution and delivery of this Agreement;
WHEREAS, pursuant to a Subscription Agreement of even date
herewith among Holdings, LWN and the Stockholders (the "Subscription
Agreement"), RDI has transferred to Holdings all of the issued and outstanding
stock of certain of its subsidiaries which own and operate funeral homes and
cemeteries in California (the "Satellite Properties") in exchange for shares of
Preferred Stock (as hereinafter defined);
WHEREAS, pursuant to the Subscription Agreement LGII, RHIM and
the BCP Entities have acquired shares of Common Stock (as hereinafter defined)
and Preferred Stock; and
<PAGE>
2
WHEREAS, the parties hereto desire to enter into this
Agreement for the purpose of setting forth certain agreements regarding the
rights and obligations of the Stockholders;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions as hereinafter set forth, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. Capitalized terms used
herein and not otherwise defined herein shall have the following meanings:
"Acquisition" means the direct or indirect acquisition by
Holdings during the term of this Agreement of all or part of one or more funeral
homes or cemeteries (other than the Rose Hills Cemetery, the Mortuary and the
Satellite Properties), whether effected as an acquisition by RHC or as a
contribution pursuant to a Contribution Agreement.
"Acquisition Creation Multiple" means in respect of any
Acquisition consummated prior to the Exit Relevant Period, the quotient of (i)
the relevant Acquisition Creation Price divided by (ii) the relevant Pro Forma
Acquisition EBITDA for the Entry Relevant Period.
"Acquisition Creation Price" means (i) with respect to an
Acquisition of Contributed Properties consummated prior to the Exit Relevant
Period, the product of (x) 7 times (y) Acquisition EBITDA for such Contributed
Properties for the twelve full calendar months ending immediately prior to or
coincident with the date a Contribution Agreement is executed and delivered by
the relevant parties in respect of such Acquisition and (ii) with respect to any
other Acquisition consummated prior to the Exit Relevant Period, the price
mutually agreed by BCP and LGII at the time of such Acquisition utilizing the
same methodology utilized in calculating the Creation Price.
"Acquisition EBITDA" means, with respect to a particular
Acquisition and for any period, the amount of Consolidated Cash Flow for the
business being acquired in such Acquisition, subject to Section 7.1 of this
Agreement.
"Additional BCP Contribution" means the amount in U.S. Dollars
of each additional purchase of Common Stock made by BCP or any of its Affiliates
pursuant to Section 5.4 of the Stockholders' Agreement.
"Additional LGII Contribution" means the amount in U.S.
Dollars of each additional purchase of Common Stock or Preferred Stock made by
LGII or any of its Affiliates prior to the Exit Relevant Period pursuant to
Section 5.4 or 5.5 of the Stockholders'
<PAGE>
3
Agreement, but shall exclude any indemnity payments made pursuant to Section 8.1
of the Subscription Agreement or Section 7.1(ii) of any Contribution Agreement.
"Adjusted BCP Contribution" means the BCP Contribution less
$15,000,000.
"Adjusted Call Creation Multiple" means, as calculated in
connection with a particular Acquisition consummated prior to the Exit Relevant
Period, the sum of (a) the product of (i) the relevant Acquisition Creation
Multiple, times (ii) a fraction, the numerator of which is the relevant
Acquisition Creation Price and the denominator of which is the sum of the
relevant Acquisition Creation Price and the Cumulative Creation Price, and (b)
the product of (i) the Adjusted Call Creation Multiple in effect immediately
prior to the relevant Acquisition times (ii) a fraction, the numerator of which
is the Cumulative Creation Price and the denominator of which is the sum of such
Cumulative Creation Price plus the relevant Acquisition Creation Price. The
Adjusted Call Creation Multiple shall not be subject to any further
recalculation in respect of Acquisitions consummated during or after the Exit
Relevant Period.
"Adjusted Put Creation Multiple" means, as calculated in
connection with a particular Acquisition consummated prior to the Exit Relevant
Period:
(i) if such Acquisition involves Contributed Properties
acquired pursuant to a Contribution Agreement, the sum of
(x) the product of (a) the greater of the relevant Minimum Put
Multiple or 115% of the Adjusted Call Creation Multiple in effect
immediately prior to the relevant Acquisition times (b) a fraction, the
numerator of which is the Cumulative Creation Price and the denominator
of which is the sum of the Cumulative Creation Price and the relevant
Acquisition Creation Price, and
(y) the product of (a) 115% of the greater of 7 or the
Acquisition Creation Multiple calculated for such Acquisition times (b)
a fraction, the numerator of which is the relevant Acquisition Creation
Price and the denominator of which is the sum of the Cumulative
Creation Price and the relevant Acquisition Creation Price;
and (ii) if such Acquisition does not involve Contributed
Properties acquired pursuant to a Contribution Agreement, the greater of (x)
115% of the Adjusted Call Creation Multiple calculated in connection with such
Acquisition and (y) the relevant Minimum Put Multiple.
The Adjusted Put Creation Multiple shall not be subject to any further
recalculation in respect of Acquisitions consummated during or after the Exit
Relevant Period.
"Adjusted Total Equity Value means, as of the Exercise Date,
the sum of Total Equity Value, the Loewen Preferred Contribution and Loewen
Accrued Preferred Dividends.
<PAGE>
4
"Affiliate" of any Person means any other Person that directly
or indirectly controls, is controlled by, or is under common control with, such
Person.
"ASA" means the Administrative Services Agreement, dated as of
November 19, 1996 among RHAC, LGII and LWN.
"BCP Call Hurdle Profit" means the amount in excess of the BCP
Contribution necessary to provide a 22.5% compounded annual return on the BCP
Contribution from and including the Closing Date (or, with respect to Additional
BCP Contributions, measured from and including the date on which each such
Additional BCP Contribution was made) to but excluding the Exercise Date.
"BCP Common Stock" means the shares of Common Stock held by
the BCP Entities.
"BCP Contribution" means the sum of $35,000,000 (which
includes the investment in Common Stock made by RHIM) and the aggregate amount
of any Additional BCP Contributions.
"BCP Liquidity Right" is defined in Section 4.1.
"BCP Put Hurdle Profit" means the amount in excess of the BCP
Contribution necessary to provide a compounded annual return on the BCP
Contribution from and including the Closing Date (or, with respect to Additional
BCP Contributions, measured from and including the date on which each such
Additional BCP Contribution was made) to but excluding the Exercise Date equal
to (i) in the event there has been a Change of Control after the date of this
Agreement and prior to the Exercise Date, 27.5% or (ii) in the event there has
been no such Change of Control, 25%.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to close.
"Call Creation Multiple" means the quotient of (i) the
Creation Price divided by (ii) Pro Forma EBITDA for the Entry Relevant Period.
"Call Option" is defined in Section 2.1.
"Call Option Exercise Price" is defined in Section 2.3.
"Capitalized Liabilities' means the capitalized value as of
the date of determination, computed utilizing a 10% discount rate, of Holdings'
liabilities on a consolidated basis relating to covenants not to compete,
consulting agreements (including all salary payable under agreements with
Messrs. Durko and Poulson) and other former owners' expenses.
<PAGE>
5
"Change of Control" means an event or series of events by
which
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than any person
consisting entirely of one or more of the Permitted Holders, is or
becomes after the date of this Agreement the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on
the date hereof, except that for such purpose such person shall be
deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 35% of the total voting power of all voting stock of LWN
then outstanding, whether as a result of issuance of securities of LWN,
any merger, consolidation, liquidation or dissolution of LWN, any
direct or indirect transfer of securities by a Permitted Holder or
otherwise, under circumstances where the Permitted Holders (x)
beneficially own (as so defined) in the aggregate a lesser percentage
of the voting stock of LWN than such other person or group, and (y) do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors of
LWN;
(ii) (1) another corporation merges into LWN or
LGII, or LWN or LGII consolidates with or
merges into any other corporation or
(2) LWN conveys, transfers or leases all or
substantially all of its assets or a
controlling interest in LGII or all or
substantially all the assets of LGII to any
person or group, in one transaction or a
series of transactions other than any
conveyance, transfer or lease between LWN
and a wholly owned subsidiary of LWN,
in each case, in one transaction or a series of
related transactions with the effect that a person
or group, other than
(A) any person or group consisting of one or
more Permitted Holders
or
(B) a person or group which is the beneficial
owner of more than 50% of the total voting
power of all voting stock of LWN immediately
prior to such transaction
becomes the beneficial owner of more than 50% of the total
voting power of all voting stock of the surviving or
transferee corporation of such transaction or series; or
(iii) individuals who currently constitute LWN's Board of
Directors (together with any new directors whose election by LWN's
Board of Directors, or whose nomination for election by LWN's
shareholders, was approved by a vote of a majority of the Directors
then still in office who were either Directors at the date hereof or
<PAGE>
6
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Directors of LWN
then in office.
"Closing" means the consummation of the transactions
contemplated by the Agreements.
"Closing Date" means the date on which the Closing occurs.
"Common Stock" means the common stock, par value $.01 per
share, of Holdings, including, where applicable non-voting common stock of
Holdings issued in connection with a Contribution.
"Consolidated Cash Flow" has the meaning ascribed to such term
in the Indenture as of the date of this Agreement, subject to Section 7.1 of
this Agreement.
"Contributed Properties" means any funeral home or cemetery or
group thereof conveyed to Holdings pursuant to a Contribution Agreement.
"Contribution" means a contribution of Contributed Properties
pursuant to a Contribution Agreement.
"Contribution Agreement" means a Nearby Property Contribution
Agreement entered into pursuant to Section 5.5 of the Stockholders' Agreement.
"Creation Price" means the sum of (a) the BCP Contribution,
plus (b) the Loewen Contribution, plus (c) $155 million, plus (d) the net amount
of any interest accruing on the Notes from their date of issuance through the
Closing Date (net of interest earned by the escrow agent on the net proceeds of
the Note issuance), plus (e) the amount as of the Closing Date of all
Capitalized Liabilities, plus (f) the cost of the Directors' and Officers'
liability insurance policy relating to acts occurring prior to the Closing Date
which RHAC is required to maintain pursuant to Section 6.7 of the Merger
Agreement, plus (g) all severance costs incurred by RHC for all Mortuary,
Association and other RHC employees who were employees immediately prior to the
Closing Date and who are terminated within six months of the Closing Date, plus
(h) any liability under the Mortuary defined benefit plan (calculated in
accordance with the methodology used to prepare the pro forma financial
statements included in the Offering Memorandum), including the cost, if any, of
terminating such plan, provided such termination occurs within six months of the
Closing Date plus (i) any liability under the Rose Hills Mortuary, L.P.
Supplemental Employee Retirement Plan (calculated in accordance with the
methodology used to prepare the pro forma financial statements included in the
Offering Memorandum), plus (j) any liability (calculated in accordance with the
methodology used to prepare the pro forma financial statements included in the
Offering Memorandum) under the Mortuary's Deferred Compensation Plan for
Selected Executives of Rose Hills Mortuary, L.P. (the "Phantom 401(k) Plan"),
plus (k) any liability (calculated in accordance with the methodology used to
prepare the pro forma financial statements included in the Offering Memorandum)
under the Association's Trustees' and Executives' Pension Plans (as defined in
the Asset Purchase Agreement), plus (l) the present value as of the
<PAGE>
7
Closing Date, computed utilizing a 10% discount rate, of amounts, if any, paid
to the Association in respect of California UBTI tax pursuant to Section
10.4(b)(v) of the Asset Purchase Agreement, plus (m) the present value as of the
Closing Date, computed utilizing a 10% discount rate, of any losses incurred by
RHC in respect of violations of the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder, applicable to the Mortuary's
401(k) plan (including taxes to be paid with respect thereto), plus (n) any
other capitalization of on- or off-balance sheet liabilities or obligations,
plus (o) the amount by which RHC's aggregate cash on hand as of the Closing
Date, after giving effect on a pro forma basis to the payment of all Transaction
Costs, regardless of whether such Transaction Costs are paid at or subsequent to
the Closing Date (but excluding any cash received by RHC on the Closing Date
from RI or the Satellite Properties), is less than $1.0 million, plus (p) the
present value as of the Closing Date, computed utilizing a 10% discount rate, of
any liabilities arising as a result of the transactions contemplated by the
Agreements, provided such liabilities arise no later than six months after the
Closing Date, plus (q) any payments made to the owner of any mineral rights on
property owned by RHC in order to obtain a quitclaim of such rights, less (r)
the amount of any payment made by the Association or the Mortuary to RHC in
accordance with the post-closing adjustment provisions of Section 4.1(b) of the
Merger Agreement and Section 2.4(b) of the Asset Purchase Agreement, provided
that any such items described in clauses (d) through (q) that are funded on the
Closing Date shall not require an incremental increase in the Creation Price.
"Credit Agreement means the credit agreement dated as of
November 19, 1996 among RHAC and the lenders thereunder.
"Cumulative Creation Price" means the sum of the Creation
Price and the aggregate Acquisition Creation Price in respect of all
Acquisitions prior to the Acquisition with respect to which such Cumulative
Creation Price is being calculated.
"Default Rate" has the meaning ascribed to such term in the
Credit Agreement as of the date of this Agreement (as calculated with reference
to an "AXEL" bearing interest at the "Base Rate", as such terms are defined in
the Credit Agreement).
"EBITDA" means, for any period, the amount of Consolidated
Cash Flow calculated for RHC on a consolidated basis for the relevant period
less any revenue recognized pursuant to the IBPS Agreement, subject to Section
7.1 of this Agreement.
"EBITDA for the Exit Relevant Period" means EBITDA calculated
for the Exit Relevant period, provided, however, that in the event that RHC has
consummated an Acquisition during the Exit Relevant Period, then EBITDA for the
Exit Relevant Period shall be restated to eliminate the Acquisition EBITDA
attributable to such Acquisition.
"Excess Value One" means the greater of (i) zero or (ii) Total
Equity Value minus Total Call Hurdle Value (if the calculation is being made in
connection with the Call Option) or Total Put Hurdle Value (if the calculation
is being made in connection with the Put Option), up to a maximum amount which,
when multiplied by 0.3 and added to the BCP Contribution plus the BCP Call
Hurdle Profit (if the calculation is being made in connection
<PAGE>
8
with the Call Option) or the BCP Put Hurdle Profit (if the calculation is being
made in connection with the Put Option), results in an Option Price that
produces a twenty-five percent (25%) compounded annual return on the BCP
Contribution.
"Excess Value Two" means the greater of (i) zero or (ii) Total
Equity Value less Total Call Hurdle Value (if the calculation is being made in
connection with the Call Option) or Total Put Hurdle Value (if the calculation
is being made in connection with the Put Option) less Excess Value One.
"Exercise Date" means the date specified for the closing of
the exercise of either of the Options, as set forth in a notice given pursuant
to Section 2.1(b) or 2.2(b), as applicable.
"Exercise Date Value" means the value per share of Loewen
Common Stock determined in accordance with Section 4.1(b).
"Exit Relevant Period" means the period of twelve full
calendar months ending immediately prior to or coincident with the Notification
Date.
"GAAP" means generally accepted accounting principles, as in
effect in the United States of America on the date hereof and applied on a basis
consistent with the manner in which such principles were applied in the
preparation of the historical financial statements of the Mortuary and the
Association included in the "Pro Forma Financial Information" section of the
Offering Memorandum.
"Guarantee" means the guarantee obligation of LWN set forth in
Section 7.3 hereof.
"Holder" shall mean any BCP Entity and any Permitted
Transferee who owns registrable securities.
"Holders' Portion" of the underwriters' discounts and
commissions means, with respect to particular Registrable Securities being sold
pursuant to a registration effected under Section 5.1 or 5.2, the excess, if
any, of the underwriters' discount and commissions charged in connection with
such disposition over the amount that such charge would have otherwise been if
the Registrable Securities being sold were sold at a public offering price equal
to the Exercise Date Value.
"IBPS Agreement" means the Buddhist Complex Development and
Use Agreement, dated March 1, 1994, between the Association and the
International Buddhist Progress Society.
"Indenture" means the Indenture, dated as of November 15,
1996, between RHAC, as issuer, and United States Trust Company of New York, as
trustee.
<PAGE>
9
"LGII Call Hurdle Profit" means the amount in excess of the
LGII Common Contribution necessary to provide a 22.5% compounded annual return
on the LGII Common Contribution from and including the Closing Date (or, with
respect to Additional LGII Contributions made in respect of Common Stock,
measured from and including the date on which each such Additional LGII
Contribution was made) to but excluding the Exercise Date.
"LGII Common Contribution" means the sum of $9,000,000 and the
aggregate amount of any Additional LGII Contributions made in respect of Common
Stock.
"LGII Put Hurdle Profit" means the amount in excess of the
LGII Common Contribution necessary to provide a 25% compounded annual return on
the LGII Common Contribution from and including the Closing Date (or, with
respect to Additional LGII Contributions made in respect of Common Stock,
measured from and including the date on which each such Additional LGII
Contribution was made) to but excluding the Exercise Date.
"Loewen Accrued Preferred Dividends" means, as of the date of
determination, the aggregate liquidation preference of the Loewen Preferred less
the Loewen Preferred Contribution.
"Loewen Common Stock" means the common stock, par value $.01
per share, of The Loewen Group Inc., a British Columbia corporation, but
excluding shares of Common Stock held as a consequence of any Acquisition made
during or after the Exit Relevant Period.
"Loewen Contribution" means the sum of the LGII Common
Contribution and the Loewen Preferred Contribution.
"Loewen Preferred" means the shares of Preferred Stock held by
LGII, RDI and their respective Affiliates but excluding shares of Preferred
Stock (including additional liquidation preference attributable to accrued but
unpaid dividends thereon) held as a consequence of any Acquisition made during
or after the Exit Relevant Period.
"Loewen Preferred Catch-up Amount" means the excess of (a) the
amount necessary to provide a 16.0% compounded annual return on the Loewen
Preferred Contribution from and including the Closing Date (or, with respect to
Additional LGII Contributions made in respect of Preferred Stock, measured from
and including the date on which each such Additional LGII Contribution was made)
to but excluding the Exercise Date, over (b) the liquidation preference as of
the Exercise Date of the Loewen Preferred (including all accrued dividends
whether undeclared or paid in kind).
"Loewen Preferred Contribution" means the sum of (i)
$63,000,000, (ii) the Subsidiary Stock valued at $23,000,000 and (iii) the
aggregate amount of any Additional LGII Contributions made in respect of
Preferred Stock.
<PAGE>
10
"Management Equity Indebtedness" means the aggregate amount of
outstanding loans, including accrued interest thereon (whether or not
capitalized), provided by RHC to RHIM or its management for purposes of the
acquisition of Common Stock.
"Market Value" means the average of the daily closing prices
of the Loewen Common Stock for the 30 trading day period ending on the Exercise
Date or such other relevant date of determination, as the case may be. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange, or, if the Loewen Common Stock is not listed or admitted to
trading on the New York Stock Exchange, on the American Stock Exchange, or, if
the Loewen Common Stock is not listed or admitted to trading on the American
Stock Exchange, the average of the closing bid and asked prices of the Loewen
Common Stock in the over-the-counter market as reported on the NASDAQ system of
the National Association of Securities Dealers, Inc. or if the Loewen Common
Stock is not so quoted, the average of the closing bid and asked price of the
Loewen Common Stock in the over-the-counter market as furnished by any
nationally recognized New York Stock Exchange member firm selected by LWN for
such purpose.
"Minimum Put Multiple" means, for purposes of calculating the
Adjusted Put Creation Multiple in connection with a particular Acquisition:
(i) 12, if the Adjusted Put Creation Multiple is being
calculated in connection with an Acquisition that does not involve, and
that has not been preceded at any time by, a Contribution; provided,
that the Minimum Put Multiple in effect immediately following such
Acquisition shall be deemed to remain at 12 until adjusted as provided
below;
(ii) 12, if the Adjusted Put Creation Multiple is being
calculated in connection with an Acquisition that involves, but that
has not been preceded at any time by, a Contribution; provided, that
the Minimum Put Multiple in effect immediately following such
Acquisition shall be deemed to be equal to the Adjusted Put Creation
Multiple calculated in connection with such Acquisition;
(iii) the Weighted Minimum Put Multiple, if the Adjusted
Put Creation Multiple is being calculated in connection with an
Acquisition that does not involve, but that has been preceded at any
time by, a Contribution; provided, that the Minimum Put Multiple in
effect immediately following such Acquisition shall be deemed to be
equal to such Weighted Minimum Put Multiple; and
(iv) the Minimum Put Multiple deemed to be in effect
immediately following the most recently preceding calculation of the
Adjusted Put Creation Multiple, if the Adjusted Put Creation Multiple
is being calculated in connection with an Acquisition that involves,
and that has been preceded at any time by, a Contribution; provided
that the Minimum Put Multiple in effect immediately following
<PAGE>
11
such Acquisition shall be deemed to be equal to the Adjusted Put
Creation Multiple calculated in connection with such Acquisition.
"Mortuary" means Roses, Inc., a California corporation, and
its consolidated subsidiaries, which are being indirectly acquired by Holdings
on the Closing Date pursuant to the Merger Agreement.
"Notes" means the $80 million of 9 1/2% senior subordinated
notes due 2004 issued pursuant to the Indenture.
"Notification Date" means the date notification is given by an
exercising party under any of the Options in accordance with Section 2.1(b) or
2.2(b).
"Obligations" means the obligation of LGII to pay on the
Exercise Date the cash portion, if any, of the Option Price, including, without
limitation, interest accruing at the Default Rate after the Exercise Date after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to LGII whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding.
"Offering Memorandum" the offering memorandum dated November
14, 1996 relating to the offering of the Notes.
"Option" means the Call Option or the Put Option, as
applicable.
"Option Price" means the Call Option Exercise Price or the Put
Option Exercise Price, as applicable and as determined in accordance with this
Agreement.
"Option Shares" means shares of Loewen Common Stock issuable
in connection with the exercise of an Option.
"Option Shares" means shares of Loewen Common Stock, if any,
issuable in connection with the Option.
"Permitted Holders" means, collectively Ray Loewen and his
estate, spouse, heirs, lineal descendants and legatees and legal representatives
of any of the foregoing and the trustee of any bona fide trust of which one or
more of the foregoing are the beneficiaries, and any entity of which any of the
foregoing, individually or collectively, beneficially owns more than 50% of the
voting stock.
"Permitted Transferee" means any Person to whom a Stockholder
transfers shares of Common Stock or Preferred Stock, as the case may be, in
accordance with the Stockholders' Agreement and who is required to, and does,
become bound by the terms of this Agreement, and includes any Person to whom a
Permitted Transferee (as thus defined) of a Stockholder (or a Permitted
Transferee of a Permitted Transferee) so further transfers shares and who is
required to, and does, become bound by the terms of this Agreement.
<PAGE>
12
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or other entity.
"Preferred Stock" means the 10% Pay In-Kind Cumulative
Preferred Stock, par value $.01 per share, of Holdings.
"Pro Forma Acquisition EBITDA for the Entry Relevant Period"
means:
(i) in the case of an Acquisition consummated on or prior to
the date which is 24 months prior to the end of the Exit Relevant Period, the
quotient of (a) the sum of (i) Acquisition EBITDA for first full twelve calendar
months following such consummation date divided by 1.06 and (ii) Acquisition
EBITDA for the second full twelve calendar months following such consummation
date divided by 1.06 raised to a power equal to 2 and (b) 2, and may be
expressed as a formula calculation as follows:
First 12 mos. Acquisition EBITDA Second 12 mos. Acquisition EBITDA
- -------------------------------- + ---------------------------------
2
(1.06) (1.06)
- --------------------------------------------------------------------
2
(ii) in the case of an Acquisition consummated during the 12 months
prior to the beginning of the Exit Relevant Period, the quotient of (a) the sum
of (i) Acquisition EBITDA for first full twelve calendar months following such
consummation date divided by 1.06 and (ii) Acquisition EBITDA for the period
beginning on the first day of the first month following such twelve calendar
month period and ending on last day of the Exit Relevant Period (the "Remaining
Period") divided by 1.06 raised to a power equal to the quotient of (x) 365 plus
the number of days in the Remaining Period and (y) 365 and (b) the quotient of
(x) 365 plus the number of days in the Remaining Period and (y) 365, and may be
expressed as a formula calculation as follows:
First 12 mos. EBITDA Remaining Period EBITDA
- ----------------------- + ----------------------------------------------
((365+# days in Remaining Period)/365)
(1.06) (1.06)
- --------------------------------------------------------------------------------
(365+# days in Remaining Period)/365
<PAGE>
13
"Pro Forma EBITDA for the Entry Relevant Period" means the
quotient of (a) the sum of (i) EBITDA for calendar year 1997 divided by 1.06
raised to a power equal to the quotient of (x) the number of days elapsed
between the Closing Date and December 31, 1997 and (y) 365 and (ii) EBITDA for
calendar year 1998 divided by 1.06 raised to a power equal to the quotient of
(x) the number of days elapsed between the Closing Date and December, 1998 and
(y) 365, and (b) 2, and may be expressed as a formula calculation as follows:
1997 EBITDA 1998 EBITDA
- ----------------------------------------- + ---------------------------
((# days since CD to 12-31-97)/365) ((# days since CD to
12-31-98)/365)
(1.06) (1.06)
- -----------------------------------------------------------------------------
2
"Put Creation Multiple" means the greater of (i) 115% of the
Call Creation Multiple and (ii) 12.
"Put Option" is defined in Section 2.2.
"Put Option Exercise Price" is defined in Section 2.4.
"Registrable Securities" means any Loewen Common Stock (i)
issued to BCP and as to which BCP, as contemplated by Section 4.1(b), is not
exercising the BCP Liquidity Right, or (ii) which is issued or distributed in
respect of any shares covered by the preceding clause (i) by way of stock
dividend or stock split or other distribution, recapitalization or
reclassification. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (w) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (x) they shall have been sold
pursuant to Rule 144 (or any successor provision) under the Securities Act, (y)
they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by LWN
and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any state securities or blue
sky law then in force, or (z) they shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with Sections 5.2 and 5.3 of this
Agreement, including, without limitation, (i) all SEC and securities exchange or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses of complying with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities), (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange pursuant to Section 5.3(h), (v) the fees and disbursements of counsel
for LWN and of its independent public accountants, including the expenses of any
special audits and/or "cold comfort" letters required by or incident to such
performance and compliance, (vi) the reasonable fees and disbursements of one
counsel, other
<PAGE>
14
than LWN's counsel, selected by the Holders of a majority of the Registrable
Securities being registered to represent all Holders of the Registrable
Securities being registered in connection with each such registration (it being
understood that any Holder may, at its own expense, retain separate counsel to
represent it in connection with such registration), (vii) any fees and
disbursements of underwriters customarily paid by the issuers or sellers of
securities, and the reasonable fees and expenses of any special experts retained
in connection with the requested registration, but excluding underwriting
discounts and commissions and transfer taxes, if any, and (viii) subject to the
obligation of Holders under Sections 5.1 and 5.2 to pay any Holders' Portion
thereof, all underwriting discounts and commissions or other brokers'
commissions charged in connection with the sale of Registrable
"Relevant Creation Multiple" means the (i) Call Creation
Multiple or, if RHC has consummated an Acquisition prior to the Exit Relevant
Period, the most recently calculated Adjusted Call Creation Multiple (where
Total Enterprise Value is being calculated in connection with the exercise of
the Call Option) or (ii) the Put Creation Multiple or, if RHC has consummated an
Acquisition prior to the Exit Relevant Period, the most recently calculated
Adjusted Put Creation Multiple (where Total Enterprise Value is being calculated
in connection with the exercise of the Put Option).
"Remaining Period" has the meaning ascribed thereto in the
definition of Pro Forma Acquisition EBITDA for the Entry Relevant Period.
"Revolver" means the revolving credit facility made available
to RHAC by a syndicate of commercial lenders on the Closing Date, or any other
similar facility subsequently replacing such facility.
"RHC" means Holdings and all of its subsidiaries.
"RHMI Common Stock" means the shares of Common Stock held by
RHMI.
"Securities Act" shall mean the Securities Act of 1933, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
"Stockholders' Agreement" means the Stockholders' Agreement,
dated as of November 19, 1996, among the Stockholders and Holdings.
"Subsidiary Stock" means all of the issued and outstanding
shares of capital stock of each of the companies listed on Exhibit A to the
Subscription Agreement, dated November 19, 1996 among BCP, LWN, LGII, RDI and
RHIM.
"Total Call Hurdle Value" means the sum of the BCP
Contribution, the LGII Common Contribution, the BCP Call Hurdle Profit, the LGII
Call Hurdle Profit and the Loewen Preferred Catch-up Amount.
<PAGE>
15
"Total Contribution" means the sum of (i) the BCP Contribution
and (ii) the Loewen Contribution.
"Total Enterprise Value" means the product of (i) the Relevant
Creation Multiple multiplied by (ii) EBITDA for the Exit Relevant Period.
"Total Equity Value" means, as of the Exercise Date (each of
the following shall be determined as of the Exercise Date except for Total
Enterprise Value, which shall be determined in accordance with the definition
thereof), the sum of:
(x) the excess, if any, of (i) Total Enterprise Value over
(ii) the sum of (a) the aggregate outstanding principal amount (including
accrued but unpaid interest thereon) of Holdings' consolidated total
indebtedness (excluding any amounts outstanding under the Revolver and excluding
any indebtedness or accrued interest thereon (whether paid or unpaid) associated
with or incurred to finance any Acquisition consummated during or after the Exit
Relevant Period, plus (b) the remaining value as of the Exercise Date of the
Capitalized Liabilities taken into account in calculating the Creation Price or
the Acquisition Creation Price of an Acquisition, plus (c) the Loewen Preferred
Contribution, plus (d) Loewen Accrued Preferred Dividends; and
(y) the sum of (e) the aggregate amount of Holdings'
consolidated total cash, cash equivalents and any other marketable securities,
plus (f) cash utilized to pay for Acquisitions (including all related
transaction costs and expenses) consummated during or after the Exit Relevant
Period, plus (g) the amount of interest that would have been saved assuming that
the amounts described in clause (f) had instead been utilized to repay
indebtedness of RHC which could have then been voluntarily repaid, and assuming
the indebtedness bearing the highest interest rate is the first to be repaid,
plus (h) the aggregate amount of Management Equity Indebtedness.
"Total Put Hurdle Value" means the sum of the BCP
Contribution, the LGII Common Contribution, the BCP Put Hurdle Profit and the
LGII Put Hurdle Profit.
"Transaction Costs" means all costs and expenses of every
nature incurred by RHC in connection with consummation of the transactions
contemplated by the Agreements and the financing thereof, including without
limitation costs and expenses relating to the issuance of the Notes and the
subsequent registered exchange offer with respect to the Notes and the Credit
Agreement.
"Weighted Minimum Put Multiple" means, for purposes of
calculating the Adjusted Put Creation Multiple in connection with a particular
Acquisition, the sum of (A) the product of (i) 12 times (ii) a fraction, the
numerator of which is the Acquisition Creation Price for such Acquisition and
the denominator of which is the sum of such Acquisition Creation Price and the
Cumulative Creation Price, plus (B) the product of (i) the Minimum Put Multiple
deemed to be in effect immediately prior to such Acquisition times (ii) a
fraction, the numerator of which is the Cumulative Creation Price and the
denominator of which is the sum of Acquisition Creation Price and such
Cumulative Creation Price.
<PAGE>
16
ARTICLE II
CALL AND PUT OPTIONS
2.1 Call Option. (a) On the terms and subject to the
conditions set forth herein, each of the BCP Entities and RHIM hereby grants to
LGII an irrevocable option (the "Call Option") exercisable beginning on the
fourth anniversary of the Closing Date and ending on the day before the sixth
anniversary of the Closing Date, to purchase (and, upon exercise of such Call
Option in accordance herewith, each BCP Entity irrevocably agrees to sell to
LGII) all, but not less than all, of the BCP Common Stock or the RHIM Common
Stock, as the case may be, respectively owned by them. The aggregate purchase
price with respect to all the shares of BCP Common Stock and the RHIM Common
Stock being purchased shall be equal to the Call Option Exercise Price (as
defined in Section 2.3). The consideration to be paid for each share of BCP
Common Stock and RHIM Common Stock shall equal the Call Option Exercise Price
divided by the aggregate number of shares of BCP Common Stock and RHIM Common
Stock being purchased, provided that the BCP Entities may reallocate the Call
Option Exercise Price among themselves to the extent necessary to take into
account differences among them, if any, in making Additional BCP Contributions.
(b) LGII shall give Blackstone Management Associates II
L.L.C., a Delaware limited liability company ("BMAII"), as agent for each of the
BCP Entities and RHIM, written notice of exercise of the Call Option no less
than 90 nor more than 120 days prior to the Business Day specified in such
notice for exercise of the Call Option. Subject to the preceding sentence, a
notice of exercise of the Call Option may be given during or prior to the
commencement of the period in which the Call Option is exercisable and shall
irrevocably commit the Stockholders to the purchase and sale of the BCP Common
Stock and RHIM Common Stock in accordance with the Call Option.
2.2 Put Option. (a) On the terms and subject to the conditions
set forth herein, LGII hereby grants to each BCP Entity and RHIM an irrevocable
option (the "Put Option"), exercisable beginning on the sixth anniversary of the
Closing Date and ending on the eighth anniversary of the Closing Date, to
require LGII to purchase (and, upon exercise of such Put Option in accordance
herewith, LGII agrees to purchase from the BCP Entities and RHIM) all, but not
less than all, of the BCP Common Stock and RHIM Common Stock respectively owned
by them; provided that the Put Option may be exercised only with respect to all
the BCP Common Stock and RHIM Common Stock, and provided further, BMAII, as
agent for each of the BCP Entities and RHIM, shall have the exclusive authority
to deliver notice of such exercise to LGII. The aggregate purchase price with
respect to all the shares of BCP Common Stock and RHIM Common Stock being
purchased shall be equal to the Put Option Exercise Price (as defined in Section
2.4). The consideration to be paid for each share of BCP Common Stock and RHIM
Common Stock shall equal the Put Option Exercise Price divided by the aggregate
number of shares of BCP Common Stock and RHIM Common Stock being purchased,
provided that the BCP Entities may reallocate the Put Option Exercise Price
among themselves to the extent necessary to take into account differences among
them, if any, in making Additional BCP Contributions.
<PAGE>
17
(b) BMAII, as exclusive agent for BCP and RHIM, shall give
LGII written notice of exercise of the Put Option no less than 90 nor more than
120 days prior to the Business Day specified in such notice for exercise of the
Put Option. Subject to the preceding sentence, a notice of exercise of the Put
Option may be given at any time during or prior to the commencement of the
period in which the Put Option is exercisable and shall irrevocably commit the
Stockholders to the purchase and sale of the BCP Common Stock and RHIM Common
Stock in accordance with the Put Option.
2.3 Call Option Exercise Price. The Call Option Exercise
Price shall be determined as of the Exercise Date and shall be equal to:
(i) the sum of the BCP Contribution and the BCP Call
Hurdle Profit, if Total Equity Value is equal to or less than Total Call Hurdle
Value; or
(ii) the sum of (a) the BCP Contribution, (b) the BCP Call
Hurdle Profit, (c) 30% of Excess Value One, if any and (d) 15% of Excess Value
Two, if any, if Total Equity Value is greater than the Total Call Hurdle Value.
2.4 Put Option Exercise Price. The Put Option Exercise Price
shall be determined as of the Exercise Date and shall be equal to:
(i) Adjusted Total Equity Value, if Adjusted Total Equity Value
is equal to or less than Adjusted BCP Contribution;
(ii) Adjusted BCP Contribution plus the product of (a) Adjusted
Total Equity Value minus Adjusted BCP Contribution and (b) the ratio of the BCP
Put Hurdle Profit to the sum of (1) BCP Put Hurdle Profit and (2) Loewen Accrued
Preferred Dividends, if Adjusted Total Equity Value is greater than Adjusted BCP
Contribution but less than or equal to the sum of (x) Adjusted BCP Contribution,
(y) Loewen Accrued Preferred Dividends and (z) BCP Put Hurdle Profit;
(iii) Adjusted BCP Contribution plus BCP Put Hurdle Profit, if
Adjusted Total Equity Value is greater than the sum of (a) Adjusted BCP
Contribution, (b) BCP Put Hurdle Profit and (c) Loewen Accrued Preferred
Dividends, but equal to or less than the sum of (v) Adjusted BCP Contribution,
(w) BCP Put Hurdle Profit, (x) LGII Common Contribution, (y) Loewen Preferred
Contribution and (z) Loewen Accrued Preferred Dividends;
(iv) Total Equity Value less the LGII Common Contribution, if
Adjusted Total Equity Value is greater than the sum of (a) Adjusted BCP
Contribution, (b) BCP Put Hurdle Profit, (c) LGII Common Contribution, (d)
Loewen Preferred Contribution and (e) Loewen Accrued Preferred Dividends but
equal to or less than the sum of (u) Adjusted BCP Contribution, (v) BCP Put
Hurdle Profit, (w) LGII Common Contribution, (x) Loewen Preferred Contribution,
(y) Loewen Accrued Preferred Dividends and (z) $15 million;
<PAGE>
18
(v) BCP Contribution plus BCP Put Hurdle Profit, if Total Equity
Value is greater than BCP Contribution plus BCP Put Hurdle Profit plus LGII
Common Contribution but less than Total Put Hurdle Value; or
(vi) BCP Contribution plus BCP Put Hurdle Profit plus 30% of
Excess Value One plus 15% of Excess Value Two, if Total Equity Value is greater
than Total Put Hurdle Value;
provided, however, that if (x) the ASA becomes terminable by RHAC for any reason
(other than as a result of a rejection of the ASA following a bankruptcy event
involving RHAC) or (y) LGII replaces its designees on the board of directors of
Holdings without the consent of BCP (which consent shall not be unreasonably
withheld), then the Put Option Exercise Price shall equal the greater of (a) the
amount determined by applying the applicable formula set forth above or (b) the
sum of the BCP Put Hurdle Profit and the BCP Contribution.
ARTICLE III
CALCULATION OF OPTION PRICE
3.1 Calculation of Creation Price and Acquisition Creation
Price. (a) Within 60 days of the Closing Date, the Stockholders shall cause the
chief financial officer of Holdings to calculate the Creation Price and provide
to the Stockholders his written certification of his calculation of such amount.
Unless the amount so calculated is disputed by any Stockholder by written notice
given to the other Stockholders within 30 days of its being so certified,
subject to Section 7.1, it shall be final and binding on the parties in
calculating the Relevant Creation Multiple. If such amount is so disputed by
written notice as aforesaid, such dispute shall be resolved in accordance with
Section 3.5(b), and the resolution process thereby provided shall determine the
Creation Price which shall, subject to Section 7.1, be final and binding on the
parties in calculating the Relevant Creation Multiple.
(b) As early as practicable prior to the closing date of any
Acquisition involving Contributed Properties acquired pursuant to a Contribution
Agreement, the Stockholders shall cause the chief financial officer of Holdings
to calculate the Acquisition Creation Price and the Cumulative Creation Price
with respect to such Acquisition (including the related Minimum Put Multiple and
Weighted Minimum Put Multiple) and provide to the Stockholders his written
certification of his calculation of such amounts. Unless the amounts so
calculated are disputed by any Stockholder by written notice given to the other
Stockholders within 30 days of its being so certified, they shall, subject to
Section 7.1, be final and binding on the parties in calculating the Adjusted
Call Creation Multiple and the Adjusted Put Creation Multiple. If any such
amount is so disputed by written notice as aforesaid, such dispute shall be
resolved in accordance with Section 3.5(b), and the resolution process thereby
provided shall determine the Acquisition Creation Price and the Cumulative
Creation Price, in respect of such Acquisition, which shall, subject to Section
7.1, be final and binding on the parties for purposes of the relevant
Contribution Agreement and in calculating the Adjusted Call Creation Multiple
and the Adjusted Put Creation Multiple (including the
<PAGE>
19
related Minimum Put Multiple and Weighted Minimum Put Multiple) in respect of
such Acquisition.
(c) Within 60 days of the consummation of any Acquisition that
does not involve Contributed Properties acquired pursuant to a Contribution
Agreement, the Stockholders shall cause the chief financial officer of Holdings
to calculate the Acquisition Creation Price and the Cumulative Creation Price
with respect to such Acquisition and provide to the Stockholders his written
certification of his calculation of such amounts. Unless the amounts so
calculated are disputed by any Stockholder by written notice given to the other
Stockholders within 30 days of its being so certified, they shall, subject to
Section 7.1, be final and binding on the parties in calculating the Adjusted
Call Creation Multiple and the Adjusted Put Creation Multiple (including the
related Minimum Put Multiple and Weighted Minimum Put Multiple). If any such
amount is so disputed by written notice as aforesaid, such dispute shall be
resolved in accordance with Section 3.5(b), and the resolution process thereby
provided shall determine the Acquisition Creation Price and the Cumulative
Creation Price, in respect of such Acquisition, which shall, subject to Section
7.1, be final and binding on the parties in calculating the Adjusted Call
Creation Multiple and the Adjusted Put Creation Multiple in respect of such
Acquisition (including the related Minimum Put Multiple and Weighted Minimum Put
Multiple).
3.2 Calculation of Pro Forma EBITDA for the Entry Relevant
Period and Creation Multiple. (a) Within 90 days of the end of each of 1997 and
1998, the Stockholders shall cause the chief financial officer of Holdings to
calculate Holdings' EBITDA for the calendar year then ended and provide to the
Stockholders his written certification of his calculation of such amount. Unless
the amount so calculated is disputed by any Stockholder by written notice given
to the other Stockholders within 30 days of its being so certified, it shall,
subject to Section 7.1, be final and binding on the parties in calculating Pro
Forma EBITDA for the Entry Relevant Period. If such amount is so disputed by
written notice as aforesaid, such dispute shall be resolved in accordance with
Section 3.5(b), and the resolution process thereby provided shall determine
EBITDA for 1997 and/or 1998, as the case may be, which amount shall subject to
Section 7.1, be final and binding on the parties in calculating Pro Forma EBITDA
for the Entry Relevant Period.
(b) Within 30 days of the determination of EBITDA for calendar
1998, the Stockholders shall cause the chief financial officer of Holdings to
calculate Pro Forma EBITDA for the Entry Relevant Period and the Call Creation
Multiple and the Put Creation Multiple and provide to the Stockholders his
written certification of his calculation of such amounts. Unless the amounts so
calculated are disputed by any Stockholder by written notice given to the other
Stockholders within 30 days of their being so certified, they shall, subject to
Section 7.1, be final and binding on the parties. If such amounts are so
disputed by written notice as aforesaid, such dispute shall be resolved in
accordance with Section 3.5(b), and the resolution process thereby provided
shall determine the Pro Forma EBITDA for the Entry Relevant Period and the Call
Creation Multiple and the Put Creation Multiple, which shall, subject to Section
7.1, be final and binding on the parties.
<PAGE>
20
3.3 Calculation of Pro Forma Acquisition EBITDA for the Entry
Relevant Period. (a) Within 90 days of the end of the first full twelve calendar
month period after the consummation of an Acquisition, the Stockholders shall
cause the chief financial officer of Holdings to calculate the Acquisition
EBITDA with respect to such Acquisition for such twelve calendar month period
and provide to the Stockholders his written certification of his calculation of
such amount. Unless the amount so calculated is disputed by any Stockholder by
written notice given to the other Stockholders within 30 days of its being so
certified, it shall, subject to Section 7.1, be final and binding in calculating
Pro Forma Acquisition EBITDA for the Entry Relevant Period. If such amount is so
disputed by written notice as aforesaid, such dispute shall be resolved in
accordance with Section 3.5(b), and the resolution process thereby provided
shall determine Acquisition EBITDA for such twelve calendar month period, which
amount shall, subject to Section 7.1, be final and binding on the parties in
calculating Pro Forma Acquisition EBITDA for the Entry Relevant Period.
(b) Within 90 days of the end of the second full twelve
calendar month period after the consummation of an Acquisition but in no event
later than 45 days after the Notification Date (or, in the case of an
Acquisition consummated after the date that is 24 months prior to the end of the
Exit Relevant Period, within 45 days after the Notification Date), the
Stockholders shall cause the chief financial officer of Holdings to calculate
the Acquisition EBITDA with respect to such Acquisition and provide to
Stockholders, no later than 45 days after the Notification Date, his written
certification of his calculation of such amount. Unless the amount so calculated
is disputed by any Stockholder by written notice given to the other Stockholders
within 30 days of its being so notified but in no event later than 60 days after
the Notification Date, it shall, subject to Section 7.1, be final and binding in
calculating Pro Forma Acquisition EBITDA for the Entry Relevant Period. If such
amount is so disputed by written notice as aforesaid, such dispute shall be
resolved in accordance with Section 3.5(b), and the resolution process thereby
provided shall determine Acquisition EBITDA for such twelve month period or the
Remaining Period, as applicable, which amount shall, subject to Section 7.1, be
final and binding on the parties in calculating Pro Forma Acquisition EBITDA for
the Entry Relevant Period.
3.4 Calculation of EBITDA for the Exit Relevant Period. As
promptly as practicable following the Notification Date, the Stockholders shall
cause the chief financial officer of Holdings to calculate EBITDA for the Exit
Relevant Period and provide to the Stockholders, no later than 45 days after the
Notification Date, his written certification of his calculation of such amount.
Unless the amount so calculated is disputed by any Stockholder by written notice
given to the other Stockholders within 15 days of its being so certified, it
shall, subject to Section 7.1, be final and binding on the parties in
calculating EBITDA for the Exit Relevant Period. If such amount is so disputed
by written notice as aforesaid, such dispute shall be resolved in accordance
with Section 3.5(b), and the resolution process thereby provided shall determine
EBITDA for the Exit Relevant Period, which amount shall, subject to Section 7.1,
be final and binding on the parties in calculating Total Enterprise Value.
3.5 Access to Information; Resolution of Disputes;
Miscellaneous. (a) Each Stockholder and its representatives shall have full
access to the books and records of Holdings and its subsidiaries, and Loewen
shall cause Holdings, the BCP Entities and their respective
<PAGE>
21
advisors to be provided with full access to the books and records of any funeral
homes or cemeteries that are to be Contributed Properties, in connection with
any calculation made pursuant to this Article III. The parties hereby agree to
cause Holdings, and Loewen agrees with respect to any such proposed Contributed
Properties, to instruct the relevant auditors to make their work papers
available for review in this regard, and the Stockholders hereby waive any
objection which such Stockholder may raise with respect thereto, and Loewen
hereby waives and shall cause any relevant Affiliates to waive any objection
which they may raise with respect thereto. The fees and expenses of the
Stockholders' representatives shall be paid by Holdings.
(b) In the event any Stockholder disputes any amount
calculated by the chief financial officer of Holdings and gives timely notice of
such dispute as described above, the Stockholders shall negotiate in good faith
as promptly as practicable. In the event such dispute is not resolved within 14
days of the giving of notice of such dispute, the parties shall promptly engage
as "Arbitrator" a "big six" accounting firm (which shall not be KPMG Peat
Marwick or Deloitte & Touche LLP or Holdings' or LWN's then existing auditors)
to reach a final determination of the amount whose calculation is in dispute.
The fees of the Arbitrators shall be shared equally between BCP collectively and
LGII, and the Arbitrator shall render its decision within 21 days of its
engagement for such purpose.
(c) The Acquisition EBITDA, the Acquisition Creation Price,
the Acquisition Creation Multiple, the Cumulative Creation Price, the Pro Forma
Acquisition EBITDA for the Entry Relevant Period, the Adjusted Call Creation
Multiple, the Adjusted Put Creation Multiple, the Minimum Put Multiple, the
Weighted Minimum Put Multiple, and the Relevant Creation Multiple and any other
relevant components potentially relevant to the Option Price shall be calculated
in respect of each Acquisition made by RHC, and the amounts so calculated shall
be deemed to have been calculated and be in effect immediately following
consummation of the relevant Acquisition regardless of when the actual
calculation of each such item is finally completed.
(d) By way of illustration, the "Illustrative Scenarios"
attached to this Agreement reflect the distribution order in a call or put
scenario pursuant to the formula described herein.
ARTICLE IV
DETERMINATION OF OPTION CONSIDERATION; CERTAIN CONDITIONS
4.1 Option Consideration. (a) (i) LGII may use for payment of
the Option Price (either in whole or in part) payable to the BCP Entities under
the Call Option or the Put Option either cash or, subject to the conditions of
Section 4.2, Loewen Common Stock, provided, however, that if the number of
shares of Loewen Common Stock deliverable to BCP under this Agreement, when
aggregated with the number of shares of Loewen Common Stock, if any, previously
delivered to BCP in connection with any earlier exercise of the call option or
the put option under the Put/Call Agreement relating to the acquisition of Prime
<PAGE>
22
Succession, Inc. which were not sold for cash as a result of the exercise of the
BCP Liquidity Right described therein, would equal or exceed 25% of the
outstanding shares of Loewen Common Stock as of the Exercise Date, then the
delivery of Loewen Common Stock in payment of the Option Price hereunder shall
require the prior written consent of BCP. If Loewen Common Stock is to be
issued, LWN shall notify BCP within 15 days of the Notification Date of the
percentage of the Option Price payable to the BCP Entities to be paid in Loewen
Common Stock. The number of shares of Loewen Common Stock issuable to BCP on the
Exercise Date will be calculated as follows.
(ii) If BCP notifies LWN within 30 days of the Notification Date
of its desire promptly to sell the shares of Loewen Common Stock received in
full or partial payment of the Option Price, then LWN will, on behalf of LGII,
issue for the account of BCP, and will undertake for the benefit of BCP to
effectuate the sale of, such number of shares of Loewen Common Stock as would,
upon consummation of such sale, yield net cash proceeds to BCP equal to the
portion of the Option Price that would have otherwise been paid in cash to the
BCP Entities (such notification by BCP together with the sale of Loewen Common
Stock for such purpose being referred to as the "BCP Liquidity Right").
(iii) LWN shall, on behalf of LGII, bear all Registration Expenses
in connection with such issuance and sale (including the entire amount of any
and all underwriters' discounts and commissions) and provide customary and
appropriate undertakings (including hereof indemnification of BCP to the same
extent provided in Section 5.4) in connection with such issuance and sale. If
such net cash proceeds have not been paid to BCP on the Exercise Date, the
closing of the Option shall be in escrow pending receipt of such proceeds by
BCP. Any delay in remitting net cash proceeds to BCP beyond the 90th day after
the date on which BCP notifies LWN of its desire to exercise the BCP Liquidity
Right shall require a "grossing up" (through the issuance of additional shares)
of the net cash proceeds required to be received so as to reflect an implied
interest component (accruing from such 90th day to the date of actual payment to
BCP) at the rate of 10% per annum. If net cash proceeds have not been received
by BCP within 180 days after the date on which BCP notifies LWN of its desire to
exercise the BCP Liquidity Right, LGII shall be required to pay the Option Price
wholly in cash on such 180th day.
(b) If BCP does not invoke the BCP Liquidity Right as
described in paragraph (a) above with respect to the entire portion of the
Option Price payable to BCP in Loewen Common Stock, the number of shares
issuable to BCP in respect of the non-cash portion of the Option Price will be
based on the Market Value of the Loewen Common Stock. In this regard, LWN agrees
(i) to make an appropriate public announcement no later than the commencement of
such 30 trading day period with regard to the pending issuance of Loewen Common
Stock to BCP on the Exercise Date, and (ii) during the period commencing at the
beginning of such 30 trading day period and through the Exercise Date, not to
take any corporate action (other than the declaration or payment of a regular
dividend) in respect of combining the outstanding shares of Loewen Common Stock,
including combining its outstanding shares into a smaller number of shares or
issuing rights or warrants to stockholders of record on a date prior to the
Exercise Date.
<PAGE>
23
4.2 Conditions to Issuance of Loewen Common Stock. The ability
of LGII and LWN to issue Loewen Common Stock in lieu of LGII paying the Option
Price to BCP in cash is subject to the satisfaction, on or before the Exercise
Date, of each of the following conditions:
(a) The representations and warranties of LWN, LGII and RDI
set forth in Sections 6.1 and 6.2 hereof shall be true and correct in all
material respects when made and shall be true and correct in all material
respect at and as of the Exercise Date.
(b) LWN, LGII and RDI shall have performed and complied in all
material respects with all agreements, covenants and conditions contained herein
which are required to be performed or complied with by it on or before the
Exercise Date.
(c) BCP shall have received a certificate, dated the Exercise
Date and signed by a principal executive officer of LWN, certifying that the
conditions set forth in Sections 4.2(a) and 4.2(b) are satisfied on and as of
such date.
(d) LWN shall have provided BCP with a legal opinion from
counsel reasonably satisfactory to BCP with respect to matters customarily
covered in connection with the issuance of shares to a private investor, and
such option shall be reasonably satisfactory in form and substance to BCP and
its counsel.
(e) The receipt of the Option Shares by BCP shall not have
been enjoined (temporarily or permanently) as of the Exercise Date or be
prohibited by any applicable law or governmental regulation.
(f) All proceedings taken in connection with the issuance and
delivery of the Option Shares and all documents and papers relating thereto
shall be reasonably satisfactory to BCP. BCP shall have received copies of such
documents and papers as it may reasonably request in connection therewith, all
in form and substance reasonably satisfactory to it.
(g) Since the Notification Date, there shall not have been any
material adverse change in the general affairs, management, financial position,
shareholders' equity or results of operations of LWN and its subsidiaries taken
as a whole.
(h) No "Default" as described in Sections 8.6 or 8.7 of the
credit agreement dated as of May 15, 1996 among LWN, LGII and the lenders named
therein (in the form thereof on the date hereof) shall have occurred since the
date of this Agreement.
ARTICLE V
REGISTRATION RIGHTS
5.1 Incidental Registration. (a) Right to Include
Registrable Securities. Following the issuance of Loewen Common Stock to BCP
pursuant to Section 4.1(b), each
<PAGE>
24
time LWN proposes to register Loewen Common Stock under the Securities Act
(other than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own account,
pursuant to a registration statement on which it is permissible to register
Registrable Securities for sale to the public under the Securities Act, it will
give prompt written notice to all Holders of its intention to do so and of the
Holders' rights under this Section 5.1(a). Upon the written request of any
Holder made within 30 days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder), LWN will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which LWN has been so requested to
register by the Holders thereof; provided that (i) if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, LWN shall determine for any reason not to proceed with the
proposed registration, LWN may, at its election, give written notice of such
determination to each Holder and thereupon shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), and (ii) if such registration involves an underwritten offering by
LWN (underwritten, at least in part, by Persons who are not Affiliates of LWN),
all Holders requesting to have Registrable Securities included in LWN's
registration must sell their Registrable Securities to such underwriters who
shall have been selected by LWN on the same terms and conditions as apply to
LWN, with such differences, including any with respect to indemnification and
contribution, as may be customary or appropriate in combined primary and
secondary offerings. If a proposed registration pursuant to this Section 5.1(a)
involves such an underwritten public offering, any Holder making a request under
this Section 5.1(a) in connection with such registration may elect in writing,
prior to the effective date of the registration statement filed in connection
with such registration, to withdraw such request and not to have such securities
registered in connection with such registration.
(b) Expenses. LWN will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 5.1(a), regardless of whether such registration statement
becomes effective, and each Holder shall pay the Holders' Portion, if any, of
all underwriting discounts and commissions relating to the sale or disposition
of such Holder's Registrable Securities pursuant to a registration statement
effected pursuant to this Section 5.1(a).
(c) Priority in Incidental Registrations. If a registration
pursuant to this Section 5.1 involves an underwritten offering by LWN (as
described in Section 5.1(a)(ii)) and the managing underwriter with respect to
such offering advises LWN in writing that, in its opinion, the number of
securities (including all Registrable Securities) which LWN, the Holders and any
other persons intend to include in such registration exceeds the largest number
of securities which can be sold in such offering without having an adverse
effect on the offering of securities as contemplated by LWN (including the price
at which LWN proposes to sell such securities), then LWN will include in such
registration (i) first, all the securities LWN proposes to sell for its own
account, (ii) second, the number of Registrable Securities which the Holders
have requested to be included in such registration and which, in the opinion of
such managing underwriter, can be sold without having the adverse effect
<PAGE>
25
referred to above, such reduced number of Registrable Securities to be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any shares thereby allocated to any such Holder that exceed such Holder's
request will be reallocated among the remaining requesting Holders in like
manner).
(d) Custody Agreement and Power of Attorney. Upon LWN's
request, any Holder will execute and deliver a custody agreement and power of
attorney in form and substance reasonably satisfactory to LWN with respect to
the shares of Loewen Common Stock to be registered pursuant to this Section 5.1
(a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power
of Attorney will provide, among other things, that the Holder will deliver to
and deposit in custody with the custodian and attorney-in-fact named therein a
certificate or certificates representing such shares of Loewen Common Stock
(duly endorsed in blank by the registered owner or owners thereof or accompanied
by duly executed stock powers in blank) and irrevocably appoint said custodian
and attorney-in-fact as the Holder's agent and attorney-in-fact with full power
and authority to act under the Custody Agreement and Power of Attorney on the
Holder's behalf with respect to the matters specified therein.
(e) Other Agreements. Each Holder agrees that it will
execute such other agreements as LWN may reasonably request to further
accomplish the purposes of this Section 5.1.
5.2 Registration on Request. (a) Request by Holders. Upon the
written request of any Holder or Holders owning at least 20% of the Registrable
Securities that are subject to this Agreement, requesting that LWN effect the
registration under the Securities Act of all or part of such Holder's or
Holders' Registrable Securities (which Registrable Securities requested to be
registered have an aggregate Market Value as of the date of such request of not
less than $50 million), and specifying the intended method of disposition
thereof, LWN will promptly give written notice of such requested registration to
all other Holders, and thereupon will, as expeditiously as possible, use its
best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which LWN has been so
requested to register by such Holder or Holders; and
(ii) all other Registrable Securities which LWN has been
requested to register by any other Holder thereof by written request
given to LWN within 30 days after the giving of such written notice by
LWN (which request shall specify the intended method of disposition of
such Registrable Securities),
so as to permit the disposition (in accordance with the Holders' intended method
thereof) of the Registrable Securities so to be registered; provided, that LWN
shall not be obligated to file a registration statement relating to any
registration request under this Section 5.2(a)(i) within a period of one year
after the effective date of any other registration statement relating to (A) any
registration request under this Section 5.2(a) or (B) any registration effected
under
<PAGE>
26
Section 5.1, or (ii) if three registration statements relating to registration
requests under this Section 5.2(a) have previously been filed and declared
effective by the SEC.
(b) Expenses. LWN will pay all Registration Expenses in
connection with the first three registrations of Registrable Securities pursuant
to this Section 5.2 upon the written request of any of the Holders, and each
Holder shall pay the Holders' Portion, if any, of the underwriting discounts and
commissions relating to the sale or disposition of such Holder's Registrable
Securities pursuant to a registration statement effected pursuant to this
Section 5.2. All expenses for any subsequent registrations of Registrable
Securities pursuant to this Section 5.2 shall be paid pro rata by all Persons
(including the Holders and LWN) participating in such registration on the basis
of the relative number of shares of Loewen Common Stock of each such Person
included in such registration.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 5.2 will not be deemed to have been effected unless it
has become effective; provided, that if, within the period ending on the earlier
to occur of (i) 180 days after the applicable registration statement has become
effective, or (ii) the date on which the distribution of the Registrable
Securities covered thereby has been completed, the offering of Registrable
Securities pursuant to such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court, such registration will be deemed not to have been effected.
(d) Selection of Underwriters. If a requested registration
pursuant to this Section 5.2 involves an underwritten offering, the Holders of a
majority of the Registrable Securities which have requested inclusion in such
registration shall have the right to select the investment banker or bankers and
managers to administer the offering; provided, however, that such investment
banker or bankers and managers shall be reasonably satisfactory to LWN; provided
further, that if LWN is including shares of Loewen Common Stock in such
registration statement, LWN shall have the right to select such bankers or
managers.
(e) Priority in Requested Registrations. If a requested
registration pursuant to this Section 5.2 involves an underwritten offering and
the managing underwriter advises LWN in writing that, in its opinion, the number
of securities requested to be included in such registration (including
securities of LWN which are not Registrable Securities) exceeds the largest
number of securities which can be sold in such offering, LWN will include in
such registration only the Registrable Securities requested to be included in
such registration. In the event that the number of Registrable Securities
requested to be included in such registration exceeds the number which, in the
opinion of such managing underwriter, can be sold, the number of such
Registrable Securities to be included in such registration shall be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any shares thereby allocated to any such Holder that exceed such Holder's
request shall be reallocated among the remaining requesting Holders in like
manner). In the event that the number of Registrable Securities requested to be
included in such registration is less than the number which, in the opinion of
the managing underwriter, can be sold, LWN may include in such registration the
<PAGE>
27
securities LWN proposes to sell up to the number of securities that, in the
opinion of the managing underwriter, can be sold.
5.3 Registration Procedures. If and whenever, LWN is required
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, LWN will, as
expeditiously as possible:
(a) prepare and, if the registration is pursuant to notice
given under Section 5.2(a), in any event within 45 days after the
giving of notice pursuant to Section 5.2(a), file with the SEC a
registration statement with respect to such Registrable Securities on
any form for which LWN then qualifies or which counsel for LWN shall
deem appropriate, and which form shall be available for the sale of the
Registrable Securities in accordance with the intended methods of
distribution thereof, and use its best efforts to cause such
registration statement to become and remain effective; provided,
however, that LWN may discontinue any registration of its securities
which is being effected pursuant to Section 5.2 at any time prior to
the effective date of the registration statement relating thereto;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of 180 days or such lesser period of
time as LWN or any Holder may be required under the Securities Act to
deliver a prospectus in connection with any sale of Registrable
Securities, and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the Holder or Holders thereof set
forth in such registration statement; provided, that before filing a
registration statement or prospectus, or any amendments or supplements
thereto, LWN will furnish to the Holders and their counsel copies of
all documents proposed to be filed, which documents will be subject to
the review of such counsel and will not be filed if such counsel
reasonably objects;
(c) furnish to each Holder of such Registrable Securities such
number of copies of such registration statement and of each amendment
and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and summary prospectus
and prospectus supplement, as applicable), in conformity with the
requirements of the Securities Act, and such other documents as such
Holder may reasonably request in order to facilitate the disposition of
the Registrable Securities by such Holder;
(d) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as each
Holder shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
Holder to consummate the disposition in such jurisdictions of the
Registrable Securities owned
<PAGE>
28
by such Holder, except that LWN shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this Section
5.3(d), it would not be obligated to be so qualified, to subject itself
to taxation in any such jurisdiction, or to consent to general service
of process in any such jurisdiction;
(e) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holder or Holders thereof to consummate the
disposition of such Registrable Securities;
(f) notify each Holder of any such Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 5.3(b), of LWN's
becoming aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, and at the request of any
such Holder, prepare and furnish to such Holder a reasonable number of
copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable (but not more than
eighteen months) after the effective date of the registration
statement, an earnings statement which shall satisfy the provisions of
Section 11(a) of the Securities Act and the rules and regulations
promulgated thereunder;
(h) use its best efforts to cause all such Registrable
Securities to be listed on any securities exchange on which the Loewen
Common Stock is then listed, if such Registrable Securities are not
already so listed and if such listing is then permitted under the rules
of such exchange, and to provide a transfer agent and registrar for
such Registrable Securities covered by such registration statement no
later than the effective date of such registration statement;
(i) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
as sellers of a majority of shares of such Registrable Securities or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities, including
making appropriate members of senior management of LWN available for
customary participation in a "road show" presentation to potential
investors;
<PAGE>
29
(j) obtain a "cold comfort" letter or letters from LWN's
independent public accountants in customary form and covering matters
of the type customarily covered by "cold comfort" letters as the Holder
or Holders of a majority of the shares of such Registrable Securities
shall reasonably request (provided that Registrable Securities
constitute at least 25% of the securities covered by such registration
statement); and
(k) make available for inspection by representatives of the
Holders of the Registrable Securities covered by such registration
statement, by any underwriter participating in any disposition to be
effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by such Holders or any such
underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of LWN, and cause all of LWN's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
LWN may require each Holder of Registrable Securities as to
which any registration is being effected to furnish LWN with such information
regarding such Holder and pertinent to the disclosure requirements relating to
the registration and the distribution of such securities as LWN may from time to
time reasonably request in writing.
Each Holder of Registrable Securities agrees that, upon
receipt of any notice from LWN of the happening of any event of the kind
described in Section 4(f), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4(f), and, if so
directed by LWN, such Holder will deliver to LWN (at LWN's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event LWN shall give any such notice, the period
mentioned in Section 5.3(b) shall be extended by the number of days during the
period from the date of the giving of such notice pursuant to Section 5.3(f) and
through the date when each seller of Registrable Securities covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 5.3(f).
5.4 Indemnification. (a) Indemnification by LWN. In the event
of any registration of any securities of LWN under the Securities Act pursuant
to Section 5.1 or 5.2, LWN hereby indemnifies and agrees to hold harmless, to
the extent permitted by law, each Holder of Registrable Securities covered by
such registration statement, each affiliate of such Holder and their respective
directors and officers or general and limited partners (and the directors,
officers, affiliates and controlling Persons thereof), each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such Holder or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses to which such Indemnified Party may become subject under
the Securities Act, common law or otherwise, insofar as such losses, claims,
damages
<PAGE>
30
or liabilities (or actions or proceedings in respect thereof, whether or not
such Indemnified Party is a party thereto) arise out of or are based upon (a)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (b) any omission or alleged
omission to state therein a material fact necessary to make the statements made,
in the light of the circumstances under which they were made, not misleading,
and LWN will reimburse such Indemnified Party for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, liability, action or proceeding; provided, that LWN shall not be
liable to any Indemnified Party in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
in any such preliminary, final or summary prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with written information
with respect to such Indemnified Party furnished to LWN by such Indemnified
Party for use in the preparation thereof; and provided, further, that LWN will
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, under the indemnity
agreement in this Section 5.4(a) with respect to any preliminary prospectus or
the final prospectus or the final prospectus as amended or supplemented, as the
case may be, to the extent that any such loss, claim, damage or liability of
such underwriter or controlling Person results from the fact that such
underwriter sold Registrable Securities to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final prospectus (including any documents incorporated by reference therein) or
of the final prospectus as then amended or supplemented (including any documents
incorporated by reference therein), whichever is most recent, if LWN has
previously furnished copies thereof to such underwriter. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or any Indemnified Party and shall survive the transfer of
such securities by such Holder.
(b) Indemnification by the Holders and Underwriters. LWN may
require, as a condition to including any Registrable Securities in any
registration statement filed in accordance with Section 5.1 or 5.2 herein, that
LWN shall have received an undertaking reasonably satisfactory to it from the
prospective Holder of such Registrable Securities or any underwriter to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 5.4(a)) LWN, all other prospective Holders or any underwriter,
as the case may be, and any of their respective affiliates, directors, officers
and controlling Persons, with respect to any statement or alleged statement in
or omission or alleged omission from such registration statement, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
with respect to such Holder or underwriter furnished to LWN by such Holder or
underwriter expressly for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing. Such indemnity
shall remain in full force and effect regardless of any
<PAGE>
31
investigation made by or on behalf of LWN or any of the Holders, or any of their
respective affiliates, directors, officers or controlling Persons and shall
survive the transfer of such securities by such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5.4, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the failure of the
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under Sections 5.4(a) or 5.4(b), except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party will be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. If, the
indemnified party has been advised by counsel that having common counsel would
result in a conflict of interest between the interests of such indemnified and
indemnifying parties, then such indemnified party may employ separate counsel
reasonably acceptable to the indemnifying party to represent or defend such
indemnified party in such action, it being understood, however, that the
indemnifying party shall not be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties (and not more than one separate firm of local counsel at any time for
all such indemnified parties) in such action. No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that
specified in this Section 5.4 (with appropriate modifications) shall be given by
LWN and each Holder of Registrable Securities with respect to any required
registration or other qualification of securities under any federal or state law
or regulation or governmental authority other than the Securities Act.
(e) Contribution. If recovery is not available under the
foregoing indemnification provisions of this Section 5 for any reason other than
as expressly specified therein, the parties entitled to indemnification by the
terms thereof shall be entitled to contribution to liabilities and expenses
except to the extent that contribution is not permitted under Section 11(f) of
the Securities Act. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities (taking
into account the portion of
<PAGE>
32
the proceeds realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any misstatement or omission and any
other equitable considerations appropriate under the circumstances.
(f) Non-Exclusivity. The obligations of the parties under this
Section 5 shall be in addition to any liability which any party may otherwise
have to any other party.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of All Parties. LWN, LGII,
RDI and each Stockholder represents and warrants, on a joint and several basis
in the case of LWN, LGII and RDI and on a several and not joint basis in the
case of the Stockholders, as follows:
(a) This Agreement has been duly executed and delivered by such Person
and constitutes the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with the terms hereof except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity; and
(b) The execution and delivery of this Agreement by such Person does
not, and the performance by it of its obligations under this Agreement will not,
violate, conflict with or constitute a breach of, or a default under, any
material agreement, indenture or instrument to which such Person is a party or
which is binding on such Person, and will not result in the creation of any lien
on, or security interest in, any of the assets of such Person.
6.2 Representations and Warranties of LGII, RDI and LWN. LGII,
RDI and LWN jointly and severally represent and warrant to the BCP Entities as
follows:
(a) The Option Shares have been or will be, prior to issuance,
duly authorized and, when such shares are issued, delivered and paid for on the
Exercise Date, will be validly issued and outstanding, fully paid and
nonassessable shares of capital stock of LWN, with no personal liability
attached to the ownership thereof; and the holders of the outstanding stock are
not entitled to preemptive or other rights to subscribe for such shares.
(b) Neither the issuance of the Option Shares nor their sale
in connection with the exercise of the BCP Liquidity Option nor the consummation
of any other of the transactions contemplated in this Agreement, nor the
fulfillment of the terms of this Agreement, will conflict with, result in a
breach of or constitute a default under the terms of the certificate of
incorporation or similar organizational document or bylaws of LWN, LGII or RDI
or of any material agreement, indenture or instrument to which LWN, LGII or RDI
is a party or is bound, or any order or regulation applicable to LWN, LGII or
RDI of any court,
<PAGE>
33
regulatory body, administrative agency or governmental body having jurisdiction
over LWN, LGII or RDI.
(c) No consent, approval or authorization of, or filing,
registration or qualification with, any court, governmental, administrative or
judicial authority or regulatory body will be, as of the Exercise Date, required
on the part of LWN, LGII or RDI for the valid authorization, issuance, sale and
delivery of the Option Shares or for the execution, delivery and performance of
this Agreement other than those which have been duly obtained or made.
(d) As of the Exercise Date, there will be no action or
proceeding or investigation pending or, to the best knowledge of LWN, LGII and
RDI, threatened against LWN, LGII or RDI or any of their subsidiaries which, if
determined adversely could adversely affect the consummation of the transactions
contemplated by this Agreement. There are no actions or proceedings challenging
or seeking to restrain, materially limit or prohibit the consummation of the
transactions contemplated hereby.
(e) On or prior to the beginning of the 20 trading day period
ending on the third calendar day prior to the Exercise Date, the Loewen Common
Stock will have been duly registered under Section 12 of the Securities Exchange
Act of 1934, and the Option Shares will be listed on the New York Stock Exchange
or designated for inclusion in NASDAQ National Market System, as the case may
be, and such registration and listing or designation shall remain in effect
through the later of the Exercise Date or the date shares of Loewen Common Stock
issued for the account of BCP are sold for BCP's account.
6.3 Representations and Warranties of BCP and RHIM. Each of
the BCP Entities and RHIM severally and not jointly represent and warrant to
LWN, LGII and RDI as follows:
(a) On the Exercise Date, each of the BCP Entities and RHIM
will have good and valid title to the shares of Common Stock owned by each of
them, free and clear of all liens, encumbrances, equities and claims.
(b) No consent, approval or authorization of, or filing,
registration or qualification with, any court, governmental, administrative or
judicial authority or regulatory body will be, as of the Exercise Date, required
on the part of any of the BCP Entities or RHIM for the valid sale and delivery
of the BCP Common Stock and the RHIM Common Stock to LGII as contemplated
herein.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Calculation of EBITDA. (a) At any time that RHC's
EBITDA is calculated pursuant to this Agreement, such calculation shall be
prepared in accordance with
<PAGE>
34
the accounting practices of Mortuary and the Association in effect on the
Closing Date, without giving effect to any modifications to such accounting and
business practices made subsequent to the Closing Date, regardless of whether
such modifications were made pursuant to the promulgation of rules, regulations
or statutes applicable to RHC, changes in GAAP or otherwise provided, however,
that EBITDA for the Entry Relevant Period shall be adjusted to reflect payment
of property taxes and non-consolidation of the Endowment Care Fund as a result
of RHC's for-profit status.
(b) In the event that the ASA is terminated or reduced in
scope prior to the Exercise Date, then Pro Forma EBITDA for the Entry Relevant
Period will be restated to reflect the incremental expense RHC would have
incurred in fiscal years 1997 and 1998 had the ASA not been in place during
those years or had been in place but only on a comparably reduced scope basis,
as the case may be.
(c) Notwithstanding paragraph (a) above and regardless of
proper GAAP accounting, in the event payments pursuant to the long term
incentive plan for RHC management are due on or as a result of the exercise of
an Option, such payments will be expensed on a straight line basis from the
Closing Date to the Exercise Date for purposes of computing Pro Forma EBITDA for
the Entry Relevant Period and EBITDA for the Exit Relevant Period.
(d) To the extent any Acquisitions are consummated during 1997
or 1998, in calculating Pro Forma EBITDA for the Entry Relevant Period, EBITDA
shall be calculated on a pro forma basis to exclude the Acquisition EBITDA
attributable to such Acquisitions. In calculating EBITDA and Acquisition EBITDA
for any period, all overhead charges shall be allocated among Rose Hills and the
Satellite Properties, on the one hand, and the various businesses acquired in
the relevant Acquisition or Acquisitions, on the other hand, based on their
relative total net sales during the relevant period.
(e) Notwithstanding anything to the contrary contained herein,
EBITDA shall not include any nonrecurring income or expense or any impact or any
earnings attributable to the withdrawal of all or part of any reserve
established or in existence in connection with any trust fund maintained by RHC.
(f) Notwithstanding anything contained herein to the contrary,
in the event there are any year to year increases in the aggregate lease expense
associated with the Satellite Properties that are in excess of a rate per annum
of 5%, such "excess" increase in lease expense shall be excluded as an expense
item in calculating EBITDA.
(g) The various amounts calculated in accordance with Article
III shall be subject to subsequent adjustment based on relevant events that
occur after such calculations are made. Such adjusted amounts shall be
calculated by the chief financial officer of Holdings, and the notification,
dispute, and dispute resolution mechanisms described in Section 3.5(b) shall
apply, mutatis mutandis, to such adjustment process.
<PAGE>
35
7.2 Further Assurances. (a) Subject to the terms and
conditions hereof, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, reasonably promptly in light of the relevant
Notification Date and Option Date, the transactions contemplated by this
Agreement.
(b) Promptly following the Notification Date, each of the
parties hereto shall prepare and file all applications and other notices
required in connection with, and use their best efforts to obtain promptly and
comply with all conditions contained in, all necessary regulatory approvals and
any other consent, approval or other actions by, or notice to or registration or
filing with, any governmental or administrative agency or authority required or
necessary to be made, obtained or complied with, as the case may be, by any
party hereto in connection with the performance of the transactions contemplated
by this Agreement, including without limitation any premerger notifications
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"). LWN, LGII and RDI agree to, and shall cause their Affiliates to, (i)
enter into with the Federal Trade Commission and/or the Department of Justice
such decrees, consent orders and/or hold separate undertakings and (ii)
effectuate any divestitures, in each case involving assets or operations of
either RHC or LGII or its Affiliates or both, as may be necessary in order to
enable LGII to purchase, as soon as practicable following the Notification Date
and in any event no later than the Exercise Date, the BCP Common Stock and the
RHIM Common Stock.
7.3 LWN Guarantee. (a) Guarantee. LWN hereby unconditionally
and irrevocably guarantees to the BCP Entities and their respective successors,
transferees and assigns, the prompt and complete payment and performance by LGII
and its successors and assigns when due of the Obligations. LWN further agrees
to pay any and all expenses (including, without limitation, all fees and
disbursements of counsel) which may be paid or incurred by the BCP Entities in
enforcing any of their rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against,
LGII or against LWN under this Guarantee.
(b) Guarantee Absolute and Unconditional. LWN waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon LGII or LWN with respect to the Obligations. This
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to any circumstance whatsoever (with or
without notice to or knowledge of LGII or LWN) which constitutes, or might be
construed to constitute, an equitable or legal discharge of LGII for the
Obligations, or of LWN under this Guarantee, in bankruptcy or in any other
instance. This Guarantee shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon LWN and its successors and
assigns, and shall inure to the benefit of the BCP Entities and their respective
successors, transferees and assigns, until all the Obligations and the
obligations of LWN under this Guarantee shall have been satisfied by payment in
full.
(c) Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the
<PAGE>
36
Obligations is rescinded or must otherwise be restored or returned by the BCP
Entities upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of LGII or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, LGII or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
7.4 Drag-Along Rights. (a) In the event of a default by LGII
or LWN of their obligations under Section 4.1 to pay the relevant Option Price
as provided for herein, and such default shall continue for 45 days, the BCP
Entities shall be entitled to solicit offers from third parties for the purchase
of all or part of the outstanding shares of Common Stock and Preferred Stock.
If, following such Event of Default and pursuant to such solicitation, any of
the BCP Entities receives a bona fide offer from a Person other than a BCP
Entity or any of its Affiliates (a "Third Party") to purchase in an arms'-length
transaction all or part of the outstanding shares of Common Stock and Preferred
Stock owned by the Stockholders and such offer is accepted by such BCP Entities,
then LGII, RDI, RHIM and their respective Permitted Transferees each agrees that
it will Transfer all or part of the shares of Common Stock and Preferred Stock
owned by it to such Third Party on the terms of the offer so accepted by such
BCP Entities, including the same per share consideration. In any such
transaction where less than all of the outstanding shares of Common Stock are to
be sold, such shares to be sold shall be sold by BCP, LGII, RDI and RHIM pro
rata in proportion to their respective holdings of Common Stock.
(b) The BCP Entities shall give notice (the "Drag-Along
Notice") to each of the other Stockholders of any proposed Transfer giving rise
to the rights of such BCP Entities set forth in Section 7.4(a) as soon as
practicable following the acceptance of the offer referred to in Section 7.4(a).
The Drag-Along Notice shall set forth the number of shares of Common Stock and
Preferred Stock proposed to be so Transferred, the name of the proposed
transferee, the proposed amount and form of consideration (and if such
consideration consists in part or in whole of property other than cash, the
Transferring Stockholder shall provide such information, to the extent
reasonably available to the BCP Entities, relating to such consideration as
LGII, RDI, RHIM and their respective Permitted Transferees may reasonably
request in order to evaluate such non-cash consideration) and the other terms
and conditions of the offer. The BCP Entities shall notify the Stockholders at
least 20 days in advance of entering into a definitive agreement in connection
with such offer if Stockholders will be required to sign any agreement
containing representations, warranties and indemnities and will provide in
advance to one counsel acting for Holdings and the other Stockholders subject to
the Drag-Along Notice (which counsel shall be other than counsel for the BCP
Entities) a copy of the representations, warranties and indemnities proposed to
be made by such Stockholders. In any such agreement such Stockholders will be
required to make the same representations, warranties and indemnities as the BCP
Entities so long as they are made severally and not jointly. The Stockholders
agree that Holdings shall pay the fees and expenses of counsel for the
Stockholders in connection with any transaction referred to in this Section 7.4.
If the Transfer referred to in the Drag-Along Notice is not consummated within
120 days from the date of the Drag-Along Notice, the Transferring Stockholder
must deliver another Drag-Along Notice in order to exercise its rights under
this Section 3.6 with respect to such Transfer or any other Transfer.
<PAGE>
37
(c) Following a default as described in Section 7.4(a), any
proceeds realized from the sale pursuant to this Section 7.4 of the shares of
Common Stock or Preferred Stock held by LGII, RDI or their respective Permitted
Transferees shall be paid over to BCP to the extent necessary to satisfy the
Obligations which remain unsatisfied following the sale of the BCP Common Stock
and RHIM Common Stock, whether pursuant to Section 7.4 or otherwise, and any
excess proceeds shall be paid over to LGII.
ARTICLE VIII
CLOSINGS
8.1 Payment of the Option Price in Cash or Loewen Common Stock
The closing of the purchase of BCP Common Stock and RHIM Common Stock pursuant
to the exercise of an Option as provided in Sections 2.1 and 2.2 shall take
place on the Exercise Date in the event (a) the Option Price is to be paid
wholly in cash or (b) the Option Price is to be paid in part or in whole in
Loewen Common Stock and BCP does not exercise the BCP Liquidity Right.
8.2 Exercise of the BCP Liquidity Right. In the event the
Option Price is to be paid in part or in whole in shares of Loewen Common Stock
and BCP exercises the BCP Liquidity Right as provided in subsection 4.1(a)(ii),
the closing of the purchase of BCP Common Stock and RHIM Common Stock shall take
place on the Exercise Date, provided, that in the event LGII or LWN does not
deliver the net cash proceeds from the issuance and sale of Loewen Common Stock
on the Exercise Date to the extent required as a result of the exercise of the
BCP Liquidity Right, (a) BCP and RHIM shall deliver into escrow (with an escrow
agent reasonably acceptable to both LGII and BCP) on the Exercise Date the BCP
Common Stock and the RHIM Common Stock, and (b) LGII shall on the Exercise Date
deliver into escrow with such escrow agent the portion, if any, of the Option
Price being paid in cash, together with the requisite number of shares of Loewen
Common Stock, if any, as to which the BCP Liquidity Right has not been
exercised, and the closing of the exercise of the Option shall take place on the
earliest to occur of (i) the date on which the requisite amount of net cash
proceeds from the sale of shares of Loewen Common Stock as to which the BCP
Liquidity Right has been exercised are received and (ii) the 180th day after the
date on which BCP notified LWN of its desire to exercise the BCP Liquidity
Right, at which time (subject to Section 8.3) the BCP Common Stock and RHIM
Common Stock shall be released from escrow against payment of such portion of
the Option Price payable in cash and such requisite number of shares of Loewen
Common Stock, if any.
8.3 Default By LGII or LWN. In the event of a default by LGII
or LWN of their obligations to pay the Option Price on the Exercise Date (or
such later date as provided in Section 8.2), the BCP Common Stock and RHIM
Common Stock shall be released from escrow and returned to BCP and RHIM, as
applicable, and any funds or other assets held by the escrow agent in respect of
any earlier deposit by or on behalf of LGII or LWN shall be retained by the
escrow agent as collateral security for the payment of the Obligations, and LWN
and LGII hereby grant to BCP a security interest in such funds or other amounts
as
<PAGE>
38
security for the Obligations. In the event all or any part of the Option Price
is not paid when due, such unpaid amount shall constitute a continuing fixed
obligation of LGII and shall bear interest at the Default Rate until such unpaid
amount is paid in full (as well as after as before judgment).
8.4 Time and Place of Closing. The closing of the purchase of
the BCP Common Stock and RHIM Common Stock shall be held at the principal office
of the BCP Entities at 10:00 A.M. local time on the date determined pursuant to
this Article VIII.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. Notices hereunder shall be given only by
personal delivery, registered or certified mail, return receipt requested,
overnight courier service, or telex, telegram or other form of electronic mail
or by telecopy (and subsequently confirmed by any other permitted means
hereunder) and shall be deemed transmitted when personally delivered or
deposited in the mail or delivered to a courier service or a carrier for
electronic transmittal (as the case may be), postage or charges prepaid, and
addressed to the particular party to whom the notice is to be sent as follows:
(a) in the case of BCP or RHIM:
c/o The Blackstone Group
345 Park Avenue, 31st Floor
New York, NY 10154
Telecopier No.: (212) 754-8725
Attention: Howard A. Lipson
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier No.: (212) 455-2502
Attention: Wilson S. Neely, Esq.
(c) in the case of LGII or LWN:
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia
Canada V5G 358
Telecopier No.: (604) 473-7305
Attention: Senior Vice President and Chief Financial Officer
<PAGE>
39
with a copy to:
The Loewen Group Inc.
c/o Loewen Group International, Inc.
50 East River Center Boulevard
Covington, Kentucky 41011
Telecopier No.: (606) 655-7154
Attention: Legal Department
or to such address as a party may instruct by notice hereunder.
Section 9.2 Severability; Mutuality of Options. In the event
any provision hereof is held or rendered void or unenforceable by any court or
other legal authority, then such provisions shall be severable and shall not
affect the remaining provisions hereof. Notwithstanding the foregoing, in the
event either the call option or put option shall be held or rendered void or
unenforceable or breached by the party obligated thereon, then the party holding
such option shall be excused from performing under the option it has granted.
Section 9.3 Entire Agreement. This Agreement, together with
the other agreements referred to herein, is the entire Agreement among the
parties, and, when executed by the parties hereto, supersedes all prior
agreements and communications, either verbal or in writing, between the parties
hereto with respect to the subject matter contained herein.
Section 9.4 Amendment and Waiver. This Agreement may not be
amended, modified or supplemented unless consented to in writing by the parties
hereto. Any failure by a party hereto to comply with any obligation, agreement
or condition herein may be expressly waived in writing by each of the other
parties hereto, but such waiver or failure to insist upon strict compliance with
such obligation, agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any such subsequent or other failure.
Section 9.5 Assignment; Binding on Transferees. The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted transferees from and after
the effective date hereof. Subject to the last sentence of this Section 9.5,
BCPII, BFIP, RDI, LGII and RHMI may assign any of their respective rights and
obligations hereunder to any of their respective Affiliates. LWN may not assign
any of its rights and obligations hereunder to any Person without the written
consent of BCP. A Person may become an assignee of the rights of a party hereto
only if such assignee becomes a party to this Agreement to the same extent as
the assignor; provided, that an assignment by any party hereto of its rights
hereunder shall not release such party from its obligations hereunder unless all
other parties hereto consent to such release.
Section 9.6 Variations in Pronouns. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the antecedent person or persons
or entity or entities may require.
<PAGE>
40
Section 9.7 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
Section 9.8 Further Assurances. Each of the parties shall
execute such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
Section 9.9 Headings. The headings in this Agreement are
intended solely for convenience of reference and shall be given no effect in the
interpretation of this Agreement.
Section 9.10 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 9.11 Submission to Jurisdiction; Waivers. Each of the
parties hereto hereby irrevocably submits in any legal action or proceeding
relating to or arising out of this Agreement, or for recognition and enforcement
of any judgment in respect thereof, to the jurisdiction of the United States
District Court for the Southern District of New York, and appellate courts
thereof. Each of the parties hereto further (i) consents that any such action or
proceeding may be brought in such court and waives any objection that it may now
or hereafter have to the venue of any such action or proceeding in such court or
that such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same; (ii) agrees that service of process in any such
action or proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid, to
such party at its address set forth in Section 9.2 or at such other address of
which such party shall have given notice pursuant thereto; (iii) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction; and (iv) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential damages.
Section 9.12 WAIVERS OF JURY TRIAL. EACH PARTY HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
41
IN WITNESS WHEREOF, the undersigned have executed this
Agreement on the date first above written.
THE LOEWEN GROUP INC.
By: /s/ F. Andrew Scott
------------------------------
Name: F. Andrew Scott
Title:
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ F. Andrew Scott
------------------------------
Name: F. Andrew Scott
Title:
ROSES DELAWARE, INC.
By: /s/ F. Andrew Scott
------------------------------
Name: F. Andrew Scott
Title:
BLACKSTONE CAPITAL PARTNERS II
MERCHANT BANKING FUND L.P.
By: BLACKSTONE MANAGEMENT
ASSOCIATES II L.L.C.
General Partner
By: /s/ Howard A. Lipson
--------------------------
Name: Howard A. Lipson
Title:
<PAGE>
42
BLACKSTONE ROSE HILLS OFFSHORE
CAPITAL PARTNERS L.P.
By: BLACKSTONE MANAGEMENT
ASSOCIATES II L.L.C.
General Partner
By: /s/ Howard A. Lipson
--------------------------
Name: Howard A. Lipson
Title:
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP II L.P.
<PAGE>
43
By: BLACKSTONE MANAGEMENT
ASSOCIATES II L.L.C.
General Partner
By: /s/ Howard A. Lipson
--------------------------
Name: Howard A. Lipson
Title:
RHI MANAGEMENT DIRECT L.P.
By: PSI P&S Corp.
General Partner
By: /s/ Stephen A. Schwarzman
--------------------------
Name: Stephen A. Schwarzman
Title:
<PAGE>
ROSE HILLS COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
12 Months
Satellite 9 Months
Montuary Cemetery Properties Satellite
12/31/95 12/31/95 12/31/95 Pro forma Montuary Cemetery Properties Pro Forma
Actual Actual Actual 12/31/95 9/30/96 9/30/96 9/30/96 9/30/96
-------- -------- -------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Earnings:
Income (loss) before income taxes $2.3 $2.3 $0.4 ($9.1) $2.8 $2.8 $0.2 ($5.6)
Add: Fixed charges, net 2.4 0.2 1.1 16.4 1.3 0.1 1.0 12.3
-------- -------- -------- -------- -------- -------- ---------- ---------
Income (loss) before income
taxes and fixed charges,
net 4.7 2.5 1.5 7.3 4.1 2.9 1.2 6.7
-------- -------- -------- -------- -------- -------- ---------- ---------
Fixed Charges:
Total interest expense (1) 2.4 0.2 0.9 16.4 1.3 0.1 0.9 12.3
Discount/Premium to any
indebtedness 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest factor in rents 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0
-------- -------- -------- -------- -------- -------- ---------- ---------
Total fixed charges 2.4 0.2 1.1 16.4 1.3 0.1 1.0 12.3
-------- -------- -------- -------- -------- -------- ---------- ---------
Ratio of Earnings to Fixed Charges 1.96 12.50 1.36 0.45 3.15 29.00 1.20 0.54
(Ratio must be greater than one
to one)
Coverage Deficiency (Excess) ($2.3) ($2.3) ($0.4) $9.1 ($2.8) ($2.8) ($0.2) $5.6
</TABLE>
<PAGE>
ROSES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 9/30/95 9/30/96
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Earnings:
Income (loss) before income taxes ($0.2) ($0.1) $0.8 $2.2 $2.3 $2.1 $2.8
Add: Fixed charges, net 2.9 2.7 2.1 2.1 2.4 2.0 1.3
-------- -------- -------- -------- -------- ------- -------
Income (loss) before income taxes
and fixed charges, net 2.7 2.6 2.9 4.3 4.7 4.1 4.1
-------- -------- -------- -------- -------- ------- -------
Fixed Charges:
Total interest expense (1) 2.9 2.7 2.1 2.1 2.4 2.0 1.3
Discount/Premium to any indebtedness 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest factor in rents 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- ------- -------
Total fixed charges 2.9 2.7 2.1 2.1 2.4 2.0 1.3
-------- -------- -------- -------- -------- ------- -------
Ratio of Earnings to Fixed Charges 0.93 0.96 1.38 2.05 1.96 2.05 3.15
(Ratio must be greater than one to one)
Coverage Deficiency (Excess) $0.2 $0.1 ($0.8) ($2.2) ($2.3) ($2.1) ($2.8)
</TABLE>
<PAGE>
ROSE HILLS MEMORIAL PARK ASSOCIATION AND
WORKMAN MILL INVESTMENT COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 9/30/95 9/30/96
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Earnings:
Income (loss) before income taxes $3.9 $1.6 $0.2 $0.7 $2.3 $1.8 $2.8
Add: Fixed charges, net 1.1 0.5 0.0 0.2 0.2 0.1 0.1
-------- -------- -------- -------- -------- ------- -------
Income (loss) before income taxes
and fixed charges, net 5.0 2.1 0.2 0.9 2.5 1.9 2.9
-------- -------- -------- -------- -------- ------- -------
Fixed Charges:
Total interest expense 1.1 0.5 0.0 0.2 0.2 0.1 0.1
Discount/Premium to any indebtedness 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest factor in rents 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- ------- -------
Total fixed charges 1.1 0.5 0.0 0.2 0.2 0.1 0.1
-------- -------- -------- -------- -------- ------- -------
Ratio of Earnings to Fixed Charges 4.55 4.20 -- 4.50 12.50 19.00 29.00
(Ratio must be greater than one to one)
Coverage Deficiency (Excess) ($3.9) ($1.6) ($0.2) ($0.7) ($2.3) ($1.8) ($2.8)
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of Rose Hills Company
(formerly Rose Hills Acquisition Corp.)
Names State of Incorporation
- ----- ----------------------
Rose Hills, Inc. Delaware
RH Mortuary Corporation Delaware
RH Satellite Properties Corp. Delaware
A.L. Cemetery, Inc. California
Colton Funeral Chapel, Inc. California
Custer Christiansen Covina Mortuary, Inc. California
Dimond Service Corporation California
Glasband Willen Mortuaries California
Grove Colonial Mortuary California
Harbor Lawn Memorial Park, Inc. California
Neel Funeral Directors, Inc. California
Richardson-Peterson Mortuary, Inc. California
Rose Hills Mortuary, Inc. California
Rose Hills Mortuary, L.P. California
San Fernando Mortuary, Inc. California
White Funeral Home, Inc. California
Workman Mill Investment Company California
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 25, 1996 (and to all references to our Firm) included in or
made a part of this registration statement.
Los Angeles, California
January 17, 1997
<PAGE>
Accountant's Consent
We consent to the use of our reports included herein and to the
references to our firm under the heading "Summary Historical Financial
Information--The Cemetery" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
February , 1997
<PAGE>
Accountant's Consent
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG
Vancouver, Canada
February , 1997
<PAGE>
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
Rose Hills Company
(formerly known as Rose Hills Acquisition Corp.)
(Exact name of obligor as specified in its charter)
Delaware 13-3915765
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
3888 Workman Mill Road
Whittier, CA 90601
(Address of principal executive offices) (Zip Code)
------------------
9 1/2% Senior Subordinated Notes
Due 2004
(Title of the indenture securities)
==============================================
<PAGE>
- 2 -
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Rose Hills Company (formerly known as Rose Hills Acquisition Corp.)
currently is not in default under any of its outstanding securities for
which United States Trust Company of New York is Trustee. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form
T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. List of Exhibits
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of January 9, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 9th day
of January, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Christine C. Collins
-----------------------------
Assistant Vice President
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission 450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
-------------------------
By: S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS)
ASSETS
- ------
Cash and Due from Banks $ 38,257
Short-Term Investments 82,377
Securities, Available for Sale 861,975
Loans 1,404,930
Less: Allowance for Credit Losses 13,048
---------
Net Loans 1,391,882
Premises and Equipment 60,012
Other Assets 133,673
----------
Total Assets $2,568,176
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 466,849
Interest Bearing 1,433,894
---------
Total Deposits 1,900,743
Short-Term Credit Facilities 369,045
Accounts Payable and Accrued Liabilities 143,604
---------
Total Liabilities $2,413,392
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 42,394
Retained Earnings 98,402
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (1,007)
----------
Total Stockholder's Equity 154,784
----------
Total Liabilities and
Stockholder's Equity $2,568,176
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkman, SVP & Controller
October 24, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Roses, Inc. and Subsidiaries for the periods presented
herein and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<NAME> ROSES, INC. AND SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1994 DEC-31-1995 SEP-30-1996
<CASH> 927 1,269 450
<SECURITIES> 75 112 1,000
<RECEIVABLES> 8,130 7,232 7,871
<ALLOWANCES> (331) (287) (171)
<INVENTORY> 426 472 362
<CURRENT-ASSETS> 9,880 9,968 10,436
<PP&E> 18,258 18,689 18,270
<DEPRECIATION> (3,830) (4,905) (5,323)
<TOTAL-ASSETS> 27,797 26,605 26,098
<CURRENT-LIABILITIES> 7,094 6,559 22,491
<BONDS> 19,475 16,975 0
0 0 0
0 0 0
<COMMON> 100 100 100
<OTHER-SE> (5,212) (4,020) (2,387)
<TOTAL-LIABILITY-AND-EQUITY> 27,797 26,605 26,098
<SALES> 22,058 22,434 17,403
<TOTAL-REVENUES> 22,058 22,434 17,403
<CGS> 3,414 3,246 2,615
<TOTAL-COSTS> 5,962 6,011 6,674
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 200 100 45
<INTEREST-EXPENSE> 2,053 2,429 1,319
<INCOME-PRETAX> 2,177 2,286 2,783
<INCOME-TAX> 34 1,094 1,150
<INCOME-CONTINUING> 2,143 1,192 1,633
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,143 1,192 1,633
<EPS-PRIMARY> 21.43 11.92 16.33
<EPS-DILUTED> 0 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Rose Hills Memorial Park and Workman Mill Investment
Company for the periods presented ehrein and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<NAME> ROSE HILLS MEM. PARK ASSOC. AND WORKMAN MILL INVESTMENT CO.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1994 DEC-31-1995 SEP-30-1996
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 6,184 5,969 5,361
<ALLOWANCES> (1,511) (1,792) (1,624)
<INVENTORY> 2,242 5,401 4,911
<CURRENT-ASSETS> 6,421 9,578 8,648
<PP&E> 43,632 47,734 55,859
<DEPRECIATION> (14,103) (15,604) (17,031)
<TOTAL-ASSETS> 44,221 49,240 54,462
<CURRENT-LIABILITIES> 6,580 5,087 5,563
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 33,987 40,913 46,007
<TOTAL-LIABILITY-AND-EQUITY> 44,221 49,240 54,462
<SALES> 19,740 21,815 17,009
<TOTAL-REVENUES> 22,346 24,335 19,092
<CGS> 1,539 749 516
<TOTAL-COSTS> 5,536 4,358 3,295
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 2,242 1,707 835
<INTEREST-EXPENSE> 155 201 96
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (540) 2,244 2,789
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (540) 2,244 2,789
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited pro forma financial for Rose Hills Company for the periods presented
herein and is qualified in its entirety by reference to such pro forma financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 0 1.6
<SECURITIES> 0 0
<RECEIVABLES> 0 8.5
<ALLOWANCES> 0 (2.1)
<INVENTORY> 0 0.9
<CURRENT-ASSETS> 0 12.0
<PP&E> 0 163.8
<DEPRECIATION> 0 (24.3)
<TOTAL-ASSETS> 0 304.9
<CURRENT-LIABILITIES> 0 8.7
<BONDS> 0 154.0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 129.6
<TOTAL-LIABILITY-AND-EQUITY> 0 304.9
<SALES> 52.9 41.6
<TOTAL-REVENUES> 57.6 44.9
<CGS> 12.1 9.6
<TOTAL-COSTS> 18.8 14.5
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2.1 1.5
<INTEREST-EXPENSE> 16.4 12.3
<INCOME-PRETAX> (9.2) (5.7)
<INCOME-TAX> (2.9) (1.7)
<INCOME-CONTINUING> (6.3) (3.8)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6.3) (3.8)
<EPS-PRIMARY> 0.000 0
<EPS-DILUTED> 0.000 0
</TABLE>
<PAGE>
[CONFORMED COPY]
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of November 15, 1996, by and between Rose Hills Acquisition
Corp., a Delaware corporation (the "Company"), and Smith Barney Inc. (the
"Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement dated
November 14, 1996, between the Company and the Initial Purchaser (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial Purchaser
of $80,000,000 9 1/2% Senior Subordinated Notes due 2004 (the "Notes"). The
Notes are to be issued by the Company pursuant to the provisions of an Indenture
dated as of November 15, 1996 (as amended, supplemented or otherwise modified
from time to time, the "Indenture") between the Company and United States Trust
Company of New York, as trustee (the "Trustee").
In order to induce the Initial Purchaser to enter into the Purchase
Agreement, the Company has agreed to provide to the Initial Purchaser and its
direct and indirect transferees the registration rights with respect to the
Notes set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Acquisition Transaction" shall mean, collectively, the acquisition of
Roses, Inc. and its subsidiaries (the "Mortuary") through the merger of a
subsidiary of the Company with and into Roses, Inc., the acquisition of the
cemetery related assets and liabilities of Rose Hills Memorial Park Association
<PAGE>
(the "Association") by a subsidiary of the Company, the contribution by a
subsidiary of Loewen Group International Inc. ("LGII") to Tudor Holding Company
to be renamed Rose Hills Holdings Corp. ("RH Holdings"), the parent of the
Company, by RH Holdings to the Company, and by the Company to certain of its
subsidiaries, of 14 additional funeral homes and two combination funeral home
and cemetery properties currently owned or leased by LGII or its affiliates, the
initial borrowing under the Bank Credit Facilities (as defined herein) and the
issuance and sale of the Notes.
"Agreement and Plan of Merger" shall mean the Agreement and Plan of
Merger dated September 19, 1996 by and among the Mortuary, the Stockholders of
the Mortuary and the Company, as amended.
"Asset Purchase Agreement" shall mean the Asset Purchase Agreement
dated as of September 19, 1996 by and between the Association and the Company,
as amended.
"Closing Date" shall mean the later of the date of original issuance of
the Notes and the date on which the Acquisition Transaction is consummated.
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Escrow Agreement" shall mean the Escrow Agreement by and between the
Company and the Trustee to be dated as of November 18, 1996.
"Exchange Date" shall have the meaning set forth in Section 2(a)(ii).
"Exchange Notes" shall mean securities issued by the Company under an
indenture and containing terms identical to the Notes (except that (i) interest
thereon shall accrue from the last date on which interest was paid on the Notes
or, if no such interest has been paid, from November 15, 1996 and (ii) the
Exchange Notes will not provide for an increase in the rate of interest and will
not ontain terms with respect to transfer restrictions) and to be offered to
Holders of Notes in exchange for Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for all Notes that are Registrable Notes pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
2
<PAGE>
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Holder" shall mean the Initial Purchaser, for so long as it owns any
Registrable Notes, and each of its successors, assigns and direct and indirect
transferees who become registered owners of Registrable Notes under the
Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the
term "Holder" shall include Participating Broker-Dealers (as defined in Section
4(a)).
"Indenture" shall have the meaning set forth in the preamble.
"Initial Purchaser" shall have the meaning set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that, for
purposes of Section 6(b), whenever the consent or approval of Holders of a
specified percentage of Registrable Notes is required hereunder, Registrable
Notes held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Initial Purchaser or subsequent
Holders of Registrable Notes if such subsequent Holders are deemed to be such
affiliates solely by reason of their holding of such Registrable Notes) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage or amount.
"Offer Termination Date" shall have the meaning set forth in Section
2(a)(iv).
"Participating Broker-Dealer" shall have the meaning set forth in
Section 4(a) hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Notes covered by a Shelf Registration Statement, and by all other
3
<PAGE>
amendments and supplements to such prospectus, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Registrable Notes" shall mean the Notes; provided, however, that the
Notes shall cease to be Registrable Notes (i) when a Registration Statement with
respect to such Notes shall have been declared effective under the 1933 Act and
such Notes shall have been disposed of or exchanged pursuant to such
Registration Statement, (ii) upon the expiration of the Exchange Offer period
with respect to any Exchange Offer Registration Statement if all Registrable
Notes validly tendered in connection with such Exchange Offer shall have been
exchanged for Exchange Notes, (iii) when such Notes have been sold or are
eligible for sale to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A) under the 1933 Act or (iv) when such
Notes shall have ceased to be outstanding; provided, however, that if an opinion
of counsel as described in Section 2(d)(i)(B) is delivered to the Company, then
Notes held by the Initial Purchaser shall not cease to be Registrable Notes
solely by reason of clause (ii) above.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws, (iii) all expenses of any Person in preparing or assisting in
preparing, word processing, printing and distributing, at the request of the
Company, any Registration Statement, any Prospectus, any amendments or
supplements thereto, (iv) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (v) the fees
and disbursements of the Trustee and its counsel, (vi) the fees and
disbursements of counsel for the Company and, in the case of a Shelf
Registration Statement, the fees and disbursements of one counsel for the
Holders incurred on or before the initial effectiveness of the Shelf
Registration Statement, which counsel shall be counsel for the Initial Purchaser
or other counsel selected by the Company and not objected to by the Majority
Holders ("counsel for the Holders"), and (vii) the fees and disbursements of the
independent public accountants of the Company, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, but excluding underwriting discounts, if any, and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Exchange Notes or Registrable Notes pursuant to
4
<PAGE>
the provisions of this Agreement and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC,
and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"TIA" shall have the meaning set forth in Section 3(1) hereof.
"Trustee" shall have the meaning set forth in the preamble.
2. Registration under the 1933 Act.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the Company shall use its best efforts
to cause to be filed an Exchange Offer Registration Statement covering the offer
by the Company to the Holders to exchange all of the Registrable Notes for
Exchange Notes, to have such Registration Statement remain effective until the
closing of the Exchange Offer and to consummate the Exchange Offer on or prior
to the date that is 210 days after the Closing Date. The Company shall commence
the Exchange Offer promptly after the Exchange Offer Registration Statement has
been declared effective by the SEC and use its best efforts to have the Exchange
Offer consummated not later than 30 days after such effective date. For purposes
hereof, "consummate" shall mean that the Exchange Offer Registration Statement
shall have been declared effective, subject to Section 2(b), the period of the
Exchange Offer provided in accordance with clause (ii) below shall have expired
and all Registrable Notes validly tendered and not withdrawn in connection with
such Exchange Offer shall have been exchanged for Exchange Notes. The Company
shall commence the Exchange Offer by mailing the related exchange offer
Prospectus and accompanying documents to each Holder stating, in addition to
such other disclosures as are required by applicable law:
5
<PAGE>
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Notes validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 days from the date such notice is mailed) (each such date
being an "Exchange Date");
(iii) that any Registrable Note not tendered will remain
outstanding and continues to accrue interest, but will not retain any
rights under this Agreement;
(iv) that Holders electing to have a Registrable Note exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Note, together with the enclosed letters of transmittal, to
the institution and at the address specified in the notice prior to the
close of business on the last Exchange Date (the "Offer Termination
Date"); and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the Offer Termination Date, by sending
to the institution and at the address specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Notes delivered for exchange
and a statement that such Holder is withdrawing his election to have such
Registration Notes exchanged.
As soon as practicable after the Offer Termination Date, the Company
shall:
(A) accept for exchange Registrable Notes or portions thereof tendered
and not validly withdrawn pursuant to the Exchange Offer; and
(B) deliver, or cause to be delivered, to the Trustee for cancellation
all Registrable Notes or portions thereof so accepted for exchange by the
Company and issue, and cause the Trustee to promptly authenticate and mail to
each Holder, an Exchange Note equal in aggregate principal amount to the
aggregate principal amount of the Registrable Notes surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer
as provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
6
<PAGE>
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the staff of the SEC. The Company shall inform the
Initial Purchaser of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Initial Purchaser shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Exchange Offer.
Each Holder participating in the Exchange Offer shall be required to
represent to the Company that at the time of the consummation of the Exchange
Offer (i) such Holder is not an "affiliate" of the Company within the meaning of
Rule 405 under the 1933 Act, (ii) the Exchange Notes being acquired by it
pursuant to the Exchange Offer are being obtained in the ordinary course of its
business and (iii) that it has no arrangement or understanding with any Person
to participate in the distribution of the Exchange Notes. If such Holder is a
Participating Broker-Dealer that will receive Exchange Notes for its own account
in exchange for the Registrable Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated a soon as practicable after the Offer Termination Date
because it would violate applicable law or the applicable interpretations of the
staff of the SEC, (ii) the Exchange Offer is not for any other reason
consummated within 210 days after the Closing Date or (iii) the Initial
Purchaser or any Holder shall so request pursuant to the terms set forth in
Section 2(d)(i)(B) below, the Company shall use its best efforts to cause to be
filed as soon as practicable after such determination, such 210th day or the day
such notice is given to the Company, as the case may be, a Shelf Registration
Statement providing for the sale by the Holders of all of the Registrable Notes
and to have such Shelf Registration Statement declared effective by the SEC;
provided, however, that no Holder of Registrable Notes (other than the Initial
Purchaser) shall be entitled to have the Registrable Notes held by it covered by
such Shelf Registration Statement unless such Holder agrees in writing to be
bound by all the provisions of this Agreement applicable to such Holder. In the
event the Company is required to file a Shelf Registration Statement solely as a
result of the matters referred to in clause (iii) of the preceding sentence, the
Company shall file and have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all Registrable
Notes and a Shelf Registration Statement (which may be a combined Registration
Statement with the Exchange Offer Registration Statement) with respect to offers
and sales of Registrable Notes held by the Initial Purchaser after completion of
the Exchange Offer. The Company agrees to use
7
<PAGE>
its best efforts to keep the Shelf Registration Statement continuously effective
until 180 days from the effective date thereof or such shorter period that will
terminate when all of the Registrable Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement. The
Company further agrees to supplement or amend the Shelf Registration Statement
if required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the 1933 Act or by any other rules and regulations thereunder for shelf
registration or if reasonably requested by a Holder with respect to information
relating to such Holder, and to use its best efforts to cause any such amendment
to become effective and such Shelf Registration Statement to become usable as
soon as practicable thereafter. The Company agrees to furnish to the Holders of
Registrable Notes copies of any such supplement or amendment promptly after its
being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in connection with
the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay
all underwriting discounts, if any, and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Notes pursuant
to the Exchange Offer Registration Statement or a Shelf Registration Statement,
as the case may be.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have been effective during the period of such interference
until the offering of Registrable Notes pursuant to such Registration Statement
may legally resume. As provided herein, additional interest (the "Additional
Interest") (in addition to the interest otherwise due on the Notes after such
date) shall be accrued on the Notes as follows:
(i) (A) if an Exchange Offer Registration Statement or, in the
event that due to a change in current interpretations by the SEC the
Company is not permitted to effect the Exchange Offer, a Shelf Registration
Statement is not filed within 60 days following the Closing Date or (B) in
the event that within 30 days after the consummation of the Exchange Offer
(the "Prescribed Time Period") any Holder or Holders of the Registrable
Notes shall notify the Company that such Holders (x) have received an
opinion of counsel to
8
<PAGE>
the effect that such Holder or Holders are prohibited by applicable law or
SEC policy from participating in the Exchange Offer, (y) have received an
opinion of counsel to the effect that such Holder or Holders may not resell
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such
resales by such holder or (z) are broker-dealers and hold Registrable Notes
acquired directly from the Company or an "affiliate" of the Company, if a
Shelf Registration Statement is not filed within 45 days after expiration
of the Prescribed Time Period, then, commencing on the 61st day after the
Closing Date or the 46th day after the expiration of the Prescribed Time
Period, as the case may be, Additional Interest shall be accrued on the
Notes (or, in the case of Clause (B), those Notes held by Holders within
the subclause (x), (y) or (z)) over and above the accrued interest at a
rate of .50% per annum for the first 90 days immediately following the 61st
day after the Closing Date or the 46th day after the expiration of the
Prescribed Time Period, as the case may be, such Additional Interest rate
increasing by an additional .25% per annum at the beginning of each
subsequent 90-day period;
(ii) if an Exchange Offer Registration Statement or a Shelf
Registration Statement is filed pursuant to Section 2(d)(i) hereof and is
not declared effective within 180 days following either the Closing Date or
the expiration of the Prescribed Time Period, as the case may be, then
commencing on the 181st day after either the Closing Date or the expiration
of the Prescribed Time Period, as the case may be, Additional Interest
shall be accrued on the Registrable Notes affected by such failure over and
above the accrued interest at a rate of .50% per annum for the first 90
days immediately following the 181st day after the Closing Date or the
expiration of the Prescribed Time Period, as the case may be, such
Additional Interest rate increasing by an additional .25% per annum at the
beginning of each subsequent 90-day period; and
(iii) if either (A) the Company has not exchanged Exchange Notes
for all Registrable Notes validly tendered and not withdrawn in accordance
with the terms of the Exchange Offer on or prior to 30 days after the date
on which the Exchange Offer Registration Statement was declared effective,
or (B) if applicable, a Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective
prior to 180 days from its original effective date, then Additional
Interest shall be accrued on the Registrable Notes
9
<PAGE>
affected thereby over and above the accrued interest at a rate of .50% per
annum for the first 60 days immediately following the (x) 31st day after
such effective date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (B) above,
such Additional Interest rate increasing by an additional .25% per annum at
the beginning of each subsequent 60-day period;
provided, however, that the Additional Interest rate on the Registrable Notes
may not exceed 1.5% per annum; and provided further that (i) upon the filing of
the Exchange Offer Registration Statement or a Shelf Registration Statement (in
the case of (d)(i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or a Shelf Registration Statement (in the case of (d)
(ii) above), or (3) upon the exchange of Exchange Notes for all Registrable
Notes validly tendered in the Exchange Offer or upon the effectiveness of the
Shelf Registration Statement which had ceased to remain effective prior to 180
days from its original effective date (in the case of (d)(iii) above),
Additional Interest on the Registrable Notes as a result of such clause (i),
(ii) or (iii) shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), or (ii)
or (iii) above will be payable in cash on the interest payment dates of the
Registrable Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Registrable Notes, multiplied by a fraction, the numerator of which is the
number of days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year composed of twelve 30-day months),
and the denominator of which is 360.
If the Company effects the Exchange Offer, the Company will be entitled
to close the Exchange Offer provided that it has accepted all Registrable Notes
theretofore validly tendered in accordance with the terms of the Exchange Offer.
Registrable Notes not tendered in the Exchange Offer shall bear interest at the
same rate as in effect at the time of issuance of the Registrable Notes.
(e) Without limiting the remedies available to the Initial Purchaser
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Holders for which there is no
adequate remedy at law, that it will not be possible to measure damage for such
injuries precisely and that, in the event of any such failure, the Initial
Purchaser or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Section 2(a) and Section
2(b) hereof.
10
<PAGE>
3. Registration Procedures.
In connection with the obligations, if any, of the Company with respect
to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall reasonably promptly:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form shall (x) be selected by the
Company, (y) in the case of a Shelf Registration, be available for the sale of
the Registrable Notes by the selling Holders thereof and (z) comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed therewith, and
use their best efforts to cause such Registration Statement to become effective
and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act; and keep each
Prospectus current during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by brokers or dealers with
respect to the Registrable Notes or Exchange Notes;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes to which such Shelf Registration Statement relates, to counsel
for the Initial Purchaser and to counsel for the Holders, without charge, one
copy of the Registration Statement and Exhibits thereto and as many copies of
each Prospectus, including each preliminary Prospectus and any amendment or
supplement thereto, as requested to facilitate the public sale or other
disposition of the Registrable Notes; and the Company consents to the use of
such Prospectus and any amendment or supplement thereto in accordance with
applicable law by each of the selling Holders of Registrable Notes in connection
with the offering and sale of the Registrable Notes covered by and in the manner
described in such Prospectus or any amendment or supplement thereto in
accordance with applicable law;
(d) use its best efforts (i) to register or qualify the Registrable
Notes under all applicable state securities or blue sky laws or such
jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement shall reasonably request in writing by the time the applicable
Registration Statement is declared effective by the SEC and (ii) to cooperate
with such Holders in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. and
11
<PAGE>
do any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Notes owned by such Holder; provided, however,
that the Company shall not be required to (A) qualify as a foreign corporation
or as a dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (B) file any general consent to
service of process or (C) subject itself to taxation in any such jurisdiction if
it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes, counsel for the Holders and for the Initial Purchaser (or, if
applicable, separate counsel for the Holders) and, if requested by such Persons,
confirm such advice in writing, (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement has
become effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) if the
Company receives any notification with respect to the suspension of the
qualification of the Registrable Notes for sale in any jurisdiction or the
initiation of any proceeding for such purpose, (v) of the happening of any event
during the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus untrue
in any material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading and (vi) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the withdrawal of
any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and delivery
of certificates representing Registrable Notes to be sold and not bearing any
restrictive legends
12
<PAGE>
(unless required by applicable securities laws) and enable such Registrable
Notes to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may reasonably
request at least two business days prior to the closing of any sale of
Registrable Notes;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its best efforts to prepare a
supplement or post-effective amendment to a Registration Statement or the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Notes, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that the Company agrees to notify the Holders to
suspend use of the Prospectus as promptly as practicable after the occurrence of
such an event, and the Holders hereby agree to suspend use of the Prospectus
until the Company has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus, provide copies of such document to the
Initial Purchaser and its counsel (and, in the case of a Shelf Registration
Statement, counsel for the Holders) and make such of the representatives of the
Company as shall be reasonably requested by the Initial Pur haser or its counsel
(and, in the case of a Shelf Registration Statement, counsel for the Holders)
available for discussion of such document, and not at any time file or make any
amendment to the Registration Statement, any Prospectus or any amendment of or
supplement to a Registration Statement or a Prospectus, of which the Initial
Purchaser and its counsel (and, in the case of a Shelf Registration Statement,
counsel for the Holders) shall not have previously been advised and furnished a
copy or to which the Initial Purchaser or its counsel (and, in the case of a
Shelf Registration Statement, counsel for the Holders) shall reasonably object
promptly in light of the circumstances;
(k) obtain a CUSIP number for all Exchange Notes or Registrable Notes
(if applicable), as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Notes or Registrable Notes, as the case may be, cooperate with the
Trustee and the Holders to effect such changes to the Indenture as may be
required
13
<PAGE>
for the Indenture to be so qualified in accordance with the terms of the TIA and
execute, and use its best efforts to cause the Trustee to execute, all documents
as may be required to effect such changes and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so qualified in
a timely manner;
(m) in the case of a Shelf Registration, make reasonably available for
inspection by one representative of the Holders of the Registrable Notes,
counsel for the Holders and accountants designated by the Holders and reasonably
acceptable to the Company, at reasonable times and in a reasonable manner and
subject to the execution of customary confidentiality agreements, all financial
and other records, pertinent documents and properties of the Company, and cause
the respective officers, directors and employees of the Company to supply all
information reasonably requested, and as is customary for similar due diligence
examinations, by any such representative, attorney or accountant in connection
with a Shelf Registration Statement;
(n) if reasonably requested by any Holder of Registrable Notes covered
by a Registration Statement, (i) promptly include in a Prospectus supplement or
post-effective amendment such information with respect to such Holder as such
Holder reasonably requests to be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as the Company has received notification of the matters to be included in such
filing; and
(o) in the case of a Shelf Registration, if the Initial Purchaser on
behalf of the Holders shall so request, enter into such customary agreements and
take all such other reasonable actions in connection therewith (including, those
reasonably requested by counsel for the Holders) in order to expedite or
facilitate the disposition of such Registrable Notes and in such connection, (i)
to the extent possible, make such representations and warranties to the Holders
of such Registrable Notes with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents deemed
incorporated by reference, if any, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested, (ii) use its best efforts to obtain
opinions of counsel to the Company (which counsel and opinions, in form, scope
and substance, shall be reasonably satisfactory to counsel to the Holders)
addressed to each selling Holder of Registrable Notes, covering the matters
customarily covered in opinions requested in underwritten offerings, (iii) use
its best efforts to obtain "cold comfort" letters from the independent certified
public accountants of the Company (and, if necessary, any other certified public
accountant of any subsidiary of the Company, or any business acquired by the
Company for which
14
<PAGE>
financial statements and financial data are or are required to be included in
the Registration Statement) addressed to each selling Holder of Registrable
Notes, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings, and (iv) deliver such documents and certificates as may be reasonably
requested by counsel for the Holders to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause (i) above
and to evidence compliance with any customary conditions in an underwriting
agreement.
In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Notes to promptly furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable Notes as the Company may from time to time reasonably request
in writing and the Company may exclude from such registration the Registrable
Notes of any Holder that unreasonably fails to furnish such information within a
reasonable time after receiving such request.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(e)(ii) through (v) hereof, such Holder will
forthwith discontinue disposition of Registrable Notes pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Notes
current at the time of receipt of such notice. Each Holder agrees to indemnify
the Company, the Initial Purchaser and the other selling Holders and each of
their respective officers and directors who sign the Registration Statement and
each person, if any, who controls any such person for any losses, claims,
damages and liabilities caused by the failure of such Holder to discontinue
disposition of Registrable Notes after receipt of the notice referred to in the
preceding sentence or the failure of such Holder to comply with applicable
prospectus delivery requirements with respect to any Prospectus (including, but
not limited to, any amended or supplemented Prospectus) provided by the Company
for such use.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The Company understands that the staff of the SEC has taken the
position that any broker-dealer that receives Exchange Notes for its own account
in the Exchange Offer in exchange for Notes that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the
15
<PAGE>
1933 Act in connection with any resale of such Exchange Notes and, therefore,
must deliver a prospectus meeting the requirements of the 1933 Act in connection
with any resales of the Exchange Notes received by it in the Exchange Offer.
The Company understands that it is the staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Notes, without naming
the Participating Broker-Dealers or specifying the amount of Exchange Notes
owned by them, such Prospectus may be delivered by Participating Broker-Dealers
to satisfy their prospectus delivery obligation under the 1933 Act in connection
with resales of Exchange Notes for their own accounts, so long as the Prospectus
otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of this
Agreement, the Company agrees: to cause the Exchange Offer Registration
Statement to remain effective for a period 180 days after the Offer Termination
Date (or such earlier date as each Participating Broker-Dealer shall have
notified the Company in writing that such Participating Broker-Dealer has resold
all such Exchange Notes received in the Exchange Offer) an shall amend or
supplement the Prospectus contained in the Exchange Offer Registration
Statement, as would otherwise be contemplated by Section 3(i) for such a period,
and Participating Broker-Dealers shall not be authorized by the Company to
deliver and shall not deliver such Prospectus after such period in connection
with the resales contemplated by this Section 4.
(c) The Initial Purchaser shall have no liability to the Company or any
Holder for costs and expenses of the Exchange Offer Registration with respect to
any request that they make pursuant to Section 4(b) above.
5. Indemnification and Contribution.
(a) In the event of a Shelf Registration Statement or in connection
with any prospectus delivery pursuant to an Exchange Offer Registration
Statement by a Participating Broker-Dealer or the Initial Purchaser, as
applicable, the Company agrees to indemnify and hold harmless the Initial
Purchaser, each Holder and each Person, if any who controls the Initial
Purchaser or any Holder within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act, from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement (or any amendment
thereto pursuant to which Exchange Notes or Registrable Notes were registered
under the 1933 Act, including all
16
<PAGE>
documents incorporated therein by reference), or arising out of or based upon
any omissions or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or arising
out of or based upon any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Holder furnished in writing to the Company
by or on behalf of any Holder expressly for use in connection therewith
("Holder's Information"); provided, however, that the indemnification contained
in this paragraph (a) with respect to such Registration Statement or Prospectus
shall not inure to the benefit of any Holder or any such controlling person on
account of any such loss, claim, damages or liabilities caused by the failure of
such person to discontinue disposition of Registrable Notes after receipt of the
notice referred to in the final paragraph of Section 3 hereof; provided,
further, that with respect to any such untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this Section 5(a)
shall not inure to the benefit of any indemnified person from whom the person
asserting any such loss, claim, damage or liability received Registrable Notes
or Exchange Notes if such persons did not receive a copy of the final prospectus
at or prior to the confirmation of the sale of such Registrable Notes or
Exchange Notes to such person in any case where such delivery is required by the
1993 Act and the untrue statement or omission was corrected in the final
prospectus unless such failure to deliver the final prospectus was a result of
noncompliance by the Company with Sections 4(c) and 4(g).
(b) If any action, suit or proceeding shall be brought against any
Holder or any person controlling any Holder in respect of which indemnity may be
sought against the Company, such Holder or such controlling person shall
promptly notify the Company in writing thereof, and the Company shall be
entitled to assume the defense thereof, including the employment of counsel and
payment of all fees and expenses. If the Company so assumes the defense, such
Holder shall use all reasonable best efforts to cooperate with the Company in
the defense of such action, suit or proceeding. Such Holder or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Holder or such
controlling person unless (i) the Company has agreed in writing to pay such fees
and expenses, (ii) the Company
17
<PAGE>
has failed to assume the defense and employ counsel within a reasonable time
after notice of the commencement of such action, suit or proceeding is received,
or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Holder or such controlling person and the
Company and such Holder or such controlling person shall have been advised by
its counsel in writing that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Initial Purchaser or Holder or such
controlling person). It is understood, however, that the Company shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys at any time for all such
Holders and controlling persons, which firm shall be designated in writing by
Smith Barney Inc. The Company shall not be liable for any settlement of any such
action, suit or proceeding effected without its written consent, but if settled
with such written consent, or if there be a final judgment for the plaintiff in
any such action, suit or proceeding, the Company agrees to indemnify and hold
harmless any Holder and any such controlling person from and against any loss,
claim, damage, liability or expense by reason of settlement or judgment, to the
extent provided in the preceding paragraph.
(c) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, each of its directors and officers, and any person
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20(a) of the 1934 Act, to the same extent as the foregoing indemnity
from the Company to each Holder, but only with respect to the Holder's
Information. If any action, suit or proceeding shall be brought against the
Company, any of its directors or officers, or any such controlling persons based
on any Registration Statement (or any amendment thereto) or any prospectus (or
any amendment or supplement thereto), and in respect of which indemnity may be
sought against any Holder pursuant to this paragraph (c), such Holder shall have
the rights and duties given to the Company by paragraph (b) above (except that
if the Company shall have assumed the defense thereof such Holder shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof, but the fees and expenses of such counsel shall be at such
Holder's expense), and the Company, its directors and officers, and any such
controlling persons shall have the rights and duties given to the Holders by
paragraph (b) above.
18
<PAGE>
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Company on the
one hand and the Holders on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and the Holders on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or by the Holders on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a r sult of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Notes were
sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 5 are several in proportion to the number of Notes purchased by such
Holder and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party
19
<PAGE>
from all liability or claims that are the ubject matter of such action, suit or
proceeding.
(g) Any losses, claims, damages, liabilities or expenses (including
counsel fees pursuant to paragraph (b) above) for which an indemnified party is
entitled to indemnification or contribution under this Section 5 shall be paid
by the indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 5 shall remain operative and in full force
and effect, regardless of (i) any investigation made by or on behalf of any
Holder or any person controlling any Holder, the Company's directors or officers
or any person controlling the Company, (ii) acceptance of any Exchange Notes and
(iii) any sale of Registrable Notes pursuant to a Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into, and
on or after the date of this Agreement will not enter into, any agreement which
is inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable Notes;
provided, however, that no departure from the provisions of Section 5 hereof
shall be effective as against any Holder of Registrable Notes unless consented
to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Initial Purchaser,
the address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
20
<PAGE>
All such notices and communications shall be deemed to have been duly
given at the time delivered, if personally delivered; five business days after
being deposited in the mail, postage pre-paid, if mailed; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and on the next business
day if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment or assumption, subsequent Holders; provided that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms of the Purchase Agreement. If any transferees of
any Holder shall acquire Registrable Notes, in any manner, whether by operation
of law or otherwise, such Registrable Notes, shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Notes such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement and such person shall be
entitled to receive the benefits hereof. The Initial Purchaser shall have no
liability or obligation to the Company with respect to any failure by a Holder
(other than the Initial Purchaser) to comply with, or any breach by any Holder
of, the obligations of such Holder under this Agreement.
(e) Third Party Beneficiary. The Holders (with the exception of the
Initial Purchaser) shall be third party beneficiaries to the agreements made
hereunder between the Company and the Initial Purchaser and shall have the right
to enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agre ment shall be governed by laws of the
State of New York.
21
<PAGE>
(i) Severability. In the event that one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Termination. This Agreement shall terminate upon the redemption of
the Notes pursuant to the terms of the Escrow Agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ROSE HILLS ACQUISITION CORP.
By /s/ Chinh Chu
----------------------------------------
Name: Chinh Chu
Title: Director
Confirmed and accepted as of
the date first above written:
SMITH BARNEY INC.
By /s/ Michael Del Giudice
-----------------------------------
Name: Michael Del Giudice
Title: Vice President
23
<PAGE>
24
<PAGE>
[FORM OF LETTER OF TRANSMITTAL]
for
9 1/2% Senior Subordinated Notes due 2004
of
ROSE HILLS COMPANY
(formerly known as Rose Hills Acquistion Corp.)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON [ ], 1997 (the "EXPIRATION DATE") UNLESS EXTENDED BY
ROSE HILLS COMPANY
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
By Hand: By Mail:
United States Trust Company of New York (insured or registered recommended)
111 Broadway--Lower Level United States Trust Company of New York
New York, New York 10006 P.O. Box 843
Attention: Corporate Trust Peter Cooper Station
New York, New York 10276
Attention: Corporate Trust
By Overnight Express:
United States Trust Company of New York By Facsimile:
770 Broadway, 13th Floor (212) 420-6152
New York, New York 10003 (For Eligible Institutions Only)
Attention: Corporate Trust Services Window By Telephone:
(800) 548-6565
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via a facsimile transmission to a
number other than as set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus dated
[ ], 1997 (the "Prospectus") of Rose Hills Company (formerly known
as Rose Hills Acquistion Corp.) ("RHC"), and this Letter of Transmittal (the
"Letter of Transmittal"), which together describe RHC's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its new 9 1/2% Senior
Subordinated Notes due 2004 (the "Exchange Notes") for each $1,000 in principal
amount of outstanding 9 1/2% Senior Subordinated Notes due 2004 (the "Notes").
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the Exchange Notes are freely transferable by holders thereof (except as
provided herein or in the Prospectus) and are not subject to any covenant
regarding registration under the Securities Act of 1933, as amended (the
"Securities Act").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Notes to which this Letter of Transmittal relates. If the space
provided below is inadequate, the Certificate Numbers and Principal Amounts
should be listed on a separate signed schedule affixed hereto.
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
DESCRIPTION OF NOTES TENDERED HEREWITH
- -----------------------------------------------------------------------------------------------------------------
Aggregate
Principal Amount Principal
Name(s) and Address(es) of Registered Certificate Represented Amount
Holder(s) (Please fill in) Number(s)* by Notes* Tendered**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total
=================================================================================================================
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered
the full aggregate principal amount represented by such Notes. See
instruction 2.
This Letter of Transmittal is to be used either if certificates of
Notes are to be forwarded herewith or if delivery of Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company, pursuant to the procedures set forth in "The Exchange
Offer--Tender Procedure" in the Prospectus. Delivery of documents to the
book-entry transfer facility does not constitute delivery to the Exchange Agent.
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer--Tender Procedure."
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK- ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------
/ / The Depository Trust Company
-------------------------------------------
Account Number
---------------------------------------------------------
Transaction Code Number
------------------------------------------------
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
-------------------------------------------
Name of Eligible Institution that Guaranteed Delivery
------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------
If Delivered by Book-Entry Transfer:
<PAGE>
Account Number
---------------------------------------------------------
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN
PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name
-------------------------------------------------------------------
(Please Print)
Address
----------------------------------------------------------------
(Including Zip Code)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Address
----------------------------------------------------------------
(Including Zip Code)
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------------------------------------
Address:
---------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents
that (i) it is not an "affiliate" of RHC within the meaning of Rule 405 under
the Securities Act, (ii) Exchange Notes to be acquired by it in connection with
the Exchange Offer are being acquired by it in the ordinary course of its
business and (iii) it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to RHC the above-described principal amount of the
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Notes tendered herewith, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of, RHC all right, title and
interest in and to such Notes. The undersigned hereby irrevocably constitutes
and appoints the Exchange Agent the true and lawful agent and attorney-in-fact
of the undersigned (with full knowledge that said Exchange Agent acts as the
agent of RHC in connection with the Exchange Offer) to cause the Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Notes and to acquire Exchange Notes issuable upon the exchange of such
tendered Notes, and that, when the same are accepted for exchange, RHC will
acquire good and unencumbered title to the tendered Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or RHC to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by the book-entry transfer facility. The undersigned further agrees
that acceptance of any and all validly tendered Notes by RHC and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by RHC
of its obligations under the Registration Rights Agreement (as defined in the
Prospectus) and that RHC shall have no further obligations or liabilities
thereunder.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions to the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by RHC), as more particularly set forth in
the Prospectus, RHC may not be required to exchange any of the Notes tendered
hereby and, in such event, the Notes not exchanged will be returned to the
undersigned at the address shown above.
By tendering, the undersigned hereby represents to RHC that, among
other things, (i) it is not an "affiliate" of RHC within the meaning of Rule 405
under the Securities Act, (ii) Exchange Notes to be acquired by it in connection
with the Exchange Offer are being acquired by it in the ordinary course of its
business and (iii) it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Notes that were acquired as a result of market-making activities or other
trading activities, the undersigned hereby acknowledges that it will deliver a
prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and delivering a prospectus, the undersigned will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act. Any
holder of Notes using the Exchange Offer to participate in a distribution of the
Exchange Notes (i) cannot rely on the position of the staff of the Securities
and Exchange Commission (the "Commission") enunciated in its interpretive letter
with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar letters and (ii) must comply with the registration and prospectus
requirements of the Securities Act in connection with a secondary resale
transaction. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Notes may be withdrawn at
any time prior to the Expiration Date in accordance with the terms of the Letter
of Transmittal.
Certificates for all Exchange Notes delivered in exchange for tendered
Notes and any Notes delivered herewith but not exchanged, and registered in the
name of the undersigned, shall be delivered to the undersigned at the address
shown below the signature of the undersigned.
<PAGE>
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: Area Code and Telephone Number:
---------------- ---------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) of Notes. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth the full title of such
person.) See Instruction 3.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.:
----------------------------------------------------
Taxpayer Identification No.:
----------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(If Required-See Instruction 3)
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Area Code and Telephone No.:
----------------------------------------------------
Dated:
---------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for all physically delivered Notes or confirmation of any
book-entry transfer to the Exchange Agent's or its agent's account at a
book-entry transfer facility of Notes tendered by book-entry transfer, as well
as a properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date (as defined in the Prospectus).
The method of delivery of this Letter of Transmittal, the Notes and any
other required documents is at the election and risk of the holder, and except
as otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. If such delivery is by mail, it is
suggested that registered mail with return receipt requested, properly insured,
be used. In all cases sufficient time should be allowed to permit timely
delivery.
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other required documents to the Exchange Agent on or prior
to the Expiration Date or comply with book-entry transfer procedures on a timely
basis must tender their Notes pursuant to the guaranteed delivery procedure set
forth in the Prospectus under "The Exchange Offer--Tender Procedure." Pursuant
to such procedure: (i) such tender must be made by or through an Eligible
Institution (as defined in the Prospectus); (ii) on or prior to the Expiration
Date the Exchange Agent must have received from such Eligible Institution a
letter, telegram or facsimile transmission (receipt confirmed by telephone and
an original delivered by guaranteed overnight courier) setting forth the name
and address of the tendering holder, the names in which such Notes are
registered, and, if possible, the certificate numbers of the Notes to be
tendered; and (iii) all tendered Notes (as a confirmation of any book-entry
transfer of such Notes into the Exchange Agent's account at a book-entry
transfer facility) as well as this Letter of Transmittal and all other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three New York Stock Exchange trading days after the date of execution of
such letter, telegram or facsimile transmission, all as provided in the
Prospectus under the caption "The Exchange Offer--Tender Procedure."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
2. Effect of Non-Tender; Partial Tenders; Withdrawals.
Any Note or portion thereof not tendered will remain outstanding and
continue to accrue interest but will not retain any rights under the
Registration Rights Agreement.
If less than the entire principal amount of Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Notes submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
Tenders of Notes pursuant to the Exchange Offer are irrevocable, except
that Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. To be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent by 5:00 P.M., New York City time, on the Expiration Date unless extended
by RHC. Any such notice of withdrawal must specify the person named in the
Letter of Transmittal as having tendered Notes to be withdrawn, the certificate
numbers of the Notes to be withdrawn, the principal amount of Notes to be
withdrawn, a statement that such holder is withdrawing his or her election to
have such Notes exchanged, and the name of the registered holder of such Notes,
and must be signed by the holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to RHC that the person withdrawing the
tender has succeeded to the beneficial ownership of the Notes being withdrawn.
The Exchange Agent will return the properly withdrawn Notes promptly following
receipt of notice of withdrawal. If Notes have
<PAGE>
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Notes or otherwise comply
with the book-entry transfer facility's procedures. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by RHC, and such determination will be final and binding on all
parties.
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered holder(s) of
the Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the Notes) of Notes listed and tendered hereby, no endorsements of
certificates or separate written instruments of transfer or exchange are
required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Notes listed, such Notes must be endorsed or
accompanied by separate written instruments of transfer or exchange in form
satisfactory to RHC and duly executed by the registered holder, in either case
signed exactly as the name or names of the registered holder or holders
appear(s) on the Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by RHC, proper evidence satisfactory
to RHC of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Notes are tendered: (i) by a registered
holder of such Notes, for the holder of such Notes; or (ii) for the account of
an Eligible Institution.
4. Transfer Taxes.
RHC shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Notes to it or its order pursuant to the Exchange Offer. If a
transfer tax is imposed for any reason other than the transfer and exchange of
Notes to RHC or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other person)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exception therefrom is not submitted herewith the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Notes listed in this Letter of
Transmittal.
<PAGE>
5. Waiver of Conditions.
RHC reserves the right to waive in its reasonable judgment, in whole or
in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. Mutilated, Lost, Stolen or Destroyed Notes.
Any holder whose Notes have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the address indicated below for further
instructions.
7. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, NY 10017, Attention: Maripat Alpuche (telephone 212-455-3971).
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together
with certificates of Notes or confirmation of book-entry transfer and all other
required documents) or a Notice of Guaranteed Delivery must be received by the
Exchange Agent on or prior to the Expiration Date.
<PAGE>
[FORM OF NOTICE OF GUARANTEED DELIVERY]
for
Tender of all Outstanding
9 1/2% Senior Subordinated Notes
due 2004
in Exchange for New
9 1/2% Senior Subordinated Notes due 2004
of
ROSE HILLS COMPANY
(formerly known as Rose Hills Acquisition Corp.)
Registered holders of outstanding 9 1/2% Senior Subordinated Notes due
2004 (the "Notes") who wish to tender their Notes in exchange for a like
principal amount of new 9 1/2% Senior Subordinated Notes due 2004 (the "Exchange
Notes") and whose Notes are not immediately available or who cannot deliver
their Notes and Letter of Transmittal (and any other documents required by the
Letter of Transmittal) to United States Trust Company of New York (the "Exchange
Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery
or one substantially equivalent hereto. This Notice of Guaranteed Delivery may
be delivered by hand or sent by facsimile transmission (receipt confirmed by
telephone and an original delivered by guaranteed overnight delivery) or mail to
the Exchange Agent. See "The Exchange Offer--Tender Procedure" in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
By Hand: By Mail:
United States Trust Company of New York (insured or registered recommended)
111 Broadway--Lower Level United States Trust Company of New York
New York, New York 10006 P.O. Box 843
Attention: Corporate Trust Peter Cooper Station
New York, New York 10276
Attention: Corporate Trust
By Overnight Express:
United States Trust Company of New York By Facsimile:
770 Broadway, 13th Floor (212) 420-6152
New York, New York 10003 (For Eligible Institutions Only)
Attention: Corporate Trust Services Window By Telephone:
(800) 548-6565
Delivery of this Notice of Guaranteed Delivery to an address other than
as set forth above or transmission of instructions via a facsimile transmission
to a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus
dated [ ], 1997 of Rose Hills Company (formerly known as Rose Hills
Acquisition Corp.) (the "Prospectus"), receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
Name and address of registered
holder as it appears on the
9 1/2% Senior Subordinated Certificate Number(s) Principal Amount
Notes due 2004 ("Notes") of Notes of Notes
(Please Print) Tendered Tendered
- ------------------------------- ------------------- -----------------
- ------------------------------- ------------------- -----------------
- ------------------------------- ------------------- -----------------
- ------------------------------- ------------------- -----------------
- ------------------------------- ------------------- -----------------
-2-
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(not to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the Notes, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal within
three New York Stock Exchange, Inc. trading days after the date of execution of
this Notice of Guaranteed Delivery.
Name of Firm:
------------------------------------------ ----------------------
(Authorized Signature)
Address: Title:
------------------------------------------ ---------------------
Name:
- -------------------------------------------------- ---------------------
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:
---------------------
- --------------------------------------------------
NOTE: DO NOT SEND NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. NOTES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
-3-
