<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SERVICE CORPORATION INTERNATIONAL
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Curtis G. Briggs
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
SERVICE
CORPORATION
INTERNATIONAL
PROXY STATEMENT
AND
1994 ANNUAL MEETING NOTICE
[See Appendix A for a Description of Graphic Material]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
NOTICE OF ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SOLICITATION AND REVOCABILITY OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . 5
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PROPOSAL TO APPROVE THE 1993 LONG-TERM INCENTIVE STOCK OPTION PLAN
AND THE AWARDS MADE THEREUNDER IN 1993 . . . . . . . . . . . . . . . . . . . . . . . . 8
OVERVIEW OF EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 15
CERTAIN INFORMATION WITH RESPECT TO OFFICERS AND DIRECTORS . . . . . . . . . . . . . . 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . . . . . . . . 23
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
VOTING SECURITIES AND PRINCIPAL HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 26
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ANNEX A
SERVICE CORPORATION INTERNATIONAL 1993 LONG-TERM INCENTIVE STOCK OPTION PLAN
<PAGE> 4
SERVICE CORPORATION INTERNATIONAL
Proxy Statement and
1994 Annual Meeting
Notice
SERVICE CORPORATION INTERNATIONAL
1929 Allen Parkway, P.O. Box 130548
Houston, Texas 77219-0548
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1994
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Service Corporation International
will be held in the Texas Commerce Center Auditorium, First Floor, Texas
Commerce Center, 601 Travis, Houston, Texas, on Thursday, May 12, 1994, at 10:00
a.m., Houston time, for the following purposes:
(1) To elect five directors as members of the class of directors to
serve until the third succeeding Annual Meeting of Shareholders and until their
successors have been elected and qualified;
(2) To consider and act on a proposal to approve the adoption of the
1993 Long-Term Incentive Stock Option Plan and the awards made thereunder in
1993; and
(3) To act on such other business that may properly come before the
meeting or any adjournment(s) thereof.
The transfer books of the Company will not be closed, but only holders
of Common Stock of record at the close of business on March 25, 1994 will be
entitled to notice of and to vote at the Annual Meeting. A majority of the
outstanding stock entitled to vote is required for a quorum.
The management sincerely desires your presence at the meeting. However,
so that we may be sure that your vote will be included, please sign and date the
enclosed proxy and return it promptly in the enclosed stamped envelope. If you
attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors
James M. Shelger, Secretary
Houston, Texas
April 12, 1994
3
<PAGE> 5
4
<PAGE> 6
PROXY STATEMENT
SERVICE CORPORATION INTERNATIONAL
1929 Allen Parkway, P.O. Box 130548,
Houston, Texas 77219-0548
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Service Corporation International, a Texas corporation
("SCI" or the "Company"), of proxies to be used at the Annual Meeting of
Shareholders to be held in the Texas Commerce Center Auditorium, First Floor,
Texas Commerce Center, 601 Travis, Houston, Texas, on Thursday, May 12, 1994, at
10:00 a.m., Houston time, and at any recess or adjournments thereof. This proxy
statement and the accompanying form of proxy are being mailed to shareholders on
or about April 12, 1994. A copy of the Annual Report to Shareholders of the
Company for the fiscal year ended December 31, 1993, including the consolidated
financial statements, is being mailed with this proxy statement to all
shareholders entitled to vote at the Annual Meeting.
At March 25, 1994, the Company had outstanding and entitled to vote
85,837,877 shares of Common Stock, $1.00 par value ("Common Stock"). The holders
of Common Stock will be entitled to one vote per share on each matter
considered. A majority of the votes entitled to be cast must be represented at
the meeting, in person or by proxy, so that a quorum may be present for the
transaction of business. Only shareholders of record at the close of business on
March 25, 1994 will be entitled to vote at the Annual Meeting. The affirmative
vote of a majority of the total shares represented in person or by proxy and
entitled to vote at the meeting is required for (a) the election of directors,
(b) the approval of the 1993 Long-Term Incentive Stock Option Plan (the "1993
Plan"), and (c) the approval of such other matters as may properly come before
the meeting or any adjournment thereof.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to the voting of the proxy by a later dated proxy or by written
notice of revocation filed with the Secretary of the Company. Shareholders who
attend the Annual Meeting may revoke their proxies and vote in person.
In the election of directors, a shareholder has the right to vote the
number of shares owned by the shareholder for as many persons as there are
directors to be elected. The Company's articles of incorporation do not permit
cumulative voting. Abstentions are counted toward the calculation of a quorum.
An abstention has the same effect as a vote against the proposal or, in the case
of the election of directors, as shares to which voting power has been withheld.
Under Texas law, any unvoted position in a brokerage account with respect to any
matter will be considered as not voted and will not be counted toward
fulfillment of quorum requirements as to that matter.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes which have
staggered terms of three years each. The five directors whose terms expire at
this Annual Meeting have been renominated for three year terms expiring at the
1997 Annual Meeting of Shareholders. The terms of office of the directors in the
other two classes expire at the Annual Meetings of Shareholders to be held in
1995 and 1996.
The enclosed form of proxy provides a means for the holders of Common
Stock to vote for all of the nominees listed therein, to withhold authority to
vote for one or more of such nominees or to withhold authority to vote for all
of such nominees. Each properly executed proxy received in time for the meeting
will be voted as specified therein, or if a shareholder does not specify how the
shares represented by his or her proxy are to be voted, such shares shall be
voted for the nominees listed therein or for other nominees as provided below.
Although the Board of Directors does not contemplate that any of the
nominees will be unable to serve, if such a situation arises prior to the
meeting, the proxies that do not withhold authority to vote for directors will
be voted for a substitute nominee(s) chosen by the Board of Directors.
The following table sets forth, as to each nominee for election and each
director whose term will continue, such person's name, the committees on which
such person serves, the person's principal occupation during the past five
years, certain other directorships, if any, held by such person, the year in
which such person was first elected a director of the Company and the person's
age. Unless otherwise indicated, each person listed below has been engaged in
the principal occupation stated for the past five years.
5
<PAGE> 7
NOMINEES FOR TERMS EXPIRING AT
THE 1997 ANNUAL MEETING:
ANTHONY L. COELHO {Photo}
Year First Became A Director: 1991
Age: 51
President and Chief Executive Officer, Wertheim Schroder Investment Services,
Inc. (asset management firm) since January 1990 and Managing Director, Wertheim
Schroder & Co., Inc. (investment banking firm) since October 1989. Prior
thereto, from 1979 to June 1989, Mr. Coelho was a member of the U.S. House of
Representatives. Mr. Coelho is a member of the Board of Directors of ICF Kaiser
International, Inc., Tanknology Environmental, Inc., Circus Circus Enterprises,
Specialty Retail Group, Inc. and Telecommunications, Inc.
Corporate Finance Committee
A. J. FOYT, JR. {Photo}
Year First Became A Director: 1974
Age: 59
President, A. J. Foyt Enterprises, Inc.
(designer, manufacturer and exhibitor of high speed engines and racing vehicles
and marketer of automotive vehicles). Mr. Foyt is a member of the Board of
Directors of Adesa Auction Corp.
Corporate Finance Committee
E. H. THORNTON, JR. {Photo}
Year First Became A Director: 1962
Age: 84
Attorney, Thornton & Burnett, Attorneys at Law
Executive Committee, Audit Committee,
Compensation Committee
R. L. WALTRIP {Photo}
Year First Became A Director: 1962
Age: 63
Chairman of the Board and Chief Executive Officer of the Company. Mr. Waltrip
is a member of the Board of Directors of Cash America International, Inc. and
Tanknology Environmental, Inc.
Executive Committee, Investment Committee,
Directors Stock Committee
EDWARD E. WILLIAMS {Photo}
Year First Became A Director: 1991
Age: 48
Henry Gardiner Symonds Professor and Director of the Entrepreneurship Program
of the Jesse H. Jones Graduate School of Administration at Rice University,
Chairman of the Board and President of Texas Capital Investment Advisers, Inc.
(investment advisor firm) and Managing Director of First Texas Venture Capital
Corporation (investment company). Mr. Williams is a member of the Board of
Directors of Equus II, Incorporated.
Executive Committee, Investment Committee
DIRECTORS WHOSE TERMS EXPIRE AT
THE 1995 ANNUAL MEETING:
DOUGLAS M. CONWAY {Photo}
Year First Became A Director: 1981
Age: 73
Retired.
Audit Committee
JAMES J. GAVIN, JR. {Photo}
Year First Became A Director: 1986
Age: 71
Retired. Mr. Gavin is a member of the Board of Directors of Stepan Company,
BWIP International, Huntco Inc. and Trustee of Benchmark Funds.
Audit Committee
B. D. HUNTER {Photo}
Year First Became A Director: 1986
Age: 64
Chairman of the Board and Chief Executive Officer of Huntco Inc. (intermediate
steel processor). Vice Chairman of the Board of the Company from September 1986
to May 1989. Mr. Hunter is a member of the Board of Directors of Huntco Inc.,
Mark Twain Bancshares, Inc., Cash America International, Inc., Celebrity, Inc.
and Everest & Jennings International, Ltd.
Executive Committee
6
<PAGE> 8
JOHN W. MECOM, Jr. {Photo}
Year First Became A Director: 1983
Age: 54
Chairman of the Board of Directors, The John W. Mecom Company (personal and
family investments).
Compensation Committee
SAMUEL W. RIZZO {Photo}
Year First Became A Director: 1990
Age: 58
Executive Vice President and Chief Financial Officer/Treasurer of the Company
since February 1993. From February 1990 to February 1993, Mr. Rizzo was
Executive Vice President and Chief Financial Officer. From November 1987 to May
1989, Mr. Rizzo was Vice President and Executive Assistant to the Chairman and
became a Senior Vice President in May 1989. Mr. Rizzo is a member of the Board
of Directors of Cash America International, Inc., Hallmark Financial Services
and Tanknology Environmental, Inc.
Corporate Finance Committee, Executive Committee,
Investment Committee, Directors Stock Committee
DIRECTORS WHOSE TERMS EXPIRE AT
THE 1996 ANNUAL MEETING:
JACK FINKELSTEIN {Photo}
Year First Became A Director: 1965
Age: 66
Personal and family trust investments.
Executive Committee, Audit Committee,
Investment Committee
JaMES H. GREER {Photo}
Year First Became A Director: 1978
Age: 67
Chairman, Shelton W. Greer Co., Inc. (engineering, manufacturing, fabrication
and installation of building specialty products). Mr. Greer is a member of the
Board of Directors of Cash America International, Inc., AmeriCredit Corp. and
Tanknology Environmental, Inc.
Compensation Committee
L. WILLIAM HEILIGBRODT {Photo}
Year First Became A Director: 1975
Age: 52
President and Chief Operating Officer of the Company since February 1990. Prior
thereto, Mr. Heiligbrodt was Executive Vice President of the Company since May
1989 and, from March 1988 to May 1989, was Senior Vice President Financial
Services of the Company. Mr. Heiligbrodt is a member of the Board of Directors
of BJ Services Company.
Corporate Finance Committee, Executive Committee,
Investment Committee, Directors Stock Committee
CLIFTON H. MORRIS, JR. {Photo}
Year First Became A Director: 1990
Age: 58
Chairman, President and Chief Executive Officer of AmeriCredit Corp. (financing
of automotive vehicles) since July 1, 1988. Mr. Morris is also a member of the
Board of Directors of AmeriCredit Corp. and Cash America International, Inc.
Corporate Finance Committee
W. BLAIR WALTRIP {Photo}
Year First Became A Director: 1986
Age: 39
Executive Vice President Operations of the Company since February 1991, and
Chairman of the Board and President of Service Corporation International
(Canada) Limited since January 1990. From February 1990 to February 1991, Mr.
Waltrip was Executive Vice President and Chief Executive Officer of the
Company's Funeral Division. Prior thereto, Mr. Waltrip was Executive Vice
President since May 1989 and was Senior Vice President Real Estate of the
Company since September 1987. Mr. Waltrip is a member of the Board of Directors
of Tanknology Environmental, Inc.
Corporate Finance Committee, Executive Committee,
Investment Committee, Directors Stock Committee
7
<PAGE> 9
MEETINGS AND COMMITTEES OF
THE BOARD OF DIRECTORS
The Board of Directors held four meetings during 1993. Standing
committees of the Board include the Executive Committee, Audit Committee,
Compensation Committee, Investment Committee, Corporate Finance Committee and
Directors Stock Committee.
The Executive Committee has authority to exercise many of the powers of
the Board, including selections made upon its own motion of nominees for
election to the Board, and generally acts during periods when there is no
regular meeting of the Board. The Executive Committee held eleven meetings
during 1993.
The primary functions of the Audit Committee are to review the scope and
results of audits by the Company's independent and internal auditors, internal
accounting controls, non-audit services performed by the independent accountants
and the cost of all accounting and financial services. During 1993, the Audit
Committee held three meetings.
The Compensation Committee, which has the general duty to review and
approve compensation for officers, including the granting of bonuses and the
administration of the Company's stock and stock option plans, held three
meetings during 1993.
The Investment Committee's primary functions are to establish overall
guidelines and review the transactions in the investment portfolios of the trust
activities of the Company. During 1993, the Investment Committee held twelve
meetings.
The purpose of the Corporate Finance Committee, which did not meet in
1993, is to review certain transactions which materially affect the financial
condition of the Company, including issuances of securities of the Company.
The Directors Stock Committee administers the 1990 Stock Plan For
Non-Employee Directors. This committee did not hold any meetings in 1993.
During 1993, each director attended at least 75% of the total number of
meetings of the Board of Directors and committees on which he served.
PROPOSAL TO APPROVE THE 1993 LONG-TERM INCENTIVE STOCK OPTION PLAN AND THE
AWARDS MADE THEREUNDER IN 1993
The Service Corporation International 1993 Long-Term Incentive Stock
Option Plan (the "1993 Plan") was adopted by the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee") on November 10,
1993 and by the Board of Directors as a whole on November 11, 1993. The 1993
Plan and the 1993 Awards (defined below) are being submitted to the Company's
shareholders for approval. The description of the 1993 Plan set forth below is a
summary only and is qualified in its entirety by reference to the text of the
1993 Plan, which is attached to this Proxy Statement as Annex A.
On November 10, 1993, the Compensation Committee awarded Options,
subject to shareholder approval of the 1993 Plan, to the executive officers
listed in the table to the right, covering the number of shares of Common Stock
indicated (collectively, the "1993 Awards").
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE* NUMBER OF SHARES
----------------- ------------- ----------------
<S> <C> <C>
R. L. Waltrip $14,548,106 1,550,000
Chairman of the Board and
Chief Executive Officer
L. William Heiligbrodt 8,916,581 950,000
President and
Chief Operating Officer
W. Blair Waltrip 5,162,231 550,000
Executive Vice President
Operations
Samuel W. Rizzo 4,458,291 475,000
Executive Vice President and
Chief Financial Officer/Treasurer
John W. Morrow, Jr. 4,458,291 475,000
Executive Vice President
Corporate Development
Executive Group $37,543,500 4,000,000
Non-executive Director Group __ __
Non-executive Officer
Employee Group __ __
</TABLE>
* This column reflects the present value at the date of grant (November 10,
1993) of options, based on a present value model known as the "Black-Scholes
option pricing model." The choice of such valuation method does not reflect any
belief by SCI's management that such method, or any other valuation method, can
accurately assign a value to an option at the grant date. The assumptions used
for valuing the SCI grants are: volatility rate 21.79%; annual dividend rate of
$0.42 per share; risk free interest rate 6%; and adjustment for risk of
forfeiture 3% per year for four years.
8
<PAGE> 10
Adoption of the 1993 Plan and approval of the 1993 Awards require the
affirmative vote of holders of a majority of the shares of Common Stock present
(in person or by proxy) and entitled to vote at the Annual Meeting. For this
purpose, shares as to which an abstaining vote is cast will be considered as
present and entitled to vote, so an abstention will have the same effect as a
vote against the proposal. Shares held through a broker that are not voted
because such broker has not received voting instructions from the beneficial
owner will be considered as not being present at the meeting.
General. The 1993 Plan provides that 4,650,000 shares of Common Stock
will be available for the grant of stock options ("Options") during the term of
the 1993 Plan. Based on the closing market price of the Common Stock on March
25, 1994, such shares had an aggregate market value of $123,806,250. If an
Option granted under the 1993 Plan expires, terminates or lapses for any reason,
without the issuance of shares of Common Stock thereunder, such shares will not
be available for other awards under the 1993 Plan. None of the Options will be
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code (the "Code").
In the event of a merger, reorganization, consolidation,
recapitalization, spin-off, stock dividend, stock split, extraordinary
distribution with respect to the Common Stock or any other similar event, the
Compensation Committee shall make such adjustments in the aggregate number of
shares reserved for issuance, the number of shares covered by outstanding
Options and the exercise prices specified therein as the Compensation Committee
may determine to be appropriate. An employee may satisfy a tax withholding
requirement by applying shares to which the employee is entitled as a result of
the exercise of an Option.
Eligibility and Participation. Participants in the 1993 Plan are
selected by the Compensation Committee, which will administer the 1993 Plan.
The 1993 Plan contemplates that Options will be granted to such officers and
other employees of the Company and its subsidiaries as from time to time are
designated by the Compensation Committee. None of the persons who received the
1993 Awards will receive any further awards under the 1993 Plan.
Administration. The 1993 Plan requires that the Compensation Committee
consist of at least two directors of the Company who are "disinterested
persons," as such term is used in Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and are "outside directors" within the
meaning of Section 162(m) of the Code. Accordingly, members of the Compensation
Committee are not eligible to participate in the 1993 Plan. Directors who become
members of the Compensation Committee in the future must not have been eligible
to participate in the 1993 Plan within one year prior to serving on the
Compensation Committee. Under the 1993 Plan and subject to the limitations
thereunder, the Compensation Committee is authorized (i) to select participants
in the 1993 Plan, (ii) to determine whether and to what extent Options are to be
granted, (iii) to determine the number of shares of Common Stock to be covered
by each Option, and (iv) to determine the terms and conditions of any Option.
The Compensation Committee also has authority to adopt, alter and repeal
administrative rules, guidelines and practices, to interpret the terms and
provisions of the 1993 Plan and any Option issued thereunder and to otherwise
supervise the administration of the 1993 Plan.
Term of Options. The term of each Option will be 14 years, unless
earlier terminated under the circumstances described below.
Pricing of Options. Under the 1993 Plan, an employee to whom an Option
is granted will have the right to purchase the number of shares of Common Stock
covered by the Option, subject to the terms and provisions of the 1993 Plan. The
exercise price to be paid by a participant is determined by the Compensation
Committee and will be set forth in an agreement between the Company and the
participant. Such price cannot be less than 100% of the fair market value of the
Common Stock on the date on which the Option in respect thereof is granted. The
exercise price with respect to each of the 1993 Awards is $25.75 per share,
which is the average of the high and low prices for the Common Stock as reported
on the New York Stock Exchange Composite Tape on the date the 1993 Awards were
granted (November 10, 1993). The Committee may not adjust the exercise price of
1993 Awards except in connection with a merger, reorganization, consolidation,
recapitalization, spin-off, stock dividend, stock split, extraordinary
distribution with respect to the Common Stock or any other similar event. The
Company has not and will not receive any payment or other consideration in
exchange for the grant of any Option.
Under the 1993 Plan, the exercise price of an Option is payable (i) in
cash or (ii) by the surrender, at the fair market value on the date on which the
Option is exercised, of shares of unrestricted Common Stock already owned by the
optionee.
Exercisability and Vesting of Options. For each Option the Compensation
Committee will select a target price (the "Target Price") for the Common Stock
so that such Option will vest immediately if, within four years after the date
of grant, the fair market value of the Common Stock is greater than or equal to
the Target Price for 20 consecutive trading days. In the case of the 1993
Awards, the Compensation Committee selected a Target Price of $50 per share for
half the award made to each recipient and a Target Price of $60 per share for
the remaining half. Accordingly, if the fair market value of the Common Stock
9
<PAGE> 11
exceeds or equals $50 per share or $60 per share for 20 consecutive trading
days during the four-year period commencing November 10, 1993, 50% of the 1993
Awards or 100% of the 1993 Awards, as the case may be, will then vest. "Fair
market value" is defined as the average of the high and low prices for the
Common Stock on the specified date as reported on the New York Stock Exchange
Composite Tape. Each Option will also vest on the thirteenth anniversary of the
date of its grant if it remains outstanding as of such date.
Each Option will also vest in the following circumstances. If the
optionee's employment with the Company terminates after the fourth anniversary
of the date of grant as a result of death, disability or retirement at age 55 or
greater, or if employment is terminated by the Company without cause, vesting
will occur upon termination of employment. In any such event, such options will
be exercisable during the one-year period beginning on the thirteenth
anniversary of the date of grant. Options will also become fully vested and
exercisable upon a Change in Control (as defined below). If an optionee
voluntarily terminates employment with the Company (other than through
retirement) or is terminated for cause, or if an optionee retires prior to the
fourth anniversary of the date of grant, any Option that has not previously
vested will be canceled.
If an optionee's employment is terminated on or prior to the fourth
anniversary of the date of grant by death or disability or by the Company
without cause, the Option will be exercisable if and only if the Target Price is
reached (either before or after termination of employment) during the initial
four-year period. In that case, the Option will be exercisable during the
12-month period beginning on the fourth anniversary of the date of grant.
If the Target Price of an Option is reached during the initial four-year
period, such Option will become exercisable at the end of such four-year period
and remain exercisable for the balance of its term. If the holder of such an
Option terminates employment with the Company for any reason after the fourth
anniversary of the date of grant, such vested Option will terminate 18 months
after the date of termination of employment (or, if earlier, at the original
termination date of the Option). If the holder of such an Option voluntarily
terminates employment with the Company (whether through retirement or otherwise)
after the Target Price is reached but before the fourth anniversary of the date
of grant, such Option will be exercisable during the 18-month period beginning
on such fourth anniversary.
The right of any participant to exercise an Option may not be
transferred in any way other than (i) by will or the laws of descent and
distribution or (ii) pursuant to a qualified domestic relations order. All
Options are exercisable by a participant during his or her lifetime only by the
optionee, or any guardian or legal representative or permitted transferee.
Change in Control. For purposes of the 1993 Plan, a "Change in Control"
means (i) an acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (a) the then outstanding shares of Common Stock (the
"Outstanding Common Stock") or (b) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); except that the
following acquisitions will not constitute a Change in Control: (1) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Person controlled by the Company or (4) any
acquisition by any Person pursuant to a transaction which complies with
subclauses (a), (b) and (c) of clause (iii) of this paragraph; or (ii)
individuals who, as of November 10, 1993, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
except that any individual becoming a director subsequent to such date whose
election, or nomination for election by the shareholders of the Company, was
approved by (x) a vote of at least a majority of the directors then comprising
the Incumbent Board or (y) a vote of at least a majority of the directors then
constituting the Executive Committee of the Board at a time when such committee
comprised at least five members and all members of such committee were either
members of the Incumbent Board, pursuant to the foregoing clause (x), will be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the Board; or (iii) approval by the
shareholders of the Company of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination") unless following such Business Corporation, (a) more
than 60% of, respectively, the then Outstanding Common Stock, and the combined
voting power of the then Outstanding Voting Securities, entitled to vote
generally in the election of directors, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which, as a
result of such transaction owns the Company or all or substantially all of the
Company's assets) is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such
10
<PAGE> 12
Business Combination in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (b) no Person (excluding
the Company, any employee benefit plan (or related trust) of the Company, the
corporation resulting from such Business Combination or any Person beneficially
owning, immediately prior to such Business Combination, 20% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors and (c) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time such Business Combination was
approved by the Board; or (iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
The 1993 Plan further provides that during the 60-day period following a
Change in Control, the holder of an Option has the right to surrender such
Option for cash in an amount equal to the difference between the "change in
control price" (as defined in the 1993 Plan) and the exercise price.
Amendment and Termination. The 1993 Plan will terminate on November 10,
2003. Options granted and outstanding as of the date the 1993 Plan terminates
are not affected or impaired by such termination.
The Compensation Committee may amend the 1993 Plan without shareholder
approval to take into account changes in law and tax and accounting rules, but
no such amendment may impair the rights of participants under outstanding
Options without the consent of the participants affected thereby (except for any
amendment made to cause the plan to qualify for an exemption provided by
Securities and Exchange Commission Rule 16b-3 ("Rule 16b-3")) or make any change
that would disqualify the 1993 Plan from the exemption provided by Rule 16b-3.
Restrictions on Resale. No person who acquires shares of Common Stock
under the 1993 Plan may, during any period of time that such person is an
"affiliate" of the Company within the meaning of the rules and regulations of
the Commission under the Securities Act, offer or sell such shares of Common
Stock unless such offer and sale is made (i) pursuant to an effective
registration statement under the Securities Act, which is current and includes
the shares to be sold or (ii) pursuant to an appropriate exemption from the
registration requirements of the Securities Act, such as that set forth in Rule
144 promulgated under the Securities Act.
Under Section 16 of the Exchange Act, any person who is a beneficial
owner of more than 10% of any equity security of the Company registered under
the Exchange Act (such as the Common Stock), or an executive officer or
director of the Company, may be liable to the Company for any profit realized
from any sale of any equity security of the Company within a period of less
than six months before or after any purchase of an equity security of the
Company, irrespective of the intention on the part of such person in entering
the transaction. In determining whether any person is a beneficial owner of
more than 10% of any equity security of the Company registered under the
Exchange Act, such person may be required to include shares issuable on
exercise of options or warrants or upon conversion of convertible securities.
Federal Income Tax Considerations. The discussion which follows is a
summary, based on current law, of some of the significant federal income tax
considerations relating to awards under the 1993 Plan. Participants in the 1993
Plan should consult their tax advisors with respect to their individual federal
income tax status. In addition, because the following discussion is limited to
United States federal tax matters, all participants subject to taxation by other
authorities (including state and local jurisdictions) should consult their tax
advisors with respect to the applicable tax laws of such other jurisdictions.
A participant will not realize income at the time an Option which is a
nonqualified option is granted. Upon exercise, where the exercise price is paid
in cash, the participant will realize ordinary income, except as noted below in
the case of a participant subject to the provisions of Section 16(b) of the
Exchange Act (the "Section 16 Restrictions"), in the amount by which the market
value of the shares acquired on the exercise date exceeds the exercise price.
When the shares are subsequently sold, any amount recognized in excess of the
market value on the exercise date will be reportable as short-term or long-term
capital gain, as appropriate, or, if the amount realized is less than the market
value of the shares at the time of exercise, any loss recognized will be
reportable as short-term or long-term capital loss, as appropriate. Capital
losses on the sale of shares may generally be used only to offset capital gains.
If capital losses exceed capital gains, then up to $3,000 of the excess losses
may be deducted from ordinary income in any one year. Any capital losses not
deductible in a given year are carried forward to future tax years. If the
exercise price of an Option is paid in whole or in part with already owned
shares of Common Stock, the participant's tax basis in, and holding period for,
the old shares will carry over to the same number of shares received upon
exercise on a share-for-share basis and the participant will not recognize
compensation income with respect to such shares received. The fair market value
of the additional shares received will constitute compensation taxable to the
11
<PAGE> 13
participant as ordinary income. The tax basis for the additional shares
received will equal their fair market value as so determined, and their holding
period will begin on the day after the date as of which such fair market value
is determined.
Recognition of taxable income at the time of the exercise of an Option
should be deferred pursuant to Section 83 of the Code for a participant if the
sale of the Common Stock acquired upon such exercise would be subject to the
Section 16 Restrictions. Such deferral would be for the lesser of six months or
until such Section 16 Restrictions lapse. The participant may, however, file
with the Internal Revenue Service, within thirty days after exercise of the
Option, an election, pursuant to Section 83(b) of the Code, to be taxed at the
time of the exercise of the Option.
Tax Consequences to the Company. Subject to any limitation imposed by
Section 162(m) of the Code, the Company will be allowed a deduction in the year
of exercise equal to the amount of income realized by the participant, provided
the Company satisfies certain federal income tax withholding requirements.
Section 162(m) of the Code provides for a limit, subject to certain exceptions,
of $1,000,000 on the amount of compensation expense that a publicly owned
corporation may claim as a deduction for federal income tax purposes with
respect to compensation paid to each of its five most highly compensated
executives in any given year. Although Section 162(m) was recently enacted in
1993 and there are no precedents available with respect to how the provision
will be interpreted by the Internal Revenue Service, and the Treasury
regulations issued with respect thereto are in proposed form only, the Company
believes that the 1993 Plan qualifies for an exception to such limitation which
would permit the Company to exclude any compensation paid pursuant to the
exercise of an option granted under the 1993 Plan from such limitation and to
take a deduction for the full amount of compensation recognized by such
executives as a result of the exercise of any such option.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
ADOPTION OF THE 1993 LONG-TERM INCENTIVE STOCK OPTION PLAN AND THE AWARDS MADE
THEREUNDER IN 1993.
12
<PAGE> 14
OVERVIEW OF EXECUTIVE COMPENSATION
During 1993, SCI enjoyed increased revenues and net income and also
expanded into an additional foreign market -- Australia. In management's
opinion, SCI has generated excellent returns for its shareholders.
For example, an investment of $100 in SCI's stock at the end of
1989 would have been worth $276 by year-end 1993, producing
a total shareholder return (assuming quarterly reinvestment of
dividends) of 176% for this period. During the same period, a
$100 investment in the S&P 500 Index would have been worth $149, which
represents a 49% total return. Thus, SCI's total shareholder return over the
four-year period ended December 31, 1993 was more than three times the return
generated by the broader market index.
In 1993, the Company underscored the international aspect of its name by
acquiring Pine Grove Funeral Group, Australia's largest funeral and cremation
services provider. With the Australia acquisition, SCI owned 792 funeral homes
and 192 cemeteries in 39 states, the District of Columbia, Canada, and Australia
as of the end of 1993.
SCI remains committed to a path of growth and continued focus on
increasing shareholder value. To achieve these aims, the Company's Board of
Directors believes that it is crucial to provide key employees with substantial
incentive compensation opportunities tied to performance. These incentive
programs (which are described in detail in the Compensation Committee Report set
forth below) are intended to enable the Company to retain and attract the core
talent needed to sustain the results achieved over the last four years. The
central focus of SCI's total compensation program is intended to forge a direct
link between the economic interests of shareholders and management.
SCI's Board of Directors and employees are proud of the Company's
accomplishments in 1993.
PERFORMANCE GRAPHS
The following graph presents the Company's cumulative shareholder return
over the period of December 31, 1988 to December 31, 1993. The Company is
compared to the S&P 500 Index and to the S&P Miscellaneous Index, of which the
Company is a member. Each Index assumes $100 invested at the close of trading on
December 31, 1988 and is calculated assuming quarterly reinvestment of dividends
and quarterly weighting by market capitalization.
THE DATA SOURCE FOR ALL GRAPHS IN THIS PROXY STATEMENT IS
S&P COMPUSTAT SERVICES.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
1988-1993
{CHART}
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SCI 100 92 136 167 174 254
S&P 500 Index 100 132 127 166 179 197
S&P Misc. Index 100 119 111 149 167 196
</TABLE>
The Company believes that a more appropriate comparison of its
performance relative to the S&P 500 Index and the S&P Miscellaneous Index can be
seen in the period of December 31, 1989 to December 31, 1993. In 1989, the
Company developed a new strategic focus and restructuring program. As the next
performance graph on the following page indicates, the Company's stock since the
new strategic initiative has significantly outperformed the broad market. Each
Index assumes $100 invested at the close of trading on December 31, 1989 and is
calculated assuming quarterly reinvestment of dividends and quarterly weighting
by market capitalization.
13
<PAGE> 15
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
1989-1993
{CHART}
<TABLE>
<CAPTION>
At December 31,
----------------------------
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SCI 100 148 182 189 276
S&P 500 Index 100 97 126 136 149
S&P Misc. Index 100 93 125 140 164
</TABLE>
The Company attributes the performance reflected in the preceding graph
to its strong growth in revenues, operating income, and earnings per share since
the restructuring in 1989. The following three charts compare these three
performance criteria for SCI and the Index companies for the four years
1989-1992 (1993 information is still incomplete). The figures in the following
charts are not weighted by market capitalization.
4-YEAR SALES GROWTH (1989-1992)
{CHART}
4-YEAR OPERATING INCOME GROWTH (1989-1992)
{CHART}
4-YEAR EPS GROWTH (1989-1992)
{CHART}
14
<PAGE> 16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is a committee of
outside Directors that is chaired by Mr. E. H. Thornton, Jr. Other members are
Mr. James H. Greer and Mr. John W. Mecom, Jr. This committee is responsible for
reviewing and approving all elements of the total compensation program for
officers of Service Corporation International, including long-term incentive
arrangements. The Committee has ultimate responsibility for aligning the
Company's total compensation programs with its business strategy and for
assuring shareholders that pay delivery programs are effective, responsible and
competitive when compared to similarly situated organizations. This Committee
report documents the basis on which 1993 compensation determinations were made
and further describes the components of officer compensation programs for the
Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES OF EXECUTIVE
COMPENSATION PROGRAMS
It is the philosophy of the Company and the Committee that all
compensation programs should provide a direct link between the performance of
the Company and the compensation of its officers. To that effort, all of the
executive compensation and benefit plans have been designed to attract,
motivate, reward and retain the broad-based management talent required to
achieve corporate objectives and increase shareholder value. In particular, the
Company has designed its compensation program for officers to focus strongly on
stock-based compensation, since this form of compensation provides the clearest
link to enhanced shareholder value. From time to time, the Committee works with
compensation consultants to assist with the design, implementation and
communication of various compensation plans.
The Company's compensation programs for executives include base
salaries, annual performance-based incentives and long-term incentives. Each of
these pay delivery programs is further detailed below.
BASE SALARIES
Base salaries for the Company's officers are reviewed on an annual basis
through comparisons with a group of approximately 120 companies of similar size
(as measured by revenues and profitability) across various industries (the
"Comparison Group"). The competitive pay data is not drawn from the entire
groups of companies which comprise the indexes reflected in the various
performance graphs contained in this proxy statement, since the Committee
believes revenue size and profitability comparisons are more appropriate
criteria for establishing base salary and annual incentive compensation rates.
Actual salaries are based on individual performance contributions, position in
the Company and market comparisons. Individual performance assessments are
conducted in a non-formula fashion and also consider overall company financial
performance (looking at such measures as earnings per share growth). All of the
officers shown in the summary compensation table (the "Named Executives") have
employment agreements (see "Executive Employment Agreements"). Under these
agreements, the Committee has the sole discretion for determining any increase
in base salary; however, under the agreements, base salaries may not be
decreased. In 1993, the Named Executives received salary increases ranging from
5 percent to 5.6 percent over the prior year. The current base salary levels for
Named Executives are, overall, consistent with the Company's philosophy of
targeting the 75th percentile of the Comparison Group. With respect to an item
of compensation of an executive, the term "75th percentile" means a level of
compensation which is greater than the compensation of peer executives at 75% of
the companies in a survey or selected group of companies.
ANNUAL INCENTIVE COMPENSATION
All of the Company's officers have a significant portion of their total
compensation at risk through annual incentive opportunities that are linked to
key financial and operational objectives for the Company on a consolidated
basis. The objective of this policy is to focus the Named Executives on the
attainment of objectives that the Committee believes are primary determinants of
share price over time. For the Named Executives, the primary basis for
determining awards is earnings per share growth. Actual awards are
proportionately decreased or increased on the basis of the Company's earnings
per share growth compared to target, subject to maximum award amounts. Target
award levels are set at approximately the 75th percentile of the Comparison
Group.
Payments are generally made in cash and are subject to the discretion of
the Committee. Annual incentive awards earned for 1993 performance were well
above target for the Named Executives because the Company's results exceeded
1993 targeted levels of 10% growth in earnings per share. The awards were paid
in 1993.
LONG-TERM INCENTIVE COMPENSATION
The Committee believes that the Company's key employees should have an
ongoing stake in the long-term success of the business. The Committee also
believes that key employees
15
<PAGE> 17
should have a considerable portion of their total compensation paid in the
form of stock, since stock related compensation provides an incentive for
enhancement of shareholder value.
To accomplish these objectives, the Company has traditionally provided
its employees with long-term incentive awards in two forms: (1) time vested
restricted stock grants (which are intended to provide actual stock ownership to
employees and to emphasize the importance of total shareholder returns) and (2)
stock options (which focus on increasing shareholder value). In recent years,
time vested restricted stock has been the primary form of long-term incentives
used for the Company's officers. In early 1993, the Company granted restricted
stock which vested at a rate of 50 percent six months after grant and 50 percent
twelve months after the grant date. Tax gross-up payments were made as these
grants vested.
Later in 1993, the Committee decided that the Company's stock based
compensation programs should have a greater focus on generating returns for
shareholders. To this end, the Committee structured long-term restricted stock
grants to vest five percent per year with full vesting at the end of ten years
(compared to the Company's traditional method of time vesting over several
years), provided, however, that vesting will be accelerated if certain events
occur or if certain specified earnings per share growth targets are achieved.
Such grants are herein called "Incentive Grants". For additional information on
such grants including a description of events which will accelerate vesting, see
footnote (4) to the Summary Compensation Table. In determining the size of the
1993 Incentive Grants, the Committee considered a national executive
compensation survey of long-term incentive practices of 276 companies of various
sizes in various industries (the "Survey Group").
For the Named Executives, the 1993 Incentive Grants were made in amounts
equal to approximately three times the Survey Group's 75th percentile level of
annual long-term incentive awards; however, there will be no on-going annual
Incentive Grants to these executives until after the 1993 Incentive Grants have
fully vested. The grants were established in such amounts in order to provide a
significant incentive to the Company's senior officers for producing outstanding
earnings and share price performance. The 1993 Incentive Grants to Named
Executives were structured so that (i) the Named Executives will not be eligible
to receive additional Incentive Grants until after the 1993 Incentive Grants
fully vest, and (ii) the Company will not provide any gross-up tax payments to
Named Executives as the 1993 Incentive Grants vest.
Incentive Grants to executives other than the Named Executives were also
made in 1993. However, these grants were for amounts normally made during a
single year and were made in anticipation of on-going annual grants to these
executives. Tax gross-up payments will be made as these grants vest. The grants
to this group of executives reflect approximately 75th percentile of grant
levels for the Survey Group, including the effect of the tax gross-up payments.
During 1993, the Committee ratified stock option grants covering 145,000
shares to the Named Executives made on a discretionary basis by Service
Corporation International (Canada) Limited ("SCIC"), a Canadian subsidiary.
These options vest in increments of one-third on each anniversary of the grant
date and contain exercise prices ten percent lower than the fair market value of
SCIC stock on the date of grant.
The Committee has also adopted, subject to shareholder approval, the
1993 Long-Term Incentive Stock Option Plan authorizing the use of 4,650,000
shares for stock option grants. The intent of this plan is to attract, retain
and motivate participants and to provide incentives more directly linked to the
Company's profitability and increases in stockholder value.
During its November 1993 meeting, the Committee granted on a
discretionary basis, subject to shareholder approval, a total of 4,000,000 stock
options to the Named Executives. However, the stock option grants were
structured to vest at the earlier of 13 years after the date of grant or at the
time the Company's stock price meets targeted levels or upon the occurrence of
certain other events. If the fair market value of the Common Stock exceeds or
equals $50 per share or $60 per share for 20 consecutive days during the
four-year period commencing November 10, 1993, 50% of the stock options or 100%
of the stock options, as the case may be, will then vest. For additional
information, including a description of all events which will accelerate
vesting, see "Proposal to Approve the 1993 Long-Term Incentive Stock Option Plan
and the Awards Made Thereunder in 1993."
The Committee believes there are two key points which shareholders
should note in considering the proposed plan. First, attainment of the $50 stock
price performance target at the end of four years from the grant date would
represent a compounded growth rate of 18.1% per year over the grant date per
share price of $25.75. If the $60 stock price performance target is achieved at
the end of such period, the compounded growth rate would be 23.6% per year. The
Committee believes achieving such levels of performance within four years would
constitute outstanding growth in shareholder value. Second, the officers
participating under this plan are not eligible to receive any additional stock
option awards under this plan although they remain eligible for benefits under
other plans .
1993 CHIEF EXECUTIVE OFFICER PAY
As described above, the Company manages its pay for all executives,
including the Chief Executive Officer (or "CEO"),
16
<PAGE> 18
considering both a pay-for-performance philosophy and market rates of
compensation for each executive position. Specific actions taken by the
Committee regarding the CEO's compensation are summarized below.
Base Salary
Mr. R. L. Waltrip's salary was increased from $700,000 to $735,000. This
salary adjustment represents a five percent increase which is consistent with
market salary increases for CEOs generally in 1993.
Annual Incentive
The annual incentive earned by the CEO for 1993 performance was
$882,000, which was paid in cash.
This annual incentive award reflects the Company's performance measure
used in the Company's annual incentive awards. The actual annual incentive award
was above target since the Company's earnings per share performance strongly
exceeded target. The CEO's individual performance was evaluated by the Committee
to be at the same level as the Company's financial performance for the year.
Long-Term Incentive
The CEO received 171,000 shares of long-term restricted stock previously
described as a 1993 Incentive Grant. This grant represents an amount equal to
three times the 75th percentile of the Survey Group's annual long-term incentive
awards; however, there will not be any on-going annual Incentive Grants to the
CEO until after this grant has fully vested. These grants provide for
accelerated vesting, including vesting based on the attainment of specified
earnings per share growth targets. The CEO will not receive any tax gross-up
payments as these grants vest and will not be eligible to receive another
Incentive Grant until after this grant has fully vested. The CEO also received a
time-vested restricted stock grant of 13,450 shares early in 1993.
The CEO also received an option to acquire 45,000 shares of SCIC common
stock. This option, which was granted on a discretionary basis, vests in
increments of one-third on each anniversary of the grant date (or earlier upon
death or disability or a change of control of the Company) and contains an
exercise price ten percent lower than the fair market value of SCIC stock on the
date of grant.
In addition, the CEO received an option to acquire 1,550,000 shares of
SCI common stock, subject to shareholder approval, under the proposed 1993
Long-Term Incentive Stock Option Plan. This option grant, which was made on a
discretionary basis, is structured in the same fashion described in the
previous section of this report and is intended to provide substantial
incentives more directly linked to the Company's profitability and increases in
stockholder value. The exercise price of the option is equal to the fair market
value of the stock at the date of grant.
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 (the "Act") prevents
publicly traded companies from receiving a tax deduction on compensation paid to
proxy-named executive officers in excess of $1 million annually, effective for
compensation paid after 1993. Although the Committee has not adopted a policy
relating to the Act, the Committee believes that there will be little if any
impact from this limitation to the Company in 1994 due to various exceptions to
the $1 million limitation.
The Committee made 1993 long-term restricted stock grants (described
previously as Incentive Grants) to Named Executives which are taxable to the
executive and deductible to the Company in 1993, and thus are not subject to the
new limitations. The Company believes that the proposed 1993 Long-Term Incentive
Stock Option Plan qualifies for an exception to the $1 million limit. The
Committee believes that the Company's other compensation programs which will
result in amounts of compensation in 1994 will either qualify for exceptions to
the $1 million limit or that in the aggregate such amounts of compensation will
not significantly exceed $1 million for each Named Executive.
Compensation Committee:
E.H. Thornton, Jr., Chairman
James H. Greer
John W. Mecom, Jr.
17
<PAGE> 19
CERTAIN INFORMATION WITH RESPECT TO OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth information for the three years ended
December 31, 1993 with respect to the Chief Executive Officer and the four most
highly compensated executive officers of the Company. The determination as to
which executive officers were most highly compensated was made with reference to
the amounts required to be disclosed under the "Salary" and "Bonus" columns in
the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ------------------------ ----------
RESTRICTED LONG-TERM
NAME AND OTHER ANNUAL STOCK STOCK INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)(2) AWARD(S)(3)(4) OPTIONS PAYOUTS(5) COMPENSATION(1)(6)
------------------ ---- ------ ----- ------------------ -------------- ------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. L. Waltrip 1993 $717,500 $882,000 $775,663 $4,239,432 1,595,000 $0 $170,418
Chairman and 1992 700,000 0 381,975 $1,570,781 0 1,200,000 211,440
Chief Executive Officer 1991 700,000 700,000 0 0 0
L. William Heiligbrodt 1993 462,500 522,500 579,499 2,571,218 985,000 0 42,322
President and 1992 450,000 0 310,000 1,055,771 0 1,200,000 43,134
Chief Operating Officer 1991 450,000 404,000 0 0 0
W. Blair Waltrip 1993 307,500 315,000 263,436 1,478,693 585,000 0 42,383
Executive Vice 1992 275,000 0 144,750 566,511 0 600,000 43,323
President Operations 1991 274,423 220,000 0 0 0
Samuel W. Rizzo 1993 282,500 261,000 372,698 1,315,505 505,000 0 42,599
Executive Vice President, 1992 275,000 0 179,209 798,266 0 600,000 43,111
Chief Financial Officer 1991 274,423 220,000 0 0 0
and Treasurer
John W. Morrow, Jr. 1993 282,500 261,000 219,059 1,311,743 475,000 0 599
Executive Vice President 1992 274,327 0 112,629 386,258 0 0 1,073
Corporate Development 1991 250,000 200,000 0 0 0
</TABLE>
(1) Pursuant to the transitional provisions set forth in the proxy rules,
amounts of Other Annual Compensation and All Other Compensation are excluded
for the Company's 1991 fiscal year.
(2) Figures include tax gross-up payments on restricted stock award vestings
which are taken into consideration when determining the total value of each
award. Figures also include other executive perquisites and benefits,
including, for 1993, $22,044 for use of a car, $28,644 for use of aircraft
and $34,560 in tax and financial planning services for Mr. R. L. Waltrip;
$17,349 for use of a car, $20,307 for use of aircraft and $13,490 in tax
and financial planning services for Mr. Heiligbrodt; $10,410 for use of a
car, $5,842 for use of aircraft, and $1,350 in tax and financial planning
services for Mr. W. Blair Waltrip; $10,575 for use of a car, $10,891 for
use of aircraft and $19,067 in tax and financial planning services for
Mr. Rizzo; and $10,135 for use of a car, $9,910 for use of aircraft, and
$10,000 in tax and financial planning services for Mr. Morrow.
(3) At December 31, 1993, the number and value of restricted stock holdings not
vested of the listed executives were as follows:
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
R. L. Waltrip 252,350 $6,624,188
L. William Heiligbrodt 157,025 4,121,906
W. Blair Waltrip 89,125 2,339,531
Samuel W. Rizzo 91,500 2,401,875
John W. Morrow 71,525 1,877,531
</TABLE>
(4) Shares of restricted stock were awarded on February 10, 1993 as follows:
Mr. R. L. Waltrip--13,450 shares; Mr. Heiligbrodt--7,800 shares; Mr. W.
Blair Waltrip--4,250 shares; Mr. Rizzo--4,250 shares; and Mr. Morrow--4,050
shares. These shares vest 50% six months after the grant date and 50% one
year after the grant date. These awards vest 100% in the event of death,
disability, retirement at age 65, attaining the age of 70 or upon a change
of control (as defined in the Amended 1987 Stock Plan) of the Company.
Incentive Grants were awarded on August 10, 1993 as follows: Mr. R. L.
Waltrip--171,000 shares; Mr. Heiligbrodt--104,000 shares; Mr. W. Blair
Waltrip--60,000 shares; Mr. Rizzo--53,000 shares; and Mr. Morrow--53,000
shares. These shares vest 5% per year and fully at the end of ten years from
the grant date; however, vesting may be accelerated if the Earnings Per
Share ("EPS") growth targets are met. EPS growth targets and vesting
percentages are based on audited financial results for each fiscal year and
are as follows: less than 8%--5% vesting; from 8% to 10%--10% vesting; 10%
or greater--two times the EPS growth rate (that is, a 12% EPS growth would
result in 24% vesting). The 1993 Incentive Grants will vest 100% in the
event of death, disability or upon a change of control (as defined in the
Amended 1987 Stock Plan) of the Company. Dividends will be paid on the
restricted shares.
(5) These amounts were paid in 1992 in connection with the termination of the
Partnership Equity Plan for Provident Services, Inc. Key Executives and
Directors and the cancellation of the awards granted in February 1990 under
such plan.
(6) Consists of the following: $127,560 for split dollar life insurance, $858
for term life insurance and $42,000 in director fees for Mr. R. L. Waltrip;
$322 for term life insurance and $42,000 in director fees for Mr.
Heiligbrodt; $383 for term life insurance and $42,000 in director fees for
Mr. W. Blair Waltrip; $599 for term life insurance and $42,000 in director
fees for Mr. Rizzo; and $599 for term life insurance for Mr. Morrow.
18
<PAGE> 20
STOCK OPTIONS
OPTION GRANTS IN 1993
<TABLE>
<CAPTION>
NUMBER % OF TOTAL GRANT
OF SHARES OPTIONS DATE
UNDERLYING GRANTED TO EXERCISE MARKET PRESENT
GRANT OPTIONS EMPLOYEES IN PRICE PRICE EXPIRATION VALUE (5)
NAME DATE STOCK(1) GRANTED(2) 1993 PER SHARE(3) PER SHARE(3) DATE(4) (U.S. DOLLARS)
---- ---- -------- ---------- ---- ------------ ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. L. Waltrip 5/26/93 SCIC 45,000 24.0% $21.72 C $24.13 C 5/26/00 $ 336,631
11/10/93 SCI 1,550,000 36.3 25.75 25.75 11/10/07 14,548,106
L. William Heiligbrodt 5/26/93 SCIC 35,000 18.7 21.72 C 24.13 C 5/26/00 261,824
11/10/93 SCI 950,000 22.3 25.75 25.75 11/10/07 8,916,581
W. Blair Waltrip 3/24/93 SCIC 20,000 10.7 20.25 C 22.50 C 3/24/00 139,507
5/26/93 SCIC 15,000 8.0 21.72 C 24.13 C 5/26/00 112,210
11/10/93 SCI 550,000 12.9 25.75 25.75 11/10/07 5,162,231
Samuel W. Rizzo 5/26/93 SCIC 30,000 16.0 21.72 C 24.13 C 5/26/00 224,421
11/10/93 SCI 475,000 11.1 25.75 25.75 11/10/07 4,458,291
John W. Morrow, Jr. 11/10/93 SCI 475,000 11.1 25.75 25.75 11/10/07 4,458,291
</TABLE>
(1) During 1993, the named executive officers were granted options to acquire
Common Stock of SCI and options to acquire common stock of Service
Corporation International (Canada) Limited ("SCIC"), a public Canadian
company that is approximately 70% owned by SCI.
(2) The SCI stock options were granted, subject to shareholder approval,
under the 1993 Long-Term Incentive Stock Option Plan and will vest upon the
occurrence of certain events, including vesting at the earlier of 13 years
after the date of the grant, or at the time the Common Stock meets certain
targeted levels during the first 4 years from the date of the grant. If the
fair market value of the Common Stock exceeds or equals $50 per share or $60
per share for 20 consecutive days during the four-year period commencing
November 10, 1993, 50% of the stock options or 100% of the stock options, as
the case may be, will then vest. For additional information, including a
description of all events which will accelerate vesting, see "Proposal to
Approve the 1993 Long-Term Incentive Stock Option Plan and the Awards Made
Thereunder in 1993." The SCIC stock options vest in increments of 1/3 each
year or upon death or disability or upon a change in control of the Company.
(3) The exercise prices for SCI options are referenced in U.S. dollars and
for SCIC options in Canadian dollars denoted with a "C". The exercise price
for the SCI stock is the average market price at the date of the grant. The
exercise price for the SCIC stock is 10% less than the market price at the
date of the grant. The exercise date for the SCI stock is no sooner than 4
years from date of grant (except upon a change in control of the Company)
and no later than 14 years from date of grant.
(4) The expiration date for the SCIC options is 7 years from the date of the
grant. The expiration date for the SCI options is no later than 14 years
from the date of the grant.
(5) The present value of options is based on a present value model known as
the "Black-Scholes option pricing model" to arrive at the values shown.
Canadian dollars were converted to U.S. dollars using the exchange rate in
effect at December 31, 1993. The choice of the Black-Scholes valuation
method does not reflect any belief by SCI's management that such method, or
any other valuation method, can accurately assign a value to an option at
the grant date. The assumptions used for valuing the SCI grants are:
volatility rate 21.79%; annual dividend rate of $0.42 per share; risk free
interest rate 6%; and adjustment for risk of forfeiture 3% per year for four
years. The valuation assumptions for the SCIC grants are: volatility rate
21.79%; dividend yield $0; interest rate 5.6%; and adjustment for risk of
forfeiture 3% per year for three years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1993 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1993
SHARES DECEMBER 31, 1993 (U.S. DOLLARS)
ACQUIRED VALUE ---------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE(1) UNEXERCISABLE(2) EXERCISABLE(1) UNEXERCISABLE(2)
---- ----------- ------------ -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R. L. Waltrip 0 0 24,000 1,595,000 $294,996 $995,275
L. William Heiligbrodt 0 0 19,500 985,000 239,997 646,325
W. Blair Waltrip 0 0 29,500 585,000 351,985 468,533
Samuel W. Rizzo 0 0 18,000 505,000 221,247 384,350
John W. Morrow, Jr. 0 0 9,000 475,000 120,744 237,500
</TABLE>
(1) The amounts in the table regarding Mr. W. Blair Waltrip include exercisable
options for 10,000 shares of common stock of SCIC having a value of
$111,988 at December 31, 1993.
(2) The amounts in the table include unexercisable options to acquire shares of
common stock of SCIC as follows:
R. L. Waltrip
- - 45,000 shares valued at $220,275 at December 31, 1993
L. William Heiligbrodt
- - 35,000 shares valued at $171,325 at December 31, 1993
W. Blair Waltrip
- - 35,000 shares valued at $193,533 at December 31, 1993
Samuel W. Rizzo
- - 30,000 shares valued at $146,850 at December 31, 1993
19
<PAGE> 21
RETIREMENT PLANS
Cash Balance Plan
The SCI Pension Plan was restated and renamed the SCI Cash Balance Plan
effective October 1, 1993. The SCI Pension Plan, a defined benefit plan, assumed
employment continued to a normal retirement date of age 65. The annuity, payable
for life with 120 monthly payments certain, would provide a monthly benefit
computed as follows: 40% of final average monthly compensation for the highest
five consecutive years multiplied by a fraction of which the numerator is the
years of benefit service (not to exceed 30) and the denominator is 30.
Participants' opening account balances in the SCI Cash Balance Plan were
actuarially determined, based on the accrued benefit provided by the formula
from the SCI Pension Plan. The SCI Cash Balance Plan account will be credited,
each year that a participant qualifies, with a Company contribution (based on
annual compensation and years of benefit service) and interest. The chart below
is the percentage applied to total compensation for determining the Company
contribution for each participant.
<TABLE>
<CAPTION>
PERCENTAGE OF
YEARS OF BENEFIT SERVICE COMPENSATION
<S> <C>
Less than six years 5.5%
Six to ten years 6.5%
Eleven or more years 8.0%
</TABLE>
The maximum compensation used in computing benefits under the SCI
Pension Plan and the SCI Cash Balance Plan for 1993 was limited to $235,840.
For the period October 1, 1993 to December 31, 1993, interest for each
account was credited at the annual rate of 4.5%.
ESTIMATED ANNUAL BENEFITS PAYABLE AT AGE 65
<TABLE>
<CAPTION>
NAME ANNUAL BENEFIT
<S> <C>
R. L. Waltrip $102,126
L. William Heiligbrodt $ 29,141
W. Blair Waltrip $ 87,124
Samuel W. Rizzo $ 20,489
John W. Morrow, Jr. $ 15,152
</TABLE>
Normal Retirement Age is defined in the SCI Cash Balance Plan as (1) the
date upon which a member attains age 65 or (2) in the case of an employee who
becomes a member of the SCI Cash Balance Plan after the age of 60, it will be
the fifth anniversary of the date that such member became a participant.
Employees at least age 60 years old with 10 years of benefit service on
September 30, 1993 will receive the greater of the benefit they would have
earned under the SCI Pension Plan or the benefit earned under the SCI Cash
Balance Plan.
The credited years of service under the SCI Cash Balance Plan as of
December 31, 1993, for the following named individuals are set opposite their
names: R. L. Waltrip (37), L. William Heiligbrodt (6), W. Blair Waltrip (16),
Samuel W. Rizzo (6) and John W. Morrow, Jr. (4). Base salary and bonus payments
are covered by the SCI Cash Balance Plan; however, with respect to the persons
listed in the Summary Compensation Table, their compensation covered by the SCI
Cash Balance Plan is limited to $235,840 for 1993.
Supplemental Executive Retirement Plan for
Senior Officers
The Supplemental Executive Retirement Plan for Senior Officers ("SERP
for Senior Officers") is a non-qualified deferred compensation plan which
covered officers and subsidiary operating presidents on December 31, 1993,
including the individuals listed in the Summary Compensation Table. The Plan was
amended on December 31, 1993 to allow cost-of-living adjustments based on the
change in the annual Consumer Price Index up to a maximum of 7% per annum.
Benefits under the SERP for Senior Officers for individuals listed in the
Summary Compensation Table are computed in the table set forth below based upon
years of benefit service credited under the SCI Cash Balance Plan and the
cost-of-living adjustments for 1992 and 1993. Such benefits will be in addition
to SCI Cash Balance Plan benefits.
20
<PAGE> 22
ANNUAL BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
LESS THAN MORE THAN
5 5 - 10 10 - 15 15 - 20 20 - 25 25
--------- ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Waltrip $264,196 $528,392 $686,909 $792,587 $898,266 $1,056,783
L. William Heiligbrodt 158,517 317,035 582,392 634,070 739,748 845,426
W. Blair Waltrip 105,678 184,937 290,615 369,874 449,133 528,392
Samuel W. Rizzo 105,678 184,937 290,615 369,874 449,133 528,392
John W. Morrow, Jr. 105,678 158,517 264,196 317,035 369,874 422,713
</TABLE>
Benefit payments will be made in the form of 180 monthly installments
commencing at the later of severance of employment or the attainment of age
fifty-five. Prior to retirement, if a participant dies or in the event of a
change of control (as defined in the SERP for Senior Officers) of the Company,
the Company will promptly pay to each beneficiary or participant a lump sum
equal to the present value of the benefit that the participant would have been
entitled to if he had continued to accrue benefit service from the date of death
or the date of the change of control to the date of his 65th birthday.
EXECUTIVE EMPLOYMENT AGREEMENTS
In November 1991, the Company entered into new executive employment
agreements with its executive officers, including Messrs. R. L. Waltrip,
Heiligbrodt, W. Blair Waltrip, Rizzo and Morrow. The agreements have an initial
term of five years for Mr. R. L. Waltrip, four years for Mr. Heiligbrodt and
three years for each of Messrs. W. Blair Waltrip, Rizzo and Morrow. The terms
are extended for an additional year upon each anniversary date unless notice of
non-renewal is given by either party. If such notice is given by the Company,
the employment period is extended so as to terminate the same number of years
after the date of such notice as the original term of the agreement. The
agreements provide for base salaries, which may be increased by the Board of
Directors, and the right to participate in bonus and other compensation and
benefit arrangements. As of March 25, 1994, the base salaries for Messrs. R. L.
Waltrip, Heiligbrodt, W. Blair Waltrip, Rizzo and Morrow were $735,000,
$475,000, $315,000, $290,000 and $290,000 respectively.
In the event of termination of employment due to disability or death,
the executive or his estate will be entitled to receive any accrued and unpaid
salary or other compensation, a pro rata portion (based on the portion of the
year elapsed at the date of termination) of the highest bonus the executive
received in the preceding three years and continuation of welfare plan benefits.
If an executive is terminated without cause, he will be entitled to continuation
of compensation and certain other benefits for the remaining term of his
employment agreement. In the event of a change of control (as defined in the
agreements) of the Company, the executive will be entitled to terminate his
employment for certain specified reasons generally relating to a failure by the
Company to honor the terms of the employment agreement ("Good Reason"), or
without any reason during the 30-day period beginning one year after the change
of control (the "Window Period"), and receive a lump-sum payment equal to (a)
any accrued and unpaid salary or other compensation plus (b) a pro rata portion
(based on the portion of the year elapsed at the date of termination) of the
highest bonus the executive received in the preceding three years plus (c) a
multiple (equal to the number of years in the initial term) of both the
executive's base salary and his highest recent bonus.
Upon termination of his employment, each executive will be subject, at
the Company's option, to a non-competition obligation for a period equal to the
number of years in the executive's initial term (except for Mr. R. L. Waltrip,
whose 10-year non-competition obligation is described below). If the Company
elects to have the non-competition provisions apply, during the non-competition
period the Company will make payments to the executive (other than Mr. R. L.
Waltrip) at a rate equal to his base salary at the time of termination, unless
such termination was for cause or if the executive terminates his employment
other than for Good Reason or during the Window Period, in which case the
executive will be bound by the non-competition provisions without the Company
making the corresponding payments. Any payments relating to the non-competition
provisions (except the payment already made to Mr. R. L. Waltrip as described
below) will be reduced to the extent the executive has received a lump-sum
payment in lieu of salary and bonus after termination of employment.
Each executive employment agreement contains provisions giving the
Company full ownership of any intellectual property developed by the executive
in the course of his employment, imposing an obligation of confidentiality on
the executive with respect to the Company's proprietary information and
prohibiting certain actions by the executive (whether or not the Company elects
to have the non-competition provisions described in the preceding paragraph
apply) that could be harmful to the Company after termination of the executive's
employment.
21
<PAGE> 23
If any payments under the executive employment agreement or under the
benefit plans of the Company (including the Amended 1987 Stock Plan, the SERP
for Senior Officers or the proposed 1993 Long-Term Incentive Stock Option Plan)
would subject the executive to any excise tax under the Internal Revenue Code,
the executive will also be entitled to receive an additional payment in an
amount such that, after the payment of all taxes (income and excise), the
executive will be in the same after-tax position as if no excise tax had been
imposed.
The Company's employment agreement with Mr. R. L. Waltrip provides for a
10-year non-competition period applicable to Mr. Waltrip beginning on the date
of his retirement. This provision was incorporated into the November 1991
employment agreement from an earlier employment agreement that was terminated in
November 1991. In connection with such termination, Mr. Waltrip received a
payment of the present value of amounts that would have become payable under the
earlier employment agreement during the non-competition period. Mr. Waltrip's
current employment agreement does not provide for any further payment in
consideration for Mr. Waltrip's covenant not to compete.
OTHER COMPENSATION
In July 1988, the Company entered agreements with all executive officers
and certain former officers to provide payments to their estates in the event of
death. These agreements replaced certain insurance policy arrangements which the
Company terminated in 1988. Under the agreements as amended, the payments, when
paid, will be taxable and will amount to $2,777,778 for Mr. R. L. Waltrip,
$2,083,333 for Mr. Heiligbrodt, $1,388,888 for each of Messrs. W. Blair Waltrip,
Rizzo and Morrow. The benefit amount under each of these agreements is payable
in full immediately in the event of death while the officer is employed. After
termination of employment, the death benefit remains payable to the extent it
has vested. The death benefit will vest at the rate, whichever is greater, of
(i) 50% after ten years of employment and 5% per year thereafter, or (ii) 30%
after three years of service as an officer and 10% per year thereafter.
DIRECTOR COMPENSATION
The current rates of directors' and committee fees are $5,250 quarterly
plus $5,250 for each meeting of the Board attended (payable to all directors),
and $1,500 for each committee meeting attended (payable to non-employee
directors only). Each year, the Company provides each director the opportunity
to defer his director fees pursuant to a deferred compensation agreement. The
agreements allow the directors to specify the percentage of fees to be deferred
and the date(s) for the payout of such fees. The Company maintains a bookkeeping
account for any deferred fees and credits the account quarterly with interest at
a rate which is one-half percentage point lower than the Company's quarterly
bank borrowing rate.
In addition, directors who are not employees of the Company or its
subsidiaries automatically receive yearly awards of restricted Common Stock
through 1994 pursuant to the 1990 Stock Plan For Non-Employee Directors. Each
award will be made on the second Thursday of May for an amount of 1,500 shares.
Each award will have a restriction period which will lapse on the second
Thursday in May of the year following the year the award is granted. If the
director terminates service as a director for any reason other than disability
or death prior to the lapse of the restriction period, the restricted shares
shall be forfeited. The restrictions shall lapse upon the occurrence of death or
total and permanent disability of the director or upon a change of control (as
defined in the plan) of the Company. While the restrictions are in effect, the
shares cannot be sold, pledged or transferred. Except for the restrictions
described above, a participant in the Plan who has been awarded shares of
restricted Common Stock has all the rights of a holder of Common Stock,
including the right to receive dividends paid on such shares and the right to
vote such shares. In 1993, each of the eleven directors who were not employees
received an award of 1,500 shares under the plan.
In 1992, the Company adopted the Retirement Plan for Non-Employee
Directors. Under this plan, each of the directors who are not employees of the
Company, including the Director Emeritus, was designated as a plan participant
and will be entitled to receive annual retirement benefits of $42,500 for ten
years, subject to a vesting schedule. The retirement benefits will vest in 25%
increments at the end of five years, eight years, eleven years and fifteen years
of credited service, except that the benefits will automatically vest 100% in
the event of death while a director or in the event of a change in control (as
defined in the plan) of the Company.
22
<PAGE> 24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. R. L. Waltrip, Chairman and Chief Executive Officer of the Company,
served as a member of the Compensation Committee of the Board of Directors of
Tanknology Environmental, Inc. ("TEI") until April 1993. Mr. Samuel W. Rizzo,
Executive Vice President and Chief Financial Officer/Treasurer of the Company,
also served as a member of such committee in 1993. Mr. Waltrip is also Chairman
of the Board and Chief Executive Officer of TEI. Mr. Waltrip receives no salary
or other compensation from TEI in his capacity as Chairman and Chief Executive
Officer to TEI, other than director fees and noncash compensation paid to other
nonemployee directors of TEI. Mr. Waltrip devotes substantially all of his time
to his duties as Chairman of the Board and Chief Executive Officer of the
Company.
CERTAIN TRANSACTIONS
On December 10, 1981, the Company consummated the acquisition of IFS
Industries, Inc. ("IFS"). On such date Douglas M. Conway, then Executive Vice
President and a director of IFS, was elected to the Board of Directors of the
Company. At the time of the IFS acquisition, Mr. Conway had an employment
agreement and a deferred compensation agreement with IFS which were continued in
accordance with their terms. Mr. Conway retired from IFS in February 1983. His
deferred compensation agreement, which provided for monthly payments of $1,667
for a period of 120 months, went into effect on March 1, 1983 and expired in
February 1993. The Company paid Mr. Conway $1,667 under the agreement for 1993.
In August 1989, the Company acquired from J. W. Morrow Investment
Company its funeral home businesses located in Henderson, Texas and Charlotte,
North Carolina. John W. Morrow, Jr. was the primary shareholder of J. W. Morrow
Investment Company and was elected Executive Vice President of the Company in
August 1989. Mr. Morrow is currently the Executive Vice President Corporate
Development of the Company. In the August 1989 transaction, Mr. Morrow received
shares of Common Stock of the Company as his share of the acquisition price and,
in addition, entered a ten year Agreement-Not-To-Compete with the Company. Under
the Agreement-Not-To-Compete, Mr. Morrow received a cash payment and monthly
payments scheduled to continue for a total of 96 months, which monthly payments
totaled $152,000 in 1993. Each of Mr. Morrow's adult children entered a ten year
Agreement-Not-To-Compete under which the Company is obligated to make payments
of $1,000 per child per month for the term of such agreements. The Company paid
$12,000 in 1993 to each of three children under their agreements.
In 1993, the Company provided compensation of $281,846 and granted 3,500
shares of restricted stock of the Company to T. Craig Benson, son-in-law of
R. L. Waltrip, in his capacity as a Vice President of the Company. Mr. Benson
also received an option to acquire 2,500 shares of SCIC common stock.
In 1993, the Company paid $42,000 cash remuneration and awarded 1,500
shares of Common Stock to Wanda A. McGee, mother of R. L. Waltrip, in her
capacity as Director Emeritus of the Company. Pursuant to a resolution adopted
by the Board in 1983, Ms. McGee is entitled as Director Emeritus to receive such
fees and other emoluments as may be paid or awarded to directors of the Company.
Provident Services, Inc. and its subsidiaries ("Provident") provide
various types of financing in the funeral and cemetery industry, including loans
to certain employees and directors of the Company. Provident Services, Inc. is a
subsidiary of the Company. During 1993, Provident had outstanding loans to
officers and directors as indicated in the table on the following page. All such
loans are secured and contain terms which, in the opinion of management, are as
favorable to Provident as could have been negotiated with any third party.
In addition, Provident leased six vehicles in 1993 to companies owned by
Mr. R. L. Waltrip and received rentals aggregating $38,148. Provident also
leased five vehicles to a company owned by Mr. Heiligbrodt and received rentals
aggregating $36,705. All of the leases were entered at market rates and contain
terms which, in the opinion of management, are as favorable to Provident as
could have been negotiated with any third party.
In connection with grants of restricted stock under the Amended 1987
Stock Plan on August 10, 1993, the Company on August 19, 1993 made loans of
$1,700,000 to Mr. R. L. Waltrip, $1,000,000 to Mr. Heiligbrodt, $600,000 to Mr.
W. Blair Waltrip, $525,000 to Mr. Rizzo and $525,000 to Mr. Morrow. The loans
were made to enable such officers to pay the estimated federal income taxes
resulting from their receipt of the August 10, 1993 restricted stock grants.
Each of the loans is due August 10, 2003 and bears interest at 6-1/2% per annum.
The Company acquired AMEDCO Inc. ("AMEDCO") in 1986. Prior to the
acquisition, Mr. B. D. Hunter served as Chairman of the Board, President and
Chief Executive Officer of AMEDCO. Immediately prior to the closing of the
acquisition of AMEDCO by the Company, AMEDCO sold its health care operations to
Huntco Manufacturing, Inc. ("HMI") and its
23
<PAGE> 25
LOANS FROM PROVIDENT
<TABLE>
<CAPTION>
LARGEST LOAN
LOAN BALANCE AT
BALANCE IN DEC. 31, INTEREST
NAME 1993 1993 RATE NATURE OF LOAN
---- ---------- ---------- -------- --------------
<S> <C> <C> <C> <C>
George R. Champagne $168,304 $0 9.10% Mortgage Loan
Vice President and Assistant to 104,375 $104,375 Prime Loan to Exercise Stock Options
Chief Operating Officer
Anthony L. Coelho $872,000 866,424 7.20% Mortgage Loan
Director
G. Kyle Guinn $386,629 $382,604 7.55% Mortgage Loan
Former Senior Vice President and Treasurer 230,813 0 Prime Loan to Exercise Stock Options
L. William Heiligbrodt $119,313 $119,313 7.45% Mortgage Loan
President 377,468 373,884 7.70% Mortgage Loan
and Chief Operating Officer 99,916 99,000 7.60% Mortgage Loan
Glenn G. McMillen $ 13,500 $ 13,500 Prime Loan for Personal Use/
Senior Vice President Australia Secured by Stock
John W. Morrow, Jr. $413,800 $0 9.05% Mortgage Loan
Executive Vice President
Corporate Development
Henry M. Nelly, III $129,121 $123,181 9.10% Mortgage Loan
President of Provident 104,375 104,375 Prime Loan to Exercise Stock Options
E. Keith Payne $ 99,115 $ 99,115 Prime Loan to Exercise Stock Options
Former Senior Vice President and Secretary
Jerald L. Pullins $250,000 $250,000 Prime Loan for Personal Use/
Senior Vice President Secured by Stock
Samuel W. Rizzo $643,840 $0 8.55% Mortgage Loan
Executive Vice President and $100,000 $ 99,560 6.95% Mortgage Loan
Chief Financial Officer/Treasurer
Jack D. Rottman $255,234 $252,916 9.10% Mortgage Loan
Former Vice President Operations
Richard T. Sells $272,993 $262,128 7.80% Mortgage Loan
Vice President Prearranged Sales
Jack L. Stoner $249,003 $239,104 7.20% Mortgage Loan
Senior Vice President Administration
</TABLE>
steel operations to Huntco Steel, Inc. ("Huntco Steel"). HMI and Huntco Steel
were wholly-owned subsidiaries of Huntco Acquisitions Holding, Inc. ("HAH").
All of the outstanding shares of capital stock of HAH are owned by a company
which is owned approximately 40% by Mr. Hunter, 40% by Huntco, Inc. ("Huntco")
and 19% by Huntco Farms, Inc. (of which Mr. Hunter owns 10% and Huntco owns
85%). Mr. Hunter is a director of Huntco, owns Huntco preferred stock which
gives him voting control of Huntco and serves as co-trustee of irrevocable
trusts which own approximately 85% of the common stock of Huntco. The trusts
are for the benefit of Mr. Hunter's adult children, and Mr. Hunter has the
power to appoint a successor co-trustee. Mr. Hunter disclaims beneficial
interest in the shares of stock owned by such trusts.
In April 1991 the Company, HAH, HMI, Huntco Steel and Mr. Hunter entered
into a Property Exchange and Settlement Agreement, pursuant to which, among
other things, the Company acquired shares of non-voting common stock of Huntco
Steel representing 19% of its outstanding common stock. In November 1992, the
Company sold its common stock of Huntco Steel to HAH in exchange for a
$2,500,000 promissory note (the "HAH note") due November 30, 1993. The HAH note
bore interest at the prime rate plus 2% and was secured by: (i) a promissory
note from HMH Investments, Inc., which is owned 49% by Mr. Hunter, to HMI (owned
by HAH) due
24
<PAGE> 26
April 17, 1997 with an outstanding principal balance of $1,230,000; (ii)
984,000 shares of Class A common stock of Everest & Jennings International,
Ltd. to the extent such shares secure the promissory note from HMH Investments,
Inc.; (iii) all the senior preferred stock of Huntco Steel; and (iv) all the
common stock of Huntco Steel. On July 7, 1993, the HAH note was paid in full and
the collateral was released. The total payment was $2,619,954, consisting of
$2,500,000 in principal and $119,954 in accrued interest.
In connection with the sale of AMEDCO's health care operations in 1986,
the Company agreed to retain title to a tract of land and a manufacturing
facility in Wright City, Missouri pending its sale. The property was encumbered
by liens securing industrial revenue bonds. HMI assumed the liabilities under
the industrial revenue bonds, the Company agreed to pay HMI any sales proceeds
in excess of amounts necessary to discharge the bonds, and HMI agreed to
indemnify the Company if the sales proceeds were insufficient to discharge the
bonds. The property has not been sold but has instead been used in the health
care operations of HMI and its successors, who have assumed HMI's obligations to
the Company relating to the property, although HMI remains liable. During 1993,
HMI's successors paid all installments of principal and interest due on the
industrial revenue bonds, consisting of principal of $500,000 and interest of
$97,333. At December 31, 1993, the outstanding principal balance due on the
bonds was $700,000.
The Company leased office facilities in Springfield, Illinois pursuant
to a lease that expired in 1993. The lessor was a company owned by HAH. During
1993, the Company paid the lessor $235,060 pursuant to the lease.
As a result of its acquisition of AMEDCO, the Company is liable for the
payment of a promissory note to Huntco dated December 16, 1985, which had a
principal balance of $607,377 as of December 31, 1993. Such note bears interest
at an annual rate of 12%. The principal and interest on such note are payable in
quarterly installments. During 1993, the Company paid $253,891 in principal and
$92,208 in interest on such note.
In 1993, subsidiaries of J. P. Morgan & Co. Incorporated ("Morgan"),
which holds more than 5% of the outstanding shares of Common Stock of the
Company, received $312,500 in connection with services rendered to the Company
in the underwriting of a public offering of debt by the Company. In February
1993, the Company and a Morgan subsidiary entered a swap agreement with respect
to an amount of $150,000,000, under which the Morgan subsidiary was obligated to
pay the Company a fixed rate of 5.5425% for four and one-half years and the
Company was obligated to pay the Morgan subsidiary a variable rate (initially
3.4175%) that reprices to a floating LIBOR rate every six months. Effective in
April 1993, the Morgan subsidiary paid a $2,900,000 fee to the Company and the
swap transaction was terminated. In connection with an acquisition of an
Australian company in August 1993, the Company paid a $750,000 advisory fee to a
Morgan subsidiary. In August 1993, the Company and a Morgan subsidiary entered a
seven year and four month swap transaction under which the Morgan subsidiary
paid $110,000,000 Australian Dollars ("AUD") in August 1993 to the Company and
became obligated to pay the Company (i) $73,590,000 US Dollars ("USD") in
December 2000 and (ii) a variable rate of interest on $73,590,000 USD that
reprices to a floating LIBOR rate every six months. In the transaction, the
Company paid $73,590,000 USD in August 1993 to the Morgan subsidiary and became
obligated to pay the subsidiary (i) $110,000,000 AUD in December 2000 and (ii) a
fixed rate of 7.235% on $66,000,000 AUD and a variable rate of interest on
$44,000,000 AUD that reprices every six months. In November 1993, the Company
and a Morgan subsidiary entered an agreement providing the Morgan subsidiary an
option to put into effect a swap agreement with respect to an amount of
$150,000,000, under which the Morgan subsidiary would be obligated to pay the
Company a fixed rate of 5.36% for five years and the Company would be obligated
to pay the Morgan subsidiary a variable rate that would reprice to a floating
LIBOR rate every six months. If the option to effect the swap had not been
exercised,the Morgan subsidiary would have been obligated to pay $1,160,000 to
the Company. On December 31, 1993, the swap became effective. The Morgan
subsidiary then paid $714,000 to the Company and the Company provided an option
to the Morgan subsidiary to cancel in February or August 1994. The swap was not
canceled in February 1994 and remains in effect at the date hereof.
25
<PAGE> 27
VOTING SECURITIES AND PRINCIPAL HOLDERS
PRINCIPAL SHAREHOLDERS
The table below sets forth information as of March 25, 1994, with
respect to any person who is known to the Company to be the beneficial owner of
more than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT PERCENT
NAME AND ADDRESS BENEFICIALLY OF
OF BENEFICIAL OWNER OWNED CLASS
------------------- ------------ -------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 5,399,229(1) 6.3%
J. P. Morgan & Co. Incorporated
60 Wall Street
New York, New York 10015 6,491,505(2) 7.6%
</TABLE>
(1) Derived from a filing of FMR Corp. as of February 11, 1994, which reported
sole voting power for 1,107,254 shares and sole investment power for
5,399,299 shares.
(2) Derived from a filing of J. P. Morgan & Co. Incorporated as of December 31,
1993, which reported sole voting power for 4,121,205 shares, shared voting
power for 5,800 shares, sole investment power for 6,423,805 shares and
shared investment power for 61,900 shares.
SECURITY OWNERSHIP OF MANAGEMENT
The table to the right sets forth, as of March 25, 1994, the amount of
the Company's Common Stock beneficially owned by each executive officer named in
the Summary Compensation Table, each director and nominee for director, and all
directors and executive officers as a group, based upon information obtained
from such persons. Securities reported as beneficially owned include those for
which the persons listed have voting or investment power, unless otherwise
noted. Such persons have sole voting power and investment power unless otherwise
stated.
<TABLE>
<CAPTION>
AMOUNT PERCENT
BENEFICIALLY OF
NMAE OF INDIVUDUAL OR GROUP OWNED(1) CLASS
--------------------------- ------------ -------
<S> <C> <C>
R. L. Waltrip 664,135 (2) *
L. William Heiligbrodt 299,347 (3) *
W. Blair Waltrip 923,542 (4) 1.1%
Samuel W. Rizzo 199,867 (5) *
John W. Morrow, Jr 176,786 (6) *
Anthony L. Coelho 5,850 *
Douglas M. Conway 99,113 *
Jack Finkelstein 265,999 (7) *
A. J. Foyt, Jr 12,600 (8) *
James J. Gavin, Jr 36,226 (9) *
James H. Greer 8,137 *
B. D. Hunter 61,817 (10) *
John W. Mecom, Jr 5,500 *
Clifton H. Morris, Jr 9,517 (11) *
E. H. Thornton, Jr 60,365 *
Edward E. Williams 6,158 *
Executive Officers and Directors 3,217,286 (12) 3.7%
as a Group (25 persons)
</TABLE>
* Less than one percent
(1) For each of Messrs. Coelho, Conway, Finkelstein, Foyt, Gavin, Greer,
Hunter, Mecom, Morris, Thornton and Williams, the amounts include 1,500
shares held under the 1990 Stock Plan for Non-Employee Directors, and each
such director has sole voting and shared investment power with respect to
such shares.
(2) Includes 234,192 shares held in two trusts (under one of which trusts
Mr. R. L. Waltrip's wife is a beneficiary) under which Mr. R. L. Waltrip's
three children, as trustees, either share or have sole voting and investment
powers. These shares are also included in the shares owned by Mr. W. Blair
Waltrip. See Footnote (4). The information herein regarding ownership of
equity securities by the trusts is for informational purposes only and is
not to be construed as a statement that Mr. R. L. Waltrip is a beneficial
owner of any such securities, as any beneficial ownership thereof is
expressly disclaimed by Mr. R. L. Waltrip. Also includes 124,390 shares held
under the Amended 1987 Stock Plan, for which Mr. R. L. Waltrip has sole
voting and shared investment power, as well as 24,000 shares which may be
acquired upon exercise of stock options exercisable within 60 days.
(3) Includes 3,375 shares owned by a trust of which Mr. Heiligbrodt is
trustee and 915 shares owned by Mr. Heiligbrodt's wife and daughter, of
which shares Mr. Heiligbrodt disclaims beneficial ownership. Also includes
77,753 shares held under the Amended 1987 Stock Plan, for which Mr.
Heiligbrodt has sole voting and shared investment power, as well as 19,500
shares which may be acquired upon exercise of stock options exercisable
within 60 days.
(4) Includes 62,840 shares held in a trust for the benefit of Mr. W. Blair
Waltrip, 536,112 shares held in three trusts under which Mr. W. Blair
Waltrip, his brother and his sister are trustees and have either shared or
sole voting and investment power and 12,795 shares held in other family
trusts. Of the shares attributable to the trusts, 234,192 shares are
26
<PAGE> 28
also included in the shares owned by Mr. R. L. Waltrip. See Footnote (2).
Mr. W. Blair Waltrip is the son of Mr. R. L. Waltrip. Also includes 43,985
shares held under the Amended 1987 Stock Plan, for which Mr. W. Blair
Waltrip has sole voting and shared investment power, as well as 19,500
shares which may be acquired upon exercise of stock options exercisable
within 60 days. Mr. W. Blair Waltrip also holds presently exercisable
options to purchase 16,600 shares of common stock (less than one percent)
of SCIC.
(5) Includes 750 shares owned by Mr. Rizzo's wife and 1,000 shares held by a
trust for his wife. Mr. Rizzo disclaims beneficial ownership of such
shares. Also includes 46,582 shares held under the Amended 1987 Stock
Plan, for which Mr. Rizzo has sole voting and shared investment power, as
well as 18,000 shares which may be acquired upon exercise of stock options
exercisable within 60 days.
(6) Includes 35,332 shares held under the Amended 1987 Stock Plan, for which
Mr. Morrow has sole voting and shared investment power, as well as 9,000
shares which may be acquired upon exercise of stock options exercisable
within 60 days.
(7) Includes 251,954 shares held in three trusts for the benefit of other
family members and/or himself, 1,005 shares held by a charitable
foundation of which Mr. Finkelstein is President. As trustee, Mr.
Finkelstein has sole voting and investment power with respect to 168,887
shares and shares voting and investment power with respect to 84,072
shares. Mr. Finkelstein disclaims beneficial ownership as to 84,072
shares held in such trusts and by the foundation.
(8) Includes 3,600 shares held by Mr. Foyt as custodian for family members, of
which shares Mr. Foyt disclaims beneficial ownership.
(9) Includes 1,442 shares held by a charitable foundation of which
Mr. Gavin is a director, of which shares Mr. Gavin disclaims beneficial
ownership. Mr. Gavin also owns 5,000 shares of common stock (less than one
percent) of SCIC.
(10) Includes 6,742 shares held directly by Mr. Hunter, 19,204 shares
indirectly controlled by Mr. Hunter (of which Mr. Hunter disclaims
beneficial ownership) and 35,871 shares held by Mr. Hunter's Individual
Retirement Account.
(11) Includes 2,017 shares owned by Mr. Morris' wife. Mr. Morris disclaims
beneficial ownership of such shares.
(12) Includes 16,500 shares held under the 1990 Stock Plan for Non-Employee
Directors and 414,209 shares held under the Amended 1987 Stock Plan, for
all of which shares the individual has sole voting and shared investment
power, as well as 142,424 shares which may be acquired upon exercise of
stock options exercisable within 60 days.
INDEPENDENT ACCOUNTANTS
GENERAL
The Board of Directors of the Company has selected Coopers & Lybrand,
Certified Public Accountants ("Coopers"), to serve as the independent
accountants for the Company for the fiscal year ending December 31, 1994. A
representative of Coopers is expected to be present at the Annual Meeting of
Shareholders, will have the opportunity to make a statement if he or she desires
to do so and will be available to respond to appropriate questions at such
meeting.
CHANGE OF ACCOUNTANTS
Ernst & Young, Certified Public Accountants ("E&Y"), served as the
independent accountants for the Company for the fiscal year ended December 31,
1992. E&Y was dismissed as the independent accounting firm for the Company
effective March 25, 1993, with Coopers having been so engaged as of that date.
The decision to change the independent accounting firm for the Company was
recommended by management and by the Audit Committee of the Board of Directors
of the Company and was approved by the Board of Directors.
The report of E&Y dated February 8, 1993 on the consolidated financial
statements of the Company as of December 31, 1992 and 1991 and for the three
years in the period ended December 31, 1992 contained no adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principle. Similarly, the report of Coopers dated
February 8, 1994 on the consolidated financial statements of the Company as of
December 31, 1993 and for the year then ended contained no adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principle.
From time to time during the several years preceding January 1, 1993,
meetings were held between members of senior management of the Company and local
and national office partners of E&Y regarding potential accounting policies for
reporting preneed funeral and cemetery sales. As previously reported by the
Company in, among other places, its Form 8-K dated March 31, 1993, the Company
and E&Y did not reach agreement on any new method of accounting for such sales.
In the Company's opinion, such meetings did not result in a "disagreement"
between it and E&Y within the meaning of the rules promulgated by the Securities
and Exchange Commission (the "SEC"). Thus, as previously reported by the Company
in, among other places, such Form 8-K, while there was a failure to reach
agreement, in the Company's opinion, during the two years ended December 31,
1992, there was no reportable "disagreement" between the Company and E&Y
regarding any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of E&Y, would have caused E&Y to make reference to the
subject of the disagreement in connection with its report.
27
<PAGE> 29
As also previously reported by the Company in, among other places, an
amendment, dated April 6, 1993, to the Company's Form 8-K, dated March 31, 1993,
E&Y, however, has stated that it believes that a reportable "disagreement"
occurred between it and the Company. Accordingly, at the request of E&Y, the
Company included the following (references to E&Y and the Company have been
conformed to the usage in this proxy statement) in its proxy statement dated
April 12, 1993 for the last annual meeting of stockholders.
"On several occasions over the years, the Company has proposed
that its accounting policy for preneed funeral services be changed to a
method whereby revenue would be recognized at the date a preneed funeral
contract is signed, accompanied by appropriate provision for the
estimated cost of providing such services. E&Y's consistent position has
been that the Company's proposed accounting policy would not be
acceptable under generally accepted accounting principles.
"At a meeting on April 1, 1992 held to discuss this issue, a
reportable disagreement occurred in that Company management stated that
if E&Y would not support the Company's proposed accounting they would
find another firm that would. This disagreement was communicated to the
Company's Audit Committee at its August 13, 1992 meeting.
"Moreover, on February 19, 1993 (after completion of the 1992
audit), Company management presented the accounting proposal set forth
in a December 28, 1992 'Invitation to Comment' prepared by Patrick B.
Collins, CPA, and asked E&Y to support this proposed accounting method.
That 'Invitation to Comment' advocates recognition of revenue for
preneed funeral services at the time of sale rather than when the
services are performed, and solicits comments from interested parties
concerning this and other matters. On February 26, 1993 and again on
March 2, 1993, E&Y informed Company management that it would be unable
to support the proposal presented in the 'Invitation to Comment.'
"On March 16, 1993, management informed E&Y that the Company was
no longer pursuing the accounting method advocated in the 'Invitation to
Comment' but rather was considering a modified approach. E&Y informed
management that at least one element of the modified
approach--amortization of a portion of deferred revenue that would be
associated with the fixed cost of maintaining funeral homes--was, in
E&Y's view, not acceptable under generally accepted accounting
principles."
The modified approach referred to above by E&Y is also referred to in the third
paragraph from the end of this section "INDEPENDENT ACCOUNTANTS," except that
at the time of its discussion with Coopers the element E&Y noted as being
objectionable was no longer being considered.
As indicated above, E&Y's position was also disclosed in an amendment
dated April 6, 1993 to a Form 8-K dated March 31, 1993 filed by the Company.
Following such disclosure, the Company filed a second amendment to such Form
8-K, in which the Company set forth its belief that the references to
"disagreements" by E&Y, as well as other matters, were factually inaccurate.
Further, the Company disputes that a reportable "disagreement" was communicated
by E&Y to the Audit Committee on August 13, 1992. In response to the second
amendment to such Form 8-K, E&Y responded (which response was included in a
third amendment) that there was nothing in the second amendment of which E&Y was
unaware at the time it stated its position disclosed in the April 6, 1993
amendment.
The staff of the SEC is conducting an informal private investigation
relating to the change in the Company's accountants, and the Company's Form 8-K
dated March 31, 1993, as amended in April 1993, reporting such change, as well
as the Company's current accounting and reporting of preneed sales. The staff
has advised the Company that the investigation should not be construed as an
indication by the Commission or its staff that any violations of law have
occurred, or as a reflection upon any person, entity or security. The
investigation is continuing.
On March 25, 1993, the Company's Board of Directors approved the
recommendation of management and the Audit Committee that Coopers be engaged as
the Company's new independent accountants. During the two fiscal years ended
December 31, 1992 and the interim period of 1993, Coopers was not consulted by
the Company on the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the financial statements of the Company. During the interim
period of 1993, as part of the proposal process, Coopers indicated its general
agreement with the Company's desire to modify its accounting policies for
preneed funeral and cemetery sales so that such policies more accurately reflect
the economics of these sales. In this connection, the Company expressed to
Coopers its desire to improve the financial reporting for preneed funeral sales
by including in the balance sheet, as a long term asset and corresponding
deferred revenue, all preneed funeral contracts whether funded by insurance or
trust funds. Revenue from funeral services would be recognized when the services
are performed, which is consistent with the Company's then and current policy.
The Company also discussed with Coopers deferring funeral trust earnings until
the service is performed. Under the Company's prior policy, these trust earnings
were recognized in current income. Additionally,
28
<PAGE> 30
the Company expressed its views that accounting for preneed cemetery sales using
the accounting principles prescribed for sales of real estate may not be the
most appropriate method of accounting. Coopers orally expressed their general
agreement with these concepts but were not asked to and did not express an
opinion on any specific transaction or accounting change, either orally or in
writing.
The accounting principles adopted by the Company in 1993 for reporting
preneed funeral and cemetery sales are set forth, among other places, in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993
filed with the SEC. Coopers has issued a preferability letter with respect to
such principles. A copy of such letter is filed as an Exhibit to the Company's
Form 10-Q for the quarter ended March 31, 1993. As indicated above, Coopers has
issued an unqualified opinion with respect to the Company's consolidated
financial statements as at and for the period ended December 31, 1993.
The Company provided the foregoing to E&Y, and E&Y advised the Company
that it had nothing further to add beyond its statement as previously reported.
OTHER MATTERS
COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and written representations from reporting persons that no Form 5
was required, the Company believes that (i) L. William Heiligbrodt, President
and Chief Operating Officer, filed one Form 4 three days late and a trust of
which Mr. Heiligbrodt is a trustee filed one Form 3 fifteen days late, (ii)
Glenn G. McMillen, Senior Vice President Australia, filed a Form 4 late with
respect to three minor transactions reportable on three Form 4s, and (iii)
Jerald L. Pullins, Senior Vice President Corporate Development, filed one Form 4
six days late.
PROXY SOLICITATION
In addition to solicitation by mail, further solicitation of proxies may
be made by telephone, telegraph or oral communication following the original
solicitation by directors, officers and regular employees of the Company who
will not be additionally compensated therefor, or by its transfer agent. The
expense of such solicitation will be borne by the Company and will include
reimbursement paid to brokerage firms and other custodians, nominees and
fiduciaries for their expenses in forwarding solicitation material regarding the
meeting to beneficial owners. In addition, the Company has retained Kissel Blake
Inc. to aid in the solicitation of proxies from shareholders generally in
connection with the Annual Meeting of Shareholders. Such solicitations may be by
mail, telephone, telegraph or personal interview. The fee of such firm is not
expected to exceed $12,000 plus reimbursement for reasonable expenses.
OTHER BUSINESS
The Board of Directors of the Company is not aware of other matters to
be presented for action at the meeting; however, if any such matters are
presented for action, it is the intention of the persons named in the enclosed
form of proxy to vote in accordance with their judgment.
29
<PAGE> 31
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal to be presented by a shareholder at the Company's 1995
Annual Meeting of Shareholders scheduled to be held on May 11, 1995 must be
received by the Company by December 13, 1994, so that it may be considered by
the Company for inclusion in its proxy statement relating to that meeting.
It is important that proxies be returned to avoid unnecessary expense.
Therefore, shareholders are urged, regardless of the number of shares of stock
owned, to date, sign and return the enclosed proxy in the enclosed business
reply envelope.
Service Corporation International
1929 Allen Parkway,
P.O. Box 130548
Houston, Texas 77219-0548
April 12, 1994
{LOGO} is a registered service mark of Service Corporation International
30
<PAGE> 32
ANNEX A
SERVICE CORPORATION INTERNATIONAL
1993 LONG-TERM INCENTIVE STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Plan is to give Service Corporation International a
competitive opportunity in attracting, retaining and motivating officers and
employees and to provide the Company and its subsidiaries with the ability to
provide incentives more directly linked to the profitability of the Company's
businesses and increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Committee from time to time as such.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means (i) a material breach by an optionee of his or her duties
as an employee which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the Company and
its affiliated companies (other than a breach arising from the
failure of the optionee to work as a result of incapacity due to
physical or mental illness) and which is not remedied in a reasonable
period of time after receipt of written notice from the Company
specifying such breach or (ii) the conviction of the optionee of a
felony involving malice which conviction has been affirmed on appeal
or as to which the period in which an appeal can be taken has lapsed.
d. "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 6(b) and 6(c), respectively.
e. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
f. "Commission" means the Securities and Exchange Commission or any
successor agency.
g. "Committee" means the Committee referred to in Section 2.
h. "Company" means Service Corporation International, a Texas corporation.
i. "Disability" means the inability of the optionee to perform his or her
duties as an employee on a full-time basis as a result of incapacity
due to mental or physical illness which continues for more than one
year after the commencement of such incapacity, such incapacity to be
determined by a physician selected by the Company or its insurers and
acceptable to the optionee or the optionee's legal representative
(such agreement as to acceptability not to be withheld unreasonably).
j. "Disinterested Person" shall mean a member of the Board who qualifies
as a disinterested person as defined in Rule 16b-3(c)(2), as
promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission and also qualifies as
an "outside director" for purposes of Section 162(m) of the Code and
the regulations promulgated thereunder.
k. "Eligible Person" has the meaning stated in Section 4 of the Plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
m. "Fair Market Value" means, as of any given date, the average of the
highest and lowest reported sales prices of the Stock on the New York
Stock Exchange Composite Tape or, if not listed on such exchange, on
any other national securities exchange on which the Stock is listed
or on NASDAQ. If there is no regular public trading market for such
Stock, the Fair Market Value of the Stock shall be determined by the
Committee in good faith.
n. "Plan" means the Service Corporation International 1993 Long-Term
Incentive Stock Option Plan, as set forth herein and as hereinafter
amended from time to time.
o. "Retirement" means retirement from active employment by the Company or
any of its subsidiaries at or after age 55.
p. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
q. "Stock" means common stock, par value $1.00 per share, of the Company.
r. "Stock Option" means an option granted under Section 5.
s. "Termination of Employment" means the termination of the participant's
employment with the Company and any subsidiary or Affiliate. An
A 1
<PAGE> 33
employee shall be deemed to have terminated employment if he or
she ceases to perform services for the Company or its subsidiaries or
Affiliates on a full-time basis, notwithstanding the fact that such
employee continues to receive compensation or benefits pursuant to an
employment contract or other agreement or arrangement with the Company
or any of its subsidiaries or Affiliates. A participant on a
non-medical leave of absence shall, unless such leave of absence is
otherwise approved by the Committee, be deemed to incur a Termination
of Employment. A participant employed by a subsidiary or an Affiliate
shall also be deemed to incur a Termination of Employment if the
subsidiary or Affiliate ceases to be such a subsidiary or Affiliate, as
the case may be, and the participant does not immediately thereafter
become an employee of the Company or another subsidiary or Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee of the
Board or such other committee of the Board, composed solely of not less than two
Disinterested Persons, each of whom shall be appointed by and serve at the
pleasure of the Board. If at any time no Committee shall be in office, the
functions of the Committee specified in the Plan shall be exercised by the
Board.
The Committee shall have plenary authority to grant Stock Options
pursuant to the terms of the Plan to officers and other key employees of the
Company and its subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) to select the Eligible Persons to whom Stock Options may
from time to time be granted
(b) to determine the number of shares of Stock to be covered by each
Stock Option granted hereunder; and
(c) to determine the terms and conditions of any Stock Option granted
hereunder including, but not limited to, the option price
(subject to Section 5(a)) and any vesting condition, restriction
or limitation (which may be related to the performance of the
participant, the Company or any subsidiary or Affiliate), based
on such factors as the Committee shall determine.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of
the Plan and any Stock Option issued under the Plan (and any agreement
relating thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their number or
any officer of the Company to execute and deliver documents on behalf of the
Committee.
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Stock
Option shall be made in the sole discretion of the Committee or such delegate at
the time of the grant of the Stock Option or, unless in contravention of any
express term of the Plan, at any time thereafter. All decisions made by the
Committee or any appropriately delegated officer pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided herein, the total number of shares of
Stock available for grant under the Plan shall be 4,650,000. Shares subject to a
Stock Option under the Plan may be authorized and unissued shares or may be
treasury shares.
If any Stock Option terminates without being exercised, shares subject
to such Stock Option shall not be available for further awards in connection
with Stock Options under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or extraordinary distribution
with respect to the Stock or other change in corporate structure affecting the
Stock, the Committee or Board may make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and option price of shares subject to outstanding Stock Options,
and/or such other equitable substitution or adjustments as it may determine to
be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Stock Option shall always be a whole number.
SECTION 4. ELIGIBILITY.
Officers and employees of the Company, its subsidiaries and Affiliates
who are responsible for or contribute to the management, growth and
profitability of the business of the Company,
A 2
<PAGE> 34
its subsidiaries and Affiliates are eligible to be granted Stock Options under
the Plan ("Eligible Persons").
SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in the form attached
hereto as Annex A, which is incorporated herein and made a part of the Plan,
with such changes as the Committee may from time to time approve which are
consistent with the Plan. None of the Stock Options granted under the Plan shall
be "incentive stock options" within the meaning of Section 422 of the Code. The
maximum number of shares of Stock that may be subject to Stock Options granted
hereunder during the term of the Plan to any individual shall be 1,550,000.
The grant of a Stock Option shall occur on the date the Committee
selects an individual to be a participant in any grant of a Stock Option,
determines the number of shares of Stock to be subject to such Stock Option to
be granted to such individual and specifies the terms and provisions of the
Stock Option. Such selection shall be evidenced in the records of the Company
whether in the minutes of the meetings of the Committee or by consent in
writing. The Company shall notify a participant of any grant of a Stock Option,
and a written option agreement or agreements shall be duly executed and
delivered by the Company to the participant.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by
the Committee and set forth in the option agreement, and
shall not be less than the Fair Market Value of the Stock
on the date of grant.
(b) Option Term. The term of each Stock Option shall be 14
years, unless earlier terminated.
(c) Exercisability. Except as otherwise provided herein, each
Stock Option shall be exercisable during its term only if
such Stock Option has vested and only after the fourth
anniversary of its date of grant.
(d) Vesting. Each Stock Option shall have assigned to it
by the Committee a target price (the "Target Price") which
will be used to provide for accelerated vesting of such
Stock Option as set forth in the agreement evidencing such
Stock Option. Any Stock Option that remains outstanding and
unvested on the thirteenth anniversary of its date of grant
shall vest at such time.
(e) Method of Exercise. Subject to the provisions of
this Section 5, Stock Options may be exercised, in whole or
in part, by giving written notice of exercise to the
Company specifying the number of shares of Stock subject to
the Stock Option to be purchased.
The option price of Stock to be purchased upon exercise
of any Option shall be paid in full (i) in cash (by
certified or bank check or such other instrument as the
Company may accept), (ii) in the form of unrestricted Stock
already owned by the optionee for six months or more and
based on the Fair Market Value of the Stock on the date the
Stock Option is exercised or (iii) by a combination
thereof. If an optionee is subject to Section 16(b) of the
Exchange Act, any election to make payment pursuant to
clause (ii) of the preceding sentence shall comply with the
requirements of Rule 16b-3(e).
Payment for any shares subject to a Stock Option may
also be made by delivering a properly executed exercise
notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the purchase
price, and, if requested, the amount of any federal, state,
local or foreign withholding taxes. To facilitate the
foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
No shares of Stock shall be issued until full payment
therefor has been made. An optionee shall have all of the
rights of a stockholder of the Company holding the Stock
that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to
receive dividends), only when the optionee has given
written notice of exercise, has paid in full for such
shares and, if requested, has given the representation
described in Section 9(a).
(f) Non-transferability of Stock Options. No Stock Option
shall be transferable by the optionee other than (i)
by will or by the laws of descent and distribution or (ii)
pursuant to a qualified domestic relations order (as
defined in the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules
thereunder). All Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee or by the
guardian or legal representative of the optionee or its
alternate payee pursuant to such qualified domestic
relations order, it being understood that the terms
"holder" and "optionee" include the guardian and legal
representative of the optionee named in the option
agreement and any person to whom an option is transferred
by
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<PAGE> 35
will or the laws of descent and distribution or pursuant
to a qualified domestic relations order. The Committee may
establish such procedures as it deems appropriate for a
participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be
paid or by whom any rights of the participant, after the
participant's death, may be exercised.
(g) Termination by Death, Disability or Retirement or by
the Company Without Cause. If an optionee's employment
terminates by reason of death, Disability or Retirement, or
if such employment is terminated by the Company without
Cause, in each case prior to the vesting of a Stock Option
held by the optionee, the following provisions shall
apply:
(1) if termination by death or Disability or by the
Company without Cause occurs on or prior to the fourth
anniversary of the date of grant of such Stock Option,
such Stock Option shall be exercisable only during
the period after the fourth anniversary of the date of
grant and ending on the fifth anniversary of the date
of grant and only if such Stock Option has become
vested;
(2) if termination by Retirement occurs on or prior to
the fourth anniversary of the date of grant of such
Stock Option, such Stock Option shall terminate
immediately; and
(3) if termination by death, Disability or Retirement or
by the Company without Cause occurs after the fourth
anniversary of the date of grant of a Stock Option
held by the optionee, such Stock Option shall be
exercisable only during the period after the 13th
anniversary of the date of grant and ending upon the
expiration of such Stock Option.
(h) Termination by the Company for Cause; Voluntary
Termination. If an optionee's employment is terminated
voluntarily by the optionee (other than through Retirement)
or by the Company for Cause, in either case prior to the
vesting of a Stock Option, such Stock Option shall
terminate immediately.
(i) Termination After Vesting. If an optionee's employment is
terminated for any reason after a Stock Option has vested,
the following provisions shall apply:
(1) if such termination occurs prior to the fourth
anniversary of the date of grant of such Stock
Option, such Stock Option shall be exercisable during
the 18-month period beginning on such fourth
anniversary, and shall terminate at the end of such
18-month period; and
(2) if such termination occurs on or after the fourth
anniversary of the date of grant of such Stock
Option, such Stock Option shall be exercisable during
the period beginning on the date of such termination
and ending on the earlier of (x) the original
termination date of such Stock Option and (y) the
date that is 18 months after the date of termination
of employment, and shall terminate at the end of such
period.
(j) Change in Control Cash Out. Notwithstanding any
other provision of the Plan, upon the occurrence of a
Change of Control all outstanding Stock Options shall
immediately vest and become fully exercisable, and during
the 60-day period from and after such Change in Control
(the "Exercise Period"), an optionee shall have the right,
in lieu of the payment of the exercise price for the shares
of Stock being purchased under the Stock Option and by
giving notice to the Company, to elect (within the Exercise
Period) to surrender all or part of the Stock Option to the
Company and to receive cash, within 30 days of such notice,
in an amount equal to the amount by which the Change in
Control Price per share of Stock on the date of such
election shall exceed the exercise price per share of Stock
under the Stock Option (the "Spread") multiplied by the
number of shares of Stock granted under the Stock Option as
to which the right granted under this Section 5(j) shall
have been exercised; provided, however, that if the Change
in Control occurs within six months of the date of grant of
a particular Stock Option held by an optionee who is an
officer or director of the Company and is subject to
Section 16(b) of the Exchange Act no such election shall be
made by such optionee with respect to such Stock Option
prior to six months from the date of grant. Notwithstanding
any other provision hereof, if the end of such 60-day
period from and after a Change in Control is within six
months of the date of grant of a Stock Option held by an
optionee who is an officer or director of the Company and
is subject to Section 16(b) of the Exchange Act, such Stock
Option shall be cancelled in exchange for a cash payment to
the optionee, effected on the day which is six months and
one day after the date of grant of such Option, equal to
the Spread multiplied by the number of shares of Stock
granted under the Stock Option. Notwithstanding the
foregoing, if any right granted pursuant to this Section
5(j) would make a Change in Control transaction ineligible
for pooling of interests accounting under APB No. 16 that
but for this Section 5(j) would otherwise be eligible for
such accounting treatment, the Committee shall have the
authority to replace the cash payable pursuant to this
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<PAGE> 36
Section 5(j) with Stock having a Fair Market Value equal
to the cash that would otherwise be payable hereunder. For
purposes of this paragraph (j) only, the date of grant of
any Stock Option approved by the Committee on November 10,
1993 shall be deemed to be the date on which the Plan is
approved by the Company's stockholders.
(k) Initial Grants. The Committee granted on November
10, 1993 the following awards to the individuals listed
below, in the share amounts and at the Target Prices and
exercise prices indicated, subject to the approval of the
stockholders of the Company:
<TABLE>
<CAPTION>
OPTIONEE NUMBER OF SHARES EXERCISE PRICE TARGET PRICE
- -------- ---------------- -------------- ------------
<S> <C> <C> <C>
R. L. Waltrip 775,000 $25.75 $50
R. L. Waltrip 775,000 25.75 60
L. W. Heiligbrodt 475,000 25.75 50
L. W. Heiligbrodt 475,000 25.75 60
W. B. Waltrip 275,000 25.75 50
W. B. Waltrip 275,000 25.75 60
S. W. Rizzo 237,500 25.75 50
S. W. Rizzo 237,500 25.75 60
J. W. Morrow, Jr. 237,500 25.75 50
J. W. Morrow, Jr. 237,500 25.75 60
</TABLE>
The foregoing individuals shall not be eligible to receive any
additional awards under the Plan.
SECTION 6. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision of the
Plan to the contrary, in the event of a Change in Control,
any Stock Options outstanding as of the date such Change
in Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable and
vested to the full extent of the original grant.
(b) Definition of Change in Control. For purposes of the Plan,
a "Change in Control" shall mean the happening of any of
the following events:
(i) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more
of either (x) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (y) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors
(the "Outstanding Company Voting Securities");
excluding, however, the following acquisitions of
Outstanding Company Common Stock and Outstanding
Company Voting Securities: (1) any acquisition
directly from the Company (other than an acquisition
pursuant to the exercise of a conversion privilege),
(2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (4) any
acquisition by any Person pursuant to a
reorganization, merger or consolidation if,
following such reorganization, merger or
consolidation, the conditions described in clauses
(1), (2) and (3) of subsection (iii) of this Section
6(b) are satisfied; or
(ii) Individuals who, as of the effective date
of the Plan, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any
individual who becomes a member of the Board
subsequent to such effective date, whose election, or
nomination for election by the Company's shareholders,
was approved by (1) a vote of at least a majority of
directors then comprising the Incumbent Board, or (2)
a vote of at least a majority of the directors then
constituting the Executive Committee of the Board at a
time when such committee comprised at least five
members and all members of such committee were either
members of the Incumbent Board or considered as being
members of the Incumbent Board, pursuant to clause (1)
of this subparagraph (ii), shall be considered as
though such individual were a member of the Incumbent
Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board shall not
be so considered as a member of the Incumbent Board;
or
(iii) Approval by the shareholders of the
Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially
all of the assets of the Company ("Business
Combination"); excluding, however, such a Business
Combination pursuant to which (1) all or substantially
all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding
Company Common Stock and
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Outstanding Company Voting Securities immediately
prior to such Business Combination own, directly or
indirectly, more than 60% of, respectively,
the outstanding shares of common stock, and
the combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which
as a result of such transaction owns the Company or
all or substantially all of the Company's assets
either directly or through one or more subsidiaries)
in substantially the same proportions as their
ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the
case may be, (2) no Person (other than the Company,
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company or such
corporation resulting from such Business Combination
and any Person beneficially owning, immediately prior
to such Business Combination, directly or indirectly,
20% or more of the Outstanding Company Common Stock
or Outstanding Company Voting Securities, as the case
may be) will beneficially own, directly or
indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the outstanding voting
securities of such corporation entitled to vote
generally in the election of directors and (3) at
least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) The approval by the shareholders of the
Company of a complete liquidation or dissolution of
the Company.
(c) Change in Control Price. For purposes of the Plan,
"Change in Control Price" means the higher of (i) the
highest reported sales price, regular way, of a share of
Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national securities
exchange on which such shares are listed or on NASDAQ, as
applicable, during the 60-day period prior to and including
the date of a Change in Control and (ii) if the Change in
Control is the result of a tender or exchange offer or a
Business Combination, the highest price per share of Stock
paid in such tender or exchange offer or Business
Combination; provided, however, that in the case of a Stock
Option which (A) is held by an optionee who is an officer
or director of the Company and is subject to Section 16(b)
of the Exchange Act and (B) was granted within 240 days of
the Change in Control, then the Change in Control Price for
such Stock Option shall be the Fair Market Value of the
Stock on the date such Stock Option is exercised or
cancelled. To the extent that the consideration paid in any
such transaction described above consists all or in part of
securities or other non-cash consideration, the value of
such securities or other non-cash consideration shall be
determined in the sole discretion of the Board.
SECTION 7. TERM, AMENDMENT AND TERMINATION.
The Plan will terminate on November 10, 2003. Stock Options outstanding
as of November 10, 2003 shall not be affected or impaired by the termination of
the Plan.
The Committee shall have authority to amend the Plan without the
approval of the Company's stockholders to take into account changes in law and
tax and accounting rules, including Rule 16b-3 and Section 162(m) of the Code;
provided that no amendment shall be made which would (i) impair the rights of an
optionee under a Stock Option theretofore granted without the optionee's
consent, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3.
SECTION 8. UNFUNDED STATUS OF PLAN.
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; provided, however, that, unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
SECTION 9. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option to represent to and
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<PAGE> 38
agree with the Company in writing that such person is
acquiring the shares without a view to the distribution
thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any
restrictions on transfer.
Notwithstanding any other provision of the Plan or
agreements made pursuant thereto, the Company shall not be
required to issue or deliver any certificate or
certificates for shares of Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) the listing or approval for listing upon
notice of issuance, of such shares on the New York
Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market
for the Stock;
(2) any registration or other qualification of
such shares of the Company under any state or federal
law or regulation, or the maintaining in effect of
any such registration or other qualification which
the Committee shall, in its absolute discretion upon
the advice of counsel, deem necessary or advisable;
and
(3) the obtaining of any other consent,
approval, or permit from any state or federal
governmental agency which the Committee shall, in its
absolute discretion after receiving the advice of
counsel, determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the
Company or any subsidiary or Affiliate from adopting other
or additional compensation arrangements for its employees.
(c) The adoption of the Plan shall not confer upon any
employee any right to continued employment nor shall it
interfere in any way with the right of the Company or any
subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first
becomes includible in the gross income of the participant
for federal income tax purposes with respect to any Stock
Option under the Plan, the participant shall pay to the
Company, or make arrangements satisfactory to the Company
regarding the payment of, any federal, state, local or
foreign taxes of any kind required by law to be withheld by
the Company with respect to such amount. Withholding
obligations may be settled with Stock in an amount having a
Fair Market Value not exceeding the minimum withholding tax
payable by the participant with respect to the income
recognized, including Stock that is subject to the Stock
Option that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the
Company, its subsidiaries and its Affiliates shall, to the
extent permitted by law, have the right to deduct any such
taxes from any payment otherwise due to the participant. The
Committee shall establish such procedures as it deems
appropriate, including the making of irrevocable elections,
for the settlement of withholding obligations with Stock.
(e) In the case of a grant of a Stock Option to any
employee of a Company subsidiary, the Company, may, if the
Committee so directs, issue or transfer the shares of Stock
covered by the Stock Option to the subsidiary, for such
lawful consideration as the Committee may specify, upon the
condition or understanding that the subsidiary will transfer
the shares of Stock to the employee in accordance with the
terms of the Stock Option specified by the Committee
pursuant to the provisions of the Plan.
(f) The Plan and all Stock Options made and actions
taken thereunder shall be governed by and construed in
accordance with the laws of the State of Texas, without
reference to principles of conflict of law.
SECTION 10. EFFECTIVE DATE OF PLAN.
Subject to the approval of the stockholders of the Company, the Plan
shall be effective on November 10, 1993.
A 7
<PAGE> 39
STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the _______ day of _______________, between
Service Corporation International, a Texas corporation (the "Company"), and
_______________________________ (the "Employee").
W I T N E S S E T H:
The Company has adopted the Service Corporation International 1993
Long-Term Incentive Stock Option Plan (the "Plan"). The Plan is made a part
hereof with the same effect as if set forth in this Agreement. All capitalized
terms that are used herein and not otherwise defined shall have the meanings set
forth in the Plan.
In consideration of the mutual promises and covenants made herein and
the mutual benefits to be derived herefrom, the parties hereto agree as follows:
1. GRANT OF OPTIONS.
Subject to the provisions of this Agreement and to the Plan, the Company
hereby grants to the Employee the right and option (the "Options") to purchase
(i) __________ shares of common stock, par value $1.00 per share ("Common
Stock"), of the Company at an exercise price of $ ________ per share and a
Target Price of $________ per share and (ii) _________ shares of Common Stock
at an exercise price of $ ________ per share and a Target Price of $ ________
per share.
2. EXERCISABILITY OF OPTIONS.
Any Option that is vested may be exercised in whole or in part at the
times and in the manner set forth in the Plan; provided, however, that an Option
may not be exercised at any one time as to fewer than 100 shares (or such number
of shares as to which such Option is then exercisable if such number of shares
is less than 100).
3. VESTING OF OPTIONS.
Each Option granted hereunder shall vest in the circumstances set forth
in the Plan or as set forth in this paragraph. During the four-year period
commencing on the date of this Agreement each Option granted hereunder shall
vest at such time as the Fair Market Value of the Common Stock shall have been
equal to or greater than the Target Price with respect to such Option for each
day in any period of 20 consecutive trading days. Any Option that has not vested
at or prior to the close of business on the fourth anniversary of the date of
this Agreement shall vest at the close of business on the thirteenth anniversary
of the date of this Agreement if such Option has not previously terminated.
4. NO RIGHT TO EMPLOYMENT.
Nothing in this Agreement or the Plan shall confer upon the Employee any
right to continue in the employ of the Company or any of its affiliate
corporations or interfere in any way with the right of the Company or any such
affiliate corporation to terminate such employment at any time.
5. EFFECT OF CERTAIN CHANGES.
(a) If there is any change in the number of issued shares of Common
Stock through the declaration of stock dividends, or through
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, the number of Options granted pursuant
to this Agreement that have not been exercised or lapsed, and the
price per share of such Options shall be proportionately adjusted
by the Committee to reflect any increase or decrease in the number
of shares of Common Stock, provided, however, that any fractional
shares resulting from such adjustment shall be eliminated.
(b) In the event of a change in the Common Stock of the Company
as presently constituted, which is limited to a change of all of its
authorized shares with a par value into the same number of shares
with a different par value or without par value, the shares
resulting from any such change shall be deemed to be a Common Stock
within the meaning of this Agreement and the Plan.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final,
binding and conclusive.
6. PAYMENT OF TRANSFER TAXES, FEES AND OTHER EXPENSES.
The Company agrees to pay any and all original issue taxes and stock
transfer taxes that may be imposed on the issuance of
A 8
<PAGE> 40
shares acquired pursuant to exercise of the Options, together with any and
all other fees and expenses necessarily incurred by the Company in connection
therewith.
7. TAXES AND WITHHOLDINGS.
No later than the date of exercise of any Options granted hereunder, the
Employee shall pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the exercise of such Options and the Company
shall, to the extent permitted or required by law, have the right to deduct from
any payment of any kind otherwise due to the Employee, federal, state and local
taxes of any kind required by law to be withheld upon the exercise of such
Options.
8. NOTICES.
Any notice to be given under the terms of this Agreement shall be in
writing and addressed to the Company at 1929 Allen Parkway, Houston, Texas
77219, Attention: General Counsel and to the Employee at the address set forth
on the last page of this Agreement or at such other address as either party may
hereafter designate in writing to the other.
9. EFFECT OF AGREEMENT.
Except as otherwise provided hereunder, this Agreement shall be binding
upon and shall inure to the benefit of any successor or successors of the
Company.
10. LAWS APPLICABLE TO CONSTRUCTION.
The Options have been granted, executed and delivered in the State of
Texas, and the interpretation, performance and enforcement of this Agreement,
shall be governed by the laws of the State of Texas, as applied to contracts
executed in and performed wholly within the State of Texas.
11. INTERPRETATION.
In the event of any ambiguity in this Agreement, any term which is not
defined in this Agreement, or any matters as to which this Agreement is silent,
the Plan shall govern including, without limitation, the provisions thereof
pursuant to which the Committee has the power, among others, to (i) interpret
the Plan, (ii) prescribe, amend and rescind rules and regulations relating to
the Plan and (iii) make all other determinations deemed necessary or advisable
for the administration of the Plan.
12. HEADINGS.
The headings of paragraphs herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any of the
provisions of this Agreement.
13. AMENDMENT.
This Agreement may not be modified, amended or waived in any manner
except by an instrument in writing signed by both parties hereto. The waiver by
either party of compliance with any provision of this Agreement shall not
operate or be construed as a waiver of any other provision of this Agreement, or
of any subsequent breach by such party of a provision of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by a duly authorized officer and the Employee has hereunto set his
hand.
SERVICE CORPORATION INTERNATIONAL
________________________________________________________________________________
By: ___________________________________________________________________________
________________________________________________________________________________
(Employee's name)
________________________________________________________________________________
(Address)
________________________________________________________________________________
________________________________________________________________________________
A 9
<PAGE> 41
Service Corporation International
1929 Allen Parkway,
P.O. Box 130548
Houston, Texas 77219-0548
<PAGE> 42
SERVICE CORPORATION INTERNATIONAL
This Proxy is Solicited By the Board of Directors
The undersigned hereby appoints ROBERT L. WALTRIP, L. WILLIAM
P HEILIGBRODT, SAMUEL W. RIZZO AND JAMES M. SHELGER and each or any of them
as attorneys, agents and proxies of the undersigned with full power of
R substitution, for and in the name, place and stead of the undersigned, to
attend the annual meeting of shareholders of Service Corporation
O International (the "Company") to be held in the Texas Commerce Center
Auditorium, First Floor, Texas Commerce Center, 601 Travis, Houston, Texas,
X on Thursday, May 12, 1994, at 10:00 a.m., Houston time, and any
adjournment(s) thereof, and to vote thereat the number of shares of Common
Y Stock of the Company which the undersigned would be entitled to vote if
personally present as indicated below and on the reverse side hereof and,
in their discretion, upon any other business which may properly come before
said meeting.
(change of address)
Election of Directors, Nominees: ______________________________
Anthony L. Coelho ______________________________
A.J. Foyt, Jr. ______________________________
E.H. Thornton, Jr. ______________________________
(if you have written in the
R.L. Waltrip above space, please mark the
corresponding box on the
Edward E. Williams reverse side of this card).
SEE REVERSE
SIDE
<PAGE> 43
/X/ Please mark your
votes as in this
example.
WITHHOLD
FOR AUTHORITY
1. Election
of Directors / / / /
Vote FOR, except vote withheld from the following nominee(s) (to withhold
authority to vote for any individual nominee(s) write that nominee's name in
the space provided below):
______________________________________
FOR AGAINST ABSTAIN
2. Approval of the adoption of the / / / / / /
1993 Long-Term Incentive Stock Option
Plan and the awards made thereunder
in 1993.
If a choice is specified, this Proxy
will be voted as indicated. If no choice
is specified, this Proxy will be voted FOR
election of directors listed in the proxy
statement and FOR approval of the adoption
of the 1993 Long-Term Incentive Stock Option
Plan and the awards made thereunder in 1993.
SIGNATURE(S) ___________________________________ Date ____________, 1994
SIGNATURE(S) ____________________________________Date ____________, 1994
Please sign your name exactly as it appears hereon. Joint owners must each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give your full title as it appears hereon.
<PAGE> 44
Appendix A: Description of graphic materials.
Cover: 1. Logos for SCI and Proxy Statement '94
2. Picture of SCI facility.
Banner: Service
Corporation
International
Banner on Cover, pages 5 thru A-9 of Proxy Statement.
