<PAGE> 1
As filed with the Securities and Exchange Commission on November 20, 1998
REGISTRATION NO. 333-66957
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 7261 74-1488375
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
1929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(713) 522-5141
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------
JAMES M. SHELGER, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(713) 522-5141
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies to:
MARCUS A. WATTS JAMES M. PRINCE
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. ANDREWS & KURTH L.L.P.
3400 CHASE TOWER 4200 CHASE TOWER
600 TRAVIS 600 TRAVIS
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 226-1200 (713) 220-4200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective and
after the satisfaction or waiver of all other conditions to the merger (the
"Merger") contemplated by the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 6, 1998, described in the Proxy
Statement/Prospectus included in the Registration Statement.
---------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
---------------------------
<PAGE> 2
EQUITY CORPORATION INTERNATIONAL
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Equity Corporation International ("ECI") has approved
a merger between ECI and a subsidiary of Service Corporation International
("SCI"), the largest provider of death care services and products in the world.
The Board of Directors of ECI has determined that the merger is in the best
interests of ECI and its stockholders and has adopted a resolution approving the
agreement and plan of merger dated as of August 6, 1998.
If the merger is completed, each of the outstanding shares of ECI's common stock
will be converted into a fraction of a share of SCI common stock. The fraction
will be between 0.65060 and 0.79412 of a share of SCI common stock for each
share of ECI common stock depending on the ratio of $27.00 to the selling price
of SCI common stock during a period shortly before the merger. If the average
selling price of SCI common stock for a ten day period prior to the merger is
between $34.00 and $41.50, you will receive SCI common stock worth $27.00 for
each share of your ECI common stock, based on the average selling price of SCI
common stock. SCI shareholders will continue to own their existing shares after
the merger.
We estimate that the shares of SCI common stock to be issued to ECI stockholders
will represent between approximately 5.2% and 6.7% of the outstanding SCI
common stock after the merger depending upon the trading price of SCI common
stock.
This Proxy Statement/Prospectus provides you with detailed information about the
proposed merger. In addition, you may obtain information about ECI and SCI from
documents filed with the Securities and Exchange Commission. We encourage you to
read this entire document carefully before you decide how you wish to vote.
At the special meeting of stockholders of ECI, ECI stockholders will be asked to
approve and adopt the merger and the related merger agreement. The affirmative
vote of the holders of a majority of the outstanding shares of ECI common stock
entitled to vote thereon is required to approve and adopt the merger and the
related merger agreement. On November 19, 1998, the record date for the vote,
there were outstanding 21,783,197 shares of ECI common stock. THE MERGER CANNOT
BE COMPLETED UNLESS ECI STOCKHOLDERS APPROVE IT. Shareholders of SCI are not
required to approve the merger.
The date, time and place of the special meeting:
December 22, 1998
10:00 a.m.
Doubletree Hotel Post Oak,
2001 Post Oak Boulevard, Houston, Texas
Whether or not you plan to attend the special meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy card without indicating how you wish to vote, your proxy
will be counted as a vote in favor of the merger and the related merger
agreement. If you fail to return your card, the effect will be a vote against
the merger. YOUR VOTE IS VERY IMPORTANT.
On behalf of the Board of Directors of ECI, I urge you to be represented in
person or by proxy at the special meeting, regardless of the number of shares
you own. Please complete, sign, date and return the enclosed proxy card as soon
as possible. This action will not limit your right to vote in person at the
meeting if you wish to do so.
ON BEHALF OF YOUR BOARD OF DIRECTORS, I THANK YOU FOR YOUR SUPPORT AND URGE YOU
TO VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AND THE RELATED MERGER
AGREEMENT.
Very truly yours,
James P. Hunter, III
Chairman, President and
Chief Executive Officer
===============================================================================
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THE SCI COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Proxy Statement/Prospectus dated November 20, 1998 and first mailed to ECI
stockholders on November 23, 1998.
<PAGE> 3
EQUITY CORPORATION INTERNATIONAL
415 SOUTH FIRST STREET, SUITE 210
LUFKIN, TEXAS 75801
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 22, 1998
To the Stockholders of Equity Corporation International:
A special meeting (the "Special Meeting") of the holders of common stock of
Equity Corporation International, a Delaware corporation ("ECI"), will be held
at 10:00 a.m. local time, on Tuesday, December 22, 1998 at the Doubletree Hotel
Post Oak, 2001 Post Oak Boulevard, Houston, Texas. At the Special Meeting, the
holders of common stock of ECI, par value $.01 per share (the "ECI Common
Stock"), will:
1. Consider and vote upon a proposal to approve and adopt the merger
(the "Merger") of SCI Delaware Funeral Services, Inc., a Delaware
corporation ("Merger Sub") and a wholly owned subsidiary of Service
Corporation International, a Texas corporation ("SCI"), with and into
ECI, with ECI surviving the Merger as a wholly owned subsidiary of
SCI, and the related Agreement and Plan of Merger, dated as of August
6, 1998 (the "Merger Agreement"), by and among ECI, SCI and Merger
Sub. A description of the Merger and the Merger Agreement is
contained in the accompanying Proxy Statement/Prospectus, which
includes a copy of the Merger Agreement; and
2. Transact such other business as may properly come before the Special
Meeting or any adjournments thereof.
The Board of Directors of ECI has fixed the close of business on November
19, 1998 as the record date for determining which stockholders are entitled to
notice of, and to vote at, the Special Meeting or any adjournments thereof.
Complete lists of such stockholders will be available for examination at the
offices of ECI during normal business hours by any holder of ECI Common Stock,
for any purpose relevant to the Special Meeting, for a period of ten days prior
to the Special Meeting.
THE BOARD OF DIRECTORS OF ECI RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
AND ADOPTION OF THE MERGER AND THE RELATED MERGER AGREEMENT. The affirmative
vote of the holders of a majority of the outstanding shares of ECI Common Stock
entitled to vote thereon is required to approve the Merger and the related
Merger Agreement.
IF YOU DO NOT SEND IN YOUR PROXY OR VOTE AT THE SPECIAL MEETING, IT WILL
HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER AND THE RELATED MERGER
AGREEMENT.
Holders of ECI Common Stock, even if they expect to be present at the
Special Meeting, are requested to sign, vote and date the enclosed proxy and
return it promptly in the enclosed envelope. Any stockholder giving a proxy has
the power to revoke it at any time prior to the Special Meeting. Stockholders
who are present at the Special Meeting may withdraw their proxies and vote in
person.
By order of the Board of Directors,
J. Patrick Doherty
Corporate Secretary
Lufkin, Texas
November 20, 1998.
<PAGE> 4
EQUITY CORPORATION INTERNATIONAL
PROXY STATEMENT
---------------------------------
SERVICE CORPORATION INTERNATIONAL
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
Equity Corporation International, a Delaware corporation ("ECI"), in connection
with the solicitation of proxies by its Board of Directors to be voted at the
special meeting of stockholders of ECI (the "Special Meeting") scheduled to be
held on December 22, 1998, at 10:00 a.m. local time, at the Doubletree Hotel
Post Oak, 2001 Post Oak Boulevard, Houston, Texas, and at any adjournment or
postponement thereof.
At the Special Meeting, the holders of ECI common stock, par value $.01 per
share (the "ECI Common Stock"), will be asked to consider and vote upon a
proposal to approve and adopt the merger (the "Merger") of SCI Delaware Funeral
Services, Inc., a Delaware corporation ("Merger Sub") and a wholly owned
subsidiary of Service Corporation International, a Texas corporation ("SCI"),
with and into ECI, with ECI surviving the Merger as a wholly owned subsidiary of
SCI, and the related Agreement and Plan of Merger dated as of August 6, 1998
(the "Merger Agreement"), by and among ECI, SCI and Merger Sub. Stockholder
approval is a condition to consummating the Merger. Upon consummation of the
Merger, ECI will become a wholly owned subsidiary of SCI and the holders of the
issued and outstanding shares of ECI Common Stock will have the right to
receive, at the effective time of the Merger, shares of SCI common stock, par
value $1.00 per share (the "SCI Common Stock"), for each share of ECI Common
Stock held by them, as set forth in the Merger Agreement. See "Terms of the
Merger." A copy of the Merger Agreement is attached hereto as Appendix A and
incorporated herein by reference.
On November 16, 1998, the closing sale price of SCI Common Stock on the New
York Stock Exchange, Inc. (the "NYSE") Composite Transactions was $37.50 per
share. If the Merger is completed, each outstanding share of ECI Common Stock
will be converted into the right to receive between 0.65060 and 0.79412 of a
share of SCI Common Stock depending upon the average selling price of SCI Common
Stock for a ten day period prior to the Merger. Based upon the number of shares
of SCI Common Stock and ECI Common Stock outstanding as of November 10, 1998 and
assuming an average selling price of SCI Common Stock of $37.50 per share (the
NYSE Composite Transactions closing price as of November 16, 1998),
approximately 273,556,835 shares of SCI Common Stock will be outstanding after
the Merger is consummated, of which approximately 15,683,901 shares (or
approximately 5.7%) will be owned by former stockholders of ECI.
This Proxy Statement/Prospectus also constitutes the prospectus of SCI that
is a part of the Registration Statement of SCI filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to shares of SCI Common Stock to be
issued in connection with the Merger.
This Proxy Statement/Prospectus is first being mailed to the stockholders
of ECI on or about November 23, 1998.
THE SCI COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER HAS NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is November 20, 1998.
<PAGE> 5
WHERE TO FIND MORE INFORMATION
SCI and ECI file annual, quarterly and special reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information filed by SCI and ECI at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's public reference rooms in New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. The filings of SCI and ECI with the Commission are also
available to the public from commercial document retrieval services and at the
web site maintained by the Commission at "http://www.sec.gov." SCI also invites
you to visit its web site at "http://www.sci-corp.com."
SCI filed a Registration Statement on Form S-4 to register with the
Commission SCI Common Stock to be issued to ECI stockholders in the Merger. The
Form S-4 also covers SCI Common Stock that may be issued upon exercise of ECI
stock options assumed by SCI in the Merger. This Proxy Statement/Prospectus is a
part of that Registration Statement and constitutes a prospectus of SCI in
addition to being a proxy statement of ECI. As allowed by Commission rules, this
Proxy Statement/Prospectus does not contain all the information you can find in
the Registration Statement or the exhibits to the Registration Statement.
The Commission allows SCI and ECI to "incorporate by reference" information
into this Proxy Statement/Prospectus, which means that they can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be part of this Proxy Statement/Prospectus, except for any information
superseded by information in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that SCI and ECI have previously filed with the Commission. These documents
contain important business and financial information about SCI and ECI.
<TABLE>
<CAPTION>
SCI COMMISSION FILINGS (FILE NO. 1-06402) PERIOD
- ---------------------------------------- -----------------------------------------------
<S> <C>
Annual Report on Form 10-K Year Ended December 31, 1997
Quarterly Report on Form 10-Q Quarters Ended March 31, 1998, June 30, 1998
and September 30, 1998
Current Reports on Form 8-K Filed March 24, 1998 and May 15, 1998
ECI COMMISSION FILINGS (FILE NO. 0-24728) PERIOD
- ----------------------------------------- ------------------------------------------------
Annual Report on Form 10-K Year Ended December 31, 1997
Quarterly Report on Form 10-Q Quarters Ended March 31, 1998, June 30, 1998
and September 30, 1998
Current Reports on Form 8-K Filed February 11, 1998 and February 26, 1998
August 10, 1998 and September 3, 1998
</TABLE>
SCI and ECI are also incorporating by reference additional documents that
they file with the Commission between the date of this Proxy
Statement/Prospectus and the date of the Special Meeting.
SCI has supplied all information contained or incorporated by reference in
this Proxy Statement/Prospectus relating to SCI, and ECI has supplied all such
information relating to ECI.
If you are a stockholder, SCI and ECI may have sent you some of the
documents incorporated by reference, but you can obtain any of them through SCI,
ECI or the Commission. Documents incorporated by reference are available from
SCI and ECI without charge. Exhibits to the documents will not be sent, however,
unless those exhibits have specifically been incorporated by reference as
exhibits in this Proxy Statement/Prospectus. Stockholders may obtain documents
incorporated by reference in this Proxy Statement/Prospectus by requesting them
in writing or by telephone from the appropriate party at the following address:
Service Corporation International Equity Corporation International
1929 Allen Parkway 415 South First Street, Suite 210
Houston, Texas 77019 Lufkin, Texas 75901
(713) 522-5141 (409) 631-8700
Attention: James M. Shelger Attention: W. Cardon Gerner
2
<PAGE> 6
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM SCI OR ECI, PLEASE DO SO BY
DECEMBER 15, 1998 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. NEITHER SCI
NOR ECI HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY
STATEMENT/PROSPECTUS IS DATED NOVEMBER 20, 1998. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF SCI COMMON STOCK IN THE
MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OTHER THAN WHAT IS IN
THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SCI OR ECI. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SCI OR ECI SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS OR THAT
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. ALL INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO SCI AND MERGER SUB
HAS BEEN FURNISHED BY SCI, AND ALL INFORMATION HEREIN WITH RESPECT TO ECI HAS
BEEN FURNISHED BY ECI.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE TO FIND MORE INFORMATION ..............................................2
QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................6
SUMMARY......................................................................8
The Companies...........................................................8
The Special Meeting.....................................................8
Record Date; Voting Power...............................................8
Vote Required...........................................................8
Recommendation of ECI's Board of Directors..............................8
The Merger..............................................................9
Selected Historical Financial Data.....................................12
Comparative Per Share Data.............................................15
Market Price Data......................................................16
Dividends..............................................................16
THE SPECIAL MEETING.........................................................17
Date, Time, and Place of the Special Meeting...........................17
Purpose of the Special Meeting.........................................17
Record Date and Outstanding Shares.....................................17
Voting and Revocation of Proxies.......................................17
Vote Required for Approval.............................................17
Solicitation of Proxies................................................17
Other Matters..........................................................18
THE MERGER..................................................................18
General Description of the Merger......................................18
Background of the Merger...............................................18
ECI's Reasons for the Merger...........................................20
Recommendation of the Board of Directors of ECI........................21
Opinion of ECI's Financial Advisor.....................................21
Interests of Certain Persons in the Merger.............................24
Certain Relationships between ECI and SCI..............................25
Employment Agreement...................................................26
Certain Material Federal Income Tax Consequences.......................27
Accounting Treatment ..................................................28
Government and Regulatory Approvals....................................28
No Appraisal Rights....................................................29
Restrictions On Resales By Affiliates .................................29
TERMS OF THE MERGER.........................................................30
Effective Time of the Merger...........................................30
Manner and Basis for Converting Shares.................................30
Conversion of ECI Options..............................................31
Execution of Supplemental Indenture....................................31
ECI Rights Plan........................................................31
Conditions to the Merger...............................................31
Cooperation............................................................32
Representations and Warranties of SCI and ECI..........................32
Conduct of the Business of ECI Prior to the Merger ....................32
Conduct of the Business of SCI Prior to the Merger.....................34
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
No Solicitation of Acquisition Transactions............................34
Termination or Amendment...............................................35
Termination Fees.......................................................36
Expenses...............................................................36
Indemnification........................................................36
BUSINESS OF SCI.............................................................36
COMPARATIVE RIGHTS OF THE SHAREHOLDERS OF SCI AND THE STOCKHOLDERS OF ECI...37
General................................................................37
Number of Directors; Classified Board of Directors....................37
Quorum Required for Directors' Meeting.................................38
Removal of Directors...................................................38
Newly Created Directorships and Vacancies..............................38
Special Meetings of Stockholders.......................................38
Action by Written Consent..............................................39
Vote Required for Merger...............................................39
Vote Required for Sale of Assets.......................................39
Business Combinations..................................................40
Amendment of Certificate of Incorporation/Articles of Incorporation....40
Amendment of Bylaws....................................................41
Voting.................................................................41
Cumulative Voting......................................................42
Supermajority Voting Provisions........................................42
Appraisal Rights.......................................................42
Limitations on Director Liability......................................42
Indemnification........................................................43
Authorized Capital Stock...............................................44
Stockholder Rights Plans...............................................44
Preemptive Rights......................................................44
Dividends..............................................................44
SECURITY OWNERSHIP OF ECI'S DIRECTORS AND EXECUTIVE OFFICERS...............45
DESCRIPTION OF SCI CAPITAL STOCK............................................47
General................................................................47
SCI Common Stock.......................................................47
Certain Provisions Affecting Control of SCI............................47
SCI Shareholder Rights Plan............................................47
SCI Preferred Stock....................................................49
LEGAL MATTERS...............................................................50
EXPERTS.....................................................................50
STOCKHOLDER PROPOSALS.......................................................50
</TABLE>
APPENDIX A
Agreement and Plan of Merger
APPENDIX B
Fairness Opinion of Financial Advisor
5
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS ECI PROPOSING THE MERGER? HOW WILL I BENEFIT?
A: The proposed Merger will combine ECI's existing operations and strength in
acquisitions and operations in rural and non-metropolitan areas with SCI's
strength in urban areas in North America, international operations and life
insurance and annuity products relating to pre-arranged funerals. The
stockholders of ECI also have the opportunity to benefit from an immediate value
premium on their ECI Common Stock investment of approximately 22%, based on the
closing price of ECI Common Stock on August 5, 1998 (the day before the Merger
Agreement was signed) and assuming the price of SCI Common Stock at the time of
the Merger is between $34.00 and $41.50 per share.
To review the background and reasons for the Merger in greater detail see page
18.
Q: WHAT DO I NEED TO DO NOW?
A: Please mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the Special Meeting. In
addition, you may attend the Special Meeting in person and vote your shares in
person.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated, signed proxy card before the Special Meeting or
attend the Special Meeting in person and vote your shares in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker how to vote your shares, following the
directions provided by your broker. Without instructions, your shares will not
be voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the Merger is completed, we will send ECI stockholders written
instructions for exchanging their stock certificates for SCI stock certificates.
SCI shareholders will keep their certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the Merger is completed, ECI stockholders will have the right to receive
between 0.65060 and 0.79412 of a share of SCI Common Stock in exchange for each
share of ECI Common Stock they own.
The exact number of shares to be received per share of ECI Common Stock will be
determined by dividing $27.00 by the average selling price of SCI Common Stock
on the NYSE for the ten consecutive trading day period ending on the third day
prior to the effective date of the Merger. In no event will the number of shares
of SCI Common Stock to be received be less than 0.65060 of a share nor more than
0.79412 of a share for each share of ECI Common Stock. The effect of the
limitations of the previous sentence is to freeze the exchange ratio at the
agreed limits if the average selling price of SCI Common Stock is below $34.00
or above $41.50.
Example:
o If the ten day average selling price of SCI Common Stock is $37.50,
each holder of ECI Common Stock would be entitled to receive 0.72000
of a share of SCI Common Stock ($27.00 divided by $37.50).
o If the ten day average selling price of SCI Common Stock is $42.00,
each holder of ECI Common Stock would be entitled to receive 0.65060
of a share of SCI Common Stock, and not 0.64286 of a share of SCI
Common Stock ($27.00 divided by $41.50, the maximum price of SCI
Common Stock used in determining the exchange ratio). In this case,
the value of SCI Common Stock received could be more than $27.00 per
share of ECI Common Stock.
o If the ten day average selling price of SCI Common Stock is $32.00,
each holder of ECI Common Stock would be entitled to receive 0.79412
of a share of SCI Common Stock, and not 0.84375 of a share of SCI
Common Stock ($27.00 divided by $34.00, the minimum price of SCI
Common Stock used in determining the exchange ratio). In
6
<PAGE> 10
this case, the value of SCI Common Stock received could be less than
$27.00 per share of ECI Common Stock.
SCI will not issue fractional shares. Instead, you will receive cash for any
fractional shares of SCI Common Stock owed to you based on the market value of
SCI Common Stock on the effective time of the Merger.
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A: No, unless you receive cash for fractional shares of SCI Common Stock. The
exchange of shares by ECI stockholders will be tax-free to ECI stockholders for
federal income tax purposes, except that ECI stockholders will have to pay tax
on cash received for fractional shares.
Q: WILL I HAVE ANY RIGHT TO DISSENT OR OBTAIN APPRAISED VALUE FOR MY SHARES?
A: Under Delaware law, ECI stockholders do not have any right to an appraisal of
the value of their shares of ECI Common Stock in connection with the Merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the Merger as quickly as possible. In
addition to ECI stockholder approval, ECI and SCI must also obtain regulatory
approvals, which includes primarily clearance by federal antitrust regulators.
We hope to complete the Merger by December 22, 1998.
Q: WHAT IF I ALSO OWN SHARES OF SCI COMMON STOCK?
A: SCI Common Stock will not be affected by the Merger. If you currently own
shares of SCI Common Stock, you will continue to own those shares after the
Merger.
Q: DOES SCI PAY DIVIDENDS?
A: Unlike ECI, SCI has paid quarterly dividends since 1974. During the fourth
quarter of 1998, SCI declared a dividend of $.09 per share of SCI Common Stock.
However, SCI's Board of Directors could change its dividend policy based on
business conditions, SCI's financial condition and earnings, and other factors.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the Merger, please call W. Cardon Gerner,
Chief Financial Officer at ECI, at (409) 631-8700.
7
<PAGE> 11
SUMMARY
This summary highlights selected information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. This summary may
not contain all of the information that is important to you. To understand the
Merger fully and for a more complete description of the legal terms of the
Merger, you should read carefully this entire document and the documents to
which we have referred you. We have included page references in parentheses to
direct you to a more complete description of the topics presented in this
summary.
THE COMPANIES
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
(713) 522-5141
Service Corporation International ("SCI") is the largest provider of
deathcare services and products in the world. As of September 30, 1998, SCI
owned and operated 3,370 funeral service locations, 430 cemeteries and 180
crematoria located in 18 countries on five continents. SCI was incorporated in
Texas on July 5, 1962. The term "SCI" refers to SCI and its subsidiaries in this
paragraph. Additional information concerning SCI is included in SCI's reports
filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
that are incorporated by reference in this Proxy Statement/Prospectus. See
"Where To Find More Information."
SCI Delaware Funeral Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
(713) 522-5141
SCI Delaware Funeral Services, Inc. ("Merger Sub") is a wholly owned Delaware
subsidiary of SCI organized for the purpose of effecting a transaction such as
the Merger. Merger Sub has no material assets and has not engaged in any
activities except in connection with the Merger.
Equity Corporation International
415 South First Street, Suite 210
Lufkin, Texas 75901
(409) 631-8700
Equity Corporation International ("ECI") is the fourth largest publicly
traded provider of deathcare services and products in the United States,
primarily serving communities located in non-metropolitan and select suburban
areas. As of November 12, 1998, ECI owned and operated 334 funeral homes and 81
cemeteries in 35 states and one Canadian province. Additional information
concerning ECI is included in ECI's reports filed under the Exchange Act that
are incorporated by reference in this Proxy Statement/Prospectus. See "Where To
Find More Information."
THE SPECIAL MEETING (page 17)
The Special Meeting will be held at 10:00 a.m. local time, on December 22,
1998, at the Doubletree Hotel Post Oak, 2001 Post Oak Boulevard, Houston, Texas.
At the Special Meeting, holders of ECI Common Stock will be asked to approve and
adopt the Merger and the related Merger Agreement.
RECORD DATE; VOTING POWER (page 17)
You are entitled to notice of, and to vote at, the Special Meeting if you
owned ECI Common Stock at the close of business on November 19, 1998 (the
"Record Date"). On the Record Date there were 21,783,197 shares of ECI Common
Stock outstanding. ECI stockholders will have one vote at the Special Meeting
for each share of ECI Common Stock they owned on the Record Date.
VOTE REQUIRED (page 17)
The favorable vote of the holders of a majority of the outstanding shares of
ECI Common Stock is required to approve the Merger and the related Merger
Agreement. Your failure to vote will have the effect of a vote against the
Merger and the Merger Agreement.
RECOMMENDATION OF ECI'S BOARD OF DIRECTORS
(page 21)
The Board of Directors of ECI believes that the Merger is in the best
interests of ECI stockholders and recommends that the stockholders of ECI vote
"for" the proposal to approve and adopt the Merger and the related Merger
Agreement.
8
<PAGE> 12
THE MERGER
The Merger Agreement is attached as Appendix A at the back of this Proxy
Statement/Prospectus. We encourage you to read the Merger Agreement as it is the
legal document that governs the Merger.
WHAT ECI STOCKHOLDERS WILL RECEIVE IN THE MERGER
If the Merger is completed, each outstanding share of ECI Common Stock will
be converted into the right to receive between 0.65060 and 0.79412 of a share of
SCI Common Stock for each share of ECI Common Stock. The actual number of shares
of SCI Common Stock to be issued to ECI's stockholders will be determined based
on the average selling price of SCI Common Stock for the ten trading day period
ending on the third trading day prior to the effective time of the Merger. In
determining the exchange ratio, the average selling price of SCI Common Stock
used in computing the exchange ratio will not be less than $34.00 and will not
be more than $41.50 per share.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (page 24)
Certain officers and directors of ECI have an interest in recommending the
Merger, apart from their interests as stockholders of ECI, which are separate
from those of unaffiliated stockholders of ECI. The Board of Directors of ECI
was aware of these and other interests and considered them in approving and
adopting the Merger Agreement.
CERTAIN RELATIONSHIPS BETWEEN ECI AND SCI (page 25)
Certain relationships have existed in the past between SCI and ECI. In 1990,
the Company commenced operations by acquiring funeral homes and cemeteries from
SCI. From 1990 until 1997, SCI was a significant stockholder of ECI, selling all
of its remaining ECI Common Stock in a public offering in February 1997. From
1990 until late 1996, one representative of SCI served as a director of ECI. ECI
has also made certain acquisitions from SCI in 1996 and 1997, consisting
primarily of funeral homes, for aggregate purchase prices of $13.0 million and
$27.4 million, respectively.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at such time as a certificate of merger is
filed with the Secretary of State of the State of Delaware in accordance with
the Delaware General Corporation Law. Assuming that ECI stockholders vote to
approve and adopt the Merger and the related Merger Agreement, the effective
time of the Merger will occur as soon as practicable following the Special
Meeting.
EXCHANGE OF ECI COMMON STOCK CERTIFICATES (page 30)
As soon as reasonably practicable, the exchange agent will mail you a letter
of transmittal with instructions for use in exchanging certificates of ECI
Common Stock for certificates of SCI Common Stock and cash in lieu of any
fractional shares. You should not surrender certificates until you have received
the letter of transmittal from the exchange agent.
OWNERSHIP OF SCI AFTER THE MERGER
In the Merger, ECI stockholders will receive between 0.65060 and 0.79412 of a
share of SCI Common Stock for each share of ECI Common Stock. We estimate that
the shares of SCI Common Stock to be issued to ECI stockholders in the Merger
will represent approximately 5.7% of the outstanding SCI Common Stock
immediately after the Merger. This is based on a recent number of outstanding
shares of SCI and ECI and on an assumed average selling price of SCI Common
Stock of $37.50 per share, the NYSE Composite Transactions closing price on
November 16, 1998.
CONDITIONS TO THE MERGER (page 31)
The Merger will be completed if certain conditions, including the following,
are met:
(a) the approval and adoption of the Merger and the related Merger Agreement
by a majority vote of ECI stockholders;
(b) the receipt of a written opinion of ECI's counsel that (i) the Merger
will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, and (ii) each party
to the Merger will be a "party to a reorganization" within the meaning of
Section 368(b) of the Internal Revenue Code of 1986, as amended;
(c) the termination or expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
(d) the absence of any order or decree by any federal or state court
preventing the Merger;
(e) the listing on the NYSE of SCI Common Stock to be issued in the Merger;
9
<PAGE> 13
(f) the absence of any law that makes the Merger illegal;
(g) the absence of any changes or events which result in or constitute a
material adverse effect to ECI;
(h) both parties shall have performed in all material respects their
respective agreements contained in the Merger Agreement and their respective
representations and warranties contained in the Merger Agreement shall be
true and correct in all material respects; and
(i) James P. Hunter, III, Chief Executive Officer of ECI, shall have entered
into employment and non-competition agreements and shall have terminated his
consulting agreement and his executive severance agreement with ECI.
These conditions may be waived by the party entitled to assert the conditions.
TERMINATION OF MERGER AGREEMENT (page 35)
The Merger Agreement may be terminated under certain circumstances,
including:
(a) if the Boards of Directors of SCI and ECI mutually agree;
(b) either by SCI or ECI if:
(i) the other party breaches its representations or warranties or
fails to perform its covenants under the Merger Agreement and that breach or
failure cannot be remedied in all material respects;
(ii) the Merger is not completed by February 28, 1999 (except that
such right will not be available to any party that has breached its
obligations under the Merger Agreement in any manner that contributes to the
failure of the Merger to occur); or
(iii) the stockholders of ECI fail to approve the Merger by February
28, 1999 or at the Special Meeting or any adjournment thereof;
(c) by ECI if:
(i) the Merger is enjoined by a final, unappealable court order; or
(ii) it receives a superior proposal from any third party with
respect to a merger, sale of substantial assets or other business combination
involving ECI which ECI's Board of Directors determines would be more
favorable to ECI's stockholders and ECI's Board of Directors resolves to
accept such superior proposal;
(d) by SCI if the Board of Directors of ECI shall have:
(i) recommended to the stockholders of ECI to accept a superior
proposal (or resolved to do so);
(ii) recommended to the stockholders of ECI that they tender their
shares in a tender or exchange offer commenced by a third party (or resolved
to do so); or
(iii) withdrawn, modified or changed its recommendation of the Merger
or the Merger Agreement in a manner adverse to SCI (or resolved to do so).
OPINION OF ECI'S FINANCIAL ADVISOR
ABN AMRO Incorporated ("ABN AMRO") has delivered its written opinion dated
August 6, 1998 to ECI's Board of Directors that, as of the date of such opinion,
the exchange ratio of ECI Common Stock to SCI Common Stock set forth in the
Merger Agreement is fair from a financial point of view to the stockholders of
ECI. ABN AMRO delivered a second opinion, dated November 20, 1998, confirming
its fairness opinion as of the date of this Proxy Statement/Prospectus. A copy
of the opinion of ABN AMRO dated as of the date of this Proxy Statement/
Prospectus, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by ABN AMRO in connection with the opinion,
is included as a part of this Proxy Statement/Prospectus as Appendix B.
Stockholders of ECI are urged to read such opinion carefully in its entirety.
10
<PAGE> 14
TERMINATION FEES; EXPENSES (page 36)
ECI is required to pay a termination fee to SCI of $20 million, plus up to $2
million of out-of-pocket costs and expenses, if the Merger Agreement is
terminated under certain circumstances.
APPRAISAL RIGHTS
ECI stockholders do not have appraisal rights in connection with the Merger.
11
<PAGE> 15
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data for SCI presented below for each of
the five years ended December 31, 1997 have been derived from the audited
consolidated financial statements of SCI. The data at and for the nine months
ended September 30, 1998 and 1997 have been derived from the unaudited
consolidated financial statements of SCI for those periods and, in the opinion
of SCI's management, include all adjustments (consisting only of normal
recurring adjustments) necessary to state fairly the information included
therein in accordance with generally accepted accounting principles for interim
financial information. The data should be read in conjunction with the related
notes and other financial information included and incorporated by reference in
SCI's Annual Report on Form 10-K for the year ended December 31, 1997 and SCI's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998,
incorporated by reference herein. Results for the nine months ended September
30, 1998 may not be indicative of results for any other interim period or for
the year as a whole. It is expected that the Merger will be treated as a pooling
of interests for accounting purposes. Under pooling rules, historical financial
statements of SCI would be restated to reflect the combination with ECI.
SCI SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
At or for the Nine Months At or for the Year
Ended September 30, Ended December 31,
------------------------ ---------------------------------------------------------------
1998 1997* 1997* 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
INCOME STATEMENT INFORMATION:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 2,101,594 $ 1,870,014 $ 2,468,402 $ 2,294,194 $ 1,652,126 $ 1,117,175 $ 899,178
Income before extraordinary loss
and cumulative effect of change
in accounting principles............. 282,947 282,672 374,552 265,298 183,588 131,045 103,092
Net income............................. 282,947 241,870 333,750 265,298 183,588 131,045 101,061
Earnings per share:
Income before extraordinary loss
and cumulative effect of change
in accounting principles--
Basic......................... 1.11 1.17 1.53 1.13 .92 .76 .62
Diluted....................... 1.08 1.11 1.47 1.08 .86 .71 .59
Net income--
Basic......................... 1.11 1.00 1.36 1.13 .92 .76 .61
Diluted....................... 1.08 .95 1.31 1.08 .86 .71 .58
Dividends per share.................... .27 .23 .30 .24 .22 .21 .20
BALANCE SHEET INFORMATION:
Total assets........................... $12,053,975 $ 9,737,921 $10,306,863 $ 8,869,770 $ 7,672,387 $ 5,161,888 $ 3,683,304
Long-term debt......................... $ 3,365,982 $ 2,317,259 $ 2,634,699 $ 2,048,737 $ 1,712,464 $ 1,330,177 $ 1,062,222
Convertible preferred securities of
SCI Finance LLC..................... -- -- -- $ 172,500 $ 172,500 $ 172,500 --
Stockholders' equity................... $ 3,003,665 $ 2,617,543 $ 2,726,004 $ 2,235,317 $ 1,975,345 $ 1,196,622 $ 884,513
Shares outstanding..................... 257,821 251,837 252,924 236,193 234,542 189,714 169,718
Book value per common share............ $ 11.65 $ 10.39 $ 10.78 $ 9.46 $ 8.42 $ 6.31 $ 5.21
</TABLE>
12
<PAGE> 16
* The nine months ended September 30, 1997 and year ended December 31, 1997
reflect a $40,802 (net of income taxes of $23,383) extraordinary loss on
early extinguishment of debt. In addition, SCI recorded a $68,077 gain
($42,494 net of income taxes) on the February 1997 sale of SCI's approximate
42% equity investment in ECI. This gain on the sale of SCI's equity
investment in ECI resulted in a net gain of $.18 and $.17 in basic and
diluted earnings per share, respectively, for the nine months ended September
30, 1997 and for the year ended December 31, 1997. If the Merger is
consummated and treated as a pooling of interests, the gain recognized by SCI
in 1997 on the sale of its ECI investment would be reversed in SCI's restated
financial statements for the year ended December 31, 1997.
13
<PAGE> 17
The selected historical financial data for ECI presented below for each of
the five years ended December 31, 1997 have been derived from the audited
consolidated financial statements of ECI. All per share amounts reflect the
3-for-2 stock split of ECI Common Stock effective October 1996. The data at and
for the nine months ended September 30, 1998 and 1997 have been derived from the
unaudited consolidated financial statements of ECI for those periods and, in the
opinion of ECI's management, include all adjustments (consisting only of normal
recurring adjustments) necessary to state fairly the information included
therein in accordance with generally accepted accounting principles for interim
financial information. The data should be read in conjunction with the related
notes and other financial information included and incorporated by reference in
ECI's Annual Report on Form 10-K for the year ended December 31, 1997 and ECI's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998,
incorporated by reference herein. Results for the nine months ended September
30, 1998 may not be indicative of results for any other interim period or for
the year as a whole.
ECI SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
At or for the Nine Months At or for the Year
Ended September 30, Ended December 31,
------------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993*
----------- ----------- ----------- --------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenues................................ $ 142,169 $ 96,317 $ 135,073 $ 91,974 $ 64,001 $ 49,301 $ 22,279
Income before extraordinary loss........ 13,693 10,720 14,699 10,326 6,236 3,946 2,555
Net income attributable to common
stock................................... 13,693 10,720 14,699 10,326 6,236 3,748 992
Earnings per share:
Income before extraordinary loss--
Basic............................ .64 .52 .71 .58 .42 .40 1.58
Diluted.......................... .63 .51 .70 .57 .42 .39 .15
Net Income--
Basic............................ .64 .52 .71 .58 .42 .38 1.58
Diluted.......................... .63 .51 .70 .57 .42 .37 .15
BALANCE SHEET INFORMATION:
Total assets............................ $ 929,847 $ 636,285 $ 717,700 $ 443,891 $ 305,159 $ 211,307 $ 83,095
Long-term debt.......................... $ 139,812 $ 136,513 $ 171,303 $ 49,197 $ 54,518 $ 4,037 $ 8,244
Convertible subordinated debentures $ 143,750 -- -- -- -- -- --
Stockholders' equity.................... $ 254,862 $ 215,249 $ 226,532 $ 177,464 $ 91,665 $ 84,083 $ (503)
Shares outstanding...................... 21,783 20,762 21,119 19,323 14,847 14,689 628
Book value per common share............. $ 11.70 $ 10.37 $ 10.73 $ 9.18 $ 6.17 $ 5.72 $ (.80)
</TABLE>
* ECI's financial data at or for the year ended December 31, 1993 does
not reflect the operations of MLI/The Loftis Corporation ("MLI"), which
were acquired effective January 1, 1994. As a result of the MLI acquisition
and certain other factors, ECI believes that its results of operations for
1993 are not necessarily comparable with its results of operations for
subsequent periods.
14
<PAGE> 18
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table summarizes the per share information for SCI and ECI on
a historical, pro forma combined and equivalent basis. The pro forma information
gives effect to the Merger accounted for as a pooling of interests business
combination. You should read this information together with SCI's and ECI's
financial statements and the notes thereto included in their respective Annual
Reports on Form 10-K and other information that SCI and ECI have filed with the
Commission. See "Where To Find More Information." You should not rely on the pro
forma combined information as being indicative of the results that would have
been achieved had the companies been combined or the future results that the
combined company will experience after the Merger.
<TABLE>
<CAPTION>
At and for the At and for the
Nine Months Ended Year Ended
September 30, December 31,
-------------------------------------------
1998 1997 1996 1995
-------- --------- ------- -------
<S> <C> <C> <C> <C>
HISTORICAL PER COMMON SHARE -- ECI
Income from continuing operations--
Basic.............................................. $ 0.64 $ 0.71 $ 0.58 $ 0.42
Diluted............................................ 0.63 0.70 0.57 0.42
Book value (1)........................................ 11.70 10.73 9.18 6.17
Dividends declared.................................... -- -- -- --
EQUIVALENT PRO FORMA COMBINED PER ECI COMMON SHARE (2)
Income from continuing operations (3)--
Basic.............................................. $ 0.79 $ 0.82 $ 0.78 $ 0.64
Diluted............................................ 0.77 0.79 0.75 0.60
Book value............................................ 8.55 7.90 N/A N/A
Dividends declared.................................... 0.19 0.22 0.17 0.16
HISTORICAL PER COMMON SHARE--SCI
Income from continuing operations (3)--
Basic.............................................. $ 1.11 $ 1.36 $ 1.13 $ 0.92
Diluted............................................ 1.08 1.31 1.08 0.86
Book value (1)........................................ 11.65 10.78 9.46 8.42
Dividends declared.................................... 0.27 0.30 0.24 0.22
PRO FORMA COMBINED PER SCI COMMON SHARE
Income from continuing operations (3)(4)--
Basic.............................................. $ 1.10 $ 1.14 (5) $ 1.09 $ 0.89
Diluted............................................ 1.07 1.10 (5) 1.04 0.83
Book value (6)........................................ 11.87 10.97 N/A N/A
Dividends declared.................................... 0.27 0.30 0.24 0.22
</TABLE>
- ---------------------
(1) Based on common shares outstanding at the end of each period.
(2) Based on an assumed exchange ratio of .72000 of a share of SCI Common
Stock for each share of ECI Common Stock, which is the exchange ratio
implied under the Merger Agreement assuming an average selling price
of $37.50 per share of SCI Common Stock (the NYSE Composite
Transactions closing price on November 16, 1998).
(3) Includes the effect of an extraordinary loss by SCI for the year
ended December 31, 1997.
(4) Based on weighted average pro forma common shares and pro forma net
income available for common stock.
(5) Includes the pro forma effect of elimination of a gain of $.18 and
$.17 basic and diluted earnings per share, respectively, recognized
by SCI on the February 1997 sale of its approximate 42% equity
investment in ECI.
(6) Based on pro forma common shares outstanding at the end of each
period determined by using the exchange ratio set forth in (2) above.
15
<PAGE> 19
MARKET PRICE DATA
SCI Common Stock is traded on the NYSE under the symbol "SRV." ECI Common
Stock has traded on the NYSE under the symbol "EQU" since June 1997 and was
traded on the Nasdaq National Market prior to such date. The following table
sets forth the range of high and low per share sale prices since January 1, 1996
for SCI Common Stock and ECI Common Stock as reported on the NYSE Composite
Transactions. The sales prices set forth below for ECI Common Stock have been
adjusted to reflect a 3-for-2 stock split distributed by ECI in October 1996.
<TABLE>
<CAPTION>
SCI ECI
COMMON STOCK COMMON STOCK
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1996
First Quarter...................................... $ 24.75 $ 19.44 $ 20.00 $ 15.38
Second Quarter..................................... 30.13 24.13 20.50 17.63
Third Quarter...................................... 29.44 27.63 22.13 16.38
Fourth Quarter..................................... 30.75 26.50 25.50 17.25
1997
First Quarter...................................... $ 33.88 $ 26.88 $ 23.63 $ 18.50
Second Quarter..................................... 36.00 29.63 25.50 19.75
Third Quarter...................................... 35.75 29.81 24.69 19.88
Fourth Quarter..................................... 38.00 27.88 24.50 18.50
1998
First Quarter...................................... $ 44.63 $35.50 $ 24.50 $ 19.38
Second Quarter..................................... 45.38 38.44 26.56 21.63
Third Quarter ..................................... 47.13 30.00 26.13 20.06
Fourth Quarter (through November 16)............... 38.75 29.50 26.00 20.94
</TABLE>
On August 5, 1998, the last trading day prior to announcement by SCI and ECI
that they had reached an agreement concerning the Merger, the closing sale price
of SCI Common Stock as reported on the NYSE Composite Transactions was $34.00
per share, and the closing sale price of ECI Common Stock as reported on the
NYSE Composite Transactions was $22.13 per share.
On November 16, 1998, the closing sale price of SCI Common Stock as
reported on the NYSE Composite Transactions was $37.50 per share, and the
closing sale price of ECI Common Stock as reported on the NYSE Composite
Transactions was $25.63 per share. Following the Merger, SCI Common Stock
will continue to be traded on the NYSE under the symbol "SRV", and the listing
of ECI Common Stock on the NYSE will be terminated.
DIVIDENDS
SCI has declared 103 consecutive quarterly dividends on SCI Common Stock
since it began paying dividends in 1974. For the years ended December 31, 1997
and 1996, dividends per share were $.30 and $.24, respectively. For each quarter
of 1998, dividends per share were $.09 per quarter. ECI has never declared or
paid cash dividends on ECI Common Stock.
16
<PAGE> 20
THE SPECIAL MEETING
DATE, TIME, AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at 10:00 a.m. local time, December 22, 1998,
at the Doubletree Hotel Post Oak, 2001 Post Oak Boulevard, Houston, Texas.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and act upon a proposal to
approve and adopt the Merger and the Merger Agreement.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of ECI Common Stock at the close of business on the Record
Date are entitled to notice of, and to vote at, the Special Meeting. On the
Record Date, there were approximately 185 holders of record of ECI Common Stock
and 21,783,197 shares of ECI Common Stock issued and outstanding. Each share of
ECI Common Stock entitles the holder thereof to one vote on each matter
submitted for stockholder approval.
An automated system administered by the transfer agent of ECI will be used to
tabulate the votes at the Special Meeting. Abstentions and broker non-votes are
counted as shares present in the determination of whether the shares of stock
represented at the Special Meeting constitute a quorum. Both abstentions and
broker non-votes will be counted as part of the total number of votes cast on
the Merger proposal in determining whether the proposal has been approved by the
stockholders. Thus, both abstentions and broker non-votes will have the same
effect as a vote "against" the Merger proposal.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. If a
holder of ECI Common Stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted for approval and
adoption of the Merger and the Merger Agreement. A stockholder of ECI who has
executed and returned a proxy may revoke it at any time before it is voted at
the Special Meeting by (a) executing and returning a proxy bearing a later date,
(b) filing a written notice of such revocation with the Secretary of ECI stating
that the proxy is revoked or (c) attending the Special Meeting and voting in
person.
VOTE REQUIRED FOR APPROVAL
The presence at the Special Meeting, in person or by proxy, of holders of a
majority of the issued and outstanding shares of ECI Common Stock entitled to
vote at the Special Meeting will constitute a quorum for the transaction of
business. Pursuant to the Delaware General Corporation Law (the "DGCL"),
approval and adoption of the Merger and the Merger Agreement requires the
affirmative vote of the holders of a majority of the shares of ECI Common Stock
entitled to vote thereon. As of the Record Date, the directors and executive
officers of ECI had the right to vote approximately 2.8% of the outstanding ECI
Common Stock on that date.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, and employees
of ECI may solicit proxies from ECI's stockholders by personal interview,
telephone, telegram, facsimile, or otherwise. ECI will bear the costs of the
solicitation of proxies from its stockholders, except that SCI and ECI will bear
equally the cost of printing this Proxy Statement/Prospectus. Arrangements will
be made with brokerage firms and other custodians, nominees, and fiduciaries who
hold ECI Common Stock of record for the forwarding of solicitation materials to
the beneficial owners thereof. ECI will, upon request, reimburse brokers,
custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses
incurred by them in connection therewith. ECI has retained Georgeson & Company
Inc. to aid in the solicitation of proxies and to verify certain records related
to the solicitation at a maximum fee of $9,000 plus expenses and additional
charges for telephone solicitation, if necessary.
17
<PAGE> 21
OTHER MATTERS
At the date of this Proxy Statement/Prospectus, the Board of Directors of ECI
does not know of any business to be presented at the Special Meeting, other than
as set forth in its notice accompanying this Proxy Statement/Prospectus.
THE MERGER
The detailed terms and conditions of the Merger, including conditions to
consummation of the Merger, are contained in the Merger Agreement, which is
attached hereto as Appendix A and incorporated herein by reference. The
following discussion sets forth a description of material terms and conditions
of the Merger Agreement. The description in this Proxy Statement/Prospectus of
the terms and conditions of the Merger is qualified in its entirety by reference
to the Merger Agreement.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the effective time of the Merger,
Merger Sub will merge with and into ECI, whereupon ECI will become a wholly
owned subsidiary of SCI and each outstanding share of ECI Common Stock will be
converted into shares of SCI Common Stock, subject to adjustment as provided in
the Merger Agreement. In addition, at the effective time of the Merger, each
issued and outstanding share of common stock of Merger Sub, par value $.01 per
share ("Merger Sub Common Stock"), shall be converted into one share of common
stock, par value $.01 per share, of the corporation surviving the Merger (the
"Surviving Corporation").
Based upon the number of shares of SCI Common Stock and ECI Common Stock
outstanding as of November 10, 1998 and assuming an average selling price of SCI
Common Stock of $37.50 per share (the NYSE Composite Transactions closing price
as of November 16, 1998), and assuming approximately 15,683,901 million shares
of SCI Common Stock will be issued pursuant to the Merger Agreement, it is
expected that approximately 273,556,835 shares of SCI Common Stock will be
outstanding immediately following the effective time of the Merger.
BACKGROUND OF THE MERGER
Since its formation in 1990, ECI has pursued a business strategy of growth
through an aggressive acquisition program by focusing on deathcare services in
rural and smaller non-metropolitan communities and, to a lesser extent, in
select suburban areas. Larger deathcare companies like SCI generally did not
pursue acquisitions in these smaller markets as aggressively as in larger
metropolitan and foreign markets. Recently, however, owners of independent local
funeral homes and cemeteries, even in smaller markets, have received more
attention from companies seeking to consolidate the industry. These
consolidators include both public companies, many of which have substantially
greater access to capital than ECI, and private venture capital backed
consolidators seeking to acquire a sufficient level of operations in order to
become public companies. One of the results of this activity has been to
increase substantially the competition, and related valuation multiples, for the
acquisitions of smaller market funeral and cemetery operations. Additionally,
there has been increased activity in exploring consolidations of those companies
which have been consolidators themselves. ECI's management believes that one of
the results of this activity is to make the competition for the acquisition of
independent funeral and cemetery operations more intense.
ECI, and others in the deathcare business (such as SCI), continue to pursue
acquisition opportunities as an important driver of growth. ECI's management has
been continually evaluating the recent deathcare industry trends toward
consolidation in order to determine how ECI can best sustain acceptable growth
rates. This evaluation has included analysis of the possibility of strategic
combinations with other public and privately held consolidators in the industry.
Such a combination could blend the expertise of ECI in smaller market
acquisitions and operations with a broader range of products and services.
From the second half of 1997 through January 1998, ECI's senior management
had discussions with various financial advisers, including representatives of
ABN AMRO, regarding views on industry trends, the status and stage of industry
consolidation, ECI's position in the industry and its alternatives for
maximizing stockholder value. In the course of these discussions, ECI's
management indicated interest to ABN AMRO in discussing possible strategic
combinations with
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several smaller industry consolidators identified by ECI's management. None of
these discussions focused on SCI. ECI's senior management also had informal
meetings during 1997 with representatives of one industry consolidator. In early
1998, ECI's Board of Directors discussed its business plan and possible
strategic alternatives against the backdrop of these industry trends and these
contacts and discussions. At such time, no decision was made by ECI's Board of
Directors to pursue any alternatives involving industry participants.
From January 1998 through April 1998, ABN AMRO met with the representatives
of several deathcare industry participants to discuss the changing industry
dynamics and the merits of various strategic combinations. During these
meetings, representatives from one of these participants expressed potential
interest in a combination with ECI; however, they indicated that they would not
be in a position to seriously explore the possibility of a strategic combination
for several months. On its own initiative, ABN AMRO renewed discussions on July
2, 1998 with an executive of this industry participant to discuss potential
interest in a possible combination with ECI. At this meeting, the executive
expressed interest in exploring a possible combination with ECI and requested a
meeting with ECI's management to discuss the conceptual benefits of a
combination. Senior management of ECI agreed to a meeting with ABN AMRO and
representatives of the industry participant, which was held on July 24, 1998.
On July 22, 1998, ECI was contacted by SCI to arrange a meeting to discuss
strategic considerations and the current and future trends in the industry,
including opportunities resulting from SCI's recent acquisition of American
Memorial Life Insurance, a company specializing in final care insurance
products. On July 27, 1998, representatives of ECI and SCI met and discussed, on
a conceptual basis, the merits of a possible combination of the companies. At
the meeting, SCI expressed strong interest in exploring a strategic combination
of SCI and ECI and delivered a letter dated July 27, 1998, to ECI's Chief
Executive Officer, James P. Hunter, III. The letter, signed by SCI's Chairman
and Chief Executive Officer, Mr. Robert L. Waltrip, indicated that SCI believed
that it would be mutually beneficial for ECI and SCI to consider a corporate
combination and that the economic and market factors of such a combination
would, in Mr. Waltrip's belief, allow both companies to best serve their
stockholders. The letter further requested that the communication be kept
confidential and requested an opportunity for Mr. Waltrip and other SCI officers
to meet with Mr. Hunter and ECI's Board of Directors for the purpose of
exploring such a combination. Mr. Hunter informed SCI that no decision had been
made to sell ECI and that any further conversations should be conducted through
representatives of ABN AMRO. After these discussions with SCI, ECI retained ABN
AMRO as its financial advisor to review strategic and financial alternatives,
including evaluating remaining an independent company or combining with other
industry participants, including SCI.
Following the July 27 meeting, SCI's financial advisor, J.P. Morgan & Co.
("J.P. Morgan"), informed ABN AMRO that SCI had a potential interest in making a
proposal to combine ECI and SCI by providing ECI stockholders with SCI Common
Stock with a value in a range beginning at $26 per share assuming certain
synergies could be achieved. ABN AMRO informed J.P. Morgan that ECI was not for
sale and that ECI was exploring its strategic and financial alternatives but
that ECI would be willing to go to its Board of Directors to seek authorization
to entertain a potential proposal. Representatives of ABN AMRO and J.P. Morgan
had several conversations regarding possible synergies realizable in a
combination and the resulting impact on SCI's level of interest in a combination
with ECI.
On July 30, 1998, J.P. Morgan informed ABN AMRO that SCI might envision a
proposal in the range of $27 per share in SCI Common Stock for each share of ECI
Common Stock, subject to negotiation of specific economic terms and a definitive
agreement. Mr. Hunter informed the Board of Directors of ECI of the developments
with SCI. Pursuant to these continuing discussions, the Board of Directors
authorized Mr. Hunter to enter into bilateral confidentiality agreements with
SCI to facilitate ECI's review of alternatives. During the period from July 30,
1998 to August 2, 1998, SCI's legal representatives provided a proposed form of
Merger Agreement for ECI's consideration. In response, ECI's legal advisors
provided general comments on the draft form of Merger Agreement with the
objective of further understanding the terms SCI might contemplate in a
transaction, and commenced a due diligence investigation of SCI.
On August 3, 1998, Mr. Hunter convened a meeting of ECI's Board of Directors
by telephone to apprise the Board of Directors of the present status of the
evaluation of alternatives, including discussions with SCI, and the arrangements
for a continuation of the meeting of ECI's Board of Directors in person on
August 4 to discuss such alternatives. On that same date, ABN AMRO contacted
representatives of the other industry participant with whom ECI had discussions
to determine the level of interest in exploring a possible business combination
with ECI given that ECI was currently
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reviewing other alternatives. The representatives of the other participant
indicated that while such participant had a continuing interest in exploring a
combination, it would only want to proceed on an exclusive and negotiated basis.
On August 4, 1998, ECI's Board of Directors met to discuss ECI's strategic
alternatives and to discuss the fiduciary duties of the Board of Directors in
connection with any proposed business combination and recent conversations with
SCI and others. During the meeting, ABN AMRO reviewed their analysis of
strategic and financial alternatives for ECI (including the strategy of
continuing as an independent industry consolidator), the current trends and
characteristics of the industry, and the nature and status of recent discussions
with SCI and others. After discussion, the Board of Directors directed ABN AMRO
to further investigate the possibility of a strategic combination transaction
with SCI without deciding to sell ECI.
On August 4 and 5, 1998, ABN AMRO and ECI's legal advisors held several
discussions with SCI, its financial and legal advisors to negotiate the
financial and legal terms of a possible combination for consideration by their
respective Boards of Directors. Among the issues for discussion was the impact
of the recent drop in the sale price of SCI Common Stock on August 4, a date
when the Dow Jones Industrial Average dropped over 290 points. These discussions
resulted in a proposal that ECI stockholders would receive SCI Common Stock
valued at $27.00 per share, based upon an exchange ratio of the average selling
price of SCI Common Stock for the ten trading days ending three trading days
prior to the effective time of the Merger, provided that such price would be no
more than $41.50 per share (resulting in a minimum ratio of 0.65060) and no less
than $34.00 per share (resulting in a maximum ratio of 0.79412 per share).
ECI's Board of Directors met during the afternoon on August 5, 1998 to
consider the status of discussions regarding the proposed transaction. ABN AMRO
updated ECI's Board of Directors on the financial aspects of the proposed
transaction. The Board of Directors also discussed the terms and conditions of
the proposed Merger Agreement, the status of the due diligence review of, and
negotiations with, SCI, reviewed the fiduciary duties of the Board of Directors
in connection with the proposed business combination and other matters.
Following these discussions, ECI's Board of Directors authorized its legal and
financial advisors to continue to pursue the proposed transaction with SCI.
In the early morning of August 6, 1998, ECI's Board of Directors met to
consider the proposed transaction with SCI and the proposed Merger Agreement. At
the meeting, ECI's financial and legal advisors discussed the proposed SCI
transaction and made presentations to ECI 's Board of Directors regarding the
proposed transaction. ECI's legal advisors presented the proposed Merger
Agreement and summarized its terms and related documents. ABN AMRO reviewed with
ECI's Board of Directors various financial and other information relating to the
transaction and delivered its opinion that, as of August 6, 1998, the exchange
ratio contemplated in connection with the Merger was fair to ECI's stockholders
from a financial point of view. Thereafter, ECI's Board of Directors unanimously
authorized and approved the Merger Agreement with two abstentions. Two of ECI's
directors, Messrs. McDade and Hammer, abstained from voting on the proposed
Merger and Merger Agreement in view of their personal relationships with SCI,
which relationships were fully disclosed to the Board of Directors on August 4,
1998. See "--Interests of Certain Persons in the Merger."
The Merger Agreement was executed on August 6, 1998 and publicly announced by
each of ECI and SCI prior to the opening of the stock markets.
ECI'S REASONS FOR THE MERGER
In the course of evaluating the recent deathcare industry trends as described
above, ECI's management has observed a substantial increase in competition and
related valuation multiples for acquisitions of smaller market funeral and
cemetery operations. In addition, ECI's management believes that the deathcare
industry is poised towards consolidation of companies that have been
consolidators themselves. These observations led ECI to an analysis of
alternatives to its present strategy of aggressive acquisitions of funeral and
cemetery operations in smaller and select suburban markets. These alternatives
included the possibility of strategic combinations with various industry
participants, including companies other than SCI. Due to the
acquisition-oriented nature of ECI's business, ECI's management acknowledged
that a sale of ECI in a broader auction process would potentially adversely
affect its acquisition opportunities. Following the expression of interest by
SCI, ECI's management, including its Board of Directors, completed its analysis
of alternatives and recognized that the business combination proposed by SCI
offered ECI the opportunity to join the leader in the deathcare industry with
significantly greater financial resources than itself and other industry
participants.
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ECI's management believes that the Merger will reduce certain risks
associated with ECI's continued independent operations, including:
o the limited ability of ECI to pursue larger acquisition
opportunities due to its relatively smaller capital base and
operational resources; and
o the increasing challenge in meeting growth rate expectations
of stockholders.
ECI's management also believes that ECI's stockholders will benefit from the
Merger and resulting investment in a combined ECI and SCI because the Merger
provides:
o a means to capture certain synergies in the combined
operations;
o a strategic opportunity for combining SCI's extensive capital
base with ECI's expertise in the acquisition and operation of
smaller market properties and reputation and positive
perception among independent funeral services operators;
o a means to participate in growth opportunities
internationally;
o enhanced business and earnings opportunities anticipated to
result from SCI's recently proposed acquisition of American
Memorial Life Insurance by providing an extensive product
outlet through ECI's funeral homes; and
o improved market liquidity.
Due to the strategic factors and advantages set forth above, and the absence
of an opportunity for strategic combinations with other industry partners either
at a comparable premium value for ECI Common Stock or with a comparable
probability of a successful combination, ECI's Board of Directors determined
that it was in the best interests of ECI's stockholders to pursue the
opportunity offered by SCI.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ECI
At the meetings held on August 4, 5 and 6, 1998, ECI's Board of Directors
received and considered presentations regarding strategic alternatives,
including the Merger, from ECI's management and its legal and financial
advisors. After careful consideration, on August 6, 1998, ECI's Board of
Directors unanimously (with two abstentions) determined that the Merger is fair
to and in the best interests of ECI and its stockholders. ACCORDINGLY, ECI'S
BOARD OF DIRECTORS UNANIMOUSLY (WITH TWO ABSTENTIONS) RECOMMENDS THAT ECI'S
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER
AGREEMENT. Two directors abstained from voting due to potential conflicts of
interest arising from their independent business activities related to SCI. See
"--Interests of Certain Persons in the Merger."
OPINION OF ECI'S FINANCIAL ADVISOR
On August 6, 1998, ABN AMRO delivered its opinion to ECI's Board of Directors
that, as of such date, and subject to certain assumptions, factors and
limitations set forth in its written opinion, the exchange ratio pursuant to the
terms of the Merger Agreement was fair to ECI's stockholders from a financial
point of view. ABN AMRO delivered a second opinion, dated November 20, 1998,
confirming its fairness opinion as of the date of this Proxy
Statement/Prospectus.
THE FULL TEXT OF THE WRITTEN OPINION OF ABN AMRO DATED NOVEMBER 20, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS INCLUDED AS PART OF THIS
PROXY STATEMENT/PROSPECTUS AS APPENDIX B. STOCKHOLDERS OF ECI SHOULD READ THIS
OPINION CAREFULLY IN ITS ENTIRETY.
ABN AMRO's opinion was prepared for ECI's Board of Directors and addresses
only the fairness of the exchange ratio to ECI's stockholders from a financial
point of view. The opinion does not constitute a recommendation to any
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stockholder with respect to whether to vote its shares in favor of the Merger.
The summary of the opinion of ABN AMRO set forth herein is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, ABN AMRO reviewed among other things: (i) the
Merger Agreement among ECI, SCI and Merger Sub; (ii) certain publicly available
business and financial information relating to ECI and SCI; (iii) certain
financial and other data which was provided to or otherwise discussed with ABN
AMRO by the management of ECI; (iv) financial forecasts prepared in conjunction
with the management of ECI; and (v) certain cost savings and operating synergies
potentially realizable as a result of the Merger as estimated by the management
of ECI and SCI. ABN AMRO also met with the management of ECI and SCI and
discussed strategic rationale for, and potential benefits of, the Merger and the
past and current operations, financial conditions and prospects of ECI and SCI.
In addition, ABN AMRO considered certain financial and stock market data for ECI
and SCI. ABN AMRO compared that data with similar data for other publicly held
companies in businesses similar to those of ECI and SCI and considered the
financial terms of certain other business combinations which have recently been
effected. ABN AMRO also analyzed the pro forma impact of the Merger on SCI's
financial results and considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which
ABN AMRO deemed relevant.
In rendering its opinion, ABN AMRO assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by it, and it did
not make, obtain or assume any responsibility for independent verification of
such information. With respect to the financial data, ABN AMRO assumed, with
ECI's consent, that the financial analyses, forecasts and pro forma consolidated
forecasts, including the underlying assumptions have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of ECI's
management as to the future financial performance of ECI on a stand-alone basis
and, after giving effect to the Merger, the financial performance of SCI,
including estimates of cost savings and operating synergies to potentially be
realized in the proposed Merger. ABN AMRO assumed that the Merger will be
consummated in accordance with the terms of the Merger Agreement. ABN AMRO's
opinion is necessarily based upon economic, monetary, market and other
conditions as in effect on, and the information made available to ABN AMRO as of
the date of its opinion.
The following is a summary of the material financial analyses ABN AMRO
utilized in connection with providing its written opinion to the Board of
Directors of ECI on August 6, 1998. The summary of the analysis does not purport
to be a complete description of the analyses underlying ABN AMRO's opinion.
Purchase Price Ratio and Premium Analysis. For the purposes of analyzing the
fairness of the exchange ratio to ECI's stockholders from a financial point of
view, ABN AMRO calculated certain valuation multiples based on a value of $27.00
per share of ECI Common Stock pursuant to the exchange ratio contemplated in the
Merger Agreement (assuming an SCI Common Stock price between $34.00 and $41.50
and using SCI's closing stock price of $34.00 on August 5, 1998). In arriving at
the exchange ratio contemplated in the proposed Merger, ABN AMRO considered the
value provided to ECI's option holders, ECI's total indebtedness and other terms
of the Merger pursuant to the Merger Agreement. ABN AMRO calculated the equity
value per share implied by the Merger as a multiple of current and projected
earnings per share ("EPS"). The proposed Merger represents price to earnings
multiples for the latest twelve month period ("LTM") ended March 31, 1998 and
for estimated 1998 and 1999 of 37.0x, 31.0x and 24.8x, respectively. ABN AMRO
also calculated the total enterprise value (defined as value of the equity plus
total debt less cash, also referred to as adjusted market capitalization) as a
multiple of ECI's LTM, estimated 1998 and 1999 (as projected by ECI's
management) earnings before interest and taxes ("EBIT"), earnings before
interest, taxes, depreciation and amortization ("EBITDA"), and revenues. The
proposed Merger represents multiples of LTM, estimated 1998 and 1999 EBIT of
23.9x, 17.6x and 12.9x, respectively, LTM, estimated 1998 and 1999 EBITDA of
18.5x, 14.3x and 10.6x, respectively; and LTM, estimated 1998 and 1999 revenues
of 5.4x, 4.0x and 3.1x, respectively.
ABN AMRO also calculated the percentage premium implied by the terms of the
Merger Agreement relative to the market price of ECI Common Stock one day, one
week and one month prior to the announcement of the Merger. Based on this
analysis and assuming consideration equivalent to $27.00 per share of ECI Common
Stock, the implied purchase price represents premiums to the historical stock
prices described above of 22.0%, 29.7% and 14.6%, respectively.
Comparable Public Company Analysis. ABN AMRO compared certain historical and
projected financial and operating information for ECI to the corresponding
financial and operating information of the following deathcare service companies
("Comparable Companies"): Carriage Services, Inc., The Loewen Group, Inc.,
Service Corporation
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International and Stewart Enterprises, Inc. ABN AMRO analyzed market values as
of August 5, 1998, among other things, to EPS, EBIT, EBITDA, and revenues for
the LTM period ended March 31, 1998 and estimates of anticipated results for the
years ending December 31, 1998 and 1999 (based on ABN AMRO's estimates and
publicly available information). Analysis of LTM EPS yielded a multiple range of
16.8x to 47.0x with a mean of 28.3x; analysis of estimated 1998 EPS yielded a
multiple range of 16.2x to 33.1x with a mean of 23.6x; analysis of estimated
1999 EPS yielded a multiple range of 14.0x to 24.2x with a mean of 18.9x. ABN
AMRO also calculated the adjusted market capitalization as a multiple of LTM and
estimates for 1998 and 1999 EBIT, EBITDA and revenues for each of the Comparable
Companies. Analysis of LTM EBIT yielded a multiple range of 15.0x to 25.8x with
a mean of 18.9x; analysis of estimated 1998 EBIT yielded a multiple range of
12.8x to 17.1x with a mean of 14.8x; analysis of estimated 1999 EBIT yielded a
multiple range of 10.6x to 12.5x with a mean of 11.5x; analysis of LTM EBITDA
yielded a multiple range of 11.4x to 17.1x with a mean of 14.3x; analysis of
estimated 1998 EBITDA yielded a multiple range of 9.8x to 12.4x with a mean of
11.6x; analysis of estimated 1999 EBITDA yielded a multiple range of 8.2 to
10.1x with a mean of 9.2x; analysis of LTM revenues yielded a multiple range of
3.0x to 4.8x with a mean of 4.2x; analysis of estimated 1998 revenues yielded a
multiple range of 2.7x to 4.0x with a mean of 3.6x and analysis of estimated
1999 revenues yielded a multiple range of 2.3x to 3.5x with a mean of 3.0x.
Control Premium Analysis. ABN AMRO analyzed the percentage premiums to
historical stock trading prices offered in stock-for-stock transactions of $500
million to $900 million in size announced since January 1, 1995. ABN AMRO
calculated the premium offered relative to the market price one day, one week
and four weeks prior to the announcement date of each transaction. The analysis
indicated that the mean percentage premiums one day, one week and four weeks
prior to announcement were 25.8%, 31.4% and 37.2%, respectively. The median
percentage premiums one day, one week and four weeks prior to the announcement
was 23.5%, 23.5% and 31.7%, respectively. In each of the above cases premiums
ranged from (6.9%) to 73.7%; from (0.6%) to 83.5% and from 0.7% to 95.2%,
respectively.
Comparable Transactions Analysis. ABN AMRO compared the valuation of ECI
(assuming a price for SCI Common Stock of $34.00) implied by the Merger as
multiples of LTM EPS, EBIT, EBITDA and revenues with available data for two
completed transactions involving deathcare industry participants and eleven
completed or pending transactions involving non-hazardous waste management
companies. ABN AMRO noted that the deathcare service transactions were of
limited comparability to ECI's size and operating performance. ABN AMRO also
observed that, in some respects, the target companies in the non-hazardous waste
management transactions were similar to ECI in terms of industry trends
affecting growth and performance. The deathcare transactions included SCI's
acquisition of American Funeral Services Corporation and The Loewen Group's
acquisition of MHI Group, Inc. In these transactions ABN AMRO observed a range
of multiples of 27.1x to 30.1x with a mean of 28.6x for LTM EPS, 13.5x to 16.8x
with a mean of 15.2x for LTM EBIT, 11.4x to 13.0x with a mean of 12.2x for LTM
EBITDA and 2.3x to 3.3x with a mean of 2.8x for LTM revenues. The non-hazardous
waste management transactions included, but were not limited to, USA Waste
Services acquisition of American Waste Services, American Disposal Services
acquisition of Fred B. Barbara Companies, Republic Industries acquisition of
Silver State Disposal Services, Inc., Allied Waste Industries acquisition of
Laidlaw Waste Systems and USA Waste Services acquisition of Sanifill Inc. In
these transactions ABN AMRO observed a range of multiples of 19.4x to 55.8x with
a mean of 38.1x for LTM EPS, 17.9x to 36.7x with a mean of 26.0x for LTM EBIT,
8.8x to 25.6x with a mean of 15.7x for LTM EBITDA and 1.5x to 7.2x with a mean
of 4.1x for LTM revenues.
Contribution Analysis. ABN AMRO reviewed certain historical and projected
operating information, including EBIT and EBITDA for ECI and SCI and the pro
forma combined entity resulting from the Merger, excluding any potentially
realizable synergies and savings. This analysis indicated that based on ECI's
performance for the latest twelve months ended March 31, 1998 and estimates of
ECI's 1998 and 1999 performance, ECI would contribute to the pro forma combined
entity approximately 4.8%, 5.7% and 6.5% of combined EBIT, respectively, and
4.9%, 5.6% and 6.4% of combined EBITDA, respectively, as compared to the
approximately 6.7% fully-diluted ownership interest (based on an exchange ratio
determined pursuant to the Merger Agreement and the closing price of SCI Common
Stock of $34.00 per share as of August 5, 1998) of the combined entity to be
received by ECI's stockholders.
Share Trading History. ABN AMRO reviewed the performance of the trading price
and volume of shares of ECI Common Stock for the period from January 1, 1997
through August 5, 1998. This examination indicated that during this period, the
trading price of the shares ranged from $18.50 per share to $26.56 per share.
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Discounted Cash Flow Analysis. ABN AMRO prepared discounted cash flow ("DCF")
analyses of ECI based on management's estimates of ECI's projected financial
performance for the years ending 1999 through 2003. In the DCF analysis, ABN
AMRO calculated a range of present values of the sum of (i) ECI's estimated free
cash flows for the fiscal years ending 1999 through 2003 using discount rates
(as estimated by a weighted average cost of capital) ranging from 11.0% to 15.0%
and (ii) the estimated terminal value in fiscal year 2003 based on multiples of
EBITDA in fiscal 2003 ranging from 7.0x to 11.0x. The terminal value was also
discounted to present value using the same range of discount rates. Discount
rates and terminal multiples were chosen to reflect varying growth prospects,
relative risks and market value considerations present in the industry. In
addition, ABN AMRO performed various scenarios and sensitivity analyses for
consideration by ECI's Board of Directors relating to varying operating
performance and growth. With the derived DCFs and terminal values, ABN AMRO
calculated the equity value per share for ECI Common Stock to range from $12.22
to $44.45 (excluding any potentially realizable synergies).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying ABN AMRO's opinion. In arriving at its determination of the fairness
of the exchange ratio from a financial point of view, ABN AMRO considered the
results of all such analyses. No company or transaction used in the above
analyses as a comparison is identical to ECI or the Merger. The analyses were
prepared solely for purposes of ABN AMRO's opinion provided to the Board of
Directors of ECI as to the fairness of the exchange ratio to ECI's stockholders
pursuant to the Merger Agreement from a financial point of view and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of ECI, ABN AMRO, SCI or any other person assumes responsibility
if future results are materially different from those forecast. The analyses
described above were prepared solely as part of ABN AMRO's analysis of the
fairness of the exchange ratio from a financial point of view to ECI's
stockholders. The analyses do not purport to be appraisals of ECI, of the value
of SCI Common Stock when it is issued to ECI's stockholders, or of the price at
which SCI Common Stock might trade.
ECI selected ABN AMRO as its financial advisor because ABN AMRO is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Merger. ABN AMRO, as part of its investment banking
business, is continually engaged in the valuation of businesses in connection
with mergers and acquisitions, as well as initial and secondary offerings of
securities and valuations for other purposes. In the ordinary course of ABN
AMRO's business, ABN AMRO and its affiliates may actively trade securities of
ECI or SCI for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
ABN AMRO and its predecessor companies have provided certain investment
banking services to ECI over the last two years including acting as a co-manager
in ECI's February 1998 offering of convertible subordinated debentures and ECI's
February 1997 offering of equity securities. ABN AMRO received customary
compensation for its role in these offerings. ABN AMRO Bank N.V. also serves as
a lender under SCI's credit facility.
Pursuant to a letter agreement dated July 30, 1998 (the "Engagement Letter")
ECI engaged ABN AMRO to act as its financial advisor in connection with the
Merger. Pursuant to the terms of the Engagement Letter, ECI will pay ABN AMRO a
$50,000 retainer fee and will pay ABN AMRO $300,000 for rendering the fairness
opinion. Pursuant to the terms of the Engagement Letter, ECI will pay ABN AMRO,
on the date on which the closing of the transactions contemplated by the Merger
Agreement occurs (the "Closing Date"), cash compensation equal to 1.0% of the
transaction value (as defined in the Engagement Letter) less amounts previously
paid under the Engagement Letter. Further, ECI has agreed to reimburse ABN AMRO
for its reasonable out-of-pocket expenses, and to indemnify ABN AMRO against
certain liabilities, including certain liabilities under the federal securities
laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of ECI's Board of Directors with respect
to the Merger Agreement and the transactions contemplated thereby, stockholders
of ECI should be aware that certain members of ECI's management
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(some of whom are members of ECI's Board of Directors) and ECI's Board of
Directors have certain substantial interests in the Merger in addition to their
interests as stockholders of ECI generally.
Material Ownership of SCI Common Stock. As of August 6, 1998, Jack T. Hammer,
a director of ECI, owned (i) 823,530 shares of SCI Common Stock and (ii) $3
million principal amount of SCI 5% convertible notes due 2002 which are
convertible into SCI Common Stock at $11.25 per share. Mr. Hammer abstained from
the vote of ECI's Board of Directors regarding the Merger and the Merger
Agreement.
Services Provided to SCI. Thomas R. McDade, a director of ECI, is a partner
in a law firm that manages the litigation of SCI. For the twelve months ended
June 30, 1998, revenues from SCI and its subsidiaries accounted for less than
15% of the revenues of the firm, and the firm continues to perform such services
for SCI. Mr. McDade abstained from the vote of ECI's Board of Directors
regarding the Merger and the Merger Agreement.
J. Patrick Doherty, a director of ECI, is a partner in a law firm that has
provided legal services to SCI, which were unrelated to the Merger and the
Merger Agreement, for an amount totaling approximately $25,000. Such legal
services were provided to SCI after the vote of ECI's Board of Directors
regarding the Merger and the Merger Agreement.
Indemnification; Director and Officers' Insurance. Pursuant to the Merger
Agreement, for a period of six years after the effective time of the Merger, SCI
will, or will cause ECI to, indemnify and hold harmless the present and former
officers and directors of ECI in respect of acts or omissions occurring prior to
the effective time of the Merger to the extent provided under ECI's Amended and
Restated Certificate of Incorporation (the "ECI Certificate") and ECI's Amended
and Restated Bylaws (the "ECI Bylaws") in effect on the date of the Merger
Agreement. In addition, for six years after the effective time of the Merger,
SCI will, or will cause ECI to, use its commercially reasonable best efforts to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the effective time of the Merger covering each such
person currently covered by ECI's officers' and directors' liability insurance
policy on terms and with respect to coverage and amount no less favorable than
those of such policy in effect on the date of the Merger Agreement. In addition,
ECI has entered into indemnification agreements with each of its officers and
directors.
Officer and Director Stock Options. The Merger Agreement provides that all
outstanding stock options under the ECI Stock Plans (as defined in "--Conversion
of ECI Options") will be assumed by SCI and will continue to be governed after
the effective time of the Merger by their terms and the terms of the relevant
plan. The Merger will constitute a "change-in-control" event resulting in
acceleration of vesting under the terms of substantially all of the outstanding
stock option awards granted to directors, officers and employees of ECI under
the ECI Stock Plans.
Executive Severance Agreements. Messrs. Hunter, Rottman, Wells, Gerner and
McNamara, officers of ECI, are parties to executive severance agreements dated
effective August 14, 1997 with ECI. Each such severance agreement provides that
certain remuneration would be payable if a covered executive's employment were
terminated in a "qualifying termination" upon certain conditions in connection
with a change-in-control of ECI (a "Change-in-Control Severance Agreement"). The
initial term of each Change-in-Control Severance Agreement is eighteen months,
and the Agreements will thereafter be extended for consecutive one-year terms
unless ECI terminates the Change-in-Control Severance Agreement covering an
executive officer at the end of the initial or an extended term with three
months advance notice. The Merger Agreement provides that the termination of Mr.
Hunter's executive severance agreement is a condition to the consummation of the
Merger.
A "qualifying termination" occurs only if a change-in-control of ECI occurs
and the covered executive's employment is actually or constructively terminated
within eighteen months thereafter, other than for cause. In such event, the
terminated executive would receive (i) an amount equal to approximately three
times the executive's base salary, (ii) an amount equal to the executive's
target bonus for the year (or, if greater, the executive's highest bonus
actually paid in the three prior years), and (iii) continuation of health
benefits for eighteen months at the same cost to the executive as charged prior
to such change-in-control. If such severance payments (together with any other
payments from ECI) payable to the executive would constitute an "excess
parachute payment" under Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the value of such total payments shall be reduced so
that no such payments would be subject to the excise tax on "excess parachute
payments" under Code Section 4999, unless the executive would receive greater
net benefits taking into consideration the executive's payment of such excise
tax.
CERTAIN RELATIONSHIPS BETWEEN ECI AND SCI
ECI commenced operations in 1990 through the acquisition of 71 funeral homes
and 3 cemeteries from SCI. From 1990 through December 1993, SCI and Mr. Hunter,
Chief Executive Officer of ECI, were the sole stockholders of ECI.
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As a result of an acquisition and a recapitalization in January 1994 and ECI's
initial public offering in October 1994, SCI's stock ownership in ECI was
reduced to approximately 42% of the outstanding ECI Common Stock. In February
1997, SCI sold all of its remaining ECI Common Stock in a public offering and
recognized a pre-tax gain of $68.1 million. From 1990 until December 1996 a
representative of SCI served as a director of ECI.
ECI has made several acquisitions from SCI and its affiliates, including the
acquisition of 12 funeral homes in 1996 for an aggregate purchase price of $13.0
million, and 27 funeral homes and one cemetery in 1997 for an aggregate purchase
price of $27.4 million. In 1997, ECI also transferred one funeral home to SCI in
exchange for one cemetery and $250,000. ECI also leases funeral vehicles from a
subsidiary of SCI. Payments under these lease arrangements were approximately
$499,000, $503,000 and $555,000 in the aggregate during each of the years ended
December 31, 1997, 1996 and 1995, respectively.
Three directors of ECI have certain relationships with SCI as disclosed under
"--Interests of Certain Persons in the Merger."
EMPLOYMENT AGREEMENT
In connection with the Merger, SCI and SCI Executive Services, Inc., a wholly
owned subsidiary of SCI (the "Employer"), will enter into an Employment
Agreement (the "Employment Agreement") with James P. Hunter, III pursuant to
which Mr. Hunter will serve as an Executive Vice President of the Employer for a
period of three years, which three-year period will be automatically extended
each year for an additional three-year period if the Compensation Committee of
the Board of Directors of SCI (the "Compensation Committee") authorizes the
extension and Mr. Hunter does not give written notice to the Employer that the
three-year period shall not be extended. As compensation for his services, Mr.
Hunter will: (i) receive an Annual Base Salary (as defined in the Employment
Agreement) of $400,000; (ii) at the discretion of the Compensation Committee, be
eligible to receive annually a cash bonus and awards from any plan of the
Employer or its affiliated companies providing for the payment in cash of
bonuses to employees of comparable rank to Mr. Hunter; (iii) be entitled to
participate in all incentive and savings and retirement plans, practices,
policies and programs generally applicable to employees of comparable rank to
Mr. Hunter; (iv) be eligible for participation in all welfare benefit plans,
practices, policies and programs generally applicable to employees of comparable
rank to Mr. Hunter; and (v) be eligible for other fringe benefits commensurate
with his position and on a basis at least as comparable to those received by
employees of comparable rank to Mr. Hunter.
In the event of termination of employment due to disability or death, Mr.
Hunter 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 Mr. Hunter received in
the preceding three years and continuation of welfare plan benefits. If the
Employment Agreement is terminated without cause by the Employer or by Mr.
Hunter for certain specified reasons generally relating to a failure by the
Employer to honor the terms of the Employment Agreement ("Good Reason"), 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
of SCI, Mr. Hunter will be entitled to terminate his employment for 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 Mr. Hunter received in the preceding three years plus (c) a
multiple (equal to the number of years in the initial term) of both Mr. Hunter's
Annual Base Salary and his highest recent bonus.
If Mr. Hunter terminates his employment with the Employer (following a
minimum period to be agreed upon), Mr. Hunter will be subject to non-competition
obligations for a period of ten years following such termination and Mr. Hunter
will receive $400,000 annually for three years after such termination as
consideration for his non-competition obligations.
Mr. Hunter's Split-Dollar Life Insurance Agreements with ECI will continue in
accordance with their terms. However, all other agreements related to
compensation and employment between ECI and Mr. Hunter will terminate upon
execution of the Employment Agreement.
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CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
generally applicable to holders of ECI Common Stock who, pursuant to the Merger,
exchange their ECI Common Stock solely for SCI Common Stock. The summary does
not purport to deal with all aspects of federal income taxation that may affect
particular stockholders in light of their individual circumstances and is not
intended for holders of ECI Common Stock subject to special treatment under
federal income tax law (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign persons or entities, holders of
ECI Common Stock who do not hold their stock as capital assets and holders of
ECI Common Stock who have acquired their stock upon the exercise of employee
options or otherwise as compensation). In addition, this discussion does not
consider the effect of any applicable state, local or foreign tax laws.
Accordingly, each ECI stockholder is strongly urged to consult with his or her
tax advisor to determine the tax consequences of the Merger.
The following summary is based upon current provisions of the Code, currently
applicable Treasury regulations, and judicial and administrative decisions and
rulings. Future legislative, judicial or administrative changes or
interpretations could alter or modify the statements and conclusions set forth
herein, and any such changes or interpretations could be retroactive and could
affect the tax consequences to the stockholders of ECI.
Tax Opinion. Consummation of the Merger is conditioned upon the receipt by
ECI of an opinion of Andrews & Kurth L.L.P., dated the Closing Date, addressed
to ECI and in form and substance satisfactory to ECI, which opinion will be
based on certain representations of SCI and ECI to be provided, to the effect
that the Merger will qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Code. There can be no assurance that the Internal Revenue
Service ("IRS") will not take a contrary view, and no ruling from the IRS has
been or will be sought concerning the federal income tax consequences of the
Merger. An opinion of counsel expresses what counsel believes a court should
hold if properly presented with the issue which is the subject of the opinion.
An opinion is not a guarantee of a certain tax treatment and is not binding on
the IRS or the courts. The following discussion assumes that the Merger will be
treated in the manner described in the opinion of Andrews & Kurth L.L.P.
Treatment of Holders of ECI Common Stock. Except as discussed below under
"--Cash in Lieu of Fractional Shares" and "--Transfer Taxes," a holder of ECI
Common Stock who, pursuant to the Merger, exchanges ECI Common Stock for SCI
Common Stock generally will not recognize gain or loss upon such exchange. Such
holder's aggregate tax basis in SCI Common Stock received pursuant to the Merger
will be equal to its aggregate tax basis in ECI Common Stock surrendered in the
exchange (reduced by any tax basis allocable to fractional shares exchanged for
cash) and its holding period for SCI Common Stock will include its holding
period for ECI Common Stock surrendered.
Cash in Lieu of Fractional Shares. No fractional shares of SCI Common Stock
will be issued upon the surrender for exchange of certificates representing
shares of ECI Common Stock. A holder of ECI Common Stock who receives cash in
lieu of fractional shares of SCI Common Stock in exchange for its ECI Common
Stock will be treated as having received such fractional shares pursuant to the
Merger and then as having received cash for such fractional shares in a
redemption by SCI. Any gain or loss attributable to fractional shares generally
will be capital gain or loss. The amount of such gain or loss will be equal to
the difference between the portion of the tax basis of ECI Common Stock
surrendered in the Merger that is allocated to such fractional shares and the
cash received in lieu thereof. Any such capital gain or loss will constitute
long-term capital gain or loss if ECI Common Stock has been held by the holder
for more than one year at the effective time of the Merger. Capital gain on
assets held for more than one year recognized by a non-corporate stockholder is
generally subject to federal income tax at a preferential capital gain rate.
Transfer Taxes. Certain state and local taxing authorities may impose certain
taxes on the direct or indirect transfer of an interest in real property
(including leases) located within such jurisdiction ("Transfer Taxes"). Transfer
Taxes may also be imposed in connection with certain direct or indirect
ownership changes of an entity owning a real property interest located within
such jurisdiction. SCI will pay any Transfer Taxes that arise from the Merger.
In certain circumstances, such payments may be considered for federal income tax
purposes to be additional consideration paid to each holder of ECI Common Stock.
In that event, each such holder would be treated as if it received cash equal to
the amount of Transfer Taxes paid on its behalf, which could result in
additional taxable gain to such holder and a corresponding increase in tax basis
of such holder's shares of SCI Common Stock.
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Reporting Requirements. Unless an exemption applies under the applicable law
and regulations, the exchange agent may be required to withhold, and, if
required, will withhold, 31% of any cash payments to a holder of ECI Common
Stock in the Merger unless such holder provides the appropriate form. A holder
should complete and sign the Substitute Form W-9 enclosed with the letter of
transmittal sent by the exchange agent so as to provide the information
(including the holder's taxpayer identification number) and certification
necessary to avoid backup withholding, unless an applicable exemption exists and
is proved in a manner satisfactory to the exchange agent.
THE FOREGOING SUMMARY OF CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER WITH RESPECT TO HOLDERS OF ECI COMMON STOCK IS WITHOUT REFERENCE TO
THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR HOLDER. IN ADDITION,
THE FOREGOING SUMMARY DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE
OR LOCAL TAX CONSEQUENCES OF THE MERGER NOR DOES IT ADDRESS THE TAX CONSEQUENCES
OF ANY TRANSACTIONS OTHER THAN THE MERGER OR ANY ASPECT OF THE MERGER NOT
INVOLVING THE EXCHANGE OF ECI COMMON STOCK. ACCORDINGLY, EACH HOLDER OF ECI
COMMON STOCK IS STRONGLY URGED TO CONSULT WITH SUCH HOLDER'S TAX ADVISOR TO
DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for using the "pooling of
interests" method of accounting pursuant to Opinion No. 16 of the Accounting
Principles Board. The pooling of interests method of accounting assumes that the
combining companies have been merged from inception, and the historical
financial statements for periods prior to consummation of the Merger are
restated as though the companies had been combined from inception.
The Merger Agreement provides that (i) each party thereto shall use its
reasonable best efforts to not fail to take any action either before or after
the effective time of the Merger which action or failure would prevent, or would
be likely to prevent, the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code, and (ii) ECI shall use its reasonable
best efforts to obtain an opinion from its counsel to the effect that (a) the
Merger will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Code and (b) each party to the Merger will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code with respect to
the Merger. In addition, ECI has agreed to use its reasonable best efforts to
(i) cause the Merger to receive accounting treatment as a pooling of interests
transaction, (ii) obtain opinions from PricewaterhouseCoopers LLP confirming the
accounting treatment of the Merger as a pooling of interests transaction, and
(iii) not to take any action reasonably likely to cause the Merger not to so
qualify.
GOVERNMENT AND REGULATORY APPROVALS
Transactions such as the Merger are reviewed by the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") to determine whether they comply with applicable
antitrust laws. Under the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Merger may not be
consummated until such time as the specified waiting period requirements of the
HSR Act have been satisfied. ECI and SCI each filed notification reports with
the Antitrust Division and FTC under the HSR Act on August 31, 1998.
On September 29, 1998, the FTC issued to SCI and ECI a request for additional
information and documents under the HSR Act (the "Second Request"). The Second
Request extends the waiting period under the HSR Act to 20 days from the date
that the FTC receives the requested information and documents, unless the
waiting period is terminated earlier. SCI and ECI have furnished information and
documents responsive to the Second Request. By letter dated November 13, 1998,
SCI agreed to provide the FTC staff with 20 days written notice prior to closing
the Merger.
The Merger Agreement provides that SCI shall propose, negotiate, commit to
and effect the sale, divestiture or disposition of such assets or businesses of
SCI or, effective as of the effective time of the Merger, ECI, as may be
required in order to avoid the entry of, or to effect the dissolution of, any
injunction or order which would have the effect of preventing or delaying the
closing of the transactions contemplated by the Merger Agreement. However, the
Merger Agreement provides that SCI will not be required to sell, divest, dispose
of or hold separate assets or businesses with aggregate 1997 revenues in excess
of $10 million. SCI and ECI have entered into discussions with the FTC regarding
its concerns of the effect of the Merger on the market. SCI and ECI believe the
FTC will seek divestiture of certain assets or businesses of SCI or ECI. SCI and
ECI have not resolved with the FTC staff the amount of divestitures required to
resolve its concerns. No assurance can be given that the amount of divestitures
will not exceed $10 million in aggregate 1997 revenues.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. Even after the HSR Act
waiting period has expired or terminated, the Antitrust Division or the FTC
could
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take such action under the antitrust laws as either agency deems necessary or
desirable in the public interest, including seeking to enjoin the Merger or
seeking divestiture of certain assets of SCI or ECI or their subsidiaries.
Private parties and state attorneys general may also bring an action
under the antitrust laws under certain circumstances.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if such a challenge is made, of the result. See "Terms of
the Merger--Cooperation."
Consummation of the Merger is conditioned upon the expiration or termination
of the waiting period applicable to the consummation of the Merger under the HSR
Act. SCI and ECI intend to use their reasonable efforts to achieve resolution of
any antitrust concerns and believe that they will be successful, although there
can be no assurance of the time frame in which such resolution will be achieved
or that it will be achieved at all. See "Terms of the Merger--Conditions to the
Merger."
NO APPRAISAL RIGHTS
The DGCL does not require that holders of ECI Common Stock who object to the
Merger and who vote against or abstain from voting in favor of the Merger be
afforded appraisal or dissenters' rights or the right to receive cash for their
shares in connection with the Merger pursuant to Section 262 of the DGCL.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of SCI Common Stock received by ECI stockholders in connection
with the Merger have been registered under the Securities Act and, except as set
forth below, may be traded without restriction. The shares of SCI Common Stock
issued in the Merger and received by persons who are deemed to be "affiliates"
(as that term is defined in Rule 144 under the Securities Act) of ECI prior to
the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act (or, in the case of persons who
become affiliates of SCI, Rule 144 under the Securities Act) or as otherwise
permitted under the Securities Act. The Merger Agreement provides that ECI will
use its reasonable best efforts to cause each principal executive officer, each
director and each other person who is an "affiliate" of ECI to deliver to SCI on
or prior to the effective time of the Merger a written agreement to the effect
that such persons will not offer to sell, sell or otherwise dispose of any
shares of SCI Common Stock issued in the Merger except, in each case, pursuant
to an effective registration statement or in compliance with Rule 145 or in a
transaction which, in the opinion of legal counsel satisfactory to SCI, is
exempt from the registration requirements of the Securities Act and, in any
case, until after the results covering 30 days of post-Merger combined
operations of SCI and ECI have been filed with the Commission, sent to
stockholders of SCI or otherwise publicly issued.
Under Commission guidelines interpreting generally accepted accounting
principles ("GAAP"), with certain limited exceptions, the sale of SCI Common
Stock by an affiliate of either SCI or ECI generally within 30 days prior to the
effective time of the Merger or thereafter prior to the publication of results
that include a minimum of at least 30 days of combined operations of SCI and ECI
after the effective time of the Merger could preclude pooling of interests
accounting treatment for the Merger.
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TERMS OF THE MERGER
The following summary of the terms of the Merger Agreement is qualified in
its entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Appendix A. Certain capitalized terms used herein without definition
have the respective meanings set forth in the Merger Agreement.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at such time as a Certificate of Merger is
filed with the Secretary of State of the State of Delaware in accordance with
the DGCL (the "Merger Filing"). The Merger Filing shall be made simultaneously
with, or as soon as practicable after, the closing of the transactions
contemplated by the Merger Agreement in accordance with the Merger Agreement.
MANNER AND BASIS FOR CONVERTING SHARES
At the effective time of the Merger, each outstanding share of ECI Common
Stock (other than shares owned by SCI and its subsidiaries or shares held in the
treasury of ECI or held by ECI's subsidiaries) will be converted into the right
to receive, without interest, the number of shares of SCI Common Stock
determined by dividing $27.00 by the average of the Daily Per Share Prices
(defined below) for the ten (10) consecutive trading days ending on the third
trading day prior to the closing of the transactions contemplated by the Merger
Agreement (the "Average SCI Stock Price"). "Daily Per Share Price" for any
trading day means the weighted average of the per share selling prices on the
NYSE of SCI Common Stock (as reported in the NYSE Composite Transactions) for
that day. In the event the Average SCI Stock Price is greater than $41.50, ECI
Common Stock shall be converted into the right to receive the number of shares
of SCI Common Stock determined by dividing $27.00 by $41.50. In the event the
Average SCI Stock Price is less than $34.00, ECI Common Stock shall be converted
into the right to receive the number of shares of SCI Common Stock determined by
dividing $27.00 by $34.00. In addition, at the effective time of the Merger,
each issued and outstanding share of Merger Sub Common Stock will be converted
into one share of common stock, par value $.01 per share, of the Surviving
Corporation.
After the effective time of the Merger, the stock transfer books of ECI will
be closed. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY
STOCKHOLDERS OF ECI PRIOR TO APPROVAL OF THE MERGER AND THE RECEIPT OF A LETTER
OF TRANSMITTAL FROM THE EXCHANGE AGENT.
No certificates or scrip for fractional shares of SCI Common Stock will be
issued in the Merger and no SCI Common Stock dividend, stock split or interest
shall relate to any fractional security, and such fractional interests will not
entitle the owner thereof to vote or to any other rights of a security holder.
In lieu of any such fractional shares, each holder of shares of ECI Common Stock
who would otherwise have been entitled to receive a fraction of a share of SCI
Common Stock upon surrender of ECI Common Stock certificates for exchange
pursuant to the Merger Agreement will be entitled to receive from the exchange
agent a cash payment equal to such fraction multiplied by the Daily Per Share
Price on the date of the effective time of the Merger.
From and after the effective time of the Merger, each holder of an
outstanding certificate which immediately prior to the effective time of the
Merger represented shares of ECI Common Stock will be entitled to receive in
exchange therefor, upon surrender thereof to the exchange agent, a certificate
or certificates representing the number of whole shares of SCI Common Stock to
which such holder is entitled pursuant to the Merger Agreement. Until holders or
transferees of certificates theretofore representing shares of ECI Common Stock
have surrendered them for exchange as provided herein, no dividends or other
distributions will be paid with respect to any shares represented by such
certificates and no payment for fractional shares will be made and, without
regard to when such certificates representing shares of ECI Common Stock are
surrendered for exchange as provided herein, no interest will be paid on any
dividends or other distributions or any payment for fractional shares. Upon
surrender of a certificate which, immediately prior to the effective time of the
Merger, represented shares of ECI Common Stock, there will be paid to the holder
of such certificate the amount of any dividends or other distributions which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of whole shares of SCI Common Stock represented by
the certificate or certificates issued upon such surrender.
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CONVERSION OF ECI OPTIONS
Each option outstanding at the effective time of the Merger to purchase
shares of ECI Common Stock (a "Stock Option") granted under (A) the Equity
Corporation International Amended and Restated 1994 Long-Term Incentive Plan,
the Equity Corporation International 1998 Long-Term Incentive Plan, and the
Equity Corporation International 1997 Employee Stock Purchase Plan
(collectively, the "ECI Stock Plans") or (B) any other stock plan or agreement
of ECI, which by its terms is not extinguished in the Merger shall be deemed
assumed by SCI and deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Stock Option prior to the effective
time of the Merger, the number of shares of SCI Common Stock as the holder of
such Stock Option would have been entitled to receive pursuant to the Merger had
such holder exercised such option in full immediately prior to the effective
time of the Merger (not taking into account whether or not such option was in
fact exercisable), at a price per share equal to (x) the aggregate exercise
price for ECI Common Stock otherwise purchasable pursuant to such Stock Option
divided by (y) the number of shares of SCI Common Stock deemed purchasable
pursuant to such Stock Option if such Stock Option had been exercised
immediately prior to the Closing Date without regard to vesting; provided,
however, that in connection with the 1997 Employee Stock Purchase Plan, the
participants' options may be adjusted or exercised in accordance with the
provisions and intent of such plan.
EXECUTION OF SUPPLEMENTAL INDENTURE
Upon the consummation of the Merger, SCI shall use its reasonable efforts to
enter into a supplemental indenture with the trustee for the holders of the
Convertible Subordinated Debentures due 2004 of ECI in accordance with the
Indenture, dated as of February 25, 1998, between ECI and Bankers Trust Company,
as trustee.
ECI RIGHTS PLAN
ECI has agreed to take all necessary action prior to the effective time of
the Merger to (i) render rights issued pursuant to the ECI Rights Plan (as
defined in "Comparative Rights of the Shareholders of SCI and the Stockholders
of ECI-Stockholder Rights Plans"), inapplicable to the Merger, and (ii) ensure
that (x) neither SCI nor any of its Affiliates (as defined in the ECI Rights
Plan) is an Acquiring Person (as defined in the ECI Rights Plan) and (y) no
Distribution Date, event listed in Section 11(a)(ii), Section 13 Event, Shares
Acquisition Date or Section 11(a)(ii) Triggering Date (each as defined in the
ECI Rights Plan) shall occur by reason of the approval, execution or delivery of
the Merger Agreement, or the announcement or consummation of the Merger.
CONDITIONS TO THE MERGER
The respective obligations of SCI and ECI to effect the Merger are subject to
the fulfillment at or prior to the Closing Date of the following conditions: (a)
the Merger Agreement and the transactions contemplated thereby shall have been
approved and adopted by the requisite vote of the stockholders of ECI under
applicable law; (b) the shares of SCI Common Stock issuable in the Merger shall
have been authorized for listing on the NYSE upon official notice of issuance;
(c) the waiting period applicable to consummation of the Merger under the HSR
Act shall have expired or been terminated; (d) the Registration Statement shall
have become effective in accordance with the provisions of the Securities Act,
any material state blue sky or securities law shall have been complied with, and
no stop order suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by the
Commission or any state regulatory authority; (e) no preliminary or permanent
injunction or other order or decree by any federal or state court which prevents
the consummation of the Merger shall have been issued and remain in effect; and
(f) no action shall have been taken and no statute, rule or regulation shall
have been enacted by any state or federal government or governmental agency in
the United States which would prevent the consummation of the Merger or make the
consummation of the Merger illegal.
The obligation of ECI to effect the Merger is further subject to the
fulfillment at or prior to the effective time of the Merger of the following
additional conditions, unless waived by ECI: (a) SCI and Merger Sub shall have
performed in all material respects their agreements in the Merger Agreement
required to be performed on or prior to the Closing Date, and the
representations and warranties of SCI and Merger Sub contained in the Merger
Agreement shall be true and correct in all material respects on and as of the
date made and on and as of the Closing Date as if made at and as of such date,
and ECI shall have received a certificate executed on behalf of SCI by the
President or a Vice President of SCI and
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on behalf of Merger Sub by the President and Chief Executive Officer or a Vice
President of Merger Sub to that effect; (b) ECI shall have received a legal
opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., in form reasonably
satisfactory to ECI; and (c) ECI shall have received a legal opinion from
Andrews & Kurth L.L.P., reasonably acceptable to ECI, to the effect that (i) the
Merger will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Code and (ii) ECI, SCI and Merger Sub will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code with respect to
the Merger.
The obligations of SCI and Merger Sub to effect the Merger is further subject
to the fulfillment at or prior to the effective date of the Merger of the
following additional conditions, unless waived by SCI and Merger Sub: (a) ECI
shall have performed in all material respects its agreements in the Merger
Agreement required to be performed on or prior to the Closing Date, and the
representations and warranties of ECI contained in the Merger Agreement shall be
true and correct in all material respects on and as of the date made and on and
as of the Closing Date as if made at and as of such date, and SCI shall have
received a certificate executed on behalf of ECI by the President and Chief
Executive Officer of ECI to that effect; (b) since the date of the Merger
Agreement, there shall have been no changes that constitute, and no event or
events shall have occurred which have resulted in or constitute, a material
adverse effect to the business, assets, liabilities, financial condition,
results of operations, properties or business prospects of ECI and its
subsidiaries, taken as a whole; (c) SCI shall have received a legal opinion from
Andrews & Kurth L.L.P., in form reasonably satisfactory to SCI; (d) James P.
Hunter, III shall have entered into Employment and Non-competition Agreements in
form reasonably satisfactory to SCI and shall have terminated his Consulting
Agreement and his Executive Severance Agreement with ECI; and (e) SCI shall have
received a written agreement from each "affiliate" to the effect that each such
person will not offer to sell, sell or otherwise dispose of any shares of SCI
Common Stock issued in the Merger, except pursuant to an effective registration
statement, in compliance with Rule 145 of the Securities Act or in a transaction
exempt from the registration requirements of the Securities Act.
COOPERATION
Pursuant to the Merger Agreement, each of the parties has agreed to take, or
to cause to be taken, all action and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement. The Merger Agreement further provides that SCI will propose,
negotiate, commit to and effect, by consent decree, hold separate order, or
otherwise, the sale, divestiture, or disposition of such assets or businesses of
SCI or, effective as of the effective time of the Merger, ECI as may be required
in order to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order in any suit or proceeding, which
would otherwise have the effect of preventing or delaying the closing of the
transactions contemplated by the Merger; provided, however, that SCI will not be
required to sell, divest, dispose of, or hold separate assets or businesses with
aggregate 1997 revenues in excess of $10 million.
REPRESENTATIONS AND WARRANTIES OF SCI AND ECI
In the Merger Agreement, SCI and ECI have made various representations and
warranties relating to, among other things, their respective financial
conditions, the accuracy of their various filings with the Commission, the
satisfaction of certain legal requirements for the Merger and the absence of
undisclosed liabilities. The representations and warranties of each of the
parties to the Merger Agreement will expire upon consummation of the Merger.
CONDUCT OF THE BUSINESS OF ECI PRIOR TO THE MERGER
Pursuant to the Merger Agreement, ECI has agreed that, after the date of the
Merger Agreement and prior to the Closing Date or earlier termination of the
Merger Agreement, and except as otherwise agreed to in writing by SCI or as
otherwise contemplated by the Merger Agreement or disclosed in ECI's schedules
to the Merger Agreement, ECI shall, and shall cause each of its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
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(b) not (i) amend or propose to amend their respective charters or
bylaws, (ii) split, combine or reclassify their outstanding capital stock or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions to ECI by a wholly owned subsidiary of ECI;
(c) comply in all material respects with all applicable laws,
including without limitation, the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder;
(d) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, except that ECI may issue shares upon conversion of convertible
securities and exercise of options outstanding on the date of the Merger
Agreement;
(e) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings required for working
capital purposes in the ordinary course of business or (B) borrowings to
refinance existing indebtedness on terms which are reasonably acceptable to SCI,
or (C) borrowings to make new capital expenditures in the ordinary course of
business and otherwise permitted by the Merger Agreement, (ii) redeem, purchase,
acquire or offer to redeem, purchase or acquire any shares of its capital stock,
or any options, warrants or rights to acquire any of its capital stock, or any
security convertible into or exchangeable for its capital stock, (iii) sell,
pledge, dispose of or encumber any of the assets or businesses of ECI other than
transactions in the ordinary course of business not exceeding $1 million in any
instance or $3 million in the aggregate, or (iv) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(f) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by the Merger Agreement;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees;
(h) with the exception of the adoption of or changes to, in each case
in the ordinary course of business, health insurance plans or casualty insurance
of ECI in progress on the date of the Merger Agreement, not adopt, enter into or
amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other employee
benefit plan, agreement, trust fund or arrangement for the benefit or welfare of
any employee or retiree, except as required to comply with changes in applicable
law or other provisions of the Merger Agreement;
(i) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice;
(j) not make, change or revoke any material tax election or make any
material agreement or settlement regarding taxes with any taxing authority;
(k) not make any change in ECI's or its subsidiaries' financial tax
or accounting methods, practices or policies, or in any assumption underlying
such a method, practice or policy;
(l) use its commercially reasonable efforts to cause the transfer of
Environmental Permits (on the same terms and conditions), and any financial
assurance required thereunder to SCI or Merger Sub as may be necessary under
applicable Environmental Laws in connection with the consummation of the
transactions under the Merger Agreement to allow SCI or Merger Sub to conduct
the business of ECI and its subsidiaries, as currently conducted;
(m) not enter into or assume any contracts or agreements having a
term longer than one year (unless ECI may terminate such contracts or agreements
by 30 days written notice without penalty to ECI) or imposing a firm or
uncancellable obligation upon ECI or its subsidiaries in excess of $250,000
annually or imposing a firm or uncancellable
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obligation on ECI or its subsidiaries of $500,000 or more in the aggregate for
all such contracts and agreements, regardless of the annual payment, except for
contracts or agreements for (1) indebtedness permitted under (e) above or (2)
capital expenditures permitted under (q) below;
(n) maintain its books of account and records in the usual, regular
and ordinary manner consistent with past policies and practice;
(o) not compromise, settle, grant any waiver or release relating to
or otherwise adjust any material litigation or claims of any nature whatsoever
pending against ECI or its subsidiaries;
(p) not take any action or omit to take any action, which action or
omission would result in a breach of any of the representations and warranties
set forth in the Merger Agreement; and
(q) not make or commit to make any capital expenditures, except for
capital expenditures in the ordinary course of business not in excess of $10
million in the aggregate.
Notwithstanding the foregoing restrictions, nothing in the Merger Agreement
shall be construed to prohibit ECI or its subsidiaries from acquiring funeral
homes or cemeteries in the ordinary course of business and any actions
(including, without limitation, incurring indebtedness, issuing capital stock,
making capital expenditures or entering into contracts in connection therewith)
reasonably related to such acquisitions so long as the aggregate consideration
for all such acquisitions does not exceed $75 million.
CONDUCT OF THE BUSINESS OF SCI PRIOR TO THE MERGER
The Merger Agreement provides that after the date of the Merger Agreement
until the effective time of the Merger, SCI and its subsidiaries shall conduct
their business in the ordinary course consistent with past practice and shall
use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties. In addition, SCI shall not
redeem or repurchase any SCI Common Stock during the period in which the average
selling price of SCI Stock is being determined, except as required pursuant to
the terms of any securities outstanding or commitments in effect prior to the
commencement of such period.
NO SOLICITATION OF ACQUISITION TRANSACTIONS
The Merger Agreement provides that after the date of the Merger Agreement and
prior to the effective time of the Merger or earlier termination of the Merger
Agreement, ECI shall not, and shall cause each of its subsidiaries not to,
initiate, solicit, negotiate, encourage or provide confidential information to
facilitate, and ECI shall, and shall cause each of its subsidiaries to, cause
any officer, director or employee of ECI, or any attorney, accountant,
investment banker, financial advisor or any other agent retained by it, not to
initiate, solicit, negotiate, encourage or provide non-public or confidential
information to facilitate, any Acquisition Transaction. Notwithstanding the
foregoing, ECI may, in response to an Acquisition Proposal, furnish (subject to
the execution of a confidentiality agreement substantially similar to the
Confidentiality Agreement executed by SCI in connection with the Merger
Agreement for the benefit of ECI) confidential or non-public information
concerning its business, properties or assets to any Potential Acquiror and
negotiate with such Potential Acquiror if, based upon advice of its outside
legal counsel and financial advisors, ECI's Board of Directors determines in
good faith that such action to provide such confidential or non-public
information to such Potential Acquiror is necessary for ECI's Board of Directors
to act in a manner consistent with its fiduciary duties to its stockholders;
provided, however, that ECI is prohibited from providing to a Potential Acquiror
any confidential or non-public information not previously furnished to SCI. The
Merger Agreement requires that ECI immediately notify SCI after receipt of any
Acquisition Proposal or request for non-public information relating to ECI or
its subsidiaries in connection with an Acquisition Proposal or for access to the
properties, books or records of ECI or any subsidiary by any person or entity
that informs the Board of Directors of ECI or such subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such notice to SCI
must be made orally and in writing and must indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
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TERMINATION OR AMENDMENT
The Merger Agreement may be terminated at any time prior to the effective
time of the Merger, whether before or after approval by the stockholders of ECI,
if the Board of Directors of ECI and SCI mutually agree or as follows:
(a) by either SCI or ECI if (i) the representations and warranties of
the non-terminating party shall fail to be true and correct in all material
respects on and as of the date made or, except in the case of any
representations and warranties made as of a specified date, on and as of any
subsequent date as if made at and as of such subsequent date and such failure
shall not have been cured in all material respects within thirty (30) days after
written notice of such failure is given to the non-terminating party by the
terminating party; (ii) the Merger is not completed by February 28, 1999 (unless
due to a delay or default on the part of the terminating party); (iii) the
non-terminating party (A) fails to perform in any material respects any of its
covenants in the Merger Agreement and (B) does not cure such default in all
material respects within thirty (30) days after written notice of such default
is given to the non-terminating party by the terminating party; or (iv) the
requisite vote of the stockholders of ECI shall not have been obtained by
February 28, 1999, or the stockholders of ECI shall not have approved the Merger
and the Merger Agreement at the Special Meeting or any adjournment thereof;
(b) by ECI if: (i) the Merger is enjoined by a final, unappealable
court order; (ii) (A) ECI receives an offer from any third party (excluding any
affiliate of ECI or any group of which any affiliate of ECI is a member) with
respect to a merger, sale of substantial assets or other business combination
involving ECI, (B) ECI's Board of Directors determines in good faith that such
offer constitutes a Superior Proposal and resolves to accept such Superior
Proposal and (C) ECI shall have given SCI two (2) days prior written notice of
its intention to terminate the Merger Agreement (provided that such termination
shall not be effective until such time as any termination fees required to be
paid by ECI pursuant to the Merger Agreement have been received by SCI); or
(iii) (A) a tender or exchange offer is commenced by a third party (excluding
any affiliate of ECI or any group of which any affiliate of ECI is a member) for
all outstanding shares of ECI Common Stock, (B) ECI's Board of Directors
determines in good faith that such offer constitutes a Superior Proposal and
resolves to accept such Superior Proposal or recommend to the stockholders of
ECI that they tender their shares in such tender or exchange offer, and (C) ECI
shall have given SCI two (2) days prior written notice of its intention to
terminate the Merger Agreement (provided that such termination shall not be
effective until such time as the payment of any termination fees required to be
paid by ECI pursuant to the Merger Agreement have been received by SCI); and
(c) by SCI if the Board of Directors of ECI shall have: (i)
recommended to the stockholders of ECI to accept a Superior Proposal, or
resolved to do so; (ii) recommended to the stockholders of ECI that they tender
their shares in a tender or exchange offer commenced by a third party (excluding
any affiliate of SCI or any group of which any affiliate of SCI is a member), or
resolved to do so; or (iii) withdrawn, modified or changed the recommendation of
the Merger Agreement or the Merger in a manner adverse to SCI or shall have
resolved to do so, other than in connection with the exercise of ECI's right to
terminate the Merger Agreement as a result of a material breach of a
representation, warranty or covenant by SCI.
In the event of termination of the Merger Agreement pursuant to its terms by
either SCI or ECI, the Merger Agreement shall become void and there shall be no
further obligations on the part of ECI, SCI, Merger Sub or their respective
officers or directors (except for certain obligations of the parties regarding
confidential information, expenses and fees payable in connection with the
Merger Agreement and/or the termination thereof, governing law applicable to the
Merger Agreement and binding arbitration, all of which shall survive the
termination).
The Merger Agreement may not be amended except by action taken by the Boards
of Directors of SCI, ECI and Merger Sub and then only by an instrument in
writing signed on behalf of each party and in compliance with applicable law.
Such amendment may take place before or after approval by the stockholders of
ECI, but after any such stockholder approval, no amendment may be made which
decreases the merger consideration or which adversely affects the rights of
ECI's stockholders under the Merger Agreement without the approval of the
stockholders of ECI.
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TERMINATION FEES
ECI has agreed to pay a termination fee to SCI should certain of the
termination rights described in "--Termination or Amendment" above be exercised
under certain circumstances. ECI has agreed to pay SCI (a) a fee equal to $20
million plus (b) all documentable out-of-pocket costs and expenses incurred by
SCI and Merger Sub in connection with the Merger Agreement and the transactions
contemplated thereby (not to exceed $2 million) if: (i) ECI terminates the
Merger Agreement pursuant to clauses (b)(ii) or (b)(iii) of "--Termination or
Amendment" above; (ii) SCI terminates the Merger Agreement as described in
clause (c) of "--Termination or Amendment" above; or (iii) (A) SCI or ECI
terminates the Merger Agreement pursuant to clause (a) (iv) of "--Termination or
Amendment" above, (B) on February 28, 1999 (if a vote has not earlier been held
at the Special Meeting), or at the time of such failure to so approve the Merger
or the Merger Agreement, there shall exist or have been proposed an Acquisition
Proposal which has been publicly announced, and (C) within twelve months after
such termination any Acquisition Transaction shall be consummated. For purposes
of (iii) (B) and (C) of "--Termination Fees," an Acquisition Proposal and an
Acquisition Transaction with respect to (1) the capital stock of ECI shall be
for a minimum of 25% or more of the outstanding shares of SCI Common Stock, and
(2) all or any substantial part of the business or properties of SCI and its
subsidiaries shall be for a minimum of 25% or more of the business or properties
of SCI and its subsidiaries, taken as a whole.
EXPENSES
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, except that (i) the filing
fee and expenses incurred in connection with the HSR Act filing shall be paid by
SCI, (ii) all filing fees incurred in connection with the filing of the Proxy
Statement/Prospectus and Registration Statement, including any filing required
under state blue sky or securities laws, shall be paid by SCI, and (iii) those
expenses incurred in connection with printing the Proxy Statement/Prospectus
shall be shared equally by SCI and ECI.
INDEMNIFICATION
The Merger Agreement provides that, for six years after the effective time of
the Merger, present and former officers and directors of ECI will be indemnified
by SCI and ECI in respect of acts or omissions occurring prior to the effective
time of the Merger to the extent provided under the ECI Certificate and the ECI
Bylaws as in effect on the date of the Merger Agreement. The Merger Agreement
also provides that to the fullest extent permitted under the DGCL, such
indemnified parties shall be entitled to the indemnification provided in the
Merger Agreement whether such indemnified liabilities shall be based on their
own negligence, whether such persons are solely, concurrently or comparatively
negligent, and whether under strict liability or any other theory of recovery.
For six years after the effective time of the Merger, SCI will, or will cause
ECI to, use its commercially reasonable efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring prior
to the effective time of the Merger covering each such person currently covered
by ECI's officers' and directors' liability insurance policy on terms and with
respect to coverage and amount no less favorable than those of such policy in
effect on the date of the Merger Agreement.
BUSINESS OF SCI
SCI is the largest provider of deathcare services and products in the world.
As of September 30, 1998, SCI owned and operated 3,370 funeral service
locations, 430 cemeteries and 180 crematoria located in 18 countries on five
continents.
SCI provides all professional services relating to funerals, burials and
cremations, including the use of funeral homes and motor vehicles, the
performance of cemetery interment services and the management and maintenance of
cemetery grounds. It sells caskets, coffins, burial vaults and garments,
cemetery interment rights, including mausoleum spaces and lawn crypts, stone and
bronze memorials, cremation receptacles and related merchandise. SCI sells its
services and products to client families both at and prior to the time of need.
In addition, SCI's finance subsidiary, Provident Services, Inc., provides
financing to independent funeral home and cemetery operators.
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SCI's strategy is to:
o continue to expand through the acquisition and construction,
both domestically and internationally, of funeral homes,
cemeteries and crematoria in areas with demographics that SCI
believes to be favorable;
o increase the operating margins of its existing and acquired
facilities by having those facilities share resources pursuant
to SCI's cluster strategy;
o increase revenue per location through the merchandising of a
broad line of funeral and cemetery products and services, both
on a pre-need and at-need basis; and
o increase future volume and revenues through the sale of
prearranged funeral services.
COMPARATIVE RIGHTS OF THE SHAREHOLDERS OF SCI AND THE STOCKHOLDERS OF ECI
GENERAL
As a result of the Merger, holders of ECI Common Stock will become holders of
SCI Common Stock, and the rights of such former ECI stockholders will thereafter
be governed by the Restated Articles of Incorporation of SCI (the "SCI
Articles"), the Bylaws of SCI (the "SCI Bylaws") and the Texas Business
Corporation Act (the "TBCA"). The rights of holders of ECI Common Stock are
currently governed by the ECI Certificate, the ECI Bylaws and the DGCL. The
following summary, which does not purport to be a complete description of the
differences between the rights of the shareholders of SCI and the rights of the
stockholders of ECI, sets forth certain differences between the TBCA, the SCI
Articles and the SCI Bylaws, on the one hand, and the DGCL, the ECI Certificate
and the ECI Bylaws, on the other. This summary is qualified in its entirety by
reference to the full text of each of these documents and the TBCA and DGCL. For
more information on how such documents may be obtained, see "Where to Find More
Information."
NUMBER OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS
The DGCL provides that the board of directors of a Delaware corporation shall
consist of one or more directors as fixed by the certificate of incorporation or
bylaws. The ECI Certificate provides that the number of directors which shall
constitute the whole board shall be such as from time to time shall be fixed by,
or in the manner provided in, the ECI Bylaws, but in no case shall the number be
less than two nor more than fifteen. The ECI Bylaws provide that the number of
directors shall be fixed from time to time by ECI's Board of Directors, but
shall not be less than two nor more than fifteen. The DGCL permits, but does not
require, a classified board of directors. ECI's Board of Directors is
classified; its directors serve three-year terms and are subject to election at
every third annual meeting of the stockholders of ECI.
The TBCA provides that the board of directors of a Texas corporation shall
consist of one or more members as fixed by the articles of incorporation or
bylaws. The SCI Articles provide that SCI's Board of Directors shall consist of
a minimum of nine and a maximum of fifteen directors, subject to change by
amendment to the SCI Articles by four-fifths vote of outstanding shares of SCI
capital stock entitled to vote and subject to the rights of holders of any class
or series of its preferred stock, par value $1.00 per share (the "SCI Preferred
Stock"), to elect additional directors under specified circumstances. SCI's
Board of Directors is classified; it is divided into three classes, with each
class elected for a term of three years and consisting, as nearly as possible,
of one-third of the total number of directors on the Board of Directors of SCI.
At each annual meeting of SCI's shareholders, one class of directors is elected
for a three-year term. Whenever dividends payable on any series of SCI Preferred
Stock shall be in arrears in an aggregate amount equivalent as to such series to
six full dividends, there shall be vested in the holders of shares of all
outstanding SCI Preferred Stock voting as one class and with one vote for each
share, the right to elect two directors of SCI.
The fact that SCI's Board of Directors is classified may have the effect of
making it more difficult to change the composition of SCI's Board of Directors,
and thus may make effecting a change of control of SCI more difficult. At least
two annual meetings of shareholders, instead of one, generally will be required
to effect a change in the majority of a classified board. Such a delay may help
ensure that incumbent directors, if confronted by a holder attempting to force
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a proxy contest, a tender offer or other extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interests of the shareholders. On the other hand, the classification of
directors may delay, defer or prevent a takeover attempt that the shareholders
might consider in their best interest.
QUORUM REQUIRED FOR DIRECTORS' MEETING
The DGCL and the TBCA provide that a majority of the total number of
directors shall constitute a quorum for the transaction of business, unless the
charter, certificate or articles or bylaws require a greater number. Both the
ECI Bylaws and the SCI Bylaws provide that a majority of the number of directors
then in office shall constitute a quorum for the transaction of business at
directors' meetings.
REMOVAL OF DIRECTORS
The DGCL provides that unless otherwise provided in the certificate of
incorporation or bylaws, a director or the entire board of directors of a
Delaware corporation may be removed, with or without cause, by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors. The ECI Bylaws provide that any director or
directors may be removed at any annual meeting of the stockholders or at any
special meeting of the stockholders by the affirmative vote of the holders of at
least 66 2/3% of the combined voting power of the outstanding shares of capital
stock of ECI entitled to vote. The notice of any such meeting shall state that
the removal of a director or directors is among the purposes of the meeting and
that such removal is properly brought before the meeting.
Under the TBCA, a corporation's bylaws or articles of incorporation may
provide that at any meeting of shareholders called expressly for that purpose,
one or more directors may be removed, with or without cause (subject to certain
exceptions for a corporation having a classified board of directors), by a vote
of the holders of a specified portion, but not less than a majority, of the
shares then entitled to vote in an election of directors. The SCI Articles
provide that any director may be removed, with or without cause, by its
shareholders, but only upon the affirmative vote of four-fifths of the total
number of votes of the then outstanding shares of capital stock of SCI. The SCI
Articles also provide that any director may be removed, with or without cause,
by four-fifths vote of the directors, subject to approval by a majority of
shareholders.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The DGCL provides that unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly created directorships may be filled
by a majority vote of the directors then in office, even if the number of
directors then in office is less than a quorum. The ECI Certificate provides
that any vacancy in ECI's Board of Directors, whether arising through death,
resignation or removal of a director, or through an increase in the number of
directors of any class, shall be filled by the majority vote of the remaining
directors. The ECI Bylaws provide that any vacancy in ECI's Board of Directors,
whether arising through death, resignation or removal of a director, or through
an increase in the number of directors of any class, shall be filled by the
majority vote of the remaining directors.
Pursuant to the TBCA and SCI Articles, any director vacancy occurring shall
be filled by the affirmative vote of the remaining directors without shareholder
approval, even though less than a quorum, provided that any director so elected
shall hold office only for the remainder of the term of the director whose
departure caused the vacancy. Under the TBCA, a directorship created by reason
of an increase in the number of directors may be filled by the board of
directors for a term of office continuing only until the next election of
directors (whether at an annual or special shareholders meeting). The TBCA
provides that the board of directors of a Texas corporation shall not fill more
than two such directorships during the period between two successive annual
meetings of shareholders.
SPECIAL MEETINGS OF STOCKHOLDERS
The DGCL provides that special meetings of stockholders may be called by the
board of directors or by such person or persons as may be authorized by the
certificate of incorporation or bylaws. The ECI Bylaws provide that special
meetings of the stockholders of ECI, for any purpose, may be called only by the
Chairman of ECI's Board of Directors and shall be called within 10 days after
receipt of the written request of the board of directors, pursuant to a
resolution
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approved by a majority of the entire board of directors, or upon written request
of the holders of at least 75% of the issued and outstanding stock entitled to
vote at such meeting. The DGCL and ECI Bylaws provide that written notice of
every meeting of stockholders stating the place, date, time and, in case of a
special meeting, the purposes thereof, shall be given at least 10 but not more
than 60 days prior to such meeting to each stockholder of record entitled to
vote thereat.
Pursuant to the TBCA and the SCI Bylaws, a special meeting of shareholders
may be called at any time by the holders of at least 10% of the outstanding
shares entitled to vote, by SCI's Board of Directors, by the Chairman of SCI's
Board of Directors or by the President of SCI. The SCI Bylaws provide that only
such business as may be stated or indicated in the notice of such meeting shall
be transacted at the special meeting.
ACTION BY WRITTEN CONSENT
Subject to the rights of holders of any class or series of stock having a
preference over ECI Common Stock as to dividends or upon liquidation to elect
additional directors under specific circumstances, any action required or
permitted to be taken by the stockholders of ECI must be effected at a duly
called annual or special meeting of ECI's stockholders and may be effected by
any consent in writing of such stockholders only if such consents are executed
by the holders of at least 75% of the outstanding shares entitled to vote at a
meeting on such action.
The SCI Bylaws do not provide for action by written consent of shareholders.
The SCI Bylaws provide that any action required or permitted to be taken at a
meeting of SCI's Board of Directors or any committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed by
all the members of SCI's Board of Directors or committee, as the case may be.
VOTE REQUIRED FOR MERGER
The DGCL requires approval of the board of directors and the affirmative vote
of a majority of the outstanding stock entitled to vote thereon in order to
effect a merger. Unless required by its certificate of incorporation, no
stockholder vote is required of a corporation surviving a merger if (i) such
corporation's certificate of incorporation is not amended by the merger; (ii)
each share of stock of such corporation will be an identical share of the
surviving corporation after the merger; and (iii) either no shares are to be
issued by the surviving corporation or the number of shares to be issued in the
merger does not exceed 20% of such corporation's outstanding common stock
immediately prior to the effective date of the merger. The ECI Certificate does
not contain any provisions relating to stockholder approval of mergers.
Unless the board of directors requires a greater vote, the TBCA generally
requires the affirmative vote of the holders of at least two-thirds of the
shares entitled to vote to approve a merger, or if any class of shares is
entitled to vote as a class on the approval of the merger, the affirmative vote
of the holders of at least two-thirds of the shares in each such class and the
affirmative vote of the holders of at least two-thirds of the shares otherwise
entitled to vote. Similar voting requirements apply for share exchanges or
conversions. The TBCA does not require a vote by the shareholders of the
surviving corporation if after the merger (i) the articles of incorporation of
the surviving corporation will not differ from its articles of incorporation
before the merger; (ii) each shareholder of the surviving corporation whose
shares were outstanding immediately prior to the effective date of the merger
will hold the same number of shares, with identical designations, preferences,
limitations and relative rights immediately after the merger; (iii) the voting
power of the number of voting shares outstanding immediately after the merger,
will not exceed by more than 20% the voting power of the total number of voting
shares of the surviving corporation before the merger; (iv) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable as a result of the merger, will not exceed by
more than 20% the total number of participating shares of the surviving
corporation outstanding immediately before the merger; and (v) the board of
directors of the surviving corporation adopts a resolution approving the plan of
merger. The SCI Articles require a four-fifths vote of outstanding shares of
capital stock to approve the merger or consolidation of SCI with a holder of 10%
or more of SCI's capital stock.
VOTE REQUIRED FOR SALE OF ASSETS
The DGCL requires approval of the board of directors and the affirmative vote
of a majority of the outstanding stock entitled to vote thereon in order to
approve the sale, lease or exchange of all or substantially all of a
corporation's assets,
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<PAGE> 43
including its goodwill and its corporate franchise. The ECI Certificate does not
contain any provisions relating to stockholder approval of such dispositions.
The TBCA generally requires the affirmative vote of the holders of at least
two-thirds of the shares entitled to vote to approve the sale, lease, exchange
or other disposition of all or substantially all of a corporation's assets if
other than in the usual and regular course of business, or if any class of
shares is entitled to vote as a class on the approval of a sale, lease, exchange
or other disposition of all or substantially all the corporations assets, the
vote required for approval of such transaction is the affirmative vote of the
holders of at least two-thirds of the shares in each such class and the
affirmative vote of the holders of at least two-thirds of the shares otherwise
entitled to vote. The TBCA does not require shareholder approval of a sale of
assets in the usual and regular course of business unless otherwise specified in
the articles of incorporation. Under the TBCA, a sale of assets shall be deemed
to be in the usual and regular course of business if the corporation shall,
directly or indirectly, either continue to engage in one or more businesses or
apply a portion of the consideration received in connection with the transaction
to the conduct of a business in which it engages following the transaction. The
SCI Articles and the SCI Bylaws do not contain any provisions relating to
shareholder approval of such dispositions.
BUSINESS COMBINATIONS
ECI is subject to Section 203 of the DGCL, which, subject to certain
exceptions, prohibits a corporation which has securities traded on a national
securities exchange, authorized for quotation on the Nasdaq Stock Market or held
of record by more than 2,000 stockholders from engaging in certain business
combinations, including merger, sale of a threshold percentage of the
corporation's assets, loan or issuance of stock, with an interested stockholder,
an interested stockholder's affiliates or associates, for a three-year period
beginning on the date the interested stockholder acquires 15% or more of the
outstanding voting stock of the corporation.
Part Thirteen of the TBCA, known as the "Texas Business Combination Law,"
which became effective September 1, 1997, provides that an "issuing public
corporation" shall not, directly or indirectly, enter into or engage in a
"business combination" with an "affiliated shareholder" (or its affiliates or
associates) during the three-year period immediately following the date on which
the affiliated shareholder first became an affiliated shareholder, unless (a)
before the date such person became an affiliated shareholder, the board of
directors of the issuing public corporation approved the business combination or
the acquisition of shares that caused the affiliated shareholder to become an
affiliated shareholder, or (b) not less than six months after the date such
person became an affiliated shareholder, the business combination was approved
by the affirmative vote of holders of at least two-thirds of the issuing public
corporation's outstanding voting shares not beneficially owned by the affiliated
shareholder or its affiliates at a meeting of shareholders and not by written
consent. For the purposes of the foregoing, an "affiliated shareholder" is
defined generally as a person that is or was within the proceeding three-year
period the beneficial owner of 20% or more of a corporation's outstanding voting
shares; a "business combination" is defined generally to include (i) mergers,
share exchanges or conversions involving an affiliated shareholder, (ii)
dispositions of assets involving a value equal to 10% or more of the market
value of the assets or of the outstanding common stock or representing 10% or
more of the earning power or net income of the corporation, (iii) certain
issuances or transfers of securities by the corporation to an affiliated
shareholder other than on a pro rata basis, (iv) certain plans or agreements
relating to a liquidation or dissolution of the corporation involving an
affiliated shareholder, (v) certain reclassifications, recapitalizations,
distributions or other transactions that would have the effect of increasing an
affiliated shareholder's percentage ownership of the corporation, or (vi) the
receipt of tax, guarantee, loan or other financial benefits by an affiliated
shareholder other than proportionately as a shareholder of the corporation; and
an "issuing public corporation" is generally defined as a Texas corporation that
has 100 or more shareholders, a class of its voting shares registered under the
Exchange Act, or a class of its voting shares qualified for trading in a
national market system. The SCI Articles require a four-fifths vote of
outstanding shares of capital stock to approve the merger or consolidation of
SCI with a holder of 10% or more of SCI's capital stock.
AMENDMENT OF CERTIFICATE OF INCORPORATION/ARTICLES OF INCORPORATION
Under the DGCL, amendments to a Delaware corporation's certificate of
incorporation must be approved by a resolution of the board of directors
declaring the advisability of the amendment, and by the affirmative vote of a
majority of the outstanding shares entitled to vote. If an amendment would
increase or decrease the number of authorized shares of such class, increase or
decrease the par value of the shares of such class or alter of change the
powers, preferences
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<PAGE> 44
or other special rights of a class of outstanding shares so as to affect the
class adversely, then a majority of shares of that class also must approve the
amendment. The DGCL also permits a corporation to make provision in its
certificate of incorporation requiring a greater proportion of voting power to
approve a specified amendment.
The ECI Certificate provides procedures, in addition to those required by the
DGCL, for amendment of Sections 5 (regarding the issuance of rights), 7
(regarding liquidation, indemnification and limitations on liability), 8
(regarding stockholder action by written consent), 9 (regarding number and
election of directors) and 11 (regarding amendments to the ECI Certificate) of
the ECI Certificate. The affirmative vote of the holders of at least 75% of the
then outstanding shares entitled to vote thereon and the affirmative vote of the
holders of at least 75% of the then outstanding shares of each class of stock of
ECI voting separately as a class, shall be required to adopt any amendment to
said sections.
Under the TBCA, an amendment to a Texas corporation's articles generally
would require the approval of the holders of two-thirds of the shares entitled
to vote thereon, or, if any class is entitled to vote separately thereon, the
approval of the holders of two-thirds of the shares of such class entitled to
vote thereon and two-thirds of the total shares entitled to vote thereon.
The SCI Articles require the affirmative vote of the holders of at least
four-fifths of the outstanding shares of capital stock entitled to vote for the
approval of amendment of certain provisions of the SCI Articles. The affirmative
vote of the holders of at least four-fifths of the outstanding shares of capital
stock of the corporation entitled to vote thereon are required to amend, repeal,
or to adopt any provisions inconsistent with, Articles 8 (regarding merger, sale
or exchange with a 10% owner), 11 (regarding amendments to the SCI Bylaws) or 12
(regarding number and election of directors and amendments to the SCI Articles)
of the SCI Articles.
AMENDMENT OF BYLAWS
The ECI Bylaws provide that the ECI Bylaws may be altered, amended or
repealed, or new or additional bylaws adopted by a majority of the entire Board
of Directors of ECI at any meeting and without the consent or vote of the
stockholders. The ECI Bylaws may also be altered, amended or repealed, or new
bylaws may be adopted by the stockholders at any regular meeting of the
stockholders or at any special meeting of the stockholders, if notice of such
alteration, amendment, repeal or adoption of new bylaws is contained in the
notice of and is properly brought before such meeting by the holders of at least
75% of the then outstanding shares of ECI's capital stock entitled to vote and
at least 66 2/3% of the then outstanding shares of each class of stock of ECI
voting separately as a class.
The SCI Articles and SCI Bylaws provide that the SCI Bylaws may be altered,
amended or repealed, or new bylaws may be adopted, by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock entitled to
vote thereon at any annual meeting, or at any special meeting if notice of the
proposed amendment is contained in the notice of said special meeting, or by the
vote of a majority of the full Board of Directors of SCI at any regular or
special meeting, provided notice of said proposed amendment is contained in the
notice of the meeting. Notwithstanding the provisions providing for amendment of
the SCI Bylaws generally, the SCI Articles and the SCI Bylaws require the
affirmative vote of at least four-fifths of the outstanding shares of capital
stock of SCI entitled to vote thereon at a meeting called for that purpose to
amend or repeal, or to adopt any provision inconsistent with, Section 1 of
Article II (number and term of office of directors) or Article VII (amendments
to the SCI Bylaws) of the SCI Bylaws.
VOTING
The ECI Certificate provides that holders of ECI Common Stock have, except
as otherwise required by law or as otherwise provided in a resolution of ECI's
Board of Directors with respect to any series of ECI Preferred Stock, exclusive
possession of all voting power with each share having the right to one vote. The
ECI Certificate provides that, except as expressly provided by law, or except as
may be provided in any directors' resolution, the ECI Preferred Stock shall have
no right or power to vote on any question or in any proceeding or to be
represented at, or to receive notice of, any meeting of the stockholders of ECI.
The SCI Articles provide that the holders of SCI Common Stock and the holders
of SCI Preferred Stock have the right to one vote per share, all voting as one
class, for the election of directors and for all other purposes with respect to
all
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<PAGE> 45
matters submitted to a vote of SCI shareholders, subject to such limitations as
may be imposed by law and by any provision of the SCI Articles.
CUMULATIVE VOTING
Neither stockholders of ECI nor shareholders of SCI have any rights to
cumulative voting with respect to the election of directors.
SUPERMAJORITY VOTING PROVISIONS
The DGCL requires the affirmative vote of the holders of not less than
two-thirds of outstanding voting stock of a corporation to approve certain
business combinations. The ECI Certificate and the ECI Bylaws do not provide for
any alteration of the vote required to approve these certain business
combinations.
The TBCA requires the approval of holders of at least two-thirds of the
outstanding shares of capital stock of a corporation entitled to vote to amend
its articles or incorporation, to enter into a merger or to sell all or
substantially all of its assets. The SCI Articles contain provisions requiring a
vote of four-fifths of outstanding shares of capital stock (i) to approve the
merger or consolidation of SCI, or the exchange by SCI of its securities, with a
holder of 10% or more of SCI's capital stock, (ii) to remove directors with or
without cause and (iii) to amend or repeal any of these provisions. The SCI
Bylaws require a vote of four-fifths of the outstanding shares (a) to remove a
director without the consent of the Board of Directors and (b) to amend certain
sections of the SCI Bylaws.
APPRAISAL RIGHTS
Both the DGCL and the TBCA contain provisions that, subject to certain
limitations and exceptions, permit stockholders to demand dissenters' rights in
connection with mergers and certain other transactions. Section 262 of the DGCL
provides stockholders with appraisal rights for certain mergers and
consolidations. Because shares of ECI Common Stock are listed on a national
securities exchange, the provisions of Section 262 of the DGCL do not apply to
holders of shares of ECI Common Stock. Under Article 5.11 of the TBCA, a
shareholder generally has the right to dissent from any merger to which the
corporation is a party, from any sale of all or substantially all assets of the
corporation, or from any plan of exchange and to receive fair value for his or
her shares. Because shares of SCI Common Stock are listed on a national
securities exchange, the provisions of Article 5.11 of the TBCA generally do not
apply to holders of shares of SCI Common Stock.
LIMITATIONS ON DIRECTOR LIABILITY
The DGCL allows a corporation to limit the liability of directors and
officers to the corporation and its stockholders for monetary damages for breach
of fiduciary duty, except for (i) any breach of the duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
intentional or negligent payment of unlawful dividends or stock redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The ECI Certificate provides that a director of ECI shall not be
personally liable to ECI or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit. The
ECI Certificate further provides that if the DGCL is amended to authorize
corporate action for further eliminating or limiting the personal liability of
directors, then the liability of a director of ECI shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended.
The SCI Articles provide that a director of SCI shall not be liable to SCI or
its shareholders for monetary damages for an act or omission in the director's
capacity as director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, (iv) for acts or omissions for which
the liability of a director is expressly provided by statute, or (v) for acts
related to an unlawful stock repurchase
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<PAGE> 46
or dividend payment. The SCI Articles further provide that a director shall not
be liable to the fullest extent permitted by any provision of the statutes of
Texas enacted thereafter that further limits the liability of a director.
INDEMNIFICATION
Under Section 145 of the DGCL, the ECI Certificate and the ECI Bylaws, ECI
shall, to the maximum extent permitted from time to time under the DGCL,
indemnify and upon request shall advance expenses to any person who is or was a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was of has
agreed to be a director, officer, employee or agent of ECI, or is or was serving
at the request of ECI as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
expenses (including attorneys' fees and expenses), judgments, fines, penalties
and amounts paid in settlement or incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. The ECI Certificate
further provides that such indemnification shall not be exclusive of other
indemnification rights arising under any bylaw, agreement, vote of directors, or
stockholders or otherwise and shall inure to the benefit of the heirs and legal
representatives or such person. The ECI Bylaws further provide that the
provisions of the ECI Bylaws providing for indemnification are for the benefit
of, and may be enforced by, each director and officer of ECI.
Under Article 2.02-1 of the TBCA, each current and former director and
officer of a corporation, or each person who served at request as a director or
officer of a subsidiary of a corporation, shall be indemnified for liabilities
imposed upon him, expenses reasonably incurred by him in connection with any
claim made against him, or any action, suit or proceeding to which he may be a
party by reason of being or having been a director or officer, and for any
reasonable settlement of any such claim, action suit or proceeding. The TBCA
further provides that a corporation may undertake any indemnification of a
director or officer only if it is determined that such person (i) conducted
himself in good faith, (ii) reasonably believed that, in the case of conduct in
his official capacity as a director, that his conduct was in the corporation's
best interests, and in all other cases, that his conduct was at least not
opposed to the corporation's best interests, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful, and that a corporation must indemnify a director or officer against
reasonable expenses incurred by him in connection with a proceeding in which he
is a named defendant or respondent because he is or was a director or officer if
he has been wholly successful in the defense of the proceeding. The SCI Bylaws
provide that each director and officer of SCI and any person who may have served
at the request of SCI as a director or officer of another corporation in which
SCI owns shares or of which it is a creditor shall be indemnified by SCI against
any costs and expenses, including counsel fees, actually and necessarily
incurred in connection with the defense of any civil, criminal, administrative,
or other claim, action, suit, or proceeding, whether by or in the right of SCI
or otherwise, in which he may become involved or with which he may be threatened
by reason of his being or having been a director or officer of SCI or by reason
of his serving or having served at the request of SCI as a director or officer
of another corporation as aforesaid, provided that, in connection with such
matter, the said director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of SCI and,
with respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. The SCI Bylaws further provide that costs and
expenses indemnified shall include payments in settlement or in satisfaction of
any judgment, fine or penalty. The SCI Bylaws further provide that the
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or equivalent shall not, of
itself, create a presumption that the director, officer, or representative did
not act in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of SCI, or with respect to any criminal action or
proceeding that he had reasonable cause to believe his conduct was unlawful. The
SCI Bylaws further provide that, to the extent permitted by law, expenses
incurred in connection with a civil, criminal, administrative or investigative
action, suit or proceeding, or threat thereof, may be paid by SCI in advance of
the final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by SCI.
The TBCA provides that Texas corporations may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
such corporation for any liability asserted against him, whether or not the
corporation would have the power to indemnify him against liability under the
TBCA. The SCI Bylaws provide that SCI shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of SCI, or is or was serving at the request of SCI as a
director, officer, employee, or agent of another
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corporation, partnership, joint venture, trust, or other enterprise, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not SCI itself would have the
power to indemnify him against such liability under law.
AUTHORIZED CAPITAL STOCK
The ECI Certificate provides that ECI has the authority to issue 50,000,000
shares of ECI Common Stock and 10,000,000 shares of its preferred stock, par
value $.01 per share (the "ECI Preferred Stock"). No shares of ECI Preferred
Stock are outstanding.
The SCI Articles provide that SCI has the authority to issue 500,000,000
shares of SCI Common Stock and 1,000,000 shares of SCI Preferred Stock. No
shares of SCI Preferred Stock are outstanding.
STOCKHOLDER RIGHTS PLANS
The Stockholder Rights Agreement dated as of October 13, 1994 between ECI and
American Stock Transfer & Trust Company, as rights agent (the "ECI Rights
Plan"), adopted by the Board of Directors of ECI may have the effect of
delaying, deferring or preventing a change in control or acquisition of ECI. The
rights distributed under the ECI Rights Plan provide the holders with the right
to purchase one one-hundred fiftieth of a fully paid and non assessable share of
ECI Preferred Stock at the purchase price of $30.00 (subject to adjustment) per
one one-hundred fiftieth share of ECI Preferred Stock.
The Rights Agreement dated as of May 14, 1998 between SCI and Harris Trust
and Savings Bank, as rights agent (the "SCI Rights Plan"), adopted by the Board
of Directors of SCI may have the effect of delaying, deferring or preventing a
change in control or acquisition of SCI. The rights distributed under the SCI
Rights Plan (the "SCI Rights") provide holders with the right to purchase
one-one thousandth of a share of the SCI Series D Junior Participating Preferred
Stock, par value $1.00 per share (the "Series D Preferred Shares"), at an
exercise price of $220 (subject to adjustment) if any person or group becomes an
Acquiring Person (as defined in "Description of SCI Capital Stock --SCI
Shareholder Rights Plan") or any person commences a tender or exchange offer
that would result in such person becoming an Acquiring Person. If a person or
group becomes an Acquiring Person, the SCI Rights further provide holders (other
than the Acquiring Person) with the right to purchase a number of shares of SCI
Common Stock having a value equal to two times the exercise price of the SCI
Right. Additionally, if at any time after the date a person becomes an Acquiring
Person, SCI is acquired in a merger or other business combination transaction or
50% or more of the assets or earning power of SCI are sold or transferred, each
SCI Right (other than SCI Rights previously voided) will entitle its holder to
purchase, upon exercise thereof at the then-current exercise price of the SCI
Right, that number of shares of common stock of the acquiring company which at
the time of the transaction will have a value of two times the exercise price of
the SCI Rights.
PREEMPTIVE RIGHTS
Neither stockholders of ECI nor shareholders of SCI have preemptive rights to
acquire unissued shares of capital stock.
DIVIDENDS
Under the DGCL, a corporation may, subject to restriction in its certificate
of incorporation, pay dividends out of surplus or out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year. Dividends out of net profits may not be paid when the capital of the
corporation amounts to less than the aggregate amount of capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets.
Under the TBCA, the board of directors of a corporation may authorize and the
corporation may make distributions; provided, that a distribution may not be
made if (i) after giving effect to the distribution, the corporation would be
insolvent or (ii) the distribution exceeds the surplus of the corporation.
Notwithstanding the limitations on distributions set forth in clauses (i) and
(ii) above, a corporation may make a distribution involving a purchase or
redemption or any of its own shares if the purchase or redemption is made by the
corporation to: (i) eliminate fractional shares, (ii) collect
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or compromise indebtedness owed by or to the corporation, (iii) pay dissenting
shareholders entitled to payment for their shares under the TBCA or (iv) effect
the purchase or redemption of redeemable shares in accordance with the TBCA.
SECURITY OWNERSHIP OF ECI'S DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of ECI Common Stock
beneficially owned as of November 19, 1998 by each of the directors, the
executive officers, and all directors and executive officers as a group. Unless
otherwise noted, each of the named persons and members of the group has sole
voting rights and investment power with respect to the shares shown. As a result
of the Merger, all of the directors and executive officers of ECI will own less
than 1% of SCI Common Stock. Substantially all of the outstanding options held
by directors and executive officers of ECI are fully exercisable under
"change-in-control" provisions upon consummation of the merger.
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Shares of
Beneficial Common Stock
Name Position Ownership Outstanding
- ---- -------- --------- -----------
<S> <C> <C> <C>
James P. Hunter, III............................ Chairman, President and 734,540(1) 3.3%
Chief Executive Officer
Jack D. Rottman................................. Senior Vice President 206,650(2) *
--Corporate Development
W. Cardon Gerner................................ Senior Vice President 93,417(3) *
--Chief Financial Officer
Billy C. Wells.................................. Senior Vice President 77,375(4) *
--Funeral Operations
William C. McNamara............................. Senior Vice President 56,951(5) *
--Cemetery Operations
J. Patrick Doherty.............................. Secretary and Director 9,507(6) *
Jack T. Hammer.................................. Director 56,083(7) *
Thomas R. McDade................................ Director 17,583(8) *
Kenneth W. Smith................................ Director 49,645(9) *
Bob Bullock..................................... Director 3,333(10) --
All directors and executive officers as a
group (ten persons)............................. 1,305,084(11) 5.8%
</TABLE>
* Less than 1%
(1) Includes 256,400 shares of ECI Common Stock issuable upon the
exercise of options outstanding under ECI's 1994 Long-Term Incentive
Plan (the "Incentive Plan") that are exercisable within 60 days after
November 19, 1998. Does not include 236,100 shares of ECI Common
Stock issuable upon the exercise of options outstanding under the
Incentive Plan that are not exercisable within 60 days after November
19, 1998.
(2) Includes 141,400 shares of ECI Common Stock issuable upon the
exercise of options outstanding under the Incentive Plan that are
exercisable within 60 days after November 19, 1998. Does not include
89,850 shares of ECI Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are not exercisable
within 60 days after November 19, 1998.
(3) Includes 92,951 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 114,389
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(4) Includes 76,900 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 89,850
shares.
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of ECI Common Stock issuable upon the exercise of options outstanding
under the Incentive Plan that are not exercisable within 60 days
after November 19, 1998.
(5) Includes 52,500 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 96,250
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(6) Includes 5,833 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 16,667
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(7) Includes 14,583 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 15,417
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(8) Includes 14,583 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 15,417
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(9) Includes 33,333 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 15,417
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(10) Includes 3,333 shares of ECI Common Stock issuable upon the exercise
of options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. Does not include 11,667
shares of ECI Common Stock issuable upon the exercise of options
outstanding under the Incentive Plan that are not exercisable within
60 days after November 19, 1998.
(11) The shares of ECI Common Stock shown as beneficially owned by the
directors and executive officers as a group include an aggregate of
691,816 shares of ECI Common Stock issuable upon the exercise of
options outstanding under the Incentive Plan that are exercisable
within 60 days after November 19, 1998. The shares of ECI Common
Stock shown as beneficially owned do not include an aggregate 701,024
shares of ECI Common Stock issuable to the directors and executive
officers upon the exercise of options outstanding under the Incentive
Plan that are not exercisable within 60 days after November 19, 1998.
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<PAGE> 50
DESCRIPTION OF SCI CAPITAL STOCK
GENERAL
As of September 30, 1998, SCI had authorized capital stock consisting of
500,000,000 shares of SCI Common Stock and 1,000,000 shares of SCI Preferred
Stock. As of September 30, 1998, SCI had outstanding 257,820,737 shares of SCI
Common Stock, and 24,402,060 shares were reserved for future issuance. No shares
of SCI Preferred Stock were outstanding on such date.
The following description of SCI Common Stock does not purport to be complete
and is qualified in its entirety by reference to applicable provisions of Texas
law, the SCI Articles, the SCI Bylaws and the SCI Rights Plan.
SCI COMMON STOCK
Subject to the prior rights of holders of shares of SCI Preferred Stock, the
holders of shares of SCI Common Stock (i) are entitled to such dividends as may
be declared by the Board of Directors of SCI out of funds legally available
therefor; (ii) are entitled to one vote per share; (iii) have no preemptive or
conversion rights; (iv) are not subject to, or entitled to the benefits of, any
redemption or sinking fund provision; and (v) are entitled upon liquidation to
receive the assets of SCI remaining after the payment of corporate debts and the
satisfaction of liquidation preference of SCI Preferred Stock. Voting is
non-cumulative. The outstanding shares of SCI Common Stock are fully paid and
non-assessable.
Under the terms of the credit agreements between SCI and its bank lenders,
there are no restrictions upon the payment of cash dividends on, or the
repurchase of, SCI Common Stock; except that under the terms of credit
agreements with certain banks SCI is required to maintain a net worth (as
defined) in excess of $1.1 billion. This net worth requirement could from time
to time restrict the payment of dividends on SCI Common Stock. At September 30,
1998, SCI's net worth (as defined) was $3.004 billion.
The transfer agent and registrar for SCI Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
CERTAIN PROVISIONS AFFECTING CONTROL OF SCI
The SCI Articles contain various provisions that may be deemed to have an
anti-takeover effect. These provisions include the following: (i) the
requirement of a four-fifths vote of outstanding shares of capital stock (a) to
approve the merger or consolidation of SCI, or the exchange by SCI of its
securities, with a holder of 10% or more of SCI's capital stock, (b) to remove
directors with or without cause and (c) to amend or repeal any of these
provisions; (ii) the creation of a classified Board of Directors consisting of
three classes; (iii) the establishment of a minimum of nine and a maximum of
fifteen directors; (iv) the ability of the directors, by four-fifths vote, to
remove a director, subject to approval by a majority vote of the shareholders;
and (v) the right of directors to fill vacancies on the board without the
approval of shareholders.
SCI SHAREHOLDER RIGHTS PLAN
On July 28, 1998 (the "SCI Rights Plan Record Date"), SCI paid a dividend of
one SCI Right for each outstanding share of SCI Common Stock to the stockholders
of record on that date. Each SCI Right entitles the registered holder to
purchase from SCI one one-thousandth (1/1000) of a share of the Series D
Preferred Shares of SCI at a price of $220 per one one-thousandth of a Series D
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the SCI Rights are set forth in the SCI Rights Plan.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding SCI
Common Stock or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors of SCI prior to such time as any person or
group of affiliated persons becomes an Acquiring Person) following the
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<PAGE> 51
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding SCI Common
Stock (the earlier of such dates being called the "Distribution Date"), the SCI
Rights will be evidenced by such SCI Common Stock certificate with a copy of a
summary of the SCI Rights attached thereto.
The SCI Rights Plan provides that, until the Distribution Date (or earlier
redemption or expiration of the SCI Rights), the SCI Rights will be transferred
with and only with SCI Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the SCI Rights), new SCI Common Stock certificates
issued after the SCI Rights Plan Record Date upon transfer or new issuance of
SCI Common Stock will contain a notation incorporating the SCI Rights Plan by
reference. Until the Distribution Date (or earlier redemption or expiration of
the SCI Rights), the surrender for transfer of any certificates for SCI Common
Stock outstanding as of the SCI Rights Plan Record Date, even without such
notation or a copy of a summary of the SCI Rights being attached thereto, will
also constitute the transfer of the SCI Rights associated with SCI Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the SCI Rights ("SCI Rights
Certificates") will be mailed to holders of record of SCI Common Stock as of the
close of business on the Distribution Date and such separate SCI Right
Certificates alone will evidence the SCI Rights.
The SCI Rights are not exercisable until the Distribution Date. The SCI
Rights will expire on July 28, 2008 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the SCI Rights are earlier redeemed
or exchanged by SCI, in each case, as described below.
The Purchase Price payable, and the number of Series D Preferred Shares or
other securities or property issuable, upon exercise of the SCI Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series D Preferred Shares, (ii) upon the grant to holders of the Series D
Preferred Shares of certain rights or warrants to subscribe for or purchase
Series D Preferred Shares at a price, or securities convertible into Series D
Preferred Shares with a conversion price, less than the then-current market
price of the Series D Preferred Shares or (iii) upon the distribution to holders
of the Series D Preferred Shares of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in Series D Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding SCI Rights and the number of one one-thousandths of
a Series D Preferred Share issuable upon exercise of each SCI Right are also
subject to adjustment in the event of a stock split of SCI Common Stock or a
stock dividend on SCI Common Stock payable in SCI Common Stock or subdivisions,
consolidations or combinations of SCI Common Stock occurring, in any such case,
prior to the Distribution Date.
Series D Preferred Shares purchasable upon exercise of the SCI Rights will
not be redeemable. Each Series D Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 1,000 times the dividend declared per share of SCI
Common Stock. In the event of liquidation, the holders of the Series D Preferred
Shares will be entitled to a minimum preferential liquidation payment of $1,000
per share but will be entitled to an aggregate payment of 1,000 times the
payment made per share of SCI Common Stock. In the event of any merger,
consolidation or other transaction in which SCI Common Stock is exchanged, each
Series D Preferred Share will be entitled to receive 1,000 times the amount
received per share of SCI Common Stock. These rights are protected by customary
antidilution provisions. Each Series D Preferred Share will have one vote,
voting together with SCI Common Stock.
Because of the nature of the Series D Preferred Shares' dividend and
liquidation rights, the value of the one one-thousandth interest in a Series D
Preferred Share purchasable upon exercise of each SCI Right should approximate,
to some degree, the value of one share of SCI Common Stock.
In the event that SCI is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a SCI Right will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the SCI
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the SCI Right. In the event that
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<PAGE> 52
any person or group of affiliated or associated persons becomes an Acquiring
Person, proper provision shall be made so that each holder of a SCI Right, other
than SCI Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of SCI Common Stock having a market value of two times the
exercise price of the SCI Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding SCI
Common Stock, the Board of Directors of SCI may exchange the SCI Rights (other
than SCI Rights owned by such person or group which will have become void), in
whole or in part, at an exchange ratio of one share of SCI Common Stock (or of a
number of shares of preferred stock, or fraction thereof, having equivalent
value to one share of SCI Common Stock) per SCI Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional Series D Preferred Shares will be issued (other
than fractions which are integral multiples of one one-thousandth of a Series D
Preferred Share, which may, at the election of SCI, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Series D Preferred Shares on the last trading day prior to
the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding SCI
Common Stock, the Board of Directors of SCI may redeem the SCI Rights in whole,
but not in part, at a price of $.01 per SCI Right (the "Redemption Price"). The
redemption of the SCI Rights may be made effective at such time on such basis
with such conditions as SCI's Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the SCI Rights, the right to
exercise the SCI Rights will terminate and the only right of the holders of SCI
Rights will be to receive the Redemption Price.
The terms of the SCI Rights may be amended by the Board of Directors of SCI
without the consent of the holders of the SCI Rights, including an amendment to
lower the threshold for exercisability of the SCI Rights from 20% to not less
than the greater of (i) any percentage greater than the largest percentage of
the outstanding SCI Common Stock then known to SCI to be beneficially owned by
any person or group of affiliated or associated persons and (ii) 10%, except
that from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person no such amendment may adversely affect the
interests of the holders of the SCI Rights.
Until a SCI Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of SCI, including, without limitation, the right to vote
or to receive dividends.
The SCI Rights have certain anti-takeover effects. The SCI Rights will cause
substantial dilution to a person or group that attempts to acquire SCI without
conditioning the offer on a substantial number of SCI Rights being acquired. The
SCI Rights should not interfere with any merger or other business combination
approved by the Board of Directors of SCI since SCI's Board of Directors may, at
its option, at any time prior to the time a person has become an Acquiring
Person, redeem all but not less than all the then outstanding SCI Rights at the
Redemption Price.
SCI PREFERRED STOCK
The SCI Articles authorize SCI to issue up to 1,000,000 shares of SCI
Preferred Stock. The Board of Directors of SCI is empowered, without approval of
the shareholders, to cause shares of SCI Preferred Stock to be issued in one or
more series, with the number of shares of each series and the rights,
preferences and limitations of each series to be determined by it. Among the
specific matters that may be determined by SCI's Board of Directors are the rate
of dividends, redemption and conversion prices and terms and amounts payable in
the event of liquidation. Dividends on SCI Preferred Stock, both for the current
period and all past periods, must be paid or set apart for payment before any
dividends (other than in stock junior to SCI Preferred Stock) can be paid on SCI
Common Stock and before any other distribution on or redemption of any SCI
Common Stock by SCI. The holders of SCI Preferred Stock will be entitled to one
vote per share in the election of directors and on all matters submitted to
shareholders. SCI may not, without the approval of the holders of at least
two-thirds of the outstanding shares of SCI Preferred Stock (and subject to the
provisions of the SCI Articles referred to under "--Certain Provisions Affecting
Control of SCI"), among other things, amend or repeal any provision of, or add
any provision to, the SCI Articles or SCI Bylaws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, SCI Preferred Stock. Except for matters on which
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<PAGE> 53
SCI Preferred Stock is entitled to vote as a class, shares of outstanding SCI
Preferred Stock vote together with SCI Common Stock. Voting is noncumulative. If
dividends payable on any series shall be in arrears in an amount equivalent to
six dividend payments, the holders of SCI Preferred Stock voting as a class have
the right to elect two directors to SCI's Board of Directors to serve until all
past due dividends have been paid. Issuance of SCI Preferred Stock could involve
dilution of the equity of the holders of SCI Common Stock and restriction on the
rights of such shareholders to receive dividends. The Board of Directors of SCI
has designated and reserved for issuance 500,000 shares of SCI Preferred Stock
as Series D Preferred Shares, which may be issued upon the exercise of SCI
Rights that are associated with SCI Common Stock. See "--SCI Shareholder Rights
Plan."
LEGAL MATTERS
The validity of SCI Common Stock to be issued in connection with the Merger
will be passed upon by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. Certain tax
consequences of the Merger will be passed upon for ECI by Andrews & Kurth L.L.P.
EXPERTS
The consolidated balance sheets of SCI as of December 31, 1997 and 1996 and
the consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997, incorporated by
reference in this Proxy Statement/Prospectus, have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
The consolidated balance sheet of ECI as of December 31, 1997 and 1996 and
the consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997, incorporated
by reference in this Proxy Statement/Prospectus, have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, and unless the annual meeting is postponed
for any reason, proposals by a holder of ECI Common Stock to be presented at
ECI's 1999 annual meeting are required to be received by ECI by December 23,
1998 in order to be included in ECI's proxy statement.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SERVICE CORPORATION INTERNATIONAL,
SCI DELAWARE FUNERAL SERVICES, INC.,
AND
EQUITY CORPORATION INTERNATIONAL
<PAGE> 55
<TABLE>
<CAPTION>
Page
----
<S> <S> <C>
ARTICLE I THE MERGER...............................................................................A-1
Section 1.1. THE MERGER.................................................................A-1
Section 1.2. EFFECTIVE TIME OF THE MERGER...............................................A-1
ARTICLE II THE SURVIVING CORPORATION................................................................A-1
Section 2.1. CERTIFICATE OF INCORPORATION...............................................A-1
Section 2.2. BYLAWS.....................................................................A-1
Section 2.3. DIRECTORS..................................................................A-2
Section 2.4. OFFICERS...................................................................A-2
ARTICLE III CONVERSION OF SHARES.....................................................................A-2
Section 3.1. EFFECT ON CAPITAL STOCK....................................................A-2
Section 3.2. EXCHANGE OF CERTIFICATES...................................................A-3
Section 3.3. STOCK TRANSFER BOOKS.......................................................A-4
Section 3.4. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK........................A-4
Section 3.5. LOST, STOLEN OR DESTROYED CERTIFICATES.....................................A-5
Section 3.6. TAX AND ACCOUNTING CONSEQUENCES............................................A-5
Section 3.7. TAKING OF NECESSARY ACTION; FURTHER ACTION.................................A-5
Section 3.8. CLOSING....................................................................A-5
ARTICLE IV REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB......................................................A-5
Section 4.1. ORGANIZATION AND QUALIFICATION.............................................A-5
Section 4.2. CAPITALIZATION.............................................................A-5
Section 4.3. AUTHORITY; NON-CONTRAVENTION; APPROVALS....................................A-6
Section 4.4. REGISTRATION STATEMENT AND PROXY STATEMENT.................................A-7
Section 4.5. REPORTS AND FINANCIAL STATEMENTS...........................................A-7
Section 4.6. ABSENCE OF UNDISCLOSED LIABILITIES.........................................A-7
Section 4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.......................................A-8
Section 4.8. LITIGATION.................................................................A-8
Section 4.9. NO VIOLATION OF LAW........................................................A-8
Section 4.10. COMPLIANCE WITH AGREEMENTS................................................A-8
Section 4.11. ENVIRONMENTAL MATTERS.....................................................A-8
ARTICLE V REPRESENTATIONS AND WARRANTIES
OF THE COMPANY...........................................................................A-9
Section 5.1. ORGANIZATION AND QUALIFICATION.............................................A-9
Section 5.2. CAPITALIZATION.............................................................A-9
Section 5.3. SUBSIDIARIES...............................................................A-9
Section 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS...................................A-10
Section 5.5. REPORTS AND FINANCIAL STATEMENTS..........................................A-10
Section 5.6. ABSENCE OF UNDISCLOSED LIABILITIES........................................A-11
Section 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS......................................A-11
Section 5.8. LITIGATION................................................................A-11
Section 5.9. PROXY STATEMENT...........................................................A-11
Section 5.10. NO VIOLATION OF LAW......................................................A-11
Section 5.11. COMPLIANCE WITH AGREEMENTS...............................................A-12
Section 5.12. TAXES....................................................................A-12
Section 5.13. EMPLOYEE BENEFIT PLANS...................................................A-13
Section 5.14. LABOR MATTERS............................................................A-15
Section 5.15. ENVIRONMENTAL MATTERS....................................................A-15
Section 5.16. NON-COMPETITION AGREEMENTS...............................................A-15
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5.17. TITLE TO ASSETS..........................................................A-15
Section 5.18. MATERIAL CONTRACTS.......................................................A-16
Section 5.19. INVESTMENTS..............................................................A-16
Section 5.20. COMPANY STOCKHOLDERS' APPROVAL...........................................A-16
Section 5.21. BROKERS AND FINDERS.......................................................A-16
Section 5.22. INTELLECTUAL PROPERTY....................................................A-16
Section 5.23. YEAR 2000 COMPLIANCE.....................................................A-17
Section 5.24. OPINION OF FINANCIAL ADVISOR..............................................A-17
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER..................................................A-17
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.....................A-17
Section 6.2. CONTROL OF THE COMPANY'S OPERATIONS.......................................A-19
Section 6.3. ACQUISITION TRANSACTIONS..................................................A-19
Section 6.4. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER..........................A-19
ARTICLE VII ADDITIONAL AGREEMENTS...................................................................A-20
Section 7.1. ACCESS TO INFORMATION.....................................................A-20
Section 7.2. REGISTRATION STATEMENT AND PROXY STATEMENT................................A-20
Section 7.3. STOCKHOLDERS' APPROVALS...................................................A-20
Section 7.4. COMPLIANCE WITH THE SECURITIES;
ACT POOLING-OF-INTERESTS ACCOUNTING TREATMENT............................A-20
Section 7.5. EXCHANGE LISTING..........................................................A-20
Section 7.6. EXPENSES AND FEES.........................................................A-20
Section 7.7. AGREEMENT TO COOPERATE....................................................A-21
Section 7.8. PUBLIC STATEMENTS.........................................................A-22
Section 7.9. NOTIFICATION OF CERTAIN MATTERS...........................................A-22
Section 7.10. CORRECTIONS TO THE PROXY STATEMENT/PROSPECTUS
AND REGISTRATION STATEMENT..............................................A-22
Section 7.11. RIGHTS AGREEMENT.........................................................A-22
Section 7.12. DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION..........................A-22
Section 7.13. REORGANIZATION; ACCOUNTING TREATMENT. ..................................A-22
Section 7.14. ASSUMPTION OF COMPANY STOCK PLANS........................................A-23
Section 7.15. EXECUTION OF SUPPLEMENTAL INDENTURE; RESERVATION OF SHARES...............A-23
Section 7.16. EMPLOYMENT AGREEMENT.....................................................A-23
ARTICLE VIII CONDITIONS TO CLOSING...................................................................A-23
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER................A-23
Section 8.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER..............A-23
Section 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB TO
EFFECT THE MERGER.........................................................A-24
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.......................................................A-24
Section 9.1. TERMINATION...............................................................A-24
Section 9.2. EFFECT OF TERMINATION.....................................................A-26
Section 9.3. AMENDMENT.................................................................A-26
Section 9.4. EXTENSIONS; WAIVER........................................................A-26
ARTICLE X GENERAL PROVISIONS......................................................................A-26
Section 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES...........................A-26
Section 10.2. NOTICES..................................................................A-26
Section 10.3. INTERPRETATION...........................................................A-27
Section 10.4. MISCELLANEOUS............................................................A-27
Section 10.5. GOVERNING LAW............................................................A-28
Section 10.6. BINDING ARBITRATION. ...................................................A-28
Section 10.7. COUNTERPARTS.............................................................A-29
Section 10.8. PARTIES IN INTEREST......................................................A-29
Section 10.9. ENFORCEMENT OF THE AGREEMENT.............................................A-29
Section 10.10. CERTAIN DEFINITIONS.....................................................A-29
Section 10.11. VALIDITY................................................................A-31
</TABLE>
ii
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 6, 1998 (the
"Agreement"), is by and among Service Corporation International, a Texas
corporation ("Parent"), SCI Delaware Funeral Services, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Equity
Corporation International, a Delaware corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved the merger of Merger Sub with and into the Company
(the "Merger");
WHEREAS, Parent, Merger Sub and the Company intend the Merger to
qualify as a tax-free reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder; and
WHEREAS, Parent, Merger Sub and the Company intend that the Merger be
accounted for as a pooling-of-interests for financial reporting purposes.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
Section 1.1. THE MERGER. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with Delaware General Corporation Law (the "DGCL"), Merger Sub shall
be merged with and into the Company and the separate existence of Merger Sub
shall thereupon cease. The Company shall be the surviving corporation in the
Merger and is hereinafter sometimes referred to as the "Surviving Corporation."
Section 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as a certificate of merger is
filed with the Secretary of State of the State of Delaware in accordance with
the DGCL (the "Merger Filing"). The Merger Filing shall be made simultaneously
with or as soon as practicable after the Closing (as defined in Section 3.8) in
accordance with Article III. The parties acknowledge that it is their mutual
desire and intent to consummate the Merger as soon as practicable after the date
hereof, and in any event within five business days after the satisfaction, or
waiver, of all conditions to Closing set forth in Article VIII hereof, subject
to the terms and conditions hereof. Accordingly, subject to the provisions
hereof and to the fiduciary duties of their respective boards of directors, the
parties shall use all reasonable efforts to consummate, as soon as practicable,
the transactions contemplated by this Agreement in accordance with Article III.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
after the Effective Time, as the same may thereafter be amended in accordance
with its terms and as provided under the DGCL.
Section 2.2. BYLAWS. The Bylaws of the Company as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
after the Effective Time, as the same may thereafter be amended in accordance
with their terms and as provided by the Certificate of Incorporation of the
Surviving Corporation and the DGCL.
<PAGE> 58
Section 2.3. DIRECTORS. The directors of the Surviving Corporation
shall be as designated in Schedule 2.3, and such directors shall serve in
accordance with the Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
Section 2.4. OFFICERS. The officers of the Surviving Corporation shall
be as designated in Schedule 2.4, and such officers shall serve in accordance
with the Bylaws of the Surviving Corporation until their respective successors
are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) CONVERSION OF SECURITIES. Each share of the Company's
common stock, par value $.01 per share, issued and outstanding immediately prior
to the Effective Time ("Company Common Stock") (excluding any shares of Company
Common Stock to be canceled pursuant to Section 3.1(b)) shall be converted,
subject to Section 3.1(f), into the right to receive the number of validly
issued, fully paid and nonassessable shares of common stock, par value $1.00 per
share, of Parent ("Parent Common Stock") determined by dividing $27.00 by the
Average Parent Stock Price (as hereinafter defined); provided, however, that (i)
in the event the Average Parent Stock Price is greater than $41.50, the Company
Common Stock shall be converted, subject to Section 3.1(f), into the right to
receive the number of validly issued, fully paid and nonassessable shares of
Parent Common Stock determined by dividing $27.00 by $41.50, and (ii) in the
event the Average Parent Stock Price is less than $34.00, the Company Common
Stock shall be converted, subject to Section 3.1(f), into the right to receive
the number of validly issued, fully paid and nonassessable shares of Parent
Common Stock determined by dividing $27.00 by $34.00.
The capitalized terms used in this Section 3.1(a) shall have the
following meanings:
"Average Parent Stock Price" means the average of the Daily
Per Share Prices for the ten (10) consecutive trading days ending on
the third trading day prior to the Closing.
"Daily Per Share Price" for any trading day means the weighted
average of the per share selling prices on the New York Stock Exchange,
Inc. (the "NYSE") of Parent Common Stock (as reported in the NYSE
Composite Transactions) for that day.
(b) CANCELLATION. Each share of Company Common Stock held by
Parent, Merger Sub or any other direct or indirect Subsidiary of Parent (other
than shares held in trust or held for the benefit of anyone other than Parent,
Merger Sub or any other such Subsidiary), held in the treasury of the Company
and held by any direct or indirect wholly owned Subsidiary (as defined in
Section 10.10) of the Company, if any, immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) ASSUMPTION OF OUTSTANDING STOCK OPTIONS.
(i) Each option outstanding at the Effective Time To
purchase shares of Company Common Stock (a "Stock Option") granted under (A) the
Equity Corporation International Amended and Restated 1994 LongTerm Incentive
Plan, the Equity Corporation International 1998 Long-Term Incentive Plan and the
Equity Corporation International 1997 Employee Stock Purchase Plan
(collectively, the "Company Stock Plans"), or (B) any other stock plan or
agreement of the Company, which by its terms is not extinguished in the Merger,
upon the approval of the Committee directing such Company Stock Plan in
accordance with Section 7.14, shall be deemed assumed by Parent and deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Stock Option prior to the Effective Time, the number of
shares of Parent Common Stock as the holder of such Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time (not taking into account whether
or not such option was in fact exercisable), at a price per share equal to (x)
the aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Stock Option divided by (y) the number of shares of Parent
Common Stock deemed purchasable pursuant to such Stock Option if such
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Stock Option had been exercised immediately prior to the Closing Date without
regard to vesting; provided, however, that the number of shares of Parent Common
Stock that may be purchased upon exercise of any such Stock Option shall not
include any fractional share and, upon exercise of the Stock Option, a cash
payment shall be made for any fractional share based upon the Daily Per Share
Price on the trading day immediately preceding the date of exercise; provided,
further, in connection with the 1997 Employee Stock Purchase Plan, the
participants' options may be adjusted or exercised in accordance with the
provisions and intent of such plan. Prior to the Effective Time, the Company
shall not amend any of the Company Stock Plans, any other stock plan or
agreement of the Company or any Stock Option, or accelerate the vesting
provisions of any Stock Option, without the prior written consent of Parent.
(ii) As soon as practicable after the Effective Time,
Parent shall cause to be delivered to each holder of an outstanding Stock Option
an appropriate notice setting forth such holder's rights pursuant thereto as
assumed by Parent, and such Stock Option shall otherwise continue in effect on
the same terms and conditions.
(iii) Parent shall cause to be taken all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of Stock Options in accordance with this
Section 3.1(c). As soon as practicable after the Effective Time, Parent shall
cause the Parent Common Stock subject to the Stock Options to be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules of the Securities and Exchange Commission (the "SEC") thereunder pursuant
to a registration statement on Form S-8, as the case may be (or any successor or
other appropriate form), and shall use its reasonable efforts to cause the
effectiveness of such registration statement or registration statements (and the
current status of the prospectus or prospectuses contained therein) to be
maintained for so long as the Stock Options remain outstanding.
(d) CAPITAL STOCK OF MERGER SUB. Each share of common stock,
par value $.01 per share, of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock, $.01 par value per share, of the Surviving Corporation.
(e) ADJUSTMENTS TO MERGER CONSIDERATION. The Merger
Consideration (as defined in Section 3.2(b)) shall be appropriately adjusted to
reflect fully the effect of any stock split, reverse split, cash dividends
(other than regular cash dividends in the ordinary course of business, including
reasonable increases), stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock), property distribution (other
than regular cash dividends in the ordinary course of business, including
reasonable increases), reorganization, reclassification, recapitalization or
other similar change with respect to Parent Common Stock occurring (including
the record date thereof) after the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No certificates or scrip representing
less than one share of Parent Common Stock shall be issued upon the surrender
for exchange of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (the
"Certificates"). In lieu of any such fractional share, each holder of shares of
Company Common Stock who would otherwise have been entitled to a fraction of a
share of Parent Common Stock upon surrender of Certificates for exchange shall
be paid upon such surrender cash (without interest) in an amount equal to such
fraction multiplied by the Daily Per Share Price on the date of the Effective
Time.
Section 3.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall
appoint an agent, which shall be Parent's Transfer Agent or such other person or
persons reasonably satisfactory to the Company (the "Exchange Agent") for the
purpose of exchanging Certificates for the Merger Consideration (as defined in
Section 3.2(b)). As of the Effective Time, Parent will make available to the
Exchange Agent, as needed, the Merger Consideration to be paid in respect of
shares of Company Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable
after the Effective Time, Parent will instruct the Exchange Agent to mail to
each holder of record of Certificates (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify), and (ii) instructions to effect the surrender of
the Certificates in exchange for the certificates
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evidencing shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor (A) certificates evidencing that number of whole shares of
Parent Common Stock which such holder has the right to receive in accordance
with Section 3.1 hereof in respect of the shares of Company Common Stock
formerly evidenced by such Certificate, (B) any dividends or other distributions
to which such holder is entitled pursuant to Section 3.2(c), and (C) cash in
respect of fractional shares as provided in Section 3.1(f) (the shares of Parent
Common Stock and cash being, collectively, the "Merger Consideration"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Common Stock which is not registered
in the transfer records of the Company as of the Effective Time, shares of
Parent Common Stock, dividends or distributions as provided in Section 3.2(c),
and cash in respect of fractional shares as provided in Section 3.1(f), may be
issued and paid in accordance with this Article III to a transferee if the
Certificate evidencing such shares of Company Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer pursuant to this Section 3.2(b) and by evidence that any
applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
the Company Common Stock will be deemed from and after the Effective Time, for
all corporate purposes, to evidence the ownership of the number of full shares
of Parent Common Stock, and cash in respect of fractional shares, into which
such shares of the Company Common Stock shall have been so converted.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to shares of Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock they are entitled to receive until the
holder of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be paid
to the record holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock.
(d) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(e) NO LIABILITY. Neither Parent, Merger Sub nor the Company
shall be liable to any holder of Company Common Stock for any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) WITHHOLDING RIGHTS. Parent or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise payable
pursuant to this Agreement to any holder of Company Common Stock such amounts as
Parent or the Exchange Agent is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by Parent or
the Exchange Agent.
Section 3.3. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
Section 3.4. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of
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Company Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article III.
Section 3.5. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock as may be required pursuant to Section 3.1; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
Section 3.6. TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) subject to applicable accounting
standards, qualify for accounting treatment as a pooling of interests. The
parties hereto hereby adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.
Section 3.7. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of
Parent, Merger Sub and the Company will take all such reasonable and lawful
action as may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub in office immediately prior to the Effective Time
are fully authorized in the name of their respective corporations or otherwise
to take, and will take, all such lawful and necessary action.
Section 3.8. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually agreeable
to Parent and the Company in Houston, Texas as promptly as practicable (but in
any event within five business days) following the date on which the last of the
conditions set forth in Article VIII is fulfilled or waived, or at such other
time and place as Parent and the Company shall agree. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date."
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each represent and warrant to the Company as
follows:
Section 4.1. ORGANIZATION AND QUALIFICATION. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has the requisite corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted.
Parent is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the properties owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not have, or could not reasonably be anticipated to have, individually or
in the aggregate, a Material Adverse Effect (as defined in Section 10.10).
Section 4.2. CAPITALIZATION.
(a) As of June 30, 1998, the authorized capital stock of
Parent consisted of 500,000,000 shares of Parent Common Stock and 1,000,000
shares of preferred stock, par value $1.00 per share ("Parent Preferred Stock").
As of June 30, 1998, (i) 257,186,137 shares of Parent Common Stock were issued
and outstanding, all of which were validly issued and are fully paid,
nonassessable and free of preemptive rights, (ii) no shares of Parent Preferred
Stock were issued and outstanding and (iii) 66,363 shares of Parent Common Stock
and no shares of Parent Preferred Stock were held in the treasury of Parent.
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(b) As of June 30, 1998, except for options granted pursuant
to Parent incentive or option plans and convertible securities issued in
connection with acquisitions, there are no outstanding (i) securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent or (ii) options or other rights to acquire from Parent or
other obligations of Parent to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Parent.
(c) All of the shares of capital stock of Merger Sub are owned
beneficially and of record by Parent.
(d) The shares of Parent Common Stock to be issued as part of
the Merger Consideration have been duly authorized and when issued and delivered
in accordance with the terms of this Agreement, will have been validly issued
and will be fully paid and non-assessable, and the issuance thereof is not
subject to any preemptive or other similar right.
Section 4.3. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Parent and Merger Sub each have full corporate power and
authority to execute and deliver this Agreement and, subject to the Parent
Required Statutory Approvals (as defined in Section 4.3(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Boards
of Directors of Parent and Merger Sub, and no other corporate proceedings on the
part of Parent or Merger Sub, including, without limitation, any stockholder
approval, are necessary to authorize the execution and delivery of this
Agreement or the consummation by Parent and Merger Sub of the transactions
contemplated hereby, including, without limitation, under the applicable
requirements of any securities exchange. This Agreement has been duly executed
and delivered by each of Parent and Merger Sub, and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a valid
and legally binding agreement of each of Parent and Merger Sub enforceable
against each of them in accordance with its terms, except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub and the consummation by each of Parent and Merger Sub of
the transactions contemplated hereby do not and will not violate or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its Subsidiaries under any of the terms, conditions
or provisions of (i) the respective charters or bylaws of Parent or any of its
Subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Parent or any of its Subsidiaries or any of their
respective properties or assets (assuming compliance with the matters referred
to in Section 4.3(c)) or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
Subsidiaries is now a party or by which Parent or any of its Subsidiaries or any
of their respective properties or assets may be bound or affected except, in the
case of clauses (ii) and (iii), for matters as would not have, or could not
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect or materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
(c) Except for (i) the filings by Parent required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Proxy Statement/Prospectus (as defined in Section
4.4) with the SEC pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the Securities Act, and the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, and (iii) the making of the Merger Filing with the Secretary of
State of the State of Delaware in connection with the Merger (the filings and
approvals referred to in clauses (i) through (iii) are collectively referred to
as the "Parent Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Parent or Merger Sub or the consummation by Parent
or Merger Sub of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material
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Adverse Effect or materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
Section 4.4. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by Parent or its Subsidiaries for inclusion in (a)
the Registration Statement on Form S-4 to be filed under the Securities Act with
the SEC by Parent in connection with the Merger for the purpose of registering
the shares of Parent Common Stock to be issued in the Merger (the "Registration
Statement") or (b) the proxy statement to be distributed in connection with the
Company's meeting of its stockholders to vote upon this Agreement and the
transactions contemplated hereby (the "Proxy Statement" and, together with the
prospectus included in the Registration Statement, the "Proxy
Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, and at the time of
the meetings of stockholders of the Company to be held in connection with the
transactions contemplated by this Agreement, or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
Section 4.5. REPORTS AND FINANCIAL STATEMENTS.
(a) Since January 1, 1995, Parent has filed with the SEC all
material forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by it under each of the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder, all of which complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
(b) Parent has previously made available or delivered to the
Company copies of its (a) Annual Reports on Form 10-K for the fiscal year ended
December 31, 1997, and for the immediately preceding fiscal year, as filed with
the SEC, (b) proxy and information statements relating to (i) all meetings of
its shareholders (whether annual or special) and (ii) any actions by written
consent in lieu of a shareholders' meeting from January 1, 1998, until the date
hereof, and (c) all other reports, including quarterly reports, or registration
statements filed by Parent with the SEC since January 1, 1998 (other than
Registration Statements filed on Form S-8) (the documents referred to in clauses
(a), (b) and (c), including the exhibits thereto, collectively referred to as
the "Parent SEC Reports").
(c) As of their respective dates the Parent SEC Reports, as of
the effective date of any registration statement as amended or supplemented
filed by Parent, did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) The audited consolidated financial statements and
unaudited interim consolidated financial statements of Parent included in such
reports (collectively, the "Parent Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present in all material respects the consolidated financial position of Parent
and its Subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein.
Section 4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Neither Parent nor any
of its Subsidiaries has incurred any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except (a)
liabilities or obligations (i) which are provided for in the Parent Financial
Statements or reflected in the notes thereto or (ii) which were incurred after
March 31, 1998, and were incurred in the ordinary course of business and
consistent with past practices, (b) liabilities or obligations which have been
discharged or paid in full prior to the date hereof, (c) liabilities or
obligations which would not have, or could not reasonably be anticipated to
have, individually or in the aggregate, a Material Adverse Effect, (d)
liabilities or obligations under this Agreement and (e) liabilities or
obligations arising out of contractual obligations entered into in the ordinary
course of business which would not have, or could not reasonably be anticipated
to have, a Material Adverse Effect.
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Section 4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1997, the business of Parent has been conducted in the ordinary course of
business consistent with past practices, and there has not been any event,
occurrence, development or state of circumstances or facts which has had, or
could reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect.
Section 4.8. LITIGATION. There are no claims, suits, actions,
Environmental Claims (as defined in Section 10.10) or proceedings pending or, to
the Knowledge (as defined in Section 10.10) of Parent, threatened against,
relating to or affecting Parent or any of its Subsidiaries, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that would have, or could reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect. Neither Parent nor
any of its Subsidiaries is subject to any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or authority, or any arbitrator that would have, or could reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse
Effect.
Section 4.9. NO VIOLATION OF LAW. Neither the Parent nor any of its
Subsidiaries is in violation of or has been given notice or been charged with
any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable Environmental Law) of
any governmental or regulatory body or authority except for such matters as
would not have, or could not reasonably be anticipated to have, individually or
in the aggregate, a Material Adverse Effect. As of the date of this Agreement,
to the Knowledge of Parent, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same
except for such matters as would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse
Effect. Parent and its Subsidiaries have all permits (including without
limitation Environmental Permits (as defined in Section 10.10)), licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted (collectively, the "Parent Permits") except as would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect. Parent and its Subsidiaries are not in violation of the
terms of any Parent Permit except as would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse
Effect.
Section 4.10. COMPLIANCE WITH AGREEMENTS. Parent and each of its
Subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under, (a)
the respective charters, bylaws or similar organizational instruments of Parent
or any of its Subsidiaries or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which Parent or any of its Subsidiaries is a party or by
which any of them is bound or to which any of their property is subject except
as would not have, or could not reasonably be anticipated to have, individually
or in the aggregate, a Material Adverse Effect.
Section 4.11. ENVIRONMENTAL MATTERS. Except as set forth in the
Parent SEC Filings prior to the date hereof and except as would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect,
(a) no notice, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty has
been assessed, and no investigation, action, claim, suit, proceeding or review
is pending or, to the Knowledge of Parent, is threatened by any governmental
entity or other person relating to or arising out of any Environmental Law;
(b) Parent and its Subsidiaries are and have been in
compliance with all Environmental Laws and Environmental Permits; and
(c) there are no liabilities of or relating to Parent or any
of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise arising under or relating to any
Environmental Law and there are no facts, conditions, situations or set of
circumstances which could reasonably be expected to result in or be the basis
for any such liability.
For purposes of this Section, "Parent" and "its Subsidiaries" shall include any
entity which is, in whole or in part, a corporate predecessor of Parent or any
of its Subsidiaries.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that,
except as set forth in the disclosure schedule dated as of the date hereof and
attached hereto (the "Company Disclosure Schedule"), each of which exceptions
shall specifically identify the relevant Section hereof to which it relates:
Section 5.1. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
properties owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse
Effect. True, accurate and complete copies of the Company's Certificate of
Incorporation, as amended, and Bylaws, in each case as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Parent.
Section 5.2. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock and 10,000,000 shares of preferred
stock, par value $.01 per share ("Company Preferred Stock"). As of June 30,
1998, 21,420,717 shares of Company Common Stock, and no shares of Company
Preferred Stock were issued and outstanding. All of such issued and outstanding
shares of Company Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights. No Subsidiary of the Company holds
any shares of the capital stock of the Company.
(b) Except as set forth on the Company Disclosure Schedule, as
of the date hereof there are no outstanding (i) subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, debenture, instrument or other agreement and also including any rights
plan or other anti-takeover agreement, obligating the Company or any Subsidiary
of the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or obligating the
Company or any Subsidiary of the Company to grant, extend or enter into any such
agreement or commitment or (ii) obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any securities referred
to in clause (i) above. There are no voting trusts, proxies or other agreements
or understandings to which the Company or any Subsidiary of the Company is a
party or is bound with respect to the voting of any shares of capital stock of
the Company other than voting agreements executed in connection with this
Agreement.
Section 5.3. SUBSIDIARIES.
(a) Each direct and indirect corporate Subsidiary of the
Company has been duly organized, is validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized and in good standing would not have, or could not reasonably be
anticipated to have, when taken together with all such other failures, a
Material Adverse Effect. Each Subsidiary of the Company is qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have,
or could not reasonably be anticipated to have, when taken together with all
such other failures, a Material Adverse Effect.
(b) Except as set forth on the Company Disclosure Schedule,
(i) all of the outstanding shares of capital stock of each corporate Subsidiary
of the Company are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by the Company free and
clear of any liens, claims, encumbrances, security interests, equities, charges
and options of any nature whatsoever, and (ii) there are no subscriptions,
options, warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any
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corporate Subsidiary of the Company, including any right of conversion or
exchange under any outstanding security, instrument or agreement.
Section 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to the Company Stockholders'
Approval (as defined in Section 7.3) and the Company Required Statutory
Approvals (as defined in Section 5.4(c)), to consummate the transactions
contemplated hereby. This Agreement has been approved by the Board of Directors
of the Company, and no other corporate proceedings on the part of the Company
are necessary to authorize the execution and delivery of this Agreement or,
except for the Company Stockholders' Approval, the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Merger Sub, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (b) general equitable
principles.
(b) Except as set forth in the Company Disclosure Schedule,
the execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby do not and will not
violate or result in a breach of any provision of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any of its Subsidiaries
under any of the terms, conditions or provisions of (i) the respective charters
or bylaws of the Company or any of its Subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to the Company or
any of its Subsidiaries or any of their respective properties or assets
(assuming compliance with the matters referred to in Section 5.4(c)), or (iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any of its Subsidiaries is now a party or by which
the Company or any of its Subsidiaries or any of their respective properties or
assets may be bound or affected except, in the case of clauses (ii) and (iii),
for matters as would not have, or could not reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect or materially impair
the ability of the Company to consummate the transactions contemplated by this
Agreement.
(c) Except for (i) the filings by Parent and the Company
required by the HSR Act, (ii) the filing of the Proxy Statement/Prospectus with
the SEC pursuant to the Exchange Act and the Securities Act, the declaration of
the effectiveness by the SEC and filings with various state blue sky
authorities, and (iii) the making of the Merger Filing with the Secretary of
State of the State of Delaware in connection with the Merger (the filings and
approvals referred to in clauses (i) through (iii) are collectively referred to
as the "Company Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse Effect
or materially impair the ability of the Company to consummate the transaction
contemplated by this Agreement.
Section 5.5. REPORTS AND FINANCIAL STATEMENTS.
(a) Since January 1, 1995, the Company has filed with the SEC
all material forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by it under each of the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder, all of which complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
(b) The Company has previously made available or delivered to
Parent copies of its (a) Annual Reports on Form 10-K for the fiscal year ended
December 31, 1997, and for each of the two immediately preceding fiscal years,
as filed with the SEC, (b) proxy and information statements relating to (i) all
meetings of its stockholders (whether annual or special) and (ii) any actions by
written consent in lieu of a stockholders' meeting from January 1, 1998, until
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the date hereof, and (c) all other reports, including quarterly reports, or
registration statements filed by the Company with the SEC since January 1, 1998
(other than Registration Statements filed on Form S-8) (the documents referred
to in clauses (a), (b) and (c), including the exhibits filed therewith,
collectively referred to as the "Company SEC Reports"). There have been no
actions by written consent in lieu of a stockholders' meeting since January
1998.
(c) As of their respective dates, the Company SEC Reports, and
as of the effective date of any registration statement as amended or
supplemented filed by the Company, did not contain any untrue statement of any
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company included in
such reports (collectively, the "Company Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present in all material respects the consolidated financial position
of the Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended, subject,
in the case of the unaudited interim financial statements, to normal year-end
and audit adjustments and any other adjustments described therein.
Section 5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has incurred any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except (a) liabilities or obligations
(i) which are provided for in the Company Financial Statements or reflected in
the notes thereto or (ii) which were incurred after March 31, 1998, and were
incurred in the ordinary course of business and consistent with past practices,
(b) liabilities or obligations which have been discharged or paid in full prior
to the date hereof, (c) liabilities or obligations which would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect, (d) liabilities or obligations under this Agreement and
(e) liabilities or obligations arising out of contractual obligations entered
into in the ordinary course of business which would not have, or could not
reasonably be anticipated to have, a Material Adverse Effect.
Section 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1997, the business of the Company has been conducted in the ordinary course of
business consistent with past practices, and there has not been any event,
occurrence, development or state of circumstances or facts which has had, or
could reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect.
Section 5.8. LITIGATION. Except as described in the Company Disclosure
Schedule, there are no claims, suits, actions, Environmental Claims or
proceedings pending or, to the Knowledge of the Company, threatened against,
relating to or affecting the Company or any of its Subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator. Except as described in the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator.
Section 5.9. PROXY STATEMENT. None of the information to be supplied by
the Company or its Subsidiaries for inclusion in the Proxy Statement will, at
the time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meeting of stockholders of the Company to be
held in connection with the transactions contemplated by this Agreement, contain
any untrue statement of any material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply, as of its mailing date, as to form
in all material respects with all applicable laws, including the provisions of
the Exchange Act and the rules and regulations promulgated thereunder, except
that no representation is made by the Company with respect to information
supplied by Parent or Subsidiary for inclusion therein.
Section 5.10. NO VIOLATION OF LAW. Except as disclosed in the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is in
violation of or has been given notice or been charged with any violation of, any
law, statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable Environmental Law) of any governmental or regulatory
body or authority. Except as disclosed in the Company Disclosure Schedule, as of
the date of this Agreement, to the Knowledge of the Company, no investigation or
review by
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any governmental or regulatory body or authority is pending or threatened, nor
has any governmental or regulatory body or authority indicated an intention to
conduct the same. The Company and its Subsidiaries have all permits (including
without limitation Environmental Permits (as defined in Section 10.10)),
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted (collectively, the "Company Permits") except as would not
have, or could not reasonably be anticipated to have, individually or in the
aggregate, a Material Adverse Effect. The Company and its Subsidiaries are not
in violation of the terms of any Company Permit except as would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect.
Section 5.11. COMPLIANCE WITH AGREEMENTS. Except as disclosed in the
Company Disclosure Schedule, the Company and each of its Subsidiaries are not in
breach or violation of or in default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time or
action by a third party, could result in a default under, (a) the respective
charters, bylaws or similar organizational instruments of the Company or any of
its Subsidiaries or (b) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them is bound or to which any of their property is subject.
Section 5.12. TAXES.
(a) Except as set forth on the Company Disclosure Schedule,
(i) the Company and its Subsidiaries have (x) duly filed (or there has been
filed on their behalf) with the appropriate taxing authority all Tax Returns (as
hereinafter defined) required to be filed by them on or prior to the date
hereof, and (y) duly paid in full or made adequate provision therefor on their
financial statements in accordance with generally accepted accounting principles
("GAAP") (or there has been paid or adequate provision has been made on their
behalf) for the payment of all Taxes (as hereinafter defined) for all periods
ending through the date hereof; (ii) all such Tax Returns filed by or on behalf
of the Company and its Subsidiaries are true, correct and complete in all
material respects; (iii) the liabilities and reserves for Taxes reflected in the
balance sheet included in the latest Company SEC Report to cover all Taxes for
all periods ending at or prior to the date of such balance sheet have been
determined in accordance with GAAP, and there is no material liability for Taxes
for any period beginning after such date other than Taxes arising in the
ordinary course of business; (iv) there are no liens for Taxes upon any property
or assets of the Company or any Subsidiary thereof, except for liens for Taxes
not yet due; (v) neither the Company nor any of its Subsidiaries has made any
change in accounting methods since December 31, 1997; (vi) neither the Company
nor any of its Subsidiaries has received a ruling from any taxing authority or
signed an agreement with any taxing authority; (vii) the Company and its
Subsidiaries have complied in all respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code,
as amended or similar provisions under any foreign laws) and have, within the
time and the manner prescribed by law, withheld from employee wages and paid
over to the appropriate taxing authority all amounts required to be so withheld
and paid over under all applicable laws; (viii) no federal, state, local or
foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of the Company or its
Subsidiaries, and as of the date of this Agreement neither the Company nor its
Subsidiaries has received a written notice of any pending audits or proceedings;
(ix) the federal income Tax Returns of the Company and its Subsidiaries have
been examined by the Internal Revenue Service ("IRS") (which examination has
been completed) or the statute of limitations for the assessment of federal
income Taxes of the Company and its Subsidiaries has expired, for all periods
through and including December 31, 1993, and no deficiencies were asserted as a
result of such examinations which have not been resolved and fully paid; and (x)
no adjustments or deficiencies relating to Tax Returns of the Company and its
Subsidiaries have been proposed, asserted or assessed by any taxing authority,
except for such adjustments or deficiencies which have been fully paid or
finally settled or which, if imposed, would not have a Material Adverse Effect.
(b) There are no outstanding requests, agreements, consents or
waivers to extend the statute of limitations applicable to the assessment of any
Taxes or deficiencies against the Company or any of its Subsidiaries, and no
power of attorney granted by either the Company or any of its Subsidiaries with
respect to any Taxes is currently in force. Neither the Company nor any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes with any entity that is not directly or indirectly, a wholly-owned
corporate Subsidiary of the Company. Neither the Company nor any of its
Subsidiaries has, with regard to any assets or property held, acquired or to be
acquired by any of them, filed a consent to the application of Section 341(f) of
the Code, or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned
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by the Company or any of its Subsidiaries. Except as provided on the Company
Disclosure Schedule, the deductibility of compensation paid by the Company
and/or its Subsidiaries will not be limited by Section 162(m) of the Code.
Except as provided on the Company Disclosure Schedule, no payment to be made in
connection with the transactions contemplated by this Agreement will fail to be
deductible under Section 280G of the Code. None of the Company and its
Subsidiaries has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. None of the Company and its
Subsidiaries (i) has been a member of an affiliate group filing a consolidated
federal income Tax Return (other than a group the common parent of which was the
Company) or (ii) has any liability for Taxes of any person (other than any of
the Company and its Subsidiaries) under Section 1.1502-6 of the United States
Treasury Regulations (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract, or otherwise.
(c) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the IRS or
any other taxing authority (whether domestic or foreign including, without
limitation, any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)), whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments.
(d) "Tax Return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns and documents (i) with
respect to or accompanying payments of estimated Taxes or (ii) with respect to
or accompanying requests for the extension of time in which to file any such
report, return, document, declaration or other information.
Section 5.13. EMPLOYEE BENEFIT PLANS.
(a) The Company Disclosure Schedule lists, with respect to the
Company and its Subsidiaries and any trade or business (whether or not
incorporated) which is treated as a single employer with the Company (an "ERISA
Affiliate") within the meaning of Sections 414(b), (c), (m) or (o) of the Code,
(i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
subject to ERISA, (ii) each loan to a non-officer employee in excess of
$150,000, loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right other than individual account balances
under the 1997 Employee Stock Purchase Plan, (iii) all supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability, employee
relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section
129), life insurance or accident insurance, bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements
which are not employee benefit plans as otherwise covered under clause (i)
above, (iv) other fringe or employee benefit plans, programs or arrangements
that apply to senior management of the Company or its Subsidiaries and that do
not generally apply to all employees and (v) any current or former employment or
executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of the Company or its Subsidiaries remain for the
benefit of, or relating to, any present or former employee, consultant or
director of the Company or its Subsidiaries (together, the "Company Employee
Plans").
(b) Any Company Employee Plan intended to be qualified under
Section 401(a) of the Code has either obtained from the IRS a favorable
determination letter as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation for which plan amendments are required to have been made by the
Closing Date, or has applied or will apply to the IRS for such a determination
letter prior to the expiration of the requisite period under applicable Treasury
Regulations or IRS pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable determination.
Nothing has occurred since the issuance of the most recent IRS determination
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any Company Employee Plan subject to Code Section 401(a).
(c) (i) Other than continued health care coverage required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), none of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person except as set forth on
the Company Disclosure
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Schedule, and each Company Employee Plan may be amended or terminated at any
time without any Material Adverse Effect to the Company; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan; (iii) each
Company Employee Plan is in material compliance with the requirements prescribed
by any and all statutes, rules and regulations (including but not limited to
ERISA and the Code) and has been materially administered in accordance with its
terms and in material compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), and the Company
and each Subsidiary or ERISA Affiliate has performed all material obligations
required to be performed by them under, are not in any respect in default under
or violation of, and have no Knowledge of any default or violation by any other
party to, any of the Company Employee Plans that could reasonably be expected to
result in a Material Adverse Effect; (iv) all contributions required to be made
by the Company or any Subsidiary or ERISA Affiliate to any Company Employee Plan
have been made on or before their due dates, and a reasonable amount has been
accrued for contributions to each Company Employee Plan for the current plan
years; (v) with respect to each Company Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the 30 day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Sections 4062, 4063 or 4041 of ERISA
has occurred; and (vi) no Company Employee Plan is covered by, and neither the
Company nor any Subsidiary or ERISA Affiliate has incurred or could incur any
liability under, Title IV of ERISA or Section 412 of the Code. No suit,
administrative proceeding, action or other litigation has been brought, or to
the Knowledge of the Company, is threatened, against or with respect to any such
Company Employee Plan, including, without limitation, any audit or inquiry by
the IRS or Department of Labor. Except as disclosed on the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries or other ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "Multiemployer Plan," as defined in Section 3(37) of
ERISA, and no event (other than routine claims for benefits) has occurred and no
set of circumstances have occurred in connection with any Company Employee Plan
for which the Company or any of its affiliates or Subsidiaries could be subject
to any liability. The Company Disclosure Schedule sets forth a true and complete
list of each Multiemployer Plan to which the Company, its Subsidiaries or an
ERISA Affiliate may have an obligation to contribute. Neither the Company nor an
ERISA Affiliate nor any of their respective predecessors has incurred a
"complete withdrawal" or a "partial withdrawal" (as such terms are defined in
Sections 4203 and 4205 of ERISA) with respect to a Multiemployer Plan) that
could result in a material liability being imposed on the Company, its
Subsidiaries or any ERISA Affiliate. If the Company, any of its Subsidiaries or
any ERISA Affiliate were to completely withdraw from each Multiemployer Plan to
which one of them currently has an obligation to contribute, the aggregate
withdrawal liability assessed as a result thereof would not have a Material
Adverse Effect. No Multiemployer Plan to which the Company, its Subsidiaries or
any ERISA Affiliate have or had an obligation to contribute is in
reorganization, insolvent or has been terminated and no such Multiemployer Plan
is reasonably expected to be in reorganization, insolvent or terminated where
such reorganization, insolvency or termination could result in material
liability being imposed on the Company or its Subsidiaries. No Company Employee
Plan is funded through a 'welfare benefit fund' as such term is defined in Code
Section 419(e).
(d) With respect to each Company Employee Plan, the Company
and each of its Subsidiaries have complied in all material respects with (i) the
applicable health care continuation coverage and notice provisions of COBRA and
the proposed regulations thereunder, (ii) ERISA Section 609 and (iii) the
applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations thereunder.
(e) Except as set forth on the Company Disclosure Schedule,
the consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or other service provider of the Company,
any Subsidiary of the Company or any other ERISA Affiliate to severance benefits
or any other payment, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company, any Subsidiary of the
Company or other ERISA Affiliate relating to, or change in participation or
coverage under, the Company Employee Plans which would increase the expense of
maintaining such plan above the level of expense incurred with respect to that
plan for the most recent fiscal year included in the Company Financial
Statements which would have a Material Adverse Effect.
(g) No Company Employee Plan is a voluntary employee benefit
association under Section 501(c)(9) of the Code.
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(h) Except as disclosed on the Company Disclosure Schedule, no
Company Employee Plan covers persons employed outside the United States and no
such plan is subject to the laws of a foreign jurisdiction.
(i) The present value of benefits payable presently or in the
future to present or former employees of the Company or any of its Subsidiaries
or affiliates under any unfunded Company Employee Plan has been accounted for in
all material respects under the Company Financial Statements.
(j) With respect to each Company Employee Plan, all insurance
premiums required to be paid with respect to said plans as of the Effective Time
have been or will be paid prior to the Effective Time and adequate reserves have
been provided for on the Company's balance sheet for any premiums (or portions
thereof) attributable to service on or prior to the Effective Time.
Section 5.14. LABOR MATTERS. Except as set forth in the Company
Disclosure Schedule, (a) there are no material controversies pending or, to the
Knowledge of the Company, threatened between the Company or its Subsidiaries and
any of their employees other than routine individual grievances, and (b) neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement of other labor union contract applicable to persons employed by the
Company or its Subsidiaries, nor does the Company or any of its Subsidiaries
know of any activities or proceedings of any labor union to organize any such
employees.
Section 5.15. ENVIRONMENTAL MATTERS. Except as set forth in the
Company SEC Filings prior to the date hereof and except as would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect,
(a) no notice, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty has
been assessed, and no investigation, action, claim, suit, proceeding or review
is pending or, to the Knowledge of Company, is threatened by any governmental
entity or other person relating to or arising out of any Environmental Law;
(b) the Company and its Subsidiaries are and have been
in compliance with all Environmental Laws and Environmental Permits; and
(c) there are no liabilities of or relating to the Company or
any of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise arising under or relating to any
Environmental Law and there are no facts, conditions, situations or set of
circumstances which could reasonable be expected to result in or be the basis
for any such liability.
For purposes of this Section, the "Company" and "its Subsidiaries" shall include
any entity which is, in whole or in part, a corporate predecessor of the Company
or any of its Subsidiaries.
Section 5.16. NON-COMPETITION AGREEMENTS. Neither the Company nor any
Subsidiary of the Company is a party to any agreement which purports to restrict
or prohibit any of them from, directly or indirectly, engaging in any business
(including without limitation the funeral, cemetery or preneed insurance
businesses) currently engaged in by the Company or any of its Subsidiaries or,
to the Knowledge of the Company, the Parent or any of its Subsidiaries, or any
corporations affiliated with either of them. None of the Company's officers,
directors, or key employees is a party to any agreement which, by virtue of such
person's relationship with the Company, restricts the Company or any Subsidiary
of the Company from, directly or indirectly, engaging in any of the businesses
described above.
Section 5.17. TITLE TO ASSETS. Except as described in the Company
Disclosure Schedule, the Company and each of its Subsidiaries has good and
indefeasible title to all its material real property purported to be owned in
fee simple and good title to all its leasehold interests and other properties,
as reflected in the most recent balance sheet included in the Company Financial
Statements, except for properties and assets that have been disposed of in the
ordinary course of business since the date of the latest balance sheet included
therein, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (i) liens for current taxes,
payments of which are not yet delinquent, (ii) such imperfections in title and
easements and encumbrances, if any, as are not substantial in character, amount
or extent and do not detract from the value, or interfere with the present use
of the property subject thereto or affected
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thereby, or otherwise impair the Company's business operations (in the manner
presently carried on by the Company), or (iii) any lien securing any debt or
obligation described on the Company Disclosure Schedule which is expressly
referenced as being secured except as would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse
Effect. All leases under which the Company leases any substantial amount of real
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default by or on behalf of the Company or its Subsidiaries, or to the Knowledge
of the Company, by or on behalf of any third party except as would not have, or
could not reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect.
Section 5.18. MATERIAL CONTRACTS. All contracts (i) required to be
filed by the Company pursuant to Item 601 of Regulation S-K or (ii) granting the
right to do business exclusively with the Company or its Subsidiaries, or
imposing any exclusivity or minimum purchase or payment obligation on the
Company or its Subsidiaries, which obligations are not terminable upon not more
than 30 days' notice without material penalty by the Company or its
Subsidiaries, are in each case set forth as exhibits to the Company Disclosure
Schedule. All such contracts are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
material contracts, any existing default or event which with notice or lapse of
time or both would become a default by or on behalf of the Company or its
Subsidiaries, or to the Knowledge of the Company, by or on behalf of any third
party.
Section 5.19. INVESTMENTS.
(a) The Company and its Subsidiaries, and any preneed funeral
trust or similar entity established by the Company or any Subsidiary, have good
and marketable title to all securities, mortgages and other investments
(collectively, the "Investments") owned by the Company and its Subsidiaries and
any preneed funeral trust or similar entity established by the Company or any
Subsidiary.
(b) None of the Investments is in material default, and all
Investments held in any such trust or similar entity are in compliance with
industry regulatory standards and are owned and administered in accordance with
prudent man trust standards; and all Investments owned by the Company or any
Subsidiary are investment grade debt obligations or repurchase agreements having
a maturity of no more than 30 days.
Section 5.20. COMPANY STOCKHOLDERS' APPROVAL. The affirmative vote of
stockholders of the Company required for approval and adoption of this Agreement
and the Merger is a majority of the outstanding shares of Company Common Stock.
Section 5.21. BROKERS AND FINDERS. Except for the fees and expenses
payable to ABN AMRO Incorporated ("ABN AMRO"), which fees are reflected in its
agreement with the Company (a copy of which has been delivered to Parent), the
Company has not entered into any contract, arrangement or understanding with any
person or firm which may result in the obligation of the Company to pay any
finder's fees , brokerage or agent commissions or other like payments in
connection with the transactions contemplated hereby. Except for the fees and
expenses paid or payable to ABN AMRO, there is no claim for payment by the
Company of any investment banking fees, finder's fees, brokerage or agent
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
Section 5.22. INTELLECTUAL PROPERTY. The Company and its Subsidiaries
have rights to use, whether through ownership, licensing or otherwise, all
patents, trademarks, service marks, trade names, copyrights, trade secrets and
other proprietary rights and processes that are material to its business as now
conducted (collectively the "Intellectual Property Rights"). Except for such
matters as would not have, or could not reasonably be anticipated to have,
individually or in the aggregate, a Material Adverse Effect, (a) the Company and
its Subsidiaries have not assigned, hypothecated or otherwise encumbered any of
the Intellectual Property Rights, (b) none of the licenses included in the
Intellectual Property Rights purports to grant sole or exclusive licenses to
another person including, without limitation, sole or exclusive licenses limited
to specific fields of use, and (c) the Company and its Subsidiaries may freely
assign or transfer all licenses that it has with third parties to Parent or
Parent's Subsidiaries. Neither the Company nor any of its Subsidiaries owns any
patents. The Company has no knowledge of any infringement by any other person of
any of the Intellectual Property Rights, and the Company and its Subsidiaries
have not entered into any agreement to indemnify any other party against any
charge of infringement of any of the Intellectual Property Rights, except for
such matters as would
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not have, or could not reasonably be anticipated to have, individually or in the
aggregate, a Material Adverse Effect. The Company and its Subsidiaries have not
and do not violate or infringe any intellectual property right of any other
person, and neither the Company nor any of its Subsidiaries have received any
communication alleging that it violates or infringes the intellectual property
right of any other person except for such matters as would not have, or could
not reasonably be anticipated to have, a Material Adverse Effect. The Company
and its Subsidiaries have not been sued for infringing any intellectual property
right of another person. None of the Intellectual Property Rights or other
know-how relating to the business of the Company and its Subsidiaries, the value
of which to the Company is contingent upon maintenance of the confidentiality
thereof, has been disclosed by the Company or any Affiliate or Subsidiary
thereof to any person other than those persons who are bound to hold such
information in confidence pursuant to confidentiality agreements or by operation
of law.
Section 5.23. YEAR 2000 COMPLIANCE. The Company knows of no matter
which would prevent the Company or its Subsidiaries from becoming Year 2000
Compliant on or before September 30, 1999. "Year 2000 Compliant" means as to any
person or entity that all software, firmware, microprocessing chips and other
data processing devices and services (both as a recipient and as a provider),
capabilities and facilities utilized by, and material to the business operations
or financial condition of, that person or entity will be able to record and
process all calendar dates (whether before, in and after the year 2000)
correctly with four-digit year processing and will be able to communicate with
other applicable systems to accept any two-digit year date data in a manner that
resolves any ambiguities as to century in a properly defined manner.
Section 5.24. OPINION OF FINANCIAL ADVISOR. The Company's Board of
Directors has received a written opinion of its financial advisor to the effect
that the Merger Consideration to be paid in the Merger is fair from a financial
point of view to the stockholders of the Company.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.
Except as otherwise contemplated by this Agreement or disclosed in Section 6.1
of the Company Disclosure Schedule, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless Parent shall
otherwise agree in writing, the Company shall, and shall cause its Subsidiaries
to:
(a) conduct their respective businesses in the ordinary and
usual course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective
charters or bylaws, (ii) split, combine, reorganize, reclassify, recapitalize or
take any similar action with respect to their outstanding capital stock or (iii)
declare, set aside or pay any dividend or distribution payable in cash, stock,
property or otherwise, except for the payment of dividends or distributions by a
wholly-owned Subsidiary of the Company to the Company;
(c) comply in all material respects with all applicable laws,
including without limitation the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder;
(d) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional share of, or any options, warrants or
rights of any kind to acquire any share of their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, except that the Company may issue shares upon conversion of convertible
securities and exercise of options outstanding on the date hereof;
(e) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money other than (A) borrowing required for
working capital purposes in the ordinary course of business, (B) borrowing to
refinance existing indebtedness on terms which are reasonably acceptable to
Parent, or (C) borrowing to make new capital expenditures in the ordinary course
of business and otherwise permitted by this Section 6.1, (ii) redeem, purchase,
acquire or offer to redeem, purchase or acquire any shares of its capital stock
or any options, warrants or rights to acquire any of its capital stock or any
security convertible into or exchangeable for its capital stock, (iii) sell,
pledge, dispose of or encumber any of the assets or businesses of the Company
other than transactions in the ordinary course of business
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not exceeding $1,000,000 in any instance or $3,000,000 in the aggregate or (iv)
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(f) use all reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the services of
their respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(g) not enter into or amend any employment, severance, special
pay arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers, or key employees;
(h) with the exception of the adoption of or changes to, in
each case in the ordinary course of business, health insurance plans or casualty
insurance of the Company in progress on the date of this Agreement, not adopt,
enter into or amend any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, health care, employment or other
employee benefit plan, agreement, trust fund or arrangement for the benefit or
welfare of any employee or retiree, except as required to comply with changes in
applicable law or other provisions of this Agreement;
(i) use commercially reasonable efforts to maintain with
financially responsible insurance companies insurance on its tangible assets and
its businesses in such amounts and against such risks and losses as are
consistent with past practice;
(j) not make, change or revoke any material Tax election or
make any material agreement or settlement regarding Taxes with any taxing
authority;
(k) not make any change in the Company's or its Subsidiaries'
financial Tax or accounting methods, practices or policies, or in any assumption
underlying such a method, practice or policy;
(l) use its commercially reasonable efforts to cause the
transfer of Environmental Permits (on the same terms and conditions), and any
financial assurance required thereunder to Parent or Merger Sub as may be
necessary under applicable Environmental Laws in connection with the
consummation of the transactions under this Agreement to allow Parent or Merger
Sub to conduct the business of the Company and its Subsidiaries, as currently
conducted;
(m) not enter into or assume any contracts or agreements
having a term longer than one year (unless the Company may terminate such
contracts or agreements by 30 days' written notice without penalty to the
Company) or imposing a firm or uncancellable obligation upon the Company or its
Subsidiaries in excess of $250,000 annually or imposing a firm or uncancellable
obligation on the Company or its Subsidiaries of $500,000 or more in the
aggregate for all such contracts and agreements, regardless of the annual
payment, except for contracts or agreements for (1) indebtedness permitted under
Section 6.1(e) or (2) capital expenditures permitted under Section 6.1(q);
(n) maintain its books of account and records in the usual,
regular and ordinary manner consistent with past policies and practice;
(o) not compromise, settle, grant any waiver or release
relating to or otherwise adjust any material litigation or claims of any nature
whatsoever pending against the Company or its Subsidiaries;
(p) not take any action or omit to take any action, which
action or omission would result in a breach of any of the representations and
warranties set forth in this Agreement; and
(q) not make or commit to make any capital expenditures,
except for capital expenditures in the ordinary course of business not in excess
of $10,000,000 in the aggregate;
provided, however that nothing in this Section 6.1 shall be construed to
prohibit the Company or its Subsidiaries from acquiring funeral homes or
cemeteries in the ordinary course of business and any actions (including,
without limitation, incurring indebtedness, issuing capital stock, making
capital expenditures or entering into contracts in connection
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therewith) reasonably related to such acquisitions so long as the aggregate
consideration for all such acquisitions does not exceed $75,000,000.
Section 6.2. CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in
this Agreement shall give to Parent, directly or indirectly, rights to control
or direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
Section 6.3. ACQUISITION TRANSACTIONS.
(a) After the date hereof and prior to the Effective Time or
earlier termination of this Agreement, the Company shall not, and shall cause
each of its Subsidiaries not to, initiate, solicit, negotiate, encourage or
provide confidential information to facilitate, and the Company shall, and shall
cause each of its Subsidiaries to, cause any officer, director or employee of,
or any attorney, accountant, investment banker, financial advisor or other agent
retained by it, not to initiate, solicit, negotiate, encourage or provide
non-public or confidential information to facilitate, any proposal or offer to
acquire all or any substantial part of the business or properties of the Company
or any of its Subsidiaries or any capital stock of the Company or any of its
Subsidiaries, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
(such transactions being referred to herein as "Acquisition Transactions");
(b) Notwithstanding the provisions of paragraph (a) above, the
Company may, in response to an unsolicited written proposal with respect to an
Acquisition Transaction ("Acquisition Proposal"), furnish (subject to the
execution of a confidentiality agreement substantially similar to the
confidentiality provisions of the Confidentiality Agreement executed by Parent
in connection herewith for the benefit of the Company (the "Company
Confidentiality Agreement") confidential or non-public information concerning
its business, properties or assets to any corporation, partnership, person or
other entity or group (a "Potential Acquiror") and negotiate with such Potential
Acquiror if based upon advice of its outside legal counsel and financial
advisors, its Board of Directors determines in good faith that such action to
provide such confidential or non-public information to such Potential Acquiror
is necessary for the Company's Board of Directors to act in a manner which is
consistent with its fiduciary duties to its stockholders; provided, however,
that the Company is prohibited from providing to a Potential Acquiror any
confidential or non-public information not previously furnished to Parent.
Moreover, the Company's Board of Directors may take and disclose to the
Company's stockholders a position with respect to a tender offer by a third
party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
may make such other disclosures to the Company's stockholders which, as advised
by outside counsel, is required under applicable law. It is understood and
agreed that negotiations conducted in accordance with this paragraph (b) shall
not constitute a violation of paragraph (a) of Section 6.3.
(c) The Company shall immediately notify Parent after receipt
of any Acquisition Proposal or any request for non-public information relating
to the Company or its Subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any Subsidiary
by any person or entity that informs the Board of Directors of the Company or
such Subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Parent shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
Section 6.4. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. Parent
agrees that from the date hereof until the Effective Time, Parent and its
Subsidiaries shall conduct their business in the ordinary course consistent with
past practice and shall use their reasonable best efforts to preserve intact
their business organizations and relationships with third parties. Parent agrees
not to redeem or repurchase any Parent Common Stock during the period in which
the Average Parent Stock Price is being determined pursuant to Section 3.1(a),
except as required pursuant to the terms of any securities outstanding or
commitments in effect prior to the commencement of such period.
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. ACCESS TO INFORMATION. The Company and its Subsidiaries,
and Parent and its Subsidiaries, shall afford to the other party and their
respective accountants, counsel, financial advisors and other representatives
reasonable access during normal business hours throughout the period prior to
the Effective Time to all of their respective properties, books, contracts,
personnel, representatives of or contacts with governmental or regulatory
authorities, agencies or bodies, commitments, and records (including, but not
limited to, Tax Returns and any and all records or documents which are within
the possession of governmental or regulatory authorities, agencies or bodies,
and the disclosure of which the Company and its Subsidiaries can facilitate or
control) and, such parties as its representatives may reasonably request. Any
investigation pursuant to this Section shall be conducted in such manner as not
to interfere unreasonably with the conduct of the business of the Company and
Parent, as the case may be. No investigation pursuant to this Section shall
affect any representation or warranty made by any party.
Section 7.2. REGISTRATION STATEMENT AND PROXY STATEMENT. Parent and the
Company shall file with the SEC as soon as is reasonably practicable after the
date hereof the Proxy Statement/Prospectus and shall use their reasonable best
efforts to have the Registration Statement declared effective by the SEC as
promptly as reasonably practicable. Parent shall also take any action required
to be taken under applicable state blue sky or securities laws in connection
with the issuance of Parent Common Stock pursuant hereto. Parent and the Company
shall promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with any action by any of
them in connection with the preceding sentence.
Section 7.3. STOCKHOLDERS' APPROVALS. Subject to the fiduciary duties
of the Board of Directors of the Company under applicable law, the Company
shall, as promptly as practicable, submit this Agreement and the transactions
contemplated hereby for the approval and adoption of its stockholders at a
meeting of stockholders (the "Company Stockholders' Approval"). Such meeting of
stockholders shall be held as soon as practicable, and shall be referred to
herein as the "Company Stockholders' Meeting."
Section 7.4. COMPLIANCE WITH THE SECURITIES; ACT POOLING-OF-INTERESTS
ACCOUNTING TREATMENT. Within 45 days following the date of this Agreement, the
Company shall deliver to Parent a letter identifying all known persons who may
be deemed affiliates of the Company under Rule 145 of the 1933 Act. The Company
shall use its reasonable best efforts to cause each principal executive officer,
each director and each other person who is an "affiliate," as that term is used
in paragraphs (c) and (d) of Rule 145 under the Securities Act, of the Company,
to deliver to Parent on or prior to the Effective Time a written agreement in
form acceptable to Parent (an "Affiliate Agreement") to the effect that such
person will not offer to sell, sell or otherwise dispose of any shares of Parent
Common Stock issued in the Merger, except, in each case, pursuant to an
effective registration statement or in compliance with Rule 145, as amended from
time to time, or in a transaction which, in the opinion of legal counsel
satisfactory to Parent, is exempt from the registration requirements of the
Securities Act and, in any case, until after the results covering 30 days of
post-Merger combined operations of Parent and the Company have been filed with
the SEC, sent to stockholders of Parent or otherwise publicly issued.
Section 7.5. EXCHANGE LISTING. Parent shall use its reasonable best
efforts to effect, at or before the Effective Time, authorization for listing on
the NYSE, upon official notice of issuance, of the shares of Parent Common Stock
to be issued pursuant to the Merger or to be reserved for issuance upon the
exercise of Stock Options and the conversion of convertible securities.
Section 7.6. EXPENSES AND FEES.
(a) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except that (i) the filing fee and expenses incurred in
connection with the HSR filing shall be paid by Parent, (ii) all filing fees
incurred in connection with the filing of the Proxy and Registration Statement,
including any filing required under state blue sky or securities laws, shall be
paid by Parent, and (iii) those expenses incurred in connection with printing
the Proxy Statement/Prospectus shall be shared equally by Parent and the
Company.
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(b) Notwithstanding (a) above, the Company agrees to pay to
Parent (i) a fee equal to twenty million dollars ($20,000,000) plus (ii) all
documentable out-of-pocket costs and expenses incurred by Parent and Merger Sub
in connection with this Agreement and the transactions contemplated hereby,
including without limitation, all attorney's fees, accountant's fees and
broker's and investment banker's fees incurred in connection with this Agreement
and the transactions contemplated hereby (such costs and expenses not to exceed
two million dollars ($2,000,000)), if (A) the Company terminates this Agreement
pursuant to clause (v) or (vi) of Section 9.1(a); (B) Parent terminates this
Agreement pursuant to clause (iv) of Section 9.1(b); or (C) (1) Parent
terminates this Agreement pursuant to clause (v) of Section 9.1(b) or the
Company terminates this Agreement pursuant to clause (vii) of Section 9.1(a),
(2) on February 28, 1999 (if a vote has not earlier been held at the Company
Stockholders' Meeting), or at the time of such failure to so approve the Merger
or this Agreement, there shall exist or have been proposed an Acquisition
Proposal which has been publicly announced, and (3) within twelve months after
such termination, any Acquisition Transaction shall be consummated.
Notwithstanding any other provision in this Section 7.6(b), for purposes of this
Section 7.6(b)(C)(2) and (3) an Acquisition Proposal and an Acquisition
Transaction with respect to (i) the capital stock of the Company shall be for a
minimum of 25% or more of the outstanding shares of Company Common Stock, and
(ii) all or any substantial part of the business or properties of the Company
and its Subsidiaries shall be for a minimum of 25% or more of the business or
properties of the Company and its Subsidiaries, taken as a whole.
Section 7.7. AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable efforts to obtain all necessary, proper or advisable waivers,
consents and approvals under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including using
its reasonable efforts to obtain all necessary or appropriate waivers, consents
or approvals of third parties required in order to preserve material contractual
relationships of the Company and its Subsidiaries, all necessary or appropriate
waivers, consents and approvals and SEC "no-action" letters to effect all
necessary registrations, filings and submissions and to lift any injunction or
other legal bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible), subject, however, to the fiduciary duties of the
Board of Directors of the Company and Parent and the requisite vote of the
stockholders of the Company.
(b) Without limitation of the foregoing, each of Parent and
the Company undertakes and agrees to file as soon as practicable a Notification
and Report Form under the HSR Act with the Federal Trade Commission (the "FTC")
and the Antitrust Division of the Department of Justice (the "Antitrust
Division"). Each of Parent and the Company shall respond as promptly as
practicable to any inquiries received from the FTC or the Antitrust Division for
additional information or documentation and to all inquiries and requests
received from any State Attorney General or other governmental authority in
connection with antitrust matters. Without limiting the foregoing, Parent shall
propose, negotiate, commit to and effect, by consent decree, hold separate
order, or otherwise, the sale, divestiture or disposition of such assets or
businesses of Parent or, effective as of the Effective Time, the Surviving
Corporation as may be required in order to avoid the entry of, or to effect the
dissolution of, any injunction, temporary restraining order or other order in
any suit or proceeding, which would otherwise have the effect of preventing or
delaying the Closing; provided, however, that Parent shall not be required to
sell, divest, dispose of or hold separate assets or businesses with aggregate
1997 revenues in excess of $10,000,000. Each party shall promptly notify the
other party of any communication to that party from the FTC, the Antitrust
Division, any State Attorney General or any other governmental entity and permit
the other party to review in advance any proposed communication to any of the
foregoing.
(c) In the event any claim, action, suit, investigation or
other proceeding by any governmental body or other person or other legal or
administrative proceeding is commenced that questions the validity or legality
of the transactions contemplated hereby or seeks damages in connection
therewith, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their reasonable efforts to defend against and respond
thereto; provided, however, that in the event any claim, action, suit,
investigation or other proceeding is commenced against the Company or any
Subsidiary by any governmental body or other person or other legal or
administrative proceeding is commenced against the Company or any Subsidiary, in
each case under the HSR Act or pursuant to federal or state antitrust laws,
Parent shall have the right, at its own expense, to participate therein, and the
Company will not settle any such litigation without the consent of Parent, which
consent will not be unreasonably withheld.
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Section 7.8. PUBLIC STATEMENTS. The parties shall consult with each
other prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such press release or written public statement prior to such
consultation.
Section 7.9. NOTIFICATION OF CERTAIN MATTERS. Each of the Company,
Parent and Merger Sub agrees to give prompt notice to each other of, and to use
their respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect (or in all respects in the case of
any representation or warranty containing any materiality qualification) at any
time from the date hereof to the Effective Time and (ii) any material failure
(or any failure in the case of any covenant, condition or agreement containing
any materiality qualification) on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 7.9 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 7.10. CORRECTIONS TO THE PROXY STATEMENT/PROSPECTUS AND
REGISTRATION STATEMENT. Prior to the date of approval of the Merger by the
Company's stockholders, each of the Company, Parent and Merger Sub shall correct
promptly any information provided by it to be used specifically in the Proxy
Statement/Prospectus and Registration Statement that shall have become false or
misleading in any material respect and shall take all steps necessary to file
with the SEC and have declared effective or cleared by the SEC any amendment or
supplement to the Proxy Statement/Prospectus or the Registration Statement so as
to correct the same and to cause the Proxy Statement/Prospectus as so corrected
to be disseminated to the stockholders of the Company, in each case to the
extent required by applicable law.
Section 7.11. RIGHTS AGREEMENT. Prior to the Effective Time, the
Company shall take all necessary action to (i) render rights (the "Company
Rights") issued pursuant to the Stockholder Rights Agreement dated as of October
13, 1994 by and between the Company and American Stock Transfer & Trust Company,
as Rights Agent (as amended, the "Company Rights Agreement"), inapplicable to
the Merger, and (ii) ensure that (x) neither Parent nor any of its Affiliates
(as defined in the Company Rights Agreement) is an Acquiring Person (as defined
in the Company Rights Agreement) and (y) no Distribution Date, event listed in
Section 11(a)(ii), Section 13 Event, Shares Acquisition Date or Section
11(a)(ii) Triggering Date (each as defined in the Company Rights Agreement)
shall occur by reason of the approval, execution or delivery of this Agreement,
or the announcement or consummation of the Merger.
Section 7.12. DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION. For six
years after the Effective Time, Parent will, or will cause the Surviving
Corporation to, indemnify and hold harmless the present and former officers and
directors of the Company in respect of acts or omissions occurring prior to the
Effective Time to the extent provided under the Company's certificate of
incorporation and bylaws in effect on the date hereof. To the maximum extent
permitted by the DGCL, the Indemnified Parties shall be entitled to the
indemnification provided herein whether such indemnified liabilities shall be
based on their own negligence, whether such persons are solely, concurrently or
comparatively negligent, and whether under strict liability or any other theory
of recovery. For six years after the Effective Time, Parent will, or will cause
the Surviving Corporation to use its commercially reasonable efforts to provide
officers' and directors' liability insurance in respect of acts or omissions
occurring prior to the Effective Time covering each such person currently
covered by the Company's officers' and directors' liability insurance policy on
terms and with respect to coverage and amount no less favorable than those of
such policy in effect on the date hereof.
Section 7.13. REORGANIZATION; ACCOUNTING TREATMENT.
(a) Each party shall use its reasonable best efforts to not fail to
take any action either before or after the Effective Time which action or
failure would prevent, or would be likely to prevent, the Merger from qualifying
as a reorganization with the meaning of Section 368(a) of the Code, and the
Company shall use reasonable best efforts to obtain the opinion of counsel
referred to in Section 8.2(c) of this Agreement.
(b) The Company shall use its reasonable best efforts to (i) cause the
Merger to receive accounting treatment as a pooling-of-interests transaction,
(ii) obtain the opinions from PricewaterhouseCoopers LLP confirming the
accounting treatment of the Merger as a pooling-of-interests transaction, and
(iii) not to take any action reasonably likely to cause the Merger not to so
qualify.
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Section 7.14. ASSUMPTION OF COMPANY STOCK PLANS. In accordance with
each of the Company Stock Plans, the applicable Committee of the Company
thereunder shall approve and direct the assumption of awards pursuant to such
Stock Plans to be assumed by Parent, and Parent shall agree to and make such
assumptions or provide an equivalent option or award.
Section 7.15. EXECUTION OF SUPPLEMENTAL INDENTURE; RESERVATION OF
SHARES. Upon the consummation of the Merger, Parent shall use its reasonable
efforts to enter into a supplemental indenture with the trustee (the "Trustee")
for the holders of the Convertible Subordinated Debentures due 2004 (the
"Debentures") of the Company in accordance with Section 7.2 of the Indenture,
dated as of February 25, 1998 between the Company and Bankers Trust Company, as
trustee. Parent shall cause to be taken all corporate action for issuance of a
sufficient number of shares of Parent Common Stock for delivery upon conversion
of the Debentures.
Section 7.16. EMPLOYMENT AGREEMENT. At the Closing, upon execution and
delivery of the Employment Agreement (as defined in Section 8.3(d) below) by
James P. Hunter, III, Parent shall execute and deliver such Employment
Agreement. Parent agrees to use reasonable efforts to negotiate in good faith
the form of such Employment Agreement prior to the preliminary filing of the
Proxy Statement/Prospectus.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, if permissible, at or prior to the
Effective Time of the following conditions:
(a) the waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(b) no preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
Merger shall have been issued and remain in effect (each party agreeing to use
its reasonable efforts to have any such injunction, order or decree lifted);
(c) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal;
(d) the shares of Parent Common Stock issuable in the Merger
shall have been authorized for listing on the NYSE upon official notice of
issuance;
(e) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, any material state blue
sky or securities law shall have been complied with, and no stop order
suspending such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any state
regulatory authorities; and
(f) this Agreement and the Merger, shall have been approved
and adopted by the affirmative vote of the stockholders of the Company as
required by and in accordance with applicable law.
Section 8.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following additional conditions:
(a) Parent and Merger Sub shall have performed in all material
respects (or in all respects in the case of any agreement containing any
materiality qualification) their agreements contained in this Agreement required
to be performed on or prior to the Closing Date and the representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects (or in all respects in the case of any
representation or warranty containing any materiality qualification) on and as
of the date made and on and as of the
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Closing Date as if made at and as of such date, and the Company shall have
received a certificate executed on behalf of Parent by the President or a Vice
President of Parent and on behalf of Merger Sub by the President and Chief
Executive Officer or a Vice President of Merger Sub to that effect;
(b) Company shall have received a legal opinion from Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., in form reasonably satisfactory to Company,
except that no opinion shall be required with respect to the enforceability of
this Agreement; and
(c) the Company shall have received an opinion from the
Company's counsel, reasonably acceptable to the Company, to the effect that (i)
the Merger will qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Code; and (ii) the Company, the Parent and Merger Sub will
each be a "party to a reorganization" within the meaning of Section 368(b) of
the Code with respect to the Merger.
Section 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB TO
EFFECT THE MERGER. Unless waived by Parent and Merger Sub, the obligations of
Parent and Merger Sub to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects
(or in all respects in the case of any agreement containing any materiality
qualification) its agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects (or in all respects in the case of any representation or
warranty containing any materiality qualification) on and as of the date made
and on and as of the Closing Date as if made at and as of such date, and Parent
shall have received a certificate executed on behalf of the Company by the
President and Chief Executive Officer of the Company to that effect;
(b) since the date hereof, there shall have been no changes
that constitute, and no event or events shall have occurred which have resulted
in or constitute, a Material Adverse Effect;
(c) Parent shall have received a legal opinion from Andrews &
Kurth L.L.P., in form reasonably satisfactory to Parent, except that no opinion
shall be required with respect to the enforceability of this Agreement;
(d) James P. Hunter, III shall have entered into Employment
and Non-competition Agreements upon the terms and conditions set forth in
Schedule 8.3(d) (the "Employment Agreement") and otherwise in form reasonably
satisfactory to Parent, and shall have terminated his Consulting Agreement with
the Company dated September 10, 1996 and his Executive Severance Agreement with
the Company; and
(e) Parent shall have received an Affiliate Agreement from
each person identified as an "affiliate" pursuant to Section 7.4.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
stockholders of the Company as follows:
(a) The Company shall have the right to terminate this
Agreement:
(i) if the representations and warranties of Parent and Merger Sub shall
fail to be true and correct in all material respects (or in all
respects in the case of any representation or warranty containing any
materiality qualification) on and as of the date made or, except in the
case of any such representations and warranties made as of a specified
date, on and as of any subsequent date as if made at and as of
subsequent date and such failure shall not have been cured in all
material respects (or in all respects in the case of any representation
or warranty containing any materiality qualification) within 30 days
after written notice of such failure is given to Parent by the Company;
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(ii) if the Merger is not completed by February 28, 1999 (provided that the
right to terminate this Agreement under this Section 9.1(a)(ii) shall
not be available to the Company if the failure of the Company to
fulfill any obligation to Parent under or in connection with this
Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date);
(iii) if the Merger is enjoined by a final, unappealable court order;
(iv) if Parent or Merger Sub (A) fails to perform in any material respect
any of its covenants (or in all respects in the case of any covenant
containing any materiality qualification) in this Agreement and (B)
does not cure such default in all material respects (or in all respects
in the case of any covenant containing any materiality qualification)
within 30 days after written notice of such default is given to Parent
by the Company;
(v) if (A) the Company receives an offer from any third party (excluding
any affiliate of the Company or any group of which any affiliate of the
Company is a member) with respect to a merger, sale of substantial
assets or other business combination involving the Company, (B) the
Company's Board of Directors determines in good faith that such offer
constitutes an Acquisition Proposal which, if consummated pursuant to
its terms, would result in a transaction more favorable to the
Company's stockholders than the Merger (a "Superior Proposal") and
resolves to accept such Superior Proposal, and (C) the Company shall
have given Parent two (2) days' prior written notice of its intention
to terminate this Agreement pursuant to this provision, provided that
termination shall not be effective until such time as the payment
required by Section 7.6(b) shall have been received by Parent;
(vi) if (A) a tender or exchange offer is commenced by a third party
(excluding any affiliate of the Company or any group of which any
affiliate of the Company is a member) for all outstanding shares of
Company Common Stock, (B) the Company's Board of Directors determines
in good faith that such offer constitutes a Superior Proposal and
resolves to accept such Superior Proposal or recommend to the
stockholders that they tender their shares in such tender or exchange
offer, and (C) the Company shall have given Parent two (2) days' prior
written notice of its intention to terminate this Agreement pursuant to
this provision, provided that such termination shall not be effective
until such time as the payment required by Section 7.6(b) shall have
been received by Parent; or
(vii) if the requisite vote of the stockholders of the Company shall not have
been obtained by February 28, 1999, or if the stockholders of the
Company shall not have approved the Merger and this Agreement at the
Company Stockholders' Meeting, or any adjournment thereof.
(b) Parent shall have the right to terminate this Agreement;
(i) if the representations and warranties of the Company shall fail to be
true and correct in all material respects (or in all respects in the
case of any representation or warranty containing any materiality
qualification) on and as of the date made or, except in the case of any
such representations and warranties made as of a specified date, on and
as of any subsequent date as if made at and as of such subsequent date
and such failure shall not have been cured in all material respects (or
in all respects in the case of any representation or warranty
containing any materiality qualification) within 30 days after written
notice of such failure is given to the Company by Parent;
(ii) if the Merger is not completed by February 28, 1999 (provided that the
right to terminate this Agreement under this Section 9.1(b)(ii) shall
not be available to Parent if the failure of Parent to fulfill any
obligation to the Company under or in connection with this Agreement
has been the cause of or resulted in the failure of the Merger to occur
on or before such date);
(iii) if the Company (A) fails to perform in any material respect (or in all
respects in the case of any covenant containing any materiality
qualification) any of its covenants in this Agreement and (B) does not
cure such default in all material respects (or in all respects in the
case of any covenant containing any materiality qualification) within
30 days after notice of such default is given to the Company by Parent;
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(iv) if the Board of Directors of the Company shall have (A) recommended to
the stockholders of the Company to accept a Superior Proposal, or
resolved to do so; (B) recommended to the stockholders of the Company
that they tender their shares in a tender or exchange offer commenced
by a third party (excluding any affiliate of Parent or any group of
which any affiliate of Parent is a member), or resolved to do so; or
(C) withdrawn, modified or changed the recommendation of this Agreement
or the Merger in a manner adverse to Parent or shall have resolved to
do so, other than in connection with the exercise of the Company's
rights to terminate this Agreement under Section 9.1(a)(i) or
9.1(a)(iv) as a result of a material breach of a representation,
warranty or covenant; or
(v) if the requisite vote of the stockholders of the Company shall not have
been obtained by February 28, 1999, or if the stockholders of the
Company shall not have approved the Merger and this Agreement at the
Company Stockholders' Meeting, or any adjournment thereof.
(c) The Board of Directors of the Company and Parent mutually
agree.
Section 9.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company pursuant to the provisions of Section
9.1, this Agreement shall forthwith become void and there shall be no further
obligations on the part of the Company, Parent, Merger Sub or their respective
officers or directors (except as set forth in this Section 9.2 and in Sections
7.6, 10.5 and 10.6, all of which shall survive the termination). Nothing in this
Section 9.2 shall relieve any party from liability for any breach of this
Agreement. The Company Confidentiality Agreement and the Confidentiality
Agreement executed by the Company for the benefit of the Parent in connection
herewith (the "Parent Confidentiality Agreement") shall remain in full force and
effect following any termination of this Agreement.
Section 9.3. AMENDMENT. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Boards of
Directors of the Company, the Parent and the Merger Sub at any time before or
after adoption of this Agreement by the stockholders of the Company, but, after
any such stockholder approval, no amendment shall be made which decreases the
Merger Consideration or which adversely affects the rights of the Company's
stockholders hereunder without the approval of the stockholders of the Company.
This Agreement may not be amended except by an instrument in writing signed on
behalf of all of the parties.
Section 9.4. EXTENSIONS; WAIVER. At any time prior to the Effective
Time, the parties hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties in this Agreement shall not survive the Merger,
and after the Effective Time neither the Company, Parent, Merger Sub or their
respective officers or directors shall have any further obligation with respect
thereto. This Section 10.1 shall not limit any covenant or agreement of the
parties hereto which by its terms contemplates performance after the Effective
Time.
Section 10.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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(a) If to Parent or Merger Sub to:
Service Corporation International
P. O. Box 130548
1929 Allen Parkway
Houston, Texas 77219-0548
Attention: James M. Shelger
Telecopy: (713) 525-9067
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Marcus A. Watts
Telecopy: (713) 223-3717
(b) if to the Company, to:
Equity Corporation International
415 South First Street, Suite 210
Lufkin, Texas 75901
Attention: James P. Hunter, III
Telecopy: (409) 634-1041
with a copies to:
Andrews & Kurth L.L.P.
4200 Chase Tower, 600 Travis
Houston, Texas 77002-3090
Attention: William N. Finnegan, IV
Telecopy: (713) 220-4285
and
Doherty, Doherty & Adams L.L.P.
1717 St. James Place
Suite 520
Houston, Texas 77056
Attention: J. Patrick Doherty
Telecopy: (713) 572-1001
Section 10.3. INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
Section 10.4. MISCELLANEOUS. Except for the Company Confidentiality
Agreement and the Parent Confidentiality Agreement, this Agreement (including
the documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that, prior to filing the Proxy Statement with the SEC, Merger Sub may
assign this Agreement to any
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other wholly-owned Subsidiary of Parent incorporated in Delaware, but no such
assignment shall relieve the Parent or the Merger Sub, as the case may be, of
its obligations hereunder.
Section 10.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
Section 10.6. BINDING ARBITRATION.
(a) GENERAL. Notwithstanding any provision of this Agreement
to the contrary, upon the request of any party (defined for the purpose of this
provision to include affiliates, principles and agents of any such party), any
dispute, controversy or claim arising out of, relating to, or in connection
with, this Agreement or any agreement executed in connection herewith or
contemplated hereby, or the breach, termination, interpretation, or validity
hereof or thereof (hereinafter referred to as a "Dispute"), shall be finally
resolved by mandatory and binding arbitration in accordance with the terms
hereof. Any party to this Agreement may bring an action in court to compel
arbitration of any Dispute. Any party who fails or refuses to submit any Dispute
to binding arbitration following a lawful demand by the opposing party shall
bear all costs and expenses incurred by the opposing party in compelling
arbitration of such Dispute.
(b) GOVERNING RULES. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of the arbitration, except as they may be
modified herein or by mutual agreement of the parties. The seat of the
arbitration shall be Houston, Texas. Notwithstanding Section 10.5, the
arbitration and this clause shall be governed by the Federal Arbitration Act, 9
U.S.C. ss.ss. 1 et seq. (the "Federal Arbitration Act"). The arbitrator shall
award all reasonable and necessary costs (including the reasonable fees and
expenses of counsel) incurred in conducting the arbitration to the prevailing
party in any such Dispute. The parties expressly waive all rights whatsoever to
file an appeal against or otherwise to challenge any award by the arbitrators
hereunder; provided, that the foregoing shall not limit the rights of either
party to bring a proceeding in any applicable jurisdiction to confirm, enforce
or enter judgment upon such award (and the rights of the other party, if such
proceeding is brought to contest such confirmation, enforcement or entry of
judgment, but only to the extent permitted by the Federal Arbitration Act).
(c) NO WAIVER; PRESERVATION OF REMEDIES. No provision of, nor
the exercise of any rights under this Agreement shall limit the right of any
party to apply for injunctive relief or similar equitable relief with respect to
the enforcement of this Agreement or any agreement executed in connection
herewith or contemplated hereby, and any such action shall not be deemed an
election of remedies. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action for injunctive relief
or similar equitable relief shall not constitute a waiver of the right of any
party, including without limitation the plaintiff, to submit any Dispute to
arbitration nor render inapplicable the compulsory arbitration provisions of
this Agreement.
(d) ARBITRATION PROCEEDING. In addition to the authority
conferred on the arbitration tribunal by the rules specified above, the
arbitration tribunal shall have the authority to order reasonable discovery,
including the deposition of party witnesses and production of documents. The
arbitral award shall be in writing, state the reasons for the award, and be
final and binding on the parties. All statutes of limitations that would
otherwise be applicable shall apply to any arbitration proceeding. Any
attorney-client privilege and other protection against disclosure of
confidential information, including without limitation any protection afforded
the work-product of any attorney, that could otherwise be claimed by any party
shall be available to and may be claimed by any such party in any arbitration
proceeding. No party waives any attorney-client privilege or any other
protection against disclosure of confidential information by reason of anything
contained in or done pursuant to or in connection with this Agreement. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information to the parties' legal
counsel or auditors or those required by applicable law. The arbitrators shall
determine the matters in dispute in accordance with the substantive law of
Texas, without regard to conflict of law rules.
(e) APPOINTMENT OF ARBITRATORS. The arbitration shall be
conducted by three (3) arbitrators. The party initiating arbitration (the
"Claimant") shall appoint its arbitrator in its request for arbitration (the
"Request"). The other party (the "Respondent") shall appoint its arbitrator
within thirty (30) days after receipt of the Request and
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shall notify the Claimant of such appointment in writing. If the Respondent
fails to appoint an arbitrator within such thirty (30) day period, the
arbitrator named in the Request shall decide the controversy or claim as sole
arbitrator. Otherwise, the two (2) arbitrators appointed by the parties shall
appoint a third (3rd) arbitrator within thirty (30) days after the Respondent
has notified Claimant of the appointment of the Respondent's arbitrator. When
the third (3rd) arbitrator has accepted the appointment, the two (2)
party-appointed arbitrators shall promptly notify the parties of the
appointment. If the two (2) arbitrators appointed by the parties fail to appoint
a third (3rd) arbitrator or so to notify the parties within the time period
prescribed above, then the appointment of the third (3rd) arbitrator shall be
made by the American Arbitration Association, which shall promptly notify the
parties of the appointment. The third (3rd) arbitrator shall act as Chair of the
panel.
(f) OTHER MATTERS. This arbitration provision constitutes the
entire agreement of the parties with respect to its subject matter and
supersedes all prior discussions, arrangements, negotiations and other
communications on dispute resolution. This arbitration provision shall survive
any termination, amendment, renewal, extension or expiration of this Agreement
or any agreement executed in connection herewith or contemplated hereby unless
the parties otherwise expressly agree in writing. The obligation to arbitrate
any dispute shall be binding upon the successors and assigns of each of the
parties.
Section 10.7. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 10.8. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 10.9. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof.
Section 10.10. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, "Business Facility"
includes any property (whether real or personal) which the Company or any of its
Subsidiaries currently leases, operates, or owns or manages in any manner or
which the Company or any of its Subsidiaries or any of their respective
organizational predecessors formerly leased, operated, owned or managed in any
manner. To the extent any representations in Section 5.15 of this Agreement
apply to any Business Facility not currently leased, operated, owned, or
managed, such representations shall be deemed to be made to the best Knowledge
of the Company and its Subsidiaries.
(b) For purposes of this Agreement, "Environmental Claim"
means any claim; litigation; demand; action; cause of action; suit; loss; cost,
including, but not limited to, attorneys' fees, diminution in value, and
expert's fees; damage; punitive damage; fine, penalty, expense, liability,
criminal liability, strict liability, judgment, governmental or private
investigation and testing; notification of status of being potentially
responsible for clean-up of any facility or for being in violation or in
potential violation of any Requirement of Environmental Law; proceeding; consent
or administrative orders, agreements or decrees; lien; personal injury or death
of any person; or property damage, whether threatened, sought, brought or
imposed, that is related to or that seeks to recover losses, damages, costs,
expenses and/or liabilities related to, or seeks to impose liability for: (i)
improper use of treatment of wetlands, pinelands or other protected land or
wildlife; (ii) noise; (iii) radioactive materials (including naturally occurring
radioactive materials ["NORM"]; (iv) explosives; (v) pollution, contamination,
preservation, protection, decontamination, remediation or clean-up of the air,
surface water, groundwater, soil or protected lands; (vi) solid, gaseous or
liquid waste generation, handling, discharge, release, threatened release,
treatment, storage, disposal or transportation; (vii) exposure of persons or
property to Materials of Environmental Concern and the effects thereof; (viii)
the release or threatened release (into the indoor or outdoor environment),
generation, extraction, mining, beneficiating, manufacture, processing,
distribution in commerce, use, transfer, transportation, treatment, storage,
disposal of Remediation of Materials of Environmental Concern; (ix) injury to,
death of or threat to the health or safety of any person or persons caused
directly or indirectly by Materials of Environmental Concern; (x) destruction
caused directly or indirectly by Materials of Environmental Concern or the
release or threatened release of any Materials of Environmental Concern or any
property (whether real
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or personal); (xi) the implementation of spill prevention and/or disaster plans
relating to Material of Environmental Concern; (xiii) community right-to-know
and other disclosure laws; or (xiii) maintaining, disclosing or reporting
information to Governmental Authorities of any other third person under any
Environmental Law. The term, "Environmental Claim," also includes, without
limitation, any losses, damages, costs, expenses and/or liabilities incurred in
testing.
(c) For purposes of this Agreement, "Environmental Law" means
any federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, legal doctrine,
guidance document, order, consent agreement, order or consent judgment, decree,
injunction, requirement or agreement with any governmental entity or any
judicial or administrative decision relating to (x) the protection, preservation
or restoration of the environment (including, without limitation, air, water,
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or to
human health or safety, (y) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Materials of Environmental Concern, in each
case as amended from time to time, or (z) health, worker protection or
community's right to know. The term "Environmental Law" includes, without
limitation, (i) the Federal Comprehensive Environmental Response Compensation
and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the
Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of
1976 (including the hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal Act and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Occupational
Safety and Health Act of 1970, each as amended from time to time, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of or exposure to any
Materials of Environmental Concern.
(d) For purposes of this Agreement, "Environmental Permits"
means all permits, licenses, certificates, registrations, identification
numbers, applications, consents, approvals, variances, notices of intent, and
exemptions necessary for the ownership, use and/or operation of any current
Business Facility to comply with Requirements of Environmental Laws.
(e) For purposes of this Agreement, "Intellectual Property"
includes all fictitious business names, trade names, brand names, registered and
unregistered trademarks, service marks and applications, all patents and patent
applications, all copyrights in both published works and unpublished works, and
all inventions, processes, formulas, patterns, designs, know-how, trade secrets,
confidential information, software, technical information, process technology,
plans, drawings and blue prints owned, used or licensed by the Company or its
Subsidiaries as licensee or licensor.
(f) For purposes of this Agreement, when such term is used in
connection with the Company or its Subsidiaries, "Knowledge" means the actual
knowledge after reasonable inquiry of the persons listed on Schedule
10.10(f)(i); when used in connection with Parent or its Subsidiaries,
"Knowledge" means the actual knowledge after reasonable inquiry of the persons
listed on Schedule 10.10(f)(ii).
(g) When used in this Agreement in connection with the Company
and its Subsidiaries, or Parent and its Subsidiaries, as the case may be,
"Material Adverse Effect" means any event, occurrence, fact, condition, change,
development or effect that is or could reasonably be anticipated to be
materially adverse to the business, assets (including intangible assets),
liabilities, financial condition, results of operations, properties (including
intangible properties) or business prospects of the Company and all of its
Subsidiaries or the Parent and all of its Subsidiaries, as applicable, taken as
a whole, excluding specifically any such event, occurrence, fact, condition,
change, development or effect resulting from (a) changes in general economic or
political conditions, (b) changes generally applicable to companies engaged in
businesses or industries similar to those in which the Company and its
Subsidiaries and Parent and its Subsidiaries are engaged, or (c) solely with
reference to the Company and its Subsidiaries, as a result of the public
announcement of the Merger, (1) the failure by the Company or its Subsidiaries
to consummate pending or new acquisitions or (2) the termination of employment
by employees of the Company or its Subsidiaries.
(h) For purposes of this Agreement, "Materials of
Environmental Concern" means: (i) those substances included within the statutory
and/or regulatory definitions or listings of "hazardous substance," "medical
waste," "special waste," "hazardous waste," "extremely hazardous substance,"
"regulated substance," "hazardous
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materials," or "toxic substances," under any Environmental Law; (ii) any
material, waste or substance which is or contains: (A) petroleum, oil or a
fraction thereof, (B) explosives, (C) radioactive materials (including naturally
occurring radioactive materials), or (D) solid wastes that pose imminent and
substantial endangerment to health or the environment; and (iii) such other
substances, materials, or wastes that are or become classified or regulated as
hazardous or toxic under any applicable federal, state or local law or
regulation. To the extent that the laws or regulations of any applicable state
or local jurisdiction establish a meaning for any term defined herein through
reference to federal Environmental Laws which is broader than the meaning under
such federal Environmental Laws, such broader meaning shall apply.
(i) For purposes of this Agreement, "Remediation" means any
action necessary to: (i) comply with and ensure compliance with the Requirements
of Environmental Laws and (ii) the taking of all reasonably necessary
precautions to protect against and/or respond to, remove or remediate or monitor
the release or threatened release of Materials of Environmental Concern at, on,
in, about, under, within or near the air, soil, surface water, groundwater or
soil vapor at any Business Facility of the Company or any of its Subsidiaries or
of any public domain affected by the business of the Company or any of its
Subsidiaries.
(j) For purposes of this Agreement, "Requirement(s) of
Environmental Law(s)"means all requirements, conditions, restrictions or
stipulations of Environmental Laws imposed upon or related to the Company or any
of its Subsidiaries or the assets and/or the business of the Company or any of
its Subsidiaries.
(k) For purposes of this Agreement, "Subsidiary" shall mean,
when used with reference to an entity, any other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions, or a
majority of the outstanding voting securities of which, are owned directly or
indirectly by such entity.
Section 10.11. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-31
<PAGE> 88
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers and attested to as of the
date first written above.
SERVICE CORPORATION INTERNATIONAL
By: /s/ L. WILLIAM HEILIGBRODT
-------------------------------------------
Name: L. William Heiligbrodt
-----------------------------------------
Title: President and Chief Operating Officer
----------------------------------------
SCI DELAWARE FUNERAL SERVICES, INC.
By: /s/ CURTIS G. BRIGGS
-------------------------------------------
Name: Curtis G. Briggs
-----------------------------------------
Title: President
----------------------------------------
EQUITY CORPORATION INTERNATIONAL
By: /s/ JAMES P. HUNTER, III
-------------------------------------------
Name: James P. Hunter, III
-----------------------------------------
Title: President
----------------------------------------
[EXHIBITS OMITTED]
<PAGE> 89
APPENDIX B
FAIRNESS OPINION OF FINANCIAL ADVISOR
ABN AMRO ABN AMRO INCORPORATED
208 South LaSalle Street
Chicago, Illinois 60604-1003
(312) 855-7600
November 20, 1998
Board of Directors
Equity Corporation International
415 South First Street, Suite 210
Lufkin, Texas 75901
Members of the Board:
We understand that Equity Corporation International (the "Company"), Service
Corporation International (the "Parent") and SCI Delaware Funeral Services,
Inc., a wholly owned subsidiary of the Parent (the "Merger Sub"), have entered
into an Agreement and Plan of Merger dated August 6, 1998 (the "Merger
Agreement") pursuant to which Merger Sub will be merged with and into the
Company in a transaction (the "Merger") in which each issued and outstanding
share of common stock of the Company, $0.01 par value per share (the "Company
Common Stock"), will be converted into the right to receive shares of common
stock of the Parent, $1.00 par value per share (the "Parent Common Stock"),
according to an applicable ratio as specified in the Merger Agreement (the
"Exchange Ratio"). You have asked us whether, in our opinion, the Exchange Ratio
to be received by the holders of the Company Common Stock in the Merger is fair
to such stockholders from a financial point of view.
As specified in the Merger Agreement, the Exchange Ratio will be determined by
dividing $27.00 by the Average Parent Stock Price; provided, however, that (i)
in the event the Average Parent Stock Price (determined based on the average of
the daily weighted average of the per share selling prices on the New York Stock
Exchange for the Parent Common Stock for the ten (10) consecutive trading days
ending on the third trading day prior to Closing) is greater than $41.50, the
Exchange Ratio shall be 0.65060, and (ii) if the Average Parent Stock Price is
less than $34.00, the Exchange Ratio shall be 0.79412.
In connection with this opinion, we have reviewed the Merger Agreement and
certain related documents and held discussions with certain senior officers and
other representatives and advisors of the Company and certain senior officers
and other representatives of the Parent concerning the businesses, operations
and prospects of the Company and the Parent. We examined certain publicly
available business and financial information relating to the Company and the
Parent as well as certain financial data and other data for the Company and
certain financial information and other data related to the Parent which were
provided to or otherwise discussed with us by the respective managements of the
Company and the Parent. We reviewed the financial terms of the Merger as set
forth in the Merger Agreement in relation to: (i) current and historical market
prices and trading volumes of the Company Common Stock and the Parent Common
Stock; (ii) the respective companies' financial and other operating data; and
(iii) the capitalization and financial condition of the Company and the Parent.
We also considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which we considered
relevant in evaluating the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of the
Company and the Parent.
<PAGE> 90
ABN AMRO
NOVEMBER 20, 1998
Page 2 of 2
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by us and we have
not made or obtained or assumed any responsibility for independent verification
of such information. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or the Parent or any of
their respective subsidiaries. With respect to the financial data, we have
assumed that it has been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of the Company
and the Parent as to the future financial performance of the Company or the
Parent, as the case may be. We have assumed that the Merger will be consummated
in accordance with the terms of the Merger Agreement including, among other
things, that the Merger will be accounted for as a tax-free reorganization for
federal income tax purposes. We are not expressing any opinion as to what the
value of the Parent Common Stock actually will be when issued to the Company's
stockholders pursuant to the Merger or the price at which the Parent Common
Stock will trade subsequent to the Merger.
ABN AMRO Incorporated ("ABN AMRO"), as part of its investment banking business,
is continually engaged in the valuation of businesses in connection with mergers
and acquisitions, as well as public offerings and secondary market transactions
of securities and valuations for other purposes. We have acted as financial
advisor to the Board of Directors of the Company in connection with this
transaction and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger. In the ordinary course of our business, ABN AMRO and its affiliates
may actively trade securities of both the Company and Parent for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Merger and may not be used
for any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose without our prior written consent, except
that this letter may be used as part of any proxy statement/prospectus relating
to the Merger. This letter does not address the Company's underlying business
decision to enter into the Merger or constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the proposed
Merger. Finally, our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us,
as of the date hereof, and we assume no responsibility to update or revise our
opinion based upon circumstances or events occurring after the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
stockholders of the Company.
Very truly yours,
/s/ ABN AMRO Incorporated
ABN AMRO Incorporated
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article 2.02-1 of the TBCA, each current and former director and
officer of a corporation, or each person who served at request as a director or
officer of a subsidiary of a corporation, shall be indemnified for liabilities
imposed upon him, expenses reasonably incurred by him in connection with any
claim made against him, or any action, suit or proceeding to which he may be a
party by reason of being or having been a director or officer, and for any
reasonable settlement of any such claim, action suit or proceeding. The TBCA
further provides that a corporation may undertake any indemnification of a
director or officer only if it is determined that such person (i) conducted
himself in good faith, (ii) reasonably believed that, in the case of conduct in
his official capacity as a director, that his conduct was in the corporation's
best interests, and in all other cases, that his conduct was at least not
opposed to the corporation's best interests, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful, and that a corporation must indemnify a director against reasonable
expenses incurred by him in connection with a proceeding in which he is a named
defendant because he is or was a director if he has been wholly successful in
the defense of the proceeding. The SCI Bylaws provide that each director and
officer of SCI and any person who may have served at the request of SCI as a
director or officer of another corporation in which SCI owns shares or of which
it is a creditor shall be indemnified by SCI against any costs and expenses,
including counsel fees, actually and necessarily incurred in connection with the
defense of any civil, criminal, administrative, or other claim, action, suit, or
proceeding, whether by or in the right of SCI or otherwise, in which he may
become involved or with which he may be threatened by reason of his being or
having been a director or officer of SCI or by reason of his serving or having
served at the request of SCI as a director or officer of another corporation as
aforesaid, provided that, in connection with such matter, the said director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of SCI and, with respect to any criminal
action or proceedings, had no reasonable cause to believe his conduct was
unlawful. The SCI Bylaws further provide that costs and expenses indemnified
shall included payments in settlement or in satisfaction of any judgment, fine
or penalty. The SCI Bylaws further provide that the termination of any action,
suit, or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or equivalent shall not, of itself, create a presumption that
the director, officer, or representative did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
SCI, or with respect to any criminal action or proceeding that he had reasonable
cause to believe his conduct was unlawful. The SCI Bylaws further provide that,
to the extent permitted by law, expenses incurred in connection with a civil,
criminal, administrative or investigative action, suit or proceeding, or threat
thereof, may be paid by SCI in advance of the final disposition of such action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by SCI.
The TBCA provides that Texas corporations may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of such corporation for any liability asserted against him, whether or not
the corporation would have the power to indemnify him against liability under
the TBCA. The SCI Bylaws provide that SCI shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of SCI, or is or was serving at the request of SCI as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation itself would have the power to indemnify him
against such liability under law.
SCI has entered into Indemnification Agreements with each of its
directors and executive officers. Such Indemnification Agreements provide that
such persons (the "Indemnitees") will be indemnified and held harmless from all
expenses, including (without limitation) reasonable fees and expenses of
counsel, and all liabilities, including (without limitation) the amount of any
judgments, fines, penalties, excise taxes and amounts paid in settlement,
actually incurred by an Indemnitee with respect to any threatened, pending or
completed claim, action (including any action by or in the right of SCI), suit
or proceeding (whether formal or informal, or civil, criminal, administrative,
legislative, arbitrative or investigative) in respect of which such Indemnitee
is, was or at any time becomes, or is threatened to be made, a party, witness,
subject or target, by reason of the fact that such Indemnitee is or was a
director, officer, agent or fiduciary of
II-1
<PAGE> 92
SCI or serving at the request of SCI as a director, officer, employee, fiduciary
or representative of another enterprise. Such Indemnification Agreements also
provide that SCI, if requested to do so by an Indemnitee, will advance to such
Indemnitee, prior to final disposition of any proceeding, the expenses actually
incurred by the Indemnitee subject to the obligation of the Indemnitee to refund
such advances if it is ultimately determined that such Indemnitee was not
entitled to indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------
<S> <C>
*2.1 --Agreement and Plan of Merger, dated as of August 6, 1998, by and
among SCI, Merger Sub and ECI. (Attached as Appendix A to the
Prospectus/Proxy Statement).
4.1 -- Restated Articles of Incorporation. (Incorporated by reference
to Exhibit 3.1 to SCI's Form S-3 dated August 27, 1996).
4.2 -- Bylaws of SCI, as amended. (Incorporated by reference to
Exhibit 3.1 to SCI's Form 10-Q for the fiscal quarter ended
September 30, 1996).
4.3 -- Rights Agreement dated as of May 14, 1998 between SCI and
Harris Trust and Savings Bank. (Incorporated by reference to
Exhibit 1 to SCI's Form 8-A dated May 15, 1998).
**5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
**8.1 -- Opinion of Andrews & Kurth L.L.P. regarding certain tax
matters.
**23.1 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(Included in Exhibit 5.1).
**23.2 -- Consent of Andrews & Kurth L.L.P. (Included in Exhibit 8.1).
*23.3 -- Consent of PricewaterhouseCoopers LLP. (SCI's
independent accountants).
*23.4 -- Consent of PricewaterhouseCoopers LLP. (ECI's
independent accountants).
*23.5 -- Consent of ABN AMRO Incorporated.
**24.1 -- Powers of Attorney.
*99.1 -- Opinion of ABN AMRO Incorporated. (Attached as Appendix
B to the Proxy Statement/Prospectus).
**99.2 -- Form of ECI Proxy Card.
</TABLE>
- ----------------------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules:
All schedules have been omitted either as inapplicable or because the
required information is included in the financial statements or notes thereto.
(c) Report, Opinion or Appraisal:
The fairness opinion of ABN AMRO Incorporated is attached as Appendix
B to the Proxy Statement/Prospectus. The legal opinions of Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P. and Andrews & Kurth L.L.P., are included herewith
as Exhibits 5.1 and 8.1, respectively.
II-2
<PAGE> 93
ITEM 22. UNDERTAKINGS.
SCI hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933 (the "Securities Act"), each filing of SCI's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SCI hereby undertakes that prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), SCI undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
SCI hereby undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of SCI
pursuant to the foregoing provisions, or otherwise, SCI has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by SCI for expenses incurred or paid by a director, officer or
controlling person of SCI in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, SCI will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SCI hereby undertakes that: (i) for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by SCI pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective; and
(ii) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SCI hereby undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
SCI hereby undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the registration
statement when it became effective.
II-3
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Service
Corporation International certifies that it has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on November 20, 1998.
SERVICE CORPORATION INTERNATIONAL
By: /s/ JAMES M. SHELGER
---------------------------------------
James M. Shelger
Senior Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of Service Corporation International in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ----------------------------------------------------------- Chairman of the Board and Chief November 20, 1998
R. L. Waltrip Executive Officer
*
- ----------------------------------------------------------- Senior Vice President and Chief November 20, 1998
George R. Champagne Financial Officer (Principal
Financial Officer)
*
- ----------------------------------------------------------- Corporate Controller of SCI November 20, 1998
Wesley T. McRae Management Corporation (a
subsidiary of the Registrant)
(Principal Accounting Officer)
*
- ----------------------------------------------------------- Director November 20, 1998
Anthony L. Coelho
*
- ----------------------------------------------------------- Director November 20, 1998
Jack Finkelstein
*
- ----------------------------------------------------------- Director November 20, 1998
A.J. Foyt, Jr.
</TABLE>
II-4
<PAGE> 95
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ----------------------------------------------------------- Director November 20, 1998
James H. Greer
*
- ------------------------------------------------------------ Director November 20, 1998
L. William Heiligbrodt
*
- ----------------------------------------------------------- Director November 20, 1998
B.D. Hunter
*
- ----------------------------------------------------------- Director November 20, 1998
John W. Mecom, Jr.
*
- ----------------------------------------------------------- Director November 20, 1998
Clifton H. Morris, Jr.
*
- ------------------------------------------------------------ Director November 20, 1998
E.H. Thornton, Jr.
*
- ----------------------------------------------------------- Director November 20, 1998
W. Blair Waltrip
*
- ----------------------------------------------------------- Director November 20, 1998
Edward E. Williams
By: /S/ JAMES M. SHELGER
--------------------------------------------------------
James M. Shelger
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 96
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------
<S> <C>
*2.1 --Agreement and Plan of Merger, dated as of August 6, 1998, by and
among SCI, Merger Sub and ECI. (Attached as Appendix A to the
Prospectus/Proxy Statement).
4.1 -- Restated Articles of Incorporation. (Incorporated by reference
to Exhibit 3.1 to SCI's Form S-3 dated August 27, 1996).
4.2 -- Bylaws of SCI, as amended. (Incorporated by reference to
Exhibit 3.1 to SCI's Form 10-Q for the fiscal quarter ended
September 30, 1996).
4.3 -- Rights Agreement dated as of May 14, 1998 between SCI and
Harris Trust and Savings Bank. (Incorporated by reference to
Exhibit 1 to SCI's Form 8-A dated May 15, 1998).
**5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
**8.1 -- Opinion of Andrews & Kurth L.L.P. regarding certain tax
matters.
**23.1 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(Included in Exhibit 5.1).
**23.2 -- Consent of Andrews & Kurth L.L.P. (Included in Exhibit 8.1).
*23.3 -- Consent of PricewaterhouseCoopers LLP. (SCI's
independent accountants).
*23.4 -- Consent of PricewaterhouseCoopers LLP. (ECI's
independent accountants).
*23.5 -- Consent of ABN AMRO Incorporated.
**24.1 -- Powers of Attorney.
*99.1 -- Opinion of ABN AMRO Incorporated. (Attached as
Appendix B to the Proxy Statement/Prospectus).
**99.2 -- Form of ECI Proxy Card.
</TABLE>
- ----------------------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
OF SERVICE CORPORATION INTERNATIONAL
We consent to the incorporation by reference in Amendment No. 2 to the
registration statement on Form S-4 (File No. 333-66957) of our report dated
March 18, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Service Corporation International ("SCI") as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, which report is included in its Annual Report on Form 10-K of
SCI for the Year Ended December 31, 1997. We also consent to the reference to
our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
November 20, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Service Corporation International on Form S-4, relating to the Equity
Corporation International merger, of our report dated March 5, 1998, on our
audits of the consolidated financial statements and financial statement schedule
of Equity Corporation International as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which report is
included in the Annual Report on Form 10-K of Equity Corporation International
for the year ended December 31, 1997. We also consent to the reference to our
firm under the caption "Experts" in the Proxy Statement/Prospectus which is a
part of this Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
November 20, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF ABN AMRO INCORPORATED
We hereby consent to the references to our firm under the captions
"SUMMARY -- The Merger -- Opinion of ECI's Financial Advisor," "THE MERGER --
Background of the Merger," and "THE MERGER -- Opinion of ECI's Financial
Advisor" in the Proxy Statement/Prospectus, each included in the Registration
Statement on Form S-4 relating to the proposed merger of SCI Delaware Funeral
Services, Inc., a Delaware corporation and a wholly owned subsidiary of Service
Corporation International, a Texas corporation, with and into Equity
Corporation international, a Delaware corporation, and to the inclusion of our
opinion letter as Appendix B to the Proxy Statement/Prospectus. In giving this
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we admit that we are experts with respect to any part of
such Registration Statement within the meaning of "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
ABN AMRO Incorporated
November 20, 1998 By: /s/ ABN AMRO Incorporated
-----------------------------
