<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6402-1
--------------------
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in charter)
Texas 74-1488375
(State or other jurisdiction of (I. R. S. employer identification
incorporation or organization) number)
1929 Allen Parkway, Houston, Texas 77019
(Address of principal executive offices) (Zip code)
(713) 522-5141
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
The number of shares outstanding of the registrant's common stock as of May 10,
1999 was 271,980,963 (excluding treasury shares).
<PAGE>
SERVICE CORPORATION INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
Part I. Financial Information
Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheet -
March 31, 1999 (Unaudited) and December 31, 1998 4
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1999 and 1998 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Three Months Ended March 31, 1999 6
Notes to Consolidated Financial Statements (Unaudited) 7 - 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 23
Part II. Other Information 24
Signature 24
</TABLE>
<PAGE>
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(In thousands, except per share amounts) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues........................................ $ 904,056 $ 698,844
Costs and expenses.............................. (685,185) (482,716)
--------- ---------
Gross profit.................................... 218,871 216,128
General and administrative expenses............. (19,710) (17,008)
Restructuring charge............................ (89,884) -
--------- ---------
Income from operations.......................... 109,277 199,120
Interest expense................................ (57,448) (37,710)
Other income.................................... 14,588 6,651
--------- ---------
(42,860) (31,059)
--------- ---------
Income before income taxes and
extraordinary gain............................ 66,417 168,061
Provision for income taxes...................... (24,534) (59,275)
--------- ---------
Income before extraordinary gain................ 41,883 108,786
Extraordinary gain on early extinguishments
of debt (net of income taxes of $1,071)....... 1,885 -
--------- ---------
Net income $ 43,768 $ 108,786
========= =========
Earnings per share:
Basic:
Income before extraordinary gain............. $ .15 $ .43
Extraordinary gain on early extinguishments
of debt..................................... .01 -
--------- ---------
Net income................................... $ .16 $ .43
========= =========
Diluted:
Income before extraordinary gain............. $ .15 $ .42
Extraordinary gain on early extinguishments
of debt..................................... .01 -
--------- ---------
Net income................................... $ .16 $ .42
========= =========
Dividends per share............................. $ .09 $ .09
========= =========
Basic weighted average number of shares......... 272,990 254,635
========= =========
Diluted weighted average number of shares....... 275,442 261,768
========= =========
(See notes to consolidated financial statements)
</TABLE>
<PAGE>
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Dollars in thousands, except share amounts) (Unaudited) 1998
_______________________________________________________________________________
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................... $ 181,684 $ 358,210
Receivables, net of allowances................. 605,314 565,552
Inventories.................................... 207,242 189,070
Other ......................................... 89,458 96,248
----------- ----------
Total current assets....................... 1,083,698 1,209,080
----------- ----------
Investments - insurance subsidiaries.............. 1,273,154 1,234,678
Prearranged funeral contracts .................... 3,020,594 2,588,806
Long-term receivables, net of allowances ......... 1,543,440 1,408,076
Cemetery property, at cost........................ 2,165,787 2,035,897
Property, plant and equipment, at cost (net)...... 1,964,615 1,824,979
Deferred charges and other assets................. 1,231,651 1,151,430
Names and reputations (net)....................... 2,453,578 1,813,212
----------- ----------
$14,736,517 $13,266,158
=========== ===========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities..... $ 616,341 $ 452,354
Current maturities of long-term debt......... 93,750 96,067
Income taxes ................................ 83,818 81,904
----------- -----------
Total current liabilities.................. 793,909 630,325
----------- -----------
Long-term debt.................................... 4,049,215 3,764,590
Reserves and annuity benefits -
insurance subsidiaries........................... 1,191,699 1,207,169
Deferred prearranged funeral contract revenues .. 3,255,373 2,819,794
Deferred income taxes............................. 842,841 797,086
Other liabilities ................................ 919,508 893,092
Stockholders' equity:
Common stock, $1 per share par value,
500,000,000 shares authorized, 271,968,548
and 259,201,104, issued and outstanding
(net of 2,856,658 and 68,373 treasury shares). 271,969 259,201
Capital in excess of par value................ 2,154,928 1,646,765
Retained earnings............................. 1,252,046 1,232,758
Accumulated other comprehensive income........ 5,029 15,378
----------- -----------
Total stockholders' equity.................. 3,683,972 3,154,102
----------- -----------
$14,736,517 $13,266,158
=========== ===========
</TABLE>
(See notes to consolidated financial statements)
<PAGE>
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(Dollars in thousands) 1999 1998
_______________________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 43,768 $ 108,786
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 55,904 42,853
Provision for deferred income taxes........... 6,802 10,708
Restructuring charge.......................... 89,884 -
Extraordinary gain on early extinguishments
of debt, net of income taxes................. (1,885) -
Gains from dispositions (net)................. (10,641) (2,117)
Realized gains on sale of investments......... (1,728) -
Change in assets and liabilities, net of
effects from acquisitions:
Increase in receivables..................... (86,940) (64,812)
Decrease (increase) in other assets........ 26,021 (14,912)
Increase in payables and other liabilities . 45,068 57,906
Other....................................... (889) 1,219
--------- ---------
Net cash provided by operating activities ......... 165,364 139,631
--------- ---------
Cash flows from investing activities:
Capital expenditures.......................... (57,718) (56,465)
Net affect of prearranged funeral production
and maturities............................... (28,074) 16,718
Purchases of securities -
insurance subsidiaries....................... (676,287) (245,244)
Sales of securities - insurance subsidiaries.. 570,969 244,687
Proceeds from sales of property and equipment. 16,282 5,135
Acquisitions, net of cash acquired............ (24,344) (55,608)
Loans issued by lending subsidiary............ (23,125) (23,837)
Principal payments received on loans issued
by lending subsidiary........................ 5,807 4,296
Other......................................... (1,298) 5,516
--------- ---------
Net cash used in investing activities.............. (217,788) (104,802)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in borrowings under
revolving credit agreements.................. 489,337 (284,031)
Proceeds from issuance of long-term debt...... - 500,000
Payments of long-term debt.................... (186,160) (27,021)
Early extinguishments of long-term debt....... (365,936) -
Repurchase of common stock.................... (45,669) -
Dividends paid................................ (23,331) (18,795)
Bank overdrafts and other..................... 7,657 (10,272)
--------- ---------
Net cash (used in) provided by financing activities (124,102) 159,881
--------- ---------
Net (decrease) increase in cash and
cash equivalents.................................. (176,526) 194,710
Cash and cash equivalents at beginning of period... 358,210 46,877
--------- ---------
Cash and cash equivalents at
March 31, 1999 and 1998........................... $ 181,684 $ 241,587
========= =========
</TABLE>
(See notes to consolidated financial statements)
<PAGE>
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Capital in other
Common excess Retained comprehensive
stock of par value earnings income Total
________________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998....$259,201 $1,646,765 $1,232,758 $15,378 $3,154,102
Comprehensive income:
Net income.......... 43,768 43,768
Other comprehensive
income (loss):
Foreign currency
translation....... 337
Unrealized loss
on securities..... (10,686)
----------
Total other
comprehensive
income (loss)....... (10,349) (10,349)
----------
Comprehensive income. 33,419
Common stock issued:
Acquisitions......... 15,505 550,325 565,830
Stock option
exercises and stock
grants.............. 104 415 519
Debenture conversions 16 235 251
Repurchase of common
stock............... (2,857) (42,812) (45,669)
Dividends on
common stock........ (24,480) (24,480)
-------- ---------- ---------- -------- ----------
Balance at
March 31, 1999.......$271,969 $2,154,928 $1,252,046 $ 5,029 $3,683,972
======== ========== ========== ======== ==========
</TABLE>
(See notes to consolidated financial statements)
<PAGE>
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Nature of Operations
The Company is the largest provider of death care services in the world. At
March 31, 1999, the Company operated 3,812 funeral service locations, 515
cemeteries and 199 crematoria located in 20 countries on five continents.
The funeral service locations and cemetery operations consist of the
Company's funeral homes, cemeteries, crematoria and related businesses. Company
personnel at the funeral service locations provide all professional services
relating to funerals, including the use of funeral facilities and motor
vehicles. Funeral related merchandise is sold at funeral service locations and
certain funeral service locations contain crematoria. The Company sells
prearranged funeral services whereby a customer contractually agrees to the
terms of a funeral to be performed in the future. The Company's cemeteries
provide cemetery interment rights (including mausoleum spaces and lawn crypts)
and certain merchandise including stone and bronze memorials and burial vaults.
These items are sold on an at need or preneed basis. Company personnel at
cemeteries perform interment services and provide management and maintenance of
cemetery grounds. Certain cemeteries contain crematoria. There are 167
combination locations that contain a funeral service location within a Company
owned cemetery.
The financial services division represents a combination of the Company's
prearranged funeral and cemetery trust administration, investment management,
life insurance operations, and the lending activities of Provident Services,
Inc. ("Provident"), which provides capital financing for independent funeral
home and cemetery operations.
2. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements for the three
months ended March 31, 1999 and 1998 include the accounts of Service Corporation
International and all majority-owned subsidiaries (the "Company") and are
unaudited but include all adjustments, consisting of normal recurring accruals
and any other adjustments which management considers necessary for a fair
presentation of the results for these periods. These consolidated financial
statements have been prepared consistent with the accounting policies described
in the annual report on Form 10-K filed with the Securities and Exchange
Commission (the "Commission") for the year ended December 31, 1998 and should be
read in conjunction therewith. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the year. Certain
reclassifications have been made to the prior period to conform to the current
period presentation with no effect on previously reported net income, financial
condition or cash flows.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. As a result, actual results
could differ from these estimates.
<PAGE>
3. Acquisitions
In January 1999, a wholly owned subsidiary of the Company merged with Equity
Corporation International ("ECI") in a stock-for-stock transaction in which ECI
shareholders received 15,500,824 shares of Company common stock valued at
approximately $557,000 and approximately 1,200,000 options to purchase Company
common stock valued at approximately $8,628. At the time of the merger, ECI
owned 359 funeral service locations and 80 cemeteries in North America.
Exclusive of the merger with ECI, the Company acquired 29 funeral service
locations, 6 cemeteries and 2 crematoria during the three months ended March 31,
1999 for an aggregate purchase price of approximately $49,400 (The Company
acquired 45 funeral service locations and 7 cemeteries during the three months
ended March 31, 1998 for an aggregate purchase price of approximately $68,600).
The consideration for these acquisitions consisted of combinations of cash,
common stock of the Company and issued debt. All acquisitions have been
accounted for under the purchase method of accounting, therefore, the operating
results of all of these acquisitions have been included since their respective
dates of acquisitions.
The effect of acquisitions, net of cash acquired, on the consolidated
balance sheet at March 31, was as follows:
<TABLE>
<CAPTION>
1999 1998
________________________________________________________________________________
<S> <C> <C>
Current assets................................... $ 94,030 $ (3,622)
Prearranged funeral contracts.................... 307,468 (216)
Long-term receivables............................ 42,810 5,083
Cemetery property................................ 136,763 33,499
Property, plant and equipment.................... 147,600 10,679
Deferred charges and other assets................ 28,749 2,945
Names and reputations............................ 662,629 34,098
Current liabilities.............................. (93,950) 205
Long-term debt................................... (346,729) (13,258)
Deferred prearranged funeral contract revenues... (315,536) (7,536)
Deferred income taxes and other liabilities...... (73,660) 230
Stockholders' equity............................. (565,830) (6,499)
--------- --------
Cash used for acquisitions..................... $ 24,344 $ 55,608
========= ========
</TABLE>
4. Prearranged Funeral Activities
The Company sells price guaranteed prearranged funeral contracts through various
programs providing for future funeral services at prices prevailing when the
agreements are signed. Payments under these contracts are placed in trust
accounts (pursuant to applicable law) or are used to pay premiums on life
insurance policies.
Unperformed price guaranteed prearranged funeral contracts not funded
through Company owned insurance subsidiaries are included in the consolidated
balance sheet as "Prearranged funeral contracts." This balance represents
amounts due from trust funds, customer receivables, or third party insurance
companies. A corresponding credit is recorded to "Deferred prearranged funeral
contract revenues." Amounts paid by a customer under a prearranged funeral
contract are recognized in funeral revenue at the time the funeral service is
performed. Trust earnings and increasing insurance benefits are accrued and
deferred until the services are performed, at which time these funds are also
recognized in funeral revenues and are intended to cover future increases in the
cost of providing a price guaranteed funeral service. Net obtaining costs
incurred pursuant to the sales of trust funded and third party insurance funded
prearrangements are included in "Deferred charges and other assets". These
obtaining costs include sales commissions and certain other direct costs which
are deferred and amortized over a period representing the actuarially determined
life of the prearranged contracts.
<PAGE>
Prearranged funeral contracts may also be funded by insurance policies
written by the Company's wholly-owned insurance subsidiaries. These insurance
subsidiaries follow generally accepted accounting principles for life insurance
companies. Policy acquisition costs are deferred as "Deferred charges and other
assets" and amortized as prescribed by generally accepted accounting principles
for life insurance companies.
The total value of unperformed prearranged funeral revenues includes
prearranged funeral contracts that are trust funded or to be funded by third
party insurance companies ("Deferred prearranged funeral contract revenues") or
by the Company's insurance subsidiaries. The total value represents the original
contract values plus any accumulated trust fund earnings or increasing insurance
benefits. The amount funded through the Company's insurance subsidiaries is the
original contract amount plus increasing insurance benefits. This amount differs
from the "Reserves and annuity benefits - insurance subsidiaries" amount in the
accompanying consolidated balance sheet in that "Reserves and annuity benefits -
insurance subsidiaries" is an actuarially determined amount relating to SCI and
non-SCI business. As of March 31, 1999 and December 31, 1998, unperformed
prearranged funeral contracts are composed of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Deferred prearranged funeral
contract revenues $3,255,373 $2,819,794
Contracts funded by Company
insurance subsidiaries 939,907 932,056
---------- ----------
Total value of unperformed
funeral contracts $4,195,280 $3,751,850
========== ==========
</TABLE>
The majority of the increase from December 31, 1998 relates to acquisitions
(see note 3).
5. Debt
Debt at March 31, 1999 and December 31, 1998, was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Bank revolving credit agreements and
commercial paper.......................... $1,064,296 $ 650,596
6.375% notes due in 2000................... 150,000 150,000
6.75% notes due in 2001.................... 150,000 150,000
8.72% amortizing notes due in 2002......... 99,950 114,259
8.375% notes due in 2004................... 51,840 51,840
7.375% notes due in 2004................... 250,000 250,000
6.0% notes due in 2005..................... 600,000 600,000
7.2% notes due in 2006..................... 150,000 150,000
6.875% notes due in 2007................... 150,000 150,000
6.5% notes due in 2008..................... 200,000 200,000
7.7% notes due in 2009..................... 200,000 200,000
6.95% amortizing notes due in 2010......... 54,926 55,691
Floating rate notes due in 2011
(putable in 1999)......................... - 200,000
7.875% debentures due in 2013.............. 55,627 55,627
7.0% notes due in 2015 (putable in 2002)... 300,000 300,000
6.3% notes due in 2020 (putable in 2003)... 300,000 300,000
Medium term notes, maturities through 2019,
fixed average interest rate of 9.32%...... 35,720 35,720
Convertible debentures, interest rates
range from 4.75% - 5.5%, due through 2008,
conversion price ranges from
$11.25 - $50.00........................... 50,975 49,979
Mortgage notes and other notes payable -
maturities through 2015 .................. 303,892 216,833
Deferred loan costs........................ (24,261) (19,888)
---------- ----------
Total debt................................. 4,142,965 3,860,657
Less current maturities................... (93,750) (96,067)
---------- ----------
Total long-term debt....................... $4,049,215 $3,764,590
========== ==========
</TABLE>
<PAGE>
The Company's primary revolving credit agreements provide for borrowings up to
$1,800,000 and consist of three committed tranches - two 364-day facilities and
a 5-year, multi-currency tranche. These facilities are primarily used to support
commercial paper issuance and for general corporate needs, including the
Company's ongoing acquisition program.
One 364-day tranche allows for borrowings up to $300,000. This facility
expires June 25, 1999, but has provisions to be extended for additional 364-day
terms. At the end of any term, the outstanding balance may be converted into a
two-year term loan at the Company's option. Interest rates are based on various
indices as determined by the Company. In addition, a facility fee of 0.08% is
paid quarterly on the total commitment amount.
A second 364-day tranche allows for borrowings up to $800,000 and expires
November 2, 1999. A facility fee of 0.09% is paid quarterly on the total
commitment amount. Interest rates on this facility are based on various indices
as determined by the Company.
The 5-year tranche allows for borrowings up to $700,000, including $500,000
in various foreign currencies. This facility expires June 27, 2002. Interest
rates on this facility are based on various indices as determined by the
Company. In addition, a facility fee is paid quarterly on the total commitment
amount. The facility fee, which ranges from 0.07 to 0.15%, is based on the
Company's senior debt ratings and is currently set at 0.08%. At March 31, 1999,
approximately $245,479 of revolving borrowings was outstanding under this
facility with a weighted average interest rate of 5.02% ($217,345 at
December 31, 1998 with a weighted average interest rate of 5.65%).
As of March 31, 1999, $818,817 of commercial paper was outstanding, backed
by the above facilities, with a weighted average interest rate of 5.33%
($433,251 at December 31, 1998 with a weighted average interest rate of 6.68%).
The credit facilities described above have financial compliance provisions
that contain certain restrictions on levels of net worth, debt, liens, and
guarantees. The commercial paper borrowings and revolving notes generally have
maturities ranging from 1 to 180 days. Since it is the Company's intent to
refinance borrowings under these facilities with long-term debt or
equity, the Company has classified such borrowings as long-term debt.
In March 1999, the Company repurchased two issues of debt. On March 26, the
Company repurchased the $200,000 floating-rate notes, which were originally
due April 2011. These notes were to be remarketed in April 1999 as fixed-rate
notes. The Company chose to refinance with commercial paper to maintain
floating-rate exposure. The purchase price was $200,000 and a premium of
approximately $22,186, plus accrued interest, resulted in an extraordinary
after tax loss of $14,148. On March 31, the Company repurchased the $143,750
ECI convertible debentures, which were originally due December 2004. This
repurchase was effected by a change-of-control clause allowing the holders to
put the bonds back to the Company as a result of the merger with ECI. The
purchase price was $143,750 plus accrued interest and resulted in an
extraordinary gain of $25,141 ($16,033 net of tax) relating to the unamortized
premium reflecting the market valuation of the debentures at the date ECI
merged with the Company. These debentures were also refinanced with commercial
paper.
6. Derivatives
The Company enters into derivative transactions primarily in the form of
interest rate swaps and cross-currency interest rate swaps in combination with
local currency borrowings to manage its mix of fixed and floating rate debt and
to substantially hedge the Company's net investments in foreign assets. The
Company has procedures in place to monitor and control the use of derivatives
and only enters into transactions with a limited group of creditworthy financial
institutions. The Company does not engage in derivative transactions for
speculative or trading purposes, nor is it a party to leveraged derivatives.
At March 31, 1999, the Company's consolidated debt totaled $4,142,965
($3,860,657 at December 31, 1998) at a weighted average rate of 6.46% (6.77% at
December 31, 1998), excluding $228,962 of Provident debt. After giving
consideration to the interest rate and cross-currency interest rate swaps, the
weighted average rate of debt was 5.87%, (6.16% at December 31, 1998), excluding
Provident debt.
<PAGE>
Together, the Company's debt and derivative instruments consisted of
approximately 71% of fixed interest rate debt at a weighted average rate of
6.17% and approximately 29% of floating interest rate debt at a weighted
average rate of 5.14%. Approximately $1,980,056 of the Company's indebtedness
was foreign-denominated after inclusion of the derivative instruments.
The net fair value of the Company's various swap agreements at
March 31, 1999, was an asset of $123,893 ($97,944 at December 31, 1998).
Fair values were obtained from the counterparties to the agreements and
represent their estimate of the amount the Company would pay or receive to
terminate the swap agreements based upon the existing terms and current
market conditions.
7. Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Three months
ended March 31,
1999 1998
---------------------
<S> <C>
1.95 4.69
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary gain; (1) less
undistributed income of equity investees which are less than 50% owned, (2) plus
the minority interest of majority-owned subsidiaries with fixed charges and (3)
plus fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, whether capitalized or expensed, amortization of debt costs,
and one-third of rental expense which the Company considers representative of
the interest factor in the rentals. The decrease in the Company's ratio of
earnings to fixed charges in 1999 is primarily due to the $89,884 pre-tax
restructuring charge recorded during the first quarter of 1999 (see note 10).
8. Segment Reporting
The Company's operations are service based and geographically based. The
Company's primary reportable operating segments presented below are based on
services and include funeral, cemetery, and insurance operations. The Company's
geographic segments include North America, France, other Europe and other
Foreign. The Company conducts funeral operations in all geographical regions,
cemetery operations in all regions except France, and financial services
operations in North America and France.
The Company's reportable segment information was as follows:
<TABLE>
<CAPTION>
Reportable
Three months ended March 31, Funeral Cemetery Insurance Segments
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers:
1999..............................$574,641 $251,858 $ 71,796 $ 898,295
1998.............................. 469,962 205,941 18,326 694,229
- --------------------------------------------------------------------------------
Income from operations:
1999..............................$131,020 $ 77,800 $ 7,301 $ 216,121
1998.............................. 130,526 81,253 2,166 213,945
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table reconciles reportable segment income from operations shown
above to the Company's consolidated income before income taxes and extraordinary
gain:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Income from operations:
Reportable segments................................. $ 216,121 $ 213,945
Provident income from operations.................... 2,750 2,183
General and administrative expenses................. (19,710) (17,008)
Restructuring charge................................ (89,884) -
--------- ---------
Income from operations................................ 109,277 199,120
Interest expense.................................... (57,448) (37,710)
Other income........................................ 14,588 6,651
--------- ---------
Income before income taxes and extraordinary gain..... $ 66,417 $ 168,061
========= =========
</TABLE>
The Company's geographic segment information was as follows:
<TABLE>
<CAPTION>
Three months North Other Other
ended March 31, America France Europe Foreign Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers:
1999................ $612,178 $168,578 $88,872 $34,428 $904,056
1998................ 473,659 139,088 63,714 22,383 698,844
- --------------------------------------------------------------------------------
Income from
operations before
restructuring charge:
1999................ $152,937 $ 20,747 $18,906 $ 6,571 $199,161
1998................ 168,485 12,456 13,762 4,417 199,120
- --------------------------------------------------------------------------------
Income from
operations:
1999................ $102,719 $ (63) $ 4,011 $ 2,610 $109,277
1998................ 168,485 12,456 13,762 4,417 199,120
- --------------------------------------------------------------------------------
Operating locations
at March 31:
1999................ 2,293 1,220 838 175 4,526
1998................ 1,732 1,118 731 149 3,730
- --------------------------------------------------------------------------------
</TABLE>
Included in the North America figures above are the following United States
amounts:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues from external customers........................ $590,150 $452,646
Income from operations before restructuring charge...... 146,380 162,114
Income from operations.................................. 96,318 162,114
Operating locations at March 31......................... 2,136 1,584
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. Earnings Per Share
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations are presented below:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Income (numerator):
Income before extraordinary gain - basic........... $41,883 $108,786
After tax interest on convertible debentures....... 132 371
------- --------
Income before extraordinary gain - diluted......... $42,015 $109,157
- --------------------------------------------------------------------------------
Shares (denominator):
Shares - basic..................................... 272,990 254,635
Stock options and warrants........................ 1,299 4,992
Convertible debentures............................ 1,153 2,141
------- -------
Shares - dilute...d................................ 275,442 261,768
- --------------------------------------------------------------------------------
Earnings per share before extraordinary gain:
Basic.............................................. $ .15 $ .43
Diluted......................................... $ .15 $ .42
- --------------------------------------------------------------------------------
</TABLE>
10. Restructuring Charge
During the first quarter of 1999, the Company recorded a pre-tax
restructuring charge of $89,884, related to a cost rationalization program
initiated in 1999. The $89,884 charge relates to the following: (1) severance
costs of $56,757; (2) a charge of $19,123 for terminated projects representing
costs associated with certain construction projects that have been cancelled
($2,153) and costs associated with acquisition due-diligence which will no
longer be pursued ($16,970); (3) a $7,245 charge for business and facility
closures, primarily in the Company's European operations; and (4) a remaining
charge of $6,759 consisting of various other cost initiatives.
The $56,757 for severance costs is related to the termination of five
executive contractual relationships and the involuntary termination of
approximately 100 employees in North America (of which approximately 20 were
located in the corporate office), 600 employees in France, 85 employees in other
European operations and 10 employees in other foreign operations. The positions
terminated were both operational and administrative in nature and the severance
costs are expected to be paid out over the next 12 to 18 months. The severance
costs related to the executive contractual relationships will be paid out
according to the terms of the respective agreements and will extend through
2005.
At March 31, 1999 approximately $37,105 remained in accrued liabilities, of
which $34,286 related to severance costs and $2,819 related to cancellation fees
and remaining non cancellable payments on operating leases.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except average sales prices)
Overview:
The majority of the Company's funeral service locations and cemeteries are
managed in groups called clusters. Clusters are established primarily in
metropolitan areas to take advantage of operational efficiencies, particularly
the sharing of operating expenses such as service personnel, vehicles,
preparation services, clerical staff and certain building facility costs.
Personnel costs, the largest operating expense for the Company, is the cost
component most beneficially affected by clustering. The sharing of employees, as
well as the other costs mentioned, allow the Company to more efficiently utilize
its operating facilities. The Company conducts funeral, cemetery and financial
services operations in 20 countries. The Company's largest markets are North
America and France, which when combined, represent approximately 78% of the
Company's total operating locations, and approximately 86% of the Company's
consolidated revenue.
Three months ended March 31, 1999
Compared to Three months ended March 31, 1998
Results of Operations:
During the quarter ended March 31, 1999 the Company recorded non-recurring items
relating to the Company's cost rationalization program and early extinguishments
of debt. The cost rationalization program resulted in a pre-tax restructuring
charge of $89,884, while early extinguishments of debt resulted in an
extraordinary gain of $1,885, net of tax.
For the quarter ended March 31, 1999, the Company reported revenues of
$904,056, representing a 29.4% increase in revenues compared to revenues of
$698,844 from the first quarter of 1998. Gross profits for the first quarter of
1999 increased 1.3% to $218,871 compared to $216,128 in the first quarter of
1998. In the first quarter of 1999, income from operations of $199,161 before
the effect of non-recurring charges, remained relatively flat compared to
$199,120 in the first quarter of 1998. Before non-recurring items relating to
the Company's cost rationalization program and early extinguishments of debt,
the Company reported earnings of $98,564 and diluted earnings per share of $.36
($.36 basic) for the first quarter of 1999. This represents a 9.4% and 14.3%
decrease in earnings and diluted earnings per share before non-recurring items,
respectively, when compared to the first quarter of 1998. After giving effect to
the non-recurring items, the Company reported net income of $43,768 or $.16
diluted earnings per share ($.16 basic) for the first quarter of 1999 compared
to $108,786 or $.42 diluted earnings per share ($.43 basic) in the first quarter
of 1998. The results from the first quarter of 1999 contain no significant
benefits from the Company's 1999 cost rationalization program.
<PAGE>
Information for the Company's three lines of business was as follows:
<TABLE>
<CAPTION>
Percentage
Three months ended March 31, Increase Increase
1999 1998 (Decrease) (Decrease)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral............ $574,641 $469,962 $104,679 22.3%
Cemetery........... 251,858 205,941 45,917 22.3
Financial services. 77,557 22,941 54,616 238.1
-------- -------- --------
$904,056 $698,844 $205,212 29.4%
======== ======== ========
Gross profit and
margin percentage:
Funeral............ $131,020 22.8% $130,526 27.8% $ 494 0.4%
Cemetery........... 77,800 30.9 81,253 39.5 (3,453) (4.2)
Financial services. 10,051 13.0 4,349 19.0 5,702 131.1
-------- -------- --------
$218,871 24.2% $216,128 30.9% $ 2,743 1.3%
======== ======== ========
</TABLE>
FUNERAL
Funeral revenues were as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998 Increase % Increase
--------------------------------------------------------
<S> <C> <C> <C> <C>
North America........... $333,058 $278,058 $ 55,000 19.8%
France.................. 147,064 120,762 26,302 21.8
Other European.......... 79,019 57,773 21,246 36.8
Other foreign........... 15,500 13,369 2,131 15.9
-------- -------- --------
Total funeral revenues.. $574,641 $469,962 $104,679 22.3%
======== ======== ========
</TABLE>
The $55,000 increase in North American funeral revenue was the result of a $401
increase in revenues from comparable locations (representing locations acquired
before January 1, 1998), a $56,634 increase in revenues from new locations
(operating locations acquired subsequent to January 1, 1998), partially offset
by a $2,035 decrease in revenues related to operations which have been disposed.
The increase in revenues from comparable locations was due to increases in the
number of funeral services performed (70,970 in 1999 compared to 70,929 in 1998)
and increases in the average sales prices ($3,838 in 1999 compared to $3,832 in
1998). The increase in revenues from new locations is primarily due to the
January 1999 merger with Equity Corporation International ("ECI").
The $26,302 increase in French funeral revenue was the result of a $19,092
increase, or 16.1%, in revenues from comparable locations and a $7,210 increase
in revenues from new locations. The number of funeral services performed at
comparable locations in 1999 increased 3.1% (39,984 in 1999 compared to 38,787
in 1998), while the average sales price increased 9.3% ($2,124 in 1999, compared
to $1,944 in 1998). The average French franc to US dollar exchange rate
strengthened 4.2% during the first quarter in 1999 as compared to the first
quarter in 1998.
The $21,246 increase in other European funeral revenue was the result of a
$6,163 increase, or 10.4%, in revenues from comparable locations and a $15,083
increase in revenues from new locations. The increase in revenues from
comparable locations was primarily due to 12.4% increase in the number of
funeral services performed at these locations in 1999 (30,364 in 1999 compared
to 27,014 in 1998).
<PAGE>
Funeral gross margin was as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
% of % of Increase % Increase
1999 Revenue 1998 Revenue (decrease) (decrease)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America........ $ 96,400 28.9% $106,289 38.2% $ (9,889) (9.3)%
France............... 17,613 12.0 10,290 8.5 7,323 71.2
Other European....... 14,749 18.7 11,708 20.3 3,041 26.0
Other foreign........ 2,258 14.6 2,239 16.7 19 0.8
-------- -------- --------
Total funeral
gross margin........ $131,020 22.8% $130,526 27.8% $ 494 0.4%
======== ======== ========
</TABLE>
The decrease in North American funeral margin dollars and percentage was
primarily the result of increases in merchandise, personnel and facility costs
at comparable locations. The decline in comparable funeral margins dollars was
partially offset by increased margin dollars contributed by new locations.
The increase in French funeral margin dollars and percentage was primarily
the result of increased funeral services performed which produced incremental
profits over the base fixed cost structure. Additionally, funeral margin dollars
were impacted by the average French franc to US dollar exchange rate
strengthening 4.2% in 1999.
The increase in other European funeral margin dollars was primarily the
result of increased funeral services performed and associated revenues discussed
above. The decrease in other European funeral margin percentage was primarily
the result of strategic pricing changes in certain markets.
CEMETERY
Cemetery revenues were as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998 Increase % Increase
-------------------------------------------------------
<S> <C> <C> <C> <C>
North America.............$ 223,077 $ 190,986 $ 32,091 16.8%
Other European............ 9,853 5,941 3,912 65.8
Other foreign............. 18,928 9,014 9,914 110.0
--------- --------- --------
Total cemetery revenues..$ 251,858 $ 205,941 $ 45,917 22.3%
========= ========= ========
</TABLE>
The $32,091 increase in North American cemetery revenue was primarily the
result of a $17,819 increase, or 11.2%, in revenues from comparable locations
and a $22,507 increase in revenues from new locations. Of the increases, $15,572
and $14,936 related to increases in the sales of preneed cemetery products and
services at comparable and new locations, respectively. Partially offsetting
these increases was a $11,017 reduction in realized gains and income from
cemetery merchandise trust funds, which is consistent with the decrease in
equity returns experienced by the Company's investment portfolio and certain
other broad equity indices, and declines in interest rates over the comparable
periods.
The $9,914 increase in other foreign cemetery revenue was primarily the
result of revenue increases from the Company's recently acquired South American
operations.
<PAGE>
Cemetery gross margin was as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
% of % of Increase %Increase
1999 Revenue 1998 Revenue (decrease) (decrease)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America..........$ 69,330 31.1% $ 77,021 40.3% $ (7,691) (10.0)%
Other European.. ...... 4,157 42.2 2,054 34.6 2,103 102.4
Other foreign.......... 4,313 22.8 2,178 24.2 2,135 98.0
-------- -------- --------
Total cemetery
gross margin..........$ 77,800 30.9% $ 81,253 39.5% $ (3,453) (4.2)%
======== ======== ========
</TABLE>
The decrease in North American cemetery margin dollars and percentage was
primarily the result of increased merchandise and selling costs due to changes
in product mix, and reduced realized gains and income from cemetery merchandise
trust funds discussed above.
The $2,135 increase in other foreign cemetery margin dollars was primarily
the result of increases in margin dollars from the Company's recently acquired
South American operations. The decrease in margin percentage from the Company's
other foreign operations is primarily due to the expected dilutive effect of
lower margins in the cemetery operations in South America.
FINANCIAL SERVICES
Financial services represents a combination of the Company's lending subsidiary,
Provident Services, Inc. ("Provident"), and the Company's two insurance
subsidiaries.
Financial services revenues were as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998 Increase % Increase
-----------------------------------------------------
<S> <C> <C> <C> <C>
North America............. $ 50,282 $ - $ 50,282
France.................... 21,514 18,326 3,188 17.4%
-------- --------- --------
Total insurance............. 71,796 18,326 53,470 291.8
Provident................. 5,761 4,615 1,146 24.8
-------- --------- --------
Total financial services
revenues................. $ 77,557 $ 22,941 $ 54,616 238.1%
======== ========= ========
</TABLE>
Financial services gross margin was as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
% of % of
1999 Revenue 1998 Revenue Increase %Increase
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance:
North America......... $ 4,167 8.3% $ - $ 4,167
France .............. 3,134 14.6 2,166 11.8% 968 44.7%
-------- ------- -------
44.7%
Total insurance....... 7,301 10.2 2,166 11.8 5,135 237.1
Provident............... 2,750 47.7 2,183 47.3 567 26.0
-------- ------- -------
Total financial services
gross margin........... $ 10,051 13.0% $ 4,349 19.0% $ 5,702 131.1%
======== ======= =======
</TABLE>
The increase in North American revenue and gross margin is due to the
acquisition of American Memorial Life Insurance Co. effective July 1998.
Provident reported a gross margin of $2,750 for the three months ended
March 31, 1999, compared to $2,183 for the same period in 1998. Provident's
average outstanding loan portfolio during the current period increased to
$286,885 compared to $205,955 in 1998, while the average interest rate spread
decreased to 2.86%, compared to 3.07% in 1998.
<PAGE>
OTHER INCOME AND EXPENSES
General and administrative expenses increased $2,702 to $19,710, compared to
$17,008 in the first quarter of 1998. Expressed as a percentage of revenues,
general and administrative expenses decreased to 2.2% for the three months ended
March 31, 1999, compared to 2.4% for the comparable period in 1998.
Interest expense, which excludes the amount incurred by Provident,
increased $19,738 or 52.3% period to period. The increased interest expense
primarily reflects the Company's funding of acquisitions with debt.
The provision for income taxes reflected a 36.9% effective tax rate for the
three months ended March 31, 1999, compared to a 35.3% effective tax rate for
the comparable period in 1998. The increase in the effective tax rate is due
primarily to higher tax rates for the Company's recently acquired ECI
operations.
During the first quarter of 1999, the Company recorded a pre-tax
restructuring charge of $89,884, related to a cost rationalization program
initiated in 1999. The $89,884 charge relates to the following: (1) severance
costs of $56,757 related to approximately 800 employees worldwide; (2) a charge
of $19,123 for terminated projects representing costs associated with certain
construction projects that have been cancelled ($2,153) and costs associated
with acquisition due-diligence which will no longer be pursued ($16,970); (3) a
$7,245 charge for business and facility closures, primarily in the Company's
European operations; and (4) a remaining charge of $6,759 consisting of various
other cost initiatives.
At March 31, 1999 approximately $37,105 remained in accrued liabilities, of
which $34,286 related to severance costs and $2,819 related to cancellation fees
and remaining non cancellable payments on operating leases. Payments of these
accrued liabilities will occur through 2005. The Company does not expect these
payments will have a significant effect on its liquidity or financial position.
The effect of the above cost rationalization program, coupled with other
cost reduction initiatives, is expected to produce future annualized cost
savings of at least $60,000, on a pre-tax basis, primarily from the reduction of
personnel and facility costs.
<PAGE>
Financial Condition and Liquidity at March 31, 1999:
General
Historically, the Company has funded its working capital needs and capital
expenditures primarily through cash provided by operating activities and
borrowings under bank revolving credit agreements and commercial paper. Funding
required for the Company's acquisition program has been generated through public
and private offerings of debt and the issuance of equity securities supplemented
by the Company's revolving credit agreements and additional securities
registered with the Securities and Exchange Commission (the "Commission"). The
Company believes cash from operations, additional funds available under its
revolving credit agreements, and proceeds from public and private offerings of
securities will be sufficient to continue its anticipated acquisition program
and operating policies. Excluding the ECI transaction, for the three-month
period ended March 31, 1999, the Company acquired 29 funeral service locations,
6 cemeteries and 2 crematoria for an aggregate purchase price of approximately
$49,400. As of April 21, 1999, the Company has received signed letters of intent
to acquire an additional 51 funeral service locations, 8 cemeteries and 2
crematoria for an aggregate purchase price of approximately $56,786. Combined,
these businesses are expected to produce approximately $56,000 in annualized
revenues, including $26,200 in North American operations and $29,800 from
operations outside North America. In addition, the Company merged with ECI in a
stock-for-stock transaction in which ECI shareholders received 15,500,824 shares
of Company common stock valued at approximately $557,000 and approximately
1,200,000 options to purchase Company common stock valued at approximately
$8,628. The ECI merger added 359 funeral homes and 80 cemeteries.
At March 31, 1999, the Company had net working capital of $289,789 and a
current ratio of 1.37:1, compared to working capital of $578,755 and a current
ratio of 1.92:1 at December 31, 1998.
Sources and Uses of Cash
Cash flows from operating activities: Net cash provided by operating activities
was $165,364 for the three months ended March 31, 1999, compared to $139,631 for
the same period in 1998, an increase of $25,733. Significant components of cash
flow provided by operating activities included: (1) net income adjusted for
non-cash items, (2) the original $89,884 pre-tax restructuring provision (of
which $37,105 remains at March 31, 1999 and the decrease is reflected through
the change in payables and other liabilities), partially offset by (3) an
increase in receivables of $86,940 primarily attributed to a 27.8% increase in
the sales of preneed cemetery products and services which are usually financed
on an installment basis in excess of 12 months.
<PAGE>
Cash flows from investing activities: Net cash used in investing activities was
$217,788 for the three months ended March 31, 1999, compared to $104,802 for the
same period in 1998, an increase in the use of cash of $112,986. Significant
components of the increase in cash used are the net of purchases over sales of
securities at the Company's insurance subsidiaries. One of the subsidiaries had
a significant cash position at December 31, 1998 and the excess cash was used to
purchase securities. Additionally, cash provided by the net effect of
prearranged funeral production and maturities in the first quarter of 1998 was
primarily attributed to a $27,000 cash distribution of previously undistributed
trust fund income pursuant to applicable state laws. The increase in cash used
was partially offset by the decrease in cash used in connection with
acquisitions, which is consistent with the Company's new benchmark criteria for
pursuing prospective acquisition candidates.
Cash flows from financing activities: Net cash used in financing activities was
$124,102 for the three months ended March 31, 1999, compared to net cash
provided by financing activities of $159,881 for the same period in 1998, an
increase in the use of cash of $283,983. The three months ended March 31, 1999
included a use of cash of $365,936 for the early extinguishment of certain
floating rate debt and debt assumed in connection with the ECI merger.
As of March 31, 1999, the Company's debt to capitalization ratio was 52.9%
compared to 55.0% at December 31, 1998. The interest rate coverage ratio for the
three months ended March 31, 1999 was 3.53:1 (excluding 1999 restructuring
charge of $89,884), compared to 5.20:1 for the same period in 1998. Though the
level of acquisition activity is expected to slow from the 1998 level, the
Company still believes that the acquisition of funeral, cemetery and financial
services operations funded with debt or Company common stock is a prudent
business strategy given the stable cash flow generated and the low failure rate
exhibited by these types of businesses. The Company believes these acquired
firms are capable of servicing the additional debt and providing a sufficient
return on the Company's investment.
<PAGE>
The Company expects adequate sources of funds to be available to finance
its future operations and acquisitions through internally generated funds,
borrowings under credit facilities and the issuance of securities. As of March
31, 1999, the Company had approximately $736,000 of available borrowings under
various revolving credit facilities and lines of credit. As of March 31, 1999,
the Company also had the ability to issue $900,000 in securities registered with
the Commission under a shelf registration. In addition, 12,870,000 shares of
common stock and a total of $187,000 of guaranteed promissory notes and
convertible debentures are registered with the Commission under a separate shelf
registration to be used exclusively for future acquisitions.
Prearranged Funeral Services
The Company sells prearranged funeral contracts and the funds collected are
generally held in trust or are used to purchase life insurance or annuity
contracts. The amounts paid into trust funds or premiums paid on insurance
contracts on such prearranged funeral contracts will be received in cash by a
Company funeral service location at the time the funeral is performed. Earnings
on trust funds and increasing benefits under insurance and annuity funded
contracts also increase the amount of cash to be received upon performance of
the funeral.
The total value of unperformed prearranged funeral revenues includes
prearranged funeral contracts that are trust funded or to be funded by third
party insurance companies or the Company's insurance subsidiaries. The total
value represents the original contract values plus any accumulated trust fund
earnings or increasing insurance benefits. At March 31, 1999, the total value of
unperformed prearranged funeral revenues expected to be recognized in future
periods was $4,195,280 ($3,751,850 at December 31, 1998).
The Company's investment program targets a real return in excess of the
amount necessary to cover future increases in the cost of providing a price
guaranteed funeral service as well as any selling costs. This is accomplished by
allocating the portfolio mix to the appropriate investments that more accurately
match the anticipated maturity of the contracts. The Company anticipates an
asset allocation of approximately 65% equity and 35% fixed income.
Prearranged funeral service sales afford the Company the opportunity to
both protect current market share and mix as well as expand market share in
certain markets. The Company believes this will stimulate future revenue growth.
Prearranged funeral services fulfilled as a percent of the total North American
funerals performed was 27% for the three months ended March 31, 1999 (26% for
the three months ended March 31, 1998) and is expected to grow, thereby making
the total number of funerals performed more predictable.
Other Matters:
Year 2000 Issue
The Year 2000 issue, also known as "Y2K," refers to the inability of some
computer programs and computer-based microprocessors to correctly interpret the
century from a date in which the year is represented by only two digits (e.g.,
98). As a result, on or before January 1, 2000, computer systems used by
companies throughout the world may experience operating difficulties unless they
are modified or upgraded to properly process date related information. The Y2K
issue can arise at any point in a company's supply, manufacturing, processing,
distribution, or financial chains.
<PAGE>
The Company has established Y2K Program Offices at its corporate offices in
Houston, Texas and Birmingham, England. These program offices, under the
direction of senior management, are responsible for advising and monitoring the
numerous facets of the Company's Y2K preparations. The Company engaged an
external consulting firm to assist in oversight of the Company's Y2K
preparations and various assessment activities associated with discovering the
seriousness of the Y2K issue in the Pacific Rim and South America. Additionally,
the Company is utilizing internal personnel, contract project managers,
programmers and testers, as well as vendors, to identify Y2K issues, test and
implement the chosen solutions.
In order to adequately address the Y2K issue, efforts have been directed to the
following categories: production systems, networks, desktops, user developed
applications, vendor supplied software, facilities and telecommunications, and
the Company's supply chain. The following phases are common to all of these
categories: inventory and determination of criticality, discovery to determine
Y2K problems, analysis to determine corrective action, correction, testing, and
implementation. In addition to these activities, promotion of Y2K awareness and
development of contingency plans are part of the Company's Y2K preparation
effort.
State Of Readiness:
The majority of the Company's internal Y2K exposure exists at the corporate
office locations where the accounting and processing of the Company's business
transactions takes place. Individual operating locations (primarily funeral
homes and cemeteries) are substantially technology independent and thus face few
Y2K risks from internal systems.
Production systems: In 1998, in order to improve access to business information
through a common, integrated computing system across the company, the Company
began a worldwide computer systems replacement project utilizing systems from
Oracle Corporation. While this project has begun at the Company's Australian and
European headquarters, global implementation will not be achieved prior to the
turn of the century. Therefore, all computer programs expected to be replaced by
Oracle are being made Y2K ready. The only exception to this is in the United
Kingdom where the implementation of Oracle is proceeding in order to achieve Y2K
readiness. In general, the Company's production systems have progressed through
the inventory, discovery, and analysis phases and are in various stages of
correction and testing. Production systems make up the majority of the Company's
"mission critical systems" and are expected to be Y2K ready by mid-1999, with
deployment completed by late-1999.
In most cases, deployment of the Y2K ready production systems to the Company's
many operating locations in North America will require new desktop computers. As
noted in the Company's previous Y2K disclosures, it is the short time available
for deployment, and not the need for corrective action, that poses the largest
risk to the Company. See the section on Risks for more details.
Networks: Inventory, discovery and analysis of critical networks have been
completed at all of the Company's headquarter and regional locations and these
networks are in various stages of correction and testing. Accomplishing Y2K
readiness in this category has been complicated by Microsoft's recent change in
its position on the Y2K readiness of Windows NT 4.0, requiring customers to
install another software update to be considered fully Y2K compliant. Some
non-critical networks exist at individual operating locations and will be
assessed and made Y2K ready as time allows. Expectations are that all critical
networks will be Y2K ready mid- to late-1999.
<PAGE>
Desktops: Testing has been conducted to determine the extent to which the Y2K
problem associated with desktops will affect the Company's ability to conduct
business. As none of the Company's critical computer systems directly access
date information from the desktop's real time clock, it has been determined that
very few desktops will pose a Y2K issue. Coincidentally, as part of ongoing
technology refresh programs and new production systems' deployment, desktops are
being upgraded, as needed, to better meet the Company's business needs. As part
of contingency planning, personnel will be instructed on how to verify each
desktop's date, and reset if necessary, after January 1, 2000.
User developed applications: Inventory and discovery for items in this category
have been achieved. Very few critical applications were found to have date
dependencies. Those that do are being remediated and tested to ensure no
problems arise because of Y2K issues. Readiness should be achieved by mid-1999.
Vendor supplied software: It is the policy of the Company to query each
manufacturer of critical "off-the-shelf" software to ascertain the vendor's
statement regarding the Y2K readiness of their products. Once the vendor's
statement is obtained, upgrades, replacements and testing will be implemented to
minimize the risk of Y2K issues arising from the software. Accomplishing Y2K
readiness in this category is becoming increasingly challenging as vendors are
modifying previously stated positions on existing software, requiring customers
to install patches or upgrades to achieve full Y2K readiness. This has occurred
with at least three critical vendor supplied software packages the Company
currently uses. Given the moving target posed by the vendor's changing
statements, the Company has changed its expectations for critical items in this
category and plans to be using the latest vendor supplied patches and upgrades
by late-1999.
Facilities and telecommunications: The Company recognizes the potential for Y2K
issues to arise from embedded technology systems which may be in use at its
numerous facilities. Inventory, discovery and analysis are complete at the
Company's headquarters and most international operating locations. North
American operating locations are expected to complete these phases by mid-1999.
Telecommunications equipment has proven the most vulnerable, and plans are in
place to upgrade and/or replace equipment as necessary. Planning has begun to
obtain inventories from the remaining operating locations. All critical
facilities and telecommunication systems are expected to be Y2K ready by
late-1999.
Supply chain: Due to the Company's disparate locations and methods of operation,
assessing the Y2K readiness of the Company's supply chain must occur at both the
corporate level (for core supply chain relationships) and the local level (for
those relationships unique to a location). Inventory and discovery have been
completed at a number of operating locations and is ongoing at the Company's
headquarters. In general, responses to the Company's inquiries have been less
than informative, with many companies failing to respond. Activities have begun
to assign criticality to both corporate and local supply relationships and
additional efforts will be expended to ascertain the Y2K readiness of critical
suppliers. Contingency plans for critical suppliers are expected to be in place
by late-1999.
<PAGE>
Costs:
The aggregate costs for the Company to achieve Y2K readiness are not expected to
exceed $20,000 of which $4,800 represents lease payments which will be incurred
from 2000-2002. All costs associated with Y2K readiness will be funded from
operating cash flows. The Company's actual costs incurred associated with Y2K
readiness through March 31, 1999 are estimated at $8,500.
In an effort to report material costs related to the Company's Y2K effort, the
Company has adopted a policy of capturing all contractor expenses and internal
costs for dedicated resources (those working exclusively on Y2K issues). As such
the Company acknowledges that there are many internal resources working
part-time on Y2K-related issues for which no payroll or overhead costs are being
reported.
Risks:
The majority of the Company's internal Y2K exposure exists at its corporate
offices where the Company's production systems operate. The failure to correct a
material Y2K problem at these locations could result in an interruption of
certain normal corporate business activities. Such a failure would not, however,
render the Company's various operating locations unable to deliver goods and
services.
The Company believes that the greatest risks continue to arise from the
uncertainty of the Y2K readiness of critical third party suppliers, both private
businesses and government entities, especially in the Company's international
markets. The possible consequences of critical third party suppliers not being
Y2K ready by January 1, 2000 could include temporary location closings, delays
in the delivery of goods and services, delays in the receipt of goods and
invoice and collection errors. Continued efforts by the Company to ascertain the
Y2K status of critical third party suppliers is expected to significantly reduce
the Company's level of uncertainty as the year 2000 approaches and, through the
use of contingency planning, the possibility of significant interruptions in
normal operations should be reduced.
At this time, the Company has no substantiated reason to believe that one or
more key third party suppliers will not be able to meet their obligations to the
Company after January 1, 2000; therefore, the Company believes that the "most
reasonably likely worst case scenario" would occur if deployment of the
Company's newly remediated proprietary funeral home financial system to all
North American locations was not completed by December 31, 1999. The Company's
approach to deploying this new system calls for implementation in those clusters
which have the highest transaction volumes first. Using such a plan, should
deployment to all locations not be achieved by December 31, 1999, such an
occurrence would not be materially disruptive to the Company. Locations not
receiving the new system by the end of the year would forward transaction
information to a location with input capability.
Contingency Plans:
Because of the many uncertainties that exist, it is part of the Company's Y2K
preparation methodology that contingency plans be established for critical
systems in each of the categories outlined above. Contingency planning is
progressing at different stages at the Company's various locations. Contingency
plans for all critical production systems and plans for all individual operating
locations are expected to be in place by late-1999.
<PAGE>
Cautionary Statement on Forward-looking Statements
The statements contained in this filing on Form 10-Q that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements may be accompanied by
words such as believe, estimate, expect, anticipate, or predict, that convey the
uncertainty of future events or outcomes. These statements are based on
assumptions that the Company believes are reasonable; however many important
factors could cause the Company's actual results in the future to differ
materially from the forward-looking statements made herein and in any other
documents or oral presentations made by, or on behalf of, the Company. Important
factors which could cause actual results to differ materially from those in
forward-looking statements include, among others, the following:
1) Changes in general economic conditions both domestically and
internationally impacting financial markets (e.g. marketable
security values as well as currency and interest rate
fluctuations).
2) Changes in domestic and international political and/or regulatory
environments in which the Company operates, including tax and
accounting policies. Changes in regulations may impact the
Company's ability to enter or expand new markets.
3) Changes in consumer demand for the Company's services caused by
several factors such as changes in local death rates, cremation
rates, competitive pressures and local economic conditions.
4) The Company's ability to identify and complete additional
acquisitions on terms that are favorable to the Company, to
successfully integrate acquisitions into the Company's business
and to realize expected cost savings in connection with such
acquisitions. The Company's future results may be materially
impacted by changes in the level of acquisition activity.
5) The ability of the Company, or its critical third-party suppliers,
to adequately complete Y2K preparation efforts.
The Company assumes no obligation to publicly update or revise any
forward-looking statements made herein or any other forward-looking statements
made by the Company.
<PAGE>
SERVICE CORPORATION INTERNATIONAL
PART II, OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement, dated March 10, 1999,
between SCI Executive Services, Inc. and
George R. Champagne.
10.2 Employment Agreement, dated January 1, 1999,
between SCI Executive Services, Inc. and
W. Blair Waltrip.
12.1 Ratio of earnings to fixed charges for the three
months ended March 31, 1999 and 1998.
27.1 Financial data schedule.
(b) Reports on Form 8-K
During the quarter ended March 31, 1999, the Company filed
four reports on Form 8-K. The Form 8-K dated January 20, 1999
reported (i) under "Item 2. Acquisition or Disposition of
Assets" the merger of Equity Corporation International ("ECI")
with a wholly-owned subsidiary of the Company, (ii) under
"Item 5. Other Events" the execution of a supplemental
indenture under which the Company became co-obligor with
respect to certain debentures of ECI, and (iii) under "Item 7.
Financial Statements and Exhibits" the exhibits comprised of
the merger agreement with ECI and the first amendment thereto,
the first amendment to the aforementioned supplemental
indenture and a joint press release dated January 19, 1999
issued by the Company and ECI. The Form 8-K dated January 26,
1999 reported (i) under "Item 5. Other Events" the Company's
announcements that (x) its diluted earnings per share for the
fourth quarter of 1998 and for the year ended December 31,
1998 would be lower than analyst expectations and (y) it had
expanded its share repurchase program, and (ii) under "Item 7.
Financial Statements and Exhibits" the exhibits comprised of
two Company press releases dated January 26, 1999. The Form
8-K dated February 9, 1999 reported (i) under "Item 5. Other
Events" the Company's results for the fourth quarter of 1998
and for the year ended December 31, 1998, as well as the
commencement of class action lawsuits against the Company and
certain of its officers and directors, and (ii) under "Item 7.
Financial Statements and Exhibits" the exhibit comprised of
the Company's press release dated February 9, 1999. The Form
8-K dated February 11, 1999 reported (i) under "Item 5. Other
Events" the resignation of L. William Heiligbrodt as President
and Chief Operating Officer, and (ii) under "Item 7. Exhibits"
the exhibit comprised of the Company's press release dated
February 11, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 17, 1999 SERVICE CORPORATION INTERNATIONAL
By: /s/ George R. Champagne
---------------------------
George R. Champagne
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as
of this 10th day of March, 1999, by and between SCI EXECUTIVE SERVICES, INC., a
Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION
INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to
all of the rights, duties and obligations under this Agreement, and George R.
Champagne (the "Employee").
1. Employment and Term. The Company agrees to employ the
Employee and the Employee agrees to remain in the employ of the Company, in
accordance with the terms and provisions of this Agreement, for the period
beginning on the date hereof and ending as of the close of business on December
31, 2001 (such period together with all extensions thereof, is referred to
hereinafter as the "Employment Period"); provided, however, that commencing on
the date one year after the date hereof, and on each January 1 thereafter (each
such date shall be hereinafter referred to as a "Renewal Date") the Employment
Period shall be automatically extended so as to terminate three (3) year(s) from
such Renewal Date if (i) the Compensation Committee of the Board of Directors of
the Parent (hereinafter referred to as the "Compensation Committee") authorizes
such extension during the 60-day period preceding such Renewal Date and (ii) the
Employee has not previously given the Company written notice that the Employment
Period shall not be so extended. In the event that the Company gives the
Employee written notice at any time that the Compensation Committee has
determined not to authorize such extension, or if the Company fails to notify
the Employee of the Compensation Committee's determination prior to the Renewal
Date (the "Renewal Deadline"), the Employment Period shall be extended so as to
terminate three (3) year(s) after the date such notice is given (or, in case of
a failure to notify, three (3) year(s) after the Renewal Deadline) and shall not
thereafter be further extended.
2. Duties and Powers of Employee. During the Employment Period,
the Employee shall serve as the Executive Vice President Chief Financial Officer
of the Parent and the Company and shall have the duties, powers and authority
heretofore possessed by the holder of such offices and such other powers
consistent therewith as are delegated to him in writing from time to time by the
Board of Directors of the Parent (the "Board"). The Employee's services shall be
performed at the location where the Employee is currently employed or any office
which is the headquarters of the Company and is less than 50 miles from such
location. During the Change of Control Period, the Employee's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned with or
by the Company or the Parent at any time during the 90-day period immediately
preceding the Change of Control Date (as defined in Section 15(a) below).
3. Compensation. The Employee shall receive the following
compensation for his services:
(a) Salary. During the Employment Period, he shall be
paid an annual base salary ("Annual Base Salary") at the rate of not
less than $395,000 per year, in substantially equal bi-weekly
installments, and subject to any and all required withholdings and
deductions for Social Security, income taxes and the like. The
Compensation Committee may from time to time direct such upward
adjustments to Annual Base Salary as the Compensation Committee deems to
be appropriate or desirable; provided, however, that during the Change
of Control Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary awarded
to Employee prior to the Change of Control Period. Annual Base Salary
shall not be reduced after any increase thereof pursuant to this Section
3(a). Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation of the Company under this Agreement.
(b) Incentive Cash Compensation. During the Employment
Period, he shall be eligible annually for a cash bonus at the discretion
of the Compensation Committee (such aggregate awards for each year are
hereinafter referred to as the "Annual Bonus") and at the discretion of
the Compensation Committee to receive awards from any plan of the
Company or any of its affiliated companies (as defined in Section 15(d)
below) providing for the payment of bonuses in cash to senior management
employees of the Company or its affiliated companies (such plans being
referred to herein collectively as the "Cash Bonus Plans") in accordance
with the terms thereof; provided, however, that, during the Change of
Control Period, the Employee shall be awarded, for each fiscal year
ending during the Change of Control Period, an Annual Bonus at least
equal to the Highest Recent Bonus (as defined in Section 15(e) below).
Each Annual Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Employee shall elect to defer the receipt
of such Annual Bonus.
(c) Incentive and Savings and Retirement Plans. During
the Employment Period, the Employee shall be entitled to participate in
all incentive and savings (in addition to the Cash Bonus Plans) and
retirement plans, practices, policies and programs applicable generally
to other senior management employees of the Company and its affiliated
companies.
(d) Welfare Benefit Plans. During the Employment
Period, the Employee and/or the Employee's family, as the case may be,
shall be eligible for participation in all welfare benefit plans,
practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other senior management
employees of the Company and its affiliated companies.
(e) Expenses. During the Employment Period and for so
long as the Employee is employed by the Company, he shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Employee in accordance with the policies, practices and procedures of
the Company and its affiliated companies from time to time in effect.
(f) Fringe Benefits. During the Employment Period, the
Employee shall be entitled to fringe benefits in accordance with the
plans, past practices, programs and policies of the Company and its
affiliated companies from time to time in effect.
(g) Office and Support Staff. During the Employment
Period, the Employee shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, commensurate with his position.
(h) Vacation and Other Absences. During the Employment
Period, the Employee shall be entitled to paid vacation and such other
paid absences whether for holidays, illness, personal time or any
similar purposes, in accordance with the plans, policies, programs and
practices of the Company and its affiliated companies.
(i) Change of Control. During the Change of Control
Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e),
3(f), 3(g) and 3(h) above shall be at least commensurate in all material
respects with the most valuable and favorable of those received by the
Employee at any time during the one-year period immediately preceding
the Change of Control Date.
4. Termination of Employment. (a) Death or Disability. The
Employment Period shall terminate automatically upon the Employee's death during
the Employment Period. If the Company determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 16(b) of its intention to terminate
the Employment Period. In such event, the Employment Period shall terminate
effective on the 30th day after receipt of such notice by the Employee (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Employee shall not have returned to full-time performance of the
Employee's duties. For purposes of this Agreement, "Disability" shall mean the
inability of the Employee to perform the Employee's duties with the Company 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).
(b) Cause. The Company may terminate the Employment
Period for Cause. For purposes of this Agreement, "Cause" shall mean
(i) the Employee's deliberate and intentional continuing refusal to
substantially perform his duties and obligations under this Agreement
(other than a breach of the Employee's obligations under this Agreement
arising from the failure of the Employee to work as a result of incapacity
due to physical or mental illness) if he shall have either failed to remedy
such alleged breach within 60 days from his receipt of written notice from the
Secretary of the Company demanding that he remedy such alleged breach, or
shall have failed to take reasonable steps in good faith to that end during
such 60 day period and thereafter, or (ii) the conviction of the Employee of
a felony involving malice which conviction has been affirmed on
appeal or as to which the period in which an appeal can be taken has lapsed.
(c) Good Reason; Window Period. The Employee's
employment may be terminated (i) by the Employee for Good Reason (as defined
below) or (ii) during the Window Period (as defined below) by the Employee
without any reason. For purposes of this Agreement, the "Window Period"
shall mean the 30-day period immediately following the first anniversary
of the Change of Control Date. For purposes of this Agreement, "Good Reason"
shall mean
(i) the assignment to the Employee of any duties
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority,duties or
responsibilities prior to the date of such assignment or any other
action by the Company or the Parent which results in a diminution in
such position, authority, duties or responsibilities, excluding for this
purpose an isolated and insubstantial action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(ii) any failure by the Company to comply with
any of the provisions of Section 3, other than an isolated and
insubstantial failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Employee;
(iii) the Company's requiring the Employee to be
based at any office or location other than that described in
Section 2(a);
(iv) any purported termination by the Company
of the Employee's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company or the Parent
to comply with and satisfy Section 14(c), provided that the
successor referred to in Section 14(c) has received at least ten days
prior written notice from the Company or the Employee of the
requirements of Section 14(c).
For purposes of this Section 4(c), during the Change of Control Period, any good
faith determination of "Good Reason" made by the Employee shall be conclusive.
(d) Notice of Termination. Any termination by the
Company for Cause or by the Employee without any reason during the Window
Period or for Good Reason shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 16(b). For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Employment Period under the provision so indicated,(iii) if the Date of
Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not
more than 15 days after the giving of such notice) and (iv) if the termination
is by the Company for Cause, indicates that the Board has determined that a
basis for termination for Cause exists, that the Employee has failed to take
reasonable steps in good faith to remedy the alleged basis for such termination,
and contains a certified copy of a resolution of the Board adopted by the
affirmative vote of not less than two-thirds of the entire membership of the
Board in a meeting called and held for that purpose in which the Employee was
given an opportunity to be heard, finding that a basis for termination for Cause
exists and that the Employee has failed to take reasonable steps in good faith
to remedy such alleged basis for termination. The failure by the Employee or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Employee or the Company hereunder or preclude the Employee or the Company
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Employee's employment is terminated by the Company for Cause,
or by the Employee during the Window Period or for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be, (ii) if the Employee's employment is terminated by the
Company other than for Cause or Disability, or by the Employee other than for
Good Reason or during the Window Period, the Date of Termination shall be the
date on which the Company or the Employee, as the case may be, notifies the
other of such termination and (iii) if the Employee's employment is terminated
by reason of death or Disability, the Date of Termination shall be the
date of death of the Employee or the Disability Effective Date, as the
case may be. Notwithstanding the foregoing, if the Company gives the
Employee written notice pursuant to the second sentence of Section 1 hereof,
then "Date of Termination" shall mean the last day of the three (3) year
period for which the Employment Period is extended pursuant to such sentence.
5. Obligations of the Company Upon Termination. (a) Certain
Terminations Prior to Change of Control Date. If, during the Employment Period
prior to any Change of Control Date, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee for Good Reason, then, in lieu of the
obligations of the Company under Section 3, (i) the Company shall pay to the
Employee in a lump sum in cash within 30 days after the Date of Termination all
Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii)
notwithstanding any other provision hereunder, for the longer of (A) the
remainder of the Employment Period or (B) to the extent compensation and/or
benefits are provided under any plan, program, practice or policy, such longer
period, if any, as such plan, program, practice or policy may provide, the
Company shall continue to provide to the Employee the compensation and benefits
provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and
3(d) (it being understood that if the Company gives the Employee written notice
that the Compensation Committee has determined not to authorize an extension, or
fails to notify the Employee of the Compensation Committee's determination prior
to the Renewal Deadline, in either case as contemplated by the second sentence
of Section 1 hereof, the giving of such notice or the failure to so notify the
Employee shall not be deemed a termination of the employment of the Employee
with the Company during the Employment Period for purposes of this Section
5(a)).
(b) Certain Terminations After Change of Control
Date. If, during the Change of Control Period, the employment of the
Employee with the Company shall be terminated (i) by the Company other than
for Cause, death or Disability or (ii) by the Employee either for Good Reason
or without any reason during the Window Period, then, in lieu of the
obligations of the Company under Section 3 and notwithstanding any other
provision hereunder:
(i) the Company shall pay to the Employee in a
lump sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(A) the sum of (1) all unpaid amounts due
to the Employee under Section 3 through the Date of
Termination, including without limitation, the Employee's
Annual Base Salary and any accrued vacation pay, (2) the
product of (x) the Highest Recent Bonus and (y) a fraction,
the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation
previously deferred by the Employee (together with any accrued
interest or earnings thereon) to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Accrued Obligations"
and the sum of the amounts described in clauses (1) and (3)
shall be hereinafter referred to as the "Unpaid Agreement
Amounts"); and
(B) the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal to the sum of
(1) Three (3) multiplied by the Employee's
Annual Base Salary, plus
(2) Three (3) multiplied by the Employee's
Highest Recent Bonus;
(ii) for the longer of (A) the remainder of the
Employment Period or (B) to the extent benefits are provided under any
plan, program, practice or policy, such longer period as such plan,
program, practice or policy may provide, the Company shall continue
benefits to the Employee and/or the Employee's family at least equal to
those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(d)
if the Employee's employment had not been terminated, in accordance
with the most favorable plans, practices, programs or policies of
the Company and its affiliated companies as in effect and applicable
generally to other employees of comparable rank and their families
during the 90-day period immediately preceding the Change of Control
Date or, if more favorable to the Employee, as in effect generally at
any time thereafter with respect to other employees of comparable rank
with the Company and its affiliated companies and their families;
provided, however, that if the Employee becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical
and other welfare benefits described herein shall be required only to
the extent not provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility of the
Employee for retiree benefits pursuant to such plans, practices,
programs and policies, the Employee shall be considered to have remained
employed until the end of the Employment Period and to have retired on
the last day of such period; and
(iii) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Employee and/or the
Employee's family for the remainder of the Employment Period any other
amounts or benefits required to be paid or provided or which the
Employee and/or the Employee's family is eligible to receive pursuant
to this Agreement and under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies as
in effect and applicable generally to other employees of comparable
rank with the Company and its affiliated companies and their families
during the 90-day period immediately preceding the Change of Control
Date or, if more favorable to the Employee, as in effect generally
thereafter with respect to other employees of comparable rank with
the Company and its affiliated companies and their families.
Such amounts received under this Section 5(b) shall be in lieu of any other
amount of severance relating to salary or bonus continuation to be received by
the Employee upon termination of employment of the Employee under any severance
plan, policy or arrangement of the Company.
(c) Termination as a Result of Death. If the Employee's
employment is terminated by reason of the Employee's death during the Employment
Period, in lieu of the obligations of the Company under Section 3, the Company
shall pay or provide to the Employee's estate (i) all Accrued Obligations (which
shall be paid in a lump sum in cash within 30 days after the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as
a death benefit pursuant to the terms of any plan, policy or arrangement of
the Company and its affiliated companies. "Welfare Benefit Continuation"
shall mean the continuation of benefits to the Employee and/or the Employee's
family for the longer of (i) three (3) year(s)from the Date of Termination or
(ii) the period provided by the plans, programs, policies or practices
described in Section 3(d) in which the Employee participates as of the
Date of Termination, such benefits to be at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 3(d) if the Employee's employment had not
been terminated, in accordance with the most favorable plans, practices,
programs or policies of the Company and its affiliated companies as
in effect and applicable generally to other employees of comparable rank and
their families on the Date of Termination or, if the Date of Termination occurs
after the Change of Control Date, during the 90-day period immediately preceding
the Change of Control Date or, if more favorable to the Employee, as in effect
generally at any time thereafter with respect to other employees of comparable
rank with the Company and its affiliated companies and their families. "Other
Benefits" shall mean the timely payment or provision to the Employee and/or the
Employee's family of any other amounts or benefits required to be paid or
provided or which the Employee and/or the Employee's family is eligible to
receive pursuant to this Agreement and under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated companies as
in effect and applicable generally to other employees of comparable rank and
their families on the Date of Termination or, if the Date of Termination occurs
after the Change of Control Date, during the 90-day period immediately preceding
the Change of Control Date or, if more favorable to the Employee, as in effect
generally thereafter with respect to other employees of comparable rank with the
Company and its affiliated companies and their families.
(d) Termination as a Result of Disability. If the
Employee's employment is terminated by reason of the Employee's Disability
during the Employment Period, in lieu of the obligations of the Company under
Section 3, the Company shall pay or provide to the Employee (i) all Accrued
Obligations which shall be paid in a lump sum in cash within 30 days after the
Date of Termination and the timely payment or provision of the Welfare
Benefit Continuation and the Other Benefits, provided, however, that if the
Employee becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
Welfare Benefit Continuation shall be required only to the extent not provided
under such other plan during such applicable period of eligibility, and
(ii) any cash amount to be received by the Employee as a disability benefit
pursuant to the terms of any plan, policy or arrangement of the Company and
its affiliated companies.
(e) Cause; Other than for Good Reason. If
the Employee's employment shall be terminated during the Employment Period by
the Company for Cause or by the Employee other than during the Window Period
and other than for Good Reason, in lieu of the obligations of the Company under
Section 3, the Company shall pay to the Employee in a lump sum in cash within
30 days after the Date of Termination all Unpaid Agreement Amounts.
6. Non-exclusivity of Rights. Except as provided in Sections
5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Employee may qualify, nor shall anything herein
limit or otherwise affect such rights as the Employee may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Employee is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement; Resolution of Disputes. (a) The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Employee or others. In no event shall the Employee
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Employee under any of the provisions of
this Agreement and, except as provided in Sec-tions 5(b)(ii) and 5(d), such
amounts shall not be reduced whether or not the Employee obtains other
employment. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
payment required to be made under this Agreement but not timely paid at the rate
provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company
and the Employee (i) in the event of any termination of the Employee's
employment by the Company, whether such termination was for Cause, or (ii) in
the event of any termination of employment by the Employee, whether Good Reason
existed, then, unless and until there is a final, nonappealable judgment by a
court of competent jurisdiction declaring that such termination was for Cause
or that the determination by the Employee of the existence of Good Reason was
not made in good faith, the Company shall pay all amounts, and provide all
benefits, to the Employee and/or the Employee's family or other beneficiaries,
as the case may be, that the Company would be required to pay or provide
pursuant to Section 5(a) or 5(b) as though such termination were by the
Company without Cause or by the Employee with Good Reason. The Employee
hereby undertakes to repay to the Company all such amounts to which the Employee
is ultimately adjudged by such court not to be entitled.
8. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 8) (a "Payment")
would be subject to the excise tax imposed by Section 4999 (or a successor
provision of like import) of the Code or any interest or penalties are incurred
by the Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by an accounting firm of national reputation selected by the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both
to the Company and the Employee within 15 business days of the receipt of
notice from the Employee that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is
serving (or has served within the three years preceding the Change of Control
Date) as accountant or auditor for the individual, entity or group effecting
the Change of Control, or is unwilling or unable to perform its obligations
pursuant to this Section 8, the Employee shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 8, shall be paid by the Company to the Employee within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written opinion that failure to report the Excise Tax on the
Employee's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Employee is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Employee shall not pay such claim prior to the expiration of the
30-day period following the date on which the Employee gives such notice to
the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Employee
in writing prior to the expiration of such period that it desires to contest
such claim, the Company, subject to the provisions of this Section 8(c),
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Employee to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner. In this connection, the Employee agrees, subject to the provisions
of this Section 8(c), to (i) prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine,
(ii) give the Company any information reasonably requested by the
Company relating to such claim, (iii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company, (iv)
cooperate with the Company in good faith in order to effectively contest such
claim and (v) permit the Company to participate in any proceedings relating to
such claim. The foregoing is subject, however, to the following: (A) the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Employee harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed in connection therewith and the payment of costs and expenses in such
connection, (B) if the Company directs the Employee to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Employee, on an interest-free basis, and shall indemnify and hold the Employee
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance, (C) any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which such contested amount is
claimed to be due shall be limited solely to such contested amount and (D) the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 8(c), the Employee becomes
entitled to receive any refund with respect to such claim, the Employee shall
(subject to the Company's complying with the requirements of Section 8(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Employee of an amount advanced by the Company pursuant to
Section 8(c), a determination is made that the Employee shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Employee in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
9. Confidential Information. The Employee shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Employee during the Employee's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Employee or representatives of the Employee in violation of
this Agreement). After termination of the Employee's employment with the Company
or any of its affiliated companies, the Employee shall not, without the prior
written consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement. Subject to the previous sentence, nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from the Employee.
10. Employee's Obligation to Avoid Conflicts of Interest. (a)
The Employee shall comply with the conflict of interest policy of the Parent as
in effect from time to time.
11. Ownership of Information, Ideas, Concepts, Improvements,
Discoveries and Inventions and all Original Works of Authorship. (a) All
information, ideas, concepts, improvements, discoveries and inventions, whether
patentable or not, which are conceived, made, developed or acquired by Employee
or which are disclosed or made known to Employee, individually or in conjunction
with others, during Employee's employment by the Company or any of its
affiliated companies and which relate to the Company's or any of its affiliated
companies' business, products or services (including all such information
relating to corporate opportunities, research, financial and sales data, pricing
and trading terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key
contacts within the customer's organizations or within the organization of
acquisition prospects, or marketing and merchandising techniques, prospective
names and marks) are and shall be the sole and exclusive property of the
Company. Moreover, all drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, maps and all
other writings or materials of any type embodying any of such information,
ideas, concepts, improvements, discoveries and inventions are and shall be the
sole and exclusive property of the Company.
(b) In particular, Employee hereby specifically
sells, assigns and transfers to the Company all of his worldwide right, title
and interest in and to all such
information, ideas, concepts, improvements, discoveries or inventions, and any
United States or foreign applications for patents, inventor's certificates or
other industrial rights that may be filed thereon, including divisions,
continuations, continuations-in-part, reissues and/or extensions thereof, and
applications for registration of such names and marks. Both during the period of
Employee's employment by the Company or any of its affiliated companies and
thereafter, Employee shall assist the Company and its nominee at all times in
the protection of such information, ideas, concepts, improvements, discoveries
or inventions, both in the United States and all foreign countries, including
but not limited to, the execution of all lawful oaths and all assignment
documents requested by the Company or its nominee in connection with the
preparation, prosecution, issuance or enforcement of any applications for United
States or foreign letters patent, including divisions, continuations,
continuations-in-part, reissues, and/or extensions thereof, and any application
for the registration of such names and marks.
(c) Moreover, if during Employee's employment by the
Company or any of its affiliated
companies, Employee creates any original work of authorship fixed in any
tangible medium of expression which is the subject matter of copyright (such as
videotapes, written presentations on acquisitions, computer programs, drawings,
maps, architectural renditions, models, manuals, brochures or the like) relating
to the Company's or any of its affiliated companies' business, products, or
services, whether such work is created solely by Employee or jointly with
others, the Company shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by the Company as a contribution to a collective work, as a
part of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation or as an instrumental text, then the work
shall be considered to be work made for hire and the Company shall be the author
of the work. In the event such work is neither prepared by the Employee within
the scope of his or her employment or is not a work specially ordered and deemed
to be a work made for hire, then Employee hereby agrees to assign, and by these
presents does assign, to the Company all of Employee's worldwide right, title
and interest in and to such work and all rights of copyright therein. Both
during the period of Employee's employment by the Company or any of its
affiliated companies and thereafter, Employee agrees to assist the Company and
its nominee, at any time, in the protection of the Company's worldwide right,
title and interest in and to the work and all rights of copyright therein,
including but not limited to, the execution of all formal assignment documents
requested by the Company or its nominee and the execution of all lawful oaths
and applications for registration of copyright in the United States and foreign
countries.
12. Employee's Post-Employment Non-Competition Obligations. (a)
During the Employment Period and, subject to the conditions of Sections 12(b)
and 12(c), for a period of three (3) year(s) thereafter (the "Non-Competition
Period"), Employee shall not, acting alone or in conjunction with others,
directly or indirectly, in any of the business territories in which the Company
or any of its affiliated companies is presently or at the time of termination of
employment conducting business, engage in any business in competition with the
business conducted by the Company or any of its affiliated companies at the time
of the termination of the employment relationship, whether for his own account
or by soliciting, canvassing or accepting any business or transaction for or
from any other company or business in competition with such business of the
Company or any of its affiliated companies.
(b) If Employee's employment is discontinued:
(i) by Company for Cause pursuant to Section 4(b); or (ii) by Employee
because of any reason other than for Good Reason or other than during the
Window Period pursuant to Section 4(c), Employee shall be bound by the
obligations of Section 12(a) and the Company shall have no obligation to make
the Non-Competition Payments (as defined in Section 12(c) below). However,
if the employment relationship is terminated by any other circumstance or
for any other reason, Employee's post-employment non-competition
obligations required by Section 12(a) shall be subject to the Company's
obligation to make the Non-Competition Payments specified in Section 12(c).
(c) Notwithstanding the provisions of Section 4 of this
Agreement, whenever Employee's employment is terminated due to the expiration
of the Employment Period in accordance with the provisions of Section 1, or due
to Employee's Disability (Section 4(a)), or by the Company without Cause
(Section 4(b)), or by Employee for Good Reason or during the Window Period
pursuant to Section 4(c) unless the Company exercises its option as hereinafter
provided, Employee shall be entitled to continue to receive payments (the
"Non-Competition Payments") equal to his then current Annual Base Salary (as of
the Date of Termination) during the Non-Competition Period. During the
Non-Competition Period, the Employee shall not, however, be deemed to be an
employee of the Company or be entitled to continue to receive any other employee
benefits other than as set forth in Section 5 or Section 8. Moreover, the
Non-Competition Payments shall be reduced to the extent Employee has already
received lump-sum payments in lieu of salary pursuant to Section 5. The Company
shall have the option, exercisable at any time on or within one (1) month after:
(i) the date the Company gives the Employee notice that the Employment Period
will not be extended (or in the case of failure to notify, on or within one
month after the Renewal Deadline), in accordance with Section 1; or (ii) in the
case of termination due to Employee's disability or by the Company without
Cause, the Date of Termination, to cancel Employee's post-employment
non-competition obligations under Section 12(a) and the Company's corresponding
obligation to make the Non-Competition Payments. Such option shall be exercised
by the Company mailing a written notice thereof to Employee in accordance with
Section 16(b); if the Company does not send such notice within the prescribed
one-month period, the Company shall remain obligated to make the Non-Competition
Payments and Employee shall remain obligated to comply with the provisions of
Section 12(a). The amounts to be paid by the Company are not intended to be
liquidated damages or an estimate of the actual damages that would be sustained
by the Company if Employee breaches his post-employment non-competition
obligations. If Employee breaches his post-employment non-competition
obligations, the Company shall be entitled to cease making the Non-Competition
Payments and shall be entitled to all of its remedies at law or in equity for
damages and injunctive relief.
13. Obligations to Refrain From Competing Unfairly. In addition
to the other obligations agreed to by Employee in this Agreement, Employee
agrees that during the Employment Period and for three (3) year(s) following the
Date of Termination, he shall not at any time, directly or indirectly for the
benefit of any other party than the Company or any of its affiliated companies,
(a) induce, entice, or solicit any employee of the Company or any of its
affiliated companies to leave his employment, or (b) contact, communicate or
solicit any customer of the Company or any of its affiliated companies derived
from any customer list, customer lead, mail, printed matter or other information
secured from the Company or any of its affiliated companies or their present or
past employees, or (c) in any other manner use any customer lists or customer
leads, mail, telephone numbers, printed material or material of the Company or
any of its affiliated companies relating thereto.
14. Successors. (a) This Agreement is personal to the Employee
and without the prior written consent of the Company shall not be assignable by
the Employee otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Employee's legal representatives.
(b) This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. The Parent will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Parent or the Parent to assume expressly and agree to perform the
Parent's obligations hereunder in the same manner and to the same extent that
the Parent would be required to perform them if no such succession had taken
place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform the Parent's obligations hereunder by operation of
law, or otherwise.
15. Certain Definitions. The following defined terms used in
this Agreement shall have the meanings indicated:
(a) The "Change of Control Date" shall mean the first
date on which a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the
Employee's employment with the Company is terminated or there is a
change in the circumstances of the Employee's employment which constitutes
Good Reason, and if it is reasonably demonstrated by the Employee that such
termination or change in circumstances: (i) was at the request of a third party
who has taken steps reasonably calculated to effect the Change of Control; or
(ii) otherwise arose in connection with or anticipation of the Change of
Control, then, for all purposes of this Agreement, the "Change of
Control Date" shall mean the date immediately prior to the date of such
termination or cessation.
(b) The "Change of Control Period" shall mean the
period commencing on the Change of Control Date and ending on the last day of
the Employment Period.
(c) "Change of Control" shall mean:
(i) 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 Parent
(the "Outstanding Parent Common Stock") or (B) the combined
voting power of the then outstanding voting secu-rities of the Parent
entitled to vote generally in the election of directors (the
"Outstanding Parent Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Parent (excluding an acquisition by virtue
of the exercise of a conversion privilege), (B) any acquisition by the
Parent, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Parent or any corporation
controlled by the Parent or (D) 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 (iii) of this definition of
"Change of Control" are satisfied; or
(ii) Individuals who, as of the effective date
hereof, constitute the Board of Directors of the Parent (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Parent; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Parent's shareholders,
was approved by (A) a vote of at least a majority of the directors then
constituting the Incumbent Board of the Parent, or (B) a vote of at
least a majority of the directors then comprising the Executive
Committee of the Board of Directors of the Parent at a time when such
committee consisted 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 (ii), 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 of Directors
of the Parent; or
(iii) Approval by the shareholders of the
Parent 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 Parent Common Stock and Outstanding Parent Voting
Securities immediately prior to such organization, merger
or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Parent Common Stock and Outstanding
Parent Voting Securities, as the case may be, (B) no Person (excluding
the Parent, any employee benefit plan or related trust of the Parent 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 Parent Common Stock or Outstanding Parent
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
(iv) Approval by the shareholders of the Parent
of (A) a complete liquidation or dissolution of the Parent or
(B) the sale or other disposition of all or substantially all of
the assets of the Parent, other than to a corporation, with respect to
which following such sale or other disposition, (A) 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
Parent Common Stock and Outstanding Parent Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Parent Common Stock and Outstanding Parent Voting Securities, as the
case may be, (B) no Person (excluding the Parent and any employee
benefit plan or related trust of the Parent 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
Parent Common Stock or Outstanding Parent 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 (C) 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 of Directors of the Parent providing for such sale or other
disposition of assets of the Parent.
(d) The term "affiliated company" shall mean any
company controlled by, controlling or under common control with the Company.
(e) The term "Highest Recent Bonus" shall mean the
highest Annual Bonus (annualized for any fiscal year consisting of less than
twelve full months) paid or payable, including by reason of any deferral,
to the Employee by the Company and its affiliated companies in respect of
the three most recent full fiscal years ending on or prior to,(i) if prior to
a Change of Control, the Date of Termination, or (ii) if after a Change
of Control, the Change of Control Date.
16. Miscellaneous. (a) This Agreement supersedes all previous
agreements and discussions relating to the same or similar subject matters
between Employee and the Company and shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or a duly authorized
committee thereof, shall have authority on behalf of the Company or the Parent
to agree to amend, modify, repeal, waive, extend or discharge any provision of
this Agreement or anything in reference thereto.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
George R. Champagne
#10 Twin Greens Court
Kingwood, TX 77337
If to the Company:
SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to the Parent:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Employee or the
Company may have hereunder, including, without limitation, the right of the
Employee to terminate employment for Good Reason pursuant to Section 4(c) of
this Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) No breach, whether actual or alleged, of this
Agreement by the Employee shall constitute grounds for the Company to withhold
or offset any payment or benefit due to the Employee under any other agreement,
contract, plan, program, policy or practice of the Company.
IN WITNESS WHEREOF, the Employee and, pursuant to due
authorization from the Board, the Company have caused this Agreement to be
executed this 10th day of March, 1999.
GEORGE R. CHAMPAGNE
/s/ George R. Champagne
"EMPLOYEE"
SCI EXECUTIVE SERVICES, INC.
By: /s/ Curtis G. Briggs
Name: Curtis G. Briggs
Title: Vice President
"COMPANY"
<PAGE>
Pursuant to due authorization from its Board of Directors, the Parent,
by its execution hereof, absolutely and unconditionally guarantees to Employee
the full and timely payment and performance of each obligation of the Company to
Employee under this Agreement, waives any and all rights that it may otherwise
have to require Employee to proceed against the Company for nonpayment or
nonperformance, waives any and all defenses that would otherwise be a defense to
this guarantee, and agrees to remain liable to Employee for all payment and
performance obligations of the Company under this Agreement, whether arising
before, on or after the date of this Agreement, until this Agreement shall
terminate pursuant to its terms.
SERVICE CORPORATION INTERNATIONAL
By: /s/ James M. Shelger
Name: James M. Shelger
Title: Senior Vice President
General Counsel and Secretary
"PARENT"
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as
of this 1st day of January, 1999, by and between SCI EXECUTIVE SERVICES, INC., a
Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION
INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to
all of the rights, duties and obligations under this Agreement, and W. Blair
Waltrip (the "Employee").
1. Employment and Term. The Company agrees to employ the
Employee and the Employee agrees to remain in the employ of the Company, in
accordance with the terms and provisions of this Agreement, for the period
beginning on the date hereof and ending as of the close of business on December
31, 2001 (such period together with all extensions thereof, is referred to
hereinafter as the "Employment Period"); provided, however, that commencing on
the date one year after the date hereof, and on each January 1 thereafter (each
such date shall be hereinafter referred to as a "Renewal Date") the Employment
Period shall be automatically extended so as to terminate three (3) year(s) from
such Renewal Date if (i) the Compensation Committee of the Board of Directors of
the Parent (hereinafter referred to as the "Compensation Committee") authorizes
such extension during the 60-day period preceding such Renewal Date and (ii) the
Employee has not previously given the Company written notice that the Employment
Period shall not be so extended. In the event that the Company gives the
Employee written notice at any time that the Compensation Committee has
determined not to authorize such extension, or if the Company fails to notify
the Employee of the Compensation Committee's determination prior to the Renewal
Date (the "Renewal Deadline"), the Employment Period shall be extended so as to
terminate three (3) year(s) after the date such notice is given (or, in case of
a failure to notify, three (3) year(s) after the Renewal Deadline) and shall not
thereafter be further extended.
2. Duties and Powers of Employee. During the Employment Period,
the Employee shall serve as the Executive Vice President of the Parent and the
Company and shall have the duties, powers and authority heretofore possessed by
the holder of such offices and such other powers consistent therewith as are
delegated to him in writing from time to time by the Board of Directors of the
Parent (the "Board"). The Employee's services shall be performed at the location
where the Employee is currently employed or any office which is the headquarters
of the Company and is less than 50 miles from such location. During the Change
of Control Period, the Employee's position (including status, offices, titles
and reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned with or by the Company or the Parent at any time
during the 90-day period immediately preceding the Change of Control Date (as
defined in Section 15(a) below).
3. Compensation. The Employee shall receive the following
compensation for his services:
(a) Salary. During the Employment Period, he shall be
paid an annual base salary ("Annual Base Salary") at the rate of not
less than $450,000 per year, in substantially equal bi-weekly
installments, and subject to any and all required withholdings and
deductions for Social Security, income taxes and the like. The
Compensation Committee may from time to time direct such upward
adjustments to Annual Base Salary as the Compensation Committee deems to
be appropriate or desirable; provided, however, that during the Change
of Control Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary awarded
to Employee prior to the Change of Control Period. Annual Base Salary
shall not be reduced after any increase thereof pursuant to this Section
3(a). Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation of the Company under this Agreement.
(b) Incentive Cash Compensation. During the Employment
Period, he shall be eligible annually for a cash bonus at the discretion
of the Compensation Committee (such aggregate awards for each year are
hereinafter referred to as the "Annual Bonus") and at the discretion of
the Compensation Committee to receive awards from any plan of the
Company or any of its affiliated companies (as defined in Section 15(d)
below) providing for the payment of bonuses in cash to senior management
employees of the Company or its affiliated companies (such plans being
referred to herein collectively as the "Cash Bonus Plans") in accordance
with the terms thereof; provided, however, that, during the Change of
Control Period, the Employee shall be awarded, for each fiscal year
ending during the Change of Control Period, an Annual Bonus at least
equal to the Highest Recent Bonus (as defined in Section 15(e) below).
Each Annual Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Employee shall elect to defer the receipt
of such Annual Bonus.
(c) Incentive and Savings and Retirement Plans. During
the Employment Period, the Employee shall be entitled to participate in
all incentive and savings (in addition to the Cash Bonus Plans) and
retirement plans, practices, policies and programs applicable generally
to other senior management employees of the Company and its affiliated
companies.
(d) Welfare Benefit Plans. During the Employment
Period, the Employee and/or the Employee's family, as the case may be,
shall be eligible for participation in all welfare benefit plans,
practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other senior management
employees of the Company and its affiliated companies.
(e) Expenses. During the Employment Period and for so
long as the Employee is employed by the Company, he shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Employee in accordance with the policies, practices and procedures of
the Company and its affiliated companies from time to time in effect.
(f) Fringe Benefits. During the Employment Period, the
Employee shall be entitled to fringe benefits in accordance with the
plans, past practices, programs and policies of the Company and its
affiliated companies from time to time in effect.
(g) Office and Support Staff. During the Employment
Period, the Employee shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, commensurate with his position.
(h) Vacation and Other Absences. During the Employment
Period, the Employee shall be entitled to paid vacation and such other
paid absences whether for holidays, illness, personal time or any
similar purposes, in accordance with the plans, policies, programs and
practices of the Company and its affiliated companies.
(i) Change of Control. During the Change of Control
Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e),
3(f), 3(g) and 3(h) above shall be at least commensurate in all material
respects with the most valuable and favorable of those received by the
Employee at any time during the one-year period immediately preceding
the Change of Control Date.
4. Termination of Employment. (a) Death or Disability. The
Employment Period shall terminate automatically upon the Employee's death during
the Employment Period. If the Company determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 16(b) of its intention to terminate
the Employment Period. In such event, the Employment Period shall terminate
effective on the 30th day after receipt of such notice by the Employee (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Employee shall not have returned to full-time performance of the
Employee's duties. For purposes of this Agreement, "Disability" shall mean the
inability of the Employee to perform the Employee's duties with the Company 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).
(b) Cause. The Company may terminate the Employment
Period for Cause. For purposes of this Agreement, "Cause" shall mean
(i) the Employee's deliberate and intentional continuing refusal to
substantially perform his duties and obligations under this Agreement
(other than a breach of the Employee's obligations under this Agreement
arising from the failure of the Employee to work as a result of incapacity
due to physical or mental illness) if he shall have either failed to remedy
such alleged breach within 60 days from his receipt of written notice from the
Secretary of the Company demanding that he remedy such alleged breach, or
shall have failed to take reasonable steps in good faith to that end during
such 60 day period and thereafter, or (ii) the conviction of the Employee of a
felony involving malice which conviction has been affirmed on appeal or as to
which the period in which an appeal can be taken has lapsed.
(c) Good Reason; Window Period. The Employee's
employment may be terminated (i) by the Employee for Good Reason (as defined
below) or (ii) during the Window Period (as defined below) by the Employee
without any reason. For purposes of this Agreement, the "Window Period"
shall mean the 30-day period immediately following the first anniversary
of the Change of Control Date. For purposes of this Agreement, "Good Reason"
shall mean
(i) the assignment to the Employee of any
duties inconsistent in any respect with the Employee's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities prior to the date of such
assignment or any other action by the Company or the Parent which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and
insubstantial action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by
the Employee;
(ii) any failure by the Company to
comply with any of the provisions of Section 3, other than an
isolated and insubstantial failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(iii) the Company's requiring the Employee
to be based at any office or location other than that described in
Section 2(a);
(iv) any purported termination by the Company
of the Employee's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company or the Parent
to comply with and satisfy Section 14(c), provided that the
successor referred to in Section 14(c) has received at least ten days
prior written notice from the Company or the Employee of the
requirements of Section 14(c).
For purposes of this Section 4(c), during the Change of Control Period, any good
faith determination of "Good Reason" made by the Employee shall be conclusive.
(d) Notice of Termination. Any termination by the
Company for Cause or by the Employee without any reason during the Window Period
or for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 16(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employment
Period under the provision so indicated, (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days after the giving
of such notice) and (iv) if the termination is by the Company for Cause,
indicates that the Board has determined that a basis for termination for
Cause exists, that the Employee has failed to take reasonable steps in good
faith to remedy the alleged basis for such termination, and contains a
certified copy of a resolution of the Board adopted by the affirmative vote
of not less than two-thirds of the entire membership of the Board in a
meeting called and held for that purpose in which the Employee was
given an opportunity to be heard, finding that a basis for termination for Cause
exists and that the Employee has failed to take reasonable steps in good faith
to remedy such alleged basis for termination. The failure by the Employee or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Employee or the Company hereunder or preclude the Employee or the Company
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination"
means (i) if the Employee's employment is terminated by the Company for Cause,
or by the Employee during the Window Period or for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be, (ii) if the Employee's employment is terminated by the
Company other than for Cause or Disability, or by the Employee other than for
Good Reason or during the Window Period, the Date of Termination shall be the
date on which the Company or the Employee, as the case may be, notifies the
other of such termination and (iii) if the Employee's employment is terminated
by reason of death or Disability, the Date of Termination shall be the
date of death of the Employee or the Disability Effective Date, as the
case may be. Notwithstanding the foregoing, if the Company gives the
Employee written notice pursuant to the second sentence of Section 1 hereof,
then "Date of Termination" shall mean the last day of the three (3) year
period for which the Employment Period is extended pursuant to such sentence.
5. Obligations of the Company Upon Termination. (a) Certain
Terminations Prior to Change of Control Date. If, during the Employment Period
prior to any Change of Control Date, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee for Good Reason, then, in lieu of the
obligations of the Company under Section 3, (i) the Company shall pay to the
Employee in a lump sum in cash within 30 days after the Date of Termination all
Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii)
notwithstanding any other provision hereunder, for the longer of (A) the
remainder of the Employment Period or (B) to the extent compensation and/or
benefits are provided under any plan, program, practice or policy, such longer
period, if any, as such plan, program, practice or policy may provide, the
Company shall continue to provide to the Employee the compensation and benefits
provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and
3(d) (it being understood that if the Company gives the Employee written notice
that the Compensation Committee has determined not to authorize an extension, or
fails to notify the Employee of the Compensation Committee's determination prior
to the Renewal Deadline, in either case as contemplated by the second sentence
of Section 1 hereof, the giving of such notice or the failure to so notify the
Employee shall not be deemed a termination of the employment of the Employee
with the Company during the Employment Period for purposes of this Section
5(a)).
(b) Certain Terminations After Change of Control
Date. If, during the Change of Control Period, the employment of the
Employee with the Company shall be terminated (i) by the Company other than
for Cause, death or Disability or (ii) by the Employee either for Good Reason
or without any reason during the Window Period, then, in lieu of the
obligations of the Company under Section 3 and notwithstanding any other
provision hereunder:
(i) the Company shall pay to the Employee
in a lump sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(A) the sum of (1) all unpaid
amounts due to the Employee under Section 3 through the Date
of Termination, including without limitation, the Employee's
Annual Base Salary and any accrued vacation pay, (2) the
product of (x) the Highest Recent Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of
which is 365 and (3) any compensation previously deferred by
the Employee (together with any accrued interest or earnings
thereon) to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"
and the sum of the amounts described in clauses (1) and (3)
shall be hereinafter referred to as the "Unpaid Agreement
Amounts"); and
(B) the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal to the sum of
(1) Three (3) multiplied by the
Employee's Annual Base Salary, plus
(2) Three (3) multiplied by the
Employee's Highest Recent Bonus;
(ii) for the longer of (A) the remainder
of the Employment Period or (B) to the extent benefits are provided
under any plan, program, practice or policy, such longer period as
such plan, program, practice or policy may provide, the Company shall
continue benefits to the Employee and/or the Employee's family at least
equal to those which would have been provided to them in accordance with
the plans, programs, practices and policies described in Section
3(d) if the Employee's employment had not been terminated, in
accordance with the most favorable plans, practices, programs or
policies of the Company and its affiliated companies as in
effect and applicable generally to other employees of comparable rank
and their families during the 90-day period immediately preceding the
Change of Control Date or, if more favorable to the Employee, as in
effect generally at any time thereafter with respect to other employees
of comparable rank with the Company and its affiliated companies and
their families; provided, however, that if the Employee becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical
and other welfare benefits described herein shall be required only to
the extent not provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility of the
Employee for retiree benefits pursuant to such plans, practices,
programs and policies, the Employee shall be considered to have remained
employed until the end of the Employment Period and to have retired on
the last day of such period; and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Employee
and/or the Employee's family for the remainder of the Employment Period
any other amounts or benefits required to be paid or provided or which
the Employee and/or the Employee's family is eligible to receive
pursuant to this Agreement and under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other employees of
comparable rank with the Company and its affiliated companies and
their families during the 90-day period immediately preceding the
Change of Control Date or, if more favorable to the Employee, as in
effect generally thereafter with respect to other employees of
comparable rank with the Company and its affiliated companies and
their families.
Such amounts received under this Section 5(b) shall be in lieu of any other
amount of severance relating to salary or bonus continuation to be received by
the Employee upon termination of employment of the Employee under any severance
plan, policy or arrangement of the Company.
(c) Termination as a Result of Death. If the Employee's
employment is terminated by reason of the Employee's death during the
Employment Period, in lieu of the obligations of the Company under Section 3,
the Company shall pay or provide to the Employee's estate (i) all Accrued
Obligations (which shall be paid in a lump sum in cash within 30 days after the
Date of Termination) and the timely payment or provision of the Welfare Benefit
Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as
a death benefit pursuant to the terms of any plan, policy or arrangement of
the Company and its affiliated companies. "Welfare Benefit Continuation"
shall mean the continuation of benefits to the Employee and/or the Employee's
family for the longer of (i) three (3) year(s) from the Date of Termination or
(ii) the period provided by the plans, programs, policies or practices described
in Section 3(d) in which the Employee participates as of the Date of
Termination, such benefits to be at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 3(d) if the Employee's employment had not been
terminated, in accordance with the most favorable plans, practices, programs
or policies of the Company and its affiliated companies as in effect and
applicable generally to other employees of comparable rank and their families
on the Date of Termination or, if the Date of Termination occurs after the
Change of Control Date, during the 90-day period immediately preceding
the Change of Control Date or, if more favorable to the Employee, as in effect
generally at any time thereafter with respect to other employees of comparable
rank with the Company and its affiliated companies and their families. "Other
Benefits" shall mean the timely payment or provision to the Employee and/or the
Employee's family of any other amounts or benefits required to be paid or
provided or which the Employee and/or the Employee's family is eligible to
receive pursuant to this Agreement and under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated companies as
in effect and applicable generally to other employees of comparable rank and
their families on the Date of Termination or, if the Date of Termination occurs
after the Change of Control Date, during the 90-day period immediately preceding
the Change of Control Date or, if more favorable to the Employee, as in effect
generally thereafter with respect to other employees of comparable rank with the
Company and its affiliated companies and their families.
(d) Termination as a Result of Disability. If the
Employee's employment is terminated by reason of the Employee's Disability
during the Employment Period, in lieu of the obligations of the Company under
Section 3, the Company shall pay or provide to the Employee (i) all Accrued
Obligations which shall be paid in a lump sum in cash within 30 days after the
Date of Termination and the timely payment or provision of the Welfare
Benefit Continuation and the Other Benefits, provided, however, that if the
Employee becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
Welfare Benefit Continuation shall be required only to the extent not
provided under such other plan during such applicable period of
eligibility, and (ii) any cash amount to be received by the Employee as a
disability benefit pursuant to the terms of any plan, policy or arrangement of
the Company and its affiliated companies.
(e) Cause; Other than for Good Reason. If the
Employee's employment shall be terminated during the Employment Period by
the Company for Cause or by the Employee other than during the Window Period
and other than for Good Reason, in lieu of the obligations of the Company under
Section 3, the Company shall pay to the Employee in a lump sum in cash within
30 days after the Date of Termination all Unpaid Agreement Amounts.
6. Non-exclusivity of Rights. Except as provided in Sections
5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Employee may qualify, nor shall anything herein
limit or otherwise affect such rights as the Employee may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Employee is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement; Resolution of Disputes. (a) The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Employee or others. In no event shall the Employee
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Employee under any of the provisions of
this Agreement and, except as provided in Sec-tions 5(b)(ii) and 5(d), such
amounts shall not be reduced whether or not the Employee obtains other
employment. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
payment required to be made under this Agreement but not timely paid at the rate
provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the Employee (i) in
the event of any termination of the Employee's employment by the Company,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by the Employee, whether Good Reason existed, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Employee of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to
the Employee and/or the Employee's family or other beneficiaries, as the
case may be, that the Company would be required to pay or provide pursuant
to Section 5(a) or 5(b) as though such termination were by the Company
without Cause or by the Employee with Good Reason. The Employee hereby
undertakes to repay to the Company all such amounts to which the Employee is
ultimately adjudged by such court not to be entitled.
8. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 8) (a "Payment")
would be subject to the excise tax imposed by Section 4999 (or a successor
provision of like import) of the Code or any interest or penalties are incurred
by the Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by an accounting firm of national reputation selected by the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both
to the Company and the Employee within 15 business days of the receipt of
notice from the Employee that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is
serving (or has served within the three years preceding the Change of Control
Date) as accountant or auditor for the individual, entity or group effecting
the Change of Control, or is unwilling or unable to perform its obligations
pursuant to this Section 8, the Employee shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 8, shall be paid by the Company to the Employee within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written opinion that failure to report the Excise Tax on the
Employee's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of
any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after the Employee is informed in writing of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Employee shall not pay
such claim prior to the expiration of the 30-day period following the date on
which the Employee gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Company, subject to the
provisions of this Section 8(c), shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner. In this connection, the Employee agrees,
subject to the provisions of this Section 8(c), to (i) prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine, (ii) give the Company any information reasonably requested by the
Company relating to such claim, (iii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company, (iv)
cooperate with the Company in good faith in order to effectively contest such
claim and (v) permit the Company to participate in any proceedings relating to
such claim. The foregoing is subject, however, to the following: (A) the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Employee harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed in connection therewith and the payment of costs and expenses in such
connection, (B) if the Company directs the Employee to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Employee, on an interest-free basis, and shall indemnify and hold the Employee
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance, (C) any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which such contested amount is
claimed to be due shall be limited solely to such contested amount and (D) the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant
to Section 8(c), the Employee becomes entitled to receive any refund with
respect to such claim, the Employee shall (subject to the Company's complying
with the requirements of Section 8(c)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Employee of an amount advanced
by the Company pursuant to Section 8(c), a determination is made that the
Employee shall not be entitled to any refund with respect to such claim and the
Company does not notify the Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
9. Confidential Information. The Employee shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Employee during the Employee's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Employee or representatives of the Employee in violation of
this Agreement). After termination of the Employee's employment with the Company
or any of its affiliated companies, the Employee shall not, without the prior
written consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement. Subject to the previous sentence, nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from the Employee.
10. Employee's Obligation to Avoid Conflicts of Interest. (a)
The Employee shall comply with the conflict of interest policy of the Parent as
in effect from time to time.
11. Ownership of Information, Ideas, Concepts, Improvements,
Discoveries and Inventions and all Original Works of Authorship. (a) All
information, ideas, concepts, improvements, discoveries and inventions, whether
patentable or not, which are conceived, made, developed or acquired by Employee
or which are disclosed or made known to Employee, individually or in conjunction
with others, during Employee's employment by the Company or any of its
affiliated companies and which relate to the Company's or any of its affiliated
companies' business, products or services (including all such information
relating to corporate opportunities, research, financial and sales data, pricing
and trading terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key
contacts within the customer's organizations or within the organization of
acquisition prospects, or marketing and merchandising techniques, prospective
names and marks) are and shall be the sole and exclusive property of the
Company. Moreover, all drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, maps and all
other writings or materials of any type embodying any of such information,
ideas, concepts, improvements, discoveries and inventions are and shall be the
sole and exclusive property of the Company.
(b) In particular, Employee hereby specifically
sells, assigns and transfers to the Company all of his worldwide right,
title and interest in and to all such information, ideas, concepts,
improvements, discoveries or inventions, and any United States or foreign
applications for patents, inventor's certificates or other industrial
rights that may be filed thereon, including divisions, continuations,
continuations-in-part, reissues and/or extensions thereof, and applications
for registration of such names and marks. Both during the period of
Employee's employment by the Company or any of its affiliated companies and
thereafter, Employee shall assist the Company and its nominee at all times in
the protection of such information, ideas, concepts, improvements, discoveries
or inventions, both in the United States and all foreign countries, including
but not limited to, the execution of all lawful oaths and all assignment
documents requested by the Company or its nominee in connection with the
preparation, prosecution, issuance or enforcement of any applications for United
States or foreign letters patent, including divisions, continuations,
continuations-in-part, reissues, and/or extensions thereof, and any application
for the registration of such names and marks.
(c) Moreover, if during Employee's employment by the
Company or any of its affiliated companies, Employee creates any original
work of authorship fixed in any tangible medium of expression which is the
subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures or the like) relating to the Company's or any of its
affiliated companies' business, products, or services, whether such work
is created solely by Employee or jointly with others, the Company shall
be deemed the author of such work if the work is prepared by Employee in the
scope of his or her employment; or, if the work is not prepared by Employee
within the scope of his or her employment but is specially ordered by the
Company as a contribution to a collective work, as a part of a motion picture
or other audiovisual work, as a translation, as a supplementary work, as a
compilation or as an instrumental text, then the work shall be considered to be
work made for hire and the Company shall be the author of the work. In the event
such work is neither prepared by the Employee within the scope of his or her
employment or is not a work specially ordered and deemed to be a work made for
hire, then Employee hereby agrees to assign, and by these presents does assign,
to the Company all of Employee's worldwide right, title and interest in and
to such work and all rights of copyright therein. Both during the period
of Employee's employment by the Company or any of its affiliated companies
and thereafter, Employee agrees to assist the Company and its nominee, at any
time, in the protection of the Company's worldwide right, title and interest
in and to the work and all rights of copyright therein, including but not
limited to, the execution of all formal assignment documents requested by the
Company or its nominee and the execution of all lawful oaths and applications
for registration of copyright in the United States and foreign countries.
12. Employee's Post-Employment Non-Competition Obligations. (a)
During the Employment Period and, subject to the conditions of Sections 12(b)
and 12(c), for a period of three (3) year(s) thereafter (the "Non-Competition
Period"), Employee shall not, acting alone or in conjunction with others,
directly or indirectly, in any of the business territories in which the Company
or any of its affiliated companies is presently or at the time of termination of
employment conducting business, engage in any business in competition with the
business conducted by the Company or any of its affiliated companies at the time
of the termination of the employment relationship, whether for his own account
or by soliciting, canvassing or accepting any business or transaction for or
from any other company or business in competition with such business of the
Company or any of its affiliated companies.
(b) If Employee's employment is discontinued:
(i) by Company for Cause pursuant to Section 4(b); or (ii) by Employee
because of any reason other than for Good Reason or other than during the
Window Period pursuant to Section 4(c), Employee shall be bound by the
obligations of Section 12(a) and the Company shall have no obligation to make
the Non-Competition Payments (as defined in Section 12(c) below). However,
if the employment relationship is terminated by any other circumstance or
for any other reason, Employee's post-employment non-competition obligations
required by Section 12(a) shall be subject to the Company's
obligation to make the Non-Competition Payments specified in Section 12(c).
(c) Notwithstanding the provisions of Section 4 of this
Agreement, whenever Employee's employment is terminated due to the expiration
of the Employment Period in accordance with the provisions of Section 1, or
due to Employee's Disability (Section 4(a)), or by the Company without Cause
(Section 4(b)), or by Employee for Good Reason or during the Window Period
pursuant to Section 4(c) unless the Company exercises its option as hereinafter
provided, Employee shall be entitled to continue to receive payments (the
"Non-Competition Payments") equal to his then current Annual Base Salary
(as of the Date of Termination) during the Non-Competition Period. During
the Non-Competition Period, the Employee shall not, however, be deemed to be
an employee of the Company or be entitled to continue to receive any
other employee benefits other than as set forth in Section 5 or Section 8.
Moreover, the Non-Competition Payments shall be reduced to the extent Employee
has already received lump-sum payments in lieu of salary pursuant to Section 5.
The Company shall have the option, exercisable at any time on or within
one (1) month after: (i) the date the Company gives the Employee notice
that the Employment Period will not be extended (or in the case of failure to
notify, on or within one month after the Renewal Deadline), in accordance
with Section 1; or (ii) in the case of termination due to Employee's
disability or by the Company without Cause, the Date of Termination, to cancel
Employee's post-employment non-competition obligations under Section 12(a) and
the Company's corresponding obligation to make the Non-Competition Payments.
Such option shall be exercised by the Company mailing a written notice thereof
to Employee in accordance with Section 16(b); if the Company does not send such
notice within the prescribed one-month period, the Company shall remain
obligated to make the Non-Competition Payments and Employee shall remain
obligated to comply with the provisions of Section 12(a). The amounts to be paid
by the Company are not intended to be liquidated damages or an estimate of the
actual damages that would be sustained by the Company if Employee breaches his
post-employment non-competition obligations. If Employee breaches his
post-employment non-competition obligations, the Company shall be entitled to
cease making the Non-Competition Payments and shall be entitled to all of its
remedies at law or in equity for damages and injunctive relief.
13. Obligations to Refrain From Competing Unfairly. In addition
to the other obligations agreed to by Employee in this Agreement, Employee
agrees that during the Employment Period and for three (3) year(s) following the
Date of Termination, he shall not at any time, directly or indirectly for the
benefit of any other party than the Company or any of its affiliated companies,
(a) induce, entice, or solicit any employee of the Company or any of its
affiliated companies to leave his employment, or (b) contact, communicate or
solicit any customer of the Company or any of its affiliated companies derived
from any customer list, customer lead, mail, printed matter or other information
secured from the Company or any of its affiliated companies or their present or
past employees, or (c) in any other manner use any customer lists or customer
leads, mail, telephone numbers, printed material or material of the Company or
any of its affiliated companies relating thereto.
14. Successors. (a) This Agreement is personal to the Employee
and without the prior written consent of the Company shall not be assignable by
the Employee otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Employee's legal representatives.
(b) This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise. The Parent will require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of the
Parent or the Parent to assume expressly and agree to perform the Parent's
obligations hereunder in the same manner and to the same extent that
the Parent would be required to perform them if no such succession had taken
place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform the Parent's obligations hereunder by operation of
law, or otherwise.
15. Certain Definitions. The following defined terms used in
this Agreement shall have the meanings indicated:
(a) The "Change of Control Date" shall mean the first
date on which a Change of Control
occurs. Anything in this Agreement to the contrary notwithstanding, if a Change
of Control occurs and if the Employee's employment with the Company is
terminated or there is a change in the circumstances of the Employee's
employment which constitutes Good Reason, and if it is reasonably demonstrated
by the Employee that such termination or change in circumstances: (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control; or (ii) otherwise arose in connection with or anticipation of
the Change of Control, then, for all purposes of this Agreement, the "Change of
Control Date" shall mean the date immediately prior to the date of such
termination or cessation.
(b) The "Change of Control Period" shall mean the
period commencing on the Change of
Control Date and ending on the last day of the Employment Period.
(c) "Change of Control" shall mean:
(i) 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 Parent (the
"Outstanding Parent Common Stock") or (B) the combined voting power
of the then outstanding voting secu-rities of the Parent entitled to
vote generally in the election of directors (the "Outstanding Parent
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Parent (excluding an acquisition by virtue
of the exercise of a conversion privilege), (B) any acquisition by the
Parent, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Parent or any corporation
controlled by the Parent or (D) 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 (iii) of this definition of
"Change of Control" are satisfied; or
(ii) Individuals who, as of the effective
date hereof, constitute the Board of Directors of the Parent (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors of the Parent; provided, however,
that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Parent's shareholders,
was approved by (A) a vote of at least a majority of the directors then
constituting the Incumbent Board of the Parent, or (B) a vote of at
least a majority of the directors then comprising the Executive
Committee of the Board of Directors of the Parent at a time when such
committee consisted 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 (ii), 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 of Directors
of the Parent; or
(iii) Approval by the shareholders of the
Parent 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 Parent Common Stock and Outstanding Parent Voting
Securities immediately prior to such organization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Parent Common Stock and Outstanding
Parent Voting Securities, as the case may be, (B) no Person (excluding
the Parent, any employee benefit plan or related trust of the Parent 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 Parent Common Stock or Outstanding Parent
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
(iv) Approval by the shareholders of
the Parent of (A) a complete liquidation or dissolution of the
Parent or (B) the sale or other disposition of all or substantially
all of the assets of the Parent, other than to a corporation, with
respect to which following such sale or other disposition, (A) 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 Parent Common Stock and Outstanding Parent Voting Securities
immediately prior to such sale or other disposition in substantially
the same proportion as their ownership, immediately prior to such sale
or other disposition, of the Outstanding Parent Common Stock and
Outstanding Parent Voting Securities, as the case may be, (B) no
Person (excluding the Parent and any employee benefit plan or
related trust of the Parent 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
Parent Common Stock or Outstanding Parent 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 (C) 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 of Directors of the Parent providing for such sale or other
disposition of assets of the Parent.
(d) The term "affiliated company" shall mean any
company controlled by, controlling or under common control with the Company.
(e) The term "Highest Recent Bonus" shall mean the
highest Annual Bonus (annualized for any fiscal year consisting of less than
twelve full months) paid or payable, including by reason of any deferral,
to the Employee by the Company and its affiliated companies in respect of
the three most recent full fiscal years ending on or prior to, (i) if
prior to a Change of Control, the Date of Termination, or (ii) if after a
Change of Control, the Change of Control Date.
16. Miscellaneous. (a) This Agreement supersedes all previous
agreements and discussions relating to the same or similar subject matters
between Employee and the Company and shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or a duly authorized
committee thereof, shall have authority on behalf of the Company or the Parent
to agree to amend, modify, repeal, waive, extend or discharge any provision of
this Agreement or anything in reference thereto.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
W. Blair Waltrip
1929 Allen Parkway
Houston, TX 77019
If to the Company:
SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to the Parent:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Employee or the
Company may have hereunder, including, without limitation, the right of the
Employee to terminate employment for Good Reason pursuant to Section 4(c) of
this Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) No breach, whether actual or alleged, of this
Agreement by the Employee shall constitute grounds for the Company to withhold
or offset any payment or benefit due to the Employee under any other agreement,
contract, plan, program, policy or practice of the Company.
IN WITNESS WHEREOF, the Employee and, pursuant to due
authorization from the Board, the Company have caused this Agreement to be
executed this 1st day of January, 1999.
W. BLAIR WALTRIP
/s/ W. Blair Waltrip
"EMPLOYEE"
SCI EXECUTIVE SERVICES, INC.
By: /s/ Curtis G. Briggs
Name: Curtis G. Briggs
Title: Vice President
"COMPANY"
<PAGE>
Pursuant to due authorization from its Board of Directors, the Parent,
by its execution hereof, absolutely and unconditionally guarantees to Employee
the full and timely payment and performance of each obligation of the Company to
Employee under this Agreement, waives any and all rights that it may otherwise
have to require Employee to proceed against the Company for nonpayment or
nonperformance, waives any and all defenses that would otherwise be a defense to
this guarantee, and agrees to remain liable to Employee for all payment and
performance obligations of the Company under this Agreement, whether arising
before, on or after the date of this Agreement, until this Agreement shall
terminate pursuant to its terms.
SERVICE CORPORATION INTERNATIONAL
By: /s/ James M. Shelger
Name: James M. Shelger
Title: Senior Vice President
General Counsel
and Secretary
"PARENT"
SERVICE CORPORATION INTERNATIONAL Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
(Thousands, except ratio amounts)
- --------------------------------------------------------------------------------
<S> <C> <C>
Pretax income from continuing operations... $ 66,417 $ 168,061
Undistributed income of less than
50% owned equity investees................ (2,389) (1,507)
Minority interest in income of majority
owned subsidiaries with fixed charges..... 205 76
Add fixed charges as adjusted (from below). 66,844 44,229
---------- ----------
$ 131,077 $ 210,859
---------- ----------
Fixed charges:
Interest expense:
Corporate............................... $ 57,626 $ 37,533
Financial services...................... 2,968 2,294
Capitalized ........................... 495 689
Amortization of debt costs................ (177) 177
1/3 of rental expense..................... 6,427 4,225
--------- ----------
fixed charges ............................. 67,339 44,918
Less: Capitalized interest.............. (495) (689)
--------- ----------
Fixed charges as adjusted.................. $ 66,844 $ 44,229
========= ==========
Ratio (earnings divided by fixed charges).. 1.95 4.69
========= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF MARCH
31, 1999 AND THE RELATED STATEMENT OF INCOME FOR THE THREE MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 181,684
<SECURITIES> 1,242,139
<RECEIVABLES> 2,260,346
<ALLOWANCES> 111,592
<INVENTORY> 207,242
<CURRENT-ASSETS> 1,083,698
<PP&E> 2,491,750
<DEPRECIATION> 527,135
<TOTAL-ASSETS> 14,736,517
<CURRENT-LIABILITIES> 793,909
<BONDS> 4,049,215
0
0
<COMMON> 271,969
<OTHER-SE> 3,412,003
<TOTAL-LIABILITY-AND-EQUITY> 14,736,517
<SALES> 845,533
<TOTAL-REVENUES> 904,056
<CGS> 646,390
<TOTAL-COSTS> 685,185
<OTHER-EXPENSES> 144,088
<LOSS-PROVISION> 6,793
<INTEREST-EXPENSE> 61,749
<INCOME-PRETAX> 66,417
<INCOME-TAX> 24,534
<INCOME-CONTINUING> 41,883
<DISCONTINUED> 0
<EXTRAORDINARY> 1,885
<CHANGES> 0
<NET-INCOME> 43,768
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
