<PAGE>
FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-23747
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED MAY 29, 1997
12,000,000 SHARES
THE LOEWEN GROUP INC.
COMMON SHARES
[LOGO]
---------
Of the 12,000,000 Common shares without par value ("Common Shares") of The
Loewen Group Inc. ("Loewen" and, together with its subsidiaries and associated
entities, the "Company") being offered, 7,450,000 Common Shares are being
offered initially in the United States and elsewhere outside Canada (the "U.S.
Offering") by United States underwriters (the "U.S. Underwriters") and 4,550,000
Common Shares are being offered initially in Canada (the "Canadian Offering") by
Canadian underwriters (the "Canadian Underwriters" and, together with the U.S.
Underwriters, the "Underwriters"). See "Underwriting."
Raymond L. Loewen, Chairman of the Board and Chief Executive Officer of
Loewen, will purchase for investment purposes, from the Canadian Underwriters,
500,000 of the Common Shares offered on the same terms and conditions as are
available to the public. See "Underwriting."
The Common Shares are listed on the New York Stock Exchange and The Toronto
Stock Exchange under the symbol "LWN." The last reported sales price of the
Common Shares on May 29, 1997 on the New York Stock Exchange was U.S.$33.00 per
share and on The Toronto Stock Exchange was Cdn.$45.40 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE S-8 HEREOF FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC FEES (1) COMPANY (2)
<S> <C> <C> <C>
Per Share....................................... U.S.$33.00 U.S.$1.32 U.S.$31.68
Total (3)....................................... U.S.$396,000,000 U.S.$15,840,000 U.S.$380,160,000
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at U.S.$1,000,000, payable by Loewen.
(3) Loewen has granted the U.S. Underwriters and the Canadian Underwriters
30-day options to purchase up to 1,117,500 and 682,500 additional Common
Shares, respectively, up to an aggregate of 1,800,000 Common Shares, to
cover over-allotments. See "Underwriting." If all such Common Shares are
purchased, the total Price to Public, Underwriting Fees and Proceeds to
Company will be U.S.$455,400,000, U.S.$18,216,000 and U.S.$437,184,000,
respectively.
------------------
GLOBAL COORDINATOR
SMITH BARNEY INC.
---------
The Common Shares offered hereby, including any Common Shares acquired by
transfer from the Canadian Underwriters, are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
Common Shares offered hereby will be available for delivery on or about June 5,
1997 at the offices of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013.
--------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.
NESBITT BURNS SECURITIES INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MAY 29, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
IT IS EXPECTED THAT CERTIFICATES FOR THE COMMON SHARES OFFERED HEREBY WILL
BE AVAILABLE FOR DELIVERY ON OR ABOUT THE DATE INDICATED ON THE FRONT COVER PAGE
OF THIS PROSPECTUS SUPPLEMENT, WHICH WILL BE FIVE BUSINESS DAYS FOLLOWING THE
DATE HEREOF (SUCH SETTLEMENT CYCLE BEING REFERRED TO HEREIN AS "T+5").
PURCHASERS OF SUCH COMMON SHARES SHOULD NOTE THAT TRADING OF THE COMMON SHARES
ON THE DATE HEREOF OR THE NEXT BUSINESS DAY MAY BE AFFECTED BY THE T+5
SETTLEMENT CYCLE. SEE "UNDERWRITING."
------------------------
In this Prospectus Supplement, unless the context otherwise requires (i)
"Loewen" refers to The Loewen Group Inc., a corporation organized under the law
of British Columbia, Canada, (ii) "LGII" refers to Loewen Group International,
Inc., a Delaware corporation and a wholly-owned subsidiary of Loewen, (iii) the
"Company" refers to Loewen, together with its subsidiaries and associated
entities, (iv) "Common Shares" refers to the Common shares without par value of
Loewen, (v) the "Offering" refers collectively to the U.S. Offering and the
Canadian Offering and (vi) references to the Company's "acquisitions" do not
include the two structured investments made by the Company in 1996 with
Blackstone Capital Partners II Merchant Banking Fund L.P. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions, Investments and Capital Expenditures."
Unless otherwise indicated, information provided herein with respect to the
Offering assumes that the Underwriters' over-allotment options are not
exercised.
All dollar amounts herein are in United States dollars, unless otherwise
indicated. References to "Cdn.$" are to Canadian dollars.
S-2
<PAGE>
AVAILABLE INFORMATION
Loewen is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission ("Commission"). Such reports, proxy
statements and other information filed by Loewen 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
Commission's regional offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained by
mail from the Public Reference section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
reports, proxy statements and other information that Loewen files with the
Commission electronically are contained in the Internet Web site maintained by
the Commission. The Commission's Web site address is http://www.sec.gov. The
Common Shares are traded on the New York Stock Exchange, The Toronto Stock
Exchange and the Montreal Exchange. Reports, proxy statements and other
information filed by Loewen may be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005, at the offices of
The Toronto Stock Exchange at The Exchange Tower, 2 First Canadian Place,
Toronto, Ontario, Canada M5X IJ2 and at the offices of the Montreal Exchange at
800 Victoria Square, Montreal, Quebec, Canada H4Z 1A9.
FINANCIAL INFORMATION
The consolidated financial statements of the Company, included in Loewen's
reports filed pursuant to the Exchange Act, are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP").
Differences between Canadian GAAP and accounting principles generally accepted
in the United States ("U.S. GAAP"), as applicable to the Company, are explained
in Note 21 to the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996
Consolidated Financial Statements") and Note 10 to the consolidated financial
statements included in Loewen's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS.
THE COMPANY
OVERVIEW
The Loewen Group Inc. is the second-largest operator of funeral homes and
cemeteries in North America. As of April 30, 1997, the Company operated 997
funeral homes and 373 cemeteries located throughout the United States and
Canada, with 93.5% of its 1996 consolidated revenue derived from locations in
the United States. Over the last five fiscal years, the Company's revenues and
earnings from operations have grown at compound annual growth rates of 41.1% and
39.2%, respectively, representing the highest such growth rates among the three
largest public funeral home and cemetery operators. Over the same period, the
Company invested an aggregate of $1.6 billion in acquisitions.
In order to enhance its growth and long-term competitive position, the
Company has increased its focus on (i) the acquisition and integration of
cemeteries and (ii) the growth of "pre-need" funeral service and cemetery sales
(sales to customers before the time of need). In addition, the Company recently
realigned and combined its cemetery and funeral service sales forces to take
advantage of cross-selling and merchandising opportunities, especially in the
area of pre-need sales.
The Company's March 1995 acquisition of Osiris Holding Corporation
("Osiris"), a leading cemetery operator located in the United States, provided
the Company with an experienced, highly regarded cemetery management team. In
1996, the Company completed $325 million of cemetery acquisitions (136
locations), as compared to only $87 million of cemetery acquisitions (46
locations) in 1994, the year before the Osiris acquisition. Further, cemetery
gross margin has increased from 24.3% for 1994 to 33.2% for 1996, primarily as a
result of policies and programs implemented by the new cemetery management team,
including an increased emphasis on both pre-need sales and higher margin
products and services.
Pre-need funeral and cemetery sales are particularly important to the
Company's growth. A recent American Association of Retired Persons study showed
that of surveyed individuals over 50 years of age, only 40% had been contacted
regarding the purchase of pre-need cemetery property and merchandise or pre-need
funeral services, and only 28% had purchased products or services on a pre-need
basis. Over the past several years, the Company has increased its focus on
pre-need sales in order to capitalize on this significant market opportunity. As
a result, pre-need cemetery sales increased from $87 million in 1995 to $190
million in 1996, and gross pre-need funeral service sales increased from
approximately $97 million in 1995 to approximately $190 million in 1996. From an
accounting standpoint, pre-need cemetery sales are recognized at the time of
sale, while pre-need funeral sales are not recognized until the time that the
funeral service is provided, typically 8 to 12 years after the time of sale. As
at December 31, 1996, the backlog from pre-need funeral sales had reached
approximately $840 million.
In 1996, the Company also entered into two structured investments with
Blackstone Capital Partners II Merchant Banking Fund L.P. ("Blackstone"). In
August 1996, the Company and Blackstone together acquired Prime Succession,
Inc., the largest privately-held funeral services company in North America and,
in November 1996, the Company and Blackstone together acquired the Rose Hills
Memorial Park, the largest funeral home/cemetery combination property in North
America. In each case, the Company has an exclusive option to acquire
Blackstone's interest in these strategic assets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
information regarding the investments with Blackstone.
The Company believes that it is well positioned to continue its growth due
in part to the attractive consolidation opportunities available in the highly
fragmented North American funeral home and cemetery industry. Management
currently estimates that the five largest publicly-traded North American funeral
S-4
<PAGE>
service companies together own or operate approximately 11% of the 23,500
funeral homes in North America and 9% of the 10,500 cemeteries in North America.
GROWTH STRATEGY
The three principal components of the Company's growth strategy are (i) to
acquire a significant number of small, family-owned funeral homes and
cemeteries, (ii) to acquire "strategic" operations consisting predominantly of
large, multi-location urban properties that generally serve as platforms for
acquiring small, family-owned businesses in surrounding regions and (iii) to
improve the revenue and profitability of newly-acquired and established
locations.
The first element of the Company's strategy is the acquisition of small,
family-owned funeral homes and cemeteries, which comprise the majority of the
funeral homes and cemeteries that currently are not owned by the publicly-traded
funeral service companies. Management believes that the Company has developed a
competitive advantage in this market by differentiating itself from its
principal competitors through its (i) emphasis on succession planning for
prospective sellers, (ii) desire to retain existing management and personnel at
acquired firms and (iii) motivational culture, all of which enhance the
Company's ability to identify, consummate and integrate new acquisitions.
The second element of the Company's strategy is the acquisition of large,
multi-location urban properties. These "strategic" acquisitions provide the
Company with a critical mass of funeral homes or cemeteries that makes it
economic to consolidate relatively less expensive, smaller properties in a
region. The Company intends to remain competitive in the strategic acquisition
market and to acquire those properties which are priced appropriately and meet
its geographic growth objectives.
The final element of the Company's strategy is the enhancement of the
revenue and profitability of its newly-acquired and established locations.
Through the Company's integration process, newly-acquired funeral homes and
cemeteries typically show an improvement in gross margin within the first year
after acquisition, primarily as a result of the economies of scale available to
the Company, the introduction of the Company's merchandising and marketing
programs and implementation of the Company's pre-need sales programs. The
Company's strategy is to continue to increase the revenue and profitability of
its established locations through the introduction of additional merchandising,
cost control programs and inflation-based pricing and further expansion of its
pre-need sales programs. In addition, as the Company increases its presence in a
particular market, it can take advantage of greater synergies among its funeral
homes and cemeteries in that region, thereby further enhancing the revenue and
profitability of each location.
RECENT DEVELOPMENTS
FIRST QUARTER 1997 RESULTS
For the three months ended March 31, 1997, the Company's consolidated
revenue increased 42% to $274.7 million from $193.1 million for the three months
ended March 31, 1996. Net earnings were $23.7 million, a 38% increase from the
same period in 1996. Fully diluted earnings per share were $0.36 for the period,
a 20% increase from the $0.30 per share reported for the same period in 1996.
Strong growth in the Company's cemetery division contributed revenues of
$97.4 million in the three months ended March 31, 1997, up 83% from the same
period in 1996. Funeral home revenues increased 17% to $155.5 million in 1997
and insurance revenues increased to $21.7 million in 1997 from $6.5 million in
1996.
S-5
<PAGE>
ACQUISITION PROGRAM
From January 1, 1997 to April 30, 1997, the Company closed approximately
$152 million of acquisitions, comprising 42 funeral homes and 60 cemeteries. As
at April 30, 1997, the Company had signed agreements, some of which are
non-binding, for the acquisition of a further 59 funeral homes and 76
cemeteries, aggregating approximately $286 million. In addition, in the ordinary
course of its business, the Company continually is in the process of evaluating
or negotiating prospective acquisitions in competition with other potential
purchasers. From time to time, the Company may evaluate or negotiate potential
acquisitions which, if consummated, may be considered significant based on
acquisition price.
OPTION TO INCREASE REVOLVING CREDIT FACILITY
On May 5, 1997, the Company announced it had received a commitment from the
lead bank in its banking syndicate to increase the Company's principal revolving
credit facility (the "1996 Revolving Credit Facility") to $1 billion from its
current level of $750 million. The commitment is subject to completion of the
Offering (with proceeds of at least $250 million) and the approval of certain
senior lenders.
SCI TAKEOVER PROPOSAL WITHDRAWN
On January 7, 1997, Service Corporation International ("SCI") publicly
withdrew its unsolicited proposal to acquire Loewen through an exchange offer
announced in October 1996 ("hostile takeover proposal").
S-6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered:
U.S. Offering(1)................ 7,450,000 shares
Canadian Offering(1)............ 4,550,000 shares
---------------
Total(1)...................... 12,000,000 shares
---------------
---------------
Common Shares to be outstanding
after the Offering(1)(2)........ 71,199,039 shares
Use of proceeds................... The net proceeds from the Offering will be used for
working capital and general corporate purposes,
including acquisitions. Pending use for such purposes,
the net proceeds will be used to reduce borrowings under
the Company's principal revolving credit facility. See
"Use of Proceeds."
Symbol............................ "LWN"
</TABLE>
- ------------------------
(1) Assumes the Underwriters' over-allotment options are not exercised. See
"Underwriting."
(2) Based on Common Shares issued and outstanding at April 30, 1997. Does not
include (i) 4,576,464 Common Shares issuable upon the exercise of options
outstanding at April 30, 1997 granted under employee stock option plans,
(ii) 3,769,800 Common Shares issuable upon the exercise of options and
purchase rights outstanding at April 30, 1997 granted under the 1994
Management Equity Investment Plan (which options and purchase rights first
become exercisable in part in June 1999, absent extraordinary circumstances)
and (iii) approximately 5,770,492 Common Shares issuable upon the conversion
of Loewen's outstanding Series C Preferred Shares, which are presently
convertible.
S-7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS, AS AMENDED AND SUPPLEMENTED, AND CERTAIN DOCUMENTS
INCORPORATED BY REFERENCE HEREIN AND THEREIN, POTENTIAL INVESTORS SHOULD
CONSIDER THE FOLLOWING FACTORS.
COMPETITION FOR ACQUISITIONS
The North American funeral services industry acquisition market is extremely
competitive. The Company's competition for acquisitions includes SCI, Stewart
Enterprises, Inc. ("Stewart"), Equity Corporation International ("ECI") and
Carriage Services, Inc. ("CSI"), all of which are publicly-traded companies with
significant United States operations, as well as other non-public regional
consolidators. On occasion, the Company also has experienced competition on a
local level from consolidators who have focused on acquiring funeral home and
cemetery properties in a concentrated geographic area. The timing and certainty
of completion of potential acquisitions are based on many factors. There can be
no assurance that the Company will complete any specific number or dollar amount
of acquisitions in a particular year.
RISKS OF ACQUISITIONS AND MANAGING GROWTH
The Company intends to grow primarily through the acquisition of additional
funeral homes and cemeteries. Aggressive pricing by the Company's competitors,
particularly for strategic operations, may result in increased acquisition
costs. There can be no assurance that the Company will be able to identify,
negotiate and consummate acquisitions or that acquired businesses can be
operated profitably or integrated successfully into the Company's operations
without substantial costs, delays or other operational or financial problems.
While the Company believes it has been successful in integrating the
acquisitions it has made in the past, there can be no assurance that the
Company's historic or future acquisitions will not have an adverse impact on the
Company's business, financial condition or results of operations. In addition,
acquisitions involve a number of special risks, including possible adverse
effects due to diversion of management's attention, failure to retain key
acquired personnel and unanticipated events or liabilities, some or all of which
could have a material adverse effect on the Company's business, financial
condition or results of operations. Managing the Company's growth is critical to
profitability, and will continue to be one of the most important
responsibilities and challenges facing the Company.
FLUCTUATIONS IN REVENUE
The most significant component of increases in revenue is the level of
acquisitions, discussed above. In addition, revenue is affected by the volume of
services rendered, and the mix and pricing of services and products sold. The
foregoing may be affected by fluctuations in the number of deaths, competitive
pricing strategies, pre-need sales and other sales programs implemented by the
Company.
LEGAL PROCEEDINGS
The Company's 1995 financial results were materially and adversely affected
by the unanticipated outcome of certain legal proceedings. There currently are
legal proceedings pending against the Company, including class actions, the
outcome of which could be material. The Company is unable to predict the outcome
of any of such proceedings at this time. See "Legal Proceedings."
CERTAIN ANTI-TAKEOVER PROVISIONS AND RISKS
Certain provisions of Loewen's charter documents and Loewen's Shareholder
Protection Rights Plan Agreement may have the effect of discouraging, delaying
or preventing a change of control of Loewen or unsolicited acquisition proposals
that a shareholder might consider favorable.
The Company's financial results for 1996 include $18.7 million of finance
and other costs related to SCI's hostile takeover proposal.
S-8
<PAGE>
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
FORWARD-LOOKING STATEMENTS
Management believes that the aggregate purchase price for acquisitions in
1997 will be at least $600 million. Management has established a goal for
fully-diluted earnings per share ("EPS") for 1997 of $1.55 to $1.60. The
foregoing statements and certain other statements made in this Prospectus
Supplement, the accompanying Prospectus, as amended and supplemented, other
filings made with the Commission, and elsewhere (including oral statements made
on behalf of the Company) are forward-looking statements within the meaning of
Section 27A(i) of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E(i) of the Exchange Act. Shareholders and potential investors are
hereby cautioned that certain events or circumstances could cause actual results
to differ materially from those estimated, projected or predicted. In addition,
forward-looking statements are based on management's knowledge and judgment as
of the date that such statements are made. The Company undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
CAUTIONARY STATEMENTS
In addition to the Risk Factors set forth above, the following important
factors, among others, could cause EPS for 1997, acquisition levels and other
future results to differ materially from estimates, predictions or projections
included in forward-looking statements: (i) margins achieved by newly-acquired
and established operations, (ii) the cost of the Company's financing
arrangements (including interest rates on long-term debt), (iii) the number of
Common Shares outstanding, (iv) competition, (v) the Company's effective tax
rate, (vi) the accounting treatment of acquisitions and the valuation of assets,
(vii) the amount and growth rate of the Company's general and administrative
costs and (viii) changes in applicable accounting principles and governmental
regulations.
S-9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
Set forth below is certain selected consolidated financial and operating
information of the Company for each year in the five-year period ended December
31, 1996. The selected consolidated financial information is derived from the
Company's audited consolidated financial statements for such periods. The
Company's consolidated financial statements are prepared in accordance with
Canadian GAAP. The information set forth below should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the 1996 Consolidated Financial Statements and Notes thereto.
The financial results for the year ended December 31, 1996 include $18.7
million of finance and other costs related to SCI's October 1996 hostile
takeover proposal for the Company, which proposal was withdrawn in January 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding SCI's hostile takeover
proposal. The financial results for the year ended December 31, 1995 include an
aggregate of $195.7 million for legal settlements and litigation related finance
costs and certain general and administrative costs related to the legal
settlements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995(1) 1994 1993 1992
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue........................................ $ 908,385 $ 598,493 $ 417,328 $ 303,011 $ 218,907
Gross margin................................... 337,571 225,362 158,854 115,118 83,708
Earnings from operations....................... 204,105 117,607 95,113 65,697 50,563
Net earnings (loss)............................ 63,906 (76,684) 38,494 28,182 19,766
Basic earnings (loss) per share................ 0.97 (1.69) 0.97 0.77 0.59
Fully diluted earnings (loss) per share(2)..... 0.97 (1.69) 0.97 0.76 0.58
Ratio of earnings to fixed charges(3).......... 1.9x -- 2.5x 2.9x 2.6x
Ratio of earnings to fixed charges and
preferred share dividends(4)................. 1.7x -- -- -- --
Aggregate dividends declared per Common
Share........................................ 0.200 0.050 0.070 0.045 0.030
<CAPTION>
AS AT DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets................................... $ 3,496,939 $ 2,262,980 $ 1,326,275 $ 913,661 $ 675,111
Total long-term debt(5)........................ 1,508,221 934,509 516,654 341,977 246,715
Preferred securities of subsidiary............. 75,000 75,000 75,000 -- --
Shareholders' equity........................... 1,048,200 614,682 411,139 325,890 236,317
OPERATING INFORMATION:
Number of funeral home locations(6)............ 956 815 640 533 451
Number of funeral services..................... 142,265 114,319 93,760 78,847 63,516
Number of cemeteries(6)........................ 313 179 116 70 38
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
(2) Fully diluted earnings (loss) per share figures are calculated in accordance
with Canadian GAAP and assume, if dilutive (a) exercise of employee and
other stock options effective on their dates of issue and that the funds
derived therefrom were invested at annual after-tax rates of return ranging
from 5.8% to 7.3%, (b) exercise of options and purchase rights under the
1994 Management Equity Investment Plan ("MEIP") effective on their dates of
issue and the add-back of the interest under the related MEIP loan and (c)
conversion of the Series C Preferred Shares effective on the date of the
issue of the Series C Receipts and the add-back of the dividends during the
period. See Note 9 to the 1996 Consolidated Financial Statements.
(3) The 1995 loss was not sufficient to cover fixed charges by a total of
approximately $126.6 million and as such the ratio of earnings to fixed
charges has not been computed.
(4) The Company did not pay any preferred share dividends from 1992-1995.
(5) Total long-term debt comprises long-term debt, including current portion.
(6) The numbers of locations for 1994 and 1993 include adjustments and
consolidations related to prior periods.
S-10
<PAGE>
Under Canadian GAAP, (i) the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred share dividends for the three
months ended March 31, 1997 were 1.9x and 1.8x, respectively; and (ii) the ratio
of earnings to fixed charges for the three months ended March 31, 1996 was 2.2x.
No preferred share dividends were paid during the three months ended March 31,
1996.
Had the Company's consolidated financial statements been prepared in
accordance with U.S. GAAP (see Note 21 to the 1996 Consolidated Financial
Statements), selected consolidated financial information would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995(1) 1994 1993 1992
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue........................................ $ 909,137 $ 598,493 $ 417,479 $ 308,402 $ 239,452
Earnings from operations....................... 198,869 117,376 94,758 66,711 54,838
Earnings (loss) before cumulative effect of
change in accounting principles.............. 64,559 (75,800) 39,652 28,912 21,330
Fully diluted earnings (loss) per share before
cumulative effect of change in accounting
principles................................... 0.96 (1.67) 0.98 0.77 0.62
Ratio of earnings to fixed charges(2).......... 1.8x -- 2.4x 2.9x 2.6x
Ratio of earnings to fixed charges and
preferred share dividends(3)................. 1.7x -- -- -- --
Aggregate dividends declared per Common
Share........................................ 0.200 0.050 0.070 0.047 0.033
<CAPTION>
AS AT DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets................................... $ 3,768,021 $ 2,345,874 $ 1,329,928 $ 921,342 $ 702,096
Total long-term debt(4)........................ 1,508,221 894,509 516,654 341,977 256,577
Preferred securities of subsidiary............. 75,000 75,000 75,000 -- --
Shareholders' equity........................... 1,026,110 519,006 385,950 299,059 245,472
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
(2) The 1995 loss was not sufficient to cover fixed charges by a total of
approximately $128.3 million and as such the ratio of earnings to fixed
charges has not been computed.
(3) The Company did not pay any preferred share dividends from 1992-1995.
(4) Total long-term debt comprises long-term debt, including current portion.
Under U.S. GAAP, (i) the ratio of earnings to fixed charges and the ratio of
earnings to fixed charges and preferred share dividends for the three months
ended March 31, 1997 were 1.9x and 1.8x, respectively; and (ii) the ratio of
earnings to fixed charges for the three months ended March 31, 1996 was 2.1x. No
preferred share dividends were paid during the three months ended March 31,
1996.
S-11
<PAGE>
PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY
The Common Shares have been listed on the New York Stock Exchange since
October 2, 1996 under the symbol "LWN." Prior to such listing, the Common Shares
were quoted on the Nasdaq National Market under the symbol "LWNG" ("LWNGF" prior
to June 6, 1996).
The Common Shares have been trading on The Toronto Stock Exchange since May
6, 1987 under the symbol "LWN," and commenced trading on The Montreal Exchange
on April 28, 1993, also under the symbol "LWN."
The following table sets forth, for the periods indicated, the range of high
and low sales prices, as reported by the New York Stock Exchange, the Nasdaq
National Market and The Toronto Stock Exchange.
<TABLE>
<CAPTION>
NEW YORK NASDAQ THE TORONTO
STOCK EXCHANGE NATIONAL MARKET STOCK EXCHANGE
-------------------- -------------------- --------------------
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- --------- ---------
(U.S.$) (U.S.$) (CDN.$)
<S> <C> <C> <C> <C> <C> <C>
1995
First quarter........................................ n/a n/a 29.125 24.703 40.875 35.000
Second quarter....................................... n/a n/a 36.500 26.625 50.750 36.750
Third quarter........................................ n/a n/a 41.750 33.875 56.000 46.000
Fourth quarter....................................... n/a n/a 41.625 23.125 55.750 31.250
1996
First quarter........................................ n/a n/a 29.875 16.375 41.125 22.500
Second quarter....................................... n/a n/a 31.125 26.125 42.350 36.000
Third quarter........................................ n/a n/a 42.750 26.625 58.750 36.600
October 1............................................ n/a n/a 42.500 41.750 57.750 56.750
October 2 through December 31........................ 42.625 37.625 n/a n/a 58.000 51.450
1997
First quarter........................................ 41.375 31.875 n/a n/a 56.750 43.156
April 1 through May 29............................... 33.250 27.500 n/a n/a 45.750 38.500
</TABLE>
The last reported sales price of the Common Shares on May 29, 1997 was
$33.00 on the New York Stock Exchange and Cdn.$45.40 on The Toronto Stock
Exchange.
As of April 30, 1997, there were 2,072 record holders of the Common Shares.
In May 1995, Loewen declared a dividend of $0.05 per Common Share. In
December 1995, the Board of Directors deferred the declaration of a second
semi-annual dividend for 1995 pending resolution of the effects of certain
litigation. In February 1996, Loewen declared a dividend of $0.05 per Common
Share as the second semi-annual dividend in respect of 1995. Loewen declared a
dividend of $0.07 per Common Share in June 1996 and a dividend of $0.08 per
Common Share in December 1996.
In May 1997, Loewen declared a dividend of $0.10 per Common Share, payable
on July 2, 1997 to shareholders of record at the close of business on June 18,
1997.
The general policy of Loewen is to increase the dividend rate on its Common
Shares as earnings grow. The declaration and payment of future dividends will be
determined by the Board of Directors and will depend upon earnings and, among
other things, the Company's operating and financial position, capital
requirements and general business conditions.
The payment of cash, stock and deemed dividends on the Common Shares is
generally subject to Canadian withholding tax. The rate of withholding tax is
25% or such lesser amount as may be provided by treaty between Canada and the
country of residence of the recipient. Under the current income tax treaty
between the United States and Canada, such withholding tax rate generally is
reduced to 15%. See "Certain Canadian Federal Tax Considerations" for additional
information regarding Canadian withholding tax.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources--Restrictions on Payment of
Dividends" for a discussion of certain restrictions on Loewen's ability to pay
dividends.
S-12
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the Offering (after underwriting fees
and estimated offering expenses) will be approximately $379,160,000
($436,184,000 if the Underwriters' over-allotment options are exercised in
full), which will be used for working capital and general corporate purposes,
including acquisitions. The Company anticipates that a substantial portion of
the net proceeds from the Offering will be used to fund acquisitions that are
expected to be consummated during 1997. As of April 30, 1997, the Company had
committed approximately $286 million for new acquisitions, some of which are
subject to the satisfaction of certain conditions. None of such acquisitions
individually is material to the Company.
Loewen initially will use all of the net proceeds of the Offering to reduce
the outstanding balance of the 1996 Revolving Credit Facility. The facility
matures in May 2002 and bears interest at alternative rates selected by LGII. At
May 28, 1997, the amount outstanding under the facility was $545 million, and
such amount bore interest at 6.81% per annum.
Certain of the Underwriters are controlled by or affiliated with
Canadian-chartered banks that are lenders under the 1996 Revolving Credit
Facility. See "Underwriting."
CONSOLIDATED CAPITALIZATION
The following table sets forth the cash and term deposits and total
capitalization of the Company as of December 31, 1996, (a) on a pro forma basis
to reflect the outstanding balance of the 1996 Revolving Credit Facility as of
May 28, 1997 and (b) as adjusted to reflect the sale of 12,000,000 Common Shares
offered hereby and the application of the estimated net proceeds thereof (after
underwriting fees and estimated offering expenses) to reduce the outstanding
balance of the 1996 Revolving Credit Facility. The following information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the 1996 Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
PRO FORMA,
PRO FORMA AS ADJUSTED
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and term deposits................................................................ $ 18,059 $ 18,059
------------ ------------
------------ ------------
Short-term debt, including current portion of long-term debt.......................... $ 79,580 $ 79,580
------------ ------------
Long-term debt
Series 1-4 senior notes............................................................. 700,000 700,000
Senior amortizing notes, Series A-E................................................. 208,200 208,200
1996 Revolving Credit Facility...................................................... 545,000 165,840
Canadian Revolver................................................................... 33,489 33,489
Term credit facilities.............................................................. 133,119 133,119
Other long-term debt................................................................ 196,413 196,413
Less current portion................................................................ (79,580) (79,580)
------------ ------------
Total long-term debt.............................................................. 1,736,641 1,357,481
------------ ------------
Preferred securities of subsidiary.................................................... 75,000 75,000
------------ ------------
Total shareholders' equity............................................................ 1,048,200 1,427,360
------------ ------------
Total capitalization.............................................................. $ 2,939,421 $ 2,939,421
------------ ------------
------------ ------------
</TABLE>
S-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company operates the second-largest number of funeral homes and
cemeteries in North America and the largest number of funeral homes in Canada.
In addition to providing services at the time of need, the Company also makes
funeral, cemetery and cremation arrangements on a pre-need basis.
The funeral service industry has a number of attractive characteristics.
Historically the funeral service industry has had a low business failure risk
compared with most other businesses and has not been significantly affected by
economic or market cycles. According to the 1994 Business Failure Record
published by The Dun & Bradstreet Corporation, the average business failure rate
in the United States in 1994 was 86 per 10,000. The 1994 failure rate of the
funeral service and crematoria industry was 8 per 10,000, among the lowest of
all industries. In addition, future demographic trends are expected to
contribute to the continued stability of the funeral service industry. The U.S.
Department of Commerce, Bureau of the Census, projects that the number of deaths
in the United States will grow at approximately 1.0% annually from 1990 through
2010. Finally, the funeral service industry in North America is highly
fragmented, consisting primarily of small, stable, family-owned businesses.
Management estimates that notwithstanding the increasing trend toward
consolidation over the last few years, only approximately 11% of the 23,500
funeral homes and approximately 9% of the 10,500 cemeteries in North America are
currently owned or operated by the five largest publicly-traded North American
funeral service companies.
The Company capitalizes on these attractive industry fundamentals through a
growth strategy that emphasizes three principal components: (i) acquiring a
significant number of small, family-owned funeral homes and cemeteries; (ii)
acquiring "strategic" operations consisting predominantly of large, multi-
location urban properties that generally serve as platforms for acquiring small,
family-owned businesses in surrounding regions; and (iii) improving the revenue
and profitability of newly-acquired and established locations. As a result of
the successful implementation of this strategy, the Company has grown
significantly. Managing the Company's growth is critical to profitability, and
will continue to be one of the most important responsibilities and challenges
facing the Company.
RESULTS OF OPERATION
Detailed below are the Company's operating results for the years ended
December 31, 1996, 1995 and 1994, expressed in dollar amounts as well as
relevant percentages. Revenue, gross margin data and expenses other than income
taxes are presented as a percentage of revenue. Income taxes are presented as a
percentage of earnings (loss) before income taxes, including equity and other
earnings in associated companies.
The Company's operations are comprised of three business divisions: funeral
homes, cemeteries and insurance. See Note 18 to the 1996 Consolidated Financial
Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral.................................................. $ 549.8 $ 441.4 $ 353.9 60.5% 73.8% 84.8%
Cemetery................................................. 286.7 143.6 63.4 31.6 23.9 15.2
Insurance................................................ 71.9 13.5 -- 7.9 2.3 --
--------- --------- ---------
Total.................................................... $ 908.4 $ 598.5 $ 417.3 100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(PERCENTAGES)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Gross margin
Funeral.................................................. $ 222.9 $ 182.5 $ 143.4 40.6% 41.3% 40.5%
Cemetery................................................. 95.2 39.9 15.5 33.2 27.8 24.3
Insurance................................................ 19.5 3.0 -- 27.1 22.3 --
--------- --------- ---------
Total.................................................... 337.6 225.4 158.9 37.2 37.7 38.1
Expenses
General and administrative............................... 76.7 67.7 34.8 8.4 11.3 8.3
Depreciation and amortization............................ 56.8 40.1 29.0 6.3 6.7 6.9
--------- --------- ---------
Earnings from operations................................... 204.1 117.6 95.1 22.5 19.7 22.9
Interest on long-term debt................................. 88.9 50.9 34.2 9.8 8.5 8.2
Finance costs related to hostile takeover proposal......... 3.2 -- -- 0.4 -- --
Other costs related to hostile takeover proposal........... 15.5 -- -- 1.7 -- --
Legal settlements and litigation related finance costs..... -- 184.9 -- -- 30.9 --
Dividends on preferred securities of subsidiary............ 7.1 7.1 2.7 0.8 1.2 0.6
Income taxes............................................... 29.1 (47.2) 19.7 31.3 (38.1) 33.9
--------- --------- ---------
60.3 (78.1) 38.5 6.6 (13.1) 9.2
Equity and other earnings in associated companies.......... 3.6 1.4 -- 0.4 0.3 --
--------- --------- ---------
Net earnings (loss)........................................ $ 63.9 $ (76.7) $ 38.5 7.0% (12.8)% 9.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenue increased 51.8% to $908.4 million in the year ended
December 31, 1996 from $598.5 million in 1995. Consolidated gross margin
increased 49.8% to $337.6 million in 1996 from $225.4 million in 1995. As a
percentage of revenue, consolidated gross margin decreased to 37.2% in 1996 from
37.7% in 1995, principally due to the increased proportion of cemetery and
insurance revenue with associated lower margins and the decrease in funeral
gross margin as a percentage of funeral revenue. The Company anticipates that
the consolidated gross margin as a percentage of revenue will continue to
decline slightly, primarily as a result of continued acquisition and
internally-generated growth in the cemetery and insurance divisions.
Funeral revenue increased 24.6% to $549.8 million in 1996 compared to $441.4
million in 1995, primarily due to acquisitions. Funeral revenue for 1996
includes $4.4 million of commission income received by the Company due to
certain non-recurring conversions of trust investments to insurance investments.
The number of funeral services performed at locations in operation for all of
1995 and 1996 ("Established Locations") declined by 3.2% from 1995 to 1996;
however, this was offset by a higher average revenue per funeral service.
Funeral gross margin as a percentage of funeral revenue for Established
Locations decreased slightly to 41.7% in 1996 from 42.1% in 1995, as the $2.5
million increase in revenue was more than offset by a $2.7 million increase in
costs. As a result of such decrease, together with the lower margins of acquired
funeral locations, overall funeral gross margin as a percentage of funeral
revenue decreased to 40.6% in 1996 from 41.3% in 1995.
Cemetery revenue increased 99.7% to $286.7 million in 1996 compared to
$143.6 million in 1995, primarily due to acquisitions. Cemetery gross margin
increased to 33.2% in 1996 from 27.8% in 1995 principally as a result of a shift
to increased sales of interment services for newly acquired as well as existing
locations. Management believes that the cemetery gross margin is sustainable at
30% to 32% in 1997. Historically, many of the Company's cemeteries had focused
their marketing activities on the sale of cemetery interment rights and related
merchandise. During 1996, management implemented sales programs designed to
encourage existing pre-need cemetery customers, who are already committed to
Company owned cemeteries, as well as new customers, to purchase interment
services on a pre-need basis.
S-15
<PAGE>
For Established Locations, cemetery gross margin increased to 31.2% in 1996 from
26.5% in 1995, primarily as a result of an increase in revenue of $15.2 million,
with a $6.1 million increase in costs.
Insurance revenue increased to $71.9 million for 1996 from $13.5 million in
1995. The increase was due primarily to the integration of the March 1996
acquisition of certain net assets of S.I. Acquisition Associates, L.P. ("S.I.")
for approximately $150 million (including related costs), which assets included
two insurance companies. The increase in gross margin for insurance operations
to 27.1% for 1996 from 22.3% in 1995 reflects primarily the impact of a $4.6
million reduction in insurance policy liabilities following actuarial reviews of
insurance policy liabilities and insurance costs and expenses. Under Canadian
GAAP, all actuarial assumptions are re-evaluated on a periodic basis. See Note
21 to the 1996 Consolidated Financial Statements.
In addition to its focus on quality at-need funeral and cemetery services,
the Company provides advanced funeral and cemetery planning to the communities
it serves. The Company's gross pre-arranged funeral sales increased to
approximately $190 million in 1996 from approximately $97 million in 1995. Pre-
arranged funeral services comprised approximately 15% of the funeral services
performed by the Company in 1996 and approximately 16% of the funeral services
performed by the Company in 1995. Although pre-need funeral sales increased in
1996, the Company does not expect pre-arranged funeral services as a percentage
of funeral services performed by the Company to vary significantly in 1997 and
1998. The Company estimates that it had a backlog of approximately $840 million
in pre-need funeral sales as of December 31, 1996. Approximately 66% of the
Company's cemetery revenue in 1996 was generated from pre-need sales compared
with 61% in 1995. The Company anticipates approximately the same mix between
pre-need and at-need cemetery sales for at least the next two years. Note 1 to
the 1996 Consolidated Financial Statements provides information regarding the
accounting treatment of pre-arranged funeral services and pre-need cemetery
sales.
United States based operations contributed 93.5% of 1996 consolidated
revenue compared with 91.3% in 1995.
General and administrative expenses, as a percentage of revenue, decreased
to 8.4% in 1996 from 11.3% in 1995. For the year ended December 31, 1996,
general and administrative expenses increased 13.4% to $76.7 million from $67.7
million in 1995. Included in the general and administrative expense for 1995
were $10.8 million for professional fees and other costs related to the Gulf
National and Provident litigations and settlements (described below), and a $3.5
million write-off of acquisition costs. The increase in general and
administrative expenses in 1996 is primarily a result of the expansion of the
Company's infrastructure necessary to purchase, integrate and operate newly
acquired locations, particularly in the cemetery division.
The $3.2 million of finance costs related to the hostile takeover proposal
by SCI are comprised of $1.9 million paid to Company lenders for waiver fees and
$1.3 million in additional interest costs relating to the October 1996 senior
guaranteed note issue. See "--Liquidity and Capital Resources" and Note 14 to
the 1996 Consolidated Financial Statements.
The $15.5 million of other costs related to the hostile takeover proposal by
SCI are comprised of $9.9 million of legal fees, $2.0 million of investment
banking advisory fees and $3.6 million of fees to other advisors. No tax benefit
relating to these other costs is reflected in the 1996 Consolidated Financial
Statements. See Note 14 to the 1996 Consolidated Financial Statements.
Interest expense on long-term debt increased by $38.0 million in 1996
primarily as a result of additional borrowings by the Company to finance its
acquisitions and higher borrowing costs due to lower credit ratings. As a
percentage of revenue, depreciation and amortization decreased to 6.3% in 1996
from 6.7% in 1995, principally due to the increased proportion of cemetery
acquisitions.
Income taxes were $29.1 million for 1996, resulting in an effective tax rate
of 31.3% for the year, after giving effect to the other costs related to the
hostile takeover proposal for which no tax benefit has been provided. In 1995,
the Company recorded a deferred tax benefit of $60.3 million relating to the
settlements of the Gulf National and Provident litigations. Prior to the tax
recovery, 1995 income taxes were
S-16
<PAGE>
$13.2 million, resulting in an effective rate of 32.0%. The decrease in the
effective annual tax rate is due to the expansion of the Company's international
and intercompany financing arrangements, offset by the costs related to the
hostile takeover proposal for which no tax benefit has been provided.
Net earnings increased to $63.9 million in 1996 from a net loss of $76.7
million in 1995. EPS increased to $0.97 per share for 1996 from a loss of $1.69
per share for 1995. The net loss and loss in EPS for 1995 were primarily due to
the impact of the Gulf National and Provident litigations and settlements.
The Company's statement of changes in financial position for the year ended
December 31, 1996 reflects cash applied to operations of approximately $135
million, primarily as a result of legal settlements of $165 million recorded in
1995 but funded in the first quarter of 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The results for the year ended December 31, 1995 were significantly affected
by the November 1995 jury award of $500 million to Gulf National Insurance
Company and certain of its affiliates ("Gulf National") and the subsequent
settlements, during the first quarter of 1996, of the Gulf National litigation
and certain litigation with Provident American Corporation and one of its
affiliates ("Provident"). The related costs are reflected primarily in the
results for the three months ended December 31, 1995. For that period, the
Company recorded a net loss of $113.2 million as compared to net earnings of
$11.4 million in the same period of 1994. For the year ended December 31, 1995,
the Company recorded a net loss of $76.7 million compared to net earnings of
$38.5 million in 1994.
Consolidated revenue increased 43.4% to $598.5 million in the year ended
December 31, 1995 from $417.3 million in 1994, with funeral revenue increasing
24.6% and cemetery revenue increasing 126.4%. Consolidated gross margin
increased 41.9% to $225.4 million in 1995 from $158.9 million in 1994. As a
percentage of revenue, funeral gross margin increased to 41.3% in 1995 from
40.5% in 1994 and cemetery gross margin increased to 27.8% in 1995 from 24.3% in
1994. As a result of the change in mix between funeral and cemetery operations,
the combined gross margin decreased to 37.7% in 1995 from 38.1% for the same
period in 1994.
Funeral revenue increased 24.6% to $441.4 million in 1995 compared with
$353.9 million in 1994, primarily due to acquisitions. The funeral revenue from
Established Locations in operation for all of 1994 and 1995 increased by $7.5
million while corresponding funeral gross margins increased from 40.6% to 42.1%.
With the implementation of merchandising programs and inflation-based price
increases, the Company was able to more than offset a 1.3% decline in the number
of funeral services performed at Established Locations.
Cemetery revenue increased 126.4% to $143.6 million in 1995 compared with
$63.4 million in 1994, primarily due to acquisitions. Cemetery gross margin
increased to 27.8% in 1995 from 24.3% in 1994, primarily as a result of
increased sales activity and the integration of acquisitions with a higher
cemetery gross margin. The cemetery revenue from Established Locations in
operation for all of 1994 and 1995 increased by $12 million, while corresponding
cemetery gross margins increased from 26.6% to 29.0%, both principally due to a
higher level of pre-need sales at higher margins.
In 1995, approximately 16% of the funeral services performed by the Company
were pre-arranged, an increase from 15% in 1994. During 1995, the Company sold
approximately 28,000 funeral services to families planning in advance compared
with approximately 24,000 funeral services in 1994. In 1995, approximately 61%
of the Company's cemetery revenue was generated from pre-need sales compared
with 53% in 1994.
Insurance revenue in 1995 was $13.5 million. The Company determined in 1995
that it would not, as previously planned, sell a life insurance subsidiary which
had been acquired in connection with a larger acquisition in 1994 with the
intent that it be sold. The subsidiary was accounted for at cost from the date
of acquisition to June 30, 1995. Beginning July 1, 1995, the Company reported
the operations of the life insurance subsidiary on a consolidated basis.
S-17
<PAGE>
United States based operations contributed 91.3% of 1995 consolidated
revenue compared with 88.4% in 1994.
For the year ended December 31, 1995, general and administrative expenses
increased 94.7% to $67.7 million from $34.8 million in 1994. As a percentage of
consolidated revenue, general and administrative expenses in 1995 were 11.3% as
compared with 8.3% in 1994. Included in general and administrative expenses in
1995, and principally in the fourth quarter, are litigation, acquisition and
other expenses, including $10.8 million for professional fees and other costs
related to the Gulf National and Provident litigation and settlements, and a
$3.5 million write-off of acquisition costs. The remaining increase in general
and administration expenses can be attributed to an expansion of the Company's
infrastructure as a result of the integration of acquired operations.
Interest expense on long-term debt increased by $16.7 million in 1995
primarily as a result of additional borrowings by the Company to finance its
acquisitions. The Company's credit ratings were reduced as a result of the Gulf
National award.
The dividends on preferred securities increased from $2.7 million to $7.1
million as a result of the 9.45% Cumulative Monthly Income Preferred Securities
(the "MIPS"), issued in 1994 by Loewen Group Capital, L.P., a limited
partnership of which LGII is the sole general partner ("LGC"), being outstanding
for a full year.
The Company recorded an expense of $165.0 million for the year ended
December 31, 1995 for the Gulf National and Provident settlements announced on
January 29, 1996 and February 12, 1996, respectively. The accrual of $135.0
million for the Gulf National settlement consisted of (i) $50.0 million recorded
in current liabilities in respect of a cash payment made in February 1996, (ii)
$45.0 million recorded in shareholders' equity for the issue of 1.5 million
Common Shares in February 1996 with a price guarantee of $30 per share in
certain circumstances, and (iii) $40.0 million recorded as long-term debt
representing the discounted value of a non-interest bearing promissory note
dated January 31, 1996 with payments of $4.0 million per annum over 20 years.
The accrual of $30 million for the Provident settlement consisted of (i)
$3.0 million recorded in current liabilities in respect of a payment made March
19, 1996 and (ii) $27.0 million recorded in shareholders' equity for the issue
in March 1996 of one million Common Shares with a price guarantee of $27 in
certain circumstances.
The deferred income tax benefit of $60.3 million from the Gulf National and
Provident settlements has been recorded as a deferred income tax asset. Prior to
the tax recovery from the Gulf National and Provident settlements, income taxes
were $13.2 million, an effective rate of 32.0%, compared with $19.7 million in
1994, an effective rate of 33.9%. The decrease in the effective tax rate in 1995
was primarily due to the expansion of the Company's international and
intercompany financing arrangements. As a result of the above, the Company shows
a net income tax recovery of $47.2 million versus a net income tax expense of
$19.7 million in 1994.
As a result of litigation during 1995 and the resulting Gulf National and
Provident settlements, litigation-related finance costs, aggregating $19.9
million, were expensed in 1995. These finance costs consisted of (i) $7.4
million of finance costs incurred as a result of posting a $125 million bond in
connection with the appeal of the Gulf National award, (ii) $3.9 million for
amendment of bank facilities due to litigation and write-off of related existing
deferred financing costs, and (iii) $8.6 million including $7.1 million for the
termination of interest rate agreements and a $1.5 million unrealized loss with
respect to interest rate agreements entered into in anticipation of a long-term
debt issue that was aborted as a result of the Gulf National award.
The cash provided from operations for 1995 decreased from $43.3 million to
$10.4 million primarily as a result of increased expenses associated with the
Gulf National litigation and increases in required working capital and other
non-cash balances arising from the additional cemetery operations.
S-18
<PAGE>
ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES
The Company acquired 159 funeral homes, 136 cemeteries and two insurance
companies during 1996 for consideration of approximately $620 million through
168 separate acquisition transactions. Of these acquisitions, 149 funeral homes,
135 cemeteries and the two insurance companies were located in the United States
and the balance were located in Canada. Included in these acquisitions is the
March 1996 purchase of 15 funeral homes, two cemeteries and two insurance
companies from S.I. Acquisition Associates, L.P. for approximately $150 million
(including related costs). As a result of this acquisition, the Company recorded
approximately $186 million of insurance invested assets and approximately $125
million of insurance policy liabilities. During 1995, the Company acquired 177
funeral homes and 64 cemeteries for consideration of approximately $488 million.
In connection with certain acquisitions the Company may issue Common Shares
as full or partial payment of the purchase price ("share-for-share
acquisitions"). In August 1996, the Company registered with the Commission
5,000,000 Common Shares for issuance in connection with prospective share-for-
share acquisitions. In September 1996, the Company issued 69,533 of such Common
Shares in connection with one share-for-share acquisition.
From time to time, the Company may dispose of non-core assets or businesses
acquired in conjunction with the acquisition of funeral homes and cemeteries. In
addition, the Company expects to continue to combine or sell a small number of
locations in order to utilize its resources to produce a better return from its
assets.
In November 1996, Rose Hills Holding Corp. ("RH Holdings"), a company formed
by Blackstone and LGII, acquired the cemetery and mortuary operations and assets
of The Rose Hills Memorial Park Association and Roses, Inc. of Los Angeles
(together, "Rose Hills"). The principal assets of Rose Hills are the Rose Hills
Memorial Park, the largest cemetery in North America, and a mortuary that serves
more families annually than any other single mortuary location in the United
States. To fund the aggregate transaction price of approximately $285 million,
Blackstone and LGII contributed approximately $35 million and $72 million,
respectively, to RH Holdings, and an affiliate of LGII contributed 14 funeral
homes and two combination funeral home/cemetery operations located in Los
Angeles and Orange counties that were valued at $23 million. The remaining $155
million was funded with debt from banks and other institutional investors. For
its contribution, Blackstone received a controlling interest in RH Holdings.
Blackstone also controls the Board of Directors of RH Holdings. For their
contributions, LGII and its affiliate received approximately 20.5% of the
outstanding common stock of RH Holdings and an aggregate of $86 million of
preferred stock of RH Holdings. The preferred stock constitutes all of the
outstanding preferred stock of RH Holdings and has an annual payment-in-kind
dividend of 10%. Pursuant to a put/ call agreement between the Company and
Blackstone, the Company has an option to acquire Blackstone's common share
interest in RH Holdings in certain circumstances (a "call"), and Blackstone has
the option to sell its common share interest in RH Holdings to the Company in
certain circumstances (a "put"). Upon a call, Blackstone will receive, at a
minimum, its original investment and a 22.5% compound return per annum thereon
regardless of the calculated equity value. Any additional equity attributable to
Blackstone's common share interest will be determined on the basis of a formula
set forth in the put/call agreement. Upon a put, there will be no guaranteed
return to Blackstone. Any payment to Blackstone will be limited to Blackstone's
share of the calculated equity value based on a formula (including earnings
before interest, taxes, depreciation and amortization) set forth in the terms of
the put/call agreement.
In August 1996, Prime Succession Holdings, Inc. ("Prime"), a company formed
by Blackstone and LGII, acquired all of the outstanding shares of Prime
Succession, Inc., which at that time was the largest privately-held funeral
services company in North America, with 146 funeral homes and 16 cemeteries in
20 states. To fund the aggregate transaction price of approximately $320
million, Blackstone and LGII contributed approximately $52 million and
approximately $78 million, respectively, to Prime. The remaining $190 million
was funded with debt from banks and other institutional investors. For its
contribution, Blackstone received a controlling interest in Prime. Blackstone
also controls the Board of Directors of Prime. For its contribution, LGII
received approximately 21.8% of the outstanding common stock of Prime
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<PAGE>
and $63.5 million of preferred stock of Prime. The preferred stock constitutes
all of the outstanding preferred stock of Prime and has an annual
payment-in-kind dividend of 10%. Pursuant to a put/call agreement between the
Company and Blackstone, the Company has an option to acquire Blackstone's common
share interest Prime in certain circumstances, and Blackstone has the option to
sell its common share interest in Prime to the Company in certain circumstances.
Upon a call, Blackstone will receive, at a minimum, its original investment plus
a 24.1% compound return per annum thereon regardless of the calculated equity
value. Any additional equity attributable to Blackstone's common share interest
will be determined on the basis of a formula set forth in the put/call
agreement. Upon a put, there is no guaranteed return to Blackstone. Any payment
to Blackstone will be limited to Blackstone's share of the calculated equity
value based on a formula (involving earnings before interest, taxes,
depreciation and amortization) set forth in the terms of the put/call agreement.
With respect to each of RH Holdings and Prime, the call option can be
exercised on the fourth anniversary of the respective closing date and for two
years thereafter, and the put option can be exercised beginning on the sixth
anniversary of the respective closing date and for two years thereafter.
See Note 4 to the 1996 Consolidated Financial Statements for additional
information regarding RH Holdings and Prime, including further discussions of
the put and call options.
LIQUIDITY AND CAPITAL RESOURCES
The Company plans to fund future acquisitions through a combination of debt
and equity offerings and borrowings under its credit facilities (described
below). The Company believes that cash flow from operations generally will be
sufficient to meet working capital and short-term liquidity requirements for
current operations and to fund interest payments and dividends on outstanding
Common and preferred shares. The Company plans to finance principal repayments
on debt primarily through the issue of additional debt or equity or borrowings
under revolving credit facilities and plans to ensure financing is available
well in advance of scheduled principal repayment dates, thereby protecting the
Company's liquidity and maintaining its financial flexibility.
The Company's objective is to maintain its long-term debt/equity ratio, on
average, in a range of 1.0:1 to 1.5:1. Due to the timing of its ongoing
acquisition program, the Company's long-term debt/equity ratio typically will
rise to the high end of the range, and then will be reduced substantially by an
equity issue. At December 31, 1996 the Company's long-term debt/equity ratio was
1.4:1.
The Company's balance sheet at December 31, 1996, as compared to December
31, 1995, reflects changes principally from acquisitions during 1996, as
described further in Note 2 to the 1996 Consolidated Financial Statements. In
addition, the Company's investments in Prime and Rose Hills together increased
investments on the balance sheet by $169 million, as further described in Note 4
to the 1996 Consolidated Financial Statements. As at December 31, 1995, there
was a working capital deficiency arising from the $53 million accrual for the
cash payments required to be made in 1996 under the Gulf National and Provident
settlements. The $50 million payment for the Gulf National settlement was funded
in 1996 by borrowings under the Company's credit facilities.
During 1995 and 1996 the Company significantly expanded its cemetery
pre-need sales programs. Cemetery pre-need sales typically are structured with
low initial cash payments by the customer. The balance due is recorded as an
installment contract receivable and the future liability for merchandise as an
other liability. The increase in the level of pre-need sales has resulted in an
increase in both current and long-term receivables and other liabilities.
EQUITY OFFERINGS
In January 1996, Loewen completed a public offering (the "1996 Preferred
Share Offering") in Canada and a simultaneous private placement in the United
States of Series C Receipts representing 8,800,000 Series C Preferred Shares for
gross proceeds of Cdn.$220 million (U.S.$161 million), which were deposited with
an escrow agent. The net proceeds were released to the Company periodically to
fund
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<PAGE>
acquisitions by depositing with the escrow agent an equal dollar amount of
Series C Preferred Shares. By June 1996, all of the Series C Preferred Shares
had been deposited with the escrow agent, all of the net proceeds had been
released to the Company and the Series C Preferred Shares were released to the
holders of the Series C Receipts. Each Series C Preferred Share is convertible
into 0.6557 of a Common Share at the option of the holder of Series C Preferred
Shares, subject to certain conditions. See Note 9 to the 1996 Consolidated
Financial Statements for additional information regarding the Series C Preferred
Shares.
In March 1996, Loewen completed a public offering in Canada and a
simultaneous private placement in the United States of 7,000,000 Common Shares
and, in April 1996, sold an additional 700,000 Common Shares (pursuant to the
exercise of an over-allotment option) for aggregate gross proceeds of
approximately Cdn.$302 million (U.S.$221 million) (the "1996 Common Share
Offering"). The net proceeds of the 1996 Common Share Offering were used to pay
down the then outstanding balance on the Multi-Currency Revolver (defined below)
and for general corporate purposes, including acquisitions.
INDEBTEDNESS
In March 1996, concurrently with the 1996 Common Share Offering, LGII issued
two series of senior guaranteed notes (the "Series 1 and 2 Notes") in the United
States for aggregate gross proceeds of $350 million (the "Series 1 and 2 Senior
Notes Offering"). The Series 1 and 2 Notes are guaranteed by Loewen. The net
proceeds of the Series 1 and 2 Senior Notes Offering were used to repay the then
outstanding balance on the Multi-Currency Revolver in full and for general
corporate purposes, including acquisitions.
In October 1996, LGII issued two additional series of senior guaranteed
notes (the "Series 3 and 4 Notes") in the United States for aggregate gross
proceeds of $350 million (the "Series 3 and 4 Senior Notes Offering"). The
Series 3 and 4 Notes are guaranteed by Loewen. The net proceeds of the Series 3
and 4 Senior Notes Offering were used primarily to repay indebtedness under the
1996 Revolving Credit Facility (described below), and the balance of the net
proceeds were used for general corporate purposes, including acquisitions and
interest and principal payments on existing senior notes.
In addition to the Series 1 through 4 Notes, LGII and Loewen have
outstanding at December 31, 1996 an aggregate of $208 million of senior
amortizing notes, issued in five series (Series A through Series E) in 1991,
1993, and 1994 (the "Series A-E Senior Notes"). The Series A-E Senior Notes bear
interest at rates ranging from 6.49% to 9.93% and have initial terms of seven to
ten years.
Loewen also has a Cdn.$50 million revolving credit facility that matures in
July 1999 (the "Canadian Revolver"), which was amended in July 1996 to modify
certain covenants to parallel the 1996 Revolving Credit Facility. A subsidiary
of Loewen has a $108 million secured term loan implemented in connection with
the 1994 Management Equity Investment Plan that will terminate in July 2000 (the
"MEIP Loan"), which also was amended in July 1996 to modify certain covenants to
parallel the 1996 Revolving Credit Facility. Loewen has a Cdn.$35 million
five-year term loan that will terminate in January 2000 (the "Canadian Term
Loan").
In May 1996, LGII entered into the 1996 Revolving Credit Facility with a
syndicate of banks. The 1996 Revolving Credit Facility matures in May 2002 and
bears interest at alternative rates selected by LGII. At December 31, 1996, the
amount outstanding under the 1996 Revolving Credit Facility was $237 million,
and such amount bore interest at 6.87% per annum.
Prior to entering into the 1996 Revolving Credit Facility, LGII had a $400
million unsecured multi-currency revolving credit facility with a syndicate of
banks that was scheduled to mature in May 2000 and a $100 million 364-day
unsecured multi-currency revolving credit facility with the same syndicate of
banks that expired on May 10, 1996 (together, the "Multi-Currency Revolver").
The Multi-Currency Revolver was repaid in full and retired on May 31, 1996.
Also on May 31, 1996, Loewen, LGII and their senior lenders entered into a
collateral trust arrangement pursuant to which the senior lenders share certain
collateral on a PARI PASSU basis. The
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<PAGE>
collateral includes (i) a pledge for the benefit of the senior lenders of the
shares of capital stock held by Loewen of substantially all of the Loewen
subsidiaries and (ii) all of the financial assets of LGII (including the shares
of capital stock held by LGII of various subsidiaries). The collateral is held
by a trustee for the equal and ratable benefit of the various holders of senior
indebtedness. This senior lending group consists principally of the lenders
under the 1996 Revolving Credit Facility, the Canadian Revolver, the MEIP Loan,
and the Canadian Term Loan as well as the holders of certain letters of credit,
the Series A-E Senior Notes, the Series 1 and 2 Notes and the Series 3 and 4
Notes.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Certain of the Company's debt instruments and credit facilities contain
restrictions, including change of control provisions and provisions restricting
payment of dividends on Common and preferred shares, restricting encumbrance of
assets, limiting redemption or repurchase of shares, limiting disposition of
assets, limiting the amount of additional debt, limiting the amount of capital
expenditures and requiring the Company to maintain specified financial ratios.
At December 31, 1996, approximately $26 million of the Company's retained
earnings were not restricted and were available for payment of dividends under
the most restrictive agreement. See Note 6 to the 1996 Consolidated Financial
Statements.
In connection with the issuance of the MIPS by LGC in August 1994, Loewen is
guarantor of a Series A Junior Subordinated Debenture due August 31, 2024 issued
by LGII (the "Series A Debenture"). Under the terms of the Series A Debenture,
Loewen may not pay dividends on its Common Shares if (i) there shall have
occurred any event that, with the giving of notice or the lapse of time or both,
would constitute an Event of Default (as defined in the Series A Debenture),
(ii) Loewen is in default with respect to payment of any obligations under
certain related guarantees or (iii) LGII shall have given notice of its election
to select an Extension Period (as defined in the Series A Debenture), and such
period, or any extension thereof, shall be continuing. For further information
regarding the MIPS, see Note 7 to the 1996 Consolidated Financial Statements.
Payments of dividends and loans and advances by subsidiaries to Loewen or
LGII are not restricted except that the Company's insurance subsidiaries are
subject to certain state regulations which restrict distributions, loans and
advances from such subsidiaries to the Company.
INTEREST RATE RISK MANAGEMENT
The Company enters into derivative transactions with financial institutions
only as hedges of other financial transactions and not for speculative purposes.
The Company's policies do not allow leveraged transactions and are designed to
minimize credit and concentration risk with counter-parties. The Company's
practice is to use swaps and options to manage its exposure to interest rate
movements. The Company's strategy is to maintain an average of between 60% and
80% of its debt subject to fixed interest rates, although at any point in time
during a period the percentage of debt subject to fixed interest rates may be
higher or lower. The Company also uses futures and options to fix the interest
rate of anticipated financing transactions in advance. All derivatives are
entered into as hedges based on several criteria, including the timing, size and
term of the anticipated transaction. Any gain or loss from an effective hedging
transaction is deferred and amortized over the life of the financing transaction
as an adjustment to interest expense.
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<PAGE>
SOURCES AND USES OF CAPITAL
The following table summarizes the sources and uses of capital for the past
three years based on the Company's Consolidated Statements of Changes in
Financial Position.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995(1) 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Sources of capital:
Cash provided by operations....................................................... $ (134.5) $ 10.4 $ 43.3
Issue of Common Share capital..................................................... 300.6 203.1 53.3
Issue of preferred securities of subsidiary....................................... -- -- 75.0
Issue of preferred shares......................................................... 154.1 -- --
Net change in long-term debt and current note payable............................. 575.4 381.2 172.9
--------- --------- ---------
Total........................................................................... $ 895.6 $ 594.7 $ 344.5
--------- --------- ---------
--------- --------- ---------
Uses of capital:
Business acquisitions (net of debt and liabilities assumed)....................... $ 619.6 $ 487.9 $ 265.6
Construction of new facilities.................................................... 17.7 14.7 14.1
Investments, net.................................................................. 171.4 15.7 30.9
Net capital expenditures.......................................................... 30.8 17.9 13.6
Net purchase of insurance invested assets......................................... 34.4 -- --
Common Share dividends............................................................ 11.4 2.4 2.9
Preferred share dividends......................................................... 8.9 -- --
Increase (decrease) in cash and cash equivalents.................................. (21.3) 27.3 (2.5)
Other............................................................................. 22.7 28.8 19.9
--------- --------- ---------
Total........................................................................... $ 895.6 $ 594.7 $ 344.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
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<PAGE>
BUSINESS
OVERVIEW
The Loewen Group Inc. is the second-largest operator of funeral homes and
cemeteries in North America. As of April 30, 1997, the Company operated 997
funeral homes and 373 cemeteries located throughout the United States and
Canada, with 93.5% of its 1996 consolidated revenue derived from locations in
the United States. Over the last five fiscal years, the Company's revenues and
earnings from operations have grown at compound annual growth rates of 41.1% and
39.2%, respectively, representing the highest such growth rates among the three
largest public funeral home and cemetery operators. Over the same period, the
Company invested an aggregate of $1.6 billion in acquisitions.
In order to enhance its growth and long-term competitive position, the
Company has increased its focus on (i) the acquisition and integration of
cemeteries and (ii) the growth of "pre-need" funeral service and cemetery sales
(sales to customers before the time of need). In addition, the Company recently
realigned and combined its cemetery and funeral service sales forces to take
advantage of cross-selling and merchandising opportunities, especially in the
area of pre-need sales.
The Company's March 1995 acquisition of Osiris provided the Company with an
experienced, highly regarded cemetery management team. In 1996, the Company
completed $325 million of cemetery acquisitions (136 locations), as compared to
only $87 million of cemetery acquisitions (46 locations) in 1994, the year
before the Osiris acquisition. Further, cemetery gross margin has increased from
24.3% for 1994 to 33.2% for 1996, primarily as a result of policies and programs
implemented by the new cemetery management team, including an increased emphasis
on both pre-need sales and higher margin products and services.
Pre-need funeral and cemetery sales are particularly important to the
Company's growth. A recent American Association of Retired Persons study showed
that of surveyed individuals over 50 years of age, only 40% had been contacted
regarding the purchase of pre-need cemetery property and merchandise or pre-need
funeral services, and only 28% had purchased products or services on a pre-need
basis. Over the past several years, the Company has increased its focus on
pre-need sales in order to capitalize on this significant market opportunity. As
a result, pre-need cemetery sales increased from $87 million in 1995 to $190
million in 1996, and gross pre-need funeral service sales increased from
approximately $97 million in 1995 to approximately $190 million in 1996. From an
accounting standpoint, pre-need cemetery sales are recognized at the time of
sale, while pre-need funeral sales are not recognized until the time that the
funeral service is provided, typically 8 to 12 years after the time of sale. As
at December 31, 1996, the backlog from pre-need funeral sales had reached
approximately $840 million.
In 1996, the Company also entered into two structured investments with
Blackstone. In August 1996, the Company and Blackstone together acquired Prime
Succession, Inc., the largest privately-held funeral services company in North
America, and in November 1996, the Company and Blackstone together acquired the
Rose Hills Memorial Park, the largest funeral home/cemetery combination property
in North America. In each case, the Company has an exclusive option to acquire
Blackstone's interest in these strategic assets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
information regarding the investments with Blackstone.
The Company believes that it is well positioned to continue its growth due
in part to the attractive consolidation opportunities available in the highly
fragmented North American funeral home and cemetery industry. Management
currently estimates that the five largest publicly-traded North American funeral
service companies together own or operate approximately 11% of the 23,500
funeral homes in North America and 9% of the 10,500 cemeteries in North America.
Loewen is a holding company that, as of April 30, 1997, has approximately
900 direct and indirect subsidiaries, including LGII. LGII, which is a
wholly-owned subsidiary of Loewen, is a holding company for all United States
operations (excluding the Company's operations in Puerto Rico). Loewen is a
holding company for all of the Company's operations outside of the United States
(including Puerto Rico). All of Loewen's subsidiaries are operating subsidiaries
except for fourteen subsidiaries that principally are
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<PAGE>
financing vehicles. In addition, LGII is the general partner of LGC. The MIPS
issued by LGC are publicly-held and are traded on the New York Stock Exchange.
Loewen was incorporated under the Company Act of British Columbia on October
30, 1985. The principal executive offices of the Company are located at 4126
Norland Avenue, Burnaby, British Columbia V5G 3S8, telephone number (604)
299-9321. The Company also maintains corporate offices at 50 East RiverCenter
Boulevard, Suite 800, Covington, Kentucky 41011 and at 3190 Tremont Avenue,
Trevose, Pennsylvania 19053.
GROWTH STRATEGY
The three principal components of the Company's growth strategy are (i) to
acquire a significant number of small, family-owned funeral homes and
cemeteries, (ii) to acquire "strategic" operations consisting predominantly of
large, multi-location urban properties that generally serve as platforms for
acquiring small, family-owned businesses in surrounding regions and (iii) to
improve the revenue and profitability of newly-acquired and established
locations.
The first element of the Company's strategy is the acquisition of small,
family-owned funeral homes and cemeteries, which comprise the majority of the
funeral homes and cemeteries that currently are not owned by the publicly-traded
funeral service companies. Management believes that the Company has developed a
competitive advantage in this market by differentiating itself from its
principal competitors through its (i) emphasis on succession planning for
prospective sellers, (ii) desire to retain existing management and personnel at
acquired firms and (iii) motivational culture, all of which enhance the
Company's ability to identify, consummate and integrate new acquisitions.
The second element of the Company's strategy is the acquisition of large,
multi-location urban properties. These "strategic" acquisitions provide the
Company with a critical mass of funeral homes or cemeteries that makes it
economic to consolidate relatively less expensive, smaller properties in a
region. The Company intends to remain competitive in the strategic acquisition
market and to acquire those properties which are priced appropriately and meet
its geographic growth objectives.
The final element of the Company's strategy is the enhancement of the
revenue and profitability of its newly-acquired and established locations.
Through the Company's integration process, newly-acquired funeral homes and
cemeteries typically show an improvement in gross margin within the first year
after acquisition, primarily as a result of the economies of scale available to
the Company, the introduction of the Company's merchandising and marketing
programs and implementation of the Company's pre-need sales programs. The
Company's strategy is to continue to increase the revenue and profitability of
its established locations through the introduction of additional merchandising,
cost control programs and inflation-based pricing and further expansion of its
pre-need sales programs. In addition, as the Company increases its presence in a
particular market, it can take advantage of greater synergies among its funeral
homes and cemeteries in that region, thereby further enhancing the revenue and
profitability of each location.
BUSINESS OPERATIONS
The Company's operations are comprised of three business divisions: funeral
homes, cemeteries and insurance. In August 1996, the Company created a regional
management structure to organize its operations into seven geographic regions.
Within each of these regions, five of which are in the United States and two of
which are in Canada, the Company has integrated certain aspects of its funeral
home and cemetery divisions. Management believes that the new organizational
structure will enable the Company to capitalize on regional operating
efficiencies and to better realize synergies.
The Company's management structure and remuneration practices are designed
to support and encourage entrepreneurial drive and individual responsibility.
Each funeral home and cemetery is operated as a distinct profit center, with
monthly and annual financial performance monitored by regional and corporate
management in accordance with budgeted projections. Local managers are given a
high degree
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<PAGE>
of autonomy because the Company believes that, as members of the local
community, they are best able to judge how to conduct day-to-day operations in a
manner consistent with the established character of the particular business and
the needs of the community.
FUNERAL HOMES
The Company's funeral homes offer a full range of funeral services,
encompassing the collection of remains, registration of death, professional
embalming, use of funeral home facilities, sale of caskets and other
merchandise, transportation to a place of worship or funeral chapel for a
religious service and transportation to a cemetery or crematorium. To provide
the public with the opportunity to choose the service that is most appropriate
from both a personal and financial perspective, the Company offers complete
funeral services (including caskets and related merchandise) at prices ranging
from approximately $750 to $7,500 (and averaging approximately $3,500).
Substantially all of the Company's funeral homes provide basic cremation
services, and the Company has proprietary programs designed to provide a full
range of service alternatives to families choosing cremation. In 1996,
cremations accounted for approximately 28% of all funeral services performed by
the Company. As a percentage of all funeral services in the United States,
cremations have been increasing by approximately 1% annually over the past five
years and, in 1996, accounted for approximately 21% of all funeral services
performed in the United States.
Funeral operations accounted for approximately 61% of the Company's
consolidated revenue for 1996. Amounts paid for funeral services are recorded as
revenue at the time the service is performed. Payments made for pre-need funeral
contracts are either placed in trust by the Company or are used on behalf of the
purchaser of the pre-need contract to pay premiums on life insurance polices
under which the Company is designated as the beneficiary. At the date of
performing a pre-arranged funeral service, the Company records as funeral
revenue the amount originally trusted or the insurance contract amount, together
with related accrued earnings retained in trust and increased insurance
benefits. The Company's gross pre-arranged funeral sales were approximately $190
million for 1996, compared with approximately $97 million in 1995.
CEMETERIES
The Company's cemetery division assists families in making burial
arrangements and offers a complete line of cemetery products (including a
selection of burial spaces, burial vaults, lawn crypts, memorials, niches and
mausoleum crypts), the opening and closing of graves and cremation services.
The Company's cemetery operations comprised approximately 32% of the
Company's consolidated revenue for 1996, the majority of which was derived from
pre-need sales of cemetery products and services. The pre-need sale of interment
rights and related products and services is recorded as revenue when customer
contracts are signed. At that time, costs related to the sale are also recorded
and an allowance is established for future cancellations and refunds, based on
management's estimates of expected cancellations. A portion of the proceeds
received by the Company from pre-need merchandise sales is generally set aside
in merchandise trust funds to provide for the future delivery of the cemetery
products. Pre-need sales are usually financed by the Company over three to four
years at interest rates ranging from 10% to 15%.
In addition, the Company provides for the long-term maintenance of its
cemetery properties by placing a portion, typically 10%, of the proceeds from
the sale of interment rights into a perpetual care trust fund. The income from
these funds is used to offset the maintenance costs of operating the cemeteries.
At December 31, 1996, the Company had approximately $160 million in perpetual
care trust funds.
INSURANCE
The Company operates four insurance subsidiaries, all of which were acquired
in conjunction with certain funeral home acquisitions. These insurance
subsidiaries operate in Texas, Louisiana, Mississippi
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<PAGE>
and Arizona and sell a variety of life insurance products to fund funerals.
Revenue from the Company's insurance operations totaled approximately $72
million in 1996.
COMPETITION
Competition generally arises from two sources in the funeral service
industry. The first form is competition among local funeral homes and cemeteries
for at-need and pre-need business. The market share of a single funeral home or
cemetery in any community is often a function of the name, reputation and
location of that funeral home or cemetery. Accordingly, gains in market share
within a community are usually achieved over a long period of time.
The Company also faces competition in its ongoing acquisition program. In
the North American funeral service industry acquisition market, the Company's
competition includes SCI, Stewart, ECI and CSI, all of which are publicly-traded
funeral service companies with significant United States operations, as well as
other non-public regional consolidators. On occasion, the Company also has
experienced competition on a local level from consolidators who have focused on
acquiring funeral home and cemetery properties in a concentrated geographic
area.
REGULATION
The funeral service industry is regulated primarily on a state and
provincial basis with the vast majority of jurisdictions requiring licensing and
supervision of individuals who provide funeral-related services. A number of
jurisdictions also regulate the sale of pre-need services and the administration
of any resulting trust funds or insurance contracts. In addition, concerns
regarding lack of competition have led a few jurisdictions to enact legislation
designed to encourage competition by restricting the common ownership of funeral
homes, cemeteries and related operations within a specific geographic region.
The Company's United States operations must also comply with federal
legislation, including the laws administered by the Occupational Safety and
Health Administration, the Americans with Disabilities Act and the Federal Trade
Commission ("FTC") regulations. The FTC administers the Trade Regulation Rule on
Funeral Industry Practices, the purpose of which is to prevent unfair or
deceptive acts or practices in connection with the provision of funeral goods or
services.
The Company's insurance company subsidiaries are subject to regulation by
the states in which they are domiciled and the states in which their products
are sold.
ENVIRONMENTAL RISK
Management believes that the Company's primary environmental risk arises in
connection with the acquisition of a funeral home or cemetery property. The
Company manages this risk by conducting extensive environmental due diligence of
all potential acquisition candidates. Management endeavors to ensure that
environmental issues are identified and addressed in advance of acquisition or
are covered by an indemnity by the seller or an offset to the purchase price.
EMPLOYEES
At March 31, 1997, the Company employed approximately 17,000 people with
approximately 500 people employed at the Company's corporate offices. Management
believes that its relationship with employees is good. Fewer than 150 of the
Company's employees are members of collective bargaining units. All full-time
and eligible part-time employees who have been employed by the Company for more
than 90 days are entitled to five free Common Shares as part of the Company's
"Share The Vision" program.
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<PAGE>
LEGAL PROCEEDINGS
CLASS ACTIONS ALLEGING SECURITIES LAWS VIOLATIONS
On November 4, 1995, a class action lawsuit claiming violations of federal
securities laws was filed on behalf of a class of purchasers of Company
securities against Loewen and five individuals who were officers of the Company
(four of whom were also directors) in the United States District Court for the
Eastern District of Pennsylvania. LGII, LGC, and the lead underwriters (the
"MIPS Underwriters") of LGC's 1994 offering of the MIPS, were subsequently added
as defendants. On November 7, 1995, a class action lawsuit was filed on behalf
of a class of purchasers of Loewen's Common Shares against Loewen and the same
individual defendants in the United States District Court for the Southern
District of Mississippi alleging Federal securities law violations and related
common law claims. On December 1, 1995, a class action lawsuit was filed on
behalf of a class of purchasers of the Company's securities against Loewen,
LGII, LGC and the same individual defendants in the United States District Court
for the Eastern District of Pennsylvania.
The complaints with respect to the class actions alleged that the defendants
failed to disclose the Company's anticipated liability in connection with
certain litigation with Gulf National. The Pennsylvania class actions also
alleged failure to disclose the Company's potential liability in connection with
certain litigation with Provident. The Company settled the lawsuits with Gulf
National and Provident during the first quarter of 1996.
Pursuant to a Transfer Order filed April 15, 1996 by the Judicial Panel on
Multidistrict Litigation, the Mississippi class action was transferred to the
Eastern District of Pennsylvania for consolidation of pretrial proceedings with
the two Pennsylvania class actions. On September 16, 1996, the plaintiffs filed
a Consolidated and Amended Class Action Complaint (the "Consolidated Class
Action Complaint"). Procedurally, the Consolidated Class Action Complaint
supersedes the complaints filed in the class actions. Plaintiffs allege three
causes of action in the Consolidated Class Action Complaint: (i) Loewen, LGII,
LGC and the five individual defendants violated Sections 10(b) and 20(a) and the
implementing anti-fraud rules under the Exchange Act, (ii) LGII, LGC and three
of the five individual defendants violated Sections 11 and 15 of the Securities
Act, in connection with the MIPS offering and (iii) Loewen, LGII and LGC made
material misstatements in connection with the MIPS offering in violation of
Sections 12(2) and 15 of the Securities Act. Plaintiffs seek compensatory money
damages in an unspecified amount, together with attorneys fees, expert fees and
other costs and disbursements. Punitive damages are not sought.
The defendants filed their Answer to the Consolidated Class Action Complaint
on November 1, 1996, in which they have denied the material allegations and
raised certain affirmative defenses. The parties have commenced discovery and
document production. No depositions have been taken.
The parties have stipulated to the provisional certification of plaintiff
classes consisting of: (i) all purchasers of Common Shares or MIPS on an
American stock exchange or in public offerings during the period from April 16,
1993 through November 1, 1995, with respect to the Exchange Act claims; and (ii)
all persons who purchased MIPS pursuant to the public offering in August 1994,
with respect to the Securities Act claims. Defendants have retained all rights
to conduct discovery on class issues and to move to modify the class definitions
or to decertify the classes. Plaintiffs have agreed to stay all proceedings,
including all discovery, relating to disclosures about the Provident litigation.
Plaintiffs have the right to lift the stay upon written notice, which must be
provided 90 days before the end of discovery or the beginning of trial.
On June 11, 1996, all claims against the MIPS Underwriters were dismissed
without prejudice, by agreement of the parties. Prior to the dismissal, the MIPS
Underwriters had indicated to the Company that they would seek indemnity from
the Company for costs incurred. The Company paid the MIPS Underwriters' costs
through the date of dismissal. The Company expects that the MIPS Underwriters
will seek further indemnity from the Company if any of the claims against the
Underwriters are reinstated.
On April 29, 1997, the Court issued Pretrial Order No. 2, which provides,
among other things, that: (i) trial will be set on or after February 1, 1999;
(ii) the Court will convene a settlement conference on
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August 19, 1997; (iii) depositions are to commence on or after September 10,
1997 and be completed by June 30, 1998; (iv) expert discovery is to be completed
by September 30, 1998; and (v) dispositive motions are to be filed by October
30, 1998.
The Company referred the claims to its insurance carrier under its directors
and officers liability insurance policy. On February 9, 1996, the carrier denied
coverage of the claim. The Company believes that such denial was improper. On
March 21, 1996, the Company commenced an action in British Columbia Supreme
Court seeking a declaration that the policy covers indemnification with respect
to the class action. As of the date hereof, the Supreme Court had not ruled on
the action. The Company cannot predict at this time the extent to which any
settlement or litigation that may result from these claims will ultimately be
covered by insurance, if at all.
The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings and that it is not possible to
establish a reasonable estimate of possible damages, if any, or reasonably to
estimate the range of possible damages that may be awarded to the plaintiffs.
Accordingly, no provision with respect to the class actions has been made in the
1996 Consolidated Financial Statements.
ROE ET AL., PALLADINO ET AL., O'SULLIVAN AND SCHNEIDER
In October 1995, Roe and 22 other families filed a lawsuit against LGII and
Osiris in Florida Circuit Court in St. Petersburg. In early April 1996, a
related lawsuit, PALLADINO ET AL., was filed by eight families against LGII and
Osiris in Florida Circuit Court in St. Petersburg, and was assigned to the same
judge handling the Roe matter. In June 1996, the Roe and Palladino lawsuits were
consolidated and amended to include a total of 90 families, and in July 1996,
the Palladino lawsuit was dismissed. In October 1996, a Fifth Amended Complaint
("Complaint") was filed bringing the number of plaintiff families to 150. The
gravamen of the Complaint is that, in July 1992, employees of the Royal Palm
Cemetery facility who were installing a sprinkler line disturbed the remains of
infants in one section of the cemetery. The specific claims include tortious
interference with a dead body (intentional and grossly negligent conduct so
extreme and outrageous as to imply malice) and negligent infliction of emotional
distress. The Complaint also names Loewen and LGII as defendants (on an alter
ego theory) and includes claims for negligent retention of certain cemetery
employees. Each plaintiff identified in the Complaint is seeking damages in
excess of $15,000, but the Complaint alleges aggregate damage in excess of
$40,000,000. In addition, in May 1996, Sean M. O'Sullivan filed a lawsuit
against Osiris and LGII and in July 1996, Karen Schneider filed a lawsuit
against Osiris and LGII. The factual allegations underlying the O'Sullivan and
Schneider complaints are identical to those alleged in the Complaint. Schneider
has been named in the Complaint and the Schneider lawsuit has been dismissed. A
mediation was held on November 14, 1996, but the parties did not reach an
agreement. However, over the past several months, nearly 100 families have
settled their claims for de minimis sums, leaving the number of plaintiff
families at 51. O'Sullivan likewise settled for a de minimis sum and dismissed
his complaint. The Complaint was dismissed for pleading deficiencies. A Sixth
Amended Complaint has been filed, essentially recasting all of the previous
claims in new terms. Moreover, the Sixth Amended Complaint improperly names
plaintiffs who have already settled their claims. A motion to dismiss and for
sanctions directed toward the Sixth Amended Complaint has been filed.
At the time the remains allegedly were disturbed, the Royal Palm Cemetery
was owned by Osiris. Osiris was acquired by the Company in March 1995. The
insurance carriers for Osiris and Loewen have assumed the defense of these
claims, subject to a reservation of rights. The insurance carrier for Loewen has
stated that it may take the position that each gravesite claim is separately
subject to the per claim policy deductible of $250,000. Accordingly, no
assurance can be made that insurance coverage will be available. The annual
Osiris policy limit is $11,000,000 and the annual Loewen policy limit is
$80,000,000.
The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings and that it is not possible to
establish a reasonable estimate of possible damages, if any,
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or reasonably to estimate the range of possible damages that may be awarded to
the plaintiffs. Accordingly, no provision with respect to this lawsuit has been
made in the 1996 Consolidated Financial Statements.
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
co-executor for the Estate of Gerald F. Esner (the "Esner Estate") filed an
action in the Court of Common Pleas in Bucks County, Pennsylvania against Osiris
and a law firm (the "Law Firm") that previously represented Osiris and its
principal shareholders, Gerald F. Esner, Lawrence Miller and William R. Shane.
Messrs. Miller and Shane currently are executive officers of the Company and
LGII.
The complaint alleged that Osiris breached the terms of a Second Amended and
Restated Shareholders' Agreement among Messrs. Esner, Miller and Shane (the
"Shareholders' Agreement") by attempting to repurchase shares of Osiris held by
the Esner Estate (the "Esner Shares") without complying with the terms of the
Shareholders' Agreement, and that the Law Firm breached its fiduciary duty and
committed malpractice in connection with the drafting of the Shareholders'
Agreement and its representation of Esner and Osiris. The Executors asked the
Court (i) to have the value of Osiris reappraised pursuant to the terms of the
Shareholders' Agreement and (ii) to require Osiris to repurchase the Esner
Shares pursuant to a new appraisal and the alleged terms of the Shareholders'
Agreement or, alternatively, to pay the Esner Estate the fair value of the Esner
Shares as determined by the new appraisal.
In March 1995, LGII purchased all of the issued and outstanding shares of
Osiris, including the Esner Shares. In connection with the purchase, LGII
entered into an indemnification agreement whereby Messrs. Miller and Shane
agreed to indemnify and hold LGII harmless with respect to any claims,
liabilities, losses and expenses, including reasonable attorney's fees, in
connection with or arising from the Esner Estate litigation.
On April 9, 1996, the Executors filed a second complaint, which names
Messrs. Miller and Shane and LGII as defendants. The second complaint alleges
breach of contract, fraud and related claims against Messrs. Miller and Shane,
and that LGII joined a civil conspiracy by acquiring Osiris. The Executors
request compensatory damages of $24,300,000 against the various defendants, and
seek punitive damages from Messrs. Miller and Shane. The two cases were
consolidated by the Court.
On October 9, 1996, the Executors instituted a new civil action against the
Law Firm. On November 18, 1996 the Executors instituted a new civil action
against the individual partners of the Law Firm. In both complaints, the
Executors expanded upon the allegations against the Law Firm contained in the
previous complaints. By stipulation approved by the Court on February 24, 1997,
the parties agreed to consolidate all suits and to permit the Executors to file
a Third Amended Complaint, which was filed on February 10, 1997. The prayers for
relief remain unchanged. Osiris and Messrs. Miller and Shane have filed
preliminary challenges to the Third Amended Complaint. Likewise, LGII has moved
for a dismissal of the claims against it for failure to state a claim upon which
relief can be granted. That motion and the preliminary challenges are all
pending.
The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings and that it is not possible to
establish a reasonable estimate of possible damages, if any, or reasonably to
estimate the range of possible damages that may be awarded to the plaintiffs.
Accordingly, no provision with respect to this lawsuit has been made in the 1996
Consolidated Financial Statements.
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<PAGE>
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL.
In January 1997, Elmer C. Feldheim and four other individuals filed a
lawsuit on behalf of themselves and a class of similarly situated individuals
and/or entities against SI-SIFH Corp., SI-SI Insurance Company, Inc., Loewen
Louisiana Holdings, Inc., and LGII in the Parish of Jefferson, State of
Louisiana. Plaintiffs seek a class action. SI-SIFH Corp. and SI-SI Insurance
Company, Inc. were acquired by the Company in March 1996 when the Company
acquired the assets of S.I. Acquisition Associates, L.P.
Plaintiffs hold or held funeral insurance policies issued by insurance
companies owned, directly or indirectly, by the defendants. The plaintiffs
allege that (i) the defendants failed to provide the funeral services purchased
with the policies by, among other things, offering a casket of inferior quality
upon presentation of a policy, and (ii) in connection with the sale of the
insurance policy, the insurance companies negligently or fraudulently
represented and interpreted the scope and terms of the policies and omitted to
provide material information regarding the policy benefits and limitations.
Plaintiffs also allege unfair trade practices in violation of Louisiana's trade
practices law.
Plaintiffs seek damages, penalties and attorneys fees. Louisiana law
prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs also
seek a declaratory judgment compelling defendants to honor the policies and
allowing a plaintiff to select a more expensive casket than provided for in the
policy, upon payment of the difference in retail value, without forfeiting the
other benefits provided for in the policy.
As of the date hereof, no discovery has taken place. The Company has
determined that it is not possible at this time to predict the final outcome of
this legal proceeding, including whether a class will be certified, and that it
is not possible to establish a reasonable estimate of possible damages, if any,
or reasonably to estimate the range of possible damages that may be awarded to
plaintiffs. Accordingly, no provision with respect to this lawsuit has been made
in the 1996 Consolidated Financial Statements.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is the opinion of Thelen, Marrin, Johnson & Bridges LLP,
United States counsel to Loewen, as to the material United States federal income
tax consequences generally applicable to the acquisition, ownership and
disposition of Common Shares by beneficial owners who are either United States
Holders (as defined) or non-United States Holders (as defined) of Common Shares
and who own, directly or constructively, less than 10% of the voting stock of
Loewen. The opinion reflects counsel's interpretation of the Income Tax Treaty
between Canada and the United States (the "Treaty"); the Internal Revenue Code
of 1986, as amended; judicial decisions; administrative pronouncements; and
existing and proposed Treasury Regulations in force as of the date of this
Prospectus Supplement, changes to any of which after the date of this Prospectus
Supplement could apply on a retroactive basis and affect the tax consequences
described herein. There can be no assurance that the Internal Revenue Service
will not take a different position concerning the consequences of the
acquisition, ownership or disposition of Common Shares or that any such position
would not be sustained. Thus, future legislative, judicial or administrative
changes or interpretations, which may or may not be retroactive, could produce
United States tax consequences different from those expressed in counsel's
opinion. This discussion deals only with Common Shares held as capital assets
and does not address all aspects of federal income taxation or all tax
considerations that may be relevant to all categories of potential purchasers
(such as United States Holders who are dealers or United States Holders whose
functional currency is not the United States dollar). This discussion does not
include state, local or non-United States income or other tax considerations.
THIS DISCUSSION IS OF A GENERAL NATURE ONLY. IT IS NOT INTENDED TO CONSTITUTE A
COMPLETE ANALYSIS OF THE INCOME TAX CONSEQUENCES AND SHOULD NOT BE INTERPRETED
AS LEGAL OR TAX ADVICE TO ANY PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR
SHOULD OBTAIN INDEPENDENT ADVICE FROM A TAX ADVISOR REGARDING THE TAX
CONSEQUENCES TO THAT INVESTOR OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
SHARES.
As used in this opinion, the term "United States Holder" means for United
States federal income tax purposes, (i) a citizen or resident of the United
States; (ii) a corporation or partnership created or
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organized in the United States or under the laws of the United States or any
state; and (iii) an estate or trust, the income of which is includible in gross
income for United States federal income tax purposes regardless of its source.
The term "Non-United States Holder" means a person or entity that, for United
States federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust.
UNITED STATES HOLDERS
United States Holders generally will be required to include dividends
received on the Common Shares, including the amount of any Canadian taxes
withheld therefrom, in their taxable incomes for United States federal income
tax purposes. Distributions made by Loewen to a United States Holder of Common
Shares generally will constitute dividends to the extent that they are paid out
of Loewen's current and accumulated earnings and profits as computed for United
States federal income tax purposes. To the extent that any distribution exceeds
Loewen's current and accumulated earnings and profits as so computed, it will be
treated as a tax-free return of the United States Holder's tax basis in the
Common Shares and thereafter as gain from the sale or exchange of property.
United States Holders will not be entitled to claim a dividends received
deduction with respect to distributions by Loewen.
Subject to certain conditions and limitations, Canadian income taxes
withheld from dividends may be allowed as a credit against the United States
Holder's federal income tax liability. See "Certain Canadian Federal Tax
Considerations" for additional information regarding Canadian withholding tax.
Foreign taxes are creditable only to the extent of the United States federal
income tax otherwise payable with respect to the United States Holder's foreign
source income, and this overall limitation is calculated separately with respect
to specific classes of income. The consequences of the separate limitation
calculations will depend on the nature and sources of each United States
Holder's income and deductions. Except as discussed below, dividends distributed
by Loewen will generally constitute "passive income" or, in the case of certain
United States Holders, "financial services income." If 10% or more of Loewen's
earnings and profits in any year is attributable to sources within the United
States, then the same percentage of any dividend paid by Loewen from such
earnings and profits will be treated as U.S.-source income for foreign tax
credit purposes, unless the United States Holder elects to treat such dividends
as a separate class of income in computing the foreign tax credit limitation.
For 1996, 10% or more of Loewen's earnings and profits was attributable to
sources within the United States, and Loewen expects that for 1997, 10% or more
of its earnings and profits will be attributable to sources within the United
States. Loewen will notify its United States Holders within a reasonable time as
to the extent to which any dividend is subject to this rule.
Any difference between the amount realized by the United States Holder on a
sale or exchange of the Common Shares and the United States Holder's tax basis
in the Common Shares will be treated as capital gain or loss. Capital gain or
loss recognized by a United States Holder on the sale or other disposition of
Common Shares will generally be treated as United States source income. The
deductibility of capital losses is subject to restrictions.
Under current Loewen policy, dividends are paid in United States currency to
record holders having addresses in the United States. Purchases and sales of
Common Shares through The New York Stock Exchange are generally settled in
United States currency. However, if at any time a United States Holder purchases
or sells Common Shares for or receives dividends on Common Shares paid in
Canadian currency, in calculating taxable income the United States Holder
generally will be required to determine the tax basis, the amount realized on
sale or the amount of the dividend, as the case may be, in United States
currency at the exchange rate prevailing at the time of the purchase or sale or
the receipt of the dividend. Gain or loss, if any, recognized on a disposition
of Canadian currency generally will be taxed as ordinary income or loss.
Certain noncorporate United States Holders may be subject to backup
withholding at a rate of 31% on the proceeds of a sale, exchange or other
disposition of Common Shares. United States Holders should consult their tax
advisors regarding the application of information reporting and backup
withholding in
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their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available.
HOLDERS OTHER THAN UNITED STATES HOLDERS
Pursuant to Article X of the Treaty, no United States federal income or
withholding tax will be imposed on dividends paid on the Common Shares to a
Non-United States Holder unless the Non-United States Holder has a permanent
establishment or fixed base in the United States (either directly or through a
partnership) with which the dividends are effectively connected. However, if
proposed Treasury Regulations are finalized in their present form, beginning in
1998, dividends paid to non-corporate Non-United States Holders may be subject
to backup withholding and reportable to the Internal Revenue Service if paid to
a United States account or by mail to a United States address, unless the
Non-United States Holder provides a written certification of Non-United States
Holder status to Loewen or to the broker with whom the account is established.
In general, Non-United States Holders will not be subject to United States
federal income taxation of gains realized on the disposition of Common Shares
unless (i) the Holder carries on a trade or business within the United States
(either directly or through a partnership) and such gains are effectively
connected with such trade or business; or (ii) in the case of an individual
Holder, the Holder is present in the United States for 183 days or more during
the taxable year of the disposition and certain other conditions are met.
Payments on the sale, exchange or other disposition of Common Shares made to
or through a foreign office of a broker generally will not be subject to backup
withholding. However, under certain circumstances information reporting (but not
backup withholding) will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain other conditions are met. Payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies, under penalties of perjury, that it is
not a United States person or otherwise establishes an exemption.
Any amounts withheld from a payment to a Non-United States Holder under the
backup withholding rules will be allowed as a credit against such Holder's
United States federal income tax liability, if any, and may entitle such Holder
to a refund, provided that the required information is furnished to the Internal
Revenue Service.
CERTAIN CANADIAN FEDERAL TAX CONSIDERATIONS
The following is the opinion of Russell & DuMoulin, Canadian counsel to
Loewen, as to the material Canadian federal income tax consequences generally
applicable to the acquisition, ownership and disposition of Common Shares by an
individual who is resident in the United States and not in Canada and who holds
the Common Shares as capital property. This opinion is based upon the current
provisions of the Income Tax Act of Canada (the "Canadian Tax Act"), the
regulations thereunder and on counsel's understanding of the current
administrative practices of Revenue Canada Customs, Excise and Taxation. This
discussion does not apply to a holder who, either alone or together with persons
with whom the holder does not deal at arms length, has in the last five years
owned at least 25% of the issued shares of any class of Loewen stock or to a
corporate holder that owns at least 10% of the issued voting shares of Loewen
stock. The provisions of the Canadian Tax Act are subject to income tax treaties
to which Canada is a party, including the Treaty. THIS DISCUSSION IS OF A
GENERAL NATURE ONLY. IT IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF THE
INCOME TAX CONSEQUENCES AND SHOULD NOT BE INTERPRETED AS LEGAL OR TAX ADVICE TO
ANY PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD OBTAIN INDEPENDENT
ADVICE FROM A TAX ADVISOR REGARDING THE TAX CONSEQUENCES TO THAT INVESTOR OF
ACQUIRING, HOLDING AND DISPOSING OF COMMON SHARES.
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UNITED STATES HOLDERS
Where a dividend on Common Shares is received by a holder who is resident in
the United States and not in Canada, within the meaning of the Treaty, Canadian
withholding tax will be payable. Under the Treaty, the withholding tax rate is
15%.
A holder who is resident in the United States and not in Canada within the
meaning of the Treaty will not be subject to Canadian income tax on either the
purchase or sale of Common Shares.
There are no Canadian estate or gift taxes.
HOLDERS OTHER THAN UNITED STATES HOLDERS
Where a dividend is received by a holder who is not resident in either
Canada or the United States, Canadian withholding tax will be payable. Under the
Canadian Tax Act, the withholding tax rate is 25%. This rate may be subject to
reduction under the terms of an applicable tax treaty between Canada and the
country of residence of the holder.
A holder who is not resident in either Canada or the United States will not
be subject to Canadian income tax on either the purchase or sale of Common
Shares.
There are no Canadian estate or gift taxes.
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<PAGE>
UNDERWRITING
Subject to the conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters, for whom Smith Barney Inc., Alex. Brown & Sons Incorporated,
Goldman, Sachs & Co., and Nesbitt Burns Securities Inc. are acting as
representatives, have severally agreed to purchase from Loewen, concurrently
with the sale of Common Shares to the Canadian Underwriters under the Canadian
Offering, the number of Common Shares set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- ------------------------------------------ -----------
<S> <C>
Smith Barney Inc.......................... 1,202,500
Alex. Brown & Sons Incorporated........... 1,202,500
Goldman, Sachs & Co....................... 1,202,500
Nesbitt Burns Securities Inc.............. 1,202,500
CIBC Wood Gundy Securities Inc............ 220,000
Credit Suisse First Boston Corporation.... 220,000
Deutsche Morgan Grenfell Inc.............. 220,000
Donaldson, Lufkin & Jenrette Securities
Corporation............................. 220,000
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- ------------------------------------------ -----------
<S> <C>
A.G. Edwards & Sons, Inc.................. 220,000
Goepel Shields and Partners USA, Inc...... 220,000
Midland Walwyn Capital Inc................ 220,000
Pryor, McClendon, Counts & Co., Inc....... 220,000
Raymond James & Associates, Inc........... 220,000
RBC Dominion Securities Corporation....... 220,000
Schroder Wertheim & Co. Incorporated...... 220,000
UBS Securities LLC........................ 220,000
-----------
TOTAL................................... 7,450,000
-----------
-----------
</TABLE>
Subject to the conditions of the Canadian Underwriting Agreement, the
Canadian Underwriters have severally agreed to purchase from Loewen,
concurrently with the sale of Common Shares to the U.S. Underwriters under the
U.S. Offering, the number of Common Shares set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
CANADIAN UNDERWRITER SHARES
- ------------------------------------------ -----------
<S> <C>
Nesbitt Burns Inc......................... 1,137,500
RBC Dominion Securities Inc............... 1,137,500
Smith Barney Canada Inc................... 1,137,500
<CAPTION>
NUMBER OF
CANADIAN UNDERWRITER SHARES
- ------------------------------------------ -----------
<S> <C>
Midland Walwyn Capital Inc................ 341,250
Goepel Shields and Partners Inc........... 341,250
CIBC Wood Gundy Securities Inc............ 227,500
First Marathon Securities Limited......... 227,500
-----------
TOTAL................................... 4,550,000
-----------
-----------
</TABLE>
Each of the U.S. Underwriting Agreement and the Canadian Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and the
several Canadian Underwriters thereunder are subject to approval of certain
legal matters by counsel and to certain other conditions and may be terminated
at their discretion upon the occurrence of certain stated events. The nature of
the U.S. Underwriters' and the Canadian Underwriters' obligations is such that
they are committed to purchase and pay for all of the above Common Shares if any
are purchased. The closing of the U.S. Offering and of the Canadian Offering is
a condition of the closing of the other.
The Underwriters initially propose to offer the Common Shares directly to
the public at the applicable public offering price set forth on the cover page
hereof and to certain dealers at such price less a concession not in excess of
$0.79 per share below the price to the public. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share to
certain other dealers.
Loewen has granted the U.S. Underwriters and the Canadian Underwriters
options, exercisable at any time and from time to time during the 30-day period
from the date of this Prospectus Supplement, to purchase up to an aggregate of
1,800,000 additional Common Shares, 1,117,500 Common Shares in the case of the
U.S. Underwriters and 682,500 Common Shares in the case of the Canadian
Underwriters, at the applicable public offering price set forth on the cover
page hereof less underwriting fees. The U.S. Underwriters or the Canadian
Underwriters, as the case may be, may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
incurred in connection with the sales of the Common Shares made by such
Underwriters. To the extent such option is exercised, each U.S. Underwriter or
Canadian Underwriter, as the case may be, will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth
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opposite such Underwriter's name in the preceding tables bears to the total
number of Common Shares offered by the U.S. Underwriters or the Canadian
Underwriters, as the case may be.
It is expected that delivery of the Common Shares will be made against
payment therefor on or about the date specified in the last paragraph of the
front cover page of this Prospectus Supplement, which is the fifth business day
following the date hereof. Under Rule 15c6-1 of the Exchange Act, trades in the
secondary market generally are required to settle in three business days, unless
the parties to any such trade expressly agree otherwise. Accordingly, purchasers
who wish to trade Common Shares on the date hereof or the next business day will
be required, by virtue of the fact that the Common Shares initially will settle
in T+5, to specify an alternate settlement cycle at the time of any such trade
to prevent a failed settlement. Purchasers of Common Shares who wish to trade
Common Shares on the date hereof or the next business day should consult their
own advisor.
Loewen and its executive officers and directors have agreed that, subject to
certain exceptions, without the prior written consent of Smith Barney Inc. and
Nesbitt Burns Inc., they will not offer, sell, contract to sell or otherwise
dispose of any Common Shares or securities convertible or exercisable or
exchangeable for Common Shares for a period of 90 days after the date of closing
of the Offering, other than the Common Shares offered hereby.
Pursuant to an Agreement between the U.S. Underwriters and the Canadian
Underwriters (the "Intersyndicate Agreement") relating to the Offering, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the Common Shares under the U.S. Offering and subject to certain
exceptions, the U.S. Underwriters will not offer to sell or sell Common Shares
in Canada or to Canadian persons or to persons they have reason to believe
intend to resell in Canada or to Canadian persons, and the Canadian Underwriters
have agreed that, as part of the distribution of Common Shares under the
Canadian Offering and subject to certain exceptions, the Canadian Underwriters
will not offer to sell or sell Common Shares outside Canada or to non-Canadian
persons or to persons they have reason to believe intend to resell outside
Canada or to non-Canadian persons.
Pursuant to the Intersyndicate Agreement, sales may be made between the U.S.
Underwriters and the Canadian Underwriters of such number of Common Shares as
may be mutually agreed. The price of any shares to be so sold shall be the
initial United States dollar public offering price set forth on the cover page
of this Prospectus Supplement, less a concession not in excess of $0.79 per
share below the price to the public.
Each of the U.S. Underwriters that may offer Common Shares outside the
United States and Canada has represented and agreed that (i) it has not offered
or sold and prior to the date six months after the date of issue of the Common
Shares will not offer or sell any Common Shares to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995, (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Shares in, from or
otherwise involving the United Kingdom and (iii) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issue of the Common Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company or
any of the Underwriters that would permit any offering to the general public of
the Common Shares offered hereby in any jurisdictions other than the United
States and Canada.
Loewen has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act and Canadian
provincial securities laws, or to contribute to payments the Underwriters may be
required to make in respect thereof.
S-36
<PAGE>
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Shares.
Specifically, the Underwriters may over-allot the Offering, creating a syndicate
short position. The Underwriters may bid for and purchase Common Shares in the
open market to cover syndicate short positions. In addition, the Underwriters
may bid for and purchase Common Shares in the open market to stabilize the price
of the Common Shares. These activities may stabilize or maintain the market
price of the Common Shares above independent market levels. The Underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
Pursuant to policy statements of the Ontario Securities Commission and the
Quebec Securities Commission, the Canadian Underwriters may not, throughout the
period of distribution of the Common Shares, bid for or purchase Common Shares.
The foregoing restriction is subject to exceptions, on the condition that the
bid or purchase not be engaged in for the purpose of creating actual or apparent
active trading in or raising the price of the Common Shares. Those exceptions
include a bid or purchase permitted under the by-laws and rules of The Toronto
Stock Exchange and the Montreal Exchange relating to market stabilization and
passive market making activities and a bid or purchase made for and on behalf of
a customer where the order was not solicited during the period of distribution.
Subject to the foregoing, in connection with the Offering, the Canadian
Underwriters are permitted to engage in certain transactions that stabilize the
price of the Common Shares. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common Shares.
Nesbitt Burns Inc. and Nesbitt Burns Securities Inc. (collectively, "Nesbitt
Burns"), RBC Dominion Securities Inc. ("RBC-DS") and CIBC Wood Gundy Securities
Inc. ("CIBC Wood Gundy") are controlled by or affiliated with Canadian chartered
banks (collectively "Related Banks" and individually "Nesbitt Burns' Related
Bank," "RBC-DS' Related Bank" and "CIBC Wood Gundy's Related Bank,"
respectively) which are lenders to the Company under the Canadian Revolver, the
1996 Revolving Credit Facility, the MEIP Loan or certain other loans and letters
of credit, all of which (except for certain letters of credit) are secured as
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Indebtedness." A number of waivers and amendments have
been made under the agreements governing certain of such debt principally in
connection with the Gulf National and Provident legal settlements and litigation
and the SCI hostile takeover proposal. At March 31, 1997, the Company was in
compliance with the terms of the agreements governing all of such debt. The
decision to distribute the Common Shares under the Offering and the
determination of the terms of the distribution were made through negotiation
between Loewen and the Underwriters. None of the Related Banks had any
involvement in such decision or determination. None of the Underwriters will
receive any benefit from the Offering other than their respective portion of the
underwriting fees fee payable by Loewen.
As at May 28, 1997, the amount owing to RBC-DS' Related Bank was Cdn.$46.9
million under the Canadian Revolver. As at May 28, 1997, the amount outstanding
under the 1996 Revolving Credit Facility was $545.0 million, of which $47.2
million was owing to Nesbitt Burns' Related Bank, $18.2 million was owing to
RBC-DS' Related Bank and $25.4 million was owing to CIBC Wood Gundy's Related
Bank. As at May 28, 1997, the amount outstanding under the MEIP Loan was $107.6
million, of which $8.9 million was owing to Nesbitt Burns' Related Bank and
$22.2 million was owing to RBC-DS' Related Bank. As at May 28, 1997, the amount
owing under certain other letters of credit was $14.0 million, of which $6.0
million was owing to Nesbitt Burns' Related Bank and $0.3 million was owing to
RBC-DS' Related Bank. The proceeds of the Offering will be used to repay
approximately $379.2 million of the 1996 Revolving Credit Facility, which will
result in the repayment of approximately $32.8 million to Nesbitt Burns' Related
Bank, approximately $12.6 million to RBC-DS' Related Bank and approximately
$17.7 million to CIBC Wood Gundy's Related Bank.
Certain of the Underwriters have provided from time to time, and are
expected to provide in the future, investment banking and other financial
services to the Company.
J. Carter Beese, Jr., a director of Loewen, is chairman of Alex. Brown
International. Alex. Brown International is an affiliate of Alex. Brown & Sons
Incorporated, one of the U.S. Underwriters.
S-37
<PAGE>
Raymond L. Loewen, Chairman of the Board and Chief Executive Officer of
Loewen, will purchase for investment purposes, from the Canadian Underwriters,
500,000 of the Common Shares offered under the Canadian Offering on the same
terms and conditions as are available to the public. Mr. Loewen may finance a
portion of the purchase price through a loan from Smith Barney Inc., which loan
may be secured by Common Shares (other than those purchased by Mr. Loewen under
the Canadian Offering). Smith Barney Inc. is one of the U.S. Underwriters. Mr.
Loewen is deemed to be the beneficial owner of approximately 9,088,128 Common
Shares, or 15.37% of the Common Shares outstanding at April 30, 1997 (although
he disclaims beneficial ownership of 2,254,838 shares owned by his wife, who has
sole voting and dispositive power with respect to such shares).
LEGAL MATTERS
Russell & DuMoulin, Canadian counsel to Loewen, will pass upon (i) the
validity of the Common Shares and (ii) statements as to Canadian taxation in the
Prospectus Supplement under the caption "Certain Canadian Federal Tax
Considerations." Thelen, Marrin, Johnson & Bridges LLP, United States counsel to
Loewen, will pass upon statements as to United States taxation in the Prospectus
Supplement under the caption "Certain United States Federal Tax Considerations."
Davis Polk & Wardwell is acting as United States counsel to the Underwriters.
McCarthy Tetrault is acting as Canadian counsel to the Underwriters.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Prospectus have been audited by KPMG, Chartered Accountants,
for the periods indicated in its report thereon, which is incorporated by
reference in the Prospectus. Such financial statements have been so incorporated
in reliance on the reports given on the authority of KPMG as experts in
accounting and auditing.
S-38
<PAGE>
PROSPECTUS
$500,000,000
THE LOEWEN GROUP INC.
COMMON SHARES, PREFERRED SHARES,
DEBT SECURITIES AND WARRANTS
[LOGO]
---------------------
The Loewen Group Inc., a corporation organized under the laws of British
Columbia, Canada ("Loewen" and, together with its subsidiaries and associated
entities, the "Company"), may offer and sell from time to time, in one or more
series, (a) Common shares without par value ("Common Shares"), (b) preferred
shares without par value ("Preferred Shares"), which may be convertible into
Common Shares, (c) debt securities consisting of notes, debentures and/or other
evidences of indebtedness representing secured or unsecured obligations of
Loewen ("Debt Securities"), which may be convertible into or exchangeable for
Common Shares or Preferred Shares, and (d) warrants to purchase Common Shares,
Preferred Shares or Debt Securities ("Warrants"). Common Shares, Preferred
Shares, Debt Securities and Warrants are herein collectively referred to as
"Securities."
The specific terms of the particular Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying supplement to
this Prospectus ("Prospectus Supplement"), which will describe, without
limitation and where applicable, the following: (a) in the case of Common
Shares, the number of shares offered, the initial offering price and market
price and dividend information; (b) in the case of Preferred Shares, the
specific designation, number of shares offered, the initial offering price,
liquidation preference, stated value per share, dividend rate (which may be
fixed or variable), place or places where dividends on such Preferred Shares
will be payable, terms of conversion, sinking fund provisions, redemption
provisions, voting rights, preemption rights, restrictions on transferability,
listing or application for listing on a securities exchange or interdealer
quotation system, and any other rights, preferences, privileges, limitations or
restrictions relating to the Preferred Shares; (c) in the case of Debt
Securities, the specific designation and denomination, the aggregate principal
amount being offered, whether such Debt Securities are secured, maturity,
interest rate (which may be fixed or variable), place or places where interest
on such Debt Securities will be payable, terms of conversion, sinking fund
provisions, redemption provisions, voting rights, restrictions on
transferability, listing or application for listing on a securities exchange or
interdealer quotation system, any right of Loewen to defer payment of interest
on the Debt Securities and the maximum length of such deferral period, and any
other rights, privileges, limitations or restrictions relating to the Debt
Securities and (d) in the case of Warrants, the title, series or designation,
the type and aggregate amount of Securities that may be acquired on exercise of
the Warrants, initial offering price of the Warrants, whether the Warrants are
offered attached to or separate from other Securities, period during which the
Warrants are exercisable, exercise terms and price, listing or application for
listing on a securities exchange or interdealer quotation system, and any other
rights, privileges, limitations or restrictions relating to the Warrants.
The aggregate offering price to the public of the Securities will be limited
to $500,000,000 (or its equivalent, based on the applicable exchange rate at the
time of issue, if Securities are offered for consideration denominated in one or
more foreign currencies as shall be designated by Loewen). Debt Securities may
be denominated in United States dollars or, at the option of Loewen, if so
specified in the applicable Prospectus Supplement, in one or more foreign
currencies. Debt Securities may be issued in registered form or bearer form, or
both. If so specified in the applicable Prospectus Supplement, Debt Securities
of a series may be issued, in whole or in part, in the form of one or more
temporary or permanent global securities.
The Securities may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them will be set forth in a Prospectus
Supplement. See "Plan of Distribution" for possible indemnification arrangements
for dealers, underwriters and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 29, 1997.
<PAGE>
AVAILABLE INFORMATION
Loewen has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with any
amendments, exhibits, annexes and schedules thereto, the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations thereunder, with respect to the Securities.
This Prospectus does not include all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in the Prospectus
as to the contents of any contract, agreement or other document referred to in
the Registration Statement are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Loewen is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by Loewen
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 Commission's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, reports, proxy statements and other
information that Loewen files with the Commission electronically are contained
in the Internet Web site maintained by the Commission. The Commission's Web site
address is http://www.sec.gov. The Common Shares are traded on the New York
Stock Exchange, The Toronto Stock Exchange and The Montreal Exchange. Reports,
proxy statements and other information filed by Loewen may be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005, at the offices of The Toronto Stock Exchange at The Exchange Tower, 2
First Canadian Place, Toronto, Ontario, Canada M5X IJ2 and at the offices of The
Montreal Exchange at 800 Victoria Square, Montreal, Quebec, Canada H4Z 1A9.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by Loewen with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act (File No. 1-12163) are
hereby incorporated herein by reference: (a) Loewen's (i) Annual Report on Form
10-K for the year ended December 31, 1996, filed March 31, 1997, (ii) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, filed May 13, 1997 and
(iii) Current Reports on Form 8-K dated January 7, 1997, January 8, 1997, March
5, 1997, March 24, 1997, May 2, 1997, May 5, 1997 and May 21, 1997; and (b) the
description of the Common Shares contained in Loewen's Current Report on Form
8-K dated May 2, 1997. All documents filed by Loewen pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
LOEWEN WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL
OF THE FOREGOING DOCUMENTS INCORPORATED BY REFERENCE HEREIN (OTHER THAN EXHIBITS
TO ANY SUCH DOCUMENT UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO SUCH DOCUMENT). REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO
THE CORPORATE SECRETARY OF LOEWEN, 4126 NORLAND AVENUE, BURNABY, BRITISH
COLUMBIA, CANADA V5G 3S8; TELEPHONE NUMBER (604) 299-9321.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Prospectus, as amended and supplemented, and certain documents
incorporated by reference herein contain or may contain both statements of
historical fact and "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Examples of
2
<PAGE>
forward-looking statements include: (i) projections of revenue, earnings,
capital structure and other financial items, (ii) statements of the plans and
objectives of the Company or its management, (iii) statements of future economic
performance and (iv) assumptions underlying statements regarding the Company or
its business. Important factors, risks and uncertainties that could cause actual
results to differ materially from any forward-looking statements ("Cautionary
Statements") are disclosed in the Prospectus, as amended and supplemented, and
in certain documents incorporated by reference herein. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
FINANCIAL INFORMATION
All dollar amounts in financial statements incorporated by reference into
this Prospectus are in United States dollars ("U.S.$" or "$") unless otherwise
indicated. References to "Cdn.$" are to Canadian dollars.
The consolidated financial statements of the Company included in Loewen's
reports filed pursuant to the Exchange Act are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP").
Differences between Canadian GAAP and accounting principles generally accepted
in the United States ("U.S. GAAP"), as applicable to the Company, are explained
in Note 21 to the consolidated financial statements included in Loewen's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996 Consolidated
Financial Statements") and Note 10 to the consolidated financial statements
included in Loewen's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
The consolidated financial statements of the Company for the year ended
December 31, 1993, and for prior years, were published in Canadian dollars.
Effective January 1, 1994, the Company adopted the United States dollar as its
reporting currency and, accordingly, has published its consolidated financial
statements for the year ended December 31, 1994 and subsequent periods in United
States dollars. Financial information relating to periods prior to January 1,
1994 has been translated from Canadian dollars into United States dollars as
required by Canadian GAAP at the December 31, 1993 rate of
U.S.$1.00=Cdn.$1.3217.
3
<PAGE>
THE COMPANY
The Company operates the second-largest number of funeral homes and
cemeteries in North America and the largest number of funeral homes in Canada.
The Company also engages in the pre-need selling of funeral, cemetery and
cremation merchandise and services. As at April 30, 1997, the Company operated
997 funeral homes and 373 cemeteries throughout North America. This included 875
funeral homes and 367 cemeteries in the United States (including locations in
Puerto Rico).
Loewen is a holding company that, as at April 30, 1997, had approximately
900 direct and indirect subsidiaries. Loewen Group International, Inc., a
Delaware corporation and a wholly owned subsidiary of Loewen ("LGII"), is a
holding company for all of the Company's United States operations (excluding the
Company's operations in Puerto Rico). Loewen is a holding company for all of the
Company's operations outside of the United States (including Puerto Rico). All
of Loewen's subsidiaries are operating subsidiaries except for fourteen
subsidiaries that principally are financing vehicles. In addition, LGII is the
general partner of Loewen Group Capital, L.P. ("LGC"). The Monthly Income
Preferred Securities ("MIPS") issued by LGC are publicly held and are traded on
the New York Stock Exchange.
Loewen was incorporated in 1985 under the laws of British Columbia, Canada.
Loewen's principal executive offices are located at 4126 Norland Avenue,
Burnaby, British Columbia, Canada, V5G 3S8; telephone (604) 299-9321.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the net
proceeds received by the Company from the sale of any Securities offered hereby
will be used for working capital and general corporate purposes, including
acquisitions. Any specific allocation of the proceeds to a particular purpose
that has been made at the date of any Prospectus Supplement will be described
therein.
4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
Set forth below is certain selected consolidated financial and operating
information of the Company for each year in the five year period ended December
31, 1996. The selected consolidated financial information is derived from the
Company's audited consolidated financial statements for such periods. The
Company's consolidated financial statements are prepared in accordance with
Canadian GAAP. The information set forth below should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the 1996 Consolidated Financial Statements and Notes thereto.
The financial results for the year ended December 31, 1996 include $18.7
million of finance and other costs related to the hostile takeover proposed by
Service Corporation International ("SCI"), which proposal was withdrawn in
January 1997. The financial results for the year ended December 31, 1995 include
an aggregate of $195.7 million for legal settlements and litigation related
finance costs and certain general and administrative costs related to the legal
settlements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for additional information regarding SCI's hostile
takeover proposal and the legal settlements, and costs related thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995(1) 1994 1993 1992
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue........................................ $ 908,385 $ 598,493 $ 417,328 $ 303,011 $ 218,907
Gross margin................................... 337,571 225,362 158,854 115,118 83,708
Earnings from operations....................... 204,105 117,607 95,113 65,697 50,563
Net earnings (loss)............................ 63,906 (76,684) 38,494 28,182 19,766
Basic earnings (loss) per share................ 0.97 (1.69) 0.97 0.77 0.59
Fully diluted earnings (loss) per share(2)..... 0.97 (1.69) 0.97 0.76 0.58
Ratio of earnings to fixed charges(3).......... 1.9x -- 2.5x 2.9x 2.6x
Ratio of earnings to fixed charges and
preferred share dividends(4)................. 1.7x -- -- -- --
Aggregate dividends declared per Common
Share........................................ 0.200 0.050 0.070 0.045 0.030
<CAPTION>
AS AT DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets................................... $ 3,496,939 $ 2,262,980 $ 1,326,275 $ 913,661 $ 675,111
Total long-term debt(5)........................ 1,508,221 934,509 516,654 341,977 246,715
Preferred securities of subsidiary............. 75,000 75,000 75,000 -- --
Shareholders' equity........................... 1,048,200 614,682 411,139 325,890 236,317
OPERATING INFORMATION:
Number of funeral home locations(6)............ 956 815 641 533 451
Number of funeral services..................... 142,265 114,319 93,760 78,847 63,516
Number of cemeteries(6)........................ 313 179 116 70 38
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
(2) Fully diluted earnings (loss) per share figures are calculated in accordance
with Canadian GAAP and assume, if dilutive (a) exercise of employee and
other stock options effective on their dates of issue and that the funds
derived therefrom were invested at annual after-tax rates of return ranging
from 5.8% to 7.3%, (b) exercise of options and purchase rights under the
1994 Management Equity Investment Plan ("MEIP") effective on their dates of
issue and the add-back of the interest under the related MEIP loan and (c)
conversion of the Series C Preferred Shares effective on the date of the
issue of the Series C Receipts and the add-back of the dividends during the
period. See Note 9 to the 1996 Consolidated Financial Statements.
5
<PAGE>
(3) The 1995 loss is not sufficient to cover fixed charges by a total of
approximately $126.6 million and as such the ratio of earnings to fixed
charges has not been computed.
(4) The Company did not pay any preferred share dividends from 1992-1995.
(5) Total long-term debt comprises long-term debt, including current portion.
(6) The numbers of locations for 1994 and 1993 include adjustments and
consolidations related to prior periods.
Under Canadian GAAP, (i) the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred share dividends for the three
months ended March 31, 1997 were 1.9x and 1.8x, respectively; and (ii) the ratio
of earnings to fixed charges for the three months ended March 31, 1996 was 2.2x.
No preferred share dividends were paid during the three months ended March 31,
1996.
6
<PAGE>
Had the Company's consolidated financial statements been prepared in
accordance with U.S. GAAP (see Note 21 to the 1996 Consolidated Financial
Statements), selected consolidated financial information would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995(1) 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue.................................... $ 909,137 $ 598,493 $ 417,479 $ 308,402 $ 239,452
Earnings from operations................... 198,869 117,376 94,758 66,711 54,838
Earnings (loss) before cumulative effect of
change in accounting principles.......... 64,559 (75,800) 39,652 28,912 21,330
Fully diluted earnings (loss) per share
before cumulative effect of change in
accounting principles.................... 0.96 (1.67) 0.98 0.77 0.62
Ratio of earnings to fixed charges(2)...... 1.8x -- 2.4x 2.9x 2.6x
Ratio of earnings to fixed charges and
preferred share dividends(3)............. 1.7x -- -- -- --
Aggregate dividends declared per Common
Share.................................... 0.200 0.050 0.070 0.047 0.033
<CAPTION>
AS AT DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets............................... $ 3,768,021 $ 2,345,874 $ 1,329,928 $ 921,342 $ 702,096
Total long-term debt(4).................... 1,508,221 894,509 516,654 341,977 256,577
Preferred securities of subsidiary......... 75,000 75,000 75,000 -- --
Shareholders' equity....................... 1,026,110 519,006 385,950 299,059 245,472
</TABLE>
- ------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1996.
(2) The 1995 loss is not sufficient to cover fixed charges by a total of
approximately $128.3 million and as such the ratio of earnings to fixed
charges has not been computed.
(3) The Company did not pay any preferred share dividends from 1992-1995.
(4) Total long-term debt comprises long-term debt, including current portion.
Under U.S. GAAP, (i) the ratio of earnings to fixed charges and the ratio of
earnings to fixed charges and preferred share dividends for the three months
ended March 31, 1997 were 1.9x and 1.8x, respectively; and (ii) the ratio of
earnings to fixed charges for the three months ended March 31, 1996 was 2.1x. No
preferred share dividends were paid during the three months ended March 31,
1996.
7
<PAGE>
DESCRIPTION OF DEBT SECURITIES
Debt Securities offered hereby, which may consist of notes, debentures and
other evidences of indebtedness, may be issued in one or more series. Each
series of debt securities will be issued under an indenture by and between
Loewen and the trustee identified therein (the "Trustee"). A form of the
indenture to be entered into with respect to each series of Debt Securities
(each, an "Indenture") has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
The statements herein relating to the Debt Securities and the Indentures are
summaries and do not purport to be complete. Such summaries are subject to the
detailed provisions of the applicable Indenture, to which reference is hereby
made for a full description of such provisions, including the definitions
therein of certain terms capitalized in this Prospectus. Whenever defined terms
of the Indentures are referred to herein or in a Prospectus Supplement, such
defined terms are incorporated herein or therein by reference as part of the
statement made and such statement shall be qualified in its entirety by such
reference.
GENERAL
A series of Debt Securities may be offered contemporaneously with an
offering of Warrants to purchase an additional portion of such or another series
of Debt Securities. Warrants to purchase a series of Debt Securities may also be
offered independently of any offering of Debt Securities. See "Description of
Warrants."
Reference is made to the Prospectus Supplement which accompanies this
Prospectus for a description of the specific series of Debt Securities being
offered thereby or, if Warrants are being offered thereby, the Debt Securities
to be issued upon exercise of such Warrants, including as applicable: (1) the
specific designation of such Debt Securities; (2) any limit upon the aggregate
principal amount of such Debt Securities; (3) the date or dates on which the
principal of such Debt Securities will mature or the method of determining such
date or dates; (4) the interest rate or rates (which may be fixed or variable)
or the method of calculating such rate or rates; (5) the date or dates from
which interest will accrue or the method by which such date or dates will be
determined; (6) the date or dates on which interest will be payable and the
record date or dates therefor; (7) whether such Debt Securities are secured or
unsecured, (8) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; (9) the period or
periods within which, the price or prices at which, the currency or currencies
(including currency units) in which, and the terms and conditions upon which,
such Debt Securities may be redeemed, in whole or in part, at the option of
Loewen; (10) any obligation of Loewen to redeem or purchase such Debt Securities
pursuant to any sinking fund or analogous provisions, upon the happening of
specified events, or at the option of a holder thereof and the period or periods
within which, the price or prices at which and the terms and conditions upon
which, such Debt Securities shall be redeemed or purchased, in whole or in part,
pursuant to such obligations; (11) the denominations in which such Debt
Securities are authorized to be issued; (12) the currency or currency units for
which Debt Securities may be purchased or in which Debt Securities may be
denominated and/or the currency or currency units in which principal of,
premium, if any, and/or interest, if any, on such Debt Securities will be
payable or redeemable and whether Loewen or the holders of any such Debt
Securities may elect to receive payments in respect of such Debt Securities in a
currency or currency units other than that in which such Debt Securities are
stated to be payable or redeemable; (13) if other than the principal amount
thereof, the portion of the principal amount of such Debt Securities which will
be payable upon declaration of the acceleration of the maturity thereof or the
method by which such portion shall be determined; (14) the person to whom any
interest on any such Debt Security shall be payable if other than the person in
whose name such Debt Security is registered on the applicable record date; (15)
any addition to, or modification or deletion of, any Event of Default or any
covenant of Loewen specified in the Indenture with respect to such Debt
Securities; (16) the application of any means of defeasance or covenant
defeasance that may be specified for such Debt Securities; (17) the terms and
conditions relating to Warrants issued by Loewen in connection with or for the
purchase of such Debt Securities; (18) any provisions relating to the exchange
or conversion of such Debt Securities; and (19) any other material terms
pertaining to such Debt Securities.
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Unless otherwise specified in the applicable Prospectus Supplement, the Debt
Securities will not be listed on any securities exchange or interdealer
quotation system.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully registered form without coupons. If Debt
Securities of any series are issued in bearer form, any special restrictions and
considerations, including any offering restrictions and United States federal
income tax considerations, applicable to such Debt Securities and to payment on
and transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement.
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain United States federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the applicable Prospectus Supplement.
If the purchase price of any Debt Securities is payable in one or more
foreign currencies or currency units of if any Debt Securities are denominated
in one or more foreign currencies or currency units or if the principal of,
premium, if any, or interest, if any, on any Debt Securities is payable in one
or more foreign currencies or currency units, the restrictions, elections,
certain United States federal income tax considerations, specific terms and
other information with respect to such series of Debt Securities and such
foreign currency or currency units will be set forth in the applicable
Prospectus Supplement.
DENOMINATIONS, PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Debt Securities generally will be issued in registered form and in
denominations of $1,000 and integral multiples of $1,000. Unless otherwise
provided in the applicable Prospectus Supplement, payments in respect of Debt
Securities will be made, subject to any applicable laws and regulations, in the
designated currency at the office or agency of Loewen maintained for that
purpose as Loewen may designate from time to time, except that, at the option of
Loewen, interest payments, if any, on Debt Securities in registered form may be
made (i) by checks mailed by the Trustee to the holders of Debt Securities
entitled thereto at their registered addresses or (ii) by wire transfer to an
account maintained by the person entitled thereto, as specified in the Register.
Unless otherwise indicated in an applicable Prospectus Supplement, payment of
any installment of interest on Debt Securities in registered form will be made
to the person in whose name such Debt Security is registered at the close of
business on the regular record date for such interest.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the office
or agency of Loewen maintained for such purpose as Loewen may designate from
time to time. Debt Securities may be transferred or exchanged without service
charge, other than any tax or other governmental charge imposed in connection
therewith.
REDEMPTION
A series of Debt Securities may be subject to redemption at the option of
Loewen, in whole or in part, or may not be redeemable prior to maturity. In
addition, Loewen may be obligated upon the occurrence of specified events or at
the option of a holder of Debt Securities, to redeem or repurchase all or part
of a series of Debt Securities. Any such provisions will be set forth in the
applicable Prospectus Supplement.
CONVERSION AND EXCHANGE
The terms on which a series of Debt Securities may be convertible into or
exchangeable for Preferred Shares or Common Shares, if at all, will be set forth
in the applicable Prospectus Supplement. Such terms shall include as applicable
(i) the type and amount of Preferred Shares or Common Shares into or for which
the Debt Securities are convertible or exchangeable, and (ii) the period or
periods during which, or the circumstances under which, Debt Securities may be
converted or exchanged. The applicable Prospectus Supplement may also include
market price and dividend information with respect to the Preferred Shares or
Common Shares that may be acquired on conversion or exchange of the Debt
Securities and other
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information with respect to such Securities, including in the case of Preferred
Shares, the designation and denomination, any dividend, conversion, sinking
fund, redemption, voting, liquidation and preemption rights, any restrictions on
transferability by the holders or on repurchase or redemption by Loewen, and any
other special terms pertaining to such Preferred Shares.
RANKING
Each series of Debt Securities will rank equally and PARI PASSU as to the
right of payment of principal and interest, if any, with each other series of
Debt Securities and with all other Senior Debt (defined herein) of Loewen.
Loewen is party to a collateral trust arrangement, described below (the
"Collateral Agreement"), pursuant to which, so long as the Indebtedness (defined
herein) subject to the Collateral Agreement is secured, the Debt Securities will
be secured as described herein. However, unless the applicable Prospectus
Supplement provides otherwise, the holders of Debt Securities of a series will
not have an independent right to require the Lien secured by the Collateral
(defined herein) to remain in place or to require any other security for the
Debt Securities of such series. As at December 31, 1996, the aggregate amount of
outstanding Pari Passu Indebtedness (defined herein) was approximately $1.3
billion. See "--Collateral Trust Arrangement."
Debt Securities will be effectively subordinated in right of payment to all
existing and future liabilities, including trade payables, of the subsidiaries
of Loewen.
"Indebtedness" means, with respect to any person, without duplication (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 90 days, but excluding, without limitation, all
obligations, contingent or otherwise, of such person in connection with any
undrawn letters of credit, banker's acceptance or other similar credit
transaction, (b) all obligations of such person evidenced by bonds, notes,
debentures or other similar instruments, (c) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such person, (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (f) all guarantees of Indebtedness referred to in this
definition by such person, (g) all Redeemable Capital Stock of such person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends, (h) all obligations under or in respect of
Currency Agreements and Interest Rate Protection Obligations of such person, (i)
any Preferred Stock of any Restricted Subsidiary of such person valued at the
sum of (without duplication) (A) the liquidation preference thereof, (B) any
mandatory redemption payment obligations in respect thereof and (C) accrued
dividends thereon, and (j) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types referred to in
clauses (a) through (i) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the provisions hereof, and if such price is based upon, or measured by, the fair
market value of such Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of this definition, the term
"Indebtedness" shall not include (i) Indebtedness of a Wholly-Owned Subsidiary
owed to and held by Loewen, LGII or another Wholly-Owned Subsidiary, in each
case which is not subordinate in right of payment to any Indebtedness of such
Subsidiary, except that (a) any transfer of such Indebtedness by
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Loewen, LGII or a Wholly-Owned Subsidiary (other than to Loewen, LGII or to a
Wholly-Owned Subsidiary) and (b) the sale, transfer or other disposition by
Loewen, LGII or any Restricted Subsidiary of Loewen or LGII of Capital Stock of
a Wholly-Owned Subsidiary which is owed Indebtedness of another Wholly-Owned
Subsidiary such that it ceases to be a Wholly-Owned Subsidiary of Loewen or LGII
shall, in each case, be an incurrence of Indebtedness by such Restricted
Subsidiary subject to the other provisions hereof; and (ii) Indebtedness of
Loewen or LGII owed to and held by a Wholly-Owned Subsidiary of Loewen or LGII
which is unsecured and subordinate in right of payment to the payment and
performance of Loewen's or LGII's obligations under the provisions of the
applicable Indenture and the Debt Securities except that (a) any transfer of
such Indebtedness by a Wholly-Owned Subsidiary of Loewen or LGII (other than to
another Wholly-Owned Subsidiary of Loewen or LGII) and (b) the sale, transfer or
other disposition by Loewen or LGII or any Restricted Subsidiary of Loewen or
LGII of Capital Stock of a Wholly-Owned Subsidiary which holds Indebtedness of
Loewen or LGII such that it ceases to be a Wholly-Owned Subsidiary shall, in
each case, be an incurrence of Indebtedness by Loewen or LGII, as the case may
be, subject to the other provisions hereof.
"Pari Passu Indebtedness" means Indebtedness of Loewen or LGII which ranks
PARI PASSU in right of payment with the Debt Securities.
"Senior Debt" means Indebtedness which is not (i) Indebtedness of Loewen to
any Subsidiary, or (ii) Indebtedness of Loewen which by its terms is subordinate
or junior in any respect to any other Indebtedness or other obligation of
Loewen.
COLLATERAL TRUST ARRANGEMENT
On May 31, 1996, Loewen, LGII and their senior lenders (the "Senior
Lenders") entered into the Collateral Agreement, pursuant to which the Senior
Lenders share, on a PARI PASSU basis, a pledge by Loewen and LGII of (i) the
shares of capital stock held by Loewen of substantially all of the subsidiaries
in which Loewen directly or indirectly holds more than a 50% voting or economic
interest, and (ii) all of the financial assets of LGII (including shares of
capital stock held by LGII of various subsidiaries) (collectively, the
"Collateral"). The Collateral is held by a trustee for the equal and ratable
benefit of the various holders of such Indebtedness.
MERGER, SALE OF ASSETS, ETC.
Each Indenture will provide that Loewen shall not, in any transaction or
series of transactions, merge or consolidate with or into, or sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any person or persons, and Loewen shall
not permit any of its Restricted Subsidiaries (defined herein) to enter into any
such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of Loewen or of Loewen and its Restricted Subsidiaries
taken as a whole, to any other person or persons, unless at the time of and
after giving effect thereto (a) either (i) if the transaction or series of
transactions is a merger or consolidation, Loewen or LGII or the Restricted
Subsidiary, as the case may be, shall be the surviving person of such merger or
consolidation, or (ii) the person formed by such consolidation or into which
Loewen or such Restricted Subsidiary, as the case may be, is merged or to which
the properties and assets of Loewen or such Restricted Subsidiary, as the case
may be, are transferred (any such surviving person or transferee being the
"Surviving Entity") shall be a corporation organized and existing under the laws
of the United States, any state thereof, the District of Columbia, Canada or any
province thereof and shall expressly assume by a supplemental indenture executed
and delivered to the Trustee, in form reasonably satisfactory to the Trustee,
all of the obligations of Loewen under the Debt Securities and, in each case the
Indenture shall remain in full force and effect; (b) immediately before and
immediately after giving effect to such transaction or series of transaction on
a pro forma basis (including without limitation any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such transaction
or series of transactions), no Default (defined herein) or Event of Default
(defined herein) shall have occurred and be continuing and Loewen, the
Restricted Subsidiary or the Surviving Entity, as the case may
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be, after giving effect to such transaction or series of transaction on a pro
forma basis (including without limitation any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such transaction
or series of transaction), could incur $1.00 of additional Indebtedness pursuant
to the covenants regarding limitations on Indebtedness contained in the
Indentures; and (c) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including without limitation any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth (defined herein) of Loewen or the Surviving Entity, as the case maybe, is
at least equal to the Consolidated Net Worth of Loewen immediately before such
transaction or series of transactions.
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, Loewen shall deliver or cause to be
delivered to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, transfer, lease, assignment or other disposition and
the supplemental indenture in respect thereof comply with the requirements under
the Indentures.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of Loewen in accordance with the foregoing, in which Loewen is not
the continuing corporation, the successor corporation formed by such
consolidation or into which Loewen is merged or to which such transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, Loewen under the Indentures with the same effect as if such successor
corporation had been named therein.
"Consolidated Net Worth" means, with respect to any person at any date, the
consolidated stockholders' equity of such person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such person and
its Restricted Subsidiaries, as determined in accordance with Canadian GAAP. As
used above, "Redeemable Capital Stock" means any shares of any class or series
of Capital Stock that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any
Security or is redeemable at the option of the holder thereof at any time prior
to any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default. See "--Events of Default."
"Restricted Subsidiary" means any Subsidiary of Loewen other than (i) First
Capital Life Insurance Company of Louisiana, National Capital Life Insurance
Company, Security Industrial Insurance Company, Security Industrial Fire
Insurance Company or any successors to such Subsidiaries or (ii) a Subsidiary of
Loewen declared by the Board of Directors of Loewen to be an Unrestricted
Subsidiary; PROVIDED, that no such Subsidiary shall be declared to be an
Unrestricted Subsidiary unless (x) none of its properties or assets were owned
by Loewen or any of its Subsidiaries prior to the Issue Date, other than any
such assets as are transferred to such Unrestricted Subsidiary in accordance
with the covenant described under "--Limitation on Restricted Payments," (y) its
properties and assets, to the extent that they secure Indebtedness, secure only
Non-Recourse Indebtedness and (z) it has no Indebtedness other than Non-Recourse
Indebtedness. As used above, "Non-Recourse Indebtedness" means Indebtedness as
to which (i) neither Loewen nor any of its Subsidiaries (other than the relevant
Unrestricted Subsidiary or another Unrestricted Subsidiary) (1) provides credit
support (including any undertaking, agreement or instrument which would
constitute Indebtedness), (2) guarantees or is otherwise directly or indirectly
liable or (3) constitutes the lender (in each case, other than pursuant to and
in compliance with the covenant described under "--Limitation on Restricted
Payments") and (ii) no default with respect to such Indebtedness (including any
rights which the holders thereof may have to take enforcement action against the
relevant Unrestricted Subsidiary or its assets) would permit (upon notice, lapse
of time or both) any holder of any other Indebtedness of Loewen or its
Subsidiaries (other than Unrestricted Subsidiaries) to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
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CERTAIN COVENANTS
Loewen makes the following covenants, among others, in the Indentures:
LIMITATION ON INDEBTEDNESS. Loewen will not, and will not permit any of its
Restricted Subsidiaries (including, without limitation, LGII) to, directly or
indirectly, create, incur, issue, assume, guarantee or in any manner become
directly or indirectly liable, contingently or otherwise, for the payment of
(collectively, to "incur") any Indebtedness (including, without limitation, any
Acquired Indebtedness, defined herein), other than Permitted Indebtedness
(defined herein). Notwithstanding the foregoing limitations, Loewen and LGII
(and any Wholly-Owned Subsidiary with respect to Seller Financing Indebtedness,
defined herein) will be permitted to incur Indebtedness (including, without
limitation, Acquired Indebtedness) if at the time of such incurrence, and after
giving PRO FORMA effect thereto, the Consolidated Fixed Charge Coverage Ratio
(defined herein) of Loewen is at least equal to 2.25:1.
"Acquired Indebtedness" means Indebtedness of a person (a) assumed or
created in connection with an Asset Acquisition from such person or (b) existing
at the time such person becomes a Restricted Subsidiary of any other person.
"Consolidated Fixed Charge Coverage Ratio" means with respect to any person,
the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed
Charges of such person for the full fiscal quarter immediately preceding the
date of the transaction (the "Transaction Date") giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio (such full fiscal quarter
period being referred to herein as the "Prior Quarter") to the aggregate amount
of Consolidated Fixed Charges of such person for the Prior Quarter. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a PRO FORMA basis for the
period of such calculation to, without duplication, (a) the incurrence of any
Indebtedness of such person or any of its Restricted Subsidiaries (and the
application of the net proceeds thereof) during the period commencing on the
first day of the Prior Quarter to and including the Transaction Date (the
"Reference Period"), including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation (and the
application of the net proceeds thereof), as if such incurrence (and
application) occurred on the first day of the Reference Period, and (b) any
Material Asset Sales or Material Asset Acquisitions (including, without
limitation, any Material Asset Acquisition giving rise to the need to make such
calculation as a result of such person or one of its Restricted Subsidiaries
(including any person who becomes a Restricted Subsidiary as a result of the
Material Asset Acquisition) incurring, assuming or otherwise being liable for
Acquired Indebtedness) occurring during the Reference Period, as if such
Material Asset Sale or Material Asset Acquisition occurred on the first day of
the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges"
for purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding
Indebtedness determined on a fluctuating basis as at the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate PER ANNUM equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Reference Period. If such person or any of its Restricted Subsidiaries directly
or indirectly guarantees Indebtedness of a third person, the above clause shall
give effect to the incurrence of such guaranteed Indebtedness as if such person
or such Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness. For purposes of this calculation, a "Material Asset
Acquisition" is an Asset Acquisition which is deemed by such person to be
material for such purposes or which has a purchase price of $30,000,000 or more
and a "Material Asset Sale" is one or more Asset Sales which relate to assets
with an aggregate value of more than $30,000,000. For purposes of this
definition, "Consolidated Cash Flow Available for Fixed Charges" means, with
respect to any person for any period, (A) the sum of, without duplication, the
amounts for such period, taken as a single accounting period, of (a)
Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated
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Interest Expense and (d) Consolidated Income Tax Expense LESS (B) any non-cash
items increasing Consolidated Net Income for such period.
"Permitted Indebtedness" means, without duplication, each of the following:
(a) the Debt Securities; (b) Indebtedness of Loewen and its Restricted
Subsidiaries (including, without limitation, LGII) outstanding on the Issue Date
(other than Indebtedness under the Credit Agreements); (c) Indebtedness of
Loewen or LGII, as the case may be, under the Credit Agreements in an aggregate
principal amount at any one time outstanding not to exceed $750,000,000 less the
Net Proceeds of any Asset Sale that are applied to repay, and permanently reduce
the commitments under, the Credit Agreements (as required by the terms thereof);
(d) (i) Interest Rate Protection Obligations of Loewen covering Indebtedness of
Loewen and its Restricted Subsidiaries (including, without limitation, LGII);
(ii) Interest Rate Protection Obligations of any Restricted Subsidiary of Loewen
covering Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that, in
the case of either clause (i) or (ii), (x) any Indebtedness to which any such
Interest Rate Protection Obligations relate bears interest at fluctuating
interest rates and is otherwise permitted to be incurred under this covenant and
(y) the notional principal amount of any such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to which
such Interest Rate Protection Obligations relate; (e) Indebtedness under
Currency Agreements; PROVIDED, HOWEVER, that in the case of Currency Agreements
which relate to Indebtedness, such Currency Agreements do not increase the
Indebtedness of Loewen and its Restricted Subsidiaries (including, without
limitation, LGII) outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder; (f) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; PROVIDED, HOWEVER, that
such Indebtedness is extinguished within two business days of incurrence; (g)
Indebtedness incurred in respect of performance bonds or letters of credit in
lieu thereof provided in the ordinary course of business; (h) Indebtedness of
Loewen and its Restricted Subsidiaries (including, without limitation, LGII)
represented by letters of credit for the account of Loewen and its Restricted
Subsidiaries in order to provide security for workers' compensation claims,
payment obligations in connection with self-insurance or similar requirements in
the ordinary course of business; (i) Indebtedness of Loewen and its Restricted
Subsidiaries (including, without limitation, LGII) in addition to that described
in clauses (a) through (h) above, in an aggregate principal amount outstanding
at any time not exceeding $5,000,000; and (j) (i) Indebtedness of Loewen the
proceeds of which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of Loewen and its Restricted Subsidiaries
(including, without limitation, LGII) and (ii) Indebtedness of any Restricted
Subsidiary of Loewen the proceeds of which are used solely to refinance (whether
by amendment, renewal, extension or refunding) Indebtedness of such Restricted
Subsidiary, in each case other than the Indebtedness refinanced, redeemed or
retired on the Issue Date or Indebtedness incurred under clause (c), (d), (e),
(f), (g), (h), or (i) of this covenant; PROVIDED, HOWEVER, that (x) the
principal amount of Indebtedness incurred pursuant to this clause (j) (or, if
such Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness) shall not exceed the sum
of the principal amount of Indebtedness so refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to the
terms of such Indebtedness or the amount of any premium reasonably determined by
the Board of Directors of Loewen as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated purchase, plus the amount of
expenses in connection therewith, (y) in the case of Indebtedness incurred by
Loewen pursuant to this clause (j) to refinance Pari Passu Indebtedness, such
Indebtedness constitutes Pari Passu Indebtedness.
"Seller Financing Indebtedness" means a purchase money Indebtedness issued
to the seller of a business or other assets for, and not in excess of, the
purchase price thereof.
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LIMITATION ON RESTRICTED PAYMENTS. Loewen will not, and will not permit any
of its Restricted Subsidiaries (including, without limitation, LGII) to,
directly or indirectly:
(a) declare or pay any dividend or make any other distribution or payment on
or in respect of Capital Stock of Loewen or any of its Restricted Subsidiaries
or any payment made to the direct or indirect holders (in their capacities as
such) of Capital Stock of Loewen or any of its Restricted Subsidiaries (other
than (x) dividends or distributions payable solely in Capital Stock of Loewen
(other than Redeemable Capital Stock) or in options, warrants or other rights to
purchase Capital Stock of Loewen (other than Redeemable Capital Stock) and (y)
dividends or other distributions to the extent declared or paid to Loewen or any
Wholly-Owned Subsidiary of Loewen),
(b) purchase, redeem, defease or otherwise acquire or retire for value any
Capital Stock of Loewen or any of its Restricted Subsidiaries (other than any
such Capital Stock of a Wholly-Owned Subsidiary of Loewen),
(c) make any principal payment on, or purchase, defease, repurchase, redeem
or otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled repayment, scheduled sinking fund payment or other Stated Maturity,
any Indebtedness that is subordinate or junior in right of payment to the Debt
Securities or Pari Passu Indebtedness (other than any such subordinated or Pari
Passu Indebtedness owned by Loewen or a Wholly-Owned Subsidiary of Loewen), or
(d) make any Investment (other than any Permitted Investment, defined
herein) in any person (such payments or Investments described in the preceding
clauses (a), (b), (c) and (d) are collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, shall be the Fair Market Value on the date of such Restricted Payment of
the asset(s) proposed to be transferred by Loewen or such Restricted Subsidiary,
as the case may be, pursuant to such Restricted Payment), (A) no Default or
Event of Default shall have occurred and be continuing, (B) immediately prior to
and after giving effect to such Restricted Payment, Loewen would be able to
incur $1.00 of additional Indebtedness pursuant to the covenant described under
"--Limitation on Indebtedness" (assuming a market rate of interest with respect
to such additional Indebtedness) and (C) the aggregate amount of all Restricted
Payments declared or made from and after the Measurement Date would not exceed
the sum of (1) 50% of the aggregate Consolidated Net Income (defined herein) of
Loewen accrued on a cumulative basis during the period beginning on the first
day of the fiscal quarter of Loewen during which the Measurement Date occurs and
ending on the last day of the fiscal quarter of Loewen immediately preceding the
date of such proposed Restricted Payment, which period shall be treated as a
single accounting period (or, if such aggregate cumulative Consolidated Net
Income of Loewen for such period shall be a deficit, minus 100% of such deficit)
PLUS (2) the aggregate net cash proceeds received by Loewen or LGII (without
duplication) either (x) as capital contributions to Loewen or LGII (without
duplication) after the Measurement Date from any person (other than Loewen, LGII
or a Restricted Subsidiary of Loewen or LGII, as the case may be) or (y) from
the issuance or sale of Capital Stock (excluding Redeemable Capital Stock, but
including Capital Stock issued upon the conversion of convertible Indebtedness
or from the exercise of options, warrants or rights to purchase Capital Stock
(other than Redeemable Capital Stock)) of Loewen or LGII (without duplication)
to any person (other than to Loewen, LGII or a Restricted Subsidiary of Loewen
or LGII, as the case may be) after the Measurement Date PLUS (3) in the case of
the disposition or repayment of any Investment constituting a Restricted Payment
made after the Measurement Date (excluding any Investment described in clause
(v) of the following paragraph), an amount equal to the lesser of the return of
capital with respect to such Investment and the cost of such Investment less, in
either case, the cost of the disposition of such Investment PLUS (4) the sum of
$15,000,000. For purposes of the preceding clause (C)(2), the value of the
aggregate net proceeds received by Loewen or LGII (without duplication) upon the
issuance of Capital Stock upon the conversion of convertible Indebtedness or
upon the exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or rights
plus the incremental cash amount received by Loewen or LGII (without
duplication) upon the conversion or exercise thereof.
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None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of Loewen, LGII or any Restricted Subsidiary of
Loewen or LGII in exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to Loewen or LGII from any
person (other than a Related Obligor, as defined below) or (y) issue and sale of
other shares of Capital Stock (other than Redeemable Capital Stock) of Loewen or
LGII to any person (other than to a Related Obligor); (iii) so long as no
Default or Event of Default shall have occurred and be continuing, any
redemption, repurchase or other acquisition or retirement of Indebtedness that
is subordinate or junior in right of payment to the Debt Securities and the
Guarantees, if applicable, by exchange for, or out of the net cash proceeds of,
a substantially concurrent (x) capital contribution to Loewen or LGII from any
person (other than a Related Obligor) or (y) issue and sale of (1) Capital Stock
(other than Redeemable Capital Stock) of Loewen or LGII to any person (other
than a Related Obligor); PROVIDED, HOWEVER, that the amount of any such net
proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; or (2) Indebtedness of Loewen or LGII issued to any person (other
than a Related Obligor), so long as such Indebtedness is Pari Passu Indebtedness
or Indebtedness that is subordinate or junior in right of payment to the Debt
Securities and the Guarantees, if applicable, in the same manner and at least to
the same extent as the Indebtedness so purchased, exchanged, redeemed, acquired
or retired; (iv) so long as no Default or Event of Default shall have occurred
and be continuing, any redemption, repurchase or other acquisition or retirement
of Pari Passu Indebtedness by exchange for, or out of the net cash proceeds of,
a substantially concurrent (x) capital contribution to Loewen or LGII from any
person (other than a Related Obligor) or (y) issue and sale of (1) Capital Stock
(other than Redeemable Capital Stock) of Loewen or LGII to any person (other
than a Related Obligor); PROVIDED, HOWEVER, that the amount of any such net
proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; or (2) Indebtedness of Loewen or LGII issued to any person (other
than a Related Obligor), so long as such Indebtedness is Pari Passu Indebtedness
or Indebtedness that is subordinate or junior in right of payment to the Debt
Securities and the Guarantees in the same manner and at least to the same extent
as the Indebtedness so purchased, exchanged, redeemed, acquired or retired; (v)
Investments constituting Restricted Payments made as a result of the receipt of
consideration that consists of cash or Cash Equivalents from any Asset Sale made
pursuant to and in compliance with the covenant described under "--Disposition
of Proceeds of Asset Sales"; (vi) so long as no Default or Event of Default has
occurred and is continuing, repurchases by Loewen of Common Stock of Loewen from
employees of Loewen or their authorized representatives upon the death,
disability or termination of employment of such employees, in an aggregate
amount not exceeding $10,000,000 in any calendar year; (vii) Investments
constituting Restricted Payments that are permitted by subparagraphs (iv) and
(v) of the proviso to the covenant described under "--Limitation on Transactions
with Interested Persons"; and (viii) the declaration or the payment of dividends
on, or the scheduled purchase or redemption of, the Preferred Securities of a
Special Finance Subsidiary or the Series C Preferred Shares, of Loewen. In
computing the amount of Restricted Payments previously made for purposes of
clause (C) of the preceding paragraph, Restricted Payments made under the
preceding clauses (v), (vi) and (vii) shall be included and those under clauses
(i), (ii), (iii), (iv) and (viii) shall not be so included.
"Consolidated Net Income" means, with respect to any person, for any period,
the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of such person and its Restricted Subsidiaries allocable
to minority interests in unconsolidated persons to the extent that cash
dividends or distributions have not actually been received by such person or one
of its Restricted Subsidiaries, (iii) net income (or loss) of any person
combined with such person or one of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss realized upon the termination of any employee pension
benefit plan, on
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an after-tax basis, (v) gains or losses in respect of any Asset Sales by such
person or one of its Restricted Subsidiaries, and (vi) the net income of any
Restricted Subsidiary of such person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or its
stockholders.
"Permitted Investments" means any of the following: (i) Investments in any
Wholly-Owned Subsidiary of Loewen (including (a) LGII and (b) any person that
pursuant to such Investment becomes a Wholly-Owned Subsidiary of Loewen) and any
person that is merged or consolidated with or into, or transfers or conveys all
or substantially all of its assets to, Loewen or any Wholly-Owned Subsidiary of
Loewen at the time such Investment is made; (ii) Investments in Cash
Equivalents; (iii) Investments in Currency Agreements on commercially reasonable
terms entered into by Loewen or any of its Restricted Subsidiaries in the
ordinary course of business in connection with the operations of the business of
Loewen or its Restricted Subsidiaries to hedge against fluctuations in foreign
exchange rates; (iv) loans or advances to officers, employees or consultants of
Loewen and its Restricted Subsidiaries for travel and moving expenses in the
ordinary course of business for bona fide business purposes of Loewen and its
Restricted Subsidiaries; (v) other loans or advances to officers, employees or
consultants of Loewen and its Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes of Loewen and its Restricted
Subsidiaries not in excess of $10,000,000 in the aggregate at any one time
outstanding; (vi) Investments in evidences of Indebtedness, securities or other
property received from another person by Loewen or any of its Restricted
Subsidiaries in connection with any bankruptcy proceeding or by reason of a
composition or readjustment of debt or a reorganization of such person or as a
result of foreclosure, perfection or enforcement of any Lien in exchange for
evidences of Indebtedness, securities or other property of such person held by
Loewen or any of its Restricted Subsidiaries, or for other liabilities or
obligations of such other person to Loewen or any of its Restricted Subsidiaries
that were created, in accordance with the terms of the Indenture; (vii)
Investments in Interest Rate Protection Agreements on commercially reasonable
terms entered into by Loewen or any of its Restricted Subsidiaries in the
ordinary course of business in connection with the operations of Loewen and its
Restricted Subsidiaries to hedge against fluctuations in interest rates; and
(viii) Investments of funds received by Loewen or its Restricted Subsidiaries
(including, without limitation, LGII) in the ordinary course of business, which
funds are required to be held in trust for the benefit of others by Loewen or
such Restricted Subsidiary, as the case may be, and which funds do not
constitute assets or liabilities of Loewen or such Restricted Subsidiary; (ix)
Investments not in excess of $50,000,000 in the aggregate in other Unrestricted
Subsidiaries which are engaged in the insurance business; and (x) Investments
not in excess of $50,000,000 in persons (other than Wholly-Owned Subsidiaries)
engaged in businesses incidental to the funeral home, cemetery and cremation
businesses of Loewen and its Restricted Subsidiaries.
"Related Obligor" means Loewen or a Restricted Subsidiary of Loewen.
LIMITATION ON ISSUANCES AND SALE OF PREFERRED STOCK BY RESTRICTED
SUBSIDIARIES. Loewen (a) will not permit any of its Restricted Subsidiaries
(including, without limitation, LGII) to issue any Preferred Stock (other than
(i) Preferred Stock issued to Loewen or a Wholly-Owned Subsidiary of Loewen and
(ii) Preferred Securities of a Special Finance Subsidiary, defined herein); and
(b) will not permit any person to own any Preferred Stock of any Restricted
Subsidiary of Loewen (other than (i) Preferred Stock owned by Loewen or a
Wholly-Owned Subsidiary of Loewen and (ii) Preferred Securities of a Special
Finance Subsidiary); PROVIDED, HOWEVER, that this covenant shall not prohibit
the issuance and sale of (x) all, but not less than all, of the issued and
outstanding Capital Stock of any Restricted Subsidiary of Loewen owned by Loewen
or any of its Restricted Subsidiaries in compliance with the other provisions of
the Indenture or (y) directors' qualifying shares or investments by foreign
nationals mandated by applicable law.
"Special Finance Subsidiary" means a Restricted Subsidiary whose sole assets
are debt obligations of LGII or Loewen and whose sole liabilities are Preferred
Securities, the proceeds from the sale of which are or have been advanced to
LGII or Loewen.
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LIMITATION ON LIENS. Loewen will not, and will not permit any of its
Restricted Subsidiaries (including, without limitation, LGII) to, create, incur,
assume or suffer to exist any Liens of any kind against or upon any of its
property or assets, or any proceeds therefrom where the aggregate amount of
Indebtedness secured by any such Liens, together with the aggregate amount of
property subject to any Sale-Leaseback Transactions of Loewen and its Restricted
Subsidiaries (other than Permitted Sale-Leaseback Transactions, defined herein),
exceeds 10% of Loewen's Consolidated Net Worth, unless (x) in the case of Liens
securing Indebtedness that is subordinate or junior in right of payment to the
Debt Securities, the Debt Securities are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (y) in all other
cases, the Debt Securities are equally and ratably secured except for (a) Liens
existing as at the Measurement Date; (b) Liens securing the Debt Securities or
the Guarantees, if applicable; (c) Liens in favor of Loewen, LGII or any
Wholly-Owned Subsidiary; (d) Liens securing Indebtedness which is incurred to
refinance Indebtedness which has been secured by a Lien permitted under the
provisions of the Indenture and which has been incurred in accordance with the
provisions of the Indenture; PROVIDED, HOWEVER, that such Liens do not extend to
or cover any property or assets of Loewen or any of its Restricted Subsidiaries
not securing the Indebtedness so refinanced; and (e) Permitted Liens.
"Permitted Liens" means the following types of Liens: (a) Liens for taxes,
assessments or governmental charges or claims either (i) not delinquent or (ii)
contested in good faith by appropriate proceedings and as to which Loewen or any
of its Restricted Subsidiaries (including, without limitation, LGII) shall have
set aside on its books such reserves as may be required pursuant to Canadian
GAAP; (b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by Canadian GAAP shall have been made in respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, governmental contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) judgment Liens not giving rise to an
Event of Default so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; (e) easements,
rights-of-way, zoning restrictions and other similar charges or encumbrances in
respect of real property not interfering in any material respect with the
ordinary conduct of the business of Loewen or any of its Restricted Subsidiaries
(including, without limitation, LGII); (f) any interest or title of a lessor
under any Capitalized Lease Obligation or operating lease; (g) any Lien existing
on any asset of any corporation at the time such corporation becomes a
Restricted Subsidiary and not created in contemplation of such event; (h) any
Lien on any asset securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring or constructing such asset;
PROVIDED, that such Lien attaches to such asset concurrently with or within 18
months after the acquisition or completion thereof; (i) any Lien on any asset of
any corporation existing at the time such corporation is merged or consolidated
with or into Loewen or a Restricted Subsidiary and not created in contemplation
of such event; (j) any Lien existing on any asset prior to the acquisition
thereof by Loewen or a Restricted Subsidiary and not created in contemplation of
such acquisition; (k) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with the
importation of goods; and (l) any extension, renewal or replacement of any Lien
permitted by the preceding clauses (g), (h), (i) or (j) hereof in respect of the
same property or assets theretofore subject to such Lien in connection with the
extension, renewal or refunding of the Indebtedness secured thereby; PROVIDED
that (i) such Lien shall attach solely to the same property or assets and (ii)
such extension, renewal or refunding of such Indebtedness shall be without
increase in the principal remaining unpaid as at the date of such extension,
renewal or refunding.
"Permitted Sale-Leaseback Transactions" means any Sale-Leaseback Transaction
with respect to property acquired or constructed after the Issue Date; PROVIDED
that (a) the Attributable Value of such Sale-Leaseback Transaction shall be
deemed to be Indebtedness of Loewen or such Restricted Subsidiary,
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as the case may be, and (b) after giving PRO FORMA effect to any such
Sale-Leaseback Transaction and the foregoing clause (a), Loewen would be able to
incur $1.00 of additional Indebtedness pursuant to the covenant described under
"--Limitation on Indebtedness" (assuming a market rate of interest with respect
to such additional Indebtedness). For purposes of the foregoing, "Attributable
Value" means, as to any lease other than a Capitalized Lease Obligation and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such person under a lease during the
initial term thereof as determined in accordance with Canadian GAAP, discounted
from the last date of such initial term to the date of determination at a rate
per annum equal to the discount rate which would be applicable to a Capitalized
Lease Obligation with a like term in accordance with Canadian GAAP. The net
amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of rent payable by the lessee with respect to such
period after excluding amounts required to be paid on account of insurance,
taxes, assessments, utility, operating and labor costs and similar charges. In
the case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated. "Attributable Value" means,
as to a Capitalized Lease Obligation under which any person is at the time
liable and at any date as of which the amount thereof is to be determined, the
capitalized amount thereof that would appear on the face of a balance sheet of
such person in accordance with Canadian GAAP.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control (defined
herein), Loewen will be obligated to make an offer to purchase (a "Change of
Control Offer"), and shall purchase, on a Business Day (the "Change of Control
Purchase Date") not more than 60 nor less than 30 days following the occurrence
of the Change of Control, all of the then outstanding Debt Securities of each
series properly tendered and not withdrawn at a purchase price (the "Change of
Control Purchase Price") equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date. The
Change of Control Offer is required to remain open for at least 20 Business Days
and until the close of business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, Loewen shall not later than
the 30th day after the occurrence of a Change of Control, mail to each holder of
Debt Securities notice of the Change of Control Offer, which notice shall govern
the terms of the Change of Control Offer and shall state, among other things,
the procedures that holders of Debt Securities must follow to accept the Change
of Control Offer.
If a Change of Control were to occur, there can be no assurance that Loewen
would have sufficient funds to pay the purchase price for all Debt Securities
that Loewen might to required to purchase. In the event that Loewen is required
to purchase Debt Securities pursuant to a Change of Control Offer, Loewen
expects that it would need to seek third-party financing to the extent it may
not have available funds to meet its purchase obligations. However, there can be
no assurance that Loewen will be able to obtain such financing on favorable
terms, if at all.
Loewen shall be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in a manner, at the
times and otherwise in compliance with the requirements applicable to a Change
of Control Offer made by Loewen and purchases all Debt Securities validly
tendered and not withdrawn under such Change of Control Offer.
Loewen will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other securities laws or regulations
in connection with the repurchase of Debt Securities pursuant to a Change of
Control Offer.
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"Change of Control" means the occurrence on or after the Measurement Date of
any of the following events: (a) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise), directly or indirectly, of more than
35% of the total Voting Stock of Loewen or LGII, under circumstances where the
Permitted Holders (i) "beneficially own" (as so defined) a lower percentage of
the Voting Stock than such other "person" or "group" and (ii) do not have the
right or ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors of Loewen or LGII; (b) Loewen
or LGII consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to another person, or another person
consolidates with, or merges with or into, Loewen or LGII, in any such event
pursuant to a transaction in which the outstanding Voting Stock of Loewen or
LGII is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of Loewen
or LGII is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could then be paid by
Loewen or LGII as a Restricted Payment under the provisions hereof, and (ii)
immediately after such transaction no "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise), directly or indirectly, of more than
50% of the total Voting Stock of the surviving or transferee corporation; (c) at
any time during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Loewen or LGII
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders or stockholders of Loewen or
LGII was approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
(including the failure of such individuals to be elected in a proxy contest
involving a solicitation of proxies) to constitute a majority of the Board of
Directors of Loewen or LGII then in office; or (d) Loewen or LGII is liquidated
or dissolved or adopts a plan of liquidation other than a liquidation of LGII
into Loewen. With respect to the sale of assets referred to above, the meaning
of the phrase "all or substantially all" shall vary according to the facts and
circumstances of the subject transaction.
DISPOSITION OF PROCEEDS OF ASSET SALES. Loewen will not, and will not
permit any of its Restricted Subsidiaries (including, without limitation, LGII)
or First Capital Life Insurance Company of Louisiana, National Capital Life
Insurance Company, Security Industrial Insurance Company, Security Industrial
Fire Insurance Company or any successors to such Subsidiaries to, make any Asset
Sale (defined herein) unless (a) Loewen or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 75% of such consideration consists of cash or Cash
Equivalents. To the extent the Net Cash Proceeds (defined herein) of any Asset
Sale are not required to be applied to repay, and permanently reduce the
commitments under, the Credit Agreements (as required by the terms thereof) or
any other Pari Passu Indebtedness, or are not so applied, Loewen or such
Restricted Subsidiary, as the case may be, may, within 180 days of such Asset
Sale, apply such Net Cash Proceeds to an investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the business of Loewen and its
Restricted Subsidiaries existing on the Issue Date or in businesses reasonably
related thereto ("Replacement Assets"). Any Net Cash Proceeds from any Asset
Sale that are neither used to repay, and permanently reduce the commitments
under, the Credit Agreements nor invested in Replacement Assets within the
180-day period described above constitute "Excess Proceeds" subject to
disposition as provided below.
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When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
Loewen shall make an offer to purchase (an "Asset Sale Offer"), from all holders
of each series of Debt Securities, not more than 40 Business Days thereafter, an
aggregate principal amount of Debt Securities equal to such Excess Proceeds, at
a price in cash equal to 100% of the outstanding principal amount thereof plus
accrued and unpaid interest, if any, to the purchase date (the "Asset Sale Offer
Price"). To the extent that the aggregate principal amount of Debt Securities
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
Loewen may use such deficiency for general corporate purposes. If the aggregate
principal amount of Debt Securities validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, Debt Securities to be purchased
will be selected on a PRO RATA basis. Upon completion of an Asset Sale Offer,
the amount of Excess Proceeds shall be reset to zero.
Loewen will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other securities laws or regulations
in connection with the repurchase of Debt Securities pursuant to any Asset Sale
Offer.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any person other than Loewen or a
Restricted Subsidiary of Loewen (including, without limitation, LGII), in one or
a series of related transactions, of (a) any Capital Stock of any Restricted
Subsidiary of Loewen (other than in respect of directors' qualifying shares or
investments by foreign nationals mandated by applicable law) or of First Capital
Life Insurance Company of Louisiana, National Capitol Life Insurance Company,
Security Industrial Insurance Company, Security Industrial Fire Insurance
Company or any successors to such Subsidiaries; (b) all or substantially all of
the properties and assets of any division or line of business of Loewen or any
Restricted Subsidiary of Loewen; or (c) any other properties or assets of Loewen
or any Restricted Subsidiary of Loewen other than properties and assets sold in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include (i) any sale, transfer or other disposition of
equipment, tools or other assets (including Capital Stock of any Restricted
Subsidiary of Loewen) by Loewen or any of its Restricted Subsidiaries in one or
a series of related transactions in respect of which Loewen or such Restricted
Subsidiary receives cash or property with an aggregate Fair Market Value of
$2,000,000 or less; and (ii) any sale, issuance, conveyance, transfer, lease or
other disposition of properties or assets that is governed by the provisions of
the applicable Indenture.
"Net Cash Proceeds" means with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to Loewen or any Restricted Subsidiary of Loewen (including,
without limitation, LGII) net of (i) brokerage commissions and other fees and
expenses (including, without limitation, fees and expenses of legal counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) amounts required to be paid to any
person (other than Loewen or any Restricted Subsidiary of Loewen) owning a
beneficial interest in the assets subject to the Asset Sale and (iv) appropriate
amounts to be provided by Loewen or any Restricted Subsidiary of Loewen, as the
case may be, as a reserve required in accordance with Canadian GAAP against any
liabilities associated with such Asset Sale and retained by Loewen or any
Restricted Subsidiary of Loewen, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee.
LIMITATION ON TRANSACTIONS WITH INTERESTED PERSONS. Loewen will not, and
will not permit any of its Restricted Subsidiaries (including, without
limitation, LGII) to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, transfer, disposition, purchase, exchange or lease of assets, property
or services) with, or for the benefit of, any Affiliate of Loewen or any
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately, after the passage of time or upon the happening of an
event) of 5% or more of the Common Shares at any time outstanding ("Interested
Persons"), unless (a) such transaction or series of related transactions are on
terms that are no less
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favorable to Loewen or such Restricted Subsidiary, as the case may be, than
those which could have been obtained in a comparable transaction at such time
from persons who are not Affiliates of Loewen or Interested Persons, (b) with
respect to a transaction or series of transactions involving aggregate payments
or value equal to or greater than $10,000,000, Loewen has obtained a written
opinion from an Independent Financial Advisor stating that the terms of such
transaction or series of transactions are fair to Loewen or its Restricted
Subsidiary, as the case may be, from a financial point of view and (c) with
respect to a transaction or series of transactions involving aggregate payments
or value equal to or greater than $2,500,000, Loewen shall have delivered an
Officer's Certificate to the Trustee certifying that such transaction or series
of transactions comply with the preceding clause (a) and, if applicable,
certifying that the opinion referred to in the preceding clause (b) has been
delivered and that such transaction or series of transactions has been approved
by a majority of the Board of Directors of Loewen (including a majority of the
disinterested directors); PROVIDED, HOWEVER, that this covenant will not
restrict Loewen from (i) paying dividends in respect of its Capital Stock
permitted under the covenant described under "--Limitation on Restricted
Payments," (ii) paying reasonable and customary fees to directors of Loewen or
any Restricted Subsidiary who are not employees of Loewen or any Restricted
Subsidiary, (iii) entering into transactions with its Wholly-Owned Subsidiaries
or permitting its Wholly-Owned Subsidiaries from entering into transactions with
other Wholly-Owned Subsidiaries of Loewen, (iv) making loans or advances to
senior officers and directors of Loewen or any Restricted Subsidiary not in
excess of $6,000,000 in the aggregate at any one time outstanding, (v)
guaranteeing loans made to officers and other employees of Loewen or any
Restricted Subsidiaries in connection with Loewen's 1994 Management Equity
Investment Plan not in excess of $6,000,000 in the aggregate at any one time
outstanding, (vi) making loans or advances to officers, employees or consultants
of Loewen and its Restricted Subsidiaries for travel and moving expenses in the
ordinary course of business for bona fide business purposes of Loewen and its
Restricted Subsidiaries, (vii) making other loans or advances to officers,
employees or consultants of Loewen and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes of Loewen and its
Restricted Subsidiaries not in excess of $10,000,000 in the aggregate at any one
time outstanding, (viii) making payments to officers or employees of Loewen or
its Restricted Subsidiaries pursuant to obligations undertaken, at a time when
such persons were not officers or employees of Loewen or its Restricted
Subsidiaries, in connection with arms' length Asset Acquisitions or (ix)
declaring or paying dividends on, or purchasing or redeeming, the Preferred
Securities of a Special Finance Subsidiary.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. Loewen will not, and will not permit any of its Restricted
Subsidiaries (including, without limitation, LGII) to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary of Loewen to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock or any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness owed to Loewen or any other
Restricted Subsidiary of Loewen, (c) make loans or advances to, or any
Investment in, Loewen or any other Restricted Subsidiary of Loewen, (d) transfer
any of its properties or assets to Loewen or any other Restricted Subsidiary of
Loewen or (e) guarantee any Indebtedness of Loewen or any other Restricted
Subsidiary of Loewen, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of Loewen
or any Restricted Subsidiary of Loewen, (iii) customary restrictions on
transfers of property subject to a Lien permitted under the provisions of the
Indenture which could not materially adversely affect Loewen's ability to
satisfy its obligations under the provisions of the applicable Indenture and the
Debt Securities, (iv) any agreement or other instrument of a person acquired by
Loewen or any Restricted Subsidiary of Loewen (or a Restricted Subsidiary of
such person) in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any person, or the properties or assets of any person, other than the person, or
the properties or assets of the person, so acquired, (v) provisions contained in
any agreement or instrument relating to Indebtedness which prohibit the transfer
of all or substantially all of the assets of the obligor thereunder unless the
transferee shall assume the obligations of the obligor under such agreement or
instrument and (vi) encumbrances and restrictions under Indebtedness in effect
on the Issue Date (including under the
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Debt Securities) and encumbrances and restrictions in permitted refinancings or
replacements thereof which are no less favorable to the holders of the Debt
Securities than those contained in the Indebtedness so refinanced or replaced.
LIMITATIONS ON SALE-LEASEBACK TRANSACTIONS. Loewen will not, and will not
permit any of its Restricted Subsidiaries (including, without limitation, LGII)
to, enter into any Sale-Leaseback Transaction, other than Permitted
Sale-Leaseback Transactions, with respect to any property of Loewen or any of
its Restricted Subsidiaries where the aggregate amount of property subject to
such Sale-Leaseback Transactions, together with the aggregate amount of Liens
securing Indebtedness of Loewen and its Restricted Subsidiaries (other than
Permitted Liens), exceeds 10% of Loewen's Consolidated Net Worth.
LIMITATION ON APPLICABILITY OF CERTAIN COVENANTS. During any period of time
that (i) the ratings assigned to any series of Debt Securities by each of S&P
and Moody's (collectively, the "Rating Agencies") are no less than BBB- and
Baa3, respectively (the "Investment Grade Ratings"), and (ii) no Default or
Event of Default has occurred and is continuing with respect to such series of
Debt Securities, Loewen and its Restricted Subsidiaries (including, without
limitation, LGII) will not be subject to the covenants entitled "Limitation on
Indebtedness," "Limitation on Restricted Payments," "Disposition of Proceeds of
Asset Sales," "Limitation on Issuances and Sale of Preferred Stock by Restricted
Subsidiaries," "Limitations on Transactions with Interested Persons" and
"Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries" (collectively, the "Suspended Covenants") with respect to such
series of Debt Securities. If one or both Rating Agencies withdraws its rating
or downgrades its Investment Grade Rating, then thereafter Loewen and its
Restricted Subsidiaries will be subject, on a prospective basis, to the
Suspended Covenants (until the Rating Agencies have again assigned Investment
Grade Ratings to the Debt Securities) and compliance with the Suspended
Covenants with respect to Restricted Payments made after the time of such
withdrawal or downgrade will be calculated in accordance with the covenant
described under "Limitations on Indebtedness," as if such covenant had been in
effect at all times after the Measurement Date.
REPORTING REQUIREMENTS
Loewen shall file with the Commission, or if not permitted or required to so
file will deliver to the Trustee, the annual reports, quarterly reports and the
information, documents and other reports required to be filed with the
Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not
Loewen has a class of securities registered under the Exchange Act. Loewen shall
file with the Trustee and provide to each holder of Debt Securities, within 15
days after it files them with the Commission (or if such filing is not permitted
under the Exchange Act, 15 days after Loewen would have been required to make
such filing), copies of such reports.
EVENTS OF DEFAULT
The following will be "Events of Default" with respect to each series of
Debt Securities:
(a) default in the payment of the principal of or premium, if any, on
the Debt Securities of such series as and when the same shall become due and
payable (upon maturity, acceleration, optional redemption, required
purchase, scheduled principal payment, by declaration or otherwise); or
(b) default in the payment of any installment of interest upon any of
the Debt Securities of such series, as and when the same shall become due
and payable, and continuance of such default for a period of 30 days; or
(c) failure on the part of Loewen duly to observe or perform any other
term, covenant or agreement contained in the Debt Securities of such series
or pursuant to the provisions of the Indenture (other than Defaults
specified in clause (a) or (b) above) and such Default continues for a
period of 60 days after the date on which written notice of such Default
requiring Loewen to remedy the same shall have been given (i) to the Issuer
by the Trustee by registered mail, or (ii) to Loewen and the Trustee by
holders of at least 25% in aggregate principal amount of the Debt Securities
of such series then outstanding; or
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(d) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
Loewen or any Restricted Subsidiary (including, without limitation, LGII)
then has outstanding Indebtedness in excess of $20,000,000 (including
Securities of another series), individually or in the aggregate, and either
(i) such Indebtedness is already due and payable in full or (ii) such
default or defaults have resulted in the acceleration of the maturity of
such Indebtedness; or
(e) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $20,000,000, either individually or in the aggregate, shall be
entered against Loewen or any Restricted Subsidiary (including without
limitation LGII) or any of their respective properties and shall not be
discharged or bonded against or stayed and there shall have been a period of
60 days after the date on which any period for appeal has expired and during
which a stay of enforcement of such judgment, order or decree, shall not be
in effect; or
(f) either (i) the collateral agent under the Collateral Agreement or
(ii) any holder of at least $20,000,000 in aggregate principal amount of
Indebtedness of Loewen or any of its Restricted Subsidiaries (including,
without limitation, LGII) shall commence judicial proceedings to foreclose
upon assets of Loewen or any of its Restricted Subsidiaries having an
aggregate Fair Market Value, individually or in the aggregate, in excess of
$20,000,000 or shall have exercised any right under applicable law or
applicable security documents to take ownership of any such assets in lieu
of foreclosure; or
(g) certain events of bankruptcy, insolvency or reorganization with
respect to Loewen or any Significant Subsidiary of Loewen (including without
limitation LGII) shall have occurred.
NOTICE OF DEFAULT
Within 90 days after the occurrence of a Default or an Event of Default with
respect to Debt Securities of any series, the Trustee shall mail to all holders
of Debt Securities of such series notice of the Default or Event of Default
known to the Trustee with respect to such series, unless such default shall have
been cured before the giving of such notice. Except in the case of a Default in
the payment of the principal of, premium, if any, or interest on any Debt
Securities, or in the payment or satisfaction of any sinking fund or other
purchase obligation, the Trustee may withhold such notice if and so long as the
board of directors, the executive committee of the board of directors or a
committee of the directors of the Trustee and/or Trust Officers in good faith
determine that the withholding of such notice is in the interest of the holders
of the Debt Securities of such series.
ACCELERATION
If an Event of Default (other than as specified in clause (g) above) occurs
and is continuing with respect to the Debt Securities of any series then
outstanding, (a) the Trustee, by written notice to Loewen, or (b) the holders of
at least 25% in aggregate principal amount of the Debt Securities of such series
then outstanding, by written notice to the Trustee and Loewen, may declare the
principal amount (or, if the Debt Securities of such series are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of such series) of all the Debt Securities of such series, premium, if
any, and accrued and unpaid interest, if any, on all of the Debt Securities of
such series to be due and payable immediately, upon which declaration, all
amounts payable in respect of the Debt Securities of such series shall be
immediately due and payable. If an Event of Default specified in clause (g)
above occurs and is continuing, then the unpaid principal amount (or, if the
Debt Securities of any series then outstanding are Original Issue Discount
Securities, such portion of the principal amounts as may be specified in the
terms of each such series), premium, if any, and accrued and unpaid interest on
all Debt Securities of each series then outstanding shall IPSO FACTO become and
be immediately due and payable without any declaration or other act by the
Trustee or any holder of Debt Securities of such series.
After a declaration of acceleration hereunder with respect to Debt
Securities of any series, but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the holders of a
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majority in aggregate principal amount of the outstanding Debt Securities of
such series, by written notice to Loewen and the Trustee, may rescind and annul
such declaration and its consequences if (a) Loewen has paid or deposited with
the Trustee a sum sufficient to pay (i) all amounts due the Trustee under the
respective Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
on all Debt Securities of such series, (iii) the principal of and premium, if
any, on any Debt Securities of such series which have become due otherwise than
by such declaration of acceleration and interest thereon at the rate borne by
the Debt Securities of such series, and (iv) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal which
has become due otherwise than by such declaration of acceleration at the rate
borne by the Debt Securities of such series; (b) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of principal of, premium,
if any, and interest on the Debt Securities of such series that has become due
solely by such declaration of acceleration, have been cured or waived; but no
such rescission and annulment shall extend to or shall affect any subsequent
default, or shall impair any right consequent thereon. No such rescission shall
affect any subsequent Default or Event of Default or impair any right subsequent
thereon.
WAIVER
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of a series by notice to the Trustee may, on behalf of the
holders of all the Debt Securities of such series, waive any existing Default or
Event of Default and its consequences, except a Default or Event of Default
specified in clause (a) or (b) above, or in respect of any provision of the
Indenture which cannot be modified or amended without the consent of the holder
so affected. When a Default or Event of Default is so waived, it shall be deemed
cured and shall cease to exist.
LIMITATION ON SUITS
No holder of any Debt Securities of any series shall have any right to
institute any suit, action or proceeding with respect to an Indenture or the
Debt Securities of such series, or for the appointment of a receiver or trustee
or similar official, or for any other remedy hereunder or thereunder, unless:
(1) the holder gives written notice to the Trustee of a continuing Event of
Default; (2) the holders of at least 25% in aggregate principal amount of the
Debt Securities of such series then outstanding shall have made written request
to the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder; (3) such holder or holders offer and, if requested, provide
to the Trustee reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby; (4) the Trustee for
60 days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding; and
(5) during such 60-day period the holders of a majority in aggregate principal
amount of the Debt Securities of such series then outstanding do not give the
Trustee a direction which is inconsistent with the request; it being understood
and intended, and being expressly covenanted by the holder of every Debt
Security of such series with every other taker and holder and the Trustee, that
no one or more holders of Debt Securities of such series shall have any right in
any manner whatever by virtue of or by availing of any provision of an Indenture
or of the Debt Securities to affect, disturb or prejudice the rights of any
other holder of Debt Securities of such series, or to obtain or seek to obtain
priority over or preference as to any other such holder, or to enforce any right
under an Indenture or the Debt Securities of any series, except in the manner
herein provided and for the equal, ratable and common benefit of all holders of
Debt Securities of such series.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Debt Securities of any series
or to enforce the performance of any provision of the applicable Debt Securities
or Indenture.
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CERTIFICATES OF COMPLIANCE
Loewen shall furnish to the Trustee annual and quarterly statements as to
the performance by Loewen of its obligations under the Indenture and as to any
default in such performance. Loewen is also required to notify the Trustee
within 10 days of any event which is, or after notice or lapse of time or both
would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE
Loewen may, at its option and at any time, terminate its obligations with
respect to an outstanding series of Debt Securities ("defeasance"). Such
defeasance means that Loewen shall be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Debt Securities of such
series, except for (i) the rights of holders of outstanding Debt Securities of
such series to receive payment in respect of the principal of, premium, if any,
and interest on such Debt Securities when such payments are due, (ii) Loewen's
obligations to issue temporary Debt Securities of such series, register the
transfer or exchange of any Debt Securities of such series, replace mutilated,
destroyed, lost or stolen Debt Securities of such series and maintain an office
or agency for payments in respect of the Debt Securities of such series, (iii)
the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the
defeasance provisions of the Indenture. In addition, Loewen may, at its option
and at any time, elect to terminate its obligations with respect to certain
covenants that are set forth in the Indenture, some of which are described
above, and any subsequent failure to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Debt Securities of
such series ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) Loewen
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Debt Securities of such series, cash in United States dollars,
U.S. Government Obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Debt Securities of such series to maturity (except lost, stolen
or destroyed Debt Securities of such series which have been replaced or paid);
(ii) Loewen shall have delivered to the Trustee an opinion of counsel to the
effect that the holders of the outstanding Debt Securities of such series will
not recognize income, gain or loss for federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred (in the
case of defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit; (iv) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest with respect to any securities
of Loewen; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument to which Loewen is a party or by which it is bound; (vi) Loewen shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar law
affecting creditors' rights generally; and (vii) Loewen shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent under the Indenture to either defeasance or
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture with respect to a series of Debt Securities will be discharged
and will cease to be of further effect (except as to surviving rights or
registration of transfer or exchange of the Debt Securities, as expressly
provided for in the Indenture) as to all outstanding Debt Securities of such
series when (i) either (a) all of the Debt Securities of such series theretofore
authenticated and delivered (except lost, stolen or destroyed Debt Securities of
such series which have been replaced or repaid and Debt Securities of such
series for whose payment money has theretofore been deposited in trust or
segregated and held in trust by Loewen and thereafter repaid to Loewen or
discharged from such trust) have been delivered to the Trustee
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for cancellation or (b) all Debt Securities of such series have been called for
redemption or otherwise become due and payable and Loewen has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Debt Securities
of such series not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Debt Securities of such
series to the date of deposit together with irrevocable instructions from Loewen
directing the Trustee to apply such funds to the payment thereof at maturity;
(ii) Loewen have paid all other sums payable by Loewen under the Indenture;
(iii) there exists no Default or Event of Default under the Indenture; and (iv)
Loewen has delivered to the Trustee an officers' certificate and an opinion of
counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
Loewen and the Trustee may from time to time and at any time amend or
supplement an Indenture (a) to cure any ambiguity, defect or inconsistency or to
correct or supplement any provision contained herein or in any supplemental
indenture which may be defective or inconsistent with any other provision
contained herein or in any supplemental indenture, or to make any other
provisions as to Loewen may deem necessary or desirable, provided that no such
action shall adversely affect the interests of the holders of any series of Debt
Securities; (b) to evidence the succession of another corporation to Loewen, or
successive successions, and the assumption by the successor corporation of the
covenants, agreements and obligations of Loewen; (c) to establish the form or
terms of Debt Securities of any series and to provide for adjustment of
conversion rights; (d) to comply with any requirements of the Commission in
order to effect or maintain the qualification of any Indenture under the Trust
Indenture Act of 1939, as amended (the "TIA"); (e) to evidence and provide for
the acceptance of appointment by a successor trustee with respect to the Debt
Securities of one or more series and to add to or change any of the provisions
of an Indenture as shall be necessary to provide for or facilitate the
administration of trusts by more than one trustee; and (f) to add to the
covenants of Loewen such further covenants, restrictions, conditions or
provisions as Loewen and the Trustee shall consider to be for the protection of
the holders of all or any series of Debt Securities (and if such covenants,
restrictions, conditions or provisions are to be for the protection of less than
all series of Debt Securities, stating that the same are expressly being
included solely for the protection of such series), and to make the occurrence,
or the occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an Event of Default; provided,
that in respect of any such additional covenant, restriction, condition or
provision a supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed in the
case of other defaults) or may provide for an immediate enforcement upon such an
Event of Default or may limit the remedies available to the Trustee upon such an
Event of Default or may limit the right of the holders of a majority in
aggregate principal amount of the Debt Securities of such series to waive such
Event of Default.
Any supplemental indenture authorized by an Indenture may be executed
without the consent of the holders of any of the Debt Securities then
outstanding. Notwithstanding the foregoing, the Trustee and Loewen may not make
any change to an Indenture that adversely affects the rights of any holders of
outstanding Debt Securities. Loewen shall be required to deliver to the Trustee
an Opinion of Counsel stating that any such change does not adversely affect the
rights of any holder.
GLOBAL DEBT SECURITIES
Debt Securities of a series may be issued in whole or in part in the form of
one or more fully registered global securities (a "Registered Global Security")
that may be deposited with a depositary ("Depositary") or with a nominee for the
Depositary identified in the applicable Prospectus Supplement. In such case, one
or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of Debt Securities of the series to be represented by such Registered Global
Security or Securities. Unless and until it is exchanged in whole or in part for
Debt Securities in definitive certificated form, a Registered Global Security
may not be
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registered for transfer or exchange except as a whole by the Depositary for such
Registered Global Security to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary to any such nominee to a successor Depositary for such series or
a nominee of such successor Depositary and except in the circumstances described
in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to a portion
of a series of Debt Securities to be represented by a Registered Global Security
will be described in the applicable Prospectus Supplement. Loewen expects that
the following provisions will apply to any such depositary arrangements.
Upon the issuance of any Global Registered Securities, the Depositary will
credit, on its internal book-entry system, the principal amount of Debt
Securities of the individual beneficial interest represented by such Global
Registered Securities to the respective accounts of institutions
("participants") that have accounts with the Depositary or its nominee. The
accounts to be credited will be designated by the underwriters or agents
engaging in the distribution of such Debt Securities or by Loewen if such Debt
Securities are offered and sold directly by Loewen. Ownership of beneficial
interests by participants in such Registered Global Security will be shown on,
and the transfer of that ownership interest will be effected only through,
records maintained by the Depositary for such Registered Global Security or by
its nominee. Ownership of beneficial interests in such Registered Global
Security by persons that hold such interests through a participant will be shown
on, and the transfer of such ownership interests will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interest in such Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented thereby for all purposes under the Indentures.
Unless otherwise specified in the applicable Prospectus Supplement and except as
specified below, owners of beneficial interests in such Registered Global
Security will not be entitled to have Debt Securities of the series represented
by such Registered Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
certificated form and will not be considered the holders thereof for any
purposes under the Indentures. Accordingly, each person owning a beneficial
interest in such Registered Global Security will be required to rely on the
procedures of the Depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise the rights of a holder under the Indentures. The Depositary may grant
proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action which
a holder is entitled to give or take under the applicable Indenture. Loewen
understands that, under existing industry practices, if Loewen requests any
action of holders or an owner of a beneficial interest in a Registered Global
Security desires to give any notice or take any action a holder is entitled to
give or take under the applicable Indenture, the Depositary would authorize the
participants to give such notice or take such action, and participants would
authorize beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Unless otherwise specified in the applicable Prospectus Supplement, payments
with respect to principal of, premium, if any and interest, if any, on Debt
Securities represented by a Registered Global Security registered in the name of
a Depositary or its nominee will be made to such Depositary or its nominee, as
the case may be, as the registered owners of such Registered Global Security.
Loewen expects that the Depositary for any Debt Securities represented by a
Registered Global Security, upon receipt of any payment of principal, premium or
interest will immediately credit participants' accounts with payment in amounts
proportionate to their respective beneficial interest in the principal amount of
such Registered Global Security as shown on the records of such Depositary.
Loewen also expects that payments by participants to owners of beneficial
interests in such Registered Global
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Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names" and will be the
responsibility of such participants. None of Loewen, the Trustee or any agent of
Loewen shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Registered Global Security, or for maintaining, supervising, or reviewing any
records relating to such beneficial ownership interests.
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depositary for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by Loewen within 90 days, Loewen will issue such
Debt Securities in definitive certificated form in exchange for such Registered
Global Security. In addition, Loewen may at any time and in its sole discretion
determine not to have any of the Debt Securities of a series represented by one
or more Registered Global Securities and, in such event, will issue Debt
Securities of such series in definitive certificated form in exchange for all of
the Registered Global Securities representing such Debt Securities. Further, if
Loewen so specifies with respect to Debt Securities of any series an owner of a
beneficial interest in a Registered Global Security representing Debt Securities
of such series may, on terms acceptable to Loewen and the Depositary, receive
Debt Securities of such series in definitive form registered in the name of such
beneficial owner or its designee.
THE TRUSTEE
Unless otherwise specified in the applicable Prospectus Supplement, Fleet
National Bank, or its successor, shall be the Trustee under each Indenture. The
Indentures provide that, except during the continuance of an Event of Default,
the Trustee will perform only such duties as are specifically set forth in the
Indenture. If any Event of Default has occurred and is continuing the Trustee
will exercise such rights and powers vested in it under the applicable Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
The Indentures, including provisions of the TIA incorporated by reference
therein, will contain limitations on the rights of the Trustee should it become
a creditor of Loewen, to obtain payment of claims in certain cases or to realize
on certain property received by it in respect of any such claims, as security or
otherwise.
In addition to serving as Trustee under the Indentures, Fleet National Bank
also serves as trustee under (a) the Indenture dated as of March 20, 1996, as
amended (the "March 1996 Indenture"), among LGII, Loewen, as Guarantor, and
Fleet National Bank, as trustee, and (b) the Indenture dated as of October 1,
1996, as amended (the "October 1996 Indenture") among LGII, Loewen, as
Guarantor, and Fleet National Bank, as trustee. In March 1996, LGII issued
$225,000,000 7 1/2% Series 1 Senior Guaranteed Notes due 2001 and $125,000,000
8 1/4% Series 2 Senior Guaranteed Notes due 2003 under the March 1996 Indenture,
and in October 1996, LGII issued $125,000,000 7 3/4% Series 3 Senior Guaranteed
Notes due 2001 and $225,000,000 8 1/4% Series 4 Senior Guaranteed Notes due 2003
under the October 1996 Indenture. Pursuant to the TIA, in certain circumstances,
if an event of default were to occur under the March 1996 Indenture, the October
1996 Indenture and/or any Indenture relating to Debt Securities, Fleet National
Bank could be required to resign as trustee under one or more of such
indentures. If Fleet National Bank were to resign as trustee, Loewen or LGII
would be required to take prompt steps to have a successor trustee or trustees
appointed in the manner provided in the indenture or indentures from which Fleet
National Bank has resigned.
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<PAGE>
DESCRIPTION OF SHARE CAPITAL
The authorized capital of Loewen consists of 990,000,000 shares without par
value divided into 750,000,000 Common Shares, 40,000,000 Class A shares without
par value ("Class A Shares"), and 200,000,000 First Preferred Shares without par
value ("First Preferred Shares").
The following description of the capital stock of Loewen does not purport to
be complete and is qualified in its entirety by reference to Loewen's Altered
Memorandum and Articles, as amended, and the Shareholder Protection Rights Plan
Agreement, as amended (the "Rights Plan"), each of which is filed as an Exhibit
to the Registration Statement of which this Prospectus forms a part.
GENERAL
If Common Shares or Preferred Shares are offered hereby, reference is made
to the Prospectus Supplement which accompanies this Prospectus for a description
of such Securities, including (a) with respect to Common Shares, the number of
shares or the aggregate market value of the shares being offered, the initial
offering price, and market price and dividend information, and (b) with respect
to Preferred Shares, as applicable, the specific designation, number of shares
offered, the initial offering price, liquidation preference, stated value per
share, dividend rate (which may be fixed or variable), place or places where
dividends on such Preferred Shares will be payable, terms of conversion, sinking
fund provisions, redemption provisions, voting rights, preemption rights,
restrictions on transferability, listing or application for listing on a
securities exchange or interdealer quotation system, restrictions on the
repurchase or redemption of such Preferred Shares by Loewen if there is any
arrearage in the payment of dividends or sinking fund installments, and any
other rights, preferences, privileges, limitations or restrictions relating to
such Preferred Shares.
COMMON SHARES
Each Common Share carries one vote on a poll (ballot) at all meetings of
shareholders, participates equally in any dividend declared by the Board of
Directors on such shares (subject to the dividend priority of any First
Preferred Shares) and carries the right to receive (after the return of capital
and accrued but unpaid dividends on the outstanding First Preferred Shares, if
any) a proportionate share of the assets of Loewen available for distribution in
the event of the liquidation, dissolution or winding up of Loewen, whether
voluntary or involuntary, or in the event of any other distribution of assets of
Loewen among its shareholders for the purpose of winding up its affairs (a
"Liquidation"). The Common Shares and the Class A Shares rank equally as to
dividends and distribution on winding up. See "--Class A Shares."
CLASS A SHARES
The Class A Shares, which rank PARI PASSU with the Common Shares, were
created in connection with the issuance of warrants to the purchasers of certain
subordinated debentures issued by Loewen. All of the warrants to acquire Class A
Shares were exercised by the debenture holders when Loewen made its initial
public offering, and all of the issued Class A Shares have been converted into
Common Shares.
FIRST PREFERRED SHARES
First Preferred Shares may be issued from time to time in one or more series
and in such numbers and with such special rights and restrictions attached to
each series as the Board of Directors of Loewen determines. The First Preferred
Shares, as a class, are entitled to preference over the Common Shares and shares
of any other class ranking junior to the First Preferred Shares with respect to
the payment of dividends or the distribution of assets in the event of a
Liquidation. In the event of non-payment of the full amount of dividends payable
or any other amount payable on winding up or other return of capital, the First
Preferred Shares of each series will participate ratably with the First
Preferred Shares of every other series in accordance with the respective amounts
payable.
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<PAGE>
SERIES A PREFERRED SHARES
In March 1988, the Board of Directors designated 1,000,000 First Preferred
Shares as 7.75% Cumulative Redeemable Convertible First Preferred Shares, Series
A ("Series A Preferred Shares"), all of which shares were issued on March 30,
1988. All of the Series A Preferred Shares were converted to Common Shares on or
prior to May 29, 1990.
SERIES B PREFERRED SHARES
In June 1994, in connection with the 1994 Management Equity Investment Plan
("MEIP"), the Board of Directors of Loewen designated 425,000 First Preferred
Shares as Series B Preferred Shares. As of the date hereof, no Series B
Preferred Shares have been issued. Each Series B Preferred Share will be
convertible into ten Common Shares at any time before July 15, 2011. As and when
cash dividends are declared on the Common Shares, the holders of Series B
Preferred Shares are entitled to equivalent cash dividends in proportion to the
conversion basis. The Series B Preferred Shares are non-voting.
Participants in the MEIP were issued investment options ("Investment
Options") to acquire debentures of LGII ("MEIP Debentures"). In connection
therewith, Loewen entered into an exchange acknowledgment dated as of June 14,
1994, pursuant to which Loewen will issue Series B Preferred Shares to
participants in the MEIP in exchange for their MEIP Debentures. Participants in
the MEIP have undertaken that, immediately upon exercising their Investment
Options, they will exchange the MEIP Debentures acquired thereby for Series B
Preferred Shares. Canadian participants have further undertaken that,
immediately upon such exchange, they will convert their Series B Preferred
Shares into Common Shares. Pursuant to the MEIP, Raymond L. Loewen, Chairman of
the Board and Chief Executive Officer of Loewen, has entered into a binding
commitment to purchase MEIP Debentures. At his option, Mr. Loewen may hold the
Series B Preferred Shares that he acquires on exchange of such MEIP Debentures.
It is unlikely that any participants in the MEIP will be entitled to purchase
MEIP Debentures, and exchange them for Series B Preferred Shares, before June
15, 1999.
SERIES C PREFERRED SHARES
In December 1995, the Board of Directors designated 880,000 First Preferred
Shares as Series C Preferred Shares. In May 1996, each Series C Preferred Share
was subdivided into ten Series C Preferred Shares; accordingly, currently
8,800,000 First Preferred Shares are designated as Series C Preferred Shares.
In January 1996, Loewen completed a public offering in Canada and a
simultaneous private placement in the United States of an aggregate of 8,800,000
Convertible First Preferred Shares Series C Receipts ("Series C Receipts"), each
representing entitlement to 1/10 of a Series C Preferred Share. Following the
subdivision of the Series C Preferred Shares in May 1996, the Series C Receipts
were replaced with Series C Preferred Shares.
For purposes of certain determinations in connection with redemption or
conversion of Series C Preferred Shares described below, "Current Market Price"
at a particular date means the weighted average price at which the Common Shares
have traded during the 20 consecutive trading days ending on the third day
before such date on The Toronto Stock Exchange or, if the Common Shares are not
then listed on The Toronto Stock Exchange, on such stock exchange or interdealer
quotation system on which the Common Shares are listed, as may be selected for
such purpose by the Board of Directors.
Holders of Series C Preferred Shares are entitled to cumulative dividends at
an annual rate of 6.00%, payable quarterly in arrears on the first business day
in January, April, July and October in each year.
Holders of Series C Preferred Shares have the right at any time before
January 1, 2003, to convert each Series C Preferred Share into the number of
Common Shares as is determined by dividing Cdn.$25.00 by Cdn.$38.125, as it may
be adjusted from time to time. Thereafter, holders of Series C Preferred Shares
will have the right on January 1, 2003 and on the first business day of each
quarter thereafter, to convert each Series C Preferred Share into the number of
Common shares as is determined by dividing Cdn.$25.00
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<PAGE>
plus accrued and unpaid dividends thereon by the greater of Cdn.$3.00 and 95% of
the Current Market Price on the date of conversion.
Series C Preferred Shares are not redeemable prior to July 1, 1999.
Beginning on July 1, 1999, the Series C Preferred Shares will be redeemable by
Loewen, upon giving not less than 30 days' notice, at a redemption price equal
to Cdn.$25.00 per share plus accrued and unpaid dividends thereon (the
"Redemption Price"). Prior to July 1, 2001, a redemption may only be effected by
the issuance of Common Shares, determined by dividing the Redemption Price by
the greater of Cdn.$3.00 and 95% of the Current Market Price at the date of
redemption. On and after July 1, 2001, the Redemption Price may be paid in cash
or Common Shares. Loewen may not redeem the Series C Preferred Shares unless the
arrearage, if any, of dividends, is paid in full.
In the event of a Liquidation, holders of the Series C Preferred Shares will
be entitled to receive an amount equal to the Redemption Price before any
amounts are paid to the holders of Common Shares or any other class of shares
ranking junior to the Series C Preferred Shares.
Holders of Series C Preferred Shares generally are not entitled to attend or
vote at any meeting of the holders of Common Shares, except as otherwise
required by law. In the event that Loewen shall have failed to pay six quarterly
dividends (or the initial dividend payable on July 1, 1996 and any four other
quarterly dividends) and so long as such dividends remain in arrears, holders of
Series C Preferred Shares shall be entitled to receive notice of, and to attend
all meetings of the holders of Common Shares and, at such meetings, shall be
entitled to one vote per Series C Preferred Share then held.
SHAREHOLDER PROTECTION RIGHTS PLAN
On April 20, 1990, the Board of Directors approved the Rights Plan, which
was confirmed by Loewen's shareholders in accordance with the provisions thereof
at the annual general meeting of shareholders on May 24, 1990 and re-confirmed
for an additional five year period at the annual general meeting of shareholders
on May 17, 1995. The Rights Plan is currently set to expire on April 20, 2000.
This summary of the Rights Plan does not purport to be complete and is qualified
in its entirety by reference to the text of the Rights Plan. Certain capitalized
terms used below without definition are used as defined in the Rights Plan.
The Rights Plan is intended to discourage unfair takeover bid tactics and to
give the Board of Directors time, if there is an unsolicited bid, to pursue
alternatives to maximize shareholder value. To preserve the shareholders' right
to consider take-over bids on a fully-informed basis, the Rights Plan provides
that a bidder's position may be substantially diluted if it does not either make
a "Permitted Bid" directly to all shareholders or negotiate with the Board of
Directors for a waiver of the Rights Plan's provisions.
Unless and until the Rights "separate", each Common Share carries one Right,
which is evidenced by the share certificate and is transferable only along with
the Common Share.
The Rights would separate upon:
(1) the tenth day after the date of first public announcement of a Take-over
Bid or the intention of any one (other than Loewen or a subsidiary of Loewen) to
make a Take-over Bid, other than a Permitted Bid;
(2) the tenth day after the date of first public announcement of facts
indicating that any person has become the Beneficial Owner of 20% or more of the
outstanding Common Shares (unless otherwise exempt under the Rights Plan);
(3) a Flip-over Transaction or Event, which is generally either
a. a business combination whereby the Common Shares would be changed;
or
b. a sale of more than 50% of the consolidated assets of the Company;
or
32
<PAGE>
(4) such earlier or later date as may be determined by the Board of
Directors, acting in good faith; provided that, if the foregoing results in the
Separation Time being prior to the Record Time, the Separation Time shall be the
Record Time.
In the case of a Take-over Bid (so long as a Flip-in Event has not
occurred), each Right would entitle the holder (other than the bidder) to
acquire one Common Share for the Exercise Price; in the other cases described
above, each Right would entitle the holder (other than the bidder) to acquire
for the Exercise Price, Common Shares (in the case of a Flip-in Event) or common
shares of the combined entity or purchaser (in the case of a Flip-over
Transaction or Event) having an aggregate Market Price of two times the Exercise
Price. The Exercise Price is currently Cdn.$125 and is subject to anti-dilution
provisions.
Under the Rights Plan, a Flip-in Event will occur ten days after the
acquisition of Beneficial Ownership of more than 20% of the Common Shares
except:
a. by way of a Permitted Bid (as defined herein);
b. by an acquirer who obtains a waiver from the Board of Directors;
c. as a result of the death of a Beneficial Owner of Common Shares;
d. by a person who held more than 20% of the Common Shares on April 20,
1990, who is "grandfathered" subject to a number of restrictions (a
"Grandfathered Person"); or
e. by registered pension plans whose governing legislation does not permit
them to hold more than 30% of Common Shares and who acquire shares independently
for investment.
A "Permitted Bid" is a take-over bid that complies with all applicable
securities laws and is:
(1) for all Common Shares and to all holders, wherever resident;
(2) made by a bidder who (with related parties) does not own more than 5% of
the Common Shares (unless the bidder owned at least that percentage on April 20,
1990); and
(3) conditioned upon approval by a majority of the votes cast by
"Independent Shareholders" (those other than certain shareholders who have
acquired more than 20% of the Common Shares or who have made a Takeover-Bid,
their Associates, Affiliate or persons acting jointly or in concert with them),
and expire no earlier than five business days after the shareholders' meeting
called to consider it.
To Loewen's knowledge, the only "Grandfathered Persons" are Raymond L.
Loewen and Anne Loewen. The holdings of a Grandfathered Person can be increased
by up to 2% of the Common Shares without causing a Flip-in Event to occur. A
person who acquires Common Shares as a result of the death of a Grandfathered
Person or who buys all of the Common Shares beneficially owned by a
Grandfathered Person would also be a Grandfathered Person, but to make a
Permitted Bid such a buyer would have to offer the other holders of Common
Shares consideration at least equal to that paid to the selling Grandfathered
Person.
33
<PAGE>
DESCRIPTION OF WARRANTS
Loewen may issue Warrants to purchase Common Shares, Preferred Shares or
Debt Securities, or any combination thereof. Warrants may be issued
independently or together with other Securities and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (a "Warrant Agreement") to be entered into between
Loewen and a warrant agent ("Warrant Agent"). Forms of Warrant Agreements are
filed as exhibits to the Registration Statement of which this Prospectus forms a
part. The Warrant Agent will act solely as an agent of Loewen in connection with
the Warrants for each such series and will not assume any obligation or
relationship of agency for or with holders or beneficial owners or Warrants.
GENERAL
The following sets forth certain general terms and provisions of the
Warrants. Further terms of the Warrants and the respective Warrant Agreement
will be set forth in the applicable Prospectus Supplement, including as
applicable: (i) the title, series or designation of the Warrants, (ii) the type
and amount of Securities that may be acquired on exercise of the Warrants, (iii)
the offering price of the Warrants, including the currency or currencies,
including composite currencies, in which the Warrants may be purchased, (iv)
whether the Warrants are offered attached to or separate from other Securities,
(v) the period during which the Warrants are exercisable, (iv) the exercise
price of the Warrants, including the currency or currencies in which the
exercise price is payable, and any provisions for changes to or adjustments in
the exercise price, (v) any limitations on exercise of the Warrants, (vi) the
amount of other Warrants outstanding, (vi) whether the Warrants will be issued
in registered or bearer form, (vii) information with respect to book entry
procedures, and (viii) any other material terms of the Warrants.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder to purchase such number of Common
Shares or Preferred Shares at such exercise price, for such consideration and
during such period or periods, or under such circumstances, as shall in each
case be set forth in, or calculable from, the applicable Prospectus Supplement.
Warrants shall be exercisable by delivery to the Warrant Agent of payment of
the exercise price along with properly completed and endorsed certificates
representing the Warrants being exercised ("Warrant Certificates"), as provided
in the applicable Prospectus Supplement. Unless otherwise provided in the
Warrant Agreement, as soon as practicable following receipt of the exercise
price and the requisite Warrant Certificates, Loewen shall issue and deliver the
Securities purchased pursuant to exercise of the Warrants as soon as
practicable. If fewer than all of the Warrants represented by a Warrant
Certificate are exercised, a new Warrant Certificate shall be issued for the
amount of unexercised Warrants.
MODIFICATION OF WARRANT AGREEMENTS
The Warrant Agreement will contain a provision permitting Loewen and the
Warrant Agent, without the consent of any Warrant holder, to supplement or amend
the Warrant Agreement in order to cure any ambiguity and to correct or
supplement any provision contained therein which may be defective or
inconsistent with other provisions, or to make other provisions in regard to
matters or questions arising thereunder which Loewen and the Warrant Agent deem
necessary or desirable and which do not adversely affect the interests of the
Warrant holders.
34
<PAGE>
PLAN OF DISTRIBUTION
Loewen may offer and sell any of the Securities from time to time through
agents, to or through underwriters, through dealers or directly to purchasers.
The Prospectus Supplement with respect to the Securities to be offered will set
forth the terms of the offering of the Securities, including (i) the name or
names of any underwriters, dealers or agents, (ii) the offering price of the
Securities, (iii) the proceeds to the Company from such sale, (iv) any
underwriting discounts and commissions or other amounts constituting
underwriters' or agents' compensation, and (v) any securities exchange or
automated quotation system on which the Securities may be listed. Any initial
public offering price, discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by
Loewen from time to time. Any such agent involved in the offer or sale of the
Securities will be named, and any commissions payable by Loewen to such agent
will be set forth, in the applicable Prospectus Supplement. Any such agent may
be deemed to be an underwriter (as that term is defined in the Securities Act)
of the Securities so offered and sold.
If Securities are sold by means of an underwritten offering, Loewen will
execute an underwriting agreement with one or more underwriters at the time an
agreement for such sale is reached. The names of the specific managing
underwriter or underwriters, as well as any other underwriters, and the terms of
the transaction, including commissions, discounts and any other compensation of
the underwriters and dealers, if any, will be set forth in the Prospectus
Supplement which will be used by the underwriters to make resales of the
Securities. If underwriters are utilized in the sale of Securities, the
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriter at the time of sale. Securities may be offered to the public
either through underwriting syndicates represented by managing underwriters or
directly by the managing underwriters. If any underwriter or underwriters are
utilized in the sale of the Securities, unless otherwise indicated in the
Prospectus Supplement, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of Securities will be obligated to
purchase all of such series of Securities if any are purchased.
If a dealer is utilized in the sale of Securities, Loewen will sell such
Securities to the dealer as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale. Any such dealer may be deemed to be an underwriter (as that
term is defined in the Securities Act) of the Securities so offered and sold.
The name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited by Loewen directly to
institutional investors and others who may be deemed to be underwriters (as that
term is defined in the Securities Act) with respect to any resale thereof. The
terms of any such sales will be described in the Prospectus Supplement relating
thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by Loewen against certain liabilities,
including liabilities under the Securities Act.
Agents, underwriters and dealers may be customers of, engage in transactions
with or perform services for the Company in the ordinary course of business.
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents of Loewen. Any remarketing firm will be identified and the
terms of its agreement, if any, with its compensation will be described in the
applicable Prospectus Supplement.
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<PAGE>
Remarketing firms may be deemed to be underwriters (as such term is defined in
the Securities Act) in connection with the Securities remarketed thereby.
Remarketing firms may be entitled under agreements which may be entered into
with the Company to indemnification or contribution by Loewen against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company in
the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, Loewen may
authorize agents, underwriters or dealers to solicit offers by certain types of
institutions to purchase Securities from Loewen at the public offering prices
set forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on a specified date
or dates in the future. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters, dealers and agents soliciting purchases
of Securities pursuant to Contracts accepted by Loewen.
LEGAL MATTERS
The validity of the Securities will be passed upon for Loewen by Russell &
DuMoulin, Vancouver, British Columbia, Canada. Certain matters of New York law
relating to the Debt Securities will be passed upon for Loewen by Thelen,
Marrin, Johnson & Bridges LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of Loewen incorporated by reference in
this Prospectus have been audited by KPMG, Chartered Accountants, for the
periods indicated in its report thereon, which is incorporated herein by
reference. Such consolidated financial statements have been so incorporated in
reliance on such report given on the authority of KPMG as experts in accounting
and auditing.
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<PAGE>
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- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER AND SALE OF SECURITIES MADE HEREBY, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER OR A
SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS, NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 2
Disclosure Regarding Forward-Looking Statements........................... 3
Financial Information..................................................... 3
The Company............................................................... 4
Use of Proceeds........................................................... 4
Selected Consolidated Financial and Operating Information................. 5
Description of Debt Securities............................................ 8
Description of Share Capital.............................................. 30
Description of Warrants................................................... 34
Plan of Distribution...................................................... 35
Legal Matters............................................................. 36
Experts................................................................... 36
</TABLE>
$500,000,000
THE LOEWEN GROUP INC.
COMMON SHARES
PREFERRED SHARES
DEBT SECURITIES
WARRANTS
[LOGO]
---------------------
PROSPECTUS
---------------------
MAY 29, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER OR A SOLICITATION IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Available Information..................................................... S-3
Financial Information..................................................... S-3
Prospectus Supplement Summary............................................. S-4
Risk Factors.............................................................. S-8
Forward-looking and Cautionary Statements................................. S-9
Selected Consolidated Financial and Operating Information................. S-10
Price Range of Common Shares and Dividend Policy.......................... S-12
Use of Proceeds........................................................... S-13
Consolidated Capitalization............................................... S-13
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. S-14
Business.................................................................. S-24
Legal Proceedings......................................................... S-28
Certain United States Federal Tax Considerations.......................... S-31
Certain Canadian Federal Tax Considerations............................... S-33
Underwriting.............................................................. S-35
Legal Matters............................................................. S-38
Experts................................................................... S-38
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 2
Disclosure Regarding Forward-Looking Statements........................... 3
Financial Information..................................................... 3
The Company............................................................... 4
Use of Proceeds........................................................... 4
Selected Consolidated Financial and Operating Information................. 5
Description of Debt Securities............................................ 8
Description of Share Capital.............................................. 30
Description of Warrants................................................... 34
Plan of Distribution...................................................... 35
Legal Matters............................................................. 36
Experts................................................................... 36
</TABLE>
12,000,000 SHARES
THE LOEWEN GROUP INC.
COMMON SHARES
[LOGO]
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PROSPECTUS SUPPLEMENT
MAY 29, 1997
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SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.
NESBITT BURNS SECURITIES INC.
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