<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
SERVICE CORPORATION INTERNATIONAL
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY, P.O. BOX 130548
HOUSTON, TEXAS 77219-0548
----------------------
PROXY STATEMENT AND
1999 ANNUAL MEETING
NOTICE
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1999
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Service Corporation International
will be held in the Chase Auditorium, First Floor, Chase Center, 601 Travis,
Houston, Texas, on Thursday, May 13, 1999, at 10:00 a.m., Houston time, for the
following purposes:
(1) To elect four directors as members of the class of directors to
serve until the third succeeding Annual Meeting of Shareholders and until
their successors have been elected and qualified;
(2) To consider and act on a proposal to approve the Amended 1996
Incentive Plan; and
(3) To act on such other business that may properly come before the
meeting or any adjournment(s) thereof.
The transfer books of the Company will not be closed, but only holders of
Common Stock of record at the close of business on March 26, 1999 will be
entitled to notice of and to vote at the Annual Meeting. A majority of the
outstanding stock entitled to vote is required for a quorum.
The management sincerely desires your presence at the meeting. However, so
that we may be sure that your vote will be included, please sign and date the
enclosed proxy and return it promptly in the enclosed stamped envelope. If you
attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors,
James M. Shelger, Secretary
Houston, Texas
April 13, 1999
<PAGE> 3
PROXY STATEMENT
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY, P.O. BOX 130548 HOUSTON, TEXAS 77219-0548
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Service Corporation International, a Texas corporation
("SCI" or the "Company"), of proxies to be used at the Annual Meeting of
Shareholders to be held in the Chase Auditorium, First Floor, Chase Center, 601
Travis, Houston, Texas, on Thursday, May 13, 1999, at 10:00 a.m., Houston time,
and at any recess or adjournments thereof. This proxy statement and the
accompanying proxy are being mailed to shareholders on or about April 13, 1999.
A copy of the Annual Report to Shareholders of the Company for the fiscal year
ended December 31, 1998, including the consolidated financial statements, is
being mailed with this proxy statement to all shareholders entitled to vote at
the Annual Meeting.
At March 26, 1999, the Company had outstanding and entitled to vote
271,968,548 shares of Common Stock, $1.00 par value ("Common Stock"). The
holders of Common Stock will be entitled to one vote per share on each matter
considered (cumulative voting is not permitted). A majority of the votes
entitled to be cast must be represented at the Annual Meeting, in person or by
proxy, for a quorum to be present for the transaction of business. Only
shareholders of record at the close of business on March 26, 1999 will be
entitled to vote at the Annual Meeting. The affirmative vote of a majority of
the total shares represented in person or by proxy and entitled to vote at the
Annual Meeting is required for (a) the election of directors, (b) the approval
of the Amended 1996 Incentive Plan, and (c) the approval of such other matters
as may properly come before the meeting or any adjournment thereof.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to its voting by a later dated proxy or by written notice of
revocation filed with the Secretary of the Company. Shareholders who attend the
Annual Meeting may revoke their proxies and vote in person.
In the election of directors, a shareholder has the right to vote the
number of his or her shares for as many persons as there are directors to be
elected. Abstentions are counted toward the calculation of a quorum. An
abstention has the same effect as a vote against the proposal or, in the case of
the election of directors, as shares to which voting power has been withheld.
Under Texas law, any unvoted position in a brokerage account with respect to any
matter will be considered as not voted and will not count toward a quorum as to
that matter.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each with staggered
terms of three years. Four directors whose terms expire at this Annual Meeting
have been renominated for three-year terms expiring at the 2002 Annual Meeting
of Shareholders. The terms of office of the directors in the other two classes
expire at the Annual Meetings of Shareholders to be held in 2000 and 2001.
The enclosed proxy provides a means for the holders of Common Stock to vote
for all of the nominees listed therein, to withhold authority to vote for one or
more of such nominees or to withhold authority to vote for all of such nominees.
Each properly executed proxy received in time for the Annual Meeting will be
voted as specified therein, or if a shareholder does not specify how the shares
represented by his or her proxy are to be voted, such shares shall be voted for
the nominees listed therein or for other nominees as provided below.
Although the Board of Directors does not contemplate that any nominee will
be unable or unwilling to serve, if such a situation arises, the proxies that do
not withhold authority to vote for directors will be voted for a substitute
nominee(s) chosen by the Board.
<PAGE> 4
The following table sets forth, as to each nominee for election and each
director whose term will continue, such person's name and age, the committees on
which such person serves, the person's current principal occupation and the year
in which such person was first elected a director of the Company.
<TABLE>
<CAPTION>
DIRECTOR DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE AGE
-------- -------------------- -------- ---
<S> <C> <C> <C>
DIRECTOR NOMINEES FOR TERMS EXPIRING AT THE 2002 ANNUAL MEETING:
Jack Finkelstein(1)(3)(4).............. Personal and family trust investments 1965 71
James H. Greer(2)...................... Chairman of the Board of Shelton W. Greer 1978 72
Co., Inc. (engineering, manufacturing,
fabrication and installation of building
specialty products)
Clifton H. Morris, Jr.(1)(3)........... Chairman of the Board and Chief Executive 1990 63
Officer of AmeriCredit Corp. (financing of
automotive vehicles)
W. Blair Waltrip(1)(4)(5)(6)........... Executive Vice President of the Company 1986 44
DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING:
Anthony L. Coelho(1)................... Consultant 1991 56
A. J. Foyt, Jr......................... President of A. J. Foyt Enterprises, Inc. 1974 64
(designer, manufacturer and exhibitor of
high-speed engines and racing vehicles and
marketer of automotive vehicles)
E. H. Thornton, Jr.(1)(2)(3)........... Attorney with Thornton & Burnett, Attorneys 1962 89
at Law
R. L. Waltrip(1)(4)(5)(6).............. Chairman of the Board, Chief Executive 1962 68
Officer and President of the Company
Edward E. Williams(1)(3) (4)(6)........ Henry Gardiner Symonds Professor and 1991 53
Director of the Entrepreneurship Program at
the Jesse H. Jones Graduate School of
Management at Rice University
DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING:
B. D. Hunter(1)........................ Chairman of the Board and Chief Executive 1986 69
Officer of Huntco, Inc. (intermediate steel
processor)
John W. Mecom, Jr.(2).................. Chairman of the Board of The John W. Mecom 1983 59
Co. (personal and family investments)
</TABLE>
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(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
(4) Member of Investment Committee
(5) Member of Directors Stock Committee
(6) Member of 1996 Nonqualified Incentive Plan Stock Option Committee
Each director has been engaged in his current principal occupation set
forth in the table during the last five years except as indicated below. Also
set forth below are certain other directorships held by directors.
Since September 1997, Anthony L. Coelho has served as a consultant to
Telecommunications, Inc. From July 1995 to November 1997 Mr. Coelho served as
Chairman and Chief Executive Officer of Coelho Associates, L.L.C. (investment
consulting and brokerage firm) and served from October 1995 to September
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1997 as Chairman and Chief Executive Officer of ETC w/tci (training and
communication firm). Prior thereto, from January 1990 to June 1995, he was
President and Chief Executive Officer of Wertheim Schroder Investment Services,
Inc. (asset management firm) and from October 1989 to June 1995, Managing
Director, Wertheim Schroder & Co., Inc. (investment banking firm). Mr. Coelho is
a member of the Board of Directors of AutoLend Group, Inc., Cyberonics, Inc.,
ICF Kaiser International, Inc., International Thoroughbred Breeders, Inc., ITT
Educational Services, Inc. and Pinnacle Global Group Inc.
James H. Greer is a member of the Board of Directors of AmeriCredit Corp.
and Pinnacle Global Group Inc.
B. D. Hunter is a member of the Board of Directors of Cash America
International, Inc. and Celebrity, Inc.
Clifton H. Morris, Jr. is a member of the Board of Directors of Cash
America International, Inc.
W. Blair Waltrip is a member of the Board of Directors of Pinnacle Global
Group Inc. Mr. W. Blair Waltrip is the son of Mr. R. L. Waltrip.
Edward E. Williams is a member of the Board of Directors of Equus II
Incorporated.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during 1998. Standing committees
of the Board include the Executive Committee, Audit Committee, Compensation
Committee, Investment Committee, Directors Stock Committee and 1996 Nonqualified
Incentive Plan Stock Option Committee.
The Executive Committee has authority to exercise many of the powers of the
Board between Board meetings, including selection on its own motion of nominees
for election to the Board. The Executive Committee held twelve meetings during
1998.
The primary function of the Audit Committee is to review the scope and
results of audits by the Company's independent and internal auditors, internal
accounting controls, non-audit services performed by the independent accountants
and the cost of all accounting and financial services. During 1998, the Audit
Committee held three meetings.
The Compensation Committee, which has the general duty to review and
approve compensation for officers, including the granting of bonuses and the
administration of the Company's stock and stock option plans, held three
meetings during 1998.
The Investment Committee's primary functions are to establish overall
guidelines and review the transactions in the investment portfolios of
independent trusts which hold funds collected by the Company and required to be
held in trust under various state laws. During 1998, the Investment Committee
held four meetings.
The Directors Stock Committee administers the 1995 Stock Plan For
Non-Employee Directors. The 1996 Nonqualified Incentive Plan Stock Option
Committee administers the 1996 Nonqualified Incentive Plan. These committees did
not hold any meetings in 1998.
During 1998, each incumbent director attended at least 75% of the total
number of meetings of the Board and committees on which he served.
PROPOSAL TO APPROVE THE AMENDED 1996 INCENTIVE PLAN
The Board of Directors of the Company has adopted, subject to approval by
shareholders, the Service Corporation International Amended 1996 Incentive Plan
(the "Amended Plan").
The full text of the Amended Plan is set forth in Annex A to this Proxy
Statement. Although the material features of the Amended Plan are summarized
below, this is only a summary and is qualified in its entirety by reference to
the complete text of the Amended Plan.
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Amendments. The Amended Plan includes the following changes to the Service
Corporation International 1996 Incentive Plan. First, it increases the number of
shares of Common Stock available for issuance under, or in payment of, the
Awards from 12,000,000 to 24,000,000. Second, it increases the maximum number of
shares of Common Stock which may be issued in payment of Bonus Awards payable in
stock, Restricted Stock Awards, Stock Equivalent Units and Performance Grants
payable in stock from 800,000 to 2,000,000. Third, it amends the definition of
"immediate family members," for purposes of determining transferability of
Awards under Section 4.3 of the Amended Plan, to be consistent with recent
amendments to Securities and Exchange Commission registration rules.
Purpose. The purpose of the Amended Plan is to provide a means whereby
certain key employees of the Company and its affiliates may develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company, and to encourage them to remain with, and devote their best
efforts to, the business of the Company, thereby advancing the interests of the
Company and its shareholders. The Company believes that the possibility of
participation in the Amended Plan through (i) receipt of incentive or
nonqualified stock options ("Stock Options"), (ii) the grant of certain bonuses
("Bonus Awards") based on achievement of pre-established performance goals (some
or all of which Bonus Awards may be paid in Common Stock), (iii) the award of
restricted stock ("Restricted Stock Awards"), (iv) the grant of stock equivalent
units ("Stock Equivalent Units"), and (v) the grant of performance awards
("Performance Grants") based on the achievement of pre-established performance
goals (some or all of which Performance Grants may be paid in Common Stock)
(Stock Options, Bonus Awards, Restricted Stock Awards, Stock Equivalent Units
and Performance Grants shall be collectively referred to herein as "Awards"),
will provide key employees an incentive to perform more effectively and will
assist the Company in obtaining and retaining people of outstanding training and
ability.
Term. The Service Corporation International 1996 Incentive Plan was
effective February 15, 1996. The Amended Plan shall be effective May 13, 1999 if
it is approved by at least a majority vote of shareholders voting in person or
by proxy at the Annual Meeting. No Award may be granted under the Amended Plan
after May 13, 2009.
Administration. The Amended Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee is
comprised solely of at least two members who are both Disinterested Persons and
Outside Directors (each as defined in the Amended Plan). No member of the
Committee is eligible to participate in the Amended Plan. All questions of
interpretation and application of the Amended Plan and Awards shall be
determined by the Committee.
Participation. Participation in the Amended Plan is limited to key
employees ("Employees") selected by the Committee. The Company estimates
approximately 700 Employees will be eligible to participate in the Amended Plan.
Shares of Stock Available For Awards. A total of 24,000,000 shares of
Common Stock is available for issuance under, or in payment of, the Awards. The
shares may be treasury shares or authorized but unissued shares. In the event an
Award expires or terminates for any reason or is surrendered, the shares of
Common Stock allocable to the unexercised portion of that Award may again be
subject to an Award under the Amended Plan.
The maximum number of shares of Common Stock which may be issued in payment
of Bonus Awards payable in stock, Restricted Stock Awards, Stock Equivalent
Units and Performance Grants payable in stock during the life of the Amended
Plan is 2,000,000 shares.
As of March 26, 1999, under the 1996 Incentive Plan, an aggregate of
8,207,500 shares of Common Stock (i) have been issued under or in payment of
Awards or (ii) are available for issuance under or in payment of Awards that
have been made, leaving 3,792,500 shares of Common Stock currently available for
use by the Company in making Awards. On March 26, 1999, the closing price of the
Common Stock on the New York Stock Exchange was $14.75 per share.
The Amended Plan provides that the number of shares subject thereto and
shares covered by Stock Options outstanding are subject to equitable adjustment,
as determined by the Committee, in the event of
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stock dividends, stock splits, or other capital adjustments before delivery by
the Company of all shares subject to the Amended Plan.
Compensation Deduction Limitation. In the Omnibus Budget Reconciliation Act
of 1993 ("OBRA"), Congress enacted Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") which generally limits to $1,000,000 per year
per employee the tax deduction available to public companies for certain
compensation paid to designated executives ("covered employees"). These covered
employees include the Chief Executive Officer and the next four highest
compensated officers of the Company.
OBRA provides an exception (Section 162(m)(4)(C)) from this deduction
limitation for certain "performance-based compensation" if specified
requirements are satisfied, including: (i) the establishment by a compensation
committee comprised of outside directors of performance goals which must be met
for the additional compensation to be earned, (ii) the approval of the material
terms of the performance goals by the shareholders after adequate disclosure,
and (iii) the certification by the compensation committee that the performance
goals have been met. The Amended Plan is designed to satisfy these statutory
requirements for Incentive Options and Nonqualified Options, Bonus Awards and
Performance Grants. Therefore, if this Amended Plan is approved by shareholders,
the Company anticipates being entitled to deduct an amount equal to the ordinary
income reportable by each optionee on exercise of a Nonqualified Option, the
Early Disposition of shares of stock acquired by exercise of an Incentive
Option, and the payment of Bonus Awards or Performance Grants in Common Stock or
in cash.
Stock Options. The Committee may designate a Stock Option as an Incentive
Option or as a Nonqualified Option. The terms of each Stock Option shall be set
out in a written Award Agreement which incorporates the terms of the Amended
Plan.
The Stock Option price may not be less than 100% of the "Fair Market Value"
(as defined in the Amended Plan) of the Common Stock on the date of grant and
may not be exercisable after 10 years from the date of grant. In the case of an
Incentive Option issued to a 10% Shareholder (as defined in the Amended Plan) of
the Company (i) the Incentive Option price may not be less than 110% of the fair
market value of the Common Stock on the date of grant, and (ii) the period over
which the Incentive Option is exercisable may not exceed five years.
Exercise of Options. Stock Options may be exercisable by written notice of
exercise and payment of the Stock Option price in cash, or in previously owned
shares of Common Stock or an attestation to ownership thereof valued at fair
market value on the date of exercise, or in any other form of payment acceptable
to the Committee. Special rules apply which limit the time of exercise of an
Incentive Option following an Employee's termination of employment. The
Committee may impose restrictions on the exercise of any Stock Option. In the
event of a "Change of Control" (as defined in the Amended Plan), all Stock
Options then outstanding become immediately exercisable in full. The Stock
Options should qualify as "performance-based compensation" for purposes of
Section 162(m) of the Code.
Bonus Awards. The Committee may designate certain Employees who become
eligible to earn a Bonus Award if certain pre-established performance goals are
satisfied. In determining which Employees shall be eligible for a Bonus Award,
the Committee will consider the nature of the Employee's duties, past and
potential contributions to the success of the Company and its affiliates, and
such other factors as the Committee deems relevant in connection with
accomplishing the purposes of the Amended Plan.
The Committee shall determine the terms of a Bonus Award, if any, for each
measurement period selected by the Committee, which shall not be greater than
one year. The performance goals determined by the Committee may include, but are
not limited to, increases in the following measures of performance: net profits,
operating income, stock price, earnings per share, sales and/or return on
equity. Before any Bonus Award may be paid, the Committee must certify in
writing that the performance goal has been satisfied. The maximum amount of any
Bonus Award payable to any one Employee in a single measurement period may not
exceed $3,000,000, and in each calendar year may not exceed $4,000,000. The
Committee retains the discretion to make downward adjustments to Bonus Awards
otherwise payable if the performance goal is attained.
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The Committee intends to establish performance goals in accordance with
Section 162(m) of the Code to enable the Company to deduct in full the total
payment of any Bonus Award as "performance-based compensation".
Performance Grants. The Committee may designate certain Employees who
become eligible to receive a Performance Grant if certain pre-established
performance goals are satisfied. In determining which Employees shall be
eligible for a Performance Grant, the Committee will consider the nature of the
Employee's duties, past and potential contributions to the success of the
Company and its affiliates, and such other factors as the Committee deems
relevant in connection with accomplishing the purposes of the Amended Plan.
The Committee shall determine the terms of a Performance Grant, if any, for
each performance cycle. The performance goals determined by the Committee may
include, but are not limited to, increases in the following measures of
performance: net profits, operating income, stock price, earnings per share,
sales and/or return on equity. Before any Performance Grant may be paid, the
Committee must certify in writing that the performance goal has been satisfied.
The maximum amount of any Performance Grant payable to any Employee during a
performance cycle may not exceed $3,000,000. The Committee retains the
discretion to make downward adjustments to Performance Grants otherwise payable
if the performance goal is attained.
The Committee intends to establish performance goals in accordance with
Section 162(m) of the Code to enable the Company to deduct in full the total
payment of any Performance Grant as "performance-based compensation."
Restricted Stock Awards. The Committee may grant Restricted Stock Awards to
certain Employees of the Company. In determining which Employees shall be
eligible for a Restricted Stock Award, the Committee will consider the nature of
the Employee's duties, past and potential contributions to the success of the
Company and its affiliates, and such other factors as the Committee deems
relevant in connection with accomplishing the purposes of the Amended Plan.
The Committee shall determine the conditions and restrictions of a
Restricted Stock Award, including forfeiture restrictions, forfeiture
restriction periods, and performance criteria, if any, with respect to the
Restricted Stock Award.
Stock Equivalent Units. The Committee may grant Stock Equivalent Units to
certain Employees of the Company. In determining which Employees shall be
eligible for an award of Stock Equivalent Units, the Committee will consider the
nature of the Employee's duties, past and potential contributions to the success
of the Company and its affiliates, and such other factors as the Committee deems
relevant in connection with accomplishing the purposes of the Amended Plan.
The Committee shall determine the conditions and restrictions of an award
of Stock Equivalent Units, including the number of units, the terms of
redemption, and the performance criteria, if any. The maximum number of Stock
Equivalent Units which may be awarded to any Employee during the term of the
Amended Plan is 200,000 units.
Limits on Transferability. Except as set forth below, the Awards granted
under the Amended Plan will not be transferable by Employees, except by will or
under the laws of descent and distribution, and will be exercisable only during
the Employee's lifetime by the Employee. The Committee may grant Awards
transferable, without payment of consideration, to immediate family members (as
defined in the Amended Plan) of the Employee. In the event a Nonqualified Option
is transferred as contemplated hereby, such Nonqualified Options may be
subsequently transferred by the transferee only by will or under the laws of
descent and distribution, or, without payment of consideration, to immediate
family members of the Employee. Transferable options presently outstanding under
the 1996 Incentive Plan will be deemed to be amended to conform to the
transferability provisions under the Amended Plan.
Amendment or Termination of Amended Plan. The Board of Directors of the
Company may amend, terminate or suspend the Amended Plan at any time, in its
sole and absolute discretion; provided, however, that to the extent required to
qualify this Amended Plan under Rule 16b-3 promulgated under Section 16 of
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the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no
amendment that would (a) materially increase the number of shares of Common
Stock that may be issued under the Amended Plan, (b) materially modify the
requirements as to eligibility for participation in the Amended Plan, or (c)
otherwise materially increase the benefits accruing to participants under the
Amended Plan, shall be made without the approval of the Company's shareholders.
To the extent required to maintain the status of any Incentive Option under the
Code, no amendment that would (a) change the aggregate number of shares of
Common Stock which may be issued under Incentive Options, (b) change the class
of Employees eligible to receive Incentive Options, or (c) decrease the
Incentive Option price for Incentive Options below the fair market value of the
Common Stock at the time it is granted, shall be made without the approval of
the Company's shareholders.
Federal Tax Consequences. The grant of Incentive Options to an Employee
does not result in any income tax consequences. The exercise of an Incentive
Option generally does not result in any income tax consequences to the Employee
if the Incentive Option is exercised by the Employee during his employment with
the Company or a subsidiary, or within a specified period after termination of
employment. However, the excess of the fair market value of the shares of Common
Stock as of the date of exercise over the Incentive Option price is a tax
preference item for purposes of determining an Employee's alternative minimum
tax, if applicable. An Employee who sells shares acquired pursuant to the
exercise of an Incentive Option after the expiration of (i) two years from the
date of grant of the Incentive Option, and (ii) one year after the transfer of
the shares to him (the "Waiting Period") will generally recognize a long-term
capital gain or loss on the sale.
An Employee who disposes of his Incentive Option shares prior to the
expiration of the Waiting Period (an "Early Disposition") generally will
recognize ordinary income in the year of sale in an amount equal to the excess,
if any, of (a) the lesser of (i) the fair market value of the shares as of the
date of exercise or (ii) the amount realized on the sale, over (b) the Incentive
Option price. Any additional amount realized on an Early Disposition should be
treated as capital gain to the Employee, short or long term, depending on the
Employee's holding period for the shares. If the shares are sold for less than
the Incentive Option price, the Employee will not recognize any ordinary income
but will recognize a capital loss, short or long term, depending on the holding
period.
The Company will not be entitled to a deduction as a result of the grant of
an Incentive Option, the exercise of an Incentive Option, or the sale of
Incentive Option shares after the Waiting Period. If an Employee disposes of
Incentive Option shares in an Early Disposition, the Company would be entitled
to deduct the amount of ordinary income recognized by the Employee.
The grant of Nonqualified Options under the Amended Plan will not result in
the recognition of any taxable income by the Employee. In addition, the transfer
of Nonqualified Options granted under the Amended Plan by the Employee to the
Employee's immediate family members will not result in the recognition of any
taxable income by the Employee at the time of the transfer. An Employee will
recognize ordinary income on the date of exercise of the Nonqualified Option
(whether by the Employee or by the Employee's immediate family members with
respect to transferred Nonqualified Options) equal to the excess, if any, of (i)
the fair market value of the shares received on exercise (determined as of the
exercise date), over (ii) the exercise price. The tax basis of these shares
received on exercise of the Nonqualified Options (whether by the Employee or by
the Employee's immediate family members with respect to transferred Nonqualified
Options) for purposes of a subsequent sale of the shares is equal to the sum of
(i) the Nonqualified Option price paid for the shares and (ii) the ordinary
income recognized on exercise of the Nonqualified Option (i.e., the fair market
value of the shares on the exercise date). The income reported by the Employee
on exercise of a Nonqualified Option (whether by the Employee or by the
Employee's immediate family members with respect to transferred Nonqualified
Options) is subject to federal income tax and employment tax withholding.
Generally, the Company will be entitled to a deduction in the amount
reportable as income by the Employee on the exercise of a Nonqualified Option
(whether by the Employee or by the Employee's immediate family members with
respect to transferred Nonqualified Options) in the year in which the
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Employee reports such income, subject to the $1,000,000 per year per Employee
compensation deduction limitation for covered employees as discussed
hereinabove.
Bonus Awards, Performance Grants and Stock Equivalent Units paid in cash
generally result in taxable income to the recipient and a compensation deduction
by the Company at the time the cash payment is made. Bonus Awards and
Performance Grants paid in shares of Common Stock result in taxable income to
the recipient at the fair market value of the Common Stock on the date of
transfer and result in a corresponding compensation deduction for the Company.
Bonus Awards, Performance Grants and Stock Equivalent Units are subject to
federal income and employment tax withholding.
Restricted Stock Awards are not subject to taxation at the time of grant
because the shares are subject to forfeiture if the vesting criteria are not
met. Accordingly, the Company is not entitled to a compensation deduction at
that time. When the Restricted Stock vests the employee will have taxable income
based upon the fair market value on the date vesting occurs. The Company will
then be entitled to a corresponding compensation deduction.
Awards Under the Amended Plan. No Awards have been granted under the
Amended Plan. The Committee awarded Stock Options in 1998 under the 1996
Incentive Plan to the executive officers listed in the table below, covering the
number of shares of Common Stock indicated.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR AWARD* NUMBER OF SHARES
----------------- ------------- ----------------
<S> <C> <C>
R.L. Waltrip................................................ $ 5,842,160 400,000
Chairman of the Board, Chief Executive Officer and President
L. William Heiligbrodt...................................... $ 4,381,620 300,000
Former President and Chief Operating Officer
W. Blair Waltrip............................................ $ 1,606,594 110,000
Executive Vice President
Jerald L. Pullins........................................... $ 1,533,567 105,000
Executive Vice President International Operations
George R. Champagne......................................... $ 1,387,513 95,000
Executive Vice President Chief Financial Officer
Executive Group............................................. $14,751,454 1,010,000
Non-executive Director Group................................ -- --
Non-executive Officer Employee Group........................ $ 8,105,119 554,000
</TABLE>
- ---------------
* This column reflects the present value at the date of grant (8/11/98) of
options, based on a present value model known as the "Black-Scholes option
pricing model." The choice of such valuation method does not reflect any
belief by SCI's management that such method, or any other valuation method,
can accurately assign a value to an option at the grant date. The assumption
used for valuing the option grants are: volatility of 28.3%; annual dividend
yield of 1% and risk free interest rate of 5.6%.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
ADOPTION OF THE SERVICE CORPORATION INTERNATIONAL AMENDED 1996 INCENTIVE PLAN.
8
<PAGE> 11
PERFORMANCE GRAPH
The following graph presents the Company's cumulative shareholder return
over the period from December 31, 1993 to December 31, 1998. The Common Stock of
the Company is compared to the S&P 500 Index and to a Peer Group Index (formerly
the S&P Miscellaneous Index). The graph assumes $100 is invested on December 31,
1993 in the Common Stock of the Company, the S&P 500 Index and a Peer Group
Index. Investment is weighted on the basis of market capitalization. Total
return data assumes the reinvestment of dividends.
Since the graph ends at December 31, 1998, the returns shown in the graph
do not take into account the price of the Company's Common Stock in the first
quarter of 1999. The closing price of the Company's Common Stock was $14.875 per
share on March 30, 1999, compared to $38.0625 per share at December 31, 1998.
Therefore, actual returns experienced by investors who owned Company Common
Stock from December 31, 1993 through March 30, 1999 will be substantially lower
than the returns of SCI shareholders depicted in the graph.
The data source for the following graph is S&P Compustat Services.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
1993-1998
[GRAPH]
<TABLE>
<CAPTION>
Measurement Period S&P 500
(Fiscal Year Covered) SCI Index Peer Group
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 107.43 101.32 103.70
1995 172.66 139.40 124.28
1996 221.75 171.40 150.71
1997 293.66 228.59 179.40
1998 306.90 293.91 209.57
</TABLE>
Peer Group companies are: Airtouch Communications Inc., American Greetings
Corp., Corning Inc., The Dial Corporation, Harcourt General, Inc., Harris
Corporation, Jostens Inc., Minnesota Mining & Manufacturing Co., Pioneer Hi-Bred
International, TRW Inc., Viad Corp., and Whitman Corporation. These companies
are the same companies that previously made up the S&P Miscellaneous Index, with
the addition of Viad Corp. The Dial Corporation split into two companies (The
Dial Corporation and Viad Corp.) in 1996, so Viad Corp. has been added to the
group. Standard & Poor's discontinued its S&P Miscellaneous Index after 1995.
9
<PAGE> 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is a committee of
outside directors chaired by Mr. E. H. Thornton, Jr. Other members are Mr. James
H. Greer and Mr. John W. Mecom, Jr. This Committee is responsible for reviewing
and approving all elements of the total compensation program for officers of the
Company, including long-term incentive arrangements. The Committee has ultimate
responsibility for aligning the Company's total compensation programs with its
business strategy and for assuring shareholders that pay delivery programs are
effective, responsible and competitive when compared to similarly situated
organizations. This Committee report documents the basis on which 1998
compensation determinations were made and further describes the components of
officer compensation programs for the Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAMS
It is the philosophy of the Company and the Committee that all compensation
programs should (1) link pay and performance, and (2) attract, motivate, reward
and retain the broad-based management talent required to achieve corporate
objectives. The Company also focuses strongly on stock-based compensation, since
this form of compensation provides the clearest link to enhanced shareholder
value. From time to time, the Committee works with compensation consultants to
assist with the design, implementation and communication of various compensation
plans. These programs include base salaries, annual performance-based incentives
and long-term incentives, all as further detailed below.
BASE SALARIES
Base salaries for the Company's officers in 1998 were reviewed through
comparisons with a group of 79 companies of similar size (as measured by
revenues and level of earnings) across various industries (the "Comparison
Group"). The competitive pay data is not drawn from the entire group of
companies which comprise the Peer Group Index (formerly the S&P Miscellaneous
Index) reflected in the performance graph in this proxy statement since the
Committee believes revenue size and earnings level comparisons are more
appropriate criteria for establishing base salary and annual incentive
compensation rates. There has been no attempt to tie together the performance
graph companies and the Comparison Group although there is some overlap between
the groups. The Committee does not consider any financial performance criteria
on a formula basis in determining salary increases. Rather, the Committee, using
its discretion, considers market base salary rates at the 75th percentile of
salaries of the Comparison Group, and considers average annual salary increases
for executives in companies of all sizes across the country, earnings per share
growth, operating income growth, sales growth, and total shareholder return. The
Committee also makes a subjective review of individual performance in making
base salary decisions for officers. These criteria are assessed in a non-
formula fashion and are not weighted. All of the officers shown in the summary
compensation table (the "Named Executives") have employment agreements (see
"Executive Employment Agreements"). Under these agreements, the Committee has
the sole discretion for determining any increase in base salary; however, under
the agreements, base salaries may not be decreased. In 1998, the Named
Executives received salary increases averaging approximately 8% over the prior
year. However, the size of increases ranged from a low of 3% to a high of 13%.
The current base salary levels for Named Executives are, overall, consistent
with the Company's philosophy of targeting the 75th percentile of salaries of
the Comparison Group. With respect to an item of compensation of an executive,
the term "75th percentile" means a level of compensation which is greater than
the compensation of peer executives at 75% of the companies in a survey or
selected group of companies.
ANNUAL INCENTIVE COMPENSATION
All of the Company's officers have a significant portion of their total
compensation at risk through annual incentive opportunities that are linked to
key financial and operational objectives for the Company on a consolidated
basis. The objective of this policy is to focus the Named Executives on the
attainment of objectives that the Committee believes are primary determinants of
share price over time. While the Committee has discretion to consider other
factors (including operating income growth, sales growth and total shareholder
return), the primary basis for determining incentive awards is earnings per
share growth. Actual
10
<PAGE> 13
incentive awards are proportionately decreased or increased on the basis of the
Company's earnings per share growth compared to target, subject to maximum award
amounts. Target award levels are set at approximately the 75th percentile of
annual incentive compensation of the Comparison Group. Payments are generally
made in cash and are subject to the discretion of the Committee to make downward
adjustments.
In the first quarter of 1998, the Committee established performance goals
for 1998. No executive annual incentive awards were paid for 1998 performance
since the Company failed to meet its earnings per share performance targets. As
a result, actual cash compensation levels for the Named Executives fell below
market median levels.
LONG-TERM INCENTIVE COMPENSATION
In recent years, the Committee has placed significant emphasis on
stock-based compensation for officers. Stock options were granted to the Named
Executives and other officers in August 1998. The stock option awards were
established at approximately the 75th percentile of long-term incentive awards
of a survey group of 24 companies (the "Survey Group") having high earnings per
share growth rates similar to the Company's. There has been no attempt to tie
together the performance graph companies and the Survey Group, although there is
overlap between companies in the S&P 500 Index and the Survey Group. This grant
was intended to represent a normal single-year option award reflecting the
Company's philosophy of focusing strongly on stock-based compensation. These
stock options were granted with exercise prices equal to 100% of the fair market
value of the Common Stock on the grant date. The options vest at a rate of
one-third per year and have an eight year term.
1998 CHIEF EXECUTIVE OFFICER PAY
As described above, the Company manages its pay for all executives,
including the CEO, considering both a pay-for-performance philosophy and market
rates of compensation for each executive position. Specific actions taken by the
Committee regarding the CEO's compensation are summarized below.
Base Salary
In 1998, Mr. R. L. Waltrip's salary was increased from $870,000 to
$900,000, a 3.4% increase. This base salary is consistent with the Company's
philosophy of targeting the 75th percentile of the salaries of the Comparison
Group. Mr. Waltrip's base salary increase was determined on the same basis as
salary increases for other officers.
Annual Incentive Compensation
No annual incentive was earned by the CEO for 1998 performance since the
Company failed to meet its earnings per share growth targets.
Long-Term Incentive Compensation
The CEO received a grant of 400,000 stock options in August 1998. This
grant was equal to an annual grant at the 75th percentile of the Survey Group.
This award vests at a rate of one-third per year. These stock options have an
eight-year term and were granted with an exercise price equal to 100% of fair
market value of the Common Stock on the grant date.
11
<PAGE> 14
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
Subject to certain exceptions, OBRA prohibits publicly traded companies
from receiving a tax deduction on compensation paid to named executive officers
in excess of $1,000,000 annually. Although the Committee has not adopted a
policy relating to OBRA, the Committee considers the OBRA restrictions when
structuring compensation programs. However, the Committee believes that
compensation is more important than tax deductibility in focusing management on
its goal of increasing shareholder value.
COMPENSATION COMMITTEE:
E.H. Thornton, Jr., Chairman
James H. Greer
John W. Mecom, Jr.
12
<PAGE> 15
CERTAIN INFORMATION WITH RESPECT TO OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth information for the three years ended
December 31, 1998 with respect to the Chief Executive Officer and the four other
most highly compensated executive officers of the Company. The determination as
to which executive officers were most highly compensated was made with reference
to the amounts required to be disclosed under the "Salary" and "Bonus" columns
in the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------
RESTRICTED LONG-TERM
NAME AND OTHER ANNUAL STOCK STOCK INCENTIVE
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARD OPTIONS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. L. Waltrip 1998 $930,000 $ 0 $ 315,000 $ 0 400,000 $ 0
Chairman, Chief Executive 1997 879,000 2,333,400 342,588 0 1,565,500 0
Officer and President 1996 844,000 2,170,500 266,976 0 440,000 740,300
L. William Heiligbrodt(4) 1998 732,500 0 211,300 0 300,000 0
Former President and 1997 660,000 1,729,900 195,720 0 1,204,500 0
Chief Operating Officer 1996 566,000 1,238,400 192,998 0 400,000 441,100
W. Blair Waltrip 1998 482,500 0 169,100 0 110,000 0
Executive Vice President 1997 450,000 823,200 141,431 0 623,500 0
Operations 1996 416,000 800,800 125,090 0 200,000 234,700
Jerald L. Pullins 1998 400,000 0 117,400 0 105,000 0
Executive Vice President 1997 362,500 631,000 254,476 0 506,500 0
International Operations 1996 320,000 598,400 260,535 0 0 0
George R. Champagne 1998 377,500 0 33,800 0 95,000 0
Executive Vice President 1997 338,500 585,100 152,890 0 356,500 0
Chief Financial Officer 1996 293,500 576,200 126,855 0 0 0
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(3)
- --------------------------- ---------------
<S> <C>
R. L. Waltrip $253,069
Chairman, Chief Executive 284,126
Officer and President 272,234
L. William Heiligbrodt(4) 70,802
Former President and 74,451
Chief Operating Officer 69,846
W. Blair Waltrip 42,454
Executive Vice President 42,252
Operations 41,238
Jerald L. Pullins 51,251
Executive Vice President 53,608
International Operations 50,779
George R. Champagne 18,458
Executive Vice President 18,471
Chief Financial Officer 18,483
- --------------------------------------------
</TABLE>
(1) Salary includes director fees of $45,000 each for Messrs. R. L. Waltrip,
Heiligbrodt and W. Blair Waltrip for 1998.
(2) Figures include executive perquisites and benefits, including, for 1998,
$70,600 for use of aircraft and $110,500 for Interest Reimbursement for Mr.
R. L. Waltrip; $59,737 for use of aircraft and $65,000 for Interest
Reimbursement for Mr. Heiligbrodt; $67,289 for use of aircraft and $39,000
for Interest Reimbursement for Mr. W. Blair Waltrip; $62,043 for expatriate
allowances for Mr. Pullins; and $11,298 for personal use of automobile and
$9,273 for use of aircraft for Mr. Champagne. "Interest Reimbursement" means
a payment to the individual as reimbursement of interest paid by him on the
loan from the Company described in the ninth paragraph under "Certain
Transactions."
(3) Consists of the following for 1998: $250,536 for split dollar life insurance
and $2,533 for term life insurance for Mr. R. L. Waltrip; $69,764 for split
dollar life insurance and $1,038 for term life insurance for Mr.
Heiligbrodt; $41,688 for split dollar life insurance and $766 for term life
insurance for Mr. W. Blair Waltrip; $50,314 for split dollar life insurance
and $937 for term life insurance for Mr. Pullins; and $18,196 for split
dollar life insurance and $262 for term life insurance for Mr. Champagne.
(4) Mr. Heiligbrodt resigned as an officer and director of the Company on
February 11, 1999. See the last paragraph under the subcaption "Executive
Employment Agreements" below.
13
<PAGE> 16
STOCK OPTIONS
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SCI SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE PER EXPIRATION PRESENT
GRANT DATE GRANTED(1) IN 1998 SHARE(2) DATE VALUE(3)
---------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. L. Waltrip.................. 08/11/98 400,000 13.54% $35.7813 08/11/2006 $5,842,160
L. William Heiligbrodt......... 08/11/98 300,000 10.16% 35.7813 08/11/2006 4,381,620
W. Blair Waltrip............... 08/11/98 110,000 3.72% 35.7813 08/11/2006 1,606,594
Jerald L. Pullins.............. 08/11/98 105,000 3.56% 35.7813 08/11/2006 1,533,567
George R. Champagne............ 08/11/98 95,000 3.22% 35.7813 08/11/2006 1,387,513
</TABLE>
- ---------------
(1) The stock options vest one-third on each anniversary of the grant date. Each
option will also fully vest upon a change of control of the Company (as
defined in the 1996 Incentive Plan).
(2) The exercise price for all grants is the market price at the date of grant.
(3) The present value of the options is based on a present value model known as
the "Black-Scholes option pricing model". The choice of such valuation
method does not reflect any belief by the Company that such a method, or any
other valuation method, can accurately assign a value to an option at the
grant date. The assumptions used for valuing the 8/11/98 grants are:
volatility rate of 28.3%; annual dividend yield of 1.0%; and risk free
interest rate of 5.6%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1998 OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1998 DECEMBER 31, 1998
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. L. Waltrip............ 1,486,997 $39,301,331 2,235,753 1,782,750 $40,626,707 $10,394,042
L. William Heiligbrodt... 966,548 25,545,864 1,333,452* 1,504,500* 29,685,656 9,543,077
W. Blair Waltrip......... 669,148 17,685,582 630,852 733,500 13,939,269 5,005,222
Jerald L. Pullins........ 0 0 157,010 854,490 3,331,470 9,031,624
George R. Champagne...... 156,500 3,906,247 510 694,490 10,821 8,062,017
</TABLE>
- ---------------
* See the last paragraph under the subcaption "Executive Employment Agreements"
below for information regarding the disposition of these options upon Mr.
Heiligbrodt's resignation as an officer and director of the Company.
RETIREMENT PLANS
Cash Balance Plan
The SCI Cash Balance Plan is a defined benefit plan. Each participant in
the plan has an account which will be credited, each year that a participant
qualifies, with a Company contribution (based on annual compensation and years
of benefit service) and interest. The chart below is the percentage applied to
total compensation for determining the Company contribution for each
participant.
<TABLE>
<CAPTION>
PERCENTAGE OF
YEARS OF BENEFIT SERVICE COMPENSATION
------------------------ -------------
<S> <C>
Less than six years......................................... 5.5%
Six to ten years............................................ 6.5%
Eleven or more years........................................ 8.0%
</TABLE>
14
<PAGE> 17
The maximum compensation used in computing benefits under the SCI Cash
Balance Plan for 1998 was $160,000.
For 1998, interest for each account was credited at the annual rate of
5.18%.
Estimated Annual Benefits Payable at Age 65
<TABLE>
<CAPTION>
NAME ANNUAL BENEFIT
---- --------------
<S> <C>
R. L. Waltrip............................................... $118,852*
L. William Heiligbrodt...................................... 28,072
W. Blair Waltrip............................................ 72,481
Jerald L. Pullins........................................... 31,462
George R. Champagne......................................... 52,509
</TABLE>
- ---------------
* Currently being paid.
Normal Retirement Age is defined in the SCI Cash Balance Plan as (1) the
date upon which a member attains age 65 or (2) in the case of an employee who
becomes a member of the SCI Cash Balance Plan after the age of 60, it will be
the fifth anniversary of the date that such member became a participant.
The predecessor plan, the SCI Pension Plan, was restated and renamed the
SCI Cash Balance Plan effective October 1, 1993. The SCI Pension Plan, a defined
benefit plan, assumed employment continued to a normal retirement date of age
65. The annuity provided by the SCI Pension Plan, payable for life with 120
monthly payments certain, would provide a monthly benefit computed as follows:
40% of final average monthly compensation for the highest five consecutive years
multiplied by a fraction of which the numerator is the years of benefit service
(not to exceed 30) and the denominator is 30.
Employees at least age 60 years old with 10 years of benefit service on
September 30, 1993 will receive the greater of the benefit they would have
earned under the SCI Pension Plan or the benefit earned under the SCI Cash
Balance Plan.
The credited years of service under the SCI Cash Balance Plan as of
December 31, 1998, for the following named individuals are as follows: R.L.
Waltrip (42), L. William Heiligbrodt (11), W. Blair Waltrip (21), Jerald L.
Pullins (16) and George R. Champagne (11).
Supplemental Executive Retirement Plan for Senior Officers
The Supplemental Executive Retirement Plan for Senior Officers ("SERP for
Senior Officers") is a non-qualified plan which covers officers and subsidiary
operating presidents, including the Named Executives. Benefits under the SERP
for Senior Officers do not consist of compensation deferred at the election of
participants. The amounts of benefits under the plan are set by the Compensation
Committee from time to time. The Compensation Committee has set current
guidelines such that the annual benefits will generally equal a percentage (75%
for the Chairman and the President, and lesser percentages for the other
officers) of a participant's 1997 annual base salary and target bonus, with the
benefits being reduced to the extent of the participant's benefits under Social
Security and the SCI Cash Balance Plan. The participant will be entitled at age
60 to the annual payment of the full amount of his benefit; if his employment
terminates earlier than age 60, he will be entitled to the annual payment of the
amount of his benefit multiplied by a fraction of which the numerator is the
participant's years of service and the denominator is the number of years from
the participant's hire date until he reaches age 60. These guidelines will not
be applied if the participant would have been entitled to higher benefits under
the Compensation Committee's previous guidelines.
Benefit payments will be made in the form of 180 monthly installments
commencing at the later of severance of employment or the attainment of age
fifty-five. Prior to retirement, if a participant dies or in the event of a
change of control of the Company (as defined in the SERP for Senior Officers),
the Company will promptly pay to each beneficiary or participant a lump sum
equal to the present value of the benefit that the participant would have been
entitled to receive if he had continued to accrue benefit service from the date
of
15
<PAGE> 18
death or the date of the change of control to the date of his 65th birthday.
Participants may elect to begin receiving monthly benefits at age 55, while
still employed, provided the participant gives written notice at least twelve
months prior to the attainment of age 55. Such installments will be reduced for
early commencement to reasonably reflect the time value of money.
The table below sets forth benefits for the Named Executives.
ANNUAL BENEFITS UNDER SERP FOR SENIOR OFFICERS
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
BENEFIT AT AGE 60
-----------------
<S> <C>
R. L. Waltrip............................................... $1,093,281(1)
L. William Heiligbrodt...................................... 643,530(2)(3)
W. Blair Waltrip............................................ 574,580(2)
Jerald L. Pullins........................................... 272,268
George R. Champagne......................................... 228,464
</TABLE>
- ---------------
(1) This is Mr. R. L. Waltrip's actual benefit which, pursuant to his election,
is being paid in the form of monthly installments beginning January 1, 1995.
(2) Current participants have the greater of the benefit they would have earned
under the previous guidelines or the amount provided by the current
guidelines. For Mr. Heiligbrodt and Mr. W. Blair Waltrip, the annual benefit
is the amount earned under the previous guidelines.
(3) Upon Mr. Heiligbrodt's resignation on February 11, 1999, the Compensation
Committee, in its discretion, made a lump sum payment of the actuarial
equivalent of his benefit.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has executive employment agreements with its executive
officers, including Messrs. R. L. Waltrip, W. Blair Waltrip, Pullins and
Champagne. The agreements have an initial term of five years for Mr. R. L.
Waltrip and three years for each of Messrs. W. Blair Waltrip, Pullins and
Champagne. Upon annual authorization by the Compensation Committee of the Board
of Directors, the terms of the agreements are extended for an additional year
unless notice of nonrenewal is given by either party. If such notice of
nonrenewal is given by the Company or if notice is not given of the Compensation
Committee's decision to authorize renewal, the employment period is extended so
as to terminate the same number of years after the date of such notice as the
original term of the agreement. The agreements provide for base salaries, which
may be increased (but not decreased) by the Compensation Committee, and the
right to participate in bonus and other compensation and benefit arrangements.
As of March 26, 1999, the base salaries for Messrs. R. L. Waltrip, W. Blair
Waltrip, Pullins and Champagne were $900,000, $450,000, $415,000 and $395,000,
respectively.
In the event of termination of employment due to disability or death, the
executive or his estate will be entitled to receive any accrued and unpaid
salary or other compensation, a pro rata portion (based on the portion of the
year elapsed at the date of termination) of the highest bonus the executive
received in the preceding three years and continuation of welfare plan benefits.
If an executive is terminated without cause or by the executive for certain
specified reasons generally relating to a failure by the Company 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 the Company
(as defined in the agreements), the executive 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 the executive received
in the preceding three years plus (c) a multiple
16
<PAGE> 19
(equal to the number of years in the initial term) of both the executive's base
salary and his highest recent bonus.
Upon termination of his employment, each executive will be subject, at the
Company's option, to a non-competition obligation for a period equal to the
number of years in the executive's initial term (except for Mr. R. L. Waltrip,
who has a 10-year non-competition obligation). If the Company elects to have the
non-competition provisions apply, during the non-competition period the Company
will make payments to the executive (other than Mr. R. L. Waltrip) at a rate
equal to his base salary at the time of termination, unless such termination was
for cause or the executive terminates his employment other than for Good Reason
or during the Window Period, in which case the executive will be bound by the
non-competition provisions without the Company making the corresponding
payments. Any payments relating to the non-competition provisions will be
reduced to the extent the executive has received a lump-sum payment in lieu of
salary and bonus after termination of employment.
If any payments under the executive employment agreements or under the
benefit plans of the Company (including the SERP for Senior Officers, the 1993
Long-Term Incentive Stock Option Plan, the 1995 Incentive Equity Plan, the 1996
Incentive Plan and the Amended 1996 Incentive Plan) would subject the executive
to any excise tax under the Internal Revenue Code, the executive will also be
entitled to receive an additional payment in an amount such that, after the
payment of all taxes (income and excise), the executive will be in the same
after-tax position as if no excise tax had been imposed.
At the date of his resignation on February 11, 1999, Mr. L. William
Heiligbrodt, former President and Chief Operating Officer, had a four year
employment agreement with the Company containing terms similar to the employment
agreements described above. In connection with the resignation, the Company paid
$15,000,000 to Mr. Heiligbrodt in cancellation of his employment agreement and
entered a consulting agreement with him. Under the consulting agreement, Mr.
Heiligbrodt is obligated to provide consulting services for $730,000 per year
for four years and, at the option of the Company, for two successive periods of
two years each for $365,000 per year. Under the consulting agreement, the
Company also agreed to (i) provide other benefits equal to approximately $62,000
per year, (ii) transfer to Mr. Heiligbrodt a car valued at $48,500, and (iii)
provide interest reimbursements for Mr. Heiligbrodt's loan described in the
ninth paragraph under "Certain Transactions". During the term of the consulting
agreement, Mr. Heiligbrodt will be subject to a non-competition obligation.
Additionally on February 11, 1999, the Company purchased from a partnership and
a trust controlled by Mr. Heiligbrodt (i) 583,114 shares of SCI Common Stock at
$17.00 per share and (ii) a stock option covering 933,452 shares of Common Stock
for $3,850,490, which amount represented the difference between $17.00 and the
$12.875 exercise price per share of the option. Further, Mr. Heiligbrodt and his
partnership surrendered to the Company their remaining options covering an
aggregate of 1,904,500 shares of Common Stock. With regard to the SERP for
Senior Officers, the Company made a lump sum payment of $6,345,458, which
represented the actuarial equivalent of Mr. Heiligbrodt's benefits under such
plan.
OTHER COMPENSATION
The Named Executives and certain other officers participate in the Split
Dollar Life Insurance Plan, under which they are owners of life insurance
policies providing death benefits to the Named Executives as follows: $2,000,000
for Mr. R. L. Waltrip; $1,500,000 for Mr. Heiligbrodt; $1,000,000 each for
Messrs. W. Blair Waltrip and Pullins; and $750,000 for Mr. Champagne. SCI
advances the annual premium on each policy, with the executive paying income tax
on the term cost of the death benefit. Each executive collaterally assigned an
interest in the policy to SCI in an amount equal to its cumulative premiums
paid. SCI will recover its cumulative premiums paid at the earlier of 15 years
or death.
DIRECTOR COMPENSATION
The current rates of directors' and committee fees are $5,250 quarterly
plus $6,000 for each meeting of the Board attended (payable to all directors),
and $1,500 for each committee meeting attended (payable to non-employee
directors only).
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<PAGE> 20
In addition, directors or directors emeritus who are not employees of the
Company or its subsidiaries automatically receive yearly awards of restricted
Common Stock through 2000 pursuant to the 1995 Stock Plan For Non-Employee
Directors. Each award will be made on the second Thursday of May for an amount
of 3,000 shares. Each award will have a restriction period which will lapse on
the second Thursday in May of the year following the year the award is granted.
If the director terminates service as a director for any reason other than
disability or death prior to the lapse of the restriction period, the restricted
shares shall be forfeited. The restrictions shall lapse upon the occurrence of
death or total and permanent disability of the director or upon a change of
control of the Company (as defined in the plan). While the restrictions are in
effect, the shares cannot be sold, pledged or transferred. Except for the
restrictions described above, a participant in the plan who has been awarded
shares of restricted Common Stock has all the rights of a holder of Common
Stock, including the right to receive dividends paid on such shares and the
right to vote such shares. In 1998, each of the nine directors who were not
employees and the director emeritus received an award of 3,000 shares under the
plan.
The Company maintains a Retirement Plan for Non-Employee Directors. Under
this plan, each of the directors who is not an employee of the Company,
including the director emeritus, was designated as a plan participant and will
be entitled to receive annual retirement benefits of $42,500 for ten years,
subject to a vesting schedule. The retirement benefits will vest in 25%
increments at the end of five years, eight years, eleven years and fifteen years
of credited service, except that the benefits will automatically vest 100% in
the event of death while a director or in the event of a change in control of
the Company (as defined in the plan).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1998, the members of the Compensation Committee of the Board of
Directors of the Company were Messrs. James H. Greer, John W. Mecom, Jr. and E.
H. Thornton, Jr. No member of the Compensation Committee was, during 1998, an
officer or employee of the Company or any of its subsidiaries, or was formerly
an officer of the Company or any of its subsidiaries or had any relationships
requiring disclosure by the Company.
CERTAIN TRANSACTIONS
In August 1989, the Company acquired funeral homes in which John W. Morrow,
Jr., Executive Vice President North American Operations, had an ownership
interest. In connection with the transaction, each of Mr. Morrow's adult
children entered a ten-year Agreement-Not-to-Compete under which the Company is
obligated to make monthly payments for the term of such agreements. The Company
paid $36,000 in 1998 under the children's agreements.
In January 1999, the Company acquired Equity Corporation International
("ECI") which leased funeral home property from Mr. Morrow. The lease has a term
ending August 1999 and may be extended by the Company for four additional terms
of five years each. The lease provides for annual rentals equal to the higher of
$90,000 or 8% of the funeral home's net sales. During 1998, ECI paid rentals of
$90,000 to Mr. Morrow.
For 1998, the Company paid $114,413 cash compensation and granted stock
options for 5,200 shares of Common Stock to Robert E. Morrow, brother of John W.
Morrow, Jr., in his capacity as an employee of the Company.
For 1998, the Company paid $76,824 cash compensation and granted stock
options for 1,000 shares of Common Stock to Kevin Mack in his capacity as an
employee of the Company. Mr. Mack is the brother of Stephen M. Mack, Vice
President Operations of the Company.
For 1998, the Company paid $122,477 cash compensation and granted stock
options for 3,000 shares of Common Stock, to Scott Sells in his capacity as an
employee of the Company. Mr. Sells is the son of Richard T. Sells, Senior Vice
President Preneed Sales of the Company.
18
<PAGE> 21
In 1998, the Company provided salary of $220,000, and other benefits of
$372,485 and granted stock options for 20,000 shares of Common Stock to T. Craig
Benson, former son-in-law of R. L. Waltrip, in his capacity as a vice president
of the Company.
In 1998, the Company paid $39,000 cash remuneration and awarded 3,000
restricted shares of Common Stock of the Company to Wanda A. McGee, mother of R.
L. Waltrip, in her capacity as director emeritus of the Company. Pursuant to a
resolution adopted by the Board in 1983, Ms. McGee is entitled as director
emeritus to receive such fees and other emoluments as may be paid or awarded to
directors of the Company.
In 1998, the Company leased vehicles to companies owned by Mr. R. L.
Waltrip and received rentals aggregating $45,396. The Company also leased
vehicles to a company owned by Mr. Heiligbrodt and received $89,917 in full
payment of all leased vehicles. All of the leases were entered at market rates
and contain terms which, in the opinion of management, are as favorable to the
Company as could have been negotiated with any third party.
In connection with grants of restricted stock under the Amended 1987 Stock
Plan, on August 19, 1993 the Company made loans of $1,700,000 to Mr. R. L.
Waltrip, $1,000,000 to Mr. Heiligbrodt, $600,000 to Mr. W. Blair Waltrip and
$525,000 to Mr. Morrow. The loans were made to enable such officers to pay the
estimated federal income taxes resulting from their receipt of the restricted
stock grants. Each of the loans remained outstanding in 1998, is due August 10,
2003 and bears interest at 6 1/2% per annum, which interest is reimbursed by the
Company (together with a tax gross-up payment on the interest).
Provident Services, Inc. and its subsidiaries ("Provident") provide various
types of financing in the funeral and cemetery industry, including loans to
certain employees and directors of the Company. Provident Services, Inc. is a
subsidiary of the Company. During 1998, Provident had outstanding loans of
$60,000 or more to officers and directors as set forth below. All such loans are
secured and contain terms which, in the opinion of management, are as favorable
to Provident as could have been negotiated with any third party.
T. Craig Benson, Vice President International Operations of the Company,
has a loan to exercise stock options at the prime rate, of which the largest
balance in 1998 and the year end balance was $73,751.
Gregory L. Cauthen, Senior Vice President Financial Services of the
Company, has a mortgage loan at 7.10% interest, of which the largest balance in
1998 was $162,389 and the year end balance was $149,461.
George R. Champagne, Executive Vice President Chief Financial Officer of
the Company, has a mortgage loan at 6.90% interest, of which the largest balance
in 1998 was $467,615 and the year end balance was $455,582.
Anthony L. Coelho, a member of the Board of Directors of the Company, has a
mortgage loan at 7.20% interest, of which the largest balance in 1998 was
$418,922 and the year end balance was $356,133.
J. Daniel Garrison, Vice President International Operations of the Company,
has a mortgage loan at 7.05% interest, of which the largest balance in 1998 was
$225,000 and the year end balance was $220,727.
L. William Heiligbrodt, former President and Chief Operating Officer of the
Company, has a mortgage loan at 7.70% interest, of which the largest balance in
1998 was $357,007 and the year end balance was $351,935. Mr. Heiligbrodt has a
mortgage loan at 7.60% interest, of which the largest balance in 1998 was
$94,565 and the year end balance was $93,125. Mr. Heiligbrodt has a mortgage
loan at 7.45% interest, of which the largest balance in 1998 was $126,767 and
the year end balance was $124,755.
Lowell A. Kirkpatrick, Jr., Vice President Operations, Finance and
Development of the Company, has a mortgage loan at 6.50% interest, of which the
largest balance in 1998 was $700,000 and the year end balance was $696,324. In
addition, Mr. Kirkpatrick paid off in 1998 a loan for personal use at 6.50%
interest, of which the largest balance in 1998 was $305,625.
Todd A. Matherne, Vice President Treasurer of the Company, has a mortgage
loan at 7.05% interest, of which the largest balance in 1998 was $132,000 and
the year end balance was $130,828.
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<PAGE> 22
Glenn G. McMillen, Senior Vice President of the Company, has a mortgage
loan at 6.45% interest, of which the largest balance in 1998 was $219,825 and
the year end balance was $209,106.
Jerald L. Pullins, Executive Vice President International Operations of the
Company, has a mortgage loan at 7.00% interest, of which the largest balance in
1998 was $497,235 and the year end balance was $494,750. In addition, Mr.
Pullins paid off a mortgage loan at 9.20% interest, of which the largest balance
in 1998 was $354,541.
Jack L. Stoner, Senior Vice President Administration of the Company, paid
off in 1998 a mortgage loan at 7.20% interest, of which the largest balance in
1998 was $192,305.
Michael R. Webb, Vice President International Corporate Development of the
Company, has a mortgage loan at 7.10% interest, of which the largest balance in
1998 was $296,714 and the year end balance was $293,548. In addition, he has a
loan for personal use at the prime rate, of which the largest balance and the
year end balance was $30,000.
The Company has entered transactions with J.P. Morgan & Co. Incorporated or
its subsidiaries (collectively, "Morgan"), which holds more than 5% of the
outstanding shares of Common Stock of the Company. During 1998, the Company and
Morgan were engaged in 16 derivatives transactions, including interest rate
swaps and cross-currency interest rate swaps. The swaps have been entered at
various times from 1993 to 1998 and mature at various times from 1999 to 2010.
For 1998, the Company paid or accrued an aggregate interest expense of
$112,937,016 to Morgan under the swaps and the Company received or accrued from
Morgan an aggregate interest income of $121,177,038. At December 31, 1999, the
aggregate notional amount under the swaps was $1,948,129,281, and SCI's
aggregate net fair value position of the swaps was a negative $5,289,553.
In the Company's public debt offerings in March and December 1998, Morgan
provided underwriting services and received an aggregate of $2,388,750 in
discounts or fees.
During 1998, Morgan provided advisory services to the Company in connection
with the Company's new shareholders rights plan and the Company's acquisitions
of American Memorial Life Insurance Company, Equity Corporation International
and a 49% interest in a Spanish company. For these services, the Company paid
aggregate fees of $2,945,000 to Morgan. After completion of the acquisition of
Equity Corporation International in 1999, the Company paid Morgan additional
fees of $4,076,000 for advisory services regarding such acquisition.
In 1998, the Company paid fees aggregating $1,411,836 for investment
management services provided by Morgan.
Various institutions, including Morgan, are lenders under the Company's
$800,000,000 revolving credit agreement executed in November 1998. As a lender,
Morgan accrued $83,600 in fees in 1998 under the agreement.
In 1998, Morgan held 50% of the Company's $200,000,000 floating rate notes
due 2011 and putable in 1999. Under the notes, the Company paid Morgan accrued
interest of $11,581,035 for 1998. In the first quarter of 1999, the Company paid
off the principal of the notes and, in addition, paid Morgan $12,095,092
representing interest for 1999 and a payoff premium.
For various banking services in 1998, the Company paid Morgan fees of
$35,422.
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<PAGE> 23
VOTING SECURITIES AND PRINCIPAL HOLDERS
The table below sets forth information with respect to any person who is
known to the Company as of March 30, 1999 to be the beneficial owner of more
than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------ ---------
<S> <C> <C>
J. P. Morgan & Co. Incorporated............................. 17,095,966(1) 6.3%
60 Wall Street
New York, New York 10260
</TABLE>
- ---------------
(1) Based on a filing made by J. P. Morgan & Co. Incorporated on February 23,
1999, which reported sole voting power for 12,091,796 shares, shared voting
power for 158,150 shares, sole investment power for 16,748,616 shares and
shared investment power for 308,850 shares.
The table below sets forth, as of March 30, 1999, the amount of the
Company's Common Stock beneficially owned by each Named Executive (except for
Mr. Heiligbrodt who resigned February 11, 1999), each director and nominee for
director, and all directors and executive officers as a group, based upon
information obtained from such persons. Securities reported as beneficially
owned include those for which the persons listed have voting or investment
power, unless otherwise noted. Such persons have sole voting power and
investment power unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT
NAME OF INDIVIDUAL OR GROUP OWNED(1) OF CLASS
--------------------------- ------------ --------
<S> <C> <C>
R. L. Waltrip............................................. 3,237,243(2) 1.2%
W. Blair Waltrip.......................................... 2,383,556(3) *
George R. Champagne....................................... 70,054(4) *
Jerald L. Pullins......................................... 410,930(5) *
Anthony L. Coelho......................................... 40,198 *
Jack Finkelstein.......................................... 396,390(6) *
A. J. Foyt, Jr ........................................... 38,800(7) *
James H. Greer............................................ 49,471 *
B. D. Hunter.............................................. 86,892(8) *
John W. Mecom, Jr ........................................ 37,000 *
Clifton H. Morris, Jr .................................... 31,284(9) *
E. H. Thornton, Jr ....................................... 115,628 *
Edward E. Williams........................................ 33,316 *
Executive Officers and Directors as a Group (30
persons)................................................ 7,648,707(1)(10) 2.8%
</TABLE>
- ---------------
* Less than one percent
(1) For each of Messrs. Coelho, Finkelstein, Foyt, Greer, Hunter, Mecom,
Morris, Thornton and Williams, the amounts include 3,000 shares held under
the 1995 Stock Plan for Non-Employee Directors, and each such director has
sole voting and shared investment power with respect to such shares.
(2) Includes 468,384 shares held in trusts (under one of which trusts Mr. R. L.
Waltrip's wife is a beneficiary) under which Mr. R. L. Waltrip's three
children, as trustees, share voting and investment powers. These shares are
also included in the shares owned by Mr. W. Blair Waltrip. See Footnote
(3). The information herein regarding ownership of equity securities by the
trusts is for informational purposes only and is not to be construed as a
statement that Mr. R. L. Waltrip is a beneficial owner of any such
securities, as any beneficial ownership thereof is expressly disclaimed by
Mr. R. L. Waltrip. Also includes 2,418,503 shares which may be acquired
upon exercise of stock options exercisable within 60 days.
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<PAGE> 24
(3) Includes 128,204 shares held in a trust for the benefit of Mr. W. Blair
Waltrip, 1,072,224 shares held in trusts under which Mr. W. Blair Waltrip,
his brother and his sister are trustees and have shared voting and
investment power and for which Mr. W. Blair Waltrip disclaims 2/3
beneficial ownership. Also includes 27,466 shares held by other family
members or trusts, of which shares Mr. W. Blair Waltrip disclaims
beneficial ownership. Of the shares attributable to the trusts, 468,384
shares are also included in the shares owned by Mr. R. L. Waltrip. See
Footnote (2). Also includes 630,852 shares which may be acquired upon
exercise of stock options exercisable within 60 days.
(4) Includes 3,347 shares held by Mr. Champagne's wife, of which shares Mr.
Champagne disclaims beneficial ownership. Also includes 510 shares which
may be acquired upon exercise of stock options exercisable within 60 days.
(5) Includes 15,160 shares held by a trust of which Mr. Pullins' wife is
trustee for the benefit of Mr. Pullins' children. Mr. Pullins disclaims
beneficial ownership of such shares. Also includes 410,930 shares which may
be acquired upon exercise of stock options exercisable within 60 days.
(6) Includes 373,708 shares held in trusts for the benefit of other family
members and/or himself, and 8,500 shares held by a charitable foundation of
which Mr. Finkelstein is President. As trustee, Mr. Finkelstein has sole
voting and investment power with respect to 276,574 shares and shared
voting and investment power with respect to 105,634 shares. Mr. Finkelstein
disclaims beneficial ownership as to 105,634 shares held in such trusts and
by the foundation.
(7) Includes 8,800 shares held by Mr. Foyt as custodian for family members. Mr.
Foyt has sole voting and investment power for such shares and disclaims
beneficial ownership of such shares.
(8) Includes 28,484 shares held directly by Mr. Hunter, 38,408 shares
indirectly controlled by Mr. Hunter (of which Mr. Hunter disclaims
beneficial ownership) and 51,742 shares held by Mr. Hunter's Individual
Retirement Account.
(9) Includes 4,034 shares owned by Mr. Morris' wife. Mr. Morris disclaims
beneficial ownership of such shares.
(10) Includes 31,000 restricted shares held by six persons under Company stock
plans, as well as 4,225,913 shares which may be acquired upon exercise of
stock options exercisable within 60 days.
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP ("PwC") to serve as the independent accountants for the Company for the
fiscal year ending December 31, 1999. PwC and its predecessors have audited the
Company's accounts since 1993. A representative of PwC is expected to be present
at the Annual Meeting of Shareholders, will have the opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions at such meeting.
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and written representations from reporting persons that no Form 5
was required, the Company believes that Anthony L. Coelho, a director, and J.
Daniel Garrison, Vice President International Operations, each filed late one
Form 4 reporting one transaction.
PROXY SOLICITATION
In addition to solicitation by mail, further solicitation of proxies may be
made by mail, facsimile, telephone, telegraph or oral communication following
the original solicitation by directors, officers and regular employees of the
Company who will not be additionally compensated therefor, or by its transfer
agent. The
22
<PAGE> 25
expense of such solicitation will be borne by the Company and will include
reimbursement paid to brokerage firms and other custodians, nominees and
fiduciaries for their expenses in forwarding solicitation material regarding the
meeting to beneficial owners. In addition, the Company has retained Kissel-Blake
Inc. to aid in the solicitation of proxies from shareholders generally in
connection with the Annual Meeting of Shareholders. Such solicitations may be by
mail, facsimile, telephone, telegraph or personal interview. The fee of such
firm is not expected to exceed $12,000 plus reimbursement for reasonable
expenses.
OTHER BUSINESS
The Board of Directors of the Company is not aware of other matters to be
presented for action at the meeting; however, if any such matters are presented
for action, it is the intention of the persons named in the enclosed form of
proxy to vote in accordance with their judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal to be presented by a shareholder at the Company's 2000 Annual
Meeting of Shareholders scheduled to be held on May 11, 2000 must be received by
the Company by December 15, 1999, so that it may be considered by the Company
for inclusion in its proxy statement relating to that meeting.
Any holder of Common Stock of the Company desiring to bring business before
the Company's 2000 Annual Meeting of Shareholders scheduled to be held on May
11, 2000 in a form other than a shareholder proposal in accordance with the
preceding paragraph must give written notice that is received by the Company,
addressed to the Secretary, no later than March 22, 2000. Any notice pursuant to
this or the preceding paragraph should be addressed to the Secretary of the
Company, 1929 Allen Parkway, P.O. Box 130548, Houston, Texas 77219-0548.
It is important that proxies be returned to avoid unnecessary expense.
Therefore, shareholders are urged, regardless of the number of shares of stock
owned, to date, sign and return the enclosed proxy in the enclosed business
reply envelope.
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
April 13, 1999
23
<PAGE> 26
ANNEX A
SERVICE CORPORATION INTERNATIONAL
AMENDED 1996 INCENTIVE PLAN
ARTICLE I
PLAN
1.1 Purpose. The Service Corporation International Amended 1996 Incentive
Plan is intended to provide a means whereby certain Employees of the Company and
its Affiliates may develop a sense of proprietorship and personal involvement in
the development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may grant to certain Employees Awards in the form of
Incentive Stock Options, Nonqualified Stock Options, Bonus Awards, Restricted
Stock Awards, Stock Equivalent Units and Performance Grants, subject to the
terms of the Plan.
1.2 Effective Date of Plan. The Service Corporation International 1996
Incentive Plan was effective February 15, 1996. The Plan shall be effective May
13, 1999 if it shall have been approved by at least a majority vote of
shareholders voting in person or by proxy with respect to the Plan at a duly
held shareholders' meeting. No Award shall be granted pursuant to the Plan after
May 13, 2009.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in these definitions throughout the Plan, unless the context in which any
such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "Affiliate" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "Award" means an award or grant made to an Employee under Articles V
through IX herein.
2.3 "Award Agreement" means the written agreement provided in connection
with an Award setting forth the terms and conditions of the Award. Such
Agreement may contain any other provisions that the Committee, in its sole
discretion, shall deem advisable which are not inconsistent with the terms of
the Plan.
2.4 "Board of Directors" or "Board" means the board of directors of the
Company.
2.5 "Bonus Award" means an Award, denominated in cash or in Stock, made to
an Employee under Article VI which is intended to qualify as performance based
compensation as defined in Section 162(m) of the Code and regulations issued
thereunder.
2.6 "Change of Control" means the happening of any of the following
events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person"), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (A) the then outstanding shares of Common
Stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities
A-1
<PAGE> 27
of the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control under this
subsection (a): (i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (A), (B) and (C) of subsection (c) of this definition
of "Change of Control" are satisfied; or
(b) Individuals who, as of the effective date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the effective date of the Plan whose election, or
nomination for election by the Company's shareholders, was approved by (A)
a vote of at least a majority of the directors then comprising the
Incumbent Board, or (B) a vote of at least a majority of the directors then
comprising the Executive Committee of the Board at a time when such
committee was comprised of at least five members and all members of such
committee were either members of the Incumbent Board or considered as being
members of the Incumbent Board pursuant to clause (A) of this subsection
(b), shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation, and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation or
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C)
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (i) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other
A-2
<PAGE> 28
disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case
may be, (ii) no Person (excluding the Company and any employee benefit plan
(or related trust) of the Company or such corporation, and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding Company Common Stock
or Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least
a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Committee" means the Compensation Committee of the Board of Directors
or such other committee designated by the Board of Directors. The Committee
shall at all times consist solely of two or more members of the Board of
Directors, and all members of the Committee shall be both Disinterested Persons
and Outside Directors.
2.9 "Company" means Service Corporation International, a Texas
corporation.
2.10 "Disability" means the inability of the Employee to perform his or
her duties as an employee on a full-time basis as a result of incapacity due to
mental or physical illness which continues for more than one year after the
commencement of such incapacity, such incapacity to be determined by a physician
selected by the Company or its insurers and acceptable to the Employee or the
Employee's legal representative (such agreement as to acceptability not to be
withheld unreasonably).
2.11 "Disinterested Person" means a "Non-Employee Director" as that term
is defined in Rule 16b-3 under the Exchange Act.
2.12 "Employee" means a key employee employed by the Company or any
Affiliate to whom an Award is granted.
2.13 "Fair Market Value" of the Stock as of any date means (a) the average
of the high and low sale prices of the Stock on that date on the principal
securities exchange on which the Stock is listed; or (b) if the Stock is not
listed on a securities exchange, the average of the high and low sale prices of
the Stock on that date as reported on the Nasdaq National Market; or (c) if the
Stock is not listed on the Nasdaq National Market, the average of the high and
low bid quotations for the Stock on that date as reported by the National
Quotation Bureau Incorporated; or (d) if none of the foregoing is applicable,
the average between the closing bid and ask prices per share of stock on the
last preceding date on which those prices were reported or that amount as
determined by the Committee.
2.14 "Incentive Option" means an Option granted under the Plan which is
designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.
2.15 "Nonqualified Option" means an Option granted under the Plan other
than an Incentive Option.
2.16 "Option" means an Incentive Option or a Nonqualified Option granted
under the Plan to purchase shares of Stock.
2.17 "Outside Director" means a member of the Board of Directors serving
on the Committee who satisfies the requirements of Section 162(m) of the Code.
2.18 "Performance Grant" means an Award, denominated in cash or in Stock,
made to an Employee under Article IX which is intended to qualify as performance
based compensation as defined in Section 162(m) of the Code and regulations
issued thereunder.
2.19 "Plan" means the Service Corporation International Amended 1996
Incentive Plan, as set out in this document and as it may be amended from time
to time.
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2.20 "Restricted Stock" means shares of Stock issued as an Award and
subject to restrictions and conditions pursuant to Article VII.
2.21 "Stock" means the common stock of the Company, $1.00 par value or, in
the event that the outstanding shares of common stock are later changed into or
exchanged for a different class of stock or securities of the Company or another
corporation, that other stock or security.
2.22 "Stock Equivalent Unit" means an Award made to an Employee under
Article VIII that entitles the Employee to receive an amount in cash equal to
the Fair Market Value of one share of Stock on the date of redemption of such
Stock Equivalent Unit, and which is intended to qualify as performance based
compensation as defined in Section 162(m) of the Code and regulations issued
thereunder.
2.23 "10% Shareholder" means an individual who, at the time the Option is
granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or of any Affiliate. An individual shall
be considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by whole or half blood), spouse, ancestors, and
lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust, shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.
ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Awards shall be those
Employees as the Committee shall determine from time to time. However, no
non-Employee director shall be eligible to receive any Award or to receive
stock, stock options, or stock appreciation rights under any other plan of the
Company or any of its Affiliates, if receipt of it would cause the individual
not to be a Disinterested Person or Outside Director.
ARTICLE IV
GENERAL PROVISIONS RELATING TO AWARDS
4.1 Authority to Grant Awards. The Committee may grant Awards to those
Employees as it shall determine from time to time under the terms and conditions
of the Plan. Subject only to any applicable limitations set out in the Plan, the
amount of any Award and the number of shares of Stock to be covered by any Award
to be granted to an Employee shall be as determined by the Committee. Except for
Bonus Awards, each Award shall be evidenced by an Award Agreement which shall
set forth the terms and conditions of the Award. Except as otherwise provided
herein, no Award granted pursuant to the Plan shall vest in whole or in part in
less than six months after the date the Award is granted. An Employee who has
received an Award in any year may receive an additional Award or Awards in the
same year or in subsequent years. After considering the effects of any action on
Section 162(m) of the Code, the Committee may, in its discretion, waive or
accelerate any restrictions to which the Options, Restricted Stock Awards and
Stock Equivalent Units may be subject; provided, however that the Committee may
not alter, amend or modify pre-established performance based criteria to which
any Award may be subject.
4.2 Dedicated Shares. The total number of shares of Stock with respect to
which Awards may be granted under the Plan shall be 24,000,000 shares. The
shares of Stock may be treasury shares or authorized but unissued shares. The
maximum number of shares of Stock and Stock Equivalent Units with respect to
which Awards may be granted during the life of the Plan as Bonus Awards payable
in stock, Restricted Stock Awards, Stock Equivalent Units, and Performance
Grants payable in stock is an aggregate of 2,000,000 shares. The numbers of
shares of Stock stated in this Section 4.2 shall be subject to adjustment in
accordance with the provisions of Section 4.5.
In the event that any Award shall expire or terminate for any reason or any
Award is surrendered, the shares of Stock allocable to that Award may again be
subject to an Award under the Plan.
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4.3 Non-Transferability. Except as otherwise determined by the Committee
in compliance with Rule 16b-3 under the Exchange Act, the Awards granted
hereunder shall not be transferable by the Employee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable, during the
Employee's lifetime, only by the Employee. The Committee may grant Awards that
are transferable, without payment of consideration, to immediate family members
of the Employee; the Committee may also amend outstanding Awards to provide for
such transferability. A transfer of a Nonqualified Option pursuant to this
Section may only be effected by the Company at the written request of an
Employee and shall become effective only when recorded in the Company's record
of outstanding Nonqualified Options. In the event a Nonqualified Option is
transferred as contemplated hereby, such Nonqualified Option may be subsequently
transferred by the transferee only by will or the laws of descent and
distribution or, without payment of consideration, to immediate family members
of the Employee. In the event a Nonqualified Option is transferred as
contemplated hereby, such Nonqualified Option will continue to be governed by
and subject to the terms of this Plan and the relevant grant, and the transferee
shall be entitled to the same rights as the Employee hereunder, as if no
transfer had taken place. As used herein, "immediate family members" shall mean
with respect to any person, such person's child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Employee's household (other than a tenant or employee), a trust in which these
persons have more than 50% of the beneficial interest, a foundation in which
these persons (or the Employee) control the management of assets, and any other
entity in which these persons (or the Employee) own more than 50% of the voting
interests. With respect to all options outstanding under the Service Corporation
International 1996 Incentive Plan which prior to the effective date of this Plan
have been approved to be or become transferable to immediate family members,
such options are hereby amended to be transferable to immediate family members
pursuant to and in accordance with the provisions of this Section 4.3.
4.4 Requirements of Law. The Company shall not be required to sell or
issue any Stock under any Award if issuing that Stock would constitute or result
in a violation by the Employee or the Company of any provision of any law,
statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities pursuant to any Award, the Company shall not be
required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Award will not transfer
the Stock except in accordance with applicable law, including receipt of an
opinion of counsel satisfactory to the Company to the effect that any proposed
transfer complies with applicable law. The determination by the Committee on
this matter shall be final, binding and conclusive. The Company may, but shall
in no event be obligated to, register any Stock covered by the Plan pursuant to
applicable securities laws of any country or any political subdivision. In the
event the Stock issuable pursuant to an Award is not registered, the Company may
imprint on the certificate evidencing the Stock any legend that counsel for the
Company considers necessary or advisable to comply with applicable law. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of, or the issuance of shares under, an Award to comply with
any law or regulation of any governmental authority.
4.5 Changes in the Company's Capital Structure.
(a) The existence of the Plan and the Awards granted hereunder shall
not affect or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger
or consolidation of the Company, any issue of bonds, debentures, preferred
or prior preference stocks ahead of or affecting the Stock or the rights
thereof, the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding.
(b) In the event of any change in the outstanding shares of Stock of
the Company by reason of any stock split, stock dividend, split-up,
split-off, spin-off, recapitalization, merger, consolidation, liquidation,
rights offering, share offering, reorganization, combination or exchange of
shares, a sale by the Company of all of part of its assets, any
distribution to shareholders other than a normal cash dividend, or other
extraordinary or unusual event, if the Committee shall determine, in its
discretion, that such change equitably requires an adjustment in the terms
of any Award or the number of shares of Stock available for
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Awards, such adjustment may be made by the Committee subject to Section
162(m) of the Code, and shall be final, conclusive and binding for all
purposes of the Plan.
4.6 Termination of Employment. Except as specifically provided herein, the
Committee shall set forth in the Award Agreement the status of any Award or
shares of Stock underlying any Award upon the termination of the Employee's
employment for any reason.
4.7 Election Under Section 83(b) of the Code. No Employee shall exercise
the election permitted under Section 83(b) of the Code without written approval
of the Committee. Any Employee doing so shall forfeit all Awards issued to the
Employee under the Plan.
4.8 Change of Control. Upon a Change of Control:
(a) all outstanding Options shall become immediately exercisable to
the full extent of the grant. From and after a Change of Control,
Nonqualified Options shall remain exercisable for the lesser of (x) the
balance of their original term and (y) (i) six months and one day after
termination of an Employee's employment other than due to death, Disability
or retirement at or after age 55 or (ii) one year after termination of an
Employee's employment due to death, Disability or retirement at or after
age 55. From and after a Change of Control, Incentive Options shall remain
exercisable for three months after termination of an Employee's employment;
(b) all Bonus Awards shall become immediately payable to the fullest
extent of the Award regardless of whether the Measurement Period
(hereinafter defined) upon which it is based has been completed;
(c) all forfeiture restrictions and forfeiture restriction periods
with respect to Restricted Stock Awards shall expire immediately;
(d) all Stock Equivalent Units shall be redeemed by the Company on the
twentieth business day after the Change of Control at a price per Stock
Equivalent Unit equal to the Fair Market Value per share of the Stock on
the date prior to the date of redemption; and
(e) all Performance Grants shall become immediately payable to the
fullest extent of the Award regardless of whether the Performance Cycle
(hereinafter defined) upon which it is based has been completed.
ARTICLE V
OPTIONS
5.1 Type of Option. The Committee shall specify whether a given Option
shall constitute an Incentive Option or a Nonqualified Option.
5.2 Option Price. The price per share at which shares of Stock may be
purchased under an Incentive Option shall not be less than the greater of (a)
100% of the Fair Market Value per share of Stock on the date the Option is
granted or (b) the per share par value of the Stock on the date the Option is
granted. The Committee in its discretion may provide that the price per share at
which shares of Stock may be purchased shall be more than 100% of Fair Market
Value per share. In the case of any 10% Shareholder, the price per share at
which shares of Stock may be purchased under an Incentive Option shall not be
less than the greater of: (a) 110% of the Fair Market Value per share of Stock
on the date the Incentive Option is granted or (b) the per share par value of
the Stock on the date the Incentive Option is granted.
The price per share at which shares of Stock may be purchased under a
Nonqualified Option shall not be less than the greater of: (a) 100% of the Fair
Market Value per share of Stock on the date the Option is granted or (b) the per
share par value of the Stock on the date the Option is granted. The Committee in
its discretion may provide that the price per share at which shares of Stock may
be purchased shall be more than 100% of Fair Market Value per share.
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5.3 Duration of Options. No Option shall be exercisable after the
expiration of 10 years from the date the Option is granted. In the case of a 10%
Shareholder, no Incentive Option shall be exercisable after the expiration of
five years from the date the Incentive Option is granted.
5.4 Amount Exercisable. Each Option may be exercised from time to time, in
whole or in part, in the manner and subject to the conditions the Committee, in
its discretion, may provide in the Award Agreement, as long as the Option is
valid and outstanding. To the extent that the aggregate Fair Market Value
(determined as of the time an Incentive Option is granted) of the Stock with
respect to which Incentive Options first become exercisable by the optionee
during any calendar year (under the Plan and any other incentive stock option
plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Options
shall be treated as Nonqualified Options. In making this determination,
Incentive Options shall be taken into account in the order in which they were
granted.
5.5 Exercise of Options. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares with respect to
which the Option is to be exercised, together with: (a) cash, check, certified
check, bank draft, or postal or express money order payable to the order of the
Company for an amount equal to the Option Price of the shares, (b) if acceptable
to the Company, Stock at its Fair Market Value equal to the Option Price of the
shares on the date of exercise, (c) an executed attestation form acceptable to
the Company attesting to ownership of Stock at its Fair Market Value equal to
the Option Price of the shares on the date of exercise and/or (d) any other form
of payment which is acceptable to the Committee, and specifying the address to
which the certificates for the shares are to be mailed. As promptly as
practicable after receipt of written notification and payment, the Company shall
deliver to the Employee certificates for the number of shares with respect to
which the Option has been exercised, issued in the Employee's name. If shares of
Stock are used in payment, the Fair Market Value of the shares of Stock tendered
must be less than the Option Price of the shares being purchased, and the
difference must be paid by check. Delivery shall be deemed effected for all
purposes when the Company or a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the optionee,
at the address specified by the Employee.
Whenever an Option is exercised by exchanging shares of Stock owned by the
Employee, the Employee shall deliver to the Company certificates registered in
the name of the Employee representing a number of shares of Stock legally and
beneficially owned by the Employee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by the Company or a commercial bank or trust company or by a brokerage firm
having a membership on a registered national stock exchange). The delivery of
certificates upon the exercise of Options is subject to the condition that the
person exercising the Option provide the Company with the information the
Company might reasonably request pertaining to exercise, sale or other
disposition.
5.6 Substitution Options. Options may be granted under the Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in the Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
5.7 No Rights as Stockholder. No Employee shall have any rights as a
shareholder with respect to Stock covered by an Option until the date a stock
certificate is issued for the Stock.
5.8 Limitations. The maximum number of Options which may be awarded under
this Article V during the term of the Plan shall be 24,000,000 shares, and the
maximum number of Options which may be awarded to any Employee under this
Article V during the term of the Plan shall be 24,000,000 shares.
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ARTICLE VI
BONUS AWARDS
6.1 Bonus Awards and Eligibility. The Committee, in its sole discretion,
may designate certain Employees of the Company who are eligible to receive a
Bonus Award if certain pre-established performance goals are met. In determining
which Employees shall be eligible for a Bonus Award, the Committee may, in its
discretion, consider the nature of the Employee's duties, past and potential
contributions to the success of the Company and its Affiliates, and such other
factors as the Committee deems relevant in connection with accomplishing the
purposes of the Plan.
6.2 Establishment of Bonus Award. The Committee shall determine the terms
of the Bonus Award, if any, to be made to an Employee for each measurement
period selected by the Committee which shall not be greater than one year (the
"Measurement Period"). The Committee shall have the discretion to make downward
adjustments to Bonus Awards otherwise payable if the performance goals are
attained.
6.3 Criteria for Performance Goals. The performance goals shall be
pre-established by the Committee in accordance with Section 162(m) of the Code
and regulations issued thereunder. Performance goals determined by the Committee
may include, but are not limited to, increases in net profits, operating income,
Stock price, earnings per share, sales and/or return on equity.
6.4 Committee Certification. The Committee must certify in writing that a
performance goal has been met prior to payment to any Employee of the Bonus
Award by issuance of a certificate for Stock or payment in cash. If the
Committee certifies the entitlement of an Employee to the performance based
Bonus Award, the payment shall be made to the Employee subject to other
applicable provisions of the Plan, including but not limited to, all legal
requirements and tax withholding.
6.5 Payment and Limitations. Bonus Awards shall be paid on or before the
90th day following both (a) the end of the Measurement Period, and (b)
certification by the Committee that the performance goals and any other material
terms of the Bonus Award and the Plan have been satisfied, or as soon thereafter
as is reasonably practicable. The Bonus Award may be paid in Stock, cash, or a
combination of Stock and cash, in the sole discretion of the Committee. If paid
in whole or in part in Stock, the Stock shall be valued at Fair Market Value as
of the date the Committee directs payments to be made in whole or in part in
Stock. However, no fractional shares of Stock shall be issued, and the balance
due, if any, shall be paid in cash.
The maximum amount which may be paid to any Employee pursuant to one or
more Bonus Awards under this Article VI for any single Measurement Period shall
not exceed $3,000,000; and the maximum amount of any Bonus Awards payable to any
one Employee in any calendar year shall not exceed $4,000,000.
6.6 Termination of Employment During Measurement Period. If an Employee's
employment with the Company and all Affiliates terminates during a Measurement
Period (other than in connection with or within one year after a Change of
Control), he shall not be entitled to any payment under this Article VI for that
Measurement Period.
ARTICLE VII
RESTRICTED STOCK
7.1 Restricted Stock Awards and Eligibility. The Committee, in its sole
discretion, may grant Restricted Stock Awards to certain Employees of the
Company. In determining which Employees shall be eligible for a Restricted Stock
Award, the Committee may, in its discretion, consider the nature of the
Employee's duties, past and potential contributions to the success of the
Company and its Affiliates, and such other factors as the Committee deems
relevant in accomplishing the purposes of the Plan. Awards of Restricted Stock
shall be subject to such conditions and restrictions as are established by the
Committee and set forth in the Award Agreement, including, without limitation,
the number of shares of Stock to be issued to the Employee, the consideration
for such shares, forfeiture restrictions and forfeiture restriction periods,
performance criteria, if any, and other rights with respect to the shares.
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7.2 Issuance of Restricted Stock. Upon the grant of a Restricted Stock
Award to an Employee, issuance of the stock certificate shall be made in the
name of the Employee as soon as administratively practicable, and subject to
other applicable provisions of the Plan, including but not limited to, all legal
requirements and tax withholding. Stock certificates evidencing shares of
Restricted Stock pending the lapse of restrictions shall bear a legend making
appropriate reference to the restrictions imposed. Upon the grant of a
Restricted Stock Award, the Employee may be required to provide such further
assurance and documents as the Committee may require to enforce the
restrictions.
7.3 Voting and Dividend Rights. The Employee shall have the right to
receive dividends during any forfeiture restriction period, to vote the Stock
subject thereto and to enjoy all other shareholder rights, except that (i) the
Employee shall not be entitled to delivery of the stock certificate until any
forfeiture restriction period shall have expired, (ii) the Company shall retain
custody of the stock certificate during the forfeiture restriction period, and
(iii) the Employee may not sell, transfer, pledge, exchange, hypothecate or
otherwise dispose of the Stock during any forfeiture restriction period.
ARTICLE VIII
STOCK EQUIVALENT UNITS
8.1 Stock Equivalent Units and Eligibility. The Committee, in its sole
discretion, may grant Stock Equivalent Units to certain Employees of the
Company. In determining which Employees shall be eligible for an Award of Stock
Equivalent Units, the Committee may, in its discretion, consider the nature of
the Employee's duties, past and potential contributions to the success of the
Company and its Affiliates, and such other factors as the committee deems
relevant in accomplishing the purposes of the Plan. Awards of Stock Equivalent
Units shall be subject to such conditions and restrictions as are established by
the Committee and set forth in the Award Agreement, including, without
limitation, the number of units, performance criteria, if any, and terms of
redemption of the Stock Equivalent Units (whether in connection with the
termination of employment or otherwise).
8.2 Voting and Dividend Rights. No Employee shall be entitled to any
voting rights or to receive any dividends with respect to any Stock Equivalent
Units.
8.3 Redemption of Stock Equivalent Units. The Committee shall provide in
each Award Agreement pertaining to Stock Equivalent Units a procedure for the
redemption by the Company of the Stock Equivalent Units. The amount to be paid
in cash to an Employee upon redemption of each Stock Equivalent Unit shall be
the Fair Market Value of one share of Stock on the date of redemption.
8.4 Valuation of Stock Equivalent Units. Each Stock Equivalent Unit shall
be initially valued at the Fair Market Value of one share of Stock on the date
the Stock Equivalent Unit is granted. The value of each Stock Equivalent Unit
shall fluctuate with the daily Fair Market Value of one share of Stock. Payment
for redemption of Stock Equivalent Units shall be made to the Employee subject
to the other applicable provisions of the Plan, including, but not limited to,
all legal requirements and tax withholding.
8.5 Limitations. The maximum number of Stock Equivalent Units which may be
awarded to any Employee under this Article VIII during the term of the Plan
shall be 400,000 units.
ARTICLE IX
PERFORMANCE GRANTS
9.1 Performance Grants and Eligibility. The Committee, in its sole
discretion, may designate certain Employees of the Company who are eligible to
receive a Performance Grant if certain pre-established performance goals are
met. In determining which Employees shall be eligible for a Performance Grant,
the Committee may, in its discretion, consider the nature of the Employee's
duties, past and potential contributions to the success of the Company and its
Affiliates, and such other factors as the Committee deems relevant in connection
with accomplishing the purposes of the Plan.
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9.2 Establishment of Performance Grant. The Committee shall determine the
terms of the Performance Grant, if any, to be made to an Employee for a period
in excess of one year designated by the Committee (the "Performance Cycle"). The
Committee shall have the discretion to make downward adjustments to Performance
Grants otherwise payable if the performance goals are attained.
9.3 Criteria for Performance Goals. The performance goals shall be
pre-established by the Committee in accordance with Section 162(m) of the Code
and regulations issued thereunder. Performance goals determined by the Committee
may include, but are not limited to, increases in net profits, operating income,
Stock price, earnings per share, sales and/or return on equity.
9.4 Committee Certification. The Committee must certify in writing that a
performance goal has been met prior to payment to any Employee of the
Performance Grant by issuance of a certificate for Stock or payment in cash. If
the Committee certifies the entitlement of an Employee to the performance based
Performance Grant, the payment shall be made to the Employee subject to other
applicable provisions of the Plan, including but not limited to, all legal
requirements and tax withholding.
9.5 Payment and Limitations. Performance Grants shall be paid on or before
the 90th day following both (a) the end of the Performance Cycle, and (b)
certification by the Committee that the performance goals and any other material
terms of the Performance Grant and the Plan have been satisfied, or as soon
thereafter as is reasonably practicable. The Performance Grant may be paid in
Stock, cash, or a combination of Stock and cash, in the sole discretion of the
Committee. If paid in whole or in part in Stock, the Stock shall be valued at
Fair Market Value as of the date the Committee directs payments to be made in
whole or in part in Stock. However, no fractional shares of Stock shall be
issued, and the balance due, if any, shall be paid in cash.
The maximum amount which may be paid to any Employee pursuant to one or
more Performance Grants under this Article IX for a Performance Cycle shall not
exceed $3,000,000.
9.6 Termination of Employment During Performance Cycle. If an Employee's
employment with the Company and all Affiliates terminates during a Performance
Cycle (other than in connection with or within one year after a Change of
Control), he shall not be entitled to any payment under this Article IX for that
Performance Cycle.
ARTICLE X
ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Awards granted thereunder shall
be subject to the determination of the Committee. A majority of the members of
the Committee shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to writing and signed by a majority of the members shall be as effective
as if it had been made by a majority vote at a meeting properly called and held.
The Plan shall be administered in such a manner as to permit the Options granted
under it which are designated to be Incentive Options to qualify as Incentive
Options. In carrying out its authority under the Plan, the Committee shall have
full and final authority and discretion, including but not limited to the
following rights, powers and authorities, to:
(a) determine the Employees to whom and the time or times at which
Awards will be made,
(b) determine the number of shares and the purchase price of Stock
covered in each Award, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Award,
which need not be identical,
(d) define the effect, if any, on an Award of the death, Disability,
retirement, or termination of employment of the Employee,
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(e) subject to Article XI, adopt modifications and amendments to the
Plan or any Award Agreement, including, without limitation, any
modifications or amendments that are necessary to comply with the laws of
the countries in which the Company or its Affiliates operate,
(f) prescribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of the
Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE XI
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or suspend the
Plan at any time, in its sole and absolute discretion; provided, however, that
to the extent required to qualify the Plan under Rule 16b-3 promulgated under
the Exchange Act, no amendment that would (a) materially increase the number of
shares of Stock that may be issued under the Plan, (b) materially modify the
requirements as to eligibility for participation in the Plan, or (c) otherwise
materially increase the benefits accruing to participants under the Plan, shall
be made without the approval of the Company's shareholders; provided further,
however, that to the extent required to maintain the status of any Incentive
Option under the Code, no amendment that would (a) change the aggregate number
of shares of Stock which may be issued under Incentive Options, (b) change the
class of Employees eligible to receive Incentive Options, or (c) decrease the
Option price for Incentive Options below the Fair Market Value of the Stock at
the time it is granted, shall be made without the approval of the Company's
shareholders. Subject to the preceding sentence, the Board shall have the power
to make any changes in the Plan and in the regulations and administrative
provisions under it or in any outstanding Incentive Option as in the opinion of
counsel for the Company may be necessary or appropriate from time to time to
enable any Incentive Option granted under the Plan to continue to qualify as an
incentive stock option or such other stock option as may be defined under the
Code so as to receive preferential federal income tax treatment.
ARTICLE XII
MISCELLANEOUS
12.1 No Establishment of a Trust Fund. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Employee under the Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
12.2 No Employment Obligation. The granting of any Award shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Award has been granted to him.
12.3 Tax Withholding. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option, the cash payment of a Performance Grant, Bonus Award or
redemption of a Stock Equivalent Unit, or issuance of Stock in payment of
Restricted Stock, a Performance Grant or a Bonus Award. In the alternative, the
Company may require the Employee (or other person exercising the Option or
receiving Stock) to pay the sum directly to the employer corporation. If the
Employee (or other person exercising the Option or receiving the Stock) is
required to pay the sum directly, payment in cash or by check of such sums for
taxes shall be delivered within 10 days after (a) the date of exercise, or (b)
notice of
A-11
<PAGE> 37
the Committee's decision to pay all or part of a Performance Grant or Bonus
Award in Stock, whichever is applicable. The Company shall have no obligation
upon exercise of any Option, or notice of the Committee's decision to pay all or
part of the Performance Grant or Bonus Award in Stock, until payment has been
received, unless withholding (or offset against a cash payment) as of or prior
to the date of exercise or issuance of Stock is sufficient to cover all sums due
with respect to that exercise or issuance of Stock. The Company and its
Affiliates shall not be obligated to advise an Employee of the existence of the
tax or the amount which the employer corporations will be required to withhold.
The Committee may, in its discretion, provide in any Award Agreement that the
Employee is entitled to receive a cash payment from the Company in addition to,
but not in lieu of, shares of Stock received pursuant to any Award for the
purpose of offsetting the tax liability, determined in the discretion of the
Committee, on the issuance of the shares.
12.4 Indemnification of the Committee and the Board of Directors. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors, and each member
of the Committee and the Board of Directors shall be entitled without further
act on his part to indemnity from the Company to the fullest extent allowed
under the Texas Business Corporation Act.
12.5 Gender. If the context requires, words of one gender when used in the
Plan shall include the others and words used in the singular or plural shall
include the other.
12.6 Headings. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
12.7 Other Compensation Plans. The adoption of the Plan shall not preclude
the Company from establishing any other forms of incentive or other compensation
for employees of the Company or any Affiliate.
12.8 Other Awards. The grant of an Award shall not confer upon the
Employee the right to receive any future or other Awards under the Plan, whether
or not Awards may be granted to similarly situated Employees, or the right to
receive future Awards upon the same terms or conditions as previously granted.
12.9 Governing Law. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.
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<PAGE> 38
[SCI LOGO](R)
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
<PAGE> 39
PROXY PROXY
SERVICE CORPORATION INTERNATIONAL
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS-MAY 13, 1999
The undersigned hereby appoints ROBERT L. WALTRIP, GEORGE R. CHAMPAGNE and JAMES
M. SHELGER and each or any of them as attorneys, agents and proxies of the
undersigned with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the annual meeting of shareholders of
Service Corporation International (the "Company") to be held in the Chase
Auditorium, First Floor, Chase Center, 601 Travis, Houston, Texas, on Thursday,
May 13, 1999 at 10:00 a.m., Houston time, and any adjournment(s) thereof, and
to vote thereat the number of shares of Common Stock of the Company which the
undersigned would be entitled to vote if personally present as indicated below
and on the reverse side hereof and, in their discretion, upon any other
business which may properly come before said meeting. This Proxy when properly
executed will be voted in accordance with your indicated directions. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND
FOR APPROVAL OF THE AMENDED 1996 INCENTIVE PLAN.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
- ------------------------------------------------------------------------------
<PAGE> 40
SERVICE CORPORATION INTERNATIONAL
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
<TABLE>
<S> <C> <C> <C> <C>
1. Election of Directors -
Nominees: Jack Finkelstein, James H. Greer, FOR WITHHOLD FOR ALL
Clifton H. Morris, Jr., and W. Blair Waltrip. ALL ALL EXCEPT
[ ] [ ] [ ]
------------------------------------------
(Except nominee(s) written above)
2. Approval of the Amended 1996 Incentive Plan. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The undersigned acknowledges receipt
of the Notice of Annual Meeting of
Shareholders and of the Proxy
Statement.
Dated: ___________, 1999
Signature(s) _______________________
____________________________________
Please sign exactly as your name
appears. Joint owners should each
sign personally. Where applicable,
indicate your official position or
representation capacity.
</TABLE>
- -------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
