<PAGE>
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(5)
(TO PROSPECTUS DATED OCTOBER 22, 1996) Registration No. 333-14467
$200,000,000
[LOGO STEWART
ENTERPRISES, INC. STEWART ENTERPRISES, INC.
APPEARS HERE]
6.40% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS/SM/)
DUE MAY 1, 2013
(REMARKETING DATE MAY 1, 2003)
The annual interest rate on the 6.40% Remarketable Or Redeemable Securities
(the "ROARS") due May 1, 2013 (the "Stated Maturity Date") issued by Stewart
Enterprises, Inc. (the "Company") for the period from April 24, 1998 to May 1,
2003 (the "Remarketing Date") is 6.40%. Interest on the ROARS is payable semi-
annually on November 1 and May 1 of each year, commencing November 1, 1998. On
the Remarketing Date, the ROARS will either be (i) mandatorily tendered to and
purchased by NationsBanc Montgomery Securities LLC, or its successor, as
Remarketing Dealer (the "Remarketing Dealer"), in which case the Remarketing
Dealer will pay 100% of the principal amount of the ROARS and the Company will
pay accrued interest, if any, to the Remarketing Date, or (ii) redeemed by the
Company at 100% of the principal amount thereof plus accrued interest, if any,
to the Remarketing Date. If purchased by the Remarketing Dealer on the
Remarketing Date, the ROARS will bear interest for the period on and after the
Remarketing Date to the Stated Maturity Date at the Interest Rate to Maturity
described herein. Except as described herein, the ROARS are not subject to
redemption by the Company prior to the Stated Maturity Date.
The ROARS will be issued only in fully registered book-entry form without
coupons and will be represented by one or more fully registered global
securities (the "Global Securities") deposited with or on behalf of The
Depository Trust Company (the "Depository") and registered in the name of the
Depository or its nominee. Interests in the Global Securities will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depository and its participants. Owners of beneficial interests in the
Global Securities will not be entitled to receive physical delivery of the
ROARS in definitive form, except under limited circumstances as described
herein. See "Description of the ROARS--Book-Entry System." Settlement for the
ROARS will be made in immediately available funds and all payments of
principal and interest in respect of the ROARS in book-entry form will be made
in immediately available funds. The ROARS will trade in the Depository's Same-
Day Funds Settlement System until maturity or until the ROARS are issued in
definitive form, and secondary market trading activity in the ROARS will
therefore be required by the Depository to settle in immediately available
funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(3)(4)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per ROARS......................... 99.677% 0.600% 101.977%
- ------------------------------------------------------------------------------
Total............................. $199,354,000 $1,200,000 $203,954,000
- ------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from April 24, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $323,000.
(4) Includes a payment to the Company by NationsBanc Montgomery Securities LLC
in connection with the Remarketing Agreement described herein. See
"Description of the ROARS--Remarketing Dealer."
The ROARS are being offered, subject to prior sale, by the Underwriters
when, as and if issued to and accepted by the Underwriters, and subject to
various prior conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the global certificate will be made on or about
April 24, 1998 in book-entry form through the facilities of the Depository,
against payment therefor.
NATIONSBANC MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
CITICORP SECURITIES, INC.
The date of this Prospectus Supplement is April 21, 1998.
- --------
/SM/ Service Mark of NationsBanc Montgomery Securities LLC
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE ROARS.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE ROARS IN THE OPEN MARKET.
----------------
References herein to "U.S. dollars" or "U.S. $" or "$" are to the lawful
currency of the United States of America.
S-2
<PAGE>
THE COMPANY
GENERAL
Stewart Enterprises, Inc. (the "Company") is the third largest provider of
products and services in the death care industry in North America. Through its
subsidiaries, the Company owns and operates 448 funeral homes and 132
cemeteries in 25 states within the United States, and in Puerto Rico, Mexico,
Australia, New Zealand, Canada, Spain, Portugal, the Netherlands and
Argentina. The Company is a leader in the industry's trend toward
consolidation and has acquired most of its current operations through
acquisitions.
The Company provides a complete range of death care products and services
both at and prior to the time of need. The Company's funeral homes and
cemeteries are located primarily in metropolitan areas and are generally
organized in "clusters," which are groups of integrated funeral homes and
cemeteries. The Company also develops combined cemetery and funeral home
facilities, whereby the funeral home is located at and operated in conjunction
with the cemetery. The Company believes that it owns and operates one or more
of the premier death care facilities in each of its principal markets. The
Company also believes that it is an industry leader in the marketing and sale
of prearranged funeral and cemetery services and products.
The Company has an experienced management team and a decentralized
organizational structure that allows local funeral home directors and cemetery
managers to best serve their location's particular needs. The Company has
three principal objectives: (i) to provide the highest level of quality,
service and value to each family it serves; (ii) to attract, retain and reward
highly qualified individuals to operate its businesses; and (iii) to pursue a
strategy of disciplined internal and external growth, with the ultimate goal
of enhancing shareholder value.
THE DEATH CARE INDUSTRY
The Company's management believes that the death care industry has several
attractive fundamental characteristics. The industry is relatively stable and
business failures are uncommon. Death care businesses in the United States
traditionally have been relatively small family-owned enterprises transferred
to successive generations within the family; however, the industry in the
United States and in certain foreign countries is undergoing a transition in
which family-owned firms are consolidating with larger organizations such as
the Company. Management believes this trend results primarily from the desire
of owners to address management succession and estate planning issues and to
achieve liquidity and diversification of their investments. Management
believes this trend also results from the willingness of consolidators to
offer attractive prices due to the consolidators' belief that they can improve
the profit margins of the acquired firms mainly through enhanced marketing and
sales initiatives and economies of scale. In addition, management believes it
can be difficult for new competitors to successfully enter existing markets by
opening new cemeteries and funeral homes due to several factors, including the
importance to families of reputation and goodwill developed over time,
regulatory compliance complexities, zoning restrictions and the existence of
an adequate number of facilities serving mature markets.
According to the United States Bureau of the Census, the number of deaths in
the United States is expected to increase by approximately 1% per year through
2010. In addition, industry studies indicate that while the death rate is
declining slightly, the average age of the population in the United States is
increasing. The aging of the population, particularly the "baby boomers" who
have only recently begun to turn 50, represents a significant opportunity for
firms such as the Company to expand their customer base and secure a portion
of their future market share by actively marketing prearranged property,
merchandise and services. Management believes that its principal target market
for sales of prearranged cemetery property, merchandise and services is those
age 50 and above, while those most inclined to prearrange their funeral
service are typically age 60 and above.
OPERATIONS
Premier Facilities. The Company believes that it operates one or more of the
premier death care facilities in each of its principal markets. The Company
considers a facility to be "premier" if, when measured by such
S-3
<PAGE>
factors as tradition, heritage, reputation, physical size, volume of business,
available inventory, name recognition, aesthetics and potential for
development or expansion, it is one of the most highly regarded facilities in
its market area.
Clustering. The Company operates most of its funeral homes and cemeteries in
"clusters." Clusters are groups of funeral homes and cemeteries located in
close enough proximity to each other that their operations can be integrated
to achieve economies of scale. For example, clustered facilities can share
vehicles and employees, centralized embalming services and inventories of
caskets and other merchandise, thus decreasing the Company's cost to operate
each location. Furthermore, by virtue of their proximity to each other,
clustered facilities create opportunities for more integrated, sophisticated
management and oversight of their operations.
Funeral Operations. Funeral operations accounted for approximately 55% of
the Company's revenues for the fiscal year ended October 31, 1997, and 58% for
the three months ended January 31, 1998. The Company's funeral homes offer a
complete range of services and products to meet families' funeral needs,
including consultation on a prearranged basis or at the time of need, removal
and preparation of remains, the use of funeral home facilities for visitation,
worship and funeral services, transportation services, flowers and caskets. In
addition to traditional funeral services, all of the Company's funeral homes
offer cremation products and services. Most of the Company's funeral homes
have a non-denominational chapel on the premises, thereby permitting family
visitation and religious services to take place at one location.
Cemetery Operations. Cemetery operations accounted for approximately 45% of
the Company's revenues for the fiscal year ended October 31, 1997, and 42% for
the three months ended January 31, 1998. The Company's cemetery operations
involve the sale of cemetery property and related merchandise, including lots,
lawn crypts, family and community mausoleums, monuments, memorials and burial
vaults, along with the sale of burial site openings and closings. Cemetery
property and merchandise sales are made at the time of need or on a
prearranged basis. The Company also maintains cemetery grounds pursuant to
perpetual care contracts or laws. Although profit margins of cemetery
operations typically are lower than those of funeral operations, the Company
believes that its cemetery properties help it to maintain market share, as
families often return to a cemetery location where their ancestors are buried.
In addition, the Company's clustering and combined facilities strategies help
to improve the profitability of individual cemetery locations.
Combined Funeral Home and Cemetery Operations. Approximately 44% of the
Company's cemeteries have a Company funeral home on site that is operated in
conjunction with the cemetery. Many of these facilities are in the Company's
key markets, including, among others, New Orleans, Louisiana; Dallas, Fort
Worth and Houston, Texas; and Miami, Orlando, Tampa and St. Petersburg,
Florida. The Company plans to construct approximately three funeral homes per
fiscal year on a Company cemetery location. Although it generally takes
several years before a newly constructed funeral home becomes profitable, the
Company's experience with combined facilities has demonstrated that the
combination of a funeral home with a cemetery can increase significantly the
market share and profitability of both. The enhanced purchasing power, more
sophisticated management systems and sharing of facilities, personnel and
equipment made possible by combined facilities results in lower average
operating costs to the Company and helps to increase market share by allowing
the Company to offer families the convenience of complete funeral home and
cemetery planning and services from a single location at a competitive price.
Cremation. For the year ended October 31, 1997, cremations accounted for
approximately 28% of funeral services performed by the Company in the United
States and Puerto Rico. In Australia, New Zealand, Mexico, Canada and Spain,
cremations accounted for approximately 62%, 64%, 49%, 55% and 10%,
respectively, of funeral services performed by the Company in fiscal year
1997. In September 1997, the Company entered Portugal, where cremations
accounted for approximately 14% of the funeral services performed by the firms
acquired. Additionally, in fiscal year 1998, the Company has entered the
Netherlands, where cremations accounted for approximately 70% of the funeral
services performed by the firm acquired by the Company.
S-4
<PAGE>
While cremations in the United States often result in lower average revenue
than traditional funeral services, they generally produce higher gross profit
margins. In the Company's foreign markets, cremations generally produce
revenues comparable to those of traditional funeral services in those markets.
The cremation rate in the United States has been increasing and by 2000,
cremations are expected to represent 24% of the United States burial market,
according to industry estimates. The Company has been addressing this trend by
providing cremation products and services at all of its funeral homes,
including traditional funeral services and memorialization options for those
choosing cremation. Additionally, the Company plans to expand on the model
developed by Sentinel Cremation Societies, Inc., which was acquired by the
Company in fiscal year 1997 and is discussed below under the heading "Internal
Growth Strategies."
Prearrangements. The Company markets death care products and services on a
prearranged basis through a staff of approximately 3,300 commission sales
counselors. Prearranged plans enable families to establish in advance and
prepay for the type of service to be performed, the products to be used and
the cost of such products and services at prices prevailing at the time the
agreement is signed, rather than when the products and services are delivered.
Prearranged plans also permit families to eliminate the emotional strain of
making death care decisions at the time of need. The Company believes that
extensive marketing of prearranged products and services produces a backlog of
future business and builds current and future market share. On average, over
the past five years, the Company has sold nearly three prearranged funeral
services for every one it has delivered out of the backlog. During the fiscal
year ended October 31, 1997, the Company sold 48,676 prearranged funeral
services, and as of January 31, 1998, had a backlog of 354,659 prearranged
funeral services expected to be delivered some time in the future.
Trust Funds and Escrow Accounts. Prearranged funeral plans are funded either
through trust funds or escrow accounts established by the Company, or to a
lesser extent through insurance, depending on the regulatory requirements in
the relevant jurisdiction. When trust or escrow funding is used, a percentage
of the sale price (the amount varies among jurisdictions), which is often paid
in installments, is placed in a trust fund or escrow account and the remainder
is retained by the Company to defray costs related to the sale. When insurance
funding is used, payments received by the Company are used to pay premiums on
insurance policies designed to cover the cost of providing the funeral service
in the future.
Principal and earnings (including interest, dividends and net realized
capital gains) on the trust funds and escrow accounts, and amounts funded
through insurance, generally are available to the Company only when the
funeral service is performed. In limited circumstances, the Company receives
principal amounts deposited in trust funds or escrow accounts upon
cancellation of the contract by the customer. Additionally, the Company is
permitted to withdraw earnings on a current basis in certain jurisdictions
where trust funds are used and in unregulated jurisdictions where escrow
accounts are used. As of January 31, 1998, the Company's prearranged funeral
trust funds and escrow accounts totaled approximately $462 million.
Prearranged cemetery merchandise is funded through trust funds and escrow
accounts established by the Company, and the related principal and earnings
generally are available to the Company only when the merchandise is delivered
or contracts are cancelled. As of January 31, 1998, the Company's merchandise
trust funds and escrow accounts totaled approximately $146 million.
The Company funds its obligations to provide maintenance of cemetery grounds
by placing a portion, generally 10%, of the proceeds from cemetery property
sales into perpetual care trust funds or escrow accounts. Income from these
funds is withdrawn and used for maintenance of the cemeteries, but principal,
including in some jurisdictions net realized capital gains, generally must be
held in perpetuity. As of January 31, 1998, the Company's perpetual care trust
funds and escrow accounts totaled approximately $158 million.
The accounting methods used to reflect the Company's prearranged funeral,
merchandise and perpetual care trust funds and escrow accounts are complex and
are described in the notes to the Company's consolidated financial statements
included in Item 8 of the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1997. Management believes that balances in the
Company's trust funds and escrow accounts, and
S-5
<PAGE>
amounts funded by insurance, along with installment payments due under
contracts, will be sufficient to cover the Company's estimated cost of
providing the prearranged services and products currently under contract.
Management. The Company has an experienced team of managers, many of whom
joined the Company through acquisitions. The Company's management structure is
designed to allow local funeral home directors and cemetery managers
substantial flexibility in deciding how their firms will be managed and their
products and services will be priced and merchandised. At the same time, the
Company establishes financial goals at the corporate level and maintains
centralized supervisory controls. Finally, the Company provides business
support services primarily through its Shared Services Center which provides
centralized and standardized accounting, payroll, contract processing,
collections and other services for all of the Company's domestic facilities,
including those in Puerto Rico.
Currently, the Company is divided into four operating divisions in North
America, each of which is managed by a division president and chief financial
officer. These divisions are further divided into regions, each of which is
managed by a regional chief operating officer. The Company's operations in
Europe and Australasia are not considered separate operating divisions, but
they are managed by local regional executives who report to certain of the
Company's executive officers. From time to time, the Company may increase or
realign the divisions and regions to accommodate expansion of the Company's
operations. The Company also has a Corporate Development Division, which
manages the Company's acquisition program, and a Corporate Division, which
manages the Company's corporate services, accounting and financial operations
and strategic planning.
In order to align the interests of the Company's managers with the long-term
interests of its shareholders, the Company has granted options to purchase
Company stock under its 1995 Incentive Compensation Plan to approximately 150
managers. Approximately two-thirds of the options granted were performance-
based and vested on April 7, 1998 when the performance goal was met. See "--
Recent Developments." The remaining one-third of the options, covering
approximately 1.3 million shares, vest over time, generally at the rate of 20%
per year over five years, except for options granted since the initial grant
date which vest over the remainder of the original five-year period.
Foreign Operations. The Company first entered foreign markets in fiscal year
1994 and through April 13, 1998, has acquired a total of 198 properties
outside the United States and Puerto Rico. For the fiscal year ended October
31, 1997, properties in foreign countries generated approximately 15% of
consolidated total revenues and, as of January 31, 1998, accounted for
approximately 33% of the Company's funeral home and cemetery locations and 19%
of consolidated total assets.
Internal Growth Strategies. The Company plans to increase market share by
extensive marketing of prearranged services and products and by continuing to
offer high quality services and products to families at competitive prices.
The Company's strategy calls for it to increase the profitability of its
funeral homes and cemetery operations primarily by continuing to achieve
economies of scale through clustering and the development of combined
facilities, through improved merchandising (by adjusting the mix of products
and services offered to achieve higher sales and profits), selective price
increases, obtaining volume discounts from suppliers and controlling costs.
The Shared Services Center is a key component of the Company's plan to control
costs.
The Company expects to gain market share and improve profitability in the
longer term partly through operating partnerships with third parties and by
establishing a network of alternative services firms. In fiscal year 1997, the
Company announced an agreement with the Archdiocese of Los Angeles whereby the
Company will construct and operate six funeral homes on land leased by the
Company from the Archdiocese at the site of six cemeteries owned and operated
by the Archdiocese. Management believes that this partnership will allow the
Company to enjoy the benefits of operating a funeral home on the grounds of a
cemetery, without the capital investment of purchasing the cemetery. The
Company also believes that partnerships such as this one also benefit the
third parties by allowing them to compete with other cemeteries in their
market that have funeral homes on their properties. To further expand upon
this strategy, the Company is pursuing similar partnership opportunities
S-6
<PAGE>
with other cemetery operators. The construction of funeral homes is capital
intensive, and newly-constructed funeral homes often do not yield profits for
several years. No assurances can be given about whether, when or to what
extent this strategy will contribute in any material respect to the Company's
profits.
During fiscal year 1997 the Company acquired Sentinel Cremation Societies,
Inc. of California ("Sentinel") which owned and operated thirteen service
centers offering cremations and related products and services. At the time of
its acquisition, Sentinel sponsored two cremation societies, which together
had more than 104,000 members. Members in the cremation society pay a small
membership fee and receive a membership card indicating their wish to be
cremated. Because Sentinel's offices generally operate from leased locations
with a small staff, they have lower overhead than traditional funeral homes.
The cost to the family for death care arrangements at a Sentinel location
generally is less than at a traditional funeral home. The expansion of the
Sentinel model is an example of the Company's effort to address the growing
cremation market, and it offers a cost-saving alternative to the construction
of a traditional funeral home. The Company plans to open additional service
centers similar to the Sentinel model, although management expects this
expansion to occur slowly while the Company further develops and tests the
concept in new markets. Since the Sentinel acquisition was completed in March
1997, the Company has opened six additional service center locations. No
assurance can be given about whether, when or to what extent this strategy
will contribute in any material respect to the Company's profits.
Subsidiaries. Substantially all of the Company's operations are conducted
through subsidiaries.
ACQUISITIONS
Background. From October 31, 1991 through April 13, 1998, the Company has
grown from 72 funeral homes and cemeteries in six states to 448 funeral homes
and 132 cemeteries in 25 states and nine foreign countries, almost entirely as
a result of acquisitions. At the time of the Company's initial public offering
in October 1991, the Company owned funeral homes and cemeteries in Louisiana,
Texas, Florida, Virginia, West Virginia and Maryland. Since that time, the
Company has expanded in the United States, primarily in the Southern and Mid-
Atlantic states and more recently in the Midwest and Pacific states. The
Company entered Puerto Rico and Mexico in fiscal years 1993 and 1994,
Australia, New Zealand and Canada in fiscal years 1995 and 1996, and Spain and
Portugal in fiscal year 1997. The Company also has entered the Netherlands and
Argentina in fiscal year 1998. The Company has acquired a total of 198 funeral
homes and cemeteries in Mexico, Australia, New Zealand, Canada, Europe and
Argentina since it first entered those markets, and it believes that
attractive expansion opportunities exist in those and other foreign countries.
The following table sets forth certain information with respect to the
Company's completed and pending acquisition activity:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
FUNERAL HOMES PURCHASE PRICE
AND CEMETERIES (IN MILLIONS)
-------------- --------------
<S> <C> <C>
Properties owned as of October 31, 1991.... 72 $ --
Acquisitions(/1/):
Fiscal year 1992......................... 11 30.0
Fiscal year 1993......................... 49 94.6
Fiscal year 1994......................... 60 177.6
Fiscal year 1995......................... 70 154.4
Fiscal year 1996......................... 149 179.0
Fiscal year 1997......................... 114 184.5
November 1, 1997-April 13, 1998.......... 40 61.2
Pending acquisitions, as of April 13,
1998.................................... 40 58.3
</TABLE>
- --------
(1) Excludes funeral homes and cemeteries constructed by the Company.
S-7
<PAGE>
External Growth Strategy. Management believes that only a relatively small
part of the death care industry has been consolidated and that additional
consolidation opportunities exist. The Company actively pursues acquisition
opportunities both domestically and internationally and plans to continue to
do so. Where feasible, the Company seeks to acquire premier firms that either
may be integrated with an existing cluster or that may serve as a base for the
formation of a new cluster, and that have strong management willing to remain
with the Company. In evaluating a potential acquisition, the Company also
considers factors such as the size of the community the property serves and
the potential for increasing the property's profitability through increased
prearranged marketing efforts and other means. The Company expects most of its
expansion to continue to occur domestically, although it continues to pursue
international acquisitions, primarily in Europe, Latin America and the Pacific
Rim.
Management believes it follows a disciplined approach to acquisitions.
Currently, the Company's objective is to pay no more than eight times
management's estimate of what the acquired firm's EBIT (earnings before
interest and taxes) will be for the first twelve months after the acquisition.
Management prices each acquisition so that the acquired firm is expected to be
additive to Company earnings per share in the first twelve months after its
acquisition.
The Company created its Corporate Development Division in fiscal year 1995
to further coordinate the Company's acquisition activities. The Division was
expanded in fiscal year 1997 to include, in addition to its six full-time
employees, six field representatives focusing on domestic acquisition
candidates and three representatives focusing on European acquisition
candidates. These representatives devote their full time to identifying and
developing candidates and assisting in negotiations, and they are paid on a
commission basis. Divisional and regional management of the Company also work
with the Corporate Development Division in identifying and developing
candidates and assisting in negotiations.
Assimilation. The Company seeks to retain key managers of acquired companies
in order to assure the continuation of the acquired firm's goodwill, and
frequently enters into management or consulting agreements and non-compete
agreements with owners and key managers of acquired firms. In addition, the
Company generally continues to operate acquired businesses under their
existing names. Acquired firms initially, however, generally have lower gross
profit margins than the Company's existing businesses. The Company strives to
improve the margins of acquired businesses primarily by increasing prearranged
sales, integrating the firm into the Company's marketing program, assisting
local managers in evaluating merchandising and pricing strategies, and
standardizing and centralizing certain business support functions through the
Shared Services Center. Management believes that the Company has been
improving its ability to assimilate acquired firms and improve their margins.
RECENT DEVELOPMENTS
The Company's performance-based stock options, granted under the Company's
1995 Incentive Compensation Plan and covering 2.4 million shares, vested on
April 7, 1998 when the performance goal set in 1995 was met. The options, held
by 119 persons, vested when the average of the closing sale prices of a share
of the Company's Class A Common Stock equaled or exceeded $52.87 for 20
consecutive trading days, which goal represented a five-year 20% annual
compounded growth in the price per share of the stock from the plan's
inception. As a result, the Company is required by generally accepted
accounting principles to record a non-recurring, non-cash charge to earnings
of approximately $78 million (approximately $51 million after-tax, or $1.04
per share) in the second quarter of fiscal year 1998. Although this charge
will result in the Company reporting a loss for the second quarter of fiscal
year 1998, there will be no impact on future periods. Additionally, to
encourage optionees to exercise their options immediately in order to renew
the performance-based option program and to reduce potential dilution from
additional shares in the market, the Company offered to repurchase the options
for the difference between $54.625, the closing price on the date on which the
options vested, and the exercise price of the options. The vesting of the
options, the repurchase of certain of the options by the Company and the
exercise of the remaining options will result in a net cash outlay of
approximately $43 million.
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<PAGE>
The Company will effect a two-for-one stock split on its Class A and Class B
Common Stock in the form of a 100% stock dividend payable on April 24, 1998 to
shareholders of record on April 10, 1998.
FORWARD-LOOKING STATEMENTS
Certain statements made herein that are not historical facts are intended to
be forward-looking statements within the meaning of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's actual
results could differ materially due to several important factors including the
following: the Company's ability to sustain recent levels of acquisition
activity and enter new markets; the economy, death rate and competition in the
Company's markets; financial market conditions, including stock and bond
prices and interest rates; the Company's ability to achieve economies of scale
and manage growth; and the performance of acquired businesses. Such factors,
and others, are more fully described in Item 5 of the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1998.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the ROARS offered hereby
are estimated to be approximately $203.6 million, based on an offering price
of 99.677% and after deducting the underwriting discount and estimated
expenses of the offering, and including the payment made to the Company by
NationsBanc Montgomery Securities LLC as Remarketing Dealer. See "Description
of the ROARS--Remarketing Dealer." The Company will use substantially all of
the net proceeds to reduce the balances outstanding on its revolving credit
facilities, which amounts will then become available to the Company to fund
its continuing acquisition program and for general corporate purposes. As of
April 20, 1998, $465.0 million was outstanding under the Company's $600
million revolving credit facility, and no amounts were outstanding under the
Company's $10 million revolving credit facility. The $600 million revolving
credit facility bears interest at the lead lending bank's prime rate, or at
certain optional rates at the Company's election (a weighted average rate of
approximately 6.17% at April 20, 1998), contains a facility fee of 12.5 basis
points, and matures on April 30, 2002. The $10 million revolving credit
facility bears interest at the lending bank's prime rate or at certain
optional rates at the Company's election and matures on March 31, 1999. Of the
funds drawn by the Company on its revolving credit facilities in the last 12
months, approximately 65% was used to fund acquisitions, and the remainder was
used for additions to property and equipment, including new funeral home
construction, and general corporate purposes. As of April 13, 1998, pending
acquisitions consisted of 36 funeral homes and four cemeteries for an
aggregate purchase price of $58.3 million.
Under the most restrictive of its credit agreements, the Company is required
to maintain a debt-to-equity ratio of not more than 1.25 to 1.0. After
application of the net proceeds of this offering, the Company's additional
borrowing capacity under this ratio is estimated to be approximately $310.3
million, all of which would be available under the Company's existing credit
facilities.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 31, 1998, and such capitalization as adjusted to reflect the issuance
of the ROARS and the application of the net proceeds therefrom as described
under "Use of Proceeds."
<TABLE>
<CAPTION>
JANUARY 31, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt................... $ 35,784 $ 28,290
========== ==========
Long-term debt, excluding current maturities(/1/)
The ROARS............................................ -- $ 200,000
Revolving line of credit............................. $ 362,000 165,863
Senior notes......................................... 95,714 95,714
6.70% Notes due 2003................................. 100,000 100,000
Other, principally seller financing of acquired
operations or debt assumed in acquisitions, and
partially secured................................... 12,960 12,960
---------- ----------
Total long-term debt............................... 570,674 574,537
---------- ----------
Preferred stock, $1.00 par value, 5,000,000 shares
authorized; none outstanding.......................... -- --
Shareholders' equity:
Common stock, $1.00 stated value:
Class A common stock, no par value, 150,000,000
shares authorized; 46,963,569 shares issued and
outstanding....................................... 46,964 46,964
Class B common stock, no par value, 5,000,000
shares authorized; 1,777,510 shares issued and
outstanding; 10 votes per share; convertible into
an equal number of Class A shares................. 1,778 1,778
Additional paid-in capital........................... 527,761 527,761
Retained earnings.................................... 300,074 300,074
Cumulative foreign translation adjustment............ (46,532) (46,532)
Unrealized appreciation of investments............... 2,506 2,506
---------- ----------
Total shareholders' equity......................... 832,551 832,551
---------- ----------
Total capitalization............................... $1,403,225 $1,407,088
========== ==========
</TABLE>
S-10
<PAGE>
- --------
(1) All of the Company's long-term debt is unsecured, except for $4.5 million
at January 31, 1998 ($2.7 million at April 20, 1998) representing liens on
the assets or stock of subsidiaries, which were incurred or assumed in
connection with acquisitions. Long-term debt outstanding at January 31,
1998, excluding current maturities, included the following:
(i) $362.0 million under the Company's $600 million revolving line of
credit. The $600 million facility matures on April 30, 2002, contains a
facility fee of 12.5 basis points, and borrowings bear interest at the
lead lending bank's prime rate, or certain optional rates at the
Company's election. As of April 20, 1998, borrowings under this
facility totaled $465.0 million and had a weighted average interest
rate of approximately 6.17%;
(ii) $35.7 million of senior notes, bearing interest at 6.04% and maturing
on November 30, 2003, with principal payments of $7.143 million due on
November 30 each year, which payments commenced November 30, 1997;
(iii) $60.0 million of senior notes consisting of $50 million Series B
notes due November 1, 2002 with principal payments of $16.7 million
due on each of November 1, 2000 and 2001 and $16.6 million due
November 1, 2002, bearing interest at 8.44%, and $10 million Series C
notes due November 1, 2006 bearing interest at 8.72%; and
(iv) $100.0 million Notes due December 1, 2003, bearing interest at 6.70%.
As of April 20, 1998, the Company had an aggregate of $3.4 million in standby
letters of credit issued under the $600 million facility, which amounts count
as advances for purposes of determining the availability of funds under such
facility.
S-11
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31,(/1/) JANUARY 31,(/1/)
--------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues:
Funeral................ $ 75,348 $ 116,266 $ 188,991 $ 225,461 $ 291,649 $ 66,576 $ 86,918
Cemetery............... 107,315 138,092 179,831 207,926 240,937 56,136 62,391
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues......... 182,663 254,358 368,822 433,387 532,586 122,712 149,309
Gross profit:
Funeral................ 22,398 31,785 55,309 72,239 89,235 20,171 28,057
Cemetery............... 19,032 25,812 34,434 45,879 67,937 15,126 18,060
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total gross profit..... 41,430 57,597 89,743 118,118 157,172 35,297 46,117
Corporate general and
administrative
expenses............... (7,223) (8,157) (11,113) (14,096) (15,402) (3,855) (4,024)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating earnings
before performance-
based stock options.... 34,207 49,440 78,630 104,022 141,770 31,442 42,093
Performance-based stock
options................ -- -- (17,252) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating earnings...... 34,207 49,440 61,378 104,022 141,770 31,442 42,093
Interest expense........ (6,540) (8,877) (22,815) (26,051) (38,031) (8,962) (9,946)
Investment and other
income................. 1,902 1,635 2,937 4,104 2,738 785 1,358
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing
operations before
income taxes and
cumulative effect of
change in accounting
principles............. $ 29,569 $ 42,198 $ 41,500 (/2/) $ 82,075 $ 106,477 $ 23,265 $ 33,505
========== ========== ========== ========== ========== ========== ==========
Earnings before
cumulative effect of
change in accounting
principles............. $ 18,839 $ 27,253 $ 26,145 (/2/) $ 51,297 $ 69,742 $ 15,007 $ 21,946
Cumulative effect of
change in accounting
principles (net of
$2,230 income tax
benefit)(/1/).......... -- -- -- -- (2,324) (2,324) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing
operations............. $ 18,839 $ 27,253 $ 26,145 (/2/) $ 51,297 $ 67,418 $ 12,683 $ 21,946
========== ========== ========== ========== ========== ========== ==========
Pro forma earnings from
continuing
operations(/3/)........ $ 17,753 $ 28,649 $ 30,671 (/2/) $ 49,959 $ 69,742 $ 15,007
========== ========== ========== ========== ========== ==========
OTHER DATA:
Depreciation and
amortization.......... $ 7,346 $ 11,027 $ 16,792 $ 21,701 $ 27,849 $ 7,186 $ 7,226
Capital expenditures,
excluding
acquisitions.......... 13,598 16,997 20,676 26,332 44,405 8,991 10,180
Purchases of funeral
homes and
cemeteries(/4/)....... 76,341 154,594 99,691 158,359 154,013 17,268 26,041
EBITDA(/5/)............ 43,455 62,102 81,107 (/5/) 129,827 172,357 39,413 50,677
Ratio of EBITDA to
interest
expense(/5/).......... 6.64x 7.00x 3.55x (/5/) 4.98x 4.53x 4.40x 5.10x
<CAPTION>
OCTOBER 31, JANUARY 31, 1998
--------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets................. $ 455,942 $ 759,390 $1,072,435 $1,360,913 $1,629,270 $1,675,928 $1,677,451
Long-term debt, less
current maturities.... 122,517 260,913 317,451 515,901 524,351 570,674 574,537
Shareholders' equity... 232,006 325,671 483,978 547,447 819,570 832,551 832,551
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
-------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Funeral homes in
operation at end of
period................ 76 105 161 298 401 310 426
At-need funerals
performed............. 14,588 23,539 37,263 38,351 61,682 13,241 20,284
Prearranged funerals
performed............. 6,320 7,571 9,225 15,422 18,970 4,548 6,202
-------- -------- -------- -------- -------- --------- ---------
Total funerals
performed........... 20,908 31,110 46,488 53,773 80,652 17,789 26,486
Prearranged funerals
sold.................. 17,859 26,637 33,787 37,545 48,676 9,057 13,565
Backlog of prearranged
funerals at end
of period............. 130,610 183,886 222,532 294,829 350,031 296,014 354,659
Cemeteries in
operation at end of
period................ 57 90 105 120 129 120 132
Interments performed... 26,557 33,118 42,480 46,007 53,266 13,997 14,717
</TABLE>
- --------
(1) Effective November 1, 1996, the Company changed accounting principles for
prearranged funeral and cemetery sales, as follows:
(a) The Company now defers a portion of the earnings realized by
irrevocable prearranged funeral trust funds and escrow accounts in
order to offset the estimated effects of inflation on the future cost
of performing prearranged funeral services. Earnings realized in excess
of those deferred are recognized on a current basis, except in those
jurisdictions where earnings revert to a customer if a prearranged
funeral service contract is cancelled. Previously, all such earnings
were recognized as realized.
(b) The Company now records all revenues and costs attributable to
prearranged sales of cemetery interment rights and related products
when customer contracts are signed. Allowances for customer
cancellations and refunds are provided at the date of sale based upon
historical experience. Previously, such sales generally were deferred
under accounting principles prescribed for sales of real estate. Under
the Company's application of this method of accounting for sales of
real estate, revenues and costs were deferred until 20% of the contract
amount had been collected.
(c) The Company now records revenue and related costs attributable to
cemetery burial site openings and closings at the time of sale.
Previously, such sales were deferred until delivery.
Information presented for fiscal year 1997 and the three months ended
January 31, 1997 and 1998 reflects the change in accounting principles;
whereas information presented for fiscal years 1993 through 1996 reflects
results as originally reported under the accounting methods then in effect.
(2) Includes a non-recurring, non-cash charge of $17.3 million ($10.9 million
after-tax) recorded during fiscal year 1995 in connection with the vesting
of the Company's performance-based stock options. Excluding that charge,
earnings from continuing operations before income taxes and cumulative
effect of change in accounting principles, and earnings from continuing
operations for fiscal year 1995 were $58.8 million and $37.0 million,
respectively.
(3) Assumes change in accounting principles described in note (1) was applied
retroactively.
(4) Represents purchases of subsidiaries as reflected in the Company's
Consolidated Statements of Cash Flows, which amounts are net of cash
acquired, seller financing and stock issued (which items represent the
principal differences between the amounts presented herein and the
purchase prices disclosed under the caption "The Company--Acquisitions").
(5) "EBITDA" means earnings from continuing operations before interest, taxes,
depreciation, amortization (including amortization of goodwill) and
extraordinary items. EBITDA and the ratio of EBITDA to interest expense
for fiscal year 1995 include the effect of a non-recurring, non-cash
charge of $17.3 million recorded in connection with the vesting of the
Company's performance-based stock options. Excluding that charge, EBITDA
and the ratio of EBITDA to interest expense for fiscal year 1995 were
$98.4 million and 4.31x, respectively. EBITDA is frequently used by
security analysts and is presented here to provide additional information
about the Company's operations. EBITDA should not be considered as an
alternative to net earnings as an indicator of the Company's operating
performance or as an alternative to cash flows as a better measure of the
Company's liquidity. EBITDA is a non-GAAP measure and as calculated by the
Company may not be comparable to EBITDA as calculated by other companies.
S-13
<PAGE>
DESCRIPTION OF THE ROARS
GENERAL
The ROARS offered hereby will be issued under the Indenture dated as of
December 1, 1996 between the Company and Citibank, N.A., as trustee (the
"Trustee") as supplemented by the First Supplemental Indenture dated as of
April 24, 1998 between the Company and the Trustee (as supplemented, the
"Indenture"), and constitute a single series of Debt Securities thereunder.
The following description of the particular terms of the ROARS supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus, to which reference is hereby made. Except as
expressly provided in this Prospectus Supplement, the terms and conditions set
forth in the Prospectus will apply to the ROARS offered hereby.
Capitalized terms used herein but not otherwise defined shall have the
meanings assigned to such terms in the Indenture. The following summaries of
certain provisions of the Indenture do not purport to be complete, and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Indenture. The Indenture permits the issuance from time to
time of various series of Debt Securities, and each series may differ as to
terms, including maturity, interest rate, redemption and sinking fund
provisions, covenants, and events of default. The Indenture does not limit the
aggregate principal amount of Debt Securities that may be issued thereunder.
As of April 21, 1998, the Company had outstanding $100 million aggregate
principal amount of Debt Securities under the Indenture.
The ROARS will mature on May 1, 2013 (the "Stated Maturity Date") and are
limited to $200,000,000 in aggregate principal amount. The ROARS will be
unsubordinated and unsecured obligations of the Company and will rank pari
passu in right of payment with all other unsubordinated and unsecured
indebtedness of the Company. The ROARS will be issued in denominations of
$100,000 or integral multiples of $1,000 in excess thereof. All payments on
the ROARS will be made in U.S. dollars. The ROARS will be subject to the legal
defeasance provisions of the Indenture after the Remarketing Date.
On May 1, 2003 (the "Remarketing Date"), the ROARS will either be (i)
mandatorily tendered to and purchased by NationsBanc Montgomery Securities
LLC, or its successor, as Remarketing Dealer (the "Remarketing Dealer"), in
which case the Remarketing Dealer will pay 100% of the principal amount of the
ROARS and the Company will pay accrued interest, if any, to the Remarketing
Date, or (ii) redeemed by the Company at 100% of the principal amount thereof
plus accrued interest, if any, to the Remarketing Date. The Indenture provides
that an Event of Default shall occur in the event of a failure to pay
principal of and accrued interest on the ROARS on the Remarketing Date.
INTEREST AND INTEREST PAYMENT DATES
The ROARS will bear interest at 6.40% per annum for the period from April
24, 1998 to the Remarketing Date. If the ROARS are purchased by the
Remarketing Dealer on the Remarketing Date, on and after the Remarketing Date
the ROARS will bear interest at the rate determined by the Remarketing Dealer
in accordance with the procedures set forth below (the "Interest Rate to
Maturity"). See "--Interest Rate to Maturity."
The ROARS will bear interest from April 24, 1998, payable semi-annually on
November 1 and May 1 of each year (each, an "Interest Payment Date"),
commencing November 1, 1998, to the persons in whose names the ROARS are
registered at the close of business on the preceding October 15 and April 15,
respectively (whether or not a Business Day) (each, a "Regular Record Date");
provided, however, that the first payment of interest on a ROARS with an
original issue date between a Regular Record Date and an Interest Payment
Date, or on an Interest Payment Date, will be made on the Interest Payment
Date following the next succeeding Regular Record Date to the registered
holder on such next succeeding Regular Record Date; and provided further,
however, that interest payable on the Remarketing Date and on the Stated
Maturity Date will be payable to the person to whom principal shall be
payable. Interest payments will be in the amount of interest accrued from and
including the next preceding Interest Payment Date (or from and including
April 24, 1998 if no interest has been paid or duly provided for with respect
to the ROARS) to but excluding the relevant Interest Payment
S-14
<PAGE>
Date, the Remarketing Date or the Stated Maturity Date, as the case may be.
Interest on the ROARS will be computed on the basis of a 360-day year of
twelve 30-day months. "Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New
York, New York are authorized or obligated by law or executive order to close.
INTEREST RATE TO MATURITY
The Interest Rate to Maturity on the ROARS shall be determined by the
Remarketing Dealer by 3:30 p.m., New York City time, on the third Business Day
immediately preceding the Remarketing Date (the "Determination Date") to the
nearest one thousandth (0.001) of one percent per annum, and will be equal to
the sum of 5.44% per annum (the "Base Rate") and the Applicable Spread (as
defined below), which will be based on the Dollar Price (as defined below) of
the ROARS.
For this purpose, the following terms have the following meanings:
"Applicable Spread" shall be the lowest bid indication, expressed as a
spread (in the form of a percentage or in basis points) above the Base Rate,
obtained by the Remarketing Dealer on the Determination Date from the bids
quoted by five Reference Corporate Dealers (as defined below) for the full
aggregate outstanding principal amount of the ROARS at the Dollar Price, but
assuming (i) an issue date that is the Remarketing Date, with settlement on
such date without accrued interest, (ii) a maturity date that is the Stated
Maturity Date and (iii) a stated annual interest rate equal to the Base Rate
plus the spread bid by the applicable Reference Corporate Dealer. If fewer
than five Reference Corporate Dealers bid as described above, then the
Applicable Spread shall be the lowest of such bid indications obtained as
described above. The Interest Rate to Maturity announced by the Remarketing
Dealer, absent manifest error, shall be binding and conclusive upon the
holders of beneficial interests in the ROARS (the "Beneficial Owners"), the
Holders (as defined in the Indenture) of the ROARS, the Company and the
Trustee.
"Comparable Treasury Issues" means the United States Treasury security or
securities selected by the Remarketing Dealer as having an actual or
interpolated maturity or maturities comparable to the remaining term of the
ROARS being purchased by the Remarketing Dealer.
"Comparable Treasury Price" means, with respect to the Remarketing Date, (i)
the offer prices for the Comparable Treasury Issues (expressed in each case as
a percentage of its principal amount) on the Determination Date, as set forth
on "Telerate Page 500" (or such other page as may replace Telerate Page 500)
or (ii) if such page (or any successor page) is not displayed or does not
contain such offer prices on such Business Day, (a) the average of the
Reference Treasury Dealer Quotations (as defined below) for such Remarketing
Date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (b) if the Remarketing Dealer obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Reference
Treasury Dealer Quotations. "Telerate Page 500" means the display designated
as "Telerate Page 500" on Dow Jones Markets (or such other page as may replace
Telerate Page 500 on such service) or such other service displaying the offer
prices specified in (i) above as may replace Dow Jones Markets.
"Dollar Price" means, with respect to the ROARS, the present value, as of
the Remarketing Date, of the Remaining Scheduled Payments (as defined below)
discounted to the Remarketing Date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate (as defined
below).
"Reference Corporate Dealer" means each of NationsBanc Montgomery Securities
LLC, Bear Stearns & Co. Inc., Citicorp Securities, Inc., and two other dealers
to be selected by the Company and their respective successors; provided that
if any of the foregoing or their affiliates shall cease to be a leading dealer
of publicly traded debt securities of the Company (a "Primary Corporate
Dealer"), the Remarketing Dealer shall substitute therefor another Primary
Corporate Dealer.
"Reference Treasury Dealer" means each of NationsBanc Montgomery Securities
LLC, Bear Stearns & Co. Inc., Citicorp Securities, Inc., and two other dealers
to be selected by the Company and their respective
S-15
<PAGE>
successors; provided that if any of the foregoing or their affiliates shall
cease to be a primary U.S. Government securities dealer (a "Primary Treasury
Dealer"), the Remarketing Dealer shall substitute therefor another Primary
Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and the Remarketing Date, the offer prices for the Comparable
Treasury Issues (expressed in each case as a percentage of its principal
amount) quoted in writing to the Remarketing Dealer by such Reference Treasury
Dealer by 3:30 p.m., on the Determination Date.
"Remaining Scheduled Payments" means, with respect to the ROARS, the
remaining scheduled payments of the principal thereof and interest thereon,
calculated at the Base Rate only, that would be due after the Remarketing Date
to and including the Stated Maturity Date; provided that if the Remarketing
Date is not an Interest Payment Date with respect to the ROARS, the amount of
the next succeeding scheduled interest payment thereon, calculated at the Base
Rate only, will be reduced by the amount of interest accrued thereon,
calculated at the Base Rate only, to the Remarketing Date.
"Treasury Rate" means, with respect to the Remarketing Date, the rate per
annum equal to the semi-annual equivalent yield to maturity or interpolated
(on a day count basis) yield to maturity of the Comparable Treasury Issues,
assuming a price for the Comparable Treasury Issues (expressed as a percentage
of its principal amount), equal to the Comparable Treasury Price for such
Remarketing Date.
MANDATORY TENDER
If the Remarketing Dealer gives notice to the Company and the Trustee on the
fifth Business Day prior to the Remarketing Date (the "Notification Date") at
no later than 4:00 p.m. New York City time of its intention to purchase the
ROARS for remarketing, each of the ROARS will be automatically tendered, or
deemed tendered, to the Remarketing Dealer for purchase on the Remarketing
Date, except in the circumstances described under "--Mandatory Redemption" or
"--Optional Redemption." The purchase price for the ROARS to be paid by the
Remarketing Dealer will be equal to 100% of the principal amount thereof, and
the Company will pay accrued interest, if any, to the Remarketing Date. See
"--Settlement."
If the ROARS are tendered for remarketing, the Remarketing Dealer may
remarket the ROARS for its own account at varying prices to be determined by
the Remarketing Dealer at the time of each sale. From and after the
Remarketing Date, the ROARS will bear interest at the Interest Rate to
Maturity.
If the Remarketing Dealer elects to remarket the ROARS, the obligation of
the Remarketing Dealer to purchase the ROARS on the Remarketing Date is
subject, among other things, to the conditions that, since the time that the
Remarketing Dealer elected to remarket the ROARS, (i) no material adverse
change in the condition, financial or otherwise, earnings, affairs or business
of the Company and its subsidiaries taken as a whole shall have occurred the
effect of which is such as to make it in the reasonable judgment of the
Remarketing Dealer, impracticable to remarket the ROARS or to enforce
contracts for sale of the ROARS and (ii) no Event of Default (as defined in
the Indenture), or any event that, with the giving of notice or passage of
time, or both, would constitute an Event of Default, with respect to the ROARS
shall have occurred and be continuing.
If for any reason the Remarketing Dealer does not purchase all ROARS on the
Remarketing Date, the Company will be required to redeem the ROARS on the
Remarketing Date at a price equal to 100% of the principal amount thereof plus
all accrued and unpaid interest, if any, on the ROARS to the Remarketing Date.
See "--Mandatory Redemption."
NOTIFICATION OF INTEREST RATE TO MATURITY
If the Remarketing Dealer has previously notified the Company and the
Trustee on the Notification Date of its intention to purchase the ROARS on the
Remarketing Date, the Remarketing Dealer will notify the Company, the Trustee
and the Depository by telephone, confirmed in writing, by 4:00 p.m., New York
City time, on the Determination Date, of the Interest Rate to Maturity.
S-16
<PAGE>
MANDATORY REDEMPTION
The Company will redeem the ROARS as a whole on the Remarketing Date at a
price equal to 100% of the aggregate principal amount of the ROARS plus all
accrued and unpaid interest, if any, on the ROARS to the Remarketing Date in
the event that (i) the Remarketing Dealer for any reason does not notify the
Company of the Interest Rate to Maturity by 4:00 p.m., New York City time, on
the Determination Date, or (ii) prior to the Remarketing Date, the Remarketing
Dealer has resigned and no successor has been appointed on or before the
Determination Date, or (iii) at any time after the Remarketing Dealer elects
on the Notification Date to remarket the ROARS, the Remarketing Dealer elects
to terminate the Remarketing Agreement (as described below) in accordance with
the terms thereof, or (iv) the Remarketing Dealer does not give notice to the
Company and the Trustee on the Notification Date of its intention to purchase
the ROARS for remarketing on the Remarketing Date, or (v) the Remarketing
Dealer for any reason fails to deliver the purchase price for the ROARS to the
Trustee by 3:00 p.m. New York City time on the Business Day immediately
preceding the Remarketing Date, or (vi) the Company for any reason fails to
pay for and redeem the ROARS following its election to effect such redemption
as described below under the heading "--Optional Redemption." In any such
case, payment will be made by the Company to the Depository participant of
each Beneficial Owner of ROARS, by book-entry through the Depository by the
close of business on the Remarketing Date against delivery through the
Depository of such Beneficial Owner's ROARS. No defense or right against the
Remarketing Dealer will relieve the Company of its obligations to the Holders
of the ROARS to make such mandatory redemption.
OPTIONAL REDEMPTION
Except in the limited circumstances described below, the ROARS are not
subject to redemption at the option of the Company. If the Remarketing Dealer
elects to remarket the ROARS, the Company will notify the Remarketing Dealer
and the Trustee, not later than 4:00 p.m. New York City time on the Business
Day immediately preceding the Determination Date, if the Company irrevocably
elects to exercise its right to redeem the ROARS, in whole but not in part, on
the Remarketing Date. In addition, upon the occurrence of certain events after
the Remarketing Dealer elects to remarket the ROARS, the Remarketing Dealer
will have the right to terminate the Remarketing Agreement, or, until 10:30
a.m. New York City time on the Business Day immediately preceding the
Remarketing Date, redetermine the Interest Rate to Maturity. In such event,
the Company may elect, no later than 12:30 p.m. New York City time on the
Business Day immediately preceding the Remarketing Date, to redeem the ROARS.
If the Company elects to redeem the ROARS, the Company shall redeem the ROARS
as a whole on the Remarketing Date at a price equal to 100% of the aggregate
principal amount of the ROARS plus all accrued and unpaid interest, if any, on
the ROARS to the Remarketing Date. In such case, payment will be made by the
Company to the Depository participant of each Beneficial Owner of ROARS, by
book-entry through the Depository by the close of business on the Remarketing
Date against delivery through the Depository of such Beneficial Owner's ROARS.
In addition, the Remarketing Dealer will be deemed to have elected not to
remarket the ROARS and the Company will pay to the Remarketing Dealer the fair
market value, calculated as set forth in the Remarketing Agreement, of the
Remarketing Dealer's right to purchase and remarket the ROARS pursuant to the
Remarketing Agreement.
SETTLEMENT
If the ROARS are automatically tendered, or deemed tendered, to the
Remarketing Dealer for purchase on the Remarketing Date, all ROARS will be
delivered automatically to the account of the Trustee, by book-entry through
the Depository pending payment of the purchase price therefor, on the
Remarketing Date. The Remarketing Dealer will deliver the purchase price for
the ROARS to the Trustee by 3:00 p.m. New York City time on the Business Day
immediately preceding the Remarketing Date for payment to the Depository
participant (each, a "Participant") of each Beneficial Owner of ROARS, through
the Depository in accordance with the procedures of the Depository against
delivery or deemed delivery through the Depository of such Beneficial Owner's
ROARS. The purchase price of the ROARS will be equal to 100% of the principal
amount thereof. If the Remarketing Dealer does not purchase all of the ROARS
on the Remarketing Date, it will be the obligation of the Company to make or
cause to be made such payment for the ROARS, as described above under "--
Mandatory Redemption." In any case, the Company will make, or cause the
Trustee to make, payment of interest due on the Remarketing Date to the
Depository for distribution to each Beneficial Owner of ROARS by book-entry
through the Depository by the close of business on the Remarketing Date.
S-17
<PAGE>
The transactions described above will be executed on the Remarketing Date
through the Depository in accordance with the procedures of the Depository,
and the accounts of the respective Participants will be debited and credited
and the ROARS delivered by book-entry as necessary to effect the purchases and
sales thereof.
The tender and settlement procedures described above, including provisions
for payment to selling Beneficial Owners of tendered ROARS or for payment by
purchasers of ROARS in the remarketing, may be modified to the extent required
by the Depository or, if the book-entry system is no longer available for the
ROARS at the time of the remarketing, to the extent required to facilitate the
tendering and remarketing of ROARS in certificated form. In addition, the
Remarketing Dealer may modify (with the consent of the Trustee to the extent
required by the Indenture) the settlement procedures set forth above in order
to facilitate the settlement process in any manner not contrary to the
Indenture or adverse to the interests of the Holders of the ROARS; provided,
that such procedures must, in the reasonable opinion of the Company, allow the
Company sufficient time to fund the redemption of the ROARS on the Remarketing
Date.
As long as the Depository or its nominee holds the certificates representing
any ROARS in the book-entry system of the Depository, no certificates for such
ROARS will be delivered by any selling Beneficial Owner to reflect any
transfer of such ROARS effected in the remarketing. In addition, under the
terms of the ROARS and the Remarketing Agreement (as defined below), the
Company has agreed that (i) it will use its best efforts to maintain the ROARS
in book-entry form with the Depository or any successor thereto and to appoint
a successor depository to the extent necessary to maintain the ROARS in book-
entry form and (ii) it will waive any discretionary right it otherwise has
under the Indenture to cause the ROARS to be issued in certificated form.
Settlement for the ROARS will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of the
ROARS in book-entry form will be made in immediately available funds. The
ROARS will trade in the Depository's Same-Day Funds Settlement System until
the Stated Maturity Date, or until the ROARS are issued in definitive form,
and secondary market trading activity in the ROARS will therefore be required
by the Depository to settle in immediately available funds.
For further information with respect to transfers and settlement through the
Depository, see "--Book-Entry System."
REMARKETING DEALER
On or prior to the date of original issuance of the ROARS, the Company and
the Remarketing Dealer will enter into a Remarketing Agreement (the
"Remarketing Agreement"). The Remarketing Dealer will not receive any fees or
reimbursement of expenses from the Company in connection with the remarketing.
The proceeds to the Company from the sale of the ROARS will include an amount
paid by the Remarketing Dealer for its right to remarket the ROARS.
If the Remarketing Agreement is terminated at the option of the Remarketing
Dealer based upon the occurrence of any of certain specified termination
events, the Company will be obligated thereunder to reimburse the Remarketing
Dealer for all of its reasonable out-of-pocket expenses. In addition, in the
event of any such termination, the Company will be obligated to pay to the
Remarketing Dealer the fair market value, calculated as set forth in the
Remarketing Agreement, of the Remarketing Dealer's right to purchase and
remarket the ROARS pursuant to the Remarketing Agreement (the "Calculation
Amount"). If, prior to the Remarketing Dealer's election on the Notification
Date to remarket the ROARS, (i) the Indenture or the ROARS are amended without
the consent of the Remarketing Dealer in a manner that in the reasonable
judgment of the Remarketing Dealer materially changes the nature of the ROARS
or the remarketing procedures, or (ii) an Event of Default, or any event that,
with the giving of notice or passage of time, or both, would constitute an
Event of Default with respect to the ROARS shall have occurred and be
continuing, the Company must pay the Calculation Amount to the Remarketing
Dealer.
The Company will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), arising out of or in connection with its
duties under the Remarketing Agreement.
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<PAGE>
If the Remarketing Dealer elects to remarket the ROARS, the obligation of
the Remarketing Dealer to purchase the ROARS on the Remarketing Date will be
subject to several conditions precedent set forth in the Remarketing
Agreement, including the conditions that, since the time that the Remarketing
Dealer elected to remarket the ROARS, (i) no material adverse change in the
condition financial or otherwise, earnings, affairs or business of the Company
and its subsidiaries taken as a whole shall have occurred the effect of which
is such as to make it, in the reasonable judgment of the Remarketing Dealer,
impracticable to remarket the ROARS or to enforce contracts for sale of the
ROARS, and (ii) no Event of Default, or any event that, with the giving of
notice or passage of time, or both, would constitute an Event of Default, with
respect to the ROARS shall have occurred and be continuing. In addition, upon
the occurrence of certain events after the Remarketing Dealer elects to
remarket the ROARS, the Remarketing Dealer will have the right to terminate
the Remarketing Agreement, or, until 10:30 a.m. New York City time on the
Business Day immediately preceding the Remarketing Date, redetermine the
Interest Rate to Maturity.
No Beneficial Owner of any ROARS shall have any rights or claims under the
Remarketing Agreement or against the Company or the Remarketing Dealer as a
result of the Remarketing Dealer not purchasing such ROARS.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer, such resignation to be effective 10
Business Days after the delivery to the Company and the Trustee of notice of
such resignation. In such case, the Company shall appoint a successor
Remarketing Dealer. The Remarketing Dealer, in its individual or any other
capacity, may buy, sell, hold and deal in any of the ROARS. The Remarketing
Dealer may exercise any vote or join in any action that any Beneficial Owner
of ROARS may be entitled to exercise or take as if it did not act in any
capacity under the Remarketing Agreement. The Remarketing Dealer, in its
individual capacity, either as principal or agent, may engage in or have an
interest in any financial or other transaction with the Company as freely as
if it did not act in any capacity under the Remarketing Agreement.
As long as the Remarketing Agreement is in effect, neither the Company, nor
any person whose acquisition of the ROARS would cause such ROARS not to be
outstanding, will defease, purchase or otherwise acquire any of the ROARS
prior to the remarketing thereof by the Remarketing Dealer, other than in
connection with the fulfillment of its obligation to redeem the ROARS, or the
exercise of its right to redeem the ROARS, on the Remarketing Date. After the
Remarketing Date, or termination of the Remarketing Agreement prior thereto,
the Company may at any time purchase the ROARS at any price in the open market
or otherwise. The ROARS so purchased by the Company may, at its discretion, be
held, resold or surrendered to the Trustee for cancellation.
PAYMENT AND PAYMENT AGENTS
Principal of and any interest on the ROARS will be payable, subject to any
applicable laws and regulations, at the offices of such paying agents as the
Company may designate from time to time pursuant to the Indenture ("Paying
Agents"), except that, at the option of the Company, payment of any interest
may be made by check mailed to the address of the person entitled thereto as
such address shall appear in the Security Register (as defined in the
Indenture).
The Company has designated the Corporate Trust Office of the Trustee in New
York, New York as the Paying Agent and as the place where the ROARS may be
presented for payment. The Company may at any time designate one or more
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except
that the Company will be required to maintain a Paying Agent in each Place of
Payment.
Notwithstanding the foregoing, payments of principal and any interest on
Book-Entry Securities will be made in accordance with the arrangements from
time to time in place between the Paying Agents and the Depository or its
nominee, as holder. See "--Book-Entry System."
Any payment due on any day that is not a Business Day need not be made on
such day, but may be made on the next such succeeding Business Day, with the
same force and effect as if made on the due date, and no interest shall be
payable on the date of payment for the period from and after the due date.
S-19
<PAGE>
BOOK-ENTRY SYSTEM
The ROARS will be issued only in fully registered form without coupons and
will be a "Registered Security" under the Indenture. The ROARS will be issued
in fully registered book-entry form, will be a "Book-Entry Security" under the
Indenture and will be represented by one or more fully registered global
securities (the "Global Securities") deposited with or on behalf of the
Depository and registered in the name of the Depository or its nominee.
Interests in the Global Securities will be shown on, and transfers thereof
will be effected only through, records maintained by the Depository (with
respect to its participants' interests) and the Depository's participants
(with respect to Beneficial Owners). So long as the Depository or its nominee
is the registered owner of a Global Security, such registered owner will be
considered the sole owner or Holder of the ROARS represented by such Global
Security for all purposes under the Indenture. Except as otherwise provided
below, Beneficial Owners will not be entitled to have any of the individual
ROARS represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of any such ROARS in
definitive form and will not be considered the owners or Holders thereof under
the Indenture.
The Depository has advised the Company and the Underwriters as follows: The
Depository is a limited-purpose trust company organized under New York Banking
Law, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code as in effect in the State of New York
and a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934, as amended. The Depository holds
securities deposited by its participants with the Depository, and facilitates
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. The Depository's direct participants include securities brokers
and dealers (including one or more of the Underwriters), banks, trust
companies, clearing corporations, and certain other organizations, some of
which (and/or their representatives) have ownership interests in the
Depository. Indirect access to the Depository's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to the Depository and its
participants are on file with the Securities and Exchange Commission.
The Indenture provides that if at any time the Depository for any series of
Debt Securities is unwilling, unable or ineligible to continue to serve as
such, the Company shall appoint a successor Depository with respect to such
series of Debt Securities. If a successor Depository is not appointed by the
Company by the effective date of the resignation of the Depository, the
Company will issue individual Debt Securities in exchange for the Global
Security or Securities representing such Debt Securities. In addition, the
Indenture provides that the Company may at any time and in its sole discretion
determine not to have any Debt Securities represented by one or more Global
Securities and, in such event, will issue individual Debt Securities in
exchange for the Global Security or Securities representing such Debt
Securities. However, under the terms of the ROARS and the Remarketing
Agreement, the Company has agreed that (i) it will use its best efforts to
maintain the ROARS in book-entry form with the Depository or any successor
thereto and to appoint a successor depository to the extent necessary to
maintain the ROARS in book-entry form and (ii) it will waive any discretionary
right it otherwise has under the Indenture to cause the ROARS to be issued in
a form other than global form.
Payments of principal of and interest on ROARS represented by a Global
Security registered in the name of the Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the registered owner
of the Global Security representing such ROARS. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for such ROARS will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Security for such ROARS or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. The ROARS may be
transferred or exchanged only through a participant in the Depository.
S-20
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the ROARS is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with initial purchasers who hold ROARS as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding
ROARS as a hedge against currency risk or as a position in a "straddle" for
tax purposes, persons whose functional currency is not the U.S. dollar, or
non-U.S. Holders (as defined below) whose income or gain in respect of ROARS
is effectively connected with the conduct of a United States trade or
business. In addition, this discussion only addresses the Federal income tax
consequences of the ROARS until the Remarketing Date. Persons considering the
purchase of ROARS must consult their own tax advisors concerning the
application of United States Federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the ROARS arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a ROARS
that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof (other than a partnership that is not treated as
a United States person under any applicable Treasury regulations), (iii) an
estate whose income is subject to United States Federal income tax regardless
of its source, or (iv) a trust, if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons also will be a U.S. Holder. As
used herein, the term "non-U.S. Holder" means a beneficial owner of a ROARS
that is not a U.S. Holder.
U.S. HOLDERS
The United States Federal income tax treatment of debt obligations such as
the ROARS is not certain. Because the ROARS are subject to mandatory tender on
the Remarketing Date, the Company intends to treat the ROARS as maturing on
the Remarketing Date for United States Federal income tax purposes. By
purchasing the ROARS, a U.S. Holder agrees to follow such treatment for United
States Federal income tax purposes. Based on such treatment, interest on the
ROARS will constitute "qualified stated interest" and generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or received (in accordance with the U.S. Holder's regular method
of tax accounting). Under the foregoing, if the ROARS are issued to a U.S.
Holder at par value or, alternatively, the excess of the par value over the
issue price is less than the statutory de minimis amount (generally 1/4 of 1%
of the ROARS' stated redemption price at the Remarketing Date multiplied by
the number of complete years to the Remarketing Date from its issue date), the
ROARS will not be treated as having original issue discount.
If the ROARS are issued at a discount equal to or greater than the statutory
de minimis amount, a U.S. Holder must include original issue discount in
income as ordinary interest for United States Federal income tax purposes as
it accrues under a constant yield method in advance of receipt of the cash
payments attributable to such income, regardless of the U.S. Holder's regular
method of accounting. In general, the amount of original issue discount
included in income by an initial U.S. Holder of a ROARS would be the sum of
the daily portions of original issue discount with respect to such ROARS for
each day during the taxable year (or portion of the taxable year) on which
such U.S. Holder held such ROARS. The "daily portion" of original issue
discount on any ROARS is determined by allocating to each day in any accrual
period a ratable portion of the original issue discount allocable to that
accrual period. An "accrual period" may be of any length and the accrual
periods may vary in length over the term of the ROARS, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs either on the final day of an accrual period or
on the first day of an accrual period. The amount of original issue discount
allocable to each accrual period is generally
S-21
<PAGE>
equal to the difference between (i) the product of (x) the ROARS' adjusted
issue price at the beginning of such accrual period and appropriately adjusted
to take into account the length of the particular accrual period and (y) the
yield of the ROARS and (ii) the amount of any qualified stated interest
payments allocable to such accrual period. The "adjusted issue price" of a
ROARS at the beginning of any accrual period is the sum of the issue price of
the ROARS plus the amount of original issue discount allocable to all prior
accrual periods minus the amount of any prior payments on the ROARS that were
not qualified stated interest payments. Under these rules, U.S. Holders
generally will have to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
Under the foregoing treatment, upon the sale, exchange or retirement of a
ROARS, a U.S. Holder generally will recognize taxable gain or loss equal to
the difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the ROARS. A U.S. Holder's adjusted tax basis
in the ROARS generally will equal such U.S. Holder's initial investment in the
ROARS increased by any original issue discount included in income (and accrued
market discount, if any, if the U.S. Holder has included such market discount
in income) and decreased by the amount of any payments, other than qualified
stated interest payments, received and amortizable bond premium taken with
respect to such ROARS. Subject to the application of the market discount
rules, such gain or loss will be capital if the ROARS are held as a capital
asset.
The Taxpayer Relief Act of 1997 (the "1997 Act") reduces the maximum rates
on long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and
would further reduce the maximum rates on such gains in the year 2001 and
thereafter for certain individual taxpayers who meet specified conditions).
The capital gains rate for capital assets held by individual taxpayers for
more than twelve months but not more than eighteen months ("mid term") was not
changed by the 1997 Act. The 1997 Act does not change the capital gain rates
for corporations. Prospective investors should consult their own tax advisors
concerning these tax law changes.
There can be no assurance that the Internal Revenue Service ("IRS") will
agree with the Company's treatment of ROARS, and the IRS could seek to treat
the ROARS as maturing on the Stated Maturity Date. In the event the ROARS were
treated as maturing on the Stated Maturity Date for United States Federal
income tax purposes, because the Interest Rate to Maturity will not be
determined until the Determination Date, the ROARS would be treated as having
contingent interest under the Internal Revenue Code of 1986, as amended (the
"Code"). In such event, under Treasury Regulations governing debt instruments
that provide for contingent payments (the "Contingent Payment Regulations"),
the Company would be required to construct a projected payment schedule for
the ROARS based upon the Company's current borrowing costs for comparable debt
instruments of the Company, from which an estimated yield on the ROARS would
be calculated. A U.S. Holder would be required to include in income as
ordinary interest an amount equal to the sum of the daily portions of interest
on the ROARS that would be deemed to accrue at this estimated yield for each
day during the U.S. Holder's taxable year on which the U.S. Holder holds the
ROARS. The amount of interest that would be deemed to accrue in any accrual
period would equal the product of this estimated yield (properly adjusted for
the length of the accrual period) and the ROARS' adjusted issue price (as
defined below) at the beginning of the accrual period. The daily portions of
interest would be determined by allocating to each day in the accrual period
the ratable portion of the interest that would be deemed to accrue during the
accrual period. In general, for these purposes, the "ROARS' adjusted issue
price" would equal the ROARS' issue price increased by the interest previously
accrued on the ROARS, and reduced by all payments made on the ROARS. As a
result of the application of the Contingent Payment Regulations, it is
possible that a U.S. Holder would be required to include interest in income in
excess of actual cash payments received for certain taxable years.
Under the Contingent Payment Regulations, upon the sale, exchange or
redemption of a ROARS (including a sale pursuant to the mandatory tender on
the Remarketing Date), a U.S. Holder would be required to recognize taxable
income or loss in an amount equal to the difference, if any, between the
amount realized by the U.S. Holder upon such sale, exchange or redemption and
the U.S. Holder's adjusted tax basis in the ROARS as of the date of
disposition. A U.S. Holder's adjusted tax basis in the ROARS generally would
equal such U.S. Holder's
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<PAGE>
initial investment in the ROARS increased by any interest previously included
in income with respect to the ROARS by the U.S. Holder, and decreased by any
payments received by the U.S. Holder. Any taxable income generally would be
treated as ordinary income. Any such taxable loss generally would be treated
(i) first as an offset to any interest otherwise includible in income by a
U.S. Holder with respect to the ROARS for the taxable year in which the sale
or exchange occurs to the extent of the amount of such includible interest,
and (ii) then as an ordinary loss to the extent of the U.S. Holder's total
interest inclusions on the ROARS in previous taxable years. Any remaining loss
in excess of the amounts described in (i) and (ii) above generally would be
treated as short-term, mid-term, or long term-capital loss (depending upon the
U.S. Holder's holding period for the ROARS). All amounts includible in income
by a U.S. Holder as ordinary income pursuant to the Contingent Payment
Treasury Regulations would be treated as original issue discount.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal or interest (including original issue discount and
accruals under the Treasury regulations applicable to contingent payment debt
obligations, if any) on a ROARS, unless such non-U.S. Holder (i) owns actually
or constructively 10% or more of the total combined voting power of the
Company, (ii) is a controlled foreign corporation related to the Company
through stock ownership or (iii) is a bank receiving interest described in
section 881(c)(3)(A) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the Beneficial
Owner of the ROARS under penalties of perjury, (ii) certifies that such owner
is not a U.S. Holder and (iii) provides the name and address of the Beneficial
Owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the Beneficial Owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. The
Internal Revenue Service has amended the transition period relating to
recently issued Treasury Regulations (see "New Withholding Regulations"
below). Withholding certificates or statements that are valid on December 31,
1999, may be treated as valid until the earlier of its expiration or December
31, 2000. All existing certificates or statements will fail to be effective
after December 31, 2000. If a ROARS is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS
Form W-8 or the substitute form provided by the Beneficial Owner to the
organization or institution.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes gain upon retirement or
disposition of a ROARS, provided the gain is not effectively connected with
the conduct of a trade or business in the United States by the non-U.S.
Holder. Certain other exceptions may be applicable, and a non-U.S. Holder
should consult its tax advisor in this regard.
The ROARS will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
ROARS would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the ROARS to registered owners who are
not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the ROARS to a U.S. Holder must be reported to the
IRS, unless the U.S. Holder is an exempt recipient or establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding for
those non-U.S. Holders who are not exempt recipients.
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<PAGE>
In addition, upon the sale of a ROARS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-
U.S. Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-
U.S. Holder status (and certain other conditions are met). Certification of
the registered owner's non-U.S. Holder status would be made normally on an IRS
Form W-8 under penalties of perjury, although in certain cases it may be
possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
Beneficial Owner generally would be allowed as a refund or a credit against
such Beneficial Owner's United States Federal income tax provided the required
information is furnished to the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and NationsBanc Montgomery
Securities LLC, Bear, Stearns & Co. Inc. and Citicorp Securities, Inc. (the
"Underwriters"), the Company has agreed to sell to each of the Underwriters
named below, and each of the Underwriters has severally agreed to purchase,
the principal amount of the ROARS set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
NationsBanc Montgomery Securities LLC....................... $ 68,000,000
Bear, Stearns & Co. Inc..................................... 66,000,000
Citicorp Securities, Inc.................................... 66,000,000
------------
TOTAL..................................................... $200,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the ROARS are subject to certain conditions and that, if any ROARS
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
of the ROARS agreed to be purchased by the Underwriters must be so purchased.
The Company has been advised by the Underwriters that they propose to offer
the ROARS in part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus Supplement and in part to
certain selected dealers at such price less a concession not to exceed 0.375%
of the principal amount of the ROARS. The Underwriters may allow, and such
dealers may reallow, a concession not to exceed 0.20% of the principal amount
of the ROARS to certain other brokers and dealers. After the ROARS are
released for sale to the public, the offering price and other selling terms
may from time to time be changed by the Underwriters.
The ROARS are a new issue of securities with no established trading market.
The Company does not intend to list the ROARS on any securities exchange. The
Company has been advised by the Underwriters that the Underwriters intend to
make a market in the ROARS, but they are not obligated to do so and may
discontinue market making at any time without notice. There can be no
assurance that an active market for the ROARS will develop or, if a market
does develop, at which prices the ROARS will trade.
The Underwriters are permitted to engage in certain transactions that
maintain or otherwise affect the price of the ROARS. Such transactions may
include over-allotment transactions and purchases to cover short positions
created by the Underwriters in connection with the offering. If the
Underwriters create a short position in the ROARS in connection with the
offering, i.e., if they sell ROARS in an aggregate principal amount exceeding
that set forth on the cover page of this Prospectus Supplement, the
Underwriters may reduce that short position by purchasing ROARS in the open
market. In general, purchases of a security to reduce a short position could
cause the price of the security to be higher than it might be in the absence
of such purchases.
Neither the Company nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the ROARS. In addition,
neither the Company nor the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Settlement for the ROARS will be made in immediately available funds and all
secondary trading in the ROARS will settle in immediately available funds. See
"Description of the ROARS--Settlement."
The Company has agreed to indemnify the Underwriters and certain other
persons against certain liabilities, including liabilities under the
Securities Act, or to make contribution to certain payments in respect
thereof.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may in the future engage in investment banking transactions
with the Company and certain of its affiliates. NationsBanc
S-25
<PAGE>
Montgomery Securities LLC has been appointed as the Remarketing Dealer for the
ROARS. See "Description of the ROARS--Remarketing Dealer." Additionally,
NationsBanc Montgomery Securities LLC is an affiliate of NationsBank of Texas,
N.A. ("NationsBank"), which is a lender to the Company under its $600 million
revolving credit facility. Citicorp Securities, Inc. is an affiliate of
Citicorp USA, Inc. ("Citicorp"), which is also a lender to the Company under
its $600 million revolving credit facility. NationsBank and Citicorp will
receive their proportionate share of any repayment by the Company of amounts
outstanding under such facility from the proceeds of the offering of the
ROARS. In addition, NationsBank or its affiliates and Citicorp or its
affiliates participate on a regular basis in various general financing and
banking transactions for the Company and its affiliates. Citibank, N.A., an
affiliate of Citicorp Securities, Inc., acts as Trustee under the Indenture
governing the ROARS.
S-26
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEI-
THER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICA-
TION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTI-
TUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
The Company................................................................ S-3
Use of Proceeds............................................................ S-9
Capitalization............................................................. S-10
Summary Financial and Operating Data....................................... S-12
Description of the ROARS................................................... S-14
Certain United States Federal Income Tax Considerations.................... S-21
Underwriting............................................................... S-25
PROSPECTUS
Available Information...................................................... 2
Documents Incorporated by Reference........................................ 2
The Company................................................................ 3
Use of Proceeds............................................................ 4
Ratio of Earnings to Fixed Charges......................................... 4
Description of Debt Securities............................................. 4
Plan of Distribution....................................................... 14
Legal Matters.............................................................. 15
Experts.................................................................... 15
</TABLE>
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[LOGO OF STEWART ENTERPRISES APPEARS HERE]
STEWART
ENTERPRISES,
INC.
$200,000,000
6.40% REMARKETABLE OR
REDEEMABLE SECURITIES
(ROARS/SM/)
DUE MAY 1, 2013
----------------
PROSPECTUS SUPPLEMENT
----------------
NATIONSBANC MONTGOMERY
SECURITIES LLC
BEAR, STEARNS & CO. INC.
CITICORP SECURITIES, INC.
APRIL 21, 1998
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