<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
(Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2)
[X] Definitive Information Statement
MHI GROUP, INC.
---------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, Par Value $0.40 per Share
---------------------------------------
2) Aggregate number of securities to which transaction applies:
7,344,064
---------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
Pursuant to the Agreement and Plan of Merger, dated as of August 9, 1995
(the "Merger Agreement"), among MHI Group, Inc., Loewen Group
International, Inc. and SPRT Corp., the price per share of Common Stock,
par value $0.40 per share (the "Shares"), is $10.25. Pursuant to Rule 0-
11(c)(1), the filing fee of $15,055.33 was calculated as 1/50 of 1% of
the cash payment required under the Merger Agreement, which is equal to
the product of $10.25 per Share and 7,344,064 Shares outstanding as of
August 9, 1995. Such number of outstanding Shares assumes the exercise or
conversion of all existing options, rights and securities which were then
exercisable or convertible into Shares.
4) Proposed maximum aggregate value of transaction:
$75,276,656
-----------
5) Total fee paid:
$15,055.33
----------
[_] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$15,155.33
----------
2) Form, Schedule or Registration Statement No.:
Schedule 14D-1 and Schedule 13D
-------------------------------
3) Filing Party:
Loewen Group International, Inc. and SPRT Corp.
-----------------------------------------------
4) Date Filed:
August 14, 1995
---------------
<PAGE>
MHI GROUP, INC.
3100 Capital Circle NE
Tallahassee, Florida 32308-3760
October 9, 1995
Dear Shareholders:
On behalf of the Board of Directors of MHI Group, Inc., a Florida
corporation (the "Company"), I am pleased to inform you that the cash tender
offer commenced on August 14, 1995 by Loewen Group International, Inc., a
Delaware corporation (the "Parent"), and SPRT Corp., a Florida corporation (the
"Purchaser"), the Parent's wholly owned subsidiary, for all outstanding shares
of the Company's common stock, par value $0.40 per Share (the "Shares") at a
price of $10.25 net per Share in cash (the "Offer"), was consummated on
September 19, 1995. A total of 5,894,920 Shares, representing approximately
94% of the total number of outstanding Shares, were validly tendered and not
withdrawn prior to the expiration of the Offer, and such Shares were accepted by
the Purchaser for payment. The Offer was conducted pursuant to the Agreement and
Plan of Merger (the "Merger Agreement") among the Company, the Parent and the
Purchaser, pursuant to which the Parent agreed to acquire the Company in a two-
step transaction. The Parent is a wholly owned subsidiary of The Loewen Group
Inc., a corporation organized under the laws of the province of British
Columbia, Canada. The Merger Agreement provides that, subject to the
satisfaction or waiver of the conditions thereto, following successful
completion of the Offer, the Purchaser will be merged with and into the Company,
with the Company surviving the merger (the "Merger"). At the effective time of
the Merger, each issued and outstanding Share (other than Shares held by the
Parent, the Purchaser or the Company) will be converted into the right to
receive $10.25 net per Share in cash, without interest (the "Merger
Consideration").
A letter of transmittal to enable you to send in your Shares and
receive payment of the Merger Consideration is enclosed. To expedite receipt of
this payment, you should fill out the enclosed letter of transmittal promptly
and return it, together with your Share certificates, to the indicated address.
Please follow the enclosed instructions for completing this form carefully.
Your Board of Directors, by the unanimous vote of all of the Directors
of the Company, approved the Offer and the Merger and determined that the terms
of the Offer and the Merger are fair to, and in the best interests of, the
holders of Shares. In reaching its conclusions, the Board of Directors gave
careful consideration to a number of factors, which are described in the
Information Statement filed by the Company with the Securities and Exchange
Commission and enclosed with this letter. I urge you to read the enclosed
materials carefully. The Board also engaged Commonwealth Associates as its
financial advisor to evaluate the Offer and the Merger, and Commonwealth
Associates has rendered to the Board its opinion, which is included as an
exhibit to the Information Statement, that the cash consideration to be received
by the holders of Shares is fair from a financial point of view to such
shareholders as of the date of delivery of such opinion.
As the Purchaser has acquired a majority of the outstanding Shares, the
Purchaser has sufficient voting power to approve the Merger, even if no other
shareholder of the Company votes in favor of the Merger. ACCORDINGLY, WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. NO MEETING
OF SHAREHOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE MERGER.
<PAGE>
TO RECEIVE PAYMENT AFTER THE MERGER OF $10.25 IN CASH (WITHOUT
INTEREST) PER SHARE, HOLDERS OF SHARES MUST DELIVER CERTIFICATES EVIDENCING SUCH
SHARES ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL, IN THE FORM BEING
FURNISHED HEREWITH TO HOLDERS OF SHARES, TO THE PAYING AGENT AT THE ADDRESS
SPECIFIED IN THE LETTER OF TRANSMITTAL.
The obligations of the Company and the Purchaser to consummate the Merger are
subject to certain conditions. In the unlikely event that the Merger Agreement
is terminated without the Merger being consummated, certificates delivered to
the paying agent will be promptly returned.
Sincerely,
Clifford R. Hinkle
President and Chief
Executive Officer
<PAGE>
MHI GROUP, INC.
3100 Capital Circle NE
Tallahassee, Florida 32308-3760
--------------------------------
INFORMATION STATEMENT
--------------------------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being furnished to the holders of outstanding
shares of common stock, $.40 par value per share (the "Common Stock" or
"Shares"), of MHI Group, Inc., a Florida corporation (the "Company"), as of
September 22, 1995 (the "Record Date"), in connection with the proposed merger
(the "Merger") of SPRT Corp., a Florida corporation (the "Purchaser") and a
wholly owned subsidiary of Loewen Group International, Inc., a Delaware
corporation (the "Parent"), with and into the Company pursuant to an Agreement
and Plan of Merger, dated as of August 9, 1995 (the "Merger Agreement"), among
the Parent, the Purchaser and the Company. Pursuant to the Merger Agreement, the
Purchaser commenced a cash tender offer on August 14, 1995 for all outstanding
Shares at a price of $10.25 per Share, net to the Seller in cash (the "Offer").
The Offer expired at 12:00 midnight, New York City time, on Monday, September
18, 1995, at which time the Purchaser accepted for payment 5,894,920 Shares
validly tendered pursuant to the Offer and not withdrawn, representing
approximately 94% of the total number of outstanding Shares. The Merger will be
consummated on the terms and subject to the conditions set forth in the Merger
Agreement, as a result of which at the effective time of the Merger (the
"Effective Time") (a) the Company will continue as the surviving corporation and
will become a wholly-owned subsidiary of the Parent, with the exception of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock of
the Company (collectively, the "Preferred Shares") not owned by the Parent
subsequent to the Merger and (b) each Share issued and outstanding (other than
Shares held by the Parent, the Purchaser or the Company) will be converted into
the right to receive $10.25 net per Share in cash, without interest.
The date of this Information Statement is October 9, 1995. This
Information Statement is being furnished by the Company and was first mailed on
or about October 10, 1995 to holders of Shares as of the close of business on
the Record Date.
The Board of Directors of the Company (the "Board" or the "Board of
Directors"), by the unanimous vote of all of the Directors of the Company,
approved the Offer and the Merger and determined that the terms of the Offer and
the Merger are fair to, and in the best interests of, the holders of Shares.
Under the Florida Business Corporation Act (the "FBCA"), the affirmative vote of
the holders of a majority of the outstanding Shares is required to approve the
Merger. The Purchaser owns in the aggregate 5,894,920 Shares of Common Stock
(excluding Shares that the Parent could have the right to acquire upon exercise
of the Company Option and the MH Option (as hereinafter defined)), representing
approximately 94% of the Shares outstanding as of the Record Date. Under the
Merger Agreement, the Parent has agreed to vote, or cause to be voted, in favor
of the Merger all Shares directly or indirectly beneficially owned by it. As the
Purchaser has acquired a majority of the outstanding Shares, the Purchaser has
sufficient voting power to approve the Merger, without the vote of any other
shareholder of the Company, and the Purchaser has executed and delivered to the
Company a written consent dated October 6, 1995 approving of the Merger
effective as of the twenty-first business day following the mailing of this
Information Statement to the holders of Shares (or, if such day is not a day on
which Articles of Merger may be filed with the Secretary of State of the State
of Florida, the next such day). ACCORDINGLY, WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY. NO MEETING OF SHAREHOLDERS WILL BE
HELD TO CONSIDER APPROVAL OF THE MERGER.
<PAGE>
TO RECEIVE PAYMENT AFTER THE MERGER OF $10.25 IN CASH (WITHOUT INTEREST)
PER SHARE, HOLDERS OF SHARES MUST DELIVER CERTIFICATES EVIDENCING SUCH
SHARES ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL, IN THE FORM BEING
FURNISHED HEREWITH TO HOLDERS OF SHARES, TO THE PAYING AGENT AT THE ADDRESS
SPECIFIED IN THE LETTER OF TRANSMITTAL. The obligations of the Company and the
Purchaser to consummate the Merger are subject to certain conditions. In the
unlikely event that the Merger Agreement is terminated without the merger being
consummated, certificates delivered to the paying agent will be promptly
returned.
Although no action is required by the shareholders of the Company in
connection with the proposed Merger, Section 14(c) of the Exchange Act requires
the mailing to the holders of Shares of the information set forth in this
Information Statement at least twenty business days prior to the date on which
the written consent of the Purchaser is to be used to approve the proposed
Merger. Accordingly, the Company expects that the Merger will be consummated on
November 6, 1995 or as promptly as practicable thereafter, assuming that the
conditions to the Merger set forth in the Merger Agreement have been satisfied.
See "THE MERGER AGREEMENT - The Merger".
SHAREHOLDERS WILL NOT HAVE DISSENTERS' RIGHTS UNDER THE FBCA AS A RESULT OF
THE MERGER. THE PREFERRED SHARES WILL REMAIN OUTSTANDING FOLLOWING, AND WILL BE
UNAFFECTED BY, THE MERGER.
As of the Record Date, there were issued and outstanding 6,273,001 Shares,
24,757 shares of Series B Preferred Stock of the Company and 13,938 shares of
Series C Preferred Stock of the Company. Holders of record of Shares at the
close of business on the Record Date are entitled to one vote per Share held on
all matters submitted to a vote of shareholders. The Preferred Shares have no
voting or dividend rights whatsoever and are only entitled to receive a
preferential payment of $20 in cash per Preferred Share in a liquidation of the
Company. The Parent and the Purchaser have not made, and do not presently
intend to make or to cause the Company to make in the future, any offer to
purchase Preferred Shares. The Preferred Shares will remain outstanding
following, and will be unaffected by, the Merger and will have no voting or
appraisal rights in connection therewith. The Parent and the Purchaser do not
intend to cause the Company to liquidate at any time in the foreseeable future.
No market for the Preferred Shares exists. As a result of the consummation of
the Offer and the Merger, the registration of the Shares under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will be terminated. The
termination of the registration of the Shares under the Exchange Act will
substantially reduce the information required to be furnished by the Company to
the Securities and Exchange Commission (the "Commission") and available to the
holders of the Preferred Shares for review.
The information contained in this Information Statement concerning the
Parent and the Purchaser has been furnished to the Company by the Parent, and
the Company assumes no responsibility for the accuracy or completeness of such
information.
AVAILABLE INFORMATION
The Company, prior to the deregistration of the Shares under the Exchange
Act, is subject to the informational requirements of the Exchange Act, and in
accordance therewith files periodic reports, proxy statements
(ii)
<PAGE>
and other information with the Commission. The Tender Offer Statement on
Schedule 14D-1 and amendments thereto filed by the Purchaser and the Parent in
connection with the Offer, the Solicitation/Recommendation Statement on Schedule
14D-9 filed by the Company in connection with the Offer and the respective
exhibits thereto, as well as such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Commission at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, reports, proxy statements and other
information concerning the Company should also be available for inspection at
the offices of the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street,
New York, New York 10005, and the Pacific Stock Exchange, Incorporated (the
"PSE"), 301 Pine Street, San Francisco, California 94104.
The Shares are currently registered under the Exchange Act. Following the
Merger, the Company will become the wholly owned subsidiary of the Parent
(except for the Preferred Shares), and there will be no public trading of the
Shares. Accordingly, registration of the Shares will be terminated upon
application of the Company to the Commission when the Merger is consummated, and
the Company will no longer be subject to the reporting requirements of the
Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference herein:
(i) The Company's latest Annual Report on Form 10-K for the fiscal
year of the Company ended April 30, 1995 (the "Annual Report");
(ii) The Company's latest Quarterly Report on Form 10-Q for the fiscal
quarter of the Company ended July 31, 1995 (the "Quarterly Report"); and
(iii) The Company's Current Report on Form 8-K filed with the
Commission on September 29, 1995 (the "Current Report").
Copies of each of the Annual Report, the Quarterly Report and the Current
Report are being delivered to the Company's holders of Shares together with this
Information Statement. All documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the Effective Date are hereby incorporated by
reference herein and shall be deemed a part hereof from the date of the filing
of such documents.
The information relating to the Company contained herein does not purport
to be comprehensive and should be read together with the information in the
documents incorporated by reference herein.
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION.............................................................. 1
INFORMATION CONCERNING THE COMPANY................................... 2
INFORMATION CONCERNING THE PARENT AND THE PURCHASER.................. 2
THE MERGER................................................................ 2
BACKGROUND OF THE MERGER............................................. 2
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER.................... 4
OPINION OF FINANCIAL ADVISOR......................................... 5
General......................................................... 5
Opinion of Commonwealth......................................... 5
Summary of Presentation Materials to the Board.................. 7
Trading Comparables Valuation................................... 7
Precedent Transactions Valuation................................ 7
Discounted Value of Future Stand-Alone EPS...................... 7
Stand-Alone Discounted Cash Flow................................ 8
Leveraged Buy-Out............................................... 8
Leveraged Recapitalization / Stock Buyback...................... 8
INTEREST OF CERTAIN PERSONS IN THE MERGER............................ 10
Indemnification and Directors' and Officers' Insurance.......... 10
Stock Options................................................... 10
Severance Benefit Arrangements; Incentive Options............... 11
Warrant Option Agreement with MH Associates..................... 12
STRUCTURE OF THE MERGER.............................................. 12
ACCOUNTING TREATMENT OF THE MERGER................................... 12
FINANCING THE ACQUISITION............................................ 13
CERTAIN EFFECTS OF THE MERGER........................................ 13
CERTAIN FEDERAL TAX CONSEQUENCES OF THE MERGER....................... 13
THE MERGER AGREEMENT...................................................... 14
General......................................................... 14
Board Representation............................................ 14
The Merger...................................................... 14
Conduct of Business Pending the Merger.......................... 15
Additional Agreements........................................... 15
Amendment....................................................... 16
Termination..................................................... 16
Indemnification................................................. 17
Fees and Expenses............................................... 17
Warrants and Stock Options...................................... 17
Representations and Warranties.................................. 18
CERTAIN OTHER AGREEMENTS.................................................. 18
THE COMPANY OPTION AGREEMENT......................................... 18
The Company Option.............................................. 18
Exercise of the Company Option.................................. 19
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Adjustments Upon Changes in Capitalization or
Merger.......................................................... 19
Put Right of the Parent......................................... 20
Right of First Refusal.......................................... 21
Registration Rights............................................. 21
THE WARRANT OPTION AGREEMENT......................................... 21
The Warrant Option.............................................. 22
Exercise of the Warrant Option.................................. 22
Warrant Option Purchase Price................................... 22
Sale of MH Option by the Parent................................. 22
Covenants of MH Associates...................................... 22
Exercise of MH Option........................................... 22
THE EXCLUSIVITY AGREEMENT............................................ 23
THE CONFIDENTIALITY AGREEMENT........................................ 23
REGULATORY AND OTHER APPROVALS............................................ 24
SELECTED FINANCIAL DATA................................................... 24
ABSENCE OF DISSENTERS' RIGHTS............................................. 26
CERTAIN LITIGATION........................................................ 26
MARKET PRICES OF AND DIVIDENDS ON COMMON STOCK............................ 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................... 27
</TABLE>
EXHIBITS:
EXHIBIT A The Agreement and Plan of Merger dated as of August 9, 1995
among MHI Group, Inc., Loewen Group International, Inc. and
SPRT Corp.
EXHIBIT B Fairness Opinion of Commonwealth Associates
EXHIBIT C Stock Option Agreement, dated as of August 9, 1995, between
MHI Group, Inc. and Loewen Group International, Inc.
EXHIBIT D Warrant Option Agreement, dated as of August 9, 1995,
between Loewen Group International, Inc. and MH Associates.
(v)
<PAGE>
INTRODUCTION
This Information Statement is being furnished to the holders of outstanding
Shares as of the Record Date in connection with the proposed
Merger of the Purchaser with and into the Company, pursuant to the Merger
Agreement. Pursuant to the Merger Agreement, the Purchaser commenced the Offer
on August 14, 1995. The Offer expired at 12:00 midnight, New York City time, on
Monday, September 18, 1995, as of which time the Purchaser accepted for payment
5,894,920 Shares validly tendered pursuant to the Offer and not withdrawn,
representing approximately 94% of the total number of outstanding Shares. The
Merger will be consummated on the terms and subject to the conditions set forth
in the Merger Agreement, as a result of which at the Effective Time (a) the
Company will continue as the surviving corporation and will become a wholly
owned subsidiary of the Parent, with the exception of the outstanding Preferred
Shares, and (b) each Share issued and outstanding (other than Shares held by the
Parent, the Purchaser or the Company) will be converted into the right to
receive $10.25 net per Share in cash, without interest.
As the Purchaser has acquired a majority of the outstanding Shares, the
Purchaser has sufficient voting power to approve the Merger, without the vote of
any other shareholder of the Company, and the Purchaser has executed and
delivered to the Company a written consent, dated October 6, 1995, approving of
the Merger effective as of the twenty-first business day following the mailing
of this Information Statement to the holders of Shares (or, if such day is not a
day on which Articles of Merger may be filed with the Secretary of State of the
State of Florida, the next such day). Accordingly, we are not asking you for a
proxy and you are requested not to send us a proxy. No meeting of Shareholders
will be held to consider approval of the Merger.
TO RECEIVE PAYMENT AFTER THE MERGER OF $10.25 IN CASH (WITHOUT INTEREST)
PER SHARE, HOLDERS OF SHARES MUST DELIVER CERTIFICATES EVIDENCING SUCH SHARES
ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL, IN THE FORM BEING
FURNISHED HEREWITH TO HOLDERS OF SHARES, TO THE PAYING AGENT AT THE ADDRESS
SPECIFIED IN THE LETTER OF TRANSMITTAL. The obligations of the Company and the
Purchaser to consummate the Merger are subject to certain conditions. In the
unlikely event that the Merger Agreement is terminated without the Merger being
consummated, certificates delivered to the Paying Agent will be promptly
returned.
Although no action is required by the shareholders of the Company in
connection with the proposed Merger, Section 14(c) of the Exchange Act requires
the mailing to holders of Shares of the information set forth in this
Information Statement at least twenty business days prior to the date on which
the written consent of the Purchaser is to be used to approve the proposed
Merger. Accordingly, the Company expects that the Merger will be consummated on
November 6, 1995 or as promptly as practicable thereafter, assuming that the
conditions to the Merger set forth in the Merger Agreement have been satisfied.
See "THE MERGER AGREEMENT - The Merger".
SHAREHOLDERS WILL NOT HAVE THE DISSENTERS' RIGHTS UNDER THE FBCA AS A
RESULT OF THE MERGER. THE PREFERRED SHARES WILL REMAIN OUTSTANDING FOLLOWING,
AND WILL BE UNAFFECTED, BY THE MERGER.
As of the Record Date, there were issued and outstanding 6,273,001 Shares,
24,757 shares of Series B Preferred Stock of the Company and 13,938 shares of
Series C Preferred Stock of the Company. Holders of record of Shares at the
close of business on the Record Date are entitled to one vote per Share held on
all matters submitted to a vote of shareholders. The Preferred Shares have no
voting or dividend rights whatsoever and are only entitled to receive a
preferential payment of $20 in cash per Preferred Share in a liquidation of the
Company. The Parent and the Purchaser have not made, and do not presently intend
to make or cause to be made in the future, any offer to purchase Preferred
Shares. The Preferred Shares will remain outstanding following, and will be
unaffected by, the Merger and will have no voting or appraisal rights in
connection therewith. The Parent and the Purchaser do not intend to cause the
company to liquidate at any time in the foreseeable future. No market for the
Preferred Shares exists. As a result of the consummation of the Offer and the
Merger, the registration of the Shares under the Exchange Act will be
terminated. The termination of the registration of the Shares under the Exchange
Act will substantially reduce the information required to be furnished by the
Company to the commission and available to the holders of Preferred Shares for
review.
<PAGE>
INFORMATION CONCERNING THE COMPANY
The Company is a Florida corporation with its principal executive offices
located at 3100 Capital Circle, NE, Tallahassee, Florida 32308 and the telephone
number of such offices being (904) 385-8883.
The Company is a provider of comprehensive deathcare products and services
and derives revenues primarily from the pre-need sale and at-need delivery of
funeral services and cemetery products and services.
INFORMATION CONCERNING THE PARENT AND THE PURCHASER
The Purchaser, a Florida corporation and wholly owned subsidiary of the
Parent, was organized to acquire the Company and has not conducted any unrelated
activities since its organization on August 8, 1995. The Purchaser is a wholly
owned subsidiary of the Parent, a Delaware corporation, which, in turn, is an
indirect wholly owned subsidiary of The Loewen Group Inc., a corporation
organized under the laws of the province of British Columbia, Canada ("Loewen").
The Parent serves as the holding company for all United States assets and
operations of Loewen. According to Loewen's Annual Report on Form 10-K for its
fiscal year ended December 31, 1994, Loewen is the largest funeral service
corporation in Canada and the second largest in North America. Loewen operated
764 funeral homes and 172 cemeteries located throughout the United States and
Canada as of September 18, 1995, with approximately 90% of its 1994 consolidated
revenues derived from locations in the United States. Loewen is not a party to
the Merger Agreement and has no obligations thereunder.
The principal executive offices of the Parent and the Purchaser are located
at 50 East RiverCenter Blvd., Suite 800, Covington, Kentucky 41011, and the
telephone number of such offices is (606) 655-7115. The principal executive
offices of Loewen are located at 4126 Norland Avenue, Burnaby, British Columbia,
Canada, V5G 3S8.
THE MERGER
BACKGROUND OF THE MERGER
Following the death of the Company's then Chairman and Chief Executive
Officer, Fred O. Drake, Jr. in May, 1994, the Company's Board of Directors
examined a number of strategic alternatives, and in this regard investigated the
possibility of a strategic alliance with, or the sale of the Company to, one of
the larger companies in the deathcare industry. During this period, the Company
had discussions and meetings from time to time with Loewen, Industry Participant
No. 1, Industry Participant No. 2 and Industry Participant No. 3. The Company
entered into confidentiality agreements with each of these parties providing for
access to, and confidential treatment of, certain Company information, and
restricting such parties' right to purchase Shares without the Company's
consent. On March 9, 1995, the Company entered into a Confidentiality Agreement
with the Parent (the "Confidentiality Agreement") pursuant to which the Parent
agreed to retain the confidentiality of all confidential information obtained
from the Company relating to the Company (except if such information is a matter
of public record or if it is lawfully obtained from third parties) including,
but not limited to, confidential information obtained through conversations with
Company personnel or agents of the Company or the review of documents, files,
operations or statements of the Company provided by the Company, and, except as
provided in the Confidentiality Agreement, the Parent further agreed not to
disclose or disseminate to or discuss with any other person or entity such
confidential information. See "CERTAIN OTHER AGREEMENTS -The Confidentiality
Agreement".
2
<PAGE>
Beginning in the fall of 1994, the Board of Directors requested Laidlaw
Holdings, Inc. the Company's financial advisor at such time ("Laidlaw"), to
counsel it on how best to maximize shareholder value and to assist it in the
implementation of a plan of action. From October 1994 into March 1995, the
Company pursued a possible investment by Industry Participant No. 1 that would
have involved a cash investment in return for a substantial interest in the
Company, and also engaged in preliminary discussions with Industry Participant
No. 2. Both of these negotiations ended without any definitive agreements.
Subsequently, Industry Participant No. 1 and Industry Participant No. 2 have
both been acquired by third parties.
In the spring of 1995, both Loewen and Industry Participant No. 3
independently expressed an interest in discussing a transaction with the
Company. Without indicating any intention to approve a transaction, but in order
to establish the potential price parameters of a transaction, the Company
arranged for representatives of each of Loewen and Industry Participant No. 3 to
conduct one day of due diligence. Based on such due diligence, but without any
obligation, Loewen and Industry Participant No. 3 were each invited to indicate
the price per Share of the Company that it might offer, if it were so invited to
bid by the Board. At the end of March 1995, Loewen indicated a range of $7.25
to $7.75 per Share and the other party indicated a price of $7 per Share. At a
meeting on March 31, 1995, the Company's Board rejected these indications. At
the same meeting, Clifford R. Hinkle, a member of the Board of Directors, was
appointed President and Chief Executive Officer of the Company. Mr. Hinkle
proceeded to implement a review of the Company's operations and pricing
policies.
In June of 1995, at the request of Loewen, two of the Company's senior
executives met in Vancouver with the chairman and CEO of Loewen, other senior
executives of Loewen and Loewen's financial advisor to discuss the possibility
of a transaction between the Company and Loewen. At this meeting Mr. Hinkle
advised Loewen that he and the Company's management team were still engaged in a
strategic examination of the Company and its options but that, if appropriate
and subject to (a) the completion of that review and (b) discussions with other
members of the Board regarding internal operations of the Company in order to
obtain a consensus concerning the Company's future strategic direction, he would
be willing, in principle, to proceed with discussions beginning sometime in
July.
On July 19, the Company's new financial advisor, Commonwealth Associates
("Commonwealth"), met with representatives of Loewen and its financial advisors
at its offices in New York and presented them with certain financial information
about the Company. As a result of this meeting, on July 24, 1995 the Company and
Loewen entered into a letter agreement (the "Exclusivity Agreement") pursuant to
which the Company agreed to work exclusively with Loewen from the date of such
letter through the close of business, eastern daylight time, on Tuesday, August
15, 1995 (the "Exclusivity Period") with respect to a business combination
transaction between the parties, subject to the terms and conditions set forth
therein. During the Exclusivity Period, the Company and its subsidiaries agreed
not to, directly or indirectly, through any officer, director, agent, financial
advisor or otherwise, solicit, initiate or encourage submission of proposals or
offers from any person relating to any acquisition or purchase of all or a
portion of the assets (other than immaterial or insubstantial assets or
inventory in the ordinary course of business), or any equity interest in, the
Company or any of its subsidiaries or any business combination with the Company
or any of its subsidiaries, or participate in any negotiations regarding, or
furnish to any other person any information (except for information which had
been previously publicly disseminated by the Company in the ordinary course of
business), subject to the fiduciary obligations of the Company's Board of
Directors as advised by counsel in respect of proposals received other than as a
result of a failure to comply with the terms of the Exclusivity Agreement. The
Company agreed to promptly notify Loewen if any such proposal or offer was made.
See "CERTAIN OTHER AGREEMENTS - The Exclusivity Agreement".
From July 24 to August 7, officers and employees of Loewen, as well as
Loewen's professional advisors, conducted a due diligence examination of the
Company, exchanged drafts of the Merger Agreement and negotiated its non-
financial terms, and Loewen delivered to the Company a draft of a Company Option
Agreement, summarized
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below in "CERTAIN OTHER AGREEMENTS - The Company Option Agreement". During this
period, the Company's Board of Directors was kept informed of the progress of
discussions, and reviewed the draft Merger Agreement.
On August 7, Commonwealth met representatives of Loewen and its financial
advisors, to try to reach agreement on price per Share. At the end of their
discussions, the valuation was deadlocked in a range of $9.75-$10.25 per Share,
and the amount of the break-up fee and the Company Option (described below), if
any, had not been agreed.
On August 8, Mr. Loewen and Mr. Hinkle met in New York and, after lengthy
discussions, agreed upon a price per Share of $10.25 per Share (the "Per Share
Amount") and the terms of the Company Option (described below) and the break-up
fee and expense reimbursement provisions of the Merger Agreement. In addition,
the respective advisors of Loewen and MH Associates, a New York general
partnership of which George A. Kellner, formerly a member of the Company's
Board of Directors, is a partner ("MH Associates"), commenced discussions
regarding a possible acquisition by Loewen of certain options to purchase Shares
held by MH Associates, and discussed the terms of a draft of the Warrant Option
Agreement (as hereinafter defined), summarized below in "INTEREST OF CERTAIN
PERSONS IN THE MERGER--Warrant Option Agreement with MH Associates" and "CERTAIN
OTHER AGREEMENTS--The Warrant Option Agreement."
In the early morning of August 9, the Company's Board met in Tallahassee to
consider and vote upon the Offer and the Merger. At that meeting, counsel to the
Company advised the Board as to its fiduciary duties and summarized the terms of
the proposed Merger Agreement. Commonwealth made a presentation and rendered its
opinion that the cash consideration to be received by the holders of Shares of
the Company is fair, from a financial point of view, to such shareholders as of
such date. By a unanimous vote of all Directors of the Company (including the
immediately subsequent assent of one board member absent from the meeting at the
time of the vote), the Board of Directors approved the Offer and the Merger, the
Merger Agreement and the Company Option, determined that the Offer and the
Merger are fair to and in the best interests of holders of Shares, and
recommended that the holders of Shares accept the Offer and tender their Shares
to the Purchaser pursuant to the Offer, and approve and adopt the Merger
Agreement. Following a delayed opening of trading on the NYSE pending an
announcement, first the Warrant Option Agreement, then the Merger Agreement and
the Company Option Agreement, were executed and delivered, and the transaction
was publicly announced.
Pursuant to the terms of the Merger Agreement, on August 14, 1995, the
Purchaser commenced the Offer. The Offer expired on September 18, 1995, at 12:00
midnight, New York City time. Pursuant to the Offer, the Purchaser accepted for
payment and purchased 5,894,920 Shares at a price of $10.25 per Share in cash.
As a result of these purchases, the Purchaser owns of record approximately 94%
of the outstanding Shares.
Promptly following the acceptance for payment by the Purchaser of Shares
pursuant to the Offer, pursuant to the Merger Agreement, five designees of the
Parent -- Raymond L. Loewen, Timothy R. Hogenkamp, A.M. Bruce Watson, Lawrence
Miller and William R. Shane -- were appointed to the Company's Board, whereupon
W. Fred Lindsey, M.D., Clifford R. Hinkle, W. Dexter Douglass, George A. Kellner
and Carl R. Pennington, Jr. resigned from the Company's Board.
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger Agreement and recommend
that holders of Shares accept the Offer, the Company's Board of Directors
considered a number of factors, including, without limitation, the following:
(1) The business, financial condition, results of operations and
competitive position of the Company, on both a historical and a
prospective basis, as well as the current industry, economic and
market conditions and the Company's current operating strategies. In
particular, the Board noted that the Company had been hindered in its
strategy of growth through acquisitions by its relatively small size
and high cost of capital, as compared with the more successful
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acquisition programs of competitors for desirable properties which are
substantially larger and better capitalized than the Company.
(2) Historical trading prices and recent trading patterns of the
Shares. The Board noted that the Per Share Amount constituted a
substantial premium to current and to most historical market prices
for the Shares, and noted that only under optimistic assumptions as to
growth, improvements in operations, and conditions in the deathcare
industry and financial markets were the Shares likely to trade at
higher levels than the Per Share Amount in the foreseeable future.
(3) The opinion of Commonwealth (the "Fairness Opinion") that, on
the basis of its review and analysis and subject to the limitations
set forth in its written opinion addressed to the Board of Directors,
the $10.25 per Share cash consideration to be received by the holders
of Shares of the Company pursuant to the Offer or the Merger, as the
case may be, is fair, from a financial point of view, to such
shareholders.
(4) The terms and conditions of the Offer and Merger, as
reviewed by and discussed with the Company's management and legal
counsel. The Board gave consideration to the size of the break-up fee
and the terms of the Company Option, noting that the Parent would be
obligated to return to the Company any profits in excess of $1.00 per
Share realized upon exercise thereof, and resale of the Shares so
purchased. After discussion, the Board concluded that these terms,
while necessary to induce the Parent to enter into the Merger
Agreement, were not, in the aggregate, such as to preclude the
possibility of a competing bid for the Company from a third party.
(5) The Board's belief that the Offer and the Merger represent
the best alternative available to the Company and its shareholders
under present circumstances, based on presentations from the
management of the Company and the consideration of all other relevant
factors. In this regard, the Board considered the Company's extensive
recent history of discussions with third parties regarding the
possibility of an acquisition or other strategic transaction.
The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of more importance than other factors.
Rather, the Board of Directors viewed its position and recommendations as being
based on the totality of the information presented to and considered by it.
OPINION OF FINANCIAL ADVISOR
General. Commonwealth delivered its Fairness Opinion to the Board that, on
the basis of its review and analysis and subject to the limitations set forth
therein, the $10.25 per Share cash consideration to be received by the holders
of Shares of the Company pursuant to the Offer or the Merger, as the case may
be, is fair, from a financial point of view, to such shareholders.
A copy of the written Fairness Opinion of Commonwealth, setting forth the
assumptions made, factors considered and scope of the review undertaken by
Commonwealth Associates is attached hereto as Exhibit B and incorporated herein
by reference. The summary of the Fairness Opinion set forth below is qualified
in its entirety by reference to the full text of the Fairness Opinion.
Opinion of Commonwealth. Commonwealth was retained by the Company in June
1995 to act as its financial advisor in connection with the Offer and the
Merger. Following the expiration of the Company's contract
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with Laidlaw in May 1995, the Company solicited indications of interest from
prospective financial advisors, including Laidlaw. Commonwealth was selected
from the prospective financial advisors by the Company based on Commonwealth's
experience and expertise and the familiarity of one of its managing directors
(who was employed by Laidlaw prior to May 1995) with the Company and its
business. Commonwealth is an internationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
In connection with Commonwealth's engagement, the Company requested that
Commonwealth evaluate the fairness, from a financial point of view, of the cash
consideration to be received by holders of the Shares in the Offer and the
Merger. At a meeting of the Company's Board of Directors held on August 9,
1995, Commonwealth presented certain materials containing a range of values for
the Shares using several different analyses and methodologies (the "Commonwealth
Materials"). The Commonwealth Materials are summarized below. At this same
meeting, Commonwealth rendered an oral opinion (subsequently confirmed in
writing as of such date) to the effect that, as of such date, the consideration
to be received by holders of the Shares in the Offer or the Merger, as the case
may be, was fair to such holders from a financial point of view.
In preparing the Commonwealth Materials and arriving at the opinion discussed
below, Commonwealth reviewed certain publicly available information relating to
the business, financial condition and operations of the Company, and certain
financial and other information, including financial forecasts, furnished to
Commonwealth by the Company that is not publicly available. Commonwealth met
with senior officers of the Company to discuss the operations, financial
condition, history and prospects of the Company's business.
In conducting its analysis, Commonwealth considered the terms of the Merger
Agreement; stock price data, the historical and current financial position and
the historical and projected cash flows and results of operations of the
Company; historical financial information and stock price data with respect to
certain public companies with operations which Commonwealth considered
comparable to those of the Company; and prices paid in certain other business
combinations involving companies with operations that Commonwealth considered
comparable to those of the Company. In addition, Commonwealth conducted such
other analyses and examinations as Commonwealth deemed necessary in arriving at
its opinion. Commonwealth did not approach third parties to solicit indications
of interest in acquiring the Company.
Based on the foregoing, Commonwealth delivered its oral opinion to the Board
of Directors of the Company on August 9, 1995, and following a review of the
Merger Agreement and related documents, delivered its written Fairness Opinion
dated August 9, 1995 to the Board of Directors of the Company, that, as of such
date, the cash consideration to be received by the holders of the Shares
pursuant to the Offer or the Merger, as the case may be, is fair to such holders
from a financial point of view.
In the course of its investigation, Commonwealth relied upon, and assumed the
accuracy and completeness of, publicly available information and the financial
and other information provided by the Company, but Commonwealth did not assume
any responsibility for independent verification of any of the foregoing
information. With respect to financial forecasts, Commonwealth relied upon the
Company's assurances that they had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the Company's management
as to the future financial performance of the Company. Commonwealth expressed
no view as to such financial forecasts or the assumptions on which they were
based. In addition, Commonwealth did not make an independent evaluation or
appraisal of the assets of the Company, nor was Commonwealth furnished with any
such evaluation or appraisals. Commonwealth's written opinion to the Board of
Directors was based on facts and circumstances existing and disclosed to
Commonwealth as of the date of such opinion. Although Commonwealth evaluated
the fairness of the cash consideration to be received by the holders of Shares
in the Offer and the Merger
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from a financial point of view, the specific consideration payable in the Offer
and the Merger was determined by the Purchaser and the Company through arm's
length negotiation.
Summary of Presentation Materials to the Board. At the meeting of the Board
of Directors of the Company on August 9, 1995, and prior to delivering its
written Fairness Opinion that the cash consideration to be received by
stockholders is fair, from a financial point of view, to such holders,
Commonwealth reviewed certain information with the Board and discussed the
Commonwealth Materials.
Commonwealth noted that in reviewing valuations of the Shares, it utilized the
operating projections outlined in the Company's new Business Plan, and
Commonwealth presented a comparison of such projections to the Company's past
performance. Commonwealth also presented a history of the Share price
performance since 1990. In performing the analyses described below, the
Company's 1995 operating results were adjusted to eliminate the effects of
certain non-recurring income and charges.
Trading Comparables Valuation. Commonwealth first reviewed the multiples of
earnings at which the shares of the following comparable public companies trade:
Service Corporation International, The Loewen Group, Inc., Stewart Enterprises,
Inc. and Equity Corporation International. Based on the trading multiples of
operating results for the trailing twelve months of such companies, Commonwealth
applied benchmark multiples of 9.9x-10.9x to the Company's 1995 earnings before
interest, taxes, depreciation and amortization ("EBITDA") and 12.3x-13.6x to the
Company's 1995 earnings before interest and taxes ("EBIT") to arrive at a range
of implied per Share values for the Shares of $8.42-$9.31 and $8.20-$9.06,
respectively. Commonwealth also applied benchmark multiples for the same
comparable companies of 1995 earnings per Share and estimated 1996 earnings per
Share of 26.6x-29.4x and 21.3x-23.5x, respectively, to arrive at a range of
implied per Share values of $8.98-$9.93 and $10.94-$12.09, respectively.
Precedent Transactions Valuation. Commonwealth next reviewed the multiples of
earnings paid by acquirors in recent transactions in the deathcare industry, but
noted that such comparisons had to be qualified by certain factors. Noting that
there had not been an acquisition of a publicly-traded independent American
deathcare company since 1992, Commonwealth examined recent private and
international transactions to the extent that public information in regard
thereto was available. In the current proposed acquisition by Service
Corporation International ("SCI") of the publicly owned portion (approximately
31%) of its publicly-traded subsidiary, SCI-Canada, SCI's control position
coupled with the Canadian tax considerations for the transaction bears little
comparability to the MHI/Loewen transaction. The proposed SCI transaction with
the French company Pompes Funebres Generales S.A. ("PFG") involved an auction
process and may not be considered to be comparable because of the different
business dynamics of PFG's markets and the strategic international nature of the
acquisition. The Loewen Group Inc.'s acquisition of Osiris Holdings, Inc. in
March of 1995 demonstrated that a substantial premium could be paid for a
company that (i) has strong market presence in markets uncommon to the acquiror,
and (ii) brought new management capable of leading and enhancing all of Loewen's
cemetery operations. With the foregoing qualifications, based on such
acquisitions in the death care industry, Commonwealth presented a range of
implied per Share values of (i) $7.06-$17.56 based on multiples of EBITDA of
8.7x-21.5x, (ii) $8.45-$15.85 based on multiples of EBIT of 13.3x-24.8x, and
(iii) $6.79-$18.10 based on multiples of net income of 21.1x-55.9x. These were
calculated by applying the benchmark multiples to the Company's 1995 operating
results.
Discounted Value of Future Stand-Alone EPS. The projections of earnings per
Share in the Business Plan were $0.51 in 1996, $0.65 in 1997, $0.78 in 1998,
$0.91 in 1999 and $1.07 in 2000. Based on these projections, Commonwealth
presented a matrix of per Share values calculated by discounting potential
future Share prices of the Company. These were estimated assuming a range of
future price/earnings multiples of 17.5x-25.0x and discount rates of 12%-20%.
Based on the projected earnings per Share for 2000, this analysis indicated a
low per
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Share value of $7.55, assuming the lowest multiple and highest discount rate,
and a high per Share value of $15.24, assuming the highest multiple and lowest
discount rate.
Stand-Alone Discounted Cash Flow. Commonwealth also presented a matrix of the
stand-alone discounted cash flow valuations of the Company assuming the
projections in the Business Plan referred to above. Based on a capital asset
pricing model ("CAPM") analysis, Commonwealth utilized a range of 10.5%-13.5%
for the Company's weighted average cost of capital. Commonwealth estimated a
value at the end of five years for the Company of 6.0x-9.0x (the "exit
multiple") projected 2000 EBITDA. This analysis produced a low valuation of
$8.08 per Share, assuming an exit multiple of EBITDA of 6.0x and a weighted
average cost of capital of 13.5%, and a high valuation of $13.11 per Share,
assuming an exit multiple of 9.0x and a weighted average cost of capital of
10.5%.
Leveraged Buy-Out. Commonwealth also presented an analysis of the values
which might be realized in a leveraged buy-out of the Company. Commonwealth
noted, however, that given current market conditions, the financeability of a
leveraged buy-out at any meaningful premium to the current stock price would be
uncertain. Commonwealth estimated that the upper end of likely per Share values
in a leveraged buy-out was $9.25. Commonwealth further noted that, assuming
equity investors would have target returns of approximately 25% per annum,
achieving this value would require prospective equity investors to
unconditionally accept the projections prepared by the Company in its new
Business Plan and, based on such projections, its ability to successfully
conclude an initial public offering predicated on its projected fiscal year 2000
results of operations, at a price/earnings multiple of not less than 18.5x pro
forma net income. If equity investors were willing to fund a leveraged buy-out
based upon the Business Plan and management's estimate of potential annual cost
savings of $500,000 and no decrease in annual capital expenditures, then the
implied leveraged buy-out value could be increased to approximately $9.75 per
Share. Commonwealth noted, however, that the ability to obtain the required
level of debt financing for such a transaction under these assumptions was
highly uncertain.
Leveraged Recapitalization / Stock Buyback. Commonwealth also analyzed the
potential values that might be realized in connection with a leveraged
recapitalization of the Company. Based upon the Business Plan, Commonwealth
estimated that the Company might secure lending to buy back 2 million Shares at
$9.00 per Share in a self tender. Commonwealth then presented a range of values
assuming the remaining equity (with the increased leverage) traded at future
price/earnings multiples of 17.5x-25.0x and discounted the resulting per Share
values by rates of 12%-16%. Based on the foregoing, for pro forma 1996 the total
present value to holders of Shares would range from $6.79 per Share, assuming
the lowest multiple and highest discount rate, to $10.04 per Share, assuming the
highest multiple and the lowest discount rate. For pro forma 1997, these values
could increase to $7.80 per Share and $11.96 per Share, respectively, without
assuming any annual cost savings or decreases in annual capital expenditures
over and above that which had been included in the Company's Business Plan.
Commonwealth noted, however, that the ability to obtain the required level of
debt financing for such a transaction under these assumptions was highly
uncertain.
The Fairness Opinion of Commonwealth should be read in its entirety. The
summary of the financial and comparative analyses set forth above contains a
summary of all material analyses employed by Commonwealth in reaching such
opinion, but does not purport to be a complete description of Commonwealth's
presentation to the Board on either August 9 or the analyses conducted by
Commonwealth. Furthermore, the range of values presented in such analyses were
not intended in any specific instance to represent definitive conclusions of the
value of the Company. Commonwealth believes that its analyses and the summary
thereof set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all the factors or analyses, could create an incomplete and/or misleading view
of the process underlying its Fairness Opinion. In addition, Commonwealth may
have given various analyses more or less weight than other analyses, and may
have deemed various assumptions more or less probable than other assumptions, so
that the ranges of
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valuation resulting from any particular analysis described above should not be
taken to be Commonwealth's view of the actual value of the Company. In
performing its analyses, Commonwealth made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company. Any value contained in the analyses performed by Commonwealth is not
necessarily indicative of the actual values or actual future results, which may
be significantly more or less favorable than as set forth therein. Analyses
relating to the value of the business or Shares do not purport to be appraisals
or to reflect the prices at which such business or Shares may be sold.
Accordingly, such analyses and valuations are inherently subject to substantial
uncertainty. No public company utilized as a comparison is identical to the
Company, and none of the precedent transactions utilized as a comparison is
identical to the Offer and the Merger. Accordingly, an analysis of publicly
traded comparable companies and precedent transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies or the
companies involved in precedent transactions and other factors that could affect
the public trading value of the comparable companies or company or transaction
to which they are being compared.
Commonwealth was engaged by the Company as its exclusive agent in connection
with a possible sale of the Company to a third party or a prospective strategic
investment in the Company by a third party introduced by Commonwealth pursuant
to a letter agreement dated June 21, 1995 (the "Commonwealth Agreement"). Other
than with respect to its services under the Commonwealth Agreement, Commonwealth
has not provided investment banking services to the Company in the past three
years. See "CERTAIN LITIGATION", below.
As compensation for Commonwealth's services as financial advisor to the
Company, Commonwealth has been paid to date fees totaling $150,000, including
$100,000 upon and in consideration of the delivery of the Fairness Opinion, and
is entitled to receive, pursuant to the Commonwealth Agreement, a fee equal to
1% of the total consideration received by the Company and/or its shareholders,
less $50,000, as a result of the successful completion of the Offer. The Company
has also agreed to indemnify
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Commonwealth against certain liabilities, including liabilities arising under
the federal securities laws. See "CERTAIN LITIGATION", below.
INTEREST OF CERTAIN PERSONS IN THE MERGER
Certain existing and former members of the Company's management and Board (as
well as other employees of the Company) have certain interests that are
described below that may present them with actual or potential conflicts of
interest in connection with the Merger.
Indemnification and Directors' and Officers' Insurance. Pursuant to the
Merger Agreement, to the extent provided in the FBCA and in the Company's
Amended and Restated Articles of Incorporation and By-Laws in effect on the date
the Merger Agreement was entered into, the Company has agreed to indemnify and
hold harmless, and the Parent and the Surviving Corporation (as hereinafter
defined) has agreed to indemnify and hold harmless, after the Effective Time,
each director and officer of the Company or any of its subsidiaries against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation arising out of or pertaining to
any of the transactions contemplated by the Merger Agreement, including without
limitation liabilities arising under the Securities Act of 1933 (the "Securities
Act") or the Exchange Act in connection with the Offer, the Merger or any
financing. The Merger Agreement provides that the Surviving Corporation shall,
for a period of four years following the Effective Time, use its reasonable
efforts either (a) to maintain the Company's existing officers' and directors'
liability insurance ("D&O Insurance") covering those persons covered thereby on
the date of the Merger Agreement in full force and effect without reduction of
coverage; provided, however, that the Surviving Corporation will not be required
to pay an annual premium therefor in excess of 200% of the last annual premium
paid prior to the date of the Merger Agreement (the "Current Premium");
provided, further, that if the annual premium of the D&O Insurance exceeds 200%
of the Current Premium, the Surviving Corporation will use its reasonable
efforts to obtain a policy with the greatest coverage available for a cost not
exceeding such amount; provided, further, that if the existing D&O Insurance
expires or is terminated or cancelled during such four-year period, the
Surviving Corporation will use its reasonable efforts to obtain as much coverage
as can be obtained for the remainder of such period for a premium on an
annualized basis not in excess of 200% of the Current Premium; and, provided,
further, that the Surviving Corporation may substitute for the D&O Insurance
policies with the same coverage containing terms and conditions which are no
less advantageous and, provided, that such substitution does not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time or (b) to cause the Parent's officers' and directors' liability
insurance policy then in effect to cover those persons who were covered on the
date of the Merger Agreement by the D&O Insurance. Pursuant to the Merger
Agreement, the Parent shall cause the Surviving Corporation to continue in
effect the indemnification provisions currently provided by the Amended and
Restated Articles of Incorporation and By-Laws of the Company for a period of
not less than four years following the Effective Time. The Merger Agreement
provides that neither the Company nor the Surviving Corporation shall have any
obligation to indemnify any person against any cost, expense, judgment, fine,
loss, claim, damage, liability or settlement amount found to have resulted
solely from such person's own gross negligence or willful misconduct. See "THE
MERGER AGREEMENT - Indemnification".
Stock Options. Pursuant to the Merger Agreement, prior to the Effective Time,
the Board of Directors of the Company (or, if appropriate, a Committee thereof)
has agreed to adopt such resolutions and approve such amendments, if any, as are
necessary to provide for the cancellation of all stock options (the "Options")
to purchase Shares granted pursuant to the Company's 1989 Stock Option Plan, as
amended (the "1989 Stock Option Plan"), effective as of immediately prior to the
Effective Time. Pursuant to the 1989 Stock Option Plan and in accordance with
such resolutions and amendments, immediately prior to the Effective Time, each
Option which is not then exercisable or vested will become fully exercisable and
vested, and each such Option and all other Options will be
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cancelled, effective as of immediately prior to the Effective Time, in exchange
for a payment by the Company or the Surviving Corporation of an amount, payable
within ten business days after the Effective Time, equal to the product of (a)
the total number of Shares subject to such Option and (b) the excess, if any, of
the price per Share to be paid in the Merger over the exercise price per Share
subject to such Option, subject to any required withholding of taxes. Pursuant
to the Merger Agreement, as of the Effective Time, the Company has agreed to
terminate the 1989 Stock Option Plan. See "THE MERGER AGREEMENT - Warrants and
Stock Options".
Severance Benefit Arrangements; Incentive Options. On March 13, 1995, the
Board of Directors approved a Severance Benefits Plan for the President and
Chief Executive Officer, Vice President and Chief Operating Officer, Vice
President, Chief Financial Officer and Corporate Secretary, and Vice President
and Treasurer of the Company (the "Severance Recipients"). The severance
benefits agreements, as amended as of August 14, 1995 (the "Severance Benefits
Agreements"), entered into between the Severance Recipients and the Company
pursuant to the Severance Benefits Plan provide for a severance benefit payment
of a specified amount not in excess of the Severance Recipient's annual base
salary plus any bonus that has already been earned and accrued by the Company in
the event the Severance Recipient is terminated by the Company without Cause (as
defined in the Severance Benefits Agreements) or if the Severance Recipient
terminates employment with the Company for Good Reason (as defined in the
Severance Benefits Agreements) following a Change of Control, subject to a
reduction in the amount of severance benefit payments pursuant to the Severance
Benefits Agreements to the extent that such payments, when aggregated with any
other payments deemed to be "parachute payments", within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), would be
deemed to be "excess parachute payments", within the meaning of Section 280G.
"Change of Control" is defined as the first to occur of any of the following:
(i) any consolidation or merger of the Company in which the Company is not the
surviving entity, or pursuant to which Shares would be converted into cash,
securities or other property, or any sale, exchange or other transfer of all or
substantially all of the Company's assets, or the liquidation of the Company,
(ii) the acquisition by any entity of a majority of the outstanding voting
securities of the Company, or (iii) during any consecutive twenty-four month
period, individuals who at the beginning of such period constitute the entire
Board of Directors cease for any reason to constitute a majority thereof, unless
approved by the members of the Board of Directors at the beginning of such
period or their successors elected by such Board members. These Agreements have
no set termination date.
Ogier Mathewes, Vice President, Chief Financial Officer and Secretary of the
Company, and Jane Harris, Vice President and Treasurer, have entered into
noncompetition agreements with the Company providing that, for a period of one
year after the occurrence of a Termination Date (as defined in the Severance
Benefits Agreements), they shall not, directly or indirectly, operate, manage,
own or participate in, or in any manner be affiliated with, any business or
venture that engages in competition with the Company or any of its affiliates,
successors and assigns, in any line of business engaged in by the Company as of
the Termination Date and providing for cash payments of $121,000 and $49,000,
respectively, after termination of employment with the Company.
On June 19, 1995 the Compensation and Stock Option Committee of the Board of
Directors of the Company (the "Compensation Committee") granted, as part of
their longstanding stock-based compensation policy, based on 1995 fiscal year
performance, pursuant to the Company's 1989 Stock Option Plan, stock options to
David McLaurin, Douglas Kinzer, Ogier Mathewes, Jane Harris and David Hulse
representing 16,666, 16,666, 16,666, 8,274 and 8,274 Shares of Common Stock,
respectively. These stock options were 100% exercisable as of the date of grant
and have an exercise price of $7.98 per Share.
On July 25, 1995, the Company adopted the 1995 Stock Appreciation Rights Plan
(the "SAR Plan") and authorized certain long-term incentive option awards (the
"Incentive Options") under the 1989 Stock Option Plan. The SAR Plan is
administered by the Compensation Committee and allows for the discretionary
grant of stock appreciation rights ("SARs") to officers of the Company chosen by
the Compensation Committee to receive grants.
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The SAR Plan provides that SARs granted pursuant to the SAR Plan cannot be
transferred by recipients except by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act.
On July 25, 1995, the Compensation Committee granted SARs pursuant to the SAR
Plan to Clifford Hinkle, Ogier Mathewes, Douglas Kinzer and Jane Harris for
100,000, 100,000, 65,000, and 50,000 Shares, respectively, with an exercise
price of $7.20 per Share. The SARs expire on January 25, 1996.
All of the SARs vested immediately upon a "Change-in-Control" of the Company.
A "Change-in-Control" will be deemed to occur in the event that any "person" (as
that term is used in Sections 13 and 14(d)(2) of the Exchange Act) is or becomes
the beneficial owner (as that term is used in Section 13(d) of the Exchange Act)
directly or indirectly, of a majority of the voting stock of the Company. Upon
the consummation of the Offer by the Purchaser on September 19, 1995, the SARs
vested and were fully paid. All of the SARs were granted with the proviso that
the amounts payable pursuant to the exercise of the SARs would be reduced to the
extent that such amounts, when aggregated with any other payments deemed to be
"parachute payments," within the meaning of Section 280G of the Code (other than
payments with respect the Severance Benefits Agreements) would be deemed "excess
parachute payments", within the meaning of Section 280G of the Code. At a
meeting held on August 14, 1995, the Compensation Committee, among other things,
determined not to issue any Incentive Options in light of the pending Merger.
Warrant Option Agreement with MH Associates. In connection with the Merger
Agreement, the Parent and MH Associates entered into a Warrant Option
Agreement, dated as of August 9, 1995 (the "Warrant Option Agreement"). A
summary of the Warrant Option Agreement is set forth in "CERTAIN OTHER
AGREEMENTS -The Warrant Option Agreement", below, and a copy thereof is filed as
Exhibit D hereto and incorporated herein by reference.
STRUCTURE OF THE MERGER
In the Merger, each outstanding Share (other than Shares held in the treasury
of the Company) not held, directly or indirectly, by the Parent or the Purchaser
will be converted into the right to receive $10.25 in cash, without interest.
Each share of common stock of the Purchaser issued and outstanding immediately
prior to the Effective Time will be converted into and become one share of
common stock of the Surviving Corporation in the Merger, which will thereupon
become a subsidiary of the Parent and the Parent will own the entire common
equity interest in the Company (except the Preferred Shares).
The acquisition of the Shares is structured as a cash merger, with the Company
as the surviving corporation, to ensure that the Parent will acquire all
outstanding Shares from all public holders thereof without materially disrupting
the Company's operations.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting,
whereby the purchase price for the Company will be allocated to the identifiable
assets and liabilities of the Company and its subsidiaries based on their
respective fair values.
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FINANCING THE ACQUISITION
The Purchaser has estimated that the total amount of funds required by the
Purchaser to purchase Shares pursuant to the Offer and the Merger and to pay
related fees and expenses will be approximately $78 million, of which
approximately $60 million was paid to purchase Shares tendered pursuant to the
Offer.
The Parent has informed the Company that it obtained such funds, and intends
to obtain the funds necessary to consummate the Merger, from an existing
revolving credit facility established under the Amended and Restated
Multicurrency Credit Agreement dated as of May 11, 1995 (the "Credit
Agreement"), among the Parent, certain financial institutions listed therein
(the "Lenders"), Loewen, as Guarantor, and the First National Bank of Chicago,
as Agent ("Agent").
The Parent has informed the Company that the Credit Agreement provides for a
revolving credit facility of $400,000,000, which terminates on May 12, 2000.
Loans made thereunder are unsecured and bear interest based, at the Parent's
option, upon the relevant Eurocurrency Rate, the Fixed CD Rate, or the Alternate
Base Rate, each as defined in the Credit Agreement, plus, in each case, an
applicable margin (currently 0.500%, 0.625% and 0%, respectively, each as
determined by reference to the then current rating on Loewen's long-term debt
pursuant to the terms of the Credit Agreement) or a rate determined through a
competitive bid as provided in the Credit Agreement, and that at September 20,
1995, there was approximately $176 million of borrowings outstanding, and
approximately $224 million was available, under the Credit Agreement.
The Lenders are the First National Bank of Chicago, ABN AMRO Bank N.V., Bank
of America National Trust and Savings Association, Nationsbank of Texas, N.A.,
Wachovia Bank of Georgia, N.A., Bank of Montreal, Chicago, First Union National
Bank of North Carolina, Cooperatieve Centrale Raiffeisen-Boerenbeenbank B.A.,
Royal Bank of Canada, The Bank of Nova Scotia, Dresdner Bank AG, PNC Bank, Ohio,
National Association and Seattle-First National Bank.
The Offer was not, and the Merger will not be, conditioned on obtaining
financing. It is anticipated that any borrowings incurred by the Parent in
connection with the Offer will be repaid from internally generated funds of the
Parent and its subsidiaries, and from borrowings and other external sources.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, holders of Shares will not have an opportunity
to continue their common equity interest in the Company as an ongoing operation
and therefore will not have the opportunity to share in its future earnings and
potential growth, if any.
CERTAIN FEDERAL TAX CONSEQUENCES OF THE MERGER
This summary sets forth material anticipated federal income tax consequences
to holders of Shares of their disposition of Shares pursuant to the Merger. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect as of the
date hereof. Such laws or interpretations may differ at the Effective Time of
the Merger, and relevant facts may also differ. This summary does not address
any foreign, state or local tax consequences, nor does it address estate or gift
tax considerations. The effectiveness of the Merger is not conditioned upon the
receipt of any ruling from the Internal Revenue Service or any opinion of
counsel as to tax matters.
This summary is for general information only. The tax treatment of each
holder of Shares will depend in part upon his particular situation. Special tax
consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, pension funds, mutual funds,
broker-dealers, persons who are not citizens or residents of the United States
or who are foreign corporations, foreign partnerships or foreign estates or
trusts, holders of Shares who own actually or constructively (under certain
attribution rules contained in the Code) 5% or more of the Shares, holders of
Shares who acquired their Shares through the exercise of an employee stock
option or otherwise as compensation, and persons who receive payments in respect
of options to acquire
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Shares. All holders of Shares are strongly urged to consult with their own tax
advisors as to the particular tax consequences of the Merger to them, including
the applicability and effect of any state, local and foreign and other tax laws
and of changes in tax laws under the Code.
Sales of Shares by holders of Shares pursuant to the Merger will be taxable
transactions for federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign and other tax laws.
In general, a holder of Shares will recognize gain or loss equal to the
difference between the tax basis of such holder's Shares and the amount of cash
received in exchange for the Shares. Such gain or loss will be capital gain or
loss if the Shares are capital assets in the hands of the holder of Shares and
will be long-term gain or loss if the holding period for the Shares is more than
12 months as of the Effective Time.
THE MERGER AGREEMENT
Set forth below is a description of the principal terms of the Merger
Agreement which are of continuing applicability. This description is qualified
in its entirety by reference to the Merger Agreement, which is attached as
Exhibit A hereto and is incorporated herein by this reference.
General. The Merger Agreement provides that as promptly as practicable after
completion of the Offer, the Purchaser will be merged with and into the Company.
The Offer was conditioned upon, among other things, there being validly tendered
and not withdrawn a number of Shares which, together with the Shares then owned
by the Parent and the Purchaser, would represent a majority of the total number
of outstanding Shares on a fully diluted basis (the "Minimum Condition").
Board Representation. The Merger Agreement provides that, subsequent to the
consummation of the Offer, so long as the Purchaser shall not have waived the
Minimum Condition, the Purchaser will be entitled to at least that percentage of
the number of seats on the Board (rounded up to the nearest whole seat) as
reflects the percentage of the outstanding Shares then owned by the Purchaser;
provided, however, that until the Effective Time (as defined below) at least one
person who was a director of the Company on August 9, 1995, and who is neither
an officer of the Company nor a designee, shareholder, affiliate or associate
(within the meaning of the Federal securities laws) of the Purchaser (one or
more of such directors, the "Independent Directors"), shall be entitled to
remain a director of the Company. In order to provide the Purchaser with such
representation on the Board, the Merger Agreement provides that, upon request of
the Purchaser, the Company shall promptly increase the size of the Board of
Directors or exercise its best efforts to secure the resignation of such number
of directors as is necessary to enable the Purchaser's designees to be elected
to the Board of Directors and shall cause the Purchaser's designees to be so
elected. The Merger Agreement provides that, notwithstanding anything therein to
the contrary, prior to the Effective Time, the affirmative vote of a majority of
the Independent Directors shall be required to (i) amend or terminate the Merger
Agreement by the Company, (ii) exercise or waive any of the Company's rights or
remedies thereunder, or (iii) extend the time for performance of the Purchaser's
obligations thereunder.
On September 19, 1995, the Board appointed Raymond L. Loewen, Timothy R.
Hogenkamp, A.M. Bruce Watson, Lawrence Miller and William R. Shane as directors
of the Company, whereupon all of the Company's other directors other than Benson
L. Skelton, Jr., tendered their resignations from the Board. See "THE MERGER -
Background of the Merger", above.
The Merger. The Merger Agreement provides that subsequent to the consummation
of the Offer, the Merger will, if required under applicable law, be submitted
for approval by the holders of a majority of the outstanding Shares. The
Purchaser has indicated that it will vote, or cause to be voted, in favor of the
Merger all
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Shares beneficially owned by it. Accordingly, as the Purchaser has acquired a
majority of the outstanding Shares pursuant to the Offer, the Purchaser may,
without the vote of any other holder of Shares, adopt the Merger Agreement and
approve the Merger.
As promptly as practicable after the satisfaction or waiver of the conditions
described below, the Purchaser will be merged with and into the Company. As a
result of the Merger, the corporation surviving the Merger (the "Surviving
Corporation") will become a wholly owned subsidiary of the Parent (except for
the Preferred Shares). In addition, the directors of the Purchaser immediately
prior to the Effective Time will become the initial directors of the Surviving
Corporation and the officers of the Company immediately before the Effective
Time will be the initial officers of the Surviving Corporation, in each case
until their successors are duly elected or appointed and qualified.
Consummation of the Merger remains subject to certain conditions, including
(i) adoption of the Merger and the Merger Agreement by the requisite vote or
action of the holders of Shares, (ii) no statute, rule, regulation, judgment,
writ, decree, order or injunction shall have been promulgated, enacted, entered
or enforced, and no other action shall have been taken, by any domestic or
foreign government or governmental, administrative or regulatory authority or
agency of competent jurisdiction or by any court or tribunal of competent
jurisdiction, domestic or foreign, that in any of the foregoing cases has the
effect of making illegal or directly or indirectly restraining, prohibiting or
restricting the consummation of the Merger, and (iii) all actions by or in
respect of or filings with any governmental body, agency, official or authority
required to permit the consummation of the Merger shall have been taken or made.
In addition, the obligations of the Parent and the Purchaser to consummate the
Merger are further subject to the satisfaction at or prior to the Effective Time
of the additional condition that the Company will have satisfied and complied
with in all material respects each of the covenants of the Company contained in
the Merger Agreement from the time the Purchaser accepts Shares for payment
pursuant to the Offer up to and including such time as designees of the Parent
or the Purchaser have been elected to, and constitute a majority of, the Board
of Directors of the Company.
In the Merger, each Share issued and outstanding immediately prior to the
Effective Time (other than Shares held by the Parent or any subsidiary of the
Parent immediately prior to the Effective Time which shall be canceled) shall,
at the Effective Time, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive $10.25 in
cash payable to the holder thereof, without interest thereon, upon surrender of
the certificate(s) representing such Shares.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement, the
Company has agreed that, between the date of the Merger Agreement and the
Effective Time, unless the Parent shall otherwise consent in writing, the
businesses of the Company and its subsidiaries shall be conducted only in the
ordinary course of business and in a manner consistent with past practice; and
that the Company will use its best efforts to preserve substantially intact the
business organization of the Company and its subsidiaries, to keep available the
services of the present officers, employees and consultants of the Company and
its subsidiaries and to preserve the present relationships of the Company and
its subsidiaries with customers, suppliers and other persons with which the
Company or any of its subsidiaries has significant business relations. The
Merger Agreement also provides that neither the Company nor any of its
subsidiaries shall, between the date of the Merger Agreement and the Effective
Time, take certain actions without the prior written consent of the Parent.
Additional Agreements. Pursuant to the Merger Agreement, upon the terms and
subject to the conditions thereof, each of the parties thereto has agreed to use
its best 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 the transactions
contemplated by the Merger Agreement and shall use its best efforts to obtain
all necessary waivers, consents and approvals, and
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to effect all necessary filings under the Exchange Act and the HSR Act;
provided, however, that in no event shall the Parent or the Purchaser be
required to divest any of its assets in connection therewith.
Amendment. Prior to the Effective Time, the Merger Agreement may be amended by
action taken by the Purchaser and the Parent and by action taken by or on behalf
of the Board at any time before the Effective Time; provided, however, that,
after approval of the Merger by the holders of Shares, no amendment may be made
which would reduce the amount or change the type of consideration into which
each Share will be converted upon consummation of the Merger.
Termination. The Merger Agreement provides that it may be terminated at any
time before the Effective Time in the following circumstances:
(a) by mutual consent of the Parent and the Company; or
(b) by either the Parent or the Company if the Merger shall not have
been consummated by December 31, 1995; provided, however, that such
right to terminate the Merger Agreement will not be available to any
party who is in breach of the Merger Agreement; or
(c) by either the Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any
other action (which order, decree or ruling the parties hereto shall
use their best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement; or
(d) by the Parent if the Board (i) withdraws, modifies or changes
its recommendation of the Merger Agreement, the Offer or the Merger in
a manner adverse to the Purchaser, (ii) recommends to the holders of
Shares any proposal with respect to a tender offer, merger,
consolidation, share exchange or similar transaction involving the
Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement, or (iii) resolves to do any of
the foregoing; or
(e) by the Company or the Parent if prior to the Effective Time, a
corporation, partnership, person or other entity or group shall have
made a bona fide offer with respect to which the Board of Directors of
the Company, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent legal counsel), determines in good faith that the failure
of the Board of Directors to recommend such offer to the holders of
Shares would constitute a breach of the Board of Directors' fiduciary
duties under applicable law, provided, that any such termination by
the Company shall not be effective until payment to the Parent of
termination fees as set forth in the Merger Agreement; or
(f) by either the Parent or the Company if the other party shall
have breached the Merger Agreement in any material respect and such
breach continues for a period of ten days after the receipt of notice
of the breach from the non-breaching party.
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Indemnification. Pursuant to the Merger Agreement, to the extent provided in
the FBCA and in the Company's Amended and Restated Articles of Incorporation and
By-Laws in effect on the date the Merger Agreement is entered into, the Company
has agreed to indemnify and hold harmless, and the Parent and the Surviving
Corporation have agreed to indemnify and hold harmless, after the Effective
Time, each director and officer of the Company or any of its subsidiaries
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation arising out
of or pertaining to any of the transactions contemplated by the Merger
Agreement, including without limitation liabilities arising under the Securities
Act or the Exchange Act in connection with the Offer, the Merger or any
financing. The Merger Agreement provides that the Surviving Corporation shall,
for a period of four years following the Effective Time, use its reasonable
efforts either (a) to maintain the Company's existing D&O Insurance covering
those persons covered thereby on the date of the Merger Agreement in full force
and effect without reduction of coverage; provided, however, that the Surviving
Corporation will not be required to pay an annual premium therefor in excess of
200% of the Current Premium; provided, further, that if the annual premium of
the D&O Insurance exceeds 200% of the Current Premium, the Surviving Corporation
will use its reasonable efforts to obtain a policy with the greatest coverage
available for a cost not exceeding such amount; provided, further, that if the
existing D&O Insurance expires or is terminated or cancelled during such four-
year period, the Surviving Corporation will use its reasonable efforts to obtain
as much coverage as can be obtained for the remainder of such period for a
premium on an annualized basis not in excess of 200% of the Current Premium;
and, provided, further, that the Surviving Corporation may substitute for the
D&O Insurance policies with the same coverage containing terms and conditions
which are no less advantageous and, provided, that such substitution does not
result in any gaps or lapses in coverage with respect to matters occurring prior
to the Effective Time or (b) to cause the Parent's officers' and directors'
liability insurance policy then in effect to cover those persons who are covered
on the date of the Merger Agreement by the D&O Insurance. Pursuant to the Merger
Agreement, the Parent shall cause the Surviving Corporation to continue in
effect the indemnification provisions currently provided by the Amended and
Restated Articles of Incorporation and By-Laws of the Company for a period of
not less than four years following the Effective Time. The Merger Agreement
provides that neither the Company nor the Surviving Corporation shall have any
obligation to indemnify any person against any cost, expense, judgment, fine,
loss, claim, damage, liability or settlement amount found to have resulted
solely from such person's own gross negligence or willful misconduct.
Fees and Expenses. In the event that the Merger Agreement is terminated by the
Company as set forth in clause (e) of the paragraph entitled Termination above,
or by the Parent as set forth in clauses (d), (e) or (f) of the paragraph
entitled Termination above, the Company has agreed to pay to the Parent, within
one business day after receipt of a request therefor, an amount equal to the sum
of (a) $2,250,000 and (b) the lesser of (i) $2,000,000 and (ii) all actual out-
of-pocket costs and expenses of the Parent and the Purchaser incurred in
connection with the Merger Agreement and the transactions contemplated thereby,
including, without limitation, legal, professional and service fees and
expenses. Except as set forth in the immediately preceding sentence, all costs
and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such costs
and expenses.
Warrants and Stock Options. Pursuant to the Merger Agreement, prior to the
Effective Time, the Company has agreed to (i) offer to each holder of an
outstanding warrant granted before the date of the Merger Agreement (other than
options outstanding under the Company's stock option plans) an amount in cash in
cancellation of such warrant equal to the excess, if any, of the Per Share
Amount over the per Share exercise price of such warrant, multiplied by the
number of Shares subject to such warrant, less applicable Federal, state and
local tax withholdings and (ii) use its best efforts to secure the agreement, if
required, of each such holder to accept such cash payment in cancellation of
such warrants.
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In addition, the Merger Agreement provides that, prior to the Effective Time,
the Board of Directors of the Company (or, if appropriate, a Committee thereof)
will adopt such resolutions and approve such amendments, if any, as are
necessary to provide for the cancellation of all stock options (the "Options")
to purchase Shares granted pursuant to the 1989 Stock Option Plan, effective as
of immediately prior to the Effective Time. Pursuant to the 1989 Stock Option
Plan and in accordance with such resolutions and amendments, immediately prior
to the Effective Time, each Option which is not then exercisable or vested will
become fully exercisable and vested, and each such Option and all other Options
will be cancelled, effective as of immediately prior to the Effective Time, in
exchange for a payment by the Company or the Surviving Corporation of an amount,
payable within ten business days after the Effective Time, equal to the product
of (a) the total number of Shares subject to such Option and (b) the excess, if
any, of the price per Share to be paid in the Merger over the exercise price per
Share subject to such Option, subject to any required withholding of taxes.
Pursuant to the Merger Agreement, the Company will terminate the 1989 Stock
Option Plan, effective as of immediately prior to the Effective Time.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and power, corporate authorization, consents and approvals, non-
contravention, capitalization, subsidiaries, Commission filings, financial
statements, absence of certain changes or events, litigation, taxes, employee
benefits, compliance with laws, brokers' fees, environmental matters and other
matters.
The Parent and the Purchaser have also made certain representations and
warranties with respect to corporate existence and power, corporate
authorization, governmental authorization, non-contravention, financing and
other matters.
CERTAIN OTHER AGREEMENTS
THE COMPANY OPTION AGREEMENT
In connection with the Merger Agreement, the Company and the Parent entered
into a Stock Option Agreement, dated as of August 9, 1995 (the "Company Option
Agreement"). The following summary of the Company Option Agreement is qualified
in its entirety by reference to the text of such agreement, a copy of which is
filed as Exhibit C hereto and incorporated herein by reference.
The Company Option. Pursuant to the Company Option Agreement, the Company
granted to the Parent an irrevocable option (the "Company Option") to purchase,
upon the terms and subject to the conditions provided for therein, up to
1,253,823 Shares (the "Option Shares") at a purchase price of $10.25 per Share
(the "Option Purchase Price"). Any profits in excess of $1.00 per Share realized
by the Parent upon disposition of Option Shares will be refunded to the Company,
as more fully described below.
The Company Option shall, subject to certain exceptions described in the
Company Option Agreement, terminate upon the earliest to occur of (a) the date
which is 12 months after any Triggering Event (as described below) shall have
occurred, (b) the Effective Time, and (c) termination of the Merger Agreement as
set forth in clauses (a), (b) or (c) of the paragraph entitled Termination
above, unless prior to that time a Triggering Event shall have occurred. If the
Company Option cannot be exercised by reason of any applicable judgment, decree
or order, the expiration date of the Company Option shall be extended until five
business days after such impediment to exercise shall have been removed.
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Exercise of the Company Option. The Parent may exercise the Company Option
subject to certain conditions as set forth in the Company Option Agreement, in
whole or in part, at any time and from time to time following the occurrence of
any of the following events (each a "Triggering Event"):
(a) the Company or any of its subsidiaries shall have entered into
any agreement with any person (other than the Parent or any of its
affiliates), or shall have authorized, recommended, proposed or
publicly announced its or their intention to authorize, recommend, or
propose to enter into any agreement with any such person, with respect
to (i) a merger, consolidation or any similar transaction with such
person or involving the Company or any subsidiary, (ii) the sale,
lease or other disposition of 15% or more of the consolidated assets
of the Company and its consolidated subsidiaries, or (iii) the
issuance, sale or other disposition of securities (or an option or
right to acquire such securities) representing 10% or more of the
voting power of the Company or any of its subsidiaries; or
(b) (i) the making by any person (other than the Parent or any of
its affiliates), by public announcement or communication to the
Company or otherwise, of a proposal to acquire the Company or any of
its subsidiaries by merger, consolidation, purchase of all or a
substantial portion of the Company's assets or other similar
transaction, or (ii) any person (other than the Parent or its
affiliates), shall have commenced, or shall have filed a registration
statement under the Securities Act, with respect to a tender or
exchange offer for 10% or more of the outstanding Shares; or
(c) the acquisition, by any person or group, other than the Parent
or any of its affiliates, of beneficial ownership of, or the right to
acquire beneficial ownership of, securities representing 10% or more
of the voting power of the Company or any of its subsidiaries; or
(d) the shareholders of the Company shall have failed to approve the
Merger at the meeting called for that purpose or at any adjournment or
postponement thereof, such meeting shall not have been held or shall
have been cancelled prior to the termination of the Merger Agreement
or the Board of Directors of the Company shall have withdrawn or
modified in a manner adverse to the Parent its favorable
recommendation of the Merger.
To the knowledge of the Company, no Triggering Event has occurred as of the
date of this Information Statement.
The Company Option Agreement provides that, in the event that the Parent
acquires any Option Shares and disposes of such Shares (other than to an
affiliate of the Parent) through a sale, exchange, transfer, merger or
otherwise, for an amount per Share which exceeds the Option Purchase Price by
more than $1.00 (the "Option Cap"), the Parent will promptly return to the
Company the amount of such excess. Pursuant to the Company Option Agreement, to
the extent that the aggregate amount of such excess in respect of all such
transfers exceeds $1,253,823 (the "Aggregate Option Cap"), the Parent shall
return such excess and any remaining Option Shares to the Company and the Option
shall be cancelled. The Parent will not sell or otherwise dispose of Option
Shares except in compliance with the Securities Act and any applicable state
securities law.
Adjustments Upon Changes in Capitalization or Merger. The Company Option
Agreement provides that, in the event of any change in the Shares by reason of a
stock dividend, split-up, recapitalization, combination, exchange of Shares or
similar transaction, the type and number of Shares or securities subject to the
Company Option, the Option Cap (but not the Aggregate Option Cap) and the Option
Purchase Price therefor, shall be adjusted so that the Parent shall receive upon
exercise of the Company Option the number and class of Shares or
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other securities or property that the Parent would have received in respect of
the Shares if the Company Option had been exercised immediately prior to such
event, or the record date therefor, as applicable. Pursuant to the Company
Option Agreement, if any additional Shares are issued after the date of the
Company Option Agreement (other than pursuant to an event described immediately
above), the number of Shares subject to the Company Option shall be adjusted so
that, after such issuance, it equals 19.9% of the number of Shares then issued
and outstanding, without giving effect to any Shares subject to or issued
pursuant to the Company Option; provided, that the Company shall not enter into
any transaction described above if, immediately following such transaction, it
does not have available and capable of being reserved for purposes of the
Company Option Agreement authorized but unissued and unreserved Shares in the
quantity required by the Company Option Agreement to be subject to the Company
Option.
The Company Option Agreement provides that, in the event that the Company
shall enter into an agreement (i) to consolidate with or merge into any person,
other than the Parent or one of its subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than the Parent or one of its subsidiaries, to merge
into the Company and the Company shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding Shares
shall be changed into or exchanged for stock or other securities of the Company
or any other person or cash or any property or the then outstanding Shares shall
after such merger represent less than 50% of the outstanding shares and share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than the Parent or one of
its subsidiaries, then, and in each such case, the Company Option shall, upon
the consummation of any such transaction and upon the terms and conditions set
forth in the Company Option Agreement, be converted into, or exchanged for, an
option, at the election of the Parent, of either (a) the Acquiring Corporation
(as defined below), (b) any person that controls the Acquiring Corporation, or
(c) in the case of merger described in clause (ii), the Company.
"Acquiring Corporation" means (i) the continuing or surviving corporation of a
consolidation or merger with the Company (if other than the Company), (ii) the
Company in a merger in which the Company is the continuing or surviving
corporation and (iii) the transferee of all or substantially all of the
Company's assets.
Put Right of the Parent. The Company Option Agreement provides that, at any
time or from time to time during the period commencing with the occurrence of a
Triggering Event and ending 12 months thereafter subject to certain exceptions
whether or not any portion of the Company Option has been exercised, in the
event the Merger Agreement has been terminated and, within twelve months of the
date of the Company Option Agreement, (x) any person shall have acquired a
majority of the Shares outstanding, (y) the Company shall have consummated a
merger, consolidation or similar transaction with any person or (z) the Company
shall have sold, leased or otherwise disposed of all or substantially all of the
consolidated assets of the Company and its subsidiaries to any person, the
Parent may surrender to the Company all or a part of the Company Option as well
as all or a part of the Option Shares purchased pursuant to exercise of the
Company Option, in which event the Company or any successor entity shall pay to
the Parent, on the day of each such surrender, against tender by the Parent of
an instrument evidencing such surrender, an amount in cash equal to the sum of:
(a) the aggregate Option Purchase Price (determined without giving
effect to any adjustment described above) for all Option Shares
acquired pursuant to exercise of the Company Option which the Parent
has elected to cause the Company to repurchase;
(b) the product of (i) the difference (but in no event more than the
Option Cap) between the Market Price (as defined below) for Shares and
the Option Purchase Price (as each may be adjusted), multiplied by
(ii) the number of Option Shares purchasable on exercise of that
portion of the Company Option which has not previously been exercised
by the Parent and which
20
<PAGE>
portion the Parent has elected to cause the Company to repurchase, but
only if the Market Price is greater than the Option Purchase Price;
(c) the product of (i) the difference (but in no event more than the
Option Cap) between the Market Price and the Option Purchase Price (as
may be adjusted) for the Option Shares acquired by the Parent pursuant
to the exercise of the Company Option (or in the case of Option Shares
with respect to which the Company Option has been exercised but the
closing date has not occurred, to be acquired) and which the Parent
has elected to cause the Company to repurchase, multiplied by (ii) the
number of Shares so repurchased, but only if the Market Price is
greater than the Option Purchase Price; and
(d) the aggregate amount of out-of-pocket expenses incurred by the
Parent in connection with such transactions.
"Market Price" means the higher of (x) the highest price per Share paid for any
Shares on the principal trading market on which such Shares are traded during
the period from the date of the Company Option Agreement to the date the Parent
elects to surrender such Shares to the Company and (y) the highest price paid or
offered to be paid or the consideration per Share to be received by holders of
Shares by any person which has caused a Triggering Event upon the occurrence of
a Triggering Event (in each case, as adjusted for any stock split, stock
dividend or similar event).
Right of First Refusal. Pursuant to the Company Option Agreement, if at any
time or from time to time during the period commencing with the occurrence of a
Triggering Event and ending on the first to occur of 24 months following the
first purchase of Option Shares and the termination of the Company Option,
whether or not any portion of the Company Option has been exercised, the Parent
shall desire to sell, transfer, assign or otherwise dispose of all or a part of
the Option Shares or other securities purchased pursuant to exercise of the
Company Option to a person (the "Proposed Transferee") other than an affiliate
of the Parent or the Company, the Parent shall, subject to certain exceptions,
give the Company written notice of the proposed transaction (an "Offeror's
Notice"), identifying the Proposed Transferee and setting forth the terms of the
proposed transaction. The Company Option Agreement provides that the Company may
purchase for cash within 10 days of the receipt of such Offeror's Notice such
Option Shares or the Company Option on the same terms and conditions and at the
same per Share or per option sale price (not to exceed the sum of the then
applicable per Share Option Purchase Price and the Option Cap) at which the
Parent is proposing to transfer the Option Shares to the Proposed Transferee.
The Company Option Agreement provides that, if the Company fails or refuses to
purchase all of the Option Shares covered by the Offeror's Notice, the Parent
may sell such Option Shares for not less than the price specified in the
Offeror's Notice.
Registration Rights. Pursuant to the Company Option Agreement, the Company
has (i) agreed, subject to certain terms and conditions, that upon request by
the Parent, the Company will use its best efforts to register the Option Shares
for sale under the Securities Act and (ii) granted the Parent certain "piggy-
back" registration rights in respect of the Option Shares.
THE WARRANT OPTION AGREEMENT
In connection with the Merger Agreement, the Parent and MH Associates entered
into the Warrant Option Agreement. The following is a summary of the Warrant
Option Agreement, a copy of which is filed as Exhibit D hereto and incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Warrant Option Agreement.
21
<PAGE>
The Warrant Option. Pursuant to the Warrant Option Agreement, MH Associates
granted to the Parent the option (the "Warrant Option") to purchase MH
Associates' option (the "MH Option") to purchase 486,352 Shares (the "MH Option
Shares") at a purchase price of $2.25 per MH Option Share at any time or from
time to time prior to April 22, 1996, granted pursuant to the Stock Option
Agreement dated April 22, 1986 between the Company and KD Equities, as amended
by the Option Amendment Agreement dated October 26, 1990 between the Company and
MH Associates (as successor to KD Equities).
Exercise of the Warrant Option and Purchase of the MH Option. On September 19,
1995, by the acceptance of Shares for purchase by the Purchaser pursuant to the
Offer, the Parent was deemed under the Warrant Option Agreement to have
exercised the Warrant Option. On September 21, 1995, pursuant to the terms of
the Warrant Option Agreement, the Parent paid to MH Associates cash in the
amount of $3,890,816 in consideration of the assignment of the MH Option by MH
Associates to the Parent on such date. Such amount determined was in
accordance with the terms of the Warrant Option Agreement as described below.
Warrant Option Purchase Price. The Warrant Option Agreement provides that the
price at which the Parent may purchase the MH Option upon exercise of the
Warrant Option (the "Warrant Option Purchase Price") shall be an amount in cash
equal to (i) 486,352 times the greater of the per Share price offered or to be
offered for Shares by the Parent or the Purchaser in the Offer (as such amount
may be increased in the Offer) and the highest price per Share paid at any time
by the Parent or the Purchaser (or any of its affiliates) in certain
transactions other than the Offer, in each case as of the date of exercise,
minus (ii) the aggregate exercise price of the MH Option paid by the Parent;
provided, however, that if, within one year following the exercise of the
Warrant Option, the per Share prices described in clause (i) are increased, the
Parent shall thereafter pay to MH Associates an amount equal to the difference
between the amount previously paid to MH Associates and the Warrant Option
Purchase Price as recomputed based upon such increased price or prices.
Sale of MH Option by the Parent. Pursuant to the Warrant Option Agreement, if,
prior to the first anniversary of the date of the exercise of the Warrant
Option, the Parent or any of its affiliates sells or otherwise transfers or
assigns either the MH Option or any Shares acquired upon exercise thereof, it
will promptly pay over to MH Associates 50% of the Profits (as defined below)
realized therefrom. "Profits" shall mean, (a) in the case of Shares (i) the
excess of (A) the price per Share received by the Parent over (B) the sum of the
Warrant Option Purchase Price and the aggregate exercise price of the MH Option
paid by the Parent, divided by 486,352, multiplied by (ii) the number of Shares
in question, and (b) in the case of the MH Option, the excess of (A) the
consideration received by the Parent over (B) the Option Purchase Price (or the
appropriate pro rata portion thereof, in the case of partial sales). In the
event that noncash consideration is included in consideration received by the
Parent, the Profits shall be payable in such noncash consideration in the same
percentage as such noncash consideration bears to the total consideration
received by the Parent.
Covenants of MH Associates. Pursuant to the Warrant Option Agreement, MH
Associates agreed that, until the Warrant Option expired, it would not exercise
the MH Option in whole or in part or sell, transfer, pledge, assign or otherwise
dispose of, or enter into any contract, option or other arrangement with respect
to the sale, transfer, pledge, assignment or other disposition of, the MH Option
to any person other than pursuant to the Warrant Option Agreement.
Exercise of MH Option. The Parent has not exercised, and does not intend to
exercise, the MH Option to acquire the MH Option Shares.
22
<PAGE>
THE EXCLUSIVITY AGREEMENT
Pursuant to a letter agreement, dated July 24, 1995 (the "Exclusivity
Agreement"), between the Company and Loewen, the Company agreed to work
exclusively with Loewen, from the date of such letter through the close of
business, eastern daylight time, on Tuesday, August 15, 1995 (the "Exclusivity
Period") with respect to a business combination transaction between the parties,
subject to the terms and conditions set forth therein. During the Exclusivity
Period, the Company and its subsidiaries agreed not to, directly or indirectly,
through any officer, director, agent, financial advisor or otherwise, solicit,
initiate or encourage submission of proposals or offers from any person relating
to any acquisition or purchase of all or a portion of the assets (other than
immaterial or insubstantial assets or inventory in the ordinary course of
business), or any equity interest in, the Company or any of its subsidiaries or
any business combination with the Company or any of its subsidiaries, or
participate in any negotiations regarding, or furnish to any other person any
information (except for information which has been previously publicly
disseminated by the Company in the ordinary course of business), subject to the
fiduciary obligations of the Company's Board of Directors as advised by counsel
in respect of proposals received other than as a result of a failure to comply
with this paragraph. The Company agreed to promptly notify Loewen if any such
proposal or offer was made.
In the event the Merger Agreement had not been executed and delivered by both
parties on or before the close of business, eastern daylight time, on Tuesday,
August 15, 1995, unless extended with the consent of both parties, then any
exclusivity obligations of the Company would have ceased and would have no
longer had any force or effect as of such date. In addition, the Company and
Loewen agreed that, for two years following the date of such letter, neither
Loewen nor any person controlled by Loewen nor any officers or directors of
Loewen having access to confidential information would purchase any securities
of the Company, except (i) pursuant to a transaction approved by the Company's
Board of Directors, or (ii) if a third party or group acquired, in a transaction
required to be reported on Form 13D, or made a tender offer to acquire, 10% or
more of the Shares not approved in advance by the Board of Directors of the
Company.
THE CONFIDENTIALITY AGREEMENT
On March 9, 1995, the Company entered into a Confidentiality Agreement with
the Parent (the "Confidentiality Agreement"), pursuant to which the Parent
agreed to retain the confidentiality of all confidential information obtained
from the Company relating to the Company (except if such information is a matter
of public record or if it is lawfully obtained from third parties) including,
but not limited to, confidential information obtained through conversations with
Company personnel or agents of the Company or the review of documents, files,
operations or statements of the Company provided by the Company, and, except as
provided in the Confidentiality Agreement, the Parent further agreed to not
disclose or disseminate to or discuss with any other person or entity such
confidential information. The Confidentiality Agreement provides that, for two
years following the date of the Confidentiality Agreement, neither the Parent
nor any person controlled by the Parent nor any of the Parent's officers or
directors having access to such confidential information would purchase any
securities of the Company, except: (i) pursuant to a transaction approved by the
Company's Board of Directors or (ii) if a third party or group acquires or makes
a tender offer to acquire 10% or more of the Company's common stock not approved
in advance by the Board of Directors of the Company. Pursuant to the Exclusivity
Agreement, Loewen agreed to become a party to, and to cause each of its
subsidiaries to become a party to, the Confidentiality Agreement, and agreed to
be fully bound by the terms and provisions thereof. The Company also agreed, as
set forth in the Exclusivity Agreement, that to the extent that the Company was
furnished with confidential information with respect to Loewen, the Company
would afford such confidential information the same treatment as was afforded
confidential information of the Company by Loewen pursuant to the
Confidentiality Agreement. The Company and Loewen entered into a letter
agreement, dated July 25, 1995, pursuant to which the Company and Loewen agreed
that without the prior written consent of the other party, neither the Company
nor Loewen would, and each would direct its officers,
23
<PAGE>
directors, agents, financial advisors and any other representatives not to,
disclose to any person (other than its own representatives) either the fact that
the Company was considering a business combination transaction with Loewen or
that any investigations, discussions or negotiations were taking place
concerning a possible transaction between the Company and Loewen, or that Loewen
had requested or received confidential information relating to the Company, or
any of the terms, conditions, or other facts with respect to any such possible
transaction, including the status thereof, other than as required under
applicable law or at any time seven months after the date thereof if deemed
appropriate by either party.
REGULATORY AND OTHER APPROVALS
Except for the filing of the Articles of Merger with the Secretary of State of
the State of Florida and the expiration of the waiting period for the approval
of the transfer of certain licenses to operate the Company's cemeteries located
in the State of Florida (as discussed below), there are no federal or state
regulatory requirements which remain to be complied with in order for the Merger
to be consummated in accordance with the terms of the Merger Agreement.
Florida Cemetery License Transfer. Section 497.205 of the Florida Statutes
provides that a license issued by the State of Florida to operate a cemetery is
not transferable or assignable, and that a licensee may not operate or develop
any cemetery authorized at any location other than that contained in the
application for license. The Parent has been advised by its legal counsel that
transfer of voting control of a licensee, including a transfer of voting control
of an entity which controls, directly or indirectly, a licensee, may constitute
a transfer of a license under the Florida Statutes. Because the Parent was
advised that the change in control of the Company resulting from the
consummation of the Offer may constitute a transfer of such licenses held
by the Company's wholly owned subsidiary, Funeral Services Acquisition Group,
Inc., the licensee of all cemeteries operated by the Company, the Purchaser and
the Company applied to the Florida Department of Banking and Finance, Board of
Funeral and Cemetery Services (the "Board") for the transfer of such licenses.
On September 18, 1995, the Board approved the transfer of such licenses that
could result from the acquisition by Loewen, the Parent and the Purchaser of
voting control of the Company by the consummation of the Offer. Pursuant to
Section 497.205 of the Florida Statutes and the regulations promulgated
thereunder, the transfer of such licenses may not be effected until the
expiration of a 21-day period commencing on the date of publication of a notice
describing such transfer. The Company has been advised by its legal counsel that
such waiting period will expire on or about October 19, 1995. During such
waiting period, the Board will accept comments from the public in regard to the
transfer of such licenses. Under certain circumstances, prior to the expiration
of the waiting period, the Board may revoke its approval of the transfer of such
licenses, in which event the Company could be required to divest of all or
certain of its cemeteries located in the State of Florida, and the Merger could
be delayed. The Company does not anticipate that the Board will take any action
to revoke its approval of the transfer of such licenses.
SELECTED FINANCIAL DATA
"SELECTED FINANCIAL DATA" on page 4 of the Company's 1995 Annual Report to
Shareholders is hereby incorporated herein by reference.
FINANCIAL PROJECTIONS
In the course of the discussions between the Parent and the Company that led
to the execution of the Merger Agreement, the Company and Commonwealth provided
the Parent with certain information which was not publicly available at such
time. Such information included certain of the Company's operating budgets for
the fiscal year ending April 30, 1996, and projections of the Company's
operating performance for fiscal years 1997, 1998,
24
<PAGE>
1999 and 2000. The Company does not as a matter of course make public either
its annual budgets or financial projections, and such budgeted and projected
information set forth below are included in this Information Statement only
because the information was provided to the Parent.
MHI GROUP, INC. AND SUBSIDIARIES
SELECTED BUDGETED AND PROJECTED SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per Share data)
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
--------------------------------------------------------
Budgeted Projected
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996A/1/ 1996B/2/ 1997 1998 1999 2000
--------------------------------------------------------
Revenue................. $27,302 $27,522 $31,724 $37,434 $44,173 $52,124
Income before interest 5,751 6,988 8,276 9,883 11,735 13,915
and income taxes......
Net Income.............. 2,903 3,818 4,834 5,815 6,858 8,117
Net income per Share.... $ 0.39 $ 0.52 $ 0.66 $ 0.79 $ 0.93 $ 1.10
</TABLE>
______________________________
/1/ The 1996A budgeted consolidated financial data (the "1996A Budget")
represents the Company's base case budget for its fiscal year ended April
30, 1996.
/2/ The 1996B budgeted consolidated financial data (the "1996B Budget")
represents the Company's 1996A Budget, adjusted to reflect the anticipated
effects of a new plan of operations proposed by the Company's senior
management.
The 1996A Budget, the 1996B Budget and the Company's projections referred
to in the table above (the "Projections") were developed by the Company's
management (and, in the case of the 1996B Budget and the Projections, with the
assistance of Commonwealth) and were predicated on management's assumptions with
respect to certain macroeconomic conditions and developments in the deathcare
industry for such fiscal years, without giving effect to the Offer, the Merger
or to any action to be taken by the Parent or the Company, as the Surviving
Corporation, after the Effective Time. The 1996A Budget was prepared by the
Company's management in the ordinary course of the Company's annual budgeting
process and makes certain assumptions with respect to revenue growth, sales,
general and administrative expenses, net interest expense and certain other
future conditions. For purposes of calculating net income per Share with
respect to each period shown in the table above, the Company assumed that there
were 7,352,814 Shares outstanding.
In preparing the 1996A Budget and the 1996B Budget, the primary assumptions
were as follows: (i) revenue growth was budgeted to be approximately 16% in
fiscal year 1996; (ii) operating margins were budgeted to increase approximately
1% over estimated fiscal year 1995, based on improvements in operating
efficiency and selected price increases; and (iii) the effective tax rate was
budgeted to be 34%.
25
<PAGE>
The following were the additional primary assumptions used by the Company
in preparing the 1996B Budget: (i) trust income was budgeted to increase by
$220,000 as a result of improved trust asset allocation; (ii) operational costs
were budgeted to decline by approximately $1 million as a result of reductions
in sales, general and administrative expenses; and (iii) interest expense was
budgeted to decrease by $150,000 as a result of partial prepayment of the
outstanding balance of the Company's term loan.
In preparing the Projections the primary assumptions were as follows: (i)
revenue growth was projected to be 15% in fiscal year 1997 and 18% in fiscal
years 1998 through 2000, assuming moderate growth through acquisitions beginning
in the latter half of fiscal year 1997; (ii) operating margins were projected to
remain constant at the level assumed in the 1996B Budget before adjustments to
depreciation and amortization, which adjustments reflect the moderate post
fiscal year 1997 projected increase in acquisition activity; (iii) interest
expense was projected to decrease in fiscal year 1997 based on the Company's
partial prepayment of the outstanding balance of its term loan during fiscal
year 1996 and, thereafter, interest expense was projected to approach historical
levels due to increased acquisition activity; and (iv) the effective tax rate
was projected to be 36% for fiscal years 1997 through 2000.
The foregoing information was not prepared with a view toward complying
with published guidelines of the Commission regarding projections or forecasts
or with the American Institute of Certified Public Accountants Guide for
Prospective Financial Statements. While presented with numerical specificity,
the 1996A Budget, the 1996B Budget and the Projections necessarily reflect
numerous assumptions (not all of which were stated therein and not all of which
were provided to the Parent), including assumptions with respect to industry
performance, general business and economic conditions and the availability and
cost of capital, many of which are inherently uncertain and/or beyond the
Company's control. Accordingly, the 1996A Budget, the 1996B Budget and the
Projections are not necessarily indicative of future performance of the Company,
which may be significantly more favorable or less favorable than as set forth
above. Although the information contained in the 1996A Budget and the 1996B
Budget was one of many factors considered, according to the Parent, such
information was not material to the decision of the Parent and the Purchaser to
proceed with the Offer. The Company was informed by the Parent that the
Projections were not given significant consideration by the Parent or the
Purchaser and were not material to the decision by the Parent and the Purchaser
to proceed with the Offer. The inclusion of this information should not be
regarded as an indication that the Company, the Parent, the Purchaser, Loewen,
the financial advisors to the Company, Loewen and the Parent or anyone who
received the information considered it a reliable predictor of future events,
and this information should not be relied on as such. Because the 1996A Budget,
the 1996B Budget and the Projections are inherently subject to uncertainty, none
of the Company, the Parent, the Purchaser, Loewen, the financial advisors to the
Company, Loewen and Parent or anyone to whom the information was provided
assumes any responsibility for the validity, reasonableness, accuracy or
reliability of such information, and the Company has made no representations to
the Parent, the Purchaser or Loewen regarding any such information.
ABSENCE OF DISSENTERS' RIGHTS
Holders of Shares do not have dissenters' rights under the FBCA as a result
of the consummation of the Offer. In addition, holders of Shares will not have
dissenters' rights under the FBCA as a result of the Merger, since, on the
Record Date, there were more than 2,000 holders of Shares of record.
CERTAIN LITIGATION
On September 7, 1995, Laidlaw and its affiliate, Laidlaw Equities, Inc.
(together with Laidlaw, the "Laidlaw Parties"), commenced an action (the
"Laidlaw Action") against the Company, Commonwealth and a managing director of
Commonwealth in the Supreme Court of the State of New York, in the County of New
York, seeking the payment by the Company of a fee for financial advisory
services allegedly due to Laidlaw upon the consummation of the Offer pursuant to
a letter agreement between the Company and Laidlaw dated November 8, 1994, as
amended on March 8, 1995 (as so amended, the "Laidlaw Agreement"). Because the
Company believes it has valid defenses to the Laidlaw Action, and has the
benefit of certain representations and indemnities in its favor made by
Commonwealth in respect of the Laidlaw Agreement, the Company does not believe
that the Laidlaw Action is material to the financial condition of the Company.
26
<PAGE>
MARKET PRICES OF AND DIVIDENDS ON COMMON STOCK
The Shares were listed on the NYSE until September 19, 1995 and on the PSE
until September 20, 1995. The following table sets forth the reported high and
low sales prices per Share on the NYSE for each quarter of fiscal years 1994,
1995 and 1996 as reported on the composite tape for issues on the NYSE, as
restated for the Company's one-for-four reverse stock split effected in November
1993:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
April 30, 1994 April 30, 1995 April 30, 1996
===============================================================================================
High Low High Low High Low
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 8 6 1/2 10 3/8 7 1/2 8 1/2 6 3/4
------------------------------------------------------------------------------------------------
Second Quarter 11 1/2 7 9 3/4 7 1/8 10 1/4 7*
- ------------------------------------------------------------------------------------------------
Third Quarter 11 1/2 7 5/8 7 7/8 6 3/8
- ------------------------------------------------------------------------------------------------
Fourth Quarter 8 5/8 7 1/8 8 6 5/8
=================================================================================================
</TABLE>
* Through September 18, 1995, the last trading day prior to the delisting
of the Shares from the NYSE.
On August 8, 1995, the last trading day before the announcement that the
Company had entered into the Merger Agreement, the high and low sales prices per
Share were $9 and $8, respectively.
The Company has not declared or paid dividends on its Common Stock for the
periods presented above, and the Company anticipates that no dividends will be
paid to shareholders prior to the Merger.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
According to information available to the Company as of the Record Date
and as reported in Amendment No. 3 to the Schedule 14D-1 and Schedule 13D filed
on September 19, 1995 by the Parent, the Purchaser and Loewen, as of the Record
Date Loewen beneficially owned 7,635,095 Shares (including the MH Option Shares
and the Option Shares -- see "CERTAIN OTHER AGREEMENTS - The Company Option
Agreement" and "CERTAIN OTHER AGREEMENTS - The Warrant Option Agreement",
above), or 95.3% of the Shares that would have been outstanding as of the Record
Date if the MH Option Shares and the Option Shares were newly issued by the
Company upon the exercise of the MH Option and the Company Option by the Parent
prior to the Record Date.
In addition, according to information available to the Company as of the
Record Date, all current executive officers and directors of the Company as a
group may be deemed to beneficially own, collectively, approximately 3.1% of the
Shares outstanding as of the Record Date.
27
<PAGE>
AVAILABLE INFORMATION
The Company, prior to the deregistration of the Shares under the Exchange
Act, is subject to the informational requirements of the Exchange Act, and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Tender Offer Statement on Schedule 14D-1
and amendments thereto filed by the Purchaser and the Parent in connection with
the Offer, the Solicitation/Recommendation Statement on Schedule 14D-9 filed by
the Company in connection with the Offer and the respective exhibits thereto, as
well as such reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Regional Offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Commission at prescribed rates by addressing written requests for such copies to
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy
statements and other information concerning the Company should also be available
for inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005, and the PSE, 301 Pine Street, San Francisco, California 94104.
The Shares are currently registered under the Exchange Act. Following the
Merger, the Company will become the wholly owned subsidiary of the Parent
(except for the Preferred Shares), and there will be no public trading of the
Shares. Accordingly, registration of the Shares will be terminated upon
application of the Company to the Commission when the Merger is consummated and
the Company will no longer be subject to the reporting requirements of the
Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference herein:
(i) The Company's latest Annual Report on Form 10-K for the fiscal
year of the Company ended April 30, 1995;
(ii) The Company's latest Quarterly Report on Form 10-Q for the fiscal
quarter of the Company ended July 31, 1995; and
(iii) The Company's Current Report on Form 8-K filed with the
Commission on September 29, 1995.
Copies of each of the Annual Report, the Quarterly Report and the Current
Report are being delivered to the holders of Shares together with this
Information Statement. All documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the Effective Date are hereby incorporated by
reference herein and shall be deemed a part hereof from the date of the filing
of such documents.
The information relating to the Company contained herein does not purport
to be comprehensive and should be read together with the information in the
documents incorporated by reference herein.
28
<PAGE>
EXHIBIT 99.A
EXECUTION COPY
- --------------------------------------------------------------------------------
MHI GROUP, INC.,
LOEWEN GROUP INTERNATIONAL, INC.
and
SPRT CORP.
==============================
AGREEMENT AND PLAN OF MERGER
==============================
==============================
Dated as of August 9, 1995
==============================
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I
THE TENDER OFFER.......................................................... 2
1.1. The Offer...................................................... 2
---------
1.2. Company Action................................................. 3
--------------
1.3. Directors...................................................... 5
---------
ARTICLE II
THE MERGER................................................................ 7
2.1. The Merger..................................................... 7
----------
2.2. Effective Time................................................. 7
--------------
2.3. Effect of the Merger........................................... 7
--------------------
2.4. Subsequent Actions............................................. 7
------------------
2.5. Articles of Incorporation; By-Laws; Directors and
-------------------------------------------------
Officers....................................................... 8
--------
2.6. Conversion of Securities....................................... 8
------------------------
2.7. Surrender of Shares; Stock Transfer Books...................... 9
-----------------------------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE PURCHASER......................................................... 10
3.1. Corporate Organization......................................... 10
----------------------
3.2. Authority Relative to this Agreement........................... 10
------------------------------------
3.3. No Conflict; Required Filings and Consents..................... 11
------------------------------------------
3.4. Financing Arrangements......................................... 12
----------------------
3.5. Brokers........................................................ 12
-------
3.6. Offer Documents; Proxy Statements.............................. 12
---------------------------------
3.7. Litigation..................................................... 13
----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 13
4.1. Organization and Qualification; Subsidiaries................... 13
--------------------------------------------
4.2. Articles of Incorporation and By-Laws.......................... 14
-------------------------------------
4.3. Capitalization................................................. 14
--------------
4.4. Authority...................................................... 15
---------
4.5. No Conflict; Required Filings and Consents..................... 15
------------------------------------------
4.6. SEC Filings; Financial Statements.............................. 16
---------------------------------
4.7. Absence of Certain Changes or Events........................... 17
------------------------------------
4.8. Title to Property.............................................. 19
-----------------
4.9. Litigation..................................................... 20
----------
4.10. Compliance with Applicable Law................................. 20
------------------------------
4.11. Employee Benefit Plans......................................... 20
----------------------
4.12. Offer Documents; Proxy Statement............................... 21
--------------------------------
4.13. Brokers........................................................ 22
-------
4.14. Control Share Acquisition...................................... 22
-------------------------
4.15. Taxes.......................................................... 22
-----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
4.16. Environment................................................... 23
-----------
4.17. Contracts..................................................... 24
---------
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER................................... 24
5.1. Acquisition Proposals......................................... 24
---------------------
5.2. Conduct of Business by the Company Pending the
----------------------------------------------
Merger........................................................ 24
------
5.3. No Shopping................................................... 27
-----------
ARTICLE VI
ADDITIONAL AGREEMENTS.................................................... 27
6.1. Proxy Statement............................................... 27
---------------
6.2. Meeting of Shareholders of the Company........................ 28
--------------------------------------
6.3. Additional Agreements......................................... 28
---------------------
6.4. Notification of Certain Matters............................... 28
-------------------------------
6.5. Access to Information......................................... 29
---------------------
6.6. Public Announcements.......................................... 29
--------------------
6.7. Best Efforts; Cooperation..................................... 29
-------------------------
6.8. Agreement to Defend and Indemnify............................. 29
---------------------------------
6.9. Warrants; Stock Options....................................... 32
-----------------------
ARTICLE VII
CONDITIONS OF MERGER..................................................... 33
7.1. Conditions to Obligation of Each Party to Effect
------------------------------------------------
the Merger.................................................... 33
----------
7.2. Parent and Purchaser Obligations.............................. 34
--------------------------------
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER........................................ 34
8.1. Termination................................................... 34
-----------
8.2. Effect of Termination......................................... 36
---------------------
8.3. Termination Fees and Expenses................................. 36
-----------------------------
8.4. Amendment..................................................... 36
---------
8.5. Waiver........................................................ 36
------
ARTICLE IX
GENERAL PROVISIONS....................................................... 37
9.1. Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements.................................................... 37
----------
9.2. Notices....................................................... 37
-------
9.3. Expenses...................................................... 38
--------
9.4. Certain Definitions........................................... 38
-------------------
9.5. Headings...................................................... 38
--------
9.6. Severability.................................................. 39
------------
9.7. Entire Agreement; No Third-Party Beneficiaries................ 39
----------------------------------------------
9.8. Assignment.................................................... 39
----------
9.9. Governing Law................................................. 39
-------------
9.10. Counterparts.................................................. 39
------------
</TABLE>
Annex I - Conditions to the Offer
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 9, 1995 (the
"Agreement") among MHI GROUP, INC., a Florida corporation (the "Company"),
- ---------- -------
LOEWEN GROUP INTERNATIONAL, INC., a corporation organized under the laws of
Delaware (the "Parent"), and SPRT CORP., a Florida corporation and a wholly
------
owned subsidiary of the Parent (the "Purchaser").
---------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of the Company and the
Parent have each determined that it is in the best interests of their respective
shareholders for the Parent to acquire the Company upon the terms and subject to
the conditions set forth herein; and
WHEREAS, in furtherance thereof, it is proposed that the Purchaser
will make a cash tender offer (the "Offer") to acquire all shares of the issued
-----
and outstanding common stock, $.40 par value, of the Company (the "Company
-------
Common Stock"; all issued and outstanding shares of Company Common Stock being
- ------------
hereinafter collectively referred to as the "Shares") for $10.25 per Share (the
------
"Per Share Amount"), net to the seller in cash, subject to, among other things,
----------------
there being validly tendered and not withdrawn before the expiration of the
Offer a number of Shares which, together with Shares owned by the Purchaser or
the Parent, represent at least a majority of the total number of Shares
outstanding on a fully-diluted basis (the "Minimum Condition"); and
-----------------
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of the Company and the Parent have each approved the merger (the
"Merger") of the Purchaser with the Company following the Offer in accordance
- -------
with the Florida Business Corporation Act (the "FBCA") and upon the terms and
----
subject to the conditions set forth herein and approved the Parent Stock Option
(as defined in Section 4.3 hereof); and
WHEREAS, absent the applicability of FBCA (S)607.1104, the
effectiveness of the Merger will be conditioned, among other things, upon the
affirmative vote of the holders of a majority of the outstanding Shares; and
WHEREAS, the Board of Directors of the Company (the "Board of
--------
Directors") has unanimously resolved to recommend acceptance of the Offer and
- ---------
the Merger to the holders of Shares and has determined that the consideration to
be paid for each Share in the Offer and the Merger is fair to the holders of
such Shares and to recommend that the holders of such Shares accept the Offer
and adopt this Agreement and the transactions contemplated hereby;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, the Parent and the Purchaser hereby agree as follows:
ARTICLE I
THE TENDER OFFER
SECTION 1.1. The Offer. (a) Provided that this Agreement shall not
---------
have been terminated in accordance with Section 8.1 hereof and none of the
events set forth in Annex I hereto shall have occurred or be existing, the
-------
Parent or a direct or indirect subsidiary thereof shall commence (within the
meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934 (the "Exchange
--------
Act")) the Offer as promptly as practicable, but in no event later than five
- ---
business days following the execution of this Agreement. The obligation of the
Purchaser to accept for payment any Shares tendered shall be subject to the
satisfaction of the conditions set forth in Annex I, including the Minimum
-------
Condition. The Purchaser expressly reserves the right to waive any such
condition in its sole discretion, to increase the price per Share payable in the
Offer, or to make any other changes in the terms and conditions of the Offer
(provided that, without the prior, written consent of the Company, no change may
be made which decreases the price per Share payable in the Offer or which
reduces the maximum number of Shares to be purchased in the Offer or which
imposes conditions to the Offer in addition to those set forth in Annex I
-------
hereto). The Per Share Amount shall be net to the seller in cash, subject to
reduction only for any applicable Federal back-up withholding or stock transfer
taxes payable by the seller. The Company agrees that no Shares held by the
Company or any of its subsidiaries (as hereinafter defined) will be tendered
pursuant to the Offer. The Purchaser may, at any time, transfer or assign to
one or more corporations directly or indirectly wholly owned by Parent the right
to purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering holders of
Shares to receive payment for Shares validly tendered and accepted for payment.
(b) The Offer shall be made by means of an offer to purchase (the
"Offer to Purchase") having the conditions and provisions set forth in Annex I
- ------------------ -------
hereto. As soon as practicable on the date the Offer is commenced, the Parent
and the Purchaser shall file with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1 (together with all amendments
- ----
and supplements thereto, the "Schedule 14D-1") with
--------------
-2-
<PAGE>
respect to the Offer, will comply in all material respects with the provisions
of, and satisfy in all material respects the requirements of, such Schedule 14D-
1 and all applicable Federal securities laws, and such Schedule 14D-1 will
contain (including as an exhibit) or incorporate by reference the Offer to
Purchase (or portions thereof) and forms of the related letter of transmittal
and summary advertisement (which documents, together with any supplements or
amendments thereto, and any other SEC schedule or form which is filed in
connection with the Offer and related transactions, are referred to collectively
herein as the "Offer Documents"). Each of the Parent, the Purchaser and the
---------------
Company represents and warrants that the information provided and to be provided
by it and/or by its auditors, attorneys, financial advisors or other consultants
or advisors specifically for use in the Schedule 14D-1 and the Offer Documents
on the date filed with the SEC and on the date first published, sent or given to
the Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Parent or the Purchaser with respect to written information supplied
by the Company specifically for inclusion in the Schedule 14D-1. Each of the
Parent, the Purchaser and the Company agrees promptly to correct any information
provided by it for use in the Schedule 14D-1 or the Offer Documents if and to
the extent that it shall have become false or misleading in any material respect
and to supplement the information provided by it specifically for use in the
Schedule 14D-1 or the Offer Documents to include any information that shall
become necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the Parent and the
Purchaser further agree to take all steps necessary to cause the Schedule 14D-1,
as so corrected or supplemented, to be filed with the SEC and the Offer
Documents, as so corrected or supplemented, to be disseminated to holders of
Shares, in each case as and to the extent required by applicable Federal
securities laws. The Company and its counsel shall be given a reasonable
opportunity to review and comment on the Schedule 14D-1 before it is filed with
the SEC.
SECTION 1.2. Company Action. (a) The Company hereby approves of and
--------------
consents to the Offer and the Merger. The Company hereby represents and
warrants that the Board of Directors, at a meeting duly called and held on
August 9, 1995, at which a quorum was present and acting throughout, by the
unanimous vote of all directors present, (i) duly approved and adopted this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger and the Parent Stock Option, (ii) recommended that the shareholders of
the Company accept the Offer, tender their Shares
-3-
<PAGE>
pursuant to the Offer and adopt this Agreement and the transactions contemplated
hereby, including the Merger, (iii) determined that this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, are fair
to and in the best interests of the holders of Shares, and (iv) took all other
action necessary to render Section 607.0901 and Section 607.0902 of the FBCA
inapplicable to the Offer and the Merger and the Parent Stock Option and the
transactions contemplated hereby and thereby ((i), (ii), (iii) and (iv),
collectively, the "Recommendation"). The Company further represents that
--------------
Commonwealth Associates (the "Financial Advisor") has rendered to the Board of
-----------------
Directors of the Company a written opinion dated as of August 9, 1995, to the
effect that the consideration to be received by the holders of Shares pursuant
to the Offer and the Merger is fair to such shareholders (other than the Parent
and its affiliates) from a financial point of view. The Company hereby
covenants and agrees that the Recommendation will not be withdrawn, modified or
amended, except to the extent that the Board of Directors of the Company, after
consultation with and based upon the advice of independent legal counsel (who
may be the Company's regularly engaged independent legal counsel), determines in
good faith that the failure to take such action would constitute a breach of the
Board of Directors' fiduciary duties under applicable law. The Company will
furnish to the Parent and the Purchaser, upon request, a copy of the resolutions
adopting the Recommendation certified by an appropriate officer of the Company.
(b) The Company hereby agrees to file with the SEC, as promptly as
practicable on the date of commencement of the Offer after the filing by the
Parent and the Purchaser of the Schedule 14D-1 with respect to the Offer, a
Tender Offer Solicitation/Recommendation Statement on Schedule 14D-9 (together
with any amendments or supplements thereto, the "Schedule 14D-9") that (i) will
--------------
comply in all material respects with the provisions of all applicable Federal
securities laws and (ii) will include the opinion of the Financial Advisor
referred to in Section 1.2(a) hereof. The Company agrees to mail such Schedule
14D-9 to the shareholders of the Company along with the Offer Documents promptly
after the commencement of the Offer. The Schedule 14D-9 and the Offer Documents
shall contain the Recommendation of the Board of Directors. The Schedule 14D-9
will also contain as an exhibit thereto the written opinion of the Financial
Advisor described in Section 1.2(a) hereof. The Schedule 14D-9, on the date
filed with the SEC and on the date first published, sent or given to the
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by the Company with
respect to written
-4-
<PAGE>
information supplied by the Parent or the Purchaser specifically for inclusion
in the Schedule 14D-9. The Company agrees promptly to correct the Schedule 14D-
9 if and to the extent that it shall become false or misleading in any material
respect (and each of the Parent and the Purchaser, with respect to written
information supplied by it specifically for use in the Schedule 14D-9, shall
promptly notify the Company of any required corrections of such information and
cooperate with the Company with respect to correcting such information) and to
supplement the information contained in the Schedule 14D-9 to include any
information that shall become necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
the Company shall take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to the Company's
shareholders to the extent required by applicable Federal securities laws. The
Parent and the Purchaser, and their respective counsel, shall be given a
reasonable opportunity to review and comment on the Schedule 14D-9 before it is
filed with the SEC.
(c) In connection with the Offer, the Company shall promptly upon
execution of this Agreement furnish the Parent and the Purchaser with mailing
labels containing the names and addresses of all record holders of Shares and
security position listings of Shares held in stock depositories, each as of a
recent date, and shall promptly furnish the Parent and the Purchaser with such
additional information, including updated lists of shareholders, mailing labels
and security position listings, and such other information and assistance as the
Parent and the Purchaser or their agents may reasonably request for the purpose
of communicating the Offer to the record and beneficial holders of Shares.
SECTION 1.3. Directors. Promptly upon the purchase by the Purchaser
---------
of any Shares pursuant to the Offer, and from time to time thereafter as Shares
are acquired by the Purchaser, so long as the Purchaser shall not have waived
the Minimum Condition, the Purchaser shall be entitled to designate such number
of directors, rounded up to the next whole number, on the Board of Directors as
will give the Purchaser, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Board of Directors equal to at least that
number of directors which equals the product of the total number of directors on
the Board of Directors (giving effect to the directors appointed or elected
pursuant to this sentence and including current directors serving as officers of
the Company) multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Purchaser or any affiliate of the Purchaser (including
for purposes of this Section 1.3 such Shares as are accepted for payment
pursuant to the Offer, but excluding
-5-
<PAGE>
Shares held by the Company or any of its Subsidiaries) bears to the number of
Shares outstanding. At such times, the Company will also cause (i) each
committee of the Board of Directors, (ii) if requested by the Purchaser, the
board of directors of each of the Company's Subsidiaries and (iii) if requested
by the Purchaser, each committee of such board to include persons designated by
the Purchaser constituting the same percentage of each such committee or board
as the Purchaser's designees are of the Board of Directors. The Company shall,
upon request by the Purchaser, promptly increase the size of the Board of
Directors or exercise its best efforts to secure the resignations of such number
of directors as is necessary to enable the Purchaser's designees to be elected
to the Board of Directors and shall cause the Purchaser's designees to be so
elected; provided, however, that, in the event that the Purchaser's designees
-------- -------
are appointed or elected to the Board of Directors, until the Effective Time (as
defined in Section 2.2 hereof) the Board of Directors shall have at least one
director who is a director on the date hereof and who is neither an officer of
the Company nor a designee, shareholder, affiliate or associate (within the
meaning of the Federal securities laws) of the Purchaser (one or more of such
directors, the "Independent Directors"); provided further, that if no
--------------------- -------- -------
Independent Directors remain, the other directors shall designate one person to
fill one of the vacancies who shall not be either an officer of the Company or a
designee, shareholder, affiliate or associate of the Purchaser or the Parent,
and such person shall be deemed to be an Independent Director for purposes of
this Agreement. Subject to applicable law, the Company shall promptly take all
action necessary pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill its obligations under this Section
1.3 and shall include in the Schedule 14D-9 mailed to shareholders promptly
after the commencement of the Offer (or an amendment thereof or an information
statement pursuant to Rule 14f-1 if the Purchaser has not theretofore designated
directors) such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill
its obligations under this Section 1.3. The Parent and the Purchaser will
supply the Company and be solely responsible for any information with respect to
itself and its nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1. Notwithstanding anything in this Agreement to the
contrary, prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors shall be required to (i) amend or terminate this Agreement
by the Company, (ii) exercise or waive any of the Company's rights or remedies
hereunder, or (iii) extend the time for performance of the Purchaser's
obligations hereunder.
-6-
<PAGE>
ARTICLE II
THE MERGER
SECTION 2.1. The Merger. At the Effective Time (as defined in
----------
Section 2.2) and subject to and upon the terms and conditions of this Agreement
and the FBCA, the Purchaser shall be merged with and into the Company, the
separate corporate existence of the Purchaser shall cease, and the Company shall
continue as the surviving corporation. The Company as the surviving corporation
after the Merger hereinafter sometimes is referred to as the "Surviving
---------
Corporation".
- -----------
SECTION 2.2. Effective Time. As promptly as practicable after the
--------------
satisfaction or waiver of the conditions set forth in Article VII, the parties
-----------
hereto shall cause the Merger to be consummated by filing Articles of Merger
with the Secretary of State of the State of Florida, in such form as required
by, and executed in accordance with the relevant provisions of, the FBCA (the
time of such filing being the "Effective Time").
--------------
SECTION 2.3. Effect of the Merger. At the Effective Time, the effect
--------------------
of the Merger shall be as provided in the applicable provisions of the FBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and the Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and the Purchaser shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 2.4. Subsequent Actions. If, at any time after the Effective
------------------
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or the Purchaser acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of either the Company or the Purchaser, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
-7-
<PAGE>
SECTION 2.5. Articles of Incorporation; By-Laws; Directors and
-------------------------------------------------
Officers. (a) Unless otherwise determined by the Parent before the Effective
- --------
Time, at the Effective Time the Articles of Incorporation of the Company, as in
effect immediately before the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation.
(b) The By-Laws of the Purchaser, as in effect immediately before the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such By-Laws.
(c) The directors of the Purchaser immediately before the Effective
Time will be the initial directors of the Surviving Corporation, and the
officers of the Company immediately before the Effective Time will be the
initial officers of the Surviving Corporation, in each case until their
successors are elected or appointed and qualified. If, at the Effective Time, a
vacancy shall exist on the Board of Directors or in any office of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided by
law.
SECTION 2.6. Conversion of Securities. At the Effective Time, by
------------------------
virtue of the Merger and without any action on the part of the Purchaser, the
Company or the holder of any of the following securities:
(a) Each Share issued and outstanding immediately before the
Effective Time (other than any Shares to be canceled pursuant to Section 2.6(b))
shall be canceled and extinguished and be converted into the right to receive
the Per Share Amount in cash payable to the holder thereof, without interest,
upon surrender of the certificate representing such Share (such amount of cash
in the aggregate being referred to herein as the "Merger Consideration").
--------------------
(b) Each share of Company Common Stock held in the treasury of the
Company and each Share owned by the Parent or any direct or indirect wholly
owned subsidiary of the Parent or of the Company immediately before the
Effective Time shall be canceled and extinguished and no payment or other
consideration shall be made with respect thereto.
(c) Each share of common stock, par value $.01 per share, of the
Purchaser issued and outstanding immediately before the Effective Time shall
thereafter represent one validly issued, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
-8-
<PAGE>
SECTION 2.7. Surrender of Shares; Stock Transfer Books. (a) Before
-----------------------------------------
the Effective Time, the Company shall designate a bank or trust company to act
as agent for the holders of Shares (the "Exchange Agent") to receive the funds
--------------
necessary to make the payments contemplated by Section 2.6.
(b) Each holder of a certificate or certificates representing any
Shares canceled upon the Merger pursuant to Section 2.6(a) may thereafter
surrender such certificate or certificates to the Exchange Agent, as agent for
such holder, to effect the surrender of such certificate or certificates on such
holder's behalf for a period ending six months after the Effective Time. Any
cash delivered or made available to the Exchange Agent pursuant to this Section
2.8 and not exchanged for certificates representing Shares within six months
after the Effective Time will be returned by the Exchange Agent to the Surviving
Corporation, which thereafter will act as Exchange Agent, subject to the rights
of holders of non-surrendered certificates representing Shares under this
Article II and any former holders of Shares who have not theretofore complied
with the instructions for exchanging their certificates representing Shares, who
will thereafter look only to the Surviving Corporation for payment of their
claim for the consideration set forth in Section 2.6, without any interest
thereon, but will have no greater rights against the Surviving Corporation (or
either constituent corporation in the Merger) than may be accorded to general
unsecured creditors thereof under applicable law. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto will be liable to a
holder of Shares for any cash or interest thereon delivered to a public official
pursuant to applicable abandoned property laws. The Parent agrees that promptly
after the Effective Time it shall cause the distribution to holders of record of
Shares as of the Effective Time of appropriate materials to facilitate such
surrender.
(c) If payment of cash in respect of canceled Shares is to be made to
a person other than the person in whose name a surrendered certificate or
instrument is registered, it shall be a condition to such payment that the
certificate or instrument so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of such
payment in a name other than that of the registered holder of the certificate or
instrument surrendered or shall have established to the satisfaction of the
Parent or the Exchange Agent that such tax either has been paid or is not
payable.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and there shall not be any further registration of transfers of
shares of Company Common Stock
-9-
<PAGE>
thereafter on the records of the Company. If, after the Effective Time,
certificates for Company Common Stock are presented to the Surviving
Corporation, they shall be canceled and exchanged for cash as provided in
Section 2.6(a). No interest shall accrue or be paid on any cash payable upon
the surrender of a certificate or certificates which immediately before the
Effective Time represented outstanding Shares.
(e) 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 Parent, the posting by such person of a bond in customary form
and amount as indemnity against any claim that may be made against it with
respect to such certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate the consideration set forth in Section
2.6, without any interest thereon, upon due surrender of and deliverable in
respect of such certificate pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE PURCHASER
The Parent and the Purchaser represent and warrant to the Company as
follows:
SECTION 3.1. Corporate Organization. Each of the Parent and the
----------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority and any necessary governmental authority to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power and
authority would not reasonably be expected to have, individually or in the
aggregate, the effect of preventing or materially delaying the Parent and the
Purchaser from performing their respective obligations under this Agreement.
SECTION 3.2. Authority Relative to this Agreement. The execution and
------------------------------------
delivery of this Agreement by the Parent and the Purchaser and the consummation
by the Parent and the Purchaser of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the Parent
and the Purchaser and no other corporate proceeding is necessary for the
execution and delivery of this Agreement by the Parent or the
-10-
<PAGE>
Purchaser, the performance by the Parent or the Purchaser of their obligations
hereunder and the consummation by the Parent or the Purchaser of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Parent and the Purchaser and constitutes a legal, valid and
binding obligation of each such corporation, enforceable against each of them in
accordance with its terms.
SECTION 3.3. No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by the Parent and the Purchaser do not,
and the performance of this Agreement by the Parent and the Purchaser will not,
(i) conflict with or violate any law, regulation, court order, judgment or
decree applicable to the Parent or the Purchaser or by which any of their
property is bound or affected, (ii) violate or conflict with either the Articles
of Incorporation or By-Laws of either the Parent or the Purchaser, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of the Parent or the Purchaser
pursuant to, any contract, instrument, permit, license or franchise to which the
Parent or the Purchaser is a party or by which the Parent or the Purchaser or
any of their property is bound or affected, except for such violations,
conflicts, breaches or defaults which would not reasonably be expected to have,
individually or in the aggregate, the effect of preventing or materially
delaying the Parent and the Purchaser from performing their respective
obligations under this Agreement.
(b) Except for applicable requirements, if any, of the Exchange Act,
the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), filing and recordation of
-------
appropriate merger documents as required by the FBCA, neither the Parent nor the
Purchaser is required to submit any notice, report or other filing with any
governmental authority, domestic or foreign, in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby, except for the failure to submit such notices,
reports or other filings which would not reasonably be expected to have,
individually or in the aggregate, the effect of preventing or materially
delaying the Parent and the Purchaser from performing their respective
obligations under this Agreement. No waiver, consent, approval or authorization
of any governmental or regulatory authority, domestic or foreign, is required to
be obtained or made by either the Parent or the Purchaser in connection with its
execution, delivery or performance of this Agreement, except for such waivers,
consents, approvals or authorizations the failure of which to have obtained
-11-
<PAGE>
or made would not reasonably be expected to have, individually or in the
aggregate, the effect of preventing or materially delaying the Parent and the
Purchaser from performing their respective obligations under this Agreement.
SECTION 3.4. Financing Arrangements. The Purchaser has funds
----------------------
available to it sufficient to purchase the Shares in accordance with the terms
of this Agreement. After consummation of the Offer and immediately prior to
consummation of the Merger, the Parent or the Purchaser will have deposited in
trust with the Exchange Agent funds in a sufficient amount to pay the Merger
Consideration in respect of those Shares to be converted pursuant to Section
2.6(a).
SECTION 3.5. Brokers. No broker, finder or investment banker, other
-------
than Smith Barney Inc. and Mr. Peter Grunebaum, is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Parent or the Purchaser.
SECTION 3.6. Offer Documents; Proxy Statements. None of the
---------------------------------
information supplied by the Parent or the Purchaser, or their respective
officers, directors, representatives, agents or employees, for inclusion in the
Proxy Statement (as defined in Section 4.12), or in any amendments thereof or
supplements thereto, will, on the date the Proxy Statement is first mailed to
shareholders, at the time of the Company Shareholders' Meeting (as defined in
Section 4.12) or at the Effective Time, contain any statement which, at such
time and in light of the circumstances under which it will be made, will be
false or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Company Shareholders'
Meeting which has become false or misleading. Neither the Offer Documents nor
any amendments thereof or supplements thereto will, at any time the Offer
Documents or any such amendments or supplements are filed with the SEC, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing, the
Parent and the Purchaser do not make any representation or warranty with respect
to any information that has been supplied by the Company or its accountants,
counsel or other authorized representatives for use in any of the foregoing
documents. The Offer Documents and any amendments or supplements thereto will
comply as to form in all material respects with the
-12-
<PAGE>
provisions of the Exchange Act and the rules and regulations thereunder.
SECTION 3.7. Litigation. There are no claims, actions, suits,
----------
proceedings, or investigations pending or, to the best knowledge of the Parent
or the Purchaser, threatened, against the Parent or the Purchaser before any
court, administrative, governmental or regulatory authority or body, domestic or
foreign, which are reasonably likely to prevent or delay the performance by the
Parent or the Purchaser of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and the
Purchaser as follows:
SECTION 4.1. Organization and Qualification; Subsidiaries. Each of
--------------------------------------------
the Company and its Subsidiaries (defined below in this Section 4.1) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite corporate power
and authority and any necessary governmental authority to own, operate or lease
the properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted, and is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failure which,
when taken together with all other such failures, would not have a Material
Adverse Effect (as defined below in this Section 4.1). The term "Subsidiary"
----------
means any corporation or other legal entity of which the Company or, if the
context requires, the Surviving Corporation (either alone or through or together
with any other Subsidiary) owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity. The term "Material Adverse Effect" means any
-----------------------
change in or effect on the business of the Company or any of the Subsidiaries
that is reasonably likely to be materially adverse to the business, operations,
properties (including intangible properties), condition (financial or
otherwise), assets, liabilities or regulatory status of the Company and the
Subsidiaries taken as a whole. A true and complete list of all the
Subsidiaries, together with the jurisdiction of incorporation of each Subsidiary
and the percentage of each Subsidiary's outstanding
-13-
<PAGE>
capital stock owned by the Company or another Subsidiary, is set forth in
Section 4.1 of the disclosure memorandum separately delivered by the Company to
the Parent in connection herewith (the "Company Disclosure Schedule").
---------------------------
SECTION 4.2. Articles of Incorporation and By-Laws. The Company has
-------------------------------------
heretofore furnished to the Parent a complete and correct copy of the Amended
and Restated Articles of Incorporation and the By-Laws or equivalent
organizational documents, each as amended to the date hereof, of the Company and
made available to the Parent such documents with respect to all Subsidiaries.
Such Amended and Restated Articles of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Neither the Company nor
any Subsidiary is in violation of any of the provisions of its respective
Articles of Incorporation or By-Laws or equivalent organizational documents.
SECTION 4.3. Capitalization. The authorized capital stock of the
--------------
Company consists of 10,000,000 shares of Company Common Stock, 100,000 shares of
Series B Convertible Preferred Stock (the "Series B Preferred") and 200,000
------------------
shares of Series C Convertible Preferred Stock (the "Series C Preferred"). As
------------------
of the date hereof, (i) 6,272,251 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable,
(ii) 57,129 shares of Company Common Stock were held in the treasury of the
Company or by Subsidiaries of the Company, (iii) 722,961 shares of Company
Common Stock were reserved for issuance upon exercise of outstanding options
under the Company's 1989 Stock Option Plan, (iv) 24,757 shares of Series B
Preferred were issued and outstanding and (v) 13,938 shares of Series C
Preferred where issued and outstanding. Except as set forth in this Section
4.3, in Section 4.3(a) of the Company Disclosure Schedule, and except for the
Stock Option Agreement (the "Parent Stock Option") between the Company and the
-------------------
Parent dated as of the date hereof, there are no shares of capital stock of the
Company authorized, issued or outstanding and there are no outstanding
subscriptions, options, warrants, rights, convertible securities or any other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of the Company obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of the Company or obligating the Company to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Except as set forth in
Section 4.3(a) of the Company Disclosure Schedule, there are no voting trusts or
other agreements or understandings to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound with respect to the
voting of the capital stock of the Company or the repurchase,
-14-
<PAGE>
redemption or other acquisition of or payment in respect of any shares of
capital stock of the Company or any Subsidiary.
All the outstanding capital stock of each of the Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and, except as set
forth in Section 4.1 of the Company Disclosure Schedule, is owned by the Company
or a Subsidiary free and clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances of any nature whatsoever. There are
no existing subscriptions, options, warrants, rights, convertible securities or
any other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of any Subsidiary obligating the
Company or any Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of any Subsidiary or
obligating the Company or any Subsidiary to grant, extend or enter into any
subscription, option, warrant, right, convertible security or other similar
agreement or commitment. Except for the Subsidiaries and except as set forth in
Section 4.3(b) of the Company Disclosure Schedule and in the SEC Reports (as
defined in Section 4.6), the Company does not directly or indirectly own a
greater than 5% equity interest in any other corporation, partnership, joint
venture or other business association or entity.
SECTION 4.4. Authority. The Company has the necessary corporate
---------
power and authority to enter into this Agreement and the Parent Stock Option
and, subject to obtaining any necessary shareholder approval of the Merger, to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Parent Stock Option by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company and no further corporate proceedings on the part of the Company are
required in connection therewith, subject to the approval of the Merger by the
Company's shareholders in accordance with the FBCA. This Agreement and the
Parent Stock Option have been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms.
SECTION 4.5. No Conflict; Required Filings and Consents. (a) Except
------------------------------------------
as set forth in Section 4.5 of the Company Disclosure Schedule, the execution
and delivery of this Agreement and the Parent Stock Option by the Company do
not, and the performance of this Agreement by the Company will not, (i) conflict
with or violate any law, regulation, court order, judgment or decree applicable
to the Company or any of the Subsidiaries or by which its or any of their
property is bound or affected, (ii) violate or
-15-
<PAGE>
conflict with the Articles of Incorporation or By-Laws of the Company or any
Subsidiary, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time of both would become a default) under,
or give to others any rights of termination or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of the Subsidiaries pursuant to, any contract, instrument,
permit, license or franchise to which the Company or any of the Subsidiaries is
a party or by which the Company or any of the Subsidiaries or its or any of
their property is bound or affected, except for conflicts, violations, breaches
or defaults which, in the aggregate, would not have a Material Adverse Effect.
(b) Except for applicable requirements, if any, of the Exchange Act,
the pre-merger notification requirements of the HSR Act, and filing and
recordation of appropriate merger or other documents as required by the FBCA,
and except as set forth in Section 4.5(b) of the Company Disclosure Schedule,
the Company is not required to submit any notice, report or other filing with,
or obtain any waiver, consent, approval or authorization of, any governmental
authority, domestic or foreign, in connection with the execution, delivery or
performance of this Agreement.
SECTION 4.6. SEC Filings; Financial Statements. (a) The Company has
---------------------------------
filed all forms, reports and documents required to be filed with the SEC since
January 1, 1994, and has heretofore delivered to the Parent, in the form filed
with the SEC, its (i) Annual Reports on Form 10-K for the fiscal years ended
April 30, 1995 and April 30, 1994, respectively, (ii) all proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held since January 1, 1993 or to be held thereafter and (iii) all other reports
or registration statements (other than Reports on Form 10-Q) filed by the
Company with the SEC since January 1, 1994 (collectively, the "SEC Reports").
-----------
The SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
--------------
as the case may be, and (ii) did not at the time they were filed, or in the case
of registration statements, at the time they became effective contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Subsidiaries is required to file any statements or reports with SEC pursuant
to Sections 13(a) or 15(d) of the Exchange Act.
(b) The consolidated financial statements contained in the SEC
Reports have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis
-16-
<PAGE>
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its Subsidiaries as at the respective dates thereof and the consolidated
results of operations and changes in financial position of the Company and its
Subsidiaries for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) Except as reflected or reserved against in the consolidated
financial statements contained in the SEC Reports, the Company and its
Subsidiaries have no liabilities of any nature (whether accrued, absolute,
contingent or otherwise) and there is no existing condition, situation or set of
circumstances which would result in such a liability which in either case in the
aggregate could have a Material Adverse Effect. Since April 30, 1995, neither
the Company nor any of the Subsidiaries has incurred any liabilities material to
the Company and the Subsidiaries taken as a whole except (i) liabilities
incurred in the ordinary course of business and consistent with past practice
and (ii) liabilities incurred in connection with or as a result of the Offer or
the Merger.
SECTION 4.7. Absence of Certain Changes or Events. Since April 30,
------------------------------------
1995, except as contemplated in this Agreement or as set forth in Section 4.7 of
the Company Disclosure Schedule, there has not been:
(a) any Material Adverse Effect or any event, occurrence or
development of a state of circumstances or facts which is reasonably likely
to have a Material Adverse Effect;
(b) any strike, picketing, work slowdown or other labor disturbance
having a Material Adverse Effect;
(c) any damage, destruction or loss (whether or not covered by
insurance) with respect to any of the assets of the Company or any of its
Subsidiaries having a Material Adverse Effect;
(d) any repurchase, redemption or other acquisition of capital stock
of the Company or any Subsidiary by the Company or any of the Subsidiaries
or any declaration or payment of any dividend or other distribution in
cash, stock or property with respect to the capital stock of the Company,
except for purchases heretofore made pursuant to the terms of the Company's
employee benefit plans and regular cash dividends paid before the date
hereof;
-17-
<PAGE>
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing, assumption of indebtedness, guaranty of
indebtedness, or capital expenditure) other than in the ordinary course of
business and on terms consistent with past practice or as contemplated by
this Agreement;
(f) any transfer of, or rights granted under, any material leases,
licenses, agreements, patents, trademarks, trade names or copyrights other
than those transferred or granted in the ordinary course of business and
consistent with past practice;
(g) any mortgage, pledge, security interest or imposition of a lien
or other encumbrance on any material asset of the Company or any of the
Subsidiaries;
(h) any change by the Company in accounting principles or methods
except insofar as may have been required by a change in generally accepted
accounting principles and disclosed in the SEC Reports;
(i) any amendment of any material term of any outstanding security of
the Company or any Subsidiary;
(j) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries or made in the
ordinary course of business consistent with past practices; or
(k) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or other
right, in either case, material to the Company and the Subsidiaries taken
as a whole, other than transactions and commitments in the ordinary course
of business consistent with past practice and those contemplated by this
Agreement.
Since April 30, 1995, except as contemplated in this Agreement, the
Company and its Subsidiaries have conducted their business only in the ordinary
course and in a manner consistent with past practice and have not made any
material change in the conduct of the business or operations of the Company and
its Subsidiaries taken as a whole. Except as set forth in Section 4.7 of the
Company Disclosure Schedule, without limiting the generality
-18-
<PAGE>
of the foregoing, the Company has not, since such date, except as set forth in
the SEC Reports, made any changes in executive compensation levels or in the
manner in which other employees of the Company or the Subsidiaries are
compensated, paid or agreed to pay any pension, retirement allowance or other
employee benefit not required or permitted by any plan, agreement or arrangement
existing on such date to any director, officer or employee, whether past or
present, increased any benefits payable under existing severance or termination
pay policies or employment agreements, increased any compensation, bonus, or
other benefits payable to directors, officers or employees of the Company or any
Subsidiary or committed itself to any collective bargaining agreement (except
for renewals of existing collective bargaining agreements) or to any pension,
profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement or
other employee benefit plan, agreement or arrangement, or to any employment or
consulting agreement with or for the benefit of any person, or to amend any of
such plans or any of such agreements in existence on such date.
SECTION 4.8. Title to Property. (a) Except as set forth in Section
-----------------
4.8 of the Company Disclosure Schedule, the Company and the Subsidiaries have
good and marketable title, or valid leasehold rights in the case of leased
property, to all real property (the "Real Property") and all personal property
-------------
purported to be owned or leased by them, free and clear of all material liens,
security interests, claims, encumbrances and charges, excluding (i) liens for
fees, taxes, levies, imposts, duties or governmental charges of any kind which
are not yet delinquent or are being contested in good faith by appropriate
proceedings which suspend the collection thereof, (ii) liens for mechanics,
materialmen, laborers, employees, suppliers or other liens arising by operation
of law for sums which are not yet delinquent or are being contested in good
faith by appropriate proceedings, (iii) liens created in the ordinary course of
business in connection with the leasing or financing of office, computer and
related equipment and supplies, (iv) easements and similar encumbrances
ordinarily created for fuller utilization and enjoyment of property, and (v)
liens or defects in title or leasehold rights that, in the aggregate, do not and
will not have a Material Adverse Effect.
(b) Consummation of the Offer and the Merger will not result in any
breach of or constitute a default (or an event with which notice or lapse of
time or both would constitute a default) under, or give to others any rights of
termination or cancellation of, or require the consent of others under, any
lease in which the Company is a lessee, except for breaches or defaults which,
in the aggregate, would not have a Material Adverse Effect.
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<PAGE>
SECTION 4.9. Litigation. Except as previously disclosed in the SEC
----------
Reports or to the Parent in writing, there are no claims, actions, suits,
proceedings or investigations pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries, or any properties or
rights of the Company or any of its Subsidiaries, before any court,
administrative, governmental or regulatory authority or body, domestic or
foreign, which, in the aggregate, have or will have a Material Adverse Effect or
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the Offer or the Merger or any of the other transactions contemplated
hereby. As of the date hereof, neither the Company nor any of its Subsidiaries
nor any of their property is subject to any order, judgment, injunction or
decree, having a Material Adverse Effect.
SECTION 4.10. Compliance with Applicable Law. Except as previously
------------------------------
disclosed in the SEC Reports, the Company and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all governmental
entities necessary for the lawful conduct of their respective businesses (the
"Company Permits"), except for failures to hold such permits, licenses,
- ----------------
variances, exemptions, orders and approvals which would not, individually or in
the aggregate, have a Material Adverse Effect. Except as previously disclosed
in the SEC Reports or Section 4.10 of the Company Disclosure Schedule, the
Company and its Subsidiaries are in compliance with, and no condition exists
that with notice or lapse of time or both would constitute a breach or default
with respect to, the terms of the Company Permits, except where the failure to
so comply, such breach or such default, would not have a Material Adverse
Effect. Except as previously disclosed in the SEC Reports, the businesses of
the Company and its Subsidiaries are not being conducted in violation of any
law, ordinance, regulation, judgment, order or decree of any governmental entity
(including, without limitation, the Occupational Safety and Health Act, the
Americans with Disabilities Act and the Federal Trade Commissions Funeral
Industry Practices Regulation) except for violations or possible violations
which individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect. Except as
previously disclosed in the SEC Reports, no investigation or review by any
governmental entity with respect to the Company or any of its Subsidiaries is
pending or, to the best knowledge of the Company, threatened nor, to the best
knowledge of the Company, has any governmental entity indicated an intention to
conduct the same, other than, in each case, those which the Company reasonably
believes will not have a Material Adverse Effect.
SECTION 4.11. Employee Benefit Plans. Except for the obligation to
----------------------
make contributions or to satisfy benefit obligations
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<PAGE>
in accordance with the terms thereof, neither the Company nor any Subsidiary has
any liability to or with respect to any "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to, currently or in the past, by the
-----
Company or any of its Subsidiaries (the "Plans") that will have a Material
-----
Adverse Effect. None of the Plans is or was a defined benefit Plan or a
multiemployer plan, as such terms are defined in ERISA. To the best of the
Company's knowledge, each Plan intended to qualify under Section 401(a) of the
Internal Revenue Code (the "Code") is and at all times has been so qualified.
Copies of all of the Plans covering United States employees of the Company or
any Subsidiary and any related trusts, summary plan descriptions or other
related materials reasonably requested by the Parent have been made available to
the Parent. Except as set forth in Section 4.11 of the Company Disclosure
Schedule, and except as provided in Section 6.9(a) hereof, neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated by this Agreement (a) will result in, cause the accelerated vesting
or delivery of, or increase the amount or value of, any payment or benefit to
any employee or former employee of the Company or any of its Subsidiaries, or
(b) will result in the Company, the Parent or the Purchaser being obligated to
make a payment to an individual that would be a "parachute payment" to a
"disqualified individual" as these terms are defined in Section 280G of the
Code. The stock options described in Section 4.11 of the Company Disclosure
Schedule have been duly rescinded and are not exercisable into Shares.
SECTION 4.12. Offer Documents; Proxy Statement. The proxy statement
--------------------------------
to be sent to the shareholders of the Company in connection with the meeting of
the Company's shareholders to consider the Merger (the "Company Shareholders'
---------------------
Meeting") or the information statement to be sent to such shareholders, as
- -------
appropriate (such proxy statement or information statement, as amended or
supplemented, is herein referred to as the "Proxy Statement"), will comply in
---------------
all material respects with the applicable requirements of the Exchange Act and
the rules and regulations thereunder except that no representation or warranty
is being made by the Company with respect to any information supplied to the
Company by the Parent or the Purchaser specifically for inclusion in the Proxy
Statement. The Proxy Statement will not, at the time the Proxy Statement (or
any amendment or supplement thereto) is filed with the SEC or first sent to
shareholders, at the time of the Company Shareholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
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<PAGE>
SECTION 4.13. Brokers. No broker, finder or investment banker (other
-------
than the Financial Advisor) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to the Parent true and complete information concerning the
financial arrangements between the Company and the Financial Advisor pursuant to
which such firm would be entitled to any payment as a result of the transactions
contemplated hereunder.
SECTION 4.14. Control Share Acquisition. None of the transactions
-------------------------
contemplated by this Agreement and the Parent Stock Option, including the
purchase of Shares in the Offer and in the Merger and the Merger, individually
or in the aggregate, (a) result in, constitute or be deemed to be a "control
share acquisition" as such term is defined in (S) 607.0902 of the FBCA or (b)
are subject to the provisions of Section 607.0901 of the FBCA, in each case with
respect to either the Parent or the Purchaser, or any other party to either of
such Agreements.
SECTION 4.15. Taxes. Each of the Company and its Subsidiaries has
-----
filed, or caused to be filed, all federal, state, local and foreign income and
other material tax returns required to be filed by it, has paid or withheld, or
caused to be paid or withheld, all taxes of any nature whatsoever, with any
related penalties, interest and liabilities (any of the foregoing being referred
to herein as a "Tax"), that are shown on such tax returns as due and payable, or
---
otherwise required to be paid, other than such Taxes as are being contested in
good faith and for which adequate reserves have been established and other than
where the failure to so file, pay or withhold would not have a Material Adverse
Effect. There are no material claims or assessments pending against the Company
or its Subsidiaries for any alleged deficiency in any Tax, and the Company does
not know of any threatened Tax claims or assessments against the Company or any
of its Subsidiaries which if upheld would have a Material Adverse Effect. None
of the Company or any of its Subsidiaries has made an election to be treated as
a "consenting corporation" under Section 341(f) of the Code. There are no
waivers or extensions of any applicable statute of limitations to assess any
material Taxes. The affiliated group of corporations (as defined in section
1504(a) of the Code) of which the Company is the parent is the only affiliated,
consolidated, combined or unitary group of which the Company and its
Subsidiaries have been a member. Neither the Company nor any of its
Subsidiaries has agreed or is required to make adjustments under section 481(a)
of the Code by reason of a change in method of accounting or otherwise. The
stock of the Company does not constitute an interest in real property subject to
the New York Real Property Transfer Gains Tax.
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<PAGE>
SECTION 4.16. Environment. (a) As used herein, the term
-----------
"Environmental Laws" means all Federal, state, local or foreign laws relating to
- -------------------
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or
industrial, toxic or hazardous substances or wastes into the environment or work
place, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or wastes, as well as
all authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(b) Except as disclosed in Section 4.16 of the Company Disclosure
Schedule, there are, with respect to the Company or any of its Subsidiaries, no
past or present violations of Environmental Laws, releases of any material into
the environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law or
other legal liability, or any responsibility to undertake or incur costs for any
cleanup, remedial response or corrective action, including, without limitation,
liability under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") or similar state or local laws, which
------
liabilities, either individually or in the aggregate, would have a Material
Adverse Effect.
(c) Except as disclosed in Section 4.16 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has (i) entered into
or been subject to any consent decree, compliance order or administrative order
pursuant to any Environmental Law, (ii) received any written communication
indicating potential responsibility for response costs or remediation with
respect to a release or threatened release of hazardous substances, (iii) been
subject to any release reporting, cleanup, remediation or corrective action
requirements under any Environmental Law, or (iv) had a lien imposed on any of
its property under any Environmental Law.
(d) The Company and its Subsidiaries have (i) made available to the
Parent all environmental or worker health and safety audits, reports, studies
and investigations within the Company's possession which were performed by third
party consultants engaged by the Company or by governmental agencies relating to
the Company or any of its Subsidiaries or any property
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currently or formerly owned, leased or operated by the Company or any of its
Subsidiaries.
SECTION 4.17. Contracts. Each of the material contracts listed as
---------
such in the Company's 1995 Annual Report on Form 10-K is in full force and
effect, is a legal, binding and enforceable obligation of the Company or any
Subsidiary and, to the best of knowledge of the Company, each other party
thereto, and no event has occurred that constitutes or, with the giving of
notice or passage of time, or both, would constitute a material default
thereunder or a material breach thereof by any party thereto or that could
result in the acceleration of the performance of any obligation thereunder
having a Material Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1. Acquisition Proposals. The Company will notify the
---------------------
Parent immediately if any inquiries or proposals are received by, any
information is requested from, or any negotiations or discussions are sought to
be initiated or continued with the Company, its subsidiaries, or any of their
respective officers, directors, employees, agents or advisors, in each case in
connection with any acquisition, business combination or purchase of all or any
significant portion of the assets of, or any equity interest in, the Company or
any Subsidiary which would require the acquiring entity or group to file a
Schedule 13D with respect thereto under the Exchange Act and will keep the
Parent reasonably informed of the status and substance of any such inquiries,
proposals, requests, negotiations or discussions.
SECTION 5.2. Conduct of Business by the Company Pending the Merger.
-----------------------------------------------------
The Company covenants and agrees that, between the date of this Agreement and
the Effective Time, unless the Parent shall otherwise consent in writing, the
businesses of the Company and its Subsidiaries shall be conducted only in the
ordinary course of business and in a manner consistent with past practice; and
the Company will use its best efforts to preserve substantially intact the
business organization of the Company and its Subsidiaries, to keep available the
services of the present officers, employees and consultants of the Company and
its Subsidiaries and to preserve the present relationships of the Company and
its Subsidiaries with customers, suppliers and other persons with which the
Company or any of its Subsidiaries has significant business relations. By way
of amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its Subsidiaries shall, between the date of this
Agreement and the Effective Time, directly
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<PAGE>
or indirectly do any of the following without the prior written consent of the
Parent:
(a) (i) issue, sell, pledge, dispose of, encumber, authorize, agree to
or publicly propose the issuance, sale, pledge, disposition, encumbrance or
authorization of any shares of capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of capital stock, or any other ownership interest, of the Company or
any of its Subsidiaries; (ii) amend or publicly propose to amend the
Articles of Incorporation or By-Laws or equivalent organizational documents
of the Company or any of its Subsidiaries or of any term of any outstanding
security of the Company or any Subsidiary; (iii) split, combine or
reclassify any outstanding shares of capital stock of the Company or its
Subsidiaries or declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise with respect to the Shares;
(iv) redeem, purchase or otherwise acquire or offer to redeem, purchase or
otherwise acquire any shares of or any options, warrants, convertible
securities or rights of any kind to acquire shares of, its capital stock or
any other ownership interest of the Company, except in the performance of
its obligations under existing Plans or as specifically contemplated by
this Agreement; or (v) authorize or propose or enter into any contract,
agreement, commitment or arrangement with respect to any of the matters set
forth in this Section 5.2(a);
(b) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any material corporation, partnership or other business
organization, business line or division thereof; (ii) except in the
ordinary course of business and in a manner consistent with past practices,
sell, lease, transfer, assign, license, pledge, dispose of, or encumber or
authorize or propose the sale, lease, transfer, assignment, license,
pledge, disposition, mortgage, security interest in or encumbrance of any
assets of the Company or any of its Subsidiaries; (iii) incur, assume or
prepay any indebtedness for borrowed money, or enter into any transaction,
contract or agreement, except in the ordinary course of business, provided
that borrowings will not in any event exceed $200,000 in the aggregate;
(iv) guaranty any indebtedness for borrowed money, (v) authorize any
capital expenditures outside the Company's previously approved capital
budget and other planned expenditures heretofore disclosed to the Purchaser
which are in the aggregate in excess of $50,000; (vi) enter into or amend
any contract, agreement, commitment or arrangement or relinquish any right
with respect to any of the matters set
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<PAGE>
forth in this Section 5.2(b); (vii) amend or modify any of the terms of any
stock option or grant any stock option, stock appreciation right or stock
bonus; or (viii) make any loans, advances or capital contributions to, or
investments in, any other person or entity, other than to any wholly-owned
Subsidiary;
(c) take any action with respect to the modification or grant of any
severance or termination pay or agreement, deferred compensation
arrangement or employment agreement or grant any increase in benefits
payable under its severance or termination pay or deferred compensation
agreements and policies or any employment agreements in effect on the date
hereof;
(d) (i) make any payments (except in the ordinary course of business
and in amounts and in a manner consistent with past practice) under any
Plan to any employee of, or independent contractor or consultant to, the
Company or any Subsidiary; (ii) adopt any new, or amend any existing,
incentive, retirement or welfare benefit arrangements, plans or programs
for the benefit of current, former or retired employees of the Company and
its Subsidiaries; or (iii) grant any increases in employee compensation or
make any bonus or other special payments to employees, or award any stock
options (except for automatic grants to directors as required by the terms
of any Plan as in effect on the date hereof);
(e) take any action except in the ordinary course of business and in
a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to accounting policies or procedures
(including without limitation its procedures with respect to the payment of
accounts payable);
(f) before the purchase of Shares pursuant to the Offer and other
than pursuant to this Agreement, take any action to cause the shares of
Company Common Stock to cease to be listed on the New York Stock Exchange,
Inc.;
(g) (i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except for the payment, discharge or satisfaction of its
liabilities or its obligations in the ordinary course of business or in
accordance with their terms as in effect on the date hereof; (ii) adopt a
plan of complete or partial liquidation or resolutions providing for or
authorizing such a liquidation or a dissolution, restructuring,
recapitalization or
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reorganization; or (iii) settle or compromise any litigation brought
against it other than settlements or compromises of any litigation where
the amount paid in settlement or compromise does not exceed $15,000,
exclusive of amounts covered by insurance; or
(h) authorize or enter into any agreement to do any of the foregoing.
SECTION 5.3. No Shopping. The Company and its Subsidiaries will not,
-----------
directly or indirectly, through any officer, director, agent, financial adviser
or otherwise, solicit, initiate or encourage submission of proposals or offers
from any person relating to any acquisition or purchase of all or a portion of
the assets of (other than immaterial or insubstantial assets or inventory in the
ordinary course of business), or any equity interest in, the Company or any of
its Subsidiaries or any business combination with the Company or any of its
Subsidiaries, or participate in any negotiations regarding, or furnish to any
other person any information (except for information which has been previously
publicly disseminated by the Company in the ordinary course of business), except
in respect of proposals received other than as a result of a failure to comply
with this Section 5.3 for which the failure so to act would, in the good faith
judgment of the Board of Directors, after consultation with and based upon the
advice of independent legal counsel (who may be the Company's regularly engaged
independent counsel), constitute a breach of the Board of Directors' fiduciary
duties under applicable law. In accordance with Section 5.1 hereof, the Company
shall promptly notify the Parent if any such proposal or offer, or any inquiry
or contact with any person with respect thereto, is made or received and, in
detail, the terms thereof no less than two business days prior to responding to
any such proposal or offer. If any such proposal or offer is in writing, the
Company will promptly deliver to the Purchaser and the Parent a copy of such
proposal.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1. Proxy Statement. As promptly as practicable after the
---------------
consummation of the Offer and if required by the Exchange Act and the FBCA, the
Company shall prepare and file with the SEC, and shall use all reasonable
efforts to have cleared by the SEC, and promptly thereafter shall mail to
shareholders, the Proxy Statement. The Proxy Statement shall contain the
recommendation of the Board of Directors of the Company in favor of the Merger
unless, in the good faith judgment of the Board of
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Directors and in the written opinion of its legal counsel, such recommendation
would constitute a breach of the Directors' fiduciary duty to the Company's
shareholders.
SECTION 6.2. Meeting of Shareholders of the Company. Following the
--------------------------------------
consummation of the Offer, the Company shall promptly take all action necessary
in accordance with the FBCA and its Amended and Restated Articles of
Incorporation and By-Laws to convene the Company Shareholders' Meeting, if such
meeting is required. The shareholder vote or consent required for approval of
the Merger will be no greater than that set forth in the FBCA. The Company
shall use its best efforts to solicit from shareholders of the Company proxies
in favor of the Merger and shall take all other action necessary or, in the
reasonable opinion of the Parent, advisable to secure any vote or consent of
shareholders required by the FBCA to effect the Merger. The Parent agrees that
it shall vote, or cause to be voted, in favor of the Merger all Shares directly
or indirectly beneficially owned by it.
SECTION 6.3. Additional Agreements. The Company, the Parent and the
---------------------
Purchaser will each comply in all material respects with all applicable laws and
with all applicable rules and regulations of any governmental authority in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby. Each of the parties hereto agrees to use
all reasonable efforts to satisfy the conditions to the obligations of the
parties hereto, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to use all
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, subject, however, to the requisite vote of the
Company's shareholders.
SECTION 6.4. Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to the Parent and the Parent shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence of any event whose occurrence,
or non-occurrence would be likely to cause either (A) any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (B) any
condition set forth in Annex I to be unsatisfied at any time from the date
-------
hereof to the date the Parent purchases Shares pursuant to the Offer and (ii)
any material failure of the Company, the Parent, or the Purchaser, as the case
may be, or any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or
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satisfied by it hereunder; provided, however, that the delivery of any notice
-------- -------
pursuant to this Section 6.4 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 6.5. Access to Information. From the date hereof to the
---------------------
Effective Time, the Company shall, and shall cause its Subsidiaries, officers,
directors, employees, auditors and agents to, afford the officers, employees and
agents of the Parent and the Purchaser complete access during normal business
hours to its officers, employees, agents, properties, offices and other
facilities and to all books and records as may be reasonably requested, and
shall furnish the Parent and the Purchaser with all financial, operating and
other data and information as the Parent or the Purchaser, through its officers,
employees or agents, may reasonably request. Any such information provided
pursuant to this Agreement shall be deemed "confidential information" as defined
in that certain Confidentiality Agreement, dated March 9, 1995 (as modified, the
"Confidentiality Agreement"), between the Company and the Parent, as modified by
-------------------------
that certain letter agreement dated July 24, 1995 and that certain letter
agreement dated July 25, 1995, each between the Company and The Loewen Group
Inc. (the "Letter Agreements"), and shall be subject to the provisions thereof.
-----------------
SECTION 6.6. Public Announcements. The Parent and the Company shall
--------------------
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Offer or the Merger and shall not issue
any such press release or make any such public statement before such
consultation, except as may be required by law or any listing agreement with any
securities exchange.
SECTION 6.7. Best Efforts; Cooperation. Upon the terms and subject
-------------------------
to the conditions hereof, each of the parties hereto agrees to use its best
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 the transactions
contemplated by this Agreement and shall use its best efforts to obtain all
necessary waivers, consents and approvals, and to effect all necessary filings
under the Exchange Act and the HSR Act; provided, however, that in no event
-------- -------
shall the Parent or the Purchaser be required to divest any of its assets in
connection therewith. The parties shall cooperate in responding to inquiries
from, and making presentations to, regulatory authorities.
SECTION 6.8. Agreement to Defend and Indemnify. (a) If any action,
---------------------------------
suit, proceeding or investigation relating hereto or to the transactions
contemplated hereby is commenced, whether before or after the Effective Time,
the parties hereto agree to cooperate
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<PAGE>
and use their best efforts to defend against and respond thereto. It is
understood and agreed that, to the extent provided in the FBCA and in the
Company's Articles of Incorporation and By-laws in effect on the date hereof,
the Company shall indemnify and hold harmless, and after the Effective Time, the
Parent and the Surviving Corporation shall indemnify and hold harmless, each
director and officer of the Company or any Subsidiary including, without
limitation, officers and directors serving as such on the date hereof
(collectively, the "Indemnified Parties") against any costs or expenses
-------------------
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation arising out of or pertaining to any of the
transactions contemplated hereby, including without limitation liabilities
arising under the Securities Act or the Exchange Act in connection with the
Offer, the Merger or any financing. Any Indemnified Party wishing to claim
indemnification hereunder, upon learning of any such claim, action, suit,
proceeding or investigation, will promptly notify the Parent thereof. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) the Company, the Parent or the
Surviving Corporation shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Company or the Surviving Corporation, promptly as statements
therefor are received, and (ii) the Company, the Parent and the Surviving
Corporation will cooperate in the defense of any such matter; provided, however,
-------- -------
that neither the Company, the Parent nor the Surviving Corporation shall be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and further, provided, that neither the
------- --------
Company, the Parent nor the Surviving Corporation shall be obliged pursuant to
this Section to pay the fees and disbursements of more than one counsel for all
Indemnified Parties in any single action except to the extent that, in the
opinion of counsel for the Indemnified Parties, two or more of such Indemnified
Parties have conflicting interests in the outcome of such action.
Notwithstanding anything contained herein to the contrary, in the event of any
such claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (x) the Parent or the Surviving Corporation will have
the right, from and after the purchase of Shares pursuant to the Offer, to
assume the defense thereof and neither the Parent nor the Surviving Corporation
will be liable to such Indemnified Party for any legal expenses of separate
counsel or any other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof, except that such Indemnified Party will
have the right to employ and be reimbursed by the Parent or the Surviving
Corporation for the legal expenses of separate counsel if, under applicable
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standards of professional conduct (as advised by counsel to such Indemnified
Party), a conflict of interest exists in respect of any issue between such
Indemnified Party and the Parent or the Surviving Corporation, (y) the
Indemnified Parties will cooperate in the defense of any such matter and (z)
neither the Parent nor the Surviving Corporation will be liable for any
settlement effected without the Parent's prior written consent; provided,
--------
however, that, except with respect to the advancement to an Indemnified Party of
- -------
expenses incurred in the defense of any action or suit in accordance with the
terms hereof (subject to reimbursement by such Indemnified Party in the event of
a final determination by a court of competent jurisdiction that such advances
were unlawful and must be reimbursed to the Parent or the Surviving
Corporation), neither the Parent nor the Surviving Corporation will have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction ultimately determines, and such determination becomes final, that
the indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. The Surviving Corporation shall, for a period
of four years following the Effective Time, use its reasonable efforts either
(A) to maintain the Company's existing officers' and directors' liability
insurance ("D&O Insurance") covering those persons who are currently covered
-------------
thereby
on the date of this Agreement in full force and effect without reduction of
coverage; provided, however, that the Surviving Corporation will not be required
-------- -------
to pay an annual premium therefor in excess of 200% of the last annual premium
paid prior to the date hereof, as disclosed in Section 6.8 of the Company
Disclosure Schedule (the "Current Premium"); provided further that if the annual
--------------- -------- -------
premium of the D&O Insurance exceeds 200% of the Current Premium, the Surviving
Corporation will use its reasonable efforts to obtain a policy with the greatest
coverage available for a cost not exceeding such amount; provided further that
-------- -------
if the existing D&O Insurance expires or is terminated or cancelled during such
four-year period, the Surviving Corporation will use its reasonable efforts to
obtain as much coverage as can be obtained for the remainder of such period for
a premium on an annualized basis not in excess of 200% of the Current Premium;
and, provided further that the Surviving Corporation may substitute for the D&O
-------- -------
Insurance policies with the same coverage containing terms and conditions which
are no less advantageous and provided that such substitution does not result in
any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time or (B) to cause the Parent's officers' and directors' liability
insurance policy then in effect to cover those persons who are covered on the
date of this Agreement by the D&O Insurance. The Parent shall cause the
Surviving Corporation to continue in effect the indemnification provisions
currently provided by the Amended and Restated Articles of Incorporation and By-
Laws of the Company for
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<PAGE>
a period of not less than four years following the Effective Time. This Section
shall survive the consummation of the Merger. Notwithstanding anything in this
Section to the contrary, neither the Company nor the Surviving Corporation shall
have any obligation under this Section to indemnify any Indemnified Party
against any cost, expense, judgment, fine, loss, claim, damage, liability or
settlement amount found to have resulted solely from such Indemnified Person's
own gross negligence or willful misconduct. This covenant shall survive any
termination of this Agreement pursuant to Section 8.1 hereof. Notwithstanding
Section 9.7 hereof, this Section is intended to be for the benefit of and to
grant third party rights to Indemnified Parties whether or not parties to this
Agreement, and each of the Indemnified Parties shall be entitled to enforce the
covenants contained herein.
(b) If the Parent or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of their
properties and assets to any person, then and in each such case, proper
provision shall be made so that the successors and assigns of the Parent or the
Surviving Corporation, as the case may be, assume the obligations set forth in
this Section 6.9.
SECTION 6.9. Warrants; Stock Options. (a) Prior to the Effective
-----------------------
Time, the Company shall (i) offer to each holder of an outstanding warrant
granted before the date hereof (other than options outstanding under the
Company's stock option plans) an amount in cash in cancellation of such warrant
equal to the excess, if any, of the Per Share Amount over the per Share exercise
price of such option or warrant, multiplied by the number of Shares subject to
such warrant, less applicable Federal, state and local tax withholdings and (ii)
use its best efforts to secure the agreement, if required, of each such holder
to accept such cash payment in cancellation of such warrants.
(b) Prior to the Effective Time, the Board of Directors of the Company
(or, if appropriate, a Committee thereof) will (i) adopt such resolutions and
approve such amendments, if any, as are necessary to provide for the
cancellation of all stock options (the "Options") to purchase Shares granted
-------
pursuant to the Company's 1989 Stock Option Plan, as amended (the "1989 Stock
----------
Option Plan"), effective as of immediately prior to the Effective Time and (ii)
- -----------
promptly furnish Parent and Purchaser a copy of such resolutions certified by an
appropriate officer of the Company. If necessary or appropriate, the Company
will, upon the request of Purchaser, (x) use its best efforts to obtain the
written acknowledgment of each holder of an Option that the payment of the
amount of cash
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referred to below will satisfy the Company's obligation to such holder pursuant
to such Option and (y) take such other action as is necessary or appropriate to
effect the provisions of this Section 6.9(b). Pursuant to the 1989 Stock Option
Plan and in accordance with such resolutions and amendments, immediately prior
to the Effective Time, each Option which is not then exercisable or vested will
become fully exercisable and vested, and each such Option and all other Options
will be cancelled, effective as of immediately prior to the Effective Time, in
exchange for a payment by the Company or the Surviving Corporation of an amount,
payable within ten business days after the Effective Time, equal to the product
of (A) the total number of Shares subject to such Option and (B) the excess, if
any, of the price per Share to be paid in the Merger over the exercise price per
Share subject to such Option, subject to any required withholding of taxes.
Payments made pursuant to this Section 6.9(b) represent and will be
characterized and reported by the Surviving Corporation as additional
compensation expense.
As of the Effective Time, the Company shall terminate the 1989 Stock
Option Plan.
(b) The Company shall take all actions as are necessary to ensure
that neither the Company nor any Subsidiary is, or will be at the Effective
Time, bound by any options, stock appreciation rights, warrants or other rights
or agreements which would entitle any person, other than the Parent or its
affiliates, to own any capital stock of the Surviving Corporation or any
Subsidiary or to receive any payment in respect thereof, and all Plans referred
to in Section 4.11 of the Company Disclosure Schedule conferring any rights with
respect to Shares or other capital stock of the Company or any Subsidiary shall
be deemed hereby to be amended to be in conformity with this Section 6.9.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1. Conditions to Obligation of Each Party to Effect the
----------------------------------------------------
Merger. The respective obligations of each party to effect the Merger shall be
- ------
subject to the fulfillment at or before the Effective Time of the following
conditions:
(a) Offer. The Parent or the Purchaser shall have made, or caused to
-----
be made, the Offer and shall have accepted for payment and paid for, all
Shares validly tendered and not withdrawn pursuant to the Offer;
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(b) Shareholder Approval. The Merger and this Agreement shall have
--------------------
been approved and adopted by the requisite vote of the shareholders of the
Company, if required;
(c) HSR Act. The waiting period (and any extension thereof), if any,
-------
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated;
(d) No Challenge. No statute, rule, regulation, judgment, writ,
------------
decree, order or injunction shall have been promulgated, enacted, entered
or enforced, and no other action shall have been taken, by any domestic or
foreign government or governmental, administrative or regulatory authority
or agency of competent jurisdiction or by any court or tribunal of
competent jurisdiction, domestic or foreign, that in any of the foregoing
cases has the effect of making illegal or directly or indirectly
restraining, prohibiting or restricting the consummation of the Merger; and
(e) Other Filings. All actions by or in respect of or filings with
-------------
any governmental body, agency, official or authority required to permit the
consummation of the Merger shall have been taken or made.
SECTION 7.2. Parent and Purchaser Obligations. The obligations of the
--------------------------------
Parent and the Purchaser to consummate the Merger will be subject to the
satisfaction at or prior to the Effective Time of the additional condition that
the Company will have satisfied and complied with in all material respects each
of the covenants of the Company contained herein from the time the Purchaser
accepts Shares for payment pursuant to the Offer up to and including such time
as designees of the Parent or the Purchaser have been elected to, and constitute
a majority of, the Board of Directors of the Company pursuant to Section 1.3
hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1. Termination. This Agreement may be terminated at any
-----------
time before the Effective Time:
(a) By mutual consent of the Boards of Directors of the Parent and
the Company; or
(b) By the Parent (i) if the Parent or the Purchaser shall have
failed to commence the Offer as provided in Section 1.1 due to the
occurrence of any events set forth in Annex I,
-------
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<PAGE>
or (ii) if the Offer shall have expired or been terminated without any
Shares being purchased thereunder by the Parent or the Purchaser as a
result of the occurrence of any of the events set forth in Annex I; or
-------
(c) By either the Parent or the Company if the Merger shall not have
been consummated by December 31, 1995; provided, however, that the right to
-------- -------
terminate this Agreement pursuant to this Section 8.1(b) will not be
available to any party who is (or, by virtue of such termination, would be)
in breach of this Agreement; or
(d) By either the Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a final, nonappealable order, decree or ruling
or taken any other action (which order, decree or ruling the parties hereto
shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement; or
(e) By the Parent if the Board of Directors of the Company (i)
withdraws, modifies or changes the Recommendation in a manner adverse to
the Parent and Purchaser, (ii) recommends to the holders of Shares any
proposal with respect to a tender offer, merger, consolidation, share
exchange or similar transaction involving the Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement,
or (iii) resolves to do any of the foregoing; or
(f) By the Company or the Parent if prior to the Effective Time, a
corporation, partnership, person or other entity or group shall have made a
bona fide offer with respect to which the Board of Directors of the
Company, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent legal
counsel), determines in good faith that the failure of the Board of
Directors to recommend such offer to the holders of Shares would constitute
a breach of the Board of Directors' fiduciary duties under applicable law,
provided that any such termination by the Company shall not be effective
until payment to the Parent of the fees required by Section 8.3(a) and
Section 8.3(b); or
(g) By either the Parent or the Company if the other party shall have
breached this Agreement hereunder in any material respect and such breach
continues for a period of ten days after the receipt of notice of the
breach from the non-breaching party.
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SECTION 8.2. Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 8.1 hereof, this Agreement shall forthwith
become void and there shall be no liability on the part of the Parent, the
Purchaser or the Company, except (i) as set forth in Section 8.3 and Section 9.1
hereof, (ii) nothing herein shall relieve any party from liability for any
willful breach hereof and (iii) termination of this Agreement shall be without
prejudice to any rights any party may have hereunder, at law or in equity,
against the other party for breach of this Agreement.
SECTION 8.3. Termination Fees and Expenses. After this Agreement is
-----------------------------
terminated by the Company pursuant to Section 8.1(f) hereof or by the Parent
pursuant to Section 8.1(e), (f) or (g) hereof, the Company shall pay to the
Parent by wire transfer to an account designated by the Parent, within one
business day after receipt of a request therefor, an amount equal to the sum of
(a) $2,250,000 and (b) the lesser of (i) $2,000,000 and (ii) all actual out-of-
pocket costs and expenses of the Parent and Purchaser incurred in connection
with this Agreement and the transactions contemplated hereby, including, without
limitation, legal, professional and service fees and expenses and any such costs
and expenses of the Parent and the Purchaser incurred in connection with the
enforcement of their respective rights hereunder and under the Parent Stock
Option.
SECTION 8.4. Amendment. This Agreement may be amended by the parties
---------
hereto by action taken by the Parent and the Purchaser, and by action taken by
or on behalf of the Company's Board of Directors at any time before the
Effective Time; provided, however, that, after approval of the Merger by the
-------- -------
shareholders of the Company, no amendment may be made which would reduce the
amount or change the type of consideration into which each Share will be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.5. Waiver. At any time before the Effective Time, any
------
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only as against such party
and only if set forth in an instrument in writing signed by such party.
-36-
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements. The representations, warranties and agreements in this Agreement
- ----------
shall terminate at the Effective Time or the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Article II and Section 9.3 shall survive the Effective Time
indefinitely and those set forth in Sections 6.5(b), 6.5(c), 8.3 and 9.3 shall
survive termination indefinitely.
SECTION 9.2. Notices. All notices and other communications given or
-------
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or mailed if delivered personally or
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notices of changes
of address shall be effective upon receipt):
(a) if to the Parent or the Purchaser:
Loewen Group International, Inc.
50 East River Center Boulevard
Suite #800
Covington, Kentucky 41011
Attention: Robert Wienke, Esq.
Telephone: (606) 655-7192
Fax: (606) 655-7144
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Christopher Kelly, Esq.
Telephone: (212) 326-3939
Fax: (212) 755-7306
-37-
<PAGE>
(b) if to the Company:
MHI Group, Inc.
3100 Capital Circle, NE
Tallahassee, Florida 32308
Attention: Clifford R. Hinkle
Telephone: (904) 385-8883
Fax: (904) 385-0338
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Bruce R. Kraus, Esq.
Telephone: (212) 821-8000
Fax: (212) 821-8111
SECTION 9.3. Expenses. Except as provided in Section 8.3 hereof, all
--------
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses.
SECTION 9.4. Certain Definitions. For purposes of this Agreement,
-------------------
the term:
(a) "affiliate" of a person means a person that directly or
---------
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
------- ------------- ------------
control with") means the possession, direct or indirect, of the power to
------------
direct or cause the direction of the management and policies of a person,
whether through the ownership of stock, as trustee or executor, by contract
or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
------
association, trust or any unincorporated organization.
SECTION 9.5. Headings. The headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
-38-
<PAGE>
SECTION 9.6. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 9.7. Entire Agreement; No Third-Party Beneficiaries. Except
----------------------------------------------
for the Confidentiality Agreement and the Letter Agreements, this Agreement,
together with the Parent Stock Option, constitutes the entire agreement and
supersedes any and all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, is not intended to
confer upon any other person any rights or remedies hereunder.
SECTION 9.8. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise, except that the Parent and the Purchaser may
assign all or any of their rights hereunder to any affiliate of the Parent
provided that no such assignment shall relieve the assigning party of its
obligations hereunder.
SECTION 9.9. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Florida, without regard
to the principles of conflicts of law thereof.
SECTION 9.10. Counterparts. This Agreement may be executed in one or
------------
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
shall constitute one and the same agreement.
-39-
<PAGE>
IN WITNESS WHEREOF, the Parent, the Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
MHI GROUP, INC.
By: /s/ Clifford R. Hinkle
-------------------------------------
Name: Clifford R. Hinkle
Title: President and Chief Executive
Officer
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ Raymond L. Loewen
------------------------------------
Name: Raymond L. Loewen
Title: Chairman of the
Board, Chief Executive
Officer and Director
SPRT CORP.
By: /s/ A.M. Bruce Watson
----------------------------------
Name: A.M. Bruce Watson
Title: Secretary and
Treasurer
<PAGE>
ANNEX I
Conditions to the Offer
-----------------------
Notwithstanding any other provision of the Offer, the Parent or the
Purchaser shall not be required to accept for payment or pay for, or may delay
the acceptance for payment of or payment for, tendered Shares, or may terminate
or amend the Offer as to any Shares not then paid for if (i) at or before the
Expiration Date, the Minimum Condition shall not have been satisfied, (ii) the
waiting period (and any extension thereof), if any, applicable to the
consummation of the Offer and the Merger under the HSR Act shall not have
expired or been terminated or (iii) on or after August 9, 1995, and at or before
the time of acceptance for payment for any of such Shares, any of the following
events shall occur:
(a) there shall be in effect an injunction or other order, decree,
judgment or ruling by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission of
competent jurisdiction or a statute, rule, regulation, executive order or
other action shall have been promulgated, enacted, taken or threatened by a
governmental authority or governmental, regulatory or administrative agency
or commission of competent jurisdiction which in any such case (i)
restrains or prohibits the making or consummation of the Offer or the
consummation of the Merger or the acquisition by the Purchaser of any
Shares, or seeks to obtain any material damages with respect to the
transactions contemplated by the Merger Agreement, (ii) seeks to prohibit
or materially limit the ownership or operation by the Parent or the
Purchaser (or any of their respective affiliates or subsidiaries) of any
portion of its or the Company's business or assets which is material to the
business of all such entities taken as a whole, or to compel the Parent or
the Purchaser (or any of their respective affiliates or subsidiaries) to
dispose of or hold separate any portion of its or the Company's and the
Subsidiaries' business or assets which is material to the business of all
such entities taken as a whole, (iii) seeks to impose material limitations
on the ability of the Parent or the Purchaser (or any of their affiliates)
effectively to acquire or to hold or to exercise full rights of ownership
of the Shares, including, without limitation, the right to vote any Shares
purchased by them on all matters properly presented to the holders of
Shares, (iv) seeks to impose any material limitations on the ability of the
Parent or the Purchaser or any of their respective affiliates or
subsidiaries effectively to control in any material respect the business
and operations of the Company and its
<PAGE>
Subsidiaries, (v) seeks to prevent the Parent, the Purchaser or any of
their affiliates from acquiring, or require divestiture by the Parent, the
Purchaser or any of their affiliates of, any Shares or (vi) which otherwise
would materially affect the Company and its Subsidiaries taken as a whole;
(b) there shall have been instituted or be pending any action or
proceeding by a governmental authority or governmental, regulatory or
administrative agency or commission of competent jurisdiction, which (i)
challenges or seeks to make illegal, materially delay or otherwise directly
or indirectly restrain or prohibit the making or consummation of the Offer
or the consummation of the Merger or the acquisition by the Purchaser of
any Shares, or seeks to obtain any material damages with respect to the
transactions contemplated by the Merger Agreement, (ii) seeks to prohibit
or materially limit the ownership or operation by the Parent or the
Purchaser (or any of their respective affiliates or subsidiaries) of any
portion of its or the Company's business or assets which is material to the
business of all such entities taken as a whole, or to compel the Parent or
the Purchaser (or any of their respective affiliates or subsidiaries) to
dispose of or hold separate any portion of its or the Company's and the
Subsidiaries' business or assets which is material to the business of all
such entities taken as a whole, (iii) seeks to impose material limitations
on the ability of the Parent or the Purchaser (or any of their affiliates)
effectively to acquire or to hold or to exercise full rights of ownership
of the Shares, including, without limitation, the right to vote any Shares
purchased by them on all matters properly presented to the holders of
Shares, (iv) seeks to impose any material limitations on the ability of the
Parent or the Purchaser or any of their respective affiliates or
subsidiaries effectively to control in any material respect the business
and operations of the Company and its Subsidiaries, (v) seeks to prevent
the Parent, the Purchaser or any of their affiliates from acquiring, or
require divestiture by the Parent, the Purchaser or any of their affiliates
of, any Shares or (vi) which otherwise would materially affect the Company
and its Subsidiaries taken as a whole;
(c) there shall have been any action taken, or any statute, rule,
regulation, judgment, administrative interpretation, order or injunction,
including a temporary restraining order, enacted, promulgated, entered,
enforced or deemed applicable to the Company or any affiliate of the
Company, or to the Offer or the Merger, which results in any
A-2
<PAGE>
of the consequences referred to in clauses (i) through (vi) of paragraph
(b) above;
(d) this Agreement shall have been terminated by the Company, the
Parent or the Purchaser in accordance with its terms;
(e) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States or in
Canada, (ii) a declaration of a banking moratorium or any limitation or
suspension of payments in respect of banks by United States Federal or
state or Canadian authorities, (iii) from the date of this Agreement
through the date of termination or expiration of the Offer, a decline of at
least 30% in the Standard & Poor's 500 Index, (iv) a commencement or
escalation of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or Canada
having a significant adverse effect on the functioning of the financial
markets in the United States or Canada, or (v) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(f) (i) any of the representations and warranties made by the Company
in the Merger Agreement shall not have been true and correct in all
material respects when made, or shall have ceased to be true and correct in
all material respects (whether because of circumstances or events occurring
in whole or in part prior to, on or after the date of the Merger
Agreement), or (ii) as of the Expiration Date the Company shall not have
performed its obligations and agreements and complied with its covenants to
be performed and complied with by it under the Merger Agreement, except
where any failures to perform any covenant or agreement (i) would, in the
aggregate, not materially impair or delay the ability of the Purchaser to
consummate the Offer or the ability of the Parent, the Purchaser and the
Company to effect the Merger, (ii) has been caused by or results from a
breach by the Parent or the Purchaser of any covenant in the Merger
Agreement, or (iii) is not reasonably likely to have a Material Adverse
Effect;
(g) the Company's Board of Directors shall have withdrawn, modified
or amended in any manner adverse to the Parent or the Purchaser its
recommendation, consent to or approval of the Offer, the Merger or the
Merger Agreement or shall have entered into an agreement with a third party
with respect to any acquisition or purchase of all or (except in the
ordinary course of business) a portion of the assets of,
A-3
<PAGE>
or in any equity interest in, the Company or any of its Subsidiaries or any
business combination with the Company or any of its Subsidiaries by such
third party or shall have furnished to any third party any information with
respect to, or otherwise shall have cooperated in any way with, or shall
have assisted or participated in, facilitated or encouraged, any effort or
attempt by such third party to do or seek any of the foregoing, or shall
have resolved to do any of the foregoing; or
(h) the Parent, the Purchaser and the Company shall have agreed that
the Parent or the Purchaser shall amend the Offer to terminate the Offer or
postpone the payment for Shares pursuant thereto;
which, in the reasonable judgment of the Parent and the Purchaser with respect
to each and every matter referred to above and regardless of the circumstances
(including any action or inaction by the Parent or the Purchaser) giving rise to
any such condition, makes it inadvisable to proceed with the Offer or with such
acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Parent and
the Purchaser and may be asserted by the Parent or the Purchaser or may be
waived by the Parent or the Purchaser in whole or in part at any time and from
time to time, in each case, in the sole judgment of the Parent and the Purchaser
and subject to the terms of this Agreement. The conditions may be considered to
be material to the Offer. If the Purchaser waives any material condition of the
Offer, it will, if required by applicable law, extend the period of time during
which the Offer is open in accordance with applicable law for a period
sufficient to allow the holders of shares of Common Stock to consider the Offer
by giving oral or written notice of such extension to the depositary for the
Offer and by making a public announcement thereof. The failure by the Purchaser
at any time to exercise any of the foregoing rights will not be deemed a waiver
of any other rights and each such right will be deemed an ongoing right which
may be asserted at any time and from time to time. Any determination by the
Purchaser concerning the events described in this Annex I will be final and
binding upon all parties.
A-4
<PAGE>
EXHIBIT 99.B
[LETTERHEAD OF COMMONWEALTH ASSOCIATES]
August 9, 1995
The Board of Directors
MHI Group, Inc.
3100 Capital Circle N.E.
Tallahassee, Florida 32308
Gentlemen,
We understand that MHI Group, Inc. ("MHI" or "the Company"), Loewen Group
International, Inc. ("Loewen" or "the Parent") and a wholly-owned subsidiary of
the Parent ("the Purchaser") propose to enter into an Agreement and Plan of
Merger ("the Merger Agreement"), dated as of August 9, 1995, pursuant to which
the Purchaser will make a tender offer ("the Offer") for any and all
outstanding shares of the Company's common stock, par value $0.40 per share
("the Common Stock"), at $10.25 per share of Common Stock, net to the seller in
cash. The Merger Agreement also provides that, following consummation of the
Offer, the Purchaser will be merged with and into the Company in a transaction
("the Merger") in which each remaining share of Common Stock will be converted
into the right to receive $10.25 in cash.
You have requested our opinion as to the fairness, from a financial point of
view, of the proposed cash consideration to be received by the shareholders of
the Common Stock (other than Loewen and its affiliates) in the Offer and the
Merger.
For purposes of the opinion set forth herein, we have, inter alia:
(i) reviewed certain publicly available financial statements and other
information relating to the Company;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by its
management;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) conducted discussions with members of the senior management off MHI
with respect to its business and prospects;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of each of the other
North American publicly traded, death-care companies and its
securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(viii) reviewed the Merger Agreement; and
(ix) conducted such other studies, reviews and analyses as we have deemed
appropriate.
<PAGE>
For the purposes of our opinion we have relied upon, and have assumed the
accuracy and completeness of publicly available information and the financial
and other information provided to us by the Company, but we have not assumed
any responsibility for independent verification of any of the foregoing
information. With respect to the financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the Company's management as to the future financial
performance of MHI. We express no view as to such financial forecasts or the
assumptions on which they were based. We have not made any independent
appraisal of the assets or liabilities of the Company. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Company in connection with the
Offer and the Merger and will receive a fee for our services, including for
rendering this opinion.
Our engagement and the opinion expressed herein are solely for the benefit of
the Company's Board of Directors and are not on behalf of, and are not intended
to confer rights or remedies upon any stockholders of the Company or any other
person. It is understood that this letter may not be disclosed or otherwise
referred to without our prior written consent, except as may otherwise be
required by law or a court of competent jurisdiction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the cash consideration to be received by holders of the Common
Stock, pursuant to the Offer or the Merger as the case may be, is fair to such
holders from a financial point of view.
Yours sincerely,
Commonwealth Associates
By: /s/ Michael R. Lyall By: /s/ Mark S. Behrman
---------------------------- ---------------------------
Michael R. Lyall Mark S. Behrman
Managing Director Managing Director
2
<PAGE>
EXHIBIT 99.C
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT (this "Agreement"), dated as of August 9, 1995, by
and between LOEWEN GROUP INTERNATIONAL, INC., a corporation organized under the
laws of the State of Delaware ("Parent"), and MHI GROUP, Inc., a Florida
corporation (the "Company").
RECITALS
--------
Concurrently herewith, Parent, SPRT Corp. a Florida corporation and a
wholly-owned subsidiary of Parent ("Purchaser"), and the Company are entering
into an Agreement and Plan of Merger (the "Merger Agreement"; terms capitalized
herein but not defined herein shall have the meanings set forth in the Merger
Agreement), pursuant to which Purchaser agrees to make a tender offer (the
"Offer") for all outstanding shares of Common Stock, $0.40 par value (the
"Common Stock"), of the Company, at a price of $10.25 per share, net to the
seller in cash, to be followed by a merger (the "Merger") of Purchaser with and
into the Company.
As a condition to their willingness to enter into the Merger Agreement and
make the Offer, Parent and Purchaser have required that the Company agree, and
believing it to be in the best interest of the Company, the Company has agreed,
among other things, to grant to Parent the Option (as hereinafter defined).
AGREEMENT
---------
To implement the foregoing and in consideration of the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. Grant of Option. The Company hereby grants to Parent an irrevocable
---------------
option (the "Option") to purchase up to 1,253,823 shares of Common Stock, par
value $.40 per share, of the Company ("Common Stock"), at a purchase price of
$10.25 per share (the "Purchase Price"). The shares of Common Stock that are
subject to the Option are referred to herein as the "Option Shares".
The Option shall, subject to Section 9 hereof, terminate upon the earliest
to occur of (a) the date which is 12 months after any event described in Section
3 below shall have occurred, (b) the Effective Time (as defined in the Merger
Agreement), and (c) termination of the Merger Agreement pursuant to Section
8.1(a), (b) (other than a termination resulting from a willful breach by the
Company of any representation, warranty or covenant contained therein), (c) or
(d) thereof, unless prior to that time an event described in Section 3 below
shall have occurred. If the Option cannot be exercised by reason of any
applicable judgment, decree or order, the expiration date of the Option shall be
extended until five business days after such
<PAGE>
impediment to exercise shall have been removed. The rights set forth in Section
9 shall not terminate when the right to exercise the Option terminates but shall
extend to such time as provided in Section 9. Notwithstanding the termination of
the Option, Parent shall be entitled to purchase those Option Shares with
respect to which it has exercised the Option in accordance with the terms hereof
prior to the termination of the Option.
2. Exercise of the Option. Subject to the terms and conditions hereof,
----------------------
Parent may exercise the Option in whole at any time or in part from time to
time, from the date of the occurrence of any event described in Section 3 below
until its termination in accordance with the provisions of Section 1 above.
Notwithstanding the foregoing, the Company shall not be obligated to issue
the Option Shares upon exercise of the Option (i) in the absence of any required
governmental or regulatory waiver, consent or approval necessary for the Company
to issue the Option Shares or Parent to exercise the Option or prior to the
expiration or termination of any waiting period required by law, or (ii) so long
as any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect which prohibits the sale or
delivery of the Option Shares to Parent.
In the event Parent wishes to exercise the Option, Parent shall provide a
written notice to the Company specifying the total number of Option Shares it
will purchase pursuant to such exercise and a place and date for the closing of
such purchase, which date shall be no later than 60 business days from the date
such notice is mailed unless additional time is required to obtain regulatory
approval required by Parent or the Company and, if so required, the period of
time that would otherwise run pursuant to this Section 2 shall run instead from
the date on which the required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting period
with respect thereto shall have passed.
In connection with the filing of any required regulatory notice or request
for approval, the Company shall furnish Parent with such information as may be
required for such notices or approvals and shall use its best efforts to
cooperate with and assist Parent in obtaining any such approvals as promptly as
practicable. In the event that the Company or Parent receives official notice
that any required regulatory approval will not be granted, Parent shall
nevertheless be entitled to exercise its rights as set forth in Section 9 or to
exercise the Option in connection with the resale of Option Shares pursuant to a
registration statement as provided in Section 10.
3. Pre-Conditions to Exercise of the Option. Parent may exercise the
----------------------------------------
Option only if one or more of the following events has occurred:
2
<PAGE>
(a) the Company or any of its subsidiaries shall have entered into any
agreement (including without limitation any non-binding letter of intent)
with any person (other than Parent or any of its affiliates), or shall have
authorized, recommended, proposed or publicly announced its or their
intention to authorize, recommend, or propose to enter into any agreement
with any such person, with respect to (i) a merger, consolidation or any
similar transaction with such person or involving the Company or any
subsidiary, (ii) the sale, lease or other disposition of 15% or more of the
consolidated assets of the Company and its consolidated subsidiaries, or
(iii) the issuance, sale or other disposition (including by way of merger,
consolidation, tender or exchange offer, share exchange or similar
transaction) of securities (or an option or right to acquire such
securities) representing 10% or more of the voting power of the Company or
any of its subsidiaries; or
(b) (i) the making by any person (other than Parent or any of its
affiliates), by public announcement or communication to the Company or
otherwise, of a proposal to acquire the Company or any of its subsidiaries
by merger, consolidation, purchase of all or a substantial portion of the
Company's assets or other similar transaction, or (ii) any person (other
than Parent or its affiliates, shall have commenced (as such term is
defined in Rule 14d-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or shall have filed a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to a
tender or exchange offer for 10% or more of the outstanding shares of
Common Stock; or
(c) the acquisition, by any person or group (as defined in Section
13(d) of the Exchange Act), other than Parent or any of its affiliates, of
beneficial ownership of (as defined in Rule 13d-3 under the Exchange Act),
or the right to acquire beneficial ownership of, securities representing
10% or more of the voting power of the Company or any of its subsidiaries;
or
(d) the shareholders of the Company shall have failed to approve the
Merger at the meeting called for that purpose or at any adjournment or
postponement thereof, such meeting shall not have been held or shall have
been cancelled prior to the termination of the Merger Agreement or the
Board of Directors of the Company shall have withdrawn or modified in a
manner adverse to Parent its recommendation that the shareholders of the
Company approve the Merger;
provided that no event set forth in this Section 3 shall be deemed to occur
- --------
solely by reason of any agreement, or any action that is taken, or of any event
that occurs, for which Parent has given its prior written consent. As used in
this Agreement, "person" shall have the meaning specified in Section 13(d)(3) of
the Exchange Act.
3
<PAGE>
4. Payment and Delivery of the Option Shares. Except as otherwise
-----------------------------------------
provided in this Agreement, at any closing hereunder (a) Parent shall make
payment to the Company of the aggregate Purchase Price for the Option Shares to
be purchased on such closing by delivery to the Company of immediately available
funds and (b) the Company shall deliver to Parent a certificate or certificates
representing the Option Shares so purchased, registered in the name of Parent or
its designee which Option Shares shall be free of any lien, claim, charge or
encumbrance. In the event that Parent acquires any Option Shares and disposes
of such shares (other than to an affiliate of Parent) through a sale, exchange,
transfer, merger or otherwise, for an amount per share which exceeds the
Purchase Price by more than $1.00 (the "Option Cap"), Parent will promptly
return to the Company the amount of such excess. The amount of $1,253,823 is
hereafter referred to as the "Aggregate Option Cap". For tax purposes, any such
amount in respect of Options or Option Shares returned to the Company pursuant
to this Agreeement shall be treated as adjustment to the purchase price.
Certificates for Option Shares delivered at any closing hereunder may
be endorsed with a legend which shall read as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN PROVISIONS OF AN
AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND YORICK, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF YORICK. A COPY OF SUCH AGREEMENT
SHALL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY
YORICK OF A REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of a substitute certificate without such legend if Parent shall have delivered
to the Company an opinion of counsel, in form and substance satisfactory to the
Company, that such legend is not required for purposes of this Agreement or the
Act.
5. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to Parent as follows:
(a) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(b) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The Company has taken all necessary corporate action to authorize
this Agreement and the consummation of the transactions contemplated
hereby, and to authorize and reserve and to permit it to issue, and at all
times from the date hereof until such time as the
4
<PAGE>
obligation to deliver the Option Shares upon the exercise of the Option
terminates, will have reserved for issuance, upon any exercise of the
Option, the number of Option Shares subject to the Option and as the
Company will take all necessary corporate action to authorize and reserve
for issuance all additional shares of Common Stock or other securities
which may be issued pursuant to Section 7 upon the exercise of the Option.
All of the Option Shares to be issued pursuant to the Option are duly
authorized and, upon issuance and delivery thereof pursuant to this
Agreement including Option Shares or other securities issuable pursuant to
Section 7, shall be duly and validly issued, fully paid and nonassessable,
free and clear of all claims, liens, charges, encumbrances and security
interests, and will not have been issued in violation of, and will not be
subject to, any preemptive rights of shareholders of the Company.
(c) Neither the execution, delivery and performance by the Company of
this Agreement, nor the consummation of the transactions contemplated
hereby, nor compliance by the Company with any of the provisions hereof,
will (i) violate, conflict with, or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration of, or result in the creation of, any
lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or any of its subsidiaries under any of the terms,
conditions or provisions of, (x) its Articles of Incorporation or Bylaws or
(y) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries may be bound, or to which the Company or any of its
subsidiaries or any of the properties or assets of the Company or any of
its subsidiaries may be subject, except for such violations, conflicts,
breaches, defaults, terminations, accelerations, rights of termination or
acceleration, liens, security interests, charges or encumbrances as would
not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the condition of the Company and its
subsidiaries taken as a whole or on the ability of the Company to perform
its obligations hereunder, or (ii) subject to obtaining any approvals
contemplated hereby, violate any judgment, ruling, order, write,
injunction, decree, statute, rule or regulation applicable to the Company
or any of its subsidiaries or any of their respective properties or assets
except such violations which, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the condition
of the Company and its subsidiaries taken as a
5
<PAGE>
whole or the ability of the Company to perform its obligations hereunder.
(d) The Company's Board of Directors, at a meeting duly called and
held, has by unanimous vote of all directors approved the execution of this
Agreement and the transactions contemplated hereby, including the exercise
of the Option, prior to the execution of this Agreement, and such approval
is sufficient to exempt this Agreement and the transactions contemplated
hereby from any applicable state takeover law, including, without
limitation, Section 607.0901 and Section 607.0902 of the Florida Business
Corporation Act.
(e) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has all
requisite corporate power and authority to execute and deliver this
Agreement.
6. Representations and Warranties of Parent. Parent hereby
----------------------------------------
represents and warrants to the Company as follows:
(a) This Agreement has been duly authorized, executed and delivered by
Parent and constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms.
(b) The execution, delivery and performance by Parent of this
Agreement and the consummation of the transactions contemplated hereby do
not contravene, or constitute a default or violation under (i) the
certificate of incorporation or by-laws of Parent or (ii) any agreement,
instrument, judgment, decree, order, injunction, law, statute, rule or
governmental regulation binding upon Parent or any of its subsidiaries,
subject to the obtaining by Parent of applicable regulatory approvals and
consents, and the expiration of any applicable waiting periods, necessary
for the purchase of Option Shares by Parent or its assignee.
(c) The Option is being, and any Option Shares issued upon exercise of
the Option will be, acquired by Parent for its own account and not with a
view to any distribution thereof, and Parent will not sell any Option
Shares purchased pursuant to the Option except in compliance with the
Securities Act of 1933, as amended (the "Securities Act").
(d) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to execute and deliver this Agreement.
7. Adjustments Upon Changes in Capitalization or Merger. (a) In the
----------------------------------------------------
event of any change in Common Stock by reason
6
<PAGE>
of a stock dividend, split-up, recapitalization, combination, exchange of shares
or similar transaction, the type and number of shares or securities subject to
the Option, the Option Cap (but not the Aggregate Option Cap) and the Purchase
Price therefor, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction, so that Parent shall receive
upon exercise of the Option the number and class of shares or other securities
or property that Parent would have received in respect of Common Stock if the
Option had been exercised immediately prior to such event, or the record date
therefor, as applicable. If any additional shares of Common Stock are issued
after the date of this Agreement (other than pursuant to an event described in
the first sentence of this Section 7(a)), the number of shares of Common Stock
subject to the Option shall be adjusted so that, after such issuance, it equals
19.9% of the number of shares of Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to the Option;
provided that the Company shall not enter into any transaction described in the
- --------
first sentence of this Section 7(a) if, immediately following such transaction,
it does not have available and capable of being reserved for purposes of this
Agreement authorized but unissued and unreserved shares of Common Stock in the
quantity required by this Agreement to be subject to the Option.
(b) In the event that the Company shall enter into an agreement (i) to
consolidate with or merge into any person, other than Parent or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Parent or one of
its subsidiaries, to merge into the Company and the Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of the Company or any other person or cash or any
property or then outstanding shares of Common Stock shall after such merger
represent less than 50% of the outstanding shares and share equivalents of the
merged company, or (iii) to sell or otherwise transfer all or substantially all
of its assets to any person, other than Parent or one of its subsidiaries, then,
and in each such case, the agreement governing such transaction shall make
proper provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option, at the election of Parent, of either (I) the
Acquiring Corporation (as defined below), (II) any person that controls the
Acquiring Corporation, or (III) in the case of a merger described in clause
(ii), the Company.
(c) For purposes hereof, "Acquiring Corporation" means (i) the
continuing or surviving corporation of a consolidation or merger with the
Company (if other than the Company), (ii) the Company in a merger in which the
Company is the continuing or surviving corporation and (iii) the transferee of
all or substantially all of the Company's assets. The provisions of
7
<PAGE>
Sections 9 and 10 shall apply with appropriate adjustments to any securities for
which the Option becomes exercisable pursuant to this Section 7.
8. Further Assurances; Remedies. (a) The Company agrees to execute
----------------------------
and deliver such other documents and instruments and take such further actions
as may be necessary or appropriate or as Parent may reasonably request in order
to ensure that Parent receives the full benefits of this Agreement, The Company
will refrain from taking any action which would have the effect of preventing or
interfering with the delivery by the Company of the Option Shares (or other
securities deliverable in accordance with Section 7 hereof) to Parent upon any
exercise of the Option or from otherwise performing its obligations under this
Agreement.
(b) The parties agree that Parent would be irreparably damaged if for
any reason the Company or an Acquiring Corporation failed to issue any of the
Option Shares (or other securities deliverable in accordance with Section 7
hereof) upon exercise of the Option or to perform any of its other obligations
under this Agreement, and that Parent would not have an adequate remedy at law
in such event. The parties agree that the Company would be irreparably damaged
if for any reason Parent failed to perform any of its obligations under this
Agreement. Accordingly, each party shall be entitled to specific performance
and injunctive and other equitable relief to enforce the performance of this
Agreement by the other party. This provision is without prejudice to any other
rights that a party hereto may have against the other party for any failure to
perform its obligations under this Agreement or the Merger Agreement.
9. Put Right and Right of First Refusal. (a) At any time or from
------------------------------------
time to time during the period commencing with the occurrence of an event
referred to in Section 3 hereof and ending 12 months thereafter (or, if later,
the date which is 30 days after the date on which the Company or Parent receives
official notice that any regulatory approval required for the exercise of any
portion of the Option or the purchase of Option Shares by Parent will not be
granted (but solely with respect to the portion of the Option relating to such
Option Shares)), whether or not any portion of the Option has been exercised, in
the event the Merger Agreement has been terminated and, within twelve months of
the date of this Agreement, (x) any person shall have acquired a majority of the
shares of Common Stock outstanding, (y) the Company shall have consummated a
merger, consolidation or similar transaction with any person or (z) the Company
shall have sold, leased or otherwise disposed of all or substantially all of the
consolidated assets of the Company and its subsidiaries to any person, Parent
may, at its election, upon five business days' notice to the Company or any
successor entity (including any person specified in the preceding clause (z)),
surrender to the Company all or a part of the Option as well as all or a part of
the Option Shares purchased pursuant to exercise of the Option, in which event
the Company or any successor entity shall pay to
8
<PAGE>
Parent, on the day of each such surrender and in consideration thereof, against
tender by Parent of an instrument evidencing such surrender, an amount in cash
equal to the sum of:
(i) the aggregate Purchase Price (determined without giving effect to
any adjustment made pursuant to Section 4(b)) for all Option Shares
acquired pursuant to exercise of the Option which Parent has elected to
cause the Company to repurchase;
(ii) the product of (x) the difference (but in no event more than the
Option Cap) between the Market Price (as defined below) for shares of
Common Stock and the Purchase Price (as each may be adjusted), multiplied
by (y) the number of Option Shares purchasable on exercise of that portion
of the Option which has not previously been exercised by the Parent and
which portion Parent has elected to cause the Company to repurchase, but
only if the Market Price is greater than the Purchase Price;
(iii) the product of (x) the difference (but in no event more than the
Option Cap) between the Market Price (as defined below) and the Purchase
Price (as may be adjusted) for the Option Shares acquired by Parent
pursuant to the exercise of the Option (or in the case of Option Shares
with respect to which the Option has been exercised but the closing date
has not occurred, to be acquired) and which Parent has elected to cause the
Company to repurchase, multiplied by (y) the number of shares so
repurchased, but only if the Market Price is greater than the Purchase
Price; and
(iv) the aggregate amount of out-of-pocket expenses incurred by Parent
in connection with the transactions contemplated hereby and thereby,
including accounting, investment banking and legal fees (to the extent not
reimbursed or paid by the Company).
"Market Price" means the higher of (x) the highest price per share of Common
Stock paid for any shares of Common Stock on the principal trading market on
which such shares are traded during the period from the date hereof to the date
Parent gives notice pursuant to this Section 9(a) and (y) the highest price paid
or offered to be paid or the consideration per shares to be received by holders
of Common Stock by any person referred to in Section 3 hereof upon the
occurrence of any event described in Section 3 hereof (in each case, as adjusted
for any stock split, stock dividend or similar event referred to in Section 7
hereof).
Such payment shall be made by delivery of immediately available funds
at a closing to be held not later than 15 days from Parent's notice to the
Company unless additional time is needed to obtain necessary regulatory
approvals, in which case the closing shall be held not later than 15 days after
the date on which such approvals have been obtained and any requisite
9
<PAGE>
waiting periods with respect thereto shall have passed. If Parent or the
Company is notified that any necessary regulatory approvals for such repurchase
will not be granted, Parent shall have the right to exercise the Option to
purchase up to the number of Option Shares for which the Option was exercisable
at the date of the request for surrender delivered by Parent pursuant to this
Section 9 (a) less the number of Option Shares in respect of which payment has
----
been made pursuant to Section 9(a)(ii), whether or not the termination date of
the Option has since occurred pursuant to Section 1. The Company and Parent
shall file promptly any required notices or applications for approval and shall
use their respective best efforts to obtain such approvals as promptly as
practicable. Upon exercise of Parent's right to surrender the Option (or any
portion thereof) and receipt by Parent of cash pursuant to this Section 9(a),
any and all rights of Parent to purchase the Option Shares with respect to the
portion of the Option so surrendered shall terminate.
(b) If at any time or from time to time during the period commencing
with the occurrence of an event set forth in Section 3 hereof and ending on the
first to occur of 24 months following the first purchase of Option Shares and
the termination of the Option, whether or not any portion of the Option has been
theretofore exercised, Parent shall desire to sell, transfer, assign or
otherwise dispose of all or a part of the Option Shares or other securities
purchased pursuant to exercise of the Option to a person (the "Proposed
Transferee") other than an affiliate of Parent or the Company, Parent shall give
the Company written notice of the proposed transaction (an "Offeror's Notice"),
identifying the Proposed Transferee and setting forth the terms of the proposed
transaction. An Offeror's Notice shall be deemed an offer by Parent to the
Company, which may be accepted in writing within 10 days of the receipt of such
Offeror's Notice, with payment by the Company to be made on the same terms and
conditions and at the same per share or per option sale price (not to exceed
the sum of the then applicable per share Purchase Price and the Option Cap)
(payable in cash, whether or not the consideration to be paid by the Proposed
Transferee includes non-cash consideration) at which Parent is proposing to
transfer the Option Shares to the Proposed Transferee.
Such payment shall be made by delivery of immediately available funds
at a closing to be held not later than 15 days after the Company's acceptance
notice is sent to Parent unless additional time is needed to obtain regulatory
approval in which case the closing shall be held 15 days after the date on which
such approval has been obtained and any requisite waiting period with respect
thereto shall have passed. If all or a portion of the price per share to be
paid by the Proposed Transferee consists of non-cash consideration, the value of
such non-cash consideration shall be as set forth in such Proposed Transferee's
offer or, if not so set forth, as determined by a nationally recognized
investment banking firm selected by Parent and reasonably acceptable to the
Company.
10
<PAGE>
In the event of the failure or refusal of the Company to purchase all
of the Option Shares covered by the Offeror's Notice (including any such failure
as a result of any regulatory authority disapproving the Company's proposed
repurchase of such Option Shares), Parent may, within 60 days from the date of
the Offeror's Notice, unless additional time is needed to obtain necessary
regulatory approvals in which case the closing shall be held 15 days after the
date on which such approvals have been obtained and any requisite waiting period
with respect thereto shall have passed, sell all, but not less than all, of such
Option Shares covered by the Offeror's Notice to the Proposed Transferee for not
less than the price specified in the Offeror's Notice. Parent will return to
the Company the amount by which such price exceeds the product of (x) the number
of such Option Shares and (y) the amount per share which exceeds the then
applicable Purchase Price by more than the Option Cap.
The requirements of this Section 9(b) shall not apply to (i) any
disposition of the Option Shares as a result of which the Proposed Transferee
would own beneficially no more than 2% of the outstanding shares of Common Stock
determined immediately after such sale or transfer; (ii) any disposition of the
Option Shares by means of a public offering or through dealers in which
reasonable steps are taken to assure that no purchaser will acquire securities
representing more than 2% of the outstanding voting power of the Company, (iii)
any disposition of the Option Shares or other securities by a person to whom
Parent has assigned its rights under the Option pursuant to the terms hereof,
and (iv) any transfer to an affiliate of Parent which agrees in writing to be
bound by the terms of this Agreement.
10. Registration of the Option Shares. (a) If Parent requests the
---------------------------------
Company in writing to register under the Securities Act any of the Options or
Option Shares purchased or to be purchased by Parent hereunder, the Company will
use its best efforts to cause the offering of the Options or Option Shares (or
other securities that have been acquired by or are issuable to Parent upon
exercise of the Option) specified in such request to be registered as soon as
practicable so as to permit the sale or other distribution by Parent of the
Options or Option Shares or other securities specified in its request (and to
keep such registration effective for a period of at least 270 days), and in
connection therewith shall prepare and file as promptly as reasonably possible
(but in no event later than 30 days from receipt of Parent's request) a
registration statement under the Act to effect such registration on an
appropriate form, which would permit the sale of the Option or Option Shares by
Parent in the manner specified by Parent in its request (which may include a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision), provided, however, that the Company shall not be required
to prepare and file any such registration statement in connection with any
proposed sale with respect to which the Company's counsel has rendered an
opinion to Parent, which counsel and opinion shall be reasonably satisfactory to
Parent, to the effect that no such registration
11
<PAGE>
is required under applicable laws and regulations in order to effect such sale
or other distribution in the manner intended by Parent. In connection with such
registration, the Company shall provide Parent, as well as any underwriter for
an offering covered by such registration statement, with such representations,
warranties, covenants and indemnities, and with such certificates, opinions,
accountants' letters and other documents, as Parent shall reasonably request and
as are customarily rendered in connection with the registration of securities
under the Act. Parent shall provide all information reasonably requested by the
Company for inclusion in any registration statement under this Section 10. All
expenses incurred by the Company in complying with the provisions of this
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company and blue
sky fees and expenses, shall be paid by the Company, except underwriting
discounts and commissions to brokers and dealers and fees and disbursements of
counsel to Parent, which Parent shall pay. The Company's obligation to register
securities upon the request of Parent shall be limited to two occasions pursuant
to this Section 10(a).
(b) The Company shall notify Parent in writing not less than 15 days
prior to filing a registration statement under the Securities Act with respect
to any Common Stock (other than a filing on Form S-4 or any successor form, or
in connection with any dividend reinvestment, employee stock purchase, stock
option or similar plan, whether or not on Form S-8 or any successor form) of the
Company's intention so to file. If Parent wishes to have any portion of the
Option or the Option Shares it owns included in such registration statement, it
shall advise the Company in writing to that effect within 10 days following
receipt of such notice from the Company pursuant to the preceding sentence, and
the Company will thereupon include the number of the Options or Option Shares
indicated by Parent under such registration statement, provided, however, that
if the managing underwriter of shares of Common Stock to be so registered by the
Company determines and advises in writing that the inclusion in the registration
statement of the number of the Options or Option Shares indicated by Parent
would interfere with the successful marketing of the Common Stock proposed to be
registered and sold by the Company, then the number of the Options or Option
Shares indicated by Parent to be included in the underwriting shall be reduced
or eliminated pro rata among all holders of shares of Common Stock requesting
such registration, including the Company.
(c) In connection with any registration under the provisions of this
Section 10, the Company shall indemnify and hold harmless Parent against any
losses, claims, damages or liabilities, joint or several, of which Parent may
become subject, insofar as such losses, claims, damages or liabilities (or any
action in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement or preliminary or final prospectus, or any amendment or supplement
thereto, or
12
<PAGE>
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse Parent for any
legal or other expenses reasonably incurred by Parent in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any case to the extent
that any such loss, claim, damage, or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or preliminary or final prospectus or such
amendment or supplement thereto in reliance upon written information furnished
by Parent specifically for use in the preparation thereof. Parent shall
indemnify and hold harmless the Company to the same extent as set forth in the
immediately preceding sentence but only with reference to written information
furnished by Parent for use in the preparation of such registration statement or
preliminary or final prospectus or such amendment or supplement thereto; and
will reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending any such loss,
claim, damage, liability or action. The foregoing indemnities shall also extend
on the same terms to each officer and director of Parent and the Company,
respectively and to each person, if any, who controls Parent or the Company.
(d) The registration rights granted to Parent under this Section 10
shall (i) be effective only after an event set forth in Section 3 hereof shall
have occurred and (ii) expire three years after the last acquisition of any
Option Shares upon the exercise of the Option by Parent.
(e) Parent will return to the Company all amounts received in any sale
made pursuant to this Section 10 which exceed the product of (i) the number of
such Options or Option Shares sold and (ii), (A) in the case of a sale of
Options, the Option Cap, and (B) in the case of a of a sale of Option Shares,
the amount per share received which exceeds the then applicable Purchase Price
by more than the Option Cap.
11. Listing. If the Option Shares or other securities to be acquired
-------
upon exercise of the Option are then listed on any stock exchange, the Company,
upon the request of Parent, will promptly file an application to list such
Option Shares or securities on such stock exchange and will use its best efforts
to obtain approval of such listing as soon as practicable.
12. Division of Option. This Agreement and the Option granted hereby
------------------
are exchangeable, without expense, at the option of Parent, upon presentation
and surrender of this Agreement at the principal office of the Company for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of Option Shares
purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related
13
<PAGE>
Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Agreement, if mutilated, the Company
will execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
13. Amounts in Excess of Aggregate Option Cap. In the event that the
-----------------------------------------
difference between (x) the aggregate proceeds received by Parent and its
affiliates from third parties in respect of the sale or disposition of all or
any portion of the Option and all or any part of the Option Shares and (y) the
aggregate purchase price (if any) paid therefor and proceeds theretofore
returned to the Company exceeds the Aggregate Option Cap, Purchaser will
promptly return such excess and any remaining Option Shares to the Company and
any remaining portion of the Option shall be cancelled.
14. Miscellaneous. (a) Expenses. Except as otherwise provided
------------- --------
herein, each of the parties hereto shall pay all the expenses incurred by or on
its behalf in connection with the transaction contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) Notices. All notices, requests, claims, and other communication
-------
hereunder shall be in writing (including facsimile transmission or similar
writing) and shall be given as follows:
To Parent: LOEWEN GROUP INTERNATIONAL, INC.
50 East River Center Boulevard
Covington, Kentucky 41011
Attn: Robert Wienke, Esq.
Telephone: (606) 655-7192
Fax: (606) 655-7144
With a copy to: JONES, DAY, REAVIS & POGUE
599 Lexington Avenue
New York, New York 10022
Attn: Christopher M. Kelly, Esq.
Telephone: (212) 326-3436
Fax: (212) 755-7306
To the Company: MHI GROUP, INC.
3100 Capital Circle, NE
Tallahassee, Florida 32308
Attn: Clifford R. Hinkle
Telephone: (904) 385-8883
14
<PAGE>
Fax: (904) 385-0338
With a copy to: WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Bruce R. Kraus, Esq.
Telephone: (212) 821-8000
Fax: (212) 821-8111
or to such other address or telecopy number as such party may hereafter specify
by notice to the other parties hereto. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
such is transmitted to the number specified in this Section 14(b) and the
appropriate confirmation is received, or (ii) if given by any other means when
delivered at the address specified in this Section 14(b).
(c) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
If for any reason any court or regulatory agency determines that the
Option will not permit the holder to acquire, or the Company to repurchase
pursuant to Section 9, the full number of Option Shares, it is the express
intention of the Company to allow the holder to acquire, or to require the
Company to repurchase, such lesser number of Option Shares as may be
permissible, without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Florida.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(f) Headings. The section headings herein are for convenience only
--------
and shall not affect the construction hereof.
(g) Assignment. Parent may assign this Agreement in whole or in part
----------
to any affiliate of Parent at any time or from time to time. Except as provided
in the next sentence, Parent may not, without the prior written consent of the
Company (which shall not be unreasonably withheld), assign this Agreement to any
other person. Upon the occurrence of an event described in Section 3, Parent
may sell, transfer, assign or otherwise dispose of (in whole at any time or in
part from time to time) its rights and obligations hereunder, subject to the
provisions of Section 9(b). In the case of any sale, transfer, assignment or
15
<PAGE>
disposition in part of this Option, the Company shall do all things reasonably
necessary to facilitate such transaction. This Agreement shall not be
assignable by the Company except by operation of law.
(h) Survival. All representations, warranties and covenants contained
--------
herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, except as otherwise
provided herein.
(i) Parties in Interest. This Agreement shall be binding upon and
-------------------
inure solely to the benefit of each party hereto and their successors in
interest and permitted assigns, and nothing in this Agreement, express or
implied, is intended to confer upon any other person (other than an assignee or
transferee of Parent pursuant to Section 14(g) hereof) any rights or remedies of
any nature whatsoever under or by any reason of this Agreement.
(j) Amendments. This Agreement may not be modified, amended, altered
----------
or supplemented, except upon the execution and delivery of a written agreement
by the parties hereto.
16
<PAGE>
IN WITNESS WHEREOF, the Company and Parent have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
MHI GROUP, INC.
By: /s/ Clifford R. Hinkle
---------------------------------
Name: Clifford R. Hinkle
Title: President and Chief Executive
Officer
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ Raymond L. Loewen
---------------------------------
Name: Raymond L. Loewen
Title: Chairman of the Board,
Chief Executive Officer
and Director
<PAGE>
EXHIBIT 99.D
WARRANT OPTION AGREEMENT
WARRANT OPTION AGREEMENT, dated as of August 9, 1995 (the
"Agreement"), among LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation
(the "Parent"), and MH ASSOCIATES, a New York general partnership (the
"Investor").
WHEREAS, the Parent, SPRT Corp., a Florida corporation and a wholly
owned subsidiary of the Parent (the "Purchaser"), and MHI Group, Inc., a Florida
corporation (the "Company"), propose to enter into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") providing for the making
of a cash tender offer (the "Offer") by the Parent and the Purchaser for shares
of Common Stock, par value $.40 per share, of the Company (the "Common Stock")
and the merger of the Company and the Purchaser (the "Merger"); and
WHEREAS, the Investor is a party to the option agreement dated April
22, 1986, as amended (the "KD Warrant") to purchase 486,352 shares of Common
Stock (the "Optioned Shares");
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
1. Grant of Options.
----------------
(a) Initial Option. The Investor grants to the Parent an irrevocable
--------------
option (the "Initial Option"), exercisable, as provided in Sections 2 and 3
(subject to Section 1(d)), at any time after the expiration or termination of
the Offer or the acceptance for purchase by the Purchaser (or any other person
who is authorized by the Parent) of any shares of Common Stock pursuant to the
Offer, until October 31, 1995 (the "Initial Option Period"), to purchase the KD
Warrant for the Option Purchase Price (as defined in Section 1(c) hereof).
(b) Extended Option. If, prior to the last day of the Initial Option
---------------
Period, the Parent notifies the Investor of its intent to extend the exercise
period of the option described in this Section 1(b) and pays the Investor
$607,940 in cash (the "Extended Option Payment") by wire transfer of immediately
available funds to an account designated by the Investor within two business
days after delivery of such notice) the Investor shall grant to the Parent an
irrevocable option (the "Extended Option," and together with the Initial Option,
the "Options"), exercisable, as provided in Sections 2 and 3 (subject to Section
1(d)), at any time during the 60-day period commencing on the first day
following the Initial Option Period (the "Extended Option Period"), to purchase
the KD Warrant for the Option Purchase Price.
<PAGE>
(c) Option Purchase Price. Except as provided in the last sentence
---------------------
of this Section 1(c), the Option Purchase Price shall be payable in cash by wire
transfer of immediately available funds to an account designated by the Investor
at least one business day prior to payment, and shall be an amount equal to (i)
486,352 times the greater of the per share price offered or to be offered for
Common Stock by the Parent or the Purchaser in the Offer (as such amount may be
increased in the Offer) and the highest price per share of Common Stock paid at
any time by the Parent or the Purchaser (or any of its affiliates) in any
transaction other than the Offer (including, but not limited to, open market
purchases or consideration paid pursuant to a merger or similar transaction, but
not including any amounts paid in respect of appraisal proceedings under Florida
law), in each case as of the date of exercise, subject to the following sentence
minus (ii) the sum of the aggregate exercise price of the KD Warrant and the
amount of the Extended Option Payment paid by the Parent. If, within one year
following the exercise of any of the Options, the per share prices described in
clause (i) are increased, within five business days thereafter the Parent shall
pay to the Investor an amount in cash, by wire transfer of immediately available
funds to an account designated by the Investor equal to the difference between
the amount or amounts previously paid to the Investor and the Option Purchase
Price as recomputed based upon such increased price or prices. In the event
that noncash consideration is included in the Option Purchase Price, the Option
Purchase Price shall be payable in both such noncash consideration and cash in
the respective percentages thereof paid by the Parent or the Purchaser for
shares of Common Stock.
(d) Limits on Exercise. Notwithstanding the provisions of Sections 1
------------------
and 2 of this Agreement, the Options shall not be exercisable, shall expire and
shall be null and void after August 15, 1995 if the Offer is not commenced on or
prior to August 15, 1995.
2. Exercise of Options.
-------------------
(a) Elective Exercise. If the Parent wishes to exercise either of
-----------------
the Options, the Parent shall do so by delivering written notice during the
Initial Option Period or the Extended Option Period, as the case may be (the
date of such notice being herein called the "Notice Date"), to the Investor
specifying the place, time and date not earlier than two business days, nor
later than ten business days, from the Notice Date for the closing of the
purchase by the Parent pursuant to such exercise. The delivery of such notice
shall be deemed for all purposes to be the exercise of the Options and shall
constitute an irrevocable and binding commitment on the part of the Parent to
purchase the KD Warrant upon the terms set forth in this Agreement.
(b) Mandatory Exercise. If any share of Common Stock is accepted for
------------------
payment by the Parent or the Purchaser (or any other person who is authorized by
the Parent) pursuant to the Offer, the Parent shall without the requirement of
any notice or other action
2
<PAGE>
by the Parent or the Investor, be deemed to have exercised the Options on the
business day immediately following such date and shall pay the Option Purchase
Price at a closing no later than three business days following the date of such
acceptance for payment. Such acceptance for payment pursuant to the Offer shall
constitute an irrevocable and binding commitment on the part of the Parent to
purchase the KD Warrant upon the terms set forth in this Agreement.
3. Payment of Option Purchase Price and Delivery of Assignment of the
------------------------------------------------------------------
KD Option. At any closing of the exercise of the Options hereunder, (a) the
- ---------
Parent shall deliver to the Investor the Option Purchase Price and (b) the
Investor shall deliver to the Parent an instrument of assignment of the KD
Option in form and substance reasonably satisfactory to the Parent.
4. Sale or Transfer of the KD Warrant by the Parent. If, prior to the
-------------------------------------------------
first anniversary of the date of the exercise of either of the Options, the
Parent or any of its affiliates sells or otherwise transfers (including but not
limited to, by merger of the Company) or assigns either the KD Warrant, in whole
or in part, or any shares of Common Stock acquired upon exercise thereof, it
will promptly pay over to the Investor 50% of the Profits (defined below)
realized therefrom. "Profits" shall mean, (a) in the case of shares of Common
Stock, (i) the excess of (A) the price per share received by the Parent over (B)
the sum of the Option Purchase Price, the aggregate exercise price of the KD
Warrant and the amount of any Extended Option Payment paid by the Parent,
divided by 486,352, multiplied by (ii) the number of shares in question, and (b)
in the case of the KD Warrant, the excess of (A) the consideration received by
the Parent over (B) the sum of the Option Purchase Price and the amount of any
Extended Option Payment paid by the Parent (or the appropriate pro rata portion
thereof, in the case of partial sales). In the event that noncash consideration
is included in consideration received by the Parent, the Profits shall be
payable in such noncash consideration in the same percentage as such noncash
consideration bears to the total consideration received by the Parent.
5. Representations and Warranties of the Investor. The Investor
---------------------------------------------
hereby represents and warrants to the Parent as follows:
(a) Authority; Noncontravention. The Investor has all requisite power
---------------------------
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Investor and the consummation by the Investor of the transactions contemplated
hereby have been duly authorized by all necessary partnership action on the part
of the Investor. This Agreement has been duly executed and delivered by the
Investor and constitutes a valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice
3
<PAGE>
or lapse of time or both) under (i) organizational documents of the Investor or
(ii) any provision of any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Investor or to the Investor's property or assets,
other than, in the case of clause (ii), any such conflicts, violations,
defaults, rights or liens that individually or in the aggregate would not
prevent the consummation of any of the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
by or with respect to the Investor in connection with the execution and delivery
of this Agreement or the consummation by the Investor of the transactions
contemplated by this Agreement, except for (1) the filing with the Securities
and Exchange Commission of such reports under Sections 13(d) and 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement and (2) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as would not individually or in the
aggregate prevent the consummation of any of the transactions contemplated by
this Agreement.
(b) The KD Warrant. The KD Warrant is in full force and effect, has
--------------
not heretofore been exercised in whole or in part, and is assignable by the
Investor free and clear of any claims, liens, encumbrances or security
interests.
6. Representations and Warranties of the Parent. The Parent
--------------------------------------------
hereby represents and warrants to the Investor as follows:
(a) Authority; Noncontravention. The Parent has all requisite
---------------------------
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Parent. This Agreement has been duly executed and delivered by the
Parent and constitutes a valid and binding obligation of the Parent, enforceable
against the Parent in accordance with its terms. The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, (i) the certificate of incorporation or by-
laws of the Parent or the comparable charter or organizational documents of any
other subsidiary of the Parent, (ii) any loan or credit agreement, note, bond,
4
<PAGE>
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Parent or any of its subsidiaries or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Parent or any of its subsidiaries or their respective properties or assets,
other than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights or liens that individually or in the aggregate would not (x)
have a material adverse effect (as such term is defined in the Merger Agreement)
on the Parent, (y) impair the ability of the Parent to perform its respective
obligations under this Agreement or (z) prevent the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to the Parent or any of its subsidiaries
in connection with the execution and delivery of this Agreement or the
consummation by the Parent of any of the transactions contemplated by this
Agreement, except for (1) the filing with the Securities and Exchange Commission
of such reports under Sections 13(a), 13(d), 14(d) and 16(a) of the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (2) filings and reports under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, in connection with the
Offer, and (3) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as would not individually or in the
aggregate (A) have a material adverse effect on the Parent or (B) prevent the
consummation of any of the transactions contemplated by this Agreement.
(b) Securities Act. The KD Warrant and any shares of Common Stock
--------------
acquired upon exercise thereof will be acquired for investment only and not with
a view to any public distribution thereof, and the Parent will not offer to sell
or otherwise dispose of the KD Warrant or any shares so acquired by it in
violation of any of the registration requirements of the Securities Act of 1933,
as amended.
7. Covenants of the Investor. The Investor agrees, until the Options
-------------------------
have expired, not to exercise the KD Warrant in whole or in part or to sell,
transfer, pledge, assign or otherwise dispose of, or enter into any contract,
option or other arrangement with respect to the sale, transfer, pledge,
assignment or other disposition of, the KD Warrant to any person other than
pursuant to this Agreement.
8. No Brokers. Except for Smith Barney Inc. and Mr. Peter Gruenbaum
----------
(the financial advisors retained by the Parent), each of the Investor and the
Parent represents, as to itself and its affiliates, that no agent, broker,
investment banker or other firm or person is or will be entitled to any broker's
or finder's fees or
5
<PAGE>
any other commission or similar fee in connection with any transaction
undertaken pursuant to this Agreement and respectively agrees to indemnify and
hold the others harmless from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have occurred or been
made by such party or its affiliates.
9. Survival of Representations. All representations, warranties and
---------------------------
agreements made by the parties to this Agreement shall not survive beyond the
first anniversary of the date of the exercise of any of the Options, except that
the representations of the Investor with respect to the Parent's title to the KD
Warrant shall survive indefinitely.
10. Further Assurances. If the Parent shall exercise either of the
------------------
Options in accordance with the terms of this Agreement, from time to time and
without additional consideration the Investor will execute and deliver, or cause
to be executed and delivered, such additional or further transfers, assignments,
endorsements, consents and other instruments as the Parent may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement, including the transfer of the KD Warrant to the
Parent and the release of any and all liens, claims and encumbrances with
respect thereto.
11. Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other party, except that the Parent may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of the
Parent in which case such subsidiary and the Parent shall remain jointly and
severally liable for all of the Parent's obligations hereunder. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
12. General Provisions.
------------------
(a) Expenses. Whether or not the Option is exercised, all costs and
--------
expenses incurred in connection with the Option, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense.
(b) Amendments. This Agreement may not be amended except by an
----------
instrument in writing signed by each of the parties hereto.
(c) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed delivered if delivered personally or sent by
overnight courier (providing proof of delivery) or by electronically confirmed
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
6
<PAGE>
(i) if to the Parent, to
Loewen Group International, Inc.
50 East RiverCenter Boulevard
Suite #800
Covington, Kentucky 41011
Facsimile: (606) 655-7144
Attention: Robert Wienke, Esq.
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 755-7306
Attention: Christopher Kelly, Esq., and
(ii) if to the Investor, to
George Kellner
Kellner Dileo & Co.
900 Third Avenue, 10th Floor
New York, New York 10022
Facsimile: (212) 350-0340
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Facsimile: (212) 909-6836
Attention: Meredith M. Brown, Esq.
(d) Enforcement of the Agreement. The parties hereto agree that
----------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that, in the event of a breach
hereof, the parties hereto will be entitled to and injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
7
<PAGE>
(e) Interpretation. When a reference is made in this Agreement to
--------------
Sections or Exhibits, such reference shall be to a Section or Exhibit to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement.
(g) Entire Agreement; No Third Party Beneficiaries. This Agreement
----------------------------------------------
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
(h) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
8
<PAGE>
IN WITNESS WHEREOF, the Parent and the Investor have caused this Agreement to
be signed by their respective duly authorized representatives, all as of the
date first written above.
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ A.M. Bruce Watson
________________________________
Name: A.M. Bruce Watson
Title: Executive Vice President
MH ASSOCIATES
By: /s/ George Kellner
________________________________
Name: George Kellner
Title: Managing Partner
9
