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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
One) SECURITIES EXCHANGE ACT OF 1934
/X/ For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
</TABLE>
COMMISSION FILE NUMBER 1-12163
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THE LOEWEN GROUP INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C>
BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
4126 NORLAND AVENUE, BURNABY, V5G 3S8
BRITISH COLUMBIA, CANADA (Postal Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: 604-299-9321
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
COMMON SHARES WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
THE TORONTO STOCK EXCHANGE
THE MONTREAL EXCHANGE
LOEWEN GROUP CAPITAL, L.P. NEW YORK STOCK EXCHANGE
9.45% CUMULATIVE MONTHLY INCOME (Name of each exchange on which
PREFERRED SECURITIES, SERIES A, registered)
GUARANTEED BY THE LOEWEN GROUP
INC.
(Title of class)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of Common shares held by non-affiliates of the
registrant was approximately U.S.$1.6 billion as of March 20, 1998.
The number of outstanding Common shares as of March 20, 1998, was
73,938,955.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the registrant's definitive Proxy Statement and
Information Circular for the 1998 Annual General Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1997, are incorporated by reference in Part III of this report.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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GENERAL INFORMATION........................................................................................ 1
PART I
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER
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1. BUSINESS......................................................................................... 2
2. PROPERTIES....................................................................................... 4
3. LEGAL PROCEEDINGS................................................................................ 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.............................................. 7
EXECUTIVE OFFICERS OF LOEWEN..................................................................... 8
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................ 11
FORWARD-LOOKING AND CAUTIONARY STATEMENTS........................................................ 12
6. SELECTED FINANCIAL DATA.......................................................................... 13
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 15
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................... 25
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............. 172
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................... 172
11. EXECUTIVE COMPENSATION........................................................................... 172
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................... 172
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................... 172
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K....................................................................................... 172
</TABLE>
i
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GENERAL INFORMATION
Unless the context otherwise requires (i) "Loewen" refers to The Loewen
Group Inc., a corporation organized under the laws of British Columbia, Canada,
(ii) "LGII" refers to Loewen Group International, Inc., a Delaware corporation
and a wholly-owned subsidiary of Loewen, and (iii) the "Company" refers to
Loewen together with its subsidiaries and associated companies.
All dollar amounts are in United States dollars ("U.S.$" or "$") unless
otherwise indicated. References to "Cdn.$" are to Canadian dollars.
Effective January 1, 1994, the Company adopted the United States dollar as
its reporting currency. Financial information relating to periods prior to
January 1, 1994 has been translated from Canadian dollars into United States
dollars as required by accounting principles generally accepted in Canada
("Canadian GAAP") at the December 31, 1993 rate of U.S. $1.00 = Cdn. $1.3217.
Except as specifically noted, financial information is presented in
accordance with Canadian GAAP. Material 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 23 to the Company's
consolidated financial statements for the year ended December 31, 1997 (the
"1997 Consolidated Financial Statements"), included in Item 8 of this Form 10-K.
1
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PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company operates the second-largest number of funeral homes and
cemeteries in North America. In addition to providing services at the time of
need, the Company also makes funeral, cemetery and cremation arrangements on a
pre-need basis. As at March 6, 1998, the Company operated 1,091 funeral homes
throughout North America. This included 945 funeral homes in the United States,
142 funeral homes in Canada and four funeral homes in Puerto Rico. In addition,
as at such date, the Company operated 497 cemeteries in the United States, six
cemeteries in Canada and seven cemeteries in Puerto Rico. During 1997, the
Company expanded into the United Kingdom and as at March 6, 1998, operated 10
funeral homes there. As at March 6, 1998, the Company also operated five
insurance subsidiaries which principally sell a variety of life insurance
products to fund funeral services purchased through a pre-need arrangement.
The Company's management structure and remuneration practices are designed
to support and encourage entrepreneurial drive and individual responsibility.
Funeral homes and cemeteries are operated as profit centers, with monthly,
quarterly and annual financial performance monitored by regional and corporate
management in accordance with budgeted projections. Local managers are given a
high degree of autonomy within clear financial expectations 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.
Loewen serves as the holding company for all operations of the Company,
which are contained in subsidiary and associated companies. 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 a corporate office at 3190 Tremont Avenue, Trevose, Pennsylvania
19053.
BUSINESS OPERATIONS
The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. The Company maintains a regional management structure
that is organized in seven geographic regions, four in the United States, two in
Canada and one in Europe. Within each of these regions, the Company has
integrated certain aspects of its funeral home and cemetery businesses.
Management believes that this organizational structure enables the Company to
capitalize on regional operating efficiencies and synergy between local profit
centers.
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, and transportation to a place of worship, funeral chapel, 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 averaging approximately $3,400.
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 merchandise and services to families choosing cremation. In 1997,
cremations accounted for approximately 27% (28% in 1996) 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 1997, accounted for approximately 22% of all funeral
services performed in the United States.
2
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Funeral operations accounted for approximately 54% of the Company's
consolidated revenue for 1997. 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 $267
million for 1997, compared with approximately $190 million in 1996.
CEMETERIES
The Company's cemeteries assist families in making burial arrangements and
offer a complete line of cemetery products (including a selection of burial
spaces, burial vaults, lawn crypts, caskets, memorials, niches and mausoleum
crypts), the opening and closing of graves and cremation services.
The Company's cemetery operations comprised approximately 38% of the
Company's consolidated revenue for 1997, 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 and service sales is generally
set aside in trust funds to provide for the future delivery of the cemetery
products and services.
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, 1997, the Company had approximately $226 million in perpetual
care trust funds.
INSURANCE
The Company operates five insurance subsidiaries licensed in 27 states to
principally sell a variety of life insurance products to fund funerals. Revenue
from the Company's insurance operations totaled approximately $90 million in
1997, or 8% of the Company's consolidated revenue.
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. Gains in market share within a
community are usually achieved over a 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 Service Corporation International ("SCI"), Stewart
Enterprises, Inc. ("Stewart"), Equity Corporation International ("ECI") and
Carriage Services, Inc. ("CSI"), all of which are publicly-traded funeral
service companies with significant United States operations, as well as other
non-public regional consolidators. The Company also experiences competition on a
local level from consolidators who have focused on acquiring funeral home and
cemetery properties in a concentrated geographic area.
3
<PAGE>
REGULATION
The funeral service industry is regulated primarily on a state and
provincial basis with a vast majority of jurisdictions requiring licensing and
supervision of individuals who provide funeral-related services. A number of
jurisdictions also regulate the sale of pre-need services and the administration
of any resulting trust funds or insurance contracts. In addition, concerns
regarding lack of competition have led a few jurisdictions to enact legislation
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. Certain regulatory requirements also exist in Canada and the United
Kingdom.
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 and through corrective measures taken prior
to acquisition. 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 December 31, 1997, the Company employed approximately 16,000 people with
approximately 600 people employed at the Company's corporate offices. Management
believes that its relationship with employees is good. Approximately 100 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 "Sharing The Vision" program.
ITEM 2. PROPERTIES.
The Company's properties consist primarily of funeral homes and cemeteries.
Of the Company's 1,070 funeral homes at December 31, 1997 (including 50 funeral
homes located on or adjacent to a cemetery property), 49 were leased facilities
and the balance were owned by the Company. In addition 49 of the funeral homes
owned by the Company were mortgaged as security for loans from the seller of the
property or from a commercial lender. Generally the Company has a right of first
refusal and an option to purchase its leased premises.
The Company operated or provided management or sales services to 483
cemeteries at December 31, 1997, of which eight were mortgaged as security for
loans from the seller of the property. For certain of these cemeteries, the
Company provides management and sales services to not-for-profit and other
cemeteries pursuant to certain management and sales agreements. The cemeteries
operated by the Company contained an aggregate of approximately 22,000 acres of
which approximately 58% were developed.
4
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The Company's corporate offices in Burnaby, British Columbia and Trevose,
Pennsylvania occupy 35,000 and 70,000 square feet, respectively, in buildings
owned by the Company. In addition, the corporate office in Burnaby occupies
33,000 square feet of office space under a lease agreement expiring in 2000.
ITEM 3. 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 the Company 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. Loewen Group International, Inc.
("LGII"), Loewen Group Capital, L.P. ("LGC"), and the lead underwriters (the
"MIPS Underwriters") of LGC's 1994 offering of Monthly Income Preferred
Securities ("MIPS"), were subsequently added as defendants. On November 7, 1995,
a class action lawsuit was filed on behalf of a class of purchasers of Common
shares against the Company 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 the Company, LGII, LGC and the same individual
defendants in the United States District Court for the Eastern District of
Pennsylvania. On June 11, 1996 all claims against the MIPS Underwriters were
dismissed without prejudice, by agreement of the parties. The cases were
consolidated before the District Court of the Eastern District of Pennsylvania.
A Consolidated and Amended Class Action Complaint was filed on September 16,
1996.
The parties have agreed to a settlement of all claims in the action. The
settlement was submitted to the Court for approval on January 30, 1998. If
approved by the Court and subject to the satisfaction of all other conditions,
the settlement will provide for the payment by the Company on behalf of all
defendants of $5,000,000, plus up to $100,000 for costs of notice and 50% of the
costs of administration of the settlement. On February 3, 1998, the Court
entered a Preliminary Approval Order, in which, inter alia, it scheduled a
hearing on final approval for April 20, 1998.
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 of Bucks County, Pennsylvania against Osiris
Holding Corporation ("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.
5
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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 filed, and the
Court granted, preliminary challenges to the Third Amended Complaint. The Court
also dismissed the claims against LGII for failure to state a claim upon which
relief can be granted, although the Third Amended Complaint does continue on
unaffected counts.
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 1997
Consolidated Financial Statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP. ET
AL.
Two complaints were filed in 1997 on behalf of individuals who claim damages
in connection with funeral insurance policies allegedly issued to them by
insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of
S.I. in March 1996.
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. are affiliates of S.I.
In June 1997, Lloyd Duffy, Sr. 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 Orleans, State of Louisiana.
Plaintiffs seek a class action. The Duffy complaint was filed by the same
lawyers who filed the complaint in the Feldheim case, and is a virtually
identical copy of the Feldheim complaint. The Duffy case is pending in the trial
court and, as of the date hereof, no discovery has taken place.
The Feldheim and Duffy plaintiffs allegedly 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 alleged unfair trade practices in violation of
Louisiana's trade practices laws.
Plaintiffs' petitions 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.
On June 13, 1997, the district court in Jefferson Parish dismissed the
Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing of the appeal was completed in December 1997 and oral
6
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argument was held on January 5, 1998, but a decision has not yet been rendered.
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 these legal proceedings, 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 1997 Consolidated Financial
Statements.
OTHER
The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.
ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company's policies are designed to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to acquisition. The Company believes
environmental liabilities to be immaterial individually and in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
7
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EXECUTIVE OFFICERS OF LOEWEN
The following table sets forth certain information with respect to the
current executive officers of Loewen. The ages of the executive officers are
shown as of March 6, 1998.
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NAME AGE POSITION
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Raymond L. Loewen(1)................................. 57 Chairman of the Board, President and Chief Executive
Officer
Timothy R. Hogenkamp(2).............................. 52 Chairman of the Board, LGII
Michael Weedon(3).................................... 45 Executive Vice President and Chief Administrative
Officer
Lawrence Miller(4)................................... 49 Executive Vice-President, Operations
Paul Wagler(5)....................................... 51 Senior Vice-President, Finance and Chief Financial
Officer
F. Andrew Scott(6)................................... 46 Senior Vice President, Corporate Development
Wm. Grant Ballantyne(7).............................. 55 Senior Vice-President, Financial Control and
Administration
Bradley D. Stam(8)................................... 50 Senior Vice-President, Law
Peter S. Hyndman(9).................................. 56 Corporate Secretary
George M. Amato(10).................................. 55 Regional President, Operations, North East Region
Jeffrey L. Cashner(11)............................... 43 Regional President, Operations, South East Region
F. Duane Schaefer(12)................................ 49 Regional President, Operations, South Central Region
Michael Stache(13)................................... 46 Regional President, Operations, North Central Region
Harry C.B. Rath(14).................................. 62 Vice-President, Operations, Eastern Canada Region
Peter A. Wiesner(15)................................. 46 Vice-President, Operations, Western Canada Region
William R. Shane(16)................................. 51 Senior Vice-President, Advisor
Thomas C. Hardy(17).................................. 56 President, Chief Executive Officer, Life Insurance
Group
Dwight K. Hawes(18).................................. 38 Vice-President, Finance
David A. Laundy(19).................................. 56 Vice-President, Corporate Communications
Roger C. Ryan(20).................................... 48 Vice-President, Taxation
Gregg A. Strom(21)................................... 56 Vice-President, Cemeteries
</TABLE>
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FOOTNOTES APPEAR ON THE FOLLOWING PAGE.
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(1) Prior to November 1997, Mr. Loewen was Chairman of the Board and Chief
Executive Officer of Loewen, and prior to September 1993, Mr. Loewen was
Chairman of the Board, President and Chief Executive Officer of Loewen.
(2) Mr. Hogenkamp became Chairman of the Board, LGII in November 1997. From
September 1993 to November 1997, Mr. Hogenkamp served as President and Chief
Operating Officer of Loewen. From March 1993 to September 1993, Mr.
Hogenkamp served as Senior Vice-President, Operations of Loewen. Prior to
that time, Mr. Hogenkamp served as Vice-President, Operations of Loewen.
(3) Mr. Weedon became Executive Vice-President and Chief Administrative Officer
of Loewen in November 1997. For the period between December 1996 and
November 1997, Mr. Weedon was a private business consultant and investor.
From April 1993 to December 1996, Mr. Weedon served as Executive
Vice-President and Chief Operating Officer of Viridian Inc. (formerly
Sherritt Inc.) in Edmonton, Alberta. Prior to that time, Mr. Weedon was
President and Chief Executive Officer of Epton Industries Inc., in
Kitchener, Ontario.
(4) Mr. Miller became Executive Vice-President, Operations of Loewen in July
1996. From March 1995 to July 1996, Mr. Miller was President, Cemetery and
Combination Division of Loewen. Prior to that time, Mr. Miller was President
of Osiris, a cemetery holding company that was acquired by LGII in March
1995.
(5) Mr. Wagler became Senior Vice-President, Finance and Chief Financial
Officer of Loewen in March 1995. Prior to that time, Mr. Wagler was a Senior
Vice-President of ABN AMRO Bank in Vancouver, British Columbia.
(6) Mr. Scott became Senior Vice-President, Corporate Development of Loewen in
October 1997. From July 1996 until October 1997 Mr. Scott served as
Vice-President, Finance and Investment Management of Loewen. From November
1995 to June 1996, Mr. Scott was self-employed as a consultant to Loewen.
Prior to that time, Mr. Scott served as Vice-President and Director of Wood
Gundy Inc., an investment dealer in Vancouver, British Columbia.
(7) Mr. Ballantyne became Senior Vice-President, Financial Control and
Administration of Loewen in May 1996. Prior to that time, Mr. Ballantyne was
Senior Vice-President, Finance and Chief Financial Officer of CUC
Broadcasting Limited in Toronto, Ontario.
(8) Mr. Stam became Senior Vice-President, Law of Loewen in March 1998. From
January 1996 until September 1997 Mr. Stam was President, General Counsel
and a Director of Western Star Trucks Holdings Ltd. From June 1995 to
January 1996, Mr. Stam was Vice-President, General Counsel and Corporate
Secretary of Western Star Trucks Holdings Ltd. Prior to that time, Mr. Stam
was a partner with the Seattle-based law firm of Culp, Dwyer, Guterson &
Grader.
(9) Prior to March 1994, Mr. Hyndman served as Vice-President, Law and
Corporate Secretary of Loewen. Prior to March 1995, Mr. Hyndman served as
Corporate Secretary of Loewen. Prior to November 1994, Mr. Hyndman served as
Senior Vice-President, Law, General Counsel and Corporate Secretary of
Loewen.
(10) Mr. Amato became Regional President, Operations, North East Region of
Loewen in August 1996. From November 1994 to August 1996, Mr. Amato served
as Vice-President, Operations, North East Division of Loewen. Prior to
November 1994, Mr. Amato served as Senior Vice-President, Corporate
Development of Loewen.
(11) Mr. Cashner became Regional President, Operations, South East Region of
Loewen in August 1996. From February 1994 to August 1996, Mr. Cashner served
as Vice-President, Cemetery and Combination Division, South and Eastern
Region. Prior to that time, Mr. Cashner served in various managerial
positions at Loewen.
9
<PAGE>
(12) Mr. Schaefer became Regional President, Operations, South Central Region of
Loewen in August 1996. Prior to that time, Mr. Schaefer served as
Vice-President, Operations, South Central Division of Loewen.
(13) Mr. Stache became Regional President, North Central Region of Loewen in
August 1996. Prior to that time, Mr. Stache served as Regional Manager and
Vice-President, Operations of Osiris, a cemetery holding company that was
acquired by LGII in March 1995.
(14) Mr. Rath became Vice-President, Operations, Eastern Canada Region of Loewen
in August 1996. From April 1993 to August 1996, Mr. Rath served as Loewen's
Director of Operations, Eastern Canada. Prior to that time, Mr. Rath served
as Loewen's Regional Manager, Ontario.
(15) Mr. Wiesner became Vice-President, Operations, Western Canada Region of
Loewen in August 1996. From April 1993 to August 1996, Mr. Wiesner served as
Loewen's Director of Operations, Western Canada. Prior to that time, Mr.
Wiesner served as Loewen's Regional Manager, Alberta and Saskatchewan.
(16) Mr. Shane became Senior Vice-President, Advisor in January 1998. From March
1995 until January 1998, Mr. Shane served as Senior Vice-President and Chief
Financial Officer, Cemetery and Combination Division of Loewen. Prior to
that time, Mr. Shane was Vice-President of Osiris, a cemetery holding
company that was acquired by LGII in March 1995.
(17) Mr. Hardy became President, Chief Executive Officer, Life Insurance Group
in March 1997. Prior to that time, Mr. Hardy was self-employed. Prior to
June 1994, Mr. Hardy served as Executive Vice-President and Chief Operating
Officer of Provident Life & Accident Insurance Company in Chattanooga,
Tennessee.
(18) Mr. Hawes became Vice-President, Finance of Loewen in October 1994. From
January 1993 to October 1994, Mr. Hawes served as Director of Treasury
Operations of Loewen. Prior to that time, Mr. Hawes served as Manager,
Treasury Operations of Loewen.
(19) Mr. Laundy became Vice-President, Corporate Communications of Loewen in
August 1996. Prior to that time, Mr. Laundy was Vice-President, Public
Affairs of the Vancouver Stock Exchange.
(20) Mr. Ryan became Vice-President, Taxation of Loewen in March 1998. From
October 1996 to March 1998, Mr. Ryan served as Vice-President, Taxation of
LGII. From March 1994 to October 1996, Mr. Ryan was Director of Taxation of
LGII. Prior to that time, Mr. Ryan was a Senior Tax Manager of KPMG in
Seattle, Washington.
(21) Mr. Strom became Vice-President, Cemeteries of Loewen in March 1995. Prior
to that time, Mr. Strom was Vice-President, Sales of Osiris, a cemetery
holding company that was acquired by LGII in March 1995.
No executive officer of Loewen is related by blood, marriage or adoption to
any director or other executive officer of Loewen.
There are no arrangements or understandings between any executive officer of
Loewen and any other person pursuant to which the executive officer was selected
to serve as an executive officer of Loewen.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Common shares of Loewen 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 STOCK NASDAQ NATIONAL TORONTO STOCK
EXCHANGE MARKET EXCHANGE
-------------------- -------------------- --------------------
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- --------- ---------
(U.S.$) (U.S.$) (CDN.$)
<S> <C> <C> <C> <C> <C> <C>
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 31.000 n/a n/a 56.750 47.350
Second quarter..................................... 34.875 27.500 n/a n/a 45.000 30.900
Third quarter...................................... 35.750 24.750 n/a n/a 49.500 34.250
Fourth Quarter..................................... 28.375 23.000 n/a n/a 39.000 32.000
</TABLE>
As at March 6, 1998, there were 2,336 record holders of Loewen's Common
shares.
DIVIDENDS
In February 1996, the Company declared a dividend of $0.05 per Common share
as the second semi-annual dividend in respect of 1995. In June 1996, the Company
declared a dividend of $0.07 per Common share. In December 1996, the Company
declared a dividend of $0.08 per Common share. The Company declared a dividend
of $0.10 per Common share in June 1997 and a dividend of $0.10 per Common share
in December 1997. Aggregate dividends declared per share over the last five
years were as follows:
<TABLE>
<S> <C>
1993................................................ $ 0.045
1994................................................ 0.070
1995................................................ 0.050
1996................................................ 0.200
1997................................................ 0.200
</TABLE>
The amount, declaration and payment of future dividends will be determined
by the Company's Board of Directors and will depend upon long-term earnings
growth and, among other things, the Company's operating and financial position,
capital requirements and general business conditions.
11
<PAGE>
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 is reduced to
15%.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations, Liquidity and Capital Resources, Restrictions" and Note 6 to the
1997 Consolidated Financial Statements for a discussion of certain restrictions
on Loewen's ability to pay dividends.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
FORWARD-LOOKING STATEMENTS
Management believes that the aggregate purchase price for acquisitions in
1998 will approximate $500 million. In 1998, funeral gross margin is expected to
be approximately 40% and cemetery gross margin is expected to be approximately
32%. The foregoing statement and certain other statements made in this Form
10-K, in other filings made with the Securities and Exchange 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 and Section 21E(i) of the Securities Exchange Act of
1934. 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 other information in this Form 10-K, the following important
factors, among others, could cause acquisition levels and other future results
to differ materially from estimates, predictions or projections.
1. ACQUISITION LEVELS. The funeral services industry acquisition market is
extremely competitive. The Company's competition for acquisitions includes four
publicly-traded companies with significant United States operations. Aggressive
pricing by the Company's competitors, particularly for strategic operations, may
result in increased acquisition costs. The timing and certainty of completion of
potential acquisitions are based on many factors, including the availability of
financing. There can be no assurance that funds will be available to complete
all future acquisitions, and there can be no assurance that the Company will
complete any specific number or dollar amount of acquisitions in a particular
year.
2. REVENUE AND MARGINS. The most significant component of increases in
revenue is the level of acquisitions, discussed above. Revenue is also affected
by the volume of services rendered and the mix and pricing of services and
products sold. Margins are affected by the volume of services rendered, the mix
and pricing of services and products sold and related costs. Further, revenue
and margins may be affected by fluctuations in the number of deaths, competitive
pricing strategies, pre-need sales and other sales programs implemented by the
Company.
3. OTHER. Consolidated financial results also may be affected by (i) the
ability of the Company to manage its growth by implementing appropriate
management and administrative support structures, (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
12
<PAGE>
Company's general and administrative costs, (viii) changes in applicable
accounting principles and governmental regulations, (ix) the outcome of legal
proceedings, and (x) the ability of the Company and third parties to achieve
Year 2000 Issue compliance on a timely basis.
ITEM 6. SELECTED FINANCIAL DATA.
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, 1997. 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 1997 Consolidated Financial Statements and Notes thereto.
The financial results for the year ended December 31, 1997 include $89.2
million of pre-tax charges ($58.0 million after tax), representing certain
restructuring, strategic initiative and other charges. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information regarding these charges.
The financial results for the year ended December 31, 1996 include $18.7
million (pre-tax) 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 (pre-tax) 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,
--------------------------------------------------------
1997 1996(1) 1995 1994 1993
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND
OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................................ $1,114,099 $ 908,385 $ 598,493 $ 417,328 $303,011
Gross margin....................................... 366,573 332,059 225,362 158,854 115,118
Earnings from operations........................... 148,119 204,105 117,607 95,113 65,697
Net earnings (loss)................................ 42,728 63,906 (76,684) 38,494 28,182
Basic earnings (loss) per share.................... 0.49 0.97 (1.69) 0.97 0.77
Fully diluted earnings (loss) per share(2)......... 0.49 0.97 (1.69) 0.97 0.76
Ratio of earnings to fixed charges(3).............. 1.3x 1.9x n/a 2.5x 2.9x
Aggregate dividends declared per share............. 0.200 0.200 0.050 0.070 0.045
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
-----------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................................... $4,503,160 $3,496,939 $2,262,980 $1,326,275 $ 913,661
Total long-term debt(4)............................ 1,793,934 l,495,925 932,296 515,703 341,184
Preferred securities of subsidiary................. 75,000 75,000 75,000 75,000 --
Shareholders' equity............................... 1,540,238 1,048,200 614,682 411,139 325,890
OPERATING INFORMATION:
Number of funeral home locations(5)................ 1,070 956 815 641 533
Number of funeral services......................... 153,000 142,000 114,000 94,000 79,000
Number of cemeteries............................... 483 313 179 116(5) (705)
</TABLE>
- --------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1997.
13
<PAGE>
(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 6.9%, (b) 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
preferred dividends during the period and (c) 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. See Note 9 to the 1997 Consolidated Financial Statements.
(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. Reference is made to the Statement re:
Computation of Earnings to Fixed Charges Ratio (Canadian GAAP), which is
Exhibit 12.1 to this Form 10-K.
(4) Total long-term debt comprises long-term debt, including current portion.
(5) The numbers of locations for 1994 and 1993 include adjustments and
consolidations related to prior periods.
Had the Company's Consolidated Financial Statements been prepared in
accordance with U.S. GAAP (see Note 23 to the 1997 Consolidated Financial
Statements), selected consolidated financial information would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Total revenue...................................... $ 1,115,400 $ 909,137 $ 598,493 $ 417,479 $ 308,402
Earnings from operations........................... 147,933 198,869 117,376 94,758 66,711
Earnings (loss) before cumulative effect of change
in accounting principles......................... 42,231 64,559 (75,800) 39,652 28,912
Diluted earnings (loss) per share before cumulative
effect of change in accounting principles(2)..... 0.48 0.97 (1.67) 0.97 0.77
Ratio of earnings to fixed charges(3).............. 1.3x 1.8x n/a 2.4x 2.9x
Aggregate dividends declared per share............. 0.200 0.200 0.050 0.070 0.047
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
--------------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................................... $ 4,776,535 $ 3,699,950 $ 2,345,874 $ 1,329,928 $ 921,342
Total long-term debt(4)............................ 1,793,934 1,495,925 892,296 515,703 341,184
Preferred securities of subsidiary................. 75,000 75,000 75,000 75,000 --
Shareholders' equity............................... 1,524,195 1,026,110 519,006 385,950 299,059
</TABLE>
- --------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1997.
(2) Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings per Share for United States GAAP
purposes, on a retroactive basis.
(3) 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. Reference is made to the Statement re:
Computation of Earnings to Fixed Charges Ratio (U.S. GAAP), which is Exhibit
12.2 to this Form 10-K.
(4) Total long-term debt comprises long-term debt, including current portion.
14
<PAGE>
ITEM 7. 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. In addition to providing services at the time of
need, the Company also makes funeral, cemetery and cremation arrangements on a
pre-need basis. As at March 6, 1998, the Company operated 1,091 funeral homes
throughout North America. This included 945 funeral homes in the United States,
142 funeral homes in Canada and four funeral homes in Puerto Rico. In addition,
as at such date, the Company operated 497 cemeteries in the United States, six
cemeteries in Canada and seven cemeteries in Puerto Rico. During 1997, the
Company expanded into the United Kingdom and as at March 6, 1998, operated 10
funeral homes there. As at March 6, 1998, the Company also operated five
insurance subsidiaries which principally sell a variety of life insurance
products, primarily to fund funeral services purchased through a pre-need
arrangement.
The funeral service industry has a number of attractive business
characteristics as described below. 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
1995 Business Failure Record published by The Dun & Bradstreet Corporation, the
average business failure rate in the United States in 1995 was 82 per 10,000.
The 1995 failure rate of the funeral service and crematoria industry was 13 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 13% of the 23,500 funeral homes and approximately 10% 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 favorable 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 operations. As a result of
the successful implementation of this strategy, the Company has grown
significantly. Managing the Company's growth by successfully integrating newly
acquired operations with existing facilities and optimizing economies of scale
is critical to profitability, and will continue to be one of the most important
responsibilities and challenges facing the Company.
Due to the successful implementation of its business strategy, the Company
has grown from 489 locations at December 31, 1992 to 1,611 at March 6, 1998.
However, the Company's dramatic growth resulted in increased regional
infrastructure and field level staffing. During the third quarter of 1997,
management reviewed the Company's operating performance for the first six months
of 1997 and budgets for the balance of 1997, and determined that certain changes
were necessary to improve the long-term financial performance of the Company. In
particular, in an effort to reduce operating costs and reduce general and
administrative expenses as a percentage of revenue, management performed a
detailed review of the principal components of the Company's operational,
administrative and capital structure.
The Company recorded pre-tax charges of $89.2 million ($58 million after
tax) during 1997, representing $33.4 million of restructuring costs, $28.5
million of costs associated with strategic initiatives and $27.3 million of
other charges, the impact of which is reflected in the discussion of results of
operation. The majority of the anticipated future savings from the restructuring
and strategic initiatives are associated with the Company's efforts to more
fully integrate its field and administrative operations, including its
15
<PAGE>
funeral homes and cemetery locations, and are expected to favorably influence
gross margins in the Company's funeral and cemetery divisions. These initiatives
are also expected to produce long-term savings, as a percentage of revenue, in
general and administrative expenses and interest costs.
RESULTS OF OPERATION
Detailed below are the Company's operating results for the years ended
December 31, 1997, 1996 and 1995, expressed in dollar amounts as well as
relevant percentages. The operating results are presented as a percentage of
revenue except income taxes, which are presented as a percentage of net earnings
(loss) before income taxes.
The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. See Note 20 to the 1997 Consolidated Financial
Statements in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral........................................ $ 602.1 $ 549.8 $ 441.4 54.0 60.5 73.8
Cemetery....................................... 422.0 286.7 143.6 37.9 31.6 23.9
Insurance...................................... 90.0 71.9 13.5 8.1 7.9 2.3
--------- --------- --------- --------- --------- ---------
Total........................................ $ 1,114.1 $ 908.4 $ 598.5 100.0 100.0 100
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Gross margin
Funeral........................................ $ 227.9 $ 223.0 $ 182.5 37.9 40.6 41.3
Cemetery....................................... 122.0 91.9 39.9 28.9 32.1 27.8
Insurance...................................... 16.7 17.2 3.0 18.5 23.9 22.3
--------- --------- ---------
Total........................................ 366.6 332.1 225.4 32.9 36.6 37.7
Expenses
General and administrative..................... 113.7 71.2 67.7 10.2 7.8 11.3
Depreciation and amortization.................. 71.4 56.8 40.1 6.4 6.3 6.7
Restructuring costs............................ 33.4 -- -- 3.0 -- --
--------- --------- ---------
Earnings from operations......................... 148.1 204.1 117.6 13.3 22.5 19.7
Interest on long-term debt....................... 125.4 88.9 50.9 11.3 9.8 8.5
Loss on early extinguishment of debt............. 7.7 -- -- 0.7 -- --
Gain on sale of investment....................... (24.1) -- -- (2.2) -- --
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 7.1 0.6 0.8 1.2
Income taxes..................................... 2.7 29.1 (47.2) 6.0 31.3 (38.1)
--------- --------- ---------
29.3 60.3 (78.1) 2.6 6.6 (13.1)
Equity and other earnings of associated
companies...................................... 13.4 3.6 1.4 1.2 0.4 0.3
--------- --------- ---------
Net earnings (loss).............................. $ 42.7 $ 63.9 $ (76.7) 3.8 7.0 (12.8)
--------- --------- ---------
--------- --------- ---------
</TABLE>
16
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Consolidated revenue increased 22.6% to $1.1 billion in the year ended
December 31, 1997 from $908.4 million in 1996. Consolidated gross margin
increased 10.4% to $366.6 million in 1997 from $332.1 million in 1996. As a
percentage of revenue, consolidated gross margin percentage decreased to 32.9%
in 1997 from 36.6% in 1996, due to the increased proportion of cemetery revenue
with associated lower margins, and declines in the gross margin percentages of
the Company's funeral home, cemetery and insurance businesses. Charges relating
to the implementation of certain strategic initiatives and other charges
contributed to reduced margins in 1997 compared to 1996.
Funeral revenue increased 9.5% to $602.1 million in 1997 compared to $549.8
million in 1996, 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.
Excluding the factors described below, 1997 funeral gross margin at locations in
operation for all of 1996 and 1997 ("Established Locations") was in line with
the prior year. The number of funeral services performed at Established
Locations declined by 3.2% from 1996 to 1997, substantially consistent with
other consolidators in the industry; however, the effect on revenue was
partially offset by a slightly higher average revenue per funeral service of
approximately 2.5%. As a result, casket and funeral service revenue for
Established Locations declined by only 0.7% versus the prior year. Funeral gross
margin as a percentage of funeral revenue for Established Locations decreased to
38.7% in 1997 from 40.8% in 1996, due to decreased revenue of $6.0 million from
a lower number of services that was partially offset by higher average revenue
per service, coupled with increased operating costs of $6.5 million. The
increase in 1997 operating costs was primarily due to an addition to the reserve
for doubtful accounts of approximately $5.0 million, and certain other charges
aggregating approximately $0.6 million. Overall funeral gross margin as a
percentage of funeral revenue decreased to 37.9% in 1997 from 40.6% in 1996,
primarily as a result of the decrease in funeral gross margin at Established
Locations, together with lower margins on acquired funeral locations. The
Company expects funeral gross margin to be approximately 40% in 1998.
Cemetery revenue increased 47.2% to $422.0 million in 1997 compared to
$286.7 million in 1996, due to acquisitions. Cemetery revenues in 1997 included
a higher proportion of pre-need sales of openings and closings, as well as
caskets, which have a higher gross margin than other components of cemetery
revenues. Excluding the factors described below, cemetery gross margin for
Established Locations was 31.7%, slightly below 1996, as increased revenues were
offset by higher selling costs, primarily commissions associated with pre-need
sales, and other operating costs, such as maintenance. Overall cemetery gross
margin percentage decreased to 28.9% in 1997 from 32.1% in 1996. The decrease in
overall cemetery gross margin percentage was principally a result of (i) lower
cemetery revenue of $10.4 million attributable to imputed interest on
non-interest bearing installment contract sales in 1997, (ii) $2.0 million in
cemetery cost of sales representing the write off of certain costs related to
the National Baptist Convention program initiated during 1995 and terminated in
the third quarter of 1997, (iii) reversal in 1997 of $3.7 million of sales and
$1.2 million of related cost of sales recorded in 1996 for transactions not
consummated, and (iv) $2.1 million in cemetery cost of sales related to a write
down of cemetery accounts receivable. The Company expects cemetery gross margin
to be approximately 32% in 1998.
Insurance revenue increased to $90.0 million for 1997 from $71.9 million in
1996. Insurance gross margin in 1997 was 18.5% compared to 17.5% in 1996, after
adjusting 1996 to exclude $4.6 million for a revision to actuarial assumptions.
In addition to its focus on 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 $267 million in 1997 from approximately $190 million in 1996. Pre-
arranged funeral services comprised approximately 21% of the funeral services
performed by the Company in 1997 and approximately 19% of the funeral services
performed by the Company in 1996. Although pre-need funeral sales increased in
1997, the Company does not expect pre-arranged funeral services as a
17
<PAGE>
percentage of funeral services performed by the Company to vary significantly in
1998 and 1999. The Company estimates that it had a backlog of approximately $967
million in pre-need funeral sales as of December 31, 1997. Approximately 77% of
the Company's cemetery revenue in 1997 was generated from pre-need sales
compared with 66% in 1996. Note 1 to the 1997 Consolidated Financial Statements
provides information regarding the accounting treatment of pre-arranged funeral
services and pre-need cemetery sales.
United States based operations contributed over 90% of consolidated revenue
in 1997 and 1996.
General and administrative expenses for 1997 increased to $113.7 million
from $71.2 million in 1996. Included in general and administrative expenses for
1997 are charges of (i) $9.4 million attributable to management's decision to
negotiate the termination of covenant not to compete agreements with certain
former owners in locales where the marketplace has changed and the restrictive
covenants no longer have value to the Company, (ii) $6.0 million for litigation,
(iii) $5.6 million for the write off of acquisition costs associated with
acquisitions that management determined during the year to no longer pursue,
(iv) $2.2 million of fixed asset write downs as a result of streamlining general
and administrative functions, and (v) $1.6 million of software and other costs
associated with a change in the Company's operating strategy. Also included in
1997 general and administrative expenses is the gain before taxes of $3.0
million on the sale of certain funeral home properties. Without reflecting the
impact of these items, general and administrative expenses for 1997 increased
$20.7 million over 1996 primarily due to the expansion of the company's
infrastructure necessary to purchase, integrate and operate newly acquired
locations and, as a percentage of revenue, was 8.3% as compared to 7.8% in 1996.
The Company recognized a restructuring charge of $33.4 million for the third
quarter of 1997. The charge is principally composed of (i) $19.4 million related
to the severance of 545 employees in operating locations where the Company was
not achieving the full benefits of local staffing synergy, (ii) $6.0 million in
fixed asset write downs as a result of management's decision to curtail or sell
certain under-performing locations as part of the reorganization strategy, and
(iii) $7.5 million for lease termination, severance of 47 employees and other
expenses related to the closure of the Company's Covington, Kentucky corporate
office.
Interest expense on long-term debt increased by $36.5 million in 1997
primarily as a result of additional borrowings by the Company to finance its
expansion programs, as well as the increase in cemetery and funeral pre-need
sales program activity.
In 1997, the Company refinanced a portion of its long-term debt to achieve a
lower interest rate. As a result, the Company incurred a loss on early
extinguishment of debt of $7.7 million related to the prepayment of a Cdn. $35
million term credit facility and the prepayment of three series of senior
amortizing notes totaling approximately $100 million.
On November 17, 1997, the Company completed the sale of its shareholdings in
Arbor Memorial Services Inc. for a gain of approximately $24.1 million, $13.9
million after tax.
The income tax expense of $2.7 million and an effective tax rate of 5.9%,
compares to an income tax expense of $29.1 million for 1996 and an effective tax
rate of 31.3%. The change in effective tax rate in 1997 compared to 1996 is
explained in Note 17 to the 1997 Consolidated Financial Statements. The
Company's effective tax rate is primarily determined through certain
international and intercompany financing arrangements, as well as other tax
strategies.
Equity and other earnings of associated companies increased to $13.4 million
for 1997 from $3.6 million in 1996 due primarily to the inclusion for a full
year of payment-in-kind dividends, partially offset by the Company's
proportionate share of the full year loss attributable to the Common shares of
Prime Succession Holdings, Inc. and Rose Hills Holding Corp., as described
further in Note 4 to the 1997 Consolidated Financial Statements.
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<PAGE>
Net earnings decreased to $42.7 million in 1997 from $63.9 million in 1996.
Fully diluted earnings per share ("EPS") decreased to $0.49 per share from $0.97
per share in 1996.
The Company's statement of changes in financial position for the year ended
December 31, 1997 reflects cash applied to operations of approximately $173
million primarily as a result of increased cemetery and funeral pre-need sales
programs.
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 47.3% to $332.1 million in 1996 from $225.4 million in 1995. As a
percentage of revenue, consolidated gross margin decreased to 36.6% 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.
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 32.1% 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. 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. For Established Locations, cemetery gross margin
increased to 32.2% 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. for approximately $150 million
(including related costs), which assets included two insurance companies. The
increase in gross margin for insurance operations to 23.9% for 1996 from 22.3%
in 1995 reflects primarily operating improvements associated with expansion of
the insurance division.
In addition to its focus on 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 19% of the funeral services
performed by the Company in 1996 and approximately 16% of the funeral services
performed by the Company in 1995. 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. Note 1 to the 1997 Consolidated
Financial Statements provides information regarding the accounting treatment of
pre-arranged funeral services and pre-need cemetery sales.
United States based operations contributed over 90% of consolidated revenue
in 1996 and 1995.
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<PAGE>
General and administrative expenses, as a percentage of revenue, decreased
to 7.8% in 1996 from 11.3% in 1995. For the year ended December 31, 1996,
general and administrative expenses increased 5.2% to $71.2 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, 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. 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.
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 $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. Fully diluted earnings per share increased to $0.97 per share
from a loss of $1.69 per share in 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.
ACQUISITIONS, INVESTMENTS, CAPITAL EXPENDITURES AND DISPOSITIONS
The Company acquired 138 funeral homes, 171 cemeteries and one insurance
company during 1997 for consideration of approximately $546 million. Of these
acquisitions, 105 funeral homes, 171 cemeteries and one insurance company were
located in the United States, 23 funeral homes were located in Canada, and 10
funeral homes were located in the United Kingdom. During 1996, the Company
acquired 159 funeral homes, 136 cemeteries and two insurance companies for
consideration of approximately $620 million. Included in the 1996 acquisitions
is the March 1996 purchase of 15 funeral homes, two cemeteries and two insurance
companies from S.I. for approximately $150 million (including related costs).
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 Securities and
Exchange Commission 5,000,000 Common shares for issuance in connection with
prospective share-for-share acquisitions. As of March 6, 1998, 913,819 of such
Common shares had been issued.
20
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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 June 1997, in order to comply with state law, the Company disposed of all
of its eighteen funeral homes in the State of Wisconsin. The aggregate proceeds
from the sale of these properties was $18.5 million, resulting in a gain before
taxes of $3.0 million. The Company continues to own cemeteries in Wisconsin.
However, in the future the Company will not purchase any funeral homes in that
state until such time as the current law is changed.
On November 17, 1997, the Company completed the sale of its shareholdings in
Arbor Memorial Services Inc. for a gain of approximately $24.1 million, $13.9
million after tax.
During the period from January 1, 1998 to March 6, 1998, the Company
acquired 31 funeral homes and 26 cemeteries. The aggregate cost of these
transactions was approximately $83 million. As of March 6, 1998, the Company had
signed agreements, some of which are non-binding, for the acquisition of 47
additional funeral homes and 51 additional cemeteries aggregating approximately
$198 million. The Company expects to close a majority of such acquisitions
during 1998. 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.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or other disruption of
operations and impede normal business activities.
During the past two years, the Company has determined that it will be
necessary to modify or replace certain portions of its software so that its
computer systems will function properly beyond December 31, 1999. The Company
presently believes that with current and planned modifications to existing
software and conversions to new software, the risk of potential loss associated
with the Year 2000 Issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Company.
The Company has expensed approximately $200,000 to date to assess, evaluate
and remediate known Year 2000 Issues. As a result, the most significant areas
have been or are scheduled to be remedied by mid-1999. Additionally, the Company
is establishing a task force to monitor remaining implementation plans and to
determine whether all remaining areas have been assessed and evaluated,
resources identified and remediation completed on a timely basis. At this time,
the Company does not believe the remaining cost associated with the Year 2000
Issue to be material. Systems improvements and benefits beyond solution of the
Year 2000 Issue are expected to be realized as a result of the above
initiatives.
The Company has also initiated formal communications with its significant
vendors to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. The Company's
total Year 2000 Issue project cost and estimates to complete exclude the
estimated costs and time associated with the impact of a third party's Year 2000
Issue, which are not yet determinable. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
converted on a timely basis, or that a failure to convert by another company, or
a conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company.
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<PAGE>
The cost and the date on which the Company plans to complete the Year 2000
Issue modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to fund its ongoing expansion programs through a
combination of debt and equity offerings and borrowings under its credit
facilities (described below). The Company plans to finance principal repayments
on debt primarily through the issuance 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 balance sheet at December 31, 1997, as compared to December
31, 1996, reflects changes principally from acquisitions during 1997, as
described in Note 2 to the 1997 Consolidated Financial Statements, and the 1997
Financings (described below). In addition, during the past two years the Company
has significantly expanded its cemetery and funeral pre-need sales programs. The
rapid growth in cemetery pre-need sales and the related long-term receivables
have contributed to the greater uses of cash than generated from operations.
Cemetery pre-need sales are typically structured with low initial cash payments
by the customers which do not offset the cash costs of establishing and
supporting a growing pre-need sales program including the payment of certain
sales commissions. For cemetery pre-need sales, the balance due is recorded as
an installment contract receivable and the future liability for merchandise as
an other liability and, accordingly, the increase in the level of pre-need
cemetery sales has resulted in an increase in both current and long-term
receivables and other liabilities.
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, 1997, the Company's long-term debt/equity ratio
was 1.2:1.
1997 FINANCINGS
In June 1997, Loewen completed a public offering in Canada, the United
States and internationally of 13,800,000 Common shares (including 1,800,000
Common shares issued pursuant to the underwriters' over-allotment option) for
aggregate gross proceeds of approximately $455 million (the "1997 Common Share
Offering"). The net proceeds from the 1997 Common Share Offering of
approximately $437 million were used for working capital and general corporate
purposes, including acquisitions.
In September 1997, Loewen completed a public offering in Canada and a
private placement in the United States of Cdn. $200 million of 6.10% Series 5
Senior Guaranteed Notes due 2002 (the "Series 5 Senior Notes"). The net proceeds
from the Series 5 Senior Notes offering were used for working capital and
general corporate purposes, including acquisitions. The Series 5 Senior Notes
are guaranteed by LGII and secured in the manner described below under
"Collateral Trust Agreement."
In September 1997, LGII expanded its $750 million revolving credit facility
to $1 billion (the "Revolving Credit Facility"). The Revolving Credit Facility
had two components, a $750 million tranche which matured in September 2002 and a
$250 million 364-day tranche which matured in September 1998. In March 1998, the
Company further amended the Revolving Credit Facility to provide greater
flexibility for the timing of equity offerings and other financing alternatives.
As part of the amendment, the 364-day tranche was terminated and the $750
million tranche was reduced to a $600 million revolving agreement
22
<PAGE>
which matures in March 2001. The Revolving Credit Facility bears interest at
alternative market rates selected by LGII and is secured in the manner described
below under "Collateral Trust Agreement." During 1998, the Company expects to
obtain one or more additional financing facilities to replace a portion of the
reduction in the Revolving Credit Facility.
In September 1997, LGII completed a private placement in the United States
of $300 million in pass-through asset trust senior guaranteed notes, due 2009
("the PATS Senior Notes"). The PATS Senior Notes bear interest at a rate of
6.70% until October 1, 1999, at which time the interest rate will be reset at a
fixed annual rate of 6.05% plus an adjustment equal to LGII's then-current
credit spread to the ten-year United States Treasury rate. The PATS Senior Notes
are redeemable at the election of the holder, in whole but not in part, at 100%
of the principal amount on October 1, 1999. The net proceeds from the PATS
Senior Notes offering were used for working capital and general corporate
purposes including acquisitions. The PATS Senior Notes are guaranteed by Loewen
and secured in the manner described below under "Collateral Trust Agreement."
In September 1997, the Company repaid in advance of its final maturity, a
Cdn. $35 million Canadian bank term credit agreement and in October 1997, repaid
in full $100 million of Series A, B and C senior amortizing notes. In accordance
with the terms of the bank term credit agreement and the notes, the Company
incurred and expensed make-whole penalties aggregating $7.7 million in 1997.
INDEBTEDNESS
In addition to the Revolving Credit Facility and the PATS Senior Notes
described above, LGII has outstanding four series of senior guaranteed notes
aggregating $700 million (the "Series 1-4 Senior Notes") issued in March and
October of 1996. The Series 1-4 Senior Notes are guaranteed by Loewen and bear
interest rates ranging from 7.50% to 8.25% and have initial terms of five to
seven years. LGII also has outstanding one series of senior amortizing notes
(the "Series E Amortizing Notes") in the amount of $50 million. The Series E
Amortizing Notes are guaranteed by Loewen, bear an interest rate of 6.49% and
have an initial term of ten years.
In addition to the Series 5 Senior Notes, Loewen also has outstanding one
series of senior amortizing notes (the "Series D Amortizing Notes") in the
amount of $51 million. The Series D Amortizing Notes are guaranteed by LGII and
bear an interest rate of 9.62% and an initial term of ten years. Loewen also has
a Cdn.$50 million revolving credit facility that matures in July 1999 (the
"Canadian Revolving Credit Facility"). A subsidiary of Loewen has a $105 million
secured term loan implemented in connection with the 1994 Management Equity
Investment Plan that will terminate in July 2000 (the "MEIP Loan").
COLLATERAL TRUST AGREEMENT
In 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 "Collateral Trust Agreement"). The 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 its subsidiaries and (ii)
all of the financial assets of LGII (including the shares of the 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 pari passu indebtedness. This senior lending group consists
principally of the lenders under the Series 1-5 Senior Notes, the Series D and E
Amortizing Notes, the Revolving Credit Facility, the Canadian Revolving Credit
Facility, the MEIP Loan, and the PATS Senior Notes as well as the holders of
certain letters of credit.
RESTRICTIONS
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,
23
<PAGE>
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, 1997, none of the Company's retained
earnings were restricted or unavailable for payment of dividends under the most
restrictive agreement.
At December 31, 1997, the Company was in violation of certain debt covenants
regarding interest rate coverage ratios. The Company has secured applicable
waivers from the lenders to remedy such violations.
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 1997 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.
SHARE REPURCHASE PROGRAM
In September 1997, the Company announced that it may, from time to time and
until September 1998 subject to market and other conditions, repurchase up to
approximately 3,600,000 of its Common Shares and up to 440,000 of its Series C
Preferred Shares, through the facilities of the Toronto Stock Exchange, the
Montreal Exchange and the New York Stock Exchange. As at March 6, 1998, no share
repurchases had been made.
INTEREST RATE RISK MANAGEMENT
The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. 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.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE LOEWEN GROUP INC.
Report of Independent Accountants........................................................................ 27
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. 28
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995............... 29
Consolidated Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995........ 30
Consolidated Statement of Changes in Financial Position for the Years Ended December 31, 1997, 1996 and
1995................................................................................................... 31
Notes to Consolidated Financial Statements............................................................... 32
Supplementary Data: Quarterly Financial data (unaudited)................................................. 72
LOEWEN GROUP INTERNATIONAL, INC. (1)
Report of Independent Accountants........................................................................ 73
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. 74
Consolidated Statements of Operations and Retained Earnings (Deficit) for the Years Ended December 31,
1997, 1996 and 1995.................................................................................... 75
Consolidated Statement of Changes in Financial Position for the Years Ended December 31, 1997, 1996 and
1995................................................................................................... 76
Notes to Consolidated Financial Statements............................................................... 77
TLGI MANAGEMENT CORP. (1)
Report of Independent Accountants........................................................................ 110
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. 111
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995............... 112
Consolidated Statements of Retained Earnings (Deficit) for the Years Ended December 31, 1997, 1996 and
1995................................................................................................... 113
Consolidated Statements of Changes in Financial Position for the Years Ended December 31, 1997, 1996 and
1995................................................................................................... 114
Notes to Consolidated Financial Statements............................................................... 115
4103 INVESTMENTS LTD. (1)
Report of Independent Accountants........................................................................ 128
Balance Sheet as of December 31, 1997.................................................................... 129
Statements of Operations and Retained Earnings for the Period from March 24 to December 31, 1997......... 130
Notes to Financial Statements............................................................................ 131
</TABLE>
25
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
NEWEOL INVESTMENTS LTD. (1)
Report of Independent Accountants........................................................................ 139
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. 140
Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1997, 1996
and 1995............................................................................................... 141
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............... 142
Notes to Consolidated Financial Statements............................................................... 143
LOEWEN LUXEMBOURG (NO. 1) S.A. (1)
Report of Independent Accountants........................................................................ 155
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. 156
Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1997, 1996
and 1995............................................................................................... 157
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............... 158
Notes to Consolidated Financial Statements............................................................... 159
LOEWEN LUXEMBOURG (NO. 2) S.A. (1)
Report of Independent Accountants........................................................................ 164
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. 165
Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1997, 1996
and 1995............................................................................................... 166
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............... 167
Notes to Consolidated Financial Statements............................................................... 168
</TABLE>
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(1) FINANCIAL STATEMENTS OF LGII, TLGI MANAGEMENT CORP., 4103 INVESTMENTS LTD.,
NEWEOL INVESTMENTS LTD., LOEWEN LUXEMBOURG (NO. 1) S.A. AND LOEWEN LUXEMBOURG
(NO. 2) S.A. ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE
OUTSTANDING SHARES OF EACH OF SUCH COMPANIES CONSTITUTE A "SUBSTANTIAL PORTION"
OF THE COLLATERAL (WITHIN THE MEANING OF SECURITIES AND EXCHANGE COMMISSION RULE
3-10 UNDER REGULATION S-X) THAT SECURES THE SERIES 1 THROUGH 4 NOTES THAT WERE
ISSUED BY LGII AND GUARANTEED BY LOEWEN.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
The Loewen Group Inc.
We have audited the consolidated balance sheets of The Loewen Group Inc. as
at December 31, 1997 and 1996 and the consolidated statements of operations,
retained earnings and changes in financial position for each of the years in the
three year period ended December 31, 1997. In connection with our audits of the
consolidated financial statements, we also have audited financial statement
schedule II included in item 14 of the Company's annual report on Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1997,
in accordance with generally accepted accounting principles in Canada. As
required by the Company Act of the Province of British Columbia, we report that,
in our opinion, these principles have been applied on a consistent basis. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
February 27, 1998 except as to Note 22,
which is as of March 27, 1998
27
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits.............................................................. $ 36,767 $ 18,059
Receivables, net of allowances...................................................... 251,006 187,617
Inventories......................................................................... 34,885 32,008
Prepaid expenses.................................................................... 11,141 11,545
------------ ------------
333,799 249,229
Prearranged funeral services.......................................................... 410,379 334,420
Long-term receivables, net of allowances.............................................. 553,663 288,579
Investments........................................................................... 224,008 266,228
Insurance invested assets............................................................. 305,610 296,249
Cemetery property, at cost............................................................ 957,831 615,192
Property and equipment................................................................ 797,178 686,285
Names and reputations................................................................. 633,143 558,710
Deferred income taxes................................................................. 130,913 67,904
Other assets.......................................................................... 156,636 134,143
------------ ------------
$ 4,503,160 $ 3,496,939
------------ ------------
------------ ------------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities............................................ $ 160,208 $ 114,072
Long-term debt, current portion..................................................... 43,507 79,580
------------ ------------
203,715 193,652
Long-term debt........................................................................ 1,750,427 1,416,345
Other liabilities..................................................................... 308,909 216,842
Insurance policy liabilities.......................................................... 214,492 212,480
Deferred prearranged funeral services revenue......................................... 410,379 334,420
Preferred securities of subsidiary.................................................... 75,000 75,000
Shareholders' equity
Common shares....................................................................... 1,271,177 796,431
Preferred shares.................................................................... 157,146 157,146
Retained earnings................................................................... 98,354 80,117
Foreign exchange adjustment......................................................... 13,561 14,506
------------ ------------
1,540,238 1,048,200
------------ ------------
$ 4,503,160 $ 3,496,939
------------ ------------
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 6, 11, 14 AND 22)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
Revenue
Funeral.................................................................. $ 602,112 $ 549,833 $ 441,352
Cemetery................................................................. 422,010 286,652 143,577
Insurance................................................................ 89,977 71,900 13,564
------------ ---------- -----------
1,114,099 908,385 598,493
Costs and expenses
Funeral.................................................................. 374,191 326,892 258,872
Cemetery................................................................. 300,031 194,725 103,726
Insurance................................................................ 73,304 54,709 10,533
------------ ---------- -----------
747,526 576,326 373,131
------------ ---------- -----------
366,573 332,059 225,362
Expenses
General and administrative............................................... 113,707 71,191 67,652
Depreciation and amortization............................................ 71,383 56,763 40,103
Restructuring costs...................................................... 33,364 -- --
------------ ---------- -----------
218,454 127,954 107,755
------------ ---------- -----------
Earnings from operations................................................... 148,119 204,105 117,607
Interest on long-term debt................................................. 125,450 88,932 50,913
Loss on early extinguishment of debt....................................... 7,675 -- --
Gain on sale of investment................................................. (24,099) -- --
Finance costs related to hostile takeover proposal......................... -- 3,230 --
Other costs related to hostile takeover proposal........................... -- 15,448 --
Litigation related finance costs........................................... -- -- 19,914
Legal settlements.......................................................... -- -- 165,000
------------ ---------- -----------
Earnings (loss) before undernoted items.................................... 39,093 96,495 (118,220)
Dividends on preferred securities of subsidiary............................ 7,088 7,088 7,088
------------ ---------- -----------
Earnings (loss) before income taxes and undernoted items................... 32,005 89,407 (125,308)
Income taxes
Current.................................................................. 34,152 22,544 29,379
Deferred................................................................. (31,495) 6,551 (76,557)
------------ ---------- -----------
2,657 29,095 (47,178)
------------ ---------- -----------
29,348 60,312 (78,130)
Equity and other earnings of associated companies.......................... 13,380 3,594 1,446
------------ ---------- -----------
Net earnings (loss) for the year........................................... $ 42,728 $ 63,906 $ (76,684)
------------ ---------- -----------
------------ ---------- -----------
Basic earnings (loss) per Common share..................................... $ 0.49 $ 0.97 $ (1.69)
Fully diluted earnings (loss) per Common share............................. $ 0.49 $ 0.97 $ (1.69)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Retained earnings, beginning of year.......................................... $ 80,117 $ 36,439 $ 115,492
Net earnings (loss)........................................................... 42,728 63,906 (76,684)
Common share dividends........................................................ (14,958) (11,354) (2,369)
Preferred share dividends..................................................... (9,533) (8,874) --
---------- ---------- ----------
Retained earnings, end of year................................................ $ 98,354 $ 80,117 $ 36,439
---------- ---------- ----------
---------- ---------- ----------
Dividend per Common share..................................................... $ 0.200 $ 0.200 $ 0.050
Dividend per Preferred share.................................................. $ 1.083 $ 1.008 $ --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss).................................................... $ 42,728 $ 63,906 $ (76,684)
Items not affecting cash
Depreciation and amortization........................................ 71,383 56,763 40,103
Gain on sale of investments.......................................... (27,208) -- --
Deferred income taxes................................................ (31,495) 6,551 (76,557)
Equity and other earnings of associated companies.................... (13,380) (3,594) (1,446)
Restructuring costs.................................................. 15,645 -- --
Common shares and debt issued for legal settlements.................... -- (112,000) 112,000
Other, including net changes in other non-cash balances................ (231,112) (147,398) 12,872
------------- ----------- -----------
(173,439) (135,772) 10,288
------------- ----------- -----------
Investing
Business acquisitions.................................................. (546,498) (619,632) (487,948)
Construction of new facilities......................................... (32,429) (17,719) (14,695)
Investments, net....................................................... 14,523 (171,398) (15,719)
Purchase of insurance invested assets.................................. (261,987) (106,335) --
Proceeds on disposition and maturities of insurance invested assets.... 252,626 71,939 --
Purchase of property and equipment..................................... (52,830) (54,911) (21,369)
Proceeds on disposition of investments and assets...................... 85,812 24,067 3,490
Other.................................................................. (14,270) 2,335 (32,932)
------------- ----------- -----------
(555,053) (871,654) (569,173)
------------- ----------- -----------
Financing
Issue of Common shares, before income tax recovery..................... 462,430 300,583 203,056
Issue of Preferred shares, before income tax recovery.................. -- 154,094 --
Increase in long-term debt............................................. 1,385,425 1,128,449 396,461
Reduction in long-term debt............................................ (1,082,970) (514,510) (53,793)
Common share dividends................................................. (14,958) (11,354) (2,369)
Preferred share dividends.............................................. (9,533) (8,874) --
Current note payable................................................... -- (38,546) 38,546
Other.................................................................. 6,768 (23,741) 4,238
------------- ----------- -----------
747,162 986,101 586,139
------------- ----------- -----------
Increase (decrease) in cash and cash equivalents during the year......... 18,670 (21,325) 27,254
Effect of foreign exchange adjustment.................................... 38 (70) 551
Cash and cash equivalents, beginning of year............................. 18,059 39,454 11,649
------------- ----------- -----------
Cash and cash equivalents, end of year................................... $ 36,767 $ 18,059 $ 39,454
------------- ----------- -----------
------------- ----------- -----------
CASH AND CASH EQUIVALENTS INCLUDE CASH AND TERM DEPOSITS.
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of The Loewen Group Inc. (the
"Company") have been prepared in accordance with accounting principles generally
accepted in Canada, which in the case of the Company, generally conform with
those established in the United States, except as explained in Note 23.
The United States dollar is the principal currency of the Company's business
and accordingly the consolidated financial statements are expressed in United
States dollars.
BASIS OF CONSOLIDATION
The accounts of all subsidiary companies have been included in the
consolidated financial statements from their respective dates of acquisition of
control or formation. All subsidiaries are wholly owned at December 31, 1997
except for a few companies with small minority interests. The Company's
operating subsidiaries in the United States are held through Loewen Group
International, Inc. ("LGII").
The Company accounts for its common share investment in companies in which
it has significant influence by the equity method. The Company's proportionate
share of income (loss) as reported, net of amortization of excess purchase price
over net assets acquired, is included in income and added to (deducted from) the
cost of the investment. Common share dividends received reduce the carrying
amount of the investment.
Other long-term investments including preferred share investments are
accounted for using the cost method.
The Company accounts for its investment in joint ventures using the
proportionate consolidation method.
All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could differ from those estimates.
PREARRANGED FUNERAL SERVICES
Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract are either placed in trust or are used to pay the
premiums of life insurance policies under which the Company will be designated
as beneficiary. Except for insurance commissions and amounts not required to be
trusted which are used to defray initial costs of administration, no income is
recognized until the performance of a specific funeral.
32
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Company estimates that trust
fund investment earnings and annual insurance benefits exceed the increase in
cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
related to the sale of prearranged funeral services are included in other assets
and amortized over a period of ten years, approximating the period the benefits
are expected to be realized. Indirect obtaining costs relating to the sale of
prearranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when non-cancellable customer contracts are
signed with concurrent recognition of related costs. Allowances for
cancellations arising from non-payment are provided at the date of sale based on
management's estimates of expected cancellations. Actual cancellation rates in
the future may result in a change in estimate.
A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to state law, a
portion of the proceeds from the sale of preneed merchandise and services may
also be required to be paid into trust funds which are recorded as long-term
receivables.
INSURANCE OPERATIONS
(a) INSURANCE REVENUE
The Company earns insurance revenue primarily through the sale of industrial
life and ordinary life insurance policies.
(b) INSURANCE INVESTED ASSETS
Bonds and other fixed-term securities are carried at amortized cost. Net
realized gains and losses on the disposal of bonds and other fixed-term
securities are deferred and amortized to income over the remaining term to
maturity of the security sold. Equity securities are carried at moving average
market value. Net realized gains and losses on the disposal of equity securities
are deferred and amortized to income on a declining balance basis.
(c) INSURANCE POLICY LIABILITIES
Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of
33
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently,
policy liabilities include reasonable provisions for adverse deviations from
those estimates. These assumptions will be revised if it is determined that
future experience differs substantially from that previously assumed.
INVENTORIES
Inventories are valued at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.
CEMETERY PROPERTY
Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and is valued at average cost, which is not in
excess of market value. Amounts are expensed to costs and expenses as sales of
cemetery plots occur.
PROPERTY AND EQUIPMENT
Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements...................................... 10 to 40 years
Automobiles..................................................... 6 years
Furniture, fixtures and equipment............................... 6 to 10 years
Computer hardware and software.................................. 6 to 10 years
Leasehold improvements.......................................... over the term of the lease plus one renewal
</TABLE>
NAMES AND REPUTATIONS
The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.
Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts capitalized for non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such prepaid covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including
investments, cemetery properties, property and equipment, names and reputations
and other assets, based on estimates using factors such as current market value,
future asset utilization, business climate and future undiscounted cash flows
expected to result from the use of the related assets. The Company's policy is
to record an impairment loss in the period when it is determined that the
carrying amount of the asset may not be recoverable.
34
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCE COSTS
Deferred finance costs included in other assets on the consolidated balance
sheet represent the costs of negotiating and securing the Company's long-term
debt and preferred securities of subsidiary and are being amortized to earnings
on a straight-line basis over the respective term of the related debt. These
costs include legal fees, accounting fees, underwriting and agency fees and
other related costs.
ACQUISITION COSTS
The Company's policy is to capitalize direct acquisition costs incurred on
potential acquisitions. Upon completion of an acquisition, these costs are
allocated to the assets acquired and are subject to the accounting policies
outlined above. On certain acquisitions, a portion of the consideration is
contingent upon future operating results. Such consideration, if any, is
allocated to the assets acquired once determinable. Direct acquisition costs
related to acquisitions not completed are written off.
DERIVATIVE INSTRUMENTS
The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. The Company's policies do
not allow leveraged transactions and are designed to minimize credit and
concentration risk with counterparties.
The Company enters into interest rate swap agreements to manage interest
rate exposure on its long-term debt. The difference between the amounts paid and
received is accrued and accounted for as an adjustment to interest expense over
the life of the swap agreement.
The Company uses basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions are probable and
the significant characteristics and expected terms are identified. Any gain or
loss as a result of the hedging is deferred and amortized as an adjustment to
interest expense over the life of the financing instrument hedged. If at any
point in time a hedging transaction no longer meets the criteria of a hedge, any
gain or loss is recognized in current earnings.
The Company also uses foreign exchange forward contracts, options and
futures to hedge the Company's exposure to fluctuations in foreign exchange
rates. Gains or losses as a result of the hedge transaction are accounted for as
an adjustment to the related transaction.
SHARE ISSUE EXPENSES
The costs of issuing shares, net of income tax recoveries thereon, are
applied to reduce the stated value of such shares.
DEFERRED INCOME TAXES
The Company follows the allocation method for accounting for income taxes.
Under this method recognition is given in the financial statements to the tax
effects of timing differences between income for financial statement and income
tax purposes. The differences arise primarily from interest, provisions for
legal settlements and related costs, intercompany charges, depreciation,
amortization, deferred finance
35
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs, direct marketing costs, provision for bad debts and contract
cancellations, operating loss carry-forwards, cemetery sales and share issue
costs.
EARNINGS PER SHARE
Basic earnings (loss) per share figures are calculated based on net earnings
(loss) attributable to Common shareholders using the weighted average number of
Common shares outstanding during the respective periods.
Fully diluted earnings (loss) per share figures 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 of 6.9% (1996 -- 6.5%, 1995 -- 6.2%), (b) 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 and (c) 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. See Note 9(d).
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Canadian operations, which are accounted
for as self-sustaining, have been translated into United States dollars at the
rates of exchange as at the balance sheet dates, and revenue and expenses are
translated at the average rates of exchange for the periods of operation. Gains
or losses arising from the translation are deferred and are classified as
"Foreign exchange adjustment" within Shareholders' equity.
NOTE 2. ACQUISITIONS
During the year ended December 31, 1997, the Company acquired 105 funeral
homes, 171 cemeteries and one insurance company in the United States, 23 funeral
homes in Canada and 10 funeral homes in the United Kingdom.
During the year ended December 31, 1996, the Company acquired 149 funeral
homes, 135 cemeteries and two insurance companies in the United States and ten
funeral homes and one cemetery in Canada. Included in these acquisitions is the
purchase of certain net assets of S.I. Acquisition Associates L.P. ("S.I.") of
Donaldsville, Louisiana, for approximately $155,800,000, including costs of
acquisition. S.I. concurrently acquired all of the outstanding shares of Ourso
Investment Corporation. The S.I. assets included 15 funeral homes, two
cemeteries and two insurance companies.
All of the Company's acquisitions have been accounted for by the purchase
method. The preliminary purchase price allocation for certain of these
acquisitions has been estimated based on available information at the time and
is subject to revision. The effect of acquisitions at dates of purchase on the
Consolidated Balance Sheet is shown below. Included in the 1996 amounts is
$11,794,000 representing the present value of total contingent payments of
approximately $13,500,000 which the Company recorded in
36
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 2. ACQUISITIONS (CONTINUED)
the third quarter of 1996 when the outcome of the contingency related to a 1995
acquisition became determinable.
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Current assets........................................................................... $ 10,138 $ 13,624
Prearranged funeral services............................................................. 37,271 49,098
Long-term receivables, net of allowances................................................. 85,098 90,882
Investments.............................................................................. 36 1,837
Insurance invested assets................................................................ -- 185,971
Cemetery property, at cost............................................................... 305,038 255,239
Property and equipment................................................................... 87,587 111,610
Names and reputations.................................................................... 104,918 154,297
Other assets............................................................................. 264 251
---------- -----------
630,350 862,809
Current liabilities...................................................................... (6,680) (19,364)
Long-term debt........................................................................... (4,948) (2,068)
Other liabilities........................................................................ (55,845) (53,995)
Insurance policy liabilities............................................................. -- (125,250)
Deferred income taxes.................................................................... 20,892 6,598
Deferred prearranged funeral services revenue............................................ (37,271) (49,098)
---------- -----------
$ 546,498 $ 619,632
---------- -----------
---------- -----------
Consideration
Cash, including assumed debt repaid at closing......................................... $ 481,617 $ 556,921
Debt................................................................................... 41,880 51,060
Common shares.......................................................................... 23,001 11,651
---------- -----------
Purchase Price........................................................................... $ 546,498 $ 619,632
---------- -----------
---------- -----------
</TABLE>
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the year ended December 31,
1997 as if all such acquisitions had taken place at the beginning of the
respective years presented. Appropriate adjustments have been made to reflect
the accounting basis used in recording these acquisitions. This pro-forma
information does not purport to be indicative of the results of operations that
would have resulted had the acquisitions been in effect for the entire years
presented, and is not intended to be a projection of future results or trends.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 1,172,274 $ 1,033,218
Net earnings.......................................................................... $ 42,777 $ 64,410
Basic earnings per share.............................................................. $ 0.49 $ 0.97
Fully diluted earnings per share...................................................... $ 0.49 $ 0.97
</TABLE>
37
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 3. PREARRANGED FUNERAL SERVICES
Included in the consolidated balance sheet at December 31, 1997, as
prearranged funeral services is $410,379,000 (1996 -- $334,420,000),
representing amounts deposited in accordance with state trusting laws with
various financial institutions together with accrued earnings. The Company will
receive the prearranged funeral trust amounts when the funeral services are
performed.
AMOUNTS HELD IN PREARRANGED FUNERAL TRUSTS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Short-term investments.................................................................... $ 145,365 $ 98,615
Fixed maturities.......................................................................... 92,555 116,177
Balanced mutual funds..................................................................... 123,080 58,648
Equity securities......................................................................... 14,970 10,870
Insurance policies held by trust.......................................................... 32,552 45,228
Other..................................................................................... 1,857 4,882
---------- ----------
$ 410,379 $ 334,420
---------- ----------
---------- ----------
</TABLE>
The weighted average rate of return on the above prearranged funeral trust
assets for the year ended December 31, 1997 was 3.8% (1996 -- 5.2%, 1995 --
5.1%).
NOTE 4. INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
213.2353 Common shares (1996 -- 213.2353) representing 21.8%............................ $ 11,274 $ 12,780
7,170 Preferred Shares (1996 -- 6,350) representing 100%................................ 71,698 63,500
ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")
204.5454 Common shares (1996 -- 204.5454) representing 20.45%........................... 4,377 6,525
9,461 Preferred shares (1996 -- 8,600) representing 100%................................ 94,610 86,000
ARBOR MEMORIAL SERVICES, INC. ("ARBOR")................................................... -- 39,517
INVESTMENTS OF JOINT VENTURE.............................................................. 40,113 37,187
OTHER..................................................................................... 1,936 20,719
---------- ----------
$ 224,008 $ 266,228
---------- ----------
---------- ----------
</TABLE>
(a) PRIME
On August 26, 1996, the Company acquired 235.2941 shares of Prime common
stock for $16,000,000, representing 23.5% of Prime's voting common stock, and
100% of Prime's non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend, for $62,000,000. Blackstone Capital Partners II
Merchant Banking Fund L.P. and certain affiliates (together, "Blackstone")
acquired 764.7059 shares of
38
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
Prime common stock, representing 76.5% of Prime's voting common stock for
$52,000,000. On February 14, 1997, the Company and Blackstone agreed to adjust
their respective ownership of Prime's voting common stock retroactively to
August 26, 1996. No adjustment to the aggregate purchase price was made. After
giving effect to the readjustment, the Company has paid $14,500,000 for 213.2353
shares of Prime common stock and Blackstone has paid $52,000,000 for 764.7059
shares of Prime common stock representing 21.8% and 78.2%, respectively, of
Prime's voting common stock.
Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession, Inc. was purchased on August 26, 1996 for approximately $320,000,000
of which $130,000,000 was funded by Blackstone and the Company, and $190,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $230,000,000, was established as goodwill in Prime Succession,
Inc. and is being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its share in Prime to a party other than to an affiliate of itself.
The Company accounts for its investment in Prime preferred stock by the cost
method. For the year ended December 31, 1997, income of $6,542,000 (August 26,
1996 to December 31, 1996 income of $2,300,000) was recorded representing the
cumulative annual payment-in-kind dividend.
The Company accounts for its investment in Prime common stock by the equity
method. Under this method, the Company records its proportionate share of the
net earnings (loss) of Prime after deducting the payment-in-kind dividend. For
the year ended December 31, 1997, a loss of $1,469,000 (August 26, 1996 to
December 31, 1996 loss of $1,144,000) was recorded representing the Company's
proportionate share of the loss attributable to the Prime common stock.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's Prime common stock commencing on the
fourth anniversary of the acquisition, and for a period of two years thereafter,
at a price determined pursuant to the Put/Call Agreement. Blackstone has the
option to sell ("Put") its Prime common stock to the Company commencing on the
sixth anniversary of the acquisition, and for a period of two years thereafter,
at a price determined pursuant to the Put/Call Agreement.
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of earnings before interest, taxes, depreciation and amortization
("EBITDA"), after deduction of certain liabilities. The multiple to be applied
to EBITDA is also determined through a formula which is based on future EBITDA.
Any payment to Blackstone under the Call or the Put may be in the form of cash
or Common shares of the Company, at the Company's option.
39
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
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 value attributable to Blackstone common
stock interest is determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there is no guaranteed return to Blackstone. Any
payment to Blackstone is limited to Blackstone's share of the calculated equity
value based on a formula set forth in the Put/Call Agreement.
Any payment to Blackstone is subject to Blackstone or the Company exercising
their respective rights under the Put or the Call. It is not currently possible
to determine whether Blackstone or the Company will exercise such rights.
Furthermore, any amount to be paid pursuant to the Put or Call is dependent on
calculated equity value which is based on EBITDA of future periods. Accordingly,
it is not possible at this date to estimate the future amount that may be
payable to Blackstone on the exercise of the Put or the Call.
The Company provides various administrative services to Prime under an
Administrative Services Agreement for an annual fee of $250,000.
Summarized financial data for Prime for the year ended December 31, 1997 and
the period August 26, 1996 to December 31, 1996 are presented as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income statement information:
Revenue................................................................................. $ 101,139 $ 32,651
Gross margin............................................................................ 38,616 11,066
Earnings from operations................................................................ 24,123 5,492
Payment-in-kind dividend................................................................ 6,542 2,300
Net loss attributable to common shareholders............................................ (6,739) (5,250)
Balance sheet information:
Current assets.......................................................................... $ 25,694 $ 24,614
Non-current assets...................................................................... 369,412 374,174
---------- ----------
Total assets............................................................................ 395,106 398,788
Current liabilities..................................................................... 14,964 22,531
Non-current liabilities................................................................. 253,734 249,652
---------- ----------
Total liabilities....................................................................... 268,698 272,183
Shareholders' equity.................................................................... 126,408 126,605
</TABLE>
40
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
(b) RH HOLDINGS
On November 19, 1996, the Company acquired 204.5454 shares of RH Holdings
common stock for $9,000,000, representing 20.45% of RH Holdings' voting common
stock, and 100% of RH Holdings' non-voting preferred stock, with a cumulative
annual payment-in-kind dividend of 10%, for $86,000,000. The Company's total
investment of $95,000,000 consisted of $72,000,000 in cash and a contribution by
the Company of 14 funeral homes and two combination funeral home and cemetery
properties located in California valued at $23,000,000. Blackstone acquired
795.4546 shares of RH Holdings common stock, representing 79.55% of RH Holdings'
voting common stock for $35,000,000.
RH Holdings holds all of the outstanding common stock of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $130,000,000 was funded by Blackstone and the Company, and $155,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $130,000,000 was established as goodwill in RH Holdings and is
being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the RH Holdings' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of RH
Holdings. Neither Blackstone nor the Company can, without the consent of the
other party, sell or transfer its shares in RH Holdings to a party other than to
an affiliate of itself.
The Company accounts for its investment in RH Holdings preferred stock by
the cost method. For the year ended December 31, 1997, income of $8,708,000
(November 19, 1996 to December 31, 1996 income of $932,000) was recorded
representing the cumulative annual payment-in-kind dividend.
The Company accounts for its investment in RH Holdings common stock by the
equity method. Under the equity method, the Company records its proportionate
share of the net earnings (loss) of RH Holdings after deducting the
payment-in-kind dividend. For the year ended December 31, 1997, a loss of
$2,142,000 (November 19, 1996 to December 31, 1996 loss of $468,000) was
recorded representing the Company's proportionate share of the loss attributable
to the common stock of RH Holdings. The properties contributed by the Company
had a net carrying value of $20,382,000. The Company has deferred a gain of
$2,618,000 on the disposition of these properties and will recognize the gain if
and when the properties are sold. The deferred gain is recorded in other
liabilities on the consolidated balance sheet.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's RH Holdings common stock commencing on
the fourth anniversary of the acquisition, and for a period of two years
thereafter, at a price to be determined pursuant to the Put/Call Agreement.
Blackstone has the option to sell ("Put") its RH Holdings common stock to the
Company commencing on the sixth anniversary of the acquisition, and for a period
of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.
The prices for the Call and Put are based on a formula that calculates the
equity value attributable to Blackstone's common share interest. The calculated
equity value will be determined at the Put or Call date based on a multiple of
EBITDA, after deduction of certain liabilities. The multiple to be applied to
41
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
EBITDA will also be determined through a formula which is based on future
EBITDA. Any payment to Blackstone under the Call or the Put may be in the form
of cash or the stock of the Company, subject to certain conditions, at the
Company's option.
Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 22.5% compound return per annum thereon regardless of the calculated
equity value. Any additional equity attributable to Blackstone common stock
interest will be determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, 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 set forth in the terms of the
agreement.
Any payment to Blackstone will be subject to Blackstone or the Company
exercising their respective rights under the Put or the Call. It is not
currently possible to determine whether Blackstone or the Company will exercise
such rights. Furthermore, any amount to be paid pursuant to the Put or Call is
dependent on calculated equity value which is based on EBITDA of future periods.
Accordingly, it is not possible at this date to estimate the future amount that
may be payable to Blackstone on the exercise of the Put or the Call.
The Company provides various management and administrative services to RHC
and subsidiaries under an Administrative Services Agreement for an annual fee of
$250,000. If the Administrative Services Agreement becomes terminable by
Blackstone due to the Company's material breach thereof or other failure to
comply in any material respect, Blackstone under the Put will receive, at a
minimum, its original investment plus a 25% compound return per annum thereon
which increases to 27.5% in the event of a change in control of the Company,
regardless of the calculated equity value.
42
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
Summarized financial data for RH Holdings for the year ended December 31,
1997 and for the period November 19, 1996 to December 31, 1996 are presented as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income statement information:
Revenue................................................................................. $ 70,742 $ 7,097
Gross margin............................................................................ 55,671 5,472
Earnings from operations................................................................ 14,834 1,343
Payment-in-kind dividend................................................................ 8,708 932
Net loss attributable to common shareholders............................................ (10,476) (1,460)
Balance sheet information:
Current assets.......................................................................... $ 17,117 $ 21,272
Non-current assets...................................................................... 294,934 296,562
---------- ----------
Total assets............................................................................ 312,051 317,834
Current liabilities..................................................................... 15,780 15,510
Non-current liabilities................................................................. 169,013 173,298
---------- ----------
Total liabilities....................................................................... 184,793 188,808
Shareholders' equity.................................................................... 127,258 129,026
</TABLE>
(c) ARBOR
The investment in Arbor, an operator of funeral homes and cemeteries in
Canada, was accounted for by the equity method. The investment was sold on
November 17, 1997 for cash consideration of $67,246,000 resulting in a gain
before taxes of $24,099,000. The after-tax gain, net of a foreign exchange loss
of $836,000, was $13,851,000. The Company's equity in the earnings of Arbor in
1997, prior to its sale, was $1,681,000 (1996 -- $1,879,000, 1995 --
$1,391,000).
(d) INVESTMENTS OF JOINT VENTURE
The Company is a party to a joint venture for investment purposes. The
investment balance represents the Company's proportionate share of the joint
venture's investment in credit card receivables. The Company's proportionate
share of the joint venture's liabilities is $39,660,000 (1996 -- $36,897,000),
resulting in a net investment of $453,000 (1996 -- $290,000). The investment
matured on January 15, 1998 and the joint venture's liabilities were repaid.
43
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 5. INSURANCE INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities................................................. $ 281,659 $ 290,200 $ 256,919 $ 257,250
Equity securities................................................ 110 55 2,376 2,343
Short-term investments and other................................. 23,841 23,841 36,954 37,016
---------- ---------- ---------- ----------
$ 305,610 $ 314,096 $ 296,249 $ 296,609
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
On the insurance invested assets, the Company earned $23,847,000 of
investment income for the year ended December 31, 1997 (1996 -- $16,883,000).
Included in the market value of insurance invested assets are $8,947,000 and
$461,000 of unrealized gains and losses, respectively (1996 -- $1,882,000 and
$1,552,000, respectively).
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
$6,081,000 due in one year or less (1996 -- $3,750,000), $30,576,000 due in one
to five years (1996 -- $56,000,000), $81,005,000 due in five to ten years
(1996 -- $47,958,000), and $52,929,000 due after ten years (1996 --
$25,018,000). Maturities on a market value basis are approximately the same as
the amortized cost basis at December 31, 1997. The Company had approximately
$111,068,000 (1996 -- $124,193,000) in mortgage-backed securities and
collateralized mortgage obligations at December 31, 1997 with a market value of
$115,015,000 (1996 -- $124,524,000).
44
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Bank revolving credit agreements, see Note 22......................................... $ 264,729 $ 270,489
Management Equity Investment Plan ("MEIP") bank term credit agreement due in 2001..... 105,140 107,583
Canadian bank term credit agreement due in 2000 (Cdn. $35,000,000).................... -- 25,536
9.70% Series A and C senior amortizing notes due in 1998.............................. -- 62,500
9.93% Series B senior amortizing notes due in 2001.................................... -- 35,700
9.62% Series D senior amortizing notes due in 2003.................................... 51,429 60,000
6.49% Series E senior amortizing notes due in 2004.................................... 50,000 50,000
7.50% Series 1 senior notes due in 2001............................................... 225,000 225,000
7.75% Series 3 senior notes due in 2001............................................... 125,000 125,000
8.25% Series 2 and 4 senior notes due in 2003......................................... 350,000 350,000
6.10% Series 5 senior notes due in 2002 (Cdn. $200,000,000)........................... 139,948 --
6.70% PATS senior notes............................................................... 300,000 --
Present value of notes issued for legal settlements discounted at an effective
interest rate of 7.75%.............................................................. 39,115 40,000
Present value of contingent consideration payable on acquisitions discounted at an
effective interest rate of 8.0%, see Note 21........................................ 24,515 34,681
Other, principally arising from vendor financing of acquired operations or long-term
debt assumed on acquisitions, bearing interest at fixed and floating rates varying
from 4.8% to 14.0%, certain of which are secured by assets of certain
subsidiaries........................................................................ 119,058 109,436
------------ ------------
1,793,934 1,495,925
Less current portion.................................................................. 43,507 79,580
------------ ------------
$ 1,750,427 $ 1,416,345
------------ ------------
------------ ------------
</TABLE>
(a) In 1996, the Company, 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 collateral includes (i) a
pledge for the benefit of the senior lenders of the shares of capital stock
held by the Company of substantially all of its subsidiaries and (ii) all of
the financial assets of LGII (including the shares of the 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 pari passu indebtedness. The senior lenders consist
principally of the lenders under the senior amortizing notes, senior notes
and bank revolving and term credit agreements as well as the holders of
certain letters of credit. At December 31, 1997, the indebtedness owed to
the senior lending group subject to the collateral trust arrangement,
including holders of certain letters of credit, aggregated $1,641,000,000.
(b) Certain of the above loan agreements contain various restrictive provisions,
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
45
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LONG-TERM DEBT (CONTINUED)
assets, limiting the amount of additional debt, limiting the amount of
capital expenditures and requiring the Company to maintain specified
financial ratios.
(c) In September 1997, the Company expanded its $750,000,000 revolving credit
agreement to $1,000,000,000 (the "Revolving Credit Agreement"). The expanded
Revolving Credit Agreement has two components, a $750,000,000 tranche which
matures in September 2002 and a $250,000,000 364 day tranche which matures
in September 1998. At December 31, 1997, $234,500,000 was outstanding under
this Revolving Credit Agreement.
In addition, the Company also has a Cdn. $50,000,000 revolving credit
agreement which matures July 1999. At December 31, 1997, $30,229,000 (Cdn.
$43,200,000) was outstanding under this Canadian revolving credit agreement.
The Company's bank revolving credit agreements and MEIP bank term credit
agreement bear interest at floating rates based on U.S. Libor, Canadian
Bankers Acceptance rates or the prime rates of certain banks, plus an
applicable margin depending upon a combination of the Company's ability to
maintain specified financial ratios and the Company's long-term debt credit
ratings. The Company is also required to pay a commitment fee on the unused
portion of the revolving credit agreements.
(d) In September 1997, the Company repaid in advance of its final maturity, the
Canadian bank term credit agreement and in October 1997, repaid the Series
A, B and C senior amortizing notes. In accordance with the terms of the
notes and the bank term credit agreement, the Company incurred and expensed
make-whole penalties aggregating $7,675,000 in 1997.
(e) Repayment of the senior amortizing notes commenced September 1997 for Series
D and February 1998 for Series E, all in equal annual amounts to the
respective due dates.
(f) In September 1997, the Company completed a public offering in Canada and a
private placement in the United States of Cdn. $200,000,000 of 6.10% Series
5 senior guaranteed notes due 2002 (the "Series 5 senior notes").
(g) In September 1997, the Company completed a private placement in the United
States of $300,000,000 in pass-through asset trust senior guaranteed notes,
due 2009 (the "PATS senior notes"). The PATS senior notes bear interest at a
rate of 6.70% until October 1, 1999, at which time the interest rate will be
reset at a fixed annual rate of 6.05% plus an adjustment equal to the
Company's then current credit spread to the ten year United States Treasury
rate. The PATS senior notes are redeemable at the election of the holder, in
whole but not in part, at 100% of the principal amount on October 1, 1999.
(h) The notes issued under legal settlements represent a promissory note in the
amount of $80,000,000 payable over 20 years in equal annual installments of
$4,000,000, without interest. Interest is accrued on the discounted amount
and is included in accounts payable and accrued liabilities. Annual payments
will eliminate this accrual and the balance will be applied to the
promissory note.
(i) The Company incurred and paid approximately $103,799,000 of interest during
1997 (1996 -- $91,000,000), of which approximately $2,093,000 (1996 --
$2,100,000) was capitalized as cost of construction or development of
cemetery property.
46
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LONG-TERM DEBT (CONTINUED)
(j) Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
1998................................................................................................ $ 43,507
1999................................................................................................ 373,272
2000................................................................................................ 48,092
2001................................................................................................ 489,760
2002................................................................................................ 401,770
Thereafter.......................................................................................... 437,533
------------
$ 1,793,934
------------
------------
</TABLE>
NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY
On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC")
in a public offering for an aggregate amount of $75,000,000. LGC is a limited
partnership and LGII as its general partner manages its business and affairs.
LGII serves as the holding company for all United States assets and operations
of the Company. The consolidated financial statements of LGII are prepared in
accordance with Canadian generally accepted accounting principles and are
presented in United States dollars.
Summarized financial data for LGII are presented as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income statement information
Revenue............................................................... $ 1,035,099 $ 839,352 $ 540,825
Gross margin.......................................................... 308,697 296,566 198,867
Earnings from operations.............................................. 116,774 179,185 75,715
Net loss.............................................................. (77,746) (4,868) (127,353)
Balance sheet information
Current assets........................................................ $ 244,552 $ 223,388 $ 184,289
Non-current assets.................................................... 3,688,148 2,865,005 1,776,425
------------ ------------ ------------
Total assets.......................................................... 3,932,700 3,088,393 1,960,714
Current liabilities................................................... 172,371 156,290 221,555
Non-current liabilities............................................... 3,440,175 2,719,453 1,696,709
------------ ------------ ------------
Total liabilities..................................................... 3,612,546 2,875,743 1,918,264
Shareholders' equity.................................................. 320,154 212,650 42,450
</TABLE>
The MIPS are due August 31, 2024 and are subject to redemption at par at the
option of LGC, in whole or in part, from time to time, on or after August 31,
2004.
47
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY (CONTINUED)
Holders of the MIPS are entitled to receive cumulative dividends at an
annual rate of 9.45% of the liquidation preference of $25 per MIPS. The
dividends accrue from the date of original issuance and are payable monthly in
arrears.
The Company has the right to defer payment of dividends on the MIPS for one
or more periods, each not to exceed 60 consecutive months. In this event the
Company may not declare or pay dividends on, or redeem, purchase or acquire or
make a liquidation payment with respect to any class of its capital stock.
The Company has guaranteed certain payment obligations of LGII to LGC and of
LGC to the MIPS holders. The guarantees are subordinated to all liabilities of
the Company and are unsecured.
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. The Company does not trade
in financial instruments and is not a party to leveraged derivatives.
(a) SWAP AGREEMENTS AND INTEREST RATE OPTIONS
The Company has entered into swap agreements and interest rate options with
a number of different commercial banks and financial institutions to manage its
interest rate exposure on fixed rate long-term debt. At December 31, 1997, such
agreements included:
(1) Three interest rate swap agreements with commercial banks and financial
institutions, each having a notional principal amount of $25,000,000. The
Company will receive floating Libor based rates determined quarterly (5.938% at
December 31, 1997) and will pay fixed rates of 5.755%, 6.200% and 6.190% under
the agreements. The agreements expire in June 1999, June 2001 and June 2001,
respectively.
(2) Three interest rate swap agreements with commercial banks, having an
aggregate notional principal amount of Cdn. $100,000,000. The Company will
receive a fixed rate of 6.100% and will pay floating Bankers Acceptance based
rates determined quarterly (5.300% at December 31, 1997). The agreements expire
in October 2002.
The Company is exposed to credit losses in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counterparties. The carrying amounts
of the interest rate swap agreements approximate fair values at December 31,
1997.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and term deposits, current receivables, accounts
payable and accrued liabilities and liabilities of joint venture approximates
fair value due to the short-term maturities of these instruments. The fair value
of insurance policy liabilities and the Put/Call Agreements have been omitted
48
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
because it is not practicable to determine fair value with sufficient
reliability. Financial instruments with a carrying value different from their
fair value include:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(1) Financial assets
Prearranged funeral services....................... $ 410,379 $ 415,966 $ 334,420 $ 334,420
Investments
Practicable to estimate fair value................. 40,113 40,113 53,403 54,080
Not practicable.................................... 168,244 -- 152,453 --
Insurance invested assets.......................... 305,610 314,096 296,249 296,609
Long-term receivables
Practicable to estimate fair value................. 275,866 278,415 123,425 125,289
Not practicable.................................... 277,797 -- 165,154 --
(2) Financial liabilities
Long-term debt..................................... $ 1,793,934 $ 1,833,203 $ 1,495,925 $ 1,523,468
Preferred securities of subsidiary................. 75,000 81,375 75,000 79,500
</TABLE>
The fair value determination of prearranged funeral services, insurance
invested assets and certain investments and long-term receivables is based on
quoted market prices. For certain long-term receivables and other investments,
fair value is estimated by discounting the future cash flows, including interest
payments, using rates currently available for investments of similar terms and
maturity. The investments for which it is not practicable to estimate fair value
comprise primarily the preferred share investments in Prime and RH Holdings. The
long-term receivables for which it is not practicable to estimate fair value
comprise primarily installment receivables on cemetery sales, which generally
have terms of three to five years and bear interest ranging from 8% to 15%.
The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest payments,
using rates currently available for debt of similar terms and maturity, based on
the Company's credit standing and other market factors. The fair value of
long-term debt subject to floating market rates approximates its carrying value.
The fair value of the preferred securities of a subsidiary is estimated based
upon quoted market prices.
49
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL
(a) AUTHORIZED
200,000,000 (1996 -- 200,000,000) First Preferred shares without par value
40,000,000 (1996 -- 40,000,000) Class A shares without par value
750,000,000 (1996 -- 750,000,000) Common shares without par value
Of the 200,000,000 First Preferred shares, 1,000,000 shares are designated
as 7.75% Cumulative Redeemable Convertible First Preferred Shares without par
value, Series A, 425,000 shares are designated as Convertible First Preferred
Shares, Series B, see Note 9(c), and 8,800,000 shares are designated as 6.00%
Cumulative Redeemable Convertible First Preferred Shares, Series C ("Series C
Preferred shares"), see Note 9(c).
(b) ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF
SHARES STATED VALUE
------------ ------------
<S> <C> <C>
Common shares and contributed surplus
Outstanding December 31, 1994......................................................... 41,015,447 $ 282,560
Issued for cash by public offering, net of expenses of $5,491,000................... 6,325,000 187,421
Issued for cash on exercise of stock options, including related tax benefits........ 415,010 6,725
Issued for cash under stock purchase plan........................................... 93,475 2,334
Issued for acquisitions............................................................. 312,758 10,896
Issued under employee stock bonus plan.............................................. 6,075 119
------------ ------------
Outstanding December 31, 1995......................................................... 48,167,765 490,055
Issued for cash by public offering, net of expenses of $5,558,000................... 7,700,000 216,576
Issued for legal settlements........................................................ 2,500,000 72,000
Issued for cash on exercise of stock options, including related tax benefits........ 315,583 5,214
Issued for cash under stock purchase plan........................................... 20,850 708
Issued for acquisitions, see Note 2................................................. 340,537 11,651
Issued under employee stock bonus plan.............................................. 12,280 227
------------ ------------
Outstanding December 31, 1996......................................................... 59,057,015 796,431
Issued for cash by public offering, net of expenses of $10,402,000.................. 13,800,000 445,136
Issued for cash on exercise of stock options, including related tax benefits........ 181,086 4,813
Issued for cash under stock purchase plan........................................... 56,625 1,630
Issued for acquisitions, see Note 2................................................. 807,161 23,001
Issued under employee stock bonus plan.............................................. 9,010 166
------------ ------------
Outstanding December 31, 1997......................................................... 73,910,897 $ 1,271,177
------------ ------------
------------ ------------
Preferred shares
Series C Preferred shares........................................................... 8,800,000 $ 157,146
------------ ------------
------------ ------------
</TABLE>
50
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
(c) 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 as the
directors of the Company determine.
During 1994, as part of the Management Equity Investment Plan, 425,000
shares were designated as Convertible First Preferred shares, Series B of the
Company. Each Convertible First Preferred share is convertible into ten Common
shares at any time prior to July 13, 2011. No Series B Preferred shares have
been issued.
The Series C Preferred shares were issued for cash of $157,146,000 by public
offering, net of expenses
of $3,776,000, in 1996. The holders of Series C Preferred shares will have the
right at any time before January 1, 2003, to convert each Series C Preferred
share into that number of Common shares determined by dividing Cdn. $25.00 by
Cdn. $38.125. Thereafter, a holder 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 all or part of such Series C Preferred shares into that
number of Common shares determined by dividing Cdn. $25.00 plus accrued and
unpaid dividends by the greater of Cdn. $3.00 and 95% of the Current Market
Price (as defined) on the date of conversion.
The holders of the Series C Preferred shares are entitled, as and when
declared by the Board of Directors, to a fixed preferential cumulative cash
dividend of 6% per year, payable quarterly.
The Series C Preferred shares will not be redeemable by the Company prior to
July 1, 1999.
On or after July 1, 1999, the Series C Preferred shares will be redeemable
by the Company, upon giving not less than 30 days notice, at a redemption price
equal to Cdn. $25.00 per share together with accrued and unpaid dividends. Prior
to July 1, 2001, the redemption will 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 may be effected by the issuance of Common shares or
payment of a cash amount.
In the event of the liquidation, dissolution or winding up of the Company or
other distribution of assets of the Company among its shareholders for the
purpose of winding up its affairs, the holders of the Series C Preferred shares
shall be entitled to receive 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.
(d) MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP")
4,250,000 Common shares of the Company were reserved upon adoption by the
Company of the MEIP on June 15, 1994. Senior Exchangeable Debentures amounting
to $127,670,000 were issued by LGII to a wholly-owned subsidiary of LGII formed
to act as agent for the MEIP. The Debentures are due July 15, 2001 and bear
interest at floating rates. Each $300.40 of principal amount of Debentures will
be exchangeable for one Convertible First Preferred share, Series B of the
Company, each of which will be convertible into ten Common shares of the
Company. As part of the MEIP, the present participants paid $3,281,000 (1996 --
$3,409,000) for option rights to acquire $65,613,000 (1996 -- $68,185,000) of
Debentures exercisable as to 50% in 1999, 25% in 2000 and 25% in 2001, of which
$751,000 was paid by
51
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
the Chairman of the Company. If an option expires unexercised, the participant
will receive a refund without interest of the amount paid to acquire such option
right. In addition, the Chairman paid $2,253,000 for the right and obligation to
acquire $45,060,000 of Debentures with the same exercise dates.
(e) SHAREHOLDER PROTECTION RIGHTS PLAN
On April 20, 1990, the Board of Directors of the Company approved a
Shareholder Protection Rights Plan (the "Plan"), which was confirmed by the
shareholders in accordance with the provisions of the Plan at the Annual General
Meeting on May 24, 1990. The Plan was amended on June 18, 1991 to adjust the
Exercise Price consequent upon the two-for-one stock split of the Company. The
Plan was also amended on April 7, 1994 to further adjust the Exercise Price and
to amend the definition of "Inherited Acquisitions." The Plan was reconfirmed by
the shareholders at the Annual General Meeting on May 17, 1995 for a further
five-year period expiring April 20, 2000.
The Plan is meant 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
takeover bids on a fully-informed basis, the Plan provides that a bidder's
position may be substantially diluted if it does not make either a "permitted
bid" directly to all shareholders or negotiate with the Board for a waiver of
the Plan's provisions.
Under the Plan, each Common shareholder is entitled to receive one right in
certain situations. The rights however will not trade separately from the Common
shares unless a takeover bid is announced or someone, excluding "Grandfathered
Persons," acquires 20% of the Common shares. To the Company's knowledge, only
Raymond L. Loewen and Anne Loewen are Grandfathered Persons.
The rights issued to Common shareholders under the Plan entitle the holder,
upon the occurrence of certain triggering events, to acquire Common shares in
the Company at a 50% discount to the market. Triggering events include the
acquisition of 20% or more of the Common shares in a transaction not approved by
the Board of Directors. However, the rights are not triggered by certain
permitted bids that are made to all holders of Common shares and that are
approved by a majority vote of independent shareholders.
By creating the potential for substantial dilution of an unfair bidder's
position, the Plan encourages an acquirer to proceed by way of a permitted bid
or to approach the Board with a view to negotiation. The Plan's permitted bid
provision allows bidders to take bids directly to all the shareholders. The Plan
thus preserves the shareholder's right to consider such bids on a fully-informed
basis. The Company, at the time of the adoption of the Plan, was not aware of
any pending or threatened takeover bid for the Company.
There are exceptions to the Plan to permit the acquisition of shares by (i)
persons who held more than 20% of the Common shares on April 20, 1990, subject
to certain restrictions, and (ii) registered pension plans whose governing
legislation prohibits them from holding more than 30% and who are acquiring the
Common shares independently for investment.
52
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
(f) STOCK OPTION PLANS
The Company has separate fixed stock option plans for its United States and
Canadian employees which enable the Company to grant options to its employees
and directors. The option plans are administered by the Compensation Committee
of the Company's Board of Directors. Each participant enters into an option
agreement which sets forth, among other things, the number of options granted,
the exercise price and the vesting conditions of the options. The exercise price
of an option may not be less than the market price of the Company's stock on the
trading day immediately prior to the grant date and in no event may an option
terminate later than ten years after the grant date of such option.
A summary status of the Company's fixed stock option plans and changes
during the two years ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------------------------------------------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Outstanding beginning of year.............................. 4,417,517 $ 25 2,861,664 $ 21
Options granted.......................................... 1,639,408 30 2,001,586 28
Options exercised........................................ (175,641) 23 (315,583) 13
Options cancelled........................................ (99,580) 31 (130,150) 25
---------- ----------
Outstanding end of year.................................... 5,781,704 $ 26 4,417,517 $ 25
---------- ----------
---------- ----------
Options exercisable at end of year......................... 3,043,129 1,618,262
</TABLE>
53
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. SHARE CAPITAL (CONTINUED)
The following table summarizes information about the Company's fixed stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING
OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED AVERAGE
OPTIONS OUTSTANDING DECEMBER 31, 1997 (IN YEARS) EXERCISE PRICE
- ---------------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Range of exercise prices
$ 9.70 - $20.00................................................. 756,205 5.6 $ 13
20.01 - 30.00.................................................. 3,411,507 7.9 27
30.01 - 40.00.................................................. 1,600,232 9.1 32
40.01 - 45.00.................................................. 13,760 8.1 41
-----------------
5,781,704 7.9 $ 26
-----------------
-----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OUTSTANDING AT WEIGHTED AVERAGE
OPTIONS EXERCISABLE DECEMBER 31, 1997 EXERCISE PRICE
- ---------------------------------------------------------------- ----------------- -----------------
<S> <C> <C> <C>
Range of exercise prices
$ 9.70 - $20.00................................................. 729,194 $ 13
20.01 - 30.00.................................................. 1,955,374 26
30.01 - 40.00.................................................. 352,767 32
40.01 - 45.00.................................................. 5,794 41
-----------------
3,043,129 $ 24
-----------------
-----------------
</TABLE>
NOTE 10. FOREIGN EXCHANGE ADJUSTMENT
The foreign exchange adjustment account represents the net changes due to
exchange rate fluctuations in the equivalent United States dollar book values of
the Company's net investments in self-sustaining non-United States operations
since their respective dates of acquisition.
54
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. 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 the Company 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 Common Shares against the Company 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 the Company,
LGII, LGC and the same individual defendants in the United States District Court
for the Eastern District of Pennsylvania. On June 11, 1996 all claims against
the MIPS Underwriters were dismissed without prejudice, by agreement of the
parties. The cases were consolidated before the District Court of the Eastern
District of Pennsylvania. A Consolidated and Amended Class Action Complaint was
filed on September 16, 1996.
The parties have agreed to a settlement of all claims in the action. The
settlement was submitted to the Court for approval on January 30, 1998. If
approved by the Court and subject to the satisfaction of all other conditions,
the settlement will provide for the payment by the Company on behalf of all
defendants of $5,000,000 plus up to $100,000 for costs of notice and 50% of the
costs of administration of the settlement. On February 3, 1998, the court
entered a Preliminary Approval Order, in which, inter alia, it scheduled a
hearing on final approval for April 20, 1998.
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 of 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,
55
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
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 filed, and the
Court granted, preliminary challenges to the Third Amended Complaint. The Court
also dismissed the claims against LGII for failure to state a claim upon which
relief can be granted, although the Third Amended Complaint does continue on
unaffected counts.
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
Company's consolidated financial statements.
ROJAS ET AL.
On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against Loewen, LGII and a subsidiary in the United States District
Court for the District of Puerto Rico. The complaint alleges that the defendants
breached a contract and ancillary agreements with the plaintiffs relating to the
purchase of funeral homes and cemeteries, and committed related torts. The
plaintiffs seek compensatory damages of $12,500,000, and unspecified punitive
damages (although the Company is advised by counsel that there is no entitlement
to punitive damages under Puerto Rican law). The Company has filed a motion to
dismiss the complaint on the grounds of failure to join an indispensable party.
In addition, the Company claims it has suffered damages far in excess of the
amount claimed by the plaintiffs as a result of breach of contract and related
torts on the part of the plaintiffs. A subsidiary of the Company has filed a
complaint seeking damages in excess of $19,000,000 from the plaintiffs in the
General Court of Justice of the Commonwealth of Puerto Rico. 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 Company's
consolidated financial statements.
56
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP ET AL.
Two complaints were filed in 1997 on behalf of individuals who claim damages
in connection with funeral insurance policies allegedly issued to them by
insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of
S.I. in March 1996.
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. are affiliates of S.I.
In June 1997, Lloyd Duffy, Sr. 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 Orleans, State of Louisiana.
Plaintiffs seek a class action. The Duffy complaint was filed by the same
lawyers who filed the complaint in the Feldheim case, and is a virtually
identical copy of the Feldheim complaint. The Duffy case is pending in the trial
court and, as of the date hereof, no discovery has taken place.
The Feldheim and Duffy plaintiffs allegedly 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 laws.
Plaintiffs petitions 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.
On June 13, 1997, the district court in Jefferson Parish dismissed the
Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing of the appeal was completed in December 1997 and oral argument was held
on January 15, 1998, but a decision has not yet been rendered. As of the date
hereof, no discovery has taken place.
The Company has determined that it is not possible to predict the final
outcome of these legal proceedings, 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 Company's consolidated financial statements.
OTHER
The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.
57
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 12. RESTRUCTURING COSTS
During 1997, the Company recorded pre-tax charges of $33.4 million ($21.5
million after tax), for restructuring associated with the Company's efforts to
more fully integrate its field and administrative operations and improve
long-term financial performance. The restructuring charges primarily consisted
of $19.4 million related to the severance of approximately 545 employees in
operating locations where consolidation and clustering synergies were not being
achieved, $7.5 million associated with the closure of the Company's Covington,
Kentucky corporate office and $6.0 million of asset write-downs related to
realignment or elimination of under-performing locations.
Actual severance paid, including to the Covington office employees, at
December 31, 1997 was $15.9 million. The remaining liability for severance of
$5.2 million primarily relates to benefit or salary continuance arrangements and
will be fully extinguished in 1998.
NOTE 13. IMPAIRMENT OF LONG-LIVED ASSETS
During 1997, the Company recorded a charge to general and administrative
expenses for an impairment loss of $12.6 million, of which $6.4 million was
non-cash, related to a write down of certain under-performing assets. The
impaired assets included $9.4 million related to the termination of
non-competition agreements in markets where restrictive covenants no longer have
value to the Company and $3.2 million of fixed assets and software costs related
to the streamlining of general and administrative functions and the change in
the Company's operating strategy.
NOTE 14. COMMITMENTS AND CONTINGENCIES
(a) LEASES
At December 31, 1997, the Company was committed to operating lease payments
for premises, aircraft, automobiles and office equipment in the following
approximate amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1998................................................................................................... $ 14,469
1999................................................................................................... 12,985
2000................................................................................................... 11,951
2001................................................................................................... 10,204
2002................................................................................................... 8,810
Thereafter............................................................................................. 49,381
</TABLE>
Total rent expense for each of the years in the three year period ended
December 31, 1997 was $18,268,000, $12,626,000 and $10,590,000, respectively.
(b) COVENANTS NOT TO COMPETE
In connection with various acquisitions, the Company has entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made at closing or over future periods and are
58
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
expensed over the terms of the specific contracts. At December 31, 1997, the
agreements in place will result in future payments in the following approximate
amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1998................................................................................................... $ 13,811
1999................................................................................................... 12,608
2000................................................................................................... 13,243
2001................................................................................................... 10,533
2002................................................................................................... 9,455
Thereafter............................................................................................. 31,208
</TABLE>
(c) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company's policies are designated to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to acquisition. The Company believes
environmental contingencies and liabilities to be immaterial individually and in
the aggregate.
NOTE 15. RETIREMENT PLANS
The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a
401(K) Retirement Savings Plan for United States employees who may defer between
2% and 15% of their compensation. The Company will match 100% of employee
contributions to a maximum of 2% of employees' eligible compensation.
The Company has a Registered Retirement Savings Plan for Canadian employees
who may contribute 3% of their compensation which is matched by an equal
contribution to the plan by the Company on behalf of employees. There are no
required future contributions under these plans in respect of past service.
The total expense for retirement plans for the three years ended December
31, 1997 was $3,222,000, $2,318,000 and $1,934,000, respectively.
NOTE 16. HOSTILE TAKEOVER PROPOSAL
On January 7, 1997, SCI publicly withdrew its unsolicited proposed offer to
acquire the Company through an exchange offer announced in October 1996.
Effective as of October 10, 1996, in order to attract and retain key
executives and managers of the Company in the context of a threatened change in
control of the Company, the Board of Directors of the Company, upon the
recommendation of the Compensation Committee thereof, approved the execution of
individual change in control severance agreements ("Severance Agreements") with
approximately 80 of the Company's executives and managers ("Executives"). With
the exception of Mr. Loewen, certain
59
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 16. HOSTILE TAKEOVER PROPOSAL (CONTINUED)
executive officers of the Company entered into such a Severance Agreement. Under
each Severance Agreement, if there is a "change in control" (as defined), an
Executive becomes entitled to severance pay amounting to one to three years'
compensation, and certain other benefits during the "Severance Period" (as
defined), if the Executive's employment terminates for any reason other than
"cause" (as defined) or the Executive terminates his or her employment for
certain specified reasons. Each Severance Agreement also provides that the
Executive is entitled to a retention bonus if the Executive remains employed by
the Company for 30 days after a change in control. Benefits under the Severance
Agreements can be reduced in certain circumstances.
In addition, the Board of Directors of the Company adopted a change in
control severance compensation plan ("Severance Plan") that is designed to
provide certain benefits to full-time salaried employees of the Company whose
principal duties include corporate or regional management responsibilities.
Under the Severance Plan, upon a "change in control" (as defined), each of the
participants is entitled to a severance payment if, within 24 months after a
change in control, the participant is terminated other than by reason of death,
voluntary termination or retirement, or for "Just Cause" (as defined). Benefits
payable under the Severance Plan can be reduced in certain circumstances.
NOTE 17. INCOME TAXES
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
% % %
<S> <C> <C> <C>
Combined Canadian federal and provincial income tax rate.................................. 45.5 45.5 (45.5)
Non-deductible costs of hostile takeover proposal......................................... -- 7.6 --
Non-deductible depreciation and amortization arising from acquisitions.................... 22.9 9.5 3.7
Non-deductible restructuring and other charges............................................ 8.2 -- --
Equity and other earnings of associated companies at lower rates.......................... (9.9) (1.7) --
Tax benefits of legal settlements at lower rates.......................................... -- -- 11.9
Foreign income taxed at lower rates....................................................... (73.2) (30.1) (8.9)
Other..................................................................................... 12.4 0.5 0.7
--------- --------- ---------
5.9 31.3 (38.1)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes for each of the years in the three year period
ended December 31, 1997 amounting to $44,282,000, $21,180,000 and $19,131,000,
respectively.
60
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 18. CHANGES IN OTHER NON-CASH BALANCES
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances............................................ $ 3,365 $ (32,050) $ (13,993)
Inventories............................................................... (1,371) (2,689) (2,334)
Prepaid expenses.......................................................... 892 (2,670) (2,848)
Amounts receivable from cemetery merchandise trusts....................... (89,944) (6,672) (12,969)
Installment contracts, net of allowances.................................. (134,382) (64,652) (26,552)
Cemetery property......................................................... (37,857) 10,923 1,128
Deferred charges.......................................................... (42,497) (28,684) (11,786)
Increase (decrease) in liabilities
Accrued settlements....................................................... -- (53,000) 53,000
Accounts payable and accrued liabilities.................................. 42,364 27,600 21,473
Cemetery long-term liabilities............................................ 22,268 441 (1,158)
Insurance policy liabilities.............................................. 313 2,332 5,221
Other changes in non-cash balances.......................................... 5,737 1,723 3,690
----------- ----------- ----------
$ (231,112) $ (147,398) $ 12,872
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
61
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 19. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts as at December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Receivables, net of allowances
Trade accounts.......................................................................... $ 96,529 $ 98,652
Installment contracts................................................................... 140,888 80,607
Other................................................................................... 72,120 48,497
Unearned finance income................................................................. (25,662) (12,422)
Allowances for contract cancellations and doubtful accounts............................. (32,869) (27,717)
---------- ----------
$ 251,006 $ 187,617
---------- ----------
---------- ----------
Long-term receivables, net of allowances
Notes receivable........................................................................ $ 12,547 $ 12,093
Amounts receivable from cemetery merchandise trusts..................................... 297,739 131,748
Installment contracts................................................................... 310,285 189,233
Unearned finance income................................................................. (41,655) (24,647)
Allowances for contract cancellations and doubtful accounts............................. (25,253) (19,848)
---------- ----------
$ 553,663 $ 288,579
---------- ----------
---------- ----------
Cemetery property, at cost
Developed land and lawn crypts.......................................................... $ 195,597 $ 109,708
Undeveloped land........................................................................ 683,833 469,421
Mausoleums.............................................................................. 78,401 36,063
---------- ----------
$ 957,831 $ 615,192
---------- ----------
---------- ----------
Property and equipment
Land.................................................................................... $ 171,060 $ 140,903
Buildings and improvements.............................................................. 504,722 431,820
Automobiles............................................................................. 75,970 66,186
Furniture, fixtures and equipment....................................................... 138,534 110,901
Computer hardware and software.......................................................... 34,486 32,954
Leasehold improvements.................................................................. 14,363 11,614
Accumulated depreciation and amortization............................................... (141,957) (108,093)
---------- ----------
$ 797,178 $ 686,285
---------- ----------
---------- ----------
Names and reputations
Names and reputations................................................................... $ 637,178 $ 552,803
Covenants not to compete................................................................ 71,666 65,418
Accumulated amortization................................................................ (75,701) (59,511)
---------- ----------
$ 633,143 $ 558,710
---------- ----------
---------- ----------
</TABLE>
62
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 19. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Other assets
Deferred finance charges................................................................ $ 33,182 $ 33,248
Deferred direct obtaining costs......................................................... 83,714 49,319
Acquisitions in progress................................................................ 26,945 35,783
Other................................................................................... 12,795 15,793
---------- ----------
$ 156,636 $ 134,143
---------- ----------
---------- ----------
Accounts payable and accrued liabilities
Trade payables.......................................................................... $ 27,508 $ 23,784
Interest................................................................................ 53,352 26,009
Dividends............................................................................... 7,391 4,675
Insurance, property and business taxes.................................................. 7,013 5,897
Other................................................................................... 64,944 53,707
---------- ----------
$ 160,208 $ 114,072
---------- ----------
---------- ----------
Other liabilities
Cemetery long-term liabilities.......................................................... $ 219,663 $ 141,573
Liabilities of joint venture (Note 4)................................................... 39,660 36,897
Regional partnership liabilities........................................................ 12,145 13,276
Participants' deposits in MEIP (Note 9(d)).............................................. 5,508 5,636
Other................................................................................... 31,933 19,460
---------- ----------
$ 308,909 $ 216,842
---------- ----------
---------- ----------
</TABLE>
63
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 20. SEGMENTED INFORMATION
The Company operates principally in North America. The following information
corresponds to the Company's major industry segments.
<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE CORPORATE CONSOLIDATED
------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
1997......................................... $ 602,112 $ 422,010 $ 89,977 $ -- $1,114,099
1996......................................... 549,833 286,652 71,900 -- 908,385
1995......................................... 441,352 143,577 13,564 -- 598,493
Depreciation and amortization
1997......................................... $ 50,289 $ 7,820 $ 36 $ 13,238 $ 71,383
1996......................................... 44,666 4,237 42 7,818 56,763
1995......................................... 34,101 2,210 313 3,479 40,103
Earnings from operations
1997......................................... $ 112,561 $ 95,699 $ 16,508 $ (76,649) $ 148,119
1996......................................... 184,596 84,530 19,411 (84,432) 204,105
1995......................................... 148,379 37,641 2,718 (71,131) 117,607
Total assets
1997......................................... $ 1,942,111 $ 1,749,251 $ 331,754 $ 480,044 $4,503,160
1996......................................... 1,619,333 1,117,216 329,134 431,256 3,496,939
1995......................................... 1,379,951 598,766 107,076 177,187 2,262,980
Capital expenditures
1997......................................... $ 108,691 $ 53,023 $ 208 $ 11,157 $ 173,079
1996......................................... 136,220 36,782 1,274 9,966 184,242
1995......................................... 103,955 19,341 -- 7,509 130,805
</TABLE>
NOTE 21. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995, as part of the normal
course of operations, the Company chartered a jet aircraft, a motor vessel and a
helicopter at competitive rates from companies which the Chairman of the Company
owned or controlled. For each of the years in the three year period ended
December 31, 1997, the total costs of the related party charters amounted to
nil, $605,110 and $1,622,448, respectively, none of which remained outstanding
at the year end.
During 1996, the Company purchased all of the shares of 476822 B.C. Ltd.
("BC Ltd."), which owns the motor vessel, for an effective purchase price of
Cdn. $7,860,000. The motor vessel was valued at Cdn. $7,200,000 and the other
assets were valued at Cdn. $660,000. A third party appraisal established the
motor vessel's fair market value at Cdn. $7,350,000 and its replacement value at
Cdn. $12,500,000.
The Chairman has an option to reacquire either the motor vessel and related
assets (the "Boat Assets") or the shares of BC Ltd. until October 1, 2006, under
certain circumstances including a change in control of the Company, at their
fair market value.
During 1996, the company which owned the jet aircraft and helicopter sold
them to a third party. The Company has leased the jet aircraft and helicopter
from the third party at commercially reasonable terms.
64
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. RELATED PARTY TRANSACTIONS (CONTINUED)
As part of the acquisition of Osiris Holding Corporation ("Osiris"), the
Company has recorded $19,677,000 as a long-term liability. The balance
outstanding is the present value of total remaining contingent payments of
approximately $23,400,000 which the Company expects to pay over a five-year
period ending in 2001 to the former shareholders of Osiris, two of whom are
officers of the Company.
In addition, as part of the acquisition of Shipper Management ("Shipper"),
the Company has recorded $4,838,000 as a long-term liability, representing the
present value of total remaining contingent payments of approximately $6,020,000
which the Company recorded in 1996 when the outcome of the contingency became
determinable and which the Company expects to pay over a six year period ending
in 2001 to the former shareholders of Shipper, one of whom is an officer of the
Company.
At December 31, 1997, Company officers, directors and employees were
indebted to the Company for approximately $9,100,000 (1996 -- $6,000,000).
NOTE 22. SUBSEQUENT EVENTS
During the period from January 1, 1998 to February 27, 1998, the Company
acquired 28 funeral homes and 25 cemeteries. The aggregate cost of these
transactions was approximately $78,875,000.
As of February 27, 1998, the Company has committed to acquire certain
funeral homes, cemeteries and related operations, subject in most instances to
certain conditions including approval by the Company's Board of Directors. The
aggregate cost of these transactions, if completed, will be approximately
$229,345,000.
On March 27, 1998, the Company amended its Revolving Credit Agreement to
provide greater flexibility for the timing of equity and other financing
alternatives. As part of the amendment, the 364-day tranche was terminated and
the $750,000,000 was reduced to a $600,000,000 revolving agreement with a
three-year term.
65
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
(a) EARNINGS (LOSS) AND EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
EARNINGS (LOSS)
Net earnings (loss) in accordance with Canadian GAAP............................ $ 42,728 $ 63,906 $ (76,684)
Less effects of differences in accounting for:
Insurance operations (d)...................................................... 1,701 (1,440) --
Stock options................................................................. (174) -- (191)
Income taxes (f).............................................................. (2,024) 2,093 1,075
--------- --------- ----------
Net earnings (loss) in accordance with United States GAAP....................... $ 42,231 $ 64,559 $ (75,800)
--------- --------- ----------
--------- --------- ----------
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per Common share in accordance with United States GAAP, are as
follows:
Basic earnings (loss) per Common share........................................ $ 0.49 $ 0.98 $ (1.67)
--------- --------- ----------
--------- --------- ----------
Diluted earnings (loss) per Common share...................................... $ 0.48 $ 0.97 $ (1.67)
--------- --------- ----------
--------- --------- ----------
</TABLE>
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("FAS 128") Earnings per Share for United States
GAAP purposes, on a retroactive basis. Under FAS 128, basic earnings (loss) per
Common share, similar to Canadian GAAP, is based on the weighted average number
of Common shares outstanding during the year. Diluted earnings (loss) per Common
share is based on the weighted average number of Common shares outstanding
during the year plus
66
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
common stock equivalents. The computation of basic and diluted earnings per
Common shares is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Basic
Net earnings (loss)........................................................... $ 42,231 $ 64,559 $ (75,800)
Less: Preferred share dividends............................................... 9,533 8,874 --
--------- --------- ----------
Net earnings (loss) attributable to Common shareholders....................... $ 32,698 $ 55,685 $ (75,800)
--------- --------- ----------
--------- --------- ----------
Weighted average number of shares outstanding................................. 67,313 56,743 45,291
Basic earnings (loss) per Common share........................................ $ 0.49 $ 0.98 $ (1.67)
--------- --------- ----------
--------- --------- ----------
Diluted
Net earnings (loss) attributable to Common shareholders....................... $ 32,698 $ 55,685 $ (75,800)
Add: Effect of dilutive securities other than options......................... -- -- --
--------- --------- ----------
Diluted earnings (loss)....................................................... $ 32,698 $ 55,685 $ (75,800)
--------- --------- ----------
--------- --------- ----------
Weighted average number of shares outstanding................................. 67,313 56,743 45,291
Add: Incremental shares from conversion of dilutive options................... 926 610 --
--------- --------- ----------
Diluted shares................................................................ 68,239 57,353 45,291
--------- --------- ----------
--------- --------- ----------
Diluted earnings (loss) per Common share...................................... $ 0.48 $ 0.97 $ (1.67)
--------- --------- ----------
--------- --------- ----------
</TABLE>
67
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(b) BALANCE SHEET
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ------------------------
<S> <C> <C> <C> <C>
UNITED UNITED
CANADIAN STATES CANADIAN STATES
GAAP GAAP GAAP GAAP
------------ ------------ ---------- ------------
Assets
Long-term receivables, net of allowances................ $ 553,663 $ 555,472 $ 288,579 $ 288,579
Investments............................................. 224,008 184,227 266,228 230,911
Insurance invested assets............................... 305,610 312,073 296,249 297,340
Cemetery property....................................... 957,831 1,332,987 615,192 872,782
Names and reputations................................... 633,143 668,577 558,710 586,847
Other assets............................................ 156,636 181,843 134,143 153,604
Liabilities and Shareholders' equity
Insurance policy liabilities............................ 214,492 240,750 212,480 234,909
Other liabilities....................................... 308,909 266,903 216,842 179,944
Deferred income taxes................................... (130,913) 305,166 (67,904) 239,617
Common shares........................................... 1,271,177 1,297,443 796,431 822,378
Retained earnings....................................... 98,354 79,564 80,117 61,824
Unrealized gains/(losses) on securities available for
sale, net of tax...................................... -- 5,212 -- 933
Foreign exchange adjustment............................. 13,561 (15,170) 14,506 (16,171)
</TABLE>
(c) STATEMENT OF CASH FLOWS
The statement of cash flows under United States GAAP would differ from the
statement of changes in financial position under Canadian GAAP as the following
non-cash transactions would not be reflected as cash flows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- -----------
Non-cash debt and share consideration on acquisitions......................... $ 64,881 $ 62,711 $ 105,948
Note receivable from sale of subsidiaries..................................... 15,725 -- --
Common shares and debt issued for legal settlements........................... -- 112,000 (112,000)
Dividends payable on common and preferred shares.............................. 9,703 7,085 --
Non-cash proceeds on disposal of investment................................... -- 2,600 --
</TABLE>
68
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(d) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES
Under United States GAAP, the Company recognizes an asset that represents
the actuarially-determined present value of the projected future profits of the
insurance in-force at dates of acquisition. Canadian GAAP does not recognize
such an asset. The asset is being amortized to insurance expense over the
estimated life of the insurance in-force at the date of acquisition.
DEFERRED POLICY ACQUISITION COSTS
Under United States GAAP, the Company defers costs related to the production
of new business, which consist principally of commissions, certain underwriting
expenses, and the costs of issuing policies. Deferred acquisition costs are
amortized over the expected premium-paying periods of the related policies.
Canadian GAAP does not permit deferral of such costs.
INSURANCE POLICY LIABILITIES
Insurance policy liabilities, which represent liabilities for future policy
benefits, are accounted for under United States GAAP using the net level premium
method which involves different actuarial assumptions and methodologies than the
policy premium method used for Canadian GAAP. In addition, under Canadian GAAP,
all actuarial assumptions are re-evaluated on a periodic basis, resulting in
adjustments to insurance policy liabilities and insurance costs and expenses.
Under United States GAAP, assumptions established at the time a policy is
written are locked in and only revised if it is determined that future
experience will worsen from that previously assumed.
(e) UNREALIZED GAINS AND LOSSES
Under United States GAAP, fixed maturity securities which the Company has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $69,243,000 at December 31,
1997 (1996 -- $83,719,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1997, securities classified as trading were
approximately $1,380,000 (1996 -- $5,600,000). All other fixed maturity and
equity securities not classified as either held-to-maturity or trading are
classified as available-for-sale and carried at fair value which was
approximately $496,922,000 at December 31, 1997 (1996 -- $316,028,000).
Available-for-sale securities may be sold in response to changes in interest
rates and liquidity needs. Unrealized holding gains and losses related to
available-for-sale investments, after deducting amounts allocable to income
taxes, are reflected as a separate component of stockholders' equity. There were
no significant unrealized gains or losses on securities available-for-sale as of
December 31, 1997. Unrealized holding gains and losses related to trading
investments, after deducting amounts allocable to income taxes, are reflected in
earnings.
69
<PAGE>
THE LOEWEN GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(f) INCOME TAXES
Under United States GAAP, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Temporary differences are tax-effected at current rates whereas under Canadian
GAAP, temporary differences are tax-effected at historic rates. There was no
deferred tax effect of changes in tax rates during 1997.
The Company's deferred tax liabilities under FAS 109 at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Cemetery property....................................................................... $ 374,759 $ 254,995
Property and equipment.................................................................. 66,878 62,609
Deferred costs related to prearranged funeral services.................................. -- 5,068
Other tax liabilities................................................................... 51,918 24,515
---------- ----------
Total deferred tax liabilities............................................................ 493,555 347,187
---------- ----------
Deferred tax assets
Legal settlements....................................................................... 15,911 16,049
Interest and intercompany management fees............................................... 83,361 55,119
Other tax assets, net of valuation allowance............................................ 83,370 36,402
Deferred costs related to prearranged funeral services.................................. 5,747 --
---------- ----------
Total deferred tax assets................................................................. 188,389 107,570
---------- ----------
Net deferred tax liabilities.............................................................. $ 305,166 $ 239,617
---------- ----------
---------- ----------
</TABLE>
The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax assets. The Company's ability to realize its deferred tax assets is
based on several factors, including a presumption of future profitability in
certain jurisdictions and is subject to some degree of uncertainty. At December
31, 1997, the Company had a valuation allowance of $11,576,000 (1996 --
$3,499,000). During the year ended December 31, 1997, the Company increased its
valuation allowance by approximately $8,077,000 (1996 -- $1,271,000) for
operating loss carry-forwards, primarily from acquisitions.
(g) STOCK-BASED COMPENSATION
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based
Compensation, for United States GAAP purposes.
The Company continues to record compensation expense for United States GAAP
purposes following the intrinsic value principles of APB 25 for Accounting for
Stock Issued to Employees in accounting for the plans. Under APB 25, no
compensation expense has been recognized for its stock-based compensation plans
in 1997 (1996 -- nil, 1995 -- $191,000). Had compensation cost been determined
based on fair value at the grant dates for awards under those plans consistent
with the measurement provisions of FAS 123, net
70
<PAGE>
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
earnings (loss) under United States GAAP would have been $35,781,000 for the
year ended December 31, 1997 (1996 -- $58,860,000, 1995 -- ($76,601,000)) and
basic and fully diluted earnings per Common share would have been $0.39 and
$0.38, respectively (1996 -- $0.88 and $0.87, respectively, 1995 -- ($1.69) and
($1.69), respectively). For these purposes, the fair value of each option is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions; dividend yield 0.5% (1996 --
0.5%, 1995 -- 0.5%), expected volatility 24% (1996 -- 24%, 1995 -- 24%),
Canadian risk-free interest rates 5.24% (1996 -- 5.68%, 1995 -- 7.65%) United
States risk-free interest rates 5.89% (1996 -- 5.57%, 1995 -- 6.58%) and
expected average option term of 5.0 years (1996 -- 3.4 years, 1995 -- 4.5
years). The weighted average fair value of the options granted is $9.15 (1996 --
$6.78, 1995 -- $9.42) per option.
(h) RECENT ACCOUNTING STANDARDS
The FASB issued FAS 130, Reporting Comprehensive Income, and FAS 131,
Disclosures About Segments of an Enterprise and Related Information which are
required to be implemented during the Company's fiscal year ending December 31,
1998. These standards will affect the presentation but not the measurement of
the consolidated financial statements and the related notes.
The Canadian Institute of Chartered Accountants ("CICA") issued CICA
Handbook 3465, Income Taxes, which is required to be implemented for fiscal
years beginning on or after January 1, 2000. This new standard is substantially
consistent with the U.S. Standard, FAS 109.
NOTE 24. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
71
<PAGE>
THE LOEWEN GROUP INC.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Revenue....................................................... $ 274,697 $ 275,648 $ 274,136 $ 289,618
Gross profit.................................................. 100,518 99,107 73,997 92,951
Net earnings (loss)........................................... 23,700 26,268 (40,837) 33,597
Fully diluted earnings (loss) per Common share................ $ 0.36 $ 0.38 $ (0.59) $ 0.42
Year ended December 31, 1996
Revenue....................................................... $ 193,084 $ 223,156 $ 231,453 $ 260,692
Gross profit.................................................. 72,338 79,200 82,187 98,334
Net earnings.................................................. 17,223 19,489 16,914 10,280
Fully diluted earnings per Common share....................... $ 0.30 $ 0.30 $ 0.25 $ 0.13
</TABLE>
- ------------------------------
(1) Certain of the comparative figures have been reclassified to conform to the
presentation adopted for the year ended December 31, 1997.
72
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Loewen Group International, Inc.
We have audited the consolidated balance sheets of Loewen Group
International, Inc. as at December 31, 1997 and 1996 and the consolidated
statements of operations and retained earnings (deficit) and changes in
financial position for each of the years in the three year period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1996, and the results of its operations and the changes in its
financial position for each of the years in the three year period ended December
31, 1997, in accordance with generally accepted accounting principles in Canada.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
February 27, 1998 except as to Note 22,
which is as of March 27, 1998
73
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits.............................................................. $ 35,563 $ 17,510
Receivables, net of allowances...................................................... 169,758 167,410
Inventories......................................................................... 30,391 28,464
Prepaid expenses.................................................................... 8,840 10,004
------------ ------------
244,552 223,388
Prearranged funeral services.......................................................... 345,795 274,266
Long-term receivables, net of allowances.............................................. 387,282 243,614
Investments........................................................................... 184,723 170,245
Insurance invested assets............................................................. 305,610 296,249
Cemetery property, at cost............................................................ 935,453 597,528
Property and equipment................................................................ 679,219 584,744
Names and reputations................................................................. 569,063 514,054
Deferred income taxes................................................................. 124,654 60,018
Other assets.......................................................................... 156,349 124,287
------------ ------------
$ 3,932,700 $ 3,088,393
------------ ------------
------------ ------------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities............................................ $ 138,963 $ 93,163
Long-term debt, current portion..................................................... 33,408 63,127
------------ ------------
172,371 156,290
Loans and advances from affiliates.................................................... 1,013,914 691,570
Long-term debt........................................................................ 1,531,586 1,296,542
Other liabilities..................................................................... 259,388 173,369
Insurance policy liabilities.......................................................... 214,492 208,706
Deferred prearranged funeral services revenue......................................... 345,795 274,266
Preferred securities of subsidiary.................................................... 75,000 75,000
Shareholders' equity
Share capital....................................................................... 487,514 302,264
Deficit............................................................................. (167,360) (89,614)
------------ ------------
320,154 212,650
------------ ------------
$ 3,932,700 $ 3,088,393
------------ ------------
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 7, 11, 14 AND 22)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
74
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
Revenue
Funeral.................................................................. $ 536,926 $ 489,571 $ 389,124
Cemetery................................................................. 408,196 277,881 138,137
Insurance................................................................ 89,977 71,900 13,564
------------ ---------- -----------
1,035,099 839,352 540,825
Costs and expenses
Funeral.................................................................. 336,473 294,033 232,038
Cemetery................................................................. 316,625 194,044 99,387
Insurance................................................................ 73,304 54,709 10,533
------------ ---------- -----------
726,402 542,786 341,958
------------ ---------- -----------
308,697 296,566 198,867
Expenses
General and administrative............................................... 98,868 68,390 88,177
Depreciation and amortization............................................ 62,063 48,991 34,975
Restructuring costs...................................................... 30,992 -- --
------------ ---------- -----------
191,923 117,381 123,152
------------ ---------- -----------
Earnings from operations................................................... 116,774 179,185 75,715
Interest and financing fees paid to affiliates, net........................ 102,226 71,313 38,885
Interest on long-term debt................................................. 113,585 76,825 39,325
Loss on early extinguishment of debt....................................... 4,591 -- --
Finance costs related to hostile takeover proposal......................... -- 3,230 --
Other costs related to hostile takeover proposal........................... -- 9,789 --
Litigation related finance costs........................................... -- -- 18,929
Legal settlements.......................................................... -- -- 164,800
------------ ---------- -----------
Earnings (loss) before undernoted items.................................... (103,628) 18,028 (186,224)
Dividends on preferred securities of subsidiary............................ 7,088 7,088 7,088
------------ ---------- -----------
Earnings (loss) before income taxes and undernoted items................... (110,716) 10,940 (193,312)
Income taxes
Current.................................................................. 20,186 11,009 11,898
Deferred................................................................. (41,563) 6,419 (77,857)
------------ ---------- -----------
(21,377) 17,428 (65,959)
------------ ---------- -----------
(89,339) (6,488) (127,353)
Equity and other earnings of associated companies.......................... 11,593 1,620 --
------------ ---------- -----------
Loss for the year.......................................................... (77,746) (4,868) (127,353)
Retained earnings (deficit), beginning of year............................. (89,614) (84,746) 42,607
------------ ---------- -----------
Deficit, end of year....................................................... $ (167,360) $ (89,614) $ (84,746)
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
75
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Loss.................................................................. $ (77,746) $ (4,868) $ (127,353)
Items not affecting cash
Depreciation and amortization....................................... 62,063 48,991 34,975
Deferred income taxes............................................... (41,563) 6,419 (77,857)
Equity and other earnings of associated companies................... (11,593) (1,620) --
Restructuring costs................................................. 12,697 -- --
Loans and advances from affiliates to be advanced and debt to be
issued under legal settlements...................................... -- (111,800) 111,800
Other, including net changes in other non-cash balances............... (229,906) (155,326) 7,721
------------- ------------ -----------
(286,048) (218,204) (50,714)
------------- ------------ -----------
Investing
Business acquisitions................................................. (511,291) (609,326) (457,648)
Construction of new facilities........................................ (24,954) (13,756) (13,359)
Investments, net...................................................... (2,275) (163,712) 2,707
Purchase of insurance invested assets................................. (261,987) (106,335) --
Proceeds on disposition and maturities of insurance invested assets... 252,626 71,939 --
Purchase of property and equipment.................................... (42,632) (42,634) (15,055)
Proceeds on disposition of assets..................................... 19,492 23,637 3,335
Other................................................................. (28,098) 7,922 (32,885)
------------- ------------ -----------
(599,119) (832,265) (512,905)
------------- ------------ -----------
Financing
Issue of share capital................................................ 185,250 175,069 --
Increase in long-term debt............................................ 1,234,653 1,127,608 359,261
Reduction in long-term debt........................................... (1,031,105) (504,586) (47,292)
Loans and advances from affiliates.................................... 322,344 239,434 241,388
Current note payable.................................................. -- (38,546) 38,546
Proceeds of factoring accounts receivable............................. 185,179 56,318 --
Other................................................................. 6,899 (26,040) 3,440
------------- ------------ -----------
903,220 1,029,257 595,343
------------- ------------ -----------
Increase (decrease) in cash and cash equivalents
during the year....................................................... 18,053 (21,212) 31,724
Cash and cash equivalents, beginning of year............................ 17,510 38,722 6,998
------------- ------------ -----------
Cash and cash equivalents, end of year.................................. $ 35,563 $ 17,510 $ 38,722
------------- ------------ -----------
------------- ------------ -----------
Cash and cash equivalents include cash and term deposits
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
76
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loewen Group International Inc. (the "Company") was incorporated on February
25, 1987 under the laws of the State of Delaware and is directly and indirectly
a wholly owned subsidiary of The Loewen Group Inc. (the "Parent Company"). The
United States dollar is the principal currency of the Company's business and
accordingly the consolidated financial statements are expressed in United States
dollars.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and generally conform with
those established in the United States, except as explained in Note 23.
BASIS OF CONSOLIDATION
The accounts of all subsidiary companies have been included in the
consolidated financial statements from their respective dates of acquisition of
control or formation. All subsidiaries are wholly owned at December 31, 1997
except for a few companies with small minority interests.
The Company accounts for its common share investment in companies in which
it has significant influence by the equity method. The Company's proportionate
share of income (loss) as reported, net of amortization of excess purchase price
over net assets acquired, is included in income and added to (deducted from) the
cost of the investment. Common share dividends received reduce the carrying
amount of the investment.
Other long-term investments including preferred share investments are
accounted for using the cost method.
All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could differ from those estimates.
PREARRANGED FUNERAL SERVICES
Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract are either placed in trust or are used to pay the
premiums of life insurance policies under which the Company will be designated
as beneficiary. Except for insurance commissions and amounts not required to be
trusted which are used to defray initial costs of administration, no income is
recognized until the performance of a specific funeral.
Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Company estimates that trust
fund investment earnings and annual insurance benefits exceed the increase
77
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
related to the sale of prearranged funeral services are included in other assets
and amortized over a period of ten years, approximating the period the benefits
are expected to be realized. Indirect obtaining costs relating to the sale of
prearranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when non-cancellable customer contracts are
signed with concurrent recognition of related costs. Allowances for
cancellations arising from non-payment are provided at the date of sale based on
management's estimates of expected cancellations. Actual cancellation rates in
the future may result in a change in estimate.
A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to state law, a
portion of the proceeds from the sale of pre-need merchandise and services may
also be required to be paid into trust funds which are recorded as long-term
receivables.
INSURANCE OPERATIONS
(a) INSURANCE REVENUE
The Company earns insurance revenue primarily through the sale of industrial
life and ordinary life insurance policies.
(b) INSURANCE INVESTED ASSETS
Bonds and other fixed-term securities are carried at amortized cost. Net
realized gains and losses on the disposal of bonds and other fixed-term
securities are deferred and amortized to income over the remaining term to
maturity of the security sold. Equity securities are carried at moving average
market value. Net realized gains and losses on the disposal of equity securities
are deferred and amortized to income on a declining balance basis.
(c) INSURANCE POLICY LIABILITIES
Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently,
policy liabilities include reasonable provisions for adverse deviations from
those estimates. These assumptions may be revised if it is determined that
future experience will differ substantially from that previously assumed.
78
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.
CEMETERY PROPERTY
Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and is valued at average cost, which is not in
excess of market value. Amounts are expensed to costs and expenses as sales of
cemetery plots occur.
PROPERTY AND EQUIPMENT
Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements...................................... 10 to 40 years
Automobiles..................................................... 6 years
Furniture, fixtures and equipment............................... 6 to 10 years
Computer hardware and software.................................. 6 to 10 years
Leasehold improvements.......................................... over the term of the lease plus one renewal
</TABLE>
NAMES AND REPUTATIONS
The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.
Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts capitalized for non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such prepaid covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including
investments, cemetery properties, property and equipment, names and reputations
and other assets, based on estimates using factors such as current market value,
future asset utilization, business climate and future undiscounted cash flows
expected to result from the use of the related assets. The Company's policy is
to record an impairment loss in the period when it is determined that the
carrying amount of the asset may not be recoverable.
DEFERRED FINANCE COSTS
Deferred finance costs included in other assets on the consolidated balance
sheet represent the costs of negotiating and securing the Company's long-term
debt and preferred securities of subsidiary and are
79
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
being amortized to earnings on a straight-line basis over the respective term of
the related debt. These costs include legal fees, accounting fees, underwriting
and agency fees and other related costs.
ACQUISITION COSTS
The Company's policy is to capitalize direct acquisition costs incurred on
potential acquisitions. Upon completion of an acquisition, these costs are
allocated to the assets acquired and are subject to the accounting policies
outlined above. On certain acquisitions, a portion of the consideration is
contingent upon future operating results. Such consideration, if any, is
allocated to the assets acquired once determinable. Direct acquisition costs
related to acquisitions not completed are written off.
DERIVATIVE INSTRUMENTS
The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. The Company's policies do
not allow leveraged transactions and are designed to minimize credit and
concentration risk with counterparties.
The Company enters into interest rate swap agreements to manage interest
rate exposure on its long-term debt. The difference between the amounts paid and
received is accrued and accounted for as an adjustment to interest expense over
the life of the swap agreement.
The Company uses basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions are probable and
the significant characteristics and expected terms are identified. Any gain or
loss as a result of the hedging is deferred and amortized as an adjustment to
interest expense over the life of the financing instrument hedged. If at any
point in time a hedging transaction no longer meets the criteria of a hedge, any
gain or loss is recognized in current earnings.
DEFERRED INCOME TAXES
The Company follows the allocation method for accounting for income taxes.
Under this method recognition is given in the financial statements to the tax
effects of timing differences between income for financial statement and income
tax purposes. The differences arise primarily from interest, provisions for
legal settlements and related costs, intercompany charges, depreciation,
amortization, deferred finance costs, direct marketing costs, provision for bad
debts and contract cancellations, operating loss carry-forwards and cemetery
sales.
NOTE 2. ACQUISITIONS
During the year ended December 31, 1997 the Company acquired 105 funeral
homes, 171 cemeteries and one insurance company.
During the year ended December 31, 1996, the Company acquired 149 funeral
homes, 135 cemeteries and two insurance companies. Included in these
acquisitions is the purchase of certain net assets of S.I. Acquisition
Associates L.P. ("S.I.") of Donaldsville, Louisiana, for approximately
$155,800,000, including costs of acquisition. S.I. concurrently acquired all of
the outstanding shares of Ourso Investment Corporation. The S.I. assets included
15 funeral homes, two cemeteries and two insurance companies.
80
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 2. ACQUISITIONS (CONTINUED)
All of the Company's acquisitions have been accounted for by the purchase
method. The preliminary purchase price allocation for certain of these
acquisitions has been estimated based on available information at the time and
is subject to revision. The effect of acquisitions at dates of purchase on the
Consolidated Balance Sheet is shown below. Included in the 1996 amounts is
$11,794,000 representing the present value of total contingent payments of
approximately $13,500,000 which the Company recorded in the third quarter of
1996 when the outcome of the contingency related to a 1995 acquisition became
determinable.
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Current assets........................................................................... $ 8,881 $ 12,402
Prearranged funeral services............................................................. 35,093 46,773
Long-term receivables, net of allowances................................................. 85,191 90,052
Investments.............................................................................. 36 896
Insurance invested assets................................................................ -- 185,971
Cemetery property, at cost............................................................... 303,948 250,619
Property and equipment................................................................... 75,470 107,575
Names and reputations.................................................................... 81,537 151,139
Other assets............................................................................. 93 1,565
---------- -----------
590,249 846,992
Current liabilities...................................................................... (6,042) (17,380)
Long-term debt........................................................................... (3,087) (2,469)
Other liabilities........................................................................ (55,673) (52,405)
Insurance policy liabilities............................................................. -- (125,249)
Deferred income taxes.................................................................... 20,937 6,610
Deferred prearranged funeral services revenue............................................ (35,093) (46,773)
---------- -----------
$ 511,291 $ 609,326
---------- -----------
---------- -----------
Consideration
Cash, including assumed debt repaid at closing......................................... $ 453,223 $ 546,615
Debt................................................................................... 39,411 51,060
Share capital of Parent Company........................................................ 18,657 11,651
---------- -----------
Purchase Price......................................................................... $ 511,291 $ 609,326
---------- -----------
---------- -----------
</TABLE>
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired during the period ended December
31, 1997 as if all such acquisitions had taken place at the beginning of the
respective years presented. Appropriate adjustments have been made to reflect
the accounting basis used in recording these acquisitions. This pro-forma
information does not purport to be
81
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 2. ACQUISITIONS (CONTINUED)
indicative of the results of operations that would have resulted had the
acquisitions been in effect for the entire years presented, and is not intended
to be a projection of future results or trends.
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Revenues................................................................................ $ 1,085,416 $ 953,677
Net loss................................................................................ $ (80,848) $ (10,633)
</TABLE>
NOTE 3. PREARRANGED FUNERAL SERVICES
Included in the consolidated balance sheets at December 31, 1997, as
prearranged funeral services is $345,795,000 (1996 -- $274,266,000),
representing amounts deposited in accordance with state trusting laws with
various financial institutions together with accrued earnings. The Company will
receive the prearranged funeral trust amounts when the funeral services are
performed.
AMOUNTS HELD IN PREARRANGED FUNERAL TRUSTS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Short-term investments.................................................................... $ 89,280 $ 59,400
Fixed maturities.......................................................................... 84,056 95,238
Balanced mutual funds..................................................................... 123,080 58,648
Equity securities......................................................................... 14,970 10,870
Insurance policies held by trust.......................................................... 32,552 45,228
Other..................................................................................... 1,857 4,882
---------- ----------
$ 345,795 $ 274,266
---------- ----------
---------- ----------
</TABLE>
The weighted average rate of return on the above prearranged funeral trust
assets for the year ended December 31, 1997 was 3.5% (1996 -- 5.1%, 1995 --
4.9%).
NOTE 4. INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
4103 INVESTMENTS LTD. ("4103 INVESTMENTS")
189,475,132 Class B Common shares (1996 -- nil) representing 48.68%..................... $ 148,914 $ --
PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
113.2353 Common shares (1996 -- 213.2353) representing 11.57%........................... 6,102 12,780
-- Preferred Shares (1996 -- 6,350)..................................................... -- 63,500
ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")
104.5454 Common shares (1996 -- 204.5454) representing 10.45%........................... 2,237 6,525
2,599 Preferred shares (1996 -- 8,600) representing 26.7%............................... 25,986 86,000
OTHER..................................................................................... 1,484 1,440
---------- ----------
$ 184,723 $ 170,245
---------- ----------
---------- ----------
</TABLE>
82
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
(a) 4103 INVESTMENTS
In March 1997, the Company transferred 100 Common shares and 6,668 Preferred
shares in Prime at their carrying value of $72,279,000 to 4103 Investments. The
Company also transferred 100 Common shares and 6,300 Preferred shares in RH
Holdings at their carrying value of $65,976,000 to 4103 Investments. In
exchange, the Company received 189,475,132 Class B non-voting Common shares
representing 48.68% of 4103 Investments common shares. 4103 Investments cannot
declare dividends on the Class A voting Common shares without first paying an
equal dividend on the Class B Common shares.
In addition to its investments in Prime and RH Holdings, 4103 Investments
has a preferred share investment in TLGI Management Corp. ("TLGM") representing
82.86% of TLGM's preferred stock.
The Company accounts for its investment in 4103 Investments common shares by
the equity method. For the year ended December 31, 1997, income of $10,659,000
was recorded representing the Company's proportionate share of the income
attributable to 4103 Investments common shares.
Summarized financial data for 4103 Investments for the period from inception
on March 24, 1997 to December 31, 1997 are presented as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Income statement information:
Earnings before income taxes and equity loss of associated company.................................. $ 25,237
Net earnings........................................................................................ 21,455
Balance sheet information:
Current assets...................................................................................... $ 9,032
Non-current assets.................................................................................. 292,634
----------
Total assets........................................................................................ 301,666
Current liabilities................................................................................. 579
Non-current liabilities............................................................................. 1,984
----------
Total liabilities................................................................................... 2,563
Shareholders' equity................................................................................ 299,103
</TABLE>
(b) PRIME
On August 26, 1996, the Company acquired 235.2941 shares of Prime common
stock for $16,000,000, representing 23.5% of Prime's voting common stock, and
100% of Prime's non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend, for $62,000,000. Blackstone Capital Partners II
Merchant Banking Fund L.P. and certain affiliates (together, "Blackstone")
acquired 764.7059 shares of Prime common stock, representing 76.5% of Prime's
voting common stock for $52,000,000. On February 14, 1997, the Company and
Blackstone agreed to adjust their respective ownership of Prime's voting common
stock retroactively to August 26, 1996. No adjustment to the aggregate purchase
price was made. After giving effect to the readjustment, the Company has paid
$14,500,000 for 213.2353 shares of Prime
83
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
common stock and Blackstone has paid $52,000,000 for 764.7059 shares of Prime
common stock representing 21.8% and 78.2% respectively of Prime's voting common
stock.
Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession, Inc. was purchased on August 26, 1996 for approximately $320,000,000
of which $130,000,000 was funded by Blackstone and the Company, and $190,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $230,000,000, was established as goodwill in Prime Succession,
Inc. and is being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its share in Prime to a party other than to an affiliate of itself.
In March 1997, the Company transferred 100 Common shares and all the
Preferred shares of Prime to 4103 Investments, see Note 4(a).
The Company accounted for its investment in Prime preferred stock by the
cost method. For the year ended December 31, 1997, income of $904,000 (August
26, 1996 to December 31, 1996 income of $2,300,000) was recorded representing
the cumulative annual payment-in-kind dividend up to the date of transfer to
4103 Investments.
The Company accounts for its investment in Prime common stock by the equity
method. Under this method, the Company records its proportionate share of the
net earnings (loss) of Prime after deducting the payment-in-kind dividend. For
the year ended December 31, 1997, a loss of $1,037,000 (August 26, 1996 to
December 31, 1996 loss of $1,144,000) was recorded representing the Company's
proportionate share of the loss attributable to the Prime common stock.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's Prime common stock commencing on the
fourth anniversary of the acquisition, and for a period of two years thereafter,
at a price determined pursuant to the Put/Call Agreement. Blackstone has the
option to sell ("Put") its Prime common stock to the Company commencing on the
sixth anniversary of the acquisition, and for a period of two years thereafter,
at a price determined pursuant to the Put/Call Agreement.
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of earnings before interest, taxes, depreciation and amortization
("EBITDA"), after deduction of certain liabilities. The multiple to be applied
to EBITDA is also determined through a formula which is based on future EBITDA.
Any payment to Blackstone under the Call or the Put may be in the form of cash
or Common shares of the Parent Company, at the Company's option.
84
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
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 value attributable to Blackstone common
stock interest is determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there is no guaranteed return to Blackstone. Any
payment to Blackstone is limited to Blackstone's share of the calculated equity
value based on a formula set forth in the Put/Call Agreement.
Any payment to Blackstone is subject to Blackstone or the Company exercising
their respective rights under the Put or the Call. It is not currently possible
to determine whether Blackstone or the Company will exercise such rights.
Furthermore, any amount to be paid pursuant to the Put or Call is dependent on
calculated equity value which is based on EBITDA of future periods. Accordingly,
it is not possible at this date to estimate the future amount that may be
payable to Blackstone on the exercise of the Put or the Call.
The Company provides various administrative services to Prime under an
Administrative Services Agreement for an annual fee of $250,000.
Summarized financial data for Prime for the year ended December 31, 1997 and
the period August 26, 1996 to December 31, 1996 are presented as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income statement information:
Revenue................................................................................. $ 101,139 $ 32,651
Gross margin............................................................................ 38,616 11,066
Earnings from operations................................................................ 24,123 5,492
Payment-in-kind dividend to the Company and 4103 Investments............................ 6,542 2,300
Net loss attributable to common shareholders............................................ (6,739) (5,250)
Balance sheet information:
Current assets.......................................................................... $ 25,694 $ 24,614
Non-current assets...................................................................... 369,412 374,174
---------- ----------
Total assets.......................................................................... 395,106 398,788
Current liabilities..................................................................... 14,964 22,531
Non-current liabilities................................................................. 253,734 249,652
---------- ----------
Total liabilities..................................................................... 268,698 272,183
Shareholders' equity.................................................................... 126,408 126,605
</TABLE>
85
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
(c) RH HOLDINGS
On November 19, 1996, the Company acquired 204.5454 shares of RH Holdings
common stock for $9,000,000, representing 20.45% of RH Holdings' voting common
stock, and 100% of RH Holdings' non-voting preferred stock, with a cumulative
annual payment-in-kind dividend of 10%, for $86,000,000. The Company's total
investment of $95,000,000 consisted of $72,000,000 in cash and a contribution by
the Company of 14 funeral homes and two combination funeral home and cemetery
properties located in California valued at $23,000,000. Blackstone acquired
795.4546 shares of RH Holdings common stock, representing 79.55% of RH Holdings'
voting common stock for $35,000,000.
RH Holdings holds all of the outstanding common stock of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $130,000,000 was funded by Blackstone and the Company, and $155,000,000
was financed through bank borrowings and the issuance of senior subordinated
notes. The excess of the purchase price over the fair value of net assets of
approximately $130,000,000 was established as goodwill in RH Holdings and is
being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the RH Holdings' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of RH
Holdings. Neither Blackstone nor the Company can, without the consent of the
other party, sell or transfer its shares in RH Holdings to a party other than to
an affiliate of itself.
In March 1997, the Company transferred 100 Common shares and 6,300 Preferred
shares of RH Holdings to 4103 Investments, see Note 4(a).
The Company accounts for its investment in RH Holdings preferred stock by
the cost method. For the year ended December 31, 1997, income of $2,329,000
(November 19, 1996 to December 31, 1996 income of $932,000) was recorded
representing the cumulative annual payment-in-kind dividend.
The Company accounts for its investment in RH Holdings common stock by the
equity method. Under the equity method, the Company records its proportionate
share of the net earnings (loss) of RH Holdings after deducting the
payment-in-kind dividend. For the year ended December 31, 1997, a loss of
$1,306,000 (November 19, 1996 to December 31, 1996 loss of $468,000) was
recorded representing the Company's proportionate share of the loss attributable
to the common stock of RH Holdings. The properties contributed by the Company
had a net carrying value of $20,382,000. The Company has deferred a gain of
$2,618,000 on the disposition of these properties and will recognize the gain if
and when the properties are sold. The deferred gain is recorded in other
liabilities on the consolidated balance sheet.
Under a Put/Call Agreement entered into with Blackstone, the Company has the
option to acquire ("Call") Blackstone's RH Holdings common stock commencing on
the fourth anniversary of the acquisition, and for a period of two years
thereafter, at a price to be determined pursuant to the Put/Call Agreement.
Blackstone has the option to sell ("Put") its RH Holdings common stock to the
Company commencing on the sixth anniversary of the acquisition, and for a period
of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.
86
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
The prices for the Call and Put are based on a formula that calculates the
equity value attributable to Blackstone's common share interest. The calculated
equity value will be determined at the Put or Call date based on a multiple of
EBITDA, after deduction of certain liabilities. The multiple to be applied to
EBITDA will also be determined through a formula which is based on future
EBITDA. Any payment to Blackstone under the Call or the Put may be in the form
of cash or the stock of the Parent Company, subject to certain conditions, at
the Company's option.
Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 22.5% compound return per annum thereon regardless of the calculated
equity value. Any additional equity attributable to Blackstone common stock
interest will be determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, 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 set forth in the terms of the
agreement.
Any payment to Blackstone will be subject to Blackstone or the Company
exercising their respective rights under the Put or the Call. It is not
currently possible to determine whether Blackstone or the Company will exercise
such rights. Furthermore, any amount to be paid pursuant to the Put or Call is
dependent on calculated equity value which is based on EBITDA of future periods.
Accordingly, it is not possible at this date to estimate the future amount that
may be payable to Blackstone on the exercise of the Put or the Call.
The Company provides various management and administrative services to RHC
and subsidiaries under an Administrative Services Agreement for an annual fee of
$250,000. If the Administrative Services Agreement becomes terminable by
Blackstone due to the Company's material breach thereof or other failure to
comply in any material respect, Blackstone under the Put will receive, at a
minimum, its original investment plus a 25% compound return per annum thereon
which increases to 27.5% in the event of a change in control of the Company,
regardless of the calculated equity value.
87
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 4. INVESTMENTS (CONTINUED)
Summarized financial data for RH Holdings for the year ended December 31,
1997 and for the period November 19, 1996 to December 31, 1996 are presented as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income statement information:
Revenue................................................................................. $ 70,742 $ 7,097
Gross margin............................................................................ 55,671 5,472
Earnings from operations................................................................ 14,834 1,343
Payment-in-kind dividend to the Company and 4103 Investments............................ 8,708 932
Net loss attributable to common shareholders............................................ (10,476) (1,460)
Balance sheet information:
Current assets.......................................................................... $ 17,117 $ 21,272
Non-current assets...................................................................... 294,934 296,562
---------- ----------
Total assets.......................................................................... 312,051 317,834
Current liabilities..................................................................... 15,780 15,510
Non-current liabilities................................................................. 169,013 173,298
---------- ----------
Total liabilities..................................................................... 184,793 188,808
Shareholders' equity.................................................................... 127,258 129,026
</TABLE>
88
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 5. INSURANCE INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities................................................. $ 281,659 290,200 $ 256,919 $ 257,250
Equity securities................................................ 110 55 2,376 2,343
Short-term investments and other................................. 23,841 23,841 36,954 37,016
---------- ---------- ---------- ----------
$ 305,610 314,096 $ 296,249 $ 296,609
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
On the insurance invested assets, the Company earned $23,847,000 of
investment income for the year ended December 31, 1997 (1996 -- $16,883,000).
Included in the market value of insurance invested assets are $8,947,000 and
$461,000 of unrealized gains and losses, respectively (1996 -- $1,882,000 and
$1,552,000, respectively).
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
$6,081,000 due in one year or less (1996 -- $3,750,000), $30,576,000 due in one
to five years (1996 -- $56,000,000), $81,005,000 due in five to ten years
(1996 -- $47,958,000), and $52,929,000 due after ten years
(1996 -- $25,018,000). Maturities on a market value basis are approximately the
same as the amortized cost basis at December 31, 1997. The Company had
approximately $111,068,000 (1996 -- $124,193,000) in mortgage-backed securities
and collateralized mortgage obligations at December 31, 1997 with a market value
of $115,015,000 (1996 -- $124,524,000).
NOTE 6. LOANS AND ADVANCES FROM AFFILIATES
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Term loan from affiliated company
Interest at 11.50%.................................................................... 889,905 590,040
Revolving credit loans from affiliated companies
Interest at U.S. treasury rate plus 5% due in 2002.................................... 87,821 --
Interest at U.S. treasury rate plus 5.36% due in 1999................................. 45,233 --
Interest at prime plus 2% due in 1999................................................. 21,013 70,333
Other demand loans to affiliates
Non-interest bearing and due on demand................................................ (7,489) (4,437)
------------ ----------
1,036,483 655,936
Demand loan from/(to) Parent Company.................................................... (22,569) 35,634
------------ ----------
$ 1,013,914 $ 691,570
------------ ----------
------------ ----------
</TABLE>
The term loan and certain revolving credit loans from an affiliated company
are secured under a collateral trust arrangement with a group of senior lenders
to the Company and Parent Company, see
89
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 6. LOANS AND ADVANCES FROM AFFILIATES (CONTINUED)
Note 7. The $889,905,000 term loan is comprised of $206,000,000 due August
15,1999, $199,650,000 due April 11, 2000, $184,390,000 due February 1, 2001 and
$299,865,000 due June 5, 2002.
NOTE 7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Bank revolving credit agreement, see Note 22.......................................... $ 234,500 $ 237,000
Management Equity Investment Plan ("MEIP") bank term credit agreement due in 2001..... 105,140 107,583
9.70% Series A senior amortizing notes due in 1998.................................... -- 50,000
9.93% Series B senior amortizing notes due in 2001.................................... -- 35,700
6.49% Series E senior amortizing notes due in 2004.................................... 50,000 50,000
7.50% Series 1 senior notes due in 2001............................................... 225,000 225,000
7.75% Series 3 senior notes due in 2001............................................... 125,000 125,000
8.25% Series 2 and 4 senior notes due in 2003......................................... 350,000 350,000
6.70% PATS senior notes............................................................... 300,000 --
Present value of notes issued under legal settlements discounted at an effective
interest rate of 7.75%.............................................................. 39,115 40,000
Present value of contingent consideration payable on acquisitions discounted at an
effective interest rate of 8.0%, see Note 21........................................ 24,515 34,681
Other, principally arising from vendor financing of acquired operations or long-term
debt assumed on acquisitions, bearing interest at fixed and floating rates varying
from 4.8% to 14.0%, certain of which are secured by assets of certain
subsidiaries........................................................................ 111,724 104,705
------------ ------------
1,564,994 1,359,669
Less current portion.................................................................. 33,408 63,127
------------ ------------
$ 1,531,586 $ 1,296,542
------------ ------------
------------ ------------
</TABLE>
(a) In 1996, the Company, the Parent Company 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 collateral includes (i) a
pledge for the benefit of the senior lenders of the shares of capital stock held
by the Parent Company of substantially all of its subsidiaries and (ii) all of
the financial assets of the Company (including the shares of the capital stock
held by the Company of various subsidiaries) (collectively, the "Collateral").
The Collateral is held by a trustee for the equal and ratable benefit of the
various holders of pari passu indebtedness. The senior lenders consist
principally of the lenders under the senior notes, bank revolving and term
credit agreements and certain loans and advances from affiliates as well as the
holders of certain letters of credit. At December 31, 1997, the indebtedness of
the Company owed to the senior lending group subject to the collateral trust
arrangement, including holders of certain letters of credit, aggregated
$2,395,700,000.
90
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 7. LONG-TERM DEBT (CONTINUED)
(b) Certain of the above loan agreements contain various restrictive
provisions, including change of control provisions and provisions restricting
payment by the Parent Company of dividends on Common and Preferred shares,
restricting encumbrance of assets, limiting redemption or repurchase by the
Parent Company of its shares, limiting disposition of assets, limiting the
amount of additional debt, limiting the amount of capital expenditures and
requiring the Parent Company and its subsidiaries to maintain specified
financial ratios.
(c) In September 1997, the Company expanded its $750,000,000 revolving
credit agreement to $1,000,000,000 (the "Revolving Credit Agreement"). The
expanded Revolving Credit Agreement has two components, a $750,000,000 tranche
which matures in September 2002 and a $250,000,000 364 day tranche which matures
in September 1998. At December 31, 1997, $234,500,000 was outstanding under this
Revolving Credit Agreement.
The Company's bank Revolving Credit Agreement and MEIP bank term credit
agreement bear interest at floating rates based on U.S. Libor or the prime rates
of certain banks, plus an applicable margin depending upon a combination of the
Company's ability to maintain specified financial ratios and the Company's
long-term debt credit ratings. The Company is also required to pay a commitment
fee on the unused portion of the Revolving Credit Agreement.
(d) In September 1997, the Company repaid in advance of its final maturity,
the Series A and B senior amortizing notes. In accordance with the terms of the
notes, the Company incurred and expensed make-whole penalties aggregating
$4,591,000 in 1997.
(e) Repayment of the Series E senior amortizing notes commenced February
1998 in equal annual amounts.
(f) In September 1997, the Company completed a private placement of
$300,000,000 in pass-through asset trust senior guaranteed notes, due 2009 (the
"PATS senior notes"). The PATS senior notes bear interest at a rate of 6.70%
until October 1, 1999, at which time the interest rate will be reset at a fixed
annual rate of 6.05% plus an adjustment equal to the Company's then current
credit spread to the ten year United States Treasury rate. The PATS senior notes
are redeemable at the election of the holder, in whole but not in part, at 100%
of the principal amount on October 1, 1999.
(g) The notes issued under legal settlements represent a promissory note in
the amount of $80,000,000 payable over 20 years in equal annual installments of
$4,000,000, without interest. Interest is accrued on the discounted amount and
is included in accounts payable and accrued liabilities. Annual payments will
eliminate this accrual and the balance will be applied to the promissory note.
(h) The Company incurred and paid approximately $88,796,000 of interest
during 1997 (1996 -- $78,800,000), of which approximately $2,022,000
(1996 -- $2,000,000) was capitalized as cost of construction or development of
cemetery property.
91
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 7. LONG-TERM DEBT (CONTINUED)
(i) Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 33,408
1999.................................................................. 333,262
2000.................................................................. 38,894
2001.................................................................. 480,938
2002.................................................................. 252,967
Thereafter............................................................ 425,525
----------
$1,564,994
----------
----------
</TABLE>
NOTE 8. PREFERRED SECURITIES OF SUBSIDIARY
On August 15, 1994, 3,000,000 9.45% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS") were issued by Loewen Group Capital, L.P. ("LGC")
in a public offering for an aggregate amount of U.S. $75,000,000. LGC is a
limited partnership and the Company as its general partner manages its business
and affairs.
The MIPS are due August 31, 2024 and are subject to redemption at par at the
option of LGC, in whole or in part, from time to time, on or after August 31,
2004.
Holders of the MIPS are entitled to receive cumulative dividends at an
annual rate of 9.45% of the liquidation preference of U.S. $25 per MIPS. The
dividends accrue from the date of original issuance and are payable monthly in
arrears.
The Company has the right to defer payment of dividends on the MIPS for one
or more periods, each not to exceed 60 consecutive months. In this event the
Parent Company may not declare or pay dividends on, or redeem, purchase or
acquire or make a liquidation payment with respect to any class of its capital
stock.
The Parent Company has guaranteed certain payment obligations of the Company
to LGC and of LGC to the MIPS holders. The guarantees are subordinated to all
liabilities of the Parent Company and are unsecured.
NOTE 9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company enters into derivative transactions with financial institutions
primarily as hedges of other financial transactions. The Company does not trade
in financial instruments and is not a party to leveraged derivatives.
(a) SWAP AGREEMENTS AND INTEREST RATE OPTIONS
The Company has entered into swap agreements and interest rate options with
a number of different commercial banks and financial institutions to manage its
interest rate exposure on fixed rate long-term
92
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
debt. At December 31, 1997, such agreements included three interest rate swap
agreements with commercial banks and financial institutions, each having a
notional principal amount of $25,000,000. The Company will receive floating
Libor based rates determined quarterly (5.938% at December 31, 1997) and will
pay fixed rates of 5.755%, 6.200% and 6.190% under the agreements. The
agreements expire in June 1999, June 2001 and June 2001, respectively.
The Company is exposed to a credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counterparties. The carrying amounts
of the interest rate swap agreements approximate fair values at December 31,
1997.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and term deposits, current receivables and
accounts payable and accrued liabilities approximates fair value due to the
short-term maturities of these instruments. The fair value of insurance policy
liabilities, the Put/Call Agreements and loans and advances from affiliates have
been omitted because it is not practicable to determine fair values with
sufficient reliability. Financial instruments with a carrying value different
from their fair value include:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(1) Financial assets
Prearranged funeral services......................... $ 345,795 $ 351,382 $ 274,266 $ 274,266
Investments
Practicable to estimate fair value................. -- -- -- --
Not practicable.................................... 27,470 -- 150,939 --
Insurance invested assets............................ 305,610 314,096 296,249 296,609
Long-term receivables
Practicable to estimate fair value................. 275,866 278,415 123,425 125,289
Not practicable.................................... 111,416 -- 120,189 --
(2) Financial liabilities
Long-term debt....................................... 1,564,994 1,604,970 1,359,669 1,380,772
Preferred securities of subsidiary................... 75,000 81,375 75,000 79,500
</TABLE>
The fair value determination of insurance invested assets and certain
investments and long-term receivables is based on quoted market prices. For
certain long-term receivables and other investments, fair value is estimated by
discounting the future cash flows, including interest payments, using rates
currently available for investments of similar terms and maturity. The
investments for which it is not practicable to estimate fair value comprise
primarily the preferred share investments in Prime and RH Holdings. The
long-term receivables for which it is not practicable to estimate fair value
comprise primarily installment receivables on cemetery sales, which generally
have terms of three to five years and bear interest ranging from 8% to 15%.
93
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest payments,
using rates currently available for debt of similar terms and maturity, based on
the Company's credit standing and other market factors. The fair value of
long-term debt, subject to floating market rates, approximate their carrying
values. The fair value of the preferred securities of a subsidiary is estimated
based upon quoted market prices.
NOTE 10. SHARE CAPITAL
(a) AUTHORIZED
3,000 Common shares with a par value of $0.01
(b) ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF SHARES STATED VALUE
-------------------- ------------------------------
1997 1996 1997 1996
--------- --------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares..................................... 1,455 1,208 $ 260,318,732 $ 75,068,732
Contributed surplus............................... 227,195,603 227,195,603
-------------- --------------
$ 487,514,335 $ 302,264,335
-------------- --------------
-------------- --------------
</TABLE>
During 1997, the Company issued 247 Common shares to affiliated companies
for gross proceeds of $185,250,000.
NOTE 11. 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 Parent Company
securities against the Parent Company and five individuals who were officers of
the Parent Company (four of whom were also directors) in the United States
District Court for the Eastern District of Pennsylvania. The Company, 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 Common Shares against
the Parent Company 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 Parent
Company's securities against the Parent Company, the Company, LGC and the same
individual defendants in the United States District Court for the Eastern
District of Pennsylvania. On June 11, 1996 all claims against the MIPS
Underwriters were dismissed without prejudice, by agreement of the parties. The
cases were consolidated before the District Court of the Eastern District of
Pennsylvania. A Consolidated and Amended Class Action Complaint was filed on
September 16, 1996.
94
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
The parties have agreed to a settlement of all claims in the action. The
settlement was submitted to the Court for approval on January 30, 1998. If
approved by the Court and subject to the satisfaction of all other conditions,
the settlement will provide for the payment by the Parent Company on behalf of
all defendants of $5,000,000 plus up to $100,000 for costs of notice and 50% of
the costs of administration of the settlement. On February 3, 1998, the court
entered a Preliminary Approval Order, in which, inter alia, it scheduled a
hearing on final approval for April 20, 1998.
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
coexecutor for the Estate of Gerald F. Esner (the "Esner Estate") filed an
action in the Court of Common Pleas of 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 Parent Company
and the Company.
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, the Company purchased all of the issued and outstanding
shares of Osiris, including the Esner Shares. In connection with the purchase,
the Company entered into an indemnification agreement whereby Messrs. Miller and
Shane agreed to indemnify and hold the Company 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 the Company as defendants. The second complaint
alleges breach of contract, fraud and related claims against Messrs. Miller and
Shane, and that the Company 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 filed, and the
Court granted, preliminary challenges to the Third Amended Complaint. The Court
also dismissed the
95
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
claims against the Company for failure to state a claim upon which relief can be
granted, although the Third Amended Complaint does continue on unaffected
counts.
The Parent 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
Parent Company's or the Company's consolidated financial statements.
ROJAS ET AL.
On February 22, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against the Parent Company, the Company and a subsidiary in the
United States District Court for the District of Puerto Rico. The complaint
alleges that the defendants breached a contract and ancillary agreements with
the plaintiffs relating to the purchase of funeral homes and cemeteries, and
committed related torts. The plaintiffs seek compensatory damages of
$12,500,000, and unspecified punitive damages (although the Parent Company is
advised by counsel that there is no entitlement to punitive damages under Puerto
Rican law). The Parent Company has filed a motion to dismiss the complaint on
the grounds of failure to join an indispensable party. In addition, the Parent
Company claims it has suffered damages far in excess of the amount claimed by
the plaintiffs as a result of breach of contract and related torts on the part
of the plaintiffs. A subsidiary of the Parent Company has filed a complaint
seeking damages in excess of $19,000,000 from the plaintiffs in the General
Court of Justice of the Commonwealth of Puerto Rico. The Parent 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 Parent Company's or
the Company's consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP. ET AL.
Two complaints were filed in 1997 on behalf of individuals who claim damages
in connection with funeral insurance policies allegedly issued to them by
insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of
S.I. in March 1996.
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. are affiliates of S.I.
In June 1997, Lloyd Duffy, Sr. 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 the Company in the Parish of Orleans, State of Louisiana.
Plaintiffs seek a class action. The Duffy complaint was filed by the same
lawyers who filed the complaint in the
96
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 11. LEGAL PROCEEDINGS (CONTINUED)
Feldheim case, and is a virtually identical copy of the Feldheim complaint. The
Duffy case is pending in the trial court and, as of the date hereof, no
discovery has taken place.
The Feldheim and Duffy plaintiffs allegedly 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 laws.
Plaintiffs petitions 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.
On June 13, 1997, the district court in Jefferson Parish dismissed the
Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing of the appeal was completed in December 1997 and oral argument was held
on January 5, 1998, but a decision has not yet been rendered. As of the date
hereof, no discovery has taken place.
The Parent Company has determined that it is not possible to predict the
final outcome of these legal proceedings, 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 Parent Company's or the Company's
consolidated financial statements.
OTHER
The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.
NOTE 12. RESTRUCTURING COSTS
During 1997, the Company recorded pre-tax charges of $31.0 million ($19.8
million after tax), for restructuring associated with the Company's efforts to
more fully integrate its field and administrative operations and improve
long-term financial performance. The restructuring charges primarily consisted
of $19.0 million related to the severance of approximately 523 employees in
operating locations where consolidation and clustering synergies were not being
achieved, $7.5 million associated with the closure of the Company's Covington,
Kentucky corporate office and $4.1 million of asset write-downs related to
realignment or elimination of under-performing locations.
Actual severance paid, including to the Covington office employees, at
December 31, 1997 was $15.8 million. The remaining liability for severance of
$4.8 million primarily relates to benefit or salary continuance arrangements and
will be fully extinguished in 1998.
97
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 13. IMPAIRMENT OF LONG-LIVED ASSETS
During 1997, the Company recorded a charge to general and administrative
expenses for an impairment loss of $11.6 million, of which $5.4 million was
non-cash, related to a write down of certain under-performing assets. The
impaired assets included $9.4 million related to the termination of
non-competition agreements in markets where restrictive covenants no longer have
value to the Company and $2.2 million of fixed assets and software costs related
to the streamlining of general and administrative functions and the change in
the Company's operating strategy.
NOTE 14. COMMITMENTS AND CONTINGENCIES
(a) LEASES
At December 31, 1997, the Company was committed to operating lease payments
for premises, automobiles and office equipment in the following approximate
amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1998............................................................................... $ 12,722
1999............................................................................... 11,270
2000............................................................................... 10,274
2001............................................................................... 8,826
2002............................................................................... 8,372
Thereafter......................................................................... 49,353
</TABLE>
Total rent expense for each of the years in the three year period ended
December 31, 1997 was $15,258,000, $11,144,000 and $9,011,000, respectively.
(b) COVENANTS NOT TO COMPETE
In connection with various acquisitions, the Company has entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made variously at closing or over future periods and are
expensed over the terms of the specific contracts. At December 31, 1997, the
agreements in place will result in future payments in the following approximate
amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1998............................................................................... $ 13,811
1999............................................................................... 12,608
2000............................................................................... 13,243
2001............................................................................... 10,533
2002............................................................................... 9,455
Thereafter......................................................................... 31,208
</TABLE>
(c) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities
98
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
are recorded when environmental liabilities are either known or considered
probable and can be reasonably estimated. The Company's policies are designated
to control environmental risk upon acquisition through extensive due diligence
and corrective measures taken prior to acquisition. The Company believes
environmental contingencies and liabilities to be immaterial individually and in
the aggregate.
NOTE 15. RETIREMENT PLAN
The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a
401(K) Retirement Savings Plan for United States employees who may defer between
2% and 15% of eligible compensation. The Company will match 100% of employee
contributions to a maximum of 2% of employees' eligible compensation.
The total expense for the retirement plan for the three years ended December
31, 1997 was $2,356,000, $1,802,000 and $1,514,000, respectively.
NOTE 16. HOSTILE TAKEOVER PROPOSAL
On January 7, 1997, SCI publicly withdrew its unsolicited proposed offer to
acquire the Parent Company through an exchange offer announced in October 1996.
NOTE 17. INCOME TAXES
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
% % %
<S> <C> <C> <C>
Combined United States federal and state income tax rate................................. (40.0) 44.6 (39.7)
Non-deductible depreciation and amortization arising from acquisitions................... 8.2 64.6 2.2
Non-deductible costs of hostile takeover proposal........................................ -- 28.9 --
Non-deductible restructuring and other charges........................................... 0.6 -- --
Equity and other earnings of associated companies at lower rates......................... (3.4) (5.7) --
Tax on state level income................................................................ 4.3 -- --
Tax benefits of legal settlements at lower rates......................................... -- -- 2.3
Tax benefits of insurance operations at lower rates...................................... (0.3) (13.6) 0.3
Other.................................................................................... 9.0 20.0 0.8
--------- --------- ---------
(21.6) 138.8 (34.1)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes for each of the years in the three year period
ended December 31, 1997 amounting to $33,067,000, $9,965,000 and $9,384,000,
respectively.
99
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 18. CHANGES IN OTHER NON-CASH BALANCES
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances............................................ $ 8,945 $ (32,536) $ (20,980)
Inventories............................................................... (689) (2,400) (2,155)
Prepaid expenses.......................................................... 1,627 (3,246) (1,702)
Amounts receivable from cemetery merchandise trusts....................... (89,893) (6,703) (12,969)
Installment contracts, net of allowances.................................. (165,665) (68,125) (25,323)
Cemetery property......................................................... (33,978) 10,992 1,039
Deferred charges.......................................................... (39,668) (27,253) (11,786)
Increase (decrease) in liabilities
Accrued settlements....................................................... -- (53,000) 53,000
Accounts payable and accrued liabilities.................................. 40,232 17,755 22,882
Cemetery long-term liabilities............................................ 19,261 619 (1,477)
Insurance policy liabilities.............................................. 5,786 747 3,033
Other changes in non-cash balances.......................................... 24,136 7,824 4,159
----------- ----------- ----------
$ (229,906) $ (155,326) $ 7,721
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
100
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 19. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts as at December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Receivables, net of allowances
Trade accounts.......................................................................... $ 87,402 $ 89,699
Installment contracts................................................................... 40,825 55,822
Other................................................................................... 69,602 52,850
Unearned finance income................................................................. (4,846) (6,703)
Allowances for contract cancellations and doubtful accounts............................. (23,225) (24,258)
---------- ----------
$ 169,758 167,410
---------- ----------
---------- ----------
Long-term receivables, net of allowances
Notes receivable........................................................................ $ 12,547 $ 12,093
Amounts receivable from cemetery merchandise trusts..................................... 297,688 131,748
Installment contracts................................................................... 95,512 131,288
Unearned finance income................................................................. (11,505) (16,522)
Allowances for contract cancellations and doubtful accounts............................. (6,960) (14,993)
---------- ----------
$ 387,282 $ 243,614
---------- ----------
---------- ----------
Cemetery property, at cost
Developed land and lawn crypts.......................................................... $ 189,177 $ 104,952
Undeveloped land........................................................................ 670,210 457,258
Mausoleums.............................................................................. 76,066 35,318
---------- ----------
$ 935,453 $ 597,528
---------- ----------
---------- ----------
Property and equipment
Land.................................................................................... $ 146,681 $ 121,089
Buildings and improvements.............................................................. 431,342 369,703
Automobiles............................................................................. 65,875 57,003
Furniture, fixtures and equipment....................................................... 117,164 91,924
Computer hardware and software.......................................................... 20,342 19,043
Leasehold improvements.................................................................. 12,405 10,620
Accumulated depreciation and amortization............................................... (114,590) (84,638)
---------- ----------
$ 679,219 $ 584,744
---------- ----------
---------- ----------
Names and reputations
Names and reputations................................................................... $ 567,297 $ 503,091
Covenants not to compete................................................................ 70,933 64,972
Accumulated amortization................................................................ (69,167) (54,009)
---------- ----------
$ 569,063 $ 514,054
---------- ----------
---------- ----------
</TABLE>
101
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 19. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Other assets
Deferred finance charges................................................................ $ 29,201 $ 31,637
Deferred direct obtaining costs......................................................... 79,846 47,896
Acquisitions in progress................................................................ 36,381 31,121
Other................................................................................... 10,921 13,633
---------- ----------
$ 156,349 $ 124,287
---------- ----------
---------- ----------
Accounts payable and accrued liabilities
Trade payables.......................................................................... $ 20,961 $ 15,500
Interest................................................................................ 49,628 23,229
Insurance, property and business taxes.................................................. 6,059 5,135
Other................................................................................... 62,315 49,299
---------- ----------
$ 138,963 $ 93,163
---------- ----------
---------- ----------
Other liabilities
Cemetery long-term liabilities.......................................................... $ 212,958 $ 138,014
Regional partnership liabilities........................................................ 12,149 13,203
Participants' deposits in MEIP (Note 9(d)).............................................. 5,507 5,637
Other................................................................................... 28,774 16,515
---------- ----------
$ 259,388 $ 173,369
---------- ----------
---------- ----------
</TABLE>
102
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 20. SEGMENTED INFORMATION
The following information corresponds to the Company's major industry
segments, all of which operate in North America.
<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE CORPORATE CONSOLIDATED
------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
1997......................................... $ 536,927 $ 408,196 $ 89,976 $ -- $1,035,099
1996......................................... 489,571 277,881 71,900 -- 839,352
1995......................................... 389,124 138,137 13,564 -- 540,825
Depreciation and amortization
1997......................................... $ 44,849 $ 7,391 $ 36 $ 9,787 $ 62,063
1996......................................... 39,617 3,987 40 5,347 48,991
1995......................................... 30,988 2,114 313 1,560 34,975
Earnings from operations
1997......................................... $ 92,438 $ 66,023 $ 16,508 $ (58,195) $ 116,774
1996......................................... 155,921 83,103 19,411 (79,250) 179,185
1995......................................... 94,011 23,619 2,718 (44,633) 75,715
Total assets
1997......................................... $ 1,718,366 $ 1,477,547 $ 331,754 $ 405,033 $3,932,700
1996......................................... 1,488,896 1,013,073 311,406 275,018 3,088,393
1995......................................... 1,208,791 575,501 107,076 69,346 1,960,714
Capital expenditures
1997......................................... $ 83,381 $ 52,893 $ 208 $ 6,807 $ 143,289
1996......................................... 116,676 36,187 1,274 9,828 163,965
1995......................................... 92,670 16,915 -- 2,958 112,543
</TABLE>
NOTE 21. RELATED PARTY TRANSACTIONS
On March 27 and December 31, 1997, the Company entered into agreements to
sell cemetery installment contract receivables to an affiliate of the Company
for approximately $185,179,000. The Company realized a loss of $22,066,000 on
the sale. On August 6 and December 27, 1996, the Company entered into agreements
to sell cemetery installment contract receivables to an affiliate of the Company
for approximately $57,483,000. The Company realized a loss of $5,225,000 on the
sale.
For the year ended December 31, 1997, the Company paid management fees to
the Parent Company of $18,961,000 (1996 -- $15,884,000, 1995 -- $34,896,000).
The Company has guaranteed indebtedness of participants of the 1994
Management Equity Investment Plan totaling approximately $3,500,000
(1996 -- $3,300,000).
During the year ended December 31, 1997, the Company paid approximately
$10,800,000 (1996 -- $7,700,000) for insurance and other services to a related
company.
During the years ended December 31, 1996 and 1995, as part of the normal
course of operations, the Company chartered a jet aircraft, a motor vessel and a
helicopter at competitive rates from companies
103
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 21. RELATED PARTY TRANSACTIONS (CONTINUED)
which the Chairman of the Company owned or controlled. For each of the years in
the three year period ended December 31, 1997, the total costs of the related
party charters amounted to nil, $605,110 and $1,622,448, respectively, none of
which remained outstanding at the year end.
During 1996, the Parent Company purchased all of the shares of 476822 B.C.
Ltd. ("BC Ltd."), which owns the motor vessel, for an effective purchase price
of Cdn. $7,860,000. In the transaction, the motor vessel was valued at Cdn.
$7,200,000 and the other assets were valued at cost and aggregated approximately
Cdn. $660,000. A third party appraisal established the of the motor vessel's had
established its fair market value at Cdn. $7,350,000 and its replacement value
at Cdn. $12,500,000.
The Chairman has an option to reacquire either the motor vessel and related
assets (the "Boat Assets") or the shares of BC Ltd. until October 1, 2006, under
certain circumstances including a change in control of the Company, at their
fair market value.
During 1996, the company which owned the jet aircraft and helicopter sold
them to a third party. The Company has leased the jet aircraft and helicopter
from the third party at commercially reasonable terms.
As part of the acquisition of Osiris Holding Corporation ("Osiris"), the
Company has recorded $19,677,000 as a long-term liability. The balance
outstanding is the present value of total remaining contingent payments of
approximately $23,400,000 which the Company expects to pay over a five-year
period ending 2001 to the former shareholders of Osiris, two of whom are
officers of the Company.
In addition, as part of the acquisition of Shipper Management ("Shipper"),
the Company has recorded $4,838,000 as a long-term liability, representing the
present value of total remaining contingent payments of approximately $6,020,000
which the Company recorded in 1996 when the outcome of the contingency became
determinable and which the Company expects to pay over a six year period ending
2001 to the former shareholders of Shipper, one of whom is an officer of the
Company.
At December 31, 1997, Company officers, directors and employees were
indebted to the Company for approximately $9,000,000 (1996 -- $4,700,000).
NOTE 22. SUBSEQUENT EVENTS
During the period from January 1, 1998 to February 27, 1998, the Company
acquired 28 funeral homes and 25 cemeteries. The aggregate cost of these
transactions was approximately $78,875,000.
As of February 27, 1998, the Company has committed to acquire certain
funeral homes, cemeteries and related operations, subject in most instances to
certain conditions including approval by the Company's Board of Directors. The
aggregate cost of these transactions, if completed, will be approximately
$226,932,000.
On March 27, 1998, the Company amended its Revolving Credit Agreement to
provide greater flexibility for the timing of equity and other financing
alternatives. As part of the amendment, the one-year tranche was terminated and
the $750,000,000 tranche was reduced to a $600,000,000 revolving agreement with
a three year term.
104
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
(a) LOSS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Loss in accordance with Canadian GAAP...................................... $ (77,746) $ (4,868) $ (127,353)
Less effects of differences in accounting for:
Factoring transactions (e)............................................... 12,314 -- --
Insurance operations (d)................................................. 1,701 (1,440) --
Income taxes (g)......................................................... (1,004) 1,761 1,028
----------- ----------- -----------
Loss in accordance with United States GAAP................................. (64,735) (4,547) (126,325)
Opening retained earnings (deficit) in accordance with United States
GAAP..................................................................... (111,624) (107,077) 19,248
----------- ----------- -----------
Closing deficit in accordance with United States GAAP...................... $ (176,359) $ (111,624) $ (107,077)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(b) BALANCE SHEET
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ------------------------
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Assets
Receivables, net of allowances.......................... $ 169,758 $ 229,314 $ 167,410 $ 167,410
Long-term receivables, net of allowances................ 387,282 528,015 243,614 243,614
Investments............................................. 184,723 184,723 170,245 171,830
Insurance invested assets............................... 305,610 312,073 296,249 297,340
Cemetery property....................................... 935,453 1,308,128 597,528 852,987
Names and reputations................................... 569,063 598,688 514,054 538,598
Other assets............................................ 156,349 181,556 124,287 144,127
Liabilities and Shareholders' equity
Loans and advances from affiliates, current portion..... -- 53,399 -- --
Loans and advances from affiliates...................... 1,013,914 1,138,511 691,570 691,570
Insurance policy liabilities............................ 214,492 240,750 208,706 231,135
Other liabilities....................................... 259,388 257,128 173,369 173,369
Deferred income taxes................................... (124,654) 309,725 (60,018) 239,475
Share capital........................................... 487,514 489,188 302,264 303,938
Deficit................................................. (167,360) (176,359) (89,614) (111,624)
Unrealized gains/(losses) on securities available for
sale, net of tax...................................... -- 5,211 -- 933
</TABLE>
105
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(c) STATEMENT OF CASH FLOWS
The statement of cash flows under United States GAAP would differ from the
statement of changes in financial position under Canadian GAAP as the following
non-cash transactions would not be reflected as cash flows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- -----------
Non-cash debt and share consideration on acquisitions......................... $ 58,068 $ 62,711 $ 105,948
Note receivable from sale of subsidiaries..................................... 15,725 -- --
Common shares and debt issued for legal settlements........................... -- 111,800 (111,800)
Non-cash proceeds on disposal of investment................................... -- 2,600 --
</TABLE>
(d) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES
Under United States GAAP, the Company recognizes an asset that represents
the actuarially-determined present value of the projected future profits of the
insurance in-force at dates of acquisition. Canadian GAAP does not recognize
such an asset. The asset is being amortized to insurance expense over the
estimated life of the insurance in-force at the date of acquisition.
DEFERRED POLICY ACQUISITION COSTS
Under United States GAAP, the Company defers costs related to the production
of new business, which consist principally of commissions, certain underwriting
expenses, and the costs of issuing policies. Deferred acquisition costs are
amortized over the expected premium-paying periods of the related policies.
Canadian GAAP does not permit deferral of such costs.
INSURANCE POLICY LIABILITIES
Insurance policy liabilities, which represent liabilities for future policy
benefits, are accounted for under United States GAAP using the net level premium
method which involves different actuarial assumptions and methodologies than the
policy premium method used for Canadian GAAP. In addition, under Canadian GAAP,
all actuarial assumptions are re-evaluated on a periodic basis, resulting in
adjustments to insurance policy liabilities and insurance costs and expenses.
Under United States GAAP, assumptions established at the time a policy is
written are locked in and only revised if it is determined that future
experience will worsen from that previously assumed.
(e) SALES OF RECEIVABLES
The Company adopted Financial Accounting Standard No. 125 ("FAS 125"),
Accounting for Transfers and Servicing of Financial Assets, for transfers of
financial assets after December 31, 1996. Under FAS 125, the Company does not
recognize the sales of receivables until the transferred receivables are put
beyond the reach of the Company's creditors. The Company's cemetery installment
contract receivables
106
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
have been sold to an affiliate whose capital stock is pledged as collateral for
the benefit of the Company's senior lenders, see Note 7. Accordingly, for United
States GAAP purposes, the proceeds from the sales of receivables have been
reflected in loans and advances from affiliates and the related losses have been
deferred and will be recognized as interest expense over the life of the loan.
(f) UNREALIZED GAINS AND LOSSES
Under United States GAAP, fixed maturity securities which the Company has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $69,243,000 at December 31,
1997 (1996 -- $83,719,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1997, securities classified as trading were
approximately $1,380,000 (1996 -- $5,600,000). All other fixed maturity and
equity securities not classified as either held-to-maturity or trading are
classified as available-for-sale and carried at fair value which was
approximately $496,922,000 at December 31, 1997 (1996 -- $316,028,000).
Available-for-sale securities may be sold in response to changes in interest
rates and liquidity needs. Unrealized holding gains and losses related to
available-for-sale investments, after deducting amounts allocable to income
taxes, are reflected as a separate component of stockholders' equity. There were
no significant unrealized gains or losses on securities available-for-sale as of
December 31, 1997. Unrealized holding gains and losses related to trading
investments, after deducting amounts allocable to income taxes, are reflected in
earnings.
(g) INCOME TAXES
Under United States GAAP, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Temporary differences are tax-effected at current rates whereas under Canadian
GAAP, temporary differences are tax-effected at historic rates. There was no
deferred tax effect of changes in tax rates during 1997.
107
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The Company's deferred tax liabilities under FAS 109 at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Cemetery property....................................................................... $ 372,676 $ 252,802
Property and equipment.................................................................. 55,314 56,103
Deferred costs related to prearranged funeral services.................................. -- 5,068
Other tax liabilities................................................................... 47,917 20,902
---------- ----------
Total deferred tax liabilities............................................................ 475,907 334,875
---------- ----------
Deferred tax assets
Legal settlements....................................................................... 15,911 16,049
Interest and intercompany management fees............................................... 83,361 55,119
Other tax assets, net of valuation allowance............................................ 61,163 24,232
Deferred costs related to prearranged funeral services.................................. 5,747 --
---------- ----------
Total deferred tax assets................................................................. 166,182 95,400
---------- ----------
Net deferred tax liabilities.............................................................. $ 309,725 $ 239,475
---------- ----------
---------- ----------
</TABLE>
The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax assets. The Company's ability to realize its deferred tax assets is
based on several factors, including a presumption of future profitability in
certain jurisdictions and is subject to some degree of uncertainty. At December
31, 1997, the Company had a valuation allowance of $11,418,000,
(1996 -- $3,499,000). During the year ended December 31, 1997, the Company
increased its valuation allowance by $7,919,000 (1996 -- $1,271,000) for
operating loss carry forwards, primarily from acquisitions.
(h) STOCK-BASED COMPENSATION
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based
Compensation, for United States GAAP purposes.
The Company continues to record compensation expense for United States GAAP
purposes following the intrinsic value principles of APB 25 for Accounting for
Stock Issued to Employees in accounting for the plans. Under APB 25, no
compensation expense has been recognized for its stock-based compensation plans.
Had compensation cost been determined based on fair value at the grant dates for
awards under those plans consistent with the measurement provisions of FAS 123,
net earnings under United States GAAP would have been charged an additional
$2,756,000 for the year ended December 31, 1997 (1996 -- $2,828,000,
1995 -- $653,000).
For these purposes, the fair value of each option is estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions; dividend yield 0.5% (1996 -- 0.5%, 1995 -- 0.5%),
expected volatility 24% (1996 -- 24%, 1995 -- 24%), United States risk-free
interest rates 5.89% (1996 -- 5.57%, 1995 -- 6.58%) and expected average option
term of 4.6 years
108
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
NOTE 23. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(1996 -- 2.9 years, 1995 -- 4.5 years). The weighted average fair value of the
options granted is $8.92 (1996 -- $6.25, 1995 -- $9.33) per option.
(i) RECENT UNITED STATES ACCOUNTING STANDARDS
The FASB issued FAS 130, Reporting Comprehensive Income, and FAS 131,
Disclosures About Segments of an Enterprise and Related Information which are
required to be implemented during the Company's fiscal year ending December 31,
1998. These standards will affect the presentation but not the measurement of
the consolidated financial statements and the related notes.
NOTE 24. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
109
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholder
TLGI Management Corp.
We have audited the consolidated balance sheets of TLGI Management Corp. as
at December 31, 1997 and 1996 and the consolidated statements of operations and
retained earnings (deficit) and statement of changes in financial position for
each of the years in the three year period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1997,
in accordance with generally accepted accounting principles in Canada. As
required by the Company Act of the Province of British Columbia, we report that,
in our opinion, these principles have been applied on a consistent basis.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 20, 1998
110
<PAGE>
TLGI MANAGEMENT CORP.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and term deposits.................................................................. $ 278 $ --
Receivables, net of allowances.......................................................... 7,951 10,425
Inventories............................................................................. 2,614 2,501
---------- ----------
10,843 12,926
Prearranged funeral services.............................................................. 72,996 68,914
Investments in affiliate.................................................................. 98,475 68,250
Notes receivable from affiliate........................................................... -- 12,028
Notes receivable from Parent Company...................................................... 95,151 --
Cemetery property, at cost................................................................ 3,055 3,045
Property and equipment.................................................................... 72,505 67,569
Names and reputations..................................................................... 37,794 39,102
Deferred income taxes..................................................................... 612 --
Other assets.............................................................................. 3,871 2,752
---------- ----------
$ 395,302 $ 274,586
---------- ----------
---------- ----------
LIABILITIES and SHAREHOLDER EQUITY
Current liabilities
Accounts payable and accrued liabilities................................................ $ 15,610 $ 2,277
Long-term debt and other liabilities...................................................... 4,571 224
Loans and advances from affiliates........................................................ 25,265 46,033
Loans and advances from Parent Company.................................................... 14,572 80,301
Deferred income taxes..................................................................... -- 3,085
Deferred prearranged funeral services revenue............................................. 72,996 68,914
Redeemable preferred shares............................................................... 250,092 --
Shareholder equity
Share capital........................................................................... 28,598 25,732
Contributed surplus..................................................................... 4,621 --
Retained earnings (deficit)............................................................. (21,023) 48,020
---------- ----------
12,196 73,752
---------- ----------
$ 395,302 $ 274,586
---------- ----------
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
111
<PAGE>
TLGI MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue....................................................................... $ 58,167 $ 58,647 $ 52,944
Costs and expenses............................................................ 34,580 33,771 30,434
---------- ---------- ----------
23,587 24,876 22,510
Expenses
General and administrative.................................................. 7,045 7,224 5,116
Depreciation and amortization............................................... 3,694 3,715 2,695
Restructuring costs......................................................... 1,143 -- --
---------- ---------- ----------
11,882 10,939 7,811
---------- ---------- ----------
Earnings from operations...................................................... 11,705 13,937 14,699
Interest on loans and advances from affiliates and Parent Company............. (4,875) (11,626) (10,377)
Dividend income on redeemable preferred shares of affiliate................... 2,523 6,873 5,155
Interest income on note receivable from Parent Company........................ 1,108 -- --
Foreign exchange loss......................................................... (9,030) -- --
Other income.................................................................. 529 281 502
---------- ---------- ----------
Earnings before undernoted items.............................................. 1,960 9,465 9,979
Dividend paid on redeemable preferred shares.................................. (12,801) -- --
---------- ---------- ----------
Earnings (loss) before income taxes and undernoted items...................... (10,841) 9,465 9,979
Income taxes
Current..................................................................... 5,210 2,809 1,498
Deferred.................................................................... (3,697) (1,147) 896
---------- ---------- ----------
1,513 1,662 2,394
---------- ---------- ----------
(12,354) 7,803 7,585
Equity in earnings of associated company...................................... 1,679 -- --
---------- ---------- ----------
Net earnings (loss) for the year.............................................. $ (10,675) $ 7,803 $ 7,585
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112
<PAGE>
TLGI MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Retained earnings, beginning of year............................................ $ 48,020 $ 40,242 $ 32,680
Net earnings (loss)............................................................. (10,675) 7,803 7,585
Common share dividends.......................................................... (8) (25) (23)
Excess on issue of preferred shares............................................. (58,360) -- --
---------- --------- ---------
Retained earnings (deficit), end of year........................................ $ (21,023) $ 48,020 $ 40,242
---------- --------- ---------
---------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
113
<PAGE>
TLGI MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- --------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY ( APPLIED TO )
Operations
Net earnings (loss)........................................................ $ (10,675) $ 7,803 $ 7,585
Items not affecting cash
Depreciation and amortization............................................ 3,694 3,715 2,695
Restructuring costs...................................................... 735 -- --
Deferred income taxes.................................................... (3,697) (1,147) 896
Equity in earnings of associated company................................. (1,679) -- --
Foreign exchange loss.................................................... 9,030 -- --
Net changes in other non-cash balances..................................... 14,577 (1,260) (4,223)
----------- --------- -----------
$ 11,985 $ 9,111 $ 6,953
----------- --------- -----------
Investing
Business acquisitions...................................................... $ -- $ (88) $ (32,016)
Construction of new facilities............................................. (2,019) (1,136) (224)
Investments in affiliates.................................................. (172,775) -- (68,250)
Purchase of property and equipment......................................... (6,476) (2,564) (1,683)
Proceeds on disposition of affiliates and subsidiary....................... 149,279 -- --
----------- --------- -----------
$ (31,991) $ (3,788) $ (102,173)
----------- --------- -----------
Financing
Issue of common shares..................................................... $ 185,568 $ -- $ 25,732
Issue of redeemable preferred shares....................................... 241,062 -- --
Repurchase of common shares................................................ (241,062) -- --
Increase (decrease) in loans and advances from affiliates and Parent
Company.................................................................. (86,497) 5,043 74,892
Increase in notes receivable from affiliates and Parent Company............ (83,123) (6,873) (5,155)
Increase (decrease) in long-term debt and other liabilities................ 4,344 (4,062) (71)
Common share dividends..................................................... (8) (25) (23)
----------- --------- -----------
$ 20,284 $ (5,917) $ 95,375
----------- --------- -----------
Increase (decrease) in cash and term deposits, during the year............... $ 278 $ (594) $ 155
Cash and term deposits, beginning of year.................................... -- 594 439
----------- --------- -----------
Cash and term deposits, end of year.......................................... $ 278 $ -- $ 594
----------- --------- -----------
----------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
114
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TLGI Management Corp. (the "Company", formerly Loewen Management Corp.) was
incorporated on November 24, 1970, under the B.C. Companies Act, as a wholly
owned subsidiary of The Loewen Group Inc. (the "Parent Company"). The Company
serves as the holding company for certain of the Parent Company's Canadian
funeral and cemetery operations.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada, which in the case of the
Company, generally conform with those established in the United States, except
as explained in Note 17.
The Canadian dollar is the principal currency of the Company's business and,
accordingly, the consolidated financial statements are expressed in Canadian
dollars.
BASIS OF CONSOLIDATION
The consolidated financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission.
The accounts of all subsidiary companies acquired from third parties have
been included in the consolidated financial statements from their respective
dates of acquisition of control or formation. All subsidiaries are wholly owned
at December 31, 1997, except for a few companies with small minority interests.
The accounts of all subsidiary companies acquired during 1997 from
affiliates through the reorganization of entities under common control have been
accounted for on a continuity of interest basis, see Note 16. Accordingly, for
all years presented, the consolidated financial statements reflect the
operations of the Company and its subsidiaries since the subsidiaries were
initially acquired from third parties. In addition, the consolidated financial
statements reflect the assets and liabilities of these subsidiaries at their
recorded values as accounted for by the affiliates prior to the transfer of
interest to the Company.
The Company accounts for its investment in companies in which it has
significant influence by the equity method. The Company's proportionate share of
income as reported, is included in income and added to the cost of the
investment. As at December 31, 1997, the Company had disposed of all investments
accounted for by the equity method.
The Company accounts for its investments in its affiliated company by the
cost method.
The Company accounts for its investment in joint ventures using the
proportionate consolidation method.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
115
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could differ from those estimates.
PREARRANGED FUNERAL SERVICES
Prearranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract are placed in trust under which the Company will be
designated as beneficiary. Except for amounts not required to be trusted, which
are used to defray initial costs of administration, no income is recognized
until the performance of a specific funeral.
Trust fund principal amounts, together with trust fund investment earnings
retained in trust, are deferred until the service is performed. The Company
estimates that trust fund investment earnings exceed the increase in cost over
time of providing the related services. Upon performance of the specific funeral
service, the Company will recognize the trust fund principal amount together
with the accumulated trust earnings as funeral revenues. Direct obtaining costs
related to the sale of prearranged funeral services are included in other assets
and amortized over a period of ten years, approximating the period the benefits
are expected to be realized. Indirect obtaining costs relating to the sale of
prearranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when non-cancellable customer contracts are
signed with concurrent recognition of related costs. Allowances for
cancellations arising from non-payment are provided at the date of sale based on
management's estimates of expected cancellations. Actual cancellation rates in
the future may result in a change in estimate.
A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to provincial law, a
portion of the proceeds from the sale of pre-need merchandise and services may
also be required to be paid into trust funds which are recorded as long-term
receivables and included in other assets.
INVENTORIES
Inventories are valued at the lower of cost, determined primarily on a
specific identification basis or a first in, first out basis, and net realizable
value.
CEMETERY PROPERTY
Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and is valued at average cost, which is not in
excess of market value. Amounts are expensed to costs and expenses as sales of
cemetery plots occur.
116
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements......................... 10 to 40 years
Automobiles........................................ 6 years
Furniture, fixtures and equipment.................. 6 to 10 years
Computer hardware and software..................... 6 to 10 years
over the term of the lease plus one
Leasehold improvements............................. renewal
</TABLE>
Property under capital leases is initially recorded at the present value of
minimum lease payments at the inception of the lease.
NAMES AND REPUTATIONS
The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.
Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts capitalized for non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such capitalized covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including
property and equipment and names and reputations, based on estimates using
factors such as current market value, future asset utilization, business climate
and future undiscounted cash flows expected to result from the use of the
related assets. The Company's policy is to record an impairment loss in the
period when it is determined that the carrying amount of the asset may not be
recoverable.
ACQUISITION COSTS
The Company's policy is to capitalize direct acquisition costs incurred on
potential acquisitions. Upon completion of an acquisition, these costs are
allocated to the assets acquired and are subject to the accounting policies
outlined above. On certain acquisitions, a portion of the consideration is
contingent upon future operating results. Such consideration, if any, is
allocated to the assets acquired once determinable. Direct acquisition costs
related to acquisitions not completed are written off.
DEFERRED INCOME TAXES
The Company follows the allocation method for accounting for income taxes.
Under this method recognition is given in the financial statements to the tax
effects of timing differences between income for
117
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statement and income tax purposes. The differences arise primarily
from provisions for depreciation, amortization, foreign exchange loss and
operating loss carry-forwards.
FOREIGN CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into Canadian
dollars using the temporal method of foreign currency translation. Under this
method, non-monetary items and revenue and expenses are translated at the rate
of exchange in effect on the transaction dates, and monetary items are
translated at the rate of exchange in effect at the balance sheet date. Exchange
gains and losses are included in income in the current year.
NOTE 2. PREARRANGED FUNERAL SERVICES
Included in the consolidated balance sheets at December 31, 1997, as
prearranged funeral services is $72,996,000 (1996 -- $68,914,000), representing
amounts deposited in accordance with provincial trusting laws with various
financial institutions together with accrued earnings. The Company will receive
the prearranged funeral trust amounts when the funeral services are performed.
AMOUNTS HELD IN PREARRANGED FUNERAL TRUSTS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Short-term investments...................................................................... $ 65,168 $ 44,802
Fixed maturities............................................................................ 7,828 24,112
--------- ---------
$ 72,996 $ 68,914
--------- ---------
--------- ---------
</TABLE>
As at December 31, 1997, total prearranged funeral trust assets were
approximately equal to market value. The weighted average rate of return on the
above prearranged funeral trust assets for the year ended December 31, 1997 was
5.0% (1996 -- 5.3%, 1995 -- 5.8%).
NOTE 3. INVESTMENTS IN AFFILIATE
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
INVESTMENTS IN NEWEOL INVESTMENTS LTD. ("NEWEOL")
Common shares............................................................................. $ 98,475 $ --
Preferred shares.......................................................................... -- 68,250
--------- ---------
$ 98,475 $ 68,250
--------- ---------
--------- ---------
</TABLE>
(a) NEWEOL COMMON SHARES
On March 27, 1997, the Company acquired from the Parent Company, 15,276
common shares of Neweol representing a minority interest of Neweol's voting
common stock (5.8% at December 31, 1997). Neweol is a holding company for the
Parent Company and provides financing to other subsidiaries of the Parent
Company. The Company issued 4,432,260 common shares to the Parent Company as
consideration
118
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 3. INVESTMENTS IN AFFILIATE (CONTINUED)
for the purchase. This investment was recorded at the Parent Company's carrying
value of approximately $98,475,000, see Note 16(d). The Company accounts for its
investment in Neweol's common stock by the cost method.
(b) NEWEOL PREFERRED SHARES
The Company's investment in Neweol preferred shares consisted of 68,250,000
redeemable, non-voting preferred shares with a par value of Cdn. $1.00 each and
a redemption price of Cdn. $1.00 per share, plus all declared but unpaid
dividends. The investment was accounted for by the cost method.
On May 14, 1997, these preferred shares were redeemed and in consideration,
the Company received notes receivable aggregating $68,250,000. These notes were
subsequently assigned to the Parent Company by Neweol. The Company then applied
these notes against certain notes payable to the Parent Company, of the same
amount as full payment, see Note 7.
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE AND NOTES RECEIVABLE FROM PARENT
COMPANY
A note receivable of $80,600,000 was issued in redemption of preferred
shares of 4203 Investments Ltd. ("4203"), a wholly owned subsidiary of the
Parent Company. 4203 was subsequently merged and all of its assets and
liabilities distributed to the Parent Company. The note receivable bears
interest at market rate, see Note 16.
The notes receivable from affiliate in 1996, aggregating $12,028,000, were
issued by Neweol in consideration for dividends declared in 1996 and 1995, on
the Company's investment in Neweol's preferred shares. On May 14, 1997, the
preferred shares were redeemed. Dividends amounting to $2,523,000 were declared
and paid by the issuance of additional notes receivable. These notes aggregating
$14,551,000 were subsequently assigned to the Parent Company by Neweol. The
notes are non-interest bearing and have no designated repayment terms.
NOTE 5. LONG-TERM DEBT AND OTHER LIABILITIES
Long-term debt and other liabilities include obligations under capital
leases. During 1997, the Company entered into two lease agreements for land and
buildings. These agreements qualify as capital
119
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 5. LONG-TERM DEBT AND OTHER LIABILITIES (CONTINUED)
leases and, accordingly, the assets and obligations have been recorded at the
present value of minimum lease payments.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- ---------------------------------------------------------------------------------------------------------
<S> <C>
1998..................................................................................................... $ 655
1999..................................................................................................... 664
2000..................................................................................................... 674
2001..................................................................................................... 685
2002..................................................................................................... 697
Thereafter............................................................................................... 2,999
---------
Total minimum lease payments............................................................................. 6,374
less amount representing interest at 8%.................................................................. 2,000
---------
Present value of net minimum lease payments.............................................................. 4,374
---------
---------
</TABLE>
NOTE 6. LOANS AND ADVANCES FROM AFFILIATES
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Due from affiliates....................................................................... $ (13,411) $ (384)
Due to Parent Company..................................................................... 38,676 46,417
---------- ----------
$ 25,265 $ 46,033
---------- ----------
---------- ----------
</TABLE>
Loans and advances from affiliates arose during the normal course of
operations, bear interest at market rate and have no designated repayment terms,
see Note 16.
NOTE 7. LOANS AND ADVANCES FROM PARENT COMPANY
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Interest bearing notes...................................................................... $ -- $ 68,250
Non-interest bearing notes.................................................................. 14,572 12,051
--------- ---------
$ 14,572 $ 80,301
--------- ---------
--------- ---------
</TABLE>
Interest bearing notes aggregating $68,250,000, were issued for purchase of
preferred shares of Neweol. The notes had no designated repayment terms and were
interest bearing at a rate of 10.07% per annum. On May 14, 1997, the notes were
paid in full, see Note 3.
Non-interest bearing notes were issued in payment of the interest accrued on
the interest bearing notes payable up to their repayment. These notes remain
outstanding as at December 31, 1997.
NOTE 8. REDEEMABLE PREFERRED SHARES
On March 27, 1997, the authorized share capital of the Company was increased
by creating 500,000,000 voting Class A Preferred shares and 500,000,000 voting
Class B Preferred shares.
120
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 8. REDEEMABLE PREFERRED SHARES (CONTINUED)
The Class A Preferred shares have no par value and are redeemable by the
Company at the retraction price, plus 10%. The retraction price is determinable
by the directors, but is not to be less than U.S. $1.00 per share. Dividends are
cumulative at 7% per annum of the retraction price.
On March 27, 1997, as part of the reorganization which occurred during the
year, see Note 16, 175,000,000 Class A Preferred shares were issued to the
Parent Company in redemption of 10,756,966 common shares held by the Parent
Company. The common shares were cancelled upon redemption. The preferred shares
are retractable at the option of the holders at an amount determinable by the
directors, but not to be less than U.S. $1.00. Accordingly, the preferred shares
were recorded as a liability at their retraction price of U.S. $175,000,000 or
Cdn. $241,062,000, based on the foreign exchange rate at the time of the
preferred share issuance. The excess of the recorded value of the preferred
shares over the book value of the common shares based on the average contributed
capital per share at the time of the redemption was $58,360,000. The excess has
been recorded as a reduction in retained earnings. As at December 31, 1997, the
preferred shares had a recorded value of Cdn. $250,092,000 based on the year end
foreign exchange rate. The foreign exchange loss on translation of $9,030,000
has been recorded to income.
The Class B Preferred shares have no par value and are redeemable by the
Company at the retraction price. The retraction price, as determined by the
directors, is the value of assets purchased with the shares, less the fair value
of non-share consideration. Dividends are cumulative at 7% per annum of the
retraction price. There were no outstanding Class B Preferred shares at December
31, 1997.
The Class B Preferred shares rank equally with Class A Preferred shares.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and term deposits, receivables, and accounts
payable and accrued liabilities approximates fair value due to the short-term
maturities of these instruments.
The carrying amount of prearranged funeral services approximates fair value
as it consists primarily of investments in instruments with short-term
maturities.
Investments in affiliate for which it is not practicable to estimate fair
value is comprised of the common and preferred share investments in Neweol.
The fair value of long-term notes receivable from affiliate and Parent
Company, loans and advances from affiliates and Parent Company is not
practicable to determine as the time of repayment of these amounts is
indeterminable.
Long-term debt and other liabilities approximate fair value as their
effective interest rates do not materially differ from rates currently available
for debt of similar terms and maturity, based on the Company's credit standing
and other market factors.
121
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 10. SHARE CAPITAL AND CONTRIBUTED SURPLUS
(a) AUTHORIZED
On March 27, 1997, the share capital of the Company was increased to
500,000,000 Common shares without par value.
(b) ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF STATED
SHARES VALUE
------------- -----------
<S> <C> <C>
Common shares
Balance December 31, 1994.......................................................... 3 $ --
Issued for subsidiaries acquired from the Parent Company,
see Note 16(c)................................................................... 1,122,085 25,732
------------- -----------
Balance December 31, 1995 and 1996................................................. 1,122,088 25,732
Issued under stock split........................................................... 2,999,997 --
Issued on reorganization, see Note 16.............................................. 8,318,620 185,568
Repurchased by the Company for cancellation in exchange for
redeemable preferred shares, see Notes 8 and 16.................................. (10,756,966) (182,702)
------------- -----------
Balance December 31, 1997.......................................................... 1,683,739 $ 28,598
------------- -----------
------------- -----------
</TABLE>
(c) CONTRIBUTED SURPLUS
The sale of the Company's investment in an affiliate under common control on
November 3, 1997, created a surplus of $4,621,000, see Note 16.
NOTE 11. COMMITMENTS AND CONTINGENCIES
(a) LEASES
At December 31, 1997, the Company was committed to operating lease payments
for premises, automobiles and office equipment in the following approximate
amounts:
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
1998..................................................................................................... $ 716
1999..................................................................................................... 500
2000..................................................................................................... 313
2001..................................................................................................... 138
2002..................................................................................................... 41
Thereafter............................................................................................... 3
</TABLE>
Total rent expense for each of the years in the three year period ended
December 31, 1997 was $1,748,000, $2,202,000 and $1,766,000, respectively.
122
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(b) COLLATERAL TRUST ARRANGEMENT
The shares held by the Company in its subsidiaries are pledged under a
collateral trust arrangement whereby senior lenders to the Parent Company and an
affiliate under common control would share certain collateral on a pari passu
basis. This collateral is held by a trustee for equal and ratable benefit of the
various holders of senior indebtedness. At December 31, 1997, the indebtedness
owed to the Parent Company's senior lending group subject to the collateral
trust arrangement, including affiliated companies, and holders of certain
letters of credit, aggregated $2,395,700,000.
(c) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES
The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company's policies are designed to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to acquisition. The Company believes
environmental contingencies and liabilities to be immaterial individually and in
the aggregate.
NOTE 12. RETIREMENT PLANS
The Company has a Registered Retirement Savings Plan for employees who may
contribute 3% of their compensation which is matched by an equal contribution to
the plan by the Company on behalf of employees. There are no required future
contributions under these plans in respect of past service.
The total expense for retirement plans for the three years ended December
31, 1997 was $716,000, $607,000 and $507,000, respectively.
NOTE 13. INCOME TAXES
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
% % %
Combined Canadian federal and provincial income tax rate.................................. (45.5) 45.5 45.5
Non-deductible depreciation and amortization arising from acquisitions.................... 5.3 5.2 1.9
Non-taxable equity income on investments.................................................. (8.3) -- --
Non-taxable dividend income from affiliated company....................................... (12.5) (33.0) (23.5)
Non-deductible foreign exchange loss on redeemable preferred shares....................... 11.2 -- --
Non-deductible dividend paid on redeemable preferred shares............................... 63.5 -- --
Other..................................................................................... 2.8 (0.1) 0.1
--------- --------- ---------
16.5 17.6 24.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes for each of the years in the three year period
ended December 31, 1997 amounting to $5,851,000, $1,867,000 and $5,957,000,
respectively.
123
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 14. CHANGES IN OTHER NON-CASH BALANCES
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(Increase) decrease in assets
Receivables, net of allowances.................................................. $ 2,457 $ (196) $ (3,800)
Inventories..................................................................... (145) 187 (76)
Cemetery property............................................................... (10) (588) 12
Other assets.................................................................... (1,121) (836) 308
Increase (decrease) in liabilities
Accounts payable and accrued liabilities........................................ 13,342 141 (623)
Other changes in non-cash balances................................................ 54 32 (44)
--------- --------- ---------
$ 14,577 $ (1,260) $ (4,223)
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 15. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts as at December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Receivables, net of allowances
Trade accounts.......................................................................... $ 8,732 $ 8,762
Income taxes recoverable................................................................ 827 2,988
Allowance for doubtful accounts......................................................... (1,608) (1,325)
---------- ----------
$ 7,951 $ 10,425
---------- ----------
---------- ----------
Property and equipment
Land.................................................................................... $ 22,226 $ 20,351
Buildings and improvements.............................................................. 54,089 49,364
Automobiles............................................................................. 3,632 3,975
Furniture, fixtures and equipment....................................................... 12,313 11,667
Accumulated depreciation and amortization............................................... (19,755) (17,788)
---------- ----------
$ 72,505 $ 67,569
---------- ----------
---------- ----------
Names and reputations
Names and reputations................................................................... $ 44,579 $ 44,866
Accumulated amortization................................................................ (6,785) (5,764)
---------- ----------
$ 37,794 $ 39,102
---------- ----------
---------- ----------
Accounts payable and accrued liabilities
Dividends............................................................................... 12,801 --
Other................................................................................... 2,809 2,277
---------- ----------
$ 15,610 $ 2,277
---------- ----------
---------- ----------
</TABLE>
124
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 16. RELATED PARTY TRANSACTIONS
On March 27, 1997, the Parent Company engaged in the following transactions
to reorganize its holdings in subsidiary companies:
(a) The Company purchased 100% of the common stock of 1096952 Ontario Ltd.
("1096952"), a wholly owned subsidiary of Neweol and issued 1,000,000 Class
B preferred shares, redeemable at $74,300,000, as consideration. The
preferred shares were subsequently redeemed and a non-interest bearing note
payable on demand was issued. The note was then assigned to the Parent
Company by Neweol. The note was subsequently settled by issuing 3,315,499
common shares to the Parent Company.
(b) The Company issued 570,861 common shares to the Parent Company in exchange
for a receivable in the amount of $12,793,000. This receivable has been
recorded in loans and advances from affiliates.
(c) The Company acquired 100% of two subsidiaries from the Parent Company
through the issuance of 1,122,085 common shares to the Parent Company. As
the subsidiaries were acquired through the reorganization of entities under
common control, the consolidated financial statements reflect the assets and
liabilities of these subsidiaries at their recorded values as accounted for
by the Parent Company prior to the transfer. The common shares issued on the
acquisitions have been reflected as issued on December 1, 1995, the date of
the initial acquisition by the Parent Company from third parties, see Note
10.
(d) The Company acquired a minority interest in Neweol from the Parent Company
and in exchange issued 4,432,260 common shares. The investment in Neweol has
been accounted for using the cost method, see Note 3.
(e) The Company redeemed and cancelled 10,756,966 of its common shares held by
the Parent Company and issued in exchange 175,000,000 Class A preferred
shares, see Notes 8 and 10.
On November 3, 1997, the Company sold its investment in 1096952 to an
affiliate under common control, 4203 Investments Ltd., in exchange for
redeemable preferred shares. The preferred shares were subsequently redeemed in
exchange for the issuance of a market rate interest-bearing note of $80,600,000.
The note was distributed to the Parent Company on the wind-up of the affiliate,
see Note 4. The gain on sale of the Company's investment in 1096952 has been
recorded as contributed surplus in the amount of $4,621,000.
The Parent Company charges a management fee of approximately 10% of gross
revenue earned by each subsidiary. For the year ending December 31, 1997, the
Parent Company charged a management fee to the Company of $5,645,000
(1996 -- $5,757,000, 1995 -- $3,902,000). For the year ending December 31, 1997,
the net interest charged on loans and advances from affiliates was $2,354,000
(1996 -- $4,753,000, 1995 -- $5,222,000).
NOTE 17. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
125
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 17. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(a) EARNINGS (LOSS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
EARNINGS (LOSS)
Net earnings (loss) in accordance with Canadian GAAP............................... $ (10,675) $ 7,803 $ 7,585
Difference in accounting for income taxes (d)...................................... 98 107 75
---------- --------- ---------
Net earnings (loss) in accordance with United States GAAP.......................... $ (10,577) $ 7,910 $ 7,660
---------- --------- ---------
---------- --------- ---------
</TABLE>
(b) BALANCE SHEET
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -------------------------
<S> <C> <C> <C> <C>
CANADIAN UNITED CANADIAN UNITED
GAAP STATES GAAP GAAP STATES GAAP
---------- ------------ ----------- ------------
Assets
Names and reputations...................................... $ 37,794 $ 38,060 $ 39,102 $ 39,403
Liabilities and Shareholder equity
Deferred income taxes...................................... (612) 2,740 3,085 6,570
Retained earnings.......................................... (21,023) (24,109) 48,020 44,836
</TABLE>
Under the rules and regulations of the Securities and Exchange Commission,
notes receivable from Parent Company of $95,151,000 would be shown as a
reduction of shareholder equity.
(c) STATEMENT OF CASH FLOWS
The statement of cash flows under United States GAAP would differ from the
statement of changes in financial position under Canadian GAAP as the following
non-cash transactions would not be reflected as cash flows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Investment in Neweol and 1096952 common shares financed through the issuance of
common shares....................................................................................... $ 172,775
Note received upon redemption of Neweol preferred shares and subsequently applied
against certain notes payable to the same party..................................................... 68,250
Proceeds on the disposition of 1096952 received in the form of an interest bearing note............... 80,600
Issuance of common shares in exchange for a receivable................................................ 12,793
Issuance of redeemable preferred shares upon cancellation of common shares............................ 241,062
Property acquired under capital leases................................................................ 4,374
</TABLE>
126
<PAGE>
TLGI MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 17. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
In 1996, there were no non-cash transactions. In 1995, the Company issued
notes payable aggregating $68,250,000 for purchase of Neweol preferred shares
and acquired operations financed through the issuance of common shares to the
Parent Company for $25,732,000.
(d) INCOME TAXES
Under United States GAAP, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Temporary differences are tax-effected at current rates whereas under Canadian
GAAP, temporary differences are tax-effected at historic rates. There was no
deferred tax effect of changes in tax rates during 1997.
The Company's deferred tax liabilities under FAS 109 at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities
Property and equipment....................................................................... $ 6,232 $ 6,141
Names and reputations........................................................................ 1,478 1,401
--------- ---------
Total deferred tax liabilities................................................................. 7,710 7,542
--------- ---------
Deferred tax assets
Unrealized foreign exchange loss............................................................. 3,081 --
Loss carry-forwards.......................................................................... 1,780 972
Other tax asset.............................................................................. 109 --
--------- ---------
Total deferred tax assets...................................................................... 4,970 972
--------- ---------
Net deferred tax liabilities................................................................... $ 2,740 $ 6,570
--------- ---------
--------- ---------
</TABLE>
The Company believes realization of its net deferred tax assets is more
likely than not. The Company's ability to realize its deferred tax assets is
based on several factors, including a presumption of future profitability in
certain jurisdictions and is subject to some degree of uncertainty.
(e) RECENT UNITED STATES ACCOUNTING STANDARD
In June 1997, the FASB issued FAS 130, Reporting Comprehensive Income. This
standard will affect the presentation but not the measurement of the
consolidated financial statements and the related notes.
127
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
4103 Investments Ltd.
We have audited the balance sheet of 4103 Investments Ltd. as at December
31, 1997 and the statement of operations and retained earnings for the period
from March 24, 1997 to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Company as at December 31, 1997 and the
results of its operations for the period from March 24, 1997 to December 31,
1997, in accordance with generally accepted accounting principles in the United
States. As required by the Company Act of the Province of British Columbia, we
report that, in our opinion, these principles have been applied on a consistent
basis.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 23, 1998
128
<PAGE>
4103 INVESTMENTS LTD.
BALANCE SHEET
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets
Dividends receivable from affiliate companies..................................................... $ 9,032
Investments in affiliates........................................................................... 292,634
------------
$ 301,666
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Due to Parent Company, non-interest bearing, payable on demand.................................... $ 49
Income taxes payable.............................................................................. 530
------------
579
Deferred income tax................................................................................. 1,984
Shareholders' equity
Share capital..................................................................................... 283,255
Retained earnings................................................................................. 21,455
Foreign exchange adjustment....................................................................... (5,607)
------------
299,103
------------
$ 301,666
------------
------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 5)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
129
<PAGE>
4103 INVESTMENTS LTD.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 24,
TO DECEMBER 31,
1997
---------------
<S> <C>
Revenue
Dividends on preferred shares of affiliate companies........................................... $ 19,630
Foreign exchange gain.......................................................................... 5,607
-------
Earnings before income taxes and equity loss of associated companies............................. 25,237
Income taxes
Current........................................................................................ 530
Deferred....................................................................................... 1,984
-------
2,514
-------
22,723
Equity loss of associated companies.............................................................. 1,268
-------
Net earnings for the period, being retained earnings end of period............................... $ 21,455
-------
-------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
130
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4103 Investments Ltd. (the "Company") was incorporated on March 24, 1997,
under the laws of the Province of British Columbia and is directly and
indirectly a wholly owned subsidiary of The Loewen Group Inc., (the "Parent
Company").
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States.
The financial statements have been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission.
FOREIGN CURRENCY
The Company's functional currency is the Canadian dollar. Transactions not
denominated in the functional currency result in foreign exchange gains and
losses in the statement of operations. The assets and liabilities of the
Company's Canadian dollar financial statements are translated into the United
States dollar reporting currency at the rate of exchange at the balance sheet
date, and all revenues, expenses, gains and losses are translated at the rates
of exchange at the transaction date. All translation effects arising from
translating the financial statements into the reporting currency are reported as
"Foreign exchange adjustment" within shareholders' equity.
INVESTMENTS
The Company accounts for its common share investment in companies in which
it has significant influence by the equity method. The Company's proportionate
share of income (loss) as reported is included in income and added to (deducted
from) the cost of the investment. Common share dividends received reduce the
carrying amount of the investment.
The company accounts for its preferred share investments in companies using
the cost method.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. As a result, actual results could differ from those estimates.
IMPAIRMENT OF INVESTMENTS
The Company monitors the recoverability of its investments, based on
estimates using factors such as current market value, business climate and
future undiscounted cash flows expected to result from the use of the related
assets. The Company's policy is to record an impairment loss in the period when
it is determined that the carrying amount of the asset may not be recoverable.
131
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes. Deferred income taxes are recognized for the future tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets and liabilities are measured using enacted rates expected to
apply to taxable income in the years in which these temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
STATEMENT OF CASH FLOWS
All of the Company's transactions are non-cash transactions, as a result, a
statement of cash flows has not been prepared.
NOTE 2. INVESTMENTS
<TABLE>
<CAPTION>
1997
----------
<S> <C>
PRIME SUCCESSION HOLDINGS, INC. ("PRIME")
100 Common shares representing 10.23%............................................................... $ 5,172
7,170 Preferred shares representing 100%............................................................ 71,698
ROSE HILLS HOLDINGS CORP. ("RH HOLDINGS")
100 Common shares representing 10%.................................................................. 2,140
6,862 Preferred shares representing 100%............................................................ 68,624
TLGI MANAGEMENT CORP.
145,000,000 class A Preferred shares representing 82.86%............................................ 145,000
----------
$ 292,634
----------
----------
</TABLE>
(a) PRIME
On March 27, 1997 Loewen Group International, Inc. ("LGII"), a subsidiary of
the Parent Company, transferred 6,668 non-voting preferred shares with a 10%
cumulative annual payment in kind dividend, and 100 common shares of Prime
Succession Holdings Inc. to the Company. The shares were transferred at their
carrying value at the date of transfer of $66,675,000 and $5,604,000,
respectively. As consideration for this investment the Company issued 99,056,620
class B non-voting common shares to LGII.
Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession Inc. was purchased on August 26, 1996 for approximately $320,000,000
of which $130,000,000 was funded by Blackstone and LGII, and $190,000,000 was
financed through bank borrowings and the issuance of senior subordinated notes.
The excess of the purchase price over the fair value of net assets of
approximately $230,000,000, was established as goodwill in Prime Succession,
Inc. and is being amortized over 40 years.
132
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 2. INVESTMENTS (CONTINUED)
Blackstone and LGII have the right to designate five and three nominees,
respectively, to the Prime Board of Directors. Blackstone controls the strategic
operating, investing and financing policies of Prime. Neither Blackstone nor the
Company can, without the consent of the other party, sell or transfer its share
in Prime to a party other than to an affiliate of itself.
The Company accounts for its investment in Prime preferred stock by the cost
method. For the period ended December 31, 1997, income of $5,638,000 was
recorded representing the cumulative annual payment-in-kind dividend.
The Company accounts for its investment in Prime common stock by the equity
method. Under this method, the Company records its proportionate share of the
net earnings (loss) of Prime after deducting the payment-in-kind dividend. For
the period ended December 31, 1997, a loss of $432,000 was recorded representing
the Company's proportionate share of the loss attributable to the Prime common
stock.
Under a Put/Call Agreement entered into with Blackstone, LGII has the option
to acquire ("Call") Blackstone's Prime common stock commencing on the fourth
anniversary of the acquisition, and for a period of two years thereafter, at a
price determined pursuant to the Put/Call Agreement. Blackstone has the option
to sell ("Put") its Prime common stock to LGII commencing on the sixth
anniversary of the acquisition, and for a period of two years thereafter, at a
price determined pursuant to the Put/Call Agreement.
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of earnings before interest, taxes, depreciation and amortization
("EBITDA"), after deduction of certain liabilities. The multiple to be applied
to EBITDA is also determined through a formula which is based on future EBITDA.
Any payment to Blackstone under the Call or the Put may be in the form of cash
or Common shares of the Parent Company, at LGII's option.
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 value attributable to Blackstone common
stock interest is determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, there is no guaranteed return to Blackstone. Any
payment to Blackstone is limited to Blackstone's share of the calculated equity
value based on a formula set forth in the Put/Call Agreement.
Any payment to Blackstone is subject to Blackstone or LGII exercising their
respective rights under the Put or the Call. It is not currently possible to
determine whether Blackstone or LGII will exercise such rights. Furthermore, any
amount to be paid pursuant to the Put is dependent on calculated equity value
which is based on EBITDA of future periods. Accordingly, it is not possible at
this date to estimate the future amount that may be payable to Blackstone on the
exercise of the Put or the Call.
133
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 2. INVESTMENTS (CONTINUED)
Summarized financial data for Prime for the year ended December 31, 1997 is
presented as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Income statement information:
Revenue............................................................................................. $ 101,139
Gross margin........................................................................................ 38,616
Earnings from operations............................................................................ 24,123
Payment-in-kind dividend............................................................................ 6,542
Net loss attributable to common shareholders........................................................ (6,739)
Balance sheet information:
Current assets...................................................................................... $ 25,694
Non-current assets.................................................................................. 369,412
----------
Total assets........................................................................................ 395,106
Current liabilities................................................................................. 14,964
Non-current liabilities............................................................................. 253,734
----------
Total liabilities................................................................................... 268,698
Shareholders' equity................................................................................ 126,408
</TABLE>
(b) RH HOLDINGS
On March 27, 1997, LGII, transferred 6,300 preferred shares with a 10%
cumulative annual payment in kind dividend, and 100 common shares of RH Holdings
Corp. to the Company. The shares were transferred at their carrying value at the
date of transfer of $63,000,000 and $2,976,000, respectively. As consideration
for this investment, the company issued 90,418,512 class B non-voting common
shares to LGII.
RH Holdings holds all of the outstanding common stock of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $130,000,000 was funded by Blackstone and LGII, and $155,000,000 was
financed through bank borrowings and the issuance of senior subordinated notes.
The excess of the purchase price over the fair value of net assets of
approximately $130,000,000 was established as goodwill in RH Holdings and is
being amortized over 40 years.
Blackstone and LGII have the right to designate five and three nominees,
respectively, to the RH Holdings' Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of RH Holdings. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its shares in RH Holdings to a party other than to an affiliate of
itself.
The Company accounts for its investment in RH Holdings preferred stock by
the cost method. For the year ended December 31, 1997, income of $6,379,000 was
recorded representing the cumulative annual payment-in-kind dividend.
134
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 2. INVESTMENTS (CONTINUED)
The Company accounts for its investment in RH Holdings common stock by the
equity method. Under the equity method, the Company records its proportionate
share of the net earnings (loss) of RH Holdings after deducting the
payment-in-kind dividend. For the year ended December 31, 1997, a loss of
$836,000 was recorded representing the Company's proportionate share of the loss
attributable to the common stock of RH Holdings. The properties contributed by
LGII had a net carrying value of $20,382,000. LGII has deferred a gain of
$2,618,000 on the disposition of these properties and will recognize the gain if
and when the properties are sold.
Under a Put/Call Agreement entered into with Blackstone, LGII has the option
to acquire ("Call") Blackstone's RH Holdings common stock commencing on the
fourth anniversary of the acquisition, and for a period of two years thereafter,
at a price to be determined pursuant to the Put/Call Agreement. Blackstone has
the option to sell ("Put") its RH Holdings common stock to LGII commencing on
the sixth anniversary of the acquisition, and for a period of two years
thereafter, at a price determined pursuant to the Put/Call Agreement.
The prices for the Call and Put are based on a formula that calculates the
equity value attributable to Blackstone's common share interest. The calculated
equity value will be determined at the Put or Call date based on a multiple of
EBITDA, after deduction of certain liabilities. The multiple to be applied to
EBITDA will also be determined through a formula which is based on future
EBITDA. Any payment to Blackstone under the Call or the Put may be in the form
of cash or the stock of the Parent Company, subject to certain conditions, at
LGII's option.
Upon a Call, Blackstone will receive, at a minimum, its original investment
plus a 22.5% compound return per annum thereon regardless of the calculated
equity value. Any additional equity attributable to Blackstone common stock
interest will be determined on the basis of a formula set forth in the Put/Call
Agreement.
Upon a Put by Blackstone, 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 set forth in the terms of the
agreement.
Any payment to Blackstone will be subject to Blackstone or LGII exercising
their respective rights under the Put or the Call. It is not currently possible
to determine whether Blackstone or LGII will exercise such rights. Furthermore,
any amount to be paid pursuant to the Put is dependent on calculated equity
value which is based on EBITDA of future periods. Accordingly, it is not
possible at this date to estimate the future amount that may be payable to
Blackstone on the exercise of the Put or the Call.
LGII provides various management and administrative services to RHC and
subsidiaries under an Administrative Services Agreement for an annual fee of
$250,000. If the Administrative Services Agreement becomes terminable by
Blackstone due to LGII's material breach thereof or other failure to comply in
any material respect, Blackstone under the Put will receive, at a minimum, its
original investment plus a 25% compound return per annum thereon which increases
to 27.5% in the event of a change in control of LGII, regardless of the
calculated equity value.
135
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 2. INVESTMENTS (CONTINUED)
Summarized financial data for RH Holdings for the year ended December 31,
1997 is presented as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Income statement information:
Revenue............................................................................................. $ 70,742
Gross margin........................................................................................ 55,671
Earnings from operations............................................................................ 14,834
Payment-in-kind dividend............................................................................ 8,708
Net loss attributable to common shareholders........................................................ (10,476)
Balance sheet information:
Current assets...................................................................................... $ 17,117
Non-current assets.................................................................................. 294,934
----------
Total assets........................................................................................ 312,051
Current liabilities................................................................................. 15,780
Non-current liabilities............................................................................. 169,013
----------
Total liabilities................................................................................... 184,793
Shareholders' equity................................................................................ 127,258
</TABLE>
(c) TLGI MANAGEMENT CORP.
On March 27, 1998, the Parent Company transferred to the Company 145,000,000
class A redeemable preferred shares of its subsidiary TLGI Management Corp. in
exchange for 199,737,500 class A voting common shares of the Company.
The class A preferred shares retractable by the Company and are redeemable
by TLGI Management Corp. at the retraction price plus 10%. The retraction price
is determinable by the directors, but is not to be less than $1.00 per share.
Dividends are cumulative at 7% per annum of the retraction price.
136
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 3. SHARE CAPITAL
(a) AUTHORIZED
500,000,000 Class A voting shares without par value
500,000,000 Class B non-voting shares without par value
(b) ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF STATED
SHARES VALUE
------------- ----------
<S> <C> <C>
Common shares -- Class A
Issued to Parent Company for the investment in TLGI Management Corp., see Note 2..... 199,737,500 $ 145,000
Common shares -- Class B
Issued to affiliate for the investments in Prime and RH Holdings,
see Note 2......................................................................... 189,475,132 138,255
------------- ----------
Outstanding December 31, 1997.......................................................... 389,212,632 $ 283,255
------------- ----------
------------- ----------
</TABLE>
The Company cannot declare dividends on the Class A voting common shares
without first paying an equal dividend on the Class B common shares.
NOTE 4. INCOME TAXES
The Company's effective tax rate differs from the statutory rate computed by
applying Canadian federal and provincial income tax rates of 45.5% as a result
of the following:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Expected income tax expense............................................................................ $ 10,906
Non-taxable dividend income from affiliated companies.................................................. (8,932)
Non-taxable equity loss of associated companies........................................................ 577
Other.................................................................................................. (37)
---------
$ 2,514
---------
---------
</TABLE>
During 1997, the Company did not pay any income taxes.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The shares held by the Company in TLGI Management Corp. are pledged under a
collateral trust arrangement whereby the senior lenders of the Parent Company
and an affiliate under common control would share this and certain other
collateral on a pari passu basis. This collateral is held by a trustee for equal
and ratable benefit of the various holders of senior indebtedness. At December
31, 1997, the
137
<PAGE>
4103 INVESTMENTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
indebtedness owed to the Parent Company's senior lending group subject to the
collateral trust arrangement, including affiliated companies, and holders of
certain letters of credit, aggregated $2,395,700,000.
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the dividends receivable and income taxes payable
approximate fair value due to their relative short-term maturities. The fair
values of the investments in affiliates and due to Parent Company are not
practicable to estimate.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company receives administrative support from the Parent Company at no
charge to the Company.
138
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Neweol Investments Ltd.
We have audited the consolidated balance sheets of Neweol Investments Ltd.,
as defined in Note 1 to the financial statements, as at December 31, 1997 and
1996 and the consolidated statements of operations and retained earnings and
cash flows for each of the years in the three year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Neweol Investments Ltd. as at
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1997, in
accordance with generally accepted accounting principles in the United States.
As required by the Company Act of the Province of British Columbia, we report
that, in our opinion, these principles have been applied on a consistent basis.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 24, 1998
139
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash.................................................................................. $ 181 $ 83
Installment contract receivables, net of allowances................................... 61,549 16,089
Notes receivable from affiliate....................................................... -- 56,061
------------ ----------
61,730 72,233
Long-term installment contract receivables, net of allowances........................... 143,420 36,761
Investments............................................................................. 13,358 47,927
Investment in affiliate................................................................. 47,441 32,595
Due from affiliates..................................................................... 387 914
Notes receivable from affiliate......................................................... 1,032,516 594,811
Notes receivable from Parent Company.................................................... -- 78,633
Other assets............................................................................ 1,244 843
------------ ----------
$ 1,300,096 $ 864,717
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities.............................................. $ 3,444 $ 3,862
Due to affiliates..................................................................... 7,868 309
Notes payable to affiliates........................................................... -- 9,926
------------ ----------
11,312 14,097
Notes payable........................................................................... 2,517 --
Due to Parent Company................................................................... 3,701 338,464
Minority interest and redeemable shares of subsidiary................................... 21,999 114,582
Redeemable preferred shares
$1 Canadian par value, 500,000,000 shares authorized, nil shares issued and
outstanding (1996 -- 77,200,000).................................................... -- 56,326
Shareholders' equity
Capital stock, no par value, 1,000,000,000 shares authorized (1996 -- 1,000,000),
264,839 shares issued and outstanding (1996 -- 80,401).............................. 1,177,787 281,512
Retained earnings..................................................................... 82,660 54,163
Foreign exchange adjustment........................................................... 120 5,573
------------ ----------
1,260,567 341,248
------------ ----------
$ 1,300,096 $ 864,717
------------ ----------
------------ ----------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 4, 7, 8, 12, 14 AND 15)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
140
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Revenue from affiliates
Interest income.............................................................. $ 106,529 $ 60,382 $ 34,236
Other revenue................................................................ 807 1,900 1,201
---------- --------- ----------
107,336 62,282 35,437
Expenses
General and administrative................................................... 2,709 1,513 1,141
---------- --------- ----------
Earnings before income tax expense and undernoted items........................ 104,627 60,769 34,296
Current income tax expense..................................................... 6,070 6,633 5,627
---------- --------- ----------
98,557 54,136 28,669
Equity in earnings (losses) of associated companies............................ (9,129) 1,650 (19,351)
Minority interest.............................................................. (5,202) (6,366) (1,112)
---------- --------- ----------
Net earnings................................................................... $ 84,226 $ 49,420 $ 8,206
---------- --------- ----------
---------- --------- ----------
Retained earnings, beginning of year........................................... $ 54,163 $ 10,415 $ 6,484
Net earnings................................................................... 84,226 49,420 8,206
Dividends on common shares..................................................... (53,669) -- --
Dividends on redeemable preferred shares....................................... (2,060) (5,672) (4,275)
---------- --------- ----------
Retained earnings, end of year................................................. $ 82,660 $ 54,163 $ 10,415
---------- --------- ----------
---------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
141
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings............................................................. $ 84,226 $ 49,420 $ 8,206
Items not affecting cash
Minority interest...................................................... 5,202 6,366 1,112
Equity in losses (earnings) of associated companies.................... 9,129 (1,650) 19,351
Net changes in other non-cash balances................................... (5,614) 9,280 6,746
----------- ----------- -----------
92,943 63,416 35,415
----------- ----------- -----------
Investing
Loans to affiliate....................................................... (474,853) (251,171) (216,886)
Repayments of notes receivable from affiliate............................ 142,763 36,091 18,182
Purchase of accounts receivable from affiliate........................... (177,748) (57,483) --
Investments.............................................................. (9,732) (2,212) --
Investment in affiliate.................................................. (24,473) -- (8,000)
----------- ----------- -----------
(544,043) (274,775) (206,704)
----------- ----------- -----------
Financing
Capital contributions from Parent Company................................ 431,805 40,792 --
Advances from Parent Company............................................. 16,267 190,130 180,916
Repayment of advances from Parent Company................................ -- (19,673) --
Increase in minority interest............................................ 3,126 -- --
Redemption of minority interest.......................................... -- -- (9,659)
----------- ----------- -----------
451,198 211,249 171,257
----------- ----------- -----------
Increase in cash and cash equivalents during the year...................... 98 (110) (32)
Cash, beginning of year.................................................... 83 193 225
----------- ----------- -----------
Cash, end of year.......................................................... $ 181 $ 83 $ 193
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENT
142
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Neweol Investments Ltd. ("Neweol") was incorporated on November 6, 1992
under the federal laws of Canada and continued on June 3, 1993 under the laws of
the Province of British Columbia as a wholly owned subsidiary of The Loewen
Group Inc. ("Parent Company"). The principal activities of Neweol are to provide
financing to other subsidiaries of the Parent Company ("affiliates") and to hold
investments in associated companies.
The consolidated financial statements have been prepared in United States
dollars in accordance with accounting principles generally accepted in the
United States. The consolidated financial statements require the use of
management estimates. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. These consolidated financial statements exclude certain
subsidiaries of Neweol which were transferred to an affiliate in a
reorganization that was effective July 19 and August 13, 1996 and accordingly
are not intended to be a complete presentation of the historical consolidated
financial position, results of operations, and cash flows of Neweol. To the
extent that Neweol's interests in those subsidiaries were not transferred as a
result of the reorganization, such interests are reflected in the accompanying
financial statements.
These consolidated financial statements include the following principal
subsidiaries: Loewen Luxembourg (No. 1) S.A., Loewen Finance (Wyoming), LLC
("LFW"), Eagle Financial Associates, LLC ("Eagle"), and Neweol Delaware, LLC
(collectively, the "Company"). All subsidiaries are wholly owned at December 31,
1997, except for a 15% minority interest in Eagle held by the Parent Company and
redeemable shares of a subsidiary which are held by an affiliate.
All significant intercompany balances and transactions have been eliminated
from the consolidated financial statements.
On May 19, 1997, LFW, the Company's 85% owned subsidiary, was merged into a
newly formed subsidiary of the Company, Loewen Finance Delaware, LLC ("LFD"). On
May 20, 1997, the Company acquired the Parent Company's 15% minority interest in
LFD in exchange for common shares. This transaction was recorded at
$100,911,000, the carrying value of the minority interest on the date of
transfer. On May 21, 1997, LFD was merged into a subsidiary of the Company.
On May 21, 1997, a subsidiary acquired a 100% interest in an affiliate,
Neweol Finance B.V. ("NFBV"), in exchange for 40 redeemable shares with a
redemption value of $9,433,000. NFBV's principal assets were preferred shares of
an affiliate and an investment in a partnership. This transaction constitutes a
reorganization of entities under the common control of the Parent Company and,
accordingly, has been reflected in the accompanying financial statements in a
manner similar to a pooling of interests. All earnings of NFBV prior to May 21,
1997 inured to the benefit of the redeemable shareholder and are
143
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reflected as minority interest. Accordingly, there was no effect on the
Company's net earnings. Consequently, the Company's financial statements have
been restated to reflect the operations of NFBV prior to May 21, 1997 as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
Revenue:
The Company's results prior to restatement.................................... $ 107,259 $ 62,098 $ 34,330
NFBV.......................................................................... 77 184 1,107
---------- --------- ---------
The Company, as restated...................................................... $ 107,336 $ 62,282 $ 35,437
---------- --------- ---------
---------- --------- ---------
Minority interest............................................................... $ 60 $ 130 $ 548
</TABLE>
Neweol has no operations independent of those carried on by its
subsidiaries. Neweol is dependent on future remittances from its subsidiaries or
capital contributions from its Parent company to satisfy its obligations, all of
which are to affiliates.
INVESTMENTS
The Company initially records investments acquired from third parties at
cost and investments acquired from entities under common control at the
transferor's carrying value. The Company follows the equity method of accounting
for investments where it has significant influence over the investee.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements. The Company receives administrative
support from the Parent Company at no charge to the Company. Direct costs of the
Company's operations are recorded as expenses.
OTHER ASSETS
Other assets consists primarily of organization costs which are amortized
over their useful lives of eighteen months to five years.
ACCOUNTING FOR INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes. Deferred income taxes are recognized for the future tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets and liabilities are measured using enacted rates expected to
apply to taxable income in the years in which these temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
144
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY
The assets and liabilities denominated in foreign currencies have been
translated into United States dollars at the rates of exchange at the balance
sheet dates, and revenues and expenses are translated at the average rates of
exchange for the periods of operation.
Exchange gains and losses arising from foreign currency transactions are
included in income in the current year. Unrealized gains and losses arising from
the translation are classified as "Foreign exchange adjustment" within
shareholders' equity.
NOTE 2. NOTES RECEIVABLE FROM AFFILIATE
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Current
Secured revolving credit agreement at 11.5%........................................... -- 56,061
------------ ----------
------------ ----------
Long-term
Unsecured revolving credit agreement due in 1999...................................... $ 9,557 $ 1,092
Unsecured revolving credit agreement due in 1999...................................... 45,233 3,679
Secured revolving credit agreements due in 2002....................................... 87,821 --
Secured term credit agreement due in 1999............................................. 206,000 206,000
Secured term credit agreement due in 2000............................................. 199,650 199,650
Secured term credit agreement due in 2001............................................. 184,390 184,390
Secured term credit agreement due in 2002............................................. 299,865 --
------------ ----------
$ 1,032,516 $ 594,811
------------ ----------
------------ ----------
</TABLE>
All the Company's notes receivable are due from Loewen Group International,
Inc. ("LGII") (see note 4).
The first unsecured revolving credit agreement due in 1999 bears interest at
the prime commercial interest rate charged by the 30 largest banks in the United
States plus 2% (10.5% at December 31, 1997 and 10.25% at December 31, 1996). The
second unsecured revolving credit agreement due in 1999 bears interest at 5.36%
plus the U.S. Treasury rate adjusted to a constant maturity corresponding to the
repayment date. The secured revolving credit agreements due in 2002 bear
interest at a floating rate based on U.S. Treasury rates adjusted to a constant
maturity of three months plus 5% (9.93% at December 31, 1997). The secured term
credit agreements bear interest at a fixed rate of 11.5% per annum. The maximum
credit available under the unsecured revolving credit agreements and the secured
revolving credit agreements is $315,000,000 and $300,000,000 respectively.
The secured revolving and term credit agreements are secured under a
collateral trust arrangement pursuant to which senior lenders to the Parent
Company and LGII would share certain collateral on a pari passu basis. The
collateral includes (i) a pledge for the benefit of the senior lenders of the
shares of capital stock held by the Parent Company of substantially all of its
subsidiaries (including the Company), and
145
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 2. NOTES RECEIVABLE FROM AFFILIATE (CONTINUED)
(ii) all of the financial assets of LGII (including the shares of the 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 pari passu indebtedness.
NOTE 3. INVESTMENTS
Effective March 27, 1997, Neweol transferred its shares of a subsidiary
which owned the investment in Arbor Memorial Services Inc. ("Arbor") to an
affiliated company, in exchange for $53,669,000 of redeemable preferred shares.
At the time of the transfer the Company held 713,825 Class A voting shares of
Arbor representing 28.3% and 2,154,352 Class B non-voting shares representing
27.5%. This investment had been accounted for by the equity method and had a
carrying value of $39,646,000 at the time of transfer. The Company's equity in
the earnings of Arbor amounted to $396,000 for the period January 1 - March 27,
1997 (1996 -- $1,879,000, 1995 -- $1,391,000). Arbor is a Canadian funeral
services company. The excess of the value of preferred shares received over the
carrying value of the subsidiary was recorded as capital contribution.
On November 15, 1994, a subsidiary of the Company made an investment of
$99,600 representing a 24.9% interest in a partnership. The investment is
carried at the equity method. The partnership's profits were $411,000 for the
year ended December 31, 1997 (1996 -- $373,000). The partnership's principal
assets are credit card receivables. At December 31, 1997, the partnership had
assets of $161,159,000 and liabilities of $159,604,000 (1996 -- $149,516,000 and
$148,372,000, respectively). The Company has recorded equity income from this
investment of approximately $102,000 for the year ended December 31, 1997
(1996 -- $93,000, 1995 -- $93,000).
On November 14, 1997, 80 preferred shares of an affiliate were redeemed at
their carrying value of $8,000,000 in exchange for a note receivable.
On December 3, 1997, the Company acquired for approximately $13,000,000 a
100% interest in a funeral home business, which was subsequently sold to an
affiliate.
NOTE 4. INVESTMENT IN AFFILIATE
On July 13, 1995, the Company acquired a 15% interest in LGII from the
Parent Company. LGII serves as the holding company for the Parent Company's
United States funeral, cemetery and insurance operations. The Company follows
the equity method of accounting for this investment because it has significant
influence over LGII as a result of its affiliate relationship and related party
transactions. The total investment in LGII at December 31, 1997 was $47,441,000
(1996 -- $32,595,000).
146
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 4. INVESTMENT IN AFFILIATE (CONTINUED)
Summarized financial data for LGII on a U.S. GAAP basis are presented as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income statement information:
Revenue............................................................... $ 1,036,882 $ 840,103 $ 540,825
Net earnings (loss)................................................... (64,735) (4,547) (126,325)
Balance sheet information:
Current assets........................................................ $ 304,108 $ 223,388 $ 184,289
Non-current assets.................................................... 4,138,197 3,107,273 1,915,670
------------ ------------ ------------
Total assets.......................................................... 4,442,305 3,330,661 2,099,959
Current liabilities................................................... 225,770 156,290 221,555
Non-current liabilities............................................... 3,898,495 2,981,124 1,856,611
------------ ------------ ------------
Total liabilities..................................................... 4,124,265 3,137,414 2,078,166
Shareholders' equity.................................................. 318,040 193,247 21,793
The Company's equity in the loss of LGII................................ $ 9,627 $ 321 $ 20,835
</TABLE>
LGII is subject to material contingencies, as disclosed below:
ESNER ESTATE
On February 1, 1995, Stuart B. Esner and Sandra Esner (the "Executors") as
coexecutor for the Estate of Gerald F. Esner (the "Esner Estate") filed an
action in the Court of Common Pleas of 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 Parent 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.
147
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 4. INVESTMENT IN AFFILIATE (CONTINUED)
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 filed, and the
Court granted, preliminary challenges to the Third Amended Complaint. The Court
also dismissed the claims against LGII for failure to state a claim upon which
relief can be granted, although the Third Amended Complaint does continue on
unaffected counts.
LGII 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
LGII's consolidated financial statements.
ROJAS ET AL.
On February 27, 1995, Juan Riveras Rojas, Leyda Rivera Vega, the Conjugal
Partnership constituted between them, and Carlos Rivera Bustamente instituted a
legal action against the Parent Company, LGII and a subsidiary in the United
States District Court for the District of Puerto Rico. The complaint alleges
that the defendants breached a contract and ancillary agreements with the
plaintiffs relating to the purchase of funeral homes and cemeteries, and
committed related torts. The plaintiffs seek compensatory damages of
$12,500,000, and unspecified punitive damages (although the Parent Company is
advised by counsel that there is no entitlement to punitive damages under Puerto
Rican law). The Parent Company has filed a motion to dismiss the complaint on
the grounds of failure to join an indispensable party. In addition, the Parent
Company claims it has suffered damages far in excess of the amount claimed by
the plaintiffs as a result of breach of contract and related torts on the part
of the plaintiffs. A subsidiary of the Parent Company has filed a complaint
seeking damages in excess of $19,000,000 from the plaintiffs in the General
Court of Justice of the Commonwealth of Puerto Rico. The Parent 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 Parent Company's or
LGII's consolidated financial statements.
FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V.SI-SIFH CORP ET AL.
Two complaints were filed in 1997 on behalf of individuals who claim damages
in connection with funeral insurance policies allegedly issued to them by
insurance companies owned, directly or indirectly, by
148
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 4. INVESTMENT IN AFFILIATE (CONTINUED)
S.I. Acquisition Associates, L.P. ("S.I."). The Parent Company acquired the
assets but not the stock of S.I. in March 1996.
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 Parent 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
Parent Company, Inc. are affiliates of S.I.
In June 1997, Lloyd Duffy, Sr. 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 Parent Company, Inc., Loewen
Louisiana Holdings, Inc., and LGII in the Parish of Orleans, State of Louisiana.
Plaintiffs seek a class action. The Duffy complaint was filed by the same
lawyers who filed the complaint in the Feldheim case, and is a virtually
identical copy of the Feldheim complaint. The Duffy case is pending in the trial
court and, as of the date hereof, no discovery has taken place.
The Feldheim and Duffy plaintiffs allegedly 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 petitions 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.
On June 13, 1997, the district court in Jefferson Parish dismissed the
Feldheim plaintiffs' claim to a class action, and plaintiffs have appealed.
Briefing of the appeal was completed in December 1997 and oral argument was held
on January 15, 1998, but a decision has not yet been rendered. As of the date
hereof, no discovery has taken place.
LGII has determined that it is not possible to predict the final outcome of
these legal proceedings, 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 LGII's consolidated financial statements.
OTHER
LGII is a party to other legal proceedings in the ordinary course of its
business but does not expect the outcome of any other proceedings, individually
or in the aggregate, to have a material adverse effect on the LGII's financial
position, results of operation or liquidity.
149
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 5. MINORITY INTEREST AND REDEEMABLE SHARES OF SUBSIDIARY
A subsidiary of the Company has issued 40 Class B Ordinary non-voting
redeemable shares ("Class B shares") to an affiliate. The Class B shares are
redeemable on demand at their carrying amount of $9,433,000. The Class B shares
have no right to earnings of the subsidiary, in excess of the redemption amount,
in the ordinary course or in connection with the winding up of the Company,
unless such dividend or other distribution shall be specifically resolved and
declared payable to the Class B shareholders.
NOTE 6. INCOME TAXES
All income tax expense represent income taxes payable outside Canada. Income
tax differed from amounts computed by applying Canadian federal and provincial
income tax rates of 45.5% on earnings before income taxes and undernoted items
as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Expected income tax expense.................................................... $ 47,605 $ 27,649 $ 15,605
Foreign income taxed at lower rates............................................ (41,535) (21,016) (9,978)
---------- ---------- ---------
$ 6,070 $ 6,633 $ 5,627
---------- ---------- ---------
</TABLE>
During 1997, the Company paid $7,166,000 of income taxes
(1996 -- $12,650,000; 1995 -- $1,201,000). The Company has not recognized a
deferred tax liability in connection with undistributed earnings of foreign
subsidiaries and foreign equity investees that are essentially permanent in
duration. Substantially all the Company's retained earnings represent such
undistributed earnings.
NOTE 7. NOTES PAYABLE TO AFFILIATES AND DUE TO PARENT COMPANY
On May 14, 1997, the Company issued 14,404 common shares to the Parent
Company in exchange for notes payable to affiliates.
The amount due to the Parent Company has no designated repayment terms
however, the Parent Company has agreed not to demand payment prior to June 30,
1999. The notes payable to affiliates and due to Parent Company are denominated
in Canadian dollars and are non-interest bearing.
NOTE 8. NOTES PAYABLE
Notes payable bear interest at 8.5%. Maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------
<S> <C>
2000............................................................. $ 1,686
2003............................................................. 831
---------
$ 2,517
---------
---------
</TABLE>
150
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 9. SHAREHOLDERS' EQUITY
(a) CAPITAL STOCK AUTHORIZED
1,000,000,000 (1996 -- 1,000,000) Common shares without par value.
500,000,000 (1996 -- 500,000,000) non-voting, non-cumulative, redeemable and
retractable Preferred share with par value of $1 Canadian.
On June 5, 1997, the authorized capital of the Company was increased to
1,000,000,000 common shares without par value.
(b) CAPITAL STOCK ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF CAPITAL
SHARES STOCK
------------- ------------
<S> <C> <C>
Common shares and additional paid-in capital:
Outstanding December 31, 1994........................................................ 301 $ 88,177
Issued during the year............................................................. 100,100 181,536
Repurchased by Company for cancellation in exchange for redeemable preferred
shares........................................................................... (20,000) (55,174)
------------- ------------
Outstanding December 31, 1995........................................................ 80,401 214,539
Contributed by Parent Company...................................................... -- 66,973
------------- ------------
Outstanding December 31, 1996........................................................ 80,401 281,512
Issued during the year............................................................. 184,438 872,889
Contributed on transfer of investment.............................................. -- 23,386
------------- ------------
Outstanding December 31, 1997........................................................ 264,839 $ 1,177,787
------------- ------------
------------- ------------
</TABLE>
On May 14, 1997, the Parent Company agreed to offset the notes receivable
from the Parent Company against the Company's indebtedness to the Parent
Company. The Company then issued 56,158 common shares to the Parent Company in
consideration of the mutual satisfaction of the net indebtedness to the Parent
Company of $340,173,000. In addition, 77,200,000 preferred shares were redeemed
for their par value of $1 Canadian per share. There were no declared and unpaid
dividends outstanding. Non-interest bearing promissory notes were issued as
consideration upon the redemption of the preferred shares, the notes were
subsequently exchanged for common shares.
(c) RETAINED EARNINGS
Substantially all the Company's retained earnings represents undistributed
earnings of foreign subsidiaries.
(d) FOREIGN EXCHANGE ADJUSTMENT
During the year, the Parent Company contributed Canadian dollar denominated
intercompany balances and assumed Canadian dollar notes payable of the Company.
These transactions were recorded
151
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 9. SHAREHOLDERS' EQUITY (CONTINUED)
as capital contributions at their historical exchange rates, resulting in an
elimination of the prior year's foreign exchange adjustment. The ending foreign
exchange adjustment arose due to changes in the exchange rate applicable to the
Canadian dollar amount due to Parent Company between the dates of borrowing and
the balance sheet date.
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables from and payables to affiliates,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturities of these instruments.
It is not practicable to determine the fair value of notes receivable from
or payable to affiliates, notes receivable from Parent Company, investment in
affiliate, due to Parent Company, or redeemable preferred shares due to their
related party nature.
It is not practicable to estimate the fair value of long-term installment
contract receivables, which comprise installment receivables on cemetery sales,
which generally have terms of three to five years and bear interest ranging from
8% to 15%.
NOTE 11. INSTALLMENT CONTRACT RECEIVABLES
On March 27, and December 31, 1997, the Company purchased cemetery
installment contract receivables from affiliates for approximately $18,985,000
and $166,194,000 (1996 -- $57,483,000) respectively. The Company has recorded
the purchase at the gross amount of the installment contract receivables net of
the allowance for doubtful accounts, unearned finance income and purchase
discount. Unearned finance income at December 31, 1997, includes approximately
$7,700,000 of imputed interest. At December 31, 1997, the total unearned finance
income is approximately $40,790,000 (1996 -- $12,185,000) and the total
unamortized purchase discount is approximately $23,211,000 (1996 -- $4,891,000).
At December 31, 1997, the allowance for contract cancellation doubtful accounts
is approximately $24,629,000 (1996 -- $4,500,000). The purchase discount and
unearned finance income are recognized as interest income in earnings over the
collection period of the contract receivables. During 1997, the Company has
recognized interest income of $4,409,000 (1996 -- $955,000) related to purchased
receivables.
The Company has entered into management and receivables servicing agreements
with affiliates, whereby the affiliates perform specified collection services on
the receivables for management and servicing fees ranging from 108.2% to 109.8%
of their cost of servicing the receivables.
Proceeds received from the collection of the 1996 installment contract
receivables are, from time to time, advanced to LGII pursuant to a Revolving
Credit Facility entered into on August 1, 1996. Revolving credit loans may be
made up to a maximum of $300,000,000 and bear interest at 5.36% plus the U.S.
Treasury rate adjusted to a constant maturity corresponding to the repayment
date. Amounts outstanding under the Revolving Credit Facility are due on demand
or December 31, 1999. As at December 31, 1997, the Company has advanced
$45,233,000 (1996 -- $3,679,000) to LGII pursuant to the Facility.
152
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 13. NON-CASH TRANSACTIONS
The Company entered into the following non-cash transactions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ----------
<CAPTION>
<S> <C> <C> <C>
Receipt of note receivable from affiliate upon redemption of 80 preferred
shares of affiliate held as an investment.................................... $ 8,000 $ -- $ --
Issuance of 21,346 common shares upon acquisition of minority interest in LFD
from Parent Company.......................................................... 100,911 -- --
Sale of subsidiary in exchange for redeemable preferred shares of affiliate,
the subsequent redemption of the preferred shares for a note receivable, and
distribution of the note receivable to Parent Company........................ 53,669 -- --
Increase in amounts due to Parent Company for payments made by Parent Company
on the Company's behalf, including $722,000 of acquisition costs............. 3,599 -- --
Dividends declared on preferred shares and settled by issuance of notes payable
to affiliate................................................................. 2,060 5,672 4,275
Issuance of notes payable upon redemption of redeemable preferred shares....... 55,174 -- --
Reduction of amount due to Parent Company and assumption of liabilities by
Parent Company, net of notes receivable from Parent Company and unrealized
foreign exchange gain thereon upon issuance of common shares................. 340,173 -- 154,334
Increase in receivables advanced to affiliate resulting from collections and
repurchases of installment contract receivables.............................. 41,554 3,679 --
Increase in investment in affiliate funded by contribution from Parent
Company...................................................................... -- 26,181 27,202
Sale of 13% interest in units of LFW in exchange for notes receivable from
Parent Company............................................................... -- 78,633 --
Investments in Arbor shares, funded by an increase in due to Parent Company.... -- -- 7,338
Issuance of 77,200,000 preferred shares and cancellation of 20,000 common
shares....................................................................... -- -- 55,174
Application of notes receivable and other transactions reducing the balance due
to Parent Company............................................................ -- -- 23,619
Issuance of notes payable as consideration in an acquisition................... 2,517 -- --
Increase in due to affiliate for purchase of accounts receivable from
affiliate.................................................................... 7,431 -- --
</TABLE>
153
<PAGE>
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF US DOLLARS,
EXCEPT NUMBER OF SHARES
NOTE 14. COMMITMENTS AND CONTINGENCIES
The shares held by the Company are pledged under a collateral trust
arrangement whereby the senior lenders of the Parent Company and an affiliate
under common control would share certain collateral on a pari passu basis. This
collateral is held by a trustee for equal and ratable benefit of the various
holders of senior indebtedness. At December 31, 1997, the indebtedness owed to
the Parent Company's senior lending group subject to the collateral trust
arrangement, including holders of certain letters of credit and excluding debt
owed to affiliated companies aggregated $1,641,000,000.
NOTE 15. SUBSEQUENT EVENTS
Effective March 10, 1998 the Company acquired the Parent Company's 15%
interest in Eagle Financial Associates, LLC ("Eagle"), which is recorded as
minority interest in the accompanying financial statements, in exchange for
2,867 common shares of the Company. The carrying value of the Eagle minority
interest at December 31, 1997 is approximately $13,000,000.
Effective March 11, 1998, the Company sold a subsidiary, which holds an
investment valued at $13,000,000 to an affiliate in exchange for common shares.
The Company did not recognize a gain or loss on the sale.
NOTE 16. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
154
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Loewen Luxembourg (No. 1) S.A.
We have audited the consolidated balance sheets of Loewen Luxembourg (No. 1)
S.A., as defined in Note 1 to the financial statements, as at December 31, 1997
and 1996 and the consolidated statements of operations and retained earnings and
cash flows for each of the years in the three year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Loewen Luxembourg (No. 1) S.A.
as at December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1997, in
accordance with generally accepted accounting principles in the United States.
<TABLE>
<S> <C>
Luxembourg, March 20, 1998 KPMG Audit
Reviseurs d'Entreprises
/s/ D.G. Robertson /s/ V.
Dogs
</TABLE>
155
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash.................................................................................. $ 119 $ 72
Notes receivable from affiliate....................................................... 142,763 56,061
------------ ----------
142,882 56,133
Notes receivable from affiliate......................................................... 987,283 591,132
Due from affiliated company............................................................. 39 878
Investments............................................................................. 387 8,285
Other assets............................................................................ 579 5
------------ ----------
$ 1,131,170 $ 656,433
------------ ----------
------------ ----------
LIABILITIES and SHAREHOLDER EQUITY
Current liabilities
Accounts payable and accrued liabilities.............................................. $ 2,888 $ 4,051
Redeemable shares of subsidiary......................................................... 9,433 9,373
Shareholder equity
Capital stock, $285 par value, 155 shares authorized, issued and outstanding
(1996 -- 10)........................................................................ 44 3
Additional paid-in capital............................................................ 974,692 589,737
Retained earnings..................................................................... 144,113 53,269
------------ ----------
1,118,849 643,009
------------ ----------
$ 1,131,170 $ 656,433
------------ ----------
------------ ----------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 8 AND 9)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
156
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Revenue from affiliates
Interest on notes receivable from affiliates................................. $ 96,265 $ 59,354 $ 34,065
Financial and other services................................................. 807 1,900 1,372
---------- ---------- ---------
97,072 61,254 35,437
Expenses
General and administrative................................................... 1,445 1,250 1,036
---------- ---------- ---------
Earnings before income tax expense and minority interest....................... 95,627 60,004 34,401
Income tax expense............................................................. 4,723 6,605 5,627
---------- ---------- ---------
90,904 53,399 28,774
Minority interest.............................................................. 60 130 548
---------- ---------- ---------
Net earnings................................................................... $ 90,844 $ 53,269 $ 28,226
---------- ---------- ---------
---------- ---------- ---------
Retained earnings, beginning of period......................................... $ 53,269 $ 28,226 $ 6,501
Net earnings................................................................... 90,844 53,269 28,226
Dividends...................................................................... -- (28,226) (6,501)
---------- ---------- ---------
Retained earnings, end of period............................................... $ 144,113 $ 53,269 $ 28,226
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
157
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings............................................................. $ 90,844 $ 53,269 $ 28,226
Items not affecting cash:
Minority interest...................................................... 60 130 548
Net changes in other non-cash balances................................... 2,418 (2,724) 2,857
----------- ----------- -----------
93,322 50,675 31,631
----------- ----------- -----------
Investing
Advances on notes receivable from affiliate.............................. (617,616) (251,171) (262,999)
Repayments of notes receivable from affiliate............................ 142,763 36,091 64,295
Investment in affiliate.................................................. -- -- (8,000)
----------- ----------- -----------
(474,853) (215,080) (206,704)
----------- ----------- -----------
Financing
Issue of share capital................................................... 381,578 192,590 191,150
Redemption of redeemable shares of subsidiary............................ -- -- (9,659)
Dividends paid........................................................... -- (28,226) (6,501)
----------- ----------- -----------
381,578 164,364 174,990
----------- ----------- -----------
Increase (decrease) in cash during the period.............................. 47 (41) (83)
Cash, beginning of period.................................................. 72 113 196
----------- ----------- -----------
Cash, end of period........................................................ $ 119 $ 72 $ 113
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
158
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loewen Luxembourg (No. 1) S.A. (the "Company") was incorporated on April 23,
1997 under the laws in the Grand-Duchy of Luxembourg as a wholly owned
subsidiary of Neweol Investments Ltd. ("Parent Company") and a wholly owned
indirect subsidiary of The Loewen Group Inc. ("TLGI"). The principal business
activity of the Company is to provide financing to other subsidiaries of The
Loewen Group Inc. ("affiliates").
The consolidated financial statements have been prepared in United States
dollars in accordance with generally accepted accounting principles in the
United States. The consolidated financial statements require the use of
management estimates. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The accompanying financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission.
The accounts of all subsidiary companies have been included in the
consolidated financial statements. All subsidiaries are wholly owned at December
31, 1997, except for redeemable shares of a subsidiary, which are held by an
affiliate and have been reflected in the financial statements as minority
interest.
On May 21, 1997, the Company acquired a 100% interest in Loewen Finance
(Delaware) Limited Liability Company ("LFD") in exchange for 10 common shares of
the Company. LFD's principal asset consisted of $596,021,000 of notes receivable
due from an affiliate.
On May 21, 1997, a subsidiary of the Company acquired a 100% interest in an
affiliate, Neweol Finance B.V. ("NFBV"), in exchange for 40 redeemable shares
with a redemption value of $9,433,000. NFBV's principal assets were preferred
shares of an affiliate and an investment in a partnership. Earnings attributable
to the redeemable shares have been reflected as minority interest.
These transactions constitute a reorganization of entities under the common
control of TLGI and, accordingly, have been reflected in the accompanying
financial statements in a manner similar to a pooling of interests.
Consequently, the historical results of LFD and NFBV prior to May 21, 1997, have
been reflected in the Company's financial statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenue:
LFD............................................................................ $ 29,166 $ 61,070 $ 34,330
NFBV........................................................................... 77 184 1,107
--------- --------- ---------
$ 29,243 $ 61,254 $ 35,437
--------- --------- ---------
--------- --------- ---------
Minority interest................................................................ $ 60 $ 130 $ 548
Net earnings..................................................................... $ 26,351 $ 53,269 $ 28,226
</TABLE>
Investments over which the Company has significant influence are accounted
for using the equity method.
159
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements. The Company receives administrative
support from the Parent Company at no charge to the Company. Direct costs of the
Company's operations are recorded as expenses.
FOREIGN CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange in effect on the transaction dates, and monetary
items are translated at the rate of exchange in effect at the balance sheet
date. Exchange gains and losses are included in income in the current year.
OTHER ASSETS
Other assets include organization costs and deferred finance costs, which
are amortized over the estimated useful lives of one and one-half to five years.
NOTE 2. NOTES RECEIVABLE FROM AFFILIATES
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current
Unsecured promissory notes at 7.25%, due July 31, 1998.................................. $ 142,763 $ --
Secured revolving credit agreement at 11.5%............................................. -- 56,061
---------- ----------
$ 142,763 $ 56,061
---------- ----------
---------- ----------
Long-term
Unsecured revolving credit agreement due in 1999........................................ $ 9,557 $ 1,092
Secured revolving credit agreements due in 2002......................................... 87,821 --
Secured term credit agreement due in 1999............................................... 206,000 206,000
Secured term credit agreement due in 2000............................................... 199,650 199,650
Secured term credit agreement due in 2001............................................... 184,390 184,390
Secured term credit agreement due in 2002............................................... 299,865 --
---------- ----------
$ 987,283 $ 591,132
---------- ----------
---------- ----------
</TABLE>
The current promissory notes at December 31, 1997 are from an affiliate
whose principal assets are long-term cemetery installment contract receivables.
The long-term notes receivable are from Loewen Group International, Inc.
("LGII"), an affiliate with funeral and cemetery operations in the United
States.
The unsecured revolving credit agreement due in 1999 bears interest at the
prime commercial interest rate charged by the 30 largest banks in the United
States plus 2% (10.5% at December 31, 1997 and 10.25% at December 31, 1996). The
secured revolving credit agreements due in 2002 bear interest at a floating rate
based on U.S. Treasury rates adjusted to a constant maturity of three months
plus 5% (9.93% at December 31, 1997). The secured term credit agreements bear
interest at a fixed rate of 11.5% per annum. The maximum credit available under
the unsecured revolving credit agreement and the secured revolving credit
agreements is $15,000,000 and $300,000,000, respectively.
160
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 2. NOTES RECEIVABLE FROM AFFILIATES (CONTINUED)
The secured revolving and term credit agreements are secured under a
collateral trust arrangement pursuant to which senior lenders to TLGI and LGII
would share certain collateral on a pari passu basis. The collateral includes
(i) a pledge for the benefit of the senior lenders of the shares of capital
stock held by TLGI of substantially all of its subsidiaries (including the
Company and its subsidiaries), and (ii) all of the financial assets of LGII
(including the shares of the 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 pari passu indebtedness.
NOTE 3. INVESTMENTS
On November 15, 1994, a subsidiary of the Company made an investment of
$99,600 representing a 24.9% interest in a partnership. The investment is
carried at the equity method. The partnership's profits were $411,000 for the
year ended December 31, 1997 (1996 -- $373,000). The partnership's principal
asset is credit card receivables. At December 31, 1997, the partnership had
assets of $161,159,000 and liabilities of $159,604,000 (1996 -- $149,516,000 and
$148,372,000, respectively). Equity income of approximately $102,000
(1996 -- $93,000; 1995 -- $93,000) has been netted into general and
administrative expense.
On November 14, 1997, 80 preferred shares of an affiliate were redeemed at
their carrying value of $8,000,000 in exchange for a note receivable.
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts payable and accrued liabilities
approximate fair value due to the short-term maturities of these instruments. It
is not practicable to determine the fair value of notes receivable from
affiliate.
NOTE 5. REDEEMABLE SHARES OF SUBSIDIARY
A subsidiary of the Company has issued 40 Class B Ordinary non-voting
redeemable shares ("Class B shares") to an affiliate. The Class B shares are
redeemable upon demand at their carrying amount of $9,433,000. The Class B
shares have no right to earnings of the Company, in excess of the redemption
value, in the ordinary course or in connection with the winding up of the
Company, unless such dividend or other distribution shall be specifically
resolved and declared payable to the Class B shareholders.
161
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 6. CAPITAL STOCK
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF CAPITAL STOCK, AT PAID-IN
SHARES PAR CAPITAL
------------- ----------------- --------------
<S> <C> <C> <C>
Outstanding December 31, 1994.......................................... 10 $ 3 $ 205,997
Capital contribution................................................... -- -- 191,150
--- --- --------------
Outstanding December 31, 1995.......................................... 10 3 397,147
Capital contribution................................................... -- -- 192,590
--- --- --------------
Outstanding December 31, 1996.......................................... 10 3 589,737
Issued for cash........................................................ 145 41 381,537
Capital contribution for amounts paid by Parent on the Company's
behalf............................................................... -- -- 3,418
--- --- --------------
Outstanding December 31, 1997.......................................... 155 $ 44 $ 974,692
--- --- --------------
--- --- --------------
</TABLE>
NOTE 7. INCOME TAXES
Substantially all the Company's income is earned outside of Luxembourg.
Income tax differed from amounts computed by applying the Luxembourg income tax
rate of 37% on earnings before income taxes and minority interest as a result of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Expected income tax expense................................................... $ 35,382 $ 22,201 $ 12,728
Foreign income taxed at lower rates........................................... (30,659) (15,596) (7,101)
---------- ---------- ----------
$ 4,723 $ 6,605 $ 5,627
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
The shares held by the Company are pledged under a collateral trust
arrangement whereby the senior lenders of TLGI and an affiliate under common
control would share certain collateral on a pari passu basis. This collateral is
held by a trustee for equal and ratable benefit of the various holders of senior
indebtedness. At December 31, 1997, the indebtedness owed to TLGI's senior
lending group subject to the collateral trust arrangement, including holders of
certain letters of credit and excluding debt owed to affiliated companies
aggregated $1,641,000,000.
NOTE 9. SUBSEQUENT EVENTS
On March 10, 1998, the Company acquired the Parent Company's 100% interest
in Eagle Financial Associates, LLC ("Eagle") in exchange for common shares of
the Company. The Company recorded Eagle's assets and liabilities at their
carrying value of approximately $85,000,000. Eagle was subsequently merged into
a subsidiary of the Company. Eagle's principal business activity was the
purchase of cemetery long-term receivables from affiliates and the subsequent
collection of such receivables. This transaction is a reorganization of entities
under common control and will be accounted for in a manner similar to a pooling
of interests.
162
<PAGE>
LOEWEN LUXEMBOURG (NO. 1) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 9. SUBSEQUENT EVENTS (CONTINUED)
The following presents, on a pro forma basis, summary financial information
for the Company, restated to give effect for the acquisition of Eagle:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
Revenue: The Company............................................................ $ 97,072 $ 61,254 $ 35,437
Eagle.................................................................. 9,907 1,051 --
---------- --------- ---------
$ 106,979 $ 62,305 $ 35,437
---------- --------- ---------
---------- --------- ---------
Net earnings: The Company....................................................... $ 90,844 $ 53,269 $ 28,226
Eagle............................................................... 7,948 729 (7)
---------- --------- ---------
$ 98,792 $ 53,998 $ 28,219
---------- --------- ---------
---------- --------- ---------
</TABLE>
163
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Loewen Luxembourg (No. 2) S.A.
We have audited the consolidated balance sheets of Loewen Luxembourg (No. 2)
S.A., as defined in Note 1 to the financial statements, as at December 31, 1997
and 1996 and the consolidated statements of operations and retained earnings and
cash flows for each of the years in the three year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Loewen Luxembourg (No. 2) S.A.
as at December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1997, in
accordance with generally accepted accounting principles in the United States.
<TABLE>
<S> <C>
Luxembourg, March 20, 1998 KPMG Audit
Reviseurs d'Entreprises
/s/ D.G. Robertson /s/ V.
Dogs
</TABLE>
164
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
ASSETS
Current assets
Cash....................................................................................... $ 80 $ 71
Note receivable from affiliate............................................................. 80,000 --
--------- ---------
80,080 71
Notes receivable from affiliate.............................................................. 12,367 1,092
Investments.................................................................................. 387 8,285
Other assets................................................................................. 283 5
--------- ---------
$ 93,117 $ 9,453
--------- ---------
--------- ---------
LIABILITIES and SHAREHOLDER EQUITY
Current liabilities
Accounts payable and accrued liabilities................................................... $ 232 $ 80
Redeemable shares of subsidiary.............................................................. 9,433 9,373
Shareholder equity
Capital stock, $285 par value, 155 shares authorized, issued
and outstanding (1996 -- nil).............................................................. 44 --
Additional paid-in capital................................................................. 78,604 --
Retained earnings.......................................................................... 4,804 --
--------- ---------
83,452 --
--------- ---------
$ 93,117 $ 9,453
--------- ---------
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 9)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
165
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue from affiliates
Interest and other income from affiliates............................................ $ 4,762 $ 184 $ 1,107
Expenses
General and administrative........................................................... 118 32 309
--------- --------- ---------
Earnings before income tax expense and minority interest............................... 4,644 152 798
Income tax (benefit) expense........................................................... (220) 22 250
--------- --------- ---------
4,864 130 548
Minority interest...................................................................... 60 130 548
--------- --------- ---------
Net earnings........................................................................... $ 4,804 $ -- $ --
--------- --------- ---------
--------- --------- ---------
Retained earnings, beginning of period................................................. $ -- $ -- $ --
Net earnings........................................................................... 4,804 -- --
--------- --------- ---------
Retained earnings, end of period....................................................... $ 4,804 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
166
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings................................................................... $ 4,804 $ -- $ --
Items not affecting cash:
Minority interest............................................................ 60 130 548
Net changes in other non-cash balances......................................... (228) (712) (1,126)
----------- --------- ---------
4,636 (582) (578)
----------- --------- ---------
Investing
Advances on notes receivable from affiliate.................................... (163,274) -- --
Repayments of notes receivable from affiliate and Parent....................... 158,606 540 18,182
Investment in affiliate........................................................ -- -- (8,000)
----------- --------- ---------
(4,668) 540 10,182
----------- --------- ---------
Financing
Issue of share capital......................................................... 381,578 -- --
Redemption of redeemable shares of subsidiary.................................. -- -- (9,659)
Return of capital to Parent.................................................... (381,537) -- --
----------- --------- ---------
41 -- (9,659)
----------- --------- ---------
Increase (decrease) in cash during the period.................................... 9 (42) (55)
Cash, beginning of period........................................................ 71 113 168
----------- --------- ---------
Cash, end of period.............................................................. $ 80 $ 71 $ 113
----------- --------- ---------
----------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
167
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loewen Luxembourg (No. 2) S.A. (the "Company") was incorporated on April 23,
1997 under the laws in the Grand-Duchy of Luxembourg as a wholly owned
subsidiary of Loewen Luxembourg (No. 1) S.A. ("Parent Company") and a wholly
owned indirect subsidiary of The Loewen Group Inc. ("TLGI"). The principal
business activity of the Company is to provide financing to other subsidiaries
of The Loewen Group Inc. ("affiliates").
The consolidated financial statements have been prepared in United States
dollars in accordance with generally accepted accounting principles in the
United States. The consolidated financial statements require the use of
management estimates. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The accompanying financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission.
The accounts of all subsidiary companies have been included in the
consolidated financial statements. All subsidiaries are wholly owned at December
31, 1997, except for redeemable shares of a subsidiary, which are held by an
affiliate and have been reflected in the financial statements as minority
interest.
On May 21, 1997, a subsidiary of the Company acquired a 100% interest in an
affiliate Neweol Finance B.V. ("NFBV"), in exchange for 40 redeemable shares
with a redemption value of $9,433,000. NFBV's principal assets were preferred
shares of an affiliate and an investment in a partnership. This transaction
constitutes a reorganization of entities under the common control of TLGI and,
accordingly, has been reflected in the accompanying financial statements in a
manner similar to a pooling of interests. Earnings attributable to the
redeemable shares have been reflected as minority interest. Consequently, the
Company's financial statements for the years ended December 31, 1996 and 1995
represent the operations of NFBV. The Company's statement of operations for the
year ended December 31, 1997 includes revenue of $77,000 and minority interest
expense of $60,000 representing NFBV's results of operations for the period
January 1 through May 20, 1997.
Investments over which the Company has significant influence are accounted
for using the equity method.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements. The Company receives administrative
support from the Company at no charge to the Company. Direct costs of the
Company's operations are recorded as expenses.
FOREIGN CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange in effect on the transaction dates, and monetary
items are translated at the rate of exchange in effect at the balance sheet
date. Exchange gains and losses are included in income in the current year.
168
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Other assets include organization costs and deferred finance costs, which
are amortized over the estimated useful lives of one and one-half to five years.
NOTE 2. NOTES RECEIVABLE FROM AFFILIATES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current
Unsecured promissory note at 7.25%, due July 31, 1998...................................... $ 80,000 $ --
--------- ---------
--------- ---------
Long-term
Unsecured revolving credit agreement due in 1999........................................... $ 9,557 $ 1,092
Secured revolving credit agreement due in 2002............................................. 2,810 --
--------- ---------
$ 12,367 $ 1,092
--------- ---------
--------- ---------
</TABLE>
The current promissory note is from an affiliate whose principal assets
include long-term cemetery installment contracts receivable. The long-term notes
receivable are from Loewen Group International, Inc. ("LGII"), an affiliate with
funeral and cemetery operations in the United States.
The unsecured revolving credit agreement bears interest at the prime
commercial interest rate charged by the 30 largest banks in the United States
plus 2% (10.5% at December 31, 1997 and 10.25% at December 31, 1996). The
secured revolving credit agreement bears interest at a floating rate based on
U.S. Treasury rates adjusted to a constant maturity of three months plus 5%
(9.93% at December 31, 1997). The maximum credit available under the unsecured
revolving credit agreement and the secured revolving credit agreement is
$15,000,000 and $100,000,000, respectively.
The secured revolving credit agreement is secured under a collateral trust
arrangement pursuant to which senior lenders to TLGI and LGII would share
certain collateral on a pari passu basis. The collateral includes (i) a pledge
for the benefit of the senior lenders of the shares of capital stock held by
TLGI of substantially all of its subsidiaries (including the Company and its
subsidiaries) and (ii) all of the financial assets of LGII (including the shares
of the 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 pari passu indebtedness.
NOTE 3. INVESTMENTS
On November 15, 1994, a subsidiary of the Company made an investment of
$99,600 representing a 24.9% interest in a partnership. The investment is
carried at the equity method. The partnership's profits were $411,000 for the
year ended December 31, 1997 (1996 -- $373,000). The partnership's principal
asset is credit card receivables. At December 31, 1997, the partnership had
assets of $161,159,000 and liabilities of $159,604,000 (1996 -- $149,516,000 and
$148,372,000, respectively). Equity income of approximately $102,000
(1996 -- $93,000; 1995 -- $93,000) has been netted into general and
administrative expense.
169
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 3. INVESTMENTS (CONTINUED)
On November 14, 1997, 80 preferred shares of an affiliate were redeemed at
their carrying value of $8,000,000 in exchange for a note receivable.
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts payable and accrued liabilities
approximate fair value due to the short-term maturities of these instruments. It
is not practicable to determine the fair value of notes receivable from
affiliate.
NOTE 5. REDEEMABLE SHARES OF SUBSIDIARY
A subsidiary of the Company has issued 40 Class B Ordinary non-voting
redeemable shares ("Class B shares") to an affiliate. The Class B shares are
redeemable upon demand at their carrying amount of $9,433,000. The Class B
shares have no right to earnings of the Company, in excess of the redemption
value, in the ordinary course or in connection with the winding up of the
Company, unless such dividend or other distribution shall be specifically
resolved and declared payable to the Class B shareholders.
NOTE 6. CAPITAL STOCK
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER CAPITAL STOCK, PAID-IN
OF SHARES AT PAR CAPITAL
------------- ----------------- --------------
<S> <C> <C> <C>
Outstanding December 31, 1996.......................................... -- $ -- $ --
Issued for cash........................................................ 145 41 381,537
Issued in exchange for assets contributed by affiliate................. 10 3 674,625
Return of capital for cash............................................. -- -- (381,537)
Return of capital by distributing asset to Parent...................... -- -- (596,021)
--- --- --------------
Outstanding December 31, 1997.......................................... 155 $ 44 $ 78,604
--- --- --------------
--- --- --------------
</TABLE>
NOTE 7. INCOME TAXES
Substantially all the Company's income is earned outside of Luxembourg.
Income tax differed from amounts computed by applying the Luxembourg income tax
rate of 37% on earnings before income taxes and minority interest as a result of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected income tax expense............................................................. $ 1,718 $ 56 $ 295
Foreign income taxed at lower rates..................................................... (1,938) (34) (45)
--------- --------- ---------
$ (220) $ 22 $ 250
--------- --------- ---------
--------- --------- ---------
</TABLE>
170
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT NUMBER OF SHARES
NOTE 8. OTHER RELATED PARTY TRANSACTIONS
On May 21, 1997, a subsidiary of the Company acquired a 100% interest in
Loewen Finance (Delaware) Limited Liability Company ("LFD") from Neweol
Investments Ltd. ("Neweol") in exchange for a note payable of $596,021,000.
Neweol subsequently contributed the note payable to the Company as additional
paid-in capital. The assets and liabilities of LFD were recorded at the
transferor's carrying value, and the Company recorded capital stock of $3 and
additional paid-in capital of $78,604,000 for the difference between the net
assets recorded and the note payable. On May 21, 1997, substantially all the net
assets of LFD, amounting to $674,625,000, were distributed to the Parent
Company, and the Company received a note receivable from the Parent Company of
$78,604,000.
NOTE 9. SUBSEQUENT EVENTS
On March 10, 1998, the Company acquired Neweol's 100% interest in Eagle
Financial Associates, LLC ("Eagle") in exchange for common shares of the
Company. The Company recorded Eagle's assets and liabilities at their carrying
value of approximately $85,000,000. Eagle was subsequently merged into a
subsidiary of the Company. Eagle's principal business activity was the purchase
of cemetery long-term receivables from affiliates and the subsequent collection
of such receivables. This transaction is a reorganization of entities under
common control and will be accounted for in a manner similar to a pooling of
interests.
The following presents, on a pro forma basis, summary financial information
for the Company, as restated to give effect to the acquisition of Eagle:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenue: The Company................................................................ $ 4,762 $ 184 $ 1,107
Eagle...................................................................... 9,907 1,051 --
--------- --------- ---------
$ 14,669 $ 1,235 $ 1,107
--------- --------- ---------
--------- --------- ---------
Net earnings: The Company........................................................... $ 4,804 $ -- $ --
Eagle.................................................................... 7,948 729 (7)
--------- --------- ---------
$ 12,752 $ 729 $ (7)
--------- --------- ---------
--------- --------- ---------
</TABLE>
171
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In accordance with General Instruction G(3), the information required by
Item 10 (with the exception of certain information pertaining to executive
officers, which is included in Part I hereof) has been omitted and is
incorporated by reference from the Registrant's definitive proxy statement and
information circular relating to its 1998 annual general meeting of shareholders
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with General Instruction G(3), the information required by
Item 11 has been omitted and is incorporated by reference from the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with General Instruction G(3), the information required by
Item 12 has been omitted and is incorporated by reference from the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with General Instruction G(3), the information required by
Item 13 has been omitted and is incorporated by reference from the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
THE LOEWEN GROUP INC.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December
31, 1997, 1996 and 1995
Consolidated Statements of Retained Earnings for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position for the Years
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Supplementary Data: Quarterly Financial data (unaudited)
LOEWEN GROUP INTERNATIONAL, INC.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
172
<PAGE>
Consolidated Statements of Operations and Retained Earnings (Deficit)
for the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position for the Years
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
TLGI MANAGEMENT CORP.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December
31, 1997, 1996 and 1995
Consolidated Statements of Retained Earnings (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Financial Position for the
Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
4103 INVESTMENTS LTD.
Report of Independent Accountants
Balance Sheet as of December 31, 1997
Statements of Operations and Retained Earnings for the Period from
March 24 to December 31, 1997
Notes to Financial Statements
NEWEOL INVESTMENTS LTD. (SEE NOTE 1)
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations and Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
LOEWEN LUXEMBOURG (NO. 1) S.A.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations and Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
173
<PAGE>
LOEWEN LUXEMBOURG (NO. 2) S.A.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations and Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
Schedule II-Valuation and Qualifying Accounts
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by the British
Columbia Registrar of Companies (the "Registrar") on October 30, 1985(1)
3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996(2)
3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March
30, 1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December
21, 1995 and February 7, 1996(1)
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING INDENTURES
4.1.1 Note Agreement, dated for reference September 1, 1993, by and between Loewen and LGII re
9.62% Senior Guaranteed Notes, Series D, due September 11, 2003, issued by Loewen ("Series
D Notes"), as amended on June 10, 1994(1)
4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference
September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes(3)
4.2 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993(1)
4.3.1 Note Agreement by LGII and Loewen re 6.49% Senior Guaranteed Notes, Series E, due February
25, 2004, issued by LGII ("Series E Notes"), dated for reference February 1, 1994(1)
4.3.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference
February 1, 1994, among Loewen, LGII and Teachers Insurance and Annuity Association of
America, re Series E Notes(3)
4.4 Guaranty Agreement by Loewen re Series E Notes, dated for reference February 1, 1994(1)
</TABLE>
174
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
4.5.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14, 1994, amended and
restated as of May 15, 1996 (the "MEIP Credit Agreement"), by and between Loewen Management
Investment Corporation, in its capacity as agent for LGII ("LMIC"), Loewen and the banks
listed therein (the "MEIP Banks") and Wachovia Bank of Georgia, N.A., as agent for the MEIP
Banks ("MEIP Agent")(1)
4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996(4)
4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997(4)
4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997
4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997
4.6 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP Agent(1)
4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent for the ratable
benefit of the MEIP Banks(1)
4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP Agent for the ratable
benefit of the MEIP Banks(1)
4.9 Exchange Acknowledgment by Loewen, with respect to the 1994 Exchangeable Floating Rate
Debentures due July 1, 2001 issued by LGII, dated June 15, 1994(1)
4.10 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, Loewen, as guarantor,
and State Street Bank and Trust Company, as trustee with respect to 9.45% Junior
Subordinated Debentures, Series A, due 2024, issued by LGII and guaranteed by Loewen(5)
4.11 MIPS Guarantee Agreement, dated August 15, 1994(5)
4.12 Zero Coupon Loan Agreement, dated as of November 1, 1994, by and between WLSP Investment
Partners I Neweol Finance B.V., Electrolux Holdings B.V., Man Production Rotterdam B.V.,
Adinvest A.G., and Wachovia Bank of Georgia, N.A.(1)
4.13 Indenture, dated as of March 20, 1996, by and between LGII, as issuer, Loewen, as guarantor
of the obligations of LGII under the Indenture, and Fleet National Bank as Trustee, with
respect to Senior Guaranteed Notes of LGII(6)
4.14 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.13)
4.15 Form of Global Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13)
4.16 Form of Physical Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13)
4.17 Form of Global Series 1 and 2 Exchange Note of LGII(3)
4.18 Form of Physical Series 1 and 2 Exchange Note of LGII(3)
</TABLE>
175
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
4.19 Amended and Restated Credit Agreement, dated as of March 27, 1998 ("BMO Credit Agreement"),
among LGII, as borrower, Loewen, as a guarantor, the lenders named therein, as the lenders,
Goldman, Sachs & Co., as the documentation agent, and Bank of Montreal, as issuer,
swingline lender and administrative and syndication agent
4.20 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as
trustee, Loewen, LGII and various other pledgers(3)
4.21.1 Amended and Restated Operating Credit Agreement, dated for reference July 15, 1996, between
Loewen and Royal Bank of Canada(8)
4.21.2 Third Amendment to Operating Credit Agreement, dated for reference July 15, 1996, among
Loewen, LGII and Royal Bank of Canada(8)
4.22 Indenture, dated as of October 1, 1996, by and between LGII, Loewen and Fleet National Bank,
as trustee, with respect to the Series 3 and 4 Notes(8)
4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in Exhibit 4.22)
4.24 Form of Global Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22)
4.25 Form of Physical Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22)
4.26 Form of Global Series 3 and 4 Exchange Note of LGII(9)
4.27 Form of Physical Series 3 and 4 Exchange Note of LGII(9)
4.28 Indenture, dated as of September 26, 1997, between Loewen, as issuer, LGII, as guarantor, and
The Trust Company of Bank of Montreal, as trustee, with respect to the Series 5 Notes(14)
4.29 Form of Series 5 Guaranteed Note of LGII(14)
4.30 Form of Senior Guarantee of Loewen's Series 5 Note(14)
4.31 Indenture, dated as of September 30, 1997, between LGII, as issuer, Loewen, as guarantor, and
State Street Bank and Trust Company, as trustee, with respect to the Senior Guaranteed
Notes due 2009(14)
4.32 Form of Global Senior Guaranteed Note due 2009 of LGII(14)
4.33 Form of Physical Senior Guaranteed Note due 2009 of LGII(14)
4.34 Form of Senior Guarantee of LGII's Senior Guaranteed Notes due 2009(14)
4.35 Shareholder Protection Rights Plan, dated as of April 20, 1990, as amended on May 24, 1990
and April 7, 1994 and reconfirmed on May 17, 1995(1)
4.36 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor, and Fleet National
Bank, as trustee(7)
4.37 Loewen and LGII hereby agree to furnish to the Commission, upon request, a copy of the
instruments which define the rights of holders of long-term debt of Loewen and LGII. None
of such instruments not included as exhibits herein collectively represents long-term debt
in excess of 10% of the consolidated total assets of Loewen or LGII.
10 MATERIAL CONTRACTS
</TABLE>
176
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris Holding
Corporation and LGII(10)
10.2 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable Convertible
First Preferred Shares, Series C, of Loewen ("Series C Shares")(6)
10.3 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996, to vote in
favor of the motion to subdivide the Series C Shares(6)
10.4 Settlement Agreement, dated as of February 1, 1996, by and between Loewen, LGII and
affiliated entities and J.J. O'Keefe, Sr., Gulf National Life Insurance Company and
affiliated entities(6)
10.5 Shareholders' Agreement, dated as of February 9, 1996, by and between Loewen, LGII, J.J.
O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities, and certain
individuals and law firms named therein(6)
10.6 Settlement Agreement and Mutual General Release effective as of February 12, 1996, entered
into on March 19, 1996, by and between Provident American Corporation, Provident Indemnity
Life Insurance Company, Loewen and LGII(6)
10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII, Loewen and
the Initial Purchasers named therein(6)
10.8 Asset Purchase Agreement, dated as of March 26, 1996, by and between LLI, Inc., and LLPC,
Inc. and S.I. Acquisition Associates, L.P.(6)
10.9 Asset Purchase Agreement, dated as of March 26, 1996, by and between Loewen Louisiana
Holdings, Inc. and S.I. Acquisition Associates, L.P.(6)
10.10 Letter Agreement, dated August 8, 1997, by and between Loewen and Service Corporation
International
*10.11 Form of Indemnification Agreement with Outside Directors(11)
*10.12 Form of Indemnification Agreement with Officers(11)
*10.13 Form of Loewen Severance Agreement(11)
*10.14 Loewen Severance Pay Plan(11)
*10.15 1994 Management Equity Investment Plan (the "MEIP")(1)
*10.16 Form of Executive Agreement executed by participants in the MEIP(5)
*10.17 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and
further amended as at August 15, 1997
*10.18 Employee Stock Option Plan (United States), as restated and amended as at March 11, 1998
*10.19 Employee Stock Option Plan (Canada), as restated and amended as at August 15, 1997
*10.20 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp(1)
*10.21 Employment Agreement, dated March 6, 1990, by and between Loewen and Peter S. Hyndman(1)
*10.22 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between
LGII and Albert S. Lineberry, Sr.(1)
</TABLE>
177
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
*10.23 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes(1)
*10.24 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII,
and Corporate Services International Inc.(1)
*10.25 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler(5)
*10.26 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence
Miller(1)
*10.27.1 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane
("Shane Employment Agreement")(1)
*10.27.2 Amendment No. 1 to Shane Employment Agreement, dated February 23, 1998, by and between Loewen
and William R. Shane
*10.28 Employment Agreement, dated April 30, 1996, by and between Loewen and Grant Ballantyne(5)
*10.29 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and between Loewen and
Douglas J. McKinnon(5)
*10.30 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and
Robert O. Wienke(5)
*10.31 Employment Agreement, dated October 3, 1997, by and between Loewen and F. Andrew Scott
*10.32 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon
*10.33 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon
*10.34 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
12 STATEMENT RE COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
12.1 Statement re Computation of Earnings to Fix Charges Ratio (Canadian GAAP)
12.2 Statement re Computation of Earnings to Fix Charges Ratio (U.S. GAAP)
21 SUBSIDIARIES OF LOEWEN
23 CONSENTS OF EXPERTS
23.1 Consent of KPMG
23.2 Consent of KPMG Audit
24 POWERS OF ATTORNEY (included in the signature pages to this report)
27 FINANCIAL DATA SCHEDULE
99 ADDITIONAL EXHIBITS
99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc. the
other individuals or entities listed on the signature pages thereof, Loewen and Blackhawk
Acquisition Corp.(12)
</TABLE>
178
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
99.2 Put/Call Agreement, dated as of August 25, 1996, by and among Blackstone, Blackstone Offshore
Capital Partners II L.P. ("Blackstone Offshore"), Blackstone Family Investment Partnership
II L.P. ("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and Loewen(15)
99.3 Stockholders' Agreement, dated as of August 26, 1996, by and among Prime Succession, inc. (to
be renamed Prime Succession Holdings, Inc.), Blackstone, Blackstone Offshore, Blackstone
Family, PSI and LGII(12)
99.4 Subscription Agreement, dated as of November 19, 1996, by and among Rose Hills Holdings Corp.
("Rose Hills"), Blackstone, Blackstone Rose Hills Offshore Capital Partners L.P.
("Blackstone Rose Hills"), Blackstone Family, Roses Delaware, Inc. ("RDI"), Loewen, LGII
and RHI Management Direct, L.P. ("RHI")(13)
99.5 Put/Call Agreement, dated as of November 19, 1996, by and among Blackstone, Blackstone
Offshore, Blackstone Family, Blackstone Rose Hills, LGII, RDI, Loewen and RHI(13)
99.6 Stockholders' Agreement, dated as of November 19, 1996, by and among Rose Hills, Blackstone,
Blackstone Rose Hills, Blackstone Family, RDI, LGII and RHI(13)
</TABLE>
- ------------------------
* Compensatory plan or management contract
(1) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 31, 1995 (File No. 0-18429)
(2) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed on August 15, 1996 (File No. 0-18429)
(3) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended (File No. 333-03135)
(4) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, filed on May 13, 1997 (File No. 1-12163)
(5) Incorporated by reference from the combined Registration Statement on Form
F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File Nos.
33-81032 and 33-81034)
(6) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1995, filed on March 28, 1996, as amended (File No.
0-18429)
(7) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File No. 333-23747)
(8) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 14, 1996 (File No.
1-12163)
(9) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on November 18, 1996, as amended (File Nos. 333-16319 and
333-16319-01)
(10) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No.
1, dated April 18, 1995, filed May 5, 1995 (File No. 0-18429)
(11) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
179
<PAGE>
(12) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 11, 1996, as amended October 30, 1996 (File
No. 0-18429)
(13) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)
(14) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed on November 14, 1997 (File No.
1-12163)
(15) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A No.
1, dated August 26, 1996, filed October 29, 1996 (File No. 0-18429)
(b) REPORTS ON FORM 8-K
The following Current Reports on Form 8-K were filed by Loewen during the
last quarter of fiscal 1997:
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
- ------------------------------ ------------------------ ---------------------------------------------
<S> <C> <C>
October 6, 1997 (dated October Item 5. Other Events Press release announcing the expansion of
2, 1997) Loewen's bank credit facility to U.S. $1
billion and the completion of two debt
financings, one in Canada for Cdn. $200
million and another in the United States for
U.S. $300 million
November 6, 1997 (dated Item 5. Other Events Press release announcing the appointment of
November 5, 1997) two senior executives and the establishment
of an Executive Committee
November 12, 1997 (dated Item 5. Other Events Press release announcing third quarter
November 6, 1997) financial results
November 18, 1997 (dated Item 5. Other Events Press release announcing the sale of Loewen's
November 17, 1997) minority interest in Arbor Memorial Services
Inc.
November 18, 1997 (dated Item 5. Other Events Press release announcing Raymond L. Loewen's
November 17, 1997) increase in share ownership
December 9, 1997 (dated Item 5. Other Events Press release announcing cash dividends on
December 8, 1997) Common and Preferrred Shares
December 12, 1997 (dated Item 5. Other Events Press release announcing Raymond L. Loewen's
December 10, 1997) increase in share ownership
</TABLE>
(d) Financial Statements of LGII, TLGI Management Corp., 4103 Investments
Ltd., Neweol Investments Ltd., Loewen Luxembourg (No. 1) S.A. and Loewen
Luxembourg (No. 2) S.A. are included in this Annual Report on Form 10-K
because the outstanding shares of each of such companies constitute a
"substantial portion" of the collateral (within the meaning of Securities
and Exchange Commission Rule 3-10 under Regulation S-X) that secures the
Series 1 through 4 Notes that were issued by LGII and guaranteed by
Loewen.
180
<PAGE>
THE LOEWEN GROUP INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997
(IN THOUSANDS OF US $)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) END OF PERIOD
- --------------------------------------------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current -- Allowance for contract
cancellations and doubtful accounts
Year ended December 31, 1997................. 27,717 32,350 2,802 (30,000) 32,869
Year ended December 31, 1996................. 19,666 16,427 9,468 (17,844) 27,717
Year ended December 31, 1995................. 12,733 7,952 3,855 (4,874) 19,666
Due after one year -- Allowance for contract
cancellations and doubtful accounts
Year ended December 31, 1997................. 19,848 26,042 2,372 (23,009) 25,253
Year ended December 31, 1996................. 10,861 18,323 10,564 (19,900) 19,848
Year ended December 31, 1995................. 5,673 7,139 2,450 (4,401) 10,861
</TABLE>
- ------------------------------
(1) Primarily the opening balance for acquired companies
(2) Uncollected receivables written off, net of recoveries
181
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE LOEWEN GROUP INC.
Dated: March 30, 1998 By: /s/ RAYMOND L. LOEWEN
-----------------------------------------
Raymond L. Loewen
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Raymond L. Loewen
and Paul Wagler, and each of them severally, acting alone and without the other,
his true and lawful attorney-in-fact with authority to execute in the name of
each such person, and to file with the Securities and Exchange Commission,
together with any exhibits thereto and other documents therewith, any and all
amendments (including without limitation post-effective amendments) to this
report necessary or advisable to enable the registrant to comply with the
Securities Exchange Act of 1934, and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, which amendments may
make such changes in this report as the aforesaid attorney-in-fact deems
appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Dated: March 30, 1998 By: /s/ RAYMOND L. LOEWEN
------------------------------------------
Name: Raymond L. Loewen
Title: CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Dated: March 30, 1998 By: /s/ PAUL WAGLER
------------------------------------------
Name: Paul Wagler
Title: SENIOR VICE-PRESIDENT,
FINANCE AND CHIEF FINANCIAL OFFICER AND
DIRECTOR
(PRINCIPAL FINANCIAL OFFICER)
Dated: March 30, 1998 By: /s/ WM. GRANT BALLANTYNE
------------------------------------------
Name: Wm. Grant Ballantyne
Title: SENIOR VICE-PRESIDENT,
FINANCIAL CONTROL AND ADMINISTRATION
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
182
<PAGE>
<TABLE>
<S> <C> <C>
Dated: March 30, 1998 By: /s/ KENNETH S. BAGNELL
------------------------------------------
Name: Kenneth S. Bagnell
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ THE HONORABLE J. CARTER BEESE, JR.
------------------------------------------
Name: The Honorable J. Carter Beese, Jr.
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ EARL A. GROLLMAN
------------------------------------------
Name: Earl A. Grollman
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ TIMOTHY R. HOGENKAMP
------------------------------------------
Name: Timothy R. Hogenkamp
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ PETER S. HYNDMAN
------------------------------------------
Name: Peter S. Hyndman
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ ALBERT S. LINEBERRY, SR.
------------------------------------------
Name: Albert S. Lineberry, Sr.
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ CHARLES B. LOEWEN
------------------------------------------
Name: Charles B. Loewen
Title: DIRECTOR
</TABLE>
183
<PAGE>
<TABLE>
<S> <C> <C>
Dated: March 30, 1998 By: /s/ ROBERT B. LUNDGREN
------------------------------------------
Name: Robert B. Lundgren
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ JAMES D. MCLENNAN
------------------------------------------
Name: James D. McLennan
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ LAWRENCE MILLER
------------------------------------------
Name: Lawrence Miller
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ ERNEST G. PENNER
------------------------------------------
Name: Ernest G. Penner
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ KENNETH T. STEVENSON
------------------------------------------
Name: Kenneth T. Stevenson
Title: DIRECTOR
Dated: March 30, 1998 By: /s/ THE RIGHT HONOURABLE JOHN N. TURNER
------------------------------------------
Name: The Right Honourable John N. Turner,
P.C., C.C., Q.C
Title: DIRECTOR
</TABLE>
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
The undersigned is the Registrant's authorized representative in the United
States.
<TABLE>
<S> <C> <C>
Dated: March 30, 1998 By: /s/ LARRY MILLER
------------------------------------------
Name: Larry Miller
</TABLE>
184
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ----------------------------------------------------------------------------------------------------------------
<C> <S>
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of The Loewen Group Inc. ("Loewen") issued by the British
Columbia Registrar of Companies (the "Registrar") on October 30, 1985(1)
3.2 Altered Memorandum of Loewen, filed with the Registrar on June 21, 1996(2)
3.3 Articles of Loewen, restated, filed with the Registrar on March 1, 1988, as amended on March
30, 1988, April 21, 1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29, 1994, December
21, 1995 and February 7, 1996(1)
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY-HOLDERS, INCLUDING INDENTURES
4.1.1 Note Agreement, dated for reference September 1, 1993, by and between Loewen and LGII re
9.62% Senior Guaranteed Notes, Series D, due September 11, 2003, issued by Loewen ("Series
D Notes"), as amended on June 10, 1994(1)
4.1.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference
September 1, 1993, among Loewen, LGII and institutions named therein, re Series D Notes(3)
4.2 Guaranty Agreement by LGII re Series D Notes, dated for reference April 1, 1993(1)
4.3.1 Note Agreement by LGII and Loewen re 6.49% Senior Guaranteed Notes, Series E, due February
25, 2004, issued by LGII ("Series E Notes"), dated for reference February 1, 1994(1)
4.3.2 Second Amendment, dated for reference May 15, 1996, to Note Agreement, dated for reference
February 1, 1994, among Loewen, LGII and Teachers Insurance and Annuity Association of
America, re Series E Notes(3)
4.4 Guaranty Agreement by Loewen re Series E Notes, dated for reference February 1, 1994(1)
4.5.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of June 14, 1994, amended and
restated as of May 15, 1996 (the "MEIP Credit Agreement"), by and between Loewen Management
Investment Corporation, in its capacity as agent for LGII ("LMIC"), Loewen and the banks
listed therein (the "MEIP Banks") and Wachovia Bank of Georgia, N.A., as agent for the MEIP
Banks ("MEIP Agent")(1)
4.5.2 First Amendment to the MEIP Credit Agreement, dated as of December 2, 1996(4)
4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of April 30, 1997(4)
4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of May 21, 1997
4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of September 29, 1997
4.6 Security Agreement, dated as of June 14, 1994, by and between LMIC and the MEIP Agent(1)
4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the MEIP Agent for the ratable
benefit of the MEIP Banks(1)
4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of the MEIP Agent for the ratable
benefit of the MEIP Banks(1)
4.9 Exchange Acknowledgment by Loewen, with respect to the 1994 Exchangeable Floating Rate
Debentures due July 1, 2001 issued by LGII, dated June 15, 1994(1)
4.10 Indenture, dated as of August 15, 1994, by and between LGII, as issuer, Loewen, as guarantor,
and State Street Bank and Trust Company, as trustee with respect to 9.45% Junior
Subordinated Debentures, Series A, due 2024, issued by LGII and guaranteed by Loewen(5)
4.11 MIPS Guarantee Agreement, dated August 15, 1994(5)
4.12 Zero Coupon Loan Agreement, dated as of November 1, 1994, by and between WLSP Investment
Partners I Neweol Finance B.V., Electrolux Holdings B.V., Man Production Rotterdam B.V.,
Adinvest A.G., and Wachovia Bank of Georgia, N.A.(1)
4.13 Indenture, dated as of March 20, 1996, by and between LGII, as issuer, Loewen, as guarantor
of the obligations of LGII under the Indenture, and Fleet National Bank as Trustee, with
respect to Senior Guaranteed Notes of LGII(6)
4.14 Form of Senior Guarantee of LGII's Series 1 and 2 Notes (included in Exhibit 4.13)
4.15 Form of Global Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13)
<PAGE>
4.16 Form of Physical Series 1 and 2 Outstanding Note of LGII (included in Exhibit 4.13)
4.17 Form of Global Series 1 and 2 Exchange Note of LGII(3)
4.18 Form of Physical Series 1 and 2 Exchange Note of LGII(3)
4.19 Amended and Restated Credit Agreement, dated as of March 27, 1998 ("BMO Credit Agreement"),
among LGII, as borrower, Loewen, as a guarantor, the lenders named therein, as the lenders,
Goldman, Sachs & Co., as the documentation agent, and Bank of Montreal, as issuer,
swingline lender and administrative and syndication agent
4.20 Collateral Trust Agreement, dated as of May 15, 1996, among Bankers Trust Company, as
trustee, Loewen, LGII and various other pledgers(3)
4.21.1 Amended and Restated Operating Credit Agreement, dated for reference July 15, 1996, between
Loewen and Royal Bank of Canada(8)
4.21.2 Third Amendment to Operating Credit Agreement, dated for reference July 15, 1996, among
Loewen, LGII and Royal Bank of Canada(8)
4.22 Indenture, dated as of October 1, 1996, by and between LGII, Loewen and Fleet National Bank,
as trustee, with respect to the Series 3 and 4 Notes(8)
4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Notes (included in Exhibit 4.22)
4.24 Form of Global Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22)
4.25 Form of Physical Series 3 and 4 Outstanding Note of LGII (included in Exhibit 4.22)
4.26 Form of Global Series 3 and 4 Exchange Note of LGII(9)
4.27 Form of Physical Series 3 and 4 Exchange Note of LGII(9)
4.28 Indenture, dated as of September 26, 1997, between Loewen, as issuer, LGII, as guarantor, and
The Trust Company of Bank of Montreal, as trustee, with respect to the Series 5 Notes(14)
4.29 Form of Series 5 Guaranteed Note of LGII(14)
4.30 Form of Senior Guarantee of Loewen's Series 5 Note(14)
4.31 Indenture, dated as of September 30, 1997, between LGII, as issuer, Loewen, as guarantor, and
State Street Bank and Trust Company, as trustee, with respect to the Senior Guaranteed
Notes due 2009(14)
4.32 Form of Global Senior Guaranteed Note due 2009 of LGII(14)
4.33 Form of Physical Senior Guaranteed Note due 2009 of LGII(14)
4.34 Form of Senior Guarantee of LGII's Senior Guaranteed Notes due 2009(14)
4.35 Shareholder Protection Rights Plan, dated as of April 20, 1990, as amended on May 24, 1990
and April 7, 1994 and reconfirmed on May 17, 1995(1)
4.36 Form of Indenture by and between LGII, as issuer, Loewen, as guarantor, and Fleet National
Bank, as trustee(7)
4.37 Loewen and LGII hereby agree to furnish to the Commission, upon request, a copy of the
instruments which define the rights of holders of long-term debt of Loewen and LGII. None
of such instruments not included as exhibits herein collectively represents long-term debt
in excess of 10% of the consolidated total assets of Loewen or LGII.
10 MATERIAL CONTRACTS
10.1 Stock Purchase Agreement, dated as of March 16, 1995, by and between Osiris Holding
Corporation and LGII(10)
10.2 Receipt Agreement, dated as of January 3, 1996, for the Cumulative Redeemable Convertible
First Preferred Shares, Series C, of Loewen ("Series C Shares")(6)
10.3 Undertaking by Raymond L. Loewen and Anne Loewen, dated as of January 3, 1996, to vote in
favor of the motion to subdivide the Series C Shares(6)
10.4 Settlement Agreement, dated as of February 1, 1996, by and between Loewen, LGII and
affiliated entities and J.J. O'Keefe, Sr., Gulf National Life Insurance Company and
affiliated entities(6)
<PAGE>
10.5 Shareholders' Agreement, dated as of February 9, 1996, by and between Loewen, LGII, J.J.
O'Keefe, Sr., Gulf National Life Insurance Company and affiliated entities, and certain
individuals and law firms named therein(6)
10.6 Settlement Agreement and Mutual General Release effective as of February 12, 1996, entered
into on March 19, 1996, by and between Provident American Corporation, Provident Indemnity
Life Insurance Company, Loewen and LGII(6)
10.7 Registration Rights Agreement, dated as of March 20, 1996, by and between LGII, Loewen and
the Initial Purchasers named therein(6)
10.8 Asset Purchase Agreement, dated as of March 26, 1996, by and between LLI, Inc., and LLPC,
Inc. and S.I. Acquisition Associates, L.P.(6)
10.9 Asset Purchase Agreement, dated as of March 26, 1996, by and between Loewen Louisiana
Holdings, Inc. and S.I. Acquisition Associates, L.P.(6)
10.10 Letter Agreement, dated August 8, 1997, by and between Loewen and Service Corporation
International
*10.11 Form of Indemnification Agreement with Outside Directors(11)
*10.12 Form of Indemnification Agreement with Officers(11)
*10.13 Form of Loewen Severance Agreement(11)
*10.14 Loewen Severance Pay Plan(11)
*10.15 1994 Management Equity Investment Plan (the "MEIP")(1)
*10.16 Form of Executive Agreement executed by participants in the MEIP(5)
*10.17 1994 Outside Director Compensation Plan, as restated and amended as at January 9, 1997, and
further amended as at August 15, 1997
*10.18 Employee Stock Option Plan (United States), as restated and amended as at March 11, 1998
*10.19 Employee Stock Option Plan (Canada), as restated and amended as at August 15, 1997
*10.20 Employment Agreement, dated August 19, 1988, by and between Loewen and Tim Hogenkamp(1)
*10.21 Employment Agreement, dated March 6, 1990, by and between Loewen and Peter S. Hyndman(1)
*10.22 Employment Agreement, and Covenant Not to Compete, dated November 14, 1990, by and between
LGII and Albert S. Lineberry, Sr.(1)
*10.23 Employment Agreement, dated April 12, 1991, by and between Loewen and Dwight Hawes(1)
*10.24 Consulting Agreement, dated July 18, 1994, by and between Loewen and Charles B. Loewen, LGII,
and Corporate Services International Inc.(1)
*10.25 Employment Letter, dated March 10, 1995, by Raymond L. Loewen to Paul Wagler(5)
*10.26 Employment Agreement, dated March 17, 1995, by and between Loewen, LGII and Lawrence
Miller(1)
*10.27.1 Employment Agreement, dated March 17, 1995, by and between Loewen and William R. Shane
("Shane Employment Agreement")(1)
*10.27.2 Amendment No. 1 to Shane Employment Agreement, dated February 23, 1998, by and between Loewen
and William R. Shane
*10.28 Employment Agreement, dated April 30, 1996, by and between Loewen and Grant Ballantyne(5)
*10.29 Employment Agreement, dated May 1, 1996, amended July 18, 1996 by and between Loewen and
Douglas J. McKinnon(5)
*10.30 Resignation and Release Agreement, effective June 10, 1996, by and between Loewen, LGII and
Robert O. Wienke(5)
*10.31 Employment Agreement, dated October 3, 1997, by and between Loewen and F. Andrew Scott
*10.32 Employment Agreement, dated October 31, 1997, by and between Loewen and Michael G. Weedon
*10.33 Severance Agreement, dated November 4, 1997, by and between Loewen and Douglas J. McKinnon
*10.34 Employment Agreement, dated January 30, 1998, by and between Loewen and Brad Stam
<PAGE>
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
12 STATEMENT RE COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
12.1 Statement re Computation of Earnings to Fix Charges Ratio (Canadian GAAP)
12.2 Statement re Computation of Earnings to Fix Charges Ratio (U.S. GAAP)
21 SUBSIDIARIES OF LOEWEN
23 CONSENTS OF EXPERTS
23.1 Consent of KPMG
23.2 Consent of KPMG Audit
24 POWERS OF ATTORNEY (included in the signature pages to this report)
27 FINANCIAL DATA SCHEDULE
99 ADDITIONAL EXHIBITS
99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and among Prime Succession, Inc. the
other individuals or entities listed on the signature pages thereof, Loewen and Blackhawk
Acquisition Corp.(12)
99.2 Put/Call Agreement, dated as of August 26, 1996, by and among Blackstone, Blackstone Offshore
Capital Partners II L.P. ("Blackstone Offshore"), Blackstone Family Investment Partnership
II L.P. ("Blackstone Family"), PSI Management Direct L.P. ("PSI"), LGII and Loewen(15)
99.3 Stockholders' Agreement, dated as of August 26, 1996, by and among Prime Succession, inc. (to
be renamed Prime Succession Holdings, Inc.), Blackstone, Blackstone Offshore, Blackstone
Family, PSI and LGII(12)
99.4 Subscription Agreement, dated as of November 19, 1996, by and among Rose Hills Holdings Corp.
("Rose Hills"), Blackstone, Blackstone Rose Hills Offshore Capital Partners L.P.
("Blackstone Rose Hills"), Blackstone Family, Roses Delaware, Inc. ("RDI"), Loewen, LGII
and RHI Management Direct, L.P. ("RHI")(13)
99.5 Put/Call Agreement, dated as of November 19, 1996, by and among Blackstone, Blackstone
Offshore, Blackstone Family, Blackstone Rose Hills, LGII, RDI, Loewen and RHI(13)
99.6 Stockholders' Agreement, dated as of November 19, 1996, by and among Rose Hills, Blackstone,
Blackstone Rose Hills, Blackstone Family, RDI, LGII and RHI(13)
</TABLE>
- ------------------------
* Compensatory plan or management contract
(1) Incorporated by reference from Loewen's Annual Report on Form 10-K for
the year ended December 31, 1994, filed on March 31, 1995 (File No.
0-18429)
(2) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, filed on August 15, 1996 (File No.
0-18429)
(3) Incorporated by reference from the Registration Statement on Form S-4
filed by Loewen on May 3, 1996, as amended (File No. 333-03135)
(4) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, filed on May 13, 1997 (File No.
1-12163)
(5) Incorporated by reference from the combined Registration Statement on
Form F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File
Nos. 33-81032 and 33-81034)
(6) Incorporated by reference from Loewen's Annual Report on Form 10-K for
the year ended December 31, 1995, filed on March 28, 1996, as amended
(File No. 0-18429)
(7) Incorporated by reference from the Registration Statement on Form S-3
filed by Loewen and LGII on March 21, 1997, as amended (File No.
333-23747)
<PAGE>
(8) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, filed on November 14, 1996
(File No. 1-12163)
(9) Incorporated by reference from the Registration Statement on Form S-4
filed by LGII and Loewen on November 18, 1996, as amended (File Nos.
333-16319 and 333-16319-01)
(10) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A
No. 1, dated April 18, 1995, filed May 5, 1995 (File No. 0-18429)
(11) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(12) Incorporated by reference from Loewen's Periodic Report on Form 8-K,
dated August 26, 1996, filed October 11, 1996, as amended October 30,
1996 (File No. 0-18429)
(13) Incorporated by reference from Loewen's Periodic Report on Form 8-K,
dated November 19, 1996, filed December 27, 1996 (File No. 1-12163)
(14) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, filed on November 14, 1997
(File No. 1-12163)
(15) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A
No. 1, dated August 26, 1996, filed October 29, 1996 (File No. 0-18429)
<PAGE>
AMENDMENT NUMBER THREE
DATED AS OF MAY 31, 1997
TO
$121,300,000 AMENDED AND RESTATED 1994 MEIP CREDIT AGREEMENT
DATED AS OF JUNE 14, 1994
AND
AMENDED AND RESTATED AS OF MAY 15, 1996
THIS AMENDMENT NUMBER THREE (this "AMENDMENT") is executed as of the
21st day of May, 1997, among LOEWEN MANAGEMENT INVESTMENT CORPORATION
("LMIC"), in its capacity as Agent for LOEWEN GROUP INTERNATIONAL, INC. (the
"BORROWER" or "LGII"), THE LOEWEN GROUP INC. ("TLGI"), the BANKS party to the
Credit Agreement (collectively, the "BANKS"), and WACHOVIA BANK OF GEORGIA,
N.A., as agent (the "AGENT").
W I T N E S S E T H:
WHEREAS, LMIC, acting in its capacity as agent for the Borrower, TLGI,
the Banks and the Agent entered into a $121,300,000 Amended and Restated 1994
MEIP Credit Agreement dated as of June 14, 1994, as amended and restated as
of May 15, 1996, as further amended by Amendment Number One dated as of
December 2, 1996, and as further amended by Amendment Number Two dated as of
April 30, 1997 (the "CREDIT AGREEMENT") terms defined in the Credit Agreement
being used herein as therein defined unless otherwise defined herein);
WHEREAS, TLGI and LGII have each guaranteed the Obligations of the
Borrower under the Credit Agreement, and
WHEREAS, the Borrower, TLGI, LMIC, and LGII (collectively, the "CREDIT
PARTIES") have requested that the Banks make an additional amendment to the
Credit Agreement and waive a certain Default existing thereunder, and the
Banks have agreed to do so, but only to the extent and subject to the
limitations set forth herein;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENT. Section 5.07 of the Credit Agreement is hereby
amended to read as follows:
"SECTION 5.07 LOANS OR ADVANCES. Neither TLGI nor any of its
Subsidiaries (including, without limitation, LGII) shall make loans or
advances to any Person except: (i) loans or advances to employees not
-1-
<PAGE>
exceeding $15,000,000 in the aggregate principal amount outstanding at
any time, in each case made in the ordinary course of business and
consistent with practices existing on the Closing Date, (ii) deposits
required by government agencies or public utilities, and (iii) loans or
advances which constitute Investments permitted by Section 5.08;
provided that after giving effect to the making of any loans, advances
or deposits permitted by this Section, no Default shall be in existence."
SECTION 2. WAIVER OF DEFAULT. Subject to the terms and conditions of
this Amendment, the Agent and the Banks hereby waive any Default or Event of
Default existing on the date hereof and arising solely by reasons of defaults
under Section 5.07 of the Credit Agreement as a result of the aggregate
amount of loans advanced to employees of TLGI and its Subsidiaries (including
LGII) exceeding $5,000,000 in principal amount. The foregoing waiver shall
apply only to the matter specified herein and shall not constitute a waiver
by the Agent or the Banks of any other or future Default or Event of Default.
SECTION 3. REAFFIRMATION OF GUARANTIES. The Credit Parties (a) consent
to the terms and provisions of this Amendment provided for herein, (b)
reaffirm their obligations under their respective Guaranties, and (c) confirm
that their respective Guaranties remain in full force and effect with
respect to the Credit Agreement notwithstanding the waiver and amendment
provided for herein.
SECTION 4. EFFECTIVENESS. This Amendment shall become effective only
after the Agent shall have received one or more counterparts of this
Amendment, in form and substance satisfactory to the Agent and its counsel,
duly executed by the Credit Parties, the Agent and the Required Banks.
SECTION 5. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each of
the Credit Parties hereby represents and warrants that as of the date of its
execution of this Amendment and the date of its effectiveness, in each case
after giving effect to the waiver and amendment provided for herein:
(a) There exists no Default or Event of Default under the Credit
Agreement;
(b) The representations and warranties contained in Article IV of
the Credit Agreement are true and correct as of such dates, except to the
extent any such representation or warranty is stated to relate solely to an
earlier date, in which case such representation or warranty shall be true and
correct on and as of such earlier date; and
(c) No default, unmatured default or similar event exists under
any agreement, instrument or other document evidencing or related to Debt of
any Credit Party or any Subsidiary thereof.
-2-
<PAGE>
SECTION 6. EFFECT. Except as otherwise expressly provided herein, the
Credit Agreement is and shall continue in full force and effect and is hereby
ratified and confirmed.
SECTION 7. GOVERNING LAW. THIS AMENDMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OR CONFLICTS)
OF THE STATE OF GEORGIA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.
SECTION 8. SEVERABILITY. Each provision of this Amendment shall be
severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any provision hereof, and the
unenforceability of one or more provisions of this Amendment in one
jurisdiction shall not have the effect of rendering such provision or
provisions unenforceable in any other jurisdiction.
SECTION 9. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
LOEWEN MANAGEMENT INVESTMENT
CORPORATION, IN ITS CAPACITY AS AGENT
FOR LOEWEN GROUP INTERNATIONAL, INC.,
AS BORROWER
By:_____________________________
Print Name:_____________________
Title:__________________________
LOEWEN GROUP INTERNATIONAL, INC., AS
GUARANTOR
By:_____________________________
Print Name:_____________________
Title:__________________________
THE LOEWEN GROUP INC.
By:_____________________________
Print Name:_____________________
Title:__________________________
-4-
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.,
INDIVIDUALLY AND AS AGENT
By:_____________________________
Print Name:_____________________
Title:__________________________
ROYAL BANK OF CANADA
By:_____________________________
Print Name:_____________________
Title:__________________________
THE FIRST NATIONAL BANK OF CHICAGO
By:_____________________________
Print Name:_____________________
Title:__________________________
BANK OF MONTREAL
By:_____________________________
Print Name:_____________________
Title:__________________________
STAR BANK, N.A.
By:_____________________________
Print Name:_____________________
Title:__________________________
-5-
<PAGE>
AMENDMENT NUMBER FOUR
DATED AS OF SEPTEMBER 29, 1997
TO
$121,300,000 AMENDED AND RESTATED 1994 MEIP CREDIT AGREEMENT
DATED AS OF JUNE 14, 1994
AND
AMENDED AND RESTATED AS OF MAY 15, 1996
THIS AMENDMENT NUMBER FOUR (this "AMENDMENT") is executed as of the 29th
day of September, 1997, among LOEWEN MANAGEMENT INVESTMENT CORPORATION
("LMIC"), in its capacity as Agent for LOEWEN GROUP INTERNATIONAL, INC. (the
"BORROWER" or "LGII"), THE LOEWEN GROUP INC. ("TLGI"), the BANKS party to the
Credit Agreement (collectively, the "BANKS"), and WACHOVIA BANK, N.A., as
agent (the "AGENT").
W I T N E S S E T H:
WHEREAS, LMIC, acting in its capacity as agent for the Borrower, TLGI,
the Banks and the Agent entered into a $121,300,000 Amended and Restated 1994
MEIP Credit Agreement dated as of June 14, 1994, as amended and restated as
of May 15, 1996, as further amended by Amendment Number One dated as of
December 2, 1996, as further amended by Amendment Number Two as of April 30,
1997, and as further amended by Amendment Number Three dated as of May 21,
1997 (the "CREDIT AGREEMENT;" terms defined in the Credit Agreement being
used herein as therein defined unless otherwise defined herein);
WHEREAS, TLGI and LGII have each guaranteed the Obligations of the
Borrower under the Credit Agreement; and
WHEREAS, the Borrower, TLGI, LMIC, and LGII (collectively, the "CREDIT
PARTIES") have requested that the Banks make an additional amendment to the
Credit Agreement, and the Banks have agreed to do so, but only to the extent
and subject to the limitations set forth herein;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENTS. The Credit Agreement shall be amended as
follows:
(a) The definitions of the terms "APPLICABLE MARTIN", "BANK OF MONTREAL
CREDIT AGREEMENT", "FINANCE SUBSIDIARY", "INDEBTEDNESS" and "TERMINATION
DATE" contained in Section 1.01 of the Credit Agreement are hereby amended to
read as follows:
"APPLICABLE MARGIN" means a per annum rate determined from
time to time by reference to TLGI's senior unsecured and
unenhanced
<PAGE>
(except, if applicable, pursuant to the Collateral Trust Agreement)
long-term debt rating as specified on SCHEDULE 2 hereto. Any change
in the Applicable Margin resulting from a change in TLGI's debt
ratings will take effect as of the date of the debt ratings change.
"BANK OF MONTREAL CREDIT AGREEMENT" means that certain U.S.
$1,000,000,000 Amended and Restated Credit Agreement, dated as of
September 29, 1997, among LGII, as Borrower, TLGI, as a
Guarantor, the Lenders parties thereto, as Lenders, Goldman Sachs
Credit Partners, L.P., as Documentation Agent, and Bank of
Montreal, as L/C Issuer, Swing Line Lender and Administrative and
Syndication Agent, together with all amendments or modifications
thereto.
"FINANCE SUBSIDIARY" means any captive finance Subsidiary of
TLGI that engages in no material activity other than (i) buying
accounts receivable or other financial assets of any Affiliate of
TLGI, (ii) making loans or otherwise extending credit to any such
Affiliates, (iii) succeeding to (or having succeeded to) any or
all of the business of LFW or Eagle or otherwise engaging in
finance activities similar to the finance activities engaged in
by LFW or Eagle from time to time, or (iv) making Investments in
other Finance Subsidiaries.
"INDEBTEDNESS" of a Person means, without duplication, such
Person's (a) obligations for borrowed money, (b) obligations
representing the deferred purchase price of Property or services
(other than accounts payable arising in the ordinary course of
such Person's business payable on terms customary in the trade),
(c) obligations, whether or not assumed, secured by Liens on or
payable out of the proceeds or production from Property now or
hereafter owned or acquired by such Person, (d) obligations which
are evidenced by notes, acceptances, or other instruments (but
exclusive of notes, bills and checks presented in the ordinary
course of business by such Person to banks for collection or
deposit), (e) Capitalized Lease Obligations, (f) Synthetic Lease
Obligations, (g) Securitization Obligations, (h) Financial
Undertakings, (i) Contingent Obligations, and (j) obligations
under or in connection with letters of credit; but excluding, in
any event, (x) amounts payable by such Person in respect of
covenants not to compete, (y) with reference to TLGI, LGII and
the other Subsidiaries, all obligations of TLGI, LGII and the
other Subsidiaries of the character referred to in this
definition to the extent owing to TLGI, LGII or any other
Subsidiary and (z) Securitization Obligations of such Person
except to the extent of the maximum contractual liability of such
Person under the documentation for the related securitization
transaction giving rise to such Securitization Obligations for
losses or defaults which are attributable to the obligors of the
Receivables included in such securitization transaction.
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<PAGE>
"TERMINATION DATE" means July 15, 2001.
(b) The following definitions of the new terms "COLLATERAL RELEASE
DATE", "CONSOLIDATED REVENUES", "EXCESS LEVERAGE MARGIN" and "EXCESS LEVERAGE
RATIO" are hereby added to and incorporated into Section 1.01 of the Credit
Agreement.
"COLLATERAL RELEASE DATE" has the meaning specified in Section
5.28.
"CONSOLIDATED REVENUES" for any period shall mean the gross
revenues of TLGI and LGII and the other Subsidiaries for such
period, determined on a consolidated basis after eliminating
revenues attributable to outstanding Minority Interests
determined in accordance by GAAP.
"EXCESS Leverage MARGIN" means a per annum rate determined
from time to time by reference to SCHEDULE 2 hereto whenever the
Excess Leverage Ratio exceeds 5.00 to 1.00 as determined for the
four consecutive fiscal quarter then most recently ended, such
Excess Leverage Margin to be applicable with effect from the
first day of the fourth fiscal quarter in such four consecutive
fiscal quarter period.
"EXCESS LEVERAGE RATIO" means, for any day, the ratio of
Consolidated Indebtedness to Adjusted EBITDA (but calculated
without the $35,800,000 adjustment for the fiscal quarter ended
September 30, 1997, which is contemplated by the last sentence of
Section 5.25) determined for the four consecutive fiscal quarter
period then most recently ended for which TLGI or LGII has
delivered financial statements pursuant to which such ratio can
be determined.
(c) The definition of the term "ADJUSTED EBITDA" is hereby amended
by changing all references to the phrase "four quarter period" contained
therein to read "four-consecutive fiscal quarter period".
(d) The definition of the term "CONSOLIDATED NET INCOME" contained
in Section 1.01 is hereby amended by adding the following proviso at the end
thereof:
PROVIDED for the purpose of calculating Consolidated Net
Income for the fiscal quarter ended September 30, 1997, but only
to the extent that Consolidated Net Income is calculated as part
of the calculation of EBITDA for such fiscal quarter to determine
compliance with SECTIONS 5.03 and 5.25, there shall be included
in Consolidated Net Income for such fiscal quarter an aggregate
amount not to exceed $26,000,000 representing TLGI's pre-tax gain
from the sale of TLGI's Investment in Arbor Funeral Inc.
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<PAGE>
(e) The definition of the term "PERMITTED RECEIVABLES
SECURITIZATION" contained in Section 1.01 of the Credit Agreement is hereby
amended to delete the reference to the amount of "$100,000,000" in the last
line thereof and to substitute in lieu thereof the amount "$125,000,000".
(f) The first sentence of Section 2.05(a) of the Credit Agreement
is hereby amended to read as follows:
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is
made until it becomes due, at a rate per annum equal to the sum
of (i) the Base Rate for such date, plus (ii) the Applicable
Margin in effect for such day, plus (iii) the Excess Leverage
Margin in effect for such day (which Excess Leverage Margin will
be assessed by the Agent retroactively to such day in accordance
with, and with effect from and after the date specified in, the
definitions of "Excess Leverage Margin" and "Excess Leverage
Ratio").
(g) The first sentence of Section 2.05(b) of the Credit Agreement
is hereby amended to read as follows:
(b) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of (i)
the applicable Adjusted London Interbank Offered Rate for such
Interest Period, plus (ii) the Applicable Margin in effect from
time to time during such Interest Period, plus (iii) the Excess
Leverage Margin in effect from time to time during such Interest
Period (which Excess Leverage Margin will be assessed by the
Agent retroactively to such Interest Period in accordance with,
and with effect from and after the date specified in, the
definitions of "Excess Leverage Margin" and "Excess Leverage
Ratio").
(h) Sections 2.12 and 2.13 of the Credit Agreement are hereby
deleted in their entirety.
(i) Section 5.03 of the Credit Agreement is hereby amended to read
as follows:
SECTION 5.03. INTEREST CHARGES COVERAGE; TREATMENT OF GAIN
ON SALE OF ARBOR FUNERAL, INC. TLGI will at all times maintain
(i) a ratio of EBITDA for the most recently ended period of four
consecutive fiscal quarters of TLGI to Consolidated Interest
Charges for such period of four consecutive fiscal quarters of
not less than 2.75 to 1.00 and (ii) a ratio of EBITDA for the
most recently ended fiscal quarter to Consolidated Interest
Charges for such fiscal quarter of not less than 1.50 to 1.00.
For purposes of the foregoing calculations, $35,800,000 will be
added to
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<PAGE>
EBITDA for the fiscal quarter ended September 30, 1997 whenever
EBITDA for such fiscal quarter is included in such calculations.
For purposes of this Section 5.03, any costs and expenses incurred
by TLGI in contesting the 1995 tender offer for TLGI by Service
Corporation International, Inc., which are reflected in the audited
financial statements of TLGI as at December 31, 1996 which have been
delivered to the Agent and the Lenders, up to an aggregate amount
not to exceed $18,678,000 for all such costs and expenses, shall be
excluded from the calculation of Consolidated Net Income in
determining EBITDA for the respective periods in which such costs
were incurred.
(j) Section 5.08 of the Credit Agreement is hereby amended (i) to
delete the reference to the amount "3%" contained in the last line of clause
(o) of such section and to substitute in lieu thereof the amount "5%" and
(ii) by amending the proviso contained at the end of such section to read as
follows:
PROVIDED, HOWEVER, that notwithstanding any provision to the
contrary herein, none of TLGI, LGII or any Subsidiary of either
shall make any Investment in any Person effectively located
outside the United States or Canada if after giving effect to
such Investment, the aggregate amount of Investments of TLGI,
LGII or any Subsidiary of either in any Persons effectively
located outside of the United States or Canada, excluding
Investments in Finance Subsidiaries which are Wholly-Owned
Subsidiaries, would exceed an amount equal to 25% of Consolidated
Revenues for the period of four consecutive fiscal quarters ended
immediately prior to the date of such Investment; PROVIDED
FURTHER, HOWEVER, that the immediately preceding proviso shall
not apply from and after the Collateral Release Date. For the
purpose of any computation required to be made pursuant to this
Agreement, Investments shall be valued at lower of the cost or
Fair Value thereof as of the date of computation.
(k) Section 5.09 of the Credit Agreement is hereby amended to
delete the reference to the amount "7.5%" contained in the next to last line
of clause (g) of such section and to substitute in lieu thereof the amount
"10%".
(l) Section 5.25 of the Credit Agreement is hereby amended to read
as follows:
SECTION 5.25. MAXIMUM CONSOLIDATED INDEBTEDNESS TO ADJUSTED
EBITDA. TLGI will not permit, at any time, (x) the ratio of
Consolidated Indebtedness determined at such time to Adjusted
EBITDA determined for the period of four consecutive fiscal
quarters then most recently ended to be greater than 5.50 to 1.00
or (y) the ratio of Consolidated Indebtedness (determined as of
the last day of the then most recently ended fiscal quarter) to
Adjusted EBITDA (determined for the
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<PAGE>
period of four consecutive fiscal quarters then most recently ended)
to be greater than 5.00 to 1.00 if the ratios of Consolidated
Indebtedness (determined as of the last day of each of the two
fiscal quarters immediately preceding such most recently ended
fiscal quarter) to Adjusted EBITDA (determined for each of the two
preceding periods of four consecutive fiscal quarters ending on such
days, respectively) are each greater than 5.00 to 1.00. For
purposes of the foregoing calculations, $35,800,000 will be added to
the EBITDA for the fiscal quarter ended September 30, 1997 whenever
the EBITDA for such fiscal quarter is included in such calculations.
(m) Section 5.27 of the Credit Agreement is hereby deleted in its
entirety.
(n) Section 5.28 of the Credit Agreement is hereby amended to read
as follows:
SECTION 5.28 PLEDGE OF STOCK AND GRANT OF SECURITY INTEREST
IN CERTAIN ASSETS. TLGI and LGII will, and will cause each
respective Pledgor Subsidiary of it to, pledge (or, for any
shares or other equity interests pledged prior to the date hereof
pursuant to the terms of the Collateral Trust Agreement, TLGI and
LGII will, and will cause each respective Pledgor Subsidiary of
it to, maintain such pledge in) all outstanding shares of capital
stock and other equity interests of any Subsidiary of TLGI or
LGII (other than any SPV which engages in a Permitted Receivables
Securitization but including, without limitation, those
Subsidiaries which are designated on SCHEDULE 1 with an asterisk)
held by it or held by any Subsidiary (other than any SPV which
engages in a Permitted Receivables Securitization but including,
without limitation, those Subsidiaries which are designated on
SCHEDULE 1 with an asterisk) of it from time to time (including,
in the case of TLGI, LGII), and LGII shall grant a security
interest (or, for any security interests granted prior to the
date hereof pursuant to the Collateral Trust Agreement, the
Borrower shall maintain such security interest) in all of its
financial assets (including, without limitation, accounts
receivable and bank accounts), in each case pursuant to the terms
of the Collateral Trust Agreement. All such shares of capital
stock and other equity interests shall be pledged, and all such
security interests shall be granted, solely to secure the
Obligations and any other Senior Obligations outstanding from
time to time; PROVIDED, HOWEVER, that such pledges of capital
stock and other equity interests, and such grants of security
interests, shall secure the Senior Obligations (other than the
Obligations and the other Senior Obligations identified on
SCHEDULE 3 hereto) only to the extent that LGII shall have so
elected and given notice thereof to the Collateral Agent and the
Agent. Within 60 days of the date of closing for each Major
Acquisition of a Person, TLGI and LGII shall deliver to the Agent
an opinion of counsel addressed to the
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<PAGE>
Agent and the Banks to the effect that all ownership interests in
such Person acquired in such Major Acquisition have been duly and
validly subjected to the lien granted to the Collateral Agent under
the terms of the Collateral Trust Agreement and that all actions to
perfect such lien have been duly and validly taken, such opinions to
be satisfactory to the Agent in form and substance.
TLGI and LGII shall, and shall cause their respective
Subsidiary Pledgors to, complete all actions necessary to comply
with the requirements of the first paragraph of this Section 5.28
and the Collateral Trust Agreement with respect to pledges of
shares of capital stock and other equity interests of their
Subsidiaries (including without limitation delivery of the
applicable shares and other instruments to the Collateral Agent)
no later than the dates set forth below:
(i) With respect to the shares of capital stock and other
equity interests of those Subsidiaries which are designated on
SCHEDULE 1 with an asterisk (other than Loewen Group Acquisition
Corporation and shares of capital stock and other equity
interests owned by Loewen Group Acquisition Corporation)
December 31, 1997;
(ii) With respect to the shares of capital stock and other
equity interests of Loewen Group Acquisition Corporation (if then
in existence) or of Subsidiaries at any time owned by Loewen
Group Acquisition Corporation, January 15, 1998; and
(iii) With respect to any shares of capital stock or
other equity interests of any other Subsidiaries, whether now
owned or hereafter acquired, within ninety days from the date of
acquisition thereof by TLGI, LGII or any of their respective
Subsidiaries.
Notwithstanding the foregoing terms of this Section 5.28, on
such first date (the "COLLATERAL RELEASE DATE") on which (a) the
Borrower shall have provided written evidence to the Agent that
(x) the rating assigned to the senior unsecured and unenhanced
long-term Indebtedness of TLGI by Standard Poor's is BBB- (or
higher) and such rating assigned by Moody's is Baa3 (or higher),
(y) all other Indebtedness secured pursuant to the Collateral
Trust Agreement has ceased (or on the Collateral Release Date
will cease) to be secured pursuant to the Collateral Trust
Agreement, and (z) after giving effect to this paragraph, the
Obligations will be senior to, or pari passu with, all other
Indebtedness which was secured pursuant to the Collateral Trust
Agreement immediately prior to the Collateral Release Date, (b)
no Default or Event of Default shall exist and be continuing, and
(c) the Agent shall have provided written notice to each of the
Banks that the conditions set forth in the foregoing clauses (a)
and (b) have been
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<PAGE>
satisfied, then (i) the pledge and security interest described in
this Section 5.28 and granted pursuant to the Collateral Trust
Agreement will automatically terminate, and TLGI, LGII and the
Pledgor Subsidiaries shall have no further obligations in respect
of such pledge and security interest, and (ii) the Pledgor
Subsidiary Guaranty of each Pledgor Subsidiary will automatically
terminate and the Pledgor Subsidiaries shall have no further
obligations in respect of such Pledgor Subsidiary Guaranties, in
each case without any further action or requirement. In connection
with the foregoing, the Agent agrees to take, and to cause the
Collateral Agent to take, in each case at the Borrower's expense,
all such actions as may be reasonably requested by the Borrower to
give effect to this paragraph.
(o) Section 5.31 of the Credit Agreement is hereby amended to read
as follows:
SECTION 5.31 PREPAYMENTS. TLGI and LGII will not, nor will
either permit any Subsidiary of it to, either directly or indirectly,
voluntarily redeem, retire or otherwise pay prior to its scheduled
maturity, or accelerate the maturity of, Indebtedness of TLGI or LGII
or any such Subsidiary, other than (a) Indebtedness arising hereunder
or under other credit facilities or Permitted Receivables
Securitizations of a revolving nature, (b) Indebtedness between or
among TLGI, LGII or any Subsidiary, (c) Indebtedness arising under the
Bank of Montreal Credit Agreement (but only to the extent prepayments
or redemptions thereof are made in accordance with requirements of the
Bank of Montreal Credit Agreement which are contained in the Bank of
Montreal Credit Agreement as in effect on the date hereof),
(d) Indebtedness which ranks PARI PASSU with the Obligations, and
(e) other Indebtedness so long as such Indebtedness either (i)(A) was
incurred in connection with an Acquisition and (B) is prepaid within
180 days of the closing of such Acquisition or (ii)(A) is prepaid in
full and (B) does not exceed $10,000,000 (such limitation to apply to
each individual prepayment pursuant to this clause (ii) and not in the
aggregate).
(p) Section 6.01(r) of the Credit Agreement is hereby amended by
adding the words "[E]xcept as contemplated by the last paragraph of Section
5.28," at the beginning thereof.
(q) The Credit Agreement is further amended by deleting the
disclosure schedule for Section 4.08 contained in SCHEDULE 1 presently
attached thereto and substituting in lieu thereof the disclosure schedule
attached hereto as SCHEDULE 1.
(r) The Credit Agreement is further amended by deleting SCHEDULE 2
and SCHEDULE 2A presently attached thereto and substituting in lieu thereof
the SCHEDULE 2 attached hereto.
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<PAGE>
(s) The Credit Agreement is further amended by deleting from
Section 1 of SCHEDULE 4 attached thereto the reference to "Acadian Life
Insurance Company".
SECTION 2. REAFFIRMATION OF GUARANTIES. The Credit Parties (a)
consent to the terms and provisions of this Amendment provided for herein,
(b) reaffirm their obligations under their respective Guaranties, and (c)
confirm that their respective Guaranties remain in full force and effect with
respect to the Credit Agreement notwithstanding the waiver and amendment
provided for herein.
SECTION 3. EFFECTIVENESS. This Amendment shall become
effective only after the Agent shall have received one or more counterparts
of this Amendment, in form and substance satisfactory to the Agent and its
counsel, duly executed by the Credit Parties, the Agent and the Required
Banks, together with the following additional items:
(i) copies, certified by the Secretary, Assistant Secretary
or other appropriate officer or director of each of TLGI, LGII and
the Borrower of its board of director's resolutions authorizing the
execution and performance of this Amendment;
(ii) supplementary incumbency certificates, if applicable
executed by the Secretary of Assistant Secretary or other
appropriate officer or director of each of TLGI, LGII and the
Borrower, which shall identify by name and title and bear the
signature of any officer of TLGI, LGII or the Borrower who was not
shown on the incumbency certificates which were delivered in
connection with the closing of the Credit Agreement and who
executes this Amendment, upon which certificate the Agent and the
Lenders shall be entitled to rely until informed by any change in
writing by TLGI, LGII or the Borrower, as applicable;
(iii) receipt by the Agent for the account of each Bank
executing and delivering (including by facsimile) this Amendment to
the Agent prior to 5:00 p.m. New York City time on September 25,
1997 or such later date as the Agent and the Borrower shall agree,
of an amount equal to such Bank's Commitment, multiplied by 0.045%
(a flat percentage, not a percentage per annum); and
(iv) receipt by the Agent of all such other fees and expenses
as are payable to the Agent in connection with this Amendment.
SECTION 4. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES.
Each of the Credit Parties hereby represents and warrants that as of the date
of its execution of this Amendment and the date of its effectiveness, in each
case after giving effect to the waiver and amendment provided for herein:
(a) There exists no Default or Event of Default under the Credit
Agreement;
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<PAGE>
(b) The representations and warranties contained in Article IV of
the Credit Agreement are true and correct as of such dates; except to the
extent any such representation or warranty is stated to relate solely to an
earlier date, in which case such representation or warranty shall be true and
correct on and as of such earlier date; and
(c) No default, unmatured default or similar events exists under
any agreement, instrument or other document evidencing or related to
Indebtedness of any Credit Party or any Subsidiary thereof.
SECTION 5. EFFECT. Except as otherwise expressly provided
herein, the Credit Agreement is and shall continue in full force and effect
and is hereby ratified and confirmed.
SECTION 6. GOVERNING LAW. THIS AMENDMENT WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF
CONFLICTS) OF THE STATE OF GEORGIA, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
SECTION 7. SEVERABILITY. Each provision of this Amendment
shall be severable from every other provision of this Amendment for the
purpose of determining the legal enforceability of any provision hereof, and
the unenforceability of one or more provisions of this Amendment in one
jurisdiction shall not have the effect of rendering such provisions
unenforceable in any other jurisdiction.
SECTION 8. COUNTERPARTS. This Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
LOEWEN MANAGEMENT INVESTMENT CORPORATION, IN ITS
CAPACITY AS AGENT FOR LOEWEN GROUP INTERNATIONAL,
INC., AS BORROWER
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
LOEWEN GROUP INTERNATIONAL, INC., AS GUARANTOR
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
THE LOEWEN GROUP
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
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<PAGE>
WACHOVIA BANK, N.A.
INDIVIDUALLY AND AS AGENT
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
ROYAL BANK OF CANADA
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
BANK OF MONTREAL
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
STAR BANK, N.A.
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
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<PAGE>
SCHEDULE 2
APPLICABLE MARGINS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
LEVEL 1 LEVEL II LEVEL LEVEL IV LEVEL V LEVEL VI
III
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credit Quality of TLG's A-/A3 of Higher BBB+/Baa1 BBB/Baa2 BBB+/Baa3 BB+/Ba1 BB/Ba2 or
long-term senior unsecured lower
and unenhanced debt as rated
by Standard & Poor's and
Moody's, respectively(1)
- ---------------------------------------------------------------------------------------------------------------------------
LIBOR Margin 25.0 basis points 28.0 bps 32.0 bps 45.0 bps 62.5 bps 100.0 bps
("bps")
- ---------------------------------------------------------------------------------------------------------------------------
Base Range Margin 0 0 0 0 0 12.5 bps
- ---------------------------------------------------------------------------------------------------------------------------
Excess Leverage Margin(2) 0 0 12.5 bps 20.0 bps 25.0 bps 25.0 bps
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
(1)References to TLGI's long-term senior unsecured and unenhanced debt shall
mean such long-term senior debt of TLGI which is unsecured and unenhanced
other than, if applicable, pursuant to the Collateral Trust Agreement. For
purposes of the pricing grids above, an implied senior unsecured and
unenhanced debt rating is equivalent to a long-term senior unsecured and
unenhanced debt rating. If TLGI is split-rated, then pricing will be
determined by reference to the lower of the two ratings. If only one rating
is available, then pricing will be determined by that rating. If TLGI has no
long-term senior unsecured and unenhanced debt rating or implied senior
unsecured and unenhanced debt rating from Standard & Poor's or Moody's, it
shall be deemed to be in the lowest rating category described on the pricing
grids (Level VI).
(2)Excess Leverage Margin will be applicable if the Excess Leverage Ratio
exceeds 5.00 to 1.00 at the end of the full fiscal quarter immediately
preceding the date of determination, with effect from the first day of such
fiscal quarter.
<PAGE>
EXECUTION COPY
U.S. $600,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 27, 1998
Among
LOEWEN GROUP INTERNATIONAL, INC.
as the Borrower,
THE LOEWEN GROUP INC.
as a Guarantor,
THE LENDERS NAMED HEREIN
as the Lenders,
and
BANK OF MONTREAL
as L/C Issuer, Swing Line Lender and Administrative and Syndication Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I DEFINITIONS
<S> <C> <C>
1.1. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II THE CREDITS
2.1. The Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2. Repayment of the Revolving Loans . . . . . . . . . . . . . . . . . . . . . 25
2.3. Ratable Revolving Loans; Types of Advances . . . . . . . . . . . . . . . . 25
2.4. Minimum Amount of Each Advance . . . . . . . . . . . . . . . . . . . . . . 25
2.5. Optional Prepayments of Revolving Loans. . . . . . . . . . . . . . . . . . 25
2.6. Method of Selecting Types and Interest Periods for New Advances. . . . . . 26
2.7. Conversion and Continuation of Outstanding Advances. . . . . . . . . . . . 26
2.8. Payment of Interest on Revolving Loans and Advances. . . . . . . . . . . . 27
2.9. Changes in Interest Rate, Etc. . . . . . . . . . . . . . . . . . . . . . . 27
2.10. Commitment Fee; Mandatory and Voluntary Reductions in Aggregate
Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.11. Rates Applicable After Default . . . . . . . . . . . . . . . . . . . . . . 29
2.12. Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.13. Evidence of Debt; Telephonic Notices . . . . . . . . . . . . . . . . . . . 29
2.14. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.15. Lending Installations. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.16. Non-Receipt of Funds by the Agent. . . . . . . . . . . . . . . . . . . . . 31
2.17. Withholding Tax Exemption; Gross Up. . . . . . . . . . . . . . . . . . . . 31
2.18. Extension of Facility Termination Date . . . . . . . . . . . . . . . . . . 32
2.19. Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.20. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.21. Letter of Credit Facility. . . . . . . . . . . . . . . . . . . . . . . . . 34
2.21.1 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . 34
2.21.2 Letter of Credit Participation . . . . . . . . . . . . . . . . . . 34
2.21.3 Reimbursement Obligation . . . . . . . . . . . . . . . . . . . . . 35
2.21.4 Cash Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.21.5 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . 37
2.21.6 Indemnification; Exoneration . . . . . . . . . . . . . . . . . . . 38
2.21.7 Letter of Credit Cancellation. . . . . . . . . . . . . . . . . . . 39
2.22. Swing Line Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.23. Borrowing Procedures for Swing Line Loans. . . . . . . . . . . . . . . . . 40
2.24. Refunding of Swing Line Loans. . . . . . . . . . . . . . . . . . . . . . . 40
2.25. Participations in Swing Line Loans . . . . . . . . . . . . . . . . . . . . 41
i
<PAGE>
2.26. Swing Line Participation Obligations Unconditional . . . . . . . . . . . . 41
2.27. Evidence of Swing Line Loans; Telephonic Notices . . . . . . . . . . . . . 41
2.28. Conditions to Swing Line Loans . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE III CHANGE IN CIRCUMSTANCES
3.1. Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.2. Changes in Capital Adequacy Regulations. . . . . . . . . . . . . . . . . . 43
3.3. Availability of Types of Advances. . . . . . . . . . . . . . . . . . . . . 44
3.4. Funding Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.5. Mitigation; Lender Statements; Survival of Indemnity . . . . . . . . . . . 44
ARTICLE IV CONDITIONS PRECEDENT
4 Conditions Precedent to Amendment and Restatement. . . . . . . . . . . . . 45
4.1. Initial Advance, Swing Line Loan and Letter of Credit. . . . . . . . . . . 45
4.2. Each Advance, Swing Line Loan and Letter of Credit . . . . . . . . . . . . 47
ARTICLE V TLGI GUARANTY
5.1. The Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.2. Guaranty Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.3. Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.4. Waiver by TLGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.5. Waiver of Subrogation Rights . . . . . . . . . . . . . . . . . . . . . . . 50
5.6. Stay of Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.7. Gross-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VI REPRESENTATIONS AND WARRANTIES
6 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 51
6.1. Corporate Existence and Standing . . . . . . . . . . . . . . . . . . . . . 51
6.2. Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . 51
6.3. No Conflict; Government Consent. . . . . . . . . . . . . . . . . . . . . . 51
6.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.5. Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.7. Litigation and Contingent Liabilities. . . . . . . . . . . . . . . . . . . 52
6.8. Subsidiaries; Pledge of Stock. . . . . . . . . . . . . . . . . . . . . . . 53
6.9. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.10. Accuracy of Information. . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.11. Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ii
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6.12. Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.13. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.14. Ownership of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.15. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.16. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . 54
6.17. Post-Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.18. Negative Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.19. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.20. Existing Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . 55
6.21. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE VII COVENANTS
7 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.1. Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.2. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.3. Notices of Default, Litigation, Etc. . . . . . . . . . . . . . . . . . . . 59
7.4. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.5. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.6. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.8. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . 60
7.9. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.10. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.11. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.12. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.13. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.14. Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.15. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.16. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.17. Negative Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.18. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.19. Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . 68
7.20. Minimum Consolidated Tangible Net Worth. . . . . . . . . . . . . . . . . . 68
7.21. Maximum Consolidated Indebtedness to Consolidated Capitalization . . . . . 68
7.22. Interest Charges Coverage. . . . . . . . . . . . . . . . . . . . . . . . . 68
7.23. Maximum Consolidated Indebtedness to Adjusted EBITDAR. . . . . . . . . . . 69
7.24. Ownership of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . . 69
7.25. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.26. Pledge of Stock and Grant of Security Interest in Certain Assets . . . . . 69
7.27. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.28. Subsidiaries' Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.29. Synthetic Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
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7.30. Deliveries regarding Pledgor Subsidiaries. . . . . . . . . . . . . . . . . 73
7.31. Unrestricted Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE VIII DEFAULTS
8 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE IX ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
9.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.3. Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE X GENERAL PROVISIONS
10.1. Survival of Representations. . . . . . . . . . . . . . . . . . . . . . . . 79
10.2. Governmental Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.3. Stamp Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.4. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.5. Entire Agreement; Independence of Covenants. . . . . . . . . . . . . . . . 79
10.6. Several Obligations; Benefits of this Agreement. . . . . . . . . . . . . . 80
10.7. Expenses; Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 80
10.8. Numbers of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.9. Accounting; Currency Conversions . . . . . . . . . . . . . . . . . . . . . 81
10.10. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . 82
10.11. Nonliability of Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.12. CHOICE OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.13. CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.14. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.15. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.16. Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.17. Canadian Interest Antidotes. . . . . . . . . . . . . . . . . . . . . . . . 84
10.18. Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE XI THE AGENT AND THE DOCUMENTATION AGENT
11.1. Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.3. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.4. No Responsibility for Revolving Loans, Swing Line Loans, Recitals, Etc.. . 85
11.5. Action on Instructions of Lenders. . . . . . . . . . . . . . . . . . . . . 85
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11.6. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . 86
11.7. Reliance on Documents; Counsel . . . . . . . . . . . . . . . . . . . . . . 86
11.8. Agent's Reimbursement and Indemnification. . . . . . . . . . . . . . . . . 86
11.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.10. Lenders' Credit Decisions. . . . . . . . . . . . . . . . . . . . . . . . . 87
11.11. Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.12. Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.13. Documentation Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE XII SETOFF; RATABLE PAYMENTS
12.1. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12.2. Ratable Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE XIII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 88
13.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
13.2.1 Permitted Participations; Effect . . . . . . . . . . . . . . . . . 89
13.2.2 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 90
13.2.3 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
13.3. Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
13.3.1 Permitted Assignments. . . . . . . . . . . . . . . . . . . . . . . 90
13.3.2 Effect; Effective Date of Assignments. . . . . . . . . . . . . . . 91
13.4. Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . 92
13.5. Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE XIV NOTICES
14.1. Giving Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
14.2. Change of Address. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE XV COLLATERAL TRUST AGREEMENT
15.1. Appointment of Secured Party Representative. . . . . . . . . . . . . . . . 93
15.2. Appointment of Enforcement Representatives . . . . . . . . . . . . . . . . 93
15.3. Actions of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
v
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ARTICLE XVI AMENDMENT AND RESTATEMENT
16.1. Amendment and Restatement. . . . . . . . . . . . . . . . . . . . . . . . . 93
16.2. Departing Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
</TABLE>
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<PAGE>
SCHEDULE 1 - Disclosure Schedule
SCHEDULE 2 - Applicable Margins and Applicable Commitment Fee and Letter
of Credit Fee Rates
SCHEDULE 3 - Senior Obligations
SCHEDULE 4 - Existing Letters of Credit
SCHEDULE 5 - Commitments of the Lenders
SCHEDULE 6 - Certain Pledged Shares Subject to Transfer Restrictions
SCHEDULE 7 - Insurance Companies
EXHIBIT A - Form of Revolving Note
EXHIBIT B - Required Opinions
EXHIBIT C - Form of Compliance Certificate
EXHIBIT D - Form of Assignment Agreement
EXHIBIT E - Form of Revolving Loan/Swing Line Loan/Credit Related Money
Transfer Instruction
EXHIBIT F - Form of Revolving Loan Borrowing Notice
EXHIBIT G - Form of Prepayment Notice
EXHIBIT H - Form of Extension Request
EXHIBIT I - Form of Conversion/Continuation Notice
EXHIBIT J - Collateral Trust Agreement
EXHIBIT K - Form of Approved Sale Certificate
EXHIBIT L - Form of Swing Line Loan Borrowing Notice
vii
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 27,
1998, is among LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation, as the
Borrower, THE LOEWEN GROUP INC., a corporation organized under the laws of the
Province of British Columbia, Canada, as a Guarantor, THE LENDERS NAMED HEREIN,
as the initial Lenders, and BANK OF MONTREAL, as the L/C Issuer and the Swing
Line Lender and as the Administrative and Syndication Agent for the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, The Loewen Group Inc., certain Lenders and other
Persons party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Agent for the Lenders, entered into a Credit Agreement, dated as of May 15, 1996
(the "Original Agreement"), pursuant to which the Lenders made certain loans to
the Borrower, and the L/C Issuer issued, upon the application of the Borrower,
certain letters of credit for the account of the Borrower; and
WHEREAS, the Borrower, The Loewen Group Inc., certain Lenders and other
Persons party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Administrative and Syndication Agent for the Lenders, entered into an Amended
and Restated Credit Agreement, dated as of September 29, 1997 (together with all
amendments thereto prior to the date hereof, the "Original Amended Agreement"),
pursuant to which the Lenders made certain loans to the Borrower, and the L/C
Issuer issued, upon the application of the Borrower, certain letters of credit
for the account of the Borrower; and
WHEREAS, the Borrower, The Loewen Group Inc., certain of the Lenders party
thereto and Bank of Montreal desire to amend and restate the Original Amended
Agreement to provide for, among other things, (i) a reduction in the maximum
aggregate principal amount of the Commitments (as defined in the Original
Amended Agreement), (ii) a modification of the term of the Commitments, and
(iii) certain other modifications, all on the terms and conditions set forth
herein; and
WHEREAS, the proceeds of the Revolving Loans and Swing Line Loans will be
used:
(a) to make payment in full of all Indebtedness identified on ANNEX I
of SCHEDULE 1 hereto under the heading "Indebtedness to be Paid";
(b) for general corporate purposes and working capital purposes of
the Borrower and its Subsidiaries; and
<PAGE>
(c) to finance non-contested acquisitions made by the Borrower or its
Subsidiaries (other than Unrestricted Subsidiaries) under the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1. CERTAIN DEFINED TERMS. As used in this Agreement the following
terms shall have the following meanings, such meanings being equally applicable
to both the singular and plural forms of the terms defined:
"ACQUISITION" means any transaction, or any series of related transactions,
by which TLGI or any of its Subsidiaries (other than an Unrestricted Subsidiary)
(a) acquires any going business or all or substantially all of the assets of any
firm, corporation, limited liability company, partnership or other Person, or
(as applicable) any operation or division thereof which constitutes a going
business, whether through purchase of assets, merger or otherwise or
(b) directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding partnership interests of a partnership, membership
interests of a limited liability company, or other ownership interests of any
Person.
"ADJUSTED EBITDAR" shall mean at any time for the four consecutive fiscal
quarter period then most recently ended the sum of (a) EBITDAR of TLGI and the
Borrower and the other Subsidiaries (but exclusive of any Unrestricted
Subsidiaries) for such four consecutive fiscal quarter period determined on a
consolidated basis, PLUS (b) EBITDAR for such four consecutive fiscal quarter
period of all Persons acquired by TLGI, the Borrower or the other Subsidiaries
(but exclusive of any Unrestricted Subsidiaries) during the six-month period
ending on the last day of such four consecutive fiscal quarter period (but only
to the extent the Acquisitions of such Persons constituted Permitted
Acquisitions), LESS (c) all amounts included in the foregoing CLAUSE (b) to the
extent such amounts are included in the foregoing CLAUSE (a); provided that
EBITDAR of any such acquired Person shall be determined on the basis of actual
EBITDAR for such acquired Person as set forth in the financial statements of
such acquired Person, which financial statements shall be (x) audited for the
portion of such four consecutive fiscal quarter period which falls within the
most recently ended fiscal year of such acquired Person ended prior to the date
on which such Person became a Subsidiary of TLGI, the Borrower or another
Subsidiary and unaudited for the portion of such four consecutive fiscal quarter
period which falls after the end of the most recently ended fiscal year of such
acquired Person ended
2
<PAGE>
prior to the date on which such Person became a Subsidiary of TLGI, the
Borrower or another Subsidiary if the total consideration payable in
connection with such Acquisition is in excess of $25,000,000, and (y)
unaudited for such four consecutive fiscal quarter period if the total
consideration payable in connection with such Acquisition is $25,000,000
or less.
"ADVANCE" means a borrowing consisting of simultaneous Revolving Loans
of the same Type made to the Borrower by each of the Lenders pursuant to
SECTION 2.1 for, in the case of Fixed Rate Advances, the same Interest Period.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"AGENT" means Bank of Montreal in its capacity as Administrative and
Syndication Agent for the Lenders pursuant to ARTICLE XI, and not in its
capacity as the Swing Line Lender, the L/C Issuer or a Lender, and any successor
Agent appointed pursuant to ARTICLE XI.
"AGGREGATE COMMITMENT" means the aggregate of the Commitments of all the
Lenders, as reduced from time to time pursuant to the terms hereof.
"AGREEMENT" means this Second Amended and Restated Credit Agreement, as it
from time to time may be amended, restated, supplemented or otherwise modified
in accordance with the terms hereof.
"AGREEMENT ACCOUNTING PRINCIPLES" means GAAP as in effect from time to
time, applied in a manner consistent with that used in preparing the financial
statements referred to in SECTION 6.4.
"ALTERNATE BASE RATE" means, for any day, a floating rate of interest per
annum equal to the higher of (a) the Base Rate for such day and (b) the sum of
the Federal Funds Effective Rate for such day plus 0.50% per annum. Changes in
the rate of interest on that portion of any Revolving Loans maintained as
Floating Rate Advances and on all Swing Line Loans (and in the rate of interest
on any other Obligations from time to time bearing interest at a rate determined
by reference to the Alternate Base Rate) will take effect simultaneously with
each change in the Alternate Base Rate.
"APPLICABLE COMMITMENT FEE RATE" means a per annum rate determined from
time to time by reference to the ratio of Consolidated Indebtedness determined
at such time to Adjusted EBITDAR determined for the period of four consecutive
fiscal quarters then most
3
<PAGE>
recently ended as specified on SCHEDULE 2 hereto. Any change in the
Applicable Commitment Fee Rate resulting from a change in such ratio will
take effect as of the date of the change of such ratio.
"APPLICABLE LETTER OF CREDIT FEE RATE" means a per annum rate determined
from time to time by reference to the ratio of Consolidated Indebtedness
determined at such time to Adjusted EBITDAR determined for the period of four
consecutive fiscal quarters then most recently ended as specified on SCHEDULE 2
hereto. Any change in the Applicable Letter of Credit Fee Rate resulting from a
change in such ratio will take effect as of the date of the change of such
ratio.
"APPLICABLE MARGIN" means a per annum rate determined from time to time by
reference to the ratio of Consolidated Indebtedness determined at such time to
Adjusted EBITDAR determined for the period of four consecutive fiscal quarters
then most recently ended as specified on SCHEDULE 2 hereto. Any change in the
Applicable Margin resulting from a change in such ratio will take effect as of
the date of the change of such ratio.
"APPROVED SALE" means any sale of Property pledged to the Collateral Agent
under the terms of the Collateral Trust Agreement (i) which is expressly
permitted by the terms of SECTION 7.13 and with respect to which TLGI and the
Borrower shall have delivered to the Agent prior to consummation of such sale a
certificate from an Authorized Officer in the form of EXHIBIT K hereto
certifying that both immediately before and after giving effect to such sale, no
Default or Unmatured Default shall have occurred and be continuing, or
(ii) which is otherwise approved by the Required Lenders.
"ARTICLE" means a numbered article of this Agreement, unless another
document is specifically referenced.
"AUTHORIZED OFFICER" means (a) with respect to TLGI, any of the President,
Executive Vice President, Senior Vice President and CFO or Vice President,
Finance of TLGI, or any Person designated by any two of the foregoing, acting
singly and (b) with respect to the Borrower, any of the President, Executive
Vice President, Senior Vice President and CFO or Vice President, Finance of the
Borrower, or any Person designated by any two of the foregoing, acting singly.
"BANK OF MONTREAL" means Bank of Montreal in its individual capacity, and
its successors.
"BASE RATE" means, at any time, the floating rate per annum then most
recently announced by Bank of Montreal in Chicago, Illinois as the reference
rate of interest it will use to determine rates of interest for loans in Dollars
in the United States and referred to by it as its "U.S. base rate". The Base
Rate is not necessarily intended to be the lowest rate of interest determined by
the Bank of Montreal in connection with extensions of credit.
4
<PAGE>
"BORROWER" means Loewen Group International, Inc., a Delaware corporation,
and its successors and assigns to the extent permitted under the terms of this
Agreement.
"BUSINESS DAY" means (a) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday or
other day on which banks are authorized or required to be closed) on which banks
generally are open in Chicago, New York and London for the conduct of
substantially all of their commercial lending activities and (b) for all other
purposes, a day (other than a Saturday or Sunday or other day on which banks are
authorized or required to be closed) on which banks generally are open in
Chicago and New York for the conduct of substantially all of their commercial
lending activities.
"CANADIAN DOLLARS" and "C$" means the lawful money of Canada.
"CANADIAN GAAP" means, at any time, generally accepted accounting
principles in Canada at such time.
"CANADIAN PLAN" means a pension plan provided by TLGI or any other
Subsidiary incorporated under the laws of Canada or any Province of Canada.
"CAPITALIZED LEASE" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"CHANGE OF CONTROL" means an event which shall be deemed to have occurred
if (a) the Borrower shall at any time cease to be a Wholly-Owned Subsidiary of
TLGI, or (b) any Person or "group" (within the meaning of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended) shall either (x) acquire
beneficial ownership of more than 50% of any outstanding class of common stock
of TLGI having ordinary voting power in the election of directors of TLGI or
(y) obtain the power (whether or not exercised) to elect a majority of TLGI's
directors, or (c) during any period of 12 consecutive calendar months,
individuals (i) who were directors of TLGI on the first day of such period, or
(ii) whose election or nomination for election to the board of directors of TLGI
was recommended or approved by at least a majority of the directors then still
in office who were directors of TLGI on the first day of such period, or whose
election or nomination for election was so approved, shall cease to constitute a
majority of the board of directors of TLGI.
"CHIEF FINANCIAL OFFICER" means, at any time, the Person who reports to the
board of directors of TLGI on the financial affairs of TLGI and the
Subsidiaries.
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"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COLLATERAL AGENT" means Bankers Trust Company and its successors in the
capacity of collateral agent under the terms of the Collateral Trust Agreement.
"COLLATERAL RELEASE DATE" has the meaning specified in SECTION 7.26.
"COLLATERAL TRUST AGREEMENT" means that certain Collateral Trust Agreement,
a copy of which is attached as EXHIBIT J hereto, dated as of May 15, 1996 and
executed by TLGI, the Borrower, all Pledgor Subsidiaries, and the Collateral
Agent, as such Collateral Trust Agreement may be amended or modified and is in
effect from time to time.
"COMMITMENT" means, relative to any Lender, the obligation of such Lender
to make Revolving Loans, to purchase participations in Swing Line Loans and to
purchase participations in Letters of Credit not exceeding the amount set forth
opposite such Lender's name on Schedule 5 hereto or as set forth in any Notice
of Assignment relating to any assignment that has become effective pursuant to
SECTION 13.3.2, as such amount may be modified from time to time pursuant to the
terms hereof.
"CONDEMNATION" has the meaning specified in SECTION 8.8.
"CONSOLIDATED CAPITALIZATION" means at any time of determination, the sum
of (a) the Consolidated Indebtedness of TLGI at such time, and (b) the
Consolidated Net Worth of TLGI at such time.
"CONSOLIDATED DISTRIBUTABLE AMOUNT" means, at any time of determination,
the sum of,
(a) $100,000,000, plus
(b) 50% of Consolidated Net Income (or if such Consolidated Net
Income is a deficit figure, then minus 100% of such deficit) determined on
a cumulative basis for the period commencing on January 1, 1998, and ending
on the date of determination, plus
(c) 33 1/3% of the aggregate amount of the net cash proceeds received
by TLGI and the Borrower and their respective Subsidiaries from the
issuance or sale on or after January 1, 1998 (other than sales or issuances
to TLGI or the Borrower or any of their respective Subsidiaries) of the
capital stock of TLGI or Indebtedness of TLGI, the Borrower or any of their
respective Subsidiaries which has been converted into capital stock of
TLGI.
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"CONSOLIDATED FIXED CHARGES" means, for any period, without duplication,
the sum of the amounts for such period of (i) Consolidated Interest Charges and
(ii) the product of (a) the aggregate amount of dividends and other
distributions paid or accrued during such period in respect of (1) preferred
stock of TLGI, the Borrower or any other Subsidiary (but exclusive of preferred
stock issued to TLGI or an Affiliate of TLGI) and (2) capital stock of TLGI
which is or may be redeemable or convertible into debt prior to the Facility
Termination Date and (b) for each such dividend or distribution, a multiplier,
the numerator of which is one and the denominator of which is one minus the then
current combined federal, provincial, state and local statutory tax rate of TLGI
and its Subsidiaries determined on a consolidated basis, such multiplier to be
expressed as a decimal, PROVIDED, HOWEVER, that the multiplier in CLAUSE (ii)(b)
shall be deemed to be one if such dividend or other distribution described in
the preceding CLAUSE (ii)(a) is fully tax deductible.
"CONSOLIDATED INDEBTEDNESS" means, at any time of determination, without
duplication, all Indebtedness of TLGI, the Borrower and the Subsidiaries (other
than Unrestricted Subsidiaries) of TLGI and the Borrower at such time determined
on a consolidated basis in accordance with GAAP (to the extent GAAP is
applicable thereto).
"CONSOLIDATED INTEREST CHARGES" for any period shall mean on a consolidated
basis all interest (including the interest component of Capitalized Lease
Obligations and Synthetic Lease Obligations), and all amortization of debt
discount and expense on all Indebtedness of TLGI and the Borrower and their
Subsidiaries (other than Unrestricted Subsidiaries) for such period.
"CONSOLIDATED NET INCOME" for any period shall mean the gross revenues of
TLGI and the Borrower and the other Subsidiaries (other than Unrestricted
Subsidiaries) for such period less all expenses and other proper charges
(including taxes on income), determined on a consolidated basis after
eliminating earnings or losses attributable to outstanding Minority Interests,
but excluding in any event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to the
date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary) substantially all the assets of which have been acquired in any
manner by TLGI or any Subsidiary, realized by such corporation prior to the
date of such acquisition;
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(e) net earnings and losses of any corporation (other than a
Subsidiary) with which TLGI or a Subsidiary shall have consolidated or
which shall have merged into or amalgamated with TLGI or a Subsidiary prior
to the date of such consolidation, merger or amalgamation;
(f) net earnings of any business entity (other than a Subsidiary) in
which TLGI or any Subsidiary has an ownership interest unless such net
earnings shall have actually been received by TLGI or such Subsidiary in
the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to TLGI or any other
Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or write-up
of assets;
(i) any deferred or other credit representing any excess of the
equity in any Subsidiary at the date of the acquisition thereof over the
amount invested in such Subsidiary;
(j) any gain or loss arising from the acquisition of any securities
of TLGI or any Subsidiary;
(k) any reversal of any contingency reserve, except to the extent
that provision for such contingency reserve shall have been made from
income arising during such period; and
(l) any other unusual or extraordinary gain;
provided for the purpose of calculating Consolidated Net Income for the fiscal
quarter ended September 30, 1997, but only to the extent that Consolidated Net
Income is calculated as part of the calculation of EBITDAR for such fiscal
quarter to determine compliance with SECTIONS 7.22 and 7.23, there shall be
included in Consolidated Net Income for such fiscal quarter an amount equal to
$61,800,000.
"CONSOLIDATED NET WORTH" means, as of the date of any determination
thereof, the sum of the amount of the shareholders' equity of TLGI and the
Borrower and the other Subsidiaries (other than Unrestricted Subsidiaries) as
would be shown on the consolidated balance sheet of TLGI and the Borrower and
the other Subsidiaries (other than Unrestricted Subsidiaries) determined on a
consolidated basis in accordance with GAAP, which in any event shall include (x)
the MIPS and (y) the amount of all preferred stock of TLGI and the Borrower and
all Subsidiaries (other than Unrestricted Subsidiaries) of TLGI and the Borrower
to the extent such preferred stock is not redeemable at the option of the holder
for cash or indebtedness for any reason, and which shall exclude the amount of
all preferred stock of TLGI and the Borrower and all Subsidiaries (other than
Unrestricted Subsidiaries) of TLGI and the Borrower to
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the extent such preferred stock is redeemable at the option of the holder for
cash or indebtedness for any reason.
"CONSOLIDATED REVENUES" for any period shall mean the gross revenues
of TLGI and the Borrower and the other Subsidiaries (other than Unrestricted
Subsidiaries) for such period, determined on a consolidated basis after
eliminating revenues attributable to outstanding Minority Interests determined
in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of the date of any
determination thereof, as to any Person, the Consolidated Net Worth of such
Person, less the sum of the value, as set forth or reflected on the most recent
consolidated balance sheet of such Person and its consolidated Subsidiaries
(other than Unrestricted Subsidiaries), prepared in accordance with GAAP, of:
(a) any surplus resulting from any write-up of assets subsequent to
December 31, 1995;
(b) all assets which would be treated as intangible assets for
balance sheet presentation purposes under GAAP, including without
limitation goodwill (whether representing the excess of cost over book
value of assets acquired, or otherwise), trademarks, trade names, service
marks, copyrights, patents and technologies, names and reputations,
covenants not to compete, organization or developmental expenses, and
unamortized debt discount and expense;
(c) to the extent not included in CLAUSE (b) of this definition, any
amount at which shares of capital stock of such Person and its consolidated
Subsidiaries (other than Unrestricted Subsidiaries) appear as an asset on
the balance sheet of such Person and its consolidated Subsidiaries (other
than Unrestricted Subsidiaries);
(d) Revolving Loans or Advances or Swing Line Loans or proceeds of
Letters of Credit provided to stockholders, directors, officers or
employees of such Person or its Subsidiaries (other than Unrestricted
Subsidiaries); and
(e) to the extent not included in CLAUSE (b) of this definition,
deferred expenses.
"CONSUMER FINANCE RECEIVABLES" means (i) any Receivables owned by
TLGI, the Borrower or any other Subsidiaries arising under a pre-need contract
for the sale of cemetery plots or other cemetery-related merchandise or
services, or arising under a pre-need contract for the performance of funeral
services or the sale of funeral-related merchandise, or (ii) any Receivables
owned by TLGI, the Borrower or any other Subsidiaries arising under an at-need
contract for the sale of cemetery plots or other cemetery-related merchandise or
services, or arising under an at-need contract for the performance of funeral
services or the sale of funeral-
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related merchandise; PROVIDED, HOWEVER, that Receivables of TLGI, the
Borrower and other Subsidiaries (including any Unrestricted Subsidiaries)
which are of the types set forth in this CLAUSE (ii) shall not at any time be
deemed to be "Consumer Finance Receivables" to the extent that the amount of
all such Receivables, in the aggregate and without duplication, of TLGI, the
Borrower and the other Subsidiaries exceeds $200,000,000 at such time.
"CONTINGENT OBLIGATION" of a Person means any agreement, undertaking
or arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or reimbursement obligation arising pursuant to
a letter of credit (including any Letter of Credit).
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"CONVERSION/CONTINUATION NOTICE" has the meaning specified in SECTION 2.7.
"DCT ENTITY" means any Subsidiary of TLGI, the Borrower, or any of
their respective Subsidiaries in which Directors Cemetery (Texas), Inc., a Texas
corporation, has an equity or other ownership interest and with respect to which
Directors Cemetery (Texas), Inc. has entered into a valid and binding agreement
prohibiting the pledging by Directors Cemetery (Texas), Inc. of the outstanding
capital stock of, or other equity interests in, such Subsidiary; PROVIDED,
HOWEVER, that any such Subsidiary that merges, consolidates, or amalgamates into
or with Directors Cemetery (Texas), Inc. shall not, from the date of such
merger, consolidation or amalgamation, be considered a "DCT Entity".
"DEFAULT" means an event described in ARTICLE VIII.
"DISTRIBUTION" in respect of any corporation shall mean (a) dividends
or other distributions on capital stock of the corporation (except dividends or
other distributions payable solely in shares of capital stock), and (b) the
redemption, retirement or acquisition of such stock or of warrants, rights or
other options to purchase such stock (except when solely in exchange for such
stock).
"DISTRIBUTION DATE" has the meaning specified in SECTION 7.10(d).
"DOLLARS" and "$" mean the lawful money of the United States.
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"DSP ENTITY" means any Subsidiary of TLGI, the Borrower, or any of
their respective Subsidiaries in which DSP General Partners, Inc., a Texas
corporation, has an equity or other ownership interest and with respect to which
DSP General Partners, Inc. has entered into a valid and binding agreement
prohibiting the pledging by DSP General Partners, Inc. of the outstanding
capital stock of, or other equity interests in, such Subsidiary; PROVIDED,
HOWEVER, that any such Subsidiary that merges, consolidates, or amalgamates into
or with DSP General Partners, Inc. shall not, from the date of such merger,
consolidation or amalgamation, be considered a "DSP Entity".
"EBITDAR" for any period shall mean the sum of (a) Consolidated Net
Income during such period, plus (in the case of CLAUSE (b) through CLAUSE (g)
below, to the extent deducted in determining Consolidated Net Income), (b) all
provisions for any income or similar taxes paid or accrued by TLGI and the
Borrower and the other Subsidiaries (other than Unrestricted Subsidiaries)
during such period, (c) depreciation, depletion and amortization for such period
for TLGI and the Borrower and the other Subsidiaries (other than Unrestricted
Subsidiaries), (d) other non-cash charges for TLGI and the Borrower and the
other Subsidiaries (other than Unrestricted Subsidiaries)', (e) Consolidated
Interest Charges of TLGI and the Borrower and the other Subsidiaries (other than
Unrestricted Subsidiaries) during such period determined in accordance with
GAAP, (f) Synthetic Lease Rentals during such period for TLGI and the Borrower
and the other Subsidiaries (other than Unrestricted Subsidiaries)', and (g) any
cash dividend or cash distribution declared and paid during such period by any
Unrestricted Subsidiary to TLGI, the Borrower or any of the other Subsidiaries
(other than another Unrestricted Subsidiary), but only to the extent such cash
dividends or cash distributions' have not already been included in the
calculation of EBITDAR.
"EFFECTIVE DATE" means the first date on which the Agent shall have
received counterparts of this Agreement duly executed by all parties hereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"EURODOLLAR ADVANCE" means an Advance that bears interest at a
Eurodollar Rate.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Advance for
the relevant Eurodollar Interest Period, (a) the per annum rate for deposits in
Dollars for a period corresponding to the duration of the relevant Eurodollar
Interest Period, which appears on Telerate Page 3750 at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Eurodollar
Interest Period and (b) if such rate does not appear on Telerate Page 3750 on
such day, the per annum rate at which deposits in Dollars are offered by Bank of
Montreal to first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Eurodollar Interest Period, in the approximate amount of Bank of Montreal's
relevant Eurodollar Loan and having a maturity approximately equal to such
Eurodollar Interest Period. The reference to Telerate Page 3750 in
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this definition shall be construed to be a reference to the relevant page or
any other page that may replace such page on the Telerate service or any
other service that may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Bankers'
Association Interest Settlement Rates for deposits in Dollars.
"EURODOLLAR INTEREST PERIOD" means, with respect to a Eurodollar
Advance, a period of one, two, three or six months commencing on a Business Day
selected by the Borrower pursuant to this Agreement. Such Eurodollar Interest
Period shall end on (but exclude) the day which corresponds numerically to such
date one, two, three or six months thereafter, unless there is no such
numerically corresponding day in such next, second, third or sixth succeeding
month, in which case such Eurodollar Interest Period shall end on the last
Business Day of such next, second, third or sixth succeeding month. If a
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day, unless said next succeeding Business Day falls in a new calendar month, in
which case such Eurodollar Interest Period shall end on the immediately
preceding Business Day.
"EURODOLLAR LOAN" means a Revolving Loan which bears interest at a
Eurodollar Rate.
"EURODOLLAR RATE" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the sum of (a) the quotient of (i) the
Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by
(ii) one minus the Reserve Requirement (expressed as a decimal) applicable to
such Eurodollar Interest Period, plus (b) the Applicable Margin in effect from
time to time during such Eurodollar Interest Period. The Eurodollar Rate shall
be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a
multiple.
"EXTENSION NOTIFICATION DATE" has the meaning specified in SECTION 2.18.
"EXTENSION REQUEST" has the meaning specified in SECTION 2.18.
"EXTENSION REQUEST DATE" has the meaning specified in SECTION 2.18.
"FACILITY TERMINATION DATE" means March 27, 2001, or such later date
in effect from time to time as the Facility Termination Date determined in
accordance with the procedures described in SECTION 2.18.
"FAIR VALUE" means the value of the relevant asset determined in an
arm's-length transaction conducted in good faith between an informed and willing
buyer, under no compulsion to buy, and an informed and willing seller, under no
compulsion to sell.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members
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of the Federal Reserve System arranged by Federal funds brokers on such day,
as published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations at approximately 10:00 a.m. (Chicago time) on such
day on such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by the Agent in its sole discretion.
"FINANCE SUBSIDIARY" means any captive finance Subsidiary of TLGI that
engages in no material activity other than (i) buying accounts receivable or
other financial assets of any Affiliate of TLGI, (ii) making loans or otherwise
extending credit to any such Affiliates, (iii) succeeding to (or having
succeeded to) any or all of the business of Loewen Luxembourg (No. 1) S.A. or
Loewen Luxembourg (No. 2) S.A. or otherwise engaging in finance activities
similar to the finance activities engaged in by Loewen Luxembourg (No. 1) S.A.
or Loewen Luxembourg (No. 2)' S.A. from time to time, or (iv) making Investments
in other Finance Subsidiaries.
"FINANCIAL UNDERTAKING" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback transactions which do not create
a liability on the consolidated balance sheet of such Person and its
Subsidiaries, (c) obligations arising with respect to any other transaction
which is the functional equivalent of or takes the place of borrowing but which
does not constitute a liability on the consolidated balance sheet of such Person
and its Subsidiaries, or (d) net liabilities under any agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options.
"FIXED RATE" means the Eurodollar Rate.
"FIXED RATE ADVANCE" means an Advance which bears interest at a Fixed
Rate.
"FIXED RATE LOAN" means a Revolving Loan which bears interest at a
Fixed Rate.
"FLOATING RATE" means, for any day, a rate per annum equal to the sum
of (a) the Alternate Base Rate for such day, changing when and as the Alternate
Base Rate changes, plus (b) the Applicable Margin in effect for such day.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means, as applicable, a Revolving Loan or a Swing
Line Loan which bears interest at the Floating Rate.
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"GAAP" means the generally accepted accounting principles generally
applied by TLGI as at December 31, 1995, and thereafter, Canadian GAAP until
such time as TLGI and the Borrower shall prepare their respective books of
record and account in accordance with U.S. GAAP, at which time and at all times
thereafter, "GAAP" shall mean U.S. GAAP.
"GOVERNMENTAL ACTS" has the meaning specified in SECTION 2.21.6(a).
"GOVERNMENTAL AUTHORITY" means any country or nation, any political
subdivision of such country or nation, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government of any country or nation or political subdivision thereof.
"GUARANTOR" means each of TLGI and each Pledgor Subsidiary and their
respective successors and assigns.
"GUARANTY" means each of (a) the Guaranty of TLGI set forth in
ARTICLE V and (b) the Pledgor Subsidiary Guaranty.
"INDEBTEDNESS" of a Person means, without duplication, such Person's
(a) obligations for borrowed money, (b) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens on or payable
out of the proceeds or production from Property now or hereafter owned or
acquired by such Person, (d) obligations which are evidenced by notes,
acceptances, or other instruments (but exclusive of notes, bills and checks
presented in the ordinary course of business by such Person to banks for
collection or deposit), (e) Capitalized Lease Obligations, (f) Synthetic Lease
Obligations, (g) Securitization Obligations (but only to the extent of the
maximum recourse liability of such Person (or one or more of its Affiliates)
under the documentation for the related securitization transaction giving rise
to such Securitization Obligations for losses or defaults which are attributable
to the obligors of the Receivables included in such securitization transaction),
(h) Financial Undertakings, (i) Contingent Obligations and (j) obligations under
or in connection with letters of credit (including, with respect to TLGI or the
Borrower, any Letter of Credit); but excluding, in any event, (x) amounts
payable by such Person in respect of covenants not to compete and (y) with
reference to TLGI, the Borrower and the other Subsidiaries, all obligations of
TLGI, the Borrower and the other Subsidiaries of the character referred to in
this definition to the extent owing to TLGI, the Borrower or any other
Subsidiary.
"INSURANCE COMPANY" means any Subsidiary of Loewen Life Insurance
Group, Inc. which is primarily engaged in the business of providing insurance
and related products primarily intended for the funding of funeral and cemetery
products and services, which Insurance Companies as of the date hereof consist
of those Subsidiaries set forth on SCHEDULE 7 hereto.
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"INTEREST PERIOD" means a Eurodollar Interest Period.
"INVESTMENT" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade), deposit account or contribution of capital by such Person to any other
Person or any investment in, or purchase or other acquisition of, the stock,
partnership interests, notes, debentures or other securities of any other Person
made by such Person.
"L/C COMMITMENT AMOUNT" means $300,000,000.
"L/C DRAFT" means a draft drawn on the L/C Issuer pursuant to any of
the Letters of Credit.
"L/C INTEREST" has the meaning specified in SECTION 2.21.2.
"L/C ISSUER" means Bank of Montreal.
"L/C OBLIGATIONS" means an amount equal to the sum (without
duplication) of (i) the aggregate of the amount then available for drawing under
each of the Letters of Credit, (ii) the face amounts of all outstanding L/C
Drafts corresponding to the Letters of Credit, which L/C Drafts have been
accepted by the L/C Issuer but not yet paid, (iii) the aggregate outstanding
amount of Reimbursement Obligations at such time and (iv) the aggregate face
amount of all Letters of Credit requested by the Borrower but not yet issued
(unless such request has been denied).
"LENDERS" means the lending institutions listed on the signature pages
of this Agreement (including the Swing Line Lender), and any other lending
institutions which may become party hereto pursuant to the terms hereof, and
their respective successors and assigns permitted in accordance with the terms
hereof. Notwithstanding the foregoing, at any time that Bank of Montreal is the
sole Lender hereunder, any references to "Lender", "Lenders" or "Required
Lenders" shall be deemed to be a reference to Bank of Montreal.
"LENDING INSTALLATION" means, with respect to a Lender, any office,
branch, subsidiary or affiliate of such Lender.
"LETTER OF CREDIT" means each letter of credit identified on SCHEDULE 4
hereto and any standby letter of credit issued pursuant to SECTION 2.21
hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, security interest, charge, assignment, deposit arrangement,
encumbrance or other security agreement or arrangement of any kind or nature
whatsoever (including, without limitation, the interest of a vendor or lessor
under any conditional sale, Capitalized Lease or other title retention
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agreement).
"LMIC" means Loewen Management Investment Corporation, a Delaware
corporation and a Wholly-Owned Subsidiary of the Borrower.
"LOAN DOCUMENTS" means this Agreement, the Letters of Credit, the
Collateral Trust Agreement, and the promissory notes (if any) issued pursuant to
SECTION 13.1.
"LOEWEN LUXEMBOURG (NO. 1) S.A." means Loewen Luxembourg (No. 1) S.A.,
a company organized under the laws of Luxembourg and a Wholly-Owned Subsidiary
of TLGI.
"LOEWEN LUXEMBOURG (NO. 2) S.A." means Loewen Luxembourg (No. 2) S.A.,
a company organized under the laws of Luxembourg and a Wholly-Owned Subsidiary
of TLGI.
"MAJOR ACQUISITION" means any Acquisition of any Person which had
either (x) gross revenues in excess of $5,000,000 for the fiscal year of such
Person most recently ended at the time of closing of such Acquisition or (y)
total assets in excess of $5,000,000 as of the end of the fiscal year of such
Person most recently ended at the time of closing of such Acquisition.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, Property, financial condition, results of operations, or prospects of
TLGI, the Borrower and the other Subsidiaries taken as a whole, (b) the ability
of TLGI or the Borrower to perform its respective obligations under the Loan
Documents, or (c) the validity or enforceability of any of the Loan Documents or
the rights or remedies of the Agent, the L/C Issuer, the Collateral Agent or the
Lenders thereunder, and "MATERIAL ADVERSE EFFECT" shall include, without
limitation, the occurrence at any time of a Material Judgment Event.
"MATERIAL JUDGMENT EVENT" means a judgment, award or other order shall
be entered (whether or not such judgment, award or other order is bonded,
stayed, contested or appealable) against any of TLGI, the Borrower or any of
their respective Subsidiaries at any time when the amount of such judgment,
award or order, when added to the aggregate amount of all other judgments,
awards and orders which at such time shall have been entered against any of
TLGI, the Borrower or any of their respective Subsidiaries without having been
finally satisfied in full or vacated, shall be in excess of $100,000,000.
"MEIP CREDIT AGREEMENT" means that certain $121,300,000 1994 MEIP
Credit Agreement, dated as of June 14, 1994, as amended and restated as of May
15, 1996, and as further amended and restated as of September 28, 1997 among
TLGI, the Borrower, LMIC, as agent for TLGI and the Borrower, the lenders party
thereto, and Wachovia Bank of Georgia, N.A., as agent for the lenders, as it has
been and may hereafter be amended, restated, supplemented or otherwise modified
from time to time.
"MINORITY INTERESTS" means any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law or shares
of stock having no right to vote or
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receive dividends) that are not owned by TLGI and/or one or more of its
Subsidiaries. Minority Interests shall be valued by valuing Minority
Interests constituting preferred stock at the voluntary or involuntary
liquidating value of such preferred stock, whichever is greater, and by
valuing Minority Interests constituting common stock at the book value of
capital and surplus applicable thereto adjusted, if necessary, to reflect any
changes from the book value of such common stock required by the foregoing
method of valuing Minority Interests in preferred stock.
"MIPS" means the 9.45% Cumulative Monthly Income Preferred Securities,
Series A, issued by Loewen Group Capital, L.P. and the related Series A Junior
Subordinated Debentures issued by the Borrower and purchased by Loewen Group
Capital, L.P. with the proceeds of the sale of the 9.45% Cumulative Monthly
Income Preferred Securities, Series A.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"NEWEOL" means Neweol Finance B.V., a company incorporated under the
laws of the Netherlands.
"NON-CONSENTING LENDER" has the meaning specified in SECTION 2.18.
"NOTE AGREEMENTS" means the agreements dated for reference October 1,
1991, September 1, 1993 and February 1, 1994, the indentures dated March 20,
1996, October 1, 1996, September 26, 1997 and September 30, 1997, and any and
all other warrant agreements, indentures, and/or note agreements from time to
time entered into by TLGI, the Borrower, or either of them, and the relevant
holders of notes issued and sold thereunder, in each case as amended,
supplemented or otherwise modified from time to time.
"NOTICE OF ASSIGNMENT" has the meaning specified in SECTION 13.3.2.
"OBLIGATIONS" means all unpaid principal of and accrued and unpaid
interest on the Revolving Loans and the Swing Line Loans, all L/C Obligations,
all accrued and unpaid fees and all expenses, reimbursements, indemnities and
other obligations of the Borrower to the Lenders or to any Lender, the Agent or
any indemnified party hereunder arising under the Loan Documents.
"ORIGINAL AMENDED AGREEMENT" has the meaning specified in the Recitals
to this Agreement.
"PARTICIPANT" has the meaning specified in SECTION 13.2.1.
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"PAYMENT OFFICE" means the principal office of the Agent in Chicago,
Illinois, located on the date hereof at 115 South LaSalle Street, Chicago,
Illinois 60603, or such other office of the Agent as the Agent may from time to
time designate by written notice to the Borrower and the Lenders. All payments
to be made to the Agent at the Payment Office shall be made by wire transfer to
Harris Bank, Chicago, Illinois, ABA No. 071000288 for credit to Account No.
1248566 in the name of Bank of Montreal, with references to Loewen Group
International, Inc. and the type of payment being made, or to such other account
as the Agent may from time to time designate by written notice to the Borrower
and the Lenders.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PERMITTED ACQUISITION" means any Acquisition (but only to the extent
such Acquisition does not involve lines of business which are outside of the
TLGI Lines of Business, unless the Acquisition of such lines which are outside
of the TLGI Lines of Business would, at the time of the Acquisition and after
giving effect thereto, be permitted as Investments under SECTION 7.16(o)) made
by TLGI, the Borrower or any other Subsidiary from a willing seller or other
willing transferor where such Acquisition is not contested by such seller or
transferor at any time during the pendency of such Acquisition; PROVIDED, that
(i) either (x) TLGI or the Borrower has in place before it executes any binding
agreement or other binding writing by which it agrees to proceed with the
Acquisition (whether or not subject to conditions) sufficient funds which are
committed and available (which may include the availability of Revolving Loans
under this Agreement (but only to the extent no Default or Unmatured Default
would occur after then giving effect to the borrowing necessary to fund such
Acquisition), and provided that for any third-party commitment such commitment
is otherwise permitted under this Agreement), to fund the full amount of the
cash consideration for such Acquisition, or (y) such agreement or other writing
contains a condition to closing of TLGI or the Borrower based upon the ability
of TLGI or the Borrower to raise funds for the Acquisition, and (ii) all
contractual arrangements evidencing such Acquisition include provisions
subjecting the parties to arbitration except to the extent the Board of
Directors of TLGI or the Borrower (or an authorized subcommittee thereof, a
majority of whose members consist of directors who are not employees of TLGI,
the Borrower or any other Subsidiary) shall either make an express determination
to the contrary or shall approve the Acquisition pursuant to valid action which
expressly contemplates the absence of such an arbitration provision in the
contractual arrangements evidencing such Acquisition.
"PERMITTED CREDIT SUPPORT" means, with respect to any Permitted
Receivables Securitization, representations, warranties, covenants, indemnities,
performance guaranties and related contractual provisions entered into by TLGI,
the Borrower or any of their respective Subsidiaries which are reasonably
customary in accounts receivable securitization transactions; PROVIDED, that
such representations, warranties, covenants, indemnities, performance guaranties
and provisions shall not permit credit recourse against TLGI, the Borrower or
any of their respective Subsidiaries.
"PERMITTED RECEIVABLES SECURITIZATION" means any transaction (or
series of
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transactions) effected by TLGI or the Borrower or any Subsidiary of
TLGI pursuant to which TLGI, the Borrower or such Subsidiary either (x) sells or
otherwise transfers (including sales or transfers using one or more Unrestricted
Subsidiaries), or (y) grants a security interest in, assets of one or more of
TLGI, the Borrower and the other Subsidiaries consisting of Consumer Finance
Receivables and Receivables Related Assets.
"PERSON" means any natural person, corporation, limited liability
company, firm, joint venture, partnership, association, enterprise, trust or
other entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"PLAN" means an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code as to which the Borrower or any member of the Controlled Group may
have any liability.
"PLEDGOR SUBSIDIARIES" means, at any time, but subject to SECTION
7.26, each Subsidiary of TLGI or the Borrower which at such time is party to the
Collateral Trust Agreement as a pledgor of capital stock or other equity
interests or, in the case of the Borrower, certain assets of the Borrower, held
by it on the terms specified in the Collateral Trust Agreement.
"PLEDGOR SUBSIDIARY GUARANTY" means the guaranty of each Pledgor
Subsidiary set forth in the Collateral Trust Agreement.
"PREPAYMENT NOTICE" has the meaning specified in SECTION 2.5.
"PROCESS AGENT" has the meaning specified in SECTION 10.13.
"PROPERTY" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"PURCHASERS" has the meaning specified in SECTION 13.3.1(a).
"RECEIVABLES" means all rights of TLGI, the Borrower or any Subsidiary
to payments from Persons other than TLGI and its Subsidiaries (whether
constituting accounts, chattel paper, instruments, general intangibles or
otherwise, and including the right to payment of any interest or finance
charges).
"RECEIVABLES RELATED ASSETS" means (i) any rights arising under the
documentation governing or relating to Consumer Finance Receivables (including
rights in respect of liens securing such Consumer Finance Receivables and other
credit support in respect of such Consumer Finance Receivables), (ii) any
collections, recoveries and proceeds of such Consumer Finance Receivables and
any lockboxes or accounts in which such proceeds are
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deposited, (iii) spread accounts and other similar accounts (and any amounts
on deposit therein) established in connection with a Permitted Receivables
Securitization, (iv) any warranty, indemnity, dilution and other intercompany
claim arising out of documents relating to a Permitted Receivables
Securitization and (v) other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection
with asset securitization transactions involving accounts receivable.
"REGIONAL PARTNER" means any Subsidiary, all of the outstanding shares
entitled to receive dividends of which, shall at the time be owned or
controlled, directly or indirectly, by TLGI or a Subsidiary of TLGI.
"REGISTER" has the meaning specified in SECTION 13.3.2.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"REGULATION G", "REGULATION T", "REGULATION U" and "REGULATION X"
mean, respectively, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to the subject matter thereof.
"REIMBURSEMENT OBLIGATION" is defined in SECTION 2.21.3.
"RELEVANT TAX" has the meaning specified in SECTION 5.7.
"RENTALS" of a Person means the aggregate fixed amounts payable by
such Person under any lease of Property having an original term (including any
required renewals or any renewals at the option of the lessor or lessee) of one
year or more, regardless of whether such lease is characterized as an operating
lease or a Synthetic Lease.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event; PROVIDED, HOWEVER, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"REQUIRED LENDERS" means Lenders in the aggregate having at least
66-2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been
terminated, Lenders in the aggregate holding at least 66-2/3% of the
aggregate unpaid principal amount of the
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outstanding Advances, Swing Line Loans and the L/C Obligations. For purposes
of this definition the aggregate unpaid principal amount of the outstanding
Swing Line Loans held by Lenders at any time shall be determined such that
all Swing Line Loans outstanding at such time shall be allocated among the
Lenders ratably in accordance with their respective Commitments,
notwithstanding that the Swing Line Lender at such time may have fully funded
some or all of the outstanding Swing Line Loans.
"RESERVE REQUIREMENT" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed under Regulation D
on Eurodollar liabilities.
"RESTATEMENT EFFECTIVE DATE" has the meaning specified in
SECTION 16.1.
"REVOLVING LOAN" means a loan by a Lender to the Borrower as part of
an Advance.
"REVOLVING LOAN BORROWING DATE" means a date on which an Advance is
made hereunder.
"REVOLVING LOAN BORROWING NOTICE" has the meaning specified in SECTION
2.6.
"SECTION" means a numbered section of this Agreement, unless another
document is specifically referenced.
"SECURED PARTIES" means the Lenders, the Persons specified on SCHEDULE
3 hereto as Secured Parties and, to the extent designated by the Borrower from
time to time in a writing delivered to the Agent and the Collateral Agent, all
other Persons who from time to time hold Senior Obligations which are secured
pursuant to the Collateral Trust Agreement; PROVIDED, HOWEVER, that no Secured
Parties shall be placed within the class to which the Lenders belong from time
to time under the terms of the Collateral Trust Agreement unless the Required
Lenders shall have given their affirmative approval thereof.
"SECURITIZATION OBLIGATIONS" of a Person means the outstanding
purchaser's investment or outstanding capital or other principal equivalent that
purchasers or other investors are entitled to receive in respect of any
securitization or other sale or asset-backed financing of Receivables of such
Person or its Affiliates effected by such Person.
"SENIOR OBLIGATIONS" means (i) the Obligations, (ii) the Indebtedness
described on SCHEDULE 3 hereto, (iii) the obligations of TLGI or the Borrower
under any and all interest rate or currency exchange swaps, caps, collars,
floors or other similar transactions, or options on any of the foregoing,
entered into by TLGI or the Borrower and having a term of at least two years
from the date of entry into, and (iv) the unpaid principal of and accrued and
unpaid interest on (together with all accrued and unpaid fees and expenses
related to) Indebtedness for borrowed
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money incurred by TLGI, the Borrower or any Subsidiary with a maturity of at
least two years from its date of issuance (or, in the case of revolving
Indebtedness, with a term of at least two years from the date of execution of
the documentation governing such revolving Indebtedness), which in the case
of Indebtedness described in this CLAUSE (iv) is not secured except pursuant
to the Collateral Trust Agreement and by its terms is not subordinated
(except as expressly provided in the Collateral Trust Agreement) to the
Obligations or any other senior indebtedness of TLGI, the Borrower or such
Subsidiary, respectively.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SPECIFIED REMITTANCE TIME" means (a) if the relevant Payment Office
is located in Chicago, 12:30 p.m. (Chicago time) and (b) if the relevant Payment
Office is located elsewhere, such time as the Agent shall specify after
consultation with the Borrower and the Lenders.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
"STATED AMOUNT" means, when used with reference to a Letter of Credit,
(x) at the time of issuance, the face amount thereof, and (y) at any time
thereafter, the aggregate amount available to be drawn under such Letter of
Credit at such time.
"SUBSIDIARY" of a Person means (a) any corporation more than 50% of
the outstanding securities having ordinary voting power of which, or more than
50% of the economic benefits associated with all outstanding securities of
which, shall at the time be owned or controlled, directly or indirectly, by such
Person or by one or more of its Subsidiaries or by such Person and one or more
of its Subsidiaries, or (b) any partnership, association, limited liability
company, joint venture or similar business organization more than 50% of the
ownership interests having ordinary voting power of which, or more than 50% of
the economic benefits associated with all outstanding ownership interests of
which, shall at the time be so owned or controlled. Unless otherwise expressly
provided, all references herein to a "Subsidiary" shall mean a Subsidiary of
TLGI.
"SUBSTANTIAL PORTION" means, with respect to the Property of TLGI and
the Borrower and the other Subsidiaries, Property of TLGI, the Borrower and the
other Subsidiaries that has a Fair Value representing more than 5% of
Consolidated Tangible Net Worth of TLGI, the Borrower and the other Subsidiaries
determined as of the end of the fiscal quarter of TLGI most recently ended prior
to the date on which such determination is made.
"SWING LINE ASSIGNMENT" has the meaning specified in SECTION 13.3.1(b)
"SWING LINE COMMITMENT" means the commitment of the Swing Line Lender to
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make Swing Line Loans hereunder.
"SWING LINE INTEREST" has the meaning specified in SECTION 2.25(a).
"SWING LINE LENDER" means Bank of Montreal.
"SWING LINE LOAN" has the meaning specified in SECTION 2.22.
"SWING LINE LOAN BORROWING DATE" means a date on which a Swing Line
Loan is made hereunder.
"SWING LINE LOAN BORROWING NOTICE" has the meaning specified in
SECTION 2.23.
"SYNTHETIC LEASE" of a Person means any lease of Property by such
Person as lessee which under GAAP would or may be treated as a true operating
lease but which under tax law or commercial law is treated as secured
Indebtedness of such Person and not as a true lease.
"SYNTHETIC LEASE OBLIGATIONS" of a Person means the aggregate funded
amount under all Synthetic Leases to which such Person is party as lessee.
"SYNTHETIC LEASE RENTALS" of a Person means the aggregate fixed
amounts payable by such Person under a Synthetic Lease of Property having an
original term (including any required renewals or any renewals at the option of
the lessor or lessee) of one year or more.
"TAXING JURISDICTION" has the meaning specified in SECTION 5.7.
"TLGI" means The Loewen Group Inc., a corporation incorporated under
the laws of the Province of British Columbia, Canada.
"TLGI LINES OF BUSINESS" means the lines of business conducted as of
the date of this Agreement by TLGI or the Borrower or any of their Subsidiaries
and shall include the making by TLGI, the Borrower or any of their Subsidiaries,
from time to time, of equity and debt investments in, or to, Persons which are
engaged primarily in any one or more of the funeral, funeral home, cemetery and
funeral-related insurance businesses.
"TOTAL ASSETS" means, at any date, without duplication, the total
consolidated assets of TLGI, the Borrower and their respective Subsidiaries, as
determined in accordance with GAAP.
"TRANSFEREE" has the meaning specified in SECTION 13.4.
"TYPE" means, (a) with respect to any Revolving Loan, its nature as a
Floating Rate Loan or Eurodollar Loan, and (b) with respect to any Advance, its
nature as a Floating Rate
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Advance or Eurodollar Advance.
"UNFUNDED LIABILITIES" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the Fair Value of all Plan assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plans.
"UNITED STATES" and "U.S." mean the United States of America.
"UNMATURED DEFAULT" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"UNRESTRICTED SUBSIDIARY" means a Subsidiary of TLGI or the Borrower
declared by the respective Board of Directors of TLGI or the Borrower to be an
Unrestricted Subsidiary for purposes of this Agreement; PROVIDED, that no such
Subsidiary shall be declared to be an Unrestricted Subsidiary unless (x) none of
its properties or assets were owned by TLGI or the Borrower or any other
Subsidiaries prior to the Restatement Effective Date, other than any such assets
as are transferred to such Unrestricted Subsidiary in accordance with the
covenant contained in SECTION 7.13(d); (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 TLGI, the
Borrower nor any of their other respective 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), other than Permitted Credit Support, or (2) guarantees
or is otherwise directly or indirectly liable, except to the extent such
guaranty constitutes Permitted Credit Support, 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 TLGI, the Borrower or other 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.
"U.S. GAAP" means, at any time, generally accepted accounting
principles in the United States at such time.
"WHOLLY-OWNED SUBSIDIARY" of a Person means (a) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (b) any partnership, association, joint venture
or similar business organization 100% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled.
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ARTICLE II
THE CREDITS
2.1. THE REVOLVING LOANS. From and including the Effective Date
and prior to the Facility Termination Date, each Lender severally agrees, on the
terms and conditions set forth in this Agreement (including, without limitation,
the terms and conditions of SECTION 2.10 and SECTION 9.1 relating to the
reduction, suspension or termination of the Aggregate Commitment), to make
Revolving Loans in Dollars to the Borrower from time to time in an aggregate
amount, together with such Lender's L/C Interest and Swing Line Interest, not to
exceed (except as otherwise contemplated by the last sentence of SECTION 2.19)
at any one time outstanding the amount of such Lender's Commitment; PROVIDED,
HOWEVER, that the Aggregate Commitment shall be deemed used for purposes of
determining the availability of Revolving Loans (but not for purposes of
determining each Lender's commitment fee pursuant to SECTION 2.10, which
commitment fee shall be determined for each Lender as described in SECTION 2.10)
from time to time to the extent of (x) the aggregate L/C Obligations then
outstanding and (y) the aggregate principal amount of any Swing Line Loans then
outstanding, and such deemed use of the Aggregate Commitment shall be applied to
the Lenders ratably according to their respective Commitments. Subject to the
terms of this Agreement (including, without limitation, the terms and conditions
of SECTION 2.10 and SECTION 9.1 relating to the reduction, suspension or
termination of the Aggregate Commitment), the Borrower may borrow, repay and
reborrow Revolving Loans at any time prior to the Facility Termination Date.
Unless earlier terminated in accordance with the terms and conditions of this
Agreement, the Commitments of the Lenders to lend hereunder shall expire on the
Facility Termination Date.
2.2. REPAYMENT OF THE REVOLVING LOANS. Any outstanding Revolving
Loans shall be paid in full by the Borrower on the Facility Termination Date;
PROVIDED, HOWEVER, that nothing in this SECTION 2.2 shall be construed as
limiting or modifying the obligation of the Borrower to repay any or all of the
outstanding Revolving Loans at any earlier time in accordance with the terms of
this Agreement.
2.3. RATABLE REVOLVING LOANS; TYPES OF ADVANCES. Each Advance
hereunder shall consist of Revolving Loans made from the several Lenders ratably
in proportion to the ratio that their respective Commitments bear to the
Aggregate Commitment. Any Advance may be a Floating Rate Advance or a
Eurodollar Advance, as the Borrower shall select in accordance with SECTIONS 2.6
and 2.7.
2.4. MINIMUM AMOUNT OF EACH ADVANCE. Each Advance shall be in a
minimum amount not less than $10,000,000 or an integral multiple of $1,000,000
in excess thereof; PROVIDED, HOWEVER, that any Advance may be in the amount of
the unused Aggregate Commitment.
2.5. OPTIONAL PREPAYMENTS OF REVOLVING LOANS. Subject to SECTION
3.4 and the
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requirements of SECTION 2.4, the Borrower may (a) following notice given to
the Agent by the Borrower, in the form attached hereto as EXHIBIT G (a
"PREPAYMENT NOTICE") by not later than 11:00 a.m. (Chicago time) on the date
of the proposed prepayment, such notice specifying the aggregate principal
amount of and the proposed date of the prepayment (and if such notice is
given the Borrower shall), prepay the outstanding principal amounts of the
Floating Rate Loans comprising part of the same Advance in whole or ratably
in part, together with accrued interest to but excluding the date of such
prepayment on the principal amount prepaid and (b) if the Advance to be
prepaid is a Eurodollar Advance and following a Prepayment Notice given to
the Agent by the Borrower by not later than 11:00 a.m. (Chicago time), on the
third Business Day preceding the date of the proposed prepayment, such notice
specifying the Advance to be prepaid and the proposed date of the prepayment,
and if such notice is given, the Borrower shall prepay the outstanding
principal amounts of the Fixed Rate Loans comprising a Fixed Rate Advance in
whole (and not in part), together with accrued interest to but excluding the
date of such prepayment on the principal amount prepaid. In the case of a
Floating Rate Advance, each partial prepayment shall be in an aggregate
principal amount not less than $10,000,000.
2.6. METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW
ADVANCES. The Borrower shall select the Type of each Advance and, in the case
of a Fixed Rate Advance, the Interest Period applicable to such Advance from
time to time. The Borrower shall give the Agent irrevocable notice, in the form
attached hereto as EXHIBIT F (a "REVOLVING LOAN BORROWING NOTICE"), not later
than 10:30 a.m. (Chicago time) (i) on the Revolving Loan Borrowing Date for each
Floating Rate Advance and (ii) at least three Business Days before the Revolving
Loan Borrowing Date for each Eurodollar Advance specifying:
(a) the Revolving Loan Borrowing Date, which shall be a Business
Day, of such Advance,
(b) the aggregate amount of such Advance,
(c) the Type of such Advance, and
(d) in the case of each Fixed Rate Advance, the Interest Period
applicable thereto.
Not later than the Specified Remittance Time on each Revolving Loan Borrowing
Date, each Lender shall make available its Revolving Loan or Revolving Loans to
the Agent in immediately available funds at the relevant Payment Office. To the
extent that the Agent has received funds from the Lenders as specified in the
preceding sentence, the Agent will make such funds available to the Borrower at
the relevant Payment Office as promptly as reasonably practicable (but in any
event within two hours) following the Specified Remittance Time, it being
understood that if the relevant Payment Office is located in Chicago, the Agent
will make the applicable funds available to the Borrower by depositing such
funds to such account as the Borrower shall from time to time designate in a
notice delivered to the Agent executed by two
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Authorized Officers.
2.7. CONVERSION AND CONTINUATION OF OUTSTANDING ADVANCES. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Fixed Rate Advances or prepaid
pursuant to SECTION 2.5. Each Fixed Rate Advance of any Type shall continue as
a Fixed Rate Advance of such Type until the end of the then applicable Interest
Period therefor, at which time such Fixed Rate Advance shall be automatically
converted into a Floating Rate Advance unless the Borrower shall have given the
Agent a Conversion/Continuation Notice requesting that, at the end of such
Interest Period, such Fixed Rate Advance either continue as a Fixed Rate Advance
of such Type for the same or another Interest Period or be converted into an
Advance of another Type. Subject to the terms of SECTION 2.6, the Borrower may
elect from time to time to convert all or any part of an Advance of any Type
into any other Type or Types of Advances; provided that any conversion of any
Fixed Rate Advance shall be made on, and only on, the last day of the Interest
Period applicable thereto. The Borrower shall give the Agent irrevocable notice
in the form of EXHIBIT I hereto (a "CONVERSION/CONTINUATION NOTICE") of each
conversion of an Advance or continuation of a Fixed Rate Advance not later than
10:00 a.m. (Chicago time) (i) in the case of a conversion into a Floating Rate
Advance on the date of such conversion and (ii) in the case of a conversion into
or continuation of a Eurodollar Advance, at least three Business Days before the
date of such conversion or continuation specifying:
(a) the requested date, which shall be a Business Day, of such
conversion or continuation;
(b) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(c) the amount and Type(s) of Advance(s) into which such Advance is
to be converted or continued and, in the case of a conversion into or
continuation of a Fixed Rate Advance, the duration of the Interest Period
applicable thereto.
2.8. PAYMENT OF INTEREST ON REVOLVING LOANS AND ADVANCES. Interest
accrued on each Floating Rate Advance shall be payable on the last Business Day
of each calendar quarter for the calendar quarter then ending, the Facility
Termination Date, the date of the reduction to zero of the Aggregate Commitment
pursuant to SECTION 2.10, the date of any repayment of such Floating Rate
Advance, and the date of the acceleration of the Obligations pursuant to SECTION
9.1. Interest accrued on each Fixed Rate Advance shall be payable on the last
day of its applicable Interest Period, on any date on which the Fixed Rate
Advance is prepaid, whether by acceleration or otherwise, and at maturity.
Interest accrued on each Fixed Rate Advance having an Interest Period longer
than three months or 90 days, as the case may be, shall also be payable on the
last day of each three-month or 90-day interval during such Interest Period.
Interest on Floating Rate Advances shall be calculated for actual days elapsed
on the basis of a 365/366-day year. Interest on Fixed Rate Advances shall be
calculated for actual days elapsed on the basis of a 360-day
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year. Interest shall be payable for the day an Advance is made but not for
the day of any payment on the amount paid if payment is received prior to
noon (Chicago time) at the place of payment. If any payment of principal of
or interest on an Advance shall become due on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day and, in
the case of a principal payment, such extension of time shall be included in
computing interest in connection with such payment.
2.9. CHANGES IN INTEREST RATE, ETC. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a Fixed Rate
Advance into a Floating Rate Advance pursuant to SECTION 2.7 to but excluding
the date it becomes due or is converted into a Fixed Rate Advance pursuant to
SECTION 2.7, at a rate per annum equal to the Floating Rate for such day.
Changes in the rate of interest on each Advance maintained as a Floating Rate
Advance will take effect simultaneously with each change in the Alternate Base
Rate. Each Fixed Rate Advance shall bear interest from and including the first
day of the Interest Period applicable thereto to (but not including) the last
day of such Interest Period at the interest rate determined as applicable to
such Fixed Rate Advance. No Interest Period may end after the Facility
Termination Date.
2.10. COMMITMENT FEE; MANDATORY AND VOLUNTARY REDUCTIONS IN AGGREGATE
COMMITMENT. (a) The Borrower agrees to pay to the Agent for the account of each
Lender a commitment fee at a rate per annum equal to the Applicable Commitment
Fee Rate in effect from time to time on the daily unused portion of such
Lender's Commitment from the Effective Date to but excluding the earliest of the
Facility Termination Date, the date of the reduction to zero of the Aggregate
Commitment pursuant to this SECTION 2.10 and the date of the termination of the
Aggregate Commitment pursuant to SECTION 9.1; PROVIDED, HOWEVER, that, solely
for purposes of this SECTION 2.10(a), (x) each Lender's Commitment (except the
commitment of the Swing Line Lender) shall be determined without regard to any
outstanding Swing Line Loans and (y) the Commitment of the Swing Line Lender
shall be determined assuming that all outstanding Swing Line Loans have been
made by the Swing Line Lender. Such commitment fees shall be payable on the
last Business Day of each calendar quarter for the quarter then ending, and on
the earliest of the Facility Termination Date, the date of the reduction to zero
of the Aggregate Commitment pursuant to this SECTION 2.10 and the date of the
termination of the Aggregate Commitment pursuant to SECTION 9.1. Commitment
fees shall be calculated for actual days elapsed on the basis of a 360-day year.
(b) If as of the end of any fiscal year of TLGI, (x) the aggregate Fair
Value of all Property, whether of TLGI, the Borrower or any Subsidiary of TLGI
or the Borrower, sold during such fiscal year pursuant to the exception for
sales of Property provided under SECTION 7.13(c) exceeds (y) the aggregate Fair
Value, as determined by the board of directors of TLGI, of all consideration
actually paid during such fiscal year in respect of Acquisitions, by at least
$5,000,000, then within ten Business Days following the date on which TLGI
delivers to the Agent financial statements in respect of such fiscal year
pursuant to SECTION 7.1(a), the Borrower will, by written notice to the Agent
given on or before the date such financial statements are
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delivered, reduce the Aggregate Commitment by an amount equal to such excess,
rounded down to the nearest $100,000; PROVIDED, HOWEVER, that any such
reduction shall be made equally and ratably with the repayment of any other
Indebtedness (if any) which by its terms must be repaid using the proceeds of
the sale of such Property. Any such reduction in the Aggregate Commitment
shall be allocated ratably among the Lenders according to their respective
Commitments. To the extent that the amount of any such mandatory reduction
of the Aggregate Commitment exceeds the unused Aggregate Commitment on the
date of such mandatory reduction, the Borrower shall, immediately prior to
making such mandatory reduction of the Aggregate Commitment, prepay (subject
to the proviso to the immediately preceding sentence) the outstanding
Advances (as selected by the Borrower) in an amount at least equal to such
excess; it being understood that the Borrower and each Guarantor shall be
liable pursuant to SECTION 3.4 to indemnify each Lender against any loss or
liability which that Lender incurs as a consequence of any prepayment under
this SECTION 2.10(b). If, following any such prepayment of Advances, the
amount of any such mandatory reduction of the Aggregate Commitment still
exceeds the unused Aggregate Commitment on the date of such mandatory
reduction, the Borrower shall cash collateralize the outstanding L/C
Obligations as contemplated in SECTION 2.21.4 in an amount sufficient,
together with the prepayments of Advances, to eliminate such excess.
(c) The Borrower may permanently reduce the Aggregate Commitment in
whole, or in part ratably among the Lenders in integral multiples of
$10,000,000, upon at least three Business Days' written notice to the Agent,
which notice shall specify the amount of any such reduction; PROVIDED,
HOWEVER, that the amount of the Aggregate Commitment may not be reduced below
the sum of the aggregate principal amount of the outstanding Advances and
Swing Line Loans and the aggregate outstanding L/C Obligations.
2.11. RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to the
contrary contained in SECTION 2.6 or 2.7, during the continuance of a Default or
Unmatured Default no Advance may be made as, converted into or continued as a
Fixed Rate Advance. During the continuance of a Default pursuant to SECTION
8.2, (a) each Fixed Rate Advance shall bear interest until paid in full or
converted to a Floating Rate Advance at the Fixed Rate then applicable to such
Advance plus 2% per annum, and (b) each Floating Rate Advance shall bear
interest until paid in full at a rate per annum equal to the Floating Rate plus
2% per annum.
2.12. METHOD OF PAYMENT. Without limiting the operation of the first
sentence of SECTION 2.21.3(b), and without limiting the scope of SECTION
2.17(b), all payments of the Obligations hereunder shall be made, without
setoff, deduction, or counterclaim, in Dollars in immediately available funds to
the Agent at the Payment Office, by the Specified Remittance Time on the date
when due and shall be remitted by the Agent to the Lenders according to their
respective interests therein. Each payment delivered to the Agent for the
account of any Lender shall be delivered promptly by the Agent to such Lender in
the same type of funds that the Agent received at such Lender's address
specified pursuant to ARTICLE XIV or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby
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authorized, but is not obligated, to charge the accounts of the Borrower
maintained with Bank of Montreal into which proceeds of Advances are remitted
pursuant to SECTION 2.6 for each payment of interest and fees as it becomes
due hereunder, for each payment of principal, in accordance with the
applicable Prepayment Notice or when otherwise due and payable in accordance
with the terms hereof, and for each payment of Obligations (including
Reimbursement Obligations) when due and payable in accordance with the terms
hereof.
2.13. EVIDENCE OF DEBT; TELEPHONIC NOTICES. (a) Each Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
the Obligations of the Borrower to the appropriate Lending Installation of such
Lender resulting from each Revolving Loan made by such Lending Installation of
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lending Installation of such Lender from time to time
under this Agreement.
(b) The Agent shall maintain a Register at the request of the Borrower
pursuant to SECTION 13.3.2, and a subaccount for each relevant Lender, in which
Register and subaccounts (taken together) shall be recorded (i) the amount of
each relevant Revolving Loan made hereunder, whether such Revolving Loan is, as
applicable, a Eurodollar Loan or a Floating Rate Loan, and the Interest Period
applicable to any Eurodollar Loan, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder, and (iii) the amount of any sum received by the Agent hereunder from
the Borrower and each Lender's share thereof.
(c) The entries made in the Register, accounts and subaccounts
maintained pursuant to PARAGRAPHS (a) and (b) of this SECTION 2.13 shall, to
the extent permitted by applicable law, be PRIMA FACIE evidence of the
existence and amounts of the Obligations of the Borrower therein recorded;
PROVIDED, that the failure of any Lender or the Agent to maintain such
account, such Register or such subaccount, as applicable, or any error
therein, shall not in any manner affect the obligation of the Borrower to
repay the Revolving Loans (and all other amounts owing with respect thereto)
in accordance with the terms of this Agreement.
(d) The Borrower hereby authorizes the Lenders and the Agent to extend,
convert or continue Advances and effect selections of Types of Advances based on
telephonic notices made by any person or persons the Agent in good faith
believes to be acting on behalf of the Borrower, PROVIDED that the proceeds of
such Advances shall only be credited to such account as the Borrower shall from
time to time designate in a notice delivered to the Agent executed by two
Authorized Officers. The Borrower agrees to deliver promptly to the Agent a
written confirmation, if such confirmation is requested by the Agent or any
Lender, of each telephonic notice signed by an Authorized Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Lenders, the records of the Agent of the relevant telephonic
notice shall govern absent manifest error.
2.14. NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND
COMMITMENT
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REDUCTIONS. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Revolving Loan Borrowing Notice, Swing Line Loan Borrowing Notice,
Conversion/Continuation Notice, and prepayment notice received by it hereunder.
The Agent will notify the Borrower and each Lender of the interest rate
applicable to each Fixed Rate Advance promptly upon determination of such
interest rate and will give the Borrower and each Lender prompt notice of each
change in the Alternate Base Rate.
2.15. LENDING INSTALLATIONS. Each Lender may book its Revolving Loans
and its Swing Line Interest and its L/C Interest at any one or more Lending
Installations selected by such Lender and may change any such Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Revolving Loans, the Swing Line Interests and
the L/C Interests shall be deemed held by each Lender for the benefit of such
Lending Installation. Each Lender may, by written or telex notice to the Agent
and the Borrower, designate a Lending Installation through which Revolving Loans
will be made by it and through which L/C Interests and Swing Line Interests will
be held by it and for whose account Revolving Loan and Swing Line Loan payments
and L/C Obligation payments are to be made.
2.16. NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (a) in the case of a Lender, the
proceeds of a Revolving Loan or (b) in the case of the Borrower, a payment of
principal, interest or fees to the Agent for the account of the Lenders, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of
such payment available to the intended recipient in reliance upon such
assumption. If such Lender or the Borrower, as the case may be, has not in fact
made such payment to the Agent, the recipient of such payment shall, on demand
by the Agent, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (a) in the case of payment by a Lender,
the Federal Funds Effective Rate for such day or (b) in the case of payment by
the Borrower, the interest rate applicable to the relevant Revolving Loan.
2.17. WITHHOLDING TAX EXEMPTION; GROSS UP. (a) At least five Business
Days prior to the first date on which interest or fees are payable hereunder for
the account of any Lender, each Lender that is not incorporated under the laws
of the United States of America, or a state thereof, and which has not
previously delivered to the Borrower and the Agent under the terms of the
Original Amended Agreement documentation which complies with this Section 2.17,
agrees that it will deliver to each of the Borrower and the Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224,
certifying in either case that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes. Each Lender which so delivers a Form 1001 or 4224 further
undertakes to deliver to each of the Borrower and the Agent two additional
copies of such form (or any successor form or related form as may from time to
time be required under applicable law) on or
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before the date that such form expires (currently, three successive calendar
years for Form 1001 and one calendar year for Form 4224) or becomes obsolete
or after the occurrence of any event requiring a change in the most recent
forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent,
in each case certifying that such Lender is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the
Borrower and the Agent that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
(b) All payments made by the Borrower under or in connection with this
Agreement shall be made in full, without set-off or counterclaim, and free of
and without deduction or withholding for or on account of any present or future
tax, duty, assessment, impost, levy or other similar charge, or any penalties,
fines or interest thereon (a "RELEVANT TAX") imposed upon TLGI, the Borrower,
the Agent, any Lender or the L/C Issuer by the government of Canada (or any
Governmental Authority thereof), the government of the United States of America
(or any Governmental Authority thereof), or by the government of any other
country or jurisdiction (or any Governmental Authority thereof) from or through
which payments hereunder are actually made (each a "TAXING JURISDICTION"). The
Borrower, for the benefit of the Agent, the Lenders and the L/C Issuer, agrees
that in the event any payments made by the Borrower hereunder or in connection
herewith are subject to any deduction or withholding for or on account of any
Relevant Tax, the Borrower will pay to the Agent, such Lender or the L/C Issuer
such additional amounts as may be necessary in order that the net amounts paid
to the Agent, such Lender or the L/C Issuer pursuant to the terms of this
Agreement after imposition of any such Relevant Tax (including deductions or
withholdings applicable to additional amounts paid under this SECTION 2.17(b))
shall be not less than the amounts specified in this Agreement to be then due
and payable, except that no such additional amounts shall be payable hereunder
to the Agent, any Lender or the L/C Issuer that is liable for such Relevant Tax
in respect of the relevant payment solely by reason of such recipient (a) having
a permanent establishment in the Taxing Jurisdiction, (b) being organized under
the laws of the Taxing Jurisdiction or any political subdivision thereof, (c)
being resident in the Taxing Jurisdiction by virtue of its domicile or place of
management being in the Taxing Jurisdiction, or (d) having failed to comply with
the terms and conditions of SECTION 2.17(a) applicable to it. If the Agent, any
Lender or the L/C Issuer pays any amount in respect of a Relevant Tax, the
Borrower shall indemnify the Agent, the Lender or the L/C Issuer, as the case
may be, for such payment within 15 days of demand therefor by the Agent, such
Lender or the L/C Issuer (in the case of such Lender or the L/C Issuer, made
through the Agent).
2.18. EXTENSION OF FACILITY TERMINATION DATE. The Borrower may request
an extension of the Facility Termination Date for a period of one year on each
of March 27, 1999, and, if such first extension shall have become effective in
accordance with the provisions of this SECTION 2.18,
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March 27, 2000 (each of March 27, 1999 and March 27, 2000, an "EXTENSION
REQUEST DATE"), by delivering a notice of such request in the form attached
hereto as EXHIBIT H (an "EXTENSION REQUEST") to the Agent no more than 90
days and no fewer than 60 days preceding the relevant Extension Request Date.
The Agent shall promptly notify each Lender of a requested extension. On or
before the 30th day (or if such day is not a Business Day, the next
succeeding Business Day) preceding the relevant Extension Request Date (such
30th day, the "EXTENSION NOTIFICATION DATE"), each Lender shall notify the
Agent whether that Lender consents to the requested extension of the Facility
Termination Date, which consent may be given or withheld by each Lender in
its sole and absolute discretion. Any Lender that fails to notify the Agent
of its consent or non-consent by the Extension Notification Date will be
deemed to have withheld consent (each such Lender together with each Lender
that has provided notice of its non-consent to be referred to herein as a
"NON-CONSENTING LENDER"). If as of the close of business on the Extension
Notification Date, any Lender is a Non-Consenting Lender, the Agent shall
immediately so advise the Borrower. During the period beginning on the first
day following the Extension Notification Date and ending on the relevant
Extension Request Date, each Non-Consenting Lender will, but only upon the
written request of the Borrower given in the sole discretion of the Borrower
(which request may be given by the Borrower to some, all or none of the
Non-Consenting Lenders in the Borrower's sole discretion), assign all of its
rights and obligations under this Agreement (i) first, to the Lenders who
have consented to the extension and are willing to accept such assignment,
subject to ratable allocation by the Agent among such Lenders and (ii)
second, to the extent such Non-Consenting Lender's rights and obligations
hereunder have not been assigned to an existing Lender as contemplated in the
foregoing CLAUSE (i), to one or more other financial institutions, nominated
by the Borrower and acceptable to the Agent, that are willing to become
Lenders hereunder through the Facility Termination Date as extended in
accordance with the relevant Extension Request. The obligation of a
Non-Consenting Lender to assign its rights and obligations hereunder as
contemplated by this SECTION 2.18 is subject to the requirements that (x) all
amounts owing to that Non-Consenting Lender under the Loan Documents
(including, without limitation, pursuant to SECTION 3.4) are paid in full
upon the completion of such assignment and (y) any assignment is effected in
accordance with the terms of SECTION 13.3 and on terms otherwise satisfactory
to the Non-Consenting Lender. A requested extension of the Facility
Termination Date shall be effective only with respect to Lenders which have
consented to such Extension Request in accordance with the terms of this
SECTION 2.18, and shall become effective only if Lenders holding not less
than 75% of the Aggregate Commitments shall have consented to such Extension
Request in accordance with the terms of this SECTION 2.18 (such determination
to be made without giving effect to any assignments contemplated by this
SECTION 2.18), and each Non-Consenting Lender which has been requested to do
so has assigned all of its rights and obligations hereunder to one or more
other Lenders or to one or more successor financial institutions. In any
other event, the requested extension will be deemed to have been denied and
the Facility Termination Date and the Lenders' respective Commitments will
remain unchanged without any Non-Consenting Lender incurring any liability.
To the extent an Extension Request has been approved and a Non-Consenting
Lender has not been requested to assign all of its rights and obligations
under this Agreement, or the conditions to such a requested assignment have
not been satisfied as specified in this SECTION 2.18, then (i) such
Non-
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Consenting Lender's Commitment shall remain unchanged and in effect through
the Facility Termination Date then in effect (determined for such
Non-Consenting Lender without giving effect to the approval of the Extension
Request) (such date, the "SCHEDULED TERMINATION DATE" for such Non-Consenting
Lender), and (ii) on the Scheduled Termination Date for such Non-Consenting
Lender, the Borrower shall pay to such Non-Consenting Lender all amounts
owing to such Non-Consenting Lender under the Loan Documents as of the
Scheduled Termination Date (including, without limitation, pursuant to
SECTION 3.4), and, from and after such Scheduled Termination Date, the
Aggregate Commitment shall be reduced by the amount of the Commitment of such
Non-Consenting Lender.
2.19. MANDATORY PREPAYMENTS. Without limitation to the prepayment
obligations of the Borrower under SECTION 2.10(b), if, at any time, the
aggregate principal amount of the then outstanding Revolving Loans, Swing Line
Loans and L/C Obligations, as determined by the Agent, equals or exceeds the
Aggregate Commitment as of such time, the Borrower shall, following demand by
the Agent setting forth, in reasonable detail, the relevant calculations, prepay
outstanding Revolving Loans and Swing Line Loans in accordance with the
provisions of this Agreement until the aggregate principal amount of all
outstanding Revolving Loans, Swing Line Loans and L/C Obligations does not
exceed the Aggregate Commitment. The Borrower and each Guarantor shall be
liable pursuant to SECTION 3.4 to indemnify each Lender against any loss or
liability which that Lender incurs as a consequence of any prepayment under this
SECTION 2.19. If, following any such prepayment or repayment of Revolving Loans
and Swing Line Loans, the aggregate principal amount of all outstanding
Revolving Loans, Swing Line Loans and L/C Obligations still exceeds the
Aggregate Commitment, the Borrower shall cash collateralize the outstanding L/C
Obligations as contemplated in SECTION 2.21.4 in an amount sufficient, together
with the prepayment and repayment of Revolving Loans and Swing Line Loans, to
eliminate such excess.
2.20. TERMINATION. All unpaid Obligations shall be paid in full by the
Borrower on the Facility Termination Date; PROVIDED, HOWEVER, that nothing in
this SECTION 2.20 shall be construed as limiting or modifying the obligation of
the Borrower to repay any or all of the outstanding Obligations at any earlier
time in accordance with the terms of this Agreement.
2.21. LETTER OF CREDIT FACILITY.
2.21.1 LETTERS OF CREDIT. Upon receipt of duly executed
applications therefor, and such other documents, instruments and
agreements as the L/C Issuer may reasonably require, and subject to the
provisions of ARTICLE IV, the L/C Issuer shall issue standby Letters of
Credit (but not trade letters of credit) for the account of the
Borrower, on terms as are satisfactory to the L/C Issuer; PROVIDED,
HOWEVER, that no Letter of Credit will be issued for the account of the
Borrower by the L/C Issuer if on the date of issuance, before or after
taking such Letter of Credit into account (i) the amount of the
Advances, Swing Line Loans and the L/C Obligations at such time would
exceed the Aggregate Commitment or (ii) the aggregate outstanding amount
of the L/C Obligations would
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exceed the L/C Commitment Amount; and PROVIDED, FURTHER, that no Letter
of Credit shall be issued unless (A) it is denominated in Dollars and
(B) it has an expiration date that is (1) no more than one year after
the date of issuance of such Letter of Credit (provided that a Letter of
Credit, subject to the immediately following CLAUSE (2), may provide for
an annual renewal if such renewal is consented to by the L/C Issuer at
the time of issuance and the conditions precedent to the issuance of
such Letter of Credit are met at the time of such renewal) and (2) no
later than the date which is five Business Days immediately preceding
the Facility Termination Date.
2.21.2 LETTER OF CREDIT PARTICIPATION. Immediately upon issuance
of each Letter of Credit by the L/C Issuer hereunder, each Lender shall
be deemed to have automatically, irrevocably and unconditionally
purchased and received from the L/C Issuer an undivided interest and
participation in and to such Letter of Credit, the obligations of the
Borrower in respect thereof, and the liability of the L/C Issuer
thereunder (collectively, an "L/C INTEREST") in an amount equal to the
amount available for drawing under such Letters of Credit multiplied by
a fraction having as its numerator, such Lender's Commitment, and as its
denominator, the Aggregate Commitment. The L/C Issuer will notify each
Lender promptly upon presentation to it of an L/C Draft or upon any
other draw under any Letter of Credit. On the Business Day on which the
L/C Issuer makes payment of any L/C Draft or, in the case of any other
draw on the Letter of Credit, on demand of the L/C Issuer (provided that
the Borrower has not prior thereto made payment therefor and no Floating
Rate Advance has been made pursuant to SECTION 2.21.3 with respect
thereto), each Lender shall make payment to the Agent, for credit to the
L/C Issuer, in immediately available funds in an amount equal to such
Lender's ratable share (determined in accordance with the fraction
described above) of the amount of such payment or draw. Provided that
each Letter of Credit is issued by the L/C Issuer in accordance with the
terms of this Agreement, the obligation of each Lender to reimburse the
L/C Issuer under this SECTION 2.21.2 shall be unconditional, continuing,
irrevocable and absolute and shall not be affected or impaired by, among
other things, the occurrence of the Facility Termination Date or the
reduction, suspension or termination (except pursuant to SECTION 2.18)
of the Aggregate Commitment or such Lender's Commitment in accordance
with the terms of this Agreement. In the event that any Lender fails to
make payment to the Agent of any amount due to the L/C Issuer under this
SECTION 2.21.2, the Agent shall be entitled to receive for the benefit
of the L/C Issuer, and the L/C Issuer shall be entitled to receive,
retain and apply against such obligation the principal and interest and
other amounts otherwise payable to such Lender hereunder (whether in
respect of Revolving Loans, Swing Line Loans, Letters of Credit or
otherwise) until the Agent receives such payment from such Lender or
such obligation is otherwise fully satisfied; PROVIDED, HOWEVER, that
nothing contained in this sentence shall relieve such Lender of its
obligation to reimburse the L/C Issuer for such amount in accordance
with this SECTION 2.21.2.
2.21.3 REIMBURSEMENT OBLIGATION. (a) The Borrower agrees
unconditionally, irrevocably and absolutely to pay immediately to the
Agent, for the account of the L/C
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Issuer and the Lenders, the amount of each L/C Draft or other demand
which may be drawn under or pursuant to a Letter of Credit (such
obligation of the Borrower to pay the Agent (for the account of the L/C
Issuer and the Lenders) being hereinafter referred to as a
"REIMBURSEMENT OBLIGATION" with respect to a Letter of Credit or L/C
Draft). The obligations of the Borrower under this Agreement and
otherwise in respect of Letters of Credit and L/C Drafts shall be
absolute, unconditional and irrevocable and shall be performed strictly
in accordance with the terms of this Agreement under all circumstances
whatsoever, including the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit, this Agreement or any Loan Document;
(ii) any amendment or waiver of or any consent to departure from
this Agreement or any other Loan Document;
(iii) the existence of any claim, set-off, defense or other
right which the Borrower may have at any time against the L/C
Issuer, the Agent, any Lender any beneficiary of any Letter of
Credit (or any Person for whom any such beneficiary may be
acting), or any other Person, whether in connection with this
Agreement, any other Loan Document or any unrelated transactions;
(iv) any statement in any certificate or any other document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any such
statement being untrue or inaccurate in any respect whatsoever;
(v) payment by the L/C Issuer under any Letter of Credit
against presentation of a draft or certificate which does not
comply with the terms of such Letter of Credit (provided that the
L/C Issuer was not grossly negligent in connection therewith); or
(vi) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
(b) If the Borrower at any time fails to repay a Reimbursement
Obligation pursuant to this SECTION 2.21.3, the Borrower shall be deemed
to have elected to borrow a Floating Rate Advance from the Lenders, as
of the date of the L/C Draft or other demand giving rise to the
Reimbursement Obligation, equal in amount to the amount of the unpaid
Reimbursement Obligation, the proceeds of which Advance shall be used to
repay such Reimbursement Obligation; PROVIDED, HOWEVER, that such
Floating Rate Advance shall be deemed to have been borrowed only to the
extent that (x) both immediately before and after giving effect thereto,
no Default or Unmatured Default under SECTION 8.6 or 8.7 shall have
occurred and be continuing, and (y) the Facility Termination Date (or
the date of any
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earlier termination of the Aggregate Commitment pursuant to this
Agreement) shall not have occurred prior thereto. For each
Reimbursement Obligation for which a Floating Rate Advance is not deemed
to have been borrowed by the Borrower, each Lender shall be deemed to
have automatically purchased and received from the L/C Issuer an
undivided interest and participation in and to such Reimbursement
Obligation in an amount equal to such Reimbursement Obligation
multiplied by a fraction having as its numerator, such Lender's
Commitment, and as its denominator, the Aggregate Commitment. If, for
any reason, the Borrower fails to repay a Reimbursement Obligation on
the day such Reimbursement Obligation arises, either directly or through
a Floating Rate Advance, then such Reimbursement Obligation shall bear
interest from and after such day, until paid in full, at the interest
rate applicable to Floating Rate Advances (including, during the
continuance of a Default or Unmatured Default, at the rates determined
pursuant to SECTION 2.11).
2.21.4 CASH COLLATERAL. Notwithstanding anything to the contrary
herein or in any application for any Letter of Credit, (a) after the
occurrence and during the continuance of a Default or (b) to the extent
necessary in connection with any mandatory reduction of the Aggregate
Commitment pursuant to SECTION 2.10(b) or any mandatory prepayment or
repayment of Revolving Loans pursuant to SECTION 2.19, the Borrower
shall, upon the demand of the Required Lenders or the Agent at the
request of the Required Lenders, or if earlier, at the time of the
applicable mandatory reduction of the Aggregate Commitment pursuant to
SECTION 2.10(b) or mandatory prepayment or repayment of Revolving Loans
pursuant to SECTION 2.19, as the case may be, deliver to the Agent for
the benefit of the L/C Issuer and the Lenders, cash collateral in an
amount equal to the aggregate outstanding L/C Obligations, or in
connection with a deposit made pursuant to the foregoing CLAUSE (b),
such lesser amount of the outstanding L/C Obligations as shall satisfy
the requirements of SECTION 2.10(b) and SECTION 2.19, as applicable.
Any such collateral shall be held by the Agent in a separate account
appropriately designated as a cash collateral account in relation to
this Agreement and the Letters of Credit and retained by the Agent for
the benefit of the L/C Issuer and the Lenders as collateral security for
the Borrower's obligations in respect of this Agreement and the Letters
of Credit and L/C Drafts. Such amounts shall be applied to reimburse
the L/C Issuer for drawings or payments under or pursuant to the Letters
of Credit or L/C Drafts, or if no such reimbursement is required, such
amounts shall be applied ratably to the payment of any other unpaid
costs, fees, expenses and other Obligations related to the Letters of
Credit, any L/C Drafts and such cash collateral account as the Agent
shall determine. If no Default shall be continuing, amounts remaining
in any cash collateral account established pursuant to CLAUSE (a) of
this SECTION 2.21.4 which are not to be applied to reimburse the L/C
Issuer or the Lenders for amounts actually paid or to be paid by the L/C
Issuer or the Lenders in respect of the Letters of Credit or L/C Drafts,
shall be returned to the Borrower (after deduction of the Agent's
expenses incurred in connection with such cash collateral account)
except to the extent such amounts (or portions thereof) are necessary to
satisfy the cash collateral requirements of CLAUSE (b) of this SECTION
2.21.4. In addition, if the
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conditions giving rise to a deposit of cash collateral pursuant to
CLAUSE (b) of this SECTION 2.21.4 cease to exist, any amounts remaining
in any cash collateral account established pursuant to such CLAUSE (b)
which are not to be applied to reimburse the L/C Issuer or the Lenders
for amounts actually paid or to be paid by the L/C Issuer or the Lenders
in respect of the Letters of Credit or L/C Drafts, shall be returned to
the Borrower (after deduction of the Agent's expenses incurred in
connection with such cash collateral account) except to the extent such
amounts (or portions thereof) are necessary to satisfy the cash
collateral requirements of CLAUSE (a) of this SECTION 2.21.4.
Investment earnings (net of investment losses and any unpaid costs,
fees, expenses and other Obligations related to the Letters of Credit,
any L/C Drafts and such cash collateral account) on amounts on deposit
in the cash collateral account (which investments shall be limited to
interest bearing deposit accounts with the Agent) shall be for the
account of the Borrower, and, except at such time as a Default shall
have occurred and be continuing, the Agent shall remit any such accrued
earnings to the Borrower no less frequently than quarterly.
2.21.5 LETTER OF CREDIT FEES. The Borrower agrees to pay (a) to
the Agent for the ratable benefit of the Lenders, a letter of credit fee
equal to the Applicable Letter of Credit Fee Rate in effect from time to
time on the daily sum of (x) the aggregate outstanding amount of L/C
Obligations less (y) the aggregate outstanding amount of Reimbursement
Obligations, such fee to be paid in arrears on the last Business Day of
each calendar quarter for the quarter then ending, and on the Facility
Termination Date, and such fee to be calculated for actual days elapsed
on the basis of a 360-day year, and (b) to the Agent for the benefit of
the L/C Issuer, as issuing bank, the fees agreed to by the Borrower and
Bank of Montreal pursuant to that certain letter agreement dated as of
May 15, 1996, as amended, or as otherwise agreed from time to time,
together with all customary fees and other issuance, amendment,
negotiation, presentment and payment expenses and related charges in
connection with the issuance, amendment, negotiation, presentation and
payment of L/C Drafts, and the like customarily charged by the L/C
Issuer with respect to standby letters of credit, payable at the time of
invoice of such amounts by the L/C Issuer.
2.21.6 INDEMNIFICATION; EXONERATION. (a) In addition to amounts
payable as elsewhere provided in this Agreement, Borrower hereby agrees
to protect, indemnify, pay and save harmless the L/C Issuer, each Lender
and the Agent from and against any and all liabilities and costs which
the L/C Issuer, any Lender or the Agent may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any Letter of
Credit other than, in the case of the L/C Issuer, as a result of its
gross negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, or (ii) the failure of
the L/C Issuer to honor a drawing under any Letter of Credit as a result
of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto governmental authority (all such acts or
omissions herein called "GOVERNMENTAL ACTS").
(b) As among the Borrower, the L/C Issuer, the Lenders and the
Agent, the Borrower assumes all risks of the acts and omissions of, or
misuse of a Letter of Credit by,
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the beneficiary of any Letter of Credit. In furtherance and not in
limitation of the foregoing, subject to the provisions of the letter of
credit application and any letter of credit reimbursement agreement
submitted or executed by the Borrower in connection with any Letter of
Credit (except to the extent otherwise provided in PARAGRAPH (e) of this
SECTION 2.21.6), the L/C Issuer, the Lenders and the Agent shall not be
responsible (in the absence of gross negligence or willful misconduct in
connection therewith): (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any
party in connection with the application for and issuance of any Letter
of Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; (iii) for failure of
the beneficiary of any Letter of Credit to comply duly with conditions
required in order to draw upon any Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telecopy, telex or other similar
form of teletransmission or otherwise; (v) for errors in interpretation
of technical trade terms; (vi) for any loss or delay in the transmission
or otherwise of any document required in order to make a drawing under
any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of any Letter of Credit of the
proceeds of any drawing under any Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the L/C Issuer,
the Lenders and the Agent including, without limitation, any
Governmental Acts. None of the above shall affect, impair or prevent
the vesting of any rights or powers of the L/C Issuer under this SECTION
2.21.6.
(c) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted
by the L/C Issuer under or in connection with a Letter of Credit issued
on behalf of the Borrower or any related certificates shall not, in the
absence of gross negligence or willful misconduct, as determined by the
final judgment of a court of competent jurisdiction, put the L/C Issuer,
any Lender or the Agent under any resulting liability to the Borrower or
relieve the Borrower of any of its obligations hereunder to any such
Person.
(d) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this SECTION 2.21.6 shall survive the payment in full of
principal, interest and all other amounts hereunder, the termination of
the Letters of Credit and the termination of this Agreement.
(e) Notwithstanding anything therein to the contrary, in the
event any of the provisions of any letter of credit application or
letter of credit reimbursement agreement submitted or executed by the
Borrower in connection with any Letter of Credit conflict with the
provisions of this Agreement, the terms of this Agreement shall govern.
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2.21.7 LETTER OF CREDIT CANCELLATION. For all purposes
hereunder, including (without limitation) SECTION 2.21.5, a Letter of
Credit shall be deemed outstanding until the earlier to occur of (i) the
occurrence of the date expressly designated therein as the expiration
date for such Letter of Credit and (ii) the physical receipt by the L/C
Issuer of such Letter of Credit marked "canceled" accompanied by
evidence from the beneficiary thereof satisfactory to the L/C Issuer to
such effect.
2.22. SWING LINE COMMITMENT. Subject to the terms and conditions of
this Agreement, the Swing Line Lender agrees to make loans to the Borrower on
a revolving basis (each such loan, a "SWING LINE LOAN") from time to time on
any Business Day during the period from and including the date of this
Agreement to the Facility Termination Date in an aggregate principal amount
at any one time outstanding not to exceed $10,000,000; PROVIDED, HOWEVER,
that (x) the sum of the aggregate principal amount of all outstanding Swing
Line Loans plus the aggregate principal amount of all outstanding Revolving
Loans plus the aggregate outstanding L/C Obligations shall not at any time
exceed the Aggregate Commitment, and (y) the Swing Line Lender shall have no
obligation to make a Swing Line Loan if the principal amount of such Swing
Line Loan, when added to the aggregate principal amount of all Swing Line
Loans then outstanding, the L/C Obligations owing to the Swing Line Lender in
its capacity as a Lender and the aggregate principal amount of all Revolving
Loans made by the Swing Line Lender in its capacity as a Lender shall exceed
the Commitment applicable to the Swing Line Lender in its capacity as a
Lender. All Swing Line Loans shall be made in Dollars and maintained as
Floating Rate Loans with interest thereon payable under the terms of SECTIONS
2.8 and 2.11, and repayments to be made thereof under the terms of SECTIONS
2.5 (except for the last sentence thereof), 2.12, 2.14, and 2.20, in each
case as if such Swing Line Loan were a Floating Rate Advance.
2.23. BORROWING PROCEDURES FOR SWING LINE LOANS. The Borrower shall
give the Agent and the Swing Line Lender irrevocable notice, in the form
attached hereto as EXHIBIT L (a "SWING LINE LOAN BORROWING NOTICE"), of each
proposed borrowing pursuant to this SECTION 2.23 not later than 10:30 a.m.
(Chicago time) on the proposed date of borrowing. Each such notice shall be
effective upon receipt by the Agent and the Swing Line Lender and shall
specify the date and amount of borrowing. Unless the Swing Line Lender has
received written notice prior to 8:00 a.m. (Chicago time) on the proposed
Swing Line Loan Borrowing Date (or at any time prior to the Swing Line Loan
Borrowing Date) from the Agent or any Lender that one or more of the
conditions precedent set forth in ARTICLE IV with respect to such borrowing
is not then satisfied, the Swing Line Lender shall pay over the requested
amount to the Borrower on the requested Borrowing Date. Each Swing Line Loan
shall be made on a Business Day and shall be in the amount of at least
$500,000 and an integral multiple of $250,000. The Swing Line Lender will
promptly notify the Agent, and the Agent shall promptly notify each Lender,
of the making and amount of each Swing Line Loan and of the maturity date
thereof if it is later than the fourteenth (14th) day following the Swing
Line Loan Borrowing Date therefor.
2.24. REFUNDING OF SWING LINE LOANS. The Borrower shall repay each
Swing Line Loan
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on or before the earlier to occur of (x) the fourteenth (14th) day following
the Swing Line Loan Borrowing Date for such Swing Line Loan (or such later
date as the Borrower and the Swing Line Lender shall from time to time agree)
or (y) the Facility Termination Date. If the Borrower fails to repay any
Swing Line Loan when due, the Swing Line Lender may, at any time thereafter
in its sole and absolute discretion, on behalf of the Borrower (which hereby
irrevocably directs the Swing Line Lender to act on its behalf), request each
Lender to make a Revolving Loan, ratably in proportion to the ratio that such
Lender's respective Commitment bears to the Aggregate Commitment, of the
principal amount of the Swing Line Loans outstanding on the date such notice
is given. Unless any of the events described in SECTION 8.6 or 8.7 shall
have occurred (in which event the procedures of SECTION 2.25 shall apply),
and regardless of whether the conditions precedent set forth in this
Agreement to the making of a Revolving Loan are then satisfied or the
aggregate amount of such Revolving Loans is not in the minimum or integral
amount otherwise required hereunder, each Lender shall make the proceeds of
its Revolving Loan available to the Agent for the account of the Swing Line
Lender at the Payment Office in immediately available funds prior to 11:00
a.m. (Chicago time) on the Business Day next succeeding the date such notice
is given. The proceeds of such Revolving Loans shall be immediately applied
to repay the outstanding Swing Line Loans. All Revolving Loans made pursuant
to this SECTION 2.24 shall be Floating Rate Loans.
2.25. PARTICIPATIONS IN SWING LINE LOANS. (a) If an event described
in SECTION 8.6 or 8.7 occurs (or for any reason the Lenders are prohibited
from making, or otherwise may not make, Revolving Loans pursuant to SECTION
2.24), each Lender shall, upon notice from the Agent given at the request of
the Swing Line Lender, purchase from the Swing Line Lender (and the Swing
Line Lender shall sell to each such Lender) an undivided participation
interest in all Swing Line Loans then outstanding, ratably in proportion to
the ratio that such Lender's respective Commitment bears to the Aggregate
Commitment (and each Lender shall immediately transfer to the Agent, for the
account of the Swing Line Lender, in immediately available funds, the
principal amount reflecting its participation). The participation interest
of each Lender in the Swing Line Loans is referred to herein as such Lender's
"SWING LINE INTEREST".
(b) Whenever, at any time after the Swing Line Lender has received
payment for any Lender's Swing Line Interest pursuant to SUBSECTION 2.25(a),
the Swing Line Lender receives any payment on account thereof, the Swing Line
Lender will distribute promptly to the Agent for the account of such Lender
its Swing Line Interest in such amount (in the case of interest payments,
appropriately adjusted to reflect the period of time during which such
Lender's Swing Line Interest was outstanding and funded) in like funds as
received; PROVIDED, HOWEVER, that in the event that such payment received by
the Swing Line Lender is required to be returned, such Lender will return to
the Agent for the account of the Swing Line Lender any portion thereof
previously distributed by the Swing Line Lender to it in like funds as such
payment is required to be returned by the Swing Line Lender.
2.26. SWING LINE PARTICIPATION OBLIGATIONS UNCONDITIONAL. Provided
that each Swing Line Loan is made by the Swing Line Lender in accordance with
the terms of this Agreement,
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each Lender's obligation to make Revolving Loans pursuant to SECTION 2.24
and/or to purchase participation interests in Swing Line Loans pursuant to
SECTION 2.25 shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever, including (a) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the
Swing Line Lender, TLGI, the Borrower or any of their Affiliates, or any
other Person for any reason whatsoever; (b) the occurrence or continuance of
a Default or Unmatured Default; (c) the occurrence of a Material Adverse
Effect or any adverse change in the condition (financial or otherwise) of any
other Person; (d) any breach of this Agreement by any party; (e) any
inability of the conditions precedent to borrowing set forth in this
Agreement to be satisfied on the date upon which any Swing Line Loan is to be
refunded or any participation interest therein is to be purchased; or (f) any
other circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.
2.27. EVIDENCE OF SWING LINE LOANS; TELEPHONIC NOTICES. (a) The Swing
Line Lender shall maintain in accordance with its usual practice an account
or accounts evidencing the Obligations of the Borrower to the appropriate
Lending Installation of such Swing Line Lender resulting from each Swing Line
Loan made by it from time to time, including the amounts of principal thereof
and interest thereon payable and paid to such Lending Installation of the
Swing Line Lender from time to time under this Agreement.
(b) The Agent shall maintain a Register pursuant to SECTION 13.3.2,
and a subaccount for the Swing Line Lender, in which Register and subaccount
(taken together) shall be recorded (i) the amount of each Swing Line Loan
made hereunder, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to the Swing Line Lender in
respect of such Swing Line Loans, and (iii) the amount of any sum received by
the Agent hereunder from the Borrower in respect of such Swing Line Loans.
(c) The entries made in the Register, account and subaccount
maintained pursuant to PARAGRAPHS (a) and (b) of this SECTION 2.27 shall, to
the extent permitted by applicable law, be PRIMA FACIE evidence of the
existence and amounts of the Obligations of the Borrower therein recorded in
respect of Swing Line Loans; PROVIDED, that the failure of the Swing Line
Lender or the Agent to maintain such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay the Swing Line Loans (and all
other amounts owing with respect thereto) in accordance with the terms of
this Agreement.
(d) The Borrower hereby authorizes the Swing Line Lender and the Agent
to extend Swing Line Loans based on telephonic notices made by any person or
persons the Agent in good faith believes to be acting on behalf of the
Borrower, PROVIDED that the proceeds of such Swing Line Loans shall only be
credited to such account as the Borrower shall from time to time designate in
a notice delivered to the Agent and the Swing Line Lender executed by two
Authorized Officers. The Borrower agrees to deliver promptly to the Agent a
written confirmation, if such confirmation is requested by the Agent or the
Swing Line Lender, of each
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telephonic notice signed by an Authorized Officer. If the written
confirmation differs in any material respect from the action taken by the
Agent and the Swing Line Lender, the records of the Agent of the relevant
telephonic notice shall govern absent manifest error.
2.28. CONDITIONS TO SWING LINE LOANS. Notwithstanding any other
provision of this Agreement, the Swing Line Lender shall not be obligated to
make any Swing Line Loan (i) unless all of the conditions set forth in
ARTICLE IV applicable thereto shall have been satisfied and (ii) if a Default
or Unmatured Default would result therefrom.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1. YIELD PROTECTION. If any change in law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether
or not having the force of law), or any interpretation thereof, or the
compliance of any Lender or the L/C Issuer therewith,
(a) subjects any Lender or the L/C Issuer or any applicable Lending
Installation to any tax, duty, charge or withholding on or from payments due
from the Borrower or TLGI or any other Person obligated hereunder to any
Lender or the L/C Issuer (excluding taxation of the overall net income of any
Lender or the L/C Issuer or any applicable Lending Installation or other
taxes in lieu of such taxes imposed by the United States or any jurisdiction
in which such Lender or the L/C Issuer has its principal office or applicable
Lending Installation or is engaged in business), or changes the basis of
taxation of payments to any Lender or the L/C Issuer in respect of its
Revolving Loans, Swing Line Loans, Swing Line Interests, L/C Interests, L/C
Obligations or other amounts due it hereunder, or
(b) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with, or for the account of, or credit extended by, any Lender or
the L/C Issuer or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Fixed Rate Advances), or
(c) imposes any other condition the result of which is to increase
the cost to any Lender or the L/C Issuer or any applicable Lending
Installation of making, funding or maintaining loans or issuing or
participating in letters of credit or reduces any amount receivable by any
Lender or the L/C Issuer or any applicable Lending Installation in connection
with loans or letters of credit, or requires any Lender or the L/C Issuer or
any applicable Lending Installation to make any payment calculated by
reference to the amount of loans or letters of credit held, or interest
received by it, by an amount deemed material by such Lender or the L/C
Issuer, as the case may be,
then, within 15 days of demand by such Lender or the L/C Issuer, the Borrower
shall pay such
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Lender or the L/C Issuer that portion of such increased expense incurred or
reduction in an amount received which such Lender or the L/C Issuer
determines is attributable to making, funding and maintaining its Revolving
Loans, Swing Line Loans, Swing Line Interests, L/C Interests, the Letters of
Credit, the L/C Obligations and its Commitment (and in the case of the Swing
Line Lender, its Swing Line Commitment, and in the case of the L/C Issuer,
its commitment to issue Letters of Credit).
3.2. CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender or the L/C
Issuer determines that the amount of capital required or expected to be
maintained by such Lender or the L/C Issuer, any Lending Installation of such
Lender or any corporation controlling such Lender or the L/C Issuer is
increased as a result of a Change (as defined below in this SECTION 3.2),
then, within 15 days of demand by such Lender or the L/C Issuer, the Borrower
shall pay such Lender or the L/C Issuer the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased
capital which such Lender or the L/C Issuer determines is attributable to
this Agreement, its Revolving Loans, Swing Line Loans, Swing Line Interests,
L/C Interests, the Letters of Credit, the L/C Obligations or its obligation
to make Revolving Loans (or in the case of the Swing Line Lender, its
obligations to make Swing Line Loans, or in the case of the L/C Issuer, its
commitment to issue Letters of Credit) or participate in Swing Line Loans or
Letters of Credit hereunder or to issue Letters of Credit (after taking into
account such Lender's or the L/C Issuer's or such controlling corporation's
policies as to capital adequacy). "CHANGE" means (a) any change after the
date of this Agreement in the Risk-Based Capital Guidelines (as defined below
in this SECTION 3.2) or (b) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation or directive (whether or not having the force of law) after
the date of this Agreement which affects the amount of capital required or
expected to be maintained by any Lender or the L/C Issuer or any Lending
Installation or any corporation controlling any Lender or the L/C Issuer.
"RISK-BASED CAPITAL GUIDELINES" means (a) the risk-based capital guidelines
in effect in the United States on the date of this Agreement, including
transition rules, and (b) the corresponding capital regulations promulgated
by regulatory authorities outside the United States implementing the July
1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
3.3. AVAILABILITY OF TYPES OF ADVANCES. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or if the Required Lenders determine that (a)
deposits of a type and maturity appropriate to match fund Fixed Rate Advances
are not available or (b) the interest rate applicable to a Type of Advance
does not accurately reflect the cost of making or maintaining such Advance,
then the Agent shall suspend the availability of the affected Type of Advance
and require any Fixed Rate Advances of the affected Type to be prepaid or
converted into a Floating Rate Advance.
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3.4. FUNDING INDEMNIFICATION. If (i) any payment of a Fixed Rate
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise (including,
without limitation, as a result of a mandatory prepayment of a Fixed Rate
Advance pursuant to SECTION 2.10(b) or 2.19), or (ii) as a result of an
assignment of a Lender's Commitment and its outstanding Revolving Loans, Swing
Line Interest and L/C Interest by operation of SECTION 2.18 or SECTION 3.5, a
Fixed Rate Advance made by the assigning Lender is assigned on a date which is
not the last day of the applicable Interest Period, or (iii) a Fixed Rate
Advance is not made, continued or converted on the date specified by the
Borrower for any reason other than default by the Lenders, or (iv) an optional
prepayment, notice of which has been given in accordance with SECTION 2.5, is
not made on the date specified therefor in such notice, the Borrower will
indemnify each Lender for any loss or cost incurred by it resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the Fixed Rate Advance, or in liquidating
or terminating prior to scheduled maturity any foreign exchange contracts,
currency swaps or other similar hedging arrangements entered into in connection
with the Fixed Rate Advance.
3.5. MITIGATION; LENDER STATEMENTS; SURVIVAL OF INDEMNITY. (a) To the
extent reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Fixed Rate Loans to reduce any liability of the
Borrower to such Lender under SECTIONS 3.1 and 3.2 or to avoid the
unavailability of a Type of Advance under SECTION 3.3, so long as such
designation is not disadvantageous to such Lender. If the obligation of the
Lenders to make Eurodollar Advances has been suspended pursuant to SECTION 3.3,
as a consequence of a determination by any Lender that maintenance of its
Eurodollar Loans at a suitable Lending Installation would violate any applicable
law or any Lender has demanded compensation under SECTION 3.1 or 3.2, the
Borrower may elect (i) subject to SECTION 3.4, to prepay any outstanding
Advances to the extent necessary to mitigate its liability under SECTION 3.1 or
3.2, (ii) to terminate the applicable Lender's Commitment hereunder or (iii) to
require the applicable Lender to assign its outstanding Revolving Loans, Swing
Line Interests, L/C Interests and Commitment hereunder to another financial
institution designated by the Borrower and reasonably acceptable to the Agent;
PROVIDED, HOWEVER, that the Borrower may make the elections described in the
foregoing CLAUSES (i) and (ii) only at such times as no Default or Unmatured
Default shall have occurred and be continuing. The obligation of a Lender to
assign its rights and obligations hereunder or terminate its Commitment
hereunder as contemplated by this SECTION 3.5(a) is subject to the requirements
that (x) all amounts owing to that Lender under the Loan Documents (including,
without limitation, pursuant to SECTION 3.4) are paid in full upon the
completion of such assignment or prior to such termination and (y) any
assignment is effected in accordance with the terms of SECTION 13.3 and on terms
otherwise satisfactory to that Lender.
(b) Each Lender or the L/C Issuer, as the case may be, shall deliver a
written statement of such Person as to the amount due, if any, under SECTION
3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail
the calculations upon which such Person determined such amount and shall be
final, conclusive and binding on the Borrower in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
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Fixed Rate Loan shall be calculated as though each Lender funded such Fixed
Rate Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the interest
rate applicable to such Fixed Rate Loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the written
statement shall be payable on demand after receipt by the Borrower of the
written statement. The obligations of the Borrower under SECTIONS 3.1, 3.2
and 3.4 shall survive payment of the Obligations and termination of this
Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4 CONDITIONS PRECEDENT TO AMENDMENT AND RESTATEMENT. The
effectiveness of this Agreement and the consummation of the actions and deemed
actions contemplated by ARTICLE XVI hereof are subject to the satisfaction of
the conditions precedent set forth below in SECTION 4.1.
4.1. INITIAL ADVANCE, SWING LINE LOAN AND LETTER OF CREDIT. The
Lenders shall be obligated (subject to SECTION 4.2) to make the initial Advance
and purchase participations in Swing Line Loans and the Letters of Credit
hereunder, the L/C Issuer shall be obligated (subject to SECTION 4.2) to issue
the initial Letter of Credit hereunder, and the Swing Line Lender shall be
obligated (subject to SECTION 4.2) to make the initial Swing Line Loan
hereunder, only after (x) the Effective Date shall have occurred, (y) the Agent
shall have been paid in full for all fees, costs and expenses payable by TLGI or
the Borrower under this Agreement and the other Loan Documents (including,
without limitation, the fees and expenses of Mayer, Brown & Platt, counsel for
the Agent) to the extent then invoiced, and (z) the Agent shall have received
from the Borrower, with sufficient copies for the Agent and each of the Lenders,
each of the following items in form and substance satisfactory to the Agent:
(a) copies of the articles of incorporation or comparable constitutive
documents of each of TLGI and the Borrower, together with all amendments, and,
to the extent applicable, a certificate of good standing, in each case certified
by the appropriate governmental officer in the relevant jurisdiction of
organization, or in lieu of such articles of incorporation or comparable
constitutive documents, a certificate, signed by the Secretary, Assistant
Secretary or other appropriate officer or director of each of TLGI and the
Borrower stating that on the date hereof, no amendments to, or other changes in,
the articles of incorporation or other comparable constitutive documents of TLGI
and the Borrower has occurred since September 27, 1997;
(b) copies of the by-laws (or any comparable constitutive laws, rules or
regulations) of each of TLGI and the Borrower as in effect on the Effective Date
certified by the Secretary, Assistant Secretary or other appropriate officer or
director of it;
(c) copies, certified by the Secretary, Assistant Secretary or other
appropriate
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officer or director of each of TLGI and the Borrower of its board of
directors' resolutions (and resolutions of other bodies, if any are deemed
necessary by counsel for any Lender) authorizing the execution and performance
of the relevant Loan Documents;
(d) incumbency certificates, executed by the Secretary or Assistant
Secretary or other appropriate officer or director of each of TLGI and the
Borrower, which shall identify by name and title and bear the signature of the
officers of TLGI and the Borrower authorized to sign the relevant Loan Documents
and to make borrowings and apply for Letters of Credit hereunder, as applicable,
upon which certificate the Agent, the Lenders and the L/C Issuer shall be
entitled to rely until informed of any change in writing by TLGI or the
Borrower, as applicable;
(e) a certificate, signed by the Chief Financial Officer, stating
that on the date hereof no Default or Unmatured Default has occurred and is
continuing;
(f) the following opinions of counsel to the Borrower, TLGI, the other
Guarantors and the Pledgor Subsidiaries regarding the matters set forth on
EXHIBIT B and such other matters as the Agent shall request:
(i) an opinion of Thelen, Marrin, Johnson & Bridges, United States
counsel to TLGI and the Borrower; and
(ii) an opinion of Russell & DuMoulin, Canadian counsel to TLGI;
(g) the Collateral Trust Agreement;
(h) evidence satisfactory to the Agent that the Borrower's
Obligations in respect of Revolving Loans will qualify as Class A Secured
Indebtedness under the Collateral Trust Agreement, which evidence shall
include an opinion of Thelen, Marrin, Johnson & Bridges confirming that
Revolving Loans will each qualify as Class A Secured Indebtedness under the
Collateral Trust Agreement; and
(i) such other documents as the Agent or any Lender or its counsel may
reasonably request.
4.2. EACH ADVANCE, SWING LINE LOAN AND LETTER OF CREDIT. The Lenders
shall not be required to make any Advance or purchase participations in any
Swing Line Loan or Letter of Credit, the Swing Line Lender shall not be required
to make any Swing Line Loan, and the L/C Issuer shall not be required to issue
any Letter of Credit hereunder, unless on the applicable Revolving Loan
Borrowing Date, Swing Line Loan Borrowing Date or date for issuance of such
Letter of Credit (as applicable):
(a) there exists no Default or Unmatured Default;
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(b) the representations and warranties contained in ARTICLE VI, the
Guaranties and the Collateral Trust Agreement are true and correct as of such
Revolving Loan Borrowing Date, Swing Line Loan Borrowing Date or date for
issuance of such Letter of Credit (as applicable) except to the extent any such
representation or warranty is stated to relate solely to an earlier date, in
which case such representation or warranty shall be true and correct on and as
of such earlier date, and except that from and after the Collateral Release
Date, this SECTION 4.2(b) shall not apply to the representations and warranties
set forth in the Pledgor Subsidiary Guaranties or in the Collateral Trust
Agreement; and
(c) after giving effect to such Advance, the making of such Swing Line
Loan or the issuance of such Letter of Credit, the aggregate outstanding
principal amount of all Advances and Swing Line Loans and the outstanding L/C
Obligations does not exceed the Aggregate Commitment (and, (i) in the case of
Swing Line Loans, (x) the aggregate outstanding principal amount of all such
Swing Line Loans does not exceed $10,000,000, and (y) the aggregate outstanding
principal amount of all such Swing Line Loans, together with the outstanding
principal amount of all Revolving Loans made by the Swing Line Lender in its
capacity as a Lender and the L/C Interest of the Swing Line Lender in its
capacity as the L/C Issuer, does not exceed the Commitment applicable to the
Swing Line Lender in its capacity as a Lender, and (ii) in the case of Letters
of Credit, the aggregate outstanding L/C Obligations do not exceed
$300,000,000).
Each Revolving Loan Borrowing Notice with respect to an Advance, Swing Line Loan
Borrowing Notice with respect to a Swing Line Loan, and application with respect
to a Letter of Credit shall constitute a representation and warranty by the
Borrower that the conditions contained in SECTIONS 4.2(a), (b) and (c) have been
satisfied.
ARTICLE V
TLGI GUARANTY
5.1. THE GUARANTY. TLGI hereby unconditionally and irrevocably
guarantees the due and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Revolving
Loan and Swing Line Loan made to, and of each Reimbursement Obligation owing by,
the Borrower pursuant to this Agreement, and the due and punctual payment and
performance of all other Obligations (including, without limitation, interest
accruing following the filing of a bankruptcy petition by or against the
Borrower, at the applicable rate or rates specified herein, whether or not such
interest is allowed as a claim in bankruptcy). Upon failure by the Borrower to
pay or perform any Obligation, TLGI shall forthwith on demand pay or perform
such Obligation, at the place, in the manner and with the effect otherwise
specified in this Agreement. TLGI hereby agrees that its guaranty of the
Obligations pursuant to this ARTICLE V is an absolute guaranty of payment and is
not a guaranty of collection.
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5.2. GUARANTY UNCONDITIONAL. The obligations of TLGI hereunder shall
be unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of the Borrower under this Agreement or any
Letter of Credit or the exchange, release or non-perfection of any collateral
security therefor (including, without limitation, the collateral pledged
under the Collateral Trust Agreement);
(b) any modification or amendment of or supplement to this Agreement,
any Letter of Credit, the Collateral Trust Agreement, or any other Loan
Document, or the termination of the Collateral Trust Agreement or the release
of any collateral pledged thereunder;
(c) any change in the corporate existence, structure or ownership of
the Borrower or any other Subsidiary, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Borrower, any other
Subsidiary or their respective assets;
(d) the existence of any claim, set-off or other rights which TLGI
may have at any time against the Borrower, any other Guarantor, the Agent,
any Lender, the L/C Issuer or any other Person, whether in connection
herewith or with any unrelated transactions, PROVIDED that nothing herein
shall prevent the assertion of any such claim by separate suit or compulsory
counterclaim;
(e) any invalidity or unenforceability relating to or against the
Borrower or any Pledgor Subsidiary for any reason of any provision or all of
this Agreement, the Collateral Trust Agreement, or any other Loan Document,
or any provision of applicable law or regulation purporting to prohibit the
payment by the Borrower of the principal of or interest on any Revolving Loan
or Swing Line Loan or Reimbursement Obligation or the payment or performance
by the Borrower of any other Obligation hereunder or under any of the other
Loan Documents or the payment or performance by any Guarantor of any of its
obligations under any Guaranty; or
(f) any other act or omission to act or delay of any kind by the
Borrower, any other Guarantor, the Agent, any Lender, the L/C Issuer or any
other Person or any other circumstance whatsoever which might, but for the
provisions of this SECTION 5.2, constitute a legal or equitable discharge of
TLGI's obligations hereunder.
5.3. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. TLGI's obligations hereunder shall remain in full force and
effect until the principal of and interest on the Revolving Loans and the
Swing Line Loans and all other Obligations shall have been paid or performed
in full and the Letters of Credit shall have expired or otherwise been
terminated and TLGI's obligations hereunder shall survive the Facility
Termination Date. If at any time any payment of the principal of or interest
on any Revolving
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Loan or Swing Line Loan or Reimbursement Obligation or any payment of any
other Obligation hereunder is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of the Borrower or
any other Person or otherwise, TLGI's obligations hereunder with respect to
such payment shall be reinstated at such time as though such payment had been
due but not made at such time.
5.4. WAIVER BY TLGI. TLGI irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well
as any requirement that at any time any right be exhausted or any action be
taken by the Agent, any Lender, the L/C Issuer or any other Person against
the Borrower, any Guarantor or any other Person or any collateral security
(including, without limitation, the collateral pledged under the Collateral
Trust Agreement). In addition, the Lenders and the L/C Issuer, either
themselves or acting through the Agent, are hereby authorized, without notice
or demand and without affecting the liability of TLGI hereunder, from time to
time, (a) to renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, all or any part of the Obligations,
or to otherwise modify, amend or change the terms of any of the Loan
Documents; (b) to accept partial payments on all or any part of the
Obligations; (c) to take and hold security or collateral (including, without
limitation, the collateral pledged under the Collateral Trust Agreement) for
the payment of all or any part of the Obligations, TLGI's obligations
hereunder or any other guaranties of all or any part of the Obligations or
other liabilities of the Borrower; (d) to exchange, enforce, waive and
release any such security or collateral; (e) to apply such security or
collateral and direct the order or manner of sale thereof as in their
discretion they may determine; and (f) to settle, release, exchange, enforce,
waive, compromise or collect or otherwise liquidate all or any part of the
Obligations, TLGI's obligations hereunder, any other guaranty of all or any
part of the Obligations and any security or collateral for the Obligations or
for any such guaranty. Any of the foregoing may be done in any manner,
without affecting or impairing the obligations of TLGI hereunder.
5.5. WAIVER OF SUBROGATION RIGHTS. Until all Obligations shall have
been indefeasibly paid in full, the Commitments shall have terminated and all
of the Letters of Credit shall have expired or otherwise been terminated,
TLGI hereby waives all rights of subrogation (whether contractual, under
Section 509 of the United States Bankruptcy Code, as amended, or otherwise)
to the claims of the Lenders, the L/C Issuer and the Agent against the
Borrower and all contractual, statutory or common law rights of
reimbursement, contribution or indemnification from the Borrower and all
"claims" (as such term is defined in the United States Bankruptcy Code, as
amended) against the Borrower, which, in any such case, may otherwise have
arisen in connection with this Agreement and the other Loan Documents.
5.6. STAY OF ACCELERATION. In the event that acceleration of the time
for payment of any of the Obligations hereunder is stayed upon the insolvency,
bankruptcy or reorganization of the Borrower or any other Person, all such
Obligations otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable by TLGI hereunder forthwith on demand by the Agent
for the account of the Lenders, the L/C Issuer and the Agent.
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5.7. GROSS-UP. All payments made by TLGI under this ARTICLE V shall
be made in full, without set-off or counterclaim, and free of and without
deduction or withholding for or on account of any present or future tax, duty,
assessment, impost, levy or other similar charge, or any penalties, fines or
interest thereon (a "RELEVANT TAX") imposed upon TLGI, the Borrower, the Agent,
any Lender or the L/C Issuer by the government of Canada (or any Governmental
Authority thereof), the government of the United States of America (or any
Governmental Authority thereof) or by the government of any other country or
jurisdiction (or any Governmental Authority thereof) from or through which
payments hereunder are actually made (each a "TAXING JURISDICTION"). TLGI, for
the benefit of the Agent, the Lenders and the L/C Issuer, agrees that in the
event any payments made by TLGI hereunder are subject to any deduction or
withholding for or on account of any Relevant Tax, TLGI will pay to the Agent,
such Lender or the L/C Issuer such additional amounts as may be necessary in
order that the net amounts paid to the Agent, such Lender or the L/C Issuer
pursuant to the terms of this ARTICLE V after imposition of any such Relevant
Tax (including deductions or withholdings applicable to additional amounts paid
under this SECTION 5.7) shall be not less than the amounts specified in this
ARTICLE V to be then due and payable, except that no such additional amounts
shall be payable hereunder to the Agent, any Lender or the L/C Issuer that is
liable for such Relevant Tax in respect of the relevant payment solely by reason
of such recipient (a) having a permanent establishment in the Taxing
Jurisdiction, (b) being organized under the laws of the Taxing Jurisdiction or
any political subdivision thereof, (c) being resident in the Taxing Jurisdiction
by virtue of its domicile or place of management being in the Taxing
Jurisdiction, or (d) having failed to comply with the terms and conditions of
SECTION 2.17(a) applicable to it. If the Agent, any Lender or the L/C Issuer
pays any amount in respect of Relevant Tax, TLGI shall indemnify the Agent, the
Lender or the L/C Issuer, as the case may be, for such payment within 15 days of
demand therefor by the Agent, such Lender or the L/C Issuer (in the case of such
Lender or the L/C Issuer, made through the Agent).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6 REPRESENTATIONS AND WARRANTIES. Each of TLGI and, with respect
to itself and its Subsidiaries, the Borrower represents and warrants to the
Lenders and the L/C Issuer that:
6.1. CORPORATE EXISTENCE AND STANDING. Each of TLGI, the Borrower and
the other Subsidiaries is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction wherein such
qualification is required, except to the extent that, in the case of any
Subsidiary other than the Borrower or any Pledgor Subsidiary, the failure to be
in good standing or authorized to conduct business in any jurisdiction could
not, when taken together with all similar failures by such Subsidiary and each
other Subsidiary, reasonably be expected to have a Material Adverse Effect.
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6.2. AUTHORIZATION AND VALIDITY. Each of TLGI, the Borrower and each
other Guarantor has the corporate power and authority and legal right to
execute and deliver the Loan Documents to which it is party and to perform
its obligations thereunder. The execution and delivery by each of TLGI, the
Borrower and each other Guarantor of the Loan Documents to which it is party
and the performance of its obligations thereunder have been duly authorized
by proper corporate proceedings, and each Loan Document to which TLGI, the
Borrower or any other Guarantor is party constitutes the legal, valid and
binding obligation of TLGI, the Borrower or such other Guarantor, as
applicable, enforceable against TLGI, the Borrower or such other Guarantor,
as applicable, in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally and general principles of equity, regardless
of whether the application of such principles is considered in a proceeding
in equity or at law.
6.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and
delivery by each of TLGI, the Borrower and each other Guarantor of the Loan
Documents to which it is party, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof, will
violate any law, rule, regulation, order, writ, judgment, injunction, decree
or award binding on TLGI, the Borrower or any Subsidiary or TLGI's, the
Borrower's or any Subsidiary's articles of incorporation or by-laws or
comparable constitutive documents or the provisions of any indenture,
instrument or agreement to which TLGI, the Borrower or any Subsidiary is a
party or is subject, or by which it, or its Property, is bound, or conflict
with or constitute a default thereunder, or result in the creation or
imposition of any Lien in, of or on the Property of TLGI, the Borrower or any
Subsidiary pursuant to the terms of any such indenture, instrument or
agreement. No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with the execution,
delivery and performance of, or the legality, validity, binding effect or
enforceability of, any of the Loan Documents, except for consents, approvals,
authorizations and filings which have already been duly obtained and made and
which remain valid and in full force and effect.
6.4. FINANCIAL STATEMENTS. Each of (a) the December 31, 1997,
consolidated financial statements of TLGI and its Subsidiaries and (b) the
December 31, 1997, consolidated financial statements of the Borrower and its
Subsidiaries, heretofore delivered to the Lenders, were prepared in
accordance with GAAP in effect on the date such statements were prepared and
fairly present the consolidated financial condition and operations of TLGI
and its Subsidiaries and of the Borrower and its Subsidiaries, respectively,
at the date thereof and the consolidated results of their respective
operations for the period then ended.
6.5. MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has been
no change in the business, Property, prospects, financial condition or results
of operations of TLGI and its Subsidiaries (taken as a whole) or of the Borrower
and its Subsidiaries (taken as a whole)
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which could reasonably be expected to have a Material Adverse Effect.
6.6. TAXES. All income tax returns required to be filed by TLGI, the
Borrower or any Subsidiary in any jurisdiction have, in fact, been filed, all
such tax returns have been prepared in accordance with applicable laws and
all taxes, assessments, fees and other governmental charges upon TLGI, the
Borrower or any Subsidiary or upon any of their respective properties, income
or franchises which are shown on such returns have been paid. For all
taxable years ending on or before December 31, 1989, the United States
Federal income tax liability of TLGI, the Borrower and the other Subsidiaries
has been satisfied and either the period of limitations on assessment of
additional United States Federal income tax has expired or TLGI, the Borrower
or the applicable other Subsidiary has entered into an agreement with the
United States Internal Revenue Service closing conclusively the total tax
liability for the taxable year. None of TLGI, the Borrower and the other
Subsidiaries knows of any proposed additional tax assessment against it or
any of them for which adequate provision has not been made on its or their
accounts, and no material controversy in respect of additional income or
other taxes due or claimed to be due to any Governmental Authority is pending
or to the knowledge of TLGI, the Borrower or the other Subsidiaries
threatened. The charges, accruals and reserves on the books of TLGI, the
Borrower and the other Subsidiaries in respect of any taxes or other
governmental charges are adequate.
6.7. LITIGATION AND CONTINGENT LIABILITIES. Except as set forth on
SCHEDULE 1 hereto (but only to the extent described thereon), there is no
litigation, arbitration, governmental investigation, proceeding or inquiry
pending or, to the knowledge of any of their officers, threatened against or
affecting TLGI, the Borrower or any other Subsidiary which could have a
Material Adverse Effect, or for which there is a reasonable likelihood that
TLGI, the Borrower or any other Subsidiary would make a payment, whether in
settlement or otherwise, in excess of $50,000,000. Other than any liability
incident to such litigation, arbitration or proceedings, none of TLGI, the
Borrower or any other Subsidiary has any material contingent liabilities not
provided for or disclosed in the financial statements referred to in SECTION
6.4.
6.8. SUBSIDIARIES; PLEDGE OF STOCK. SCHEDULE 1 hereto, together with
the most recent update, if any, delivered pursuant to SECTION 7.1(k), contains
an accurate list of all of the Subsidiaries (except for inactive Subsidiaries
with immaterial assets and liabilities) of each of TLGI and the Borrower,
setting forth their respective jurisdictions of incorporation and the percentage
of their respective capital stock owned by TLGI, the Borrower or other
Subsidiaries; PROVIDED, HOWEVER, that as of the Restatement Effective Date
SCHEDULE 1 reflects such Subsidiaries only to the extent acquired on or before
March 15, 1998. All of the issued and outstanding shares of capital stock of
the Subsidiaries of TLGI and the Borrower listed on SCHEDULE 1 hereto, together
with the most recent update, if any, delivered pursuant to SECTION 7.1(k), have
been duly authorized and issued and are fully paid and non-assessable and have
been duly and validly pledged under the Collateral Trust Agreement and delivered
to the Collateral Agent pursuant to the terms of the Collateral Trust Agreement.
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6.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do
not in the aggregate exceed $1,000,000. Neither TLGI, the Borrower nor any
other member of the Controlled Group has incurred, or is reasonably expected
to incur, any withdrawal liability to Multiemployer Plans in excess of
$5,000,000 in the aggregate. Each Plan complies in all material respects
with all applicable requirements of law and regulations, no Reportable Event
has occurred with respect to any Plan, none of TLGI, the Borrower or any
other member of the Controlled Group has withdrawn from any Plan or initiated
steps to do so, and no steps have been taken to reorganize or terminate any
Plan. No contribution failure has occurred with respect to any Single
Employer Plan sufficient to give rise to a lien under section 302(f) of
ERISA. Each Canadian Plan is registered under, and is in compliance with,
the Income Tax Act (Canada), applicable provincial pensions legislation and
all other applicable requirements of law and regulations and all reports,
returns and filings required to be made thereunder have been made. The
Canadian Plans have been at all times administered in accordance with their
terms and the provisions of all applicable requirements of law and
regulations. There are no unfunded liabilities under the Canadian Plans and,
without limiting the generality of the foregoing, there is no going concern
unfunded actuarial liability, past service unfunded actuarial liability or
solvency deficiency. Neither TLGI nor any Subsidiary has received any
payment of surplus from any of the Canadian Plans, other than payments
received after January 1, 1988 with the approval of all necessary pension
regulatory and taxation authorities.
6.10. ACCURACY OF INFORMATION. No written information, exhibit or
report prepared and furnished by TLGI, the Borrower or any other Subsidiary
to the Agent, any Lender or the L/C Issuer in connection with the negotiation
of, or compliance with, the Loan Documents contained any material
misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained therein not misleading.
6.11. REGULATION U. Margin stock (as defined in Regulation U)
constitutes less than 25% of those assets of TLGI and the Borrower and other
Subsidiaries which are subject to any limitation on sale, pledge or other
restriction hereunder or under any other Loan Document. None of the
execution, delivery and performance of this Agreement and the other Loan
Documents by TLGI, the Borrowers, the other Guarantors and the Pledgor
Subsidiaries will violate Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System.
6.12. MATERIAL AGREEMENTS. None of TLGI, the Borrower or any
Subsidiary is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any agreement to
which it is a party, which default could have a Material Adverse Effect.
6.13. COMPLIANCE WITH LAWS. TLGI, the Borrower and the other
Subsidiaries have complied in all material respects with all applicable
statutes, rules, regulations, orders and restrictions of any Governmental
Authority having jurisdiction over the conduct of their respective businesses
or the ownership of their respective Property the failure with which to
comply could have a Material Adverse Effect. None of TLGI, the Borrower or
any Subsidiary
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has received any notice to the effect that, or is otherwise aware that, its
operations are not in material compliance with any of the requirements of
applicable environmental, health and safety statutes and regulations of any
Governmental Authority or the subject of any investigation by any
Governmental Authority evaluating whether any remedial action is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could have a Material
Adverse Effect.
6.14. OWNERSHIP OF PROPERTIES. Except as set forth on SCHEDULE 1
hereto, on the date of this Agreement, each of TLGI, the Borrower and each
other Subsidiary has good title, free of all Liens other than those permitted
by SECTION 7.18, to all of the Property and assets reflected as owned by it
in the financial statements delivered from time to time pursuant hereto.
6.15. INVESTMENT COMPANY ACT. None of TLGI, the Borrower or any other
Subsidiary is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
6.16. PUBLIC UTILITY HOLDING COMPANY ACT. None of TLGI, the Borrower
or any other Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.17. POST-RETIREMENT BENEFITS. The present value of the expected cost
of post-retirement medical and insurance benefits payable by TLGI, the
Borrower and the other Subsidiaries to their employees and former employees,
as estimated by TLGI in accordance with procedures and assumptions specified
by the Required Lenders, or in the absence of such specification, deemed
prudent and reasonable by TLGI, does not exceed $1,000,000.
6.18. NEGATIVE PLEDGE. None of TLGI, the Borrower nor any Subsidiary
of TLGI or the Borrower is party to any contract or other arrangement under
the terms of which TLGI, the Borrower or any such Subsidiary is restricted
from (i) performing its respective obligations under the Collateral Trust
Agreement or any other Loan Document to which it is a party or (ii) providing
a guaranty to the Agent, the Collateral Agent, the Lenders or the L/C Issuer.
6.19. SOLVENCY. On the date of this Agreement, on the Effective Date,
and immediately prior to and after giving effect to the issuance of each
Letter of Credit and the making of each Advance and Swing Line Loan hereunder
and the application of the proceeds of each Advance and Swing Line Loan, each
of TLGI, the Borrower and each Pledgor Subsidiary is solvent, is able to pay
its debts as they mature, owns property with fair saleable value greater than
the amount required to pay its debts and has capital sufficient to carry on
its business as then constituted.
6.20. EXISTING LETTERS OF CREDIT. The Letters of Credit identified on
SCHEDULE 4
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hereto were issued pursuant to the terms of the Original Agreement or the
Original Amended Agreement and, as of the date of this Agreement, remain
outstanding in the maximum amounts available to be drawn and with the expiry
dates specified thereon, and no other Letters of Credit issued under the
Original Agreement or the Original Amended Agreement remain outstanding as of
the date of this Agreement.
6.21. NO DEFAULT. No Default or Unmatured Default (each term used as
defined in the Original Amended Agreement) has occurred and is continuing as
of the date of this Agreement which has not been duly waived by the Lenders
(as defined in the Original Amended Agreement) under the terms of the
Original Amended Agreement.
ARTICLE VII
COVENANTS
7 COVENANTS. During the term of this Agreement, unless the
Required Lenders shall otherwise consent in writing, TLGI and the Borrower
shall perform, and cause to be performed, the following:
7.1. FINANCIAL REPORTING. TLGI will maintain, and cause the Borrower
and each other Subsidiary to maintain, a system of accounting established and
administered in accordance with GAAP, and will furnish or cause to be
furnished to the Lenders:
(a) (i) within 120 days after the close of each of TLGI's fiscal
years, (x) together with an unqualified (except for qualifications relating
to changes in accounting principles or practices reflecting changes in GAAP
and required or approved by TLGI's independent chartered accountants or
independent public accountants) audit report certified by independent
chartered accountants or independent public accountants, acceptable to the
Lenders, consolidated financial statements of TLGI prepared in accordance
with Agreement Accounting Principles on a consolidated basis for itself and
its Subsidiaries, including balance sheets as of the end of such period,
related statements of profit and loss, retained earnings and changes in
financial position, accompanied by a review engagement report of said
accountants in accordance with the standards of Section 8600 of the CICA
Handbook stating that, in connection with the foregoing, they have obtained
no knowledge of any failure of TLGI or its Subsidiaries to comply with the
requirements specified in each of SECTIONS 7.10 through 7.25, or if, in the
opinion of such accountants, TLGI or any of its Subsidiaries has failed to
comply with the requirements specified in any such Section, stating the
nature and status of such failure, and (y) consolidating financial statements
of TLGI certified by the Chief Financial Officer that separately present
TLGI's Canadian operations, United States operations and other material
financial operations prepared in accordance with Agreement Accounting
Principles, including balance sheets as of the end of such period, and
related statements of profit and loss, retained earnings and changes in
financial position; and (ii) within 180 days after the close of each of
TLGI's fiscal years, the management letter prepared by the applicable
accountants in connection with the financial
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statements for such fiscal year delivered pursuant to the foregoing CLAUSE
(i)(x);
(b) (i) within 120 days after the close of each of the Borrower's
fiscal years, together with an unqualified (except for qualifications
relating to changes in accounting principles or practices reflecting changes
in GAAP and required or approved by the Borrower's independent chartered
accountants or independent public accountants) audit report certified by
independent chartered accountants or independent public accountants,
acceptable to the Lenders, consolidated financial statements of the Borrower
prepared in accordance with Agreement Accounting Principles on a consolidated
basis for itself and its Subsidiaries, including balance sheets as of the end
of such period, and related statements of profit and loss, retained earnings
and changes in financial position;
(c) within 60 days after the close of each of the first three
quarterly periods of each of TLGI's fiscal years, for TLGI and its
Subsidiaries, consolidated unaudited balance sheets as at the close of such
period and consolidated statements of profit and loss, retained earnings and
changes in financial position for the period from the beginning of such
fiscal year to the end of such period, all certified by the Chief Financial
Officer;
(d) within 60 days after the close of each of the first three
quarterly periods of each of the Borrower's fiscal years, for the Borrower
and its Subsidiaries, consolidated unaudited balance sheets as at the close
of such period and consolidated statements of profit and loss, retained
earnings and changes in financial position for the period from the beginning
of such fiscal year to the end of such period, all certified by the Chief
Financial Officer;
(e) together with the financial statements required pursuant to the
foregoing CLAUSES (a), (b), (c) and (d), a compliance certificate in
substantially the form of EXHIBIT C hereto signed by the Chief Financial
Officer showing in reasonable detail the calculations necessary to determine
compliance with this Agreement, stating that no Default or Unmatured Default
exists or if any Default or Unmatured Default exists, stating the nature and
status thereof, and otherwise providing the information required thereby;
(f) within 270 days after the close of each fiscal year of TLGI, a
statement of the Unfunded Liabilities of each Single Employer Plan, certified
as correct by an actuary enrolled under ERISA;
(g) as soon as possible and in any event within ten days after TLGI
or the Borrower knows that any Reportable Event has occurred with respect to
any Plan or that a withdrawal has occurred from any Multiemployer Plan, the
occurrence of either of which may reasonably be expected to give rise to a
Material Adverse Effect, or that a contribution failure has occurred with
respect to any Single Employer Plan sufficient to give rise to a lien under
section 302(f) of ERISA, a statement, signed by the Chief Financial Officer,
describing said Reportable Event or contribution failure and the action which
TLGI and the Borrower propose to take with respect thereto;
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(h) as soon as possible and in any event within 30 days after receipt
by TLGI or any of its Subsidiaries, a copy of (i) any notice or claim to the
effect that TLGI or any of its Subsidiaries is or may reasonably be expected
to be liable for $2,000,000 or more of potential liability (when aggregated
with other similar potential liability) to any Person as a result of the
release by TLGI, any of its Subsidiaries or any other Person of any toxic or
hazardous waste or substance into the environment and (ii) any notice
alleging any violation of any federal, state or local environmental, health
or safety law or regulation by TLGI or any of its Subsidiaries, which
violation could reasonably be expected to give rise to a Material Adverse
Effect;
(i) promptly upon the furnishing thereof to the shareholders of TLGI,
copies of all financial statements, reports and proxy statements so furnished;
(j) promptly upon their becoming available, one copy of each
financial statement, report, notice or proxy statement sent by TLGI or the
Borrower to stockholders generally (excluding those statements, reports and
notices sent by the Borrower to TLGI which are not sent to TLGI solely in its
capacity as a stockholder) and of each regular report and any registration
statement or prospectus filed by TLGI, the Borrower or any other Subsidiary
with the Ontario Securities Commission, the Toronto Stock Exchange, the
British Columbia Securities Commission, the United States Securities and
Exchange Commission or any successor agency to any of the foregoing or any
other Canadian or United States federal or state or provincial securities
exchange or securities trading system or with any United States or Canadian
national stock exchange and one copy of each periodic report filed by TLGI
with any Canadian regulatory authority, in all cases without duplication;
PROVIDED, HOWEVER, that neither TLGI nor the Borrower shall be obligated to
provide to the Lenders routine reports which are required to be provided to
any of the above-listed entities concerning the management of employee
benefit plans, including, without limitation, stock purchases or the exercise
of stock options made under any such employee benefit plan;
(k) together with the financial statements delivered pursuant to
SECTION 7.1(a), a current list of all of the Subsidiaries of each of TLGI and
the Borrower, setting forth their respective jurisdictions of incorporation,
the percentage of their respective capital stock owned by TLGI, the Borrower
and the other Subsidiaries, and the net worth (after adjustments for
intercompany balances) determined by TLGI on a consistent basis of each such
Subsidiary as of a date reasonably proximate to the date of such list (which
list shall note with respect to each Subsidiary any changes of greater than
$5,000,000 in such net worth of such Subsidiary since the date of the last
list of Subsidiaries delivered pursuant to this SECTION 7.1(k));
(l) [Intentionally omitted];
(m) together with the financial statements delivered pursuant to
SECTIONS 7.1(a), (b), (c) and (d), a summary prepared by an Authorized
Officer of TLGI setting forth the status of all Acquisitions by TLGI, the
Borrower or any of their respective Subsidiaries for which (i) a letter of
intent (or other documentation evidencing the intent of the parties to
proceed with
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such Acquisition, including, without limitation, a definitive purchase
agreement) has been executed by the parties during the period covered by such
financial statements and continuing through the date of such summary, or (ii)
such Acquisition has closed or otherwise been consummated during the period
covered by such financial statements and continuing through the date of such
summary, which summary shall include (x) a statement of the aggregate
consideration paid to date and expected to be paid at any time thereafter in
connection with such Acquisitions, calculated separately for the matters
described in the foregoing CLAUSES (i) and (ii), and (y) a list of all
Acquisitions for which a provision subjecting the parties to arbitration was
not contained in the documentation governing the Acquisition;
(n) together with the financial statements delivered pursuant to
SECTIONS 7.1(a), (b), (c) and (d), a detailed summary prepared by an
Authorized Officer of TLGI (x) specifying all committed lines of credit to
which any of TLGI, the Borrower or any Subsidiary of TLGI or the Borrower is
party as of the date of such summary, identifying the total commitment and
total outstandings under each such line of credit and the purpose thereof,
and stating whether such lines of credit are purportedly secured under the
terms of the Collateral Trust Agreement or otherwise, and (y) identifying
each Finance Subsidiary which has been formed since the date of the last
summary delivered pursuant to this SECTION 7.1(n), and describing any
material changes in the capitalization, assets, or business and activities of
each Finance Subsidiary since the date of the last summary delivered pursuant
to this SECTION 7.1(n); and
(o) promptly, such other information (including non-financial
information) as the Agent or any Lender may from time to time reasonably
request.
7.2. USE OF PROCEEDS. The Borrower will, and will cause each of its
Subsidiaries to, use the proceeds of the Advances and the Swing Line Loans to
repay all Indebtedness identified on Annex 1 of SCHEDULE 1 hereto under the
heading "Indebtedness to be Paid", to repay Advances and Swing Line Loans, to
make Permitted Acquisitions or for general corporate and working capital
purposes. The Borrower will not, nor will it permit any of its Subsidiaries
to, use any of the proceeds of the Advances or the Swing Line Loans to
purchase or carry any "margin stock" (as defined in Regulation U). TLGI will
not, nor will it permit any Subsidiary, to use proceeds of the Advances or
the Swing Line Loans other than as contemplated in this SECTION 7.2.
7.3. NOTICES OF DEFAULT, LITIGATION, ETC. TLGI and the Borrower will
give notice in writing to the Lenders of the occurrence of (a) any Default or
Unmatured Default, (b) any payment, or any group of payments (whether or not
related), whether in settlement or otherwise, in excess of $50,000,000, which
at any time are expected to be made at or after such time by TLGI, the
Borrower or any Subsidiary in connection with any litigation, arbitrations,
governmental investigations, proceedings or inquiries, whether individually
or in the aggregate (it being understood that TLGI and the Borrower, in lieu
of separately identifying each such expected payment, may group such payments
to the extent deemed necessary to protect confidentiality), (c) any
development, financial or otherwise, which could reasonably be expected
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to have a Material Adverse Effect, and (d) any change in the practices and
procedures of TLGI and the Borrower in effect on the date of this Agreement
regarding acquisitions and litigation (which practices and procedures have
been described prior to the date of this Agreement by representatives of TLGI
and the Borrower to the Agent and the Lenders) which notice, in each of the
foregoing cases, shall be given promptly and in any event within five
Business Days after TLGI, the Borrower or the relevant Subsidiary becomes
aware of the Default, Unmatured Default, payment, development, determination
or change. Together with the financial statements delivered pursuant to
SECTIONS 7.1(a), (b), (c) and (d), TLGI and the Borrower shall provide to the
Agent (with sufficient copies for each Lender) a report, prepared as of the
last day of each calendar quarter, (x) for all litigation, arbitrations,
governmental investigations and proceedings pending or, to the knowledge of
any Authorized Officer, threatened against or affecting TLGI, the Borrower or
any other Subsidiary for which the claim or matter involves an amount in
excess of $10,000,000, briefly summarizing the matter (including whether
resolution of the matter could come before a jury), identifying the relief
sought and the amount of the claim, and specifying whether the claim is
covered by insurance and (y) identifying in reasonable detail each payment in
excess of $1,000,000 made during such calendar quarter, or expected to be
made thereafter, in settlement of, or otherwise in satisfaction of, any
litigation, arbitrations, governmental investigations, proceedings or
inquiries. TLGI and the Borrower agree to discuss with the Agent and the
Lenders, upon the request of the Agent or any Lender, the status of any
litigation, arbitrations, governmental investigations, proceedings and
inquiries and any settlements thereof.
7.4. CONDUCT OF BUSINESS. TLGI and the Borrower will, and will cause
each respective Subsidiary of it to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of
enterprise as it is conducted on the date of this Agreement and to do all
things necessary to remain duly incorporated, validly existing and in good
standing as a domestic corporation in its jurisdiction of incorporation and
maintain all requisite authority to conduct its business in each jurisdiction
in which its business requires it to be so authorized. Nothing in this
SECTION 7.4 shall prohibit any merger, amalgamation, or consolidation which
is permitted by SECTION 7.12.
7.5. TAXES. TLGI and the Borrower will, and will cause each
respective Subsidiary of it to, pay when due all taxes, assessments and
governmental charges and levies upon it or its income, profits or Property,
except those which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside
in accordance with GAAP.
7.6. INSURANCE. TLGI and the Borrower will, and will cause each
respective Subsidiary of it to, maintain with financially sound and reputable
insurance companies insurance on all their Property in such amounts and
covering such risks as is customary in the industries in which TLGI, the
Borrower and such Subsidiaries are engaged and which is consistent with sound
business practice; PROVIDED, HOWEVER, that, in any event, TLGI and the
Borrower will maintain, and cause each respective Subsidiary of it to
maintain, at all times insurance which, in the aggregate, is not materially
less comprehensive in scope and policy amount than the insurance
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maintained by them collectively as of the date hereof. TLGI and the Borrower
will furnish to any Lender upon request from time to time full information as
to the insurance carried.
7.7. COMPLIANCE WITH LAWS. TLGI and the Borrower will, and will cause
each respective Subsidiary of it to, comply in all material respects with all
laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it or its Properties may be subject.
7.8. MAINTENANCE OF PROPERTIES. TLGI and the Borrower will, and will
cause each respective Subsidiary of it to, do all things necessary to
maintain, preserve, protect and keep its Property in good repair, working
order and condition, ordinary wear and tear excepted, and make all necessary
and proper repairs, renewals and replacements so that its business carried on
in connection therewith may be properly conducted at all times.
7.9. INSPECTION. TLGI and the Borrower will, and will cause each
respective Subsidiary of it to, permit the Agent and any or each Lender, by
its respective representatives and agents, to inspect any of the Property,
corporate books and financial records of TLGI, the Borrower and each such
Subsidiary, to examine and make copies of the books of accounts and other
financial records of TLGI, the Borrower and each such Subsidiary, and to
discuss the affairs, finances and accounts of TLGI, the Borrower and each
such Subsidiary with, and to be advised as to the same by, their respective
officers at such reasonable times and intervals as the Agent or such Lender
may designate.
7.10. DISTRIBUTIONS. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it to, declare or make or incur any liability to
make any Distribution, except:
(a) dividends payable in the capital stock of TLGI, the Borrower or
such Subsidiary;
(b) Distributions to TLGI, a Regional Partner or a Wholly-Owned
Subsidiary of TLGI or a Regional Partner;
(c) Distributions made by an Unrestricted Subsidiary to TLGI, the
Borrower or a Subsidiary; and
(d) other Distributions (in addition to those described in the
foregoing CLAUSES (a) and (b)) so long as, immediately after giving effect to
the declaration thereof in the case of dividends or the making thereof in the
case of other proposed Distributions (the date of such event being referred
to hereinafter as the "DISTRIBUTION DATE"), (i) the aggregate amount of
Distributions declared in the case of dividends or made in the case of other
Distributions pursuant to this CLAUSE (d), during the period from and after
January 1, 1998, to and including the Distribution Date, would not exceed the
Consolidated Distributable Amount as of the Distribution Date, and (ii) no
Default or Unmatured Default shall have occurred and be continuing.
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For the purposes of making the foregoing computations, the amount of any
Distribution declared, paid or distributed in property or assets of TLGI or
the Borrower or any other Subsidiary shall be deemed to be the greater of the
book value or Fair Value (as determined in good faith by the board of
directors of TLGI) of such property or assets as of the date of declaration
in the case of a dividend and the date of payment in the case of any other
Distribution.
7.11. INDEBTEDNESS. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it to, create, incur or suffer to exist any
Indebtedness, except:
(a) the Revolving Loans, the Swing Line Loans and the L/C Obligations;
(b) Indebtedness (i) existing as of the close of business on December
31, 1997, and described on SCHEDULE 1 hereto or (ii) incurred on or after
January 1, 1998, but only to the extent expressly described on SCHEDULE 1
hereto;
(c) Rentals other than Capitalized Lease Obligations and Synthetic
Lease Obligations;
(d) Indebtedness of TLGI, the Borrower or any Subsidiary of TLGI
owing to TLGI, the Borrower or any Subsidiary of TLGI;
(e) subject to the final paragraph of this SECTION 7.11, Indebtedness
of TLGI, the Borrower or any Subsidiary in connection with a Permitted
Receivables Securitization;
(f) subject to the final paragraph of this SECTION 7.11, additional
Indebtedness of any Subsidiaries of TLGI (other than the Borrower), provided
that such Indebtedness, when added to the aggregate outstanding Indebtedness
of all such Subsidiaries which is described on SCHEDULE 1 hereto, does not at
any time exceed 15.0% of Consolidated Net Worth at such time; and
(g) subject to the final paragraph of this SECTION 7.11, additional
Indebtedness issued or incurred by TLGI or the Borrower, provided that after
giving effect thereto and to the application of the proceeds thereof,
Consolidated Indebtedness would not exceed 60% of Consolidated Capitalization.
Notwithstanding the foregoing, but subject to the last two sentences of
this paragraph, any Indebtedness otherwise permitted under any of the
foregoing SECTIONS 7.11(e), (f) and (g) shall not be permitted unless at the
time of the incurrence of such Indebtedness, and after giving PRO FORMA
effect thereto, the Borrower and TLGI will be in compliance with Section 4.07
of the Indenture dated as of March 20, 1996, among the Borrower, TLGI and
Fleet National Bank of Connecticut, as Trustee, relating to the Borrower's
$500,000,000 Senior Guaranteed Notes, as such Indenture may be amended,
modified, supplemented or waived from time to time. (The
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acquisition by TLGI or any of its Subsidiaries of a new Subsidiary which is
obligated in respect of any Indebtedness shall be deemed for purposes of this
Section to be the incurrence of such Indebtedness by such new Subsidiary on
the date it becomes a Subsidiary of TLGI.) During any period of time that
(i) the ratings assigned to the senior unsecured and unenhanced (other than,
if applicable, pursuant to the Collateral Trust Agreement) long-term
Indebtedness of TLGI by each of Standard & Poor's and Moody's (collectively,
the "RATING AGENCIES") are no less than BBB- and Baa3, respectively (the
"INVESTMENT GRADE RATINGS"), and (ii) no Default or Unmatured Default has
occurred and is continuing, the restriction contained in the first sentence
of this paragraph shall not be applicable. If one or both Rating Agencies
withdraws its rating or downgrades its Investment Grade Rating, then
thereafter the restriction contained in the first sentence of this paragraph
shall be applicable on a prospective basis until both of the Rating Agencies
thereafter assign Investment Grade Ratings to the senior unsecured and
unenhanced (other than, if applicable, pursuant to the Collateral Trust
Agreement) long-term Indebtedness of TLGI.
7.12. MERGER. TLGI and the Borrower will not, nor will either permit
any Subsidiary of it to, merge, amalgamate or consolidate with or into any
other Person, except that: (a) a Subsidiary (other than the Borrower or any
Unrestricted Subsidiary) may merge with TLGI, the Borrower, a Regional
Partner or a Wholly-Owned Subsidiary of TLGI (other than an Unrestricted
Subsidiary) or a Regional Partner, subject to the further condition that if
TLGI or the Borrower is a party to any such permitted merger, TLGI or the
Borrower, as applicable, shall be the surviving corporation; (b) a Regional
Partner or a Wholly-Owned Subsidiary of TLGI (other than an Unrestricted
Subsidiary) or a Regional Partner incorporated under the laws of Canada or
any Province thereof may amalgamate with another Regional Partner or
Wholly-Owned Subsidiary of TLGI (other than an Unrestricted Subsidiary) or a
Regional Partner incorporated under the laws of Canada or any Province
thereof, it being understood that neither TLGI nor the Borrower may so
amalgamate; and (c) an Unrestricted Subsidiary may merge, amalgamate or
consolidate with another Unrestricted Subsidiary.
7.13. SALE OF ASSETS. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it to, lease, sell or otherwise dispose of its
Property to any other Person except for (a) sales of inventory in the
ordinary course of business, (b) leases, sales or other dispositions of its
Property to a Regional Partner or a Wholly-Owned Subsidiary of TLGI or a
Regional Partner (provided that if any such Property is subject to the
Collateral Trust Agreement, then such lease, sale or other disposition shall
be permissible hereunder only to the extent that the lessee or transferee
thereof shall have executed documentation satisfactory to the Agent
maintaining the security interest in the Property in favor of the Collateral
Agent for the benefit of the Secured Parties), (c) subject to the
requirements of SECTION 2.10(b) hereof, other sales or other dispositions of
its Property subject to the requirement that the net proceeds of each such
sale or other disposition of Property are reinvested, within 180 days
following consummation of such sale or other disposition, in the business of
TLGI, the Borrower and the Subsidiaries of either as conducted in accordance
with the requirements of SECTION 7.4, and that immediately before and after
giving effect to such sale, no Default or Unmatured Default shall have
occurred and be
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continuing, (d) Permitted Receivables Securitizations, and (e) sales of
cemetery properties (provided that such sales (i) are on commercially
reasonable terms, (ii) occur within 30 days of the acquisition by TLGI, the
Borrower or a Subsidiary of such cemetery property, (iii) give rise to an
Investment of the type described in, and permitted by, SECTION 7.16(m), and
(iv) do not involve cemetery properties with an aggregate Fair Value in
excess of $50,000,000 for all such cemetery properties sold in any calendar
year).
7.14. PREPAYMENTS. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it to, either directly or indirectly, voluntarily
redeem, retire or otherwise pay prior to its scheduled maturity, or
accelerate the maturity of, Indebtedness of TLGI or the Borrower or any such
Subsidiary, other than (a) Indebtedness arising hereunder or under other
credit facilities or Permitted Receivables Securitizations of a revolving
nature, (b) Indebtedness between or among TLGI, the Borrower or any
Subsidiary, (c) Indebtedness arising under the MEIP Credit Agreement (but
only to the extent prepayments or redemptions thereof are made in accordance
with the requirements of the MEIP Credit Agreement which are contained in the
MEIP Credit Agreement as in effect on the date hereof), (d) Indebtedness
which ranks PARI PASSU with the Obligations, and (e) other Indebtedness so
long as such Indebtedness either (i) (A) was incurred in connection with an
Acquisition and (B) is prepaid within 180 days of the closing of such
Acquisition or (ii) (A) is prepaid in full and (B) does not exceed
$10,000,000 (such limitation to apply to each individual prepayment pursuant
to this clause (ii) and not in the aggregate).
7.15. AFFILIATES. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it to, enter into any transaction (including,
without limitation, the purchase or sale of any Property or service) with, or
make any payment or transfer to, any Affiliate except in the ordinary course
of business and pursuant to the reasonable requirements of TLGI's, the
Borrower's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to TLGI, the Borrower or such Subsidiary than TLGI, the
Borrower or such Subsidiary would obtain in a comparable arm's-length
transaction; PROVIDED, HOWEVER, that the foregoing terms of this SECTION 7.15
shall not apply to (i) transactions between or among TLGI, any Wholly-Owned
Subsidiary of TLGI and any Regional Partner and (ii) transactions with an
Unrestricted Subsidiary which are related to a Permitted Receivables
Securitization.
7.16. INVESTMENTS. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it to, make or suffer to exist any Investments, or
commitments therefor, except:
(a) Investments (i) in existence as of the close of business on
December 31, 1997, and described on SCHEDULE 1 hereto or (ii) arising on or
after January 1, 1998, but only to the extent expressly described on SCHEDULE
1 hereto;
(b) Investments by TLGI or the Borrower or any Subsidiary in and
to (i) any Subsidiary (other than LMIC or any other Subsidiary not engaged in
one or more of the TLGI Lines of Business), including any Investment in a
corporation which, after giving effect to such Investment, will become a
Subsidiary (other than as specified in the foregoing parenthetical), (ii)
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LMIC, but only to the extent of the aggregate initial par value of the
capital stock thereof issued to the Borrower upon the incorporation of LMIC,
and (iii) any other Person provided that such Person is engaged primarily in
one or more of the TLGI Lines of Business;
(c) Investments in property or assets to be used in the ordinary
course of business of TLGI and the Borrower and the other Subsidiaries
conducted as described in SECTION 7.4 of this Agreement;
(d) Investments in commercial paper maturing in 270 days or less from
the date of issuance which, at the time of acquisition by TLGI or the
Borrower or any other Subsidiary, is accorded one of the two highest
commercial paper ratings by Standard & Poor's or Moody's or any other United
States nationally recognized credit rating agency of similar standing;
(e) Investments in direct obligations of the United States, any
agency or instrumentality of the United States, the federal government of
Canada or any agency or instrumentality of the federal government of Canada,
the payment or guarantee of which constitutes a full faith and credit
obligation of the United States or Canada, as the case may be, in either case
maturing in three years or less from the date of acquisition thereof;
(f) Investments in direct obligations of any Province of Canada or
any municipality within a Province of Canada or any State or municipality
within the United States maturing in three years or less from the date of
acquisition thereof which, in any such case, at the time of acquisition by
TLGI or the Borrower or any other Subsidiary, is accorded one of the two
highest long-term debt ratings by Standard & Poor's or Moody's or any other
United States nationally recognized credit rating agency of similar standing;
(g) Investments in certificates of deposit or bankers' acceptances
with a maturity of under one year issued by a bank or trust company organized
under the laws of the United States or any State thereof, Canada or any
Province thereof, Japan or any member of the European Union, having capital,
surplus and undivided profits aggregating at least $100,000,000 and having a
short-term unsecured debt rating of at least "P-1" by Moody's or "A-1" by
Standard & Poor's;
(h) Investments in money market and auction rate preferred stock
issued by Persons organized under the laws of the United States of America or
any State thereof or of Canada or any Province thereof rated "A" or better by
Standard & Poor's or "A" or better by Moody's, or an equivalent rating by any
other United States nationally recognized credit rating agency of similar
standing;
(i) Investments in mutual funds investing in assets described in
CLAUSE (d), (e), (f) or (g) above which in any such case would be classified as
a current asset in accordance with U.S. GAAP and which are managed by a fund
manager of recognized United States or Canadian national standing and having
share capital of at least $100,000,000 or having at least
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$250,000,000 under management;
(j) Investments of funds received by TLGI or the Borrower or any
other Subsidiary in the ordinary course of business, which funds are required
to be held in trust for the benefit of others by TLGI, the Borrower or such
Subsidiary, as the case may be, and which funds do not constitute assets or
liabilities of TLGI or the Borrower or any other Subsidiary;
(k) Investments of funds by any Subsidiary which is engaged in the
insurance business which are invested and managed by such Subsidiary in the
ordinary course of its regulated insurance business and insurance operations;
(l) Investments constituting Permitted Acquisitions;
(m) Investments in promissory notes issued and options granted by
purchasers of cemetery properties sold by the Borrower or any of its
Affiliates (but only to the extent permitted by SECTION 7.13(e)); PROVIDED,
HOWEVER, that such promissory notes are issued and such options are granted
on commercially reasonable terms and the aggregate outstanding principal
amount of such promissory notes at any time shall not exceed $100,000,000,
and PROVIDED, FURTHER, that for each such Investment, the related sale and
such Investment have not been challenged, or threatened to be challenged, by
any Governmental Authority;
(n) [Intentionally omitted];
(o) Investments in Unrestricted Subsidiaries so long as immediately
after giving effect to the making of any such Investment the aggregate amount
of all outstanding Investments made pursuant to this SECTION 7.16(o) would
not exceed 15% of Total Assets. For purposes of this SECTION 7.16(o),
Investments (i) shall include any contribution, assignment, transfer or other
conveyance of assets (including, without limitation, accounts receivable) to
an Unrestricted Subsidiary, (ii) shall, at any time, be measured against
Total Assets as of the last day of the fiscal quarter then most recently
ended, (iii) shall be valued based upon the book value of such Investment, as
reflected in the books and records of TLGI, the Borrower or another
Subsidiary (as appropriate) prepared and maintained in accordance with GAAP,
(iv) shall be valued net of any returns of or withdrawals from a previously
consummated Investment, and (v) shall be valued excluding an amount equal to
any cash or cash equivalent proceeds received by the Person making such
Investments in consideration for such Investments.
(p) other Investments (in addition to those permitted by CLAUSES (a)
through (o) above) so long as immediately after giving effect to the making
of any such Investment the aggregate amount of all outstanding Investments
made pursuant to this SECTION 7.16(p) would not exceed 5% of Consolidated Net
Worth;
PROVIDED, HOWEVER, that notwithstanding any provision to the contrary herein,
none of TLGI, the Borrower or any Subsidiary of either shall make any
Investment in any Person effectively located
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outside of the United States or Canada if after giving effect to such
Investment, the aggregate amount of Investments of TLGI, the Borrower or any
Subsidiary of either in any Persons effectively located outside of the United
States or Canada, excluding Investments in Finance Subsidiaries which are
Wholly-Owned Subsidiaries, would exceed an amount equal to 15% of
Consolidated Revenues for the period of four consecutive fiscal quarters
ended immediately prior to the date of such Investment; PROVIDED FURTHER,
HOWEVER, that the immediately preceding proviso shall not apply from and
after the Collateral Release Date. For the purpose of any computation
required to be made pursuant to this Agreement, Investments shall be valued
at lower of the cost or Fair Value thereof as of the date of computation.
7.17. NEGATIVE PLEDGE. TLGI and the Borrower will not, nor will either
permit any Subsidiary of it (other than an Unrestricted Subsidiary in
connection with a Permitted Receivables Securitization) to, enter into any
agreement or other arrangement under the terms of which TLGI, the Borrower or
any Subsidiary of TLGI or the Borrower (other than any such Unrestricted
Subsidiary) would be restricted from (i) performing its respective
obligations under the Collateral Trust Agreement or any other Loan Document
to which it is a party or (ii) providing a guaranty to the Agent, the
Collateral Agent, the Lenders or the L/C Issuer.
7.18. LIENS. TLGI and the Borrower will not, nor will either permit
any Subsidiary of either to, create, incur or suffer to exist any Lien in, of
or on the Property of TLGI, the Borrower or such Subsidiary, as applicable,
except:
(a) Liens granted to the Agent or the Collateral Agent for the
benefit of the Lenders, the L/C Issuer and the other Secured Parties pursuant
to the Loan Documents;
(b) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or thereafter
can be paid without penalty, or are being contested in good faith and by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books;
(c) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due
or which are being contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its books;
(d) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions or other social
security or retirement benefits, or similar legislation (except ERISA);
(e) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the same or interfere with the use thereof in the
business of TLGI, the Borrower or any other Subsidiary;
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(f) Liens existing as of the close of business on December 31, 1997,
and described on SCHEDULE 1 hereto or (ii) created or incurred on or after
January 1, 1998, but only to the extent expressly described on SCHEDULE 1
hereto;
(g) Liens created or incurred after December 31, 1997, given to
secure Indebtedness incurred or assumed by TLGI or any Subsidiary of TLGI in
connection with the acquisition or construction of property or assets useful
and intended to be used in carrying on the business of TLGI or such
Subsidiary, including Liens existing on such property or assets at the time
of acquisition or construction thereof or at the time of acquisition by TLGI
or such Subsidiary of an interest in any business entity then owning such
property or assets, whether or not such existing Liens were given to secure
the consideration for the property or assets to which they attach, subject to
the requirements that (i) the Lien shall attach solely to the fixed assets
acquired or purchased by TLGI or such Subsidiary, (ii) the Lien shall have
been created or incurred within 180 days after the date of acquisition or
completion of construction of such property or assets, and (iii) all such
Indebtedness shall have been incurred or assumed within the limitations
provided in SECTION 7.11, and provided that Liens shall be permitted under
this SECTION 7.18(g) only to the extent that the aggregate amount of
Indebtedness of TLGI and its Subsidiaries outstanding at any time which is
secured by Liens described in either SECTION 7.18(f) or this SECTION 7.18(g)
shall not exceed 10.0% of Consolidated Net Worth at such time;
(h) Liens on Receivables and Receivables Related Assets arising in
connection with any Permitted Receivables Securitization;
(i) Liens granted to TLGI, a Regional Partner or a Wholly-Owned
Subsidiary of TLGI or a Regional Partner by any Subsidiary (other than the
Borrower);
(j) Liens on certain intercompany Indebtedness of the Borrower
granted under the terms of the MEIP Credit Agreement as in effect on the date
of this Agreement;
(k) in addition to Liens permitted by the preceding CLAUSE (g), Liens
given to secure Indebtedness of TLGI, the Borrower or any Subsidiary of TLGI,
PROVIDED that the aggregate amount of Indebtedness outstanding at any time
which is secured thereby shall not exceed $5,000,000; and
(l) any extension, renewal or replacement of any Lien permitted by
the preceding CLAUSES (f) and (g) 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 of the date of such extension,
renewal or refunding.
7.19. MINIMUM CONSOLIDATED NET WORTH. TLGI will maintain at all times
a Consolidated Net Worth (excluding the cumulative effect of currency
translation adjustments) of
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at least the sum of
(a) 80% of Consolidated Net Worth (excluding the cumulative effect of
currency translation adjustments) as of December 31, 1997, plus
(b) the sum of 50% of Consolidated Net Income for each fiscal quarter
ended after January 1, 1998 (but only to the extent that, in the case of any
such fiscal quarter, Consolidated Net Income for such fiscal quarter is at least
$1.00), plus
(c) 66-2/3% of the aggregate amount of the net cash proceeds received
by TLGI and the Borrower and the other Subsidiaries from the issuance or sale on
and after the Restatement Effective Date (other than sales or issuances to TLGI
or the Borrower or any other Subsidiary) of capital stock of TLGI or
Indebtedness of TLGI, the Borrower or any other Subsidiary which has been
converted into capital stock of TLGI.
7.20. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. TLGI will maintain
at all times a Consolidated Tangible Net Worth (excluding the cumulative effect
of currency translation adjustments) of at least $500,000,000.
7.21. MAXIMUM CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED CAPITALIZATION.
TLGI will not permit the ratio of Consolidated Indebtedness to Consolidated
Capitalization at any time to exceed 0.65 to 1.00.
7.22. INTEREST CHARGES COVERAGE. TLGI will at all times maintain (i) a
ratio of EBITDAR for the most recently ended period of four consecutive
fiscal quarters of TLGI to Consolidated Interest Charges for such period of
four consecutive fiscal quarters of not less than 2.350 to 1.00 and (ii) a
ratio of EBITDAR for the most recently ended fiscal quarter to Consolidated
Interest Charges for such fiscal quarter of not less than 1.50 to 1.00.
7.23. MAXIMUM CONSOLIDATED INDEBTEDNESS TO ADJUSTED EBITDAR. TLGI will
not permit the ratio of Consolidated Indebtedness determined at such time to
Adjusted EBITDAR determined for the period of four consecutive fiscal
quarters then most recently ended (x) to be greater than 6.00 to 1.00 at any
time through and including September 30, 1999 or (y) to be greater than 5.50
to 1.00 at any time after September 30, 1999.
7.24. OWNERSHIP OF THE BORROWER. TLGI will at all times maintain the
Borrower as a Wholly-Owned Subsidiary of TLGI.
7.25. ACQUISITIONS. TLGI and the Borrower will not, nor will either
permit any Subsidiary of either to, make any Acquisition of any Person other
than a Permitted Acquisition.
7.26. PLEDGE OF STOCK AND GRANT OF SECURITY INTEREST IN CERTAIN
ASSETS. TLGI and the Borrower will, and will cause each respective Pledgor
Subsidiary of it to, pledge (or, for
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any shares or other equity interests pledged prior to the date hereof
pursuant to the terms of the Collateral Trust Agreement, TLGI and the
Borrower will, and will cause each respective Pledgor Subsidiary of it to,
maintain such pledge in) all outstanding shares of capital stock and other
equity interests of any Subsidiary of TLGI or the Borrower (other than any
Unrestricted Subsidiary) held by it or held by any Subsidiary of it (other
than any Unrestricted Subsidiary) from time to time (including, in the case
of TLGI, the Borrower), and the Borrower will grant a security interest (or,
for any security interest granted prior to the date hereof pursuant to the
Collateral Trust Agreement, the Borrower will maintain such security
interest) in all of its financial assets (including, without limitation,
accounts receivable and bank accounts), in each case pursuant to the terms of
the Collateral Trust Agreement; PROVIDED, HOWEVER, that:
(a) TLGI and the Borrower will not be required, and will not be
required to cause each non-U.S. Subsidiary and non-Canadian Subsidiary of
TLGI, to pledge any outstanding shares of capital stock of or other equity
interests in any such Subsidiaries pursuant to the terms of the Collateral
Trust Agreement, unless the aggregate amount of Investments in such
Subsidiaries is greater than $50,000,000, in which case TLGI and the
Borrower will be required, and will be required to cause each non-U.S.
Subsidiary and non-Canadian Subsidiary of TLGI, to pledge any outstanding
shares of capital stock of or other equity interests in all such
Subsidiaries; PROVIDED, HOWEVER, that, notwithstanding the foregoing,
shares of capital stock of or other equity interests in one or more non-
U.S. Subsidiaries and non-Canadian Subsidiaries shall not be required to be
pledged hereunder to the extent that the aggregate cash consideration paid
for such shares or interests in the aggregate for all such subsidiaries
does not exceed $5,000,000 at any time.
(b) TLGI and the Borrower will not be required, and will not be
required to cause any respective Pledgor Subsidiary, to pledge any
outstanding shares of capital stock of or other equity interests in any DSP
Entity or in any DCT Entity pursuant to the Collateral Trust Agreement,
unless and only to the extent that, the aggregate amount of Investments in
such DSP Entities and DCT Entities (taken collectively) is greater than
$40,000,000; and
(c) TLGI and the Borrower will not be required, and will not be
required to cause any respective Pledgor Subsidiary, to pledge any
outstanding shares of capital stock of or other equity interests in any
Insurance Company, but only to the extent (i) the stock of Loewen Life
Insurance Group, Inc. is pledged pursuant to the Collateral Trust
Agreement; and (ii) none of TLGI, the Borrower or any of their respective
Subsidiaries is or will become party to any agreement under the terms of
which TLGI, the Borrower or any of their respective Subsidiaries is
restricted from pledging any outstanding shares of capital stock or other
equity interests of any Insurance Company pursuant to the Collateral Trust
Agreement;
PROVIDED FURTHER, HOWEVER, that notwithstanding any provision to the contrary
herein, in the event that TLGI or the Borrower fails to cause the Collateral
Trust Agreement to be amended on or
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before May 31, 1998 to bring the Collateral Trust Agreement into compliance
with the provisions set forth in the foregoing SECTIONS 7.26(a) and 7.26(b),
the provisions set forth in the foregoing SECTIONS 7.26(a) and 7.26(b) shall
cease immediately to be of any force or effect, without any further action
being required by the Lenders or the Agent.
All such shares of capital stock and other equity interests will be
pledged, and all such security interests will be granted, solely to secure
the Obligations and any other Senior Obligations outstanding from time to
time; PROVIDED, HOWEVER, that such pledges of capital stock and other equity
interests, and such grants of security interests, will secure the Senior
Obligations (other than the Obligations and the other Senior Obligations
identified on SCHEDULE 3 hereto) only to the extent that the Borrower will
have so elected and given notice thereof to the Collateral Agent and the
Agent. Within 60 days of the date of closing for each Major Acquisition of a
Person, TLGI and the Borrower will deliver to the Agent an opinion of counsel
addressed to the Agent and the Lender to the effect that all ownership
interests in such Person acquired in such Major Acquisition have been duly
and validly subjected to the lien granted to the Collateral Agent under the
terms of the Collateral Trust Agreement and that all actions to perfect such
lien have been duly and validly taken, such opinions to be satisfactory to
the Agent in form and substance.
TLGI and the Borrower shall, and shall cause their respective Subsidiary
Pledgors to, complete all actions necessary to comply with the requirements
of the first paragraph of this SECTION 7.26 and the Collateral Trust
Agreement with respect to pledges of shares of capital stock and other equity
interests of their Subsidiaries (including without limitation delivery of the
applicable shares and other instruments to the Collateral Agent), whether now
owned or hereafter acquired, within ninety days from the date of acquisition
thereof by TLGI, the Borrower or any of their respective Subsidiaries.
Notwithstanding the foregoing terms of this SECTION 7.26, on such first
date (the "COLLATERAL RELEASE DATE") on which (a) the Borrower shall have
provided written evidence to the Agent that (x) the rating assigned to the
senior unsecured and unenhanced long-term Indebtedness of TLGI by Standard &
Poor's is BBB- (or higher) and such rating assigned by Moody's is Baa3 (or
higher), (y) all other Indebtedness secured pursuant to the Collateral Trust
Agreement has ceased (or on the Collateral Release Date shall cease) to be
secured pursuant to the Collateral Trust Agreement, and (z) after giving
effect to this paragraph, the Obligations shall be senior to, or PARI PASSU
with, all other Indebtedness which was secured pursuant to the Collateral
Trust Agreement immediately prior to the Collateral Release Date, (b) no
Default or Unmatured Default shall exist and be continuing, and (c) the Agent
shall have provided written notice to each of the Lenders that the conditions
set forth in the foregoing CLAUSES (a) and (b) have been satisfied, THEN (i)
the pledge and security interest described in this SECTION 7.26 and granted
pursuant to the Collateral Trust Agreement shall automatically terminate, and
TLGI, the Borrower and the Pledgor Subsidiaries shall have no further
obligations in respect of such pledge and security interest, and (ii) the
Pledgor Subsidiary Guaranty of each Pledgor Subsidiary shall automatically
terminate and the Pledgor Subsidiaries shall have no further obligations in
respect
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of such Pledgor Subsidiary Guaranties, in each case without any further
action or requirement. In connection with the foregoing, the Agent agrees to
take, and to cause the Collateral Agent to take, in each case at the
Borrower's expense, all such actions as may be reasonably requested by the
Borrower to give effect to this paragraph.
7.27. SUBSIDIARIES. TLGI and the Borrower will not permit any of their
respective Subsidiaries (other than the Borrower in the case of TLGI's
Subsidiaries) at any time to (i) issue any preferred stock of any type or
nature (provided that such limitation shall not apply to any Subsidiary which
has no operations and exists solely as a special purpose finance entity, and
provided further that such limitation shall not prohibit the issuance of
preferred stock to TLGI or any Wholly-Owned Subsidiary of TLGI), or (ii)
except in the case of an Unrestricted Subsidiary which engages in a Permitted
Receivables Securitization, agree by contract or otherwise to any restriction
on the right and ability of such Subsidiary to declare and pay dividends and
make other distributions to its shareholders (other than the restrictions set
forth in this Agreement and the other Loan Documents). TLGI and the Borrower
will not permit any Indebtedness owed by them to any Subsidiaries to be
secured pursuant to the Collateral Trust Agreement unless (a) the Subsidiary
to which such Indebtedness is owed is a Finance Subsidiary which is a
Wholly-Owned Subsidiary, (b) the security interest securing such Indebtedness
is subordinated in accordance with the terms and conditions of the Collateral
Trust Agreement, (c) all shares of capital stock or other equity interests of
such Subsidiary are pledged under the terms of the Collateral Trust
Agreement, (d) such Subsidiary has no obligations other than Indebtedness
owed to TLGI or the Borrower or an Affiliate of TLGI, and other than
obligations to purchase accounts receivable or other financial assets of an
Affiliate of TLGI, (e) such Subsidiary has no material assets other than (i)
Indebtedness owed to it by TLGI or the Borrower or an Affiliate of TLGI, (ii)
Investments in other Finance Subsidiaries which are Wholly-Owned Subsidiaries
and (iii) the accounts receivable and other financial assets described in the
foregoing CLAUSE (d), and (f) such Subsidiary has no activities or operations
other than the issuance of its capital stock or other equity interests and
the purchase and administration of the accounts receivable and other
financial assets described in the foregoing CLAUSE (d), and other than the
holding by it of Indebtedness, accounts receivable and other financial assets
described in the foregoing CLAUSE (e).
7.28. SUBSIDIARIES' STOCK. TLGI and the Borrower will cause:
(a) each Canadian Subsidiary incorporated under the laws of British
Columbia, the shares of which are Pledged Shares under the Collateral Trust
Agreement, to ensure that its constating documents do not contain any
restrictions on a transfer of such Pledged Shares pursuant to the due
exercise of the Trustee's powers under the Collateral Trust Agreement;
(b) the board of directors of each Canadian Subsidiary incorporated
under the laws of Nova Scotia or Prince Edward Island, the shares of which
are Pledged Shares under the Collateral Trust Agreement, to pass a resolution
consenting to a transfer of such Pledged Shares pursuant to the due exercise
of the Trustee's powers under the Collateral Trust Agreement; and
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(c) the directors and shareholders of each Canadian Subsidiary
incorporated under the federal laws of Canada, or the laws of Quebec,
Ontario, Manitoba, Saskatchewan or Alberta, the share of which are Pledged
Shares under the Collateral Trust Agreement, to execute and deliver an
unanimous shareholders agreement to the Trustee providing for the consent of
the shareholders to a transfer of such Pledged Shares pursuant to the due
exercise of the Trustee's powers under the Collateral Trust Agreement.
Except as set out in clauses (d) and (e) below or as otherwise consented to
by the Agent in its sole discretion, TLGI and the Borrower will, and will
cause each Subsidiary (other than a Canadian Subsidiary), the shares or other
equity interests of which are Pledged Shares under the Collateral Trust
Agreement, to take any and all actions necessary to ensure that there are no
restrictions on a transfer of such Pledged Shares pursuant to the due
exercise of the Trustee's powers under the Collateral Trust Agreement, except
with respect to any and all restrictions under applicable law. The
foregoing sentence does not apply to:
(d) the interests of TLGI, the Borrower or any Pledgor Subsidiary in
any limited partnership or limited liability company where the restriction is
required to preserve the tax status of the entity; and
(e) the shares listed on SCHEDULE 6 hereto.
The actions described in this SECTION 7.28 must be completed with
respect to any Subsidiary no later than 90 days after any of such
Subsidiary's shares become Pledged Shares under the Collateral Trust
Agreement.
The terms "Pledged Shares", "Trustee" and "Applicable Law", as used in
this SECTION 7.28, have the meanings specified in the Collateral Trust
Agreement.
7.29. SYNTHETIC LEASES. TLGI and the Borrower will not, nor will
either permit any Subsidiary of it to, be an obligor in respect of any
Synthetic Lease except for Synthetic Leases as to which the aggregate
Synthetic Lease Obligations of TLGI, the Borrower and such Subsidiaries at
any time shall not exceed $100,000,000.
7.30. DELIVERIES REGARDING PLEDGOR SUBSIDIARIES. TLGI and the
Borrower shall deliver to the Agent a copy (each document identified below to be
dated and/or certified as of a date reasonably acceptable to the Agent not more
than 30 days prior to the date of delivery thereof to the Agent), with respect
to each Pledgor Subsidiary, of such Pledgor Subsidiary's (i) articles of
incorporation or comparable constitutive documents, together with all material
amendments, and, to the extent applicable, a certificate of good standing, in
each case certified by the appropriate governmental officer in the relevant
jurisdiction of organization, (ii) by-laws or comparable constitutive laws,
rules or regulations certified by the Secretary, Assistant Secretary or other
appropriate officer or director of it, (iii) board of directors' resolutions,
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certified by the Secretary, Assistant Secretary or other appropriate officer
or director of such Pledgor Subsidiary (and resolutions of other bodies, if
any are deemed necessary by counsel for the Agent) authorizing the execution
and performance by such Pledgor Subsidiary of the Collateral Trust Agreement,
and (iv) incumbency certificates, executed by the Secretary or Assistant
Secretary or other appropriate officer or director of such Pledgor
Subsidiary, which shall identify by name and title and bear the signature of
the officers of such Pledgor Subsidiary authorized to sign the certificates
set forth in CLAUSES (ii) and (iii) and authorized to execute the Joinder
Agreement (as defined in the Collateral Trust Agreement) to be delivered by
such Pledgor Subsidiary pursuant to the Collateral Trust Agreement, upon
which certificate the Agent shall be entitled to rely until informed of any
change in writing by such Pledgor Subsidiary; in each case (of CLAUSES (i),
(ii), (iii), and (iv)) to the extent such documents have not previously been
delivered to the Agent or the Collateral Agent under the Original Agreement,
the Original Amended Agreement, this Agreement or the Collateral Trust
Agreement.
The actions described in this SECTION 7.30 must be completed with
respect to any Pledgor Subsidiary no later than 90 days after any such
Pledgor Subsidiary becomes a Pledgor Subsidiary under the Collateral Trust
Agreement or this Agreement; PROVIDED, HOWEVER, that with regard to Loewen
Luxembourg (No. 1) S.A., the actions described in this SECTION 7.30 must be
completed no later than May 1, 1998.
7.31. UNRESTRICTED SUBSIDIARIES. TLGI and the Borrower will not permit
any Unrestricted Subsidiary to own any material assets or other material
properties other than (a) Consumer Finance Receivables, (b) cash or cash
equivalent investments held by a national bank or money market fund with
assets of not less than $500,000,000, (c) assets incidental to the business
of the Unrestricted Subsidiary, and (d) any proceeds of the foregoing.
ARTICLE VIII
DEFAULTS
8 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a Default:
8.1. Any representation or warranty made or deemed made by or on
behalf of TLGI, the Borrower or any Pledgor Subsidiary to the Lenders or the
Agent under or in connection with this Agreement, any Revolving Loan, any Swing
Line Loan, any Letter of Credit, any Guaranty, the Collateral Trust Agreement,
any other Loan Document or any certificate or information delivered in
connection with this Agreement or any other Loan Document shall be materially
false on the date as of which made or deemed made.
8.2. Nonpayment of principal of any Revolving Loan or Swing Line Loan
when due, or nonpayment of interest upon any Revolving Loan or Swing Line Loan
or of any commitment fee or other obligations (including, without limitation,
Reimbursement Obligations)
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under any of the Loan Documents within three Business Days after the same
becomes due.
8.3. The breach by TLGI, the Borrower or any Subsidiary of either of
any of the terms or provisions of SECTION 7.2, SECTION 7.3(a), SECTIONS 7.10
through 7.14, or SECTIONS 7.16 through 7.27; PROVIDED, HOWEVER, any failure
to provide notice of any Unmatured Default pursuant to SECTION 7.3(a) shall
not give rise to a Default under this SECTION 8.3 if such Unmatured Default
may be cured pursuant to the terms of this Agreement and is in fact cured
prior to maturing into a Default.
8.4. The breach by TLGI, the Borrower or any Subsidiary of either
(other than a breach which constitutes a Default under SECTION 8.1, 8.2 or
8.3) of any of the terms or provisions of this Agreement or any other Loan
Document which is not remedied within the earlier to occur of (x) 30 days
after written notice from the Agent or any Lender or (y) 30 days after any
Executive Officer first has knowledge thereof.
8.5. Failure of TLGI, the Borrower or any Subsidiaries of either to
pay any Indebtedness equal to or exceeding $5,000,000 in the aggregate for
TLGI, the Borrower and such Subsidiaries when due; or the default by TLGI,
the Borrower or any Subsidiaries of either in the performance of any term,
provision or condition contained in any agreement under which any
Indebtedness equal to or exceeding $5,000,000 in the aggregate for TLGI, the
Borrower and such Subsidiaries was created or is governed, or any other event
shall occur or condition exist the effect of which is to cause, or to permit
the holder or holders of such Indebtedness to cause, such Indebtedness to
become due prior to its stated maturity; or any Indebtedness of TLGI, the
Borrower or any Subsidiaries of either equal to or exceeding $5,000,000 in
the aggregate for all such Persons shall be declared to be due and payable or
required to be prepaid (other than by a regularly scheduled payment) prior to
the stated maturity thereof; or TLGI, the Borrower or any Subsidiary of
either shall not pay, or shall admit in writing its inability to pay, its
debts generally as they become due.
8.6. TLGI, the Borrower or any Subsidiary of either shall (a) have an
order for relief entered with respect to it under the United States
bankruptcy laws as now or hereafter in effect or cause or allow any similar
event to occur under any bankruptcy or similar law or laws for the relief of
debtors as now or hereafter in effect in any other jurisdiction, (b) make an
assignment for the benefit of creditors, (c) apply for, seek, consent to or
acquiesce in the appointment of a receiver, custodian, trustee, examiner,
liquidator, monitor or similar official for it or any of its Property, (d)
institute any proceeding seeking an order for relief under the United States
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or any of its
Property or its debts under any law relating to bankruptcy, insolvency or
reorganization or compromise of debt or relief of debtors as now or hereafter
in effect in any jurisdiction including, without limitation, any application
under The Bankruptcy and Insolvency Act (Canada) or The Companies' Creditors
Arrangement Act (Canada), the filing of a proposal or notice under The
Bankruptcy and Insolvency Act (Canada)
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or any organization, arrangement or compromise of debt under the laws of its
jurisdiction of incorporation or fail to promptly file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (e) take any corporate action to authorize or effect any of the
foregoing actions set forth in this SECTION 8.6, or (f) fail to contest in
good faith any appointment or proceeding described in SECTION 8.7.
8.7. Without the application, approval or consent of TLGI, the
Borrower or any Subsidiary of either, a receiver, custodian, trustee,
examiner, liquidator or similar official shall be appointed (either privately
or by a court) for TLGI, the Borrower or any Subsidiary or any of its
Property, or a proceeding described in SECTION 8.6(d) shall be instituted
against TLGI, the Borrower or any Subsidiary and such appointment continues
undischarged or such proceeding continues undismissed or unstayed for a
period of 30 consecutive days.
8.8. Any court, government or Governmental Authority shall condemn,
seize or otherwise appropriate, or take custody or control of (each a
"CONDEMNATION"), all or any portion of the Property of TLGI, the Borrower or
any of the Subsidiaries of either which, when taken together with all other
Property of TLGI, the Borrower and such Subsidiaries so condemned, seized,
appropriated or taken custody or control of, during the twelve-month period
ending with the month in which any such Condemnation occurs, constitutes a
Substantial Portion.
8.9. TLGI, the Borrower or any Subsidiary of either shall fail within
30 days to pay, bond or otherwise discharge any judgment or order for the
payment of money in excess of $5,000,000, unless such judgment or order has
been stayed on appeal or otherwise is being appropriately contested in good
faith and against which appropriate reserves have been established in
accordance with GAAP (provided that, in any event, execution of such judgment
or order has been effectively stayed and no execution thereof has commenced
and is continuing).
8.10. The Unfunded Liabilities of all Single Employer Plans shall
exceed in the aggregate $5,000,000 or any Reportable Event, the occurrence of
which may reasonably be expected to give rise to a Material Adverse Effect,
shall occur in connection with any Plan, or a contribution failure sufficient
to give rise to a lien under section 302(f) of ERISA shall occur with respect
to any Single Employer Plan.
8.11. TLGI or any other member of the Controlled Group shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans
by TLGI or any other member of the Controlled Group as withdrawal liability
(determined as of the date of such notification), exceeds $5,000,000 or
requires payments exceeding $1,000,000 per annum.
8.12. TLGI or any other member of the Controlled Group shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in
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reorganization or is being terminated, within the meaning of Title IV of
ERISA, if as a result of such reorganization or termination the aggregate
annual contributions of TLGI and the other members of the Controlled Group
(taken as a whole) to all Multiemployer Plans which are then in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan years
of each such Multiemployer Plan immediately preceding the plan year in which
the reorganization or termination occurs by an amount exceeding $1,000,000.
8.13. TLGI, the Borrower or any Subsidiary of either shall be the
subject of any proceeding or investigation pertaining to the release by TLGI,
the Borrower or any such Subsidiary or any other Person of any toxic or
hazardous waste or substance into the environment, or any violation of any
environmental, health or safety law or regulation of any Governmental
Authority, which, in either case, could reasonably be expected to have a
Material Adverse Effect.
8.14. Any Change of Control shall occur.
8.15. Any Guaranty shall fail to remain in full force or effect, or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Guaranty, or any Guarantor shall fail to perform its
obligations under or otherwise comply with any of the terms or provisions of
any Guaranty to which it is a party, or any Guarantor shall deny that it has
any further liability under any Guaranty to which it is a party, or shall
give notice to such effect.
8.16. Except as contemplated by the last paragraph of SECTION 7.26, the
Collateral Trust Agreement shall fail to remain in full force or effect, or
any action shall be taken to discontinue or to assert the invalidity or
unenforceability of the Collateral Trust Agreement, or any pledgor thereunder
shall fail to perform its obligations under or otherwise comply with any of
the terms or provisions of the Collateral Trust Agreement, or any pledgor
thereunder shall deny that it has any further liability under the Collateral
Trust Agreement, or shall give notice to such effect, or any portion of the
shares of stock pledged, or security interests granted, pursuant to the
Collateral Trust Agreement shall cease to be validly perfected in favor of
the Collateral Agent for the benefit of the Secured Parties, or (except as
otherwise provided in the Collateral Trust Agreement and except to the extent
such pledged shares represent Minority Interests) such pledged shares shall
fail to represent 100% of the outstanding shares of stock of the Subsidiaries
whose shares of stock are subject to the Collateral Trust Agreement.
8.17. A Material Judgment Event shall have occurred and 90 days shall
have passed without one or more of the judgments, awards or other orders
giving rise to such Material Judgment Event having been vacated such that on
such 90th day the aggregate amount of all judgments, awards and orders
entered against any of TLGI, the Borrower or any of their respective
Subsidiaries which shall have been outstanding for at least 90 days without
having been finally satisfied in full or vacated shall be in excess of
$100,000,000.
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ARTICLE IX
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
9.1. ACCELERATION. If any Default described in SECTION 8.6 or 8.7
occurs with respect to TLGI or the Borrower (but not with respect to any
other Subsidiary), the obligations of the Lenders to make Revolving Loans or
purchase participations in Swing Line Loans and Letters of Credit hereunder
and the obligation of the Swing Line Lender to make Swing Line Loans and the
obligation of the L/C Issuer to issue Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent, the L/C
Issuer, the Swing Line Lender or any Lender. If any other Default occurs,
the Required Lenders may (a) terminate or suspend the obligations of the
Lenders to make Revolving Loans and purchase participations in Swing Line
Loans and Letters of Credit hereunder, whereupon the obligation of the Swing
Line Lender to make Swing Line Loans and the obligation of the L/C Issuer to
issue Letters of Credit hereunder shall also terminate or be suspended, or
(b) declare the Obligations to be due and payable, whereupon the Obligations
shall become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which TLGI and the Borrower hereby
expressly waive, or (c) take the action described in both the preceding
CLAUSE (a) and the preceding CLAUSE (b).
If, within 30 days after acceleration of the maturity of the Obligations
or termination of the obligations of the Lenders to make Revolving Loans
hereunder as a result of any Default (other than any Default as described in
SECTION 8.6 or 8.7 with respect to TLGI, the Borrower or any other
Subsidiary) and before any judgment or decree for the payment of the
Obligations due shall have been obtained or entered, the Required Lenders (in
their sole discretion) shall so direct, the Agent shall, by notice to TLGI
and the Borrower, rescind and annul such acceleration and/or termination.
9.2. AMENDMENTS. Subject to the provisions of this ARTICLE IX, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders), TLGI and the Borrower may enter into agreements supplemental hereto
for the purpose of adding or modifying any provisions to the Loan Documents
or changing in any manner the rights of the Lenders, TLGI or the Borrower
hereunder or waiving any Default hereunder; PROVIDED, HOWEVER, that no such
supplemental agreement shall, without the consent of each Lender affected
thereby:
(a) extend the Commitment of any Lender, extend the maturity of any
Revolving Loan, extend the final maturity beyond the Facility Termination
Date of any Swing Line Loan or Reimbursement Obligation, extend the expiry
date of any Letter of Credit beyond the date which is five Business Days
immediately preceding the Facility Termination Date, or forgive all or any
portion of the principal amount of any Revolving Loan, Swing Line Loan or
Reimbursement Obligation or any interest or fees, or reduce the rate or
extend the time of payment of interest or fees on any Revolving Loan, Swing
Line Loan, Reimbursement Obligation, Commitment or Letter of Credit;
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(b) reduce the percentage specified in the definition of Required
Lenders;
(c) reduce the amount or extend the payment date for the mandatory
payments required under SECTION 2.2, 2.19 or 2.20, reduce the amount of or
extend the reduction date for any mandatory reduction of the Aggregate
Commitment required by SECTION 2.10(b), or increase the amount of the
Commitment of any Lender hereunder, or permit TLGI or the Borrower to assign
its rights under this Agreement;
(d) amend this SECTION 9.2 or SECTION 13.1(a);
(e) release any Guarantor other than in connection with an Approved
Sale or other than as contemplated by the last paragraph of SECTION 7.26 or
as set forth in the Collateral Trust Agreement; or
(f) prior to the appointment of Enforcement Representatives under
(and as defined in) the Collateral Trust Agreement, release any collateral
pledged pursuant to the Collateral Trust Agreement other than in connection
with an Approved Sale or as contemplated by the last paragraph of SECTION
7.26.
Following the appointment of any Enforcement Representatives under (and as
defined in) the Collateral Trust Agreement, the Lenders and the Agent agree
that any instructions or directions to be given by the Lenders to the
Enforcement Representatives appointed by the Lender shall be valid if given
by action of the Required Lenders and any action to be taken by them with
respect to enforcement or other remedies shall be taken solely in accordance
with the terms of the Collateral Trust Agreement. The Lenders and the Agent
agree (unless otherwise approved by all of the Lenders) that any vote to be
taken by the Lenders under the terms of the Collateral Trust Agreement
(whether involving the release of collateral pledged thereunder, enforcement
actions, amendments, waivers or otherwise) shall be taken solely by the Agent
casting votes on behalf of each Lender, such votes to be cast identically by
the Agent on behalf of each Lender and to be based upon the actions (if any)
of the Lenders taken pursuant to, and in accordance with, the terms of this
Agreement. No amendment of any provision of this Agreement relating in any
way to the Agent shall be effective without the written consent of the Agent.
No amendment of any provision of this Agreement relating in any way to the
L/C Issuer or any or all of the Letters of Credit shall be effective without
the written consent of the L/C Issuer and the Agent. No amendment of any
provision of this Agreement relating in any way to the Swing Line Lender, the
Swing Line Commitment or any or all of the Swing Line Loans shall be
effective without the written consent of the Swing Line Lender and the Agent.
No amendment of any provision of this Agreement relating in any way to the
Documentation Agent shall be effective without the written consent of the
Documentation Agent. The Agent may waive payment of the fee required under
SECTION 13.3.2 without obtaining the consent of any other party to this
Agreement.
9.3. PRESERVATION OF RIGHTS. No delay or omission of the Lenders or
any of
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them or the Agent, the Documentation Agent, the L/C Issuer or the Collateral
Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or an acquiescence therein, and
the making of a Revolving Loan or a Swing Line Loan or the issuance of a
Letter of Credit notwithstanding the existence of a Default or the inability
of the Borrower to satisfy the conditions precedent to such Revolving Loan or
Swing Line Loan or Letter of Credit shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions
or provisions of the Loan Documents whatsoever shall be valid unless in
writing signed by (or with the consent of) the Lenders required pursuant to
SECTION 9.2, and then only to the extent specifically set forth in such
writing. All remedies contained in the Loan Documents or afforded by law
shall be cumulative and all shall be available to the Agent, the Lenders, the
L/C Issuer and the Collateral Agent (and to the extent expressly set forth,
the Documentation Agent) until the Obligations have been paid in full.
ARTICLE X
GENERAL PROVISIONS
10.1. SURVIVAL OF REPRESENTATIONS. All representations and warranties
of TLGI and the Borrower contained in this Agreement shall survive the
occurrence of the effectiveness of this Agreement and the making of the
Revolving Loans and the Swing Line Loans and the issuance of the Letters of
Credit herein contemplated.
10.2. GOVERNMENTAL REGULATION. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend credit
to the Borrower and the L/C Issuer shall not be obligated to issue any Letter
of Credit in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3. STAMP DUTIES. The Borrower shall pay and forthwith on demand
indemnify each of the Agent, each Lender and the L/C Issuer against any
liability it incurs in respect of any stamp, registration and similar tax
which is or becomes payable in connection with the entry into, performance or
enforcement of any Loan Document.
10.4. HEADINGS. Section headings in the Loan Documents are for
convenience of reference only and shall not govern the interpretation of any
of the provisions of the Loan Documents.
10.5. ENTIRE AGREEMENT; INDEPENDENCE OF COVENANTS. The Loan Documents
(together with the fee letter agreement described herein) embody the entire
agreement and understanding among TLGI, the Borrower, the Agent, the Lenders,
the L/C Issuer and the Collateral Agent and supersede all prior agreements
and understandings among TLGI, the Borrower, the Agent, the Lenders, the L/C
Issuer and the Collateral Agent relating to the subject
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matter thereof. Except as otherwise expressly provided herein, no provision
of this Agreement shall be construed as waiving, negating or otherwise
qualifying any restriction, limitation or other condition imposed by any
other provision of this Agreement.
10.6. SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any
of its obligations hereunder. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
10.7. EXPENSES; INDEMNIFICATION. The Borrower shall reimburse the
Agent and the Documentation Agent for any costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges
of attorneys for the Agent) paid or incurred by the Agent or the
Documentation Agent in connection with the preparation, negotiation,
execution, delivery, review, amendment, modification and administration of
the Loan Documents. Such costs, charges and out-of-pocket expenses shall
include, without limitation, those arising in connection with the litigation
audit conducted by the Agent and its counsel, and all such costs, charges and
out-of-pocket expenses shall be payable regardless of whether the
transactions contemplated by this Agreement and the other Loan Documents
shall ever be consummated. TLGI and the Borrower also agree to reimburse the
Agent, the L/C Issuer and the Lenders for any costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges
of attorneys for the Agent, the L/C Issuer and the Lenders, which attorneys
may be employees of the Lenders) paid or incurred by the Agent, the L/C
Issuer or any Lender in connection with the collection and enforcement of the
Loan Documents. TLGI and the Borrower further agree to indemnify the Agent,
the Documentation Agent, the L/C Issuer and each Lender, and their respective
directors, officers, partners and employees, against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Agent, the Documentation Agent, the L/C Issuer or any Lender is a party
thereto) which any of them may pay or incur arising out of or relating to
this Agreement, the other Loan Documents, the transactions contemplated
hereby or the direct or indirect application or proposed application of the
proceeds of any Revolving Loan, Swing Line Loan or Letter of Credit
hereunder. Without limiting the generality of the foregoing, in the event
that any of the Agent, the Documentation Agent, the L/C Issuer or any Lender
(each an "INDEMNIFIED PARTY") becomes involved in any capacity in any action,
proceeding or investigation brought by or against any Person, including
stockholders of TLGI, in connection with or as a result of either the
arrangements evidenced by this Agreement and the other Loan Documents or any
matter referred to herein or therein, TLGI and the Borrower, jointly and
severally, periodically will reimburse such Indemnified Party for its
reasonable legal and other expenses (including the cost of any investigation
and preparation) incurred in connection therewith. TLGI and the Borrower,
jointly and severally, also will indemnify and hold such Indemnified Party
harmless against any and all losses, claims, damages
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or liabilities to any such Person in connection with or as a result of either
the arrangements evidenced by this Agreement and the other Loan Documents or
any matter referred to herein or therein, except to the extent that any such
loss, claim, damage or liability results from the gross negligence or bad
faith of such Indemnified Party in performing the services that are the
subject hereof. If for any reason the foregoing indemnification is
unavailable to an Indemnified Party or insufficient to hold it harmless, then
TLGI and the Borrower, jointly and severally, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the
relative economic interests of TLGI, the Borrower and their stockholders on
the one hand and such Indemnified Party on the other hand in the matters
contemplated herein as well as the relative fault of TLGI, the Borrower and
such Indemnified Party with respect to such loss, claim, damage or liability
and any other relevant equitable considerations. The reimbursement,
indemnity and contribution obligations of TLGI and the Borrower hereunder
shall be in addition to any liability which TLGI and the Borrower may
otherwise have, shall extend upon the same terms and conditions to any
Affiliate of any Indemnified Party and the partners, directors, agents,
employees and controlling Persons (if any), as the case may be, of such
Indemnified Party and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives
of TLGI, the Borrower, the Indemnified Parties, any such Affiliate and any
such Person. TLGI and the Borrower also agree that neither any Indemnified
Party nor any of such Affiliates, partners, directors, agents, employees or
controlling Persons shall have any liability to TLGI, the Borrower, any
Person asserting claims on behalf of or in right of TLGI or the Borrower or
any other Person in connection with or as a result of either the arrangements
evidenced by this Agreement and the other Loan Documents or any matter
referred to herein or therein except to the extent that any losses, claims,
damages, liabilities or expenses incurred by TLGI or the Borrower result from
the gross negligence or bad faith of such Indemnified Party in performing the
services that are the subject hereof. The obligations of TLGI and the
Borrower under this SECTION 10.7 shall survive the termination of this
Agreement.
10.8. NUMBERS OF DOCUMENTS. All statements, notices, closing documents
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may retain one and furnish one to each of the
Lenders.
10.9. ACCOUNTING; CURRENCY CONVERSIONS. Except as provided to the
contrary herein, all accounting terms used herein shall be interpreted and
all accounting determinations hereunder shall be made in accordance with
Agreement Accounting Principles; PROVIDED, HOWEVER, that (a) to the extent
that any change in GAAP shall alter the result of any financial covenant or
test or any other accounting determination to be computed or made hereunder,
TLGI and the Borrower agree that such covenant, test or other determination
shall continue to be computed or made on the basis of Agreement Accounting
Principles as in effect prior to such change in GAAP, unless the Required
Lenders shall otherwise consent and (b) the MIPS shall be deemed to
constitute capital stock of TLGI for purposes of this Agreement. To the
extent that for purposes of computing any financial covenant or test or
making any other accounting determination hereunder, any amount denominated
in one currency must be converted into
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another currency, such conversion shall be made in a manner that accords with
the currency conversion policies and procedures used in preparing the
financial statements of TLGI, the Borrower and the other Subsidiaries on the
basis of which the relevant computations or determinations are or will be
made, unless the Required Lenders shall have specified an alternative basis
for making such conversions.
10.10. SEVERABILITY OF PROVISIONS. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are
declared to be severable.
10.11. NONLIABILITY OF LENDERS. The relationship between the Borrower,
on the one hand, and the Lenders, the L/C Issuer and the Agent, on the other
hand, shall be solely that of borrower and lender and the relationship
between TLGI and the Subsidiaries (other than the Borrower), on the one hand,
and the Lenders, the L/C Issuer and the Agent, on the other hand, shall be
construed accordingly. None of the Agent, the L/C Issuer or any Lender shall
have any fiduciary responsibilities to TLGI, the Borrower or any other
Subsidiary. None of the Agent, the L/C Issuer or any Lender undertakes any
responsibility to TLGI, the Borrower or any other Subsidiary to review or
inform TLGI, the Borrower or any other Subsidiary of any matter in connection
with any phase of the business or operations of TLGI, the Borrower or any
other Subsidiary.
10.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL
LAWS APPLICABLE TO NATIONAL BANKS.
10.13. CONSENT TO JURISDICTION. EACH OF TLGI AND THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH OF TLGI
AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH
COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
AGENT, THE L/C ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST TLGI OR THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY
TLGI OR THE BORROWER AGAINST THE AGENT, THE L/C ISSUER OR ANY LENDER OR ANY
AFFILIATE OF
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THE AGENT, THE L/C ISSUER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT SITTING IN NEW
YORK CITY.
EACH OF THE BORROWER AND TLGI HEREBY IRREVOCABLY APPOINTS THELEN,
MARRIN, JOHNSON & BRIDGES (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE
HEREOF AT 330 MADISON AVENUE, 11TH FLOOR, NEW YORK, NEW YORK 10017,
ATTENTION: DAVID P. GRAYBEAL, ESQ., AS ITS AGENT TO RECEIVE ON BEHALF OF THE
BORROWER OR TLGI, AS APPLICABLE, AND ITS PROPERTY SERVICE OF COPIES OF THE
SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH
ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A
COPY OF SUCH PROCESS TO THE BORROWER OR TLGI, AS APPLICABLE, IN CARE OF THE
PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS WITH A COPY TO THE
BORROWER OR TLGI, AS APPLICABLE, AT ITS ADDRESS FOR NOTICES HEREUNDER, AND
THE BORROWER OR TLGI, AS APPLICABLE, HEREBY IRREVOCABLY AUTHORIZES AND
DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN
ALTERNATIVE METHOD OF SERVICE, EACH OF TLGI AND THE BORROWER ALSO IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO ITS ADDRESS FOR
NOTICES HEREUNDER. EACH OF TLGI AND THE BORROWER AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW.
10.14. WAIVER OF JURY TRIAL. TLGI, THE BORROWER, THE AGENT, THE L/C
ISSUER AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED
WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
10.15. CONFIDENTIALITY. Each of the Agent, each Lender and the L/C
Issuer agrees to hold any confidential information identified in writing as
such which it may receive from TLGI, the Borrower or any other Subsidiary
pursuant to this Agreement in confidence, except for disclosure (a) to other
Lenders, the L/C Issuer and the Agent and their respective Affiliates, (b) to
legal counsel, accountants and other professional advisors to the Agent, the
L/C Issuer or that Lender or to a Transferee, (c) to regulatory officials and
examiners, (d) to any Person as requested pursuant to or as required by law,
regulation or legal process, (e) to any Person in connection with any legal
proceeding to which the Agent, the L/C Issuer or that Lender is a party, and
(f) permitted by SECTION 13.4.
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10.16. JUDGMENT CURRENCY. If the Agent, the L/C Issuer or any Lender
receives an amount in respect of the Borrower's or TLGI's liability under the
Loan Documents or if that liability is converted into a claim, proof,
judgment or order in a currency other than the currency (the "contractual
currency") in which the amount is expressed to be payable under the relevant
Loan Document, (a) TLGI and the Borrower, as applicable, shall indemnify the
Agent, the L/C Issuer or such Lender, as applicable, as an independent
obligation against any loss, cost, expense or liability arising out of or as
a result of the conversion; (b) if the amount received by the Agent, the L/C
Issuer or such Lender, as applicable, when converted into the contractual
currency at a market rate on the date of receipt by the Agent, the L/C Issuer
or such Lender in the usual course of its business, is less than the amount
owed in the contractual currency, the Borrower or TLGI, as applicable, shall
forthwith on demand pay to the Agent, the L/C Issuer or such Lender, as
applicable, an amount in the contractual currency equal to the deficit; and
(c) TLGI or the Borrower, as applicable, shall pay to the Agent, the L/C
Issuer or such Lender, as applicable, on demand any exchange costs and taxes
payable in connection with any such conversion. Each of the Borrower and
TLGI waives any right it may have in any jurisdiction to the extent permitted
by law to pay any amount under the Loan Documents in a currency other than
that in which it is expressed to be payable.
10.17. CANADIAN INTEREST ANTIDOTES. (a) Notwithstanding any other
provision of this Agreement, if and to the extent that the laws of Canada are
applicable to interest payable under this Agreement, no interest on the
credit advanced will be payable in excess of that permitted by the laws of
Canada. If the effective annual rate of interest, calculated in accordance
with generally accepted actuarial practices and principles, would exceed 60%
(or such other rate as the Parliament of Canada may determine from time to
time as the criminal rate) on the credit advanced, then: (i) the amount of
any charges for the use of money, expenses, fees, bonuses, commissions or
other charges payable in connection therewith will be reduced to the extent
necessary to eliminate such excess; (ii) any remaining excess that has been
paid will be credited towards repayment of the principal amount; and (iii)
any overpayment that may remain after such crediting will be returned
forthwith on demand. In this paragraph the terms "interest," "criminal rate"
and "credit advanced" have the meaning ascribed to them in Section 347 of the
Criminal Code (Canada).
(b) If and to the extent that the laws of Canada are applicable to
interest payable under this Agreement, for the purpose of the Interest Act
(Canada) the yearly rate of interest to which interest calculated on the
basis of a 360- or 365-day year is equivalent is the rate of interest
determined as herein provided multiplied by the number of days in such year
and divided by 360 or 365, as the case may be.
10.18. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart. This Agreement shall become effective on the
Effective Date.
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ARTICLE XI
THE AGENT AND THE DOCUMENTATION AGENT
11.1. APPOINTMENT. Bank of Montreal is hereby appointed Agent
hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Agent to act as the agent of such Lender. The
Agent agrees to act as such upon the express conditions contained in this
ARTICLE XI. The Agent shall not have a fiduciary relationship in respect of
TLGI, the Borrower, any other Subsidiary or any Lender by reason of this
Agreement.
11.2. POWERS. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to
the Lenders to take any action thereunder except any action specifically
provided by the Loan Documents to be taken by the Agent.
11.3. GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to any or all of TLGI, the
Borrower, any other Subsidiary, the Lenders or the L/C Issuer for any action
taken or omitted to be taken by it or them hereunder or under any other Loan
Document or in connection herewith or therewith except for its or their own
gross negligence or willful misconduct.
11.4. NO RESPONSIBILITY FOR REVOLVING LOANS, SWING LINE LOANS,
RECITALS, ETC. Neither the Agent nor any of its directors, officers, agents
or employees shall be responsible for or have any duty to ascertain, inquire
into, or verify (a) any statement, warranty or representation made in
connection with any Loan Document or any extension of credit hereunder; (b)
the performance or observance of any of the covenants or agreements of any
obligor under any Loan Document, including, without limitation, any agreement
by an obligor to furnish information directly to each Lender; (c) the
satisfaction of any condition specified in ARTICLE IV, except receipt of
items required to be delivered to the Agent; or (d) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith. The Agent shall have no duty to
disclose to the Lenders or the L/C Issuer information that is not required to
be furnished by TLGI or the Borrower to the Agent at such time, but is
voluntarily furnished by TLGI or the Borrower to the Agent (either in its
capacity as Agent or in its individual capacity).
11.5. ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders or, in the case of any act or failure to act calculated to give
rise to any of the events or circumstances described in CLAUSES (a) through (f)
of SECTION 9.2, each affected Lender, and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders and on
all holders of Revolving Loans and participations in Swing Line Loans,
Reimbursement Obligations and
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Letters of Credit. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it
shall first be indemnified to its satisfaction by the Lenders PRO RATA
against any and all liability, cost and expense that it may incur by reason
of taking or continuing to take any such action.
11.6. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or through
employees, agents and attorneys-in-fact and shall not be answerable to the
Lenders or the L/C Issuer, except as to money or securities received by it or
its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the agency
hereby created and its duties hereunder and under any other Loan Document.
11.7. RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to
rely upon any record, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons and,
with respect to legal matters, upon the opinion of counsel selected by the
Agent, which counsel may be employees of the Agent.
11.8. AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (a) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents,
(b) for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents to the extent not otherwise reimbursed by
the Borrower and (c) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of the Loan Documents
or any other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of
any such other documents, PROVIDED that no Lender shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent. The obligations of the Lenders under this SECTION
11.8 shall survive payment of the Obligations and termination of this
Agreement.
11.9. RIGHTS AS A LENDER. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other
Loan Document as any Lender and may exercise the same as though it were not
the Agent, and the term "Lender" or "Lenders" shall, at any time when the
Agent is a Lender, unless the context otherwise indicates, include the Agent
in its individual capacity. The Agent may accept deposits from, lend money
to, and generally engage in any kind of trust, debt, equity or other
transaction, in addition to those contemplated by this Agreement or any other
Loan Document, with TLGI, the Borrower or any other Subsidiary in which TLGI,
the Borrower or any such other Subsidiary is not restricted
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hereby from engaging with any other Person.
11.10. LENDERS' CREDIT DECISIONS. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by TLGI and the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
11.11. SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Lenders, the L/C Issuer and the Borrower, such
resignation to be effective upon the appointment of a successor Agent or, if
no successor Agent has been appointed, 45 days after the resigning Agent
gives notice of its intention to resign. The Agent shall so resign if at any
time it ceases to be a Lender. Upon any such resignation the Required
Lenders shall have the right to appoint, on behalf of the Lenders, a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders within 30 days after the resigning Agent's giving notice of
its intention to resign, then the resigning Agent may appoint, on behalf of
the Lenders, a successor Agent. If the Agent has resigned and no successor
Agent has been appointed, the Lenders may perform all the duties of the Agent
hereunder and the Borrower shall make all payments in respect of the
Obligations to the applicable Lender (except for payments required to be made
directly to the L/C Issuer) and for all other purposes shall deal directly
with the Lenders and the L/C Issuer. No successor Agent shall be deemed to
be appointed hereunder until such successor Agent has accepted the
appointment. Any such successor Agent shall be a commercial bank having
capital and retained earnings of at least $500,000,000. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the resigning Agent. Upon the effectiveness
of the resignation of the Agent, the resigning Agent shall be discharged from
its duties and obligations hereunder and under the Loan Documents. After the
effectiveness of the resignation of an Agent, the provisions of this ARTICLE
XI shall continue in effect for the benefit of such Agent in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent
hereunder and under the other Loan Documents.
11.12. AGENT'S FEE. The Borrower agrees to pay to the Agent, for its
own account, the fees agreed to by the Borrower and the Agent pursuant to
that certain letter agreement dated as of March 13, 1998, or as otherwise
agreed from time to time.
11.13. DOCUMENTATION AGENT. The Documentation Agent shall have no
rights, duties, liabilities or obligations under or in connection with this
Agreement except for such rights as are expressly granted to it in this
Agreement, including in SECTION 10.7, and the Documentation Agent shall not
have any fiduciary relationship in respect of TLGI, the Borrower,
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any other Subsidiary or any Lender by reason of this Agreement.
ARTICLE XII
SETOFF; RATABLE PAYMENTS
12.1. SETOFF. In addition to, and without limitation of, any rights of
the Lenders and the L/C Issuer under applicable law, if TLGI or the Borrower
becomes insolvent, however evidenced, or any Default occurs, any and all
deposits (including all account balances, whether provisional or final and
whether or not collected or available) and any other Indebtedness at any time
held or owing by any Lender or the L/C Issuer to or for the credit or account
of TLGI or the Borrower may be offset and applied toward the payment of the
Obligations owing to such Lender or the L/C Issuer, whether or not the
Obligations, or any part hereof, shall then be due.
12.2. RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Revolving Loans or its participation in Swing
Line Loans, Reimbursement Obligations or Letters of Credit (other than
payments received pursuant to SECTION 3.1, 3.2 or 3.4) in a greater
proportion than that received by any other Lender, such Lender agrees,
promptly upon demand, to purchase a portion of the Revolving Loans and the
participations in Swing Line Loans, Reimbursement Obligations and Letters of
Credit held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Revolving Loans and its ratable participation
in Swing Line Loans, Reimbursement Obligations and Letters of Credit. If any
Lender, whether in connection with setoff or amounts which might be subject
to setoff or otherwise, receives collateral or other protection for its
Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to
their Revolving Loans, L/C Interest and Swing Line Interest. In case any such
payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made.
ARTICLE XIII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1. SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of TLGI, the Borrower,
the Agent, the Documentation Agent, the Collateral Agent, the L/C Issuer and the
Lenders and their respective successors and assigns, except that (a) neither
TLGI nor the Borrower shall have the right to assign its rights or obligations
under the Loan Documents and (b) any assignment by any Lender (including the
Swing Line Lender) must be made in compliance with SECTION 13.3.
Notwithstanding CLAUSE (b) of the preceding sentence, any Lender may at any
time, without the consent of TLGI, the Borrower, the Agent, the Collateral Agent
or the L/C Issuer, assign all or any portion of its rights under this Agreement
to a Federal Reserve Bank; PROVIDED, HOWEVER,
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that no such assignment to a Federal Reserve Bank shall release the
transferor Lender from its obligations hereunder. In order to facilitate
such assignment, the Borrower hereby agrees that, upon request of any Lender
at any time and from time to time after the Borrower has made its initial
borrowing hereunder, the Borrower shall provide to such Lender, at the
Borrower's own expense, a promissory note, substantially in the form of
EXHIBIT A hereto, evidencing the Revolving Loans owing to such Lender. The
Agent may treat the payee of any Revolving Loan as the owner thereof for all
purposes hereof unless and until such payee complies with SECTION 13.3 in the
case of an assignment thereof or, in the case of any other transfer, a
written notice of the transfer is filed with the Agent. Any assignee or
transferee of a Revolving Loan, a Swing Line Loan, a participation in a Swing
Line Loan, a participation in a Letter of Credit or a participation in a
Reimbursement Obligation agrees by acceptance thereof to be bound by all the
terms and provisions of the Loan Documents, and any request, authority or
consent of any Person, who at the time of making such request or giving such
authority or consent is the holder of any Revolving Loan, Swing Line Loan,
participation in a Swing Line Loan, participation in a Letter of Credit or
participation in a Reimbursement Obligation, shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Revolving Loan,
Swing Line Loan, participation in a Swing Line Loan, participation in a
Letter of Credit or participation in a Reimbursement Obligation.
13.2. PARTICIPATIONS.
13.2.1 PERMITTED PARTICIPATIONS; EFFECT. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities (each such bank or
other entity being referred to herein as a "PARTICIPANT") participating
interests in any Revolving Loan owing to such Lender, any Swing Line
Interest or L/C Interest held by such Lender, the Commitment of such Lender
or any other interest of such Lender under the Loan Documents; PROVIDED,
HOWEVER, that no Lender shall grant a participating interest to any entity
which is engaged in any business which is competitive in any material
respect with the business of TLGI, the Borrower or any of the Subsidiaries
of TLGI. In the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under the Loan
Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the holder of any such Revolving
Loan, Swing Line Interest or L/C Interest for all purposes under the Loan
Documents, all amounts payable by the Borrower under this Agreement shall
be determined as if such Lender had not sold such participating interests
and TLGI, the Borrower, the L/C Issuer and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under the Loan Documents. The participation
agreement effecting the sale of any participating interest shall contain a
representation by the Participant to the effect that none of the
consideration used to make the purchase of the participating interest in
the
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Commitment, Revolving Loans, the Swing Line Loans, the Swing Line
Interests and the L/C Interests under such participation agreement are
"plan assets" as defined under ERISA and that the rights and interests of
the Participant in and under the Loan Documents will not be "plan assets"
under ERISA.
13.2.2 VOTING RIGHTS. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than
any amendment, modification or waiver with respect to any Revolving Loan,
Swing Line Loan, Swing Line Interest, L/C Interest or Commitment in which
such Participant has an interest which forgives principal, interest or fees
or reduces the interest rate or fees payable with respect to any such
Revolving Loan, Swing Line Loan, Swing Line Interest, L/C Interest or
Commitment, or postpones any date fixed for any regularly scheduled payment
of principal of, or interest or fees on, any such Revolving Loan, Swing
Line Loan, Swing Line Interest, L/C Interest or Commitment.
13.2.3 SETOFF. Each Lender's right to exercise its right of setoff
provided in SECTION 12.1 shall not be reduced or impaired by any grant by
such Lender of a participating interest to a Participant.
13.3. ASSIGNMENTS.
13.3.1 PERMITTED ASSIGNMENTS. (a) Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
assign to one or more banks or other entities ("PURCHASERS") all or any
part of its Commitment and outstanding Revolving Loans, Swing Line
Interests and L/C Interests, together with its rights and obligations under
the Loan Documents with respect thereto; PROVIDED, HOWEVER, that (i) each
such assignment shall be of a constant, and not a varying, percentage of
all of the assigning Lender's rights and obligations so assigned; (ii) the
amount of the Commitment of the assigning Lender being assigned pursuant to
each such assignment (determined as of the date of such assignment) may be
in the amount of such Lender's entire Commitment but otherwise shall not be
less than $5,000,000 or an integral multiple of $1,000,000 in excess of
that amount; and (iii) notwithstanding the foregoing CLAUSE (ii), (x) if
the assignment is made to a Lender or an Affiliate of the assigning Lender,
the amount of the Commitment assigned shall not be less than $1,000,000 and
(y) if the assignment is made pursuant to SECTION 2.18(a)(ii), the
Commitment assigned may be in the amount of the relevant Non-Consenting
Lender's entire remaining Commitment after giving effect to all assignments
pursuant to SECTION 2.18(a)(i). Such assignment shall be substantially in
the form of EXHIBIT D hereto or in such other form as may be agreed to by
the parties thereto. The consent of TLGI, the Borrower, the L/C Issuer and
the Agent shall be required prior to an assignment becoming effective with
respect to a Purchaser
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which is not a Lender; PROVIDED, HOWEVER, that if a Default has occurred
and is continuing, the consent of neither TLGI nor the Borrower shall
be required. Such consents shall not be unreasonably withheld.
(b) The Swing Line Lender may, in accordance with applicable law,
at any time assign to a single Purchaser all (but not less than all) of the
Swing Line Commitment and the outstanding Swing Line Loans, together with
the rights and obligations of the Swing Line Lender under the Loan
Documents with respect thereto; PROVIDED, HOWEVER, that the consent of the
Agent, the Required Lenders and the Borrower shall be required prior to
such assignment becoming effective. Such assignment shall be in such form
as the Agent, the Borrower and the Swing Line Lender shall agree. Such
assignment shall become effective on the date agreed to by the Agent and
the Swing Line Lender. Any such assignment pursuant to this
SECTION 13.3.1(b) shall be a "SWING LINE ASSIGNMENT". All provisions of
SECTION 13.3.2 shall be applicable to any Swing Line Assignment, except for
the first two sentences thereof, and except that each reference therein to
"assignment", "Lender", "Commitment" and "Revolving Loans" shall be deemed
to be references to the Swing Line Assignment, Swing Line Lender, Swing
Line Commitment and Swing Line Loans, respectively.
13.3.2 EFFECT; EFFECTIVE DATE OF ASSIGNMENTS. Solely with respect
to assignments under SECTION 13.3.1(a), upon (a) delivery to the Agent of a
notice of assignment, substantially in the form attached to EXHIBIT D
hereto (a "NOTICE OF ASSIGNMENT"), together with any consents required by
SECTION 13.1, and (b) payment of a $3,500 fee to the Agent for processing
such assignment, such assignment shall become effective on the date for
effectiveness specified in such Notice of Assignment. If any such
assignment is made as contemplated by the terms of SECTION 2.18 or SECTION
3.5 at the request of the Borrower, or is otherwise made at the request of
the Borrower, the $3,500 fee shall be paid by the Borrower. The Notice of
Assignment shall contain a representation by the Purchaser to the effect
that none of the consideration used to make the purchase of the Commitment,
Revolving Loans, Swing Line Interest and L/C Interest under the applicable
assignment agreement are "plan assets" as defined under ERISA and that the
rights and interests of the Purchaser in and under the Loan Documents will
not be "plan assets" under ERISA. On and after the date such assignment
becomes effective, such Purchaser shall for all purposes be a Lender party
to this Agreement and any other Loan Document executed by or on behalf of
the Lenders and shall have all the rights and obligations of a Lender under
the Loan Documents, to the same extent as if it were an original party
hereto and thereto, and the transferor Lender shall be released with
respect to the percentage of the Aggregate Commitment, Revolving Loans,
Swing Line Interest and L/C Interest assigned to such Purchaser without any
further consent or action by TLGI, the Borrower, the Lenders, the L/C
Issuer or the Agent being required. Upon the
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consummation of any assignment to a Purchaser pursuant to this SECTION
13.3.2, the transferor Lender, the Agent and the Borrower shall make
appropriate notations in their respective records to reflect the
principal amounts of the Commitments of the transferor Lender and the
Purchaser, as adjusted pursuant to such assignment. In connection with
the foregoing, the Agent shall maintain at its address referred to in
SECTION 14.1 a copy of each Notice of Assignment delivered to it and a
register (the "REGISTER") for the recordation of the names and addresses
of the Lenders, the Commitments of such Lenders, the principal amount of
each Type of Revolving Loan owing to each such Lender from time to time
and the principal amount of each Swing Line Loan owing to the Swing Line
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of clearly demonstrable error, and TLGI, the
Borrower, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Revolving Loans and the
Swing Line Loans recorded therein for all purposes of this Agreement.
The Register shall be available for inspection by TLGI, the Borrower, or
any Lender at any reasonable time and from time to time upon reasonable
prior notice. The Agent shall give prompt written notice to the
Borrower of the making of any entry in the Register or any change in any
such entry.
13.4. DISSEMINATION OF INFORMATION. Each of TLGI and the Borrower
authorizes each Lender to disclose to any Participant or Purchaser or any
other Person acquiring an interest in the Loan Documents by operation of law
(each a "TRANSFEREE") and any prospective Transferee any and all information
in such Lender's possession concerning the creditworthiness of TLGI and the
Borrower and the other Subsidiaries; provided that each Transferee and
prospective Transferee agrees to be bound by SECTION 10.15.
13.5. TAX TREATMENT. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of SECTION 2.17.
ARTICLE XIV
NOTICES
14.1. GIVING NOTICE. Except as otherwise permitted by SECTION 2.13(d)
with respect to Revolving Loans and SECTION 2.27(d) with respect to Swing Line
Loans, all notices and other communications provided to any party hereto under
this Agreement or any other Loan Document shall be in writing or by telex or by
facsimile and addressed or delivered to such party at its address set forth
below its signature hereto or at such other address as may be designated by such
party in a notice to the other parties. Any notice, if mailed and properly
addressed with postage prepaid, shall be deemed given when received; any notice,
if transmitted by telex or
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facsimile, shall be deemed given when transmitted (answerback confirmed in
the case of telexes).
14.2. CHANGE OF ADDRESS. The Borrower, TLGI, the Agent, the L/C Issuer
and any Lender may each change the address for service of notice upon it by a
notice in writing to the other parties hereto.
ARTICLE XV
COLLATERAL TRUST AGREEMENT
15.1. APPOINTMENT OF SECURED PARTY REPRESENTATIVE. Each Lender hereby
irrevocably appoints the Agent as its Secured Party Representative under (and as
defined in) the Collateral Trust Agreement to serve for so long as the Agent
shall be the Agent hereunder.
15.2. APPOINTMENT OF ENFORCEMENT REPRESENTATIVES. Whenever the Lenders
shall be entitled to vote on the selection of one or more Enforcement
Representatives under (and as defined in) the Collateral Trust Agreement, the
Agent shall cast on behalf of all of the Lenders all of the votes to which
the Lenders are entitled for (x) such natural person as the Agent shall
select (who may be, but need not be, an employee or officer of the Agent),
and (y) such other natural persons, if any, as shall have been selected by a
vote of the Required Lenders; provided that by a vote of the Required Lenders
any such Enforcement Representative (including the Enforcement Representative
selected by the Agent) may be replaced.
15.3. ACTIONS OF LENDERS. Any actions, including votes, to be taken by
the Lenders under the terms of the Collateral Trust Agreement (whether in
respect of releases of collateral, enforcement actions, amendments, waivers
or otherwise) shall in all respects be subject to the terms of this Agreement
(including, without limitation, SECTION 9.2).
ARTICLE XVI
AMENDMENT AND RESTATEMENT
16.1. AMENDMENT AND RESTATEMENT. On the date that all of the
conditions precedent to the effectiveness of this Agreement have been
satisfied (the "RESTATEMENT EFFECTIVE DATE") (i) the full principal balance
of all of the Revolving Loans (as defined in the Original Amended Agreement)
outstanding under the Original Amended Agreement on such date (the "PRIOR
LOANS") shall be converted into and continued as Revolving Loans hereunder;
(ii) all Letters of Credit (as defined in the Original Amended Agreement)
issued and outstanding under the Original Amended Agreement shall remain
issued and outstanding in accordance with their respective terms and all L/C
Obligations (as defined in the Original Amended Agreement) whenever arising
in connection therewith (the "PRIOR L/C OBLIGATIONS") shall become L/C
Obligations hereunder and all L/C Interests (as defined in the Original
Amended Agreement) outstanding on such date in connection therewith shall be
converted into and continued as L/C Interests hereunder; (iii) the full
principal balance of all Swing Line Loans (as defined in the
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Original Amended Agreement) outstanding under the Original Amended Agreement
on such date (the "PRIOR SWING LINE LOANS") shall be converted into and
continued as Swing Line Loans hereunder and all Swing Line Interests (as
defined in the Original Amended Agreement) outstanding on such date in
connection therewith shall be converted into and continued as Swing Line
Interests hereunder; (iv) except to the extent described in CLAUSE (v) below,
all fees and other obligations of the Borrower which shall have accrued but
which shall remain unpaid on the Restatement Effective Date (the "ACCRUED
FEES") shall be converted into and continued as obligations of the Borrower
hereunder; and (v) all Lenders (other than Bank of Montreal) under the
Original Amended Agreement (the "Prior Lenders") shall sell to Bank of
Montreal, as the sole Lender hereunder as of the Restatement Effective Date,
their respective Revolving Loans, L/C Interests and/or Swing Line Interests,
and shall otherwise be paid all amounts owed to such Prior Lenders under the
Original Amended Agreement, including, without limitation, such Prior
Lenders' share of the Accrued Fees. The Prior Loans, Prior L/C Obligations,
Prior Swing Line Loans and Accrued Fees outstanding on the Restatement
Effective Date shall not be deemed to have been repaid as a result of this
amendment and restatement or the operation of this ARTICLE XVI. The parties
hereto agree that this Agreement shall not be deemed to be a novation of the
Obligations (as defined in the Original Amended Agreement) or any other
obligations of the Borrower, TLGI or any other Guarantor arising under the
Original Amended Agreement or the other Loan Documents (as defined in the
Original Amended Agreement). Each Prior Lender which has received a note or
notes evidencing the Prior Loans made by such Prior Lender agrees to return
to the Borrower such note or notes marked "replaced and superseded". On the
Restatement Effective Date, to the extent necessary to properly reflect the
Commitments of the Lenders and the interest rates, fees and other charges
applicable to the Advances and the other Obligations, the Agent shall cause
Bank of Montreal, as the sole Lender hereunder as of the Restatement
Effective Date, to purchase Revolving Loans, L/C Interests and/or Swing Line
Interests from each of the Prior Lenders (which purchases shall be deemed to
have occurred concurrently with the execution and delivery of this Agreement,
without any further action or evidence thereof), and the Agent shall reset
interest rates and assess charges against the Borrower for the costs and
expenses of the type described in ARTICLE III to the extent necessary to
permit such purchases of Revolving Loans, L/C Interests and/or Swing Line
Interests (which changes shall be paid to the Prior Lender to the extent
applicable), and the Agent shall assess whatever other amounts may be due
from the Borrower in connection with the foregoing (which resets of rates and
assessments shall become effective upon the giving by the Agent of notice
thereof, without any further action or evidence thereof).
16.2. DEPARTING LENDERS. Upon the Restatement Effective Date, each
of the Prior Lenders shall cease to be a "Lender" under and for all purposes
of the Original Amended Agreement as amended and restated by this Agreement
and shall have no further rights or obligations thereunder, except for (i)
the right to receive on the Restatement Effective Date the payments and other
amounts described as being payable to the Prior Lender under the terms of
SECTION 16.1, and (ii) rights which by the terms of the Original Amended
Agreement expressly survive the termination thereof.
95
<PAGE>
IN WITNESS WHEREOF, the Borrower, TLGI, the Lenders, the L/C Issuer and
the Agent have executed this Agreement as of the date first above written.
LOEWEN GROUP INTERNATIONAL, INC.
By: _______________________________________
Print Name: Dwight K. Hawes
Title: Vice President, Finance
Address:
Loewen Group International, Inc.
3190 Tremont Avenue
Philadelphia, Pennsylvania 19053-6693
U.S.A.
Attention: Senior Vice President, Finance
and Chief Financial Officer
Facsimile No.: (215) 396-3630
with a copy to:
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia V5G 3S8
Canada
Attention: Vice President, Finance
Facsimile No.: (604) 473-7305
THE LOEWEN GROUP INC.
By: _______________________________________
Print Name: Dwight K. Hawes
Title: Vice President, Finance
Address:
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, British Columbia V5G 3S8
Canada
Attention: Senior Vice President, Finance
and Chief Financial Officer
Facsimile No.: (604) 473-7330
S-1
<PAGE>
BANK OF MONTREAL, as L/C Issuer, Swing Line
Lender and Administrative and
Syndication Agent
By: _______________________________________
Print Name: _______________________________
Title: ____________________________________
Address:
115 South LaSalle Street
12th Floor
Chicago, Illinois 60603
Attention: Michael D. Pincus
Facsimile No.: (312) 750-6057
S-2
<PAGE>
LENDER
BANK OF MONTREAL, as initial Lender
By: _______________________________________
Print Name: _______________________________
Title: ____________________________________
Address:
115 South LaSalle Street
12th Floor
Chicago, Illinois 60603
Attention: Michael D. Pincus
Facsimile No.: (312) 750-6057
S-3
<PAGE>
SCHEDULE 1
DISCLOSURE SCHEDULE
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Section 6.7 Litigation
(a) Litigation of the type described in the first sentence of Attached
Section 6.7
(b) Material Contingent Liabilities not provided for or None
disclosed in the financial statements for the year ended
December 31, 1997
- --------------------------------------------------------------------------------------------
Section 6.8 List of Subsidiaries Attached
- --------------------------------------------------------------------------------------------
Section 6.14 List of all Properties to which TLGI, the Borrower, or None
any subsidiary listed in 6.8 above does not have good
title, free of all Liens other than those permitted by
Section 7.18, to all of the property and assets reflected as
owned by it in their financial statements
- --------------------------------------------------------------------------------------------
Section 7.2 Indebtedness to be Paid None
- --------------------------------------------------------------------------------------------
Section 7.11 Debt of Subsidiaries Attached
- --------------------------------------------------------------------------------------------
Section 7.16 Investments
(a) List of investments of TLGI at December 31, 1997 Attached
(b) The only investment on the list described in item (a)
above which concerns matters outside of TLGI's defined
line of business is the Bayview Acquisition Inc. notes
with a balance of $89,416 at December 31, 1997
- --------------------------------------------------------------------------------------------
Section 7.18(f) Schedule of Existing Liens Attached
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 2
APPLICABLE MARGINS AND APPLICABLE COMMITMENT FEE
AND LETTER OF CREDIT FEE RATES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Indebtedness/ LESS THAN 4.0 LESS THAN 4.5 and LESS THAN 5.0 and LESS THAN 5.5 and GREATER THAN OR
Adjusted EBITDAR GREATER THAN OR GREATER THAN OR GREATER THAN OR EQUAL TO 5.5
EQUAL TO 4.0 EQUAL TO 4.5 EQUAL TO 5.0
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable 25.0 basis points ("bps") 30.0 bps 35.0 bps 40.0 bps 50.0 bps
Commitment Fee Rate
- -----------------------------------------------------------------------------------------------------------------------------------
LIBOR Margin and L/C Fee Rate 75.0 bps 100.0 bps 125.0 bps 150.0 bps 200.0 bps
- -----------------------------------------------------------------------------------------------------------------------------------
ABR Margin 0.0 0.0 0.0 50.0 bps 75.0 bps
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 3
SENIOR OBLIGATIONS
MEIP CREDIT AGREEMENT - aggregate principal amount outstanding of U.S.
$105,596,307 of Loewen Management Investment Corporation as agent for Borrower
on September 15, 1997, guaranteed by TLGI.
ROYAL BANK OF CANADA CREDIT AGREEMENT - aggregate principal committed amount of
Cdn. $50,000,000 of TLGI of which Cdn. $47,550,000 was outstanding on September
15, 1997, guaranteed by Borrower.
SERIES D NOTES - the Senior Guaranteed Notes, Series D dated September 10, 1993
in the original aggregate principal amount of U.S. $60,000,000 issued by TLGI
pursuant to the Note Agreements dated for reference September 1, 1993 of TLGI
and Borrower with the purchasers thereof, from time to time outstanding, and
having an aggregate principal amount outstanding of U.S. $51,428,571.43 on
September 15, 1997.
SERIES E NOTES - the Senior Guaranteed Notes, Series E dated February 24, 1994
in the original aggregate principal amount of U.S. $50,000,000 issued by
Borrower pursuant to the Note Agreements dated for reference February 1, 1994 of
Borrower and TLGI with the Purchasers thereof, from time to time outstanding,
and having an aggregate principal amount outstanding of U.S. $50,000,000 on
September 15, 1997.
BORROWER SERIES D NOTE GUARANTEE - the Guaranty Agreement dated for reference
April 1, 1993 pursuant to which Borrower guarantees the due and punctual payment
of the indebtedness and the performance of the obligations of TLGI as issuer of
the Series D Notes described above under the terms of such Notes and under the
related Note Agreements.
TLGI SERIES E NOTE GUARANTEE - the Guaranty Agreement dated for reference
February 1, 1994 pursuant to which TLGI guarantees the due and punctual payment
of the indebtedness and the performance of the obligations of Borrower as issuer
of the Series E Notes described above under the terms of such Notes and under
the related Note Agreements.
SERIES 1 NOTES - the Series 1 Senior Guaranteed Notes dated March 20, 1996 in
the original aggregate principal amount of U.S. $225,000,000 issued by Borrower
pursuant to the Indenture dated as of March 20, 1996 among Borrower, TLGI and
Fleet National Bank of Connecticut, as trustee, and guaranteed by Borrower
pursuant to such Indenture, from time to time outstanding, and having an
aggregate principal amount outstanding of U.S. $225,000,000 on September 15,
1997.
SERIES 2 NOTES - the Series 2 Senior Guaranteed Notes dated March 20, 1996 in
the original aggregate principal amount of U.S. $125,000,000 issued by Borrower
pursuant to the Indenture dated as of March 20, 1996 among Borrower, TLGI and
Fleet National Bank of Connecticut, as
<PAGE>
trustee, and guaranteed by Borrower pursuant to such Indenture, from time to
time outstanding, and having an aggregate principal amount outstanding of
U.S. $125,000,000 on September 15, 1997.
SERIES 3 NOTES - the Series 3 Senior Guaranteed Notes dated October 7, 1996
in the original aggregate principal amount of U.S. $125,000,000 issued by
Borrower pursuant to the Indenture dated as of March 20, 1996 among Borrower,
TLGI and Fleet National Bank of Connecticut, as trustee, and guaranteed by
Borrower pursuant to such Indenture, from time to time outstanding, and
having an aggregate principal amount outstanding of U.S. $125,000,000 on
September 15, 1997.
SERIES 4 NOTES - the Series 4 Senior Guaranteed Notes dated October 7, 1996 in
the original aggregate principal amount of U.S. $225,000,000 issued by Borrower
pursuant to the Indenture dated as of March 20, 1996 among Borrower, TLGI and
Fleet National Bank of Connecticut, as trustee, and guaranteed by Borrower
pursuant to such Indenture, from time to time outstanding, and having an
aggregate principal amount outstanding of U.S. $225,000,000 on September 15,
1997.
SERIES 5 NOTES - the Series 5 Senior Guaranteed Notes dated September 26, 1997
in the original aggregate principal amount of Cdn. $200,000,000 issued by
Borrower pursuant to the Indenture dated as of March 20, 1996 among Borrower,
TLGI and Fleet National Bank of Connecticut, as trustee, and guaranteed by
Borrower pursuant to such Indenture, from time to time outstanding, and having
an aggregate principal amount outstanding of Cdn. $200,000,000 on September 26,
1997.
PASS-THROUGH ASSET TRUST SENIOR GUARANTEED NOTES - dated September 30th, 1997 in
the original aggregate principal amount of US$ 300,000,000 issued by the
Borrower, as Issuer, TLGI as Guarantor and State Street Bank & Trust Company as
Trustee, and guaranteed by the Borrower pursuant to such Indenture. The
aggregate principal amount outstanding of $300,000,000 as at March 15, 1998.
2
<PAGE>
SCHEDULE 4
EXISTING LETTERS OF CREDIT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
L/C Number L/C $ Amount Issue Date Expiration Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
911910 $1,200,109.59 June 14, 1996 June 13, 1998
- -------------------------------------------------------------------------------
911915 $1,200,109.59 June 14, 1996 June 13, 1998
- -------------------------------------------------------------------------------
911979 $615,820.00 October 15, 1996 October 14, 1998
- -------------------------------------------------------------------------------
911980 $4,743,222.00 October 15, 1996 October 14, 1998
- -------------------------------------------------------------------------------
911964 $500,000.00 September 10, 1997 October 15, 1998
- -------------------------------------------------------------------------------
912345 $70,500.00 November 3, 1997 October 6, 1998
- -------------------------------------------------------------------------------
912369 $7,933,369.00 November 10, 1997 November 9, 1998
- -------------------------------------------------------------------------------
912370 $4,250,820.00 November 10, 1997 November 9, 1998
- -------------------------------------------------------------------------------
912371 $2,025,000.00 November 10, 1997 November 9, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OUTSTANDING $22,538,950.18
--------------
--------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 5
COMMITMENTS OF THE LENDERS
<TABLE>
<CAPTION>
Commitment Syndication/Administrative Agent
---------- --------------------------------
<S> <C>
$600,000,000 Bank of Montreal
</TABLE>
<PAGE>
SCHEDULE 6
CERTAIN PLEDGED SHARES SUBJECT TO TRANSFER RESTRICTIONS
Shares of the following Subsidiaries:
(a) Leitz-Eagan Funeral Home, Inc.
(b) New Orleans Limousine Service, Inc.
<PAGE>
SCHEDULE 7
INSURANCE COMPANIES
Mayflower National Life Insurance Company
Security Industrial Insurance Company
Security Industrial Fire Insurance Company
Eagan Holding Company
First Capital Life Insurance Company of Louisiana
Administrative Resources Company, Inc.
Planned Funeral Services, Inc.
Funeral Services, Inc.
National Capital Life Insurance Company
Acadian Life Insurance Company
2
<PAGE>
EXHIBIT A
FORM OF REVOLVING NOTE
[Date]
LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"),
promises to pay to the order of ____________________ (the "LENDER") the
aggregate unpaid principal amount of all Revolving Loans made by the Lender to
the Borrower pursuant to ARTICLE II of the Second Amended and Restated Credit
Agreement hereinafter referred to (as the same may be further amended or
modified, the "Agreement"; capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the Agreement),
in immediately available funds in Dollars on the dates and at the offices of
Bank of Montreal, as Administrative and Syndication Agent, specified in the
Agreement, together with interest on the unpaid principal amount hereof at the
rates determined in accordance with the Agreement. The Borrower shall pay the
principal of and accrued and unpaid interest on the Revolving Loans in full on
the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Revolving Loan and the date and amount of each
principal payment hereunder.
This Revolving Note is one of the Revolving Notes issued pursuant to
SECTION 13.1 of, and is entitled to the benefits of, the Second Amended and
Restated Credit Agreement, dated as of March 27, 1998, among the Borrower, TLGI,
Bank of Montreal, as L/C Issuer, Swing Line Lender and Administrative and
Syndication Agent, and the lenders parties thereto, including the Lender, to
which Agreement, as it may be amended from time to time, reference is hereby
made for a statement of the terms and conditions governing this Revolving Note,
including the terms and conditions under which this Revolving Note may be
prepaid or its maturity date accelerated. The Agreement, among other things,
provides for the making of "Revolving Loans" by the Lender to the Borrower from
time to time in an aggregate amount not to exceed at any time outstanding the
Lender's Commitment.
<PAGE>
The Borrower hereby waives presentment, demand, protest and notice of any
kind. No failure to exercise, and no delay in exercising, any rights hereunder
on the part of the holder hereof shall operate as a waiver of such rights.
This Revolving Note shall be governed by, and construed in accordance with,
the laws of the State of New York, United States.
LOEWEN GROUP INTERNATIONAL, INC.
By:
------------------------------------
Dwight K. Hawes
Vice President, Finance
<PAGE>
Schedule of Revolving Loans and Payments of Principal
to
Revolving Note of Loewen Group International, Inc.,
Dated __________, ____
<TABLE>
<CAPTION>
Principal Amount Maturity of Principal
Date of Revolving Loan Interest Period Amount Paid Unpaid Balance
---- ----------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
REQUIRED OPINIONS
Forms of opinions of Thelen, Marrin, Johnson & Bridges (U.S. Federal, New York
and Delaware corporate counsel) and Russell & DuMoulin (Canada Federal and
British Columbia counsel) are attached hereto as Attachments 1 and 2,
respectively.
<PAGE>
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
To: The Lenders Party To The
Second Amended and Restated Credit Agreement
Described Below
This Compliance Certificate is furnished pursuant to that certain Second
Amended and Restated Credit Agreement dated as of March 27, 1998 (as further
amended, modified, renewed or extended from time to time, the "AGREEMENT") among
the Borrower, TLGI, the Lenders party thereto and Bank of Montreal, as L/C
Issuer, Swing Line Lender and Administrative and Syndication Agent for the
Lenders. Unless otherwise defined herein, capitalized terms used in this
Compliance Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _____ of [TLGI] [the Borrower] and the Chief
Financial Officer;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of TLGI and its Subsidiaries and of the Borrower and its
Subsidiaries during the accounting period covered by the attached financial
statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below;
4. Schedule I attached hereto sets forth financial data and computations
evidencing TLGI's compliance with certain covenants of the Agreement, all of
which data and computations are true, complete and correct; and
5. Schedule II attached hereto sets forth a description of all matters
described in Section 7.3 of the Agreement (including, without limitation,
CLAUSES (a), (b), (c) and (d) thereof) which have been disclosed, or which
should have been disclosed, pursuant to the terms of Section 7.3 of the
Agreement during the period from the date of the last Compliance Certificate
delivered to the Lenders through the date hereof (which description may consist
of copies of notices previously given to the Lenders to the extent applicable).
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the
<PAGE>
nature of the condition or event, the period during which it has existed and
the action which TLGI or the Borrower, as applicable, has taken, is taking,
or proposes to take with respect to each such condition or event:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The foregoing certifications, together with the computations set forth on
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this _________ day of __________, __.
By:___________________________________
Name:_________________________________
Title:________________________________
2
<PAGE>
SAMPLE SCHEDULE I TO COMPLIANCE CERTIFICATE
Schedule of Compliance as of _________________ with
Provisions of _____ and _____ of
the Agreement
<PAGE>
SAMPLE SCHEDULE II TO COMPLIANCE CERTIFICATE
Description of Matters Disclosable Pursuant
to the Provisions of Section 7.3 of
the Agreement
<PAGE>
EXHIBIT D
FORM OF ASSIGNMENT AGREEMENT
This Assignment Agreement (this "ASSIGNMENT AGREEMENT") between __________
(the "ASSIGNOR") and ___________ (the "ASSIGNEE") is dated as of _____________,
____. The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Second Amended
and Restated Credit Agreement (which, as it may be further amended, modified,
renewed or extended from time to time is herein called the "CREDIT AGREEMENT")
described in Item 1 of Schedule I attached hereto ("SCHEDULE I"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
attributed to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
an interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule I of all outstanding rights and obligations
under the Credit Agreement relating to the facilities listed in Item 3 of
Schedule I and the other Loan Documents. The Commitment (or, if the applicable
Commitment has been terminated, the aggregate Revolving Loans, Swing Line
Interest and L/C Interest) purchased by the Assignee hereunder is set forth in
Items 3 and 4 of Schedule I.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"ASSIGNMENT EFFECTIVE DATE") shall be the later of the date specified in Item 5
of Schedule I or two Business Days (or such shorter period agreed to by the
Agent) after a Notice of Assignment substantially in the form of Exhibit I
attached hereto has been delivered to the Agent. Such Notice of Assignment must
include any consents required to be delivered to the Agent by Section 13.3.1 of
the Credit Agreement. In no event will the Assignment Effective Date occur if
the payments required to be made by the Assignee to the Assignor on the
Assignment Effective Date under SECTIONS 4 and 5 hereof are not made on the
proposed Assignment Effective Date. The Assignor will notify the Assignee of
the proposed Assignment Effective Date no later than the Business Day prior to
the proposed Assignment Effective Date. As of the Assignment Effective Date,
(a) the Assignee shall have the rights and obligations of a Lender under the
Loan Documents with respect to the rights and obligations assigned to the
Assignee hereunder and (b) the Assignor shall relinquish its rights and be
released from its corresponding obligations under the Loan Documents with
respect to the rights and obligations assigned to the Assignee hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Assignment Effective Date, the
Assignee shall be entitled to receive from the Agent all payments of principal,
interest and fees with respect to the interest assigned hereby. The Assignee
shall advance funds directly
<PAGE>
to the Agent with respect to all Revolving Loans and, to the extent
applicable, the Swing Line Interest and L/C Interest, made on or after the
Assignment Effective Date with respect to the interest assigned hereby.
[In consideration for the sale and assignment of Revolving Loans and, to the
extent applicable, the Swing Line Interest and L/C Interest hereunder,
(a) the Assignee shall pay the Assignor, on the Assignment Effective Date,
an amount equal to the principal amount of the portion of all Floating Rate
Loans assigned to the Assignee hereunder plus, if applicable (and without
duplication), the amount which corresponds to the principal amount of Swing
Line Loans represented by the Swing Line Interest assigned to the Assignee
hereunder and the amount which corresponds to the liability of the L/C Issuer
in respect of outstanding Letters of Credit represented by the L/C Interest
assigned to the Assignee hereunder and (b) with respect to each Fixed Rate Loan
made by the Assignor and assigned to the Assignee hereunder which is outstanding
on the Assignment Effective Date, on the earliest of (i) the last day of the
Interest Period therefor, (ii) such earlier date agreed to by the Assignor and
the Assignee and (iii) the date on which any such Fixed Rate Loan either becomes
due (by acceleration or otherwise) or is prepaid (such earliest date being
hereinafter referred to as the "PAYMENT DATE"), the Assignee shall pay the
Assignor an amount equal to the principal amount of the portion of such Fixed
Rate Loan assigned to the Assignee which is outstanding on the Payment Date. If
the Assignor and the Assignee agree that the Payment Date for such Fixed Rate
Loan shall be the Assignment Effective Date, they shall agree to the interest
rate applicable to the portion of such Revolving Loan assigned hereunder for the
period from the Assignment Effective Date to the end of the existing Interest
Period applicable to such Fixed Rate Loan (the "AGREED INTEREST RATE") and any
interest received by the Assignee in excess of the Agreed Interest Rate shall be
remitted to the Assignor. In the event interest for the period from the
Assignment Effective Date to but not including the Payment Date is not paid by
the Borrower with respect to any Fixed Rate Loan sold by the Assignor to the
Assignee hereunder, the Assignee shall pay to the Assignor interest for such
period on the portion of such Fixed Rate Loan sold by the Assignor to the
Assignee hereunder at the applicable rate provided by the Credit Agreement. In
the event a prepayment of any Fixed Rate Loan which is existing on the Payment
Date and assigned by the Assignor to the Assignee hereunder occurs after the
Payment Date but before the end of the Interest Period applicable to such Fixed
Rate Loan, the Assignee shall remit to the Assignor the excess of the prepayment
penalty paid with respect to the portion of such Fixed Rate Loan assigned to the
Assignee hereunder over the amount which would have been paid if such prepayment
penalty were calculated based on the Agreed Interest Rate. The Assignee will
also promptly remit to the Assignor (a) any principal payments received from the
Agent with respect to Fixed Rate Loans prior to the Payment Date and (b) any
amounts of interest on Revolving Loans, Swing Line Loans, Reimbursement
Obligations and fees received from the Agent which relate to the portion of the
Revolving Loans, and, to the extent applicable, the Swing Line Interest and L/C
Interest assigned to the Assignee hereunder for periods prior to the Assignment
Effective Date, in the case of Floating Rate Loans, Swing Line Loans and
Reimbursement Obligations, or the Payment Date, in the case of Fixed Rate Loans,
and not previously paid by the Assignee to the Assignor.](*)
- ---------
(*) Each Assignor may insert its standard payment provisions in lieu
of the foregoing payment terms.
2
<PAGE>
In the event that either party hereto receives any payment to which the other
party hereto is entitled under this Assignment Agreement, then the party
receiving such amount shall promptly remit it to the other party hereto.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee agrees to pay __% of the
recordation fee required to be paid to the Agent in connection with this
Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It
is understood and agreed that the assignment and assumption hereunder are
made without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor
nor any of its officers, directors, employees, agents or attorneys shall be
responsible for (a) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectability of any Loan Document, including
without limitation documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (b) any
representation, warranty or statement made in or in connection with any of
the Loan Documents, (c) the financial condition or creditworthiness of the
Borrower or any guarantor, (d) the performance of or compliance with any of
the terms or provisions of any of the Loan Documents, (e) inspecting any of
the Property, books or records of the Borrower, (f) the validity,
enforceability, perfection, priority, condition, value or sufficiency of any
collateral securing or purporting to secure the Obligations or (g) any
mistake, error of judgment or action taken or omitted to be taken in
connection with the Revolving Loans, Swing Line Loans, Letters of Credit or
the Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (a) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements requested by the Assignee and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement, (b) agrees that it will,
independently and without reliance upon the Agent, the L/C Issuer, the Assignor
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, (c) appoints and authorizes each of
the Agent and the Collateral Agent to take such action as agent on its behalf
and to exercise such powers under the Loan Documents as are delegated to the
Agent and the Collateral Agent, respectively, by the terms thereof, together
with such powers as are reasonably incidental thereto, (d) agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender, (e) agrees
that its payment instructions and notice instructions are as set forth in the
attachment to Schedule I [,] [and] (e) confirms that none of the funds, monies,
assets or other consideration being used to make the purchase and assumption
hereunder are "plan assets" as defined under ERISA and that its rights, benefits
and
3
<PAGE>
interests in and under the Loan Documents will not be "plan assets" under
ERISA [and (f) attaches the forms prescribed by the Internal Revenue Service of
the United States certifying that the Assignee is entitled to receive payments
under the Loan Documents without deduction or withholding of any United States
federal income taxes].(**)
8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor
in connection with or arising in any manner from the Assignee's non-performance
of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Assignment Effective Date, the
Assignee shall have the right pursuant to Section 13.3.1 of the Credit Agreement
to assign the rights which are assigned to the Assignee hereunder to any Person,
provided that (a) any such subsequent assignment does not violate any of the
terms and conditions of the Loan Documents or any law, rule, regulation, order,
writ, judgment, injunction or decree and that any consent required under the
terms of the Loan Documents has been obtained and (b) unless the prior written
consent of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under SECTIONS 4, 5 and 8 hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
Aggregate Commitment occurs between the date of this Assignment Agreement and
the Assignment Effective Date, the percentage interest specified in Item 3 of
Schedule I shall remain the same, but the dollar amount purchased shall be
recalculated based on the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice
of Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the parties
hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law of the State of New York.
13. NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall be
the addresses set forth in the attachment to Schedule I.
- ---------
(**) To be inserted if the Assignee is not incorporated under the
laws of the United States, or a state thereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
[NAME OF ASSIGNOR]
By:___________________________________
Name:_________________________________
Title:________________________________
[Address]_____________________________
_____________________________________
[NAME OF ASSIGNEE]
By:___________________________________
Name:_________________________________
Title:________________________________
[Address]_____________________________
_____________________________________
5
<PAGE>
SCHEDULE I
to Assignment Agreement
1. Description and Date of Second Amended and Restated Credit Agreement:
Second Amended and Restated Credit Agreement, dated as of March 27,
1998, among Loewen International Group, Inc., The Loewen Group Inc.,
the various lenders parties thereto as Lenders and Bank of Montreal,
as L/C Issuer, Swing Line Lender and Administrative and Syndication
Agent for the Lenders
2. Date of Assignment Agreement: _________, __
3. Assignee's Percentage
of Aggregate
Commitment (As of Date
of Item 2 above)(*): ________ %(**)
4. Assignee's Commitment
Amount Purchased
Hereunder:
<TABLE>
<S> <C> <C>
a. Assignee's
Revolving Loan
Amount(*) $____________
b. Amount of
Assigned Share of
Swing Line Loans
$____________
c. Amount of
Assigned Share of
L/C Obligations
$____________
</TABLE>
5. Proposed Assignment Effective Date: _____________, ____
- ----------
(*) If the Commitment has been terminated, insert outstanding
Revolving Loans in 4(a) below in place of Commitment.:
(**) Percentage taken to 10 decimal places.
1
<PAGE>
Accepted and Agreed:
[NAME OF ASSIGNOR]
By: __________________________________
Name: ________________________________
Title: _______________________________
[NAME OF ASSIGNEE]
By: __________________________________
Name: ________________________________
Title: _______________________________
2
<PAGE>
Attachment to SCHEDULE I to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
<PAGE>
EXHIBIT I
to Assignment Agreement
FORM OF NOTICE OF ASSIGNMENT
___________________, __
To: Loewen Group International, Inc.
________________________________
________________________________
Bank of Montreal, as Administrative and Syndication Agent
________________________________
________________________________
From: [NAME OF ASSIGNOR] (the "ASSIGNOR")
[NAME OF ASSIGNEE] (the "ASSIGNEE")
1. We refer to the Second Amended and Restated Credit Agreement (as it
may be further amended, modified, renewed or extended from time to time, the
"CREDIT AGREEMENT") described in Item 1 of Schedule I attached hereto
("SCHEDULE I"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "NOTICE") is given and delivered to
the Borrower and the Agent pursuant to Section 13.3.2 of the Credit Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of ________________, __ (the "ASSIGNMENT"), pursuant to
which, among other things, the Assignor has sold, assigned, delegated and
transferred to the Assignee, and the Assignee has purchased, accepted and
assumed from the Assignor, the percentage interest specified in Item 3 of
Schedule I of all outstandings, rights and obligations under the Credit
Agreement relating to the facilities listed in Item 4 of Schedule I. The
"ASSIGNMENT EFFECTIVE DATE" of the Assignment shall be the later of the date
specified in Item 5 of Schedule I or two Business Days (or such shorter period
as agreed to by the Agent) after this Notice of Assignment and any consents and
fees required by Sections 13.3.1 and 13.3.2 of the Credit Agreement have been
delivered to the Agent, provided that the Assignment Effective Date shall not
occur if any condition precedent agreed to by the Assignor and the Assignee has
not been satisfied.
4. The Assignor and the Assignee hereby give to the Borrower and the
Agent notice of the assignment and delegation referred to herein. The Assignor
will confer with the Agent before the date specified in Item 5 of Schedule I to
determine if the Assignment
<PAGE>
Agreement will become effective on such date pursuant to SECTION 3 hereof,
and will confer with the Agent to determine the Assignment Effective Date
pursuant to SECTION 3 hereof if it occurs thereafter. The Assignor shall
notify the Agent if the Assignment Agreement does not become effective on any
proposed Assignment Effective Date as a result of the failure to satisfy the
conditions precedent agreed to by the Assignor and the Assignee. At the
request of the Agent, the Assignor will give the Agent written confirmation
of the satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on or before the
Assignment Effective Date the processing fee of $3,500 required by Section
13.3.2 of the Credit Agreement (except to the extent otherwise provided in
SECTION 13.3.2).
6. If Revolving Loans or Swing Line Loans are outstanding on the
Assignment Effective Date, the Assignor and the Assignee request and direct that
the Agent make appropriate notations in the Register or its other records
reflecting the Assignment of such Revolving Loans and participations in such
Swing Line Loans and, if applicable, the related Commitment.
7. The Assignee advises the Agent that its notice and payment
instructions are set forth in the attachment to Schedule I.
8. The Assignee hereby represents and warrants that none of the funds,
monies, assets or other consideration being used to make the purchase pursuant
to the Assignment are "plan assets" as defined under ERISA and that its rights,
benefits and interests in and under the Loan Documents will not be "plan assets"
under ERISA.
2
<PAGE>
9. The Assignee authorizes the Agent to act as its agent under the Loan
Documents in accordance with the terms thereof. The Assignee acknowledges that
the Agent has no duty to supply information with respect to the Borrower, any
guarantor or the Loan Documents to the Assignee until the Assignee becomes a
party to the Credit Agreement.(*)
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: __________________________________ By: _______________________________
Name: ________________________________ Name: _____________________________
Title: _______________________________ Title: ____________________________
ACKNOWLEDGED [AND CONSENTED [ACKNOWLEDGED AND CONSENTED
TO](**) BY BANK OF MONTREAL, TO BE THE LOEWEN GROUP
AS AGENT INTERNATIONAL, INC.
By: __________________________________ By: _______________________________
Name: ________________________________ Name: _____________________________
Title: _______________________________ Title: ____________________________]
(Attach photocopy of Schedule I to Assignment as Schedule I hereto)
- ----------
(*) This paragraph may be eliminated if the Assignee is a party to the Credit
Agreement prior to the Assignment Effective Date.
(**) Omit if consents are not required.
3
<PAGE>
SCHEDULE I
to Notice of Assignment
1. Description and Date of Second Amended and Restated Credit Agreement:
Second Amended and Restated Credit Agreement, dated as of March 27,
1998, among Loewen International Group, Inc., The Loewen Group Inc.,
the various lenders parties thereto as Lenders and Bank of Montreal,
as L/C Issuer, Swing Line Lender and Administrative and Syndication
Agent for the Lenders
2. Date of Assignment Agreement: _________, __
3. Assignee's Percentage
of Aggregate
Commitment (As of Date
of Item 2 above)(*): %(**)
4. Assignee's Commitment
Amount Purchased
Hereunder:
<TABLE>
<S> <C> <C>
a. Assignee's
Revolving Loan
Amount(*)
$____________
b. Amount of
Assigned Share of
Swing Line Loans
$____________
</TABLE>
- ----------
(*) If the Commitment has been terminated, insert outstanding
Revolving Loans in 4(a) below in place of Commitment.
(**) Percentage taken to 10 decimal places.
2
<PAGE>
<TABLE>
<S> <C> <C>
c. Amount of
Assigned Share
of L/C
Obligations $____________
</TABLE>
3
<PAGE>
5. Proposed
Assignment
Effective Date: _____________, ____
Accepted and Agreed:
[NAME OF ASSIGNOR]
By: __________________________________
Name: ________________________________
Title: _______________________________
[NAME OF ASSIGNEE]
By: __________________________________
Name: ________________________________
Title: _______________________________
4
<PAGE>
Attachment to SCHEDULE I to NOTICE OF ASSIGNMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
<PAGE>
EXHIBIT E
FORM OF REVOLVING LOAN/SWING LINE LOAN/
CREDIT RELATED MONEY TRANSFER INSTRUCTION
To Bank of Montreal,
as Administrative and Syndication Agent (the "Agent")
under the Second Amended and Restated Credit Agreement Described Below.
Re: Second Amended and Restated Credit Agreement, dated as of March 27, 1998
(as the same may be further amended or modified, the "CREDIT AGREEMENT"),
among Loewen Group International, Inc., The Loewen Group Inc., the
financial institutions party thereto as Lenders and Bank of Montreal, as
L/C Issuer, Swing Line Lender and Administrative and Syndication Agent for
the Lenders. Terms used herein and not otherwise defined shall have the
meanings assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the
following standing money transfer instructions with respect to the proceeds of
Advances or Swing Line Loans or other extensions of credit from time to time
until receipt by the Agent of a specific written revocation of such instructions
by the Borrower signed by two Authorized Officers; PROVIDED, HOWEVER, that the
Agent may otherwise transfer funds as hereafter directed in writing by an
Authorized Officer of the Borrower, it being understood that any change in
standing wire transfer instructions for the transfer of funds shall only be made
upon the written direction of two Authorized Officers of the Borrower.
Facility Identification Number(s) ____________________________________________
Customer/Account Name ________________________________________________________
Transfer Funds To ____________________________________________________________
____________________________________________________________
____________________________________________________________
For Account No. ______________________________________________________________
Reference/Attention To _______________________________________________________
<PAGE>
Authorized Officer (Customer Representative)
____________________________________ _____________________________________
(Please Print) (Signature)
Lender Officer Name
____________________________________ _____________________________________
(Please Print) (Signature)
Date ______________________________
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
2
<PAGE>
EXHIBIT F
FORM OF REVOLVING LOAN BORROWING NOTICE
[Date]
Bank of Montreal, as
Administrative and Syndication Agent
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Client Services
Ladies and Gentlemen:
The undersigned, Loewen Group International, Inc., refers to the Second
Amended and Restated Credit Agreement, dated as of March 27, 1998 (as amended or
modified, the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined), among the undersigned, The Loewen Group Inc., certain Lenders
party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Administrative and Syndication Agent for said Lenders (in such capacity as
Administrative and Syndication Agent, the "AGENT"). The undersigned hereby
gives you notice, irrevocably, pursuant to SECTION 2.6 of the Credit Agreement
that the undersigned hereby requests an Advance under the Credit Agreement, and
in that connection sets forth below the information relating to such Advance
(the "PROPOSED ADVANCE") as required by SECTION 2.6 of the Credit Agreement:
(a) The Revolving Loan Borrowing Date for the Proposed Advance is
____________________.
(b) The aggregate amount of the Proposed Advance is
$___________________.
(c) The Proposed Advance is to be [a Floating Rate Advance]
[Eurodollar Advance].
[(d)] [The Interest Period for the Proposed Advance is __ months.](*)
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Advance:
(A) The representations and warranties contained in ARTICLE VI
of the Credit Agreement are correct in all material respects, before
and after giving effect to the Proposed Advance and to the application
of the proceeds therefrom, as
- ----------
(*) To be included if the Proposed Advance is to be a Fixed Rate Advance.
<PAGE>
though made on and as of such date; and
(B) No Default or Unmatured Default has occurred and is
continuing or would result from the Proposed Advance or from the
application of the proceeds therefrom.
Very truly yours,
LOEWEN GROUP INTERNATIONAL, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
3
<PAGE>
EXHIBIT G
FORM OF PREPAYMENT NOTICE
[Date]
Bank of Montreal, as
Administrative and Syndication Agent
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Client Services
Ladies and Gentlemen:
The undersigned, Loewen Group International, Inc., refers to the Second
Amended and Restated Credit Agreement, dated as of March 27, 1998 (as amended or
modified, the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined), among the undersigned, The Loewen Group Inc., certain Lenders
party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Administrative and Syndication Agent for said Lenders (in such capacity as
Administrative and Syndication Agent, the "AGENT"). The undersigned hereby
gives you notice, irrevocably, pursuant to SECTION 2.5 of the Credit Agreement,
that the undersigned hereby elects to(*):
prepay a Floating Rate Advance in aggregate principal amount of
$_________________________ on _________________________, __[.][; and]
prepay a Eurodollar Advance in aggregate principal amount of [specify
amount] and with a current Interest Period ending on _______________, __ on
_______________, __.
- ----------
(*) Include one or more of the following, as applicable.
1
<PAGE>
Very truly yours,
LOEWEN GROUP INTERNATIONAL, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE>
EXHIBIT H
FORM OF EXTENSION REQUEST
[Date]
Bank of Montreal, as
Administrative and Syndication Agent
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Account Management
Ladies and Gentlemen:
The undersigned, Loewen Group International, Inc., refers to the Second
Amended and Restated Credit Agreement, dated as of March 27, 1998 (as amended or
modified, the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined), among the undersigned, The Loewen Group Inc., certain Lenders
party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Administrative and Syndication Agent for said Lenders (in such capacity as
Administrative and Syndication Agent, the "AGENT"). The undersigned hereby
requests, pursuant to SECTION 2.18 of the Credit Agreement, that the Facility
Termination Date be extended from [March 27, 2001 to March 27, 2002] [March 27,
2002 to March 27, 2003](*).
Very truly yours,
LOEWEN GROUP INTERNATIONAL, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
- ----------
(*) Include as applicable.
<PAGE>
EXHIBIT I
FORM OF CONVERSION/CONTINUATION NOTICE
[Date]
Bank of Montreal, as
Administrative and Syndication Agent
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Client Services
Ladies and Gentlemen:
The undersigned, Loewen Group International, Inc., refers to the Second
Amended and Restated Credit Agreement, dated as of March 27, 1998 (as amended or
modified, the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined), among the undersigned, The Loewen Group Inc., certain Lenders
party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Administrative and Syndication Agent for said Lenders (in such capacity as
Administrative and Syndication Agent, the "AGENT"). The undersigned hereby
gives you notice, irrevocably, pursuant to SECTION 2.7 of the Credit Agreement,
that the undersigned hereby elects to:(*)
convert a Floating Rate Advance in aggregate principal amount of
$________ to a Eurodollar Advance on ________ ,__. The initial Interest
Period for such Eurodollar Advance is requested to be ________
month[s][.][; and]
convert a Eurodollar Advance in aggregate principal amount of
$________ and with a current Interest Period ending ________, __, to a
Floating Rate Advance on ________, __[.][; and] continue a Eurodollar
Advance in aggregate principal amount of $________ and with a current
Interest Period ending ________, __, as a Eurodollar Advance. The
succeeding Interest Period is requested to be ________ month[s].
- ----------
(*) Include one or more of the following, as applicable.
1
<PAGE>
Very truly yours,
LOEWEN GROUP INTERNATIONAL, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
2
<PAGE>
EXHIBIT J
COLLATERAL TRUST AGREEMENT
[PREVIOUSLY DELIVERED]
<PAGE>
EXHIBIT K
FORM OF APPROVED SALE CERTIFICATE
To: The Lenders Party To The
Second Amended and Restated Credit Agreement
Described Below
This Approved Sale Certificate is furnished pursuant to that certain Second
Amended and Restated Credit Agreement dated as of March 27, 1998 (as amended,
modified, renewed or extended from time to time, the "AGREEMENT") among the
Borrower, TLGI, the Lenders party thereto and Bank of Montreal, as L/C Issuer,
Swing Line Lender and Administrative and Syndication Agent for the Lenders.
Unless otherwise defined herein, capitalized terms used in this Approved Sale
Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _____ of [TLGI] [Borrower];
2. I have reviewed the terms of the Agreement and I am familiar with the
proposed sale of Property described on Schedule I attached hereto (the "PROPOSED
SALE");
3. The Proposed Sale is expressly permitted by the terms of the
Agreement; and
4. I have no knowledge of the existence of any condition or event which
constitutes a Default or Unmatured Default as of the date hereof, and
consummation of the Proposed Sale will not give rise to a Default or Unmatured
Default.
The foregoing certifications are made and delivered this _________ day of
__________, __.
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE>
SAMPLE SCHEDULE I TO APPROVED SALE CERTIFICATE
DESCRIPTION OF PROPERTY AND PROPOSED SALE
<PAGE>
EXHIBIT L
FORM OF SWING LINE LOAN BORROWING NOTICE
[Date]
Bank of Montreal, as
Administrative and Syndication Agent and as Swing Line Lender
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Client Services
Ladies and Gentlemen:
The undersigned, Loewen Group International, Inc., refers to the Second
Amended and Restated Credit Agreement, dated as of March 27, 1998 (as amended or
modified, the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined), among the undersigned, The Loewen Group Inc., certain Lenders
party thereto and Bank of Montreal, as L/C Issuer, Swing Line Lender and
Administrative and Syndication Agent for said Lenders (in such capacity as
Administrative and Syndication Agent, the "AGENT"). The undersigned hereby
gives you notice, irrevocably, pursuant to SECTION 2.23 of the Credit Agreement
that the undersigned hereby requests a Swing Line Loan under the Credit
Agreement, and in that connection sets forth below the information relating to
such Swing Line Loan (the "PROPOSED LOAN") as required by SECTION 2.23 of the
Credit Agreement:
(a) The Swing Line Loan Borrowing Date for the Proposed Loan is
____________________.
(b) The amount of the Proposed Loan is $________.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Loan:
(A) The representations and warranties contained in ARTICLE VI
of the Credit Agreement are correct in all material respects, before
and after giving effect to the Proposed Loan and to the application of
the proceeds therefrom, as though made on and as of such date; and
(B) No Default or Unmatured Default has occurred and is
continuing or would result from the Proposed Loan or from the
application of the proceeds therefrom.
<PAGE>
Very truly yours,
LOEWEN GROUP INTERNATIONAL, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
2
<PAGE>
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY
HOUSTON, TX 77219-0548
August 8, 1997
The Loewen Group Inc.
4126 Norland Avenue
Burnaby, B.C.
V5G 3S8
Attn: Raymond L. Loewen
Dear Sirs:
Re: Purchase and Sale of Shares of Arbor Memorial Services Inc.
We are writing to confirm the agreement that we have concluded with you.
All dollar amounts in this letter are references to Canadian dollars. To
confirm, the particulars of the agreement are as follows:
Shares to be Purchased: 713,825 Class A Voting Shares (the "Class A
Shares") and 2,213,152 Class B Non-Voting
Shares (the "Class B Shares") of Arbor
Memorial Services Inc. ("Arbor") (the Class A
Shares and Class B Shares are herein referred
to as the "Shares")
Purchase Price: $32.50 per Class A Share and $32.50 per Class
B Share for an aggregate purchase price of
$95,126,752.50 (the "Purchase Price").
Closing: The transaction shall be completed three
business days following the satisfaction of
the COMPETITION ACT (Canada) condition
described below (the "Closing Date") at which
time Service Corporation International
("SCI") will cause its Canadian subsidiary,
Service Corporation International (Canada)
Limited ("SCIC"), to pay the Purchase Price
to The Loewen Group Inc. (the "Seller") by
certified cheque or bank draft against
delivery of share certificates representing
the Shares duly endorsed for transfer with
signatures guaranteed by a Canadian chartered
bank or trust company or a member firm of The
Toronto Stock Exchange. The closing shall
occur at the offices of Tory Tory DesLauriers
& Binnington at 2:00 p.m. (Toronto time) on
the Closing Date.
<PAGE>
-2-
Competition Act: It is a condition precedent to the closing of
this transaction that the Director of
Investigation and Research appointed under
the COMPETITION ACT (Canada) shall have
issued an advance ruling certificate with
respect to the transaction, or the applicable
waiting period under Part IX of the
COMPETITION ACT (Canada) shall have expired
and the Director of Investigation and
Research shall have issued a written opinion
stating that he does not intend to make an
application before the Competition Tribunal
in respect of the transaction.
Representations and Warranties: The Seller hereby represents and warrants to
SCI that:
(a) it owns the Shares free and clear of all
encumbrances and there are no rights of
any third parties, contingent or
otherwise, to acquire any of the Shares;
(b) the Seller has authority to enter into
this agreement;
(c) the Shares are all of the Class A Shares
and Class B Shares directly or indirectly
owned by it and there are no other
instruments or agreements which would
permit the Seller to acquire any
additional securities of Arbor; and
(d) it is not aware of any "material fact" or
"material change" (as defined under the
SECURITIES ACT (Ontario) in relation to
Arbor which has not been generally
disclosed to the public.
The Seller acknowledges that these
representations and warranties are being
relied upon by SCI in its purchases, through
SCIC, of the Shares for the purposes of,
among other matters, ensuring its compliance
with applicable securities laws and that such
representations and warranties will survive
the closing of this transaction of purchase
and sale.
<PAGE>
-3-
Covenant of the Seller: The Seller covenants that it will give
written notice of any acquisition of any
Scanlon Shares by the Seller or any of its
"affiliates" (as defined in the meaning of
the SECURITIES ACT (Ontario)) which are
acquired at any time during the 18 month
period after the date hereof, including
details regarding the Seller's acquisition
cost of the Scanlon Shares. For this purpose,
"Scanlon Shares" means any Class A Shares or
Class B Shares owned, or over which control
is exercised, directly or indirectly, as of
the date of this agreement by Daniel J.
Scanlon or members of his immediate family.
Within a three business day period following
such notice, SCI may elect to purchase all,
but not less than all, of such shares (either
directly or through a purchaser designated by
it) by providing written notice to the
Seller. If SCI elects to purchase such shares
they are to be sold by the Seller at a price
equal to the Seller's cost (or the Seller's
affiliate's cost, as the case may be) of the
Scanlon Shares so acquired.
This offer remains open for acceptance until 11:59 p.m., Sunday, August
10, 1997. In order to confirm your agreement with the contents of this
letter, please sign and return the enclosed duplicate copy of this letter to
us.
SERVICE CORPORATION INTERNATIONAL
By: /s/ GREGORY L. CAUTHEN
------------------------------------
Name: Gregory L. Cauthen
Title: Vice President/Treasurer
The Loewen Group Inc. hereby agrees to the terms of this letter agreement
dated August 8, 1997.
THE LOEWEN GROUP INC.
By: /s/ F. ANDREW SCOTT
-------------------------------
Name: F. Andrew Scott
Title: Vice President, Finance and Investment Management
<PAGE>
THE LOEWEN GROUP INC.
1994 OUTSIDE DIRECTOR COMPENSATION PLAN
(AMENDED AND RESTATED AS AT JANUARY 9, 1997,
AND FURTHER AMENDED AS AT AUGUST 15, 1997)
SECTION 1. PURPOSE
The purpose of the 1994 Outside Director Compensation Plan (the "Plan") is to
promote the interests of The Loewen Group Inc. ("TLGI") by attracting and
retaining qualified individuals who are neither employees nor officers of
TLGI or a Subsidiary (as defined below) to serve as directors of TLGI or a
Subsidiary. The Plan is intended to further align the interests of outside
directors with the shareholders of TLGI, thereby promoting long-term growth
and performance of TLGI.
SECTION 2. DEFINITIONS
"ANNUAL FEES" means (i) the annual retainer, (ii) the fees for serving on a
Committee, (iii) the fees for serving as Chairman of a Committee and (iv) any
other fees for serving as a director of TLGI with respect to an Annual
Service Period (other than Meeting Fees), to be paid by TLGI to a TLGI
Participant during or in respect of any Annual Service Period, at the rates
determined by the Board of Directors in advance of such period.
"ANNUAL FEES ELECTION" means an irrevocable election made in accordance with
Section 5(a).
"ANNUAL SERVICE PERIOD" means an annual period determined by the Board of
Directors, which annual period shall be January 1 through December 31 or such
other annual period as may be designated from time to time by the Board of
Directors.
"APPLICABLE STOCK EXCHANGE" means, with respect to Common Shares issued or
Options granted (i) to a Participant who is a resident of Canada, the TSE;
and (ii) to a Participant who is a resident of any country other than Canada,
the New York Stock Exchange; provided, however, that the Board of Directors
may, subject to any required stock exchange approval, from time to time,
designate another Stock Exchange as the Applicable Stock Exchange for
purposes of clause (i) or clause (ii).
"BOARD OF DIRECTORS" means the Board of Directors of TLGI.
"BUSINESS DAY" means any day on which the principal executive offices of TLGI
in Burnaby, British Columbia, are open for business and all of the Stock
Exchanges are open for trading.
"COMMITTEE" means a committee of the Board of Directors.
"COMMON SHARES" means the Common shares without par value of TLGI.
<PAGE>
"DETERMINATION DATE" means (i) with respect to Common Shares issued pursuant
to Section 5(a), the first Business Day of the Annual Service Period to which
the Annual Fee Election relates, (ii) with respect to Common Shares granted
pursuant to Section 5(b), the first Business Day of the Quarterly Service
Period immediately following the Quarterly Service Period to which the
Meeting Fees Election relates, (iii) with respect to Options granted pursuant
to Section 6, the Grant Date, and (iv) with respect to Options granted
pursuant to Section 7, the first Business Day of the first full calendar
month that a Participant first serves as a director.
"GRANT DATE" means the date that an Option is granted; provided, however,
that if the date the Option is granted is not a Business Day, the Grant Date
shall be deemed to be the Business Day immediately following such date of
grant.
"MEETING FEES" means the aggregate fee compensation actually earned during a
Quarterly Service Period by a TLGI Participant for attending (in person, by
telephone, or by videoconference) Board of Director and Committee meetings.
"MEETING FEES ELECTION" means an irrevocable election made in accordance with
Section 5(b).
"OPTION" means an option to acquire Common Shares granted pursuant to Section
6 or Section 7.
"PARTICIPANT" means a TLGI Participant or a Subsidiary Participant.
"PLAN" means this 1994 Outside Director Compensation Plan, as amended and
restated.
"QUARTERLY SERVICE PERIOD" means each of the quarters ended March 31, June
30, September 30 and December 31, or such other quarterly periods as may be
designated by the Board of Directors from time to time.
"SECURITIES LAWS" means the securities laws of the United States, Canada, the
states and territories of the United States, the provinces and territories of
Canada, the securities laws of the jurisdiction of residence of any
Subsidiary Participant, and applicable laws, rules and regulations
promulgated thereunder.
"SHARE PRICE" means (i) with respect to Common Shares, the Weighted Average
Trading Price or (ii) with respect to Options, the greater of (A) the
weighted average of the trading prices on the Determination Date of the
Common Shares on the Applicable Stock Exchange and (B) the Weighted Average
Trading Price.
"SHARES" means the Common Shares and any security convertible into or
exchangeable for Common Shares.
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"STOCK EXCHANGES" means the New York Stock Exchange (or, if the Common Shares
are not traded on the New York Stock Exchange, any United States national
securities exchange or quotation system on which the Common Shares are
traded) and any securities exchange outside of the United States on which the
Common Shares are traded.
"SUBSIDIARY" means a direct or indirect subsidiary of TLGI.
"SUBSIDIARY PARTICIPANT" means an individual duly elected or appointed as a
director of a Subsidiary who is (i) not an officer or employee of TLGI or any
Subsidiary or (ii) not a resident of the United States or Canada.
"TLGI" means The Loewen Group Inc., a body corporate under the laws of
British Columbia, Canada.
"TLGI PARTICIPANT" means an individual duly elected or appointed as a
director of TLGI who is not also an officer or employee of TLGI or any
Subsidiary. Absent action by the Board of Directors to the contrary, an
honorary director or a director emeritus shall be deemed to be TLGI
Participant.
"TSE" means The Toronto Stock Exchange.
"WEIGHTED AVERAGE TRADING PRICE" means the weighted average trading price of
the Common Shares on the Applicable Stock Exchange for the five trading days
on which such shares are traded immediately preceding the Determination Date.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Board of Directors.
SECTION 4. COMMON SHARES SUBJECT TO THE PLAN
The total number of Common Shares that may be issued under the Plan shall not
exceed 250,000. The number of Common Shares reserved for issuance to any one
person pursuant to options (whether granted under this Plan or otherwise)
shall not exceed 5% of the total issued and outstanding Common Shares on a
non-diluted basis. If any Options granted under this Plan are surrendered
before exercise or lapse without exercise, in whole or in part, then the
Common Shares reserved therefor shall continue to be available under the Plan.
SECTION 5. ELECTIONS
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(a) ANNUAL FEES ELECTION. Not later than ten Business Days prior to the
first day of an Annual Service Period, each TLGI Participant may, by filing a
written election with TLGI, direct TLGI to pay to such TLGI Participant, in
the form of Common Shares, some or all of the Annual Fees payable to such
TLGI Participant for the related Annual Service Period (the "Annual Fees
Election"). An Annual Fees Election filed with TLGI shall be effective for
the entire Annual Service Period to which the Annual Fees Election relates.
The number of Common Shares to be issued pursuant to Section 5(a) shall be
equal to the Annual Fees or such portion thereof to which the Annual Fee
Election relates, divided by the Share Price as at the Determination Date.
Such Common Shares shall be issued as soon as is reasonably possible after
last day of the Annual Service Period to which the Annual Fees Election
relates. Cash shall be paid in lieu of fractional shares. If actual fees to
be paid with respect to any component of Annual Fees is increased during the
Annual Service Period, TLGI Participant shall receive such increase in cash
and not Common Shares, regardless of whether an Annual Fees Election has been
made.
(b) MEETING FEES ELECTION. Each TLGI Participant may deliver a notice to
TLGI directing TLGI to pay to such TLGI Participant, in the form of Common
Shares, some or all of the Meeting Fees for the immediately preceding
Quarterly Service Period (the "Meeting Fees Election"); provided, however,
that the first Quarterly Service Period for which a Meetings Fees Election
may be filed is the quarter ended March 31, 1997. The Meeting Fees Election
shall be delivered to TLGI between the 40th and 60th day following the
relevant Quarterly Service Period. The number of Common Shares to be issued
pursuant to Section 5(b) shall be equal to the Meeting Fees to which the
Meeting Fee Election relates, divided by the Share Price as at the
Determination Date. Such Common Shares shall be issued as soon as is
reasonably possible after the due date of the relevant Meetings Fee Election.
Cash shall be paid in lieu of fractional shares.
SECTION 6. ANNUAL GRANT OF OPTIONS
On June 1 of each year or such other date as the Board of Directors shall
determine, each TLGI Participant who is a Board member immediately following
the last meeting of shareholders in which directors have been elected (a
"Shareholders' Meeting") shall receive an annual grant of Options; provided,
however, that with respect to the year commencing June 1, 1996, the annual
grant of Options shall occur on January 9, 1997. In addition, each TLGI
Participant who is a Committee member immediately following the Shareholders'
Meeting shall receive a grant of Options for service as a Committee member.
The number of Options to be granted for Board service and Committee service
shall be determined annually by the Board of Directors by no later than the
last physical Board meeting held prior to June 1 of the relevant year.
SECTION 7. INITIAL AND ONE-TIME GRANTS
A TLGI Participant who is initially appointed (rather than elected at a
Shareholders' Meeting) to the Board of Directors shall, on the first Business
Day of the first full calendar month after the date during which such
appointment occurred, receive an initial grant of Options in an amount to be
determined by the Board of Directors. In addition, the Board of Directors
shall have the discretion to make a one-time grant of up to 2,000 Options to
a Subsidiary Participant, such grant
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to be made as of the first Business Day of the first full calendar month
after the date on which a Subsidiary Participant is initially elected or
appointed to a Subsidiary board of directors.
SECTION 8. OPTION AGREEMENT
Each Option granted under the provisions of this Plan shall be evidenced by
an option agreement ("Option Agreement") in such form as may be approved by
the Board of Directors, which agreement shall be duly executed and delivered
on behalf of TLGI and by the Participant to whom such Option is granted. The
Option Agreement shall contain such terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
SECTION 9. TERMS OF OPTIONS
(a) EXERCISE PRICE. The Option exercise price shall be the Share Price.
(b) TERM. Except as determined pursuant to Section 12 hereof, each Option
shall expire ten years after the Grant Date.
(c) VESTING; EXERCISE. Each Option Agreement shall specify the dates upon
which all or any installment of the Option will be exercisable. An Option may
be exercised when installments vest and at any time and from time to time
thereafter with respect to all or a portion of the Common Shares covered by
such vested installments. In addition, if an Offer (as hereinafter defined)
is made, the Board of Directors may while the Offer remains outstanding:
(i) determine that each Option granted by TLGI to purchase Common
Shares shall, notwithstanding any vesting period or deferral of
the right to exercise otherwise applicable, be immediately
exercisable effective on and after a date declared by the Board
of Directors, or Committee, to be an advanced exercise date
("Advanced Exercise Date"); and
(ii) rescind any declaration of an Advanced Exercise Date but no such
rescission shall affect the validity of the exercise of such
Option if validly exercised on or after a particular Advanced
Exercise Date and before the date of rescission of the
declaration of the particular Advanced Exercise Date.
For the purposes hereof, "Offer" means an offer to acquire Shares made to the
holders of Shares where the Shares which are the subject of the offer to
purchase, together with the offeror's then presently owned Shares, will in
the aggregate exceed twenty percent (20%) of the outstanding Shares and where
two or more persons or companies make offers jointly or in concert or
intending to exercise jointly or in concert any voting rights attaching to
the Shares to be acquired, then the Shares owned by each of them shall be
included in the calculation of the percentage of the Shares owned by each of
them. Paragraphs (i) and (ii) shall apply to each Option granted or to be
granted by TLGI, which is outstanding at the time of any such declaration
regardless of the
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<PAGE>
date of grant thereof, provided that all other terms and conditions of the
Option shall continue to apply and nothing herein shall operate to extend,
enlarge or revise any Option which has expired, has been exercised, has been
canceled or otherwise has ceased to exist.
(d) PAYMENT. An Option shall be exercised by delivery of a written notice
of such exercise to TLGI at its principal executive office, together with
full payment of the aggregate exercise price for the Common Shares with
respect to which the Option is exercised.
(e) SHARE ISSUANCE. Upon payment of the aggregate exercise price, TLGI
shall issue the Common Shares so acquired as soon as is reasonably possible.
SECTION 10. OPTIONS NOT TRANSFERABLE
An Option granted under the Plan shall not be transferred, pledged or
assigned except to the extent permitted by applicable Securities Laws and the
applicable rules and regulations of the Stock Exchanges and (i) only as
hereinafter provided or (ii) with the approval of the Board of Directors.
SECTION 11. PROTECTION AGAINST DILUTION
The Board of Directors shall adjust the number of Common Shares covered by
the Plan and any Option in a manner which it considers equitable to reflect
any change in the capitalization of TLGI including, but not limited to, such
changes as stock dividends, consolidations and subdivisions of shares or
changes resulting from an amalgamation of TLGI with one or more corporations.
No fractional shares or rights to acquire a fractional share will be created
as a result of an adjustment made pursuant to this section. The Board of
Directors shall also adjust the exercise price under any Option in a manner
which it considers equitable if the number of Common Shares covered by the
Option is adjusted pursuant to this section.
SECTION 12. PERSONAL HOLDING COMPANY
To the extent permitted by applicable Securities Laws and the applicable
rules and regulations of the Stock Exchanges, a Participant shall be entitled
to direct TLGI (i) to issue Shares or Options to a personal holding company
of which the Participant holds all of the direct and indirect interests
("PHC") or (ii) to permit the transfer by a Participant of his or her Options
to a PHC.
SECTION 13. EFFECT OF TERMINATION OF DIRECTORSHIP
(a) DEATH. In the event of the death of a Participant, the Participant's
personal legal representatives (the "Successors") or PHC, as the case may be,
may exercise any Options previously issued to the extent that such Options
are exercisable at the date of death, but no further vesting shall occur.
Absent the prior written consent of the Board of Directors, any such Option
must be exercised prior to the earlier to occur of (i) two years after the
date of death and (ii) the expiration date of the Option. In addition, the
Successors or the PHC, as the case may be,
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<PAGE>
shall be entitled to receive, on behalf of a deceased TLGI Participant, a pro
rata amount of the Common Shares that the TLGI Participant elected to receive
pursuant to Section 5(a), and all of the Common Shares that the TLGI
Participant elected to receive pursuant to Section 5(b).
(b) TERMINATION BY BOARD RESOLUTION. If a Participant's directorship is
terminated by resolution of the Board of Directors or the board of directors
of a Subsidiary, all Options previously issued to such Participant or PHC, as
the case may be, shall expire on a date to be determined by the Board of
Directors. Until such date, any Options previously issued may be exercised to
the extent that such Options are exercisable on the termination date, but no
further vesting shall occur. The Board of Directors shall also determine the
extent, if at all, that such TLGI Participant or PHC, as the case may be,
shall receive any Common Shares with respect to the Annual Service Period
during which such termination occurs.
(c) OTHER TERMINATION. In the event that a Participant's directorship
terminates for any reason other than by death or by resolution, any Options
previously issued may be exercised, to the extent that such Options are
exercisable on the termination date, but no further vesting shall occur. Any
such Options must be exercised prior to the earlier to occur of (i)
forty-five days after the date of termination and (ii) the expiration date of
the Option. A TLGI Participant or PHC, as the case may be, shall be entitled
to receive a pro rata amount of the Common Shares that the TLGI Participant
elected to receive pursuant to Section 5(a), and all of the Common Shares
that the TLGI Participant elected to receive pursuant to Section 5(b).
(d) HONORARY/EMERITUS DIRECTOR. Notwithstanding Sections 13(a) and 13(b)
above, a director who becomes an honorary director or director emeritus shall
not be deemed to be terminated as a result of assuming such status.
(e) SHARE CERTIFICATES. A certificate representing Common Shares to be
acquired pursuant to this Section 13 shall be issued in accordance with
Section 5(a), 5(b) or 9(e), as the case may be.
SECTION 14. RESTRICTIONS ON ISSUANCE OF SHARES
TLGI shall have no obligation to issue any Common Shares or deliver any
certificate representing Common Shares until the following conditions shall
be satisfied:
(i) At the time of the issue, (A) such shares effectively shall have
been registered or qualified by prospectus, as the case may be,
under applicable Securities Laws as now in force or hereafter
amended or (B) counsel for TLGI shall have given an opinion that
such shares are exempt from registration or qualification by
prospectus, as the case may be, under Securities Laws as now in
force or hereafter amended; and
(ii) TLGI shall have complied with all regulations imposed by the
Stock Exchanges.
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<PAGE>
In addition, any such certificate shall bear such restrictive legends as TLGI
determines are necessary or desirable, from time to time, in order to comply
with applicable Securities Laws and all regulations imposed by the Stock
Exchanges.
SECTION 15. TERMINATION OR AMENDMENT
Subject to regulatory approval and, where required, approval of the
shareholders of TLGI, the Board of Directors may, at any time and for any
reason, amend or terminate the Plan. The Plan shall remain in effect until it
is so terminated by the Board of Directors. No Options may be granted under
this Plan after its termination, but no termination or amendment of the Plan
shall affect any previously granted Option.
SECTION 16. GENERAL LIMITATIONS
Neither the Participant, the Participant's Successors nor the Participant's
PHC shall have any rights as a shareholder of TLGI with respect to Common
Shares covered by Options until the Participant, Participant's Successors or
PHC, as the case may be, becomes the holder of record of such shares.
SECTION 17. RISK
EACH PARTICIPANT ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF
THE COMMON SHARES.
SECTION 18. APPLICABLE LAW
All questions concerning the interpretation, validity and construction of
this Plan and the instruments evidencing Options shall be governed by the
internal law, and not the law of conflicts, of the Province of British
Columbia.
SECTION 19. COMPLIANCE WITH CERTAIN U.S. LAWS
So long as TLGI is subject to Section 16 of the 1934 Act, any equity
security, as defined in the rules and regulations under the 1934 Act, offered
pursuant to the Plan may not be sold for at least six months after the date
of grant thereof, and any derivative security, as defined in the rules and
regulations promulgated under Section 16, offered pursuant to the Plan may
not be sold for at least six months after the acquisition thereof, except in
the event of the death or disability of the holder thereof. To the extent
that any provision of this Plan or action by the Board of Directors fails to
comply with the rules and regulations promulgated under Section 16, it shall
be null and void to the extent permitted by law and deemed advisable by the
Board of Directors.
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<PAGE>
THE LOEWEN GROUP INC.
EMPLOYEE STOCK OPTION PLAN (UNITED STATES)
(RESTATED AND AMENDED AS AT APRIL 7, 1994 AND FURTHER AMENDED AS AT
APRIL 7, 1995, SEPTEMBER 19, 1995, APRIL 2, 1996, NOVEMBER 20, 1996,
APRIL 2, 1997, APRIL 8, 1997, AUGUST 15, 1997 AND MARCH 11, 1998)
SECTION 1 - GENERAL
(a) The purpose of the Employee Stock Option Plan (United States) (the
"Plan") is to promote the interests of The Loewen Group Inc. (the "Company")
by:
(i) furnishing Eligible Employees (as defined below) with greater
incentive to develop and promote the business and financial success of
the Company; and
(ii) further associate the interests of Eligible Employees with those of
the shareholders of the Company by encouraging such employees to acquire
share ownership in the Company.
(b) The Plan is not qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and is not subject to any of the
provisions of the Employment Retirement Income Security Act of 1974.
(c) Any questions concerning the Plan should be directed to the Corporate
Secretary of the Company, at the Company's principal executive office located
at 4126 Norland Avenue, Burnaby, British Columbia, Canada V5G 3S8, telephone
number (604) 299-9321.
(d) The Plan shall be governed by, and construed in accordance with, the
laws of the province of British Columbia.
SECTION 2 - ELIGIBILITY
(a) Under the Plan, employees of the Company or any of its direct or
indirect subsidiaries ("Subsidiaries") who are residents of the United States
or its territories (the "Eligible Employees") are eligible to be granted
options ("Options") to purchase Common shares without par value of the
Company ("Shares").
(b) The Compensation Committee of the Company (the "Committee") or such
officer as the Committee may designate shall determine from time to time
those Eligible Employees to be granted Options under the Plan, and the number
of Shares subject to each such Option. Each grant of an Option pursuant to
the Plan shall be evidenced by a stock option agreement ("Option Agreement")
executed by the employee to whom the Option is granted (the "Optionee") and
the
<PAGE>
Company. Each Option Agreement shall incorporate such terms and conditions as
the Committee, in its discretion, deems consistent with the terms of the Plan.
(c) Each Option Agreement shall specify the dates upon which all or any
installment of the Option will be exercisable. An Option may be exercised
when installments vest at any time and from time to time thereafter with
respect to all or a portion of the Shares covered by such vested
installments. In addition, if an Offer (as hereinafter defined) is made, the
Board of Directors, or Committee, may while the Offer remains outstanding:
(i) determine that each Option granted by the Company to purchase
Shares shall, notwithstanding any vesting period or deferral of the
right to exercise otherwise applicable, be immediately exercisable
effective on and after a date declared by the Board of Directors, or
Committee, to be an advanced exercise date ("Advanced Exercise Date");
and
(ii) rescind any declaration of an Advanced Exercise Date but no such
rescission shall affect the validity of the exercise of such Option if
validly exercised on or after a particular Advanced Exercise Date and
before the date of rescission of the declaration of the particular
Advanced Exercise Date.
For the purposes hereof, "Offer" means an offer to acquire the Shares made to
the holders of the Company's Shares where the Shares which are the subject of
the offer to purchase, together with the offeror's then presently owned
Shares, will in the aggregate exceed twenty percent (20%) of the outstanding
Shares of the Company and where two or more persons or companies make offers
jointly or in concert or intending to exercise jointly or in concert any
voting rights attaching to the Shares to be acquired, then the Shares owned
by each of them shall be included in the calculation of the percentage of the
Shares of the Company owned by each of them. Paragraphs (i) and (ii) shall
apply to each Option granted or to be granted by the Company, which is
outstanding at the time of any such declaration regardless of the date of
grant thereof, provided that all other terms and conditions of the Option
shall continue to apply and nothing herein shall operate to extend, enlarge
or revise any Option which has expired, has been exercised, has been
cancelled or otherwise has ceased to exist.
SECTION 3 - NUMBER OF SHARES SUBJECT TO PLAN
(a) The number of Shares issuable pursuant to the exercise of Options after
the effective date of the restatement and amendment of the Plan is limited as
follows:
(i) subject to adjustment pursuant to Section 9, the aggregate number of
Shares issuable pursuant to Options under the Plan shall not exceed
4,800,000 Shares (including 1,178,457 Shares under Options previously
granted but not exercised as of April 7, 1994); and
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<PAGE>
(ii) the number of Shares reserved for issuance to any one person
pursuant to options (whether granted under this Plan or otherwise) shall
not exceed 5% of the total issued and outstanding Shares on a non-diluted
basis.
(b) The maximum number of Shares for which Options are granted after the
effective date of restatement and amendment of the Plan in any one calendar
year under the Plan to any one Eligible Employee shall not exceed 600,000
Shares, subject to adjustment pursuant to Section 9.
(c) If an Option granted under the Plan expires for any reason without being
exercised in full, the number of Shares that would have been issuable upon
the exercise of such Option shall continue to be available under the Plan.
(d) Subject to the maximum limits described in subsections (a) and (b)
above, the Board of Directors of the Company (the "Board") shall reserve the
number of Shares required to honor Options granted from time to time to
Optionees pursuant to the Plan, and shall reserve from time to time
additional Shares, if any, to ensure that a sufficient number of Shares are
available for purchase under Options granted in the future.
SECTION 4 - ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee which shall be comprised
of two or more members of the Board who are "outside directors" within the
meaning of Section 162(m) of the United States Internal Revenue Code of 1986,
as amended; provided, however, that, with respect to Options that may be
granted to Eligible Employees who are not subject to Section 16 of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee may delegate its responsibilities to a subcommittee consisting of
one or more executive officers of the Company. The address of the Committee
is care of the Company's principal executive office at 4126 Norland Avenue,
Burnaby, British Columbia, Canada, V5G 3S8.
(b) The Committee shall have all powers and discretion necessary or
appropriate to administer the Plan, consistent with and subject to the
parameters set forth in the Plan, including but not limited to the power (1)
to determine from time to time the Eligible Employees to be granted Options
under the Plan, (2) to determine the number of Shares subject to each Option
granted under the Plan, (3) to set or amend the terms of each Option
Agreement, (4) to interpret the Plan, (5) to adopt such rules or guidelines
as it deems appropriate to administer the Plan, and (6) to make all other
decisions, and take or cause to be taken all other actions, relating to the
operation of the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons. No member of the Committee shall be liable
to any person for any action or decision made in good faith in connection
with the performance of the Committee's duties or the exercise of its powers
under the Plan.
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<PAGE>
SECTION 5 - OPTION PRICE AND EXERCISABILITY
(a) The exercise price of an Option shall not be less than the closing price
of a Share on the trading day immediately prior to the date of grant, as
quoted on The Toronto Stock Exchange (with respect to Options denominated in
Canadian currency) and on the Nasdaq National Market or a United States
national securities exchange or quotation system on which the Shares are then
traded (with respect to Options denominated in United States currency).
(b) Except as otherwise provided in an Option Agreement, no Options shall be
exercised by an Optionee until at least 6 months after the date of the grant.
An Optionee may exercise an Option by delivering to the Company a duly
completed form of notice of such exercise together with full payment for the
Shares being purchased under the Option. The form of notice must identify the
Option being exercised, state the exercise price, be signed by the Optionee
and be dated the date of exercise. The Company shall promptly notify the
Optionee as to any taxes required to be withheld and collected from the
Optionee. Unless otherwise provided in the Option Agreement or consented to
by the Company, payment for the Shares must be made in the currency in which
the Option is denominated.
(c) The sale of the Shares to the Optionee shall be deemed to have occurred,
and the Optionee shall be deemed to be the holder of such Shares, on the date
that both the form of notice and the payment in a manner acceptable to the
Company of the exercise price and any applicable taxes have been received by
the Company. A certificate representing the Shares acquired by the Optionee
shall be issued and delivered to the Optionee by the Company as soon is
reasonably possible after the sale.
SECTION 6 - TERMINATION OF OPTIONS
(a) Any Option granted pursuant to the Plan shall terminate upon the earlier
of: (i) ten years after the date of grant; and (ii) such event(s) of
termination as are provided in the Option Agreement or as are determined from
time to time by the Committee.
(b) A change in the duties or position of the Optionee, or the transfer of
the Optionee from one position with the Company to another, or the transfer
of an Optionee from one employer to another employer shall not trigger the
termination of such Optionee's Option so long as such Optionee remains a bona
fide employee of the Company or any Subsidiary.
SECTION 7 - NON-TRANSFERABILITY OF OPTIONS
(a) Except as hereafter provided, an Option granted under the Plan may not
be transferred, pledged or assigned otherwise than by will or the laws of
descent and distribution and may be exercised only by the Optionee during his
or her lifetime.
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<PAGE>
(b) Options that are exercisable at the date of an Optionee's death may be
exercised by the Optionee's heirs entitled thereto or by the administrator or
the executor or trustee of his or her last will and testament. Any such
exercise may not take place after the earlier of: (i) the expiration of the
Option in accordance with Section 6(a)(i) above; and (ii) two years after the
date of the Optionee's death without the prior written consent of the Company.
(c) To the extent permitted by applicable Laws, an Optionee shall be
permitted to transfer Options to a personal holding company of which the
Optionee holds all direct and indirect interests. For purposes of this
paragraph, "Laws" means (i) the securities laws of the United States, Canada,
the states and territories of the United States, the provinces and
territories of Canada, the securities laws of the jurisdiction of residence
of any Optionee, and applicable laws, rules and regulations promulgated
thereunder, (ii) Section 162(m) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder and (iii) the rules and
regulations of the New York Stock Exchange (or, if the Shares are not traded
on the New York Stock Exchange, any United States national securities
exchange or quotation system on which the Shares are traded) and any
securities exchange outside of the United States on which the Shares are
traded.
SECTION 8 - TERMINATION OR AMENDMENT
Subject to regulatory approval and, where required, approval of the
shareholders of the Company, the Committee may, at any time and for any
reason, amend or terminate the Plan, subject to ratification by the Board.
The Plan shall remain in effect until it is terminated by the Committee,
subject to ratification by the Board. No Options may be granted under the
Plan after its termination, but no termination or amendment of the Plan shall
affect any previously granted Option.
SECTION 9 - PROTECTION AGAINST DILUTION
The Committee shall adjust the number of Shares covered by the Plan and
any Option in a manner it considers equitable to reflect any change in the
capitalization of the Company including, but not limited to, such changes as
stock dividends, consolidations and subdivisions of shares or changes
resulting from an amalgamation of the Company with one or more corporations.
No fractional shares or rights to acquire a fractional share will be created
as a result of an adjustment made pursuant to this section. The Committee
shall also adjust the exercise price under any Option in a manner it
considers equitable if the number of Shares covered by the Option is adjusted
pursuant to this section.
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SECTION 10 - RIGHTS AS SHAREHOLDERS
An Optionee shall have no rights as a shareholder (including the right
to vote and to receive dividends) of the Company with respect to Shares
covered by Options until such participant becomes the holder of record of
such Shares.
SECTION 11 - COMPLIANCE WITH CERTAIN U.S. SECURITIES LAWS
With respect to persons subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. If any
provision of the Plan or action by the Committee fails to so comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable
by the Committee.
SECTION 12 - RESTRICTIONS ON RESALE
Under United States federal law, Shares purchased pursuant to Options
granted under the Plan by Optionees who are not "affiliates" of the Company
within the meaning of the Securities Act of 1933, as amended (the "Act"),
generally may be resold without registration or other restriction under the
Act. Generally, Shares purchased by "affiliates" pursuant to Options granted
under the Plan may not be resold to the public in the United States without
registration under the Act, except pursuant to an exemption from such
registration. One such exemption from registration is Rule 144 under the Act,
which permits resales by affiliates so long as certain volume, manner of sale
and other requirements have been satisfied. An "affiliate" is a person who
directly or indirectly controls, or is controlled by, or is under common
control with, the Company.
SECTION 13 - GENERAL LIMITATIONS
Neither the Plan nor any Option granted hereunder is to be interpreted
as giving any person a right to remain an employee of the Company or any of
its Subsidiaries. The Company and its Subsidiaries reserve the right to
terminate anyone's service at any time, with or without cause, and neither
the Plan nor any Option granted hereunder affects that right. THE EMPLOYEE
ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE SHARES.
- 6 -
<PAGE>
THE LOEWEN GROUP INC.
EMPLOYEE STOCK OPTION PLAN (CANADA)
(RESTATED AND AMENDED AS AT APRIL 7, 1994 AND FURTHER AMENDED AS AT
APRIL 7, 1995, SEPTEMBER 19, 1995, APRIL 2, 1996, NOVEMBER 20, 1996,
APRIL 2, 1997, APRIL 8, 1997, AUGUST 15, 1997)
SECTION 1 - GENERAL
(a) The purpose of the Employee Stock Option Plan (Canada) (the "Plan") is
to promote the interests of The Loewen Group Inc. (the "Company") by:
(i) furnishing Eligible Employees (as defined below) with greater
incentive to develop and promote the business and financial success of
the Company; and
(ii) further associate the interests of Eligible Employees with those of
the shareholders of the Company by encouraging such employees to acquire
share ownership in the Company.
(b) Any questions concerning the Plan should be directed to the Corporate
Secretary of the Company, at the Company's principal executive office located
at 4126 Norland Avenue, Burnaby, British Columbia, Canada, V5G 3S8, telephone
number (604) 299-9321.
(c) The Plan shall be governed by, and construed in accordance with, the
laws of the province of British Columbia.
SECTION 2 - ELIGIBILITY
(a) Under the Plan, employees of the Company or any of its direct or
indirect subsidiaries ("Subsidiaries") who are residents of Canada ("Eligible
Employees") are eligible to be granted options ("Options") to purchase Common
shares without par value of the Company ("Shares").
(b) The Compensation Committee of the Company (the "Committee") or such
officer as the Committee may designate shall determine from time to time
those Eligible Employees to be granted Options under the Plan, and the number
of Shares subject to each such Option. Each grant of an Option pursuant to
the Plan shall be evidenced by a stock option agreement ("Option Agreement")
executed by the employee to whom the Option is granted (the "Optionee") and
the Company. Each Option Agreement shall incorporate such terms and
conditions as the Committee, in its discretion, deems consistent with the
terms of the Plan.
(c) Each Option Agreement shall specify the dates upon which all or any
instalment of the Option will be exercisable. An Option may be exercised when
instalments vest at any time and
<PAGE>
from time to time thereafter with respect to all or a portion of the Shares
covered by such vested installments. In addition, if an Offer (as hereinafter
defined) is made, the Board of Directors, or Committee, may while the Offer
remains outstanding:
(i) determine that each Option granted by the Company to purchase Shares
shall, notwithstanding any vesting period or deferral of the right to
exercise otherwise applicable, be immediately exercisable effective on
and after a date declared by the Board of Directors, or Committee, to be
an advanced exercise date ("Advanced Exercise Date"); and
(ii) rescind any declaration of an Advanced Exercise Date but no such
rescission shall affect the validity of the exercise of such Option if
validly exercised on or after a particular Advanced Exercise Date and
before the date of rescission of the declaration of the particular
Advanced Exercise Date.
For the purposes hereof, "Offer" means an offer to acquire the Shares made to
the holders of the Company's Shares where the Shares which are the subject of
the offer to purchase, together with the offeror's then presently owned
Shares, will in the aggregate exceed twenty percent (20%) of the outstanding
Shares of the Company and where two or more persons or companies make offers
jointly or in concert or intending to exercise jointly or in concert any
voting rights attaching to the Shares to be acquired, then the Shares owned
by each of them shall be included in the calculation of the percentage of the
Shares of the Company owned by each of them. Paragraphs (i) and (ii) shall
apply to each Option granted or to be granted by the Company, which is
outstanding at the time of any such declaration regardless of the date of
grant thereof, provided that all other terms and conditions of the Option
shall continue to apply and nothing herein shall operate to extend, enlarge
or revise any Option which has expired, has been exercised, has been
cancelled or otherwise has ceased to exist.
SECTION 3 - NUMBER OF SHARES SUBJECT TO PLAN
(a) The number of Shares issuable pursuant to the exercise of Options after
the effective date of restatement and amendment of the Plan is limited as
follows:
(i) subject to adjustment pursuant to Section 9, the aggregate number of
Shares issuable pursuant to Options under the Plan shall not exceed
3,400,000 Shares (including 1,051,025 Shares under Options previously
granted but not exercised as of April 7, 1994); and
(ii) the number of Shares reserved for issuance to any one person pursuant
to options (whether granted under this Plan or otherwise) shall not exceed
5% of the total issued and outstanding Shares on a non-diluted basis.
(b) The maximum number of Shares for which Options are granted after the
effective date of restatement and amendment of the Plan in any one calendar
year under the Plan to any one Eligible Employee shall not exceed 600,000
Shares, subject to adjustment pursuant to Section 9.
- 2 -
<PAGE>
(c) If an Option granted under the Plan expires for any reason without being
exercised in full, the number of Shares that would have been issuable upon
the exercise of such Option shall continue to be available under the Plan.
(d) Subject to the maximum limits described in subsections (a) and (b)
above, the Board of Directors of the Company (the "Board") shall reserve the
number of Shares required to honour Options granted from time to time to
Optionees pursuant to the Plan, and shall reserve from time to time
additional Shares, if any, to ensure that a sufficient number of Shares are
available for purchase under Options granted in the future.
SECTION 4 - ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee which shall be comprised
of two or more members of the Board who are "outside directors" within the
meaning of Section 162(m) of the United States Internal Revenue Code of 1986,
as amended; provided, however, that, with respect to Options that may be
granted to Eligible Employees who are not subject to Section 16 of the United
States Securities Exchange Act of 1934, as amended, the Committee may
delegate its responsibilities to a subcommittee consisting of one or more
executive officers of the Company. The address of the Committee is care of
the Company's principal executive office at 4126 Norland Avenue, Burnaby,
British Columbia, Canada, V5G 3S8.
(b) The Committee shall have all powers and discretion necessary or
appropriate to administer the Plan, consistent with and subject to the
parameters set forth in the Plan, including but not limited to the power (1)
to determine from time to time the Eligible Employees to be granted Options
under the Plan, (2) to determine the number of Shares subject to each Option
granted under the Plan, (3) to set or amend the terms of each Option
Agreement, (4) to interpret the Plan, (5) to adopt such rules or guidelines
as it deems appropriate to administer the Plan, and (6) to make all other
decisions, and take or cause to be taken all other actions, relating to the
operation of the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons. No member of the Committee shall be liable
to any person for any action or decision made in good faith in connection
with the performance of the Committee's duties or the exercise of its powers
under the Plan.
SECTION 5 - OPTION PRICE AND EXERCISABILITY
(a) The exercise price of an Option shall not be less than the closing price
of the Shares as quoted on The Toronto Stock Exchange on the trading day
immediately prior to the date of the grant.
(b) Except as otherwise provided in an Option Agreement, no Options shall be
exercised by an Optionee for at least 6 months after the date of the grant.
An Optionee may exercise an Option by delivering to the Company a duly
completed form of notice of such exercise together with full payment for the
Shares being purchased under the Option. The form of notice must identify the
Option being exercised, state the exercise price, be signed by the Optionee
and
- 3 -
<PAGE>
be dated the date of exercise. The Company shall promptly notify the Optionee
as to any taxes required to be collected from the Optionee. Unless otherwise
provided in the Option Agreement or consented to by the Company, payment for
the Shares must be made in the currency in which the Option is denominated.
(c) The sale of the Shares to the Optionee shall be deemed to have occurred,
and the Optionee shall be deemed to be the holder of such Shares, on the date
that both the form of notice and the payment in a manner acceptable to the
Company of the exercise price and any applicable taxes have been received by
the Company. A certificate representing the Shares acquired by the Optionee
shall be issued and delivered to the Optionee by the Company as soon as is
reasonably possible after the sale.
SECTION 6 - TERMINATION OF OPTIONS
(a) Any Option granted pursuant to the Plan shall terminate upon the earlier
of: (i) ten years after the date of grant; and (ii) such event(s) of
termination as are provided in the Option Agreement or as are determined from
time to time by the Committee.
(b) A change in the duties or position of the Optionee, or the transfer of
the Optionee from one position with the Company to another, or the transfer
of an Optionee from one employer to another employer shall not trigger the
termination of such Optionee's Option so long as such Optionee remains a bona
fide employee of the Company or any Subsidiary.
SECTION 7 - NON-TRANSFERABILITY OF OPTIONS
(a) Except as hereafter provided, an Option granted under the Plan may not
be transferred, pledged or assigned otherwise than by will or the laws of
descent and distribution and may be exercised only by the Optionee during the
Optionee's lifetime.
(b) Options that are exercisable at the date of an Optionee's death may be
exercised by the Optionee's heirs entitled thereto or by the administrator or
the executor or trustee of his or her last will and testament. Any such
exercise may not take place after the earlier of: (i) the expiration of the
Option in accordance with Section 6(a)(i) above; and (ii) two years after the
date of the Optionee's death without the prior written consent of the Company.
(c) To the extent permitted by applicable Laws, an Optionee shall be
permitted to transfer Options to a personal holding company of which the
Optionee holds all direct and indirect interests. For purposes of this
paragraph, "Laws" means (i) the securities laws of the United States, Canada,
the states and territories of the United States, the provinces and
territories of Canada, the securities laws of the jurisdiction of residence
of any Optionee, and applicable laws, rules and regulations promulgated
thereunder, (ii) Section 162(m) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder and (iii) the rules and
regulations of the New York Stock Exchange (or, if the Shares are not traded
on the New York Stock Exchange, any United States national securities
exchange or quotation system on which the
- 4 -
<PAGE>
Shares are traded) and any securities exchange outside of the United States
on which the Shares are traded.
SECTION 8 - TERMINATION OR AMENDMENT
Subject to regulatory approval and, where required, approval of the
shareholders of the Company, the Committee may, at any time and for any
reason, amend or terminate the Plan, subject to ratification by the Board.
The Plan shall remain in effect until it is terminated by the Committee,
subject to ratification by the Board. No Options may be granted under the
Plan after its termination, but no termination or amendment of the Plan shall
affect any previously granted Option.
SECTION 9 - PROTECTION AGAINST DILUTION
The Committee shall adjust the number of Shares covered by the Plan and
any Option in a manner which it considers equitable to reflect any change in
the capitalization of the Company including, but not limited to, such changes
as stock dividends, consolidations and subdivisions of shares or changes
resulting from an amalgamation of the Company with one or more corporations.
No fractional shares or rights to acquire a fractional share will be created
as a result of an adjustment made pursuant to this section. The Committee
shall also adjust the exercise price under any Option in a manner it
considers equitable if the number of Shares covered by the Option is adjusted
pursuant to this section.
SECTION 10 - RIGHTS AS SHAREHOLDERS
An Optionee shall have no rights as a shareholder (including the right
to vote and to receive dividends) of the Company with respect to Shares
covered by Options until such participant becomes the holder of record of
such Shares.
SECTION 11 - SECURITIES REGULATION
Where necessary to effect an exemption from the registration or
distribution requirements applicable to the Options or the Shares under
applicable securities laws or policies, the Committee may take such action or
require such action or agreement by any Optionee as may from time to time be
necessary to comply with such applicable securities laws and policies. The
directors may decline to grant some or all of the Options or to issue some or
all of the Shares pursuant to the Plan unless the grant of such Options or
the issuance of such Shares is exempt from such requirements, upon the advice
of counsel to the Company.
- 5 -
<PAGE>
SECTION 12 - GENERAL LIMITATIONS
Neither the Plan nor any Option granted hereunder is to be interpreted
as giving any person a right to remain an employee of the Company or any of
its Subsidiaries. The Company and its Subsidiaries reserve the right to
terminate anyone's service at any time, with or without cause, and neither
the Plan nor any Option granted hereunder affects that right.
THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF
THE SHARES.
- 6 -
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
DATED MARCH 17, 1995 BETWEEN THE LOEWEN GROUP INC.,
LOEWEN GROUP INTERNATIONAL, INC. AND WILLIAM R. SHANE
AMENDMENT NO. 1 made this 23rd day of February, 1998 to an Employment
Agreement dated March 17, 1995 between The Loewen Group Inc., and William R.
Shane (the "Employment Agreement").
BACKGROUND
All terms used in this Agreement shall have the definitions contained in
the Employment Agreement. The Company and Shane have agreed to a part time
(or possible return to full time) employment arrangement, effective January
19, 1998. and the purpose of this Amendment No 1 is to reflect their
understanding.
NOW THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows;
1. Effective January 19, 1998, Section 2.1 and 2.3 of the Employment
Agreement shall be amended to read in full as follows, respectively
"2.1 EMPLOYMENT POSITION: Shane shall be employed in a part time
position as Senior Vice President, Advisor, supporting the management of
financial functions in the Philadelphia office, or in other part time or full
time alternative positions of no lesser duties and stature as may be assigned
or delegated to him from time to time to the, by the Chief Executive Officer,
Chief Operating Officer, President or the Board of Directors of the Company.
Shane acknowledges that the Company may, in its sole discretion. assign to
him an alternate part time position or alternately a full time position. of
no lesser duties and stature as his initial part time position.
"2.3 DUTIES OF EMPLOYMENT: During the employment period Shane agrees to:
(a) Support the management of financial functions in the
Philadelphia Office;
(b) devote his part time (83 hours per month), or alternately his
full time if full time duties are assigned and attention and best efforts to
the performance of his duties as specified herein, exclusive of time spent on
Shane's reasonable personal investment portfolio and outside directorships
consistent with prior practices and which do not in any way materially
conflict with the business of the Company; and
(c) use his best efforts to promote the success growth and
goodwill of the Company and its affiliates."
-1-
<PAGE>
2. Effective January 1, 1998. Section 4 1 of the Employment Agreement
shall be amended to change the figure $200,000 with the following phrase:
"$250,000 if employed on a full time basis and $125,000 if employed on a part
time basis; as outlined herein,
3. Effective January 1, 1998 Section 5 of the Employment Agreement
shall be amended to add the following Section 5.3:
"5.3 OTHER BENEFITS Company will provide reasonable office facilities
and secretarial services to Shane in connection with his duties hereunder;
additionally, Shane may make reasonable use of such services and facilities
in connection with personal, outside activities unrelated to the Company and
which do not violate this Agreement or interfere with the conduct and
operation of the Company as determined in the sole opinion of the Company
Effective from and after January 1, 1998, Shane shall continue to be
entitled to the same fringe benefits from the Company which Shane enjoyed as
of December 1, 1997, whether such fringe benefits were provided under the
Employment Agreement or otherwise.
4. Effective January 1. 1998 Shane shall cease to be a Director or
Officer of any subsidiary affiliates of the Company, but shall retain his
position as Senior Vice President, Advisor. of The Loewen Group Inc., a
British Columbia corporation and of The Loewen Group International, Inc., a
Delaware corporation.
5. All other terms and conditions of the Employment Agreement shall
continue in full force and effect. In the event of any conflict between this
Amendment No. 1 and the Employment Agreement. this Amendment No. 1 shall
govern.
THE LOEWEN GROUP INC.
By: /s/ MICHAEL G. WEEDON
----------------------------
LOEWEN GROUP INTERNATIONAL, INC.
By: /s/ MICHAEL G. WEEDON
----------------------------
/s/ WILLIAM R. SHANE
----------------------------------
WILLIAM R. SHANE
-2-
<PAGE>
[THE LOEWEN GROUP INC. LETTERHEAD]
October 3, 1997
STRICTLY PRIVATE AND CONFIDENTIAL
Mr. F. Andrew Scott
1549 Nanton Avenue
Vancouver, B.C.
V6J 2X3
Dear Andrew:
I am pleased to confirm your proposed revised employment
arrangement with The Loewen Group Inc. and subsidiaries (the "Company") in
accordance with the following terms and conditions:
1. You are employed as Senior Vice-President, Corporate
Development, with employment in this position commencing on
October 1, 1997.
2. Your agreed duties and responsibilities will be those
described in the attached job description (Schedule "A").
3. Your compensation will be made up of the following:
(a) A beginning annual base salary of $345,875 (Canadian
dollars) per annum payable on the Company's normal
payroll basis. This annual base salary will be subject
to review on January 1 of each year with any increases
in the discretion of senior management, with performance
and responsibility being the primary factors for
consideration as part of this review.
<PAGE>
-2-
(b) Inclusion on all Company fringe benefit programs
normally provided to Executives at the Senior
Vice-President level. Costs of these benefits will be
shared between you and the Company in the same manner as
with other Executives at the Senior Vice-President level.
(c) Four weeks paid vacation per annum.
(d) Reasonable operating expenses for your automobile
including gas, oil, insurance and maintenance.
(e) The provision of additional employee stock option
benefits to you (in addition to the 30,000 stock options
presently held by you) by a further 20,000 options,
vesting in equal annual amounts of 4,000 options per
year over a five year period at a per share exercise
price which is the close of trade price of the day prior
to the signing of this Agreement. In the event pursuant
to clause 6(b) or 6(c) the Company terminates this
Agreement without cause, then the vesting of all
remaining options shall thereupon accelerate to the date
of termination.
(f) You will be eligible annually, at the discretion of
senior management based on performance and
responsibility, for a bonus of up to 50% of your base
annual salary. Reasonable goals and objectives for
assessing performance will be mutually agreed annually
prior to January 1 of each year. It is understood that
there is no guarantee of a bonus in any year.
4. The Company will provide and pay for a cellular telephone and
any appropriate computer or fax equipment for business
purposes.
5. The Company will reimburse you for reasonable and prudent
expenses incurred directly in relation to your duties, upon
presentation of receipts or invoices in support.
6. (a) This Agreement may be terminated by the Company for
cause at any time by providing written notice. "Cause"
shall mean: gross negligence; dishonesty; incompetence;
your material failure or inability to perform your
duties and responsibilities hereunder following
reasonable written warning; any activity or inactivity
by
<PAGE>
-3-
you that materially and adversely affects the business
operations or image of the Company or its affiliates; or
any other material breach by you of this Agreement.
(b) This Agreement may be terminated at any time by the
Company, without cause, by providing written notice in
which event the Company shall provide a severance
payment equal to twice: your salary, bonus as earned,
and value of your job related fringe benefits for the
preceding twelve months. The vesting of any remaining
options shall accelerate as provided in clause 3(e).
(c) Constructive dismissal shall constitute termination
without cause and the provisions of clause 6(b) shall
apply.
7. The parties acknowledge that you have a multi-talented
personality and experience, and accordingly the Company
reserves the right with your consent (such consent not to be
unreasonably withheld) to transfer you to a position of equal
rank and remuneration.
8. In the event of any dispute concerning this Agreement or its
effect, the same shall be settled by a single, private
arbitrator (selected by mutual agreement of the parties within
15 days of notification by one of the Parties to this
Agreement), pursuant to the provisions of the Commercial
Arbitration Act of British Columbia. The Parties agree to
co-operate in expediting the arbitration promptly and agree to
complete making any representations to the arbitrator within
30 days of the arbitrator being selected and further agree to
endeavor to cause the arbitrator to render his/her decision
within a further 15 days. Punitive damages shall not be
permitted under any circumstances. The results of the
arbitration shall be final and binding upon the parties, with
costs paid by the prevailing party.
9. In consideration of the stock option benefit provided to you
in paragraph 3(e) herein, you covenant as follows: upon
termination of this Agreement by either party for any reason
you will not, directly or indirectly, for a period of
twenty-four months from termination, compete with the Company
in the funeral, cemetery or related businesses anywhere in the
United States or Canada. In providing this covenant you
acknowledge that the acquisition and general activities of the
Company extend across the United States and Canada and
internationally; that the Company is engaged in an intensely
competitive industry; that the Company's main competitors
<PAGE>
-4-
seek acquisitions and operate competing businesses throughout
the United States and Canada and internationally; and that
your employment duties and knowledge cover both the United
States and Canada and international.
"Compete" includes serving as an employee, shareholder (except
holdings of up to 1% of a public company are permitted),
officer, director, consultant or advisor, directly or
indirectly, and includes the giving of financial assistance or
acting as broker, directly or indirectly.
"Business" or "businesses" includes either direct or indirect
research or negotiation or work for, or in relation to, the
acquisition, development or operation of funeral homes,
cemeteries and related businesses. "Related businesses"
includes funeral and cemetery insurance of all types.
10. With respect to your duties and responsibilities on behalf of
the Company:
(a) At all times you will act in the best interests of the
Company; you will engage in no activity which is
detrimental or prejudicial to the Company, its
reputation, or any of its business;
(b) At no time will you represent, directly or indirectly,
parties or interests that are prejudicial to or in
conflict with the best interests of the Company, its
operations or the Company's acquisition program;
(c) You will at all times act honestly and faithfully in
carrying out the Company's instructions;
(d) You will at all times represent the Company in a
professional manner and use your best efforts to promote
the Company's interests.
11. During the currency of this Agreement and following its
termination you will at all times keep strictly confidential
all internal, private information, data, materials and
knowledge relating to the Company or its business; nor during
such times will you make any unauthorized use of any
proprietary information, data or analysis of the Company, or
of specific corporate opportunities developed or in the
process of development by the Company.
<PAGE>
-5-
12. This Agreement replaces our Employment Agreement of June 30,
1996.
13. This letter confirms the Company's agreement with this
employment proposal. To confirm your acceptance of and
agreement with the employment proposal as outlined in this
letter, please sign both copies and return one copy for our
records, keeping a copy for yourself. This mutually signed
letter will then constitute the employment agreement between
us.
Yours truly,
THE LOEWEN GROUP INC.
Per /s/ RAYMOND L. LOEWEN
-------------------------------------------
ACCEPTED AND AGREED as of this 3rd day of
October, 1997.
/s/ F. ANDREW SCOTT
------------------------------------------------
F. ANDREW SCOTT
Attachment
<PAGE>
Schedule "A"
SENIOR VICE-PRESIDENT, CORPORATE DEVELOPMENT
DUTIES AND RESPONSIBILITIES
REPORTS TO: Chairman and Chief Executive Officer
GENERAL
- - Responsibility to organize, manage, administer and co-ordinate the entire
Company wide acquisition process between the Company's two executive
offices and its executives in the field and to advise upon and negotiate
acquisition transactions as required.
- - To participate with the Chairman and other senior management in strategic
planning and policy decisions related to the Company's long term corporate
development.
- - All those normal duties and responsibilities of a Senior Vice-President,
Corporate Development of a cross-border U.S./Canadian public company with
a high annual growth rate and a significant volume of acquisitions.
- - To manage and co-ordinate the Company's corporate development activities
in a manner designed to meet agreed upon corporate growth objections, on
an annual basis.
ACQUISITIONS
- - Resource person to assist and direct the senior management on any aspects
of an: acquisitions or transactions, regardless of size or location.
ADMINISTRATION [including but not limited to the following]
- - Synchronize acquisition activities between two offices (Vancouver and
Philadelphia) and the field.
- - To maintain and improve Loewen internal acquisitions disciplines.
- - Suggest improvements in corporate development process and procedures.
<PAGE>
- - Liaison with other departments, in particular acquisition accounting,
legal and operations.
- - Review proposed "board letters" of major transactions in a timely manner
to allow ample time for board of directors to receive and review
information.
- - Hiring and training of acquisition personnel.
OTHER SPECIFIC RESPONSIBILITIES
- - Solely responsible for management and administration of all corporate
development activities including:
- hiring personnel
- firing personnel
- compensation
- work allocation and responsibilities
- acquisition analysis
- acquisition due diligence
- board presentations and recommendations
- post acquisition analysis
- acquisition integration
- systems integration
- acquisition strategic planning
TRAVEL
- - It is acknowledged that this position may require considerable travel from
time to time.
<PAGE>
[THE LOEWEN GROUP INC. LETTERHEAD]
October 31, 1997
STRICTLY PRIVATE AND CONFIDENTIAL
Mr. Michael G. Weedon
234 Wolf Ridge Close
Edmonton, Alberta TST 5M6
Dear Michael:
I am pleased to confirm your proposed employment arrangement with
The Loewen Group Inc. ("Loewen Inc.") and subsidiaries in accordance with the
following terms and conditions:
1. You are employed as Executive Vice-President of Loewen Inc. as of
November 3, 1997.
2. Your agreed duties and responsibilities will be those described in
the attached job description (Schedule "A").
3. Your compensation (in Canadian dollars) will be made up of the
following:
(a) A beginning annual base salary of $325,000 per annum payable on
Loewen Inc.'s normal payroll basis. This annual base salary
will be increased to $375,000 effective July 1, 1998. Your
salary thereafter will be subject to review on January 1 of each
year with any increases in the sole discretion of Loewen Inc. in
accordance with its stated compensation policies.
(b) Inclusion on all Loewen Inc. fringe benefit programmes provided
to Executives at your level in Loewen Inc., including: Group
Life Insurance, Accidental Death and Dismemberment Insurance,
RRSP, Dental, Medical, Extended Health, and Long Term
Disability. Costs of these benefits are to be shared between you
and Loewen Inc. in the same manner as with other Senior
Executives.
(c) Loewen Inc. will pay initiation fees and annual dues for your
membership in a club chosen by you and agreed upon by Loewen
<PAGE>
Inc. Loewen Inc. will also pay the annual membership dues for
such professional, trade and association as may be appropriate
for you as Executive Vice-President and as approved by Loewen
Inc.
(d) Loewen Inc. will also maintain Directors and Officers' liability
insurance, and, in addition, will indemnify you as permitted by
applicable corporate law.
(e) Four weeks' vacation per annum.
(f) An automobile allowance of $500 per month plus reimbursement for
all reasonable operating expenses for your automobile including
gas, oil, insurance and maintenance.
(g) The provision of an employee stock option benefit pursuant to
Loewen Inc.'s employee stock option plan whereby you will have
an option to purchase a total of 150,000 common shares of Loewen
Inc., vesting in equal annual amounts of 30,000 shares over a
five-year period at a per share price which is the market price
of the shares at the close of trade on the day before we enter
into the stock option agreement.
(h) You will be eligible to participate in the bonus programme
offered to Senior Executives of Loewen Inc.; for reference
purposes your target bonus is up to 50% of your prorated annual
salary based on performance criteria for Senior Executives.
It is further understood that there is no guarantee of a bonus
programme in any succeeding year following fiscal 1997, and any
subsequent annual bonus entitlement shall be solely as Loewen
Inc. in its sole discretion may determine in accordance with its
stated compensation policies.
The granting of the options referred to in clauses 3(g) and 9
are subject to the signing of a formal option agreement and the
approval of the Compensation Committee of the Loewen Board of
Directors.
4. Loewen Inc. will provide and pay for a cellular telephone and any
appropriate computer equipment for business purposes.
5. Loewen Inc. will reimburse you for reasonable expenses incurred
directly in relation to your duties, upon presentation of receipts
or invoices in support.
<PAGE>
6. Loewen Inc. will reimburse you for all reasonable out-of-pocket
moving expenses incurred in connection with your move from Edmonton
to the Vancouver area, upon presentation of receipts or invoices in
support. Loewen Inc. will also reimburse you for a reasonable costs
of temporary accommodation for yourself in the Vancouver area and
travel to and from Edmonton until June 1, 1998, upon presentation of
receipts or invoices in support.
7. Loewen Inc. will assist you in the prompt sale of your home in
Edmonton in 1998 by purchasing it, if necessary and elected by you,
at the fair market value thereof being defined as:
(a) the highest of two independent valuations by accredited real
estate personnel, if the appraisals are within 5% of each
other; or
(b) the average of two of the closest of three independent
valuations by accredited real estate personnel, if the first two
appraisals are greater than 5% apart.
8. (a) This Agreement may be terminated by Loewen Inc. for cause at
common law at any time by providing written notice.
(b) This Agreement may be terminated at any time by Loewen Inc.
without cause. In the event of termination by Loewen Inc.,
Loewen Inc. shall provide normal salary and related fringe
benefits for 12 months from the date of termination without
obligation on your part to provide services.
(c) This Agreement, excepting non-competition and confidentiality
provisions, may be terminated by you on three months' written
notice to Loewen Inc.
9. In the event of a successful hostile takeover bid for Loewen Inc.,
you will be provided the same formula for protection by way of
severance as is approved by the Board of Directors for other senior
executives. [In the November 1996 circumstances this included a
vesting of all outstanding options and three years' severance
including salary, bonus and benefits.] Loewen Inc. management will
endeavor to provide such severance arrangement at the earliest
reasonable time hereafter.
10. In consideration of the stock option benefit provided to you in
paragraph 3(e) herein, you covenant as follows: upon termination of
this agreement by either party for any reason you will not, directly
or indirectly, for a period of twelve months from termination,
compete with Loewen Inc. in the funeral, cemetery or related
businesses anywhere in the United States or Canada. In providing
this covenant you acknowledge that the
<PAGE>
acquisition and general activities of Loewen Inc. extend across the
United States and Canada; that Loewen Inc. is engaged in an
intensely competitive industry; that Loewen Inc.'s main competitors
seek acquisitions and operate competing businesses throughout the
United States and Canada; and that your employment duties and
knowledge cover both the United States and Canada.
"Compete" includes serving as an employee, shareholder, officer,
director, consultant or advisor, directly or indirectly, and
includes the giving of financial assistance or acting as broker,
directly or indirectly.
"Business" or "businesses" includes either direct or indirect
research or negotiation or work for, or in relation to the
acquisition, development or operation of funeral homes, cemeteries
and related businesses. "Related businesses" includes funeral and
cemetery insurance of all types.
11. With respect to your duties and responsibilities on behalf of Loewen
Inc.:
(a) At all times you will act in the best interests of Loewen Inc.;
you will engage in no activity which is detrimental or
prejudicial to Loewen Inc., its reputation, or any of its
business;
(b) At no time will you represent, directly or indirectly, parties
or interests that are prejudicial to or in conflict with the
best interests of Loewen Inc.' its operations, or Loewen Inc.'s
acquisition programme;
(c) You will at all times act honestly and faithfully in carrying
out Loewen Inc.'s instructions;
(d) You will at all times represent Loewen Inc. in a professional
manner and use your best efforts to promote Loewen Inc.'s
interests.
12. During the currency of this Agreement and following its termination
you will at all times keep strictly confidential all internal,
private information, data, materials and knowledge relating to Loewen
Inc. or its business; nor during such times will you make any
unauthorized use of any proprietary information, data or analysis of
Loewen Inc., or of specific corporate opportunities developed or in
the process of development by Loewen, Inc.
13. Loewen Inc. will reimburse you for your reasonable legal expenses
incurred in connection with your negotiation of employment with
Loewen Inc.
<PAGE>
14. This letter confirms Loewen Inc.'s agreement with this employment
proposal. To confirm your acceptance of and agreement with the
employment proposal as outlined in this letter, please sign both
copies and return one copy for our records, keeping a copy for
yourself. This mutually signed letter will then constitute the
employment agreement between us.
We look forward to your joining our Company.
Yours truly,
THE LOEWEN GROUP INC.
Per: /s/ RAYMOND L. LOEWEN
----------------------------------------
Raymond L. Loewen, Chairman
and Chief Executive Officer
ACCEPTED AND AGREED this
31st day of October, 1997.
/s/ MICHAEL G. WEEDON
----------------------------------------
Michael G. Weedon
Attachment
<PAGE>
SCHEDULE "A"
EXECUTIVE VICE-PRESIDENT, THE LOEWEN GROUP INC.
DUTIES AND RESPONSIBILITIES
_____________________________________________
1. Located in Burnaby, British Columbia, and reporting to the Chief
Executive Officer.
2. All those normal duties and responsibilities of the Executive
Vice-President of a cross-border U.S.-Canadian public company with a high
annual growth rate, a significant annual volume of acquisitions, and
highly decentralized operations.
3. Directly responsible for all accounting, MIS, legal, Human Resources and
organizational matters throughout the entire Loewen corporate group.
4. To take the initiative in developing appropriate policies, practices, or
strategies to enable all divisions of Loewen Inc. to better achieve, or
surpass, their financial goals.
5. To assist the Chief Executive Officer in the execution of his duties and
responsibilities.
6. Such other duties or projects as the Chief Executive Officer may assign
consistent with the executive position as Executive Vice-President of
Loewen Inc.
7. Responsibilities may involve considerable travel.
<PAGE>
[THE LOEWEN GROUP INC. LETTERHEAD]
November 4, 1997
STRICTLY PRIVATE AND CONFIDENTIAL
Mr. Douglas I. McKinnon
2654 - 133rd Street
Surrey, B.C.
V4P lX9
Dear Doug:
This letter will confirm our mutual agreement on your severance
provisions:
1. You will be provided your normal salary and related fringe
benefits over the nine-month period commencing November 1, 1997
and terminating July 31, 1998.
2. You will be entitled to the vesting of any options during the
ninth month period which vesting arises pursuant to the
provisions of your Stock Option Agreement. Please note that all
vested but unexercised options must be exercised within 45 days
of July 31, i.e., September 15, 1998.
3. You have reconfirmed your understanding of and agreement with the
confidentiality and non-competition provisions of your employment
agreement of May 1, 1996, both of which require strict observance.
<PAGE>
4. Henceforth any comment you make about The Loewen Group Inc., its
subsidiaries, affiliates, or business will be of a positive and
favourable nature and in no circumstances of a negative or
adverse nature.
5. Henceforth any comment made by The Loewen Group Inc. about
yourself will be of a positive and favourable nature and in no
circumstances of a negative or adverse nature.
This letter confirms the Company's agreement with these severance
provisions. Please confirm your agreement by signing as provided below.
Thank you for your efforts on behalf of The Loewen Group
Yours truly,
THE LOEWEN GROUP INC.
Per:
/s/ PETER S. HYNDMAN
------------------------------------
Peter S. Hyndman
Vice-President, Law and
Corporate Secretary
All of the above acknowledged,
accepted, agreed and confirmed as
of this 4th day of November, 1997.
/s/ DOUGLAS J. MCKINNON
------------------------------------
Douglas J. McKinnon
PSH: cav
<PAGE>
[THE LOEWEN GROUP INC. LETTERHEAD]
January 30, 1998
STRICTLY PRIVATE AND CONFIDENTIAL
Mr. Brad Stam
2038 - 139th Place
Bellevue, WA 98005
Dear Brad:
I am pleased to confirm your proposed employment arrangement with
The Loewen Group Inc. and subsidiaries (the "company") in accordance with the
following terms and conditions:
1. You are employed as Senior Vice President with employment
commencing on March 1, 1998.
2. Your agreed duties and responsibilities will be those described
in the attached job description (Schedule "A").
3. Your compensation (in Canadian dollars) will be made up of the
following:
(a) Annual base salary of $300,000 per annum payable on the
Company's normal payroll basis. Your salary thereafter will
be subject to review on January 1 of each year with any
increases in the sole discretion of the Company in accordance
with its stated compensation policies.
(b) Inclusion on all Company fringe benefit programmes provided
to Executives at your level in the Company, including: Group
Life Insurance, Accidental Death and Dismemberment Insurance,
RRSP, Dental, Medical, Extended Health, and Long Term
Disability. Costs of these benefits are to be share between
you and the Company in the same manner as with other Senior
Executives.
<PAGE>
(c) The Company will pay the annual membership dues for such
professional, trade and association as may be appropriate for
you as Senior Vice President of Law and as approved by the
Company.
(d) The Company will also maintain Directors and Officers'
liability insurance, and, in addition, will indemnify you as
permitted by applicable corporate law.
(e) Four weeks' vacation per annum.
(f) An automobile allowance of $500 per month plus reimbursement
for all reasonable operating expenses for your automobile
including gas, oil, insurance and maintenance.
(g) The provision of an employee stock option benefit pursuant
to the Company's employee stock option plan whereby you will
have an option to purchase 50,000 common shares of the
Company, vesting in equal annual amounts of 10,000 shares
over a five-year period at a per share price which is the
market price of the shares at the close of trade on the day
before we enter into the stock option agreement.
(h) You will be eligible to participate in the bonus programme
offered to Senior Executives of the Company; for reference
purposes you target bonus is up to 50% of your prorated
annual salary based on performance criteria for Senior
Executives.
It is further understood that there is no guarantee of a
bonus programme in any year, and any subsequent annual bonus
entitlement shall be solely as the Company in its sole
discretion may determine in accordance with its stated
compensation policies.
The granting of the options referred to in clauses 3(g) is
subject to the signing of a formal option agreement, all
necessary regulatory approvals, and the approval of the
Compensation Committee of the Company's Board of Directors.
4. The Company will provide and pay for a cellular telephone and any
appropriate computer equipment for business purposes.
<PAGE>
5. The Company will reimburse you for reasonable expenses incurred
directly in relation to your duties, upon presentation of
receipts or invoices in support.
6. The Company will reimburse you for all reasonable out-of-pocket
moving expenses incurred in connection with your move from Kelowna
to the Vancouver area, upon presentation of receipts or invoices
in support.
7. (a) This Agreement may be terminated by the Company for cause at
any time by providing written notice. "Cause" shall include:
gross negligence; dishonesty; incompetence; your material
failure or inability to perform your duties and
responsibilities hereunder; any activity or inactivity by you
that materially and adversely affects the business operations
or image of the Company or its affiliates; or any other
material breach by you of this Agreement.
(b) This Agreement may be terminated at any time by the Company
without cause. In such event, the Company shall provide
normal salary and related fringe benefits for a further 12
months.
8. In consideration of the stock option benefit provided to you in
paragraph 3(e) herein, you covenant as follows: upon termination
of this agreement by either party for any reason you will not,
directly or indirectly, for a period of twelve months from
termination, compete with the Company in the funeral, cemetery
or related businesses anywhere in the United States or Canada;
that the Company is engaged in an intensely competitive industry;
that the Company's main competitors seek acquisitions and operate
competing businesses throughout the United States and Canada; and
that your employment duties and knowledge cover both the United
States and Canada.
"Compete" includes serving as an employee, shareholder, officer,
director, consultant or advisor, directly or indirectly, and
includes the giving of financial assistance or acting as broker,
directly or indirectly.
"Business" or "businesses" includes either direct or indirect
research or negotiation or work for, or in relation to, the
acquisition, development or operation of funeral homes, cemeteries
and related businesses. "Related businesses" includes funeral and
cemetery insurance of all types.
9. With respect to your duties and responsibilities on behalf of the
Company:
<PAGE>
(a) At all times you will act in the best interests of the
Company; you will engage in no activity which is detrimental
or prejudicial to the Company, its reputation, or any of its
business;
(b) At no time will you represent, directly or indirectly,
parties or interests that are prejudicial to or in conflict
with the best interests of the Company, its operations, or
the Company's acquisition program;
(c) You will at all times act honestly and faithfully in carrying
out the Company's instructions;
(d) You will at all times represent the Company in a professional
manner and use your best efforts to promote the Company's
interests.
10. During the currency of this Agreement and following its
termination you will at all times keep strictly confidential all
internal, private information, data, materials and knowledge
relating to the Company or its business; nor during such times
will you make any unauthorized use of any proprietary information,
data or analysis of the Company, or of specific corporate
opportunities developed or in the process of development by the
Company.
11. In the event of a successful hostile takeover bid for the Company,
you will be provided the same formula for protection by way of
severance as is approved by the Board of Directors for other
senior executives. (In the November 1996 circumstances this
included a vesting of all outstanding options and three year's
severance including salary, bonus and benefits.) The
Company management will endeavor to provide such severance
arrangement at the earliest reasonable time hereafter.
<PAGE>
12. This letter confirms the Company's agreement with this employment
proposal. To confirm your acceptance of and agreement with the
employment proposal as outlined in this letter, please sign both
copies and return one copy for your records prior to close of
business on February 2, 1998, keeping a copy for yourself. This
mutually signed letter will then constitute the employment
agreement between us.
We look forward to your joining our Company.
Yours truly,
THE LOEWEN GROUP, INC.
Per: /s/ MICHAEL G. WEEDON
-------------------------------
Michael G. Weedon
Executive Vice President & Chief
Administration Officer
ACCEPTED AND AGREED as
of this 2nd day of February, 1998.
/s/ BRAD STAM
------------------------------------
Brad Stam
ATTACHMENT
<PAGE>
SCHEDULE "A"
SENIOR VICE PRESIDENT OF LAW, THE LOEWEN GROUP INC.
DUTIES AND RESPONSIBILITIES
_____________________________________________
1. Located in Burnaby, British Columbia, and reporting to the Executive
Vice President and Chief Administration Officer.
2. All those normal duties and responsibilities of the Senior Vice President
Law of a cross-border U.S.-Canadian public company with a high annual
growth rate, a significant annual volume of acquisitions, and highly
decentralized operations.
3. Directly responsible for all legal matters throughout the entire Loewen
group.
4. To take the initiative in developing appropriate legal policies,
practices, or strategies to enable all divisions of the Company to better
achieve, or surpass, their financial goals.
5. To assist the Board of Directors; the Chief Executive Officer; the
Executive Committee, other senior managers and directly assist the
Executive Vice President and Chief Administration Officer of the Company,
in the execution of their respective duties and responsibilities.
6. Such other duties or projects as the Executive Vice President and Chief
Administration Officer may assign consistent with a senior executive
position.
7. Responsibilities may involve considerable travel.
<PAGE>
THE LOEWEN GROUP INC. Exhibit 11
For 10 K
COMPUTATION OF PER SHARE EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1996 1995 1994
-------- -------- --------- ------
<S> <C> <C> <C> <C>
Basic
Net earnings (loss) $42,728 $63,906 $(76,684) 38,494
Less: Preferred share dividends (9,533) (8,874) -- --
-------- -------- --------- ------
Net earnings (loss) attributable to Common shareholders $33,195 $55,032 $(76,684) 38,494
-------- -------- --------- ------
-------- -------- --------- ------
Weighted average shares outstanding 67,313 56,743 45,291 39,701
Basic earnings (loss) per Common share $ 0.49 $ 0.97 $ (1.69) 0.97
-------- -------- --------- ------
-------- -------- --------- ------
Fully diluted
Net earnings (loss) attributable to Common shareholders $33,195 $55,032 $(76,684) 38,494
Add: imputed earnings from dilutive options, net of tax effect -- 497 -- 1,775
-------- -------- --------- ------
Fully diluted net earnings (loss) $33,195 $55,529 $(76,684) 40,269
-------- -------- --------- ------
-------- -------- --------- ------
Weighted average shares outstanding 67,313 56,743 45,291 39,701
Shares issuable upon assumed conversion of dilutive options -- 642 -- 2,019
-------- -------- --------- ------
Fully diluted shares 67,313 57,385 45,291 41,720
-------- -------- --------- ------
-------- -------- --------- ------
Fully diluted earnings (loss) per Common share $ 0.49 $ 0.97 $ (1.69) 0.97
-------- -------- --------- ------
-------- -------- --------- ------
</TABLE>
<PAGE>
THE LOEWEN GROUP INC. Exhibit 12.1
For 10 K
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO (UNDER CANADIAN GAAP)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes $ 45,385 $ 93,001 $(123,862) $58,232 $43,896
Fixed charges included in earnings before income taxes
Interest on long-term debt 125,450 88,932 50,913 34,203 21,801
Amortization of deferred finance costs 7,014 4,171 1,512 1,139 832
Dividends on preferred securities of subsidiary 7,088 7,088 7,088 2,678 --
-------- -------- ---------- ------- -------
139,552 100,191 59,513 38,020 22,633
-------- -------- ---------- ------- -------
Earnings (loss) $184,937 $193,192 $ (64,349) $96,252 $66,529
-------- -------- ---------- ------- -------
-------- -------- ---------- ------- -------
Fixed charges
Fixed charges included in earnings before income taxes $139,552 $100,191 $ 59,513 $38,020 $22,633
Capitalized interest 2,093 2,092 2,722 1,128 117
-------- -------- ---------- ------- -------
Total fixed charges $141,645 $102,283 $ 62,235 $39,148 $22,750
-------- -------- ---------- ------- -------
-------- -------- ---------- ------- -------
Ratio of earnings to fixed charges 1.3 X 1.9 X -- 2.5 X 2.9 X
-------- -------- ---------- ------- -------
-------- -------- ---------- ------- -------
</TABLE>
(1) 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.
<PAGE>
THE LOEWEN GROUP INC. Exhibit 12.2
For 10 K
COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO (UNDER US GAAP)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes $ 43,290 $ 87,765 $(125,539) $57,877 $44,374
Fixed charges included in earnings before income taxes
Interest on long-term debt 125,450 88,932 50,913 34,203 21,801
Amortization of deferred finance costs 7,014 4,171 1,512 1,139 832
Dividends on preferred securities of subsidiary 7,088 7,088 7,088 2,678 --
-------- -------- ---------- ------- -------
139,552 100,191 59,513 38,020 22,633
-------- -------- ---------- ------- -------
Earnings (loss) $182,842 $187,956 $ (66,026) $95,897 $67,007
-------- -------- ---------- ------- -------
-------- -------- ---------- ------- -------
Fixed charges
Fixed charges included in earnings before income taxes $139,552 $100,191 $ 59,513 $38,020 $22,633
Capitalized interest 2,093 2,092 2,722 1,128 117
-------- -------- ---------- ------- -------
Total fixed charges $141,645 $102,283 $ 62,235 $39,148 $22,750
-------- -------- ---------- ------- -------
-------- -------- ---------- ------- -------
Ratio of earnings to fixed charges 1.3 X 1.8 X -- 2.4 X 2.9 X
-------- -------- ---------- ------- -------
-------- -------- ---------- ------- -------
</TABLE>
(1) 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.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Loewen Group Inc. and Loewen Group International, Inc.
We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 333-07033, 333-22551, 333-38551, 333-38553, 33-42892,
33-79604, 33-954953, 33-79602), S-3 (Nos. 333-23747, 333-43519, 333-43463),
and S-4 (No. 333-09523) of The Loewen Group Inc. and the registration
statement on Form S-3 (No. 333-23747) of Loewen Group International, Inc. of
our reports:
(i) dated February 27, 1998, except as to Note 22, which is as of
March 27, 1998, relating to the consolidated balance sheets of The
Loewen Group Inc. as at December 31, 1997 and 1996 and the consolidated
statements of operations, retained earnings and changes in financial
position of The Loewen Group Inc. for each of the years in the three
year period ended December 31, 1997 and related schedule,
(ii) dated February 27, 1998, except as to Note 22, which is as of
March 27, 1998, relating to the consolidated balance sheets of Loewen
Group International, Inc. as at December 31, 1997 and 1996 and the
consolidated statements of operations and retained earnings (deficit)
and changes in financial position of Loewen Group International, Inc.
for each of the years in the three year period ended December 31,
1997,
(iii) dated as of March 20, 1998 relating to the consolidated balance
sheets of TLGI Management Corp. as at December 31, 1997 and 1996 and
the consolidated statements of operations, retained earnings (deficit)
and changes in financial position of TLGI Management Corp. for each
of the years in the three year period ended December 31, 1997,
(iv) dated as of March 23, 1998 relating to the balance sheet of 4103
Investments Ltd. as at December 31, 1997 and the statements of
operations and retained earnings and cash flows of 4103 Investments
Ltd. for the period from March 24, 1997 and December 31, 1997, and
(v) dated as of March 24, 1998 relating to the consolidated balance
sheets of Neweol Investments Ltd. (as defined in Note 1 thereto) as
at December 31, 1997 and 1996 and the consolidated statements of
operations and retained earnings and cash flows of Neweol Investments
Ltd. for each of the years in the three year period ended
December 31, 1997,
all of which reports appear in the December 31, 1997 annual report on
Form 10-K of The Loewen Group Inc.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
March 27, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Loewen Group Inc. and Loewen Group International, Inc.
We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 333-07033, 333-22551, 333-38551, 333-38553, 33-42892,
33-79604, 33-954953, 33-79602), S-3 (Nos. 333-23747, 333-43519, 333-43463),
and S-4 (No. 333-09523) of The Loewen Group Inc. and the registration
statement on Form S-3 (No. 333-23747) of Loewen Group International, Inc. of
our reports:
(i) dated March 20, 1998 relating to the consolidated balance sheets of
Loewen Luxembourg (No. 1) S.A. (as defined in Note 1 thereto) as
at December 31, 1997 and 1996 and the consolidated statements of
operations and retained earnings, and cash flows of Loewen Luxembourg
(No. 1) S.A. for each of the years in the three year period ended
December 31, 1997,
(ii) dated March 20, 1998 relating to the consolidated balance sheets of
Loewen Luxembourg (No. 2) S.A. (as defined in Note 1 thereto) as at
December 31, 1997 and 1996 and the consolidated statements of
operations and retained earnings, and cash flows of Loewen Luxembourg
(No. 2) S.A. for each of the years in the three year period ended
December 31, 1997,
both of which reports appear in the December 31, 1997 annual report on
Form 10-K of The Loewen Group Inc.
Luxembourg, March 27, 1998 KPMG Audit
Reviseurs d'Entreprises
/s/ D.G. Robertson /s/ V.Dogs
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF THE LOEWEN GROUP INC. FOR
THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,767
<SECURITIES> 0
<RECEIVABLES> 283,875
<ALLOWANCES> 58,122
<INVENTORY> 34,885
<CURRENT-ASSETS> 333,799
<PP&E> 939,131
<DEPRECIATION> 141,953
<TOTAL-ASSETS> 4,503,160
<CURRENT-LIABILITIES> 203,715
<BONDS> 1,750,427
75,000
157,146
<COMMON> 1,271,177
<OTHER-SE> 111,915
<TOTAL-LIABILITY-AND-EQUITY> 4,503,160
<SALES> 1,114,099
<TOTAL-REVENUES> 1,114,099
<CGS> 747,526
<TOTAL-COSTS> 747,526
<OTHER-EXPENSES> 205,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,125
<INCOME-PRETAX> 45,385
<INCOME-TAX> 2,657
<INCOME-CONTINUING> 42,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,728
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
