ASSET PURCHASE AND SALE AGREEMENT

Exhibit 10.3

ASSET PURCHASE AND SALE AGREEMENT

This ASSET PURCHASE AND SALE AGREEMENT (“ Agreement ”) dated this 28 ^th day of September, 2006, is made by and among STONEMOR OPERATING LLC , a Delaware limited liability company (“ StoneMor LLC ”), joined herein by STONEMOR MICHIGAN LLC , a Michigan limited liability company (“ Buyer LLC ”) and STONEMOR MICHIGAN SUBSIDIARY LLC , a Michigan limited liability company (“ Buyer NQ Sub ” and individually and collectively with StoneMor LLC and Buyer LLC, “ Buyer ”), and SCI FUNERAL SERVICES, INC. , an Iowa corporation (“ Parent ”), SCI MICHIGAN FUNERAL SERVICES, INC. , a Michigan corporation (“ SCI Michigan ”, and together with Parent, “ SCI ”), and HILLCREST MEMORIAL COMPANY , a Delaware corporation (“ Seller ”).

W I T N E S S E T H :

W HEREAS , Seller owns and operates the cemetery businesses which are listed on Exhibit A attached hereto (such locations listed on Exhibit A referred to herein as the “ Locations ,” and the businesses conducted at the Locations referred to individually and collectively as the “ Business ”);

W HEREAS , SCI Michigan provides certain sales, accounting and other administrative services for the Business conducted at the Locations pursuant to a Marketing and Accounting Services Agreement with the Seller, dated July 30, 1993, as amended from time to time (the “ Management Agreement ”); and

W HEREAS , the parties desire to provide for the purchase, sale and transfer of the Business, including certain of the personal property located at, used in connection with, or arising out of, such

ASSET PURCHASE AND SALE AGREEMENT

Business, together with the real estate utilized in the Business, in exchange for cash and other consideration, upon the terms and subject to the conditions herein set forth; and

W HEREAS , this Agreement sets forth the terms and conditions to which the parties have agreed;

W HEREAS , simultaneously herewith Buyer and Hawes, Inc. are entering into a transaction to purchase a cemetery business in Michigan (the “Hawes Transaction” ), and affiliates of Buyer and Parent are entering into a transaction to purchase the funeral, cremation and cemetery businesses in other jurisdictions (the “Dignity II and III Transactions” );

N OW , T HEREFORE , in consideration of the premises and the mutual covenants, agreements, representations and warranties herein contained, the parties, intending to be legally bound hereby, agree as follows:

ARTICLE I

Purchase and Sale

Section 1.1 Transfer of Acquired Assets . Subject to the terms and conditions of this Agreement, and except as provided in Section 1.2, Seller and SCI do hereby agree to (or, if applicable, cause their Affiliates to) sell, transfer, convey, assign and deliver to Buyer, and Buyer does hereby agree to purchase and accept from Seller and SCI (or their Affiliates, if applicable), free and clear of all Liens and Liabilities (other than the Assumed Liabilities (as defined below)), all right, title and interest to the following property and rights located at, used in connection with, arising out of or relating to the Business (collectively, the “ Acquired Assets ”):

(a) The real property described in Schedule 1.1(a) to this Agreement, together with all buildings, structures, improvements, fixtures, easements, benefits and rights and appurtenances benefiting, belonging or pertaining thereto, (the “ Owned Real Property ”);

(b) All furniture, equipment, tools, supplies and other tangible personal property owned or used by Seller or SCI exclusively or primarily in the operation of the Business as of

 

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the date hereof or acquired between the date hereof and the Effective Time, including, without limitation, those items listed on Schedule 1.1(b) to this Agreement;

(c) All vehicles listed on Schedule 1.1(c) to this Agreement;

(d) All crypts, urns, vaults, monuments, grave spaces, mausoleum spaces, niches, lawn crypts, supplies and other merchandise inventory of the Business (“ Inventory ”), including, without limitation, the items stored for customers at the cemeteries included in the Business, plus or minus any changes to such Inventory which result from the ordinary course of operation of the Business, consistent with past practices, subsequent to the date(s) of such listing(s) and until the Effective Time (and specifically limited to the rights permitted by or provided under applicable Laws with regard to merchandise designated as being “stored” for customers under Pre-/At-Need Contracts (as defined below)), and all Services in Progress (as hereinafter defined);

(e) All benefits, rights and entitlements of or relating to the Business under and in all contracts, agreements, leases, licenses and commitments listed on Schedule 1.1(e) to this Agreement (“ Business Contracts ”);

(f) All benefits, rights and entitlements under any leases for any real property at the Location or otherwise exclusively or primarily related to the Business (whether Seller is lessee or lessor thereunder) (“ Real Property Leases ”), including, without limitation, those listed on Schedule 1.1(f) to this Agreement, together with any security deposits held or paid on account of any of the Real Property Leases (the real property leased by Seller or SCI as a lessee or sublessee under the Real Property Leases being referred to herein as “ Leased Real Property ” and, together with the Owned Real Property, the “ Real Property ”);

(g) All benefits, rights and entitlements under all of the Contracts, engagements and commitments, written or oral, relating to the provision or sale by the Business of at-need or preneed cemetery or cremation merchandise, properties or services and all deposits, prepaid amounts, insurance policies and trust funds relating to such Contracts, engagements and commitments, including, without limitation, those items listed on Schedule 1.1(g) to this Agreement, plus or minus any similar items entered into or obtained in the ordinary course of the operation of the Business subsequent to the date(s) of the listing(s) on Schedule 1.1(g) until the Effective Time (collectively, the “ Pre-/At-Need Contracts ” and, together with the Business Contracts and the Real Property Leases, the “ Assumed Contracts ”);

(h) All of the Permits of each of Seller and SCI necessary for the ownership, operation, maintenance or presently planned expansion (by Seller or SCI) of the Business, to the extent transferable;

(i) Intentionally omitted;

(j) All utility and other deposits previously paid to and/or held by third parties in connection with the operation of the Business as of the Effective Time;

(k) All accounts and notes receivable generated in or relating to the operation of the Business (“ Receivables ”), including, without limitation, those listed on Schedule 1.1(k) to

 

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this Agreement, plus or minus any changes in such receivables which result from the ordinary course of the operation of the Business, consistent with past practices, subsequent to the date(s) of the listing(s) on Schedule 1.1(k) until the Effective Time, but specifically excluding pending trust claims specified in Section 5.5(b)(ii) and pending insurance claims;

(l) All of the Seller’s and SCI’s rights and incidents of interest in and to causes of action, suits, proceedings, judgments, claims and demands of any nature, whenever maturing or asserted, relating to or arising directly or indirectly out of any of the Acquired Assets or the Business, but specifically excluding pending trust claims specified in Section 5.5(b)(ii) and pending insurance claims; and

(m) All goodwill associated with the Business, together with all lists of present or former customers of the Business, all business books, documents, records, files, databases and reports relating to the Acquired Assets and reasonably necessary for Buyer to continue the Business (collectively, “ Seller Records ” ) (whether or not the Seller Records are physically located at either of the Locations), the telephone numbers and listings for the Business, and all Intellectual Property owned and/or used by the Seller and/or SCI exclusively or primarily in connection with the Business (“ Business Intellectual Property ”), including, without limitation, all right, title and interest in and the right to use the trademarks, service marks and trade names for the Location as listed on Exhibit A hereto. All Seller Records not physically located at the Location shall be copied and, at the election of Buyer, either delivered in person to a representative of Buyer at the location where such Seller Records are held on the Closing Date or shipped to Buyer by Seller and/or SCI at Buyer’s expense by such delivery service selected by Buyer. All requests and other communications from Buyer to Seller or SCI regarding Seller Records, either before or after the Closing, shall be directed to Michael Lehmann, Service Corporation International, 1929 Allen Parkway, Houston, Texas 77219, fax: (713) 525-7372.

Except as specifically provided in Section 1.2, it is intended that the assets, properties and rights of the Business to be sold to Buyer pursuant to this Agreement shall include all of the assets, properties and rights reflected in the Schedules relating to the subsections of Section 1.1, other than those assets, properties and rights that may have been disposed of in the ordinary course of business prior to the Effective Time, but including all similar assets, properties and rights of the Business that may have been acquired in the ordinary course of business since the dates of the listings in the Schedules relating to the subsections of Section 1.1 until the Effective Time.

Section 1.2 Excluded Assets . Neither Seller nor SCI shall transfer, convey or assign to Buyer, and Buyer shall not purchase, the following assets (collectively, the “ Excluded Assets ”): (a) non-preneed related cash and cash equivalents, (b) computers, computer software and information

 

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and similar rights (provided, however, that none of the Seller Records shall be deemed to be an Excluded Asset, whether or not contained or stored in or on the hard drive of any computers or on any computer system or server, disk or any other electronic media), (c) corporate records, minutes and records of shareholders’ and directors’ meetings of Seller or SCI, (d) any pending trust claims specified in Section 5.5(b)(ii) and any pending insurance claims, (e) those items specifically identified in Schedule 1.1(b) as being subject to a corporate lease or otherwise excluded from the sale of the Acquired Assets hereunder; and (f) all other assets of Seller or SCI which are not used exclusively or primarily in the ownership, operation or maintenance of the Business and which are not necessary to the continued operation of the Business in a manner consistent with the Seller’s and SCI’s past practices, including training, promotional materials, procedure and policy manuals.

Section 1.3 Consideration for Acquired Assets Payable at the Closing . On the terms and subject to the conditions of this Agreement, Buyer, in consideration for the transfer and delivery to it of the Acquired Assets as herein provided, will, in addition to the assumption of liabilities set forth in Section 1.5(a) below, pay to Seller at the Closing (as defined below) the sum of Nine Hundred Fourteen Thousand Dollars ($914,000) (the “ Closing Purchase Price ”) in cash (“ Cash Purchase Price ”), to be delivered by bank wire transfer to such account as Seller and SCI shall designate to Buyer in writing at least three business days prior to the Closing Date.

Section 1.4 Intentionally Omitted .

Section 1.5 Liabilities .

(a) Assumed Liabilities . From and after the Effective Time, Buyer agrees to assume and perform the liabilities and obligations of the Business (“ Assumed Liabilities ”) under and pursuant to the terms and conditions of any Assumed Contract, but only to the extent such obligations arise, accrue or first become due after the Effective Time under the terms of the Assumed Contracts; provided , however , that Buyer will not assume or be responsible for any such liabilities or obligations which arise from any breach or default by Seller and/or SCI under any Assumed Contract that occurs prior to the Effective Time or that arises out of or relates to events or circumstances that occur or exist prior to the Effective Time, all of which liabilities and obligations will constitute Retained Liabilities (as defined

 

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herein). Notwithstanding anything to the contrary contained in this Agreement or any document delivered in connection herewith, Buyer’s obligations in respect of the Assumed Liabilities will not extend beyond the extent to which Seller and/or SCI were obligated in respect thereof and will be subject to Buyer’s right to contest in good faith the nature and extent of any liability or obligation (but such right to contest shall not affect Buyer’s indemnification responsibilities under Section 8.4(a)(iii)).

(b) Retained Liabilities . Except as provided in Section 1.5(a) hereof, each of Seller and SCI will retain, and Buyer will not assume or be responsible or liable with respect to, any Liabilities of the Business that precede the Effective Time (except as specifically provided in subclause (vii) of this Section 1.5(b)), whether or not arising out of or relating to the conduct of Seller and/or SCI or associated with or arising from any of the Acquired Assets, whether fixed or contingent or known or unknown (collectively, the “ Retained Liabilities ”), including, without limitation, the following:

(i) Liabilities relating to any Excluded Asset;

(ii) Liabilities of Seller and/or SCI that constitute trade payables;

(iii) Liabilities of Seller and/or SCI arising under or relating to any Assumed Contract to the extent such Liabilities relate to periods prior to the Effective Time or arise from any breach or default by Seller and/or SCI (or any of their Affiliates) under any Assumed Contract that occurs prior to the Effective Time or that arises out of or relates to events or circumstances that occur or exist prior to the Effective Time;

(iv) Liabilities of Seller and/or SCI arising under or relating to any Contract other than an Assumed Contract;

(v) Liabilities with respect to (A) any Employee Plan maintained, sponsored, contributed to or participated in by Seller and/or SCI or any of their Affiliates for the benefit of or relating to any current or former employee of the Business ( “Seller Employee Plan” ) and the amendment to or the termination of any Seller Employee Plan, or (B) any person at any time employed by Seller or SCI or any of their Affiliates (including, without limitation, any such person who fails to accept an offer of employment by Buyer or any of its Affiliates), and any such person’s spouse, children, other dependents or beneficiaries, with respect to any such person’s employment or termination of employment by Seller or SCI or any of their Affiliates including, without limitation, claims arising under health, medical, dental, disability or other benefit plan for products, supplies or services provided or rendered prior to the Effective Time;

(vi) Seller’s or SCI’s deferred sales commissions;

(vii) Liabilities of Seller or SCI, based in whole or in part on violations of Law or environmental conditions occurring or existing prior to the Closing and arising out of or relating to Environmental Requirements, except to the extent that such Liabilities are identified in the Environmental Reports; provided that the Seller and SCI shall each remain liable for the environmental Liabilities identified on Exhibit B until Seller, SCI or Buyers at

 

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Seller or SCI’s expense have remediated, to the extent required by existing governmental standards, such environmental Liabilities as noted on Exhibit B ;

(viii) Except as otherwise specifically provided in this Agreement, all Liabilities of Seller or SCI for any Tax for (A) operations of the Business prior to the Effective Time; (B) the transfer of the Acquired Assets; and (C) income earned by the Pre-Need Trust Funds and the Endowment Care Funds (as each of these terms is defined in Section 5.4) prior to delivery thereof to Buyer’s Trustee pursuant to Section 5.5 below to the extent such income (1) is not taxable to the applicable trusts as independent taxpayer entities, and (2) is withdrawn by or for any Seller or SCI or otherwise distributed to any Seller or SCI (whether such withdrawal or distribution is made before or after the Effective Time); and

(ix) Liabilities of Seller or SCI arising out of or relating to any Proceeding to which Seller or SCI is a party on the date of this Agreement and relating to the Business or any of the matters referenced on Schedule 1.5(b)(ix) except for Liabilities for actions/business changes at the Business that may be required after Closing pursuant to or arising from the Michigan monument builder’s class action claim which is identified on Schedule 1.5(b)(ix) ; and

(x) Liabilities arising out of the management of Seller or SCI’s Business by SCI; and

(xi) Liabilities relating to any claims arising in connection with monument sales by the Seller or SCI prior to the Closing.

Section 1.6 Post-Closing Adjustments to Purchase Price .

(a) Audit Report . Seller, SCI and Buyer acknowledge that Harper & Pearson Company, P.C. (the “ Independent Auditor ”) is currently performing a financial audit and review of the Business and that the report of the Independent Auditor with respect to such audit and review (the “ Audit Report ”) is expected to be delivered to Buyer within 30 days after the Closing Date. For purposes of this Agreement, the term “ Base Gross AR Amount ” means the aggregate amount of the gross accounts receivable of the Business as of the Closing Date (excluding any trust claims specified in Section 5.5(b)(ii) and any pending insurance claims), as reflected in the Audit Report (without regard to any allowance for doubtful accounts or other reserve in respect of accounts receivable of the Business), and the term “ Base Net Merchandise Trust Amount ” means the Net Transferred Merchandise Trust Amount minus the aggregate amount of the Merchandise Liabilities of all of the cemeteries included in the Business, as of the Effective Time. Buyer shall deliver a copy of the Audit Report to Seller and SCI within 15 days after receiving the Audit Report. No later than ten (10) days after the Closing Date, SCI shall deliver to Buyer a detailed statement of Merchandise Liabilities as of the Effective Time of each of the cemeteries included in the Business.

(b) Accounts Receivable Adjustment . If the Base Gross AR Amount is less than $676,900, then, subject to Section 1.6(e), the Purchase Price shall be decreased by, and Seller shall pay to Buyer, an amount equal to the discounted present value of the amount by which the Base Gross AR Amount is less than $712,527, using a discount rate of .065 and a discount

 

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period of three (3) years. If the Base Gross AR Amount is greater than $748,150, then, subject to Section 1.6(e), the Purchase Price shall be increased by, and Buyer shall pay to Seller, an amount equal to the discounted present value of the amount by which the Base Gross AR Amount is greater than $712,527, using a discount rate of .065 and a discount period of three (3) years. If the Base Gross AR Amount is greater than or equal to $676,900, but less than or equal to $748,150, then no adjustment shall be made to the Purchase Price, and no amount shall be due by any party hereto, under this Section 1.6(b).

(c) Merchandise Trust Adjustment . If the Base Net Merchandise Trust Amount is less than $3,092,700, then, subject to Section 1.6(e), the Purchase Price shall be decreased by, and Seller shall pay to Buyer, the discounted present value of the amount by which the Base Net Merchandise Trust Amount is less than $3,255,483, using a discount rate of .065 and a discount period of ten (10) years. If the Base Net Merchandise Trust Amount is greater than $3,418,250, then, subject to Section 1.6(e), the Purchase Price shall be increased by, and Buyer shall pay to Seller, an amount equal to the discounted present value of the amount by which the Base Net Merchandise Trust Amount is greater than $3,255,483, using a discount rate of .065 and a discount period of ten (10) years. If the Base Net Merchandise Trust Amount is greater than or equal to $3,092,700 but less than or equal to $3,418,250, then no adjustment shall be made to the Purchase Price, and no amount shall be due by any party hereto, under this Section 1.6(c).

(d) Endowment Care Trust Adjustment . If the Transferred Endowment Care Trust Amount is less than $735,546, then, subject to Section 1.6(e), the Purchase Price shall be decreased by, and Seller shall pay to Buyer, the Net Endowment Care Adjustment Amount. If the Transferred Endowment Care Trust Amount is greater than $735,546, then, subject to Section 1.6(e), the Purchase Price shall be increased by, and Buyer shall pay to Seller, the Net Endowment Care Adjustment Amount.

(e) Net Purchase Price Adjustment Amount . The Purchase Price adjustment amounts provided for in Sections 1.6(b), (c) and (d), if any, shall all be aggregated and netted against each other such that either (i) a single amount shall be payable to Buyer by Seller and no amount shall be payable by Buyer to Seller under this Section 1.6, (ii) a single amount shall be payable to Seller and SCI by Buyer, and no amount shall be payable by Seller to Buyer under this Section 1.6, or (iii) no amount shall be payable by any party hereto under either this Section 1.6. By way of example only, if $150,000 is payable by Seller to Buyer pursuant to Section 1.6(b), $50,000 is payable by Seller to Buyer pursuant to Section 1.6(c) and $100,000 is payable by Buyer to Seller and SCI pursuant to Section 1.6(d), then Seller shall pay to Buyer, in accordance with Section 1.6(f), an amount equal to $100,000 (i.e., $150,000 + $50,000 - $100,000).

(f) Payment of Purchase Price Adjustment Amounts . Any payment due under Section 1.6(e) by Seller on the one hand or Buyer on the other hand shall be paid in full, in cash, no later than seventy-five (75) days after the Closing Date, or, if later than such time, twenty (20) days after the date that the Audit Report is delivered to Buyer. Any amounts not paid within such time period shall accrue interest from the Closing Date through the date of payment at the prime rate as reported in The Wall Street Journal, Eastern Edition for the date of the Audit Report.

 

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(g) Tax Treatment . Any payments made pursuant to this Section 1.6 shall be treated by Seller and Buyer as adjustments to the Purchase Price for all Tax purposes.

Section 1.7 Prorations; Services in Progress; Transaction Taxes .

(a) Seller and SCI shall be responsible for all Taxes arising as a result of the operation of the Business or ownership of the Acquired Assets prior to the Effective Time. At Closing, all real and personal property Taxes shall be prorated between Seller and SCI on the one hand and Buyer on the other hand on a per diem basis. Seller and SCI shall also be responsible for all Taxes on income earned by the Pre-Need Trust Funds and the Endowment Care Funds (which are to be transferred to Buyer) prior to delivery thereof to Buyer’s Trustee pursuant to Section 5.5 below to the extent such income (A) is not taxable to the applicable trusts as independent taxpayer entities, and (B) is withdrawn by or for Seller or SCI or otherwise distributed to Seller or SCI (whether such withdrawal or distribution is made before or after the Effective Time), and Seller and SCI shall make all applicable estimated Tax payments to the relevant Taxing Authorities associated with such income. For purposes of determining the amount of Taxes owed by Seller and SCI with respect to the Pre-Need Trust Funds and the Endowment Care Funds, the amount of such Taxes shall be computed as if the tax year of such funds ended on the date of the Final Trust Delivery (as defined in Section 5.5(e) below).

(b) The parties shall cooperate in transferring from the Seller or SCI, as applicable, to Buyer all water, electrical, gas and other utility services provided to or benefiting the Real Property, and as and to whatever extent billings are received by any party relating to services utilized both before the Effective Time (for which Seller and SCI shall be jointly and severally responsible) and after the Effective Time (for which Buyer shall be responsible), the parties will cooperate to make appropriate adjustments and reimbursements between them to accomplish the proper allocation of such billings.

(c) All revenues from and direct costs for merchandise paid to third parties in the ordinary course of business associated with Services in Progress will be allocated to Buyer. For purposes of this Agreement, “ Services in Progress ” means any “at need” cemetery related services for which a Contract has been entered into, but which have not been completed as of the Effective Time. For purposes of this Agreement, such cemetery related services are complete when the body or remains have been cremated or interred.

(d) Except as set forth in Sections 1.7(e) and (f) below, Seller and SCI shall be responsible, jointly and severally, for the timely payment of, and shall indemnify and hold harmless Buyer against, all sales, use, value added, documentary, stamp, gross receipts, registration, transfer (including, without limitation, real estate), conveyance, excise and other similar Taxes and fees (collectively, “ Transfer Taxes ”) arising out of or in connection with or attributable to (i) the transfer of the Acquired Assets and (ii) the transactions contemplated by this Agreement. Seller and SCI shall prepare and timely file all Tax Returns required to be filed in respect of such Transfer Taxes. Seller and SCI shall be responsible, jointly and severally, for filing all required notices related to bulk sales laws and shall indemnify and hold harmless Buyer against all Taxes or other Losses that Buyer become liable for as a result of the Seller’s and/or SCI’s failure to file any applicable bulk sales notices or pay any of its Taxes.

 

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(e) The parties shall share in the payment of any recording and other similar fees arising out of or in connection with or attributable to the transactions contemplated by this Agreement in accordance with the normal practices in the applicable states in which the various Acquired Assets are located; provided , however , that Seller shall pay for the recording of the release of any Lien (other than Permitted Encumbrances) with respect to any Acquired Asset.

(f) Except to the extent that any Transfer Tax amounts are included in the amounts paid by Buyer pursuant to Section 1.3(a)(ii), Buyer shall be responsible for the timely payment of, and shall indemnify and hold harmless Seller and SCI against, all Transfer Taxes arising out of or in connection with or attributable to the transfer of the vehicles listed on Schedule 1.1(c) to this Agreement. Buyer shall prepare and timely file all Tax Returns required to be filed in respect of such Transfer Taxes.

Section 1.8 Allocation of Closing Purchase Price .

(a) On or prior to the Closing Date, Buyer and Seller and SCI shall mutually agree upon a written statement (the “ Statement of Allocation ”) setting forth an allocation of the Closing Purchase Price (“ Purchase Price Allocation ”) (which for such purpose shall be increased by the amount of the liabilities assumed by Buyer). The Statement of Allocation shall include: (i) the assets to be purchased by each of Buyer LLC and Buyer NQ Sub; (ii) the portion of the Closing Purchase Price that will be paid by or on behalf of Buyer LLC and Buyer NQ Sub to acquire the Acquired Assets, and (iii) an allocation of the portion of the Closing Purchase Price paid by or on behalf of each of Buyer LLC and Buyer NQ Sub (“ Purchased Acquired Assets Allocation ”) among each of the respective categories of Acquired Assets that are purchased. Buyer, Seller and SCI agree that each of the allocations required to be prepared pursuant to this Section 1.8 shall be prepared in accordance with the provisions of Section 1060 of the Code, the Treasury Regulations promulgated thereunder and any similar provisions of state, local or foreign law, as applicable.

(b) All federal, state, local and foreign income Tax Returns of Seller, SCI and Buyer shall be filed consistently with the information set forth on the Statement of Allocation. Moreover, Seller, SCI and Buyer further agree to file IRS Form 8594 (and any corresponding form required to be filed by a state or local Taxing Authority) in a manner that is consistent with the Purchased Acquired Assets Allocation. Seller, SCI and Buyer agree to promptly provide each other with any information necessary to complete such Tax Returns and IRS Form 8594 (and any corresponding form required to be filed by a state or local Taxing Authority). Seller, SCI and Buyer shall not take any position on a Tax Return, tax proceeding or audit that is inconsistent with any information set forth on the Statement of Allocation.

Section 1.9 Effective Time . The Effective Time of the transfer of the Acquired Assets shall be 12:01 a.m. on the Closing Date.

 

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ARTICLE II

Closing

Section 2.1 Closing . The closing of the transaction provided for in this Agreement (the “ Closing ” ) shall take place at the offices of Buyer’s counsel, Blank Rome LLP, One Logan Square, Philadelphia, PA 19103, on September 28, 2006 (the “ Closing Date ” ), or at such other location, time and date as the parties shall mutually agree. In the event of any postponement thereof, all references in this Agreement to the Closing Date shall be deemed to refer to the time and to the date to which the Closing Date shall have been so postponed as herein provided.

Section 2.2 Instruments of Conveyance and Transfer . At the Closing, each of Seller and SCI, as applicable, shall deliver to Buyer such special warranty deeds, leases, bills of sale, endorsements, assignments, title affidavits and other documents reasonably requested by the Title Company (as defined in Section 5.7), and such other instruments of transfer, conveyance and assignment as may be reasonably requested by Buyer, in forms reasonably satisfactory to Buyer, in order to more fully vest in Buyer good and marketable title to the Acquired Assets. Each of Seller and SCI, as applicable, shall take all such steps as may be reasonably requested by Buyer to put Buyer in actual possession and control of the Acquired Assets and the Business as of the Closing.

ARTICLE III

Representations and Warranties by Seller and SCI

Each of Seller and SCI, jointly and severally, hereby represent and warrant to Buyer, both as of the date hereof and as of the Effective Time, as follows:

Section 3.1 Organization; Standing; Authorization; Capacity . Each of Seller and SCI is a corporation or limited liability company, as applicable, duly organized, validly existing and in good standing under the laws of its state of formation as designated in the introductory paragraph of this agreement, with all requisite power and authority to own the Acquired Assets and to conduct the

 

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Business as it is now being conducted and is presently proposed (by Seller and SCI) to be conducted. Each of Seller and SCI is duly qualified to conduct business and is in good standing in each jurisdiction in which the nature of its business or location of its properties makes such qualification necessary, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of this Agreement by each of Seller and SCI has been duly and effectively authorized by all necessary action on the part of Seller and SCI, including authorization by the board of directors of each of Seller and SCI, and no further action or Consent is required in connection with such execution, delivery and performance of this Agreement by Seller or SCI. This Agreement has been duly executed and delivered by Seller and SCI, and constitutes the valid and binding obligation of each of Seller and SCI, enforceable against Seller and SCI in accordance with its terms.

Section 3.2 Financial Information . The unaudited income and expense statements for the Business for the twelve month periods ending December 31, 2003, 2004 and 2005 (collectively, the “Income Statements” ), copies of which are attached hereto as Schedule 3.2 , accurately reflect in all material respects the income and expenses of such Locations for the periods covered.

Section 3.3 Tax Matters .

(a) (i) each of Seller and SCI has properly and timely filed all Tax Returns required to be filed by it; (ii) each of Seller and SCI has paid all Taxes required to be paid by it (whether or not shown on a Tax Return); and (iii) there are no encumbrances for Taxes on the Acquired Assets other than for Taxes not yet due and payable.

(b) Each of Seller and SCI has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other person for all periods for which the statutory period of limitations for the assessment of such Tax has not yet expired and all IRS Forms W-2 and 1099 (and other applicable forms required to be filed by a state or local Taxing Authority) required with respect thereto have been properly completed and timely filed.

(c) Neither the Seller nor SCI is a “foreign person” as such term is defined in Section 1445(f)(3) of the Code.

 

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(d) All amounts received by Seller or SCI on sales by the Business which are required under applicable state law to be trusted have been deposited in trust and all Tax Returns required to be filed concerning such trusts and the income from such trusts have been filed through all fiscal years ending prior to the Closing Date.

Section 3.4 No Violation . Neither the execution and delivery of this Agreement by the Seller or SCI nor the performance of their respective obligations hereunder or thereunder will, subject to receipt of all Required Consents, (a) violate, conflict with or result in a breach of any Law, (b) violate, conflict with or result in a breach or termination of, or otherwise give any contracting party additional rights or compensation under, or the right to terminate or accelerate, or constitute (with notice or lapse of time, or both) a default under the terms of any organizational documents (i.e., charter, bylaws, operating agreement, partnership agreement or similar document), any note, deed, lease, instrument, permit, security agreement, mortgage, commitment, contract, agreement, order, judgment, decree, license or other instrument or agreement, whether written or oral, express or implied, including, without limitation, the Assumed Contracts, to which Seller and/or SCI is a party or by which any of the Acquired Assets or the Business is bound, or (c) result in the creation or imposition of any Liens with respect to the Acquired Assets or the Business.

Section 3.5 Status of Acquired Assets .

(a) Title to Acquired Assets . Seller has fee simple title to the Owned Real Property, a valid leasehold interest in the Leased Real Property and good and marketable title to all of the Acquired Assets, subject to no Liens, except for Permitted Encumbrances and as otherwise disclosed in Schedule 3.5 . At the Closing, Buyer will acquire fee simple title to the Owned Real Property, a valid leasehold interest in the Leased Real Property and good and marketable title to all of the Acquired Assets, in each case free and clear of any and all Liens except Permitted Encumbrances. Other than as disclosed in Schedule 3.5 , neither Seller nor SCI has entered into any Contract granting rights to third parties in any real or personal property of Seller or SCI included in the Acquired Assets, and no Person has any right to possession or occupancy of any of the Acquired Assets.

(b) Condition of Acquired Assets . The Real Property and the tangible Acquired Assets that are reasonably necessary for the operation of the Business are in operating condition and reasonable repair (subject to normal wear and tear) and are sufficient to permit Buyer to conduct the Business as presently conducted.

 

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Section 3.6 Improvements . To the Knowledge of Seller and SCI, no municipal or other governmental improvements affecting the Real Property are in the course of construction or installation, and no such improvement has been ordered to be made; and any municipal or other governmental improvements affecting the Real Property which have been constructed or installed have been paid for and will not hereafter be assessed (except with respect to any currently recorded assessments which are to become due after the Closing), and all assessments heretofore made have been paid in full, other than any recorded assessments which are to become due after the Closing; and neither Seller nor SCI has entered into any private contractual obligations relating to the installation of or connection to any sanitary sewers, storm sewers or any other improvements.

Section 3.7 Real Property Approvals . To the Knowledge of Seller and SCI, all permanent certificates of occupancy and all other licenses, permits, authorizations, consents, certificates and approvals required by all Governmental Authorities having jurisdiction and the requisite certificates of the local board of fire underwriters (or other body exercising similar functions), if applicable, have been issued for the Real Property, have been paid for, and are in full force and effect.

Section 3.8 Zoning . Except as disclosed on the letters delivered by the zoning code enforcement officers for the municipalities where the Real Property is located, neither Seller nor SCI has received notice from any Governmental Authority that: (i) any parcel of the Real Property is not in compliance with current zoning and use classifications under the respective municipal zoning ordinance governing such Real Property; (ii) any cemetery use at or on the Real Property is not a permitted use or an existing non-conforming use thereunder; and (iii) the current construction, operation and use of the buildings and other improvements constituting the Real Property violate any zoning, subdivision, building or similar law, ordinance, order, regulation or recorded plat or any certificate of occupancy issued for the Real Property.

 

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Section 3.9 No Violations Relating to Real Property . No portion of the Real Property, and no current use of the Real Property, is in violation of any applicable Law, except where such violation would not have a Material Adverse Effect. Neither Seller nor SCI has received notice of any presently outstanding and uncured violations of any building, housing, safety or fire ordinances with respect to the Real Property.

Section 3.10 Real Estate Taxes . Neither Seller nor SCI has received notice of any proceeding pending for the adjustment of the assessed valuation of all or any portion of the Real Property. To the Knowledge of Seller and SCI, there is no abatement, reduction or deferral in effect with respect to all or any portion of the real estate Taxes or assessments applicable to the Real Property.

Section 3.11 Eminent Domain . Neither Seller nor SCI has received any notice of any condemnation proceeding or other proceedings in the nature of eminent domain (“ Taking ”) in connection with the Real Property and, to the Knowledge of Seller and SCI, no Taking has been threatened.

Section 3.12 Inventory . Seller has good and marketable title to the Inventories free and clear of any and all Liens (other than a customer’s rights in items being stored for such customer). The Inventory does not consist of any material amount of items that are obsolete or damaged or items held on consignment. Neither Seller nor SCI has acquired or committed to acquire or produce Inventory for sale which is not of a quality usable in the ordinary course of business within a reasonable period of time and consistent with past practice.

Section 3.13 Litigatio n . No Proceeding before any Governmental Authority, mediator or arbitrator is pending or, to the Knowledge of Seller and SCI, threatened, involving Seller and/or SCI wherein a judgment, decree, order, settlement or other resolution would have a Material Adverse Effect, or which would prevent the carrying out of this Agreement, declare unlawful the transactions

 

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contemplated by this Agreement, cause such transactions to be rescinded, or require Buyer to divest itself of any of the Acquired Assets or the Business. To the Knowledge of Seller and SCI, no facts or circumstances or other events have occurred that can reasonably be expected to give rise to any such Proceeding.

Section 3.14 Court Orders and Decrees . There is not outstanding or, to the Knowledge of Seller and SCI, threatened any order, writ, injunction or decree of any Governmental Authority, mediator or arbitrator against or affecting Seller or SCI, relating to any of the Acquired Assets or the Business.

Section 3.15 Trade Names . The Location name set forth on Exhibit A constitutes the only trade name held for use or used by the Seller and/or SCI in connection with the Business and, other than such trade name, there are no Trademarks that are material to the Business. Seller and/or SCI has the legal right to use the Location name set forth on Exhibit A , as used by Seller and/or SCI in connection with the Business, without the Consent of any other Person.

Section 3.16 Preneed and Trust Accounts and Contracts .

(a) All monies paid to Seller or SCI for the benefit of the Business in respect of the Pre-/At-Need Contracts have been, and as of the Closing will be, set aside and identified as set forth in Schedule 1.1(g) . Each of Seller and SCI has complied with the terms and conditions of the Pre-/At-Need Contracts. Neither Seller nor SCI is in default or breach of any Pre-/At-Need Contract.

(b) The amounts (including interest) held in trust in respect of each of the Pre-/At-Need Contracts, including, without limitation, perpetual care funds, endowment care funds, extended care funds, and merchandise trust funds (collectively, the “ Trust Funds ”), are held in conformity with all applicable Laws. All of Seller’s and SCI’s required contributions to, withdrawals from and investment and other uses of the Trust Funds have been made in accordance with all applicable Laws, and each of Seller and SCI will have paid as of the Closing (or will pay after Closing when due), all commissions due and owing to commissioned sales people in respect of the Pre-/At-Need Contracts. Neither Seller nor SCI has Knowledge of any actual or alleged non-compliance on the part of Seller or SCI (or any Affiliate of Seller or SCI) with respect to the Trust Funds.

(c) For those Pre-/At-Need Contracts that are funded by insurance or performance bonds, Seller or SCI has purchased all such insurance policies and performance bonds

 

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required to legally fund or secure all such Pre-/At-Need Contracts, and no future premiums or other amounts remain to be paid, except for those instances where, pursuant to the terms of such insurance policies or performance bonds and in the ordinary course of business, the policies or performance bonds specify payment of premiums or other amounts over time. All such insurance policies and performance bonds are fully identified on Schedule 1.1(g) .

(d) All of the Trust Funds are interest bearing trust accounts or other investment accounts that are permissible under applicable Laws. All of the Trust Funds are identified and described under Schedule 1.1(g) , which Schedule also attaches copies of any and all trust agreements entered into by either Seller or SCI and a list of the financial institutions described therein.

Section 3.17 Contracts . Except for the Assumed Contracts (copies of which have been delivered to Buyer), neither Seller nor SCI, nor any Affiliate of Seller or SCI, is a party to or bound by any material Contract relating to the Acquired Assets or the Business. Except as disclosed on Schedule 3.17 , all of the Assumed Contracts are in full force and effect, and there exists no default or breach thereunder by Seller or SCI or, to the Knowledge of either Seller or SCI, other than with respect to any Pre-/At-Need Contracts, any other party thereto. Neither Seller nor SCI has received any notice (written or oral) indicating the intention of any party to any Assumed Contract to amend, modify, rescind or terminate such Assumed Contract. All of the Assumed Contracts are in full force and effect and are enforceable against the Seller and/or SCI and any of their Affiliates that is a party thereto and, to the Knowledge of Seller and SCI, against all other parties thereto in accordance with their terms and applicable Laws.

Section 3.18 Licenses and Permits . Except as set forth on Schedule 3.18 , either the Seller or SCI holds all of the Permits required to own, operate and maintain the Business under any applicable Law as currently conducted or proposed (by Seller and/or SCI) to be conducted (“ Existing Permits ”), and all Existing Permits are, and as of immediately prior to the Closing will be, in full force and effect. To the Knowledge of Seller and SCI, except as set forth on Schedule 3.18 , there are no material restrictions on Buyer’s ability to replace or renew any of the Existing Permits. Each of

 

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Seller and SCI is in compliance with all Existing Permits, except where the failure to be in compliance would not have a Material Adverse Effect.

Section 3.19 Consents . Each of Seller and SCI has, or will have prior to the Closing, obtained, satisfied or made all Consents (the “ Required Consents ”) that are required to be obtained, satisfied or made pursuant to any Laws, Permits, Assumed Contracts or other agreements by which Seller or SCI, or any of their properties or business assets, including, without limitation, the Acquired Assets, are bound in connection with (a) the execution and delivery of this Agreement by Seller or SCI, or (b) the sale and transfer to Buyer of the Acquired Assets, including, without limitation, the Assumed Contracts and, if transferable to Buyer under applicable Law, the Existing Permits.

Section 3.20 Compliance with Laws . The Business presently is conducted, and the Acquired Assets and their respective uses are, in compliance with all Laws applicable to them, including, without limitation, the funding of or maintaining of all Trust Funds in compliance with applicable Laws or to the posting of performance bonds in lieu thereof, except where the failure to so comply would not have a Material Adverse Effect. Neither Seller nor SCI has received any written notice of any administrative, civil or criminal investigation or audit by any Governmental Authority relating to, or which could result in a Material Adverse Effect. Neither Seller nor SCI have restricted customers from purchasing monuments from outside vendors or restricted vendors from installing monuments at Floral Gardens and Floral Lawn Memorial Gardens.

Section 3.21 OSHA or ADA . There is no Proceeding pending with respect to Seller or SCI, and, to the Knowledge of Seller and SCI, no charge or claim has been made against Seller or SCI that has not been dismissed, discharged or otherwise fully resolved, under the Occupational Safety and Health Act (“ OSHA ”) or the Americans with Disabilities Act (“ ADA ”) pertaining to the facilities and operations of the Business.

 

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Section 3.22 Labor Relations . Neither Seller nor SCI is a party to any collective bargaining or union Contract and neither the Seller nor SCI is aware of any current union organization effort with respect to employees of the Business. There are no pending or unresolved unfair labor practice complaints from or with respect to any employees of the Business. Since December 31, 2005, neither Seller nor SCI has received any written notice of any strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with respect to any employees of the Business. Since December 31, 2005, neither Seller nor SCI has had an “employment loss” within the meaning of the WARN Act or any similar Law.

Section 3.23 Employees and Independent Contractors . Schedule 3.23 sets forth a list of all employees of the Business, together with (a) their titles or responsibilities, (b) their salaries or wages during the 2005 calendar year, (c) their dates of hire, (d) any employment or severance agreements with them, and (e) any outstanding loans or advances made to them. Except as limited by any employment Contracts listed in Schedule 3.23 and except for any limitations of general application which may be imposed under applicable employment Laws, either Seller or SCI has the right to terminate the employment of each employee of the Business at will and without incurring any penalty or liability other than Retained Liabilities. Each of the Seller and SCI is in compliance with all Laws respecting employment practices, except where the failure to so comply would not have a Material Adverse Effect. To the Knowledge of Seller and SCI, no employee of the Business has provided to Seller or SCI (or any Affiliate of Seller or SCI) written notice of such employee’s intent to terminate his or her employment with the Business after the date hereof.

Section 3.24 No Brokers . Neither Seller nor SCI, nor any Person acting on behalf of Seller or SCI, has agreed to pay to any Person any commission, finder’s or investment banking fee, or similar payment in connection with this Agreement or the transactions contemplated thereby, nor has

 

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Seller, SCI or any Person acting on behalf of Seller or SCI, taken any action on which a claim for any such payment could be based.

Section 3.25 Accounts Receivable . None of the Receivables have been sold and/or factored. All Receivables arising since December 31, 2005, represent bona fide claims of Seller and SCI against debtors of the Business for sales made, services performed or other charges or valid consideration arising on or before the date hereof. All such Receivables are valid and enforceable claims for payment consistent with past practices, without, to the Knowledge of Seller and SCI, setoff or counterclaim.

Section 3.26 Operations in Ordinary Course of Business . Since December 31, 2005, Seller and SCI have operated and conducted the Business in the ordinary and usual course consistent with past practices. Since December 31, 2005, there has been no material adverse change in the financial condition, assets, liabilities, or operations of the Business, nor have any events occurred, nor to the Knowledge of Seller and SCI do there exist any circumstances, which would constitute, either before or after the Closing, any such change. Without limiting the generality of the foregoing and except as set forth on Schedule 3.26 , since December 31, 2005, neither the Seller nor SCI has:

(a) sold, assig