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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
(Mark One) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-12163
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THE LOEWEN GROUP INC.
(Exact name of registrant as specified in its charter)
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BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
4126 NORLAND AVENUE, BURNABY, BRITISH COLUMBIA, V5G 3S8
CANADA (Postal Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: 604-299-9321
Securities registered pursuant to Section 12(b) of the Act:
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(Title of class) (Name of each exchange on
COMMON SHARES WITHOUT PAR VALUE which registered)
THE TORONTO STOCK EXCHANGE
LOEWEN GROUP CAPITAL, L.P.
9.45% CUMULATIVE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A,
GUARANTEED BY THE LOEWEN GROUP INC.
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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. / /
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
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The aggregate market value of Common shares held by non-affiliates of the
registrant was approximately U.S.$50,011,000 million as of March 6, 2000. The
number of outstanding Common shares as of March 6, 2000, was 74,145,466.
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TABLE OF CONTENTS
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PAGE
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GENERAL INFORMATION......................................... 1
PART I
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ITEM
NUMBER
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1. BUSINESS.................................................... 2
2. PROPERTIES.................................................. 5
3. LEGAL PROCEEDINGS........................................... 6
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS......... 9
EXECUTIVE OFFICERS OF LOEWEN................................ 10
DIRECTORS OF LOEWEN......................................... 12
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 14
RECENT ACCOUNTING STANDARDS................................. 15
FORWARD-LOOKING AND CAUTIONARY STATEMENTS................... 15
6. SELECTED FINANCIAL DATA..................................... 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 19
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 28
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 29
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 128
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 128
11. EXECUTIVE COMPENSATION...................................... 128
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................ 128
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 128
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................. 129
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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.
Except as specifically noted, financial information is presented in
accordance with accounting principles generally accepted in Canada ("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 20 to the Company's consolidated financial
statements for the year ended December 31, 1999 (the "Consolidated Financial
Statements"), included in Item 8 of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company is the second-largest operator of funeral homes and cemeteries
in North America. In addition to providing services at-need, the Company also
makes funeral, cemetery and cremation arrangements on a pre-need basis. As at
February 29, 2000, the Company operated 1,107 funeral homes and 428 cemeteries
throughout North America and 34 funeral homes in the United Kingdom. As at
February 29, 2000, the Company also operated three insurance subsidiaries that
principally sell a variety of life insurance products to fund funeral services
on a pre-need basis.
On June 1, 1999 (the "Petition Date"), Loewen and each of approximately 850
United States subsidiaries and a foreign subsidiary voluntarily filed a petition
for creditor protection under Chapter 11 of the U.S. Bankruptcy Code
("Chapter 11") in the U.S. Bankruptcy Court for the District of Delaware (the
"U.S. Bankruptcy Court"). Concurrent with the Chapter 11 filing, Loewen and 116
of its Canadian subsidiaries filed for creditor protection under the Companies'
Creditors Arrangement Act ("CCAA") with the Ontario Superior Court of Justice,
Toronto, Ontario, Canada (together with the U.S. Bankruptcy Court, the
"Bankruptcy Courts"). The Company's insurance, United Kingdom and certain
funeral and cemetery subsidiaries were not included in the Chapter 11 and
CCAA filings. Subsequent to the Petition Date, three additional subsidiaries of
the Company voluntarily filed petitions for creditor protection and a fourth
subsidiary's petition was voluntarily deleted. Loewen and its subsidiaries under
creditor protection (the "Debtors") are presently operating their businesses as
debtors-in-possession. The U.S. trustee for the District of Delaware appointed a
statutory committee of unsecured creditors (the "Official Unsecured Creditors'
Committee"). The proceedings of the Debtors are being jointly administered for
procedural purposes only.
The Company is reorganizing its affairs under the protection of Chapter 11
and CCAA and will propose a plan of reorganization for itself and other filing
subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the
Chapter 11 and CCAA proceedings for confirmation after submission to any vote
and approval required by affected parties. The Company is implementing
operational and systems improvements.
The Company's Consolidated Financial Statements have been prepared on a
"going concern" basis in accordance with Canadian GAAP. The "going concern"
basis of presentation assumes that the Company will continue in operation for
the foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. There is
substantial doubt about the appropriateness of the use of the "going concern"
assumption because of the Chapter 11 and CCAA bankruptcy proceedings and
circumstances relating to this event, including the Company's current debt
structure, recent losses and negative cash flow. As such, realization of assets
and discharge of liabilities are subject to significant uncertainty.
The Consolidated Financial Statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for the Consolidated Financial Statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the "going concern" basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to renegotiate and comply with the
terms of a debtor-in-possession revolving credit facility and the ability to
generate sufficient cash from operations and financing arrangements to meet
obligations.
If a plan of reorganization is approved by the Bankruptcy Courts, the
Company will be required to adopt "fresh start" accounting under Canadian and
U.S. GAAP. This accounting will require that assets and liabilities be recorded
at fair value based on the values determined in connection with the plan of
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reorganization. As a result, the reported amounts in the Consolidated Financial
Statements could materially change, because they do not give effect to the
adjustments to the carrying value of assets and liabilities that may ultimately
result from the adoption of "fresh start" accounting.
In January 1999, the Company's Board of Directors appointed John S. Lacey as
Chairman, replacing Co-Chairmen Robert L. Lundgren and Raymond L. Loewen. In
June 1999, Paul A. Houston was appointed to the Board of Directors. In December
1999, Robert L. Lundgren resigned from the Board of Directors. In February 2000,
Donna R. Moore and John J. Wiesner were appointed to the Board of Directors.
In July 1999, Michael A. Cornelissen was appointed Chief Financial Officer.
In December 1999, Paul A. Houston was appointed President and Chief Executive
Officer, replacing Robert L. Lundgren.
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.
BUSINESS OPERATIONS
The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. The Company maintains a regional management structure
for both funeral home and cemetery businesses that is organized in several
geographic regions in the United States, Canada and United Kingdom.
Historically, the Company pursued an aggressive growth strategy based
primarily on acquisitions. In more recent years, this growth strategy emphasized
cemetery acquisitions, as compared to the prior emphasis on funeral home
acquisitions. The Company's current strategy is to reduce costs and improve
liquidity. In March 1999, the Company sold 124 cemeteries and three funeral
homes for gross proceeds of $193 million.
On January 24, 2000, the Company announced that the U.S. Bankruptcy Court
approved the Company's previously-announced program for disposition of
non-strategic assets. Through this program, the Company intends to sell up to
371 of its approximately 1,400 U.S. funeral home and cemetery locations.
Although many of the properties that will be made available for sale have good
track records and well-established reputations in their communities, the Company
has determined that they do not fit into its long-range business plans -- in
many cases because their geographic locations do not permit the properties to
realize synergies with other Company funeral homes and cemeteries. A further
54 locations are anticipated to be merged with existing locations.
The Company's financial advisors have established a process by which parties
interested in bidding must submit letters of intent identifying the properties
that they wish to purchase and stating, subject to further due diligence, the
prices that they would be prepared to pay for those assets. In the course of the
asset disposition program, the Company will consider all qualified bids, whether
for geographic groups of properties or for single locations, with the objective
of maximizing the total value received for assets.
FUNERAL HOMES
The Company's funeral homes offer a full range of funeral services,
including 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.
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 1999,
cremations accounted for approximately 30% of all funeral services performed by
the
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Company compared to approximately 29% in 1998. As a percentage of all funeral
services in the United States, cremations have been increasing by approximately
1.0% annually over the past five years and, in 1998, accounted for approximately
24% of all funeral services performed in the United States.
Funeral operations comprised approximately 59% of the Company's consolidated
revenue for 1999. 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 in 1999 were approximately
$168 million (1998 -- $258 million).
CEMETERIES
The Company's cemetery operations 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 32% of the
Company's consolidated revenue for 1999, 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 in light of actual historical experience, trends and
analysis. 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. Earnings of
merchandise and service trust funds are recognized as income in the year
realized; increases in the costs for merchandise and services are recognized as
a charge to income.
In addition, the Company provides for the long-term maintenance of its
cemetery properties by placing a portion, typically 10% to 15%, 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, 1999, the Company's cemeteries had approximately
$247 million in perpetual care trust funds, which are not reflected on the
Company's balance sheet because the principal is required to stay in trust in
perpetuity.
INSURANCE
The Company operates three insurance subsidiaries licensed in a total of
29 jurisdictions, which sell a variety of life insurance products, primarily to
fund pre-arranged funerals. The Company's insurance operations comprised
approximately 9% of the Company's consolidated revenue for 1999.
COMPETITION
The funeral service industry in North America is highly fragmented,
consisting primarily of small, family-owned businesses. Competition generally
arises 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.
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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. The laws and regulations
are complex, subject to the interpretation by regulators, and vary from
jurisdiction to jurisdiction. Non-compliance with these regulations can result
in fines or suspension of licenses required to sell pre-need services and
merchandise. 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
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 and after 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. On a continuing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates.
EMPLOYEES
At February 29, 2000, the Company employed approximately 11,900 people with
approximately 600 people employed at the Company's corporate office. Management
believes that its relationship with employees is good, but recognizes employees
have concerns over the challenges facing the Company. Approximately 130 of the
Company's employees are members of collective bargaining units.
ITEM 2. PROPERTIES.
The Company's properties consist primarily of funeral homes and cemeteries.
Of the Company's 1,141 funeral homes at February 29, 2000 (including 51 funeral
homes located on or adjacent to a cemetery property), 180 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 428
cemeteries at February 29, 2000, of which six were mortgaged as security for
loans from the seller of the property. For certain cemeteries, the Company
provides management and sales services pursuant to various management and
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sales agreements. The cemeteries operated by the Company contained an aggregate
of approximately 19,500 acres of which approximately 58% were developed.
The Company's corporate office in Burnaby occupies 35,000 square feet in a
building owned by the Company and an aggregate 103,000 square feet of leased
corporate office space.
ITEM 3. LEGAL PROCEEDINGS.
BANKRUPTCY FILINGS
On June 1, 1999, Loewen and each of approximately 850 United States
subsidiaries filed a voluntary petition for creditor protection and to
reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court. The filings subsequently were consolidated for joint administration (IN
RE: LOEWEN GROUP INTERNATIONAL, INC., ET AL., No. 99-1244). On the same day,
Loewen and 116 Canadian subsidiaries filed an application for creditor
protection under the Companies' Creditors Arrangement Act in the Ontario
Superior Court of Justice in Toronto (File No. 99-CL-3384). The Company's United
Kingdom subsidiaries, which generate less than 1% of the Company's revenues,
along with the Company's insurance and certain funeral and cemetery
subsidiaries, were excluded from the filings. Subsequent to the Petition Date,
three additional subsidiaries of the Company voluntarily filed petitions for
creditor protection and a fourth subsidiary's petition was voluntarily deleted.
Loewen and its subsidiaries under creditor protection are presently
operating their businesses as debtors-in-possession. An Official Unsecured
Creditors' Committee has been appointed by the United States trustee in the
bankruptcy proceedings. On July 16, 1999, the U.S. Bankruptcy Court approved a
Petition Date $200,000,000 debtor-in-possession revolving credit facility (the
"DIP Facility"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further information about the
DIP Facility.
As a result of the bankruptcy filings, litigation against Loewen and its
filing subsidiaries was stayed as of June 1, 1999 (unless the stay is lifted by
the supervising court), and any additional liabilities related thereto will be
subject to compromise.
SECURITIES CLASS ACTIONS
Since December 1998, the Company has been served with various related
lawsuits filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain current and former
officers and directors have been named as defendants in some of the suits. All
but one of these lawsuits were filed as purported class actions on behalf of
persons or entities that purchased Company Common shares during five different
time periods ranging from November 3, 1996 through January 14, 1999. LGII and
Loewen Group Capital, L.P. ("LGC") are named as defendants in two suits (with
the Company, the "Loewen Defendants"). The plaintiffs in these two lawsuits
purport to sue on behalf of a class of purchasers of Monthly Income Preferred
Securities ("MIPS") from March 5, 1997 through January 14, 1999. The MIPS were
issued by LGC.
The complaints generally make allegations concerning, among other things,
the Company's internal controls, accounting practices, financial disclosures and
acquisition practices.
The Judicial Panel on Multidistrict Litigation (the "MDL Panel") granted the
Loewen Defendants' motion to consolidate all of the actions for pre-trial
coordination in the United States District Court for the Eastern District of
Pennsylvania. On April 15, 1999, Judge Thomas O'Neill of the District Court for
the Eastern District of Pennsylvania entered an order consolidating in the
Eastern District of Pennsylvania, all of the cases then filed, as well as any
related cases thereafter transferred to that District (the "April 15 Order").
The April 15 Order appointed the City of Philadelphia Board of Pensions and
Retirement as lead
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plaintiff. Subsequent to the Company's bankruptcy filings, Judge O'Neill entered
an order staying all of the cases and placing them on the suspense docket.
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or to reasonably estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in 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 seeking a class action 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
seeking a class action 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. 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 attorney's 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 the plaintiffs appealed. On
June 30, 1998, the Louisiana Fifth Circuit Court of Appeal affirmed the
dismissal of the FELDHEIM plaintiffs' class-action claims.
Following various rulings on the DUFFY lawsuit in the trial court, on
January 6, 1999, the Fourth Circuit Court of Appeal dismissed the action. On
February 5, 1999, the DUFFY plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.
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 plaintiffs.
Accordingly, no provision with respect to these lawsuits has been made in the
Company's Consolidated Financial Statements.
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LUENING, ET AL. V. SI-SIFH CORP., ET AL.
In June 1998, Warren S. Luening and four other individuals filed a lawsuit
seeking a class action 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 St.
Bernard, State of Louisiana. Defendants in this case are the same entities
against whom complaints were filed in Jefferson Parish, Louisiana (the FELDHEIM
case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside from the
addition of local counsel in St. Bernard Parish, the same lawyers who filed the
FELDHEIM and DUFFY complaints filed the LUENING complaint.
Plaintiffs allegedly hold and held funeral insurance policies issued by
insurance companies owned, directly or indirectly, by the defendants. Plaintiffs
allege that the defendants failed to provide the funeral services purchased with
policies by, among other things, (i) charging them for certain funeral services,
including the services of a funeral director and staff, a funeral ceremony, care
of the deceased, automotive services and a casket, even though these services
were allegedly covered by their policies, and (ii) unjustly enriching themselves
through the payment of services allegedly covered under the plaintiffs'
policies, and the plaintiffs are therefore entitled to restitution of those
payments. Plaintiffs' complaint seeks compensatory and nonpecuniary damages and
attorneys' fees. Louisiana law prohibits plaintiffs from alleging specific
amounts of damages in their complaint.
On February 3, 1999, the state court ruled that the dismissal of the class
action claims in the FELDHEIM and DUFFY cases did not operate to bar the
particular sub-class of potential plaintiffs identified in LUENING. On
March 25, 1999, the Fourth Circuit reversed the trial court, while recognizing
that individual plaintiffs' claims could proceed in St. Bernard Parish. On
March 29, 1999 the LUENING plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.
The Company has determined that it is not possible to predict the final
outcome of this legal proceeding, and 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.
F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.
This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on Loewen and other defendants on September 19, 1996. Plaintiffs
allegedly compete with defendants Restlawn Memorial Park Association, Restlawn
Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the Company.
Plaintiffs allege thirteen counts, including counts alleging that defendant
Restlawn engaged in false and deceptive advertising, misused confidential
information, defamed plaintiffs, breached contractual obligations,
misappropriated trade secrets, and tortiously interfered with plaintiffs'
contractual relationships. Plaintiffs further allege that the Company knew or
should have known of Restlawn's conduct and adopted and continued Restlawn's
alleged unfair, false, and deceptive practices. Plaintiffs also allege that the
defendants conspired to destroy the plaintiffs' business and created a "trust in
order to prevent competition" in violation of Ohio's antitrust laws. Plaintiffs
seek compensatory damages, which are unspecified but alleged to exceed $350,000;
punitive damages, which are unspecified but alleged to exceed $300,000; and
injunctive relief. Defendants' summary judgment motion was denied as to all but
one of plaintiffs' counts. A trial set for July 12, 1999 was stayed as a result
of the bankruptcy proceedings, and no new trial date has been set.
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or 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.
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FLANAGAN V. THE LOEWEN GROUP INC., ET AL.
In December 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against the
Company and LGII. The matter was subsequently removed to federal court based on
diversity jurisdiction, and it is now pending in the United States District
Court in the Central District of California.
In 1995, Ms. Flanagan and her husband John Flanagan (now deceased) sold
their mausoleum and mortuary business to LGII for cash and Loewen stock.
Ms. Flanagan's complaint contains causes of action for breach of contract in
connection with the share purchase agreement and in connection with employment
and consulting agreements entered into at the time of the share purchase
agreement. Additionally, Ms. Flanagan alleges causes of action for intentional
and negligent misrepresentation and declaratory relief.
Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. Further, Ms. Flanagan seeks
punitive damages in an unspecified sum. On the declaratory relief cause of
action, Ms. Flanagan seeks a declaration that she is to be reimbursed for her
losses pursuant to the indemnity provision contained in the share purchase
agreement. She also seeks a declaration that until she is indemnified for her
losses she is not obligated to transfer property that LGII has the option to
purchase for a specified price pursuant to the share purchase agreement.
The Company has determined that it is not possible at this time to predict
the final outcome of this proceeding or 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 plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in the Company's Consolidated Financial
Statements.
THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA
In October 1998, the Company and Raymond L. Loewen, the then-Chairman and
Chief Executive Officer of the Company, filed a claim against the United States
government for damages under the arbitration provisions of the North American
Free Trade Agreement ("NAFTA"). The claimants contend that they were damaged as
a result of breaches by the United States of its obligations under NAFTA in
connection with certain litigation in the State of Mississippi entitled O'KEEFE
VS. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege that they were
subjected to discrimination, denial of the minimum standard of treatment
guaranteed by NAFTA and uncompensated expropriation, all in violation of NAFTA.
The Company has determined that it is not possible at this time to predict the
final outcome of this proceeding or to establish a reasonable estimate of the
damages, if any, that may be awarded to the Company.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
9
<PAGE>
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 February 29, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
John S. Lacey(1).......................... 56 Chairman of the Board
Paul A. Houston(2)........................ 51 President and Chief Executive Officer
Michael G. Weedon(3)...................... 46 Senior Vice-President, Trust and Insurance
Michael A. Cornelissen(4)................. 56 Senior Vice-President, Chief Financial
Officer
Jeffrey L. Cashner(5)..................... 45 Senior Vice-President, USA
Harry C.B. Rath(6)........................ 64 Senior Vice-President, Canada
Nick Taylor(7)............................ 50 Managing Director, United Kingdom
Bradley D. Stam(8)........................ 52 Senior Vice-President, Legal and Asset
Management
Gordon D. Orlikow(9)...................... 39 Senior Vice-President, People
Dwight K. Hawes(10)....................... 40 Senior Vice-President, Corporate
Controller
Peter S. Hyndman(11)...................... 58 Corporate Secretary
Guy Heywood(12)........................... 41 Vice-President, Treasurer
</TABLE>
- ------------------------
(1) Mr. Lacey became the Chairman of the Board of Directors of Loewen in
January 1999. He is not an employee of The Loewen Group Inc. or any
affiliated company, and serves as a non-executive Chairman. In December
1998, Mr. Lacey became a Director of Loewen. From July 1998 to
November 1998, Mr. Lacey was President and Chief Executive Officer of The
Oshawa Group Ltd. in Toronto, Ontario. From November 1996 to July 1998,
Mr. Lacey was President and Chief Executive Officer of WIC Western
International Communications Inc. in Vancouver, British Columbia. From
March 1990 to November 1996, Mr. Lacey was President and Chief Executive
Officer of Scott's Hospitality Inc. in Toronto, Ontario.
(2) Mr. Houston became President and Chief Executive Officer of Loewen in
December 1999. In June 1999, Mr. Houston became a Director of Loewen. From
August 1996 to October 1999, Mr. Houston was President and Chief Executive
Officer of Scott's Restaurants Inc. From April 1995 to August 1996,
Mr. Houston was President and Chief Operating Officer of Scott's Food
Services. From December 1992 to April 1995, Mr. Houston was President of
Black Photo Corporation.
(3) Mr. Weedon became Senior Vice-President, Trust and Insurance in
February 2000. In November 1997, Mr. Weedon served as Chief Administrative
Officer, from November 1997 to July 1998, as Executive Vice-President of
Administration, from July 1998 to November 1998, as Executive
Vice-President, Operations and Administration, from November 1998 to
February 2000, as Executive Vice-President, Administration, Accounting and
Control, and Chief Administrative Officer of Loewen. From December 1996 to
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 Fort Saskatchewan, Alberta.
(4) Mr. Cornelissen became Senior Vice-President, Chief Financial Officer in
February 2000. From July 1999 to February 2000, Mr. Cornelissen served as
Chief Financial Officer of Loewen. Prior to July 1999, Mr. Cornelissen was
an independent business consultant.
10
<PAGE>
(5) Mr. Cashner became Senior Vice-President, USA of Loewen in January 1999.
From August 1996 to January 1999, Mr. Cashner served as Regional President,
Operations, South East Region and from February 1994 until August 1996,
Mr. Cashner served as Vice-President, Cemetery and Combination Division,
South and Western Region of Loewen.
(6) Mr. Rath became Senior Vice-President, Canada of Loewen in February 2000.
From December 1998 to February 2000, Mr. Rath served as Regional
Vice-President, Funeral Home Operations, Eastern Canada, from August 1996 to
December 1998, as Vice-President Operations, Eastern Canada, from April 1993
to August 1996, as Director, Operations, Eastern Canada of Loewen.
(7) Mr. Taylor became Managing Director, United Kingdom of Loewen in January
2000. Prior to January 2000, Mr. Taylor was a funeral director of a
family-owned funeral business.
(8) Mr. Stam became Senior Vice-President, Legal and Asset Management in
February 2000. From March 1998 to February 2000, Mr. Stam served as Senior
Vice-President, Law of Loewen. 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) Mr. Orlikow became Senior Vice-President, People of Loewen in February
2000. From November 1999 to February 2000, Mr. Orlikow served as Senior
Vice-President, Human Resources of Loewen. From March 1999 to
November 1999, Mr. Orlikow was a consultant with PricewaterhouseCoopers.
From April 1996 to March 1999, Mr. Orlikow was Director of Human Resources
of BC Rail Ltd. Prior to that time, Mr. Orlikow was Manager Employment,
Training and Development of BC Rail Ltd.
(10) Mr. Hawes became Senior Vice-President, Corporate Controller of Loewen in
August 1998. From October 1994 to August 1998, Mr. Hawes served as
Vice-President, Finance and from January 1993 to October 1994, as Director
of Treasury Operations of Loewen.
(11) In addition to serving as Corporate Secretary of Loewen, Mr. Hyndman served
as Vice-President, Law of Loewen from March 1995 to November 1997.
(12) Mr. Heywood became Vice-President, Treasurer of Loewen in November 1998.
From June 1996 to November 1998, Mr. Heywood served as Director, Treasury
Operations of Loewen. Prior to that time, Mr. Heywood was Assistant
Vice-President of ABN AMRO Bank, in Vancouver, British Columbia.
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.
11
<PAGE>
DIRECTORS OF LOEWEN
The following table sets forth certain information with respect to the
current Board of Directors of Loewen. The ages of the Directors are shown as of
February 29, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
John S. Lacey(b)(1)....................... 56 Chairman of the Board
Toronto, Ontario, Canada
Paul A. Houston(2)........................ 51 President, Chief Executive Officer and
Toronto, Ontario, Canada Director
Charles B. Loewen(a)(c)(3)................ 67 Director
Toronto, Ontario, Canada
James D. McLennan(a)(c)(4)................ 63 Director
Park Ridge, Illinois, U.S.A.
Donna R. Moore(c)(5)...................... 60 Director
Eureka, Montana, U.S.A.
William R. Riedl(b)(6).................... 59 Director
Toronto, Ontario, Canada
The Right Honorable John N. Turner, P.C., 70 Director
C.C., Q.C.(a)(b)(7).....................
Toronto, Ontario, Canada
John J. Wiesner(a)(8)..................... 61 Director
Oklahoma City, Oklahoma, U.S.A.
</TABLE>
- ------------------------
(a) Audit Committee
(b) Corporate Governance Committee
(c) Compensation Committee
(1) Mr. Lacey became the Chairman of the Board of Directors of Loewen in
January 1999. He is not an employee of The Loewen Group Inc. or any
affiliated company, and serves as a non-executive Chairman. In December
1998, Mr. Lacey became a Director of Loewen. From July 1998 to
November 1998, Mr. Lacey was President and Chief Executive Officer of The
Oshawa Group Ltd. in Toronto, Ontario. From November 1996 to July 1998,
Mr. Lacey was President and Chief Executive Officer of WIC Western
International Communications Inc. in Vancouver, British Columbia. From
March 1990 to November 1996, Mr. Lacey was President and Chief Executive
Officer of Scott's Hospitality Inc. in Toronto, Ontario.
(2) Mr. Houston became President and Chief Executive Officer of Loewen in
December 1999. In June 1999, Mr. Houston became a Director of Loewen. From
August 1996 to October 1999, Mr. Houston was President and Chief Executive
Officer of Scott's Restaurants Inc. From April 1995 to August 1996,
Mr. Houston was President and Chief Operating Officer of Scott's Food
Services. From December 1992 to April 1995, Mr. Houston was President of
Black Photo Corporation.
(3) Mr. Loewen became a Director of Loewen in May 1990. Mr. Loewen is
President, Corporate Services International Inc., an international investing
and consulting company.
(4) Mr. McLennan became a Director of Loewen in June 1993. Mr. McLennan is
President of McLennan Company, a realty company.
12
<PAGE>
(5) Ms. Moore became a Director of Loewen in February 2000. Ms. Moore is an
independent consultant. From 1995 to 1997, Ms. Moore was Chief Executive
Officer of Discovery Zone, an entertainment company.
(6) Mr. Riedl became a Director of Loewen in December 1998. Mr. Riedl is
President and Chief Executive Officer, Fairvest Securities Corporation, a
stock brokerage firm.
(7) Mr. Turner became a Director of Loewen in June 1992. Mr. Turner is a
partner of Miller, Thomson, Barristers and Solicitors.
(8) Mr. Wiesner became a Director of Loewen in February 2000. Mr. Wiesner is an
independent consultant. From 1987 to 1997, Mr. Wiesner was Chairman of the
Board, Chief Executive Officer and President of C. R. Anthony Company, a
retail company.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Common shares of Loewen trade on The Toronto Stock Exchange ("TSE")
under the symbol "LWN". Until March 3, 2000, the Common shares were also listed
on The New York Stock Exchange ("NYSE").
The following table sets forth, for the periods indicated, the range of high
and low sales prices, as reported by the TSE and the NYSE.
<TABLE>
<CAPTION>
TORONTO STOCK NEW YORK STOCK
EXCHANGE EXCHANGE
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
(CDN.$) (U.S.$)
<S> <C> <C> <C> <C>
1998 First quarter.......................................... 38.750 30.150 27.500 20.875
Second quarter.......................................... 41.450 35.000 28.813 24.625
Third quarter........................................... 39.800 17.000 26.875 11.063
Fourth quarter.......................................... 21.950 10.750 14.500 7.000
1999 First quarter.......................................... 12.500 1.350 8.438 0.938
Second quarter.......................................... 2.450 0.340 1.438 0.250
Third quarter........................................... 2.450 0.770 1.688 0.500
Fourth quarter.......................................... 0.950 0.550 0.625 0.378
</TABLE>
As at March 6, 2000, there were 2,593 record holders of Loewen's
Common shares.
During 1999, new standards for continued listing of securities on the NYSE
were adopted. The new continued listing standards are: (i) total market
capitalization and shareholders' equity of not less than $50 million;
(ii) total market capitalization of not less than $15 million over a 30-day
trading period; and (iii) minimum share price of $1.00 over a 30-day
trading period.
The Company has not met the required minimum $1.00 criterion, and trading of
its shares was suspended by the NYSE on March 3, 2000. The NYSE is expected to
apply to the United States Securities and Exchange Commission (the "SEC") for
delisting of the Company's Common shares. Trading of the Company's MIPS, which
also were listed on the NYSE, was suspended on March 3, 2000, and the NYSE is
expected to apply to the SEC for delisting of the MIPS as well.
DIVIDENDS
Under the terms of the DIP Facility, the Company is prohibited from
declaring dividends on its Common shares, Preferred shares and MIPS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding restrictions on the payment of
dividends. Aggregate dividends declared per Common share in the last two years
were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Dividends per Common share.................................. $ -- $0.10
</TABLE>
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% (5% for holders of more than 10% of the Common shares).
14
<PAGE>
RECENT ACCOUNTING STANDARDS
The effective date for Statement of Financial Accounting Standards No. 133
("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
deferred by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of Financial Accounting Standards No. 133 (an amendment of FASB statement
No. 133)," is for all fiscal quarters of fiscal years beginning after June 15,
2000. FAS 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Management has not determined the impact of this
accounting standard on the Company's Consolidated Financial Statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides the staff's
views on the application of existing generally accepted accounting principles to
revenue recognition in financial statements. The application of SAB 101 to
industry and Company revenue recognition policies is unclear. If it is
determined that SAB 101 modifies or amends revenue recognition policies followed
by the industry and previously accepted by the SEC, the adjustments would be
recorded in the Company's Consolidated Financial Statements for the first
quarter of 2000.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-K, including certain statements made
in the section entitled "Quantitative and Qualitative Disclosures about Market
Risk," 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. 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, including the
information that appears in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition," the following important factors, among others, could cause future
results to differ materially from estimates, predictions or projections.
1. ABILITY TO CONTINUE AS A GOING CONCERN. The Company's Consolidated
Financial Statements have been prepared on a "going concern" basis in accordance
with Canadian GAAP. The "going concern" basis of presentation assumes that the
Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities and commitments in the
normal course of business. There is substantial doubt about the appropriateness
of the use of the "going concern" assumption because of the Chapter 11 and CCAA
bankruptcy proceedings and circumstances relating to this event, including the
Company's current debt structure, recent losses and negative cash flow. As such,
realization of assets and discharge of liabilities are subject to significant
uncertainty.
The Consolidated Financial Statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for the Consolidated Financial Statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. Additionally, the amounts reported could materially change
because of a plan of reorganization, since the
15
<PAGE>
reported amounts in the Consolidated Financial Statements do not give effect to
adjustments to the carrying value of the underlying assets or amounts of
liabilities that may ultimately result. The appropriateness of the "going
concern" basis is dependent upon, among other things, confirmation of a plan of
reorganization, future profitable operations, the ability to renegotiate and
comply with terms of a debtor-in-possession revolving credit facility and the
ability to generate sufficient cash from operations and financing arrangements
to meet obligations.
2. BANKRUPTCY PROCEEDINGS. The Company is reorganizing its affairs under
the protection of Chapter 11 and CCAA and will propose a plan of reorganization
for itself and other filing subsidiaries, which will be submitted to the
Bankruptcy Courts overseeing the Chapter 11 and CCAA proceedings for
confirmation after submission to any vote and approval required by affected
parties. If the plan of reorganization receives all requisite approvals, the
Company will be required, under Canadian and U.S. GAAP, to adopt "fresh start"
accounting. Fresh start accounting requires that assets and liabilities be
recorded at fair value, based on the values determined in connection with the
plan of reorganization. If the reorganization plan is approved and the Company
emerges from bankruptcy, the carrying value of assets and liabilities recorded
in the Company's financial statements after the adoption of fresh start
accounting could differ materially from the amounts reported in the consolidated
balance sheet at December 31, 1999.
During the pendency of the reorganization proceedings, the Company is
implementing operational and system improvements. In particular, a new cemetery
contract management system is being implemented in the cemetery operations on a
location by location basis to improve the recording and tracking of individual
preneed contracts. Management believes the new cemetery contract management
system will: (i) improve the timeliness of and access to operational and
financial information; (ii) reduce administrative costs; (iii) provide for
improved trust efficiencies, and (iv) improve the estimation of merchandise and
service liabilities. Further adjustments may be made to the estimation of
cemetery merchandise and service liabilities as the cemetery contract management
system is implemented.
3. REVENUE AND MARGINS. Revenue is affected by the volume of services
rendered and the mix and pricing of services and products sold and actual
pre-need contract cancellation experience. 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 (which may be significant from period to period), competitive
pricing strategies, pre-need sales and other sales programs implemented by the
Company and the ability to hire and retain the necessary level of sales staff.
Revenue is also affected by the level of dispositions and acquisitions. Revenue
may also be affected by the negative implications associated with the bankruptcy
proceedings.
4. DISPOSITIONS. In December 1999, the Company identified 371 locations as
probable for sale. In January 2000, the U.S. Bankruptcy Court for the District
of Delaware approved the Company's proposed disposition process. Although the
Company may consummate additional asset sales, it is not committed to sell and
has not identified any other properties for which a material sale is probable.
When properties are sold, gains or losses could be small or significant
depending upon the type of property, location, cash flow and prevailing
market conditions.
5. TAX RATE. Prior to the year ended December 31, 1998, the Company's
financing structures allowed it to achieve an effective tax rate well below the
Canadian statutory rate of 45%. These structures are not expected to produce
similar benefits in the future due to uncertainty as to when, if ever, the tax
benefit of deducting the Company's losses and future interest expense will be
realized. As a result, the Company expects that its effective income tax rate
for 2000 and beyond will likely vary significantly from the Canadian
statutory rate.
Future income and losses, and the disposition of certain locations may
require the Company to record a change in the valuation allowance of certain tax
assets that were taken into account in determining the net amount of the
Company's liability for future income taxes recorded on its balance sheet at
16
<PAGE>
December 31, 1999. If this occurs, the resulting change in the valuation
allowance, which could be significant, would generally be treated as an
additional income tax expense or benefit in future periods.
6. OTHER. Consolidated financial results also may be affected by (i) the
ability of the Company to successfully develop and implement a plan of
reorganization pursuant to bankruptcy proceedings that provides for achieving
profitable operations and obtaining appropriate financing, among other things,
(ii) the ability of the Company to retain and motivate its employees, including
senior management and critical staff, (iii) the continued availability of
operating cash flow and debtor-in-possession financing, (iv) dispositions and
the related valuation of assets, (v) the number of Common shares outstanding,
(vi) competition, (vii) the level of the Company's general and administrative
costs, and (viii) changes in applicable governmental regulations.
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, 1999. 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 Consolidated Financial Statements and Notes thereto.
The financial results for the year ended December 31, 1999 include
$414 million of pre-tax charges representing impairment of capital assets and
investments and accrual of contingent losses on investments and $93 million of
reorganization costs. The 1999 results exclude $100 million of contractual
interest expense applicable to certain pre-Petition Date debt obligations which
are subject to compromise. As at December 31, 1999, $2.3 billion of liabilities
were subject to compromise.
The financial results for the year ended December 31, 1998 include
$649 million of pre-tax charges representing impairment of capital assets and
investments and accrual of contingent losses on investments.
The financial results for the year ended December 31, 1997 include
$89 million of pre-tax charges, representing certain restructuring, strategic
initiative and other charges. The financial results for the year ended
December 31, 1996 include $19 million of finance and other costs related to a
competitor's hostile takeover proposal for the Company, which was withdrawn in
January 1997. The financial results for the year ended December 31, 1995 include
an aggregate of $196 million for legal settlements and litigation related
finance costs and certain general and administrative costs related to the legal
settlements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................ $1,030,373 $1,136,234 $1,114,099 $ 908,385 $ 598,493
Gross margin....................... 288,659 291,736 363,639 329,008 224,476
Earnings (loss) from operations.... (248,607) (263,966) 152,131 204,670 117,765
Net earnings (loss)................ (465,176) (598,969) 41,810 65,999 (75,604)
Basic earnings (loss) per
share(1)......................... (6.40) (8.22) 0.48 1.01 (1.67)
Ratio of earnings to fixed
charges(2)....................... n/a n/a 1.3x 1.9x n/a
Aggregate dividends declared per
share............................ -- 0.10 0.20 0.20 0.05
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................... $4,110,583 $4,673,908 $4,790,687 $3,718,734 $2,380,011
Liabilities subject to
compromise(4).................... 2,282,601 -- -- -- --
Total long-term debt(3)(4)......... 91,204 2,268,014 1,793,934 1,495,925 932,296
Preferred securities of
subsidiary(4).................... -- 75,000 75,000 75,000 75,000
Shareholders' equity............... 444,346 905,441 1,517,771 1,026,617 591,006
OPERATING INFORMATION:
Number of funeral homes............ 1,141 1,151 1,070 956 815
Number of funeral services......... 162,000 163,000 153,000 142,000 114,000
Number of cemeteries............... 428 550 483 313 179
</TABLE>
- ------------------------
(1) There are no material differences between basic and fully diluted earnings
(loss) per share.
(2) The 1999, 1998 and 1995 losses are not sufficient to cover fixed charges by
a total of approximately $497.7 million, $765.9 million and $127.9 million,
respectively, and as such the ratio of earnings to fixed charges has not
been computed. The 1999 fixed charges exclude certain contractual interest
charges on liabilities subject to compromise.
(3) Total long-term debt comprises long-term debt which is not subject to
compromise, including the current portion.
(4) Under-secured and unsecured debt obligations (including the MIPS, which are
identified as "Preferred securities of subsidiary") have been reclassified
to liabilities subject to compromise as a result of the bankruptcy filings.
Had the Company's Consolidated Financial Statements been prepared in
accordance with U.S. GAAP (see Note 20 to the Consolidated Financial
Statements), selected consolidated financial information would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................ $1,028,454 $1,123,460 $1,115,400 $ 909,137 $ 598,493
Gross margin....................... 282,654 295,831 366,562 332,815 225,917
Earnings (loss) from operations.... (324,656) (260,127) 153,038 203,040 117,442
Earnings (loss) before cumulative
effect of change in accounting
principles....................... (523,439) (594,257) 42,231 64,559 (75,800)
Basic earnings (loss) per share
before cumulative effect of
change in accounting
principles(1)(2)................. (7.18) (8.15) 0.49 0.98 (1.67)
Ratio of earnings to fixed
charges(3)....................... n/a n/a 1.3x 1.8x n/a
Aggregate dividends declared per
share............................ -- 0.10 0.20 0.20 0.05
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................... $4,059,751 $4,709,654 $4,776,535 $3,699,950 $2,345,874
Liabilities subject to
compromise(5).................... 2,282,601 -- -- -- --
Total long-term debt(4)(5)......... 91,204 2,268,014 1,793,934 1,495,925 892,296
Preferred securities of
subsidiary(5).................... -- 75,000 75,000 75,000 75,000
Shareholders' equity............... 383,075 913,365 1,524,195 1,026,110 519,006
</TABLE>
- ------------------------
(1) There are no material differences between basic and diluted earnings (loss)
per share.
(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 1999, 1998 and 1995 losses are not sufficient to cover fixed charges by
a total of approximately $573.7 million, $767.1 million and $128.3 million,
respectively, and as such the ratio of earnings to fixed charges has not
been computed. The 1999 fixed charges exclude certain contractual interest
charges on liabilities subject to compromise.
(4) Total long-term debt comprises long-term debt which is not subject to
compromise, including the current portion.
(5) Under-secured and unsecured debt obligations (including the MIPS, which are
identified as "Preferred securities of subsidiary") have been reclassified
to liabilities subject to compromise as a result of the bankruptcy filings.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
BANKRUPTCY PROCEEDINGS
On June 1, 1999, Loewen and each of approximately 850 United States
subsidiaries and a foreign subsidiary voluntarily filed a petition for creditor
protection under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") in the
U.S. Bankruptcy Court, for the District of Delaware. Concurrent with the
Chapter 11 filing, Loewen and 116 of its Canadian subsidiaries filed for
creditor protection under the Companies' Creditors Arrangement Act with the
Ontario Superior Court of Justice, Toronto, Ontario, Canada (together with the
U.S. Bankruptcy Court, the "Bankruptcy Courts"). Subsequent to the Petition
Date, three additional subsidiaries of Loewen voluntarily filed petitions for
creditor protection and a fourth subsidiary's petition was voluntarily deleted.
The Company's insurance, United Kingdom and certain funeral and cemetery
subsidiaries were not included in the Chapter 11 and CCAA filings.
The Debtors are presently operating their businesses as
debtors-in-possession. The United States trustee for the District of Delaware
appointed an Official Unsecured Creditors' Committee. The proceedings of the
Debtors are being jointly administered for procedural purposes only.
The Company is reorganizing its affairs under the protection of Chapter 11
and CCAA and will propose a plan of reorganization for itself and other filing
subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the
Chapter 11 and CCAA bankruptcy proceedings for confirmation after submission to
any vote and approval required by affected parties. If a plan of reorganization
is approved by the Bankruptcy Courts, the Company will be required to adopt
"fresh start" accounting under Canadian and United States accounting principles.
This accounting will require that assets and liabilities be recorded at fair
value, based on the values determined in connection with the plan of
reorganization. As a result, the reported amounts in the Consolidated Financial
Statements could materially change because they do not give effect to the
adjustments to the carrying value of assets and liabilities that may ultimately
result from
19
<PAGE>
the adoption of "fresh start" accounting. On January 24, 2000, the Company
announced that the United States Bankruptcy Court for the District of Delaware
approved the Company's disposition process in connection with its
previously-announced program for disposition of non-strategic assets. Through
this program, the Company intends to sell up to 371 of its approximately
1,400 U.S. funeral home and cemetery locations. A further 54 locations are
anticipated to be merged with existing locations.
BASIS OF PRESENTATION
This discussion and analysis of the Company should be read in conjunction
with the Consolidated Financial Statements and accompanying Notes in Item 8 of
this Form 10-K. The results reported herein have been prepared on a "going
concern" basis in accordance with Canadian GAAP. The "going concern" basis of
presentation assumes that the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. There is
substantial doubt about the appropriateness of the use of the "going concern"
assumption because of the Chapter 11 and CCAA bankruptcy proceedings and
circumstances relating to this event, including the Company's current debt
structure, recent losses and negative cash flow. As such, realization of assets
and discharge of liabilities are subject to significant uncertainty.
The Consolidated Financial Statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for the Consolidated Financial Statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. Additionally, the amounts reported could materially change
because of a plan of reorganization, since the reported amounts in the
Consolidated Financial Statements do not give effect to adjustments to the
carrying value of the underlying assets or amounts of liabilities that may
ultimately result. The appropriateness of the "going concern" basis is dependent
upon, among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to renegotiate and comply with the terms of a
debtor-in-possession revolving credit agreement and the ability to generate
sufficient cash from operations and financing arrangements to meet obligations.
20
<PAGE>
RESULTS OF OPERATIONS
Detailed below are the Company's operating results for the years ended
December 31, 1999, 1998 and 1997, 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 earnings
(loss) before income taxes.
The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. Additional segment information is provided in Note 18
to the Consolidated Financial Statements in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
--------- -------- -------- -------- -------- --------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral................................. $ 609.7 $ 631.2 $ 602.1 59.2 55.6 54.0
Cemetery................................ 326.6 408.5 422.0 31.7 36.0 37.9
Insurance............................... 94.1 96.5 90.0 9.1 8.4 8.1
--------- -------- -------- ----- ----- -----
Total................................. $ 1,030.4 $1,136.2 $1,114.1 100.0 100.0 100.0
========= ======== ======== ===== ===== =====
Gross margin
Funeral................................. $ 215.5 $ 223.9 $ 227.9 35.3 35.5 37.9
Cemetery................................ 52.8 51.3 119.0 16.2 12.6 28.2
Insurance............................... 20.4 16.5 16.7 21.7 17.1 18.5
--------- -------- --------
Total................................. 288.7 291.7 363.6 28.0 25.7 32.6
Expenses
General and administrative.............. 99.9 133.3 112.7 9.7 11.7 10.1
Depreciation and amortization........... 82.2 88.5 65.4 8.0 7.8 5.9
Provision for asset impairment.......... 355.2 333.9 -- 34.5 29.4 --
Restructuring costs..................... -- -- 33.4 -- -- 3.0
--------- -------- --------
Earnings (loss) from operations........... (248.6) (264.0) 152.1 (24.1) (23.2) 13.6
Interest on long-term debt................ 87.9 182.3 132.2 8.5 16.1 11.9
Provision for investment impairment and
contingent losses....................... 59.2 315.2 -- 5.8 27.8 --
Reorganization costs...................... 92.8 -- -- 9.0 -- --
Dividends on preferred securities of
subsidiary.............................. 3.0 7.1 7.1 0.3 0.6 0.6
Other expenses (income)................... 5.6 (5.1) (29.8) 0.5 (0.5) (2.7)
--------- -------- --------
(497.1) (763.5) 42.6 (48.2) (67.2) 3.8
Income taxes.............................. (31.9) (164.5) 0.8 n/a n/a 1.8
--------- -------- --------
Net earnings (loss)....................... $ (465.2) $ (599.0) $ 41.8 (45.1) (52.7) 3.8
========= ======== ========
</TABLE>
21
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Consolidated revenue decreased 9.3% to $1.030 billion for the year ended
December 31, 1999 from $1.136 billion in 1998. Management believes that the
revenue decline in the funeral business was in part due to the bankruptcy
filings on June 1, 1999. Cemetery revenue was significantly affected by the
disposition of 124 properties at March 31, 1999 and pre-need sales contract term
changes, such as shorter terms and larger down payments that are less attractive
to certain customers but are designed to improve cash flow. Consolidated gross
margin decreased slightly, 1.1%, to $288.7 million in 1999 from $291.7 million
in 1998, with a decline in funeral gross margin offset by improved insurance
gross margin. As a percentage of revenue, consolidated gross margin increased to
28.0% in 1999 from 25.7% in 1998.
Funeral revenue decreased 3.4% to $609.7 million in 1999 compared to
$631.2 million in 1998, primarily due to fewer funeral services and a reduced
average revenue per funeral service, partly, management believes, attributable
to consumer concerns caused by the bankruptcy filings. At locations in operation
for all of 1998 and 1999 ("Established Locations") the average revenue per
funeral service decreased by 5.7%, while the number of funeral services
performed decreased by 4.5%. Overall funeral gross margin, as a percentage of
funeral revenue, decreased slightly to 35.3% in 1999 from 35.5% in 1998,
principally as a result of lower revenues and significant fixed operating costs.
The Company's previously-announced program to dispose of 201 funeral home
locations that are considered non-strategic assets will result in a significant
reduction in future funeral revenue.
Cemetery revenue decreased 20.1% to $326.6 million in 1999 compared to
$408.5 million in 1998, primarily due to the disposition of 124 cemetery
properties at March 31, 1999. In addition, revenues were negatively impacted by
pre-need sales contract term changes, such as shorter terms and larger down
payments that are less attractive to certain customers but are designed to
improve cash flow and, management believes, by consumer concerns caused by the
bankruptcy filings in June. Overall cemetery gross margin, as a percentage of
cemetery revenue, increased to 16.2% in 1999 from 12.6% in 1998. In 1999,
cemetery gross margin increased $1.5 million from 1998. In 1998 cemetery gross
margin was reduced from the prior year due to a decline in pre-need sales and an
increase in the estimate of the allowance for pre-need accounts receivable due
to increased cancellation experience, trends and analysis. During 1999, there
was a further decline in pre-need sales and an increase in cancellation
experience. In addition, gross margins were significantly reduced in 1999 due to
a decline in revenues related to the bankruptcy and the disposition of
124 properties mentioned above. Cemetery gross margin was also negatively
impacted by fixed operating costs and adjustments to cemetery liabilities to
reflect current costs. The Company's previously-announced program to dispose of
170 cemetery locations that are considered non-strategic assets will result in a
significant reduction in future cemetery revenue.
Insurance revenue decreased to $94.1 million for 1999 from $96.5 million in
1998. However, excluding 1998 revenue of a subsidiary sold in 1998, insurance
revenue increased by approximately $10.7 million primarily due to the continuing
effort to expand the sale of pre-need funeral insurance through Company-owned
funeral homes. Overall insurance gross margin as a percentage of insurance
revenue increased to 21.7% for 1999 from 17.1% in 1998, primarily due to an
increase in pre-need funeral sales.
The Company's gross pre-arranged funeral sales decreased to approximately
$168 million in 1999 from approximately $258 million in 1998. Pre-arranged
funeral services comprised approximately 23% of the annual funeral services
performed by the Company in 1999 and in 1998. The Company estimates that it had
a backlog of approximately $1.2 billion in pre-need funeral sales as of
December 31, 1999. Approximately 80% of the Company's cemetery gross sales in
1999 was generated from pre-need sales compared with 75% in 1998.
General and administrative expenses, as a percentage of revenue, decreased
to 9.7% in 1999 from 11.7% in 1998. General and administrative expenses in 1999
decreased $33.4 million to $99.9 million from $133.3 million in 1998. The
decrease in general and administrative expenses in 1999 is primarily due to the
closure of the Trevose corporate office in the second quarter of 1999 and the
termination of various
22
<PAGE>
strategic initiatives subsequent to the bankruptcy filing on June 1, 1999. The
general and administrative expenses in 1998 included $14.9 million of previously
capitalized acquisition and construction costs associated with potential and
existing locations that were no longer pursued.
Depreciation and amortization expenses decreased to $82.2 million in 1999
compared to $88.5 million in 1998, primarily due to dispositions made in 1999,
as well as the write off in 1998 of various depreciable assets. As a percentage
of revenue, depreciation was 8.0% in 1999 compared to 7.8% in 1998, primarily
due to the decline in revenue.
In 1999, the Company recorded a pre-tax asset impairment provision of
$355.2 million applicable to certain properties, including the 371 properties
the Company identified for sale in December 1999. In December 1998, the Company
recorded a pre-tax asset impairment provision of $333.9 million on certain
individual properties, the majority of which were sold in March 1999 for gross
proceeds of $193 million and no further significant gain or loss. The asset
impairment provisions are based on management estimates and, as a result, actual
results could differ significantly from these estimates.
Interest expense on long-term debt decreased by $94.4 million to
$87.9 million in 1999 from $182.3 million in 1998. The decrease is primarily a
result of the suspension of post-Petition Date interest expense and payments for
under-secured and unsecured debt obligations resulting from the Company's
bankruptcy filings. Contractual interest expense not recorded on certain
pre-Petition Date debt obligations amounted to $99.9 million for the year ended
December 31, 1999.
In 1998, the Company concluded that its investments in Prime Succession
Holdings, Inc. ("Prime") and Rose Hills Holding Corp. ("Rose Hills") had
suffered a decline in value that was other than temporary and wrote down its
investments. In 1999, the Company reevaluated these investments in light of
further developments during the year. The Company concluded that its investment
in Prime had suffered a further decline in value that was other than temporary
and, accordingly, wrote off the remaining investment at December 31, 1999. The
Company also revalued its contingent loss under the majority owner of Prime's
put option (estimated difference between the option price, as defined, and the
Company's estimate of the fair value of the majority owner's interest based in
part on current market conditions), and adjusted the contingent loss. As with
Prime, although no further decline in the investment value had occurred, the
Company revalued its contingent loss for Rose Hills under the majority owner's
put option, and adjusted the contingent liability. These adjustments resulted in
investment impairment and contingent losses of $59.2 million recorded during
1999 compared to $315.2 million recorded in 1998. The contingent loss amounts
could change based on changes in the estimated future value of the businesses. A
net liability has been recorded reflecting an accrual of the expected losses on
the options reduced by the remaining carrying value of the investments.
Reorganization costs of $92.8 million in 1999, included a charge of
$23.0 million for the write off of deferred debt issue costs and $9.8 million
for the recording of the PATS option liability, each associated with debt now
subject to compromise, $27.0 million for the write off of costs associated with
executory contracts submitted for rejection by the Company, approximately
$5.7 million for the Company's Key Employee Retention Plan and $27.3 million of
professional fees for accounting, legal and consulting services provided to the
Company and the Official Unsecured Creditors' Committee, and other costs and
fees incurred while the Company reorganizes under Chapter 11 and CCAA.
The income tax benefit of $31.9 million in 1999 compares to an income tax
benefit of $164.5 million in 1998. In 1999, the Company established additional
valuation allowances of $138.6 million against the following tax assets:
a) provision for losses on the Company's existing investment in Rose Hills and
Prime and an increase in the liability regarding the Company's put obligations;
b) certain state, provincial, and federal net operating and capital loss
carryovers; c) interest expense; and d) certain other tax benefits. In addition,
the Company was unable to realize the benefit of either the operating loss for
the period or the deductible portion of the reorganization expenses incurred in
the period. The Company expects that its effective income tax rate for 2000 and
beyond may vary significantly from the Canadian statutory rate.
23
<PAGE>
Future income and losses, and the disposition of certain locations, may require
the Company to record a change in the valuation allowance of certain tax assets
that were taken into account in determining the net amount of the Company's
liability for future income taxes recorded on its balance sheet at December 31,
1999. If this occurs, the resulting change in the valuation allowance, which
could be significant, would generally be treated as an additional income tax
expense or benefit in future periods.
The Company had a net loss of $465.2 million in 1999 compared to a net loss
of $599.0 million in 1998. Basic loss per share was $6.40 in 1999 compared to a
loss of $8.22 in 1998. The decrease in net loss for 1999 resulted primarily from
lower investment impairment and contingent losses, interest on long-term debt
and general and administrative expense, partially offset by reduced income tax
benefits, increased reorganization costs, asset impairment and lower funeral
gross margin.
The Company's statement of cash flows for the year ended December 31, 1999
reflects cash provided from operations of $33.1 million, compared to cash
applied of $124.5 million in 1998, primarily due to the suspension of interest
on under-secured and unsecured debt obligations as a result of the bankruptcy
filings.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Consolidated revenue increased 2.0% to $1.136 billion in the year ended
December 31, 1998 from $1.114 billion in 1997, due to acquisitions. Consolidated
gross margin decreased 19.8% to $291.7 million in 1998 from $363.6 million in
1997, primarily due to volume declines in funeral and cemetery businesses and
increases in the allowance for funeral accounts receivable and pre-need cemetery
accounts receivable as a result of worsening trends in collection and
cancellation experience. As a percentage of revenue, consolidated gross margin
decreased to 25.7% in 1998 from 32.6% in 1997, principally due to the declines
in funeral, cemetery and insurance gross margins, as discussed below.
Funeral revenue increased 4.8% to $631.2 million in 1998 compared to
$602.1 million in 1997, due to revenue from acquisitions. The number of funeral
services performed at locations in operation for all of 1997 and 1998
("Established Locations") declined by 5.2% from 1997 to 1998. This decline,
combined with slightly lower average revenue per funeral service, had an
unfavorable impact on revenue. Funeral gross margin as a percentage of funeral
revenue for Established Locations decreased to 37.2% in 1998 from 38.0% in 1997,
as the decrease in revenue was partially offset by a 5.2% decrease in costs,
resulting from the decline in the number of funeral services performed and the
fixed nature of operating costs. As a result of the gross margin decrease for
Established Locations, together with the lower margins of recently acquired
funeral locations, overall funeral gross margin as a percentage of funeral
revenue decreased to 35.5% in 1998 from 37.9% in 1997.
Cemetery revenue decreased 3.2% to $408.5 million in 1998 compared to
$422.0 million in 1997, and cemetery gross margin decreased to 12.6% in 1998
from 28.2% in 1997, both primarily due to a decline in pre-need sales and an
increase in the estimate of the allowance for pre-need accounts receivable to
reflect worsening trends in cancellation experience. Similarly, for Established
Locations, cemetery gross margin decreased to 7.1% in 1998 from 27.5% in 1997.
Insurance revenue increased to $96.5 million for 1998 from $90.0 million in
1997. The increase in revenues was primarily due to the continuing effort to
expand the sale of pre-need funeral insurance through Company-owned funeral
homes, partially offset by reduced revenues as a result of the sale of First
Capital Life Insurance Company of Louisiana ("First Capital"). First Capital had
tangible assets of approximately $90 million and annual revenues of
approximately $24 million. Insurance gross margin decreased to 17.1% for 1998
from 18.5% in 1997, primarily due to the loss of First Capital business and the
implementation of the Company's insurance products in and expansion into
several states.
24
<PAGE>
The Company's gross pre-arranged funeral sales decreased to approximately
$258 million in 1998 from approximately $267 million in 1997. Pre-arranged
funeral services comprised approximately 23% and 21% of the annual funeral
services performed by the Company in 1998 and 1997, respectively. The Company
estimates that it had a backlog of approximately $1.1 billion in pre-need
funeral sales as of December 31, 1998. Approximately 75% of the Company's
cemetery gross sales in 1998 was generated from pre-need sales compared with 77%
in 1997.
General and administrative expenses, as a percentage of revenue, increased
to 11.7% in 1998 from 10.1% in 1997. For the year ended December 31, 1998,
general and administrative expenses increased $20.6 million to $133.3 million
from $112.7 million in 1997. The increase in general and administrative expenses
in 1998 was a result of the write off of $14.9 million of previously capitalized
costs, primarily for acquisitions and planned construction projects that were no
longer pursued, and approximately $2.0 million of costs associated with the
Company's initiative to evaluate strategic alternatives to maximize shareholder
value, including the transition of the Trevose office, partially offset by the
pre-tax gain of $6.8 million from the sale of First Capital (see above). Without
reflecting the impact of these items, general and administrative expenses for
1998 as a percentage of revenue, was 10.8% as compared to 7.9% in 1997, after
the exclusion of $24.8 million of charges for litigation and various asset write
downs in 1997.
Depreciation and amortization expenses, as a percentage of revenue,
increased to 7.8% in 1998, compared to 5.9% in 1997, primarily due to the fixed
cost component effect of lower than expected revenues, accelerated deprecation
and amortization of assets based on a reassessment of useful lives and the write
off of certain assets.
Interest expense on long-term debt increased by $50.1 million in 1998,
primarily as a result of additional borrowings by the Company to finance its
previous acquisition programs and working capital needs. In 1998, the Company
wrote off as interest expense approximately $15.0 million of deferred debt issue
costs related to its bank credit agreements.
Due to severe liquidity constraints and the need to generate cash in late
1998, the Company identified certain properties, which it would consider selling
at their fair value. On March 31, 1999, one group of properties consisting of
124 cemeteries and three funeral homes was sold for gross proceeds of
$193.0 million, before purchase price adjustments and transaction costs. The
Company recorded a pre-tax asset impairment provision of $333.9 million in 1998.
In calculating the impairment provision, the Company used estimated cash flow
from operations and estimated cash proceeds on the sale of these properties. The
asset impairment provision was based on management estimates.
The Company recorded an investment impairment provision and contingent loss
of $315.2 million relating to its investments in Prime and Rose Hills. Prior to
the fourth quarter of 1998, the Company had evaluated the exercise of its call
options related to the majority owner's investment in Prime and Rose Hills as
likely, and the exercise of the majority owner's put options as unlikely. Due to
liquidity concerns of the Company, the performance of Prime and Rose Hills, and
the reduced market values for the Company's and other industry participants'
stock, the Company determined the exercise of the calls to be unlikely and the
exercise of the puts to be likely. Accordingly, the Company determined that its
investments suffered a decline in value that was other than temporary and wrote
down its investment in Prime and Rose Hills based on an assumed distribution of
Prime's and Rose Hills' shareholders' equity at December 31, 1998, after taking
into account the majority owner's return under the put. In addition, the Company
estimated the expected put option price on the sixth anniversary, the first date
the put options become exercisable by the majority owner, based on the Company's
best estimate of earnings before interest, taxes, depreciation and amortization
at that time and the relevant formula in the put/call agreements. The Company
accrued contingent losses based upon the difference between the estimated option
prices and the Company's estimates of the fair value of the majority owner's
interest which was based in part on then-current market conditions. Such amount
could change based on changes in the estimated future value of the businesses. A
net liability was recorded reflecting an accrual of the expected losses on the
options reduced by the remaining carrying value of the investments.
25
<PAGE>
The income tax benefit of $164.5 million in 1998 compared to an income tax
expense of $0.8 million in 1997. In 1998, the Company established valuation
allowances against future potential tax deductions associated with the following
items in the amounts indicated: a) provision for losses on the Company's
existing investment in Prime and Rose Hills and the establishment of a liability
regarding the Company's put obligation in the amount of $120.0 million;
b) certain state, provincial, and federal net operating loss carryovers in the
amount of $50.1 million; and c) certain other tax benefits in the amount of
$7.5 million.
The Company had a net loss of $599.0 million in 1998 compared to net income
of $41.8 million in 1997. Basic loss per share was $8.22 compared to earnings of
$0.48 in 1997. The net loss and loss per share for 1998 were primarily due to
the decrease in operating earnings and the charges taken for asset impairment
primarily related to cemetery disposals and the impairment of the Company's
equity investments and accrual for contingent loss in Prime and Rose Hills.
The Company's statement of cash flows for the year ended December 31, 1998
reflected cash applied to operations of $124.5 million, primarily as a result of
pre-need cemetery programs.
DISPOSITIONS AND ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES
In December 1999, the Company announced its intention to dispose of
201 funeral homes and 170 cemeteries in the United States that do not meet the
Company's future geographic and strategic objectives. In January 2000, the
Bankruptcy Courts approved the Company's disposition process for the locations
identified. The Company has recorded in 1999 a pre-tax asset impairment
provision of $279.1 million on these locations. A further 54 locations are
anticipated to be merged with existing locations.
In March 1999, the Company completed the sale of 124 cemeteries and three
funeral homes. The Company received gross proceeds of $193.0 million, before
purchase price adjustments and transaction costs, resulting in a loss of
$1.1 million. The Company had two smaller groups of properties, which were also
considered probable for sale. The Company recorded a pre-tax asset impairment
provision of $333.9 million in 1998 and $15.1 million in 1999 on individual
properties contained in the above groups. In December 1998, the Company also
completed the sale of its insurance subsidiary, First Capital. The aggregate
proceeds from this sale were approximately $24 million, resulting in a gain
before taxes of $6.8 million.
In 1998, the Company acquired 89 funeral homes and 65 cemeteries for
consideration of $278.0 million. The Company does not expect to consummate any
material acquisitions during 2000.
LIQUIDITY AND CAPITAL RESOURCES
Over the past few years, the Company's strategic growth plan had emphasized
cemetery acquisitions, as compared to its historical emphasis on funeral home
acquisitions. Acquisition and the integration of cemeteries required significant
cash due to the pre-need sales of cemetery interment rights, products and
services and related interest costs on debt incurred.
On June 1, 1999, Loewen and most of its subsidiaries voluntarily filed a
petition for creditor protection under Chapter 11 and CCAA. The Company will
continue to conduct business in the ordinary course as debtors-in-possession
under the protection of the Bankruptcy Courts while a plan of reorganization is
developed.
Loewen, LGII and all of its U.S. debtor subsidiaries, as
debtors-in-possession, are parties to the $200 million DIP Facility, as amended.
The DIP Facility was approved by the U.S. Bankruptcy Court on July 16, 1999. The
DIP Facility has a term of two years and is secured by a perfected security
interest in substantially all of the existing and future assets of LGII and its
U.S. debtor subsidiaries (subject only to valid and perfected pre-Petition Date
liens). The lenders under the DIP Facility also have the benefit of a
"super-priority" administrative expense claim in LGII's bankruptcy proceedings.
The DIP Facility will be used primarily to fund LGII's working capital needs
during the course of the bankruptcy proceedings. Use of the DIP Facility for
letters of credit is limited to a maximum of $50 million. As at December 31,
1999,
26
<PAGE>
the borrowings under the DIP Facility were $8.0 million and the letters of
credit outstanding were $20.2 million.
In addition, the Company has taken steps to improve profitability and cash
flow throughout the organization, including a review of its cemetery pre-need
sales strategy. To improve cash flow, the Company implemented changes to the
terms and conditions of cemetery pre-need sales. These changes included: setting
contract term thresholds; adjusting sales force compensation for sales with
certain terms; and eliminating certain types of contracts in jurisdictions with
poor cash flow characteristics after trusting obligations are considered.
As a result of the Chapter 11 and CCAA filings, no principal or interest
payments will be made on most pre-Petition Date debt obligations without
Bankruptcy Court approval or until a plan of reorganization providing for the
repayment terms has been submitted to any required vote and approval of affected
parties, has been confirmed by the Bankruptcy Courts and has become effective.
Interest on unsecured and under-secured pre-Petition Date debt obligations
subject to compromise has not been accrued after the Petition Date. Interest
expense and principal payments will continue to be recorded on most secured
vendor financing, including capital lease obligations, unless the leases are
rejected by the Debtors. Contractual interest expense not recorded on certain
pre-Petition Date debt obligations totaled $99.9 million for the year ended
December 31, 1999.
In March 1999, the Company deferred future dividends applicable to the MIPS.
Since June 1, 1999, as a result of the bankruptcy filings, the Company was in
default of its bank and term credit agreements, senior amortizing notes and
senior notes and, accordingly, has not made interest, principal or dividend
payments when due on secured, unsecured and under-secured debt obligations.
The Company's balance sheet at December 31, 1999 as compared to
December 31, 1998, reflects significant changes from the disposition of
properties, the bankruptcy filings as of June 1, 1999, and impairment
provisions, and, to a lesser extent, ongoing operating activities.
COLLATERAL TRUST AGREEMENT
In 1996, Loewen, LGII and their senior lenders entered into a collateral
trust agreement pursuant to which the senior lenders share certain collateral
and guarantees on a pari passu basis (the "Collateral Trust Agreement"). The
security for lenders under the Collateral Trust Agreement consists of (i) all of
LGII's right, title and interest in and to all rights to receive payment under
or in respect of accounts, contracts, contractual rights, chattel paper,
documents, instruments and general intangibles, (ii) a pledge of the shares of
capital stock of substantially all of the subsidiaries in which Loewen directly
or indirectly holds more than a 50% voting or economic interest, and (iii) a
guarantee by each subsidiary that is pledging stock. The security is held by a
trustee for the equal and ratable benefit of the senior lending group. This
senior lending group consists principally of the lenders under the senior
amortizing notes, senior notes and bank and term credit agreements, as well as
the holders of certain letters of credit. At the Petition Date, the indebtedness
owed to the senior lending group subject to the Collateral Trust Agreement,
including the holders of certain letters of credit, aggregated approximately
$2.0 billion.
RESTRICTIONS
The DIP Facility, as amended, contains various financial and other
restrictive covenants including, among other things, limitations on asset sales,
additional indebtedness, capital expenditures, and minimum levels of operating
cash flow, gross margin and revenue. Under the terms of the DIP Facility, the
cash of the Company, LGII and its subsidiaries which have filed under
Chapter 11, is generally restricted for use within this group of filed
companies. In December 1999, the Company favorably renegotiated certain
covenants and received approval from the lenders for initiative expenditures not
contemplated when the original DIP Facility was obtained. These amendments
received Bankruptcy Court approval in December 1999. As at the date of issue of
this report, there are no funded advances under this facility. The pricing,
covenants and facility limit are presently the subject of discussion between the
Company and the
27
<PAGE>
DIP Agent with a view to reducing the cost and better adapting the terms to the
requirements of the proposed business plan. Loans made under the amended DIP
Facility bear interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus
2.75% for Eurodollar advances). A fee of 2.75% is charged on letters of credit
under the amended DIP Facility. A commitment fee of 0.50% is charged on the
unused portion of the amended DIP Facility. Related debt issue costs have been
deferred and are being amortized over the two-year life of the amended
DIP Facility. The Company believes that sufficient cash resources currently
exist to satisfy its near-term obligations.
The Company's insurance subsidiaries, which have not filed for protection
under Chapter 11, are also subject to certain state regulations that restrict
distributions, loans and advances from such subsidiaries to the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company used derivatives, prior to filing for bankruptcy, primarily in
the form of interest rate swaps, cross-currency interest rate swaps, and both
Canadian and United States dollar borrowings. The objective was to manage the
mix of floating and fixed rate debt and to substantially hedge the Company's net
investment in foreign assets. The Company's major market risk exposures are to
changing interest rates, equity prices and foreign currency fluctuations. The
Company's exposure to interest rate fluctuations and equity prices primarily
reside in the United States, while the Company's exposure to foreign currency
fluctuations primarily resides in Canadian dollar investments. All derivative
and other financial instruments described were non-trading and were stated in
U.S. dollars. The Company's derivative contracts were entered into with major
financial institutions, thereby minimizing the risk of credit loss. Fluctuations
in interest and currency rates that affected the swaps were generally offset by
corresponding movements in the assets or debt being hedged. The Company's market
risk exposure, discussed below, provides information about the Company's market
sensitive financial instruments and constitutes "forward-looking statements"
which involve risks and uncertainties. Actual results could differ materially
from those projected in the forward-looking statements.
As a result of the Company's bankruptcy filings on the Petition Date,
virtually all of the Company's fixed and floating rate debt are in default. Such
obligations have been reclassified as liabilities subject to compromise and will
not be settled until a plan of reorganization is confirmed by the Bankruptcy
Courts. These material limitations restrict the Company's ability to fully
reflect the net market risk exposure of these instruments. Accordingly,
information about fair values and scheduled repayments of the debt obligations
has been omitted. In addition, all interest rate derivatives previously held by
the Company have been terminated and a liability has been recorded if necessary.
Comparative information for the prior year has similarly been omitted as the
information is no longer meaningful due to the bankruptcy proceedings.
The Company's sensitivity to floating interest rates is primarily
attributable to borrowings under the DIP Facility. Accordingly, changes in U.S.
interest rates affect the interest paid on the Company's debt.
The Company has foreign operations in the United Kingdom (34 locations) and
Mexico (one location). These countries are generally stable politically and
economically, and are not highly inflationary.
EQUITY-PRICE RISK MANAGEMENT
The sale of pre-arranged funeral services, pre-need cemetery merchandise and
insurance products results in the Company having significant investment in, or
managing trusts that have significant investment in, mutual funds and equity
securities which are sensitive to current market prices. Fluctuations in
interest and equity market rates on investments held in pre-arranged funeral
trusts do not result in significant current income fluctuation as the income is
not realized until services are performed. Investments in pre-need cemetery
merchandise trusts and insurance invested assets predominately hold fixed income
securities. These investments are generally not sold prior to maturity.
Accordingly, any unrealized gains or losses created by fluctuations in interest
rates will not be realized. The Company manages the mix of equities and fixed
income securites in accordance with policies set by the Investment Committee
which is comprised of members of senior management. The Investment Committee
sets and modifies the mix of investments with the assistance of independent
professional financial advisors. The policy emphasizes a conservative approach
while maintaining acceptable levels of income and capital appreciation.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
THE LOEWEN GROUP INC., CONSOLIDATED FINANCIAL STATEMENTS
Management's Statement of Responsibility.................. 31
Report of Independent Accountants......................... 32
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................... 33
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997........................ 34
Consolidated Statements of Retained Earnings (Deficit) for
the Years Ended December 31, 1999, 1998 and 1997........ 35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997........................ 36
Notes to Consolidated Financial Statements................ 37
Supplementary Data: Quarterly Financial Data
(unaudited)............................................. 81
LOEWEN GROUP INTERNATIONAL, INC., CONSOLIDATED FINANCIAL
STATEMENTS(1)
Report of Independent Accountants......................... 83
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................... 84
Consolidated Statements of Operations and Deficit for the
Years Ended December 31, 1999, 1998 and 1997............ 85
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997........................ 86
Notes to Consolidated Financial Statements................ 87
</TABLE>
- ------------------------
(1) FINANCIAL STATEMENTS OF LOEWEN GROUP INTERNATIONAL, INC. ("LGII") ARE
INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE OUTSTANDING SHARES OF
LGII 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 AND SERIES 6 AND 7 NOTES THAT WERE ISSUED BY LGII AND
GUARANTEED BY LOEWEN.
29
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of The Loewen Group Inc. is responsible for the preparation
of the accompanying consolidated financial statements and the preparation and
presentation of all information in the Annual Report. The consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in Canada and are considered by management to present fairly the
financial position and operating results of the Company.
The Company maintains various systems of internal control designed to
provide reasonable assurance that transactions are appropriately authorized and
recorded, that assets are safeguarded, and that financial records are properly
maintained to provide accurate and reliable financial statements in all material
respects.
The Company's audit committee is composed entirely of non-management
directors and is appointed by the Board of Directors annually. The audit
committee meets periodically with the Company's management and independent
auditors to review financial reporting matters and internal controls and to
review the consolidated financial statements and the independent auditors'
report. The audit committee reported its findings to the Board of Directors who
have approved the consolidated financial statements.
The Company's independent auditors, KPMG LLP, have examined the consolidated
financial statements and their report follows.
<TABLE>
<S> <C>
/s/ PAUL A. HOUSTON /s/ MICHAEL A. CORNELISSEN
President and Chief Executive Officer Senior Vice-President, Chief Financial
Officer
</TABLE>
March 14, 2000
31
<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, 1999 and 1998 and the consolidated statements of operations,
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999. 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 Canadian 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,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999, in accordance with
Canadian generally accepted accounting principles. 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.
Canadian generally accepted accounting principles vary in certain
significant respects from accounting principles generally accepted in the
United States. Application of accounting principles generally accepted in the
United States would have affected results of operations for each of the years in
the three-year period ended December 31, 1999 and assets, liabilities and
shareholders' equity as at December 31, 1999 and 1998 to the extent summarized
in Note 20 to the consolidated financial statements.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
March 14, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -- U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Our report to the shareholders
dated March 14, 2000 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditor's report when these are adequately disclosed in the financial
statements.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
March 14, 2000
32
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 55,166 $ 94,141
Receivables, net of allowances............................ 198,500 203,772
Inventories............................................... 34,850 34,482
Prepaid expenses.......................................... 12,332 8,916
---------- ----------
300,848 341,311
Long-term receivables, net of allowances.................... 577,733 664,999
Cemetery property........................................... 923,344 1,235,847
Property and equipment...................................... 799,813 825,985
Names and reputations....................................... 650,200 748,665
Insurance invested assets................................... 281,423 266,661
Future income tax assets.................................... 5,128 12,003
Pre-arranged funeral services............................... 438,541 413,934
Other assets................................................ 133,553 164,503
---------- ----------
$4,110,583 $4,673,908
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities not subject to compromise
Current liabilities
Current indebtedness.................................... $ -- $ 66,222
Accounts payable and accrued liabilities................ 97,637 170,134
Long-term debt, current portion......................... 20,693 874,123
---------- ----------
118,330 1,110,479
---------- ----------
Long-term debt, net of current portion.................... 70,511 1,393,891
Other liabilities......................................... 426,019 399,304
Insurance policy liabilities.............................. 184,207 166,920
Future income tax liabilities............................. 146,028 208,939
Deferred pre-arranged funeral services revenue............ 438,541 413,934
Liabilities subject to compromise........................... 2,282,601 --
Preferred securities of subsidiary.......................... -- 75,000
Shareholders' equity
Common shares............................................. 1,276,434 1,274,096
Preferred shares.......................................... 157,146 157,146
Deficit................................................... (1,004,917) (539,741)
Foreign exchange adjustment............................... 15,683 13,940
---------- ----------
444,346 905,441
---------- ----------
$4,110,583 $4,673,908
========== ==========
BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (NOTE 1)
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, 10, 13, 15 AND
19)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
<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
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Funeral................................................ $ 609,710 $ 631,221 $ 602,112
Cemetery............................................... 326,562 408,497 422,010
Insurance.............................................. 94,101 96,516 89,977
---------- ---------- ----------
1,030,373 1,136,234 1,114,099
Costs and expenses
Funeral................................................ 394,227 407,302 374,191
Cemetery............................................... 273,760 357,183 302,965
Insurance.............................................. 73,727 80,013 73,304
---------- ---------- ----------
741,714 844,498 750,460
---------- ---------- ----------
288,659 291,736 363,639
Expenses
General and administrative............................. 99,874 133,289 112,766
Depreciation and amortization.......................... 82,212 88,513 65,378
Provision for asset impairment......................... 355,180 333,900 --
Restructuring costs.................................... -- -- 33,364
---------- ---------- ----------
537,266 555,702 211,508
---------- ---------- ----------
Earnings (loss) from operations.......................... (248,607) (263,966) 152,131
Interest on long-term debt............................... 87,849 182,305 132,252
Provision for investment impairment and contingent
losses................................................. 59,247 315,207 --
Reorganization costs..................................... 92,791 -- --
Dividends on preferred securities of subsidiary.......... 2,971 7,088 7,088
Other expenses (income).................................. 5,651 (5,126) (29,804)
---------- ---------- ----------
Earnings (loss) before income taxes...................... (497,116) (763,440) 42,595
Income taxes
Current................................................ 8,232 23,118 34,152
Future................................................. (40,172) (187,589) (33,367)
---------- ---------- ----------
(31,940) (164,471) 785
---------- ---------- ----------
Net earnings (loss)...................................... $ (465,176) $ (598,969) $ 41,810
========== ========== ==========
Basic earnings (loss) per Common share................... $ (6.40) $ (8.22) $ 0.48
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1999 1998 1997
----------- --------- --------
<S> <C> <C> <C>
Retained earnings (deficit), beginning of year............. $ (539,741) $ 75,624 $ 58,305
Net earnings (loss)........................................ (465,176) (598,969) 41,810
Common share dividends..................................... -- (7,496) (14,958)
Preferred share dividends.................................. -- (8,900) (9,533)
----------- --------- --------
Retained earnings (deficit), end of year................... $(1,004,917) $(539,741) $ 75,624
=========== ========= ========
Dividend per Common share.................................. $ -- $ 0.100 $ 0.200
Dividend per Preferred share............................... $ -- $ 1.011 $ 1.083
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
35
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss)..................................... $(465,176) $(598,969) $ 41,810
Items not affecting cash
Depreciation and amortization......................... 82,212 88,513 65,378
Amortization of debt issue costs...................... 4,929 26,581 6,802
Provision for asset impairment........................ 355,180 333,900 --
Provision for investment impairment and contingent
losses.............................................. 59,247 315,207 --
Loss (gain) on sale of assets......................... 1,122 (6,768) (27,208)
Future income taxes................................... (40,172) (187,589) (33,367)
Equity and other earnings of associated companies..... 4,529 (5,126) (13,380)
Non-cash restructuring costs.......................... -- -- 15,645
Non-cash reorganization costs......................... 59,184 -- --
Other, including net changes in other non-cash
balances.............................................. (27,991) (90,277) (216,356)
--------- --------- -----------
33,064 (124,528) (160,676)
--------- --------- -----------
Investing
Proceeds on disposition of assets and investments....... 202,635 56,340 70,087
Purchase of property and equipment...................... (39,530) (43,540) (52,830)
Construction of new facilities.......................... (14,974) (19,208) (32,429)
Purchase of insurance invested assets................... (147,510) (224,145) (261,987)
Proceeds on disposition and maturities of insurance
invested assets....................................... 130,434 180,175 252,626
Business acquisitions................................... (173) (252,598) (481,617)
Investments, net........................................ -- (1,422) 14,523
--------- --------- -----------
130,882 (304,398) (491,627)
--------- --------- -----------
Financing
Increase in long-term debt.............................. 14,936 1,105,441 1,343,545
Repayment of long-term debt............................. (140,613) (645,667) (1,082,970)
Increase in (repayment of) current indebtedness......... (66,222) 66,222 --
Debt issue costs........................................ (8,866) (17,884) (7,120)
Issue of Common shares, before income tax recovery...... -- 1,801 439,429
Common share dividends.................................. -- (14,713) (12,340)
Preferred share dividends............................... (2,156) (8,900) (9,533)
--------- --------- -----------
(202,921) 486,300 671,011
--------- --------- -----------
Increase (decrease) in cash............................... (38,975) 57,374 18,708
Cash, beginning of year................................... 94,141 36,767 18,059
--------- --------- -----------
Cash, end of year......................................... $ 55,166 $ 94,141 $ 36,767
========= ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
36
<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. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION
BANKRUPTCY PROCEEDINGS
The Loewen Group Inc. (the "Company") is a company organized under the laws
of British Columbia, Canada. On June 1, 1999 (the "Petition Date"), the Company
and each of approximately 850 United States subsidiaries and a foreign
subsidiary voluntarily filed a petition for creditor protection under Chapter 11
of the U.S. Bankruptcy Code ("Chapter 11") in the U.S. Bankruptcy Court, for the
District of Delaware. Concurrent with the Chapter 11 filing, the Company and 116
of its Canadian subsidiaries filed for creditor protection under the Companies'
Creditors Arrangement Act ("CCAA") with the Ontario Superior Court of Justice,
Toronto, Ontario, Canada (together with the U.S. Bankruptcy Court, the
"Bankruptcy Courts"). Subsequent to the Petition Date, three additional
subsidiaries of the Company voluntarily filed petitions for creditor protection
and a fourth subsidiary's petition was voluntarily deleted.
The Company and its subsidiaries under creditor protection (the "Debtors")
are presently operating their businesses as debtors-in-possession. The United
States trustee for the District of Delaware appointed a statutory committee of
unsecured creditors (the "Official Unsecured Creditors' Committee"). The
proceedings of the Debtors are being jointly administered for procedural
purposes only. The Company's insurance, United Kingdom and certain funeral and
cemetery subsidiaries were not included in the Chapter 11 and CCAA filings.
The Company is reorganizing its affairs under the protection of Chapter 11
and CCAA and will propose a plan of reorganization for itself and other filing
subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the
Chapter 11 and CCAA proceedings for confirmation after submission to any vote
and approval required by affected parties.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a "going
concern" basis in accordance with Canadian generally accepted accounting
principles. The "going concern" basis of presentation assumes that the Company
will continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities and commitments in the normal
course of business. There is substantial doubt about the appropriateness of the
use of the "going concern" assumption because of the Chapter 11 and CCAA
bankruptcy proceedings and circumstances relating to this event, including the
Company's current debt structure, recent losses and negative cash flow. As such,
realization of assets and discharge of liabilities are subject to significant
uncertainty.
The consolidated financial statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the "going concern" basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to renegotiate and comply with the
terms of a debtor-in-possession revolving credit facility, and the ability to
generate sufficient cash from operations and financing arrangements to meet
obligations.
Additionally, if a plan of reorganization is approved by the Bankruptcy
Courts, the Company will be required to adopt "fresh start" accounting under
Canadian and U.S. generally accepted accounting
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 1. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED)
principles. This accounting will require that assets and liabilities be recorded
at fair value, based on the values determined in connection with the plan of
reorganization. As a result, the reported amounts in the consolidated financial
statements could materially change, because they do not give effect to the
adjustments to the carrying values of assets and liabilities that may ultimately
result from the adoption of "fresh start" accounting.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of 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 20.
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, 1999
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 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. The equity method carrying value of the investment is also
reduced by any provision for asset impairment and common share dividends
received.
All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.
MEASUREMENT UNCERTAINTY
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 significantly differ from
those estimates.
FUNERAL SERVICES
The Company provides a full range of at-need funeral services as well as
pre-arranged funeral services.
Pre-arranged 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, in part, are either placed in trust or are used to pay
the premiums of life insurance policies under which the Company will be
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 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 pre-arranged 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 pre-arranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
The Company provides a complete line of cemetery products and services, the
majority of which are sold on a pre-need basis.
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Changes in estimated costs of
merchandise and services are recognized in income when additional information
becomes available. Interest is imputed at a market rate for contracts that do
not bear a market rate of interest. An allowance for cancellations and refunds
is provided at the date of sale based on management's estimates. The allowance
is reviewed quarterly and changes in estimates are reflected for current and
prior contracts as a result of recent cancellation experience, trends and
analysis. Actual cancellation rates in the future will result in changes in
estimate which are recognized when information is available.
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 various state and
provincial laws, 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. Earnings of merchandise and services trust funds are
recognized in income in the year realized; increases of cost in the merchandise
and services are recognized as a charge to income.
INSURANCE OPERATIONS
The Company's insurance companies sell a variety of life insurance products,
primarily to fund pre-arranged funeral services.
Insurance invested assets, primarily consisting of 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
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 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 will be revised if it is determined that
future experience differs substantially from that previously assumed.
CASH
Cash includes cash and term deposits with an initial maturity less than or
equal to 90 days.
INVENTORIES
Inventories are carried 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 mausoleums, and is valued at average cost.
Amounts are expensed as sales of cemetery plots and mausoleums 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....................................... Up to 6 years
Furniture, fixtures and equipment................. 6 to 10 years
Computer hardware and software.................... 6 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
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 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
names and reputations, cemetery property, property and equipment, investments
and other assets based on estimates using factors such as future asset
utilization, business climate and future undiscounted cash flows expected to
result from the use of the related assets or realized upon sale. The Company's
policy is to write down assets to their net recoverable amount in the period
when it is determined that the carrying amount of the asset is not likely to be
recovered.
DEBT ISSUE COSTS
Debt issue 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 included in interest expense on a
straight-line basis over the respective term of the related instrument. These
costs include legal fees, accounting fees, underwriting and agency fees and
other related costs.
DERIVATIVE INSTRUMENTS
Prior to filing for bankruptcy, the Company used 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 typically used interest rate swap agreements to manage interest
rate exposure on its long-term debt. Differences between the amounts paid and
received would be accrued and accounted for as an adjustment to interest expense
over the life of the swap agreement.
The Company used basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions were probable
and the significant characteristics and expected terms were identified. Any gain
or loss as a result of the hedging would be 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 met the criteria of a
hedge, any gain or loss would be recognized in current earnings.
The Company also used foreign exchange forward contracts, cross currency
swaps, 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
would be 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.
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 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes. Under this method, current income taxes are recognized for the estimated
income taxes payable for the current period. Future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of losses
available to be carried forward to future years for tax purposes. Future income
tax assets and liabilities are measured using substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future income
tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the substantive enactment date. A valuation
allowance is recognized to the extent the recoverability of future income tax
assets is not considered more likely than not.
EARNINGS PER SHARE
Basic earnings (loss) per share is 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 is not materially different from basic earnings (loss) per share.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's Canadian operations and other
operations outside the United States, which are accounted for as self-sustaining
operations, 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. The net gains or
losses arising from the translations are deferred and are classified as "Foreign
exchange adjustment" within Shareholders' equity.
COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1999.
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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT
In the Chapter 11 and CCAA proceedings, substantially all unsecured and
under-secured liabilities of the Debtors as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization to be confirmed by
the Bankruptcy Courts after submission to any required vote and approval by
affected parties. For financial reporting purposes, those liabilities and
obligations whose treatment and satisfaction are dependent on the outcome of the
Chapter 11 and CCAA proceedings have been segregated and classified as
liabilities subject to compromise in the consolidated financial statements.
Generally, all actions to enforce or otherwise effect repayment of pre-Petition
Date liabilities as well as all pending litigation against the Debtors are
stayed while the Debtors continue their business operations as
debtors-in-possession. The Bar Date, which was the last date by which claims
against the Company had to be filed in the U.S. Bankruptcy Court if the
claimants wished to receive any distribution in the Chapter 11 proceedings,
expired on December 15, 1999. The Bar Date for claims against operating entities
applicable to the CCAA proceeding was set at March 10, 2000.
Differences between amounts shown by the Debtors and claims filed by
creditors will be investigated and either amicably resolved, adjudicated before
the Bankruptcy Courts, or resolved through other resolution processes. The
ultimate amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and, accordingly, are not presently
determinable.
Under the U.S. Bankruptcy Code, the Debtors may elect to assume or reject
leases, employment contracts, service contracts and other pre-Petition Date
executory contracts, subject to U.S. Bankruptcy Court approval including those
described in Note 13. Liabilities related to executory contracts are recorded as
liabilities not subject to compromise, unless the Company has decided to reject
the contract. Claims for damages resulting from the rejection, after
December 15, 1999, of executory contracts will be subject to separate bar dates.
The Debtors are reviewing all executory contracts for assumption or rejection.
In August 1999, the Debtors applied to the U.S. Bankruptcy Court to reject
approximately 200 non-compete agreements. The Company has suspended payments
applicable to these non-compete agreements. The U.S. Bankruptcy Court disallowed
the Company's motion to reject these non-compete agreements as a group in
August 1999. The Company may resubmit some or all of these non-compete
agreements on an individual or smaller group basis in the future, as well as
applications to reject additional executory contracts.
The principal categories of obligations classified as liabilities subject to
compromise under the reorganization proceedings are identified below. The
amounts in total may vary significantly from the stated amount of proofs of
claim that are filed with the Bankruptcy Courts, and may be subject to future
adjustment depending on Bankruptcy Court action, further developments with
respect to potential disputed claims, and determination as to the value of any
collateral securing claims or other events. Additional claims may also arise
from the rejection of executory contracts by the Debtors.
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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
The liabilities subject to compromise and debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1999 1998
----------- --------- ----------
LIABILITIES
SUBJECT TO LONG-TERM LONG-TERM
COMPROMISE DEBT DEBT
----------- --------- ----------
<S> <C> <C> <C>
DIP Facility............................................... $ -- $ 8,000 $ --
Bank credit agreements..................................... 338,689 -- 427,292
11.12% (1998 - 9.62%) Series D senior amortizing notes due
in 2003.................................................. 36,518 -- 42,857
7.82% (1998 - 6.49%) Series E senior amortizing notes due
in 2004.................................................. 30,432 -- 42,857
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)............................................ 139,567 -- 130,676
7.20% Series 6 senior notes due in 2003.................... 200,000 -- 200,000
7.60% Series 7 senior notes due in 2008.................... 250,000 -- 250,000
6.70% Pass-through Asset Trust Senior notes ("PATS") and
related option liability recorded, due in 1999........... 309,760 -- 300,000
Promissory notes and capital lease obligations............. 80,159 83,204 174,332
Accounts payable and accrued liabilities................... 95,622 -- --
9.45% Cumulative Monthly Income Preferred Securities,
Series A ("MIPS")........................................ 75,000 -- --
Executory contracts........................................ 26,854 -- --
---------- -------- ----------
2,282,601 91,204 2,268,014
Less current portion of long-term debt..................... -- 20,693 874,123
---------- -------- ----------
$2,282,601 $ 70,511 $1,393,891
========== ======== ==========
</TABLE>
Litigation against the Company and its filing subsidiaries as of June 1,
1999 and any additional liabilities related thereto will be subject to
compromise (see Note 10).
As a result of the Chapter 11 and CCAA filings, no principal or interest
payments will be made on most pre-Petition Date debt obligations without
Bankruptcy Court approval or until a plan of reorganization providing for the
repayment terms has been submitted to any required vote and approval of affected
parties, has been confirmed by the Bankruptcy Courts and has become effective.
Interest on unsecured and under-secured pre-Petition Date debt obligations
subject to compromise has not been accrued after the Petition Date. Interest
expense and principal payments will continue to be recorded on most secured
vendor financing, including capital lease obligations, unless the leases are
rejected by the Debtors. Contractual interest expense not recorded on
liabilities subject to compromise totaled $99,885,000 for the year ended
December 31, 1999.
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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
In March 1999, the Company deferred future dividends applicable to the MIPS.
Since June 1, 1999, as a result of the bankruptcy filings, the Company was in
default of its bank credit agreements, Series D and E senior amortizing notes,
Series 1 through 7 Senior notes, and PATS and, accordingly, has not made
interest, principal or dividend payments when due on secured, unsecured and
under-secured debt obligations. The amounts in arrears on the Company's senior
debt obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Interest payments in arrears:
Bank credit agreements............................ $ 21,417
11.12% Series D senior notes...................... 1,825
7.82% Series E senior notes....................... 958
7.50% Series 1 senior notes....................... 8,438
8.25% Series 2 senior notes....................... 5,156
7.75% Series 3 senior notes....................... 4,844
8.25% Series 4 senior notes....................... 9,281
6.10% Series 5 senior notes....................... 4,257
7.20% Series 6 senior notes....................... 14,659
7.60% Series 7 senior notes....................... 19,361
6.70% PATS........................................ 10,050
--------
$100,246
========
Principal payments in arrears:
11.12% Series D senior notes...................... $ 8,571
6.70% PATS........................................ 300,000
--------
$308,571
========
Dividends in arrears:
9.45% MIPS........................................ $ 5,906
========
</TABLE>
The Company, LGII and all of its U.S. debtor subsidiaries, as
debtors-in-possession, are parties to a Petition Date $200,000,000 revolving
credit agreement (the "DIP Facility"). The DIP Facility was approved by the U.S.
Bankruptcy Court on July 16, 1999 and amended in December, 1999. The amended DIP
Facility has a term of two years and is secured by a perfected security interest
in substantially all of the existing and future assets of LGII and its U.S.
debtor subsidiaries (subject only to valid and perfected pre-Petition Date
liens). The lenders under the amended DIP Facility also have the benefit of a
"super-priority" administrative expense claim in LGII's bankruptcy proceedings.
The amended DIP Facility will be used primarily to fund LGII's working capital
needs during the course of the bankruptcy proceedings. Use of the amended DIP
Facility for letters of credit is limited to a maximum of $50,000,000. As at
December 31, 1999, the borrowings under the amended DIP Facility were $8,000,000
and the letters of credit outstanding were $20,163,000.
The amended DIP Facility contains various financial and other restrictive
covenants including, among other things, limitations on asset sales, additional
indebtedness, intercompany payments, capital expenditures, and minimum levels of
operating cash flow, gross margin and revenue. Under the terms 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 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
the amended DIP Facility, the cash and cash equivalents of the Company, LGII and
its subsidiaries which have filed under Chapter 11, is generally restricted for
use within this group of filed companies. In December 1999, the Company
favorably renegotiated certain covenants and received approval from the lenders
for initiative expenditures not contemplated when the original DIP Facility was
obtained. These amendments received Bankruptcy Court approval in December 1999.
In March 2000, the covenants will be subject to review in conjunction with the
Company's proposed business plan. Loans made under the amended DIP Facility bear
interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus 2.75% for
Eurodollar advances). A fee of 2.75% is charged on letters of credit under the
amended DIP Facility. A commitment fee of 0.50% is charged on the unused portion
of the amended DIP Facility. Related debt issue costs have been deferred and are
being amortized over the two-year life of the amended DIP Facility.
In 1996, the Company, LGII and their senior lenders entered into a
collateral trust agreement pursuant to which the senior lenders share certain
collateral and guarantees on a pari passu basis (the "Collateral Trust
Agreement"). The security for lenders under the Collateral Trust Agreement
consists of (i) all of LGII's right, title and interest in and to all rights to
receive payment under or in respect of accounts, contracts, contractual rights,
chattel paper, documents, instruments and general intangibles, (ii) a pledge of
the shares of capital stock of substantially all of the subsidiaries in which
the Company directly or indirectly holds more than a 50% voting or economic
interest, and (iii) a guarantee by each subsidiary that is pledging stock. The
security is held by a trustee for the equal and ratable benefit of the senior
lending group. The senior lending group consists principally of the lenders
under the senior amortizing notes, senior notes and bank and term credit
agreements as well as the holders of certain letters of credit. At the Petition
Date, the indebtedness owed to the senior lending group subject to the
Collateral Trust Agreement, including holders of certain letters of credit,
aggregated $2,016,000,000.
In September 1998, a subsidiary of the Company, which was not included in
the Chapter 11 or CCAA filings, established a revolving receivables finance
facility (the "Receivables Finance Facility") through a subsidiary of one of the
Company's bank lenders. Under the terms of the agreement, new receivables were
added to the pool each month to offset collections from existing receivables. At
December 31, 1999, the Receivables Finance Facility was extinguished
(1998 -- $66,222,000 of current indebtedness was outstanding).
Interest expense for the year ended December 31, 1999 includes $4,929,000 of
amortization and write-offs of unamortized debt issue costs
(1998 -- $26,581,000, 1997 -- $6,802,000). In 1999, unamortized debt issue costs
applicable to debt which is subject to compromise of $23,035,000 was charged to
reorganization costs (see Note 11).
In 1994, Loewen Group Capital L.P. ("LGC") issued 3,000,000 9.45% Cumulative
Monthly Income Preferred Securities, Series A ("MIPS") 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 MIPS were due
August 31, 2024 and were 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. As a result of
the Chapter 11 filing, LGC has commenced wind-up proceedings and the MIPS became
currently redeemable. The MIPS are subject to an unsecured guarantee by the
Company and LGII. Accordingly, the MIPS have been designated as liabilities
subject to compromise.
46
<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. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
Summarized financial data for LGII are presented as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income statement information:
Revenue................................................ $ 945,697 $1,072,556 $1,035,099
Gross margin........................................... 262,903 275,139 305,764
Earnings (loss) from operations........................ (251,456) (465,797) 120,622
Net loss............................................... (465,797) (635,912) (78,750)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance sheet information:
Current assets......................................... $ 195,124 $ 218,107 $ 242,596
Non-current assets..................................... 3,456,213 3,922,407 3,967,751
---------- ---------- ----------
Total assets........................................... 3,651,337 4,140,514 4,210,347
Liabilities not subject to compromise:
Current liabilities.................................. 104,113 1,207,708 172,371
Non-current liabilities.............................. 1,175,831 3,237,888 3,737,722
Liabilities subject to compromise...................... 3,115,990 -- --
---------- ---------- ----------
Total liabilities...................................... 4,395,934 4,445,596 3,910,093
Shareholders' equity (deficiency)...................... (744,597) (305,082) 300,254
</TABLE>
Included in LGII's liabilities subject to compromise are net inter-company
payables of $1,015,163,000.
Maturities of long-term debt which are not subject to compromise are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000.................................................... $20,693
2001.................................................... 20,939
2002.................................................... 8,553
2003.................................................... 8,411
2004.................................................... 10,159
Thereafter.............................................. 22,449
-------
$91,204
=======
</TABLE>
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 4. DISPOSITIONS AND ACQUISITIONS
(a) DISPOSITIONS
In 1999, the Company sold 124 cemeteries and three funeral homes to an
investor group (see Note 19) for gross proceeds of $193,000,000, before purchase
price adjustments and transaction costs, resulting in a pre-tax loss of
$1,122,000. An impairment charge of $301,605,000, relating to these properties,
was recorded in 1998 (see Note 12). The assets and liabilities disposed of were
$244,338,000 and $67,867,000, respectively.
In 1998, the Company sold First Capital Life Insurance Company of Louisiana,
a wholly owned subsidiary, for gross proceeds of $24,522,000 resulting in a
pre-tax gain of $6,768,000. The assets and liabilities disposed of were
$89,958,000 and $72,204,000, respectively.
(b) ACQUISITIONS
In 1998, the Company acquired 89 funeral homes and 65 cemeteries for cash of
$252,598,000, debt of $24,310,000 and Common shares in the amount of $1,085,000.
All of the Company's acquisitions have been accounted for by the purchase
method. In 1998, the Company acquired assets and liabilities of $392,968,000 and
$114,975,000, respectively.
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired and disposed of, as if all such
acquisitions and dispositions had taken place at the beginning of the respective
years presented. Appropriate adjustments have been made to reflect the
accounting basis used in recording the acquisitions. This pro-forma information
does not purport to be indicative of the results of operations that would have
resulted had the acquisitions and dispositions been in effect for the entire
years presented, and is not intended to be a projection of future results or
trends.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1999 1998
--------- ----------
<S> <C> <C>
Revenue..................................................... $ 956,006 $1,154,984
Net loss.................................................... $(477,973) $ (600,172)
Basic loss per share........................................ $ (6.57) $ (8.23)
</TABLE>
NOTE 5. INVESTMENTS
(a) PRIME
The Company owns 213.2353 shares of Prime Succession Holdings, Inc.
("Prime") common stock, representing 21.8% of Prime's voting common stock, and
100% of Prime's non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend. Blackstone Capital Partners II Merchant Banking Fund
L.P. and certain affiliates (together, "Blackstone") owns 764.7059 shares of
Prime common stock, representing 78.2% 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 $52,000,000 was funded by Blackstone and $78,000,000 by the
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 5. INVESTMENTS (CONTINUED)
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.
Under a Put/Call Agreement entered into with Blackstone in August 1996, 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 approximately 12x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.
Upon a Call, Blackstone is entitled to 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 will be 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.
Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Prime and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998, the Company concluded that its
investment had suffered a decline in value that was other than temporary and
wrote down its investment based on an assumed distribution of Prime's
shareholders' equity. In 1999, due to the performance of Prime, the Company
wrote off its remaining investment.
In addition, the Company estimated the expected Put option price on the
sixth anniversary, the first date the Put option becomes exercisable by
Blackstone, based on the Company's best estimate of EBITDA and debt at that time
and the relevant formula in the Put/Call Agreement. The Company accrued a
contingent loss at December 31, 1998 based upon the difference between the
estimated Put option price and the Company's estimate of the fair value of
Blackstone's equity in Prime which is based in part on prevailing market
conditions. In the fourth quarter of 1999, due to the performance of Prime and
the reduced market values and performance of other industry participants, the
Company re-assessed the
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 5. INVESTMENTS (CONTINUED)
estimates of EBITDA and debt at the first date the Put option becomes
exercisable by Blackstone. Based upon changes to the estimates of the expected
Put option price and the fair value of Blackstone's equity in Prime, the Company
reduced the accrual of its contingent loss as at December 31, 1999. Such amount
could change based on changes in the estimated future value of the business. The
respective contingent liability has been recorded in "Other liabilities,"
(Note 17). In 1999, 1998 and 1997, the Company recognized income (loss) of
$(2,861,000) $(1,430,000) and $5,073,000, respectively, applicable to its
investment in Prime, excluding the investment impairment provisions and
contingent losses.
The latest available annual financial data reported by Prime was:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement information:
Revenue................................................... $ 98,005 $101,139
Gross margin.............................................. 32,293 38,616
Earnings from operations.................................. 17,595 24,123
Payment-in-kind dividend.................................. 7,226 6,542
Net loss attributable to common shareholders.............. (14,524) (6,739)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information:
Total assets.............................................. $391,122 $395,106
Total liabilities......................................... 272,012 268,698
Shareholders' equity...................................... 119,110 126,408
</TABLE>
(b) ROSE HILLS
The Company owns 204.5454 shares of Rose Hills Holdings Corp. ("Rose Hills")
common stock, representing 20.45% of Rose Hills' voting common stock, and 100%
of Rose Hills non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend. Blackstone owns 795.4546 shares of Rose Hills common
stock, representing 79.55% of Rose Hills' voting common stock.
Rose Hills 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 $35,000,000 was funded by Blackstone and $95,000,000 by 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 RHC and is
being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Rose Hills' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies
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 5. INVESTMENTS (CONTINUED)
of Rose Hills. Neither Blackstone nor the Company can, without the consent of
the other party, sell or transfer its shares in Rose Hills to a party other than
to an affiliate of itself.
Under a Put/Call Agreement entered into with Blackstone in November 1996,
the Company has the option to acquire ("Call") Blackstone's Rose Hills 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 Rose Hills 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 approximately 14x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.
Upon a Call, Blackstone is entitled to 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 value 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 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.
Prior to March 1, 2000, the Company had provided various management and
administrative services to RHC and subsidiaries under an Administrative Services
Agreement for an annual fee of $250,000. The Company and RHC have agreed to
amend that Agreement, effective March 1, 2000, to provide that, until such time
as the Company makes an election to reject or assume the Agreement under
Chapter 11 of the Bankruptcy Act, the annual fee payable by RHC under the
Agreement will be reduced to nil and the Company will no longer be required to
provide any services to RHC under the Agreement. That annual fee is subject to
renegotiation in the event that RHC requests further services from the Company.
If the Agreement were to become terminable by Blackstone due to the Company's
material breach thereof or other failure to comply in any material respect, the
price payable to Blackstone upon a Put of its interests would, under the terms
of the Put/Call Agreement, be no less than an amount equal to 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.
Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Rose Hills and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998 the Company assessed that its investment
had suffered a decline in value that was other than temporary and wrote down its
investment based on an assumed distribution of Rose Hills' shareholders' equity
at December 31, 1998 taking into account Blackstone's return under the Put. No
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 5. INVESTMENTS (CONTINUED)
further write down was made in 1999. As at December 31, 1999 and 1998, the
carrying value of the Company's investment in Rose Hills was $43,990,000.
In addition, the Company estimated the expected Put option price on the
sixth anniversary, the first date the Put option becomes exercisable by
Blackstone, based on the Company's best estimate of EBITDA and debt at that time
and the relevant formula in the Put/Call Agreement. The Company accrued a
contingent loss at December 31, 1998 based upon the difference between the
estimated Put option price and the Company's estimate of the fair value of
Blackstone's equity in Rose Hills which is based in part on prevailing market
conditions. In the fourth quarter of 1999, due to the performance of Rose Hills
and the reduced market values and performance of other industry participants,
the Company re-assessed the estimates of EBITDA and debt at the first date the
Put option becomes exercisable by Blackstone. Based upon changes to the
estimates of the expected Put option price and the fair value of Blackstone's
equity in Rose Hills, the Company increased the accrual of the contingent loss
as at December 31, 1999. Such amount could change based on changes in the
estimated future value of the business. The respective contingent liability has
been recorded in "Other liabilities," net of the carrying value of Rose Hills
(see Note 17). In 1999, 1998 and 1997, the Company recognized income of nil,
$6,535,000 and $6,566,000, respectively, applicable to its investment in
Rose Hills, excluding the investment impairment provisions and contingent
losses.
The latest available annual financial data reported by Rose Hills was:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement information:
Revenue................................................... $ 83,577 $ 70,645
Gross margin.............................................. 69,814 59,900
Earnings from operations.................................. 19,538 14,738
Payment-in-kind dividend.................................. 9,568 8,708
Net loss attributable to common shareholders.............. (8,534) (10,476)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information:
Total assets.............................................. $321,933 $312,598
Total liabilities......................................... 193,641 185,340
Shareholders' equity...................................... 128,292 127,258
</TABLE>
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 6. INSURANCE INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed maturities.................................... $262,267 $244,168 $246,576 $251,454
Equity securities................................... 60 36 80 44
Short-term investments and other.................... 19,096 19,096 20,005 20,005
-------- -------- -------- --------
$281,423 $263,300 $266,661 $271,503
======== ======== ======== ========
</TABLE>
On the insurance invested assets, the Company earned $19,450,000 of
investment income for the year ended December 31, 1999 (1998 -- $21,349,000).
Included in the market value of insurance invested assets are $200,000 and
$18,323,000 of unrealized gains and losses, respectively (1998 -- $6,942,000 and
$2,100,000, respectively).
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 4,770 $ 4,387 $ 6,853 $ 6,746
Due in one to five years.................... 20,656 19,663 25,667 25,801
Due in five to ten years.................... 66,819 62,527 67,598 69,049
Thereafter.................................. 103,880 92,881 72,843 73,209
-------- -------- -------- --------
$196,125 $179,458 $172,961 $174,805
======== ======== ======== ========
</TABLE>
The Company's mortgage-backed securities and collateralized mortgage
obligations consist of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 66,142 $ 64,710 $ 73,615 $ 76,649
======== ======== ======== ========
</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 7. PRE-ARRANGED FUNERAL SERVICES
Pre-arranged funeral services represents amounts deposited in accordance
with state trusting laws with various financial institutions together with
accrued earnings. The Company will receive the pre-arranged funeral trust
amounts when the funeral services are performed. The funds deposited in trust
are invested as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Short-term investments...................................... $165,799 $151,113
Fixed maturities............................................ 155,633 142,385
Mutual funds................................................ 10,148 1,419
Equity securities........................................... 61,284 65,268
Insurance policies held by trust............................ 44,833 52,844
Other....................................................... 844 905
-------- --------
$438,541 $413,934
======== ========
</TABLE>
The weighted average rate of return on the above pre-arranged funeral trust
assets for the year ended December 31, 1999 was 2.7% (1998 -- 3.0%,
1997 -- 3.8%).
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
Prior to filing for bankruptcy, the Company used 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 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,
1999, no such agreements were outstanding.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and term deposits, current receivables, current
indebtedness 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 has been omitted because it is not
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 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
practicable to determine fair values with sufficient reliability. Financial
instruments with a carrying value materially different from their fair value
include:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Pre-arranged funeral services.............. $438,541 $441,839 $ 413,934 $ 415,759
Insurance invested assets.................. 281,423 263,300 266,661 271,503
Long-term receivables:
Practicable to estimate fair value....... 395,155 407,262 391,842 399,943
Not practicable to estimate fair value... 182,578 n/a 255,250 n/a
Financial liabilities not subject to
compromise:
Long-term debt............................. $ 91,204 91,204 $2,268,014 $2,008,634
Preferred securities of a subsidiary....... n/a n/a 75,000 57,938
</TABLE>
The fair value determination of pre-arranged funeral services, insurance
invested assets and long-term receivables is based on quoted market prices.
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 one to seven years and contractual or imputed
interest ranging from 9% to 12%.
Due to the Chapter 11 and CCAA filings, calculation of fair values for
long-term debt, the preferred securities of a subsidiary and other
liabilities subject to compromise cannot be determined as at December 31,
1999. As detailed in Note 3, the majority of the Company's long-term debt
and the preferred securities of a subsidiary became subject to compromise
effective June 1, 1999.
The 1999 fair value of long-term debt approximates its carrying value. The
1998 fair value of long-term debt subject to fixed interest rates was
estimated by discounting the future cash flows, including interest payments,
using rates then available for debt of similar terms and maturity, based on
the Company's credit standing and other market factors. The 1998 fair value
of long-term debt subject to floating market rates approximated its carrying
value. The 1998 fair value of the preferred securities of a subsidiary was
estimated based upon quoted market prices.
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 9. SHARE CAPITAL
(a) AUTHORIZED
200,000,000 (1998 -- 200,000,000) First Preferred shares without par value
40,000,000 (1998 -- 40,000,000) Class A shares without par value
750,000,000 (1998 -- 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 (c) below), and 8,800,000 shares are designated as 6.00%
Cumulative Redeemable Convertible First Preferred Shares, Series C ("Series C
Preferred shares") (see (c) below).
(b) ISSUED AND OUTSTANDING SHARES
<TABLE>
<CAPTION>
NUMBER OF
SHARES STATED VALUE
---------- ------------
<S> <C> <C>
Common shares and contributed surplus
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................................... 807,161 23,001
Issued under employee stock bonus plan.................... 9,010 166
---------- ----------
Outstanding December 31, 1997............................... 73,910,897 1,271,177
Issued for cash on exercise of stock options, including
related tax benefits.................................... 54,876 1,092
Issued for cash under stock purchase plan................. 18,425 650
Issued for acquisitions................................... 64,007 1,085
Issued under employee stock bonus plan.................... 7,885 92
---------- ----------
Outstanding December 31, 1998............................... 74,056,090 1,274,096
Issued for cash on exercise of stock options, including
related tax benefits.................................... 5,496 112
Issued for cash under stock purchase plan................. 350 1
Issued under acquisition option agreements, including
related tax benefits.................................... 80,000 2,223
Issued under employee stock bonus plan.................... 3,465 2
---------- ----------
Outstanding December 31, 1999............................. 74,145,401 $1,276,434
========== ==========
Preferred shares
Series C Preferred shares................................. 8,800,000 $ 157,146
========== ==========
</TABLE>
(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.
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 9. SHARE CAPITAL (CONTINUED)
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. In March 1999, the Company suspended
future dividends on its Common shares and deferred future dividends on its
Preferred shares.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Dividends in arrears:
6.00% Preferred Shares, Series C.......................... $6,909
======
</TABLE>
On or after July 1, 1999, the Series C Preferred shares are 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 at December 31, 1999 and 1998, the MEIP
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 9. SHARE CAPITAL (CONTINUED)
participants had paid $2,869,000 for option rights to acquire $57,382,000 of
Debentures exercisable as to 50% in 1999, 25% in 2000 and 25% in 2001. If an
option expires unexercised, the participant is entitled to a refund without
interest of the amount paid to acquire such option right. In addition, as at
December 31, 1999 and 1998, the former Chairman had 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
The Company has in place a Shareholder Protection Rights Plan (the "Plan"),
which 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. 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. The Plan
expires on April 20, 2000.
(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. Granting of
stock options has been suspended since the Petition Date.
A summary status of the Company's fixed stock option plans and changes is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------
1999 1998
--------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding beginning of year................. 4,569,073 $26 5,781,704 $26
Options granted............................. 66,748 3 1,139,365 18
Options exercised........................... (80,000) 29 (58,094) 22
Options cancelled........................... (1,631,787) 30 (2,293,902) 21
---------- ----------
Outstanding end of year....................... 2,924,034 24 4,569,073 26
========== ==========
Options exercisable at end of year............ 1,813,667 2,272,916
</TABLE>
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 9. SHARE CAPITAL (CONTINUED)
The following table summarizes information about the Company's fixed stock
options outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL LIFE AVERAGE
NUMBER OUTSTANDING (IN YEARS) EXERCISE PRICE
------------------ ---------------- --------------
<S> <C> <C> <C>
Range of options
outstanding -- $0.93 to $45.00.................. 2,924,034 6.6 $24
Range of options
exercisable -- $5.50 to $45.00.................. 1,813,667 $26
</TABLE>
NOTE 10. LEGAL CONTINGENCIES
BANKRUPTCY FILINGS
On June 1, 1999, the Company and each of approximately 850 United States
subsidiaries and a foreign subsidiary filed a voluntary petition for creditor
protection and to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
filings subsequently were consolidated for joint administration (IN RE: LOEWEN
GROUP INTERNATIONAL, INC., ET AL., No. 99-1244). On the same day, the Company
and 116 Canadian subsidiaries filed an application for creditor protection under
the Companies' Creditors Arrangement Act in the Ontario Superior Court of
Justice in Toronto (File No. 99-CL-3384). The Company's United Kingdom
subsidiaries, which generate less than 1% of the Company's revenues, along with
the Company's insurance and certain funeral and cemetery subsidiaries, were
excluded from the filings. Subsequent to the Petition Date, three additional
subsidiaries of the Company voluntarily filed petitions for creditor protection
and a fourth subsidiary's petition was voluntarily deleted.
The Company and its subsidiaries under creditor protection are presently
operating their businesses as debtors-in-possession. An Official Unsecured
Creditors' Committee has been appointed by the United States trustee in the
bankruptcy proceedings. On July 16, 1999, the Bankruptcy Court approved the DIP
Facility.
As a result of the bankruptcy filings, litigation against the Company and
its filing subsidiaries was stayed as of June 1, 1999 (unless the stay is lifted
by the supervising court), and any additional liabilities related thereto will
be subject to compromise.
SECURITIES CLASS ACTIONS
Since December 1998, the Company has been served with various related
lawsuits filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain current and former
officers and directors have been named as defendants in some of the suits. All
but one of these lawsuits were filed as purported class actions on behalf of
persons or entities that purchased Company Common shares during five different
time periods ranging from November 3, 1996 through January 14, 1999. LGII and
Loewen Group Capital L.P. ("LGC") are named as defendants in two suits (with the
Company, the
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 10. LEGAL CONTINGENCIES (CONTINUED)
"Loewen Defendants"). The plaintiffs in these two lawsuits purport to sue on
behalf of a class of purchasers of MIPS from March 5, 1997 through January 14,
1999. The MIPS were issued by LGC.
The complaints generally make allegations concerning, among other things,
the Company's internal controls, accounting practices, financial disclosures and
acquisition practices.
The Judicial Panel on Multidistrict Litigation (the "MDL Panel") granted the
Loewen Defendants' motion to consolidate all of the actions for pre-trial
coordination in the United States District Court for the Eastern District of
Pennsylvania. On April 15, 1999, Judge Thomas O'Neill of the District Court for
the Eastern District of Pennsylvania entered an order consolidating in the
Eastern District of Pennsylvania, all of the cases then filed, as well as any
related cases thereafter transferred to that District (the "April 15 Order").
The April 15 Order appointed the City of Philadelphia Board of Pensions and
Retirement as lead plaintiff. Subsequent to the Company's bankruptcy filings,
Judge O'Neill entered an order staying all of the cases and placing them on the
suspense docket.
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or to reasonably estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in 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 seeking a class action 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
seeking a class action 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. 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.
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 10. LEGAL CONTINGENCIES (CONTINUED)
Plaintiffs' petitions seek damages, penalties and attorney's 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 the plaintiffs appealed. On
June 30, 1998, the Louisiana Fifth Circuit Court of Appeal affirmed the
dismissal of the FELDHEIM plaintiffs' class-action claims.
Following various rulings on the DUFFY lawsuit in the trial court, on
January 6, 1999, the Fourth Circuit Court of Appeal dismissed the action. On
February 5, 1999, the DUFFY plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.
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 plaintiffs.
Accordingly, no provision with respect to these lawsuits has been made in the
Company's consolidated financial statements.
LUENING, ET AL. V. SI-SIFH CORP., ET AL.
In June 1998, Warren S. Luening and four other individuals filed a lawsuit
seeking a class action 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 St.
Bernard, State of Louisiana. Defendants in this case are the same entities
against whom complaints were filed in Jefferson Parish, Louisiana (the FELDHEIM
case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside from the
addition of local counsel in St. Bernard Parish, the same lawyers who filed the
FELDHEIM and DUFFY complaints filed the LUENING complaint.
Plaintiffs allegedly hold and held funeral insurance policies issued by
insurance companies owned, directly or indirectly, by the defendants. Plaintiffs
allege that the defendants failed to provide the funeral services purchased with
policies by, among other things, (i) charging them for certain funeral services,
including the services of a funeral director and staff, a funeral ceremony, care
of the deceased, automotive services and a casket, even though these services
were allegedly covered by their policies, and (ii) unjustly enriching themselves
through the payment of services allegedly covered under the plaintiffs'
policies, and the plaintiffs are therefore entitled to restitution of those
payments. Plaintiffs' complaint seeks compensatory and nonpecuniary damages and
attorneys' fees. Louisiana law prohibits plaintiffs from alleging specific
amounts of damages in their complaint.
On February 3, 1999, the state court ruled that the dismissal of the class
action claims in the FELDHEIM and DUFFY cases did not operate to bar the
particular sub-class of potential plaintiffs identified in LUENING. On March 25,
1999, the Fourth Circuit reversed the trial court, while recognizing that
individual plaintiffs' claims could proceed in St. Bernard Parish. On March 29,
1999 the LUENING plaintiffs filed an application for writ of certiorari with the
Louisiana Supreme Court. On April 30, 1999, the Louisiana Supreme Court
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 10. LEGAL CONTINGENCIES (CONTINUED)
denied the writ application and thereby declined to review the Court of Appeal's
dismissal of plaintiffs' class action allegations.
The Company has determined that it is not possible to predict the final
outcome of this legal proceeding, and 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.
F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.
This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on Loewen and other defendants on September 19, 1996. Plaintiffs
allegedly compete with defendants Restlawn Memorial Park Association, Restlawn
Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the Company.
Plaintiffs allege thirteen counts, including counts alleging that defendant
Restlawn engaged in false and deceptive advertising, misused confidential
information, defamed plaintiffs, breached contractual obligations,
misappropriated trade secrets, and tortiously interfered with plaintiffs'
contractual relationships. Plaintiffs further allege that the Company knew or
should have known of Restlawn's conduct and adopted and continued Restlawn's
alleged unfair, false, and deceptive practices. Plaintiffs also allege that the
defendants conspired to destroy the plaintiffs' business and created a "trust in
order to prevent competition" in violation of Ohio's antitrust laws. Plaintiffs
seek compensatory damages, which are unspecified but alleged to exceed $350,000;
punitive damages, which are unspecified but alleged to exceed $300,000; and
injunctive relief. Defendants' summary judgment motion was denied as to all but
one of plaintiffs' counts. A trial set for July 12, 1999 was stayed as a result
of the bankruptcy proceedings, and no new trial date has been set.
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or 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.
FLANAGAN V. THE LOEWEN GROUP INC., ET AL.
In December 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against the
Company and LGII. The matter was subsequently removed to federal court based on
diversity jurisdiction, and it is now pending in the United States District
Court in the Central District of California.
In 1995, Ms. Flanagan and her husband John Flanagan (now deceased) sold
their mausoleum and mortuary business to LGII for cash and Loewen stock.
Ms. Flanagan's complaint contains causes of action for breach of contract in
connection with the share purchase agreement and in connection with employment
and consulting agreements entered into at the time of the share purchase
agreement. Additionally, Ms. Flanagan alleges causes of action for intentional
and negligent misrepresentation and declaratory relief.
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 10. LEGAL CONTINGENCIES (CONTINUED)
Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. Further, Ms. Flanagan seeks
punitive damages in an unspecified sum. On the declaratory relief cause of
action, Ms. Flanagan seeks a declaration that she is to be reimbursed for her
losses pursuant to the indemnity provision contained in the share purchase
agreement. She also seeks a declaration that until she is indemnified for her
losses she is not obligated to transfer property that LGII has the option to
purchase for a specified price pursuant to the share purchase agreement.
The Company has determined that it is not possible at this time to predict
the final outcome of this proceeding or 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 plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in the Company's consolidated financial
statements.
THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA
In October 1998, the Company and Raymond L. Loewen, the then-Chairman and
Chief Executive Officer of the Company, filed a claim against the United States
government for damages under the arbitration provisions of the North American
Free Trade Agreement ("NAFTA"). The claimants contend that they were damaged as
a result of breaches by the United States of its obligations under NAFTA in
connection with certain litigation in the State of Mississippi entitled O'KEEFE
VS. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege that they were
subjected to discrimination, denial of the minimum standard of treatment
guaranteed by NAFTA and uncompensated expropriation, all in violation of NAFTA.
The Company has determined that it is not possible at this time to predict the
final outcome of this proceeding or to establish a reasonable estimate of the
damages, if any, that may be awarded to the Company.
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.
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 11. REORGANIZATION AND RESTRUCTURING COSTS
(a) REORGANIZATION COSTS
During 1999, the Company incurred the following pre-tax charges for costs
associated with reorganizing its affairs under the protection of Chapter 11 and
CCAA as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Executory contracts......................................... $26,955
Deferred debt issue costs written off....................... 23,035
PATS option liability recorded.............................. 9,760
Key Employee Retention Plan costs........................... 5,676
Professional fees and other costs........................... 27,365
-------
$92,791
=======
</TABLE>
Certain executory contracts, primarily covenants not to compete, have been
rejected by the Company as a result of its bankruptcy filing on the Petition
Date and have been charged to reorganization costs (see Note 3).
In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan, a long-term agreement structured to ensure that appropriate employee
levels and expertise are retained during the reorganization process (see
Note 13).
Professional fees and other costs include accounting, legal and consulting
services provided to the Company and the Official Unsecured Creditors' Committee
which, subject to court approval, are required to be paid by the Company as it
reorganizes under Chapter 11 and CCAA.
(b) RESTRUCTURING COSTS
During 1997, the Company recorded pre-tax charges of $33,400,000, 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 $19,400,000 for severance,
$7,500,000 for the closure of a corporate office and $6,000,000 of asset
write-downs.
NOTE 12. IMPAIRMENT OF ASSETS
During 1999, as a result of the Company's bankruptcy filings and operating
performance decline, the Company conducted extensive reviews of each of its
operating locations. The reviews also resulted in the identification of 371
locations as probable for sale. In January 2000, the Bankruptcy Courts approved
the Company's previously-announced program for disposition of the locations
identified. A further 54 locations are anticipated to be merged with existing
locations. As a result of these reviews, the Company recorded a pre-tax asset
impairment provision of $340,068,000. In calculating the asset impairment
provision, the Company used estimated cash flow from operations and, for the
locations identified as probable for sale, used estimated cash proceeds on the
anticipated sale of these properties. The asset
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 12. IMPAIRMENT OF ASSETS (CONTINUED)
impairment provision has reduced cemetery property by $258,002,000, names and
reputations by $79,066,000 and funeral property by $3,000,000.
In December 1998, the Company recorded a pre-tax asset impairment provision
of $333,900,000 on certain properties. In calculating the asset impairment
provision, the Company used estimated cash flow from operations and estimated
cash proceeds on the sale of these properties. The asset impairment provision
reduced cemetery property by $319,300,000, property and equipment by $4,000,000
and names and reputations by $10,600,000. Of this asset impairment provision,
$301,605,000 was applicable to the sale of 124 cemeteries and three funeral
homes. In March 1999, these properties were sold for gross proceeds of
$193,000,000, before purchase price adjustment and transaction costs. The
balance of the 1998 asset impairment provision was applicable to certain
properties within two smaller groups of properties identified at December 31,
1998 as probable for sale. In June 1999, the Company recorded an additional
pre-tax asset impairment provision of $15,112,000 applicable to other properties
within these two groups.
The asset impairment provisions noted above are based on management
estimates and, as a result, actual results could differ significantly from these
estimates. In addition, due to the bankruptcy proceedings, other properties,
although not specifically identified, could be sold.
NOTE 13. COMMITMENTS AND CONTINGENCIES
(a) KEY EMPLOYEE RETENTION PLAN
In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan ("KERP") a long-term agreement structured to ensure that appropriate
employee levels and expertise are retained during the reorganization process.
The KERP is comprised of four separate components: a Retention Incentive Plan, a
Performance Incentive Plan, a Confirmation Incentive Plan and a Severance Plan.
The KERP supercedes previous employee arrangements, including the Executive
Severance Arrangements. Pre-tax costs incurred in 1999 under the KERP amounted
to $5,676,000. The maximum amount which could be incurred under the Retention
Incentive Plan, the Performance Incentive Plan and the Confirmation Incentive
Plan has been estimated at approximately $31,000,000.
(b) LEASES
The Company is committed to operating lease payments for premises,
automobiles and office equipment in the following approximate amounts:
<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $13,240
2001........................................................ 11,288
2002........................................................ 9,523
2003........................................................ 7,450
2004........................................................ 6,325
Thereafter.................................................. 40,927
</TABLE>
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 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total expense incurred under these operating leases for the year ended
December 31, 1999 was $19,344,000, (1998 -- $16,849,000), (1997 -- $18,268,000).
(c) COVENANTS NOT TO COMPETE
In connection with various acquisitions, the Company 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 expensed over
the terms of the specific contracts. During 1999, the Company suspended payments
applicable to the agreements which the Company has elected to reject (see
Notes 3 and 11). The agreements for which payments have not been suspended will
result in future payments in the following approximate amounts:
<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $ 9,945
2001........................................................ 7,498
2002........................................................ 6,950
2003........................................................ 5,845
2004........................................................ 5,130
Thereafter.................................................. 14,229
</TABLE>
(d) 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 and after 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. On a continuing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates.
(e) CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS
The Company has identified and accrued for contingent losses arising from
the potential exercise of the Put/Call Agreements in connection with its
investments in Prime and Rose Hills (see Note 5).
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 14. 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, 1999 was $2,777,000, $3,271,000, and $3,222,000, respectively.
NOTE 15. INCOME TAXES
(a) EFFECTIVE TAX RATE
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
% % %
<S> <C> <C> <C>
Combined Canadian federal and provincial income tax rate.... (45.5) (45.5) 45.5
Non-deductible amortization and write down of goodwill
arising from acquisitions................................. 5.9 1.5 11.9
Non-deductible restructuring and other charges.............. 1.7 0.2 8.7
Change in valuation allowance on future tax assets.......... 27.9 21.7 19.0
Foreign income and losses taxed at lower rates and other
taxes not based on income................................. 2.4 (1.2) (73.1)
Other....................................................... 1.2 1.8 (10.2)
----- ----- -----
(6.4) (21.5) 1.8
===== ===== =====
</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 15. INCOME TAXES (CONTINUED)
(b) FUTURE TAX ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Future tax liabilities
Long-term receivables..................................... $ 102,179 $ 60,384
Cemetery property......................................... 193,163 303,003
Property and equipment.................................... 60,754 61,204
Names and reputations..................................... -- 1,284
Insurance policy liabilities.............................. 16,440 18,905
Other..................................................... 25,151 23,238
--------- ---------
Total future tax liabilities.............................. 397,687 468,018
--------- ---------
Future tax assets
Accounts payable and accrued liabilities.................. 15,868 17,340
Cemetery long-term liabilities............................ 39,759 34,649
Insurance assets.......................................... 13,500 15,149
Legal settlements......................................... 14,454 15,517
Names and reputations..................................... 15,923 --
Interest.................................................. 173,069 150,614
Unrealized losses on investments in Prime and
Rose Hills.............................................. 131,469 119,994
Deferred costs related to pre-arranged funeral services... 7,417 14,813
Share issue costs......................................... 4,926 8,414
Operating and capital loss carryforwards.................. 132,899 63,050
Other..................................................... 23,670 9,133
--------- ---------
Total future tax assets before valuation allowance........ 572,954 448,673
Valuation allowance....................................... (316,167) (177,591)
--------- ---------
Total future tax assets after valuation allowance......... 256,787 271,082
--------- ---------
Net future tax liabilities................................ $ 140,900 $ 196,936
========= =========
</TABLE>
Although realization of the Company's future tax assets is not assured,
management believes that it is more likely than not that reversals of future tax
liabilities provide sufficient taxable income to realize the future tax assets
after consideration of the valuation allowance. It is reasonably possible that
the estimated valuation allowance could change in the near term due to matters
such as the timing and manner of reversals of future tax liabilities, sales of
operations, and future income or loss. During the year ended December 31, 1999,
the Company increased its valuation allowance by approximately $138,576,000
(1998 -- $166,015,000).
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 16. CHANGES IN OTHER NON-CASH BALANCES
Supplemental disclosures related to statements of cash flows consist of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Decrease (increase) in assets:
Receivables, net of allowances
Trade................................................... $ 5,602 $ 12,299 $ 14,806
Other................................................... (43,903) 22,168 (12,963)
Inventories............................................... (384) 671 (1,371)
Prepaid expenses.......................................... (3,672) 2,630 892
Amounts receivable from cemetery merchandise trusts....... (93,175) (114,072) (88,422)
Installment contracts, net of allowances.................. 66,885 6,481 (134,382)
Cemetery property......................................... (4,785) (46,081) (34,924)
Other assets.............................................. (8,682) (20,309) (38,092)
Increase (decrease) in liabilities, including certain
liabilities subject to compromise:
Accounts payable and accrued liabilities.................. 15,819 14,908 39,746
Other liabilities......................................... 10,140 8,635 13,887
Cemetery long-term liabilities............................ 10,427 (15,046) 22,268
Insurance policy liabilities.............................. 17,287 22,935 313
Other changes in non-cash balances.......................... 450 14,504 1,886
-------- -------- ---------
$(27,991) $(90,277) $(216,356)
======== ======== =========
Supplemental information:
Interest paid............................................. $ 87,388 $174,628 $ 103,799
Taxes paid................................................ 3,604 15,226 44,282
Bad debt expense.......................................... 8,374 14,322 11,935
Non-cash investing and financing activities:
Non-cash debt and share consideration on acquisitions..... $ -- $ 25,395 $ 64,881
Non-cash share issues pursuant to option agreements....... (2,280) -- --
Capital leases............................................ (14,846) -- --
Note receivable from sale of subsidiaries................. -- -- 15,725
</TABLE>
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 17. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Receivables, net of allowances:
Trade accounts............................................ $ 96,277 $ 101,051
Allowance for doubtful accounts........................... (36,660) (33,862)
Other..................................................... 71,747 32,221
Installment contracts..................................... 100,038 158,884
Unearned finance income................................... (15,218) (30,404)
Allowance for contract cancellations and refunds.......... (17,684) (24,118)
---------- ----------
$ 198,500 $ 203,772
========== ==========
Long-term receivables, net of allowances:
Notes receivable.......................................... $ 8,433 $ 11,999
Amounts receivable from cemetery merchandise trusts....... 412,325 410,055
Installment contracts..................................... 233,706 353,054
Unearned finance income................................... (36,070) (53,217)
Allowance for contract cancellations and refunds.......... (40,661) (56,892)
---------- ----------
$ 577,733 $ 664,999
========== ==========
Cemetery property:
Developed land and lawn crypts............................ $ 171,874 $ 293,030
Undeveloped land.......................................... 666,218 810,160
Mausoleums................................................ 85,252 132,657
---------- ----------
$ 923,344 $1,235,847
========== ==========
Property and equipment:
Land...................................................... $ 176,516 $ 174,366
Buildings and improvements................................ 553,280 547,218
Automobiles............................................... 96,835 80,940
Furniture, fixtures and equipment......................... 140,899 154,182
Computer hardware and software............................ 48,219 41,900
Leasehold improvements.................................... 18,239 16,082
Accumulated depreciation and amortization................. (234,175) (188,703)
---------- ----------
$ 799,813 $ 825,985
========== ==========
Names and reputations:
Names and reputations..................................... $ 784,513 $ 775,865
Covenants not to compete.................................. 82,518 81,855
Accumulated amortization.................................. (216,831) (109,055)
---------- ----------
$ 650,200 $ 748,665
========== ==========
</TABLE>
70
<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 17. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Other assets:
Deferred debt issue costs................................. $ 3,035 $ 23,709
Deferred direct obtaining costs........................... 106,913 102,632
Cemetery management contracts............................. 12,614 13,413
Investments............................................... 2,469 3,385
Other..................................................... 8,522 21,364
---------- ----------
$ 133,553 $ 164,503
========== ==========
Accounts payable and accrued liabilities:
Trade payables............................................ $ 28,207 $ 46,210
Interest.................................................. 4,046 38,686
Dividends................................................. -- 2,154
Insurance, property and business taxes.................... 5,399 6,353
Other..................................................... 59,985 76,731
---------- ----------
$ 97,637 $ 170,134
========== ==========
Other liabilities:
Cemetery long-term liabilities............................ $ 181,475 $ 211,647
Accrual for contingent losses (see Note 5)................ 190,441 128,333
Covenants not to compete.................................. 18,695 20,540
Regional partnership liabilities.......................... 9,265 9,971
Participants' deposits in MEIP (see Note 9(d))............ -- 5,120
Other..................................................... 26,143 23,693
---------- ----------
$ 426,019 $ 399,304
========== ==========
</TABLE>
NOTE 18. SEGMENTED INFORMATION
The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance.
The 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.
In addition to providing at-need funeral services, the Company also provides
pre-arranged funeral services to its customers.
The 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 majority of
cemetery revenue is from pre-need sales.
71
<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. SEGMENTED INFORMATION (CONTINUED)
The insurance companies sell a variety of life insurance products, primarily
to fund pre-arranged funeral services. The funeral home companies sell insurance
contracts on behalf of the Company's insurance operations for which they receive
commission revenue. In 1999, the inter-company commissions amounted to
$4,554,000 and were eliminated in the Company's consolidated financial
statements (1998 -- $3,717,000, 1997 -- nil).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). The Company sells
primarily to external customers, though any intersegment sales or transfers
occur at market price. The Company evaluates performance based on earnings from
operations of the respective businesses.
<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
---------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales:
1999............................... $ 609,710 $ 326,562 $ 94,101 $ -- $1,030,373
1998............................... 631,221 408,497 96,516 -- 1,136,234
1997............................... 602,112 422,010 89,977 -- 1,114,099
Earnings (loss) from operations:
1999............................... $ 52,994 $ (245,128) $ 20,344 $ (76,817) $ (248,607)
1998............................... 125,242 (301,789) 16,472 (103,891) (263,966)
1997............................... 147,730 100,638 16,508 (112,745) 152,131
Investment revenue (included in
earnings (loss) from operations):
1999............................... $ 1,682 $ 43,972 $ 19,450 $ 1,246 $ 66,350
1998............................... 3,391 34,432 21,351 1,774 60,948
1997............................... 5,560 29,197 23,519 335 58,611
Depreciation and amortization:
1999............................... $ 61,479 $ 10,898 $ 31 $ 9,804 $ 82,212
1998............................... 62,892 11,384 31 14,206 88,513
1997............................... 51,085 7,820 36 6,437 65,378
Total assets:
1999............................... $1,984,739 $1,745,673 $290,398 $ 89,773 $4,110,583
1998............................... 2,059,422 2,175,663 276,098 162,725 4,673,908
1997............................... 1,963,099 2,124,409 331,754 371,425 4,790,687
Capital expenditures:
1999............................... $ 22,195 $ 23,955 $ 190 $ 8,337 $ 54,677
1998............................... 74,681 26,370 420 6,513 107,984
1997............................... 108,691 53,023 208 11,157 173,079
</TABLE>
72
<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. SEGMENTED INFORMATION (CONTINUED)
The following table reconciles earnings from operations of reportable
segments to earnings (loss) before income taxes and identifies the components of
"Other" segment earnings from operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Earnings (loss) from operations of funeral, cemetery and
insurance segments........................................ $(171,790) $(160,075) $ 264,876
Other expenses of operations:
General and administrative expenses....................... (67,220) (87,659) (72,128)
Restructuring costs....................................... -- -- (33,364)
Depreciation and amortization............................. (9,804) (14,206) (6,437)
Other..................................................... 207 (2,026) (816)
--------- --------- ---------
(76,817) (103,891) (112,745)
--------- --------- ---------
Total earnings (loss) from operations....................... $(248,607) $(263,966) $ 152,131
========= ========= =========
</TABLE>
The following table reconciles total assets of reportable segments and
details the components of "Other" segment assets which is mainly comprised of
corporate assets:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total assets of funeral, cemetery and insurance
segments............................................... $4,020,810 $4,511,183 $4,419,262
"Other" assets includes:
Cash................................................... 24,642 61,012 2,681
Receivables............................................ 12,291 11,492 41,444
Prepaid expenses....................................... 7,265 3,499 3,216
Long-term receivables, net of allowances............... 5,397 7,753 3,957
Investments............................................ -- 2,581 224,008
Property and equipment................................. 30,005 33,323 42,198
Names and reputations.................................. 3,548 4,358 4,766
Future income tax assets............................... -- 10,243 7,849
Deferred debt issue costs.............................. 3,035 23,709 33,182
Other.................................................. 3,590 4,755 8,124
---------- ---------- ----------
89,773 162,725 371,425
---------- ---------- ----------
$4,110,583 $4,673,908 $4,790,687
========== ========== ==========
</TABLE>
73
<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. SEGMENTED INFORMATION (CONTINUED)
The Company operates principally in North America. Over 90% of its revenues
are earned in the United States. The Company also has operations in Canada and
the United Kingdom. The following tables depict the revenues earned and the long
term assets held in the reportable geographic segments.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
United States.......................................... $ 959,830 $1,065,074 $1,048,236
Canada................................................. 59,298 63,979 64,965
Other.................................................. 11,245 7,181 898
---------- ---------- ----------
$1,030,373 $1,136,234 $1,114,099
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment, names and reputations and
cemetery property:
United States.......................................... $2,180,204 $2,623,497 $2,614,772
Canada................................................. 168,848 163,932 171,680
Other.................................................. 24,305 23,068 12,291
---------- ---------- ----------
$2,373,357 $2,810,497 $2,798,743
========== ========== ==========
</TABLE>
NOTE 19. RELATED PARTY TRANSACTIONS
As part of the acquisition of Osiris Holding Corporation ("Osiris") in 1995,
the Company recorded a liability for the present value of contingent payments.
The contingent payments were due over a five-year period ending in 2001 to the
former shareholders of Osiris, two of whom were officers of the Company. In
1999, the two officers of the Company entered into an agreement with the Company
to purchase 124 cemeteries and three funeral homes and ended their association
with the Company. The balance of the contingent payments, which was $14,947,000
at December 31, 1998, was paid out of the proceeds of the sale in 1999 (see
Note 12).
In addition, as part of the acquisition of Shipper Management ("Shipper") in
1996, the Company recorded a liability for the present value of contingent
payments. The contingent payments were payable through 2001, to the former
shareholders of Shipper, one of whom was an officer of the Company. In 1999, the
remaining balance of $4,838,000 became subject to compromise under the
bankruptcy.
At December 31, 1999, current and former officers, directors and employees
were indebted to the Company for approximately $11,016,000
(1998 -- $10,800,000). As at December 31, 1999, an allowance of $8,041,000
(1998 -- $3,261,000) was recorded against those amounts for former officers and
employees.
74
<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. 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>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net earnings (loss) in accordance with Canadian GAAP........ $(465,176) $(598,969) $41,810
Less effects of differences in accounting for:
Provision for asset impairment (c)........................ (56,624) -- --
Insurance operations (d).................................. (3,436) 2,833 1,701
Cost of start-up activities (e)........................... 1,819 1,915 --
Stock options............................................. (22) (36) (173)
Foreign exchange loss (f)................................. -- -- (1,107)
--------- --------- -------
Net earnings (loss) before cumulative effect of a change in
accounting principle...................................... (523,439) (594,257) 42,231
Cumulative effect of adopting SOP 98-5 as of
January 1, 1998 (e)....................................... -- (5,000) --
--------- --------- -------
Net earnings (loss) in accordance with U.S. GAAP............ (523,439) (599,257) 42,231
Other comprehensive income:
Foreign currency translations:
Unrealized foreign currency gains (losses) arising
during the period..................................... 1,743 116 998
Less: reclassification adjustment for losses included in
net earnings (loss)................................... -- -- (1,909)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
period, net of deferred tax recovery (expense) of
$5,157, $(8,354), and $(5,992), respectively............ (8,066) 10,211 7,323
Less: reclassification adjustment for gains included in
net earnings (loss)..................................... (2,905) (8,486) (3,044)
--------- --------- -------
Comprehensive income (loss) in accordance with U.S. GAAP.... $(532,667) $(597,416) $45,599
========= ========= =======
Basic earnings (loss) before cumulative effect of change in
accounting principle per Common share..................... $ (7.18) $ (8.15) $ 0.49
========= ========= =======
</TABLE>
For the year ended December 31, 1998, the impact on basic earnings (loss)
per Common share of the cumulative effect of the change in accounting principle
was $0.07, and would have resulted in basic loss per Common share of $(8.22).
75
<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. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
Under U.S. GAAP, 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 not materially
different from basic earnings (loss) per Common share. The computation of basic
earnings (loss) before the 1998 cumulative effect of the change in accounting
principle per Common share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) before cumulative effect of change in
accounting principle.................................... $(523,439) $(594,257) $ 42,231
Less: Preferred share dividends........................... 8,885 8,900 9,533
--------- --------- ---------
Net earnings (loss) before cumulative effect of change in
accounting principle attributable to Common
shareholders............................................ $(532,324) $(603,157) $ 32,698
========= ========= =========
Weighted average number of shares outstanding
(thousands)............................................. 74,114 73,989 67,313
Basic earnings (loss) before cumulative effect of change
in accounting principle per Common share................ $ (7.18) $ (8.15) $ 0.49
========= ========= =========
</TABLE>
(b) BALANCE SHEET
The amounts in the consolidated balance sheet that materially differ from
those reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
CANADIAN UNITED STATES CANADIAN UNITED STATES
GAAP GAAP GAAP GAAP
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Assets:
Long-term receivables, net of
allowances.............................. $ 577,733 $ 589,840 $ 664,999 $ 673,100
Cemetery property......................... 923,344 845,840 1,235,847 1,235,847
Names and reputations..................... 650,200 655,191 748,665 748,665
Insurance invested assets................. 281,423 263,960 266,661 270,809
Other assets.............................. 133,553 161,091 164,503 187,759
Liabilities and Shareholders' Equity
(Deficiency):
Other liabilities......................... 426,019 423,384 399,304 394,377
Insurance policy liabilities.............. 184,207 217,915 166,920 196,230
Future income tax liabilities............. 146,028 125,394 208,939 212,378
Common shares............................. 1,276,434 1,302,806 1,274,096 1,300,428
Deficit................................... (1,004,917) (1,059,529) (539,741) (536,089)
Accumulated other comprehensive income:
Unrealized gains (losses) on securities
available for sale, net of tax........ -- (4,034) -- 6,937
Foreign exchange adjustment............... 15,683 (13,314) 13,940 (15,057)
</TABLE>
76
<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. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(c) IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," for U.S. GAAP purposes.
FAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used or to be disposed of. FAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The review for
recoverability should include an estimate of the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
estimated expected future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment provision should be
recognized. Measurement of an impairment provision for long-lived assets should
be based on the fair value of the asset.
Under Canadian GAAP, the asset impairment provision of $355,180,000 in 1999
was determined on the basis of undiscounted cash flows. The incremental effects
resulting from the application of FAS 121 for U.S. GAAP purposes in 1999 was an
additional pre-tax asset impairment provision of $73,014,000.
(d) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES
Under U.S. 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 U.S. 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 U.S. 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 U.S. 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.
77
<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. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(e) REPORTING ON THE COSTS OF START-UP ACTIVITIES
The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") on April 3, 1998, to be effective for fiscal
years beginning after December 15, 1998. SOP 98-5 states that the costs of
start-up activities, including organization costs, should be expensed as
incurred. The Company elected early adoption of SOP 98-5 to be effective for the
year ended December 31, 1998, for U.S. GAAP purposes. Pursuant to SOP 98-5, in
1998 the Company wrote off the unamortized costs of start-up activities, which
were contained in "Other assets," as a change in accounting principle.
SOP 98-5 was adopted in the fourth quarter of 1998, and was effective
January 1, 1998. The effects on 1998 net earnings (loss) and basic earnings
(loss) per Common share would be decreases of approximately $5,000,000 and
$0.07, respectively, resulting from the cumulative effect of the adoption of
SOP 98-5.
(f) FOREIGN EXCHANGE LOSS
Upon the sale of a Canadian equity investment in 1997, the Company
recognized a foreign exchange loss of $802,000 for Canadian GAAP purposes. The
foreign exchange loss under U.S. GAAP was $1,909,000 due to differences in the
related foreign exchange adjustment on the balance sheet that arose from the
Company's change in reporting currency on January 1, 1994.
(g) UNREALIZED GAINS AND LOSSES
Amounts receivable from cemetery merchandise trusts and insurance invested
assets are subject to the provisions of Financial Accounting Standards No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity" under
U.S. GAAP. Under FAS 115, 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 $25,859,000 at December 31,
1999 (1998 -- $30,582,000). 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, 1999 and 1998, the Company had no securities
classified as trading. 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
$625,596,000 at December 31, 1999 (1998 -- $619,913,000). 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. Unrealized holding gains and
losses related to trading investments, after deducting amounts allocable to
income taxes, are reflected in earnings.
(h) STOCK-BASED COMPENSATION
The Company follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation," for U.S. GAAP purposes.
The Company continues to record compensation expense for U.S. GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for
78
<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. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
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 any of the three years ending December 31, 1999. 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 (loss)
before cumulative effect of change in accounting principle under U.S. GAAP would
have been $(521,922,000) for the year ended December 31, 1999
(1998 -- $(593,648,000), 1997 -- $35,781,000) and basic earnings (loss) before
cumulative effect of change in accounting principle per Common share would have
been $(7.16) (1998 -- $(8.14), 1997 -- $0.39).
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 nil% (1998 -- nil%, 1997 -- 0.5%),
expected volatility 80% (1998 -- 29%, 1997 -- 24%), Canadian risk-free interest
rates 5.38% (1998 -- 4.88%, 1997 -- 5.24%), United States risk-free interest
rates 5.38% (1998 -- 5.11%, 1997 -- 5.89%) and expected average option term of
3.8 years (1998 -- 3.5 years, 1997 -- 5.0 years). The weighted average fair
value of the options granted was $1.59 (1998 -- $5.51, 1997 -- $9.15) per
option.
(i) ADVERTISING COSTS
Advertising costs were $14,876,000 for the year ended December 31, 1999
(1998 -- $10,444,000, 1997 -- $9,509,000).
(j) RECENT ACCOUNTING STANDARDS
The effective date for Statement of Financial Accounting Standards No. 133
("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
deferred by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of Financial Accounting Standards No. 133 (an amendment of FASB statement
No. 133)," is for all fiscal quarters of fiscal years beginning after June 15,
2000. FAS 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Management has not determined the impact of this
accounting standard on the Company's consolidated financial statements.
In December 1999, the United States Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 provides the staff's views on the
application of existing generally accepted accounting principles to revenue
recognition in financial statements. The application of SAB 101 to industry and
Company revenue recognition policies is unclear. If it is determined that
SAB 101 modifies or amends revenue recognition policies followed by the industry
and previously accepted by the SEC, the adjustments would be recorded in the
Company's consolidated financial statements for the first quarter of 2000.
79
<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. SUMMARIZED CHAPTER 11 AND CCAA FINANCIAL INFORMATION
Summarized financial data for the companies under creditor protection of
Chapter 11 and CCAA are presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Income statement information:
Revenue................................................... $ 791,150
Gross margin.............................................. 235,205
Loss from operations...................................... (225,048)
Net loss.................................................. (421,847)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Balance sheet information:
Current assets............................................ $ 247,268
Net investment in subsidiaries not under creditor
protection (a).......................................... 512,358
Non-current assets........................................ 3,031,798
----------
Total assets................................................ 3,791,424
Liabilities not subject to compromise:
Current liabilities....................................... 98,286
Non-current liabilities................................... 966,191
Liabilities subject to compromise........................... 2,282,601
----------
Total liabilities........................................... 3,347,078
Shareholders' equity........................................ 444,346
</TABLE>
- ------------------------
(a) Net investments in subsidiaries not under creditor protection of Chapter 11
and CCAA include the net assets of legal subsidiaries, as well as the net
assets of cemetery operations legally owned by third parties. The net assets
of the third parties are included in the Company's consolidated financial
statements since the Company has the economic risks and rewards of ownership
of the underlying operations.
80
<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 QUARTER QUARTER QUARTER
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Revenue.......................................... $310,805 $ 264,088 $231,819 $ 223,661
Gross profit..................................... 108,442 73,469 59,907 46,841
Net earnings (loss).............................. 6,927 (105,330) 1,916 (368,689)
Basic earnings (loss) per Common share(1)........ $ 0.06 $ (1.45) $ -- $ (5.00)
Year ended December 31, 1998
Revenue.......................................... $309,736 $ 301,923 $263,887 $ 260,688
Gross profit..................................... 113,380 93,605 63,593 21,158
Net earnings (loss).............................. 30,039 10,242 (32,438) (606,812)
Basic earnings (loss) per Common share........... $ 0.37 $ 0.11 $ (0.47) $ (8.22)
</TABLE>
- ------------------------
(1) The basic earnings (loss) per Common share figures for the second and third
quarter of 1999 have been restated to reflect the effect of undeclared
cumulative Preferred share dividends previously omitted from the
calculation.
81
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
82
<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, 1999 and 1998 and the consolidated
statements of operations and deficit and cash flows for each of the years in the
three-year period ended December 31, 1999. 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 Canadian 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,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999, in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain
significant respects from accounting principles generally accepted in the
United States. Application of accounting principles generally accepted in the
United States would have affected results of operations for each of the years in
the three-year period ended December 31, 1999 and assets, liabilities and
shareholders' deficiency as at December 31, 1999 and 1998 to the extent
summarized in Note 20 to the consolidated financial statements.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
March 14, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -- U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Our report to the shareholders
dated March 14, 2000 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditor's report when these are adequately disclosed in the financial
statements.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
March 14, 2000
83
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 42,396 $ 84,202
Receivables, net of allowances............................ 112,253 96,584
Inventories............................................... 30,060 30,137
Prepaid expenses.......................................... 10,415 7,184
----------- ----------
195,124 218,107
Long-term receivables, net of allowances.................... 474,146 504,295
Cemetery property........................................... 914,310 1,226,358
Property and equipment...................................... 679,086 712,995
Names and reputations....................................... 580,976 678,576
Investments................................................. 30,133 30,245
Insurance invested assets................................... 281,423 266,661
Pre-arranged funeral services............................... 372,521 351,961
Other assets................................................ 123,618 151,316
----------- ----------
$ 3,651,337 $4,140,514
=========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Liabilities not subject to compromise
Current liabilities
Accounts payable and accrued liabilities................ $ 87,040 $ 150,412
Loans and advances from affiliates, current portion..... -- 227,841
Long-term debt, current portion......................... 17,073 829,455
----------- ----------
104,113 1,207,708
----------- ----------
Loans and advances from affiliates, net of current
portion................................................. -- 784,369
Long-term debt, net of current portion.................... 64,960 1,254,036
Other liabilities......................................... 432,745 414,319
Insurance policy liabilities.............................. 184,207 166,920
Future income tax liabilities............................. 121,398 191,283
Deferred pre-arranged funeral services revenue............ 372,521 351,961
Liabilities subject to compromise........................... 3,115,990 --
Preferred securities of subsidiary.......................... -- 75,000
Shareholders' deficiency
Common shares............................................. 554,289 526,058
Deficit................................................... (1,288,969) (823,172)
Foreign exchange adjustment............................... (9,917) (7,968)
----------- ----------
(744,597) (305,082)
----------- ----------
$ 3,651,337 $4,140,514
=========== ==========
BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (NOTE 1)
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, 10, 13, 15 AND
19)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
84
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Revenue
Funeral................................................ $ 537,062 $ 559,217 $ 536,926
Cemetery............................................... 314,534 416,823 408,196
Insurance.............................................. 94,101 96,516 89,977
----------- ---------- ----------
945,697 1,072,556 1,035,099
----------- ---------- ----------
Costs and expenses
Funeral................................................ 343,583 363,742 336,473
Cemetery............................................... 265,484 353,662 319,558
Insurance.............................................. 73,727 80,013 73,304
----------- ---------- ----------
682,794 797,417 729,335
----------- ---------- ----------
262,903 275,139 305,764
Expenses
General and administrative............................. 92,951 114,397 97,792
Depreciation and amortization.......................... 70,765 76,225 56,358
Provision for asset impairment......................... 350,643 301,605 --
Restructuring costs.................................... -- -- 30,992
----------- ---------- ----------
514,359 492,227 185,142
----------- ---------- ----------
Earnings (loss) from operations.......................... (251,456) (217,088) 120,622
Interest and financing fee paid to affiliates, net....... 47,444 119,571 102,226
Interest on long-term debt............................... 75,319 165,403 119,972
Provision for investment impairment and contingent
losses................................................. 50,248 313,459 --
Loss on early extinguishment of debt..................... -- -- 4,591
Reorganization costs..................................... 85,724 -- --
Dividends on preferred securities of subsidiary.......... 2,971 7,088 7,088
Other income............................................. (2,189) (10,929) (11,593)
----------- ---------- ----------
Loss before income taxes................................. (510,973) (811,680) (101,662)
Income taxes
Current................................................ 8,204 9,629 20,186
Future................................................. (53,380) (185,397) (43,098)
----------- ---------- ----------
(45,176) (175,768) (22,912)
----------- ---------- ----------
Loss for the year........................................ (465,797) (635,912) (78,750)
Deficit, beginning of year............................... (823,172) (187,260) (108,510)
----------- ---------- ----------
Deficit, end of year..................................... $(1,288,969) $ (823,172) $ (187,260)
=========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
85
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net loss............................................... $(465,797) $ (635,912) $ (78,750)
Items not affecting cash
Depreciation and amortization........................ 70,765 76,225 56,358
Amortization of debt issue costs..................... 3,838 25,018 6,387
Provision for asset impairment....................... 350,643 301,605 --
Provision for investment impairment and contingent
loss............................................... 50,248 313,459 --
Future income taxes.................................. (53,380) (185,397) (43,098)
Loss (gain) on sale of investment.................... (2,687) (6,768)
Equity and other earnings of associated companies.... 498 (10,929) (11,593)
Non-cash restructuring costs......................... -- -- 12,697
Non-cash reorganization costs........................ 57,250 -- --
Proceeds on factored accounts receivable............. 88,010 142,181 185,179
Other, including net changes in other non-cash
balances............................................. (139,678) (223,157) (229,524)
--------- ----------- -----------
(40,290) (203,675) (102,344)
--------- ----------- -----------
Investing
Proceeds on disposition of assets and investments...... 194,224 56,202 3,767
Purchase of property and equipment..................... (30,670) (34,670) (42,632)
Construction of new facilities......................... (12,580) (17,929) (24,954)
Purchase of insurance invested assets.................. (147,510) (224,145) (261,987)
Proceeds on disposition and maturities of insurance
invested assets...................................... 130,434 180,175 252,626
Business acquisitions.................................. (173) (236,737) (453,223)
Investments, net....................................... -- 16 (2,275)
--------- ----------- -----------
133,725 (277,088) (528,678)
--------- ----------- -----------
Financing
Increase in long-term debt............................. 14,776 1,102,681 1,195,242
Repayment of long-term debt............................ (132,230) (603,978) (1,031,105)
Debt issue costs....................................... (8,218) (16,954) (3,999)
Issue of Common shares................................. -- -- 185,250
Increase in loans and advances from affiliates......... 8,275 339,527 446,450
Repayment of loans and advances from affiliates........ (46,075) (291,874) (142,763)
Capital contribution from affiliate.................... 28,231 -- --
--------- ----------- -----------
(135,241) 529,402 649,075
--------- ----------- -----------
Increase (decrease) in cash.............................. (41,806) 48,639 18,053
Cash, beginning of year.................................. 84,202 35,563 17,510
--------- ----------- -----------
Cash, end of year........................................ $ 42,396 $ 84,202 $ 35,563
========= =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
86
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 1. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION
BANKRUPTCY PROCEEDINGS
Loewen Group International, Inc. (the "Company") is a company organized
under the laws of Delaware. On June 1, 1999 (the "Petition Date"), the Company
and each of approximately 850 United States subsidiaries voluntarily filed a
petition for creditor protection under Chapter 11 of the U.S. Bankruptcy Code
("Chapter 11") in the U.S. Bankruptcy Court, for the District of Delaware (the
"U.S. Bankruptcy Court").
The Company and its subsidiaries under creditor protection (the "Debtors")
are presently operating their businesses as debtors-in-possession. The United
States trustee for the District of Delaware appointed a statutory committee of
unsecured creditors (the "Official Unsecured Creditors' Committee"). The
proceedings of the Debtors are being jointly administered for procedural
purposes only.
The Company is reorganizing its affairs under the protection of Chapter 11
and will propose a plan of reorganization for itself and other filing
subsidiaries, which will be submitted to the U.S. Bankruptcy Court overseeing
the Chapter 11 proceedings for confirmation after submission to any vote and
approval required by affected parties.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a "going
concern" basis in accordance with Canadian generally accepted accounting
principles. The "going concern" basis of presentation assumes that the Company
will continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities and commitments in the normal
course of business. There is substantial doubt about the appropriateness of the
use of the "going concern" assumption because of the Chapter 11 bankruptcy
proceedings and circumstances relating to this event, including the Company's
debt structure, recent losses and negative cash flow. As such, realization of
assets and discharge of liabilities are subject to significant uncertainty.
The consolidated financial statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the "going concern" basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to renegotiate and comply with the
terms of a debtor-in-possession revolving credit agreement, and the ability to
generate sufficient cash from operations and financing arrangements to meet
obligations.
Additionally, if a plan of reorganization is approved by the U.S. Bankruptcy
Court, the Company will be required to adopt "fresh start" accounting under
Canadian and U.S. generally accepted accounting principles. This accounting will
require that assets and liabilities be recorded at fair value, based on the
values determined in connection with the plan of reorganization. As a result,
the reported amounts in the Consolidated Financial Statements could materially
change, because they do not give effect to the adjustments to the carrying
values of assets and liabilities that may ultimately result from the adoption of
"fresh start" accounting.
87
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of 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 20.
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, 1999
except for a few companies with small minority interests.
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 (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. The equity method carrying value of the investment is also
reduced by any provision for asset impairment and common share dividends
received.
The Company accounts for its investments in joint ventures using the
proportionate consolidation method.
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.
MEASUREMENT UNCERTAINTY
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 significantly differ from
those estimates.
FUNERAL SERVICES
The Company provides a full range of at-need funeral services as well as
pre-arranged funeral services.
Pre-arranged 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, in part, 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
88
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 2. 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 pre-arranged 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 pre-arranged funeral services are expensed in the period incurred.
CEMETERY OPERATIONS
The Company provides a complete line of cemetery products and services, the
majority of which are sold on a pre-need basis.
Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Changes in estimated costs of
merchandise and services are recognized in income when additional information
becomes available. Interest is imputed at a market rate for contracts that do
not bear a market rate of interest. An allowance for cancellations and refunds
is provided at the date of sale based on management's estimates. The allowance
is reviewed quarterly and changes in estimates are reflected for current and
prior contracts as a result of recent cancellation experience. Actual
cancellation rates in the future will result in changes in estimate which are
recognized when information is available.
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 various state and
provincial laws, 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. Earnings of merchandise and services trust funds are
recognized in income in the year realized; increases of cost in the merchandise
and services are recognized as a charge to income.
INSURANCE OPERATIONS
The Company's insurance companies sell a variety of life insurance products,
primarily to fund pre-arranged funeral services.
Insurance invested assets, primarily consisting of 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.
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 will be revised if it is determined that
future experience differs substantially from that previously assumed.
89
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
Cash includes cash and term deposits with an initial maturity less than or
equal to 90 days.
INVENTORIES
Inventories are carried 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 mausoleums, and is valued at average cost.
Amounts are expensed as sales of cemetery plots and mausoleums 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....................................... Up to 6 years
Furniture, fixtures and equipment................. 6 to 10 years
Computer hardware and software.................... 6 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
names and reputations, cemetery property, property and equipment, investments
and other assets based on estimates using factors such as future asset
utilization, business climate and future undiscounted cash flows expected to
result from the use of the related assets or realized upon sale. The Company's
policy is to write down assets to their net recoverable amount in the period
when it is determined that the carrying amount of the asset is not likely to be
recovered.
DEBT ISSUE COSTS
Debt issue 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
90
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
included in interest expense on a straight-line basis over the respective term
of the related instrument. These costs include legal fees, accounting fees,
underwriting and agency fees and other related costs.
DERIVATIVE INSTRUMENTS
Prior to filing for bankruptcy, the Company used 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 typically used interest rate swap agreements to manage interest
rate exposure on its long-term debt. Differences between the amounts paid and
received would be accrued and accounted for as an adjustment to interest expense
over the life of the swap agreement.
The Company used basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions were probable
and the significant characteristics and expected terms were identified. Any gain
or loss as a result of the hedging would be 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 met the criteria of a
hedge, any gain or loss would be recognized in current earnings.
The Company also used foreign exchange forward contracts, cross currency
swaps, 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
would be accounted for as an adjustment to the related transaction.
FUTURE INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes. Under this method, current income taxes are recognized for the estimated
income taxes payable for the current period. Future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of losses
available to be carried forward to future years for tax purposes. Future income
tax assets and liabilities are measured using substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future income
tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the substantive enactment date. A valuation
allowance is recognized to the extent the recoverability of future income tax
assets is not considered more likely than not.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's operations outside the United
States, which are accounted for as self-sustaining operations, 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. The net gains or losses arising from the
translations are deferred and are classified as "Foreign exchange adjustment"
within Shareholders' equity.
COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1999.
91
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES
In the Chapter 11 proceedings, substantially all unsecured and undersecured
liabilities of the Debtors as of the Petition Date are subject to compromise or
other treatment under a plan of reorganization to be confirmed by the U.S.
Bankruptcy Court after submission to any required vote and approval by affected
parties. For financial reporting purposes, those liabilities and obligations
whose treatment and satisfaction are dependent on the outcome of the Chapter 11
proceedings have been segregated and classified as liabilities subject to
compromise in the consolidated financial statements. Generally, all actions to
enforce or otherwise effect repayment of pre-Petition Date liabilities as well
as all pending litigation against the Debtors are stayed while the Debtors
continue their business operations as debtors-in-possession. The Bar Date, which
was the last date by which claims against the Company had to be filed in the
U.S. Bankruptcy Court if the claimants wished to receive any distribution in the
Chapter 11 proceedings, expired on December 15, 1999.
Differences between amounts shown by the Debtors and claims filed by
creditors will be investigated and either amicably resolved, adjudicated before
the U.S. Bankruptcy Court, or resolved through other resolution processes. The
ultimate amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and, accordingly, are not presently
determinable.
Under the U.S. Bankruptcy Code, the Debtors may elect to assume or reject
leases, employment contracts, service contracts and other pre-Petition Date
executory contracts, subject to U.S. Bankruptcy Court approval including those
described in Note 13. Liabilities related to executory contracts are recorded as
liabilities not subject to compromise, unless the Company has decided to reject
the contract. Claims for damages resulting from the rejection, after
December 15, 1999, of executory contracts will be subject to separate bar dates.
The Debtors are reviewing all executory contracts for assumption or rejection.
In August 1999, the Debtors applied to the U.S. Bankruptcy Court to reject
approximately 200 non-compete agreements. The Company has suspended payments
applicable to these non-compete agreements. The U.S. Bankruptcy Court disallowed
the Company's motion to reject these non-compete agreements as a group in
August 1999. The Company may resubmit some or all of these non-compete
agreements on an individual or smaller group basis in the future, as well as
applications to reject additional executory contracts.
The principal categories of obligations classified as liabilities subject to
compromise under the reorganization proceedings are identified below. The
amounts in total may vary significantly from the stated amount of proofs of
claim that are filed with the U.S. Bankruptcy Court, and may be subject to
future adjustment depending on U.S. Bankruptcy Court action, further
developments with respect to potential disputed claims, and determination as to
the value of any collateral securing claims or other events. Additional claims
may also arise from the rejection of executory contracts by the Debtors.
92
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
The liabilities subject to compromise, debt and loans and advances from
affiliates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
<S> <C> <C> <C>
1999 1998
----------------------- ----------
<CAPTION>
LIABILITIES
SUBJECT TO LONG-TERM LONG-TERM
COMPROMISE DEBT DEBT
----------- --------- ----------
<S> <C> <C> <C>
Debt and other liabilities:
DIP Facility.............................................. $ -- $ 8,000 $ --
Bank credit agreements.................................... 338,689 -- 427,292
7.82% (1998 - 6.49%) Series E senior amortizing notes due
in 2004................................................. 30,432 -- 42,857
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
7.20% Series 6 senior notes due in 2003................... 200,000 -- 200,000
7.60% Series 7 senior notes due in 2008................... 250,000 -- 250,000
6.70% Pass-through Asset Trust Senior notes ("PATS") and
related option liability recorded, due in 1999.......... 309,760 -- 300,000
Promissory notes and capital lease obligations............ 79,707 74,033 163,342
Accounts payable and accrued liabilities.................. 90,716 -- --
9.45% Cumulative Monthly Income Preferred Securities,
Series A ("MIPS')....................................... 75,000 -- --
Executory contracts....................................... 26,523 -- --
---------- ------- ----------
2,100,827 82,033 2,083,491
----------
Less current portion of long-term debt.................... 17,073 829,455
------- ----------
Total long term debt...................................... $64,960 $1,254,036
======= ==========
</TABLE>
<TABLE>
<CAPTION>
LOANS AND LOANS AND
ADVANCES ADVANCES
--------- ----------
<S> <C> <C> <C>
Loans and advances from (to) affiliates:
Term loan from affiliated company
Interest at 11.50%...................................... 889,905 $ -- $ 889,905
Revolving credit loans from affiliated companies
Interest at U.S. treasury rate plus 5% due in 2002...... 136,781 -- 137,594
Interest at 11.25% due in 1999.......................... 10,291 -- 10,291
Interest at prime plus 2% due in 1999................... 11,526 -- 11,550
Other loans from (to) affiliates
Due from Parent Company................................. (36,540) -- (16,958)
Due to (from) other affiliates, net..................... 3,200 -- (20,172)
---------- ------- ----------
1,015,163 -- 1,012,210
---------- ------- ----------
Less current portion of loans and advances from
affiliates.............................................. -- 227,841
------- ----------
Total loans and advances from affiliates.................... $ -- $ 784,369
======= ==========
Total liabilities subject to compromise..................... $3,115,990
==========
</TABLE>
93
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
Litigation against the Company and its filing subsidiaries as of June 1,
1999 and any additional liabilities related thereto will be subject to
compromise (see Note 10).
As a result of the Chapter 11 filings, no principal or interest payments
will be made on most pre-Petition Date debt obligations without Bankruptcy Court
approval or until a plan of reorganization providing for the repayment terms has
been submitted to any required vote and approval of affected parties, has been
confirmed by the Bankruptcy Court and has become effective. Interest on
unsecured and undersecured pre-Petition Date debt obligations subject to
compromise has not been accrued after the Petition Date. Interest expense and
principal payments will continue to be recorded on most secured vendor
financing, including capital lease obligations, unless the leases are rejected
by the Debtors. Contractual interest expense not recorded on debt and other
liabilities subject to compromise totaled $92,299,000 for the year ended
December 31, 1999. Contractual interest expense not recorded on loans and
advances from affiliates subject to compromise totaled $68,736,000 for the year
ended December 31, 1999.
In March 1999, the Company deferred future dividends applicable to the MIPS.
Since June 1, 1999, as a result of the bankruptcy filings, the Company was in
default of its bank credit agreements, Series E senior amortizing notes,
Series 1 through 4, 6 and 7 Senior notes, and PATS and, accordingly, has not
made interest, principal or dividend payments when due on secured, unsecured and
undersecured debt obligations. The amounts in arrears on the Company's senior
secured obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Interest payments in arrears:
Bank credit agreements............................ $ 21,417
7.82% Series E senior notes....................... 958
7.50% Series 1 senior notes....................... 8,438
8.25% Series 2 senior notes....................... 5,156
7.75% Series 3 senior notes....................... 4,844
8.25% Series 4 senior notes....................... 9,281
7.20% Series 6 senior notes....................... 14,659
7.60% Series 7 senior notes....................... 19,361
6.70% PATS........................................ 10,050
--------
$ 94,164
========
Principal payments in arrears:
6.70% PATS........................................ $300,000
========
Dividends in arrears:
9.45% MIPS........................................ $ 5,906
========
</TABLE>
The Company, and all of its U.S. debtor subsidiaries, as
debtors-in-possession, are parties to a Petition Date $200,000,000 revolving
credit agreement (the "DIP Facility"). The DIP Facility was approved by the U.S.
Bankruptcy Court on July 16, 1999. The DIP Facility has a term of two years and
is secured by a perfected security interest in substantially all of the existing
and future assets of the Company and its U.S. debtor subsidiaries (subject only
to valid and perfected pre-Petition Date liens). The lenders under the
94
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
DIP Facility also have the benefit of a "super-priority" administrative expense
claim in the Company's bankruptcy proceedings. The DIP Facility will be used
primarily to fund the Company's working capital needs during the course of the
bankruptcy proceedings. Use of the DIP Facility for letters of credit is limited
to a maximum of $50,000,000. As at December 31, 1999, the borrowings under the
DIP Facility were $8,000,000 and the letters of credit outstanding were
$20,163,000.
The amended DIP Facility contains various financial and other restrictive
covenants including, among other things, limitations on asset sales, additional
indebtedness, intercompany payments, capital expenditures, and minimum levels of
operating cash flow, gross margin and revenue. Under the terms of the DIP
Facility, the cash and cash equivalents of the Company, the Company and its
subsidiaries which have filed under Chapter 11, is generally restricted for use
within this group of filed companies. In December 1999, the Company favorably
renegotiated certain covenants and received approval from the lenders for
initiative expenditures not contemplated when the original DIP Facility was
obtained. These amendments received Bankruptcy Court approval in December 1999.
In March 2000, the covenants will be subject to review in conjunction with the
Company's proposed business plan. Loans made under the amended DIP Facility bear
interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus 2.75% for
Eurodollar advances). A fee of 2.75% is charged on letters of credit under the
amended DIP Facility. A commitment fee of 0.50% is charged on the unused portion
of the amended DIP Facility. Related debt issue costs have been deferred and are
being amortized over the two-year life of the amended DIP Facility.
In 1996, the Company, The Loewen Group Inc. (the "Parent Company") and their
senior lenders entered into a collateral trust agreement pursuant to which the
senior lenders share certain collateral and guarantees on a pari passu basis
(the "Collateral Trust Agreement"). The security for lenders under the
Collateral Trust Agreement consists of (i) all of the Company's right, title and
interest in and to all rights to receive payment under or in respect of
accounts, contracts, contractual rights, chattel paper, documents, instruments
and general intangibles, (ii) a pledge of the shares of capital stock of
substantially all of the subsidiaries in which the Company directly or
indirectly holds more than a 50% voting or economic interest, and (iii) a
guarantee by each subsidiary that is pledging stock. The security is held by a
trustee for the equal and ratable benefit of the senior lending group. The
senior lending group consists principally of the lenders under the senior
amortizing notes, senior notes and bank and term credit agreements as well as
the holders of certain letters of credit. At the Petition Date, the indebtedness
owed to the senior lending group subject to the Collateral Trust Agreement,
including holders of certain letters of credit, aggregated $1,842,951.
In 1994, Loewen Group Capital L.P. ("LGC") issued 3,000,000 9.45% Cumulative
Monthly Income Preferred Securities, Series A ("MIPS") for an aggregate amount
of $75,000,000. LGC is a limited partnership and the Company as its general
partner manages its business and affairs. The Company serves as the holding
company for all United States assets and operations of the Company. The MIPS
were due August 31, 2024 and were 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. As a
result of the Chapter 11 filing, LGC has commenced wind-up proceedings and the
MIPS became currently redeemable. The MIPS are subject to an unsecured guarantee
by the Parent Company and the Company. Accordingly, the MIPS have been
designated as liabilities subject to compromise.
95
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
Loans and advances from (to) affiliates subject to compromise represent
balances between the Company and various affiliates, most of whom are also under
creditor protection. The substantial majority of these balances are subject to
the plan of reorganization. Adjustments between the carrying value and the
ultimate settlement amount will be recorded as adjustments to equity.
Included in interest expense for the year ended December 31, 1999 is
$4,279,000 of amortization and write-offs of unamortized debt issue costs
(1998 -- $25,018,000, 1997 -- $6,387,000). In 1999, unamortized debt issue costs
applicable to debt which is subject to compromise of $21,730,000 was charged to
reorganization costs (see Note 11).
Maturities of long-term debt which are not subject to compromise are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
<S> <C>
2000................................................ $17,073
2001................................................ 19,720
2002................................................ 8,094
2003................................................ 5,957
2004................................................ 9,798
Thereafter.......................................... 21,391
-------
$82,033
=======
</TABLE>
NOTE 4. DISPOSITIONS AND ACQUISITIONS
(a) DISPOSITIONS
In 1999, the Company sold 124 cemeteries and three funeral homes to an
investor group (see Note 19) for gross proceeds of $149,769,000, before purchase
price adjustments and transaction costs, resulting in a pre-tax loss of
$1,122,000. An impairment charge of $301,605,000, relating to these properties,
was recorded in 1998 (see Note 12). The assets and liabilities disposed of were
$201,107,000 and $67,867,000 respectively. Concurrently, an affiliate of LGII
sold related accounts receivable, at their carrying value of $43,231,000, to the
same investor group.
In 1998, the Company sold First Capital Life Insurance Company of Louisiana,
a wholly owned subsidiary, for gross proceeds of $24,522,000 resulting in a
pre-tax gain of $6,768,000. The assets and liabilities disposed of were
$89,958,000 and $72,204,000 respectively.
(b) ACQUISITIONS
In 1998, the Company acquired 62 funeral homes and 62 cemeteries for cash of
$236,737,000, debt of $20,538,000 and Common shares of the Parent Company in the
amount of $1,085,000. All of the Company's acquisitions have been accounted for
by the purchase method. In 1998, the Company acquired assets and liabilities of
$363,577,000 and $105,217,000 respectively.
The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired and disposed of, as if all such
acquisitions and dispositions had taken place at the
96
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 4. DISPOSITIONS AND ACQUISITIONS (CONTINUED)
beginning of the respective years presented. Appropriate adjustments have been
made to reflect the accounting basis used in recording the acquisitions. This
pro-forma information does not purport to be indicative of the results of
operations that would have resulted had the acquisitions and dispositions been
in effect for the entire years presented, and is not intended to be a projection
of future results or trends.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1999 1998
--------- ----------
<S> <C> <C>
Revenue..................................................... $ 871,389 $1,086,401
Net loss.................................................... $(478,565) $ (649,033)
</TABLE>
NOTE 5. INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
4103 Investments Ltd. ("4103").............................. $ -- $ --
Prime Succession Holdings, Inc. ("Prime")................... -- --
Rose Hills Holdings Corp. ("Rose Hills").................... -- --
TLGI Management Corp.
70,586,000 Preferred shares representing 40.34%........... 28,626 28,626
Other....................................................... 1,507 1,619
------- -------
$30,133 $30,245
======= =======
</TABLE>
(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, a
Canadian company under common control. The Company also transferred 100 Common
shares and 6,300 Preferred shares in Rose Hills 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.
On November 25, 1998, the Company's investment became a joint venture when
the Company received, as a capital contribution 1,000 Class A Common voting
shares of 4103 Investments, representing 50% of the voting rights, from the
Parent Company. Effective from that date, the Company has accounted for its
investment in 4103 Investments common shares by the proportionate consolidation
method. The net loss recorded by 4103 Investments subsequent to November 25,
1998 was $205,944,000, which included an investment impairment charge of
$209,323,000. Prior to November 25, 1998, the Company accounted for its
investment in 4103 Investments by the equity method. Accordingly, the Company's
proportionate share of the assets and liabilities are reflected in the Company's
balance sheet at December 31, 1999 and 1998. For the period to November 25,
1998, equity income of $14,107,000 (1997 -- income of $10,659,000) was recorded
which includes $4,455,000 of income related to equity earnings from Prime and
Rose Hills.
97
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 5. INVESTMENTS (CONTINUED)
Summarized financial data for 4103 Investments is presented as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Income statement information:
Earnings before income taxes and equity loss of associated
company................................................. $ 4,001 $ 35,147
Net earnings (loss)....................................... (16,394) (176,965)
Balance sheet information:
Current assets............................................ $ -- $ --
Non-current assets........................................ 91,029 111,425
-------- ---------
Total assets.............................................. 91,029 111,425
Current liabilities....................................... 49 49
Non-current liabilities................................... -- --
-------- ---------
Total liabilities......................................... 49 49
Shareholders' equity...................................... 90,980 111,376
</TABLE>
(b) PRIME
The Company owns 163.0475 shares of Prime Succession Holdings Inc. ("Prime")
common stock, representing 16.67% of Prime's voting common stock, and 48.68% of
Prime's non-voting preferred stock, with a 10% cumulative annual payment-in-kind
dividend. Blackstone Capital Partners II Merchant Banking Fund L.P. and certain
affiliates (together, "Blackstone") owns 764.7059 shares of Prime common stock,
representing 78.2% of Prime's voting common stock. The remaining 5.13% of
Prime's voting common stock and 51.32% of Prime's non-voting preferred stock are
owned by a company affiliated with 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 $52,000,000 was funded by Blackstone and $78,000,000 by 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.
Under a Put/Call Agreement entered into with Blackstone in August 1996, 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.
98
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 5. INVESTMENTS (CONTINUED)
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 approximately 12x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.
Upon a Call, Blackstone is entitled to 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 will be 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.
Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Prime and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998, the Company concluded that its
investment had suffered a decline in value that was other than temporary and
wrote down its investment based on an assumed distribution of Prime's
shareholders' equity. In 1999, due to the performance of Prime, the Company
wrote off its remaining investment.
In addition, the Company estimated the expected Put option price on the
sixth anniversary, the first date the Put option becomes exercisable by
Blackstone, based on the Company's best estimate of EBITDA and debt at that time
and the relevant formula in the Put/Call Agreement. The Company accrued a
contingent loss at December 31, 1998 based upon the difference between the
estimated Put option price and the Company's estimate of the fair value of
Blackstone's equity in Prime which is based in part on prevailing market
conditions. In the fourth quarter of 1999, due to the performance of Prime and
the reduced market values and performance of other industry participants, the
Company re-assessed the estimates of EBITDA and debt at the first date the Put
option becomes exercisable by Blackstone. Based upon changes to the estimates of
the expected Put option price and the fair value of Blackstone's equity in
Prime, the Company reduced the accrual of its contingent loss as at
December 31, 1999. Such amount could change based on changes in the estimated
future value of the business. The respective contingent liability has been
recorded in "Other liabilities," (Note 17). In 1999, 1998 and 1997, the Company
recognized loss of $(1,392,000) $(3,100,000) and $(133,000), respectively,
applicable to its investment in Prime, excluding the investment impairments and
contingent losses.
99
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 5. INVESTMENTS (CONTINUED)
The latest available annual financial data reported by Prime was:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement Information
Revenue................................................... $ 98,005 $101,139
Gross margin.............................................. 32,293 38,616
Earnings from operations.................................. 17,595 24,123
Payment-in-kind dividend.................................. 7,226 6,542
Net loss attributable to common shareholders.............. (14,524) (6,739)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information
Total assets.............................................. $391,122 $395,106
Total liabilities......................................... 272,012 268,698
Shareholders' equity...................................... 119,110 126,408
</TABLE>
(c) ROSE HILLS
The Company owns 153.2143 shares of Rose Hills Holdings Corp. ("Rose Hills")
common stock, representing 15.32% of Rose Hills' voting common stock, and 62.4%
of Rose Hills non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend. Blackstone owns 795.4546 shares of Rose Hills common
stock, representing 79.55% of Rose Hills' voting common stock. The remaining
5.13% of Rose Hills' voting common stock and 37.6% of Rose Hills' non-voting
preferred stock are owned by a company affiliated with LGII.
Rose Hills 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 $35,000,000 was funded by Blackstone and $95,000,000 by 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 RHC and is
being amortized over 40 years.
Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Rose Hills' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of Rose
Hills. Neither Blackstone nor the Company can, without the consent of the other
party, sell or transfer its shares in Rose Hills to a party other than to an
affiliate of itself.
Under a Put/Call Agreement entered into with Blackstone in November 1996,
the Company has the option to acquire ("Call") Blackstone's Rose Hills 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 Rose Hills common stock
to the Company
100
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 5. INVESTMENTS (CONTINUED)
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 approximately 14x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.
Upon a Call, Blackstone is entitled to 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 value 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 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.
Prior to March 1, 2000, the Company had provided various management and
administrative services to RHC and subsidiaries under an Administrative Services
Agreement for an annual fee of $250,000. The Company and RHC have agreed to
amend that Agreement, effective March 1, 2000, to provide that, until such time
as the Company makes an election to reject or assume the Agreement under
Chapter 11 of the Bankruptcy Act, the annual fee payable by RHC under the
Agreement will be reduced to nil and the Company will no longer be required to
provide any services to RHC under the Agreement. That annual fee is subject to
renegotiation in the event that RHC requests further services from the Company.
If the Agreement were to become terminable by Blackstone due to the Company's
material breach thereof or other failure to comply in any material respect, the
price payable to Blackstone upon a Put of its interests would, under the terms
of the Put/Call Agreement, be no less than an amount equal to 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.
Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Rose Hills and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998 the Company assessed that its investment
had suffered a decline in value that was other than temporary and wrote down its
investment based on an assumed distribution of Rose Hills' shareholders' equity
at December 31, 1998 taking into account Blackstone's return under the Put. No
further write down was made in 1999. As at December 31, 1999 and 1998, the
carrying value of the Company's investment in Rose Hills was $27,452,000.
In addition, the Company estimated the expected Put option price on the
sixth anniversary, the first date the Put option becomes exercisable by
Blackstone, based on the Company's best estimate of EBITDA and debt at that time
and the relevant formula in the Put/Call Agreement. The Company accrued a
contingent loss at December 31, 1998 based upon the difference between the
estimated Put option price and the Company's estimate of the fair value of
Blackstone's equity in Rose Hills which is based in part on prevailing market
conditions. In the fourth quarter of 1999, due to the performance of Rose Hills
and the
101
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 5. INVESTMENTS (CONTINUED)
reduced market values and performance of other industry participants, the
Company re-assessed the estimates of EBITDA and debt at the first date the Put
option becomes exercisable by Blackstone. Based upon changes to the estimates of
the expected Put option price and the fair value of Blackstone's equity in Rose
Hills, the Company increased the accrual of the contingent loss as at
December 31, 1999. Such amount could change based on changes in the estimated
future value of the business. The respective contingent liability has been
recorded in Other Liabilities, net of the carrying value of Rose Hills (see
Note 17). In 1999, 1998 and 1997, the Company recognized income of nil,
$3,699,000 and $1,023,000, respectively, applicable to its investment in
Rose Hills, excluding the investment impairment and contingent loss in 1998.
The latest available annual financial data reported by Rose Hills was:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement Information
Revenue................................................... $ 83,577 $ 70,645
Gross margin.............................................. 69,814 59,900
Earnings from operations.................................. 19,538 14,738
Payment-in-kind dividend.................................. 9,568 8,708
Net loss attributable to common shareholders.............. (8,534) (10,476)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information
Total assets.............................................. $321,933 $312,598
Total liabilities......................................... 193,641 185,340
Shareholders' equity...................................... 128,292 127,258
</TABLE>
(d) TLGI MANAGEMENT CORP
The Company owns 70,586,000 Class A redeemable preferred shares of TLGI
Management Corp., a Canadian subsidiary of the Parent Company that owns and
operates funeral homes in Canada. In December 1998, the Company recorded its
share of an impairment charge against its preferred share investment in TLGI
Management Corp. of $41,960,000.
102
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 6. INSURANCE INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed maturities.................................... $262,267 $244,168 $246,576 $251,454
Equity securities................................... 60 36 80 44
Short-term investments and other.................... 19,096 19,096 20,005 20,005
-------- -------- -------- --------
$281,423 $263,300 $266,661 $271,503
======== ======== ======== ========
</TABLE>
On the insurance invested assets, the Company earned $19,450,000 of
investment income for the year ended December 31, 1999 (1998 -- $21,349,000).
Included in the market value of insurance invested assets are $200,000 and
$18,323,000 of unrealized gains and losses, respectively (1998 -- $6,942,000 and
$2,100,000, respectively).
Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 4,770 $ 4,387 $ 6,853 $ 6,746
Due in one to five years.................... 20,656 19,663 25,667 25,801
Due in five to ten years.................... 66,819 62,527 67,598 69,049
Thereafter.................................. 103,880 92,881 72,843 73,209
-------- -------- -------- --------
$196,125 $179,458 $172,961 $174,805
======== ======== ======== ========
</TABLE>
The Company's mortgage-backed securities and collateralized mortgage
obligations consist of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 66,142 $ 64,710 $ 73,615 $ 76,649
======== ======== ======== ========
</TABLE>
103
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 7. PRE-ARRANGED FUNERAL SERVICES
Pre-arranged funeral services represents amounts deposited in accordance
with state trusting laws with various financial institutions together with
accrued earnings. The Company will receive the pre-arranged funeral trust
amounts when the funeral services are performed. The funds deposited in trust
are invested as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Short-term investments...................................... $105,170 $ 94,043
Fixed maturities............................................ 150,242 137,482
Mutual funds................................................ 10,148 1,419
Equity securities........................................... 61,284 65,268
Insurance policies held by trust............................ 44,833 52,844
Other....................................................... 844 905
-------- --------
$372,521 $351,961
======== ========
</TABLE>
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
Prior to filing for bankruptcy, the Company used 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 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,
1999, no such agreements were outstanding.
(b) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and term deposits, current receivables, current
indebtedness 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 has been omitted because it is not
104
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
practicable to determine fair values with sufficient reliability. Financial
instruments with a carrying value materially different from their fair value
include:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Pre-arranged funeral services.............. $372,521 $375,816 $ 351,961 $ 353,696
Insurance invested assets.................. 281,423 263,300 266,661 271,503
Long-term receivables:
Practicable to estimate fair value....... 395,155 407,262 391,842 399,943
Not practicable to estimate fair value... 78,991 n/a 112,453 n/a
Financial liabilities not subject to
compromise:
Long-term debt............................. $ 82,033 82,033 $2,083,491 $1,856,123
Preferred securities of a subsidiary
(Note 3)................................. n/a n/a 75,000 57,938
</TABLE>
The fair value determination of pre-arranged funeral services, insurance
invested assets and long-term receivables is based on quoted market prices.
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 one to seven years and contractual or imputed
interest ranging from 9% to 12%.
Due to the Chapter 11 filings, calculation of fair values for long-term
debt, the preferred securities of a subsidiary and other liabilities subject
to compromise cannot be determined as at December 31, 1999. As detailed in
Note 3, the majority of the Company's long-term debt and the preferred
securities of a subsidiary became subject to compromise effective June 1,
1999.
The 1999 fair value of long-term debt approximates its carrying value. The
1998 fair value of long-term debt subject to fixed interest rates was
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 1998
fair value of long-term debt subject to floating market rates approximated
its carrying value. The 1998 fair value of the preferred securities of a
subsidiary was estimated based upon quoted market prices.
105
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 9. 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
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common shares............................................. 1,521 1,521 $ -- $ --
Contributed surplus....................................... 554,289 526,058
-------- --------
$554,289 $526,058
======== ========
</TABLE>
During 1999, the Parent Company contributed capital of $28,231,000 to
the Company.
NOTE 10. LEGAL CONTINGENCIES
BANKRUPTCY FILINGS
On June 1, 1999, the Company and each of approximately 850 United States
subsidiaries filed a voluntary petition for creditor protection and to
reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the District of Delaware (the "U.S. Bankruptcy Court"). The filings
subsequently were consolidated for joint administration (IN RE: LOEWEN GROUP
INTERNATIONAL, INC., ET AL., No. 99-1244).
The Company and its subsidiaries under creditor protection are presently
operating their businesses as debtors-in-possession. An Official Unsecured
Creditors' Committee has been appointed by the United States trustee in the
bankruptcy proceedings. On July 16, 1999, the U.S. Bankruptcy Court approved the
DIP Facility.
As a result of the bankruptcy filings, litigation against the Company and
its filing subsidiaries was stayed as of June 1, 1999 (unless the stay is lifted
by the supervising court), and any additional liabilities related thereto will
be subject to compromise.
SECURITIES CLASS ACTIONS
Since December 1998, The Loewen Group Inc. (the "Parent Company") has been
served with various related lawsuits filed in the United States District Courts
for the Eastern District of Pennsylvania and for the Eastern District of New
York. Raymond L. Loewen, the former Chairman and Chief Executive Officer, and
certain current and former officers and directors have been named as defendants
in some of the suits. All but one of these lawsuits were filed as purported
class actions on behalf of persons or entities that purchased the Parent
Company's Common shares during five different time periods ranging from
November 3, 1996 through January 14, 1999. The Company and Loewen Group
Capital, L.P. ("LGC") are named as defendants in two suits (with the Parent
Company, the "Loewen Defendants"). The plaintiffs in these two lawsuits purport
to sue on behalf of a class of purchasers of MIPS from March 5, 1997 through
January 14, 1999. The MIPS were issued by LGC.
106
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
The complaints generally make allegations concerning, among other things,
the Parent Company's and the Company's internal controls, accounting practices,
financial disclosures and acquisition practices.
The Judicial Panel on Multidistrict Litigation (the "MDL Panel") granted the
Loewen Defendants' motion to consolidate all of the actions for pre-trial
coordination in the United States District Court for the Eastern District of
Pennsylvania. On April 15, 1999, Judge Thomas O'Neill of the District Court for
the Eastern District of Pennsylvania entered an order consolidating in the
Eastern District of Pennsylvania, all of the cases then filed, as well as any
related cases thereafter transferred to that District (the "April 15 Order").
The April 15 Order appointed the City of Philadelphia Board of Pensions and
Retirement as lead plaintiff. Subsequent to the Company's bankruptcy filings,
Judge O'Neill entered an order staying all of the cases and placing them on the
suspense docket.
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or to reasonably estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in 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 seeking a class action 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 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
seeking a class action 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. 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 attorney's fees. Louisiana
law prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs
also seek a declaratory judgment compelling defendants to honor the policies.
107
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
On June 13, 1997, the district court in Jefferson Parish dismissed the
FELDHEIM plaintiffs' claim to a class action, and the plaintiffs appealed. On
June 30, 1998, the Louisiana Fifth Circuit Court of Appeal affirmed the
dismissal of the FELDHEIM plaintiffs' class-action claims.
Following various rulings on the DUFFY lawsuit in the trial court, on
January 6, 1999, the Fourth Circuit Court of Appeal dismissed the action. On
February 5, 1999 the DUFFY plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.
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 plaintiffs.
Accordingly, no provision with respect to these lawsuits has been made in the
Company's consolidated financial statements.
LUENING, ET AL. V. SI-SIFH CORP., ET AL.
In June 1998, Warren S. Luening and four other individuals filed a lawsuit
seeking a class action 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
St. Bernard, State of Louisiana. Defendants in this case are the same entities
against whom complaints were filed in Jefferson Parish, Louisiana (the FELDHEIM
case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside from the
addition of local counsel in St. Bernard Parish, the same lawyers who filed the
FELDHEIM and DUFFY complaints filed the LUENING complaint.
Plaintiffs allegedly hold and held funeral insurance policies issued by
insurance companies owned, directly or indirectly, by the defendants. Plaintiffs
allege that the defendants failed to provide the funeral services purchased with
policies by, among other things, (i) charging them for certain funeral services,
including the services of a funeral director and staff, a funeral ceremony, care
of the deceased, automotive services and a casket, even though these services
were allegedly covered by their policies, and (ii) unjustly enriching themselves
through the payment of services allegedly covered under the plaintiffs'
policies, and the plaintiffs are therefore entitled to restitution of those
payments. Plaintiffs' complaint seeks compensatory and nonpecuniary damages and
attorneys' fees. Louisiana law prohibits plaintiffs from alleging specific
amounts of damages in their complaint.
On February 3, 1999, the state court ruled that the dismissal of the class
action claims in the FELDHEIM and DUFFY cases did not operate to bar the
particular sub-class of potential plaintiffs identified in LUENING. On March 25,
1999, the Fourth Circuit reversed the trial court, while recognizing that
individual plaintiffs' claims could proceed in St. Bernard Parish. On March 29,
1999 the LUENING plaintiffs filed an application for writ of certiorari with the
Louisiana Supreme Court. On April 30, 1999, the Louisiana Supreme Court denied
the writ application and thereby declined to review the Court of Appeal's
dismissal of plaintiffs' class action allegations.
The Company has determined that it is not possible to predict the final
outcome of this legal proceeding, and it is not possible to establish a
reasonable estimate of possible damages, if any, or
108
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
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.
F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.
This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on the Company and other defendants on September 19, 1996. Plaintiffs
allegedly compete with defendants Restlawn Memorial Park Association, Restlawn
Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the Company.
Plaintiffs allege thirteen counts, including counts alleging that defendant
Restlawn engaged in false and deceptive advertising, misused confidential
information, defamed plaintiffs, breached contractual obligations,
misappropriated trade secrets, and tortiously interfered with plaintiffs'
contractual relationships. Plaintiffs further allege that the Company knew or
should have known of Restlawn's conduct and adopted and continued Restlawn's
alleged unfair, false, and deceptive practices. Plaintiffs also allege that the
defendants conspired to destroy the plaintiffs' business and created a "trust in
order to prevent competition" in violation of Ohio's antitrust laws. Plaintiffs
seek compensatory damages, which are unspecified but alleged to exceed $350,000;
punitive damages, which are unspecified but alleged to exceed $300,000; and
injunctive relief. Defendants' summary judgment motion was denied as to all but
one of plaintiffs' counts. A trial set for July 12, 1999 was stayed as a result
of the bankruptcy proceedings, and no new trial date has been set.
The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or 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.
FLANAGAN V. THE LOEWEN GROUP INC., ET AL.
In December 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against the Parent
Company and the Company. The matter was subsequently removed to federal court
based on diversity jurisdiction, and it is now pending in the United States
District Court in the Central District of California.
In 1995, Ms. Flanagan and her husband John Flanagan (now deceased) sold
their mausoleum and mortuary business to the Company for cash and Loewen stock.
Ms. Flanagan's complaint contains causes of action for breach of contract in
connection with the share purchase agreement and in connection with employment
and consulting agreements entered into at the time of the Share Purchase
Agreement. Additionally, Ms. Flanagan alleges causes of action for intentional
and negligent misrepresentation and declaratory relief.
Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. Further, Ms. Flanagan seeks
punitive damages in an unspecified sum. On the declaratory relief cause of
action, Ms. Flanagan seeks a declaration that she is to be reimbursed for her
losses pursuant to the indemnity provision contained in the share purchase
agreement. She also seeks a declaration that until she is indemnified for her
losses she is not obligated to transfer property that the Company has the option
to purchase for a specified price pursuant to the share purchase agreement.
109
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
The Company has determined that it is not possible at this time to predict
the final outcome of this proceeding or 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 plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in the Company's consolidated financial
statements.
THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA
In October 1998, the Parent Company and Raymond L. Loewen, the then-Chairman
and Chief Executive Officer of the Company, filed a claim against the United
States government for damages under the arbitration provisions of the North
American Free Trade Agreement ("NAFTA"). The claimants contend that they were
damaged as a result of breaches by the United States of its obligations under
NAFTA in connection with certain litigation in the State of Mississippi entitled
O'KEEFE VS. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege that they
were subjected to discrimination, denial of the minimum standard of treatment
guaranteed by NAFTA and uncompensated expropriation, all in violation of NAFTA.
The Company has determined that it is not possible at this time to predict the
final outcome of this proceeding or to establish a reasonable estimate of the
damages, if any, that may be awarded to the Company.
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 11. REORGANIZATION AND RESTRUCTURING COSTS
(a) REORGANIZATION COSTS
During 1999, the Company incurred the following pre-tax charges for costs
associated with reorganizing its affairs under the protection of Chapter 11 as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Executory contracts......................................... $26,483
Deferred debt issue costs written off....................... 21,730
PATS option liability recorded.............................. 9,760
Key Employee Retention Plan costs........................... 3,998
Professional fees and other costs........................... 23,753
-------
$85,724
=======
</TABLE>
Certain executory contracts, primarily covenants not to compete, have been
rejected by the Company as a result of its bankruptcy filing on the Petition
Date and have been charged to reorganization costs.
110
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 11. REORGANIZATION AND RESTRUCTURING COSTS (CONTINUED)
In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan, a long-term agreement structured to ensure that appropriate employee
levels and expertise are retained during the reorganization process (see
Note 13).
Professional fees and other costs include accounting, legal and consulting
services provided to the Company and the Official Unsecured Creditors' Committee
which, subject to court approval, are required to be paid by the Company as it
reorganizes under Chapter 11.
(b) RESTRUCTURING COSTS
During 1997, the Company recorded pre-tax charges of $31,000,000, 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 $19,000,000 for severance,
$7,500,000 for the closure of a corporate office and $4,100,000 of asset
write-downs.
NOTE 12. IMPAIRMENT OF ASSETS
During 1999, as a result of the Company's bankruptcy filings and operating
performance decline, the Company conducted extensive reviews of each of its
operating locations. The reviews also resulted in the identification of 371
locations as probable for sale. In January 2000, the Bankruptcy Courts approved
the Company's proposed disposition process for the locations identified. A
further 54 locations are anticipated to be merged with existing locations. As a
result of these reviews, the Company recorded a pre-tax asset impairment
provision of $335,531,000. In calculating the asset impairment provision, the
Company used estimated cash flow from operations and for the locations
identified as probable for sale, used estimated cash proceeds on the anticipated
sale of these properties. The asset impairment provision has reduced cemetery
property by $256,875,000, names and reputations by $75,656,000 and funeral
property by $3,000,000.
In December 1998, the Company recorded a pre-tax asset impairment provision
of $301,605,000 on certain properties. In calculating the asset impairment
provision, the Company used estimated cash flow from operations and estimated
cash proceeds on the sale of these properties. The asset impairment provision
reduced cemetery property by $295,957,000, property and equipment by $2,284,000
and names and reputations by $3,364,000. This provision was applicable to the
sale of 124 cemeteries and three funeral homes. In March 1999, these properties
were sold for gross proceeds of $149,769,000, before purchase price adjustments
and transaction costs. In June 1999, the Company recorded an additional pre-tax
asset impairment provision of $15,112,000 applicable to other properties
identified in December 1998.
The asset impairment provisions noted above are based on management
estimates and, as a result, actual results could differ significantly from these
estimates. In addition, due to the bankruptcy proceedings, other properties,
although not specifically identified, could be sold.
111
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 13. COMMITMENTS AND CONTINGENCIES
(a) KEY EMPLOYEE RETENTION PLAN
In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan ("KERP") a long-term agreement structured to ensure that appropriate
employee levels and expertise are retained during the reorganization process.
The KERP is comprised of four separate components: a Retention Incentive Plan, a
Performance Incentive Plan, a Confirmation Incentive Plan and a Severance Plan.
The KERP supercedes previous employee arrangements, including the Executive
Severance Arrangements. Pre-tax costs incurred in 1999 under the KERP amounted
to $3,998,000. The maximum amount which could be incurred under the Retention
Incentive Plan, the Performance Incentive Plan and the Confirmation Incentive
Plan has been estimated at approximately $24,521,000.
(b) LEASES
The Company is committed to operating lease payments for premises,
automobiles and office equipment in the following approximate amounts:
<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $ 9,656
2001........................................................ 8,541
2002........................................................ 7,860
2003........................................................ 6,466
2004........................................................ 5,665
Thereafter.................................................. 35,248
</TABLE>
Total expense incurred under these operating leases for the year ended
December 31, 1999 was $15,998,000, (1998 -- $13,462,000), (1997 -- $15,258,000).
(c) 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 expensed over
the terms of the specific contracts. During 1999, the Company suspended payments
applicable to the agreements which the Company has elected to reject (see
Note 3). The agreements for
112
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
which payments have not been suspended will result in future payments in the
following approximate amounts:
<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $ 9,945
2001........................................................ 7,498
2002........................................................ 6,950
2003........................................................ 5,845
2004........................................................ 5,130
Thereafter.................................................. 14,229
</TABLE>
(d) 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 and after 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. On a continuing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates.
(e) CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS
The Company has identified and accrued for contingent losses arising from
the potential exercise of the Put/Call Agreements in connection with its
investments in Prime and Rose Hills (see Note 5).
113
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 14. 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 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, 1999 was $1,912,000, $2,622,000 and $2,356,000 respectively.
NOTE 15. INCOME TAXES
(a) EFFECTIVE TAX RATE
The Company's effective income tax rate is derived as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
% % %
<S> <C> <C> <C>
Combined United States federal and state income tax rate.... (40.0) (40.0) (40.0)
Non-deductible amortization and write down of goodwill
arising from acquisitions................................. 4.7 0.8 3.9
Non-deductible restructuring and other charges.............. 1.4 0.1 0.6
Change in valuation allowance on future tax assets.......... 22.0 15.5 7.8
Other....................................................... 3.1 1.9 5.2
----- ----- -----
(8.8) (21.7) (22.5)
===== ===== =====
</TABLE>
114
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 15. INCOME TAXES (CONTINUED)
(b) FUTURE TAX ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Future tax liabilities:
Long-term receivables..................................... $ 91,633 $ 62,563
Cemetery property......................................... 193,543 303,145
Property and equipment.................................... 56,251 54,149
Names and reputations..................................... -- 633
Insurance policy liabilities.............................. 16,440 18,905
Other..................................................... 16,722 13,902
--------- ---------
Total future tax liabilities.............................. 374,589 453,297
--------- ---------
Future tax assets:
Accounts payable and accrued liabilities.................. 13,303 16,206
Cemetery long-term liabilities............................ 39,759 34,649
Legal settlements......................................... 14,454 15,517
Insurance assets.......................................... 13,500 15,149
Names and reputations..................................... 16,767 --
Interest.................................................. 173,068 150,614
Unrealized losses on investments in Prime and
Rose Hills.............................................. 113,165 101,842
Deferred costs related to pre-arranged funeral services... 7,417 14,813
Operating and capital loss carryforwards.................. 87,376 41,795
Other..................................................... 24,357 9,032
--------- ---------
Total future tax assets before valuation allowance........ 503,166 399,617
Valuation allowance....................................... (249,975) (137,603)
--------- ---------
Total future tax assets after valuation allowance......... 253,191 262,014
--------- ---------
Net future tax liabilities................................ $ 121,398 $ 191,283
========= =========
</TABLE>
Although realization of the Company's future tax assets is not assured,
management believes that it is more likely than not that reversals of future tax
liabilities provide sufficient taxable income to realize the future tax assets
after consideration of the valuation allowance. It is reasonably possible that
the estimated valuation allowance could change in the near term due to matters
such as the timing and manner of reversals of future tax liabilities, sales of
operations, and future income or loss. During the year ended December 31, 1999,
the Company increased its valuation allowance by approximately $112,372,000
(1998 -- $126,185,000).
115
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 16. CHANGES IN OTHER NON-CASH BALANCES
Supplemental disclosures related to statements of cash flows consist of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Decrease (increase) in assets:
Receivables, net of allowances
Trade................................................... $ (21,010) $ 20,279 $ 8,945
Other................................................... (45,464) -- --
Inventories............................................... (287) 565 (689)
Prepaid expenses.......................................... (3,578) 1,771 1,627
Amounts receivable from cemetery merchandise trusts....... (92,644) (98,114) (89,893)
Installment contracts, net of allowances.................. (37,078) (119,759) (143,599)
Cemetery property......................................... (4,934) (47,286) (31,045)
Other assets.............................................. (2,332) (19,327) (49,135)
Increase (decrease) in liabilities, including certain
liabilities subject to compromise:
Accounts payable and accrued liabilities.................. 18,964 9,684 40,232
Other liabilities......................................... 10,525 8,597 10,900
Cemetery long-term liabilities............................ 11,239 (15,448) 19,261
Insurance policy liabilities.............................. 17,287 22,935 5,786
Other changes in non-cash balances.......................... 9,634 12,946 (1,914)
--------- --------- ---------
$(139,678) $(223,157) $(229,524)
========= ========= =========
Supplemental information:
Interest paid............................................. $ 73,333 $ 160,012 $ 88,796
Taxes paid................................................ 2,442 80 33,067
Bad debt expense.......................................... 8,003 13,430 11,406
Non-cash investing and financing activities:
Non-cash debt and share consideration on acquisitions..... $ -- $ 21,623 $ 58,068
Note receivable from sale of subsidiary................... -- -- 15,725
Exchange of common and preferred shares of Prime and Rose
Hills for shares of 4103 Investments.................... -- -- 138,255
Increase in loans and advances from affiliates in
consideration for share issuances....................... -- 38,544 185,250
</TABLE>
116
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1999 1998
--------- ----------
<S> <C> <C>
Receivables, net of allowances:
Trade accounts............................................ $ 29,011 $ 46,593
Allowance for doubtful accounts........................... (9,684) (14,150)
Other..................................................... 35,671 28,458
Installment contracts..................................... 70,453 50,001
Unearned finance income................................... (5,631) (7,884)
Allowance for contract cancellations and refunds.......... (7,567) (6,434)
--------- ----------
$ 112,253 $ 96,584
========= ==========
Long-term receivables, net of allowances:
Notes receivable.......................................... $ 8,433 $ 11,942
Amounts receivable from cemetery merchandise trusts....... 411,620 409,907
Installment contracts..................................... 83,507 116,973
Unearned finance income................................... (13,701) (19,147)
Allowance for contract cancellations and refunds.......... (15,713) (15,380)
--------- ----------
$ 474,146 $ 504,295
========= ==========
Cemetery property:
Developed land and lawn crypts............................ $ 168,789 $ 206,743
Undeveloped land.......................................... 661,854 889,257
Mausoleums................................................ 83,667 130,358
--------- ----------
$ 914,310 $1,226,358
========= ==========
Property and equipment:
Land...................................................... $ 147,535 $ 145,674
Buildings and improvements................................ 477,231 479,097
Automobiles............................................... 84,229 69,346
Furniture, fixtures and equipment......................... 120,744 132,775
Computer hardware and software............................ 22,609 26,510
Leasehold improvements.................................... 15,501 13,818
Accumulated depreciation and amortization................. (188,763) (154,225)
--------- ----------
$ 679,086 $ 712,995
========= ==========
Names and reputations:
Names and reputations..................................... $ 701,707 $ 698,009
Covenants not to compete.................................. 81,753 81,070
Accumulated amortization.................................. (202,484) (100,503)
--------- ----------
$ 580,976 $ 678,576
========= ==========
</TABLE>
117
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1999 1998
--------- ----------
<S> <C> <C>
Other assets:
Deferred debt issue costs................................. $ 3,035 $ 21,137
Deferred direct obtaining costs........................... 99,716 97,254
Cemetery management contracts............................. 12,614 13,413
Other..................................................... 8,253 19,512
--------- ----------
$ 123,618 $ 151,316
========= ==========
Accounts payable and accrued liabilities:
Trade payables............................................ $ 25,849 $ 38,852
Interest.................................................. 3,791 34,727
Insurance, property and business taxes.................... 4,565 5,593
Other..................................................... 52,835 71,240
--------- ----------
$ 87,040 $ 150,412
========= ==========
Other liabilities:
Cemetery long-term liabilities............................ $ 172,935 $ 202,267
Accrual for contingent loss (see Note 5).................. 206,979 155,338
Covenants not to compete.................................. 18,695 20,540
Regional partnership liabilities.......................... 9,265 9,836
Participants' deposits in MEIP............................ -- 5,120
Other..................................................... 24,871 21,218
--------- ----------
$ 432,745 $ 414,319
========= ==========
</TABLE>
NOTE 18. SEGMENTED INFORMATION
The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance.
The 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.
In addition to providing at-need funeral services, the Company also provides
pre-arranged funeral services to it customers.
The 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 majority of
cemetery revenue is from pre-need sales.
The insurance companies sell a variety of life insurance products, primarily
to fund pre-arranged funeral services. The funeral home companies sell insurance
contracts on behalf of the Company's
118
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 18. SEGMENTED INFORMATION (CONTINUED)
insurance operations for which they receive commission revenue. In 1999, the
inter-company commissions amounted to $4,554,000 and were eliminated in the
Company's consolidated financial statements (1998 -- $3,717,000, 1997 -- nil).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). The Company sells
primarily to external customers, though any intersegment sales or transfers
occur at market price. The Company evaluates performance based on earnings from
operations of the respective businesses.
<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
---------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales:
1999................................ $ 537,062 $ 314,534 $ 94,101 $ -- $ 945,697
1998................................ 559,217 416,823 96,516 -- 1,072,556
1997................................ 536,926 408,196 89,977 -- 1,035,099
Earnings (loss) from operations:
1999................................ $ 41,811 $ (246,510) $ 20,343 $(67,100) $ (251,456)
1998................................ 113,608 (262,366) 16,472 (84,802) (217,088)
1997................................ 126,865 70,709 16,508 (93,460) 120,622
Investment revenue (included in
earnings (loss) from operations):
1999................................ $ 1,491 $ 42,778 $ 19,450 $ 720 $ 64,439
1998................................ 3,197 33,602 21,351 1,590 59,740
1997................................ 5,354 28,647 23,518 275 57,794
Depreciation and amortization:
1999................................ $ 54,499 $ 10,604 $ 31 $ 5,631 $ 70,765
1998................................ 56,146 10,668 31 9,380 76,225
1997................................ 45,531 7,391 36 3,400 56,358
Total assets:
1999................................ $1,700,601 $1,576,398 $290,398 $ 83,940 $3,651,337
1998................................ 1,790,679 1,923,540 276,098 150,197 4,140,514
1997................................ 1,734,321 1,850,223 331,754 294,049 4,210,347
Capital expenditures:
1999................................ $ 18,461 $ 23,567 $ 190 $ 1,204 $ 43,422
1998................................ 64,845 25,574 420 3,448 94,287
1997................................ 83,381 52,893 208 6,807 143,289
</TABLE>
119
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 18. SEGMENTED INFORMATION (CONTINUED)
The following table reconciles earnings from operations of reportable
segments to earnings (loss) before income taxes and identifies the components of
"Other" segment earnings from operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Earnings (loss) from operations of funeral, cemetery and
insurance segments........................................ $(184,356) $(132,286) $214,082
Other expenses of operations:
General and administrative expenses....................... (61,469) (74,846) (58,252)
Restructuring costs....................................... -- -- (30,922)
Depreciation and amortization............................. (5,631) (9,380) (3,400)
Other..................................................... -- (576) (886)
--------- --------- --------
Total earnings (loss) from operations....................... $(251,456) $(217,088) $120,622
========= ========= ========
</TABLE>
The following table reconciles total assets of reportable segments and
details the components of "Other" segment assets which is mainly comprised of
corporate assets:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total assets of funeral, cemetery and insurance
segments............................................... $3,567,397 $3,990,317 $3,916,298
"Other" assets includes:
Cash................................................... 12,313 52,007 1,884
Receivables............................................ 14,788 16,233 41,359
Prepaid expenses....................................... 5,960 2,362 1,472
Long-term receivables, net of allowances............... 5,397 7,696 3,957
Investments............................................ 29,299 30,245 184,723
Property and equipment................................. 7,725 13,338 19,240
Names and reputations.................................. 3,548 4,358 4,766
Deferred debt issue costs.............................. 3,035 21,137 29,201
Other.................................................. 1,875 2,821 7,447
---------- ---------- ----------
83,940 150,197 294,049
---------- ---------- ----------
$3,651,337 $4,140,514 $4,210,347
========== ========== ==========
</TABLE>
120
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 19. RELATED PARTY TRANSACTIONS
During 1999, the Company entered into agreements, through a series of
transactions, to sell cemetery installment contract receivables to an affiliate
of the Company for $59,804,000 (1998 -- $112,861,000, 1997 -- $185,179,000)
resulting in a loss of $4,938,000, (1998 -- $11,189,000, 1997 -- $22,066,000),
and funeral home contract receivables for $29,605,000 (1998 -- $23,674,000,
1997 -- nil) resulting in a loss of $2,378,000 (1998 -- $1,903,000,
1997 -- nil).
For the year ended December 31, 1999, the Company paid management fees to
the Parent Company of $32,426,000 (1998 -- $23,264,000; 1997 -- $18,961,000).
During the year ended December 31, 1997, the Company paid approximately
$10,800,000 for insurance and other services to a related company. There were no
such expenditures in 1998 or 1999.
As part of the acquisition of Osiris Holding Corporation ("Osiris") in 1995,
the Company recorded a liability for the present value of contingent payments.
The contingent payments were due over a five-year period ending in 2001 to the
former shareholders of Osiris, two of whom were officers of the Company. In
1999, the two officers of the Company entered into an agreement with the Company
to purchase 124 cemeteries and three funeral homes and ended their association
with the Company. The balance of the contingent payments, which was $14,947,000
at December 31, 1998, was paid out of the proceeds of the sale in 1999 (see
Note 12).
In addition, as part of the acquisition of Shipper Management ("Shipper") in
1996, the Company recorded a liability for the present value of contingent
payments. The contingent payments were payable through 2001, to the former
shareholders of Shipper, one of whom was an officer of the Company. In 1999, the
remaining balance of $4,838,000 became subject to compromise under the
bankruptcy.
At December 31, 1999, current and former officers, directors and employees
of the Company were indebted to the Company for approximately $10,898,000
(1998 -- $10,400,000). As at December 31, an allowance of $7,952,000 has been
recorded against those amounts for former officers and employees
(1998 -- $3,261,000).
121
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 20. 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)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net loss in accordance with Canadian GAAP................... $(465,797) $(635,912) $(78,750)
Less effects of differences in accounting for:
Provision for asset impairment (c)........................ (52,900) -- --
Factoring transactions (d)................................ (4,392) 604 12,314
Insurance operations (e).................................. (3,436) 2,833 1,701
Cost of start-up activities (f)........................... 404 2,302 --
--------- --------- --------
Net loss before cumulative effect of a change in
accounting principle...................................... (526,121) (630,173) (64,735)
Cumulative effect of adopting SOP 98-5 as of
January 1, 1998 (f)....................................... -- (3,940) --
--------- --------- --------
Net loss in accordance with U.S. GAAP....................... (526,121) (634,113) (64,735)
Other comprehensive income:
Foreign currency translations............................. (1,949) (7,968) --
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the period, net of
deferred tax recovery (expense) of $5,157, $(8,354), and
$(5,992), respectively.................................. (8,066) 10,211 7,323
Less: reclassification adjustment for gains included in
net earnings............................................ (2,905) (8,486) (3,044)
--------- --------- --------
Comprehensive loss in accordance with U.S. GAAP............. $(539,041) $(640,356) $(60,456)
========= ========= ========
</TABLE>
122
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(b) BALANCE SHEET
The amounts in the consolidated balance sheet that materially differ from
those reported under Canadian GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ---------------------------
CANADIAN UNITED STATES CANADIAN UNITED STATES
GAAP GAAP GAAP GAAP
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Receivables, net of allowances........... $ 112,253 $ 183,598 $ 96,584 $ 182,171
Long-term receivables, net of
allowances............................. 474,146 576,146 504,295 651,858
Cemetery property........................ 914,310 842,349 1,226,358 1,226,358
Names and reputations.................... 580,976 586,416 678,576 678,576
Insurance invested assets................ 281,423 263,960 266,661 270,809
Other assets............................. 123,618 151,209 151,316 176,984
Liabilities and Shareholders' Equity
(Deficiency)
Loans and advances from affiliates,
current portion........................ -- 64,707 227,841 288,824
Loans and advances from affiliates....... -- 82,324 784,369 926,666
Other liabilities........................ 432,745 430,110 414,319 409,392
Insurance policy liabilities............. 184,207 217,915 166,920 196,230
Future income tax liabilities............ 121,398 109,731 191,283 205,275
Share capital............................ 554,289 555,963 526,058 527,732
Deficit.................................. (1,288,969) (1,336,595) (823,172) (810,472)
Accumulated other comprehensive income:
Unrealized gains (losses) on securities
available for sale, net of tax....... -- (4,034) -- 6,937
</TABLE>
(c) IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," for U.S. GAAP purposes.
FAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used or to be disposed of. FAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The review for
recoverability should include an estimate of the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
estimated expected future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment provision should be
recognized. Measurement of an impairment provision for long-lived assets should
be based on the fair value of the asset.
123
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
Under Canadian GAAP the pre-tax asset impairment provision of $350,643,000
in 1999 was determined on the basis of undiscounted cash flows. The incremental
effects resulting from the application of FAS 121 for U.S. GAAP purposes in 1999
was an additional pre-tax asset impairment provision of $67,022,000
(1998 -- nil).
(d) 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 have been sold to an affiliate whose capital stock is
pledged as collateral for the benefit of the Company's senior lenders, see
Note 3. Accordingly, for U.S. GAAP purposes, the Company continues to carry the
transferred receivables on its financial statements, the proceeds from the sales
of receivables have been reflected in loans and advances from affiliates and the
related losses are deferred and recognized as interest expense over the life of
the loan.
(e) INSURANCE OPERATIONS
PRESENT VALUE OF INSURANCE POLICIES
Under U.S. 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 U.S. 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 U.S. 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 U.S. 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.
124
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(f) REPORTING ON THE COSTS OF START-UP ACTIVITIES
The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") on April 3, 1998, to be effective for fiscal
years beginning after December 15, 1998. SOP 98-5 states that the costs of
start-up activities, including organization costs, should be expensed as
incurred. The Company elected early adoption of SOP 98-5 to be effective for the
year ended December 31, 1998, for U.S. GAAP purposes. Pursuant to SOP 98-5, in
1998 the Company wrote off the unamortized costs of start-up activities, which
are contained in "Other assets," as a change in accounting principle.
SOP 98-5 was adopted in the fourth quarter of 1998, and was effective
January 1, 1998. The effect on 1998 net loss would be a decrease of $3,940,000
resulting from the cumulative effect of the adoption of SOP 98-5.
(g) UNREALIZED GAINS AND LOSSES
Amounts receivable from cemetery merchandise trusts and insurance invested
assets are subject to the provisions of Financial Accounting Standards No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity" under U.S.
GAAP. Under FAS 115, 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 $25,859,000 at December 31,
1999 (1998 -- $30,582,000). 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, 1999 and 1998, the Company had no securities
classified as trading. 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
$625,596,000 at December 31, 1999 (1998 -- $619,913,000). 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. Unrealized holding gains and
losses related to trading investments, after deducting amounts allocable to
income taxes, are reflected in earnings.
(h) ACCOUNTING FOR JOINT VENTURE
Beginning in November 1998, the Company proportionately consolidates, for
Canadian GAAP purposes, its investment in 4103 Investments, which is a joint
venture. Under U.S. GAAP, the investment in 4103 Investments is recorded under
the equity method.
(i) STOCK-BASED COMPENSATION
The Company follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for U.S. GAAP purposes.
The Company continues to record compensation expense for U.S. GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
No. 25 ("APB 25"), "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 any of the three years ending December 31,
125
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
1999. 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 loss before cumulative effect of change in accounting principle
under U.S. GAAP would have been $527,968,000 for the year ended December 31,
1999 (1998 -- $632,306,000, 1997 -- $67,491,000).
For these purposes, the fair value of each option is estimated on the date
of the grant using the Black-Scholes option-pricing model. There were no grants
in 1999. The following weighted average assumptions for prior years are:
dividend yield (1998 -- nil%, 1997 -- 0.5%), expected volatility (1998 -- 29%,
1997 -- 24%), United States risk-free interest rates (1998 -- 5.11%,
1997 -- 5.89%) and expected average option term (1998 -- 3.4 years,
1997 -- 4.6 years). The weighted average fair value of the options granted per
option in 1998 was $6.41 (1997 -- $8.92).
(j) ADVERTISING COSTS
Advertising costs were $13,546,000 for the year ended December 31, 1999
(1998 -- $8,796,000, 1997 -- $7,896,000).
(k) RECENT ACCOUNTING STANDARDS
The effective date for Statement of Financial Accounting Standards No. 133
("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
deferred by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of Financial Accounting Standards No. 133 (an amendment of FASB statement
No. 133)" is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. FAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management has not determined the impact of
this accounting standard on the Company's consolidated financial statements.
In December 1999, the United States Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 provides the staff's views on the
application of existing generally accepted accounting principles to revenue
recognition in financial statements. The application of SAB 101 to industry and
Company revenue recognition policies is unclear. If it is determined that
SAB 101 modifies or amends revenue recognition policies followed by the industry
and previously accepted by the SEC, the adjustments would be recorded in the
Company's consolidated financial statements for the first quarter of 2000.
126
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
NOTE 21. SUMMARIZED CHAPTER 11 FINANCIAL INFORMATION
Summarized financial data for the companies under creditor protection of
Chapter 11 and CCAA are presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Income statement information:
Revenue................................................... $ 719,375
Gross margin.............................................. 212,795
Loss from operations...................................... (227,210)
Net loss.................................................. (421,263)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Balance sheet information:
Current assets............................................ $ 150,911
Net investment in subsidiaries not under creditor
protection (a).......................................... 484,128
Non-current assets........................................ 2,705,667
----------
Total assets................................................ 3,340,706
Liabilities not subject to compromise:
Current liabilities....................................... 88,811
Non-current liabilities................................... 880,502
Liabilities subject to compromise:
Loans from affiliated companies........................... 1,015,163
Debt and other liabilities................................ 2,100,827
----------
Total liabilities........................................... 4,085,303
Shareholders' deficiency.................................... (744,597)
</TABLE>
- ------------------------
(a) Net investments in subsidiaries not under creditor protection of Chapter 11
and CCAA include the net assets of legal subsidiaries, as well as the net
assets of cemetery operations legally owned by third parties. The net assets
of the third parties are included in the Company's consolidated financial
statements since the Company has the economic risks and rewards of ownership
of the underlying operations.
127
<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 and directors, which is included in Part I hereof) has been omitted
from this report and will be filed by amendment.
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with General Instruction G(3), the information required by
Item 11 has been omitted from this report and will be filed by amendment.
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 from this report and will be filed by amendment.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with General Instruction G(3), the information required by
Item 13 has been omitted from this report and will be filed by amendment.
128
<PAGE>
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, 1999 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Retained Earnings (Deficit) for the Years
Ended December 31, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
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, 1999 and 1998
Consolidated Statements of Operations and Deficit for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
129
<PAGE>
(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 ("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(3)
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(4)
4.1.3 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party(5)
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(4)
4.3.3 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
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")(6)
4.5.2 First Amendment to the MEIP Credit Agreement, dated as of
December 2, 1996(7)
4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of
April 30, 1997(7)
4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of
May 21, 1997(8)
4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of
September 29, 1997(8)
4.5.6 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
</TABLE>
130
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
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(9)
4.11 MIPS Guarantee Agreement, dated August 15, 1994(9)
4.12 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 Series 1 and 2 Senior Guaranteed Notes of
LGII(3)
4.13 Form of Senior Guarantee of LGII's Series 1 and 2 Notes
(included in Exhibit 4.12)
4.14 Form of Global Series 1 and 2 Exchange Notes of LGII(4)
4.15 Form of Physical Series 1 and 2 Exchange Notes of LGII(4)
4.16 Form of Senior Guarantee of LGII's Series 1 and 2 Exchange
Notes (included in Exhibits 4.14 and 4.15)
4.17.1 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(8)
4.17.2 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
4.18 Collateral Trust Agreement, dated as of May 15, 1996, among
Bankers Trust Company, as trustee, Loewen, LGII and
various other pledgors(4)
4.19 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(6)
4.20 Form of Senior Guarantee of LGII's Series 3 and 4 Notes
(included in Exhibit 4.19)
4.21 Form of Global Series 3 and 4 Exchange Notes of LGII(10)
4.22 Form of Physical Series 3 and 4 Exchange Notes of LGII(10)
4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Exchange
Notes (included in Exhibits 4.21 and 4.22)
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
4.24 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
Guaranteed Notes(11)
4.25 Form of Series 5 Guaranteed Notes of LGII(11)
4.26 Form of Loewen Guarantee of LGII's Series 5 Notes(11)
4.27 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 Series 5
Senior Guaranteed Notes due 2009(11)
4.28 Form of Global "PATS" Senior Guaranteed Notes due 2009 of
LGII(11)
4.29 Form of Physical "PATS" Senior Guaranteed Notes due 2009 of
LGII(11)
4.30 Form of Senior Guarantee of LGII's "PATS" Senior Guaranteed
Notes due 2009(11)
4.31 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)
4.32 Form of Indenture by and between LGII, as issuer, Loewen, as
guarantor, and Fleet National Bank, as trustee, relating
to the Debt Securities that may be issued pursuant to
Registration Statement No. 333-29443(12)
4.33 Indenture dated as of May 28, 1998, between LGII, as issuer,
Loewen, as guarantor, and State Street Bank and Trust
Company, as trustee, with respect to the Series 6 and 7
Notes(13)
4.34 Form of Senior Guarantee of Series 6 and 7 Notes of LGII
(included in Exhibit 4.33)
4.35 Form of Global Series 6 and 7 Exchange Notes of LGII(14)
4.36 Form of Physical Series 6 and 7 Exchange Notes of LGII(14)
4.37 Form of Senior Guarantee of LGII's Series 6 and 7 Exchange
Notes (included in Exhibits 4.35 and 4.36)
4.38.1 Debtor-In-Possession Credit Agreement, dated as of June 1,
1999 (the "DIP Agreement"), by and among LGII, as debtor
and debtor-in-possession, each of LGII's subsidiaries
listed on the signature pages thereof, each as debtor and
debtor-in-possession, Loewen, the Lenders named therein,
as the initial Lenders, and First Union National Bank, as
the L/C Issuer and as the Administrative Agent for the
Lenders(15)
4.38.2 First Amendment to the DIP Agreement, dated as of July 16,
1999(15)
4.38.3 Second Amendment to the DIP Agreement, dated as of
August 25, 1999
4.38.4 Third Amendment to the DIP Agreement, dated as of October
21, 1999
4.38.5 Fourth Amendment to the DIP Agreement, dated as of
December 21, 1999
4.39 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.
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10 MATERIAL CONTRACTS
10.1 Receipt Agreement, dated as of January 3, 1996, for the
Cumulative Redeemable Convertible First Preferred Shares,
Series C, of Loewen ("Series C Shares")(3)
10.2 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(3)
*10.3 Form of Indemnification Agreement with Outside Directors(16)
*10.4 Form of Indemnification Agreement with Officers(16)
*10.5.1 The Loewen Group Inc. Corporate Incentive Plan
*10.5.2 The Loewen Group Inc. Operations Incentive Plan
*10.5.3 The Loewen Group Inc. Basic Employee Severance Plan
*10.5.4 The Loewen Group Inc. Executive and Other Specified Employee
Severance Plan
*10.5.5 The Loewen Group Inc. Confirmation Incentive Plan
*10.5.6 The Loewen Group Inc. Retention Incentive Plan
*10.5.7 Form of Employment and Release Agreement for Corporate and
Country Management
*10.5.8 Form of Employment and Release Agreement for Employees Other
Than Corporate and Country Management
*10.6 1994 Management Equity Investment Plan (the "MEIP")(16)
*10.7 Form of Executive Agreement executed by participants in the
MEIP(9)
*10.8 1994 Outside Director Compensation Plan, as restated and
amended as at January 9, 1997, and further amended as at
June 25, 1998(5)
*10.9 Employee Stock Option Plan (International), as restated and
amended as at September 17, 1998(5)
*10.10 Employee Stock Option Plan (Canada), as restated and amended
as at September 17, 1998(5)
*10.11 Form of Stay Put Bonus Plan Letters, dated February 26,
1999(5)
*10.12 Employment Agreement, dated April 12, 1991, by and between
Loewen and Dwight Hawes(1)
*10.13 Consulting Agreement, dated July 18, 1994, by and between
Loewen and Charles B. Loewen, LGII, and Corporate Services
International Inc.(1)
*10.14 Resignation and Release Agreement, effective June 10, 1996,
by and between Loewen, LGII and Robert O. Wienke(6)
*10.15 Employment Agreement, dated October 31, 1997, by and between
Loewen and Michael G. Weedon(8)
*10.16 Employment Agreement, dated January 30, 1998, by and between
Loewen and Brad Stam(8)
*10.17 Employment Agreement, dated October 26, 1998, by and between
Loewen and Peter S. Hyndman(5)
*10.18.1 Employment Agreement, dated November 30, 1998, by and
between Loewen and Robert Lundgren(5)
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
*10.18.2 Indemnification Agreement, dated February 3, 1999, by and
between Loewen and Robert Lundgren(5)
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
21 SUBSIDIARIES OF LOEWEN
23 CONSENTS OF EXPERTS
23.1 Consent of KPMG LLP
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.(17)
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(18)
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(17)
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")(19)
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(19)
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(19)
99.7 Form of Letter of Transmittal(20)
99.8 Form of Notice of Guaranteed Delivery(20)
</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 14, 1996 (File No. 0-18429)
(3) 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)
134
<PAGE>
(4) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended by the Registration Statement on Form
S-4/A filed by Loewen on June 20, 1996 and the Registration Statement on
Form S-4/A filed by Loewen on August 26, 1996 (File No. 333-03135)
(5) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1998, filed on April 15, 1999 (File No. 1-12163)
(6) 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)
(7) 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)
(8) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1997, filed on March 30, 1998 (File No. 1-12163)
(9) 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)
(10)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)
(11) 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)
(12) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File Nos. 333-23747 and
333-23747-01)
(13) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1998, filed on August 13, 1998 (File No. 1-12163)
(14) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on August 26, 1998, as amended (File No. 333-62239-01)
(15) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, filed on August 13, 1999 (File
No. 1-12163)
(16) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(17) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 11, 1996, as amended October 29, 1996 (File
No. 1-12163)
(18) 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. 1-12163)
(19) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)
(20) Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-4 filed by LGII and Loewen on September 21, 1998 (File
No. 333-62239-01)
135
<PAGE>
(b) REPORTS ON FORM 8-K
The following Current Reports on Form 8-K were filed by Loewen during the
last quarter of fiscal 1999:
<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
----------- ----------- -----------
<S> <C> <C>
November 2, 1999 (dated Item 5. Other Events Press release announcing third
November 1, 1999) quarter financial results
November 17, 1999 (dated Item 5. Other Events Press release announcing that
November 16, 1999) Loewen's current waivers for
non-compliance with certain
financial covenants in its
$200 million debtors-in-possession
financing have expired
November 26, 1999 (dated Item 5. Other Events Press release announcing the
November 17, 1999) appointment of Gordon D. Orlikow as
Senior Vice President of Human
Resources
December 2, 1999 (dated Item 5. Other Events Press release announcing the
December 1, 1999) resignation of Robert Lundgren, and
the election of Paul Houston, as
Loewen's President and Chief
Executive Officer
December 16, 1999 (dated Item 5. Other Events Press release announcing Loewen's
December 15, 1999) intention to apply to the courts for
approval for the disposition of up
to 201 funeral homes and
170 cemeteries in the United States
</TABLE>
(d) Financial statements of Loewen Group International, Inc. ("LGII") are
included in this Annual Report on Form 10-K because the outstanding
shares of LGII 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 and Series 6
and 7 Notes that were issued by LGII and guaranteed by Loewen.
136
<PAGE>
THE LOEWEN GROUP INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) END OF PERIOD
- ----------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current -- Allowance for doubtful
accounts
Year ended December 31, 1999........ $33,862 $ 8,374 $ 335 $ (5,911) $36,660
Year ended December 31, 1998(2)..... 25,481 14,322 519 (6,460) 33,862
Year ended December 31, 1997(2)..... 18,616 11,935 1,322 (6,392) 25,481
Current -- Allowance for contract
cancellations and refunds
Year ended December 31, 1999........ $24,118 $14,281 $(1,327) $(19,388) $17,684
Year ended December 31, 1998(2)..... 7,388 33,193 541 (17,004) 24,118
Year ended December 31, 1997(2)..... 9,100 20,415 1,481 (23,608) 7,388
Allowance for long-term contract
cancellations and refunds
Year ended December 31, 1999........ $56,892 $33,323 $(3,097) $(46,457) $40,661
Year ended December 31, 1998(2)..... 20,112 65,669 1,338 (30,227) 56,892
Year ended December 31, 1997(2)..... 19,848 26,042 2,372 (28,150) 20,112
</TABLE>
- ------------------------------
(1) Uncollected receivables written off, net of recoveries
(2) The 1998 and 1997 amounts have been reclassified to conform with the
presentation adopted in 1999.
137
<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 15, 2000 By: /s/ PAUL A. HOUSTON
-----------------------------------------
Paul A. Houston
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Paul A. Houston
and Michael A. Cornelissen, 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>
Dated: March 15, 2000 /s/ PAUL A. HOUSTON
-------------------------------------------------
Paul A. Houston
President, Chief Executive Officer and Director
(Principal Executive Officer)
Dated: March 15, 2000 /s/ MICHAEL A. CORNELISSEN
-------------------------------------------------
Michael A. Cornelissen
Senior Vice-President, Chief Financial Officer
(Principal Financial Officer)
Dated: March 15, 2000 /s/ DWIGHT K. HAWES
-------------------------------------------------
Dwight K. Hawes
Senior Vice-President, Corporate Controller
(Principal Accounting Officer)
Dated: March 15, 2000 /s/ JOHN S. LACEY
-------------------------------------------------
John S. Lacey
Chairman of the Board
</TABLE>
138
<PAGE>
<TABLE>
<S> <C>
Dated: March 15, 2000 /s/ CHARLES B. LOEWEN
-------------------------------------------------
Charles B. Loewen
Director
Dated: March 15, 2000 /s/ JAMES D. MCLENNAN
-------------------------------------------------
James D. McLennan
Director
Dated: March 15, 2000 /s/ DONNA R. MOORE
-------------------------------------------------
Donna R. Moore
Director
Dated: March 15, 2000 /s/ WILLIAM R. RIEDL
-------------------------------------------------
William R. Riedl
Director
Dated: March 15, 2000 /s/ JOHN N. TURNER
-------------------------------------------------
The Right Honourable John N. Turner,
P.C., C.C., Q.C.
Director
Dated: March 15, 2000 /s/ JOHN J. WIESNER
-------------------------------------------------
John J. Wiesner
Director
</TABLE>
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
The undersigned is the Registrant's authorized representative in the United
States.
<TABLE>
<S> <C>
Dated: March 15, 2000 /s/ DONALD F. DELANEY
-------------------------------------------------
Donald F. Delaney
Vice-President, Corporate Controller
</TABLE>
139
<PAGE>
INDEX TO EXHIBITS
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of The Loewen Group Inc.
("Loewen") issued by the British Columbia Registrar of
Companies ("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(3)
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(4)
4.1.3 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party(5)
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(4)
4.3.3 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
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")(6)
4.5.2 First Amendment to the MEIP Credit Agreement, dated as of
December 2, 1996(7)
4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of
April 30, 1997(7)
4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of
May 21, 1997(8)
4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of
September 29, 1997(8)
4.5.6 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
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(9)
4.11 MIPS Guarantee Agreement, dated August 15, 1994(9)
4.12 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 Series 1 and 2 Senior Guaranteed Notes of
LGII(3)
4.13 Form of Senior Guarantee of LGII's Series 1 and 2 Notes
(included in Exhibit 4.12)
4.14 Form of Global Series 1 and 2 Exchange Notes of LGII(4)
4.15 Form of Physical Series 1 and 2 Exchange Notes of LGII(4)
4.16 Form of Senior Guarantee of LGII's Series 1 and 2 Exchange
Notes (included in Exhibits 4.14 and 4.15)
4.17.1 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(8)
4.17.2 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
4.18 Collateral Trust Agreement, dated as of May 15, 1996, among
Bankers Trust Company, as trustee, Loewen, LGII and
various other pledgors(4)
4.19 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(6)
4.20 Form of Senior Guarantee of LGII's Series 3 and 4 Notes
(included in Exhibit 4.19)
4.21 Form of Global Series 3 and 4 Exchange Notes of LGII(10)
4.22 Form of Physical Series 3 and 4 Exchange Notes of LGII(10)
4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Exchange
Notes (included in Exhibits 4.21 and 4.22)
4.24 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
Guaranteed Notes(11)
4.25 Form of Series 5 Guaranteed Notes of LGII(11)
4.26 Form of Loewen Guarantee of LGII's Series 5 Notes(11)
4.27 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 Series 5
Senior Guaranteed Notes due 2009(11)
4.28 Form of Global "PATS" Senior Guaranteed Notes due 2009 of
LGII(11)
4.29 Form of Physical "PATS" Senior Guaranteed Notes due 2009 of
LGII(11)
4.30 Form of Senior Guarantee of LGII's "PATS" Senior Guaranteed
Notes due 2009(11)
4.31 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)
4.32 Form of Indenture by and between LGII, as issuer, Loewen, as
guarantor, and Fleet National Bank, as trustee, relating
to the Debt Securities that may be issued pursuant to
Registration Statement No. 333-29443(12)
4.33 Indenture dated as of May 28, 1998, between LGII, as issuer,
Loewen, as guarantor, and State Street Bank and Trust
Company, as trustee, with respect to the Series 6 and 7
Notes(13)
4.34 Form of Senior Guarantee of Series 6 and 7 Notes of LGII
(included in Exhibit 4.33)
4.35 Form of Global Series 6 and 7 Exchange Notes of LGII(14)
4.36 Form of Physical Series 6 and 7 Exchange Notes of LGII(14)
4.37 Form of Senior Guarantee of LGII's Series 6 and 7 Exchange
Notes (included in Exhibits 4.35 and 4.36)
4.38.1 Debtor-In-Possession Credit Agreement, dated as of June 1,
1999 (the "DIP Agreement"), by and among LGII, as debtor
and debtor-in-possession, each of LGII's subsidiaries
listed on the signature pages thereof, each as debtor and
debtor-in-possession, Loewen, the Lenders named therein,
as the initial Lenders, and First Union National Bank, as
the L/C Issuer and as the Administrative Agent for the
Lenders(15)
4.38.2 First Amendment to the DIP Agreement, dated as of July 16,
1999(15)
4.38.3 Second Amendment to the DIP Agreement, dated as of
August 25, 1999
4.38.4 Third Amendment to the DIP Agreement, dated as of October
21, 1999
4.38.5 Fourth Amendment to the DIP Agreement, dated as of
December 21, 1999
4.39 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 Receipt Agreement, dated as of January 3, 1996, for the
Cumulative Redeemable Convertible First Preferred Shares,
Series C, of Loewen ("Series C Shares")(3)
10.2 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(3)
*10.3 Form of Indemnification Agreement with Outside Directors(16)
*10.4 Form of Indemnification Agreement with Officers(16)
*10.5.1 The Loewen Group Inc. Corporate Incentive Plan
*10.5.2 The Loewen Group Inc. Operations Incentive Plan
*10.5.3 The Loewen Group Inc. Basic Employee Severance Plan
*10.5.4 The Loewen Group Inc. Executive and Other Specified Employee
Severance Plan
*10.5.5 The Loewen Group Inc. Confirmation Incentive Plan
*10.5.6 The Loewen Group Inc. Retention Incentive Plan
*10.5.7 Form of Employment and Release Agreement for Corporate and
Country Management
*10.5.8 Form of Employment and Release Agreement for Employees Other
Than Corporate and Country Management
*10.6 1994 Management Equity Investment Plan (the MEIP)(16)
*10.7 Form of Executive Agreement executed by participants in the
MEIP(9)
*10.8 1994 Outside Director Compensation Plan, as restated and
amended as at January 9, 1997, and further amended as at
June 25, 1998(5)
*10.9 Employee Stock Option Plan (International), as restated and
amended as at September 17, 1998(5)
*10.10 Employee Stock Option Plan (Canada), as restated and amended
as at September 17, 1998(5)
*10.11 Form of Stay Put Bonus Plan Letters, dated February 26,
1999(5)
*10.12 Employment Agreement, dated April 12, 1991, by and between
Loewen and Dwight Hawes(1)
*10.13 Consulting Agreement, dated July 18, 1994, by and between
Loewen and Charles B. Loewen, LGII, and Corporate Services
International Inc.(1)
*10.14 Resignation and Release Agreement, effective June 10, 1996,
by and between Loewen, LGII and Robert O. Wienke(6)
*10.15 Employment Agreement, dated October 31, 1997, by and between
Loewen and Michael G. Weedon(8)
*10.16 Employment Agreement, dated January 30, 1998, by and between
Loewen and Brad Stam(8)
*10.17 Employment Agreement, dated October 26, 1998, by and between
Loewen and Peter S. Hyndman(5)
*10.18.1 Employment Agreement, dated November 30, 1998, by and
between Loewen and Robert Lundgren(5)
*10.18.2 Indemnification Agreement, dated February 3, 1999, by and
between Loewen and Robert Lundgren(5)
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
21 SUBSIDIARIES OF LOEWEN
23 CONSENTS OF EXPERTS
23.1 Consent of KPMG LLP
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.(17)
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(18)
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(17)
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")(19)
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(19)
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(19)
99.7 Form of Letter of Transmittal(20)
99.8 Form of Notice of Guaranteed Delivery(20)
</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 14, 1996 (File No.
0-18429)
(3) 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)
(4) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended by the Registration Statement on Form
S-4/A filed by Loewen on June 20, 1996 and the Registration Statement on
Form S-4/A filed by Loewen on August 26, 1996 (File No. 333-03135)
(5) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1998, filed on April 15, 1999 (File No. 1-12163)
(6) 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)
(7) 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)
(8) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1997, filed on March 30, 1998 (File No. 1-12163)
(9) 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)
(10) 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)
(11) 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)
(12) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File Nos. 333-23747 and
333-23747-01)
(13) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1998, filed on August 13, 1998 (File
No. 1-12163)
(14) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on August 26, 1998, as amended (File No. 333-62239-01)
(15) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, filed on August 13, 1999 (File
No. 1-12163)
(16) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended
(17) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 11, 1996, as amended October 29, 1996 (File
No. 1-12163)
(18) 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. 1-12163)
(19) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)
(20) Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-4 filed by LGII and Loewen on September 21, 1998 (File
No. 333-62239-01)
<PAGE>
SECOND AMENDMENT TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
SECOND AMENDMENT, DATED AS OF AUGUST 25, 1999 (THE "AMENDMENT"), to
the DEBTOR-IN-POSSESSION CREDIT AGREEMENT, dated as of June 1, 1999, among
LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation (the "COMPANY"), a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, each
of the Company's Subsidiaries listed on the signature pages thereto, each a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code
(collectively and together with the Company, the "BORROWERS"), THE LOEWEN
GROUP INC., a corporation organized under the laws of the Province of British
Columbia, Canada ("TLGI"), FIRST UNION NATIONAL BANK ("FIRST UNION"), each of
the other financial institutions party thereto (together with First Union,
the "LENDERS") and FIRST UNION NATIONAL BANK, as Administrative Agent for the
Lenders (in such capacity, the "AGENT"):
W I T N E S S E T H:
WHEREAS, the Borrowers, TLGI, the Lenders and the Agent are parties
to that certain Debtor-In-Possession Credit Agreement, dated as of June 1,
1999, as amended by the First Amendment to Debtor-In-Possession Credit
Agreement, dated as of July 16, 1999, (as the same may be further amended,
modified or supplemented from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, Section 13.3 of the Credit Agreement provides that each
Lender may assign to one or more Purchasers all or a portion of its
interests, rights and obligations under the Credit Agreement (including,
without limitation, all or a portion of its Commitment and the same portion
of the related Revolving Loans at the time owing to it) by (i) executing and
delivering to the Agent with such Purchaser an Assignment Agreement in
substantially the form of Exhibit D to the Credit Agreement and (ii)
executing and delivering to the Agent a Notice of Assignment substantially in
the form of Exhibit E to the Credit Agreement; and
WHEREAS, First Union wishes to assign to each of the financial
institutions (other than First Union) that is named on Schedule 2.1 hereto
(such financial institutions other than First Union, collectively the "NEW
LENDERS"), and each of the New Lenders wishes to assume, a PRO RATA portion
of First Union's interests, rights and obligations under the Credit
Agreement; and
WHEREAS, the Borrowers, TLGI, First Union, the New Lenders and the
Agent have determined that the execution and delivery of this Amendment to
effectuate a reallocation of the Total Commitment among First Union and the
New Lenders will be more expeditious and administratively efficient than the
execution and delivery of a separate Assignment and Acceptance and a separate
Notice of Assignment between First Union and each of the New Lenders; and
<PAGE>
WHEREAS, upon the occurrence of the Effective Date (as hereinafter
defined) of this Amendment, each of the New Lenders shall become a party to
the Credit Agreement as a Lender and shall have the rights and obligations of
a Lender thereunder, the respective Commitments of First Union and each of
the New Lenders under the Credit Agreement shall be in the amount set forth
opposite its name on Schedule 2.1 attached hereto, as the same may be reduced
from time to time pursuant to Section 2.10 of the Credit Agreement; and
WHEREAS, the Borrowers, the Agent and the Lenders desire to make
certain additional modifications to the Credit Agreement.
NOW, THEREFORE, it is agreed:
I. As used herein all terms that are defined in the Credit Agreement
shall have the same meanings herein.
II. Schedule 2.1 to the Credit Agreement is hereby replaced in its
entirety by Schedule 2.1 hereto.
III. The signature pages of the Credit Agreement are hereby amended to
conform to the signature pages hereto.
IV. Section 6.6 of the Credit Agreement is hereby amended by deleting
the year "1988" appearing in the sixth line thereof and inserting in lieu
thereof the year "1998."
V. Section 6.14 of the Credit Agreement is hereby amended by (i)
inserting the symbol "(x)" immediately after the word "encumbering" in the
last sentence thereof, and (ii) inserting the following words immediately
before the word "does" in the last sentence thereof: "and (y) any other
Property of the Borrowers (other than the collateral securing the Fairway
Receivables Facility and the collateral securing the Existing Credit
Agreements, if any)".
VI. By its execution and delivery hereof, First Union shall be deemed to
have made each of the statements set forth in Section 6 of the Assignment
Agreement as if such statements were fully set forth herein at length.
VII. By its execution and delivery hereof, each of the New Lenders shall
be deemed to have made each of the statements set forth in Section 7 of the
Assignment Agreement as if such statements were fully set forth herein at
length.
VIII. On the Effective Date, (i) each New Lender will pay to the Agent
(for the account of First Union) such amount as represents such New Lender's
pro rata portion of the aggregate principal amount of the Revolving Loans, if
any, that are outstanding on the Effective Date and such New Lender's pro
rata portion of the aggregate amount of the then unreimbursed drafts, if any,
that were theretofore drawn under Letters of Credit, and (ii) the Agent shall
pay to each New
<PAGE>
Lender such fees as have been previously agreed to between the Agent and such
New Lender. Promptly following the occurrence of the Effective Date, and in
accordance with Section 13.3 of the Credit Agreement, the Agent shall record in
the Register the names and addresses of each New Lender and the principal amount
equal to such Lender's Commitment reflected on Schedule 2.1 hereto.
IX. By its execution and delivery hereof, each of the New Lenders (i)
agrees that any interest and Fees (pursuant to Sections 2.8, 2.10 or 2.19 of
the Credit Agreement) that accrued prior to the Effective Date shall not be
payable to such New Lender and authorizes and directs the Agent to deduct
such amounts from any interest or Fees paid after the date hereof and to pay
such amounts to First Union (it being understood that interest and Fees
respecting the Commitment of First Union and each New Lender which accrue on
or after the Effective Date shall be payable to such Lender in accordance
with its Commitment) and (ii) acknowledges that if such New Lender is
organized under the laws of a jurisdiction outside of the United States, such
New Lender has heretofore furnished to the Agent the forms prescribed by the
Internal Revenue Service of the United States certifying as to such New
Lender's exemption from United States withholding taxes with respect to any
payments to be made to such New Lender under the Credit Agreement (or such
other documents as are necessary to indicate that all such payments are
subject to such tax at a rate reduced by an applicable tax treaty).
X. This Amendment shall not become effective (the "EFFECTIVE DATE")
until (i) the date on which this Amendment shall have been executed by the
Borrowers, TLGI, First Union, the New Lenders and the Agent, and the Agent
shall have received evidence satisfactory to it of such execution and (ii)
the payments provided for in clause (i) of paragraph 7 hereof shall have been
made.
XI. The Borrowers agree that their obligations set forth in Section 10.7
of the Credit Agreement shall extend to the preparation, execution and
delivery of this Amendment.
XII. This Amendment shall be limited precisely as written and shall not
be deemed (a) to be a consent granted pursuant to, or a waiver or
modification of, any other term or condition of the Credit Agreement or any
of the instruments or agreements referred to therein or (b) to prejudice any
right or rights which the Agent or the Lenders may now have or have in the
future under or in connection with the Credit Agreement or any of the
instruments or agreements referred to therein. Whenever the Credit Agreement
is referred to in the Credit Agreement or any of the instruments, agreements
or other documents or papers executed or delivered in connection therewith,
such reference shall be deemed to mean the Credit Agreement as modified by
this Amendment.
XIII. This Amendment may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
XIV. This Amendment shall in all respects be construed in accordance with
and
<PAGE>
governed by the laws of the State of New York applicable to contracts made and
to be performed wholly within such State.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and the year first above written.
LOEWEN GROUP INTERNATIONAL, INC.
By: _______________________________
Name:
Title:
EACH OF THE ENTITIES LISTED ON
SCHEDULE A TO THE CREDIT AGREEMENT
By: _______________________________
on behalf of each of the
entities listed on
Schedule A to the Credit
Agreement
Name:
Title:
THE LOEWEN GROUP INC.
By:_________________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
INDIVIDUALLY AND AS AGENT
By: _________________________
Name:
Title:
<PAGE>
NEW LENDERS:
BANK OF SCOTLAND
By: _________________________
Name:
Title:
CIT GROUP
By: _________________________
Name:
Title:
BANKERS LIFE & CASUALTY CO.
By: Conseco Capital Management,
as investment advisor
By: _________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: _________________________
Name:
Title:
FOOTHILL CAPITAL CORPORATION
By: _________________________
Name:
Title:
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By: _________________________
Name:
Title:
GMAC BUSINESS CREDIT
By: _________________________
Name:
Title:
MELLON BANK, N.A.
By: _________________________
Name:
Title:
PPM FINANCE, INC.
By: _________________________
Name:
Title:
GREEN TREE FINANCIAL SERVICING CORP.
By: _________________________
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: _________________________
Name:
Title:
<PAGE>
BARCLAYS BANK PLC
By: _________________________
Name:
Title:
COAST BUSINESS CREDIT
By: _________________________
Name:
Title:
SOVEREIGN BANK
By: _________________________
Name:
Title:
<PAGE>
SCHEDULE 2.1
TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
<TABLE>
<CAPTION>
COMMITMENT COMMITMENT
LENDER AMOUNT PERCENTAGE
- ------ ------ ----------
<S> <C> <C>
First Union National Bank $27,500,000 13.75%
301 South College Street TW-5
Charlotte, North Carolina 28288
Attn: Mr. Thomas M. Cambern
Tel: 704-383-1172
Fax: 704-383-6249
CIT Group/Business Credit, Inc. $20,000,000 10.00%
10 S. LaSalle Street, 22nd Floor
Chicago, Illinois 60603
Attn: Mr. Bond Harberts
Tel: 312-424-9763
Fax: 312-424-9761
Foothill Capital Corporation $25,000,000 12.50%
11111 Santa Monica Blvd., #1500
Los Angeles, California 90025-3333
Attn: Jammy Gurican
Tel: 310-996-7141
Fax: 310-479-0461
GMAC Business Credit $20,000,000 10.00%
300 Galleria Officentre, Ste. 110
Southfield, MI 48034
Attn: Mr. Kevin J. Nelson
Tel: 248-356-4622
Fax: 248-350-2733
PPM Finance Inc. $15,000,000 7.50%
225 West Wacker Drive, Ste. 1100
Chicago, Illinois 60606
Attn: Mr. Michael J. Williams
Tel: 312-634-1283
Fax: 312-634-1210
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMITMENT COMMITMENT
LENDER AMOUNT PERCENTAGE
- ------ ------ ----------
<S> <C> <C>
Goldman Sachs Credit Partners L.P. $15,000,000 7.50%
85 Broad Street, 27th Floor
New York, NY 10004
Attn: Mr. David Sabath
Tel: 212-902-9035
Fax: 212-346-2608
Coast Business Credit $10,000,000 5.00%
12121 Wilshire Blvd., Ste. 1400
Los Angeles, California 90025
Attn: Mr. Peter Ehlinger
Tel: 310-979-4180
Fax: 310-979-7287
Green Tree Financial Servicing Corp. $10,000,000 5.00%
100 North Point Center East, Ste. 200
Alpharetta, Georgia 30022
Attn: Mr. William Everett
Tel: 770-772-3735
Fax: 770-772-3786
Bank of Scotland $10,000,000 5.00%
311 South Wacker Drive, Ste. 1625
Chicago, Illinois 60606
Attn: Ms. Alison D. Wessels
Tel: 312-939-9710
Fax: 312-939-9715
Sovereign Bank $10,000,000 5.00%
Two Aldwyn Center
Route 320 & Lancaster Avenue
Villanova, PA 19085
Attn: Randall W. Siegele, SVP
Tel: 610-526-6271
Fax: 610-526-6227
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMITMENT COMMITMENT
LENDER AMOUNT PERCENTAGE
- ------ ------ ----------
<S> <C> <C>
Mellon Bank, N. A. $7,500,000 3.75%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15259
Attn: Mr. Gary A. Saul
Tel: 412-236-1209
Fax: 412-236-1174
Conseco Capital Management $7,500,000 3.75%
11825 N. Pennsylvania Street
Carmel, IN 46032
Attn: Mr. Eric Johnson
Tel: 317-817-6806
Fax: 317-817-2793
Barclays Bank PLC $7,500,000 3.75%
222 Broadway, 12th Floor
New York, NY 10038
Attn: Mr. Ben J. Marciano
Tel: 212-412-5731
Fax: 212-412-5661
Credit Agricole Indosuez $7,500,000 3.75%
101 California Street
San Francisco, CA 94111
Attn: Marcy Lyons
Tel: 415-391-0810
Fax: 415-986-4116
GE Capital - Commercial Finance $7,500,000 3.75%
60 Long Ridge Road
Stamford, CT 06927-5100
Attn: Mr. Anthony Versaci
Tel: 203-316-7597
Fax: 203-316-7978
TOTAL: $200,000,000 100%
</TABLE>
<PAGE>
THIRD AMENDMENT AND WAIVER TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
THIRD AMENDMENT AND WAIVER, DATED AS OF OCTOBER __, 1999 (THE
"AMENDMENT AND WAIVER"), to the DEBTOR-IN-POSSESSION CREDIT AGREEMENT, dated as
of June 1, 1999, among LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation
(the "COMPANY"), a debtor and debtor-in-possession under Chapter 11 of the
Bankruptcy Code, each of the Company's Subsidiaries listed on the signature
pages thereto, each a debtor and debtor-in-possession under Chapter 11 of the
Bankruptcy Code (collectively and together with the Company, the "BORROWERS"),
THE LOEWEN GROUP INC., a corporation organized under the laws of the Province of
British Columbia, Canada ("TLGI"), FIRST UNION NATIONAL BANK ("FIRST UNION"),
each of the other financial institutions party thereto (together with First
Union, the "LENDERS") and FIRST UNION NATIONAL BANK, as Administrative Agent for
the Lenders (in such capacity, the "AGENT"):
W I T N E S S E T H:
WHEREAS, the Borrowers, TLGI, the Lenders and the Agent are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of June 1, 1999, as
amended by that certain First Amendment to Debtor-In-Possession Credit
Agreement, dated as of July 16, 1999, that certain Waiver Letter, dated August
19, 1999 and that certain Second Amendment to Debtor-In-Possession Credit
Agreement, dated as of August 24, 1999 (as the same may be further amended,
modified or supplemented from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, as used herein, all terms that are defined in the Credit
Agreement shall have the same meanings herein; and
WHEREAS, the Borrowers have defaulted in the performance of certain
financial covenants under the Credit Agreement and, as a consequence, certain
Defaults have occurred and are continuing under the Credit Agreement and the
Loan Documents; and
WHEREAS, the Borrowers and TLGI have requested that the Agent and the
Lenders waive such Defaults and the Agent and the Lenders have agreed to such
waivers, subject to the express terms and conditions of this Amendment and
Waiver; and
WHEREAS, the Borrowers have requested that the Agent and the Lenders
modify certain provisions of the Credit Agreement in respect of assets sales.
<PAGE>
NOW, THEREFORE, it is agreed:
I. WAIVER. (a) The Agent and the Lenders hereby waive the following
Defaults which have occurred and are continuing under the Credit Agreement and
the Loan Documents:
(i) Failure to comply with Section 7.24 of the Credit Agreement for
the month of August 1999.
(ii) Failure to comply with the limitation on repayments of
non-compete obligations set forth in Section 7.33(x) of the
Credit Agreement for the months of June, July and August 1999.
(b) The Agent and the Lenders hereby temporarily waive, during the
period from the date hereof through November 15, 1999 only, the following
Defaults which have occurred and are continuing under the Credit Agreement and
the Loan Documents:
(i) Failure to comply with the Sections 7.22 and 7.31 for the month
of September 1999.
(ii) Failure to comply with the limitation on repayments of
non-compete obligations set forth in Section 7.33(x) of the
Credit Agreement for the month of September 1999.
I. AMENDMENTS. The Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended by inserting
the following definition immediately after the definition of the term "Default":
"DE MINIMIS ASSET SALE" means the sale by any Borrower or any of its
Subsidiaries to any Person other than any of the Borrowers or any of their
wholly-owned Subsidiaries of (i) any of the stock of any Subsidiary of such
Borrower, (ii) substantially all of the assets of any division or line of
business of any Borrower or any of its Subsidiaries, or (iii) any other assets
(whether tangible or intangible) of such Borrower or any of its Subsidiaries
outside of the ordinary course of business, in each case to the extent that the
aggregate value of such assets sold in any single transaction or related series
of transactions is equal to or less than $2,000,000."
(b) The definition of the term "Asset Sales" appearing in Section 1.1
of the Credit Agreement is hereby amended by (i) deleting the two provisos
appearing at the end thereof and (ii) inserting in lieu thereof the following:
"PROVIDED, however, that the term "Asset Sale" shall not include any De Minimis
Asset Sale."
(c) The definition of the term "Net Asset Sale Proceeds" appearing in
Section 1.1 of the Credit Agreement is hereby amended by (i) inserting
immediately after the term "Asset Sale"
<PAGE>
appearing in the first line thereof the words "or De Minimis Asset Sale, as the
case may be," and (ii) inserting immediately after the term "Asset Sale"
appearing in the third, fourth, fifth and eighth lines thereof the words "or De
Minimis Asset Sale".
(d) Section 2.10(b)(i) of the Credit Agreement is hereby amended by (i)
inserting the following sentence at the end thereof: "Notwithstanding anything
to the contrary set forth herein, Aggregate Commitment reductions pursuant to
this Section arising from De Minimis Assets Sales in accordance with Section
7.15(b) shall occur within 30 days of the last Business Day of each calendar
quarter." and (ii) inserting immediately after the term "Asset Sales" appearing
in the third, eleventh, fifteenth and last lines thereof the words "(and De
Minimis Asset Sales to the extent required pursuant to Section 7.15(b))".
(e) Section 7.1(b)(vi) of the Credit Agreement is hereby amended by
adding the following phrase at the end thereof: ", together with a detailed
status report with respect to all pending Asset Sales, including De Minimis
Asset Sales, and a list of all Asset Sales and De Minimis Asset Sales
consummated during the preceding twelve months."
(f) Section 7.1(l) is hereby amended by inserting the following phrase
immediately after the words "Asset Sale" appearing in the ninth line thereof:
"(and De Minimis Asset Sale, to the extent that consent is required with respect
to such De Minimis Asset Sale or such De Minimis Asset Sale gives rise to an
Aggregate Commitment reduction in accordance with Section 7.15(b))".
(g) Section 7.15 of the Credit Agreement is hereby amended by (i)
inserting the subsection symbol "(a)" immediately following the Section heading
thereof and (ii) inserting the following subsection at the end thereof:
"(b) Notwithstanding anything to the contrary contained herein, (i) if
the total of all De Minimis Asset Sales in any twelve month period is less than
$10,000,000, the provisions of Section 2.10(b) with respect to Aggregate
Commitment reductions shall not apply to and the consent of the Required Lenders
under Section 7.15(a) shall not be required in respect of any De Minimis Asset
Sale occurring during such period, (ii) if the total of all De Minimis Asset
Sales in any twelve month period is greater than $10,000,000 but is less than
$25,000,000, the provisions of Section 2.10(b) with respect to Aggregate
Commitment reductions shall apply to and the consent of the Required Lenders
under Section 7.15(a) shall not be required in respect of any De Minimis Asset
Sale occurring during such period following the point at which the total of all
De Minimis Asset Sales exceeds $10,000,000, and (iii) if the total of all De
Minimis Asset Sales in any twelve month period is greater than $25,000,000, the
provisions of Section 2.10(b) with respect to Aggregate Commitment reductions
shall apply to and the consent of the Required Lenders under Section 7.15(a)
shall be required in respect of any De Minimis Asset Sale occurring during such
period following the point at which the total of all De Minimis Asset Sales
exceeds $25,000,000."
<PAGE>
I. CONDITIONS TO EFFECTIVENESS. This Amendment and Waiver shall not
become effective (the "EFFECTIVE DATE") until (i) the date on which this
Amendment and Waiver shall have been executed by the Borrowers, TLGI, the
Lenders and the Agent, and the Agent shall have received evidence
satisfactory to it of such execution, (ii) the documents and agreements
identified in Section 3 hereof shall have been received by the Agent, and
(iii) the U.S. Court shall have entered an order authorizing the execution of
this Amendment and Waiver by the Borrowers.
II. COSTS AND EXPENSES. The Borrowers agree that their obligations set
forth in Section 10.7 of the Credit Agreement shall extend to the preparation,
execution and delivery of this Amendment and Waiver.
III. LIMITED AMENDMENT AND WAIVER. This Amendment and Waiver shall be
limited precisely as written and shall not be deemed (a) to be a consent granted
pursuant to, or a waiver or modification of, any other term or condition of the
Credit Agreement or any of the instruments or agreements referred to therein or
(b) to prejudice any right or rights which the Agent or the Lenders may now have
or have in the future under or in connection with the Credit Agreement or any of
the instruments or agreements referred to therein. Whenever the Credit Agreement
is referred to in the Credit Agreement or any of the instruments, agreements or
other documents or papers executed or delivered in connection therewith, such
reference shall be deemed to mean the Credit Agreement as modified by this
Amendment and Waiver.
IV. COUNTERPARTS. This Amendment and Waiver may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
V. GOVERNING LAW. This Amendment and Waiver shall in all respects be
construed in accordance with and governed by the laws of the State of New York
applicable to contracts made and to be performed wholly within such State.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Waiver to be duly executed as of the day and the year first above written.
LOEWEN GROUP INTERNATIONAL, INC.
By: _______________________________
Name:
Title:
EACH OF THE ENTITIES LISTED ON
SCHEDULE A TO THE CREDIT AGREEMENT
By: _______________________________
on behalf of each of the
entities listed on Schedule A
to the Credit Agreement
Name:
Title:
THE LOEWEN GROUP INC.
By:_________________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
INDIVIDUALLY AND AS ADMINISTRATIVE
AGENT
By: _______________________________
Name:
Title:
<PAGE>
BANK OF SCOTLAND
By: _________________________
Name:
Title:
THE CIT GROUP/BUSINESS CREDIT, INC.
By: _________________________
Name:
Title:
BANKERS LIFE & CASUALTY CO.
By: Conseco Capital Management,
as investment advisor
By: _________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: _________________________
Name:
Title:
By: _________________________
Name:
Title:
FOOTHILL CAPITAL CORPORATION
By: _________________________
Name:
Title:
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By: _________________________
Name:
Title:
GMAC BUSINESS CREDIT
By: _________________________
Name:
Title:
MELLON BANK, N.A.
By: _________________________
Name:
Title:
PPM FINANCE, INC.
By: _________________________
Name:
Title:
GREEN TREE FINANCIAL SERVICING CORP.
By: _________________________
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: _________________________
Name:
Title:
<PAGE>
BARCLAYS BANK PLC
By: _________________________
Name:
Title:
COAST BUSINESS CREDIT
By: _________________________
Name:
Title:
SOVEREIGN BANK
By: _________________________
Name:
Title:
<PAGE>
FOURTH AMENDMENT AND WAIVER TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
FOURTH AMENDMENT AND WAIVER, DATED AS OF DECEMBER 21, 1999 (THE
"AMENDMENT AND WAIVER"), to the DEBTOR-IN-POSSESSION CREDIT AGREEMENT, dated as
of June 1, 1999, among LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation
(the "COMPANY"), a debtor and debtor-in-possession under Chapter 11 of the
Bankruptcy Code, each of the Company's Subsidiaries listed on the signature
pages thereto, each a debtor and debtor-in-possession under Chapter 11 of the
Bankruptcy Code (collectively and together with the Company, the "BORROWERS"),
THE LOEWEN GROUP INC., a corporation organized under the laws of the Province of
British Columbia, Canada ("TLGI"), FIRST UNION NATIONAL BANK ("FIRST UNION"),
each of the other financial institutions party thereto (together with First
Union, the "LENDERS") and FIRST UNION NATIONAL BANK, as Administrative Agent for
the Lenders (in such capacity, the "AGENT"):
W I T N E S S E T H:
WHEREAS, the Borrowers, TLGI, the Lenders and the Agent are parties to
that certain Debtor-In-Possession Credit Agreement, dated as of June 1, 1999, as
amended by that certain First Amendment to Debtor-In-Possession Credit
Agreement, dated as of July 16, 1999, that certain Waiver Letter, dated August
19, 1999, that certain Second Amendment to Debtor-In-Possession Credit
Agreement, dated as of August 24, 1999 and that certain Third Amendment and
Waiver to Debtor-In-Possession Credit Agreement, dated as of October 21, 1999
(as the same may be further amended, modified or supplemented from time to time,
the "CREDIT AGREEMENT"); and
WHEREAS, as used herein, all terms that are defined in the Credit
Agreement shall have the same meanings herein; and
WHEREAS, the Borrowers have defaulted in the performance of certain
financial covenants under the Credit Agreement and, as a consequence, certain
Defaults have occurred and are continuing under the Credit Agreement and the
Loan Documents; and
WHEREAS, the Borrowers and TLGI have requested that the Agent and the
Lenders waive such Defaults and the Agent and the Lenders have agreed to such
waivers, subject to the express terms and conditions of this Amendment and
Waiver; and
WHEREAS, Section 7.16 of the Credit Agreement provides that, no earlier
than the date on which the Final Borrowing Order is entered by the U.S. Court,
Neweol (Delaware), L.L.C. ("NEWEOL") shall (subject to the approval of the U.S.
Court) repay in full all Indebtedness outstanding under the Fairway Receivables
Facility (the aggregate principal amount of which Indebtedness shall not exceed
$50,000,000) on terms acceptable to the Agent, PROVIDED that in connection with
any such prepayment, all commitments to lend or make other extensions of credit
thereunder, and all further
<PAGE>
obligations of the Borrowers and their Subsidiaries shall terminate and all
Liens securing Indebtedness or other obligations of TLGI, the Borrowers and
their Subsidiaries under such facility shall be released, and Neweol shall
concurrently therewith become a Borrower under the Credit Agreement pursuant to
Section 7.30 thereof; and
WHEREAS, on December 8, 1999, the Borrowers filed with the U.S. Court
the Notice of Motion of Debtors and Debtors In Possession for Entry of an Order
Regarding (A) Payment of Receivables Finance Facility with Fairway Finance
Corporation, (B) Factoring of Certain Accounts Receivable and (C) Certain
Related Relief (the "NEWEOL MOTION") seeking an order (the "NEWEOL ORDER")
authorizing the repayment of the Fairway Receivables Facility on the terms and
conditions set forth therein; and
WHEREAS, a hearing before the U.S. Court with respect to the Neweol
Motion has been scheduled for December 28, 1999; and
WHEREAS, the Borrowers, TLGI, the Agent and the Lenders have agreed (i)
that, subject to the terms and conditions set forth herein, Neweol shall become
a Borrower under the Credit Agreement and (ii) to modify certain provisions of
the Credit Agreement.
NOW, THEREFORE, it is agreed:
I. WAIVERS. (a) The Agent and the Lenders hereby waive the following
Defaults which have occurred and are continuing under the Credit Agreement and
the Loan Documents:
(i) Failure to comply with Section 7.31 for the month of September
1999.
(ii) Failure to comply with the limitation on repayments of
non-compete obligations set forth in Section 7.33(x) of the
Credit Agreement for the months of September and October 1999.
(b) Pursuant to Section 7.30 of the Credit Agreement, the Borrowers
agreed to use reasonable efforts to cause each Subsidiary listed on Schedule
7.30 to the Credit Agreement to execute and deliver the documents necessary for
such Subsidiaries to become Borrowers thereunder. The Borrowers have requested
that the Lenders waive the requirements of Section 7.30 with respect to Byron's
Funeral Homes, Inc., Cuffe-McGinn Funeral Home, Inc., Doane Beal & Ames, Inc.,
Doba Haby Insurance Agency, Inc., Edward J. Gaffey & Sons, Inc., Ernest A.
Richardson Funeral Home, Inc., Hafey Funeral Service, Inc., John C. Mulry
Funeral Homes, Inc., Ratell Funeral Home, Inc., McHugh Funeral Home
(collectively, the "NON-FILING SUBSIDIARIES"). The Lenders hereby waive the
requirements of Section 7.30 with respect to the Non-filing Subsidiaries.
I. AMENDMENTS. The Credit Agreement is hereby amended as follows:
<PAGE>
(a) Schedule 2.1 to the Credit Agreement is hereby replaced in
its entirety by Schedule 2.1 attached as Exhibit A hereto.
(b) Section 1.1 of the Credit Agreement is hereby amended by
(i) inserting the following definition immediately after the
definition of the term "Floating Rate Loan":
"FOURTH AMENDMENT" means the Fourth Amendment and
Waiver to Debtor-In-Possession Credit Agreement dated
as of December 21, 1999 among the Borrowers, TLGI, the
Agent and the Lenders."
(ii) inserting the following definition immediately before
the definition of the term "Indebtedness":
"HMIS EXPENDITURES" means all expenses or capital
expenditures incurred by TLGI, any Borrower or any of
their respective Subsidiaries which are directly
related to the development or implementation of the
Hanlon Management Information System and which are set
forth on forth on the HMIS Budget annexed as Exhibit B
to the Fourth Amendment."
(iii) inserting the following definition immediately after
the definition of the term "Investment":
"INVESTMENT MANAGER CHANGE GAIN/LOSS" means any
non-cash gain or loss arising directly from the
replacement of any investment manager or trustee as
approved by the Investment Committee of the
Company's Board of Directors."
(c) Section 2.10(b)(iii) of the Credit Agreement is hereby
deleted and replaced in its entirety with the following:
"(iii) PREPAYMENTS FROM CASH BALANCES. On the second
Business Day of each week, the Borrowers shall prepay
outstanding Revolving Loans in an amount equal to the excess of
(x) the amount of the Cash Balances of the Borrowers in the
Borrower Concentration Account as of the immediately preceding
Friday (or, if such day is not a Business Day, the immediately
preceding Thursday) over (y) $15,000,000."
(d) Section 7.1(m) is hereby amended by deleting the date
"October 15, 1999" appearing in the first line thereof and inserting in lieu
thereof the date "February 15, 2000".
<PAGE>
(e) Section 7.10(a) of the Credit Agreement is hereby amended by
deleting the first sentence thereof in its entirety and inserting in lieu
thereof the following sentence:
"(a) The Borrowers have established concentration
accounts (together, the "BORROWER CONCENTRATION ACCOUNT") at
Bank One, N.A. and First Union which receive all transfers and
payments from the cash management system described in Schedule
6.21."
(f) Section 7.20 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (e) thereof, (ii)
deleting the period appearing at the end of clause (f) thereof and inserting in
lieu thereof the word "; and", and (iii) inserting the following clause at the
end thereof:
"(g) deposits to secure statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business in an
amount not to exceed $2,000,000 in the aggregate."
(g) Section 7.21 of the Credit Agreement is hereby amended by (i)
inserting the phrase "excluding any HMIS Expenditures incurred and Investment
Manager Change Gain/Loss realized during such period" immediately following the
parenthetical appearing therein, and (ii) deleting the chart appearing therein
and inserting the following chart in lieu thereof:
<TABLE>
<CAPTION>
- ------------------------- ---------------------- --------------------
DATE MINIMUM CEMETERY MINIMUM CEMETERY
OPERATING CASH FLOW OPERATING CASH FLOW
(FOR CURRENT FISCAL (FOR PRIOR ONE, TWO,
QUARTER) THREE OR FOUR FISCAL
QUARTER PERIOD, AS
APPLICABLE)
- ------------------------- ---------------------- -----------------------
<S> <C> <C>
June 30, 1999 ($10,000,000) ($10,000,000)
- ------------------------- ---------------------- -----------------------
September 30, 1999 ($11,000,000) ($21,000,000)
- ------------------------- ---------------------- -----------------------
December 31, 1999 ($4,500,000) ($25,500,000)
- ------------------------- ---------------------- -----------------------
March 31, 2000 $2,000,000 ($23,500,000)
- ------------------------- ---------------------- -----------------------
June 30, 2000 $4,000,000 ($9,500,000)
- ------------------------- ---------------------- -----------------------
September 30, 2000 $3,000,000 ($16,500,000)
- ------------------------- ---------------------- -----------------------
December 31, 2000 $5,000,000 ($11,500,000)
- ------------------------- ---------------------- -----------------------
March 31, 2001 $5,000,000 ($6,500,000)
- ------------------------- ---------------------- -----------------------
</TABLE>
<PAGE>
(h) Section 7.22 of the Credit Agreement is hereby amended by (i)
inserting the phrase "excluding any HMIS Expenditures incurred and any
Investment Manager Change Gain/Loss realized during such period" immediately
following the parenthetical appearing therein, and (ii) deleting the chart
appearing therein and inserting the following chart in lieu thereof:
<TABLE>
<CAPTION>
- ---------------------- ------------------------ ------------------------
DATE MINIMUM NON- MINIMUM NON-CEMETERY
CEMETERY OPERATING CASH FLOW
OPERATING CASH FLOW (FOR PRIOR ONE, TWO,
(FOR CURRENT FISCAL THREE OR FOUR FISCAL
QUARTER) QUARTER PERIOD, AS
APPLICABLE)
- ---------------------- ------------------------ ------------------------
<S> <C> <C>
June 30, 1999 $15,000,000 $15,000,000
- ---------------------- ------------------------ ------------------------
September 30, 1999 $10,000,000 $25,000,000
- ---------------------- ------------------------ ------------------------
December 31, 1999 $1,000,000 $26,000,000
- ---------------------- ------------------------ ------------------------
March 31, 2000 $27,500,000 $53,500,000
- ---------------------- ------------------------ ------------------------
June 30, 2000 $23,000,000 $76,500,000
- ---------------------- ------------------------ ------------------------
September 30, 2000 $15,500,000 $92,000,000
- ---------------------- ------------------------ ------------------------
December 31, 2000 $20,000,000 $102,000,000
- ---------------------- ------------------------ ------------------------
March 31, 2001 $30,000,000 $132,000,000
- ---------------------- ------------------------ ------------------------
</TABLE>
(i) Section 7.23 of the Credit Agreement is hereby amended by (i) inserting
the phrase "excluding any HMIS Expenditures incurred and any Investment Manager
Change Gain/Loss realized during such period" immediately following the
parenthetical appearing therein, and (ii) deleting the chart appearing therein
and inserting the following chart in lieu thereof:
<TABLE>
<CAPTION>
- ------------------------ ----------------------- -----------------------
DATE MINIMUM CONSOLIDATED MINIMUM CONSOLIDATED
OPERATING CASH FLOW OPERATING CASH FLOW
(FOR CURRENT FISCAL (FOR PRIOR ONE, TWO,
QUARTER) THREE OR FOUR FISCAL
QUARTER PERIOD, AS
APPLICABLE)
- ------------------------ ----------------------- -----------------------
<S> <C> <C>
September 30, 1999 ($5,000,000) ($5,000,000)
- ------------------------ ----------------------- -----------------------
December 31, 1999 ($10,100,000) ($15,100,000)
- ------------------------ ----------------------- -----------------------
<PAGE>
- ------------------------ ----------------------- -----------------------
DATE MINIMUM CONSOLIDATED MINIMUM CONSOLIDATED
OPERATING CASH FLOW OPERATING CASH FLOW
(FOR CURRENT FISCAL (FOR PRIOR ONE, TWO,
QUARTER) THREE OR FOUR FISCAL
QUARTER PERIOD, AS
APPLICABLE)
- ------------------------ ----------------------- -----------------------
<S> <C> <C>
March 31, 2000 $20,000,000 $ 4,900,000
- ------------------------ ----------------------- -----------------------
June 30, 2000 $20,000,000 $24,900,000
- ------------------------ ----------------------- -----------------------
September 30, 2000 $10,000,000 $34,900,000
- ------------------------ ----------------------- -----------------------
December 31, 2000 $20,000,000 $54,900,000
- ------------------------ ----------------------- -----------------------
March 31, 2001 $26,000,000 $80,900,000
- ------------------------ ----------------------- -----------------------
</TABLE>
(j) Section 7.24 of the Credit Agreement is hereby amended by deleting the
chart appearing therein and inserting the following chart in lieu thereof:
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------
DATE MINIMUM FUNERAL
HOME GROSS MARGIN
- ------------------------------------ ------------------------------------
<S> <C>
June 30, 1999 $45,000,000
- ------------------------------------ ------------------------------------
July 31, 1999 $42,500,000
- ------------------------------------ ------------------------------------
August 31, 1999 $40,000,000
- ------------------------------------ ------------------------------------
September 30, 1999 $38,500,000
- ------------------------------------ ------------------------------------
October 31, 1999 $33,000,000
- ------------------------------------ ------------------------------------
November 30, 1999 $32,000,000
- ------------------------------------ ------------------------------------
December 31, 1999 $33,000,000
- ------------------------------------ ------------------------------------
January 31, 2000 $41,500,000
- ------------------------------------ ------------------------------------
February 28, 2000 $43,000,000
- ------------------------------------ ------------------------------------
March 31, 2000 $56,500,000
- ------------------------------------ ------------------------------------
April 30, 2000 $53,000,000
- ------------------------------------ ------------------------------------
May 31, 2000 $51,500,000
- ------------------------------------ ------------------------------------
<PAGE>
- ------------------------------------ ------------------------------------
DATE MINIMUM FUNERAL
HOME GROSS MARGIN
- ------------------------------------ ------------------------------------
<S> <C>
June 30, 2000 $47,500,000
- ------------------------------------ ------------------------------------
July 31, 2000 $45,000,000
- ------------------------------------ ------------------------------------
August 31, 2000 $43,000,000
- ------------------------------------ ------------------------------------
September 30, 2000 $42,000,000
- ------------------------------------ ------------------------------------
October 31, 2000 $44,000,000
- ------------------------------------ ------------------------------------
November 30, 2000 $45,000,000
- ------------------------------------ ------------------------------------
December 31, 2000 $47,500,000
- ------------------------------------ ------------------------------------
January 31, 2001 $52,000,000
- ------------------------------------ ------------------------------------
February 28, 2001 $54,500,000
- ------------------------------------ ------------------------------------
March 31, 2001 $58,500,000
- ------------------------------------ ------------------------------------
April 30, 2001 $54,500,000
- ------------------------------------ ------------------------------------
May 31, 2001 $53,000,000
- ------------------------------------ ------------------------------------
</TABLE>
(k) Section 7.25 of the Credit Agreement is hereby amended by deleting
clauses (ii) and (iii) thereof in their entirety and inserting the following
clauses in lieu thereof:
"(ii) in the case of the fiscal quarter ended December 31, 1999,
85%, (iii) in the case of the fiscal quarter ended March 31, 2000,
92.5%, and (iv) thereafter, 95% of Funeral Home Revenue for the
3-month period ending on the last day of the corresponding fiscal
quarter in the immediately preceding year;".
(l) Section 7.31 of the Credit Agreement is hereby amended by (i) inserting
the phrase "excluding any HMIS Expenditures incurred during such period"
immediately following the parenthetical appearing therein, and (ii) deleting the
chart appearing therein and inserting the following chart in lieu thereof:
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------ -------------------------------------
DATE MAXIMUM CONSOLIDATED CAPITAL
EXPENDITURES
- ------------------------------ -------------------------------------
<S> <C>
September 30, 1999 $16,000,000
- ------------------------------ -------------------------------------
December 31, 1999 $36,500,000
- ------------------------------ -------------------------------------
March 31, 2000 $49,900,000
- ------------------------------ -------------------------------------
June 30, 2000 $67,900,000
- ------------------------------ -------------------------------------
September 30, 2000 $69,900,000
- ------------------------------ -------------------------------------
December 31, 2000 $72,000,000
- ------------------------------ -------------------------------------
March 31, 2001 $72,000,000
- ------------------------------ -------------------------------------
</TABLE>
(m) Article 7 of the Credit Agreement is hereby amended by inserting the
following Section immediately following Section 7.31:
7.31A HMIS EXPENDITURES. Neither TLGI nor any Borrower will, nor
will they permit any Subsidiary to, make, incur any liability to make,
in any four-fiscal quarter period (or in the case of any four-fiscal
quarter period ending prior to June 30, 2000, the one-, two-or
three-fiscal quarter period from July 1, 1999 to the end of the fiscal
quarter for which HMIS Expenditures are being calculated) ending on a
date set forth below, HMIS Expenditures on a consolidated basis in an
aggregate amount in excess of the corresponding amount set forth below
opposite such date:
<TABLE>
<CAPTION>
- ------------------------------ --------------------------------
DATE MAXIMUM HMIS
EXPENDITURES
- ------------------------------ --------------------------------
<S> <C>
December 31, 1999 $11,750,000
- ------------------------------ --------------------------------
March 31, 2000 $22,250,000
- ------------------------------ --------------------------------
June 30, 2000 $29,250,000
- ------------------------------ --------------------------------
September 30, 2000 $33,500,000
- ------------------------------ --------------------------------
December 31, 2000 $31,500,000
- ------------------------------ --------------------------------
March 31, 2001 $24,000,000
- ------------------------------ --------------------------------
</TABLE>
<PAGE>
(n) Section 7.33 of the Credit Agreement is hereby amended by deleting
clause (i)(x) in its entirety and inserting in lieu thereof : "(x) repayments of
non-compete obligations not to exceed (A) $2,000,000 for the quarter ended
December 31, 1999, (B) $2,600,000 for the quarter ended March 31, 2000, (C)
$2,750,000 for the quarter ended June 30, 2000, (D) $2,250,000 for the quarter
ended September 30, 2000, (E) $2,150,000 for the quarter ended December 31,
2000, or (F) $2,300,000 for the quarter ended March 31, 2001".
(o) Section 14.1 of the Credit Agreement is hereby amended by deleting
phrase "below its signature hereto" appearing in the fourth line thereof and
inserting in lieu thereof the following: "in the case of the Agent or the
Lenders, on Schedule 2.1 hereto and in the case of the Company, the Borrowers or
TLGI, to it or them at 4126 Norland Avenue, Burnaby, British Columbia V5G 3S8,
Canada".
(p) The signature pages of the Credit Agreement are hereby amended to
conform to the signature pages hereto.
3. NEWEOL. Neweol shall become a Borrower under the Credit Agreement on
the date when each of the following conditions has been satisfied or waived
(the "NEWEOL EFFECTIVE DATE"): (i) the Neweol Order shall have been entered
by the U.S. Court in a form acceptable to the Agent, (ii) the conditions set
forth in Section 6 hereof shall have been satisfied, (iii) Neweol shall have
delivered to the Agent (a) a joinder agreement substantially in the form of
Exhibit H to the Credit Agreement, duly executed by Neweol, pursuant to which
Neweol shall agree to be bound by the Credit Agreement as a Borrower and to
assume and perform its obligations thereunder as a Borrower and (b) a
counterpart to the Security Agreement, (iv) the Borrowers and TLGI shall
deliver to the Agent a copy of Neweol's (a) 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 jurisdiction of its
organization, (b) by-laws or comparable constitutive laws, rules or
regulations certified by the Secretary, Assistant Secretary or other
appropriate officer or director of it, and (v) board of directors'
resolutions, certified by the Secretary, Assistant Secretary or other
appropriate officer or director of it (and resolutions of other bodies, if
any are deemed necessary by counsel for the Agent) authorizing the execution
of and performance under the Credit Agreement and the Collateral Documents by
Neweol. Each of the foregoing certifications shall be as of a date reasonably
acceptable to the Agent not more than 30 days prior to the Neweol Effective
Date. On the Neweol Effective Date, Schedule A to the Credit Agreement shall
be deemed amended to include Neweol as a Borrower thereunder.
4. AMENDMENT FEE. In consideration of the execution and delivery of this
Amendment and Waiver, the Borrowers shall, on the Effective Date, pay to the
Agent on behalf of each Lender that executes and delivers this Fourth Amendment
on or prior to December 21, 1999 at 12:00 noon (EST) an amendment fee equal to
.20% of such Lender's Commitment outstanding on the Effective Date
(collectively, the "AMENDMENT FEE").
<PAGE>
5. CONSENT. Pursuant to a motion filed with the U.S. Court on October 1,
1999, the Borrowers requested that the U.S. Court authorize them to, among other
things, sell certain certificates of indebtedness issued by Beverly Hills
Cemetery Corporation, Inc. and Cemetery Gardens, Inc. (the "SALE"). The
Borrowers have requested, in accordance with Section 7.15(a) of the Credit
Agreement, that the Lenders consent to the Sale. By the terms of this Amendment
and Waiver, the Lenders hereby consent to the Sale, PROVIDED that the Borrowers
comply with the prepayment and Commitment reduction requirements set forth in
Section 2.10(b) of the Credit Agreement.
6. CONDITIONS TO EFFECTIVENESS OF AMENDMENT AND WAIVER. This Amendment and
Waiver shall not become effective (the "EFFECTIVE DATE") until (i) the date on
which this Amendment and Waiver shall have been executed by the Borrowers, TLGI,
the Required Lenders and the Agent, and the Agent shall have received evidence
satisfactory to it of such execution, (ii) the Agent shall have received the
Amendment Fee referred to in Section 4 hereof, and (iii) the U.S. Court shall
have entered an order authorizing the execution of this Amendment and Waiver by
the Borrowers, PROVIDED, however, that the Neweol Effective Date shall not occur
until the conditions set forth in Section 3 hereof shall have been satisfied.
7. COSTS AND EXPENSES. The Borrowers agree that their obligations set forth
in Section 10.7 of the Credit Agreement shall extend to the preparation,
execution and delivery of this Amendment and Waiver.
8. LIMITED AMENDMENT AND WAIVER. This Amendment and Waiver shall be limited
precisely as written and shall not be deemed (a) to be a consent granted
pursuant to, or a waiver or modification of, any other term or condition of the
Credit Agreement or any of the instruments or agreements referred to therein or
(b) to prejudice any right or rights which the Agent or the Lenders may now have
or have in the future under or in connection with the Credit Agreement or any of
the instruments or agreements referred to therein. Whenever the Credit Agreement
is referred to in the Credit Agreement or any of the instruments, agreements or
other documents or papers executed or delivered in connection therewith, such
reference shall be deemed to mean the Credit Agreement as modified by this
Amendment and Waiver.
9. COUNTERPARTS. This Amendment and Waiver may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
10. GOVERNING LAW. This Amendment and Waiver shall in all respects be
construed in accordance with and governed by the laws of the State of New York
applicable to contracts made and to be performed wholly within such State.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed as of the day and the year first above written.
LOEWEN GROUP INTERNATIONAL, INC.
By: _______________________________
Name:
Title:
EACH OF THE ENTITIES LISTED ON
SCHEDULE A TO THE CREDIT AGREEMENT
By: _______________________________
on behalf of each of
the entities listed on
Schedule A to the Credit
Agreement
Name:
Title:
THE LOEWEN GROUP INC.
By: _______________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
INDIVIDUALLY AND AS ADMINISTRATIVE
AGENT
By: _______________________________
Name:
Title:
<PAGE>
BANK OF SCOTLAND
By: _________________________
Name:
Title:
THE CIT GROUP/BUSINESS CREDIT, INC.
By: _________________________
Name:
Title:
BANKERS LIFE & CASUALTY CO.
By: Conseco Capital Management,
as investment advisor
By: _________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: _________________________
Name:
Title:
By: _________________________
Name:
Title:
FOOTHILL CAPITAL CORPORATION
By: _________________________
Name:
Title:
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By: _________________________
Name:
Title:
GMAC BUSINESS CREDIT
By: _________________________
Name:
Title:
MELLON BANK, N.A.
By: _________________________
Name:
Title:
PPM FINANCE, INC.
By: _________________________
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: _________________________
Name:
Title:
BARCLAYS BANK PLC
By: _________________________
Name:
Title:
<PAGE>
COAST BUSINESS CREDIT
By: _________________________
Name:
Title:
SOVEREIGN BANK
By: _________________________
Name:
Title:
BANK OF MONTREAL
By: _________________________
Name:
Title:
MORGENS WATERFALL HOLDINGS, LLC
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT A
SEE ATTACHED.
<PAGE>
EXHIBIT B
HMIS BUDGET
SEE ATTACHED.
<PAGE>
THE LOEWEN GROUP INC.
CORPORATE INCENTIVE PLAN
1. PURPOSE.
The purpose of The Loewen Group Inc. Corporate Incentive Plan (the
"Plan") is to:
(a) Focus key corporate employees on the achievement of financial
goals considered essential for the Company's success during
and after the pending insolvency proceedings.
(b) Promote the success and enhance the value of the Company by
linking the personal interests of Participants to those of the
Company by providing Participants with incentives for
excellent performance.
(c) Motivate, attract and retain top quality high performing key
employees.
THIS PLAN SUPERCEDES AND REPLACES ALL PRIOR CORPORATE INCENTIVE PLANS
MAINTAINED BY THE LOEWEN GROUP INC. OR LOEWEN GROUP INTERNATIONAL, INC.
2. DEFINITIONS.
For the purposes of the Plan, the following terms shall have the
meanings indicated.
(a) AWARD. "Award" means the amount paid as an incentive bonus
pursuant to Section 5 below.
(b) BOARD. "Board" means the Board of Directors of the Company.
(c) COMPANY. "Company" means The Loewen Group Inc.
(d) COMPENSATION COMMITTEE. " Compensation Committee" means the
Compensation Committee of the Board or such other committee of
the Board authorized by the Board to administer the Plan.
(e) CREDITORS' COMMITTEE. "Creditors' Committee" means the
official committee of unsecured creditors appointed by the
United States trustee for the District of Delaware in the
bankruptcy cases of certain of the Employers pending before
the United States Bankruptcy Court for the District of
Delaware, captioned LOEWEN GROUP INTERNATIONAL, INC., ET AL.,
Case No. 99-1244.
(f) DESIGNATED EMPLOYEE GROUP. "Designated Employee Group" means
any one of the groups of employees described on Exhibit A, as
such Exhibit may be amended from time to time.
(g) EFFECTIVE DATE. "Effective Date" means the date on which an
individual Participant executes a Release Agreement.
<PAGE>
(h) EMPLOYER. "Employer" means each of the Company and those of
its divisions, subsidiaries and operating units, as are set
forth on Exhibit B, as such Exhibit may be amended from time
to time.
(i) MAXIMUM AWARD PERCENTAGE. "Maximum Award Percentage" means the
percentage of Salary that a Participant is eligible to earn in
a Plan Year if the maximum Performance Goals established for
the Company are achieved or exceeded. The Maximum Award
Percentages for each Designated Employee Group are specified
on Exhibit A, as such Exhibit may be amended from time to
time.
(j) MINIMUM AWARD PERCENTAGE. "Minimum Award Percentage" means the
percentage of Salary that a Participant is eligible to earn in
a Plan Year if the minimum Performance Goals established for
the Company are achieved or exceeded. The Minimum Award
Percentages for each Designated Employee Group are specified
on Exhibit A, as such Exhibit may be amended from time to
time.
(k) PARTICIPANT. "Participant" means any full-time employee of an
Employer who becomes a Participant in the Plan as provided in
Section 4 and who has not ceased to be a Participant pursuant
to Section 4 or Section 6.
(l) PERFORMANCE GOALS. "Performance Goals" means the financial
criteria established by the Compensation Committee pursuant to
Section 5(a) below to measure corporate performance during a
Plan Year.
(m) PLAN. "Plan" means The Loewen Group Inc. Corporate Incentive
Plan.
(n) PLAN YEAR. "Plan Year" means the calendar year. The first Plan
Year shall begin on January 1, 2000.
(o) RELEASE AGREEMENT. "Release Agreement" means an agreement, in
a form that is acceptable to the Employer, under which the
Participant, among other things, releases and waives any
rights, claims or entitlements that he or she may have at law
or under existing employment or consulting agreements or
company programs.
(p) SALARY. "Salary" means a Participant's rate of regular base
compensation, excluding commissions, overtime pay, bonuses and
any extra remuneration, determined at the end of a Plan Year,
without reduction for any salary or wage reduction
contributions made to a Company sponsored plan.
(q) TARGET AWARD PERCENTAGE. "Target Award Percentage" means the
percentage of Salary that a Participant is eligible to earn in
a Plan Year if the targeted Performance Goals established for
the Company are achieved. The Target Award Percentages for
each Designated Employee Group are specified on Exhibit A, as
such Exhibit may be amended from time to time.
2
<PAGE>
3. PLAN ADMINISTRATION.
(a) Subject to the authority and powers of the Board, the
Compensation Committee shall administer the Plan. The
Compensation Committee shall have full authority to interpret
the Plan and to adopt such rules, regulations and procedures
for carrying out the Plan as it may deem necessary or
advisable, including without limitation, the authority to:
(i) designate employees as Participants;
(ii) designate and thereafter administer the Performance
Goals; and
(iii) determine other terms and conditions related to
Awards (including to provide appropriate adjustments
or prorations of Awards in the case of Participants
who are hired, cease to be Participants or are
changed from one Designated Employee Group to another
during a Plan Year).
(b) Any dispute, controversy or claim arising out of or relating
to any Plan benefit, including, without limitation, any
dispute, controversy or claim as to whether the decision of
the Committee respecting the benefits under this Plan or
interpretation of this Plan is arbitrary and capricious, shall
be settled by final and binding arbitration in accordance with
the American Arbitration Association Employment Dispute
Resolution or the Rules of the Arbitration and Mediation
Institute of Canada, as appropriate. The Eligible Employee
must request arbitration in writing within the limitations
period set by applicable state, provincial or federal law.
The arbitrator shall be selected by mutual agreement of the
parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA") or the Arbitration and Mediation
Institute of Canada ("AMI"), as applicable. The selection
process shall be that which is set forth in the AAA Employment
Dispute Resolution Rules or similar process of the AMI, except
that, if the parties fail to select an arbitrator from one or
more panels, neither AAA nor AMI shall have the power to make
an appointment but shall continue to submit additional panels
until an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be shared by the parties
equally. The arbitrator shall have no power to amend, add to
or subtract from this Plan. The award shall be admissible in
any court or agency action seeking to enforce or render
unenforceable this Plan or any portion thereof. Any action to
enforce or vacate the arbitrator's award shall be governed by
the Federal Arbitration Act if applicable or such other
legislation as may be applicable in the jurisdiction where the
Eligible Employee ordinarily is a resident.
3
<PAGE>
(c) All expenses and liabilities incurred by the Compensation
Committee in the administration of the Plan shall be borne by
the Company. The Compensation Committee may retain
accountants, attorneys or other advisors to render services in
connection with the administration of the Plan.
(d) Neither the Employers, the Board, the Compensation Committee,
nor any member of the Board or Compensation Committee, nor any
officer or employee of any Employer shall be personally liable
for any action, determination, or interpretation taken or made
in good faith with respect to the Plan. Any action taken or
omitted to be taken by any such person in good faith reliance
on the advice of any accountant, attorney or other advisor
retained by the Compensation Committee or the Employer shall
be conclusively presumed not to involve gross negligence or
willful misconduct. The members of the Board and the
Compensation Committee and the officers and employees of any
Employer shall be indemnified by the applicable Employer with
respect to any such liability to the fullest extent permitted
by applicable laws, rules and regulations.
4. ELIGIBILITY.
(a) Each full-time employee who (i) is a member of a Designated
Employee Group on the Effective Date, (ii) is provided written
notification of participation by the Compensation Committee
and (iii) executes a Release Agreement shall be a Participant
in the Plan as of the Effective Date.
(b) Any other employee who becomes a member of a Designated
Employee Group after the adoption of this Plan by the Company
and is provided written notification of participation by the
Compensation Committee shall become a Participant in the Plan
as of the date membership in such Designated Employee Group
commences.
(c) Any Participant whose employment with the Employer terminates
for any reason shall cease to be a Participant, except for
Participants who transfer employment from one Employer to
another Employer during a Plan Year and continue as a member
of a Designated Employee Group at the new Employer.
(d) If an individual who became a Participant in the Plan pursuant
to Section 4(a) or 4(b) above later ceases to be a member of a
Designated Employee Group then such individual shall likewise
cease to be a Participant.
5. DETERMINATION AND PAYMENT OF AWARDS.
Determination and payment of Awards pursuant to the Plan shall be
subject to the following terms and conditions:
(a) PERFORMANCE GOALS. Performance Goals will be set by the
Compensation Committee, with reference to the achievement of
specified measures of financial performance of the Company.
Such Performance Goals shall be subject to review and
approval, prior to the confirmation of a plan of
reorganization for the
4
<PAGE>
Company, by the Creditors' Committee. Once approvals are
obtained, the minimum, targeted and maximum Performance
Goals shall be communicated in writing to Participants
within 15 days. The Compensation Committee expressly
retains the ability under the Plan to adjust targeted
Performance Goals to reflect any asset sales or closings of
operating units or any other reconfigurations of the
Company's operations. If actual financial results are less
than the minimum Performance Goal, no Award shall be earned.
(b) CALCULATION OF FINAL AWARDS. After the end of a Plan Year,
Awards shall be calculated by comparing actual financial
results to the pre-established Performance Goals. When making
these calculations, actual financial results will be reduced
by an amount equal to total Awards earned by Participants and
total awards earned under the Company's Operations Incentive
Plan. If actual financial results equal the minimum
Performance Goal, an Award equal to the Minimum Award
Percentage multiplied by a Participant's Salary shall be
earned. If actual financial results equal the targeted
Performance Goal, an Award equal to the Target Award
Percentage multiplied by a Participant's Salary shall be
earned. If actual financial results equal or exceed the
maximum Performance Goal, an Award equal to the Maximum Award
Percentage multiplied by a Participant's Salary shall be
earned. If actual financial results exceed the minimum
Performance Goal but are less than the targeted Performance
Goal, an award percentage will be determined by applying
straight-line interpolation to the Minimum Award Percentage
and the Target Award Percentage, with reference to the
relationship between actual financial results and the minimum
and targeted Performance Goals. The resulting award percentage
shall be multiplied by the Participant's Salary to determine
the Award earned for the Plan Year. If actual financial
results exceed the targeted Performance Goal but are less than
the maximum Performance Goal, an award percentage will be
determined by applying straight-line interpolation to the
Target Award Percentage and the Maximum Award Percentage, with
reference to the relationship between actual financial results
and the targeted and maximum Performance Goals. The resulting
award percentage shall be multiplied by the Participant's
Salary to determine the Award earned for the Plan Year. In
addition, no Awards above the Awards payable if actual
financial results equal the targeted Performance Goal will be
payable for fiscal year 2000 if the Employers, as a result of
paying such incremental awards, would not retain a substantial
portion of the incremental cash flow giving rise to such
payments.
(c) ADJUSTMENTS TO FINAL AWARDS. The Company, through the
Compensation Committee, expressly retains the ability under
the Plan to: (i) adjust Awards based on adjustments to
targeted Performance Goals under Section 5(a) above and (ii)
adjust an individual Participant's Award downward by as much
as 33% based on the discretionary assessment of that
Participant's performance by his or her direct supervisor. An
adjustment pursuant to Section 5(a) or this Section shall not
be treated as an amendment to the Plan.
5
<PAGE>
(d) TIMING OF PAYMENT OF AWARDS. Awards earned with respect to any
Plan Year shall be paid in cash by the Employer within 90 days
following the last day of any Plan Year.
6. TERMINATION OF EMPLOYMENT.
In the event that a Participant's employment with the Employer
terminates for any reason before the last day of a Plan Year, the
Participant shall not be entitled to receive any Award under the Plan.
Notwithstanding the foregoing, if a Participant becomes an employee of
a successor employer upon the acquisition of any business, unit, or
facility by such employer, then there shall be paid to such Participant
promptly after the last day of the Plan Year in which such acquisition
occurs (whether or not he or she remains an employee of the successor
employer on such last day unless he or she voluntarily withdraws from
the employ of such successor employer) an amount equal to the Award
that would have been payable for such Plan Year based on actual
financial results through the last day of the month prior to the date
of acquisition. Such award will be prorated based on the number of
complete months worked during the Plan Year prior to the date of
acquisition.
7. WITHHOLDING.
The Employer shall have the right to withhold any taxes or any other
amounts as are required to be withheld by law with respect to any
payments due under the Plan.
8. AMENDMENT OR TERMINATION.
The Company may modify, amend or terminate the Plan, in whole or in
part, at any time; provided, however, that any modification, amendment
or termination of the Plan shall not, without the consent of the
Participant, adversely affect any right to an Award for the Plan Year
in which the modification, amendment or termination goes into effect
after Performance Goals have been communicated. In addition, the Plan
may not be terminated prior to January 1, 2001.
9. EFFECT UPON OTHER PLANS.
The adoption of the Plan shall not affect any other compensation or
benefit plan adopted or implemented by the Company simultaneously with
this Plan and the Plan shall not preclude the Board from establishing
any other form of incentive, bonus or other compensation for employees
of the Company. The amounts awarded to a Participant under the Plan
shall not be deemed to be compensation for the purpose of calculating
the amount of a Participant's benefits under any retirement, insurance,
disability or other benefit plan, except to the extent specifically
provided in such plan.
10. BREACH.
In the event that a Participant breaches any of his or her obligations
under the Plan or any other documents or instruments executed herewith
(including, without limitation, the Release Agreement), the Company
shall have the right to demand the repayment of all or
6
<PAGE>
a portion of any amounts paid to the Participant under the Plan and,
in addition, (a) the Company shall have no further obligation to
that Participant pursuant to the Plan and (b) that Participant shall
pay any expenses or damages incurred by the Company or the
applicable Employer as a result of said breach, including all costs
incurred by the Company or the applicable Employer, including
reasonable attorneys' fees, in defending against any claims related
to or arising from said breach.
11. ASSIGNABILITY OF AWARDS.
No Eligible Employee shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber any rights or any amounts
payable under this Plan; nor shall any such rights or amounts payable
under this Plan be subject to seizure, attachment, execution,
garnishment or other legal or equitable process, or for the payment of
any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition
shall be null and void.
12. PLAN NOT A CONTRACT OF EMPLOYMENT; EMPLOYER'S POLICIES CONTROL.
Nothing contained in this Plan shall give a Participant the right to be
retained in the employment of an Employer. This Plan is not a contract
of employment between the Employer and any Participant.
Any dispute involving issues of employment other than claims for
benefits under this Plan shall be governed by the appropriate
employment dispute resolution policies and procedures of the Employer.
13. ACTION BY AN EMPLOYER.
Unless expressly indicated to the contrary herein, any action required
to be taken by the Employer may be taken by action of its board of
directors or by any appropriate officer or officers traditionally
responsible for such determination or actions, or such other individual
or individuals as may be designated by the board of directors or any
such officer.
14. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Eligible Employee ordinarily is a
resident.
15. SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be
7
<PAGE>
construed and enforced as if said illegal or invalid provision had
never been included herein.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted on
the _____ day of October, 1999.
THE LOEWEN GROUP INC.
By: _____________________
8
<PAGE>
EXHIBIT A
DESIGNATED EMPLOYEE GROUPS AND MINIMUM, TARGET AND MAXIMUM AWARD PERCENTAGES
<TABLE>
<CAPTION>
------------------------------------------------ -------------------- ------------------- -------------------
MINIMUM TARGET MAXIMUM
AWARD AWARD AWARD
DESIGNATED EMPLOYEE GROUPS PERCENTAGE PERCENTAGE PERCENTAGE
<S> <C> <C> <C>
------------------------------------------------ -------------------- ------------------- -------------------
------------------------------------------------ -------------------- ------------------- -------------------
SENIOR CORPORATE EXECUTIVES
------------------------------------------------ -------------------- ------------------- -------------------
Chairman of the Board 25% 50% 100%
------------------------------------------------ -------------------- ------------------- -------------------
Chief Executive Officer 25% 50% 100%
------------------------------------------------ -------------------- ------------------- -------------------
Tier 1: Admin, Finance, Legal 25% 50% 100%
------------------------------------------------ -------------------- ------------------- -------------------
Tier 2: HR, CIO, Controller, Treasurer &
Corp. Sec. 20% 40% 80%
------------------------------------------------ -------------------- ------------------- -------------------
Tier 3: VPs/Functional Head 15% 30% 60%
------------------------------------------------ -------------------- ------------------- -------------------
------------------------------------------------ -------------------- ------------------- -------------------
CORPORATE STAFF
------------------------------------------------ -------------------- ------------------- -------------------
Other VPs 12.5% 25% 50%
------------------------------------------------ -------------------- ------------------- -------------------
Directors 10% 20% 40%
------------------------------------------------ -------------------- ------------------- -------------------
Senior Managers 7.5% 15% 30%
------------------------------------------------ -------------------- ------------------- -------------------
Managers/Professional/Technical 5% 10% 20%
------------------------------------------------ -------------------- ------------------- -------------------
------------------------------------------------ -------------------- ------------------- -------------------
</TABLE>
<PAGE>
EXHIBIT B
PARTICIPATING EMPLOYERS
<PAGE>
THE LOEWEN GROUP INC.
OPERATIONS INCENTIVE PLAN
1. PURPOSE.
The purpose of The Loewen Group Inc. Operations Incentive Plan (the
"Plan") is to:
(a) Focus key operating employees on the achievement of financial
goals considered essential for the Company's success during
and after the pending insolvency proceedings.
(b) Promote the success and enhance the value of the Company by
linking the personal interests of Participants to those of the
Company by providing Participants with incentives for
excellent performance.
(c) Motivate, attract and retain top quality high performing key
employees.
THIS PLAN SUPERCEDES AND REPLACES ALL PRIOR OPERATIONS INCENTIVE PLANS
MAINTAINED BY THE LOEWEN GROUP INC. OR LOEWEN GROUP INTERNATIONAL, INC.
2. DEFINITIONS.
For the purposes of the Plan, the following terms shall have the
meanings indicated.
(a) AWARD. "Award" means the amount paid as an incentive bonus
pursuant to Section 6 below.
(b) BOARD. "Board" means the Board of Directors of the Company.
(c) COMPANY. "Company" means The Loewen Group Inc.
(d) COMPENSATION COMMITTEE. " Compensation Committee" means the
Compensation Committee of the Board or such other committee of
the Board authorized by the Board to administer the Plan.
(e) CREDITORS' COMMITTEE. "Creditors' Committee" means the
official committee of unsecured creditors appointed by the
United States trustee for the District of Delaware in the
bankruptcy cases of certain of the Employers pending before
the United States Bankruptcy Court for the District of
Delaware, captioned LOEWEN GROUP INTERNATIONAL, INC., ET AL.,
Case No. 99-1244.
(f) DESIGNATED EMPLOYEE GROUP. "Designated Employee Group" means
any one of the groups of employees described on Exhibit A, as
such Exhibit may be amended from time to time.
<PAGE>
(g) EBITDA. "EBITDA" means the earnings of the Company or an
Operating Unit of the Company, before reduction for expenses
related to interest, taxes, depreciation and amortization, as
set forth in the approved operating budget of the Company each
year.
(h) EFFECTIVE DATE. "Effective Date" means the date on which an
individual Participant executes a Release Agreement.
(i) EMPLOYER. "Employer" means each of the Company and those of
its divisions, subsidiaries and Operating Units, as are set
forth on Exhibit B, as such Exhibit may be amended from time
to time.
(j) MAXIMUM AWARD PERCENTAGE. "Maximum Award Percentage" means the
percentage of Salary that a Participant is eligible to earn in
a Plan Year if the maximum Performance Goals established for
his Operating Unit are achieved or exceeded. The Maximum Award
Percentages for each Designated Employee Group are specified
on Exhibit A, as such Exhibit may be amended from time to
time.
(k) OPERATING CASH FLOW. "Operating Cash Flow" means the true cash
flow from operations of the applicable Employer, as determined
under a formula established by the Compensation Committee for
the Plan Year.
(l) OPERATING UNIT. "Operating Unit" means the business unit for
which a Participant performs services and shall consist of a
country, a region, a district or zone, or a funeral home or
cemetery location.
(m) PARTICIPANT. "Participant" means any full-time employee of an
Employer who becomes a Participant in the Plan as provided in
Section 4 and who has not ceased to be a Participant pursuant
to Section 4 or Section 6.
(n) PERFORMANCE GOALS. "Performance Goals" means the financial
criteria, including EBITDA and Operating Cash Flow,
established by the Compensation Committee pursuant to Sections
5(a) and 5(b) below to measure Operating Unit performance
during a Plan Year.
(o) PLAN. "Plan" means The Loewen Group Inc. Operations Incentive
Plan.
(p) PLAN YEAR. "Plan Year" means the calendar year. The first Plan
Year shall begin on January 1, 1999.
(q) RELEASE AGREEMENT. "Release Agreement" means an agreement, in
a form that is acceptable to the Employer, under which the
Participant, among other things, releases and waives any
rights, claims or entitlements that he or she may have at law
or under existing employment or consulting agreements or
company programs.
2
<PAGE>
(r) SALARY. "Salary" means a Participant's rate of regular base
compensation, excluding commissions, overtime pay, bonuses and
any extra remuneration, determined at the end of a Plan Year,
or at the end of the relevant interim period within a Plan
Year, without reduction for any salary or wage reduction
contributions made to an Company sponsored plan.
(s) TARGET AWARD PERCENTAGE. "Target Award Percentage" means the
percentage of Salary that a Participant is eligible to earn in
a Plan Year if the targeted Performance Goals established for
his Operating Unit are achieved. The Target Award Percentages
for each Designated Employee Group are specified on Exhibit A,
as such Exhibit may be amended from time to time.
3. PLAN ADMINISTRATION.
(a) Subject to the authority and powers of the Board, the
Compensation Committee shall administer the Plan. The
Compensation Committee shall have full authority to interpret
the Plan and to adopt such rules, regulations and procedures
for carrying out the Plan as it may deem necessary or
advisable, including without limitation, the authority to:
(i) designate employees as Participants;
(ii) designate and thereafter administer the Performance
Goals; and
(iii) determine other terms and conditions related to
Awards (including to provide appropriate adjustments
or prorations of Awards in the case of Participants
who are hired, cease to be Participants or are
changed from one Designated Employee Group to another
during a Plan Year).
(b) Any dispute, controversy or claim arising out of or relating
to any Plan benefit, including, without limitation, any
dispute, controversy or claim as to whether the decision of
the Committee respecting the benefits under this Plan or
interpretation of this Plan is arbitrary and capricious, shall
be settled by final and binding arbitration in accordance with
the American Arbitration Association Employment Dispute
Resolution or the Rules of the Arbitration and Mediation
Institute of Canada, as appropriate. The Eligible Employee
must request arbitration in writing within the limitations
period set by applicable state, provincial or federal law.
The arbitrator shall be selected by mutual agreement of the
parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA") or the Arbitration and Mediation
Institute of Canada ("AMI"), as applicable. The selection
process shall be that which is set forth in the AAA Employment
Dispute Resolution Rules or similar process of the AMI, except
that, if the parties fail to select an arbitrator from one or
more panels, neither AAA nor AMI shall have the
3
<PAGE>
power to make an appointment but shall continue to submit
additional panels until an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be shared by the parties
equally. The arbitrator shall have no power to amend, add to
or subtract from this Plan. The award shall be admissible in
any court or agency action seeking to enforce or render
unenforceable this Plan or any portion thereof. Any action to
enforce or vacate the arbitrator's award shall be governed by
the Federal Arbitration Act if applicable or such other
legislation as may be applicable in the jurisdiction where the
Eligible Employee ordinarily is a resident.
(c) All expenses and liabilities incurred by the Compensation
Committee in the administration of the Plan shall be borne by
the Company. The Compensation Committee may retain
accountants, attorneys or other advisors to render services in
connection with the administration of the Plan.
(d) Neither the Employers, the Board, the Compensation Committee,
nor any member of the Board or Compensation Committee, nor any
officer or employee of any Employer shall be personally liable
for any action, determination, or interpretation taken or made
in good faith with respect to the Plan. Any action taken or
omitted to be taken by any such person in good faith reliance
on the advice of any accountant, attorney or other advisor
retained by the Compensation Committee or the Employer shall
be conclusively presumed not to involve gross negligence or
willful misconduct. The members of the Board and the
Compensation Committee and the officers and employees of any
Employer shall be indemnified by the applicable Employer with
respect to any such liability to the fullest extent permitted
by applicable laws, rules and regulations.
4. ELIGIBILITY.
(a) Each full-time employee who (i) is a member of a Designated
Employee Group on the Effective Date, (ii) is provided written
notification of participation by the Compensation Committee
and (iii) executes a Release Agreement shall be a Participant
in the Plan as of the Effective Date.
(b) Any other employee who becomes a member of a Designated
Employee Group after the adoption of this Plan by the Company
and is provided written notification of participation by the
Compensation Committee shall become a Participant in the Plan
as of the date membership in such Designated Employee Group
commences.
(c) Any Participant whose employment with the Employer terminates
for any reason shall cease to be a Participant, except for
Participants who transfer employment from one Employer to
another Employer during a Plan Year and continue as a member
of a Designated Employee Group at the new Employer.
4
<PAGE>
(d) If an individual who became a Participant in the Plan pursuant
to Section 4(a) or 4(b) above later ceases to be a member of a
Designated Employee Group then such individual shall likewise
cease to be a Participant.
5. DETERMINATION AND PAYMENT OF AWARDS.
Determination and payment of Awards pursuant to the Plan shall be
subject to the following terms and conditions:
(a) PERFORMANCE GOALS FOR FISCAL 1999. For the Plan Year ending on
December 31, 1999, Performance Goals will be set with
reference to the original fiscal 1999 operations budget
established for each Operating Unit within the Company's
Funeral Home division. The targeted Performance Goal for each
Operating Unit within the Funeral Home division shall be an
EBITDA amount equal to 98% of the relevant fiscal 1999
operations budget amount. The maximum Performance Goal for
each Operating Unit within the Funeral Home division shall be
an EBITDA amount equal to 109% of the relevant fiscal 1999
operations budget amount. Within 30 days of the Effective Date
of the Plan, each Participant shall receive written
confirmation of the range of applicable Performance Goals for
his Operating Unit in effect for Fiscal 1999.
(b) PERFORMANCE GOALS FOR SUBSEQUENT YEARS. For subsequent Plan
Years, Performance Goals will be set with reference to the
operations budget established for each Operating Unit within
the Company's Funeral Home division and Cemetery division by
the Compensation Committee, subject to review and approval,
prior to the confirmation of a plan of reorganization for the
Company, by the Creditors' Committee. Once approvals are
obtained, the targeted and maximum Performance Goals for each
Operating Unit shall be communicated in writing to
Participants within 15 days. The targeted and maximum
Performance Goals for each Operating Unit within the Funeral
Home division shall be expressed as percentages of budgeted
EBITDA, or such other performance measures as the Compensation
Committee shall approve. The targeted and maximum Performance
Goals for each Operating Unit within the Cemetery division
shall be expressed as percentages of budgeted Operating Cash
Flow, or such other performance measures as the Compensation
Committee shall approve. The Compensation Committee expressly
retains the ability under the Plan to adjust targeted
Performance Goals to reflect any asset sales or closings of
operating units or any other reconfigurations of the Company's
operations.
(c) CALCULATION OF FINAL AWARDS. After the end of a Plan Year,
Awards shall be calculated by comparing actual financial
results of each Operating Unit to the pre-established
Performance Goals applicable to that Operating Unit. When
making these calculations, actual financial results for each
Operating Unit will be reduced by an amount equal to total
Awards earned by Participants associated with that Operating
Unit and with the Operating Units subordinate to that
Operating Unit. If actual financial results are less than the
targeted Performance Goal, no award shall be earned. If actual
financial results equal the targeted
5
<PAGE>
Performance Goal, an award equal to the Target Award
Percentage multiplied by a Participant's Salary shall
be earned. If actual financial results equal or exceed the
maximum Performance Goal, an award equal to the
Maximum Award Percentage multiplied by a Participant's
Salary shall be earned. If actual financial results
exceed the targeted Performance Goal but are less than
the maximum Performance Goal, an award percentage will be
determined by applying straight-line interpolation to the
Target Award Percentage and the Maximum Award Percentage with
reference to the relationship between actual financial results
and the targeted and maximum Performance Goals. The resulting
award percentage shall be multiplied by the Participant's
Salary to determine the Award earned for the Plan Year. If
interim awards, as described in Section 5(e) below, shall have
been paid to a Participant during a Plan Year, the Award
earned for the Plan Year shall be reduced by the total amount
of such interim awards. In addition, no Awards above the
Awards payable if actual financial results equal the targeted
Performance Goal will be payable for fiscal year 2000 if the
Employers, as a result of paying such incremental awards,
would not retain a substantial portion of the incremental cash
flow giving rise to such payments.
(d) ADJUSTMENTS TO FINAL AWARDS. The Company expressly retains the
ability under the Plan to: (i) adjust Awards based on
adjustments to targeted Performance Goals under Section 5(b)
above and (ii) adjust an individual Participant's Award
downward by as much as 33% based on the discretionary
assessment of that Participant's performance by his or her
direct supervisor. An adjustment pursuant to Section 5(b) or
this Section shall not be treated as an amendment to the Plan.
(e) CALCULATION OF INTERIM AWARDS. Payments of a portion of an
Award may be made on a biannual or quarterly schedule for
certain Designated Employee Groups, as described in Exhibit A.
Quarterly or biannual payments will be determined using the
methodology described above in Section 5(c), except that
cumulative financial results shall be calculated with respect
to the relevant interim period and then compared to the
established Performance Goals for such interim period. The
resulting award percentage calculated for any interim period
shall be multiplied by the Salary in effect at the end of the
relevant interim period. This product shall be multiplied by
50%, and reduced by any prior interim Awards for the Plan
Year. During the Plan Year ending on December 31, 1999,
interim awards paid for performance in the quarter ended March
31, 1999 under the prior Operations Incentive Plan, if any,
will reduce the first Award earned for that Plan Year.
(f) TIMING OF PAYMENT OF AWARD PAYABLE FOR PERFORMANCE THROUGH
JUNE 30, 1999. During the Plan Year ending on December 31,
1999, any Awards that would have been payable on June 30, 1999
if the payment schedule described in Exhibit A had been in
effect at that time, will be calculated and paid in cash
within 60 days of the Effective Date, using the method
described above in Sections 5(c), 5(d) and 5(e).
(g) TIMING OF PAYMENT OF SUBSEQUENT AWARDS. Awards earned with
respect to any Plan Year or any interim period ending after
the Effective Date shall be paid in
6
<PAGE>
cash by the Employer within 90 days following the last day of
any Plan Year or interim period.
6. TERMINATION OF EMPLOYMENT.
In the event that a Participant's employment with the Employer
terminates for any reason before the last day of a Plan Year, or if
applicable, before the last day of an interim period for which an
interim award is scheduled to be paid, the Participant will not be
entitled to receive any Award under the Plan. Notwithstanding the
foregoing, if a Participant becomes an employee of a successor employer
upon the acquisition of his Operating Unit by such employer, then there
shall be paid to such Participant promptly after the last day of the
Plan Year in which such acquisition occurs (whether or not he or she
remains an employee of the successor employer on such last day unless
he or she voluntarily withdraws from the employ of such successor
employer) an amount equal to the Award that would have been payable for
such Plan Year based on actual financial results through the last day
of the month prior to the date of acquisition. Such award will be
prorated based on the number of complete months worked during the Plan
Year prior to the date of acquisition.
7. WITHHOLDING.
The Employer shall have the right to withhold any taxes or any other
amounts as are required to be withheld by law with respect to any
payments due under the Plan.
8. AMENDMENT OR TERMINATION.
The Company may modify, amend or terminate the Plan, in whole or in
part, at any time; provided, however, that any modification, amendment
or termination of the Plan shall not, without the consent of the
Participant, adversely affect any right to an Award for the Plan Year
in which the modification, amendment or termination goes into effect
after Performance Goals have been communicated. In addition, the Plan
may not be terminated prior to January 1, 2001.
9. BREACH.
In the event that a Participant breaches any of his or her obligations
under the Plan or any other documents or instruments executed herewith
(including, without limitation, the Release Agreement), the Company
shall have the right to demand the repayment of all or a portion of any
amounts paid to the Participant under the Plan and, in addition, (a)
the Company shall have no further obligation to that Participant
pursuant to the Plan and (b) that Participant shall pay any expenses or
damages incurred by the Company or the applicable Employer as a result
of said breach, including all costs incurred by the Company or the
applicable Employer, including reasonable attorneys' fees, in defending
against any claims related to or arising from said breach.
7
<PAGE>
10. ASSIGNABILITY OF AWARDS.
No Eligible Employee shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber any rights or any amounts
payable under this Plan; nor shall any such rights or amounts payable
under this Plan be subject to seizure, attachment, execution,
garnishment or other legal or equitable process, or for the payment of
any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition
shall be null and void.
11. PLAN NOT A CONTRACT OF EMPLOYMENT; EMPLOYER'S POLICIES CONTROL.
Nothing contained in this Plan shall give a Participant the right to be
retained in the employment of an Employer. This Plan is not a contract
of employment between the Employer and any Participant.
Any dispute involving issues of employment other than claims for
benefits under this Plan shall be governed by the appropriate
employment dispute resolution policies and procedures of the Employer.
12. ACTION BY AN EMPLOYER.
Unless expressly indicated to the contrary herein, any action required
to be taken by the Employer may be taken by action of its Board of
Directors or by any appropriate officer or officers traditionally
responsible for such determination or actions, or such other individual
or individuals as may be designated by the Board of Directors or any
such officer.
13. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Eligible Employee ordinarily is a
resident.
14. SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be construed and enforced as if
said illegal or invalid provision had never been included herein.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted on
the _____ day of October, 1999.
THE LOEWEN GROUP INC.
By: _____________________
8
<PAGE>
EXHIBIT A
PAGE 1 OF 2
DESIGNATED EMPLOYEE GROUPS, TARGET AND MAXIMUM AWARD PERCENTAGES AND
FREQUENCY OF AWARDS
<TABLE>
<CAPTION>
---------------------------------------------- ------------------ --------------------- ---------------------
DESIGNATED EMPLOYEE GROUPS FOR THE PLAN YEAR TARGET AWARD MAXIMUM AWARD
ENDING ON DECEMBER 31, 1999 PERCENTAGE PERCENTAGE FREQUENCY OF AWARDS
---------------------------------------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
---------------------------------------------- ------------------ --------------------- ---------------------
OPERATIONS COUNTRY MANAGEMENT
---------------------------------------------- ------------------ --------------------- ---------------------
Country Executives 25% 50% Annual
---------------------------------------------- ------------------ --------------------- ---------------------
VPs 20% 40% Annual
---------------------------------------------- ------------------ --------------------- ---------------------
Group Controller 15% 30% Annual
---------------------------------------------- ------------------ --------------------- ---------------------
---------------------------------------------- ------------------ --------------------- ---------------------
FUNERAL HOME REGIONAL OPERATIONS
---------------------------------------------- ------------------ --------------------- ---------------------
RVPs 40% 80% Annual
---------------------------------------------- ------------------ --------------------- ---------------------
VPs 30% 60% Semi-Annual
---------------------------------------------- ------------------ --------------------- ---------------------
Controllers 20% 40% Semi-Annual
---------------------------------------------- ------------------ --------------------- ---------------------
Regional Managers 20% 40% Quarterly
---------------------------------------------- ------------------ --------------------- ---------------------
---------------------------------------------- ------------------ --------------------- ---------------------
FUNERAL HOME LOCATIONS
---------------------------------------------- ------------------ --------------------- ---------------------
Location Managers 5% 15% Semi-Annual
---------------------------------------------- ------------------ --------------------- ---------------------
Primary Arrangers 3% 10% Semi-Annual
---------------------------------------------- ------------------ --------------------- ---------------------
Other FH Employees 3% 7% Semi-Annual
---------------------------------------------- ------------------ --------------------- ---------------------
</TABLE>
9
<PAGE>
EXHIBIT A
PAGE 2 OF 2
DESIGNATED EMPLOYEE GROUPS, TARGET AND MAXIMUM AWARD PERCENTAGES AND
FREQUENCY OF AWARDS
<TABLE>
<CAPTION>
------------------------------------------------ ---------------- --------------------- ---------------------
DESIGNATED EMPLOYEE GROUPS FOR PLAN YEARS TARGET AWARD MAXIMUM AWARD
ENDING AFTER DECEMBER 31, 1999 PERCENTAGE PERCENTAGE FREQUENCY OF AWARDS
------------------------------------------------ ---------------- --------------------- ---------------------
<S> <C> <C> <C>
------------------------------------------------ ---------------- --------------------- ---------------------
OPERATIONS COUNTRY MANAGEMENT
------------------------------------------------ ---------------- --------------------- ---------------------
Country Executives 50% 100% Annual
------------------------------------------------ ---------------- --------------------- ---------------------
VPs 40% 80% Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Group Controller 30% 60% Annual
------------------------------------------------ ---------------- --------------------- ---------------------
------------------------------------------------ ---------------- --------------------- ---------------------
CEMETERY REGIONAL OPERATIONS
------------------------------------------------ ---------------- --------------------- ---------------------
RVPs 40% 80% Annual
------------------------------------------------ ---------------- --------------------- ---------------------
VPs 30% 60% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Controllers 20% 40% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Regional Managers - Cemetery 20% 40% Quarterly
------------------------------------------------ ---------------- --------------------- ---------------------
Regional Managers - Adv. Plnng 20% 40% Quarterly
------------------------------------------------ ---------------- --------------------- ---------------------
------------------------------------------------ ---------------- --------------------- ---------------------
FUNERAL HOME REGIONAL OPERATIONS
------------------------------------------------ ---------------- --------------------- ---------------------
RVPs 40% 80% Annual
------------------------------------------------ ---------------- --------------------- ---------------------
VPs 30% 60% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Controllers 20% 40% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Regional Managers 20% 40% Quarterly
------------------------------------------------ ---------------- --------------------- ---------------------
------------------------------------------------ ---------------- --------------------- ---------------------
FUNERAL HOME LOCATIONS
------------------------------------------------ ---------------- --------------------- ---------------------
Location Managers 5% 15% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Primary Arrangers 3% 10% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
Other FH Employees 3% 7% Semi-Annual
------------------------------------------------ ---------------- --------------------- ---------------------
</TABLE>
10
<PAGE>
EXHIBIT B
PARTICIPATING EMPLOYERS
11
<PAGE>
THE LOEWEN GROUP INC. BASIC EMPLOYEE SEVERANCE PLAN
1. PURPOSE.
The purpose of The Loewen Group Inc. Basic Employee Severance Plan (the
"Plan") is to provide severance protection to certain employees
designed to counteract the financial uncertainty created by the pending
insolvency proceedings involving the Company. The Plan will apply to
terminations of employment on or after the Effective Date with respect
to each Eligible Employee and on or before the first anniversary of the
Confirmation Date.
2. DEFINITIONS.
As used throughout the Plan, the following words and phrases shall have
the following meanings, unless otherwise clearly or necessarily
indicated by context:
(a) BOARD. "Board" means the Board of Directors of the Company.
(b) CASH SEVERANCE BENEFIT. "Cash Severance Benefit" means the
severance benefit described in Section 6(a) of the Plan.
(c) CAUSE. "Cause" means (i) neglect of duty, dishonesty or
misconduct in matters involving the Employer or the
performance of services for the Employer, (ii) loss of
qualification of licensure, (iii) stealing or unlawful use of
Employer property or monies, (iv) continued willful
insubordination after reasonable warning or reprimand, (v)
commission of a felony or any crime requiring intent or moral
turpitude, (vi) a violation of the Employer's anti-harassment
or drug use policies or (vii) actively and intentionally
pursuing interests of a competitor to the detriment of the
financial interests of the Employer.
(d) CHANGE IN CONTROL. "Change in Control" means any one of the
following events:
(i) any "Person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Company (not including any
securities acquired directly from the Company or its
affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding voting
securities;
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on the Confirmation Date,
constitute the Board and any new director (other than
a director whose initial assumption of office is in
connection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of directors
of the Company) whose
<PAGE>
appointment or election by the Board or nomination
for election by the Company's shareholders was
approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in
office who either were directors on the
Confirmation Date or whose appointment, election
or nomination for election was previously so
approved or recommended;
(iii) there is consummated a merger, consolidation or
amalgamation of the Company or any direct or indirect
subsidiary of the Company with any other corporation,
other than (A) a merger, consolidation or
amalgamation that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving or parent entity)
more than 33_% of the combined voting power of the
voting securities of the Company or such surviving or
parent entity outstanding immediately after such
merger, consolidation or amalgamation or (B) a
merger, consolidation or amalgamation effected to
implement a recapitalization of the Company (or
similar transaction) in which no Person (as defined
above), directly or indirectly, acquired 25% or more
of the combined voting power of the Company's then
outstanding securities (not including any securities
acquired directly from the Company or its
affiliates);
(iv) the sale to a purchaser unaffiliated with the Company
of all or substantially all of the assets of the
Company; or (v) consummation of a plan or plans of
reorganization, compromise or arrangement in
connection with the insolvency proceedings pending at
the date hereof; or
(v) consummation of a plan or plans of reorganization,
compromise or arrangement in connection with the
insolvency proceedings pending at the date hereof.
(e) COMMITTEE. "Committee" means the Compensation Committee of the
Board or such other committee of the Board authorized by the
Board to administer the Plan.
(f) COMPANY. "Company" means The Loewen Group Inc.
(g) CONFIRMATION DATE. "Confirmation Date" means the first to
occur of a Change in Control or the effective date of the plan
or plans of reorganization, compromise or arrangement
confirmed in the insolvency proceedings pending as the date
hereof.
(h) EFFECTIVE DATE. "Effective Date" means the date on which an
individual Eligible Employee executes a Release Agreement.
(i) ELIGIBLE EMPLOYEE. "Eligible Employee" means all full-time
Canadian employees of any Employer who have positions with an
Employer below the level of funeral home or cemetery manager.
2
<PAGE>
(j) EMPLOYER. "Employer" means each of the Company and those of
its divisions, subsidiaries and operating units, as are set
forth on Exhibit A, as such Exhibit may be amended from time
to time.
(k) PAY. "Pay" means (i) in the case of a salaried employee, his
or her annualized base salary divided by 52, or (ii) in the
case of an hourly employee, his or her hourly straight-time
rate of base salary multiplied by 40. Pay shall be determined
at the time of termination of employment without reduction for
any salary or wage reduction contributions made to an
Employer-sponsored plan, and shall exclude commissions,
overtime pay, bonuses and any other remuneration.
(l) QUIT. "Quit" means a termination of the employment
relationship initiated by, and voluntary on the part of, the
Eligible Employee.
(m) RELEASE AGREEMENT. "Release Agreement" means an agreement, in
a form that is acceptable to the Employer, under which the
Eligible Employee, among other things, releases and waives any
rights, claims or entitlements that he or she may have at law
or under existing employment or consulting agreements or
company programs.
3. COVERAGE PERIOD.
The Plan is effective as of the Effective Date with respect to Eligible
Employees whose employment is terminated by the Employer on or after
the Effective Date and on or prior to the first anniversary of the
Confirmation Date.
4. ELIGIBLE EMPLOYEES.
(a) An employee is eligible to receive severance benefits under
this Plan if he or she:
(i) is an Eligible Employee;
(ii) is not a temporary employee;
(iii) is not covered by a collective bargaining agreement
between the Employer and a labor organization unless
such agreement expressly provides for coverage under
the Plan;
(iv) is not a consultant or an independent contractor; and
(v) executes a Release Agreement.
(b) All benefits under this Plan shall be provided in
consideration for, and conditioned upon, execution of (i) the
Release Agreement and (ii) a release by the Eligible Employee
of all current or future claims, known or unknown, arising on
or before the date of the release against the Employer and its
officers substantially in the form attached hereto as Exhibit
B. No
3
<PAGE>
severance benefits shall be payable under this Plan unless
the employee has returned to the Employer all property of
the Employer and any information of a proprietary nature in
his or her possession.
5. COVERED TERMINATION.
Severance benefits will be payable to an Eligible Employee upon his or
her involuntary termination of employment by an Employer, except that
in no event shall severance benefits be payable:
(a) if the Eligible Employee is discharged for Cause, or Quits or
otherwise voluntarily terminates his or her employment;
(b) upon the death of the Eligible Employee during active
employment;
(c) upon the total and permanent disability of the Eligible
Employee;
(d) if the Eligible Employee's termination is due to the Eligible
Employee's failure to timely return to work upon expiration of
an authorized leave of absence;
(e) if the Eligible Employee's termination is due to his or her
refusal to transfer from one Employer to another Employer or
to another location of the Employer for a reasonably
comparable position; provided, however, that an Eligible
Employee whose employment is terminated as a result of his or
her reasonable refusal to transfer to an affiliate or another
Employer location for a reasonably comparable position that is
more than 100 miles from his or her current work location
shall not be ineligible for severance benefits hereunder by
reason of such refusal; or
(f) if a Change in Control of the Company occurs and the Eligible
Employee is offered employment with the successor entity, or
if the Company sells or otherwise disposes of the Employer at
which the Eligible Employee works and is offered employment
with the acquirer or an entity related to the acquirer;
provided that an Eligible Employee whose employment is
terminated as a result of his or her reasonable rejection of
an offer of employment at a location that is (i)(A) more than
100 miles from his or her current work location or (B) for
Canadian employees and corporate employees, in a country which
is different from the country of his or her current work
location and/or (ii) at Pay less than his or her salary with
his or her Employer (in the case of all Eligible Employees)
shall not be ineligible for severance benefits hereunder by
reason of such refusal.
6. SEVERANCE BENEFIT.
(a) CASH BENEFITS. The Cash Severance Benefit payable to an
Eligible Employee who is entitled to a severance benefit under
the terms hereof shall be the amount set forth below or the
amount otherwise required by
4
<PAGE>
statute to be paid to an Eligible Employee in the event of
termination, whichever is greater:
<TABLE>
<CAPTION>
-------------------------------------- ---------------------- --------------------- ----------------------
LESS THAN 2 2-9 YEARS OF 10 YEARS OR
YEARS OF SERVICE MORE OF
SERVICE SERVICE
<S> <C> <C> <C>
-------------------------------------- ---------------------- --------------------- ----------------------
EMPLOYEES AT OR OVER $60,000 (CDN) 6 weeks Pay 12 weeks Pay 15 weeks Pay
ANNUAL PAY
-------------------------------------- ---------------------- --------------------- ----------------------
EMPLOYEES UNDER $60,000 (CDN) ANNUAL 4 weeks Pay 8 weeks Pay 12 weeks Pay
PAY
-------------------------------------- ---------------------- --------------------- ----------------------
</TABLE>
(b) VACATION. Eligible Employees who are entitled to a Cash
Severance Benefit shall be entitled to payment of any unused
accrued vacation time. Payment for such unused vacation shall
be paid in periodic installments corresponding to the
employee's normal payroll period as soon as practicable after
the date of termination.
(c) OTHER BENEFITS. Eligible Employees who are entitled to a Cash
Severance Benefit shall also be entitled to continued
participation in such medical, dental and term life insurance
benefit plans of the Employer as permit coverage of former
employees at the contribution level in effect for active
employees during the period of severance payments, or until
subsequently employed by another employer and eligible to
receive medical, dental and term life insurance benefits, if
sooner, in each case, subject to and in accordance with the
terms of the applicable plans.
(d) FORFEITURE OF BENEFITS. The Company reserves the right in its
sole and absolute discretion to cancel all benefits under this
Plan in the event an Eligible Employee engages in any activity
that the Employer considers detrimental to its interests as
determined by the Committee. Activities that the Employer
considers detrimental to its interests include, but are not
limited to:
(i) any effort on the part of the Eligible Employee to
recruit or solicit employees of the Employer for
employment with another company;
(ii) breach of any confidentiality and/or noncompetition
covenants to which the Eligible Employee may be
subject (through an employment agreement or
otherwise);
(iii) making materially false or misleading statements
about the Employer, the Company or any affiliate
thereof or the services, officers or employees of any
thereof;
(iv) holding himself or herself out as an active employee
of the Employer; or
5
<PAGE>
(v) breaching any of the terms of the Release Agreement
or the termination release described in Exhibit B.
7. FORM AND TIMING OF SEVERANCE PAYMENTS.
Severance benefits shall be paid in periodic installments corresponding
to the Eligible Employee's normal payroll period commencing as soon as
practicable after the employee's termination of employment and
utilization of all accrued, unused vacation. Payment shall cease in the
event an Eligible Employee (a) accepts full-time employment, or any
other employment with another Employer, (b) is rehired by his or her
Employer or (c) is offered employment by any Employer at a location
that is not more than 50 miles from the location at which he or she
last worked at while employed. If the Eligible Employee dies before the
end of the installment period, the balance of payments will be paid to
the Eligible Employee's estate.
8. BREACH.
In the event that an otherwise Eligible Employee breaches any of his or
her obligations under the Plan or any other documents or instruments
executed herewith (including, without limitation, the Release
Agreement), the Company shall have the right to demand the repayment of
all or a portion of any amounts paid to the Eligible Employee under the
Plan and, in addition, (a) the Company shall have no further obligation
to that Eligible Employee pursuant to the Plan and (b) that Eligible
Employee shall pay any expenses or damages incurred by the Company or
the applicable Employer as a result of said breach, including all costs
incurred by the Company or the applicable Employer, including
reasonable attorneys' fees, in defending against any claims related to
or arising from said breach.
9. ADMINISTRATION.
(a) PLAN ADMINISTRATION. The Committee shall administer the Plan.
The Committee shall keep or cause to be kept such records and
shall prepare or cause to be prepared such returns or reports
as may be required by law or necessary for the proper
administration of the Plan.
(b) POWERS AND DUTIES OF COMMITTEE. The Committee shall have the
full discretionary power and authority to construe and
interpret the Plan (including, without limitation, supplying
omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan);
to determine all questions of fact arising under the Plan,
including questions as to eligibility for and the amount of
benefits; to establish such rules and regulations (consistent
with the terms of the Plan) as it deems necessary or
appropriate for administration of the Plan; to delegate
responsibilities to others to assist it in administering the
Plan; and to perform all other acts it believes reasonable and
proper in connection with the administration of the Plan. The
Committee shall be entitled to rely on the records of the
Employer in determining any Eligible Employee's entitlement to
and the amount of benefits payable under the Plan.
6
<PAGE>
(c) PLAN YEAR. The plan year shall be the calendar year.
(d) INDEMNIFICATION. Neither the Employers, the Board, the
Committee, nor any member of the Board or Committee, nor any
officer or employee of any Employer shall be personally liable
for any action, determination, or interpretation taken or made
in good faith with respect to the Plan. Any action taken or
omitted to be taken by any such person in good faith reliance
on the advice of any accountant, attorney or other advisor
retained by the Committee or the Employer shall be
conclusively presumed not to involve gross negligence or
willful misconduct. The members of the Board and the Committee
and the officers and employees of any Employer shall be
indemnified by the applicable Employer with respect to any
such liability to the fullest extent permitted by applicable
laws, rules and regulations.
10. CLAIMS AND APPEALS PROCEDURES.
(a) Any request or claim for Plan benefits must be made in writing
and shall be deemed to be filed by an Eligible Employee when a
written request is made by the claimant or the claimant's
authorized representative which is reasonably calculated to
bring the claim to the attention of the Committee.
(b) The Committee shall provide notice in writing to any Eligible
Employee when a claim for benefits under the Plan has been
denied in whole or in part. Such notice shall be provided
within 30 days of the receipt by the Committee of the Eligible
Employee's claim or, if special circumstances require, and the
Eligible Employee is so notified in writing, within 60 days of
the receipt by the Committee of the Eligible Employee's claim.
The notice shall be written in a manner calculated to be
understood by the claimant and shall:
(i) set forth the specific reasons for the denial of
benefits;
(ii) contain specific references to Plan provisions
relative to the denial;
(iii) describe any material and information, if any,
necessary for the claim for benefits to be allowed,
that had been requested, but not received by the
Committee; and
(iv) advise the Eligible Employee that any appeal of the
Committee's adverse determination must be made in
writing to the Committee within 60 days after receipt
of the initial denial notification, and must set
forth facts upon which the appeal is based.
(c) If notice of the denial of a claim is not furnished within the
time periods set forth above, the claim shall be deemed denied
and the claimant shall be permitted to proceed to the review
procedures set forth below. If the Eligible Employee fails to
appeal the Committee's denial of benefits in
7
<PAGE>
writing and within 60 days after receipt by the claimant of
written notification of denial of the claim (or within 60
days after a deemed denial of the claim), the Committee's
determination shall become final and conclusive.
(d) If the Eligible Employee appeals the Committee's denial of
benefits within the established time frame, the Committee
shall re-examine all issues relevant to the original denial of
benefits. Any such claimant, or his or her duly authorized
representative may review any pertinent documents, as
determined by the Committee, and submit in writing any issues
or comments to be addressed on appeal.
(e) The Committee shall advise the Eligible Employee and such
individual's representative of its decision which shall be
written in a manner calculated to be understood by the
claimant, and include specific references to the pertinent
Plan provisions on which the decision is based. Such response
shall be made within 30 days of receipt of the written appeal,
unless special circumstances require an extension of such 30
day period for not more than an additional 30 days. Where such
extension is necessary, the claimant shall be given written
notice of the delay. If the decision on review is not
furnished within the time set forth above, the claim shall be
deemed denied on review.
(f) Any dispute, controversy or claim arising out of or relating
to any Plan benefit, including, without limitation, any
dispute, controversy or claim as to whether the decision of
the Committee respecting the benefits under this Plan or
interpretation of this Plan is arbitrary and capricious, that
is not settled in accordance with the procedures outlined in
this Section, shall be settled by final and binding
arbitration in accordance with the American Arbitration
Association Employment Dispute Resolution or the Rules of the
Arbitration and Mediation Institute of Canada, as appropriate.
Before resorting to arbitration, an aggrieved Eligible
Employee must first follow the review procedure outlined in
this Section of the Plan. If there is still a dispute after
the procedures in this Section have been exhausted, the
Eligible Employee must request arbitration in writing within
the limitations period set by applicable state, provincial or
federal law.
The arbitrator shall be selected by mutual agreement of the
parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA") or the Arbitration and Mediation
Institute of Canada ("AMI"), as applicable. The selection
process shall be that which is set forth in the AAA Employment
Dispute Resolution Rules or similar process of the AMI, except
that, if the parties fail to select an arbitrator from one or
more panels, neither AAA nor AMI shall have the power to
8
<PAGE>
make an appointment but shall continue to submit additional
panels until an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be shared by the parties
equally. The arbitrator shall have no power to amend, add to
or subtract from this Plan. The award shall be admissible in
any court or agency action seeking to enforce or render
unenforceable this Plan or any portion thereof. Any action to
enforce or vacate the arbitrator's award shall be governed by
the Federal Arbitration Act if applicable or such other
legislation as may be applicable in the jurisdiction where the
Eligible Employee ordinarily is a resident.
11. UNFUNDED OBLIGATION.
All benefits payable under this Plan shall constitute an unfunded
obligation of the Employer. Payments shall be made, as due, from the
general funds of the Employer of the Eligible Employee. This Plan shall
constitute solely an unsecured promise by each Employer to pay
severance benefits to employees to the extent provided herein.
12. INALIENABILITY OF BENEFITS.
No Eligible Employee shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber any rights or any amounts
payable under this Plan; nor shall any such rights or amounts payable
under this Plan be subject to seizure, attachment, execution,
garnishment or other legal or equitable process, or for the payment of
any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition
shall be null and void.
13. WITHHOLDING.
The Employer shall have the right to withhold from any amounts payable
under this Plan such federal, state, provincial and local taxes or any
other amounts that may be required by law to be withheld.
14. AMENDMENT OR TERMINATION.
The Company reserves the right to amend or terminate the Plan at any
time without prior notice to or the consent of an employee. However, no
amendment or termination shall adversely affect the rights of any
Eligible Employee whose employment terminates prior to such amendment
or termination. In addition, the Plan may not be amended so as to
reduce the benefits payable, or terminated, prior to the first
anniversary of the Confirmation Date. However, any employee whose
employment continues after amendment of the Plan shall be governed by
the terms of the Plan as so amended. Any employee whose employment
continues after termination of the Plan shall have no right to a
benefit under the Plan.
9
<PAGE>
15. PLAN NOT A CONTRACT OF EMPLOYMENT; EMPLOYER'S POLICIES CONTROL.
Nothing contained in this Plan shall give an Eligible Employee the
right to be retained in the employment of an Employer. This Plan is not
a contract of employment between the Employer and any Eligible
Employee.
Any dispute involving issues of employment other than claims for
benefits under this Plan shall be governed by the appropriate
employment dispute resolution policies and procedures of the Employer.
16. ACTION BY AN EMPLOYER.
Unless expressly indicated to the contrary herein, any action required
to be taken by the Employer may be taken by action of its board of
directors or by any appropriate officer or officers traditionally
responsible for such determination or actions, or such other individual
or individuals as may be designated by the board of directors or any
such officer.
17. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Eligible Employee ordinarily is a
resident.
18. SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be construed and enforced as if
said illegal or invalid provision had never been included herein.
19. SUCCESSORS.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume and agree
expressly to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted on
the _____ day of October, 1999.
THE LOEWEN GROUP INC.
By:______________________
10
<PAGE>
EXHIBIT A
PARTICIPATING EMPLOYERS
<PAGE>
EXHIBIT B
FORM OF TERMINATION RELEASE
In consideration of the payments to me under The Loewen Group
Inc. Basic Employee Severance Plan (the "Plan"), I do hereby waive and do hereby
unconditionally release, knowingly and willingly, The Loewen Group Inc. and its
subsidiaries, affiliates, successors, predecessors, employees, agents, directors
and officers, past and present, stockholders and estates (the "Company") from
any and all claims of any nature whatsoever I have arising out of my employment
and/or the termination of my employment with the Company or any of its
subsidiaries or affiliates, including, but not limited to the following: any
claims that I have for wrongful dismissal or breach of contract or claims
arising under or in connection with the EMPLOYMENT STANDARDS ACT or any amended
or successor legislation, any claims under human rights legislation or claims
for mental or physical disability or sickness or for insurance benefits and
including all loss or damage not now known or anticipated but which may arise in
the future.
In exchange for the said consideration, I agree that I will
not make any claim or take any proceeding in respect of any matter covered by
this release against any other person who or corporation which might claim
contribution or indemnity from the Company.
I hereby undertake and agree to indemnify the Company from and
against all claim or demands arising under the INCOME TAX ACT (CANADA) for or in
respect of withholding taxes which may arise from payments to me under the Plan
and any interest or penalties relating thereto and any reasonable costs or
expenses incurred in defending such claims or demands.
This Release shall in all respects be interpreted, enforced
and governed under the laws of the Province of [INSERT PROVINCE]. The language
of all parts of this Release shall in all cases be construed as a whole,
according to its fair meaning, and not strictly for or against any of the
parties.
I have had the opportunity to seek independent legal advice
and execute this Release freely, voluntarily and not under any duress.
The terms of this Release shall be considered separate from
each other, and if any shall be found to be invalid, it shall not affect the
validity of the remaining terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
I have executed and delivered this Release on the date set forth below.
Date:_________________________________ __________________________________
Name of Employee
<PAGE>
THE LOEWEN GROUP INC. EXECUTIVE AND
OTHER SPECIFIED EMPLOYEE SEVERANCE PLAN
1. PURPOSE.
The purpose of The Loewen Group Inc. Executive and Other Specified
Employee Severance Plan (the "Plan") is to provide severance protection
to certain employees designed to counteract the financial uncertainty
created by the pending insolvency proceedings involving the Company.
The Plan will apply to terminations of employment on or after the
Effective Date with respect to each Eligible Employee and on or before
the first anniversary of the Confirmation Date.
2. DEFINITIONS.
As used throughout the Plan, the following words and phrases shall have
the following meanings, unless otherwise clearly or necessarily
indicated by context:
(a) BOARD. "Board" means the Board of Directors of the Company.
(b) CASH SEVERANCE BENEFIT. "Cash Severance Benefit" means the
severance benefit described in Section 6(a) of the Plan.
(c) CAUSE. "Cause" means (i) neglect of duty, dishonesty or
misconduct in matters involving the Employer or the
performance of services for the Employer, (ii) loss of
qualification of licensure, (iii) stealing or unlawful use of
Employer property or monies, (iv) continued willful
insubordination after reasonable warning or reprimand, (v)
commission of a felony or any crime requiring intent or moral
turpitude, (vi) a violation of the Employer's anti-harassment
and/or drug use policies or (vii) actively and intentionally
pursuing interests of a competitor to the detriment of the
financial interests of the Employer.
(d) CHANGE IN CONTROL. "Change in Control" means any one of the
following events:
(i) any "Person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Company (not including any
securities acquired directly from the Company or its
affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding voting
securities;
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on the Confirmation Date,
constitute the Board and any new director (other than
a director whose initial assumption of office is in
connection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of directors
of the Company) whose
<PAGE>
appointment or election by the
Board or nomination for election by the Company's
shareholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still
in office who either were directors on the
Confirmation Date or whose appointment, election or
nomination for election was previously so approved or
recommended;
(iii) there is consummated a merger, consolidation or
amalgamation of the Company or any direct or indirect
subsidiary of the Company with any other corporation,
other than (A) a merger, consolidation or
amalgamation that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving or parent entity)
more than 33_% of the combined voting power of the
voting securities of the Company or such surviving or
parent entity outstanding immediately after such
merger, consolidation or amalgamation or (B) a
merger, consolidation or amalgamation effected to
implement a recapitalization of the Company (or
similar transaction) in which no Person (as defined
above), directly or indirectly, acquired 25% or more
of the combined voting power of the Company's then
outstanding securities (not including any securities
acquired directly from the Company or its
affiliates);
(iv) the sale to a purchaser unaffiliated with the Company
of all or substantially all of the assets of the
Company; or
(v) consummation of a plan or plans of reorganization,
compromise or arrangement in connection with the
insolvency proceedings pending at the date hereof.
(e) COMMITTEE. "Committee" means the Compensation Committee of the
Board or such other committee of the Board authorized by the
Board to administer the Plan.
(f) COMPANY. "Company" means The Loewen Group Inc.
(g) CONFIRMATION DATE. "Confirmation Date" means the first to
occur of a Change in Control or the effective date of the plan
or plans of reorganization, compromise or arrangement
confirmed in the insolvency proceedings pending as the date
hereof.
(h) EFFECTIVE DATE. "Effective Date" means the date on which an
individual Eligible Employee executes a Release Agreement.
(i) ELIGIBLE EMPLOYEE. "Eligible Employee" means Executives,
Managers and Employees.
(j) EMPLOYEE. "Employee" means any full-time employee of any
Employer who is not (i) an Executive or a Manager or (ii)
subject to The Loewen Group Inc. Basic Employee Severance
Plan.
2
<PAGE>
(k) EMPLOYER. "Employer" means each of the Company and those of
its divisions, subsidiaries and operating units, as are set
forth on Exhibit A, as such Exhibit may be amended from time
to time.
(l) ERISA. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, together with
applicable final regulations thereunder.
(m) EXECUTIVE. "Executive" means any full-time employee of any
Employer holding a position with that Employer at the
Director/Controller or Regional Manager level or above.
(n) MANAGER. "Manager" means any full-time employee of any
Employer holding a position with that Employer at the funeral
home or cemetery manager level.
(o) PAY. "Pay" means (i) in the case of a salaried employee, his
or her annualized base salary divided by 52, or (ii) in the
case of an hourly employee, his or her hourly straight-time
rate of base salary multiplied by 40. Pay shall be determined
at the time of termination of employment without reduction for
any salary or wage reduction contributions made to an
Employer-sponsored plan, and shall exclude commissions,
overtime pay, bonuses and any other remuneration.
(p) QUIT. "Quit" means a termination of the employment
relationship initiated by, and voluntary on the part of, the
Eligible Employee.
(q) RELEASE AGREEMENT. "Release Agreement" means an agreement, in
a form that is acceptable to the Employer, under which the
Eligible Employee, among other things, releases and waives any
rights, claims or entitlements that he or she may have at law
or under existing employment or consulting agreements or
company programs.
3. COVERAGE PERIOD.
The Plan is effective as of the Effective Date with respect to Eligible
Employees whose employment is terminated by the Employer on or after
the Effective Date and on or prior to the first anniversary of the
Confirmation Date.
4. ELIGIBLE EMPLOYEES.
(a) An employee is eligible to receive severance benefits under
this Plan if he or she:
(i) is an Eligible Employee;
(ii) is not a temporary employee;
(iii) is not covered by a collective bargaining agreement
between the Employer and a labor organization unless
such agreement expressly provides for coverage under
the Plan;
3
<PAGE>
(iv) is not, with respect to any individual below the
level of Vice President, a consultant or an
independent contractor; and
(v) executes a Release Agreement.
(b) All benefits under this Plan shall be provided in
consideration for, and conditioned upon, execution of (i) the
Release Agreement and (ii) a release by the Eligible Employee
of all current or future claims, known or unknown, arising on
or before the date of the release against the Employer and its
officers substantially in the form attached hereto as Exhibit
B. As part of this termination release, Executives also must
agree to notify the Company promptly of any new employment,
the material terms of such employment (including the terms of
compensation) and certain other information. No severance
benefits shall be payable under this Plan unless the employee
has returned to the Employer all property of the Employer and
any information of a proprietary nature in his or her
possession.
5. COVERED TERMINATION.
Severance benefits will be payable to an Eligible Employee upon his or
her involuntary termination of employment by an Employer, except that
in NO event shall severance benefits be payable:
(a) if the Eligible Employee is discharged for Cause, or Quits or
otherwise voluntarily terminates his or her employment;
(b) upon the death of the Eligible Employee during active
employment;
(c) upon the total and permanent disability of the Eligible
Employee;
(d) if the Eligible Employee's termination is due to the Eligible
Employee's failure to timely return to work upon expiration of
an authorized leave of absence;
(e) if the Eligible Employee's termination is due to his or her
refusal to transfer from one Employer to another Employer or
to another location of the Employer for a reasonably
comparable position; provided, however, (i) that an Eligible
Employee, other than a corporate employee holding the position
of Vice President level or above, whose employment is
terminated as a result of his or her refusal to transfer to an
affiliate or another Employer location for a reasonably
comparable position that is more than (A) 500 miles from his
or her current work location (for Eligible Employees who are
regional managers or above) or (B) 100 miles from his or her
current work location (for Eligible Employees below the level
of regional manager), shall not be ineligible for severance
benefits hereunder by reason of such refusal and (ii) that an
Eligible Employee who is a corporate employee holding the
position of Vice President level or above, whose employment is
terminated as a result of his or her refusal to transfer to an
affiliate or another Employer location for a reasonably
comparable position that is more than 100 miles from his or
her current work location, shall be eligible to receive a
4
<PAGE>
severance benefit in an amount equal to 25% of the Cash
Severance Benefit for such Eligible Employee; or
(f) if a change in Control of the Company occurs and the Eligible
Employee is offered employment with the successor entity, or
if the Company sells or otherwise disposes of the Employer at
which the Eligible Employee works and the Eligible Employee is
offered employment with the acquirer or an entity related to
the acquirer; provided, however, that an Eligible Employee
whose employment is terminated as a result of his or her
rejection of an offer of employment at a location that is
(i)(A) more than 100 miles from his or her current work
location or (B) for Canadian employees and corporate
employees, in a country which is different from the country of
his or her current work location and/or (ii) at Pay less than
his or her salary with his or her Employer shall not be
ineligible for severance benefits hereunder by reason of such
refusal.
Notwithstanding the foregoing, Section 5(f) hereof shall not
apply to an Eligible Employee who is a corporate employee
holding the position of Vice President level or above
following a Change in Control described in Section 2(d)(v)
hereof. In such event, if such Eligible Employee's employment
is terminated as a result of his or her refusal to transfer to
an affiliate or another Employer location for a reasonably
comparable position that is more than 100 miles from his or
her current work location, such Eligible Employee shall be
eligible to receive only a severance benefit in an amount
equal to 25% of the Cash Severance Benefit for such Eligible
Employee.
6. SEVERANCE BENEFIT.
(a) CASH BENEFITS. The Cash Severance Benefit payable to an
Eligible Employee who is entitled to a severance benefit under
the terms hereof shall be the amount set forth below or the
amount otherwise required by statute to be paid to an Eligible
Employee in the event of termination, whichever is greater:
<TABLE>
<CAPTION>
--------------------------------------------------------------- -------------------------------------------
LEVEL OF ELIGIBLE EMPLOYEE CASH SEVERANCE BENEFIT
--------------------------------------------------------------- -------------------------------------------
<S> <C>
Executives holding positions on the Senior Management Team, 2 years of Pay
as identified on Exhibit C
--------------------------------------------------------------- -------------------------------------------
Executives holding positions at the Vice President level and 12 months of Pay
above
--------------------------------------------------------------- -------------------------------------------
Executives holding positions at the Director/Controller or 6 months of Pay
Regional Manager level
--------------------------------------------------------------- -------------------------------------------
Canadian Managers with 10 years or more of service and at or 15 weeks
of Pay over $60,000 (CDN) annual Pay
--------------------------------------------------------------- -------------------------------------------
Managers 3 months of Pay
--------------------------------------------------------------- -------------------------------------------
Employees An amount determined in the discretion of
the Compensation Committee, but no more
than 4 weeks of Pay
--------------------------------------------------------------- -------------------------------------------
</TABLE>
5
<PAGE>
(b) VACATION. Eligible Employees who are entitled to a Cash
Severance Benefit shall be entitled to payment of any unused
accrued vacation time. Payment for such unused vacation shall
be paid in periodic installments corresponding to the
employee's normal payroll period as soon as practicable after
the date of termination.
(c) OTHER BENEFITS. Eligible Employees who are entitled to a Cash
Severance Benefit shall also be entitled to continued
participation in such medical, dental and term life insurance
benefit plans of the Employer as permit coverage of former
employees at the contribution level in effect for active
employees during the period of severance payments, or until
subsequently employed by another employer and eligible to
receive medical, dental and term life insurance benefits, if
sooner, in each case, subject to and in accordance with the
terms of the applicable plans.
(d) MITIGATION OF SEVERANCE BENEFITS. Notwithstanding anything in
this Plan to the contrary, a portion of an Executive's Cash
Severance Benefit (treating any Cash Severance Benefit paid to
a corporation owned and controlled by an Executive as Cash
Severance Benefits paid to the Executive) will be subject to
mitigation, I.E., dollar-for-dollar reduction, on account of
compensation received by the Executive (or a corporation owned
and controlled by the Executive) in any new employment, as
follows:
(i) If the Plan provides for six months of Cash Severance
Benefits, the Executive is entitled to receive the
first three months of Cash Severance Benefits without
regard to mitigation, and the remaining three months
is subject to mitigation.
(ii) If the Plan provides for 12 months of Cash Severance
Benefits, the Executive is entitled to receive the
first six months of Cash Severance Benefits without
regard to mitigation, and the remaining six months is
subject to mitigation.
(iii) If the Plan provides for two years of Cash Severance
Benefits, the Executive is entitled to receive the
first nine months of Cash Severance Benefits without
regard to mitigation, and the remaining 15 months is
subject to mitigation.
(e) FORFEITURE OF BENEFITS. The Company reserves the right in its
sole and absolute discretion to cancel all benefits under this
Plan in the event an Eligible Employee engages in any activity
that the Employer, acting reasonably, considers detrimental to
its interests as determined by the Committee. Activities that
the Employer considers detrimental to its interests include,
but are not limited to:
(i) any effort on the part of the Eligible Employee to
recruit or solicit employees of the Employer for
employment with another company;
6
<PAGE>
(ii) breach of any confidentiality and/or noncompetition
covenants to which the Eligible Employee may be
subject (through an employment agreement or
otherwise);
(iii) making materially false or misleading statements
about the Employer, the Company or any affiliate
thereof or the services, officers or employees of any
thereof;
(iv) holding himself or herself out as an active employee
of the Employer; or
(v) breaching any of the terms of the Release Agreement
or the termination release described in Exhibit B.
7. FORM AND TIMING OF SEVERANCE PAYMENTS.
Severance benefits shall be paid in periodic installments corresponding
to the Eligible Employee's normal payroll period commencing as soon as
practicable after the employee's termination of employment and
utilization of all accrued, unused vacation. Payment shall cease in the
event an Eligible Employee (a) accepts full-time employment, or any
other employment with another Employer, (b) is rehired by his or her
Employer or (c) is offered employment by any Employer at a location
that is not more than 50 miles from the location at which he or she
last worked at while employed. If the Eligible Employee dies before the
end of the installment period, the balance of payments will be paid to
the Eligible Employee's estate.
8. BREACH.
In the event that an otherwise Eligible Employee breaches any of his or
her obligations under the Plan or any other documents or instruments
executed herewith (including, without limitation, the Release
Agreement), the Company shall have the right to demand the repayment of
all or a portion of any amounts paid to the Eligible Employee under the
Plan and, in addition, (a) the Company shall have no further obligation
to that Eligible Employee pursuant to the Plan and (b) that Eligible
Employee shall pay any expenses or damages incurred by the Company or
the applicable Employer as a result of said breach, including all costs
incurred by the Company or the applicable Employer, including
reasonable attorneys' fees, in defending against any claims related to
or arising from said breach.
9. ADMINISTRATION.
(a) PLAN ADMINISTRATION. The Committee shall administer the Plan.
The Plan Administrator for purposes of ERISA shall be the
Committee.
The Committee shall keep or cause to be kept such records and
shall prepare or cause to be prepared such returns or reports
as may be required by law or necessary for the proper
administration of the Plan.
7
<PAGE>
(b) POWERS AND DUTIES OF COMMITTEE. The Committee shall have the
full discretionary power and authority to construe and
interpret the Plan (including, without limitation, supplying
omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan);
to determine all questions of fact arising under the Plan,
including questions as to eligibility for and the amount of
benefits; to establish such rules and regulations (consistent
with the terms of the Plan) as it deems necessary or
appropriate for administration of the Plan; to delegate
responsibilities to others to assist it in administering the
Plan; and to perform all other acts it believes reasonable and
proper in connection with the administration of the Plan. The
Committee shall be entitled to rely on the records of the
Employer in determining any Eligible Employee's entitlement to
and the amount of benefits payable under the Plan.
(c) PLAN YEAR. The plan year shall be the calendar year.
(d) INDEMNIFICATION. Neither the Employers, the Board, the
Committee, nor any member of the Board or Committee, nor any
officer or employee of any Employer shall be personally liable
for any action, determination, or interpretation taken or made
in good faith with respect to the Plan. Any action taken or
omitted to be taken by any such person in good faith reliance
on the advice of any accountant, attorney or other advisor
retained by the Committee or the Employer shall be
conclusively presumed not to involve gross negligence or
willful misconduct. The members of the Board and the Committee
and the officers and employees of any Employer shall be
indemnified by the applicable Employer with respect to any
such liability to the fullest extent permitted by applicable
laws, rules and regulations.
10. CLAIMS AND APPEALS PROCEDURES.
(a) Any request or claim for Plan benefits must be made in writing
and shall be deemed to be filed by an Eligible Employee when a
written request is made by the claimant or the claimant's
authorized representative which is reasonably calculated to
bring the claim to the attention of the Committee.
(b) The Committee shall provide notice in writing to any Eligible
Employee when a claim for benefits under the Plan has been
denied in whole or in part. Such notice shall be provided
within 30 days of the receipt by the Committee of the Eligible
Employee's claim or, if special circumstances require, and the
Eligible Employee is so notified in writing, within 60 days of
the receipt by the Committee of the Eligible Employee's claim.
The notice shall be written in a manner calculated to be
understood by the claimant and shall:
(i) set forth the specific reasons for the denial of
benefits;
(ii) contain specific references to Plan provisions
relative to the denial;
8
<PAGE>
(iii) describe any material and information, if any,
necessary for the claim for benefits to be allowed,
that had been requested, but not received by the
Committee; and
(iv) advise the Eligible Employee that any appeal of the
Committee's adverse determination must be made in
writing to the Committee within 60 days after receipt
of the initial denial notification, and must set
forth facts upon which the appeal is based.
(c) If notice of the denial of a claim is not furnished within the
time periods set forth above, the claim shall be deemed denied
and the claimant shall be permitted to proceed to the review
procedures set forth below. If the Eligible Employee fails to
appeal the Committee's denial of benefits in writing and
within 60 days after receipt by the claimant of written
notification of denial of the claim (or within 60 days after a
deemed denial of the claim), the Committee's determination
shall become final and conclusive.
(d) If the Eligible Employee appeals the Committee's denial of
benefits within the established time frame, the Committee
shall re-examine all issues relevant to the original denial of
benefits. Any such claimant, or his or her duly authorized
representative may review any pertinent documents, as
determined by the Committee, and submit in writing any issues
or comments to be addressed on appeal.
(e) The Committee shall advise the Eligible Employee and such
individual's representative of its decision which shall be
written in a manner calculated to be understood by the
claimant, and include specific references to the pertinent
Plan provisions on which the decision is based. Such response
shall be made within 30 days of receipt of the written appeal,
unless special circumstances require an extension of such 30
day period for not more than an additional 30 days. Where such
extension is necessary, the claimant shall be given written
notice of the delay. If the decision on review is not
furnished within the time set forth above, the claim shall be
deemed denied on review.
(f) Any dispute, controversy or claim arising out of or relating
to any Plan benefit, including, without limitation, any
dispute, controversy or claim as to whether the decision of
the Committee respecting the benefits under this Plan or
interpretation of this Plan is arbitrary and capricious, that
is not settled in accordance with the procedures outlined in
this Section, shall be settled by final and binding
arbitration in accordance with the American Arbitration
Association Employment Dispute Resolution or the Rules of the
Arbitration and Mediation Institute of Canada, as appropriate.
Before resorting to arbitration, an aggrieved Eligible
Employee must first follow the review procedure outlined in
this Section of the Plan. If there is still a dispute after
the procedures in this Section have been exhausted, the
Eligible Employee must request arbitration in writing within
the limitations period set by applicable state, provincial or
federal law.
9
<PAGE>
The arbitrator shall be selected by mutual agreement of the
parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA") or the Arbitration and Mediation
Institute of Canada ("AMI"), as applicable. The selection
process shall be that which is set forth in the AAA Employment
Dispute Resolution Rules or similar process of the AMI, except
that, if the parties fail to select an arbitrator from one or
more panels, neither AAA nor AMI shall have the power to make
an appointment but shall continue to submit additional panels
until an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be shared by the parties
equally. The arbitrator shall have no power to amend, add to
or subtract from this Plan. The award shall be admissible in
any court or agency action seeking to enforce or render
unenforceable this Plan or any portion thereof. Any action to
enforce or vacate the arbitrator's award shall be governed by
the Federal Arbitration Act if applicable or such other
legislation as may be applicable in the jurisdiction where the
Eligible Employee ordinarily is a resident.
11. UNFUNDED OBLIGATION.
All benefits payable under this Plan shall constitute an unfunded
obligation of the Employer. Payments shall be made, as due, from the
general funds of the Employer of the Eligible Employee. This Plan shall
constitute solely an unsecured promise by each Employer to pay
severance benefits to employees to the extent provided herein.
12. INALIENABILITY OF BENEFITS.
No Eligible Employee shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber any rights or any amounts
payable under this Plan; nor shall any such rights or amounts payable
under this Plan be subject to seizure, attachment, execution,
garnishment or other legal or equitable process, or for the payment of
any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition
shall be null and void.
13. WITHHOLDING.
The Employer shall have the right to withhold from any amounts payable
under this Plan such federal, state, provincial and local taxes or any
other amounts that may be required by law to be withheld.
10
<PAGE>
14. AMENDMENT OR TERMINATION.
The Company reserves the right to amend or terminate the Plan at any
time without prior notice to or the consent of an employee. However, no
amendment or termination shall adversely affect the rights of any
Eligible Employee whose employment terminates prior to such amendment
or termination. In addition, the Plan may not be amended so as to
reduce benefits payable, or terminated, prior to the first anniversary
of the Confirmation Date. However, any employee whose employment
continues after amendment of the Plan shall be governed by the terms of
the Plan as so amended. Any employee whose employment continues after
termination of the Plan shall have no right to a benefit under the
Plan.
15. PLAN NOT A CONTRACT OF EMPLOYMENT; EMPLOYER'S POLICIES CONTROL.
Nothing contained in this Plan shall give an Eligible Employee the
right to be retained in the employment of an Employer. This Plan is not
a contract of employment between the Employer and any Eligible
Employee.
Any dispute involving issues of employment other than claims for
benefits under this Plan shall be governed by the appropriate
employment dispute resolution policies and procedures of the Employer.
16. ACTION BY AN EMPLOYER.
Unless expressly indicated to the contrary herein, any action required
to be taken by the Employer may be taken by action of its board of
directors or by any appropriate officer or officers traditionally
responsible for such determination or actions, or such other individual
or individuals as may be designated by the board of directors or any
such officer.
17. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Eligible Employee ordinarily is a
resident. With respect to Eligible Employees resident in the United
States, the Plan is an employee welfare benefit plan within the meaning
of Section 3(1) of ERISA, and will be construed in accordance with the
provisions of ERISA and the laws of the jurisdiction in which the
Eligible Employee ordinarily is a resident, to the extent such laws are
not preempted by ERISA.
18. SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be construed and enforced as if
said illegal or invalid provision had never been included herein.
11
<PAGE>
19. SUCCESSORS.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume and agree
expressly to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted on
the _____ day of October, 1999.
THE LOEWEN GROUP INC.
By: _____________________
12
<PAGE>
EXHIBIT A
PARTICIPATING EMPLOYERS
1
<PAGE>
EXHIBIT B-1
FORM OF TERMINATION RELEASE FOR U.S. MANAGERS AND EMPLOYEES
In consideration of the payments to me under The Loewen Group
Inc. Executive Employee Severance Plan (the "Plan"), I do hereby waive and do
hereby unconditionally release, knowingly and willingly, The Loewen Group Inc.
(the "Company") and its subsidiaries, affiliates, successors, predecessors,
employees, agents, directors and officers, past and present, stockholders and
estates (collectively referred to herein as the "Released Parties"), from any
and all claims, liabilities and obligations of any nature pertaining to the
terms of my employment or the termination of my employment other than those
provided for by the Plan or this Release including, without limitation, any
claims arising out of alleged legal restrictions on the Company's right to
terminate its employees, such as any termination contrary to public policy or to
laws prohibiting discrimination, including but not limited to claims of
discrimination on the basis of sex, race, age, national origin, marital status,
religion or handicap, any and all claims of wrongful or unjust discharge and any
and all claims arising from any alleged violation by the Released Parties of any
federal, state, or local statutes, ordinances or common law principles,
including but not limited to the Americans with Disabilities Act, 42 U.S.C.
Section 1 to 101, ET SEQ.; Title VII of the Civil Rights Act of 1964, 42 U.S.C.
Section 2000e, ET SEQ.; the Age Discrimination in Employment Act, 29 U.S.C.
Section 621, ET SEQ. ("ADEA"); and the New York Human Rights Law and all similar
laws of the United States and any State or local jurisdiction including all
amendments to the foregoing statutes and amendments to any of the statutes or
regulations incorporated by reference in or applicable to, any of the foregoing.
With respect to the ADEA, it is specifically recognized that I am not waiving by
this Release any future claims I may have under that Act. For the avoidance of
doubt, this Release does not affect any rights of indemnification that I may
have at law or under the By-laws of the Company or any subsidiary and any rights
under benefit plans, programs or stock option agreements.
I hereby acknowledge that I have carefully read and fully
understand all of the provisions and effects of this Release; that I have been
advised in writing to consult an attorney prior to executing this Release; that
I am voluntarily entering into this Release; and that neither the Company nor
its agents or attorneys have made any representations or promises as to the
terms or effects of this Release other than those contained herein.
I hereby agree that I have been provided this Release on
__________, 1999 and have had the opportunity to review it for twenty-one (21)
days prior to executing it, and that such was a reasonable period of time.
Changes to this Release, whether material or immaterial, do not restart the
running of the twenty-one (21) day period. The Company and I also expressly
agree that my termination is not associated with an exit incentive or other
employment termination program offered to a group or class of employees.
For a period of seven (7) days following the execution of this
Release, I understand that I may revoke this Release. Said revocation must be in
writing and must be delivered in person or by Registered or Certified mail,
postmarked within seven (7) days of execution of this Release, to the Chief
Executive Officer of the Company.
1
<PAGE>
This Release is made in the State of [STATE], and shall in all
respects be interpreted, enforced and governed under the laws of the State of
[STATE], except to the extent preempted by Federal law. The language of all
parts of this Release shall in all cases be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
The terms of this Release shall be considered separate from
each other, and if any shall be found to be invalid, it shall not affect the
validity of the remaining terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
I have executed and delivered this Release on the date set forth below.
- ------------------------------------- -------------------------------------
Date: Name of Employee
2
<PAGE>
EXHIBIT B-2
FORM OF TERMINATION RELEASE FOR U.S. EXECUTIVES
In consideration of the payments to me under The Loewen Group
Inc. Executive Employee Severance Plan (the "Plan"), I do hereby waive and do
hereby unconditionally release, knowingly and willingly, The Loewen Group Inc.
(the "Company") and its subsidiaries, affiliates, successors, predecessors,
employees, agents, directors and officers, past and present, stockholders and
estates (collectively referred to herein as the "Released Parties"), from any
and all claims, liabilities and obligations of any nature pertaining to the
terms of my employment or the termination of my employment other than those
provided for by the Plan or this Release including, without limitation, any
claims arising out of alleged legal restrictions on the Company's right to
terminate its employees, such as any termination contrary to public policy or to
laws prohibiting discrimination, including but not limited to claims of
discrimination on the basis of sex, race, age, national origin, marital status,
religion or handicap, any and all claims of wrongful or unjust discharge and any
and all claims arising from any alleged violation by the Released Parties of any
federal, state, or local statutes, ordinances or common law principles,
including but not limited to the Americans with Disabilities Act, 42 U.S.C.
Section 1 to 101, ET SEQ.; Title VII of the Civil Rights Act of 1964, 42 U.S.C.
Section 2000e, ET SEQ.; the Age Discrimination in Employment Act, 29 U.S.C.
Section 621, ET SEQ. ("ADEA"); and the New York Human Rights Law and all similar
laws of the United States and any State or local jurisdiction including all
amendments to the foregoing statutes and amendments to any of the statutes or
regulations incorporated by reference in or applicable to, any of the foregoing.
With respect to the ADEA, it is specifically recognized that I am not waiving by
this Release any future claims I may have under that Act. For the avoidance of
doubt, this Release does not affect any rights of indemnification that I may
have at law or under the By-laws of the Company or any subsidiary and any rights
under benefit plans, programs or stock option agreements.
In the event I directly or indirectly secure new employment or
self-employment, I hereby undertake and agree to notify the Company promptly in
writing of the material terms of such employment, my date of hire and other
relevant details of such employment.
I hereby acknowledge that I have carefully read and fully
understand all of the provisions and effects of this Release; that I have been
advised in writing to consult an attorney prior to executing this Release; that
I am voluntarily entering into this Release; and that neither the Company nor
its agents or attorneys have made any representations or promises as to the
terms or effects of this Release other than those contained herein.
I hereby agree that I have been provided this Release on
__________, 1999 and have had the opportunity to review it for twenty-one (21)
days prior to executing it, and that such was a reasonable period of time.
Changes to this Release, whether material or immaterial, do not restart the
running of the twenty-one (21) day period. The Company and I also expressly
agree that my termination is not associated with an exit incentive or other
employment termination program offered to a group or class of employees.
1
<PAGE>
For a period of seven (7) days following the execution of this
Release, I understand that I may revoke this Release. Said revocation must be in
writing and must be delivered in person or by Registered or Certified mail,
postmarked within seven (7) days of execution of this Release, to the Chief
Executive Officer of the Company.
This Release is made in the State of [STATE], and shall in all
respects be interpreted, enforced and governed under the laws of the State of
[STATE], except to the extent preempted by Federal law. The language of all
parts of this Release shall in all cases be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
The terms of this Release shall be considered separate from
each other, and if any shall be found to be invalid, it shall not affect the
validity of the remaining terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
I have executed and delivered this Release on the date set forth below.
- ------------------------------ -------------------------------
Date: Name of Employee
2
<PAGE>
EXHIBIT B-3
FORM OF TERMINATION RELEASE FOR CANADIAN MANAGERS AND EMPLOYEES
In consideration of the payments to me under The Loewen Group
Inc. Executive Employee Severance Plan (the "Plan"), I do hereby waive and do
hereby unconditionally release, knowingly and willingly, The Loewen Group Inc.
and its subsidiaries, affiliates, successors, predecessors, employees, agents,
directors and officers, past and present, stockholders and estates (the
"Company") from any and all claims of any nature whatsoever I have arising out
of my employment and/or the termination of my employment with the Company or any
of its subsidiaries or affiliates, including, but not limited to the following:
any claims that I have for wrongful dismissal or breach of contract or claims
arising under or in connection with the EMPLOYMENT STANDARDS ACT or any amended
or successor legislation, any claims under human rights legislation or claims
for mental or physical disability or sickness or for insurance benefits and
including all loss or damage not now known or anticipated but which may arise in
the future.
In exchange for the said consideration, I agree that I will
not make any claim or take any proceeding in respect of any matter covered by
this release against any other person who or corporation which might claim
contribution or indemnity from the Company.
I hereby undertake and agree to indemnify the Company from and
against all claim or demands arising under the INCOME TAX ACT (CANADA) for or in
respect of withholding taxes which may arise from payments to me under the Plan
and any interest or penalties relating thereto and any reasonable costs or
expenses incurred in defending such claims or demands.
This Release shall in all respects be interpreted, enforced
and governed under the laws of the Province of [INSERT PROVINCE]. The language
of all parts of this Release shall in all cases be construed as a whole,
according to its fair meaning, and not strictly for or against any of the
parties.
I have had the opportunity to seek independent legal advice
and execute this Release freely, voluntarily and not under any duress.
The terms of this Release shall be considered separate from
each other, and if any shall be found to be invalid, it shall not affect the
validity of the remaining terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
I have executed and delivered this Release on the date set forth below.
- ------------------------------------- -------------------------------------
Date: Name of Employee
1
<PAGE>
EXHIBIT B-4
FORM OF TERMINATION RELEASE FOR CANADIAN EXECUTIVES
In consideration of the payments to me under The Loewen Group
Inc. Executive Employee Severance Plan (the "Plan"), I do hereby waive and do
hereby unconditionally release, knowingly and willingly, The Loewen Group Inc.
and its subsidiaries, affiliates, successors, predecessors, employees, agents,
directors and officers, past and present, stockholders and estates (the
"Company") from any and all claims of any nature whatsoever I have arising out
of my employment and/or the termination of my employment with the Company or any
of its subsidiaries or affiliates, including, but not limited to the following:
any claims that I have for wrongful dismissal or breach of contract or claims
arising under or in connection with the EMPLOYMENT STANDARDS ACT or any amended
or successor legislation, any claims under human rights legislation or claims
for mental or physical disability or sickness or for insurance benefits and
including all loss or damage not now known or anticipated but which may arise in
the future.
In exchange for the said consideration, I agree that I will
not make any claim or take any proceeding in respect of any matter covered by
this release against any other person who or corporation which might claim
contribution or indemnity from the Company.
I hereby undertake and agree to indemnify the Company from and
against all claim or demands arising under the INCOME TAX ACT (CANADA) for or in
respect of withholding taxes which may arise from payments to me under the Plan
and any interest or penalties relating thereto and any reasonable costs or
expenses incurred in defending such claims or demands.
In the event I directly or indirectly secure new employment or
self-employment, I hereby undertake and agree to notify the Company promptly in
writing of the material terms of such employment, my date of hire and other
relevant details of such employment.
This Release shall in all respects be interpreted, enforced
and governed under the laws of the Province of [INSERT PROVINCE]. The language
of all parts of this Release shall in all cases be construed as a whole,
according to its fair meaning, and not strictly for or against any of the
parties.
I have had the opportunity to seek independent legal advice
and execute this Release freely, voluntarily and not under any duress.
The terms of this Release shall be considered separate from
each other, and if any shall be found to be invalid, it shall not affect the
validity of the remaining terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
I have executed and delivered this Release on the date set forth below.
- ------------------------------------- -------------------------------------
Date: Name of Employee
1
<PAGE>
EXHIBIT C
SENIOR MANAGEMENT TEAM
<TABLE>
<CAPTION>
-------------------------------------------------------- -----------------------------------------------------
Position INCUMBENT
-------------------------------------------------------- -----------------------------------------------------
<S> <C>
Chief Executive Officer Robert Lundgren
-------------------------------------------------------- -----------------------------------------------------
Executive Vice President Administration Michael Weedon
-------------------------------------------------------- -----------------------------------------------------
Senior Vice President Legal Bradley Stam
-------------------------------------------------------- -----------------------------------------------------
Chief Financial Officer Michael Cornelissen
-------------------------------------------------------- -----------------------------------------------------
Chief Information Officer Vacant
-------------------------------------------------------- -----------------------------------------------------
Corporate Secretary Peter Hyndman
-------------------------------------------------------- -----------------------------------------------------
Vice President, Human Resources Vacant
-------------------------------------------------------- -----------------------------------------------------
Senior Vice President, Corporate Controller Dwight Hawes
-------------------------------------------------------- -----------------------------------------------------
Vice President & Treasurer Guy Heywood
-------------------------------------------------------- -----------------------------------------------------
Vice President Corporate Restructuring William Stewart
-------------------------------------------------------- -----------------------------------------------------
Vice President Tax Roger Ryan
-------------------------------------------------------- -----------------------------------------------------
Vice President Investments Philip Falls
-------------------------------------------------------- -----------------------------------------------------
</TABLE>
1
<PAGE>
THE LOEWEN GROUP INC. CONFIRMATION INCENTIVE PLAN
1. PURPOSE.
The purpose of The Loewen Group Inc. Confirmation Incentive Plan (the
"Plan") is to retain key management employees of the Company through
the confirmation of a plan or plans of reorganization, compromise or
arrangement (a "Plan of Reorganization") and to encourage such
employees to achieve this goal.
2. DEFINITIONS.
As used throughout the Plan, the following words and phrases shall have
the following meanings, unless otherwise clearly or necessarily
indicated by context:
(a) BOARD. "Board" means the Board of Directors of the Company.
(b) CAUSE. "Cause" means (i) neglect of duty, dishonesty or
misconduct in matters involving the Employer or the
performance of services for the Employer, (ii) loss of
qualification of licensure, (iii) stealing or unlawful use of
Employer property or monies, (iv) continued willful
insubordination after reasonable warning or reprimand, (v)
commission of a felony or any crime requiring intent or moral
turpitude, (vi) a violation of the Employer's anti-harassment
and/or drug use policies or (vii) actively and intentionally
pursuing interests of a competitor to the detriment of the
financial interests of the Employer.
(c) COMMITTEE. "Committee" means the Compensation Committee of the
Board or such other committee of the Board authorized by the
Board to administer the Plan.
(d) COMPANY. "Company" means The Loewen Group Inc.
(e) CONFIRMATION DATE. "Confirmation Date" means the first to
occur of the effective date of the confirmed Plan of
Reorganization or the date of consummation of the sale of
substantially all of the assets of substantially all of the
Employers to a third party.
(f) CONFIRMATION INCENTIVE PAYMENT. "Confirmation Incentive
Payment" shall have the meaning ascribed to it in Section 4
hereof.
(g) CORPORATE STAFF. "Corporate Staff" means the group consisting
of those Company and LGII Vice Presidents (who are not Senior
Corporate Executives), Directors, Senior Managers, Managers
and Professional and Technical Support Personnel responsible
for general corporate affairs.
(h) EFFECTIVE DATE. "Effective Date" means, as to any individual,
the date on which the individual executes a Release Agreement
and thereby becomes an Eligible Employee.
<PAGE>
(i) ELIGIBLE EMPLOYEE. "Eligible Employee" means those full-time
employees who are Senior Corporate Executives, Corporate
Staff, Operations Country Management and New Hires who, in
each case, execute a Release Agreement.
(j) EMPLOYER. "Employer" means each of the Company and those of
its divisions, subsidiaries and operating units, as are set
forth on Exhibit A hereto, as such Exhibit may be amended from
time to time.
(k) LGII. "LGII" means Loewen Group International Inc.
(l) NEW HIRE. "New Hire" means an employee hired by an Employer
after the Petition Date in, or promoted after the Petition
Date to, one of the categories of Eligible Employees;
provided, however, that such employee has been in the
continuous employ of an Employer for at least three (3) months
prior to the Confirmation Date.
(m) OPERATIONS COUNTRY MANAGEMENT. "Operations Country Management"
means the Company's and LGII's Executives, Vice President and
Controller responsible for the oversight of the Employers'
operations in the United States and Canada.
(n) PETITION DATE. "Petition Date" means June 1, 1999.
(o) RELEASE AGREEMENT. "Release Agreement" means an agreement, in
a form that is acceptable to the Employer, under which the
Eligible Employee, among other things, releases and waives any
rights, claims or entitlements that he or she may have at law
or under existing employment or consulting agreements or
company programs.
(p) SALARY. "Salary" means an Eligible Employee's annualized base
salary as of a particular date, without regard to any bonus,
severance, incentive or other similar payments.
(q) SENIOR CORPORATE EXECUTIVES. "Senior Corporate Executives"
means the group consisting of the Company's and LGII's
Chairman of the Board; Chief Executive Officer; Executive Vice
President, Administration; Senior Vice President, Legal; Chief
Financial Officer; Chief Information Officer; Controller;
Treasurer; Corporate Secretary; and certain other Vice
Presidents and Department Heads responsible for general
corporate affairs.
3. COVERAGE PERIOD.
The Plan is effective as of the Effective Date with respect to Eligible
Employees and shall terminate when all payments earned hereunder have
been paid to Eligible Employees.
2
<PAGE>
4. CONFIRMATION INCENTIVE PAYMENT.
(a) Subject to Section 4(c) hereof and the terms and conditions of
the Plan and provided an Eligible Employee remains in the
continuous, active employ of an Employer from the date on
which he or she signs a Release Agreement through and
including the Confirmation Date, an Eligible Employee shall be
entitled to receive a Confirmation Incentive Payment.
(b) Subject to Section 4(c) hereof, the Confirmation Incentive
Payment shall be equal to a percentage of an Eligible
Employee's Salary as in effect on the Confirmation Date, with
the percentages of Salary corresponding to all Eligible
Employees set forth in the table below:
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PERCENTAGE OF SALARY
----------------- ----------------------
<S> <C>
Chairman of the Board Determined pursuant to
separate agreement
Chief Executive Officer Determined pursuant to
separate agreement
Other Senior Corporate Executives
Tier 1: Administration, Finance, Legal 50%
Tier 2: Human Resources, MIS, Controller,
Treasurer and Corporate Secretary 40%
Tier 3: Vice Presidents/Functional Heads 30%
Corporate Staff 10%
Operations Country Management
Country Executives 50%
Vice President 40%
Group Controller 30%
</TABLE>
(c) With respect to New Hires who have been Eligible Employees for
less than twelve (12) months prior to the Confirmation Date,
the Confirmation Incentive Payment shall be prorated based on
the ratio of such New Hire's number of months of service as a
New Hire prior to the Confirmation Date compared to 12 months.
Notwithstanding anything herein to the contrary, this
proration requirement shall not apply to the New Hires listed
on Exhibit B hereto and such New Hires shall receive a
Confirmation Incentive Payment without regard to this Section
4(c).
5. FORM AND TIMING OF CONFIRMATION INCENTIVE PAYMENTS.
(a) Subject to the provisions of Section 4 hereof, Confirmation
Incentive Payments shall be paid to Eligible Employees, in the
sole discretion of the Committee, in a combination of cash and
equity interests in the Company (provided that the cash
portion of the Confirmation Incentive Payment generally will
be in an amount sufficient to satisfy the Eligible Employee's
income tax obligations arising as a result of the Confirmation
Incentive Payment) as follows: (a) one-third of the
3
<PAGE>
Confirmation Incentive Payment will be paid within fifteen
(15) days of the Confirmation Date and (b) the remaining
two-thirds of the Confirmation Incentive Payment (the "Second
Installment") will be paid within fifteen (15) days after the
date that is six (6) months after the Confirmation Date (the
"Second Installment Date").
(b) An Eligible Employee who voluntarily terminates his or her
employment or is terminated for Cause after the Confirmation
Date but prior to the Second Installment Date shall not be
eligible to receive the Second Installment.
6. ADMINISTRATION.
(a) PLAN ADMINISTRATION. The Committee shall administer the Plan.
The Committee shall keep or cause to be kept such records and
shall prepare or cause to be prepared such returns or reports
as may be required by law or necessary for the proper
administration of the Plan.
(b) POWERS AND DUTIES OF COMMITTEE. The Committee shall have the
full discretionary power and authority to construe and
interpret the Plan (including, without limitation, supplying
omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan);
to determine all questions of fact arising under the Plan,
including questions as to eligibility for and the amount of
benefits; to establish such rules and regulations (consistent
with the terms of the Plan) as it deems necessary or
appropriate for administration of the Plan; to delegate
responsibilities to others to assist it in administering the
Plan; and to perform all other acts it believes reasonable and
proper in connection with the administration of the Plan. The
Committee shall be entitled to rely on the records of the
Employer in determining any Eligible Employee's entitlement to
and the amount of benefits payable under the Plan.
(c) ARBITRATION. Any dispute, controversy or claim arising out of
or relating to any Plan benefit, including, without
limitation, any dispute, controversy or claim as to whether
the decision of the Committee respecting the benefits under
this Plan or interpretation of this Plan is arbitrary and
capricious, shall be settled by final and binding arbitration
in accordance with the American Arbitration Association
Employment Dispute Resolution or the Rules of the Arbitration
and Mediation Institute of Canada, as appropriate. The
Eligible Employee must request arbitration in writing within
the limitations period set by applicable state, provincial or
federal law.
The arbitrator shall be selected by mutual agreement of the
parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA") or the Arbitration and Mediation
Institute of Canada ("AMI"), as applicable. The selection
process shall be that which is set forth in the AAA Employment
Dispute
4
<PAGE>
Resolution Rules or similar process of the AMI, except
that, if the parties fail to select an arbitrator from one
or more panels, neither AAA nor AMI shall have the power to
make an appointment but shall continue to submit additional
panels until an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be shared by the parties
equally. The arbitrator shall have no power to amend, add to
or subtract from this Plan. The award shall be admissible in
any court or agency action seeking to enforce or render
unenforceable this Plan or any portion thereof. Any action to
enforce or vacate the arbitrator's award shall be governed by
the Federal Arbitration Act if applicable or such other
legislation as may be applicable in the jurisdiction where the
Eligible Employee ordinarily is a resident.
(d) INDEMNIFICATION. Neither the Employers, the Board, the
Committee, nor any member of the Board or Committee, nor any
officer or employee of any Employer shall be personally liable
for any action, determination, or interpretation taken or made
in good faith with respect to the Plan. Any action taken or
omitted to be taken by any such person in good faith reliance
on the advice of any accountant, attorney or other advisor
retained by the Committee or the Employer shall be
conclusively presumed not to involve gross negligence or
willful misconduct. The members of the Board and the Committee
and the officers and employees of any Employer shall be
indemnified by the applicable Employer with respect to any
such liability to the fullest extent permitted by applicable
laws, rules and regulations.
7. UNFUNDED OBLIGATION.
All benefits payable under this Plan shall constitute an unfunded
obligation of the Employer. Payments shall be made, as due, from the
general funds of the Employer of the Eligible Employee. This Plan shall
constitute solely an unsecured promise by each Employer to pay
severance benefits to employees to the extent provided herein.
8. ALIENABILITY OF BENEFITS.
No Eligible Employee shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber any rights or any amounts
payable under this Plan; nor shall any such rights or amounts payable
under this Plan be subject to seizure, attachment, execution,
garnishment or other legal or equitable process, or for the payment of
any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition
shall be null and void.
5
<PAGE>
9. WITHHOLDING.
The Employer shall have the right to withhold from any amounts payable
under this Plan such federal, state, provincial and local taxes or any
other amounts that may be required by law to be withheld.
10. AMENDMENT OR TERMINATION.
The Company reserves the right to amend or terminate the Plan at any
time without prior notice to or the consent of an employee. However, no
amendment or termination shall adversely affect the rights of any
Eligible Employee whose employment terminates prior to such amendment
or termination. In addition, the Plan may not be amended so as to
reduce benefits payable, or terminated, prior to the date when all
amounts payable hereunder have been paid to Eligible Employees.
However, any employee whose employment continues after amendment of the
Plan shall be governed by the terms of the Plan as so amended. Any
employee whose employment continues after termination of the Plan shall
have no right to a benefit under the Plan.
11. BREACH.
In the event that an Eligible Employee breaches any of his or her
obligations under the Plan or any other documents or instruments
executed herewith (including, without limitation, the Release
Agreement), the Company shall have the right to demand the repayment of
all or a portion of any amounts paid to the Eligible Employee under the
Plan and, in addition, (a) the Company shall have no further obligation
to that Eligible Employee pursuant to the Plan and (b) that Eligible
Employee shall pay any expenses or damages incurred by the Company or
the applicable Employer as a result of said breach, including all costs
incurred by the Company or the applicable Employer, including
reasonable attorneys' fees, in defending against any claims related to
or arising from said breach.
12. PLAN NOT A CONTRACT OF EMPLOYMENT; EMPLOYER'S POLICIES CONTROL.
Nothing contained in this Plan shall give an Eligible Employee the
right to be retained in the employment of an Employer. This Plan is not
a contract of employment between the Employer and any Eligible
Employee.
Any dispute involving issues of employment other than claims for
benefits under this Plan shall be governed by the appropriate
employment dispute resolution policies and procedures of the Employer.
13. ACTION BY AN EMPLOYER.
Unless expressly indicated to the contrary herein, any action required
to be taken by the Employer may be taken by action of its board of
directors or by any appropriate officer or officers traditionally
responsible for such determination or actions, or such other individual
or individuals as may be designated by the board of directors or any
such officer.
6
<PAGE>
14. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Eligible Employee ordinarily is a
resident.
15. SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be construed and enforced as if
said illegal or invalid provision had never been included herein.
16. SUCCESSORS.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume and agree
expressly to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted as
of the _________ day of October, 1999.
THE LOEWEN GROUP INC.
By: __________________
7
<PAGE>
EXHIBIT A
PARTICIPATING EMPLOYERS
8
<PAGE>
EXHIBIT B
EXEMPT NEW HIRES
Michael Cornelissen
9
<PAGE>
THE LOEWEN GROUP INC. RETENTION INCENTIVE PLAN
1. PURPOSE.
The purpose of The Loewen Group Inc. Retention Incentive Plan (the
"Plan") is to retain key management employees of the Company through
the 1999 calendar year.
2. DEFINITIONS.
As used throughout the Plan, the following words and phrases shall have
the following meanings, unless otherwise clearly or necessarily
indicated by context:
(a) BOARD. "Board" means the Board of Directors of the Company.
(b) CAUSE. "Cause" means (i) neglect of duty, dishonesty or
misconduct in matters involving the Employer or the
performance of services for the Employer, (ii) loss of
qualification of licensure, (iii) stealing or unlawful use of
Employer property or monies, (iv) continued willful
insubordination after reasonable warning or reprimand, (v)
commission of a felony or any crime requiring intent or moral
turpitude, (vi) a violation of the Employer's anti-harassment
and/or drug use policies or (vii) actively and intentionally
pursuing interests of a competitor to the detriment of the
financial interests of the Employer.
(c) CEMETERY REGIONAL OPERATIONS MANAGEMENT. "Cemetery Regional
Operations Management" means Vice Presidents, Controllers and
Managers responsible for the oversight of the Employers'
cemetery operations in particular geographic regions of the
United States and Canada.
(d) COMMITTEE. "Committee" means the Compensation Committee of the
Board or such other committee of the Board authorized by the
Board to administer the Plan.
(e) COMPANY. "Company" means The Loewen Group Inc.
(f) CORPORATE STAFF. "Corporate Staff" means the group consisting
of those Company and LGII Vice Presidents (who are not Senior
Corporate Executives), Directors, Senior Managers, Managers
and Professional and Technical Support Personnel responsible
for general corporate affairs, but excluding the Select
Corporate Staff.
(g) EFFECTIVE DATE. "Effective Date" means, as to any individual,
the date on which the individual executes a Release Agreement
and thereby becomes an Eligible Employee.
(h) ELIGIBLE EMPLOYEE. "Eligible Employee" means those full-time
employees who are Senior Corporate Executives, Corporate
Staff, Select Corporate Staff, Operations Country Management,
Cemetery Regional Operations Management and Funeral Home
Regional Operations Management and New Hires, in each case,
who execute a Release Agreement.
<PAGE>
(i) EMPLOYER. "Employer" means each of the Company and those of
its divisions, subsidiaries and operating units, as are set
forth on Exhibit A hereto, as such Exhibit may be amended from
time to time.
(j) FUNERAL HOME REGIONAL OPERATIONS MANAGEMENT. "Funeral Home
Regional Operations Management" means Vice Presidents,
Controllers and Managers responsible for the oversight of the
Employers' funeral home operations in particular geographic
regions of the United States and Canada.
(k) LGII. "LGII" means Loewen Group International Inc.
(l) NEW HIRE. "New Hire" means an employee hired by an Employer
after the Petition Date in, or promoted after the Petition
Date to, one of the categories of Eligible Employees;
provided, however that such hiring or promotion occurs on or
before October 1, 1999.
(m) OPERATIONS COUNTRY MANAGEMENT. "Operations Country Management"
means the Company's and LGII's Executives, Vice President and
Controller responsible for the oversight of the Employers'
operations in the United States and Canada.
(n) PETITION DATE. "Petition Date" means June 1, 1999.
(o) RELEASE AGREEMENT. "Release Agreement" means an agreement, in
a form that is acceptable to the Employer, under which the
Eligible Employee, among other things, releases and waives any
rights, claims or entitlements that he or she may have at law
or under existing employment or consulting agreements or
company programs.
(p) RETENTION INCENTIVE PAYMENT. "Retention Incentive Payment"
shall have the meaning ascribed to it in Section 4 hereof.
(q) SALARY. "Salary" means an Eligible Employee's annualized base
salary as of a particular date, without regard to any bonus,
severance, incentive or other similar payments.
(r) SELECT CORPORATE STAFF. "Select Corporate Staff" means the
seven members of the Corporate Staff listed on Exhibit B
hereto.
(s) SENIOR CORPORATE EXECUTIVES. "Senior Corporate Executives"
means the group consisting of the Company's and LGII's
Chairman of the Board; Chief Executive Officer; Executive Vice
President, Administration; Senior Vice President, Legal; Chief
Financial Officer; Senior Vice President, Legal; Chief
Information Officer; Controller; Treasurer; Corporate
Secretary; and certain other Vice Presidents and Department
Heads responsible for general corporate affairs.
(t) VESTING DATE. "Vesting Date" means, with respect to Eligible
Employees other than New Hires, (i) September 30, 1999 and
(ii) December 31, 1999, and with respect to New Hires,
December 31, 1999.
2
<PAGE>
3. COVERAGE PERIOD.
The Plan is effective as of the Effective Date with respect to Eligible
Employees and shall terminate when all payments earned hereunder have
been paid to Eligible Employees.
4. RETENTION INCENTIVE PAYMENT.
(a) Provided an Eligible Employee remains in the continuous,
active employ of an Employer from the Effective Date through
and including an applicable Vesting Date and subject to the
terms and conditions of the Plan, an Eligible Employee shall
be entitled to receive a Retention Incentive Payment.
(b) Subject to Section 4(c) hereof, the Retention Incentive
Payment shall be equal to a percentage of an Eligible
Employee's Salary as of an applicable Vesting Date, with the
percentages of Salary corresponding with each Vesting Date for
all Eligible Employees set forth in the table below:
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY SEPTEMBER 30, DECEMBER 31,
1999 1999
<S> <C> <C>
Senior Corporate Executives
Chief Executive Officer 0% 25%
Tier 1: Administration, Finance, 0% 25%
Legal
Tier 2: Human Resources, MIS, Controller, 0% 20%
Treasurer and Corporate Secretary
Tier 3: Vice Presidents/Functional 0% 15%
Head
Corporate Staff 0% 10%
Select Corporate Staff 25% 10%
Operations Country Management
Country Executives 0% 25%
Vice President 0% 20%
Group Controller 0% 15%
Cemetery Regional Operations Management
Regional Vice Presidents 5% 15%
Vice Presidents 5% 10%
Controllers 5% 10%
Regional Managers-Cemetery 5% 15%
Regional Managers-Adv Plann 5% 10%
Funeral Home Regional Operations Management 5% 0%
</TABLE>
(c) With respect to New Hires, the Retention Incentive Payment
shall be prorated based on the ratio of such New Hire's number
of months of service as a New Hire prior to the Vesting Date
compared to 12 months. Notwithstanding anything herein to the
contrary, this proration requirement shall not apply to the
New Hires
3
<PAGE>
listed on Exhibit C hereto; such New Hires shall
receive a Retention Incentive Payment without regard to this
Section 4(c). No Retention Incentive Payments will be payable
to New Hires in the employee categories eligible for such
payments on September 30, 1999.
(d) Notwithstanding anything herein to the contrary:
(i) Subject to Section 4(d)(ii) hereof, an Eligible
Employee shall not be entitled to a Retention
Incentive Payment with respect to a particular
Vesting Date if such Eligible Employee's employment
with his or her Employer is terminated for any
reason, including, without limitation, death,
disability, retirement or a termination for Cause
prior to such Vesting Date.
(ii) Notwithstanding the provisions of Section 4(d)(i)
hereof, if an Eligible Employee's employment with his
or her Employer is terminated prior to a Vesting Date
by his or her Employer without Cause, such Eligible
Employee shall be entitled to receive all Retention
Incentive Payments that the Eligible Employee would
have been entitled to receive under the Plan had such
termination not occurred and the Eligible Employee
had remained in the continuous employ of his or her
Employer from the Effective Date through and
including the last Vesting Date. Such payment shall
be paid to the Eligible Employee in a lump sum cash
payment within fifteen (15) days of such termination
without Cause.
A transfer of employment from one Employer to another Employer
(or to another affiliate of the Company) shall not be
considered a termination of employment hereunder.
(e) In addition to the payments described above, the Employers
have established a reserve of $500,000 to be available to
provide, if the Committee so decides, Retention Incentive
Payments hereunder, on a case-by-case basis, to employees of
the Employers under circumstances that may arise and that are
not otherwise addressed herein. Such payments shall be in the
sole discretion of the Committee.
5. FORM AND TIMING OF RETENTION INCENTIVE PAYMENTS.
Subject to the provisions of Section 4 hereof, Retention Incentive
Payments shall be paid to Eligible Employees in a lump sum cash payment
within fifteen (15) days of the applicable Vesting Date.
6. ADMINISTRATION.
(a) PLAN ADMINISTRATION. The Committee shall administer the Plan.
The Committee shall keep or cause to be kept such records and
shall prepare or cause to be prepared such returns or reports
as may be required by law or necessary for the proper
administration of the Plan.
4
<PAGE>
(b) POWERS AND DUTIES OF COMMITTEE. The Committee shall have the
full discretionary power and authority to construe and
interpret the Plan (including, without limitation, supplying
omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan);
to determine all questions of fact arising under the Plan,
including questions as to eligibility for and the amount of
benefits; to establish such rules and regulations (consistent
with the terms of the Plan) as it deems necessary or
appropriate for administration of the Plan; to delegate
responsibilities to others to assist it in administering the
Plan; and to perform all other acts it believes reasonable and
proper in connection with the administration of the Plan. The
Committee shall be entitled to rely on the records of the
Employer in determining any Eligible Employee's entitlement to
and the amount of benefits payable under the Plan.
(c) ARBITRATION. Any dispute, controversy or claim arising out of
or relating to any Plan benefit, including, without
limitation, any dispute, controversy or claim as to whether
the decision of the Committee respecting the benefits under
this Plan or interpretation of this Plan is arbitrary and
capricious, shall be settled by final and binding arbitration
in accordance with the American Arbitration Association
Employment Dispute Resolution or the Rules of the Arbitration
and Mediation Institute of Canada, as appropriate. The
Eligible Employee must request arbitration in writing within
the limitations period set by applicable state, provincial or
federal law.
The arbitrator shall be selected by mutual agreement of the
parties, if possible. If the parties fail to reach agreement
upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to
arbitrate, the arbitrator shall be selected from a panel or
panels of persons submitted by the American Arbitration
Association (the "AAA") or the Arbitration and Mediation
Institute of Canada ("AMI"), as applicable. The selection
process shall be that which is set forth in the AAA Employment
Dispute Resolution Rules or similar process of the AMI, except
that, if the parties fail to select an arbitrator from one or
more panels, neither AAA nor AMI shall have the power to make
an appointment but shall continue to submit additional panels
until an arbitrator has been selected.
All fees and expenses of the arbitration, including a
transcript if requested, will be shared by the parties
equally. The arbitrator shall have no power to amend, add to
or subtract from this Plan. The award shall be admissible in
any court or agency action seeking to enforce or render
unenforceable this Plan or any portion thereof. Any action to
enforce or vacate the arbitrator's award shall be governed by
the Federal Arbitration Act if applicable or such other
legislation as may be applicable in the jurisdiction where the
Eligible Employee ordinarily is a resident.
(d) INDEMNIFICATION. Neither the Employers, the Board, the
Committee, nor any member of the Board or Committee, nor any
officer or employee of any Employer shall be personally liable
for any action, determination, or interpretation taken or made
in good faith with respect to the Plan. Any action taken or
omitted to be taken by any such person in good faith reliance
on the advice of any accountant,
5
<PAGE>
attorney or other advisor retained by the Committee or the
Employer shall be conclusively presumed not to involve gross
negligence or willful misconduct. The members of the Board and
the Committee and the officers and employees of any Employer
shall be indemnified by the applicable Employer with respect
to any such liability to the fullest extent permitted by
applicable laws, rules and regulations.
7. UNFUNDED OBLIGATION.
All benefits payable under this Plan shall constitute an unfunded
obligation of the Employer. Payments shall be made, as due, from the
general funds of the Employer of the Eligible Employee. This Plan shall
constitute solely an unsecured promise by each Employer to pay
severance benefits to employees to the extent provided herein.
8. INALIENABILITY OF BENEFITS.
No Eligible Employee shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber any rights or any amounts
payable under this Plan; nor shall any such rights or amounts payable
under this Plan be subject to seizure, attachment, execution,
garnishment or other legal or equitable process, or for the payment of
any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition
shall be null and void.
9. WITHHOLDING.
The Employer shall have the right to withhold from any amounts payable
under this Plan such federal, state, provincial and local taxes or any
other amounts that may be required by law to be withheld.
10. AMENDMENT OR TERMINATION.
The Company reserves the right to amend or terminate the Plan at any
time without prior notice to or the consent of an employee. However, no
amendment or termination shall adversely affect the rights of any
Eligible Employee whose employment terminates prior to such amendment
or termination. In addition, the Plan may not be amended so as to
reduce benefits payable, or terminated, prior to the date when all
amounts payable hereunder have been paid to Eligible Employees.
However, any employee whose employment continues after amendment of the
Plan shall be governed by the terms of the Plan as so amended. Any
employee whose employment continues after termination of the Plan shall
have no right to a benefit under the Plan.
11. BREACH.
In the event that an Eligible Employee breaches any of his or her
obligations under the Plan or any other documents or instruments
executed herewith (including, without
6
<PAGE>
limitation, the Release Agreement), the Company shall have the right to
demand the repayment ofall or a portion of any amounts paid to the
Eligible Employee under the Plan and, in addition, (a) the Company
shall have no further obligation to that Eligible Employee pursuant
to the Plan and (b) that Eligible Employee shall pay any expenses or
damages incurred by the Company or the applicable Employer
as a result of said breach, including all costs incurred by the Company
or the applicable Employer, including reasonable attorneys' fees,
in defending against any claims related to or arising from said breach.
12. PLAN NOT A CONTRACT OF EMPLOYMENT; EMPLOYER'S POLICIES CONTROL.
Nothing contained in this Plan shall give an Eligible Employee the
right to be retained in the employment of an Employer. This Plan is not
a contract of employment between the Employer and any Eligible
Employee.
Any dispute involving issues of employment other than claims for
benefits under this Plan shall be governed by the appropriate
employment dispute resolution policies and procedures of the Employer.
13. ACTION BY AN EMPLOYER.
Unless expressly indicated to the contrary herein, any action required
to be taken by the Employer may be taken by action of its board of
directors or by any appropriate officer or officers traditionally
responsible for such determination or actions, or such other individual
or individuals as may be designated by the board of directors or any
such officer.
14. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Eligible Employee ordinarily is a
resident.
15. SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be construed and enforced as if
said illegal or invalid provision had never been included herein.
16. SUCCESSORS.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume and agree
expressly to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted as
of the _________ day of October, 1999.
THE LOEWEN GROUP INC.
By: _____________________
8
<PAGE>
EXHIBIT A
PARTICIPATING EMPLOYERS
9
<PAGE>
EXHIBIT B
SELECT CORPORATE STAFF
Ronald Costigan
Charles Kizina
Drew Gauntley
Doug Routley
Martin Carsky
Jocelyn Chang
Dave Senklar
10
<PAGE>
EXHIBIT C
EXEMPT NEW HIRES
Michael Cornelissen
11
<PAGE>
EMPLOYMENT AND RELEASE AGREEMENT
FOR CORPORATE AND COUNTRY MANAGEMENT
THIS AGREEMENT, dated as of the _____ day of _________, 1999 (the
"Effective Date"), is entered into by and between ___________________________,
located at ___________________________________________________________ (the
"Company") and __________________________ ("Employee").
WHEREAS, the Company has implemented the KERP (as defined below),
pursuant to an Order Authorizing Debtors and Debtors in Possession to Implement
Key Employee Retention Program issued by the United States Bankruptcy Court for
the District of Delaware in Case Number 99-1244 (PJW) on September 21, 1999 and
an Order issued by the Superior Court of Justice of Ontario in Court File No.
99-CL-3384 on September 24, 1999 (collectively, the "Order"); and
WHEREAS, pursuant to the Order, Employee's eligibility to participate
in and receive payments under the KERP is contingent on Employee's agreeing to
the matters set forth in Articles III and IV hereof.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for good and valuable consideration, including participation in the
KERP as applicable, the receipt of which is hereby acknowledged, it is agreed as
follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set
forth below, unless the context clearly otherwise requires:
1
<PAGE>
1.1 "AFFILIATE" means, with respect to a particular Entity, an Entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Entity, and an Entity shall
be "unaffiliated" with another Entity if such Entities are not Affiliates with
respect to one another.
1.2 "CAUSE" means: (a) neglect of duty, dishonesty or misconduct in
matters involving the Company or the performance of services, (b) loss of
qualification of licensure, (c) stealing or unlawful use of the Company's
property or monies, (d) continued willful insubordination after reasonable
warning or reprimand, (e) commission of a felony or any crime requiring intent
or moral turpitude, (f) a violation of the Company's anti-harassment or drug use
policies or (g) actively and intentionally pursuing interests of a competitor to
the detriment of the financial interests of the Company.
1.3 "COMPETING BUSINESS" means an Entity which is in competition with
any significant line of business conducted by the Company or an Affiliate
including, without limitation, the funeral, cemetery or related businesses.
1.4 "ENTITY" shall mean any individual, trust, estate, partnership,
corporation or any other form of business organization.
1.5 "KERP" means the Retention Incentive Plan, the Performance
Incentive Plan, the Confirmation Incentive Plan and the Severance Plan, as
approved by the Order.
ARTICLE II
CERTAIN OBLIGATIONS OF THE COMPANY
2.1 EMPLOYMENT. Subject to the terms of this Agreement, the Company
agrees to continue to employ Employee. Employee and the Company agree that
Employee is an at-will employee and nothing contained herein shall prevent (a)
Employee from terminating
2
<PAGE>
employment with the Company for any reason or for no reason or (b) the
Company from terminating Employee's employment with the Company for any
reason or for no reason, subject to satisfaction of any applicable
obligations under the KERP. The Company may prepare a summary of Employee's
job description and duties, as amended from time to time, and such summary
may be attached hereto as an Exhibit.
2.2 KERP BENEFITS. The Company agrees to provide Employee with the
benefits and payments to which Employee is entitled under the KERP, as in effect
from time to time and as applicable to Employee's employment level in effect at
the time such benefits and payments become due to Employee.
2.3 OTHER EMPLOYEE BENEFITS. Employee and Employee's family, as
applicable, shall be eligible for participation in and shall receive all
benefits to which they are entitled under the Company's other employee benefit
plans, as in effect from time to time.
2.4 SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor to all or
substantially all of the businesses or assets of the Company (whether direct
or indirect, by purchase, merger, consolidation, reorganization or otherwise)
expressly to assume and agree to perform this Agreement in the same manner
and to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon and inure to
the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the businesses or assets of the Company whether by
purchase, merger, consolidation, reorganization or otherwise (and such
successor will thereafter be deemed "the Company" for the purposes of this
Agreement).
3
<PAGE>
(b) This Agreement will inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
ARTICLE III
CERTAIN OBLIGATIONS OF EMPLOYEE
3.1 NO PARTICIPATION IN OTHER BUSINESSES. While employed by the
Company, Employee shall not, without the consent of the Board of Directors of
the Company, become actively associated with or engaged in any Competing
Business. Employee shall devote Employee's best efforts and full business time
and attention (except for permitted vacation periods and reasonable periods of
illness or other incapacity) to the business and affairs of the Company.
3.2 TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. Employee
will keep in strict confidence, and will not, directly or indirectly, at any
time during or after Employee's employment with the Company, make available,
disclose or use any trade secrets or confidential business and technical
information (except in the course of performing Employee's duties and
obligations under this Agreement). Further, during Employee's employment and
for a period of two years after termination of Employee's employment with the
Company, Employee shall not in any manner, directly or indirectly, induce or
attempt to induce any employee of the Company or an Affiliate to quit or
abandon his or her employment, or any customer, independent contractor,
consultant, supplier or vendor of the Company or an Affiliate to quit or
abandon its relationship, for any purpose whatsoever.
4
<PAGE>
(b) POST-TERMINATION. Employee agrees that, upon termination
of Employee's employment with the Company, for any reason, Employee will
return to the Company, in good condition, all property of the Company,
including without limitation, the originals and all copies of all management,
training, marketing and selling manuals; promotional materials; other
training and instructional materials; financial information; vendor, owner,
manager and product information; customer lists; other customer information;
and all other selling, service and trade information and equipment. If such
items are not returned, the Company will have the right to charge Employee
for all reasonable damages, costs, attorneys' fees and other expenses
incurred in searching for, taking, removing and/or recovering such property.
3.3 NONCOMPETITION. Employee and the Company recognize that Employee's
duties will entail the receipt of trade secrets and confidential information,
which include not only information concerning the Company's current operations,
procedures, suppliers and other contacts, but also its short-range and
long-range plans, and that such trade secrets and confidential information may
have been developed by the Company and its Affiliates at substantial cost and
constitute valuable and unique property of the Company. Accordingly, Employee
acknowledges that the foregoing makes it reasonably necessary for the protection
of the Company's business interests that Employee not compete with the Company
or any of its Affiliates during the term of this Agreement and for a reasonable
and limited period thereafter. Therefore, during the term of this Agreement and
for two years after Employee's termination of employment, Employee (a) shall not
have any investment in a Competing Business other than a DE MINIMIS investment
or (b) shall not render personal services to any such Competing Business in any
manner, including, without limitation, as owner, partner, director, trustee,
officer, employee, consultant or advisor thereof. For purposes of the preceding
sentence, a DE MINIMIS
5
<PAGE>
investment is ownership of less than 1/2 of 1% of the outstanding equity or
debt of any Competing Business.
Notwithstanding anything herein to the contrary, if Employee shall
breach the covenants contained in this Article III, the Company shall have no
further obligations to Employee pursuant to this Agreement and may recover from
Employee all such damages to which it may be entitled at law or in equity. In
addition, Employee acknowledges that any such breach is likely to result in
immediate and irreparable harm to the Company for which money damages are likely
to be inadequate. Accordingly, Employee consents to injunctive and other
appropriate equitable relief that the Company may seek to protect the Company's
rights under this Agreement. Such relief may include, without limitation, an
injunction to prevent Employee from disclosing any trade secrets or confidential
information concerning the Company to any Entity, to prevent any Entity from
receiving from Employee or using any such trade secrets or confidential
information and/or to prevent any Entity from retaining or seeking to retain any
other employees of the Company. Employee acknowledges good and sufficient
consideration for the noncompetition and nonsolicitation covenants of this
Section.
ARTICLE IV
RELEASE
4.1 TERMINATION OF EXISTING ARRANGEMENTS. Employee agrees that (a) any
employment or consulting agreements or other such arrangements, as such
agreements or arrangements were applicable to Employee prior to the Effective
Date (except such employment or consulting agreements or other arrangements
which are listed on Exhibit A hereto) and (b) any Company programs with respect
to retention or performance incentive payments or severance or similar benefits,
as such payments or benefits were applicable to Employee prior to the Effective
6
<PAGE>
Date ((a) and (b) being collectively referred to as the "Prior Arrangements"),
are hereby terminated.
4.2 RELEASE. Upon execution of this Agreement, Employee (a) releases
and waives any rights or entitlements that Employee has or may have under any
Prior Arrangements, (b) releases and waives any claims for damages relating to
or arising out of the termination or rejection of any Prior Arrangement during
the Company's reorganization and (c) acknowledges that all severance payments
provided for in the KERP are in lieu of and not in addition to notice or
severance payments provided at law, whether statutory or otherwise. Such release
will not, however, apply to the ongoing obligations of the Company arising under
this Agreement, or rights of indemnification Employee may have under the
Company's policies or by contract or by statute.
4.3 COVENANT NOT TO SUE. Employee agrees that Employee will never file
a lawsuit against the Company or any other third party asserting any claims
released hereunder.
4.4 BREACH. Employee further agrees that in the event Employee breaches
any of Employee's obligations hereunder or if the Company terminates Employee's
employment with the Company for Cause, the Company shall have the right to
demand the repayment of all or a portion of any amounts paid to Employee under
the KERP and, in addition, (a) the Company shall have no further obligation to
Employee pursuant to this Agreement and (b) Employee shall pay any expenses or
damages incurred by the Company or its Affiliates as a result of said breach or
as a result of the activities giving rise to the termination for Cause,
including all costs incurred by the Company or its Affiliates, including
reasonable attorneys' fees, in defending against any claims released in Section
4.2 hereof.
7
<PAGE>
4.5 RELEASE AGREEMENT. Employee acknowledges that this Agreement
constitutes a "Release Agreement" as described in any component of the KERP.
ARTICLE V
MISCELLANEOUS
5.1 ASSIGNMENT. This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereof except as expressly
provided in Sections 2.4(a) and (b). Without limiting the generality or effect
of the foregoing, Employee's right to receive payments hereof will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Employee's will or by the
laws of descent and distribution and, if Employee attempts any assignment or
transfer contrary to this Section 5.1, the Company will have no liability to pay
any amount Employee attempts to assign, transfer or delegate.
5.2 GOVERNING LAW; ARBITRATION. This Agreement has been executed on
behalf of the Company by an officer of the Company located in the City of
_____________. This Agreement and all questions arising in connection with it
shall be governed by and construed in accordance with the laws of the
jurisdiction in which Employee ordinarily is a resident. Subject to the
following sentence, all disputes arising out of, or in connection with this
Agreement, which are not promptly settled by mutual agreement of the parties
hereto, shall be finally settled by arbitration in accordance with the rules of
the American Arbitration Association or the Rules of the Arbitration and
Mediation Institute of Canada, as appropriate. Notwithstanding anything herein
to the contrary, the Company may, at its option, seek injunctive relief as
contemplated in
8
<PAGE>
Article III above either in lieu of or in addition to the arbitration
remedies provided for in this Section.
5.3 SEVERABILITY. If any portion of this Agreement is held to be
invalid or unenforceable, such holding shall not affect any other portion of
this Agreement.
5.4 ENTIRE AGREEMENT. This Agreement comprises the entire agreement
between the parties hereto and, as of the date hereof, supersedes any prior
agreements between the parties. This Agreement may not be modified, renewed or
extended except by a written instrument referring to this Agreement and executed
by the parties hereto.
5.5 NOTICES. Any notice or consent required or permitted to be given
under this Agreement shall be in writing and shall be effective (a) when given
by personal delivery, (b) one business day after being sent by overnight
delivery service or (c) five business days after being sent by certified or
registered mail, return receipt requested, to the Secretary of the Company at
its principal place of business in the City of ___________ or to Employee at the
last known address of Employee as shown on the records of the Company.
5.6 WITHHOLDING TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, provincial, city or other taxes
or other amounts as shall be required pursuant to any law or governmental
regulation or ruling.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
THE COMPANY
By:
------------------------------------------
Name:
Title:
---------------------------------------------
EMPLOYEE
10
<PAGE>
EXHIBIT A
NON-TERMINATING EMPLOYMENT OR CONSULTING
AGREEMENTS OR OTHER SUCH ARRANGEMENTS
THE COMPANY AND EMPLOYEE HEREBY AGREE THAT IN ORDER FOR THIS
EXHIBIT A TO HAVE A BINDING EFFECT UNDER SECTION 4.1 OF THE AGREEMENT,
THIS EXHIBIT A MUST BE EXECUTED BY EACH OF THE COMPANY, EMPLOYEE
AND (UNLESS SUCH INDIVIDUAL IS SIGNING ON BEHALF OF THE COMPANY) A
REPRESENTATIVE OF THE OFFICE OF THE VICE PRESIDENT OF OPERATIONS OF
FUNERAL HOMES AND CEMETERIES ("REPRESENTATIVE")
IN WITNESS WHEREOF, the parties hereto have executed this
Exhibit A as of the date and year first above written.
THE COMPANY
By:
------------------------------------------
Name:
Title:
---------------------------------------------
EMPLOYEE
---------------------------------------------
REPRESENTATIVE
11
<PAGE>
EMPLOYMENT AND RELEASE AGREEMENT FOR EMPLOYEES
OTHER THAN CORPORATE AND COUNTRY MANAGEMENT
THIS AGREEMENT, dated as of the _____ day of _________, 1999 (the
"Effective Date"), is entered into by and between ___________________________,
located at ___________________________________________________________ (the
"Company") and __________________________ ("Employee").
WHEREAS, the Company has implemented the KERP (as defined below),
pursuant to an Order Authorizing Debtors and Debtors in Possession to Implement
Key Employee Retention Program issued by the United States Bankruptcy Court for
the District of Delaware in Case Number 99-1244 (PJW) on September 21, 1999 and
an Order issued by the Superior Court of Justice of Ontario in Court File No.
99-CL-3384 on September 24, 1999 (collectively, the "Order"); and
WHEREAS, pursuant to the Order, Employee's eligibility to participate
in and receive payments under the KERP is contingent on Employee's agreeing to
the matters set forth in Articles III and IV hereof.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for good and valuable consideration, including participation in the
KERP as applicable, the receipt of which is hereby acknowledged, it is agreed as
follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set forth below,
unless the context clearly otherwise requires:
1
<PAGE>
1.1 "AFFILIATE" means, with respect to a particular Entity, an Entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Entity, and an Entity shall
be "unaffiliated" with another Entity if such Entities are not Affiliates with
respect to one another.
1.2 "CAUSE" means: (a) neglect of duty, dishonesty or misconduct in
matters involving the Company or the performance of services, (b) loss of
qualification of licensure, (c) stealing or unlawful use of the Company's
property or monies, (d) continued willful insubordination after reasonable
warning or reprimand, (e) commission of a felony or any crime requiring intent
or moral turpitude, (f) a violation of the Company's anti-harassment or drug use
policies or (g) actively and intentionally pursuing interests of a competitor to
the detriment of the financial interests of the Company.
1.3 "COMPETING BUSINESS" means an Entity which is in competition with
any significant line of business conducted by the Company or an Affiliate
including, without limitation, the funeral, cemetery or related businesses.
1.4 "ENTITY" shall mean any individual, trust, estate, partnership,
corporation or any other form of business organization.
1.5 "KERP" means the Retention Incentive Plan, the Performance
Incentive Plan, the Confirmation Incentive Plan and the Severance Plan, as
approved by the Order.
ARTICLE II
CERTAIN OBLIGATIONS OF THE COMPANY
2.1 EMPLOYMENT. Subject to the terms of this Agreement, the Company
agrees to continue to employ Employee. Employee and the Company agree that
Employee is an at-will employee and nothing contained herein shall prevent (a)
Employee from terminating
2
<PAGE>
employment with the Company for any reason or for no reason or (b) the
Company from terminating Employee's employment with the Company for any
reason or for no reason, subject to satisfaction of any applicable
obligations under the KERP. The Company may prepare a summary of Employee's
job description and duties, as amended from time to time, and such summary
may be attached hereto as an Exhibit.
2.2 KERP BENEFITS. The Company agrees to provide Employee with the
benefits and payments to which Employee is entitled under the KERP, as in effect
from time to time and as applicable to Employee's employment level in effect at
the time such benefits and payments become due to Employee.
2.3 OTHER EMPLOYEE BENEFITS. Employee and Employee's family, as
applicable, shall be eligible for participation in and shall receive all
benefits to which they are entitled under the Company's other employee benefit
plans, as in effect from time to time.
2.4 SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor to all or
substantially all of the businesses or assets of the Company (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon and inure to the
benefit of the Company and any successor to the Company, including without
limitation any persons acquiring directly or indirectly all or substantially all
of the businesses or assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such successor will thereafter
be deemed "the Company" for the purposes of this Agreement).
3
<PAGE>
(b) This Agreement will inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
ARTICLE III
CERTAIN OBLIGATIONS OF EMPLOYEE
3.1 NO PARTICIPATION IN OTHER BUSINESSES. While employed by the
Company, Employee shall not, without the consent of the Board of Directors of
the Company, become actively associated with or engaged in any Competing
Business. Employee shall devote Employee's best efforts and full business time
and attention (except for permitted vacation periods and reasonable periods of
illness or other incapacity) to the business and affairs of the Company.
3.2 TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. Employee will
keep in strict confidence, and will not, directly or indirectly, at any time
during or after Employee's employment with the Company, make available,
disclose or use any trade secrets or confidential business and technical
information (except in the course of performing Employee's duties and
obligations under this Agreement). Further, during Employee's employment and
for a period of two years after termination of Employee's employment with the
Company, Employee shall not in any manner, directly or indirectly, induce or
attempt to induce any employee of the Company or an Affiliate to quit or
abandon his or her employment, or any customer, independent contractor,
consultant, supplier or vendor of the Company or an Affiliate to quit or
abandon its relationship, for any purpose whatsoever.
4
<PAGE>
(b) POST-TERMINATION. Employee agrees that, upon termination of
Employee's employment with the Company, for any reason, Employee will return
to the Company, in good condition, all property of the Company, including
without limitation, the originals and all copies of all management, training,
marketing and selling manuals; promotional materials; other training and
instructional materials; financial information; vendor, owner, manager and
product information; customer lists; other customer information; and all
other selling, service and trade information and equipment. If such items are
not returned, the Company will have the right to charge Employee for all
reasonable damages, costs, attorneys' fees and other expenses incurred in
searching for, taking, removing and/or recovering such property.
3.3 NONCOMPETITION. Employee and the Company recognize that Employee's
duties will entail the receipt of trade secrets and confidential information,
which include not only information concerning the Company's current operations,
procedures, suppliers and other contacts, but also its short-range and
long-range plans, and that such trade secrets and confidential information may
have been developed by the Company and its Affiliates at substantial cost and
constitute valuable and unique property of the Company. Accordingly, Employee
acknowledges that the foregoing makes it reasonably necessary for the protection
of the Company's business interests that Employee not compete with the Company
or any of its Affiliates during the term of this Agreement and that, for a
reasonable and limited period thereafter, the Employee not compete with the
Company or any of its Affiliates in the same geographic area in which the
Employee performs his services for the Company at the time of his termination of
employment with the Company. Therefore, (a) during the term of this Agreement,
Employee shall not (i) render personal services to any Competing Business in any
manner, including, without limitation, as owner, partner, director, trustee,
officer, employee,
5
<PAGE>
consultant or advisor thereof ("Personal Services") or (ii) have any
investment in a Competing Business other than a DE MINIMIS investment and (b)
for two years after Employee's termination of employment, Employee shall not
(i) render Personal Services to any Competing Business within a 25 mile
radius of the Company-owned site to which Employee regularly reported at the
time of Employee's termination of employment with the Company or (ii) have
any investment in a Competing Business other than a DE MINIMIS investment.
For purposes of the preceding sentence, a DE MINIMIS investment is ownership
of less than 1/2 of 1% of the outstanding equity or debt of any Competing
Business.
Notwithstanding anything herein to the contrary, if Employee
shall breach the covenants contained in this Article III, the Company shall have
no further obligations to Employee pursuant to this Agreement and may recover
from Employee all such damages to which it may be entitled at law or in equity.
In addition, Employee acknowledges that any such breach is likely to result in
immediate and irreparable harm to the Company for which money damages are likely
to be inadequate. Accordingly, Employee consents to injunctive and other
appropriate equitable relief that the Company may seek to protect the Company's
rights under this Agreement. Such relief may include, without limitation, an
injunction to prevent Employee from disclosing any trade secrets or confidential
information concerning the Company to any Entity, to prevent any Entity from
receiving from Employee or using any such trade secrets or confidential
information and/or to prevent any Entity from retaining or seeking to retain any
other employees of the Company. Employee acknowledges good and sufficient
consideration for the noncompetition and nonsolicitation covenants of this
Section.
6
<PAGE>
ARTICLE IV
RELEASE
4.1 TERMINATION OF EXISTING ARRANGEMENTS. Employee agrees that (a)
any employment or consulting agreements or other such arrangements, as such
agreements or arrangements were applicable to Employee prior to the Effective
Date (except such employment or consulting agreements or other arrangements
which are listed on Exhibit A hereto) and (b) any Company programs with
respect to retention or performance incentive payments or severance or
similar benefits, as such payments or benefits were applicable to Employee
prior to the Effective Date ((a) and (b) being collectively referred to as
the "Prior Arrangements"), are hereby terminated.
4.2 RELEASE. Upon execution of this Agreement, Employee (a) releases
and waives any rights or entitlements that Employee has or may have under any
Prior Arrangements, (b) releases and waives any claims for damages relating
to or arising out of the termination or rejection of any Prior Arrangement
during the Company's reorganization and (c) acknowledges that all severance
payments provided for in the KERP are in lieu of and not in addition to
notice or severance payments provided at law, whether statutory or
otherwise.. Such release will not, however, apply to the ongoing obligations
of the Company arising under this Agreement, or rights of indemnification
Employee may have under the Company's policies or by contract or by statute.
4.3 COVENANT NOT TO SUE. Employee agrees that Employee will never file
a lawsuit against the Company or any other third party asserting any claims
released hereunder.
4.4 BREACH. Employee further agrees that in the event Employee breaches
any of Employee's obligations hereunder or if the Company terminates Employee's
employment with
7
<PAGE>
the Company for Cause, the Company shall have the right to demand the
repayment of all or a portion of any amounts paid to Employee under the KERP
and, in addition, (a) the Company shall have no further obligation to
Employee pursuant to this Agreement and (b) Employee shall pay any expenses
or damages incurred by the Company or its Affiliates as a result of said
breach or as a result of the activities giving rise to the termination for
Cause, including all costs incurred by the Company or its Affiliates,
including reasonable attorneys' fees, in defending against any claims
released in Section 4.2 hereof.
4.5 RELEASE AGREEMENT. Employee acknowledges that this Agreement
constitutes a "Release Agreement" as described in any component of the KERP.
ARTICLE V
MISCELLANEOUS
5.1 ASSIGNMENT. This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereof except as expressly
provided in Sections 2.4(a) and (b). Without limiting the generality or effect
of the foregoing, Employee's right to receive payments hereof will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Employee's will or by the
laws of descent and distribution and, if Employee attempts any assignment or
transfer contrary to this Section 5.1, the Company will have no liability to pay
any amount Employee attempts to assign, transfer or delegate.
5.2 GOVERNING LAW; ARBITRATION. This Agreement has been executed on
behalf of the Company by an officer of the Company located in the City of
_____________. This Agreement and all questions arising in connection with it
shall be governed by and construed in accordance
8
<PAGE>
with the laws of the jurisdiction in which Employee ordinarily is a resident.
Subject to the following sentence, all disputes arising out of, or in
connection with this Agreement, which are not promptly settled by mutual
agreement of the parties hereto, shall be finally settled by arbitration in
accordance with the rules of the American Arbitration Association or the
Rules of the Arbitration and Mediation Institute of Canada, as appropriate.
Notwithstanding anything herein to the contrary, the Company may, at its
option, seek injunctive relief as contemplated in Article III above either in
lieu of or in addition to the arbitration remedies provided for in this
Section.
5.3 SEVERABILITY. If any portion of this Agreement is held to be
invalid or unenforceable, such holding shall not affect any other portion of
this Agreement.
5.4 ENTIRE AGREEMENT. This Agreement comprises the entire agreement
between the parties hereto and, as of the date hereof, supersedes any prior
agreements between the parties. This Agreement may not be modified, renewed or
extended except by a written instrument referring to this Agreement and executed
by the parties hereto.
5.5 NOTICES. Any notice or consent required or permitted to be given
under this Agreement shall be in writing and shall be effective (a) when given
by personal delivery, (b) one business day after being sent by overnight
delivery service or (c) five business days after being sent by certified or
registered mail, return receipt requested, to the Secretary of the Company at
its principal place of business in the City of ___________ or to Employee at the
last known address of Employee as shown on the records of the Company.
5.6 WITHHOLDING TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, provincial, city or other taxes
or other amounts as shall be required pursuant to any law or governmental
regulation or ruling.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
THE COMPANY
By:
------------------------------------------
Name:
Title:
---------------------------------------------
EMPLOYEE
10
<PAGE>
EXHIBIT A
NON-TERMINATING EMPLOYMENT OR CONSULTING
AGREEMENTS OR OTHER SUCH ARRANGEMENTS
THE COMPANY AND EMPLOYEE HEREBY AGREE THAT IN ORDER FOR THIS
EXHIBIT A TO HAVE A BINDING EFFECT UNDER SECTION 4.1 OF THE AGREEMENT,
THIS EXHIBIT A MUST BE EXECUTED BY EACH OF THE COMPANY, EMPLOYEE
AND (UNLESS SUCH INDIVIDUAL IS SIGNING ON BEHALF OF THE COMPANY) A
REPRESENTATIVE OF THE OFFICE OF THE VICE PRESIDENT OF OPERATIONS OF
FUNERAL HOMES AND CEMETERIES ("REPRESENTATIVE")
IN WITNESS WHEREOF, the parties hereto have executed this
Exhibit A as of the date and year first above written.
THE COMPANY
By:
------------------------------------------
Name:
Title:
---------------------------------------------
EMPLOYEE
---------------------------------------------
REPRESENTATIVE
11
<PAGE>
THE LOEWEN GROUP INC. Exhibit 11
For 10K
COMPUTATION OF PER SHARE EARNINGS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
BASIC
Net earnings (loss) $(465,176) $(598,969) $41,810
Less: Preferred share dividends (8,885) (8,900) (9,533)
--------- --------- -------
Net earnings (loss) attributable to Common shareholders $(474,061) $(607,869) $32,277
--------- --------- -------
--------- --------- -------
Weighted average shares outstanding 74,114 73,989 67,313
Basic earnings (loss) per Common share $ (6.40) $ (8.22) $ 0.48
--------- --------- -------
--------- --------- -------
FULLY DILUTED
Net earnings (loss) attributable to Common shareholders $(474,061) $(607,869) $32,277
Add: imputed earnings from dilutive options, net of tax effect 0 0 0
--------- --------- -------
Fully diluted net earnings (loss) $(474,061) $(607,869) $32,277
--------- --------- -------
--------- --------- -------
Weighted average shares outstanding 74,114 73,989 67,313
Shares issuable upon assumed conversion of dilutive options 0 0 0
--------- --------- -------
Fully diluted shares 74,114 73,989 67,313
--------- --------- -------
--------- --------- -------
Fully diluted earnings (loss) per Common share $ (6.40) $ (8.22) $ 0.48
--------- --------- -------
--------- --------- -------
</TABLE>
<PAGE>
Exhibit 23.1
[LETTERHEAD OF KPMG LLP]
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, 33-79602, 333-52811), 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 14, 2000 relating to the consolidated balance sheets
of The Loewen Group Inc. as at December 31, 1999 and 1998 and the
consolidated statements of operations, retained earnings (deficit)
and cash flows of The Loewen Group Inc. for each of the years in
the three year period ended December 31, 1999 and related
schedule; and
(ii) dated March 14, 2000 relating to the consolidated balance sheets
of Loewen Group International, Inc. as at December 31, 1999 and
1998 and the consolidated statements of operations and deficit and
cash flows of Loewen Group International, Inc. for each of the
years in the three year period ended December 31, 1999.
all of which reports appear in the December 31, 1999 annual report on
Form 10-K of The Loewen Group Inc.
Our reports include Comments by Auditors for U.S. readers on Canada-U.S.
reporting differences which contains additional comments regarding conditions
which raise substantial doubt about each of the entities' ability to continue
as a going concern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of that uncertainty.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
March 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 55,166
<SECURITIES> 0
<RECEIVABLES> 252,844
<ALLOWANCES> 54,344
<INVENTORY> 34,850
<CURRENT-ASSETS> 300,848
<PP&E> 1,033,988
<DEPRECIATION> 234,175
<TOTAL-ASSETS> 4,110,583
<CURRENT-LIABILITIES> 118,330
<BONDS> 70,511
0
157,146
<COMMON> 1,276,434
<OTHER-SE> (989,234)
<TOTAL-LIABILITY-AND-EQUITY> 4,110,583
<SALES> 1,030,373
<TOTAL-REVENUES> 1,030,373
<CGS> 741,714
<TOTAL-COSTS> 537,266
<OTHER-EXPENSES> 98,442
<LOSS-PROVISION> 59,247
<INTEREST-EXPENSE> 87,849
<INCOME-PRETAX> (497,116)
<INCOME-TAX> (31,940)
<INCOME-CONTINUING> (465,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (465,176)
<EPS-BASIC> (6.40)
<EPS-DILUTED> (6.40)
</TABLE>
